Danaher Corporation (NYSE:DHR)
December 12, 2012 2:00 pm ET
Matt R. McGrew - Vice President of Investor Relations
H. Lawrence Culp - Chief Executive Officer, President, Director, Member of Finance Committee and Member of Executive Committee
James A. Lico - Executive Vice President
Thomas P. Joyce - Executive Vice President
William K. Daniel - Executive Vice President
Jeffrey T. Sprague - Vertical Research Partners, LLC
John G. Inch - Deutsche Bank AG, Research Division
Deane M. Dray - Citigroup Inc, Research Division
Steven E. Winoker - Sanford C. Bernstein & Co., LLC., Research Division
Nigel Coe - Morgan Stanley, Research Division
Shannon O'Callaghan - Nomura Securities Co. Ltd., Research Division
Matt R. McGrew
If everybody could kind of work their way towards a seat so we can get started here, that would be helpful. Okay. Well, welcome, everybody here in New York, also to the folks on the webcast, welcome. So let me get through some quick stuff. Forward-looking statements, not going to read it all, but I do need to read a piece here.
I'd like to note that we're going to be making some statements during the day that are forward-looking statements within the meaning of the federal securities laws, including statements regarding events or developments that we believe or anticipate will or may occur in the future. These forward-looking statements are subject to a number of risks and uncertainties, including those set forth in our SEC filings. It's possible that actual results might differ materially from any forward-looking statements that we make today. These forward-looking statements speak only as of the date that they are made. We do not assume any obligation to update any of the statements whether as a result of new information, future events or developments or otherwise.
So here's the agenda for today. We're going to have Larry come up after I get down here and provide some opening remarks. And then as you can see, we've got about a half hour slotted for each of our EVPs, Executive Vice Presidents, to talk about one of their businesses in a little bit more depth, and you can see which ones we're going to talk to here today. There'll be a brief Q&A with each of them afterwards, probably just a couple of questions. We gave them a little bit more time to go a little bit deeper here on the content, so will be a brief Q&A after each of those, and then we'll bring Larry back up. We'll go through the kind of the traditional closing that we normally go through walking through the waterfall of the EPS and the guidance, and Larry will stay up here after that for kind of his Q&A.
So with that, I will turn it over to Larry.
H. Lawrence Culp
Yes, all right. Good afternoon, and welcome to The Plaza. Thanks everybody for coming in this afternoon and particularly for those listening in on the webcast. I think what we'll try to do this afternoon, as you saw in Matt's overview, is give you a deep dive into 3 different areas of the business rather than cover the entire waterfront. I think we've gotten to the point where we're probably too big and too broad for that to be an effective use of an afternoon. But I'm hopeful, during the course of the day, we'll give you a better insight as to how the Danaher business system is driving the top and bottom lines, let alone the strong cash flow performance you've become accustomed to across the Danaher portfolio.
I thought I would start, before I provide a little bit of a strategic overview, by giving you a little bit more color relative to what we're seeing in current trading, as well as a little bit of an outline relative to the 2013 guidance we've put out in the press release this morning. Later on, during the close, I'll get into the '13 guidance in a bit more detail.
I think what we've seen in the quarter thus far is very much in line with what we anticipated back from the third quarter earnings call. If you look at the 2 months to date, very much in line, the U.S. and China, very much as we had anticipated. Steady is probably the best word to describe it. Europe sequentially has gotten weaker, but that really has not been a surprise to us. December, obviously, a critical month for us in that regard as we end both the quarter and the year.
One of the big efforts underway right now was our fourth quarter restructuring. We've flagged that a couple of times to you. $120 million of restructuring spend, well distributed across the portfolio. Those projects are well underway. We had an update just a week ago. I feel very confident that we'll spend that money and that those projects will be in place to generate the savings we anticipate from them early next year.
I think that said, all in, we're holding to the guidance here for the fourth quarter, $0.80 to $0.85 per share, no surprise there. Pleased that positions us even with the second-half slowdown for 2012 of a year where we've delivered double-digit EPS and pretax growth.
Looking at 2013, the macro environment that we see right now was when we anticipate wrestling with -- through at least the first half of next year, certainly a slow but steady macro environment. It is what it is. We can't control that. So we're focused on those things that we can control. The guidance that we put out here this morning for the full year is a $3.40 to $3.55 range, again, inclusive of the Apex earnings. Apex, we still anticipated the close sometime in the first half of next year.
Our core revenue assumption on a Danaher-wide basis is 1% to 4%. We'll break that down by segment a little later on in the presentation. And with that sort of top line, we're anticipating about 75 basis points of operating margin expansion on a full year basis. And again, we'll break down where that comes from. But by and large, you can assume a midpoint of that core growth range, call it 2.5% falling through at about 35%, all in, giving us again the $3.40 to $3.55 range.
I think as we get ready for 2013, we feel very good about the work that's been done here in '12. Certainly, from a DBS perspective, you've seen the very strong margin expansion, nearly 90 basis points year-to-date, and the exceptional free cash flow performance that we've seen, $3 billion, in fact over the last four quarters. We attribute a lot of that, particularly in an environment like this, to the Danaher business system.
In the next couple of slides, I'll talk about how things have gone in the first full year at Beckman Coulter, but we couldn't be happier with the performance that Tom Joyce and his team have put forward at Beckman. A lot of change, a lot of work still to do, but we're exactly where we would hope to have been at this point in time. Despite the top line environment being tough, certainly, we've protected and expanded our growth investments. I think you see that in a whole host of areas. We won't have a chance to take you through every one of those examples here today, but whether it be the Feet on the Street investments in places like China particularly and some of our underpenetrated businesses like Dental and our new product innovations that have been launched really across the portfolio.
You can see on the slide a number of product names, some of which are coded, we apologize for that. But it's been a very strong new product introduction year across the portfolio in that regard. And you've also seen us expand our marketing spend within the digital realm. And on an overall basis, that transition continues to quicken. About 25% of our spend currently is in the -- is web-based. We're seeing very strong returns on the back of those investments.
M&A. It meant [ph] what I think some people would consider to be a slow year. You've seen us deploy $1.5 billion of capital. And I think you'll see a lot of the types of investments we've made and the returns we anticipate, particularly in Dan Daniel's presentation during the -- during his slot.
And then finally, a year ago, you will recall, we talked about our high growth market and Western European exposures intersecting at this point in time. We're well past that intersection, with our high growth market exposure now up to 25% of sales in excess of our Western European footprint, and clearly, the set of geographies that will be growing most rapidly not only in the next 12 months but probably over the next 10 years.
I mentioned Beckman Coulter. I think from a financial perspective, again, we're right where we would have hoped to be at this point. Certainly, very pleased with the outperformance we've seen with respect to our own expectations. On the top line, we've got 4 quarters now of low single-digit core growth compared to, I think, a flat outlook that we had at the outset of the acquisition. Certainly, high-growth markets, particularly China, have really led the way there in addition to strong menu expansion. And I think the way our automation capabilities really resonate within the laboratory.
Looking forward, we would continue to anticipate that ramp, albeit at a low single-digit rate, in 2013, with us being, I think, on track to be in the mid single digit range in 2014. From an operating margin perspective, a lot of cost has come out, a lot of discipline has been put it in. As you'll recall, we've had over 1,000 associates leave as part of that fine tuning, in that restructuring, in turn, helping us drive over 400 basis points of operating margin expansion.
From a working capital perspective, again, I think, an area where DBS has been fully deployed, you can see on the chart here, we're very pleased from a working capital perspective. The Daily Management rigor that we've put in place has yielded nearly a full turn improvement in working capital up to 4.3 turns right now. And similarly, from a CapEx perspective, we've reduced our CapEx spend on an average basis to the tune of about 40% without, in any way, sacrificing quality, capacity or innovation investments. So very much, from a financial perspective, we're right where we thought we would be.
I think the real challenges though, certainly, we're on the operating front, particularly with respect to quality and the regulatory issues that really led in part to the opportunity for us at Beckman. As you can see here, a number of key statistics with respect to how DBS has impacted product quality, on-time delivery up now in excess of 90%. We've seen a 25% reduction in the unscheduled warranty service calls, basically the quality that the customers perceive. I think most impressively, having been through this just this last week with the team, to see that last bullet point, with the past due or the late maintenance calls down from over 2,000, imagine a backlog of 2,000 calls, now down to 200. Not happy about those 200 folks that we're currently not serving well, but I think you understand the trend there and we're doing that in a sustainable way.
On the regulatory front, 3 of the 4 sites here in the U.S. have been reinspected by the FDA. No 483 observations were issued, very much a sign, I think, that we're doing the right things in terms of putting in place the day-to-day operating discipline to make sure that we're fulfilling those obligations that we have. The Brea warning letter in turn was lifted, another sign that we're making progress and the like in the eyes of our regulator. And if you look at some of the other products that have been either cleared at the FDA or where we have resubmitted our filings, particularly around component, lots of progress. Again, lots of work to do, but I think we like where we are.
And then finally, from an innovation perspective, that progress is building us well. But with launch of a number of key products, both from a hardware perspective like the AU 5800, our high-end chemistry analyzer, all the way through a number of the menu additions that you see listed on the slide, we think we're turning that part of the business around as well. And as we look into the pipeline, we anticipate '13 and '14 to be good years for us in terms of driving new innovation, driving vitality and ultimately, growth at Beckman Coulter.
So that gives you hopefully a quick snapshot as to where we are today, a year marked by a tough macro environment. But it is what it is, so we're -- we've taken that on as it came to us and really, I think, pleased with where Danaher is going into 2013. Strategically, what we shared with our board a week ago was basically that as we look into '13, we're going to continue to wrestle with this environment. But with our portfolio, we think we're well positioned to outperform. Clearly, from a free cash perspective, we have lots of opportunities there as well. And with DBS giving us the wherewithal to drive margins and to drive share and that sort of operating, sort of challenging environment, we like where we are.
Just a quick overview on the portfolio. You've seen this slide before. We really like the breadth and the depth of the portfolio today, particularly with the power brands that you see represented here. I think what's important to note is that as you go through Dan's presentation and he talks about Esko and he talks about X-Rite, take note that we've increased the size of our Product Identification business by 50%. That's now a $1.5 billion business for us. And we sit there in a market that's now 60% larger than it was previously, up to $8 billion globally, so lots of running room there in Product Identification, both organically and inorganically.
We also like the balance of this portfolio. You can see the size of the 5 segments now, businesses that are strong in their own right and as Danaher, even stronger. Excellent gross margins, I think, suggested as we grow this businesses, as we have strong earnings and cash potential, particularly in Life Sciences and in Dental, where you can see operating margins in the mid-teens. There is no good reason why these businesses shouldn't be right in line with their segment brethren. And as we go through the course of the afternoon, you can see how we're making progress to move them in that direction.
One of the key elements for us is we have evolved the portfolio and certainly been recurring revenue aftermarket business. Today, over 40% of that Danaher revenue base is made up with those types of businesses. It's been a focal point for us because we think in tough times like these, it gives us good balance and certainly represents a strong growth lever as well.
As you can see, 4 of the 5 segments have increased their percentage of sales in the aftermarket since 2007, very proud of that. A number of ways in which that's happened, both organically and inorganically. Organically, probably the most important lever we pull here is driving innovation in our, if you will, our boxes or our razors. In order to increase the size of our installed base, it drives the consumption of the various chemistries, consumables and services. And whether it be the Bond III at Leica Biosystems, which Tom will speak to; AQT, our cardiac system at Radiometer; and some of the new Videojet products, we've been able to drive those installed bases in order to drive the strength of that consumable stream.
In addition to that, what we've done inorganically is being geared as well toward increasing the recurring revenue base, whether it be the acquisition of a business like Chemtreat, which is virtually all aftermarket when you think about it; Beckman Coulter, predominately an aftermarket business at nearly 75% of sales; and even in some of the businesses that have less of that type of exposure, strengthening their service component, like what we've done at T&M with a number of acquisitions, all has really fit into the mix and moving the quality of the portfolio up and weighting us more heavily toward these types of recurring revenues.
High-growth markets has also been a focal point for us. It wasn't that long ago that high-growth markets were less than 20% of our overall sales. Today, 25%, as I indicated earlier. It really has -- have been responsible for the bulk of the growth that we've seen the last several years.
Our strategy here differs business by business, but the common themes are certainly focused on aggressive expansion of our presence on the Street, sales and service people, making sure that we're in the market actively selling what we can and then adding to those baskets with aggressive localized products, products geared toward local need, local regulations and sometimes frankly, just a local cost structure to make sure we're more competitive on the ground than we might have -- we were simply shipping in product from Europe or the United States.
Acquisitions have been also an important part of our high growth market strategy as we've strengthened our operating footprint, particularly in terms of sales and service in a number of these areas. In fact, the Argentina acquisition for Videojet is another good move for them as they've really led the way for us in terms of their high-growth market footprint.
We've been strengthening the regional leadership at the Danaher level in places like China, the Middle East and in Latin America. We want to avoid having a big regional bureaucracy. We think that gets in the way and we've seen that in some other businesses. But if we can do it in a Danaher way, it will be additive to the equation and helpful to the businesses, just as we've been able to lever a fair bit of our Danaher infrastructure, whether it be the Danaher Development Center in China where we come together under one roof to provide R&D capabilities for a number of the different businesses as well as some of the sales and service overhead, so we don't have redundant cost that doesn't add value to customers, so that those monies can be moved to sales and service and other functions that do create value, not only for customers, but for shareholders.
I want to talk about free cash flow for a moment. I think we recognize that as we build the business, our strong free cash generation gives us strategic degrees of freedom that other companies don't, to build, to grow, to create value for shareholders. Before we talk about that, I thought it would be helpful to talk about the sources of that free cash flow. We often talk about DBS. But to try to make that more granular, what you see on this slide is what we reported on the third quarter call. 140% free cash flow conversion, an unusually strong number, a number we're proud of.
But if look back and pull out the 5 largest acquisitions over the last 3 years and basically erase the free cash flow benefit or contribution those businesses have made, you would still have, we think, a quite strong 128% free cash flow conversion. So in essence, what we did here is we take the free cash flow benefit, particularly with respect to working capital and CapEx, out of the overall numbers for those acquisitions, Beckman and 4 others, to get to the adjusted number, if you will. And I think what you see is, again, DBS helping us drive, not only working capital, but CapEx efficiency.
The chart on the right side of the slide gives you a little bit of color here as to how that happens business by business. So these are the businesses that by and large now are long-standing businesses, are strong performers. And from a working capital perspective, you can see the contribution or really the reduction in working capital as a percent of sales that we've been able to drive using DBS. And at the top there, T&M, the business that Jim Lico looks after, has gone from 16.5% to 15.6% over that 2-year timeframe using DBS to drive greater working capital efficiency. So we certainly get a bump from new acquisitions as we bring them into the fold. But the spirit of Kaizen, it's a constant journey and always one with opportunity in front of it.
But clearly, putting that cash flow to work by way of acquisitions, to build and to grow has been and continues to be our #1 priority. And what you see here really is the bodywork, 29 transactions since Beckman. And I think, again, what we're particularly proud of is the fact that we've been able to bolt on across the portfolio smart businesses that bring innovation, that bring distribution, high-growth market presence to accelerate our organic strategy. And in the wake of Beckman, we would talk about how we want to continue to perpetuate our balance. You can see there at the bottom, $1.6 billion of capital over the last 18 months has been deployed outside of Life Sciences & Diagnostics to provide us that balance. And again, I think Dan Daniel will probably highlight the best example of what we've been doing strategically as he walks you through Esko and X-Rite.
But that said, it's not always buy, buy, buy, right? At Danaher, we're always evaluating the state of the portfolio, and what you see on this slide is 3 transactions, with one pending Apex that have been part of our divestiture program. Management with the board, frequently evaluating every Danaher business and its position in the portfolio. If you total up the numbers, it's interesting. Post-Apex, we will end up divesting 10% of our 2010 revenue. So I know other companies are going through more dramatic change, but this is a change that we've really driven ourselves, change which we think is very much in concert with the way we think about capital allocation.
And just one final point on capital allocation. You also know, as we highlighted on the third quarter call, from time to time, we're opportunistically in the market buying back stock, and you can see that history over the last decade plus in that regard. We talked about on the third quarter call that in light of our free cash metrics, certainly, in light of the shares that we issued at Beckman and in anticipation of the Apex proceeds, we have been in the market and bought about 5 million shares during the course of the third quarter at about $52.
As you can see in the table here, our year-to-date buyback numbers are now 12.5 million shares. So in essence, we were in the market here during the quarter, acquiring $7.5 million shares, again, in that $52 range. It gives us, I think, a good use of the pending proceeds at Apex, doesn't starve us of any of the acquisition firepower that we think we have from our traditional sources of free cash flow. And in turn, whether it be the Apex dilution or some of the pressure that we'll see in light of the Affordable Care Act and the medical device excise tax, a little bit of an offset there. So again, you can see a preponderance as we've always had toward capital appreciation, but also looking at divestitures and buybacks as appropriate.
And then finally, I just want to reiterate how important DBS has been for us to drive margins, drive cash and certainly drive share while making sure we're expanding our longer-term investments, even though they're not going to help us in the short term despite the macro pressures out there. This DBS image is one that many of you have seen over time. It's static in that respect and it hasn't changed. But DBS itself is a far cry from being static. I think if you look at the transitions that portfolio has made and DBS has made over the last decade plus, much has changed, still rooted in those core Toyota values.
But today, we don't win driving labor productivity in single size. It's largely a material base supply chain management challenge on a global basis. Our lean skills are certainly important to us even today as much as they were back in late '80s. But that said, what we do from an organic growth perspective, probably more important in that regard, all the more given the complex product changes that we now see, particularly given the weight of software in many of our businesses.And from a footprint, there once was a time when we thought our international efforts were aggressive and we were talking about Germany and France. Now we're talking about a global footprint like most companies but one that has had DBS tested and challenged. The test, I think, we've passed. So we won't dwell on this but I think the DBS, as you know, if you follow the story for a while, is different than DBS today. Built on that common foundation. As we go through the presentations, I think, you'll see a lot of examples as to how that's played out. We won't spend a lot of time on the Dental business today and I thought we'd give you a quick update here because this is really another wonderful example of how DBS comes together to drive performance virtually at every level of the business. We see a steady growth at Dental the last 3 years really on the back of innovation and go-to-market investments, whether it be new products particularly in our imaging suite. We talked about China earlier, a 35% year-to-date, a core growth gain there and all the while seeing good operating margin expansion while we've taken up the R&D spend. So we'll trigger here, on the equipment side of the business, a double-digit OP number, again, far short of expectations. But the progress here the last couple of years, I think, gives us hope and confidence that we're on the right track at Dental with DBS.We talk about share gains a lot. These 5 businesses that cut across the entire portfolio give you, I think, a good sense of how we're doing that business by business by business. And whether it's our sales force initiative tools that help us be the employer of choice at ChemTreat to drive market share there, our software quality and software development tools that help Tektronix keep pace with the challenges that mobile carriers around the world face with the expansion of mobile networks, whether it be some of our rapid new product development tools at Kerr that allow Kerr, in concert with KaVo, to drive new product innovations in the Dental trade and right on down the line, wonderful examples of how in a tough environment we can control our destiny. So we don't have to worry too much about the macro forecast and the headlines out there. Really just focus on those things that we can control to propel the business forward. This is a slide, at first, I'm sure, looks a bit busy. I won't take you through all these examples. But this is the way we think about growth across the business. Not a lot of rocket science here, a lot of core execution, whether we're talking about high-growth markets and what we do segment by segment, new products and innovation in a similar vein. Certainly, go-to-market efforts have -- get -- receive equal attention. As I mentioned earlier, the Web particularly so, not only in terms of how that's transforming the way we market in terms of lead generation and the like, but increasingly of how we think about product architectures, as well as business models. And then finally, clearly, thoughtful entry into adjacencies, both organically and inorganically, another key growth lever for us. And I think as those adjacencies, which will really be the jumping off point for us today, because as you will see in each of the 3 stories, we really use M&A to establish a foothold in some of our best growth opportunities across Danaher. Again, you'll see 3 of those today, how we've used DBS, the old tools and the new tools to improve our customers' workflows in these environments often with software and related support to help them capture that value and for us to get paid along the way using those DBS tools in a very detailed, very hands-on disciplined way day in, day out. So hopefully by the time we wrap up this afternoon, you'll have a fresh sense of the portfolio, why we're confident that the portfolio positions us well for 2013. Certainly from a free cash perspective, you understand the capacity that we've had. We've never gone into a year in the way we will 2013 with such strength and depth of capacity. I think you'll see how we like to put that capital to work with these stories. And again, lots of examples during the course of the day to freshen up your view, hopefully, what DBS is today. We're using DBS to build a global science and technology company particularly so at comms like Abayo and X-Rite and Esko. We'll get on it. So thank you again for coming in this afternoon. Jim Lico, our EVP with responsibility for T&M, our whole host of other things, is going to take you through the comms update.
James A. Lico
Good afternoon. It's good to see everybody. Some familiar faces. I think it's exciting to talk about our communications group. We talk -- obviously, have an opportunity to talk about Test & Measurement a lot, and in some respects, the way we talk about communications, our set of businesses here in our portfolio might seem more like a new acquisition. But we've been in this business for a while. But I think what we've seen over the last 3 or 4 years has really been transformational for us and we're very excited to talk to you today a little bit about it.
Before we do that, let me set the stage a little bit and give you a little bit of an update on where we're at with T&M. I think most of you know the strength here in our brands and the brand positions that we have has been a unique differentiator for us over the years. Roughly an $18 billion market. That will be a new number for you if you've seen this slide in years past, we've really expanded our served market here in the last few years and in particular, in the communications group, and I'll talk about that in a minute. 5% to 7% growth through the long -- over the long term. Obviously, some macro situations hitting some of the businesses today. But we still believe in good growth going forward. About $3.5 billion and about 30% of those sales today in software and services. What's interesting about that, though, is that if you really look at instruments that really have software and have software opportunities afterwards, the number might even be -- is really better than 50%. So we continue to see opportunities to expand the business and the platforms as customers and technologies change. Margins, still pretty good. The global footprint hasn't changed much here. So still good global footprint. We're clearly, I think, today have about almost well over 3/4 of $1 billion on what we would call high-growth markets today. So a very good number there, I think, gives a platform where we're well-positioned. Some of those, particularly China, have been a little bit of headwinds in 2012. But we're very well-positioned there -- here going forward. Customers here really on the Fluke and Tek side, Fluke and the international maintenance segment, Tektronix instruments mostly focused on R&D and electrical engineers and then we'll talk about the customers really to the comps group here in a minute. So here's really what we would call the Communications group. Four distinct companies, 4 distinct brands that we go to market with, with great market positions. Here, you can see an expanded serve market about $6 billion good growth dynamics, almost $1 billion in revenue today with good margins. A little bit more of a North American footprint here. What's unique about that is really that we do have some great opportunities in high-growth markets. You'll see throughout the presentation today some great additional positions in those markets. But still a lot of money spent here in North America as well. So we continue to take advantage of those and have good market positions. The customers here really will -- are unique but also have similar -- sometimes have similar challenges, maybe just in a different technology domain but private network owners, network engineers, the CIO data centers are a big customer of ours. Data comm installers is where we started. People laying fiber and cable was really the first part where FNET's Fluke network started years ago. Service providers are a big part of our business today. And then, obviously, as cloud -- as the cloud becomes more part of the enterprise, Web hosting and cloud hosting companies become part of our customer base as well and a new and high growth segment for us. The market drivers here for the business are good. They're very strong. And you can see here both unique drivers for the businesses, as well as drivers that cut across all the businesses. I won't cover all of these. We've talked a little bit about this over these but probably a couple of unique places where it's pretty interesting. One, the obvious video voice data explosion. Obviously, all of you have mobile devices. You're probably using them more often than you did a few years ago. You're probably using them for new applications. Even if you have one, you may have read in the Journal today some data around the usage of smartphones today is still only about 40% penetrated in the first half of the year. So still a lot of growth even in developed markets for smartphones. And obviously, when people go from a traditional mobile phone or mobile device to a smartphone, they're going to use that for different ways. So all of our businesses across the segments take advantage of the bandwidth explosion that's going on both on the service provider markets, but also in the enterprises as well. That also drives things like Bring Your Own Device and as you have 3 or 4 maybe mobile devices you want to be able to work on maybe your network at work, as well as your home network. That causes a lot of challenges for your network organizations when you're on-premise and obviously those create unique situations, both from a security perspective, as well as a bandwidth issue for us take advantage of and I'll talk a little bit more about that. The second one is really, as you probably are well aware, IT organizations around the world are continuing to look for productivity and to look for cost reduction and probably the#1 thing that will drive that over the next few years is virtualizing the network and moving much of your software to cloud services and things like that, Software as a Service. Those types of trends really are great, great opportunities for us and quite frankly, are still fairly nation [ph] as far as the drivers. So very good drivers. And of course, security, you'll hear a lot today. We'll play in security in a variety of different ways, network security. And you'll hear that in a variety of slides today and where we're positioned. But obviously, network security and network attacks are on the rise and those -- unfortunately, they're on the rise. But we are positioned to take advantage of those opportunities to help customers solve those challenges going forward.
The data is pretty straightforward here in terms of everything going on. When you think about mobile devices today, by the end of the year, almost everyone in the world will have a device. That seems like a lot, 6 billion, it's a big number to all of us. But the reality is that, that will probably grow by 40% over the next 3 or 4 years. And the advent of also machine-to-machine connections using the Internet will grow and expand to billions of mobile device connections over the next 5 to 10 years, a tremendous growth driver for us going forward. There's disruptive competitors, free services that are offered that cause more bandwidth. You can think about Skype at 145 million users a month. That being free accelerates adoption, but obviously, all those users are using the network, and that provides all kinds of challenges for the network owners as well. You got data services that are growing at 18 X the size of where they'll be over the next few years, tremendous expansion. So those new services require service assurance. They require network monitoring, challenges and things like that. And that's another big driver as well. And obviously, as I mentioned, cloud-based services are expected to grow. Over half the CIOs that are surveyed would suggest to you that cloud-based services are their #1 priority for driving productivity and efficiency in the IT network. Obviously, a big driver for us as things go forward. I'll try to give you a picture of why that will be in a minute. So mobility and data services are a big driver and our sort of position in network optimization helps us not only help them get more out of their networks, but also helps them in many cases because we are a data source. As you think about monetizing that data from a consumer perspective, a lot of times now we've gone from working with the data center operators in the organization to the marketing organization and some of the carriers because they want to use that data in ways to monetize and know more about their customers. And so our customer experience management solutions have been very helpful to many of the carriers of doing that and that market is just developing.
So let me give you a framework here of how you can sort of picture our business and where they sort of sit relative to the network. You obviously know the folks in the bottom here, the network infrastructure players, companies like Cisco and Juniper and Alcatel-Lucent. Those are familiar names that you think about when you think of networking both on the enterprise and on the carrier side. And obviously, those are companies in that space. Traditionally, you'd think about us at the top serving customers with applications that they would use to solve problems, principally in performance monitoring, service assurance and security monitoring. With VSS, and I'll talk about VSS, the most recent acquisition that we've done in the company, what we've been really able to do now is to actually get in between those. And so the advantages that we've traditionally had with all those business, and we'll talk a bit why that is, are obviously good for us. But as networks get faster, being able to do things in line was important to many of our companies, and VSS gives us the opportunity to be able to take advantage of the higher speeds and feeds that exist in that layer. And the way to think about what VSS does is if you think about all that network traffic going on, they're really deciding which traffic goes where and to which tools and to which things that will be used in looking at data on the network. So think of it almost as a flowmeter that's going to push certain kinds of data to certain places. Sometimes, to our equipment or our gear that will troubleshoot and diagnose certain things or do security services, and in many cases, it'll be the other tool providers or whatever that are doing other things in the network. So we take advantage of the drivers that exist in the network within our market but also outside of our market with VSS. Larry talked about the portfolio shifts that we've done in the business. And I think it's important to understand what we try to do within the comms group to position ourselves for better market growth. When we've -- Fluke networks have been a part of T&M for quite a while and we've talked a lot about FNET. When we bought Tektronix, we obviously, got an instruments business and a communications business. At that time, that business was roughly split between what is now our network monitoring business and the network diagnostics business, which served the labs of the network equipment manufacturers, people like Lucent and Ericsson. We saw that businesses not as well-positioned and really not as much growth going forward. So what we really did at tech comms when we bought the companies was to really position ourselves to seeing all those trends and drivers that I talked about in the previous slide. We really see tech comm is able to take advantage of that. We really repositioned tech comms to really be focused on going after that growth opportunity. And we had advantage of really DBS and some other things within the restructuring of the business to be able to take advantage and really move that portfolio towards higher growth.
The second thing we did in the business is that we really recognize that data security was going to be a big deal and that would be a big opportunity for us and we really needed to make sure that we took advantage of that. And principally, at the start, that's been principally through M&A. We'll talk about our networks in a minute. We also made an acquisition, AirMagnet, which put us into Wi-Fi security. We'll talk about VSS in a minute as well. So what we really also did is on the one hand, we were positioning within the portfolio. And on the other hand, we are adding to the portfolio in terms of security, network security to make sure we were positioned into some of the bigger -- higher growth trends going forward. So here's really maybe how to think about the group. Without one brand, it's hard to talk about it. You see at the top, sometimes we simplify the customer base into enterprise networks and service provider networks. But as you can see, it's a little bit more complex than that, thinking about governments, thinking about, in some cases, network equipment manufacturers who might manage a network for a carrier. It's not unusual in places like, say, India. And also, cloud servers -- cloud hosting organizations as well. So a set of customers that we're selling against, principally today, direct through these businesses. When you think about the 4 businesses, Tektronix, really a largest part of the portfolio, roughly $400 million is really trying to get to the wireless carrier and doing services assurance, monitoring in that network. And they really win by giving complete end-to-end visibility to that network. Fluke networks, part of the portfolio for a long time, good business, really a tools business focused in the enterprise network, $300 million. And really wins through vitality and their knowledge of the network. They're really constantly coming up new ones as the network changes and morphs into different challenges. Our network team is really first and foremost in the industry of thinking about tools that can solve those problems. Arbor, newest to the -- is really focus on what the call beat-offs. So if you think about distributed denial of service tax. Those are large bandwidth of attacks at a particular company. The financial institutions in the United States have been targeted for those attacks this year. You see -- you probably heard about many of those and generally, it's Arbor that's in the forefront of protecting the networks against those problems. It's really around not only threat detection, so you ought to think about Arbor as not only detecting that threat but also mitigating it. And then finally, VSS, and I'll a little bit more about VSS. But that's really back to that flowmeter of packet broker. They're really looking at the data, taking each packet and separating out and giving -- and handing that off to the various parts of the organization that needs to deal with those specific pieces of data. If you think about our advantage at tech comm, specifically, the way I think about this is this framework: You have customers at the top. Those are all of us in the room, we got a mobile device. On your right is really all the technologies. We talk a lot about LTE or fourth generation networks, but the reality is that all of those networks are still mixed. There's 2.5 G, there's 3G. There's a variety of technologies in those. On the left are all the applications you use whether it will be e-mail or YouTube or whatever. You've got lots of conversational videos as an example. FaceTime, if you have an iPhone. And those are what's going on. And then on the bottom, you've got all the -- you've got really the network, the end-to-end network. Everything from the device, through the edge of the network, to the data center, to where that application might sit. And the challenge to the operator is to really understand where's the problem. If you see the little intersections here, it's really trying to figure out is that your son's -- if your son's cellphone or daughter's cellphone doesn't work and is that their YouTube video that's driving massive bandwidth expansion at a particular cell site. And they can really troubleshoot down to that level of issue. They can also broadly look at is at a particular application, is that an issue? So we really give a very unique position in the network because of the current status of the network where we're at and the legacy of strength and share gains that we've had. Larry talked about the share gains that we've had, really position us in the top carriers around the world to really give unique visibility and unique opportunities to grow that visibility over time as well. So it's not just a onetime shot where we go in and help them. It's really an ongoing relationship where we continue to build, not only as they build their network out, but also as they become more challenged, we build new and unique applications. So as you think about things like small cells, some of the carriers today are talking about particularly in dense urban environments like here in New York where you may lose your cell phone coverage for period of time, looking to do Wi-Fi offloading to be able to help you with that coverage in a particular area. Carriers will look to expand their network in those ways and we're uniquely positioned to expand on those growth opportunities as well. That's led to good strong financial performance. You can see here tech comm's financial performance has been very good over the last few years. And it's been -- it's not only been a good growth and driver story, it's been a very good DBS story. Larry mentioned a little bit about that. But as you think about DBS and the traditional thoughts of DBS, not really appropriate for a software and service business, but very appropriate for a business that needs to leverage R&D, get more out of R&D. You can imagine that these are large scale deployments at customers with a long-term customer relationships, so doing that effectively and efficiently, not only drives profitability but gives us a unique advantage in the market and we've really been able to do that over the last few years with DBS. I mentioned VSS and this packet brokering business. This is -- we bought VSS here in the second quarter, and VSS has been a great part of the business thus far. We're very excited to have that business. It's roughly a 1/4 of $1 billion market. It's growing very fast at about 25%. And you really think about it as both a service provider and an enterprise business. So it's got 2 plays in both of those market segments. And it plays along network performance and security. So as we talk about our -- where we're at in a lot of our business and performance monitoring, VSS would give -- it potentially gives us data. It's another data feed. So it plays in those marketplaces. So like in the bottom right, you can see where there's enterprise security challenges, they're going to be feeding various security. Companies are going to do network security, including places like Arbor. So they're going to be a player with us and -- but they're also playing the overall security trends as well. And I'll talk about the upper left-hand box, the service provider performance-driven market where we're really going to market with some opportunities with tech comms, which really give us the next-generation probe technology, which really gives us a great opportunity to leverage our current installed base and take advantage of the new technology challenges that are within carrier network. And you can see that here, we're back to that diagram I showed previously. And you can see here today we have -- if you think about tech comm has these probes deployed throughout the network and that's been a tremendous growth drivers. We've deployed that growth with -- particularly with 3G and 4G deployments over the last few years. Now with VSS and the next-generation probe technology, we've got ability now to go deeper and broader with VSS data feeds. So it clearly gives us an opportunity. Takes advantage of all the drivers that I've talked about before, whether it's bandwidth explosion or intelligent security challenges. But it gives us a competitive advantage because we now have a better ROI, lower CapEx and optimizes our probes with a single pane of glass so that customer can really look at everything in one place. So we're very excited about the opportunities here, not only as VSS as a standalone company, but also as an enabler for some of our competitive advantage for some of our other businesses.
We've talked about Arbor. Just to give you a picture, we've talked about them last year and where they were at and kind of what they do. As I mentioned, this is a distributed denial of service technology, if you will, in the security space. Lots of different places and security to know about. But DDOS is the place we play. And if you think about that, traditionally, our strength has been in the service provider market. We have the top -- we have the who's who of carriers around the world, service providers around the world is our customer list. That gives us a great advantage. Our ATLAS technology that you see in the middle really is basically the footprint of the whole Internet around the world. A few years ago when you saw -- when Egypt had some of their challenges and you saw the Internet sort of get cut off in Egypt, the data you were looking and the visibility of that data -- Internet data feed came from our Arbor ATLAS network. It's a unique advantage that we're positioned with, with service providers because of the fact that we have that install base around the world. And now, what we're doing today is leveraging that business into the enterprise. And you can imagine that, that gives us a unique capability to not only see -- to really see end to end from all the issues that happen in the carrier to the issues that occur in the enterprise as well. And we really got the most scalable product in the industry to really give you a great visibility of the network edge.
So we're well-positioned here, not only with enterprise -- not only with carrier customers, but now a growing, a real strong growth on the enterprise segment with our Prevail product.
Just maybe an update on the business, you can see we're growing at about 25% a year here in this business. We've had considerable share gain with about -- what we would call 100 new logos or 100 new brands. Op margin expansion has been good. We've really got -- this has been a good growth story in emerging markets as these threats, not only occur in developed markets, but obviously occur around the world. We've really -- what we tried to do is really help this business with DBS is to really expand the investment profile that they could do under our group, leverage our -- and then through investments in R&D and really expand the business geographically because of the footprint we already have today. And DdoS really remains a difficult challenge for network owners so the drivers here remain in the years to come. So we really think this is a growth story in process. But we're excited about the first 2.5 years that we've had with Arbor today.
We couldn't -- I wouldn't want to talk about what we're doing in comms without coming back to where we started, and that's Fluke Networks. After it's been a great business for us. I think in early days when Larry and I started at Fluke, we -- I think Larry was the first one to recognize what a Gem we had at FNET at the time, and I think it's been an important part of not only a good business story but also a big part of our innovation teachings. And some of the tools and DBS that are related innovation have their starting point from FNET a few years ago. Another good year at FNET. This year, product Vitality, this is one of our highest vitality businesses, well over 50%. We continue to see strong growth in this business in the enterprise segment, lots of new products here as we continue to add products and software and services today that really helped enterprise network owners deal with the challenges they have today, the new challenges. We started in -- in sort of the old days, FNET sort of dealt with the infrastructure challenges, your router wasn't reliable, but those issues don't exist really today. Today it's more about application performance. The applications that sit on your network, do they really work? And so really where we're moving this business today is really more around understanding applications. And then as I mentioned before, we've positioned their magnet business, I talked about, is really within the FNET portfolio. And really, that's positioned us on WiFi security to do some new and different things. I talked about the BYOD. If you haven't, it's bring your own device. And obviously, that's what I explained before, you want your iPad or your iPhone to work on the network when you're in the office. It makes life a lot easier for mobile workers and everything, but it makes tremendous challenges for the network operators in terms of security, and that driver is very good for FNET as well. We go back to where we used to be as well. As people continued to install fiber, our handheld tools, optic fiber and multi-fiber pro, those 2 tools really have a great position in the market place as people continue to lay fiber to deal with a lot of the bandwidth explosion issues that I mentioned before. And common -- and then obviously, this business will continue to grow. I mentioned about some of the challenges with cloud and virtualization and those continue to be challenges and really, FNET is well positioned to take advantage of those with products and service that will be coming out in the next 12 months. So we're really pleased with where this business is at today. It continues to be a good part of the portfolio and it's really got some really great innovations in some of the higher growth segments in the market. So now just maybe bring that all maybe altogether. Hopefully, you get a picture. I know it's quick of the unique set of technologies and market positions we have today. If you look end-to-end from the service provider to the Enterprise Network, we're well positioned today. When you think about the fact that those networks that used to be sort of walled apart from each other, today with IP technology, are coming closing together. So that is a convergence that we need to deal with. And we are exceptionally well positioned to deal with that convergence because of our strong position in both the carrier and the enterprise. There really is no one in the industry that has that end-to-tend capability from a go-to market and a technology perspective like we do in the comms group.
That's going to get -- hopefully, you get a sense for the drivers and understand that despite the fact that we've talked how 3G has been a great growth story for us or some of the other drivers have been a good growth story, hopefully, you'll see it from the data that, that story is still in the first chapter, and that's really going to give us strong growth in the years to come. And then you've seen how we've used, I think, targeted M&A to position us well here, and we'll continue do that. Those opportunities, as I mentioned, the serve market expansion was part of our work to really understand that where we could do some new things and this gives us good opportunity to do that. And we'll take a few questions.
Looks like, again, he's going to pick. So..
Got it. Jim, I'd be interested in hearing about some of the product overlap in synergies with the TEK instruments with TEK Communications. So when you sell a network monitoring, you've got hardware like the scopes and the probes. And is that considered, does that roll up to the communication's that separate...
James A. Lico
No. We keep those businesses. So when we talk about instruments, we generally talk about Fluke and TEK, TEK Instruments, and when we talk about communications, we'll talk about the business separate to TEK Communications. So TEK Communications revenue has no what we would call, let's call them bench instruments that Tektronix is known for.
And then as a second question is on the roll out of 3G -- excuse me, 4G. So just give us a sense of what sort of CapEx investment that involve? What sort of technology leap to that, put on the organization, maybe some examples of DBS that brought you to that stage.
James A. Lico
Well, as you probably know, the reality is that the 3G in the history of this industry, one of the challenges is when you make a technology leap is that the current business really puts a lot of stress on the organization to deliver. And that generally in history and other organizations, has meant that you've missed the next technology turn. We were quick to sort of understand that challenge because the team was aware of it. And I think there was no brilliance on our part in terms of bringing that to the team. What we brought to the team was DBS. And the team quickly embraced using DBS in the R&D organization to be able to work on 3G deployment, use DBS at the deployment phase to make sure we had enough -- had enough customer satisfaction and dealt with some of the satisfaction issues that would have historically occurred from a large-scale deployment, while we were still developing products for 4G. And so DBS really made a huge difference in our transition from 3G to 4G at tech comms. Where we're at on LTE is still pretty early. I mean, when you really sort of look at the revenue base. I don't have exact numbers, but the majority of that is not revenue for LTE at this point. We're going to go. Cliff?
Cliff Ransom. You touched on this in the answer to your last question. But when you think back over your experience, has there ever been a market with which Danaher has passed knowledge that has evolved as rapidly as this one, and how are you keeping up with it?
James A. Lico
This is clearly -- these markets are clearly fast paced, there is no doubt about it. I've put it fast paced into 2 places. One is that technology changes a lot and so you need to be able to pick what's going to be next. Two, obviously, the M&A front, you have to be fast, because if something becomes available, people generally move a little bit quicker. I think when you look across the portfolio though, honestly, we've got lots of examples of where that exists today. So I don't think this is a 5x difference from where, what we do in other places. Some of the things in my group, what's going on in payment, as an example for Cobraco Vidaru [ph] is a fast-paced industry as well. So I think this is clearly a fast-paced industry. But I think when you think when you think about the trends, whether it's mobility or big data or some of the sort of big mega trends that people talk about, those are hitting a lot of our business. And I think you're going to, as you listen to Dan and Tom, you're going to hear a lot about that as well. So I think you'll see as we go through the day, that as our portfolio is evolving, I think our ability to deal with those, maybe call it speed of industry, is adapting as well. And I think we're well positioned to continue to do that.
Same here. And maybe just pretty related, actually. But when you think specifically about this declining attractiveness of the testing business, selling the network equipment makers. Most companies that do find themselves in that position, we tend to see more of the pain before they get through kind of a portfolio transition. How were you able to, I guess, manage that fairly seamlessly?
James A. Lico
Yes, I mean, it was -- it may seem seamless in retrospect to a think we were very clear about priority. And I think that's what is hallmark at Danaher is not being ambiguous about what we were going to go do. It took a little while to figure that out. But once we decided what we're going to go do, the 100-day strategic plan, we went and did it. We did it with the team. I mean, this wasn't something where we brought something in that the team -- we work with the team to come up with that. Now we have the advantage. I think one of the advantages we have is on the portfolio, we've got other parts of the portfolio. We knew, we were plan-full in when and how we did. And it comes off as being seamless. The reality is it wasn't seamless at it seems, but it seems more seamless to the external environment because we have the opportunity to kind of do that with Larry and Dan and sort of a coordinated effort, thinking about how we're going to do that in relation to how the rest of the portfolio is performing. So you're able to do it and pull it off. But that's something that Tektronix in a smaller publicly-traded environment would've found extremely challenging, but we could do it at a bigger size. Yes? Last question. Sorry, my time is up according to the readers.
Jim, how much of Tektronix is traditional oscilloscope and related instruments? And what are customers saying about their CapEx intentions for those products in '13?
James A. Lico
Well, TEK is still a billion -- the instrument side of the businesses is still $1 billion. Scopes is a big chunk of that. And clearly, we've seen -- we've clearly seen a move to delaying those spend situations. I think we have more color around that in the developed markets like the U.S. And obviously, although we don't have a lot of military government business in the United States, we were -- that was a growth opportunity for us and we were growing that segment. So while it wasn't a big part of the percentage of the revenue. And that's clearly no clarity on kind of where Milgov is going to be right now, so very little clarity there. I think the thing that's sort of coming into a little bit better sense is China. It was a big headwind, it's been a big headwind for TEK for the last, really, 15 months. And that's starting to look a little bit better for 2013. But that's very early stage, I wouldn't declare victory at all. So I think most people are saying, "2013, we're going to get back." But very few are giving us a timeframe for that. And I think we sort of have a more conservative plan for that going forward, so that we're not surprised. The only surprise we might have is to the good. Well, Larry will talk a little bit about expectations for growth next year and we'll give you a little color on T&M at the end of the session. Okay, thanks.
H. Lawrence Culp
Thanks, Jim, very well done. Jim, just back to your question, if I may for a moment, when we talk about DBS, to me and a lot of different things to a number of different people. But whether you hear us talk about policy deployment and the way we take a, if you will, a strategy from the boardroom down through the organization, we're daily management to be how we make, if you will, the trains run on time, be it in the factory, be it in the lab, be it in the salesforce. These ideas that Jim hit on around priorities, around resource allocation, around expectations, defining what good is or not is incredibly powerful. And I think that's our common theme across the portfolio and really when we talk about DBS, there's so many tangible elements of that toolkit. But the way we are clear about priorities, the way we force decisions to make sure we are resourcing those priorities and in turn setting, winning expectations around those things that we signed ourselves up for, really, I think is often the difference. And the tools in many respects are secondary in that regard. So hopefully, you got a little bit of a sense there as to what's happening in comms. Again, the enterprise side, the carrier side, the traditional bifurcation, the advent of IP, erasing that border and what we've been able to do with those business, the traditional business is TEK Comms and FNET is really set ourselves up to play is security to play in 4G networks in a way that I think is going to be winning formula for Danaher going forward.
So in a similar vein, Tom Joyce is going to come up. Tom? I don't know how many hats Tom has on his head currently, but Tom is the Executive Vice President with responsibility for our Life Sciences and diagnostics business. Sure he has lots of Beckman Coulter titles, but he's been point for -- since the acquisition in driving the integration rather well. Tom?
Thomas P. Joyce
Thank you, Larry, and good afternoon, everyone. Before I take you into a deep overview of the successes that we've had at Leica Biosystems, thought I'd give you a brief refresher and a bit of an update on the life science and diagnostic portfolio in total. As you notice here, we play at an extraordinarily large market, a market now in excess of $36 billion. And obviously, as we have expanded the portfolio over a number of years now, we have gained access to an ever-greater market. And you'll see an example of this when we get into Leica Biosystems today. Terrific long-term and very stable growth drivers across this market. And clearly, some segments in this market with even healthier growth rates that you'll see here. With the advent of Beckman Coulter, the addition of Beckman Coulter, you'll see now at this portfolio is approaching $6.5 billion in revenue, with a wonderful mix of instrumentation and consumables enhanced by the addition of Beckman Coulter. As it also has done to our geographic mix, bringing a very strong position in emerging markets, along with the organic growth that we've driven in those markets as well.
Now a portfolio with operating margins at roughly 13%, a good lift over what you saw a year ago now and not exclusively on the back of the improvement at Beckman Coulter. We've seen good operating margin expansion across the totality of the portfolio in each of the businesses represented.
We serve a very broad customer base. We serve, obviously, hospitals, and we'll be concentrating in that customer set today when we talk about Leica Biosystems, but we also serve reference laboratories, broad array of public and private institutions across government and academia, as well as a wide variety of applied markets in food and beverage, in pharmaceuticals and in forensics.
A portfolio of leading brands, of wonderful brands, brands that have created strong competitive advantage across a variety of different segments. And today we're going to concentrate on one of the truly great brands in the portfolio, Leica Biosystems. Leica Biosystems is represented in a market of over $3 billion. And what you'll see in a few minutes is how through both organic and inorganic means, we've expanded our position in that market. Great long-term growth drivers across this market in a business now in excess of $500 million. Again, with a wonderful mix of instrumentation, as well as consumables and service. What you'll also learn today about Leica Biosystems is that there's a software and an IT component for Leica that's very important to driving workflow efficiencies in the laboratory. Leica Biosystems is now in the high teens from an operating margin perspective and a geographic distribution, that I think you should notice, really represents an opportunity. You see a level of under penetration outside of the developed markets of North America and Europe, and we'll go into that a little bit more deeply in just a bit. Leica Biosystems serves primarily hospitals. And within hospitals, we serve the histopathology lab. Histo, referring to the analysis of tissue. And in the analysis of tissue really looking to diagnose the presence of disease, and often that disease is predominantly cancer. In addition to serving hospitals in the histopathology labs, Leica Biosystems is also represented in academic institutions, as well as in reference labs. When you think about the macro drivers for Leica Biosystems, you should think about it really in 3 general categories. The first of those categories is the increasing incidence of cancer and the increasing costs of health care, the second of those categories is really in the area of advancements in diagnostics, and the third in the challenges that are represented by skilled labor shortages in laboratories.
Cancer is the leading cause of disease and death in the world today. Over 12 million cases diagnosed annually, as you see here, over 1.6 million of those cases in the U.S. alone. The NIH estimates that again in the U.S. alone, the direct medical cost of cancer is in excess of $100 million. While a challenge clearly in the developed markets, also a challenge but a great macro driver, unfortunately from a disease standpoint, but from a business standpoint, a powerful driver for us is in the high-growth markets. These markets are really just emerging today and we'll talk more about that in just a bit.
As health care costs become an increasing challenge in the treatment of disease, an ever greater challenge, we see a greater focus on screening and monitoring of disease. And the impact of increased screening and monitoring, which is then represented in higher levels of diagnostics, ultimately believe results in lower health care costs. As we've seen, for example, in the decreasing rates of, say, breast cancer mortality, as a function of higher levels of screening and more advanced diagnostics. The second of those macro drivers I mentioned is the advancement in the diagnostics themselves. And as those diagnostics become more sophisticated, diagnostics that we're developing today, increasingly we're seeing those tests linked to drug therapies. And as those linkages become more powerful, we see improvements ultimately in mortality rates and the decrease of health care costs. Finally, an enormous challenge for health care facilities around the world today is the shortage of skilled labor. And Leica Biosystems brings an extraordinary portfolio of solutions that you'll learn about today that address this macro driver through automation, through sample tracking, through digitization of imagery, and ultimately results in decreased costs, better turnaround time and better patient outcomes.
The history of expanding into the market that we participate in today, that $3 billion market I mentioned, is an interesting one. Our foundational position for Leica Biosystems is not one that we acquired essentially in isolation. It's one that came as a function of the acquisition of Leica Microsystems. You may recall a reference to this years ago after acquiring Leica Microsystems. There was a largely nonstrategic position at Leica Microsystems referred to as sample processing or specimen processing. So this was a core histology suite of instrumentation present in the labs at that time.
We were fortunate, obviously, then to have succeeded in acquiring Vision Biosystems, which expanded our market position, as you see here, into immunohistochemistry and advanced staining. With the addition of acquisitions like CoreTech and Surgipath, we then broadened our offering to include consumables. Consumables that created real value in terms of patient outcome because of their linkage within the workflow to creating ultimately a higher quality of diagnoses.
Today, you'll learn about how we have expanded our position in digital pathology, particularly through a newly-acquired business, but also through some fundamental development that has gone on at Leica Biosystems for the last couple of years. So as you look at that progression over roughly the last 7 years. You see how we've moved from a market, a low single-digit market at its outset now to a high single-digit market with frankly, as you can see here some segments that are even more attractive at high double-digit growth rates, particularly in digital pathology. So a wonderful market and a terrific position for Leica today.
So now to give you a bit of a perspective on what Leica Biosystems' role is in cancer diagnostics. I'll take you into the pathology lab. It all starts with a biopsy. And many of you in this room may have had that procedure. Many of you may have loved ones who have had that procedure, essentially taking a tissue sample. Once that tissue sample is brought into the lab, it's essentially identified through a series of steps, an identification process that's critical to sample control, and we'll go into this in a bit more of depth. It then proceeds through a series of steps that essentially prepares that tissue sample for what would then be a staining step. The staining step is what allows that largely transparent piece of tissue to be visible to the naked eye through a microscope, through the use of a variety of different primary and secondary stains. This is what allows the morphology or essentially the shape of the cells to be visualized. And it's through the analysis of the shape of those cells that morphology that the diagnosis is ultimately achieved. So that's the overall process. Leica today, as you'll learn as we walk through our positions in the key steps in this process, has an unrivaled position across this workflow in terms of instrumentation, in terms of consumables, as well as software in information technologies.
So the way we win, ultimately, and the way we have won and grown share over the last number of years in this terrific market is through the way we provide a complete workflow solution to the pathologist and to that laboratory clinician. That complete workflow is made up of a series of elements that I just mentioned. Instrumentation is at its foundation as well as information technology. And I'll take you through those individual positions and their competitive advantages. Over time, we broadened that product offering and we've linked the components of that workflow in ways that ultimately deliver a higher-quality diagnosis than our competition can do today without that broad suite and its associated integration. Finally, we create competitive advantage by the way we go to market. And in many cases, we're ahead of the competition by virtue of the way we've expanded our commercial positions and the way we've made investments in bringing new products to market.
So I mentioned the start of the process where a biopsy comes into the laboratory. The whole process starts with tracking that sample. In a large academic or city hospital today, there may be over 1,000 tissue samples processed in that lab per day, 1,000 individual slides. Imagine the challenge there is associating 1,000 slides a day with each of the steps in that process that I just walked you through, and associating each one of those with the patient. This is a process that, unfortunately, can result in an error rate of patient sample identification of anywhere from 0.5% to 3%. So a tremendous opportunity that is captured by bringing better information technology to the lab. In the case of Leica Biosystems through a product that we call, Cerebro. Cerebro is the most advanced sample tracking software available in the market today and is capable of tracking a biopsy through every step of the histopathology process from the time it's assessed in the lab until the time it leaves the microscope. A unique capability and one that ultimately provides, obviously, higher-quality outcomes to the patient and lower costs in the laboratory.
Second is instrumentation. We've created an extraordinary position in instrumentation today by having the most advanced suite of highly-automated instruments in advance staining. The newly announced -- the newly-introduced instrument, known as BOND Casino with the addition of BOND Advance software, enables mid-size hospitals, and we've typically played in very large hospitals, gives us access now to more mid-size hospitals with greater levels of reliability and less touch labor associated with the instrument. As an example, BOND Casino plus the advanced software reduces the setup time in a given lab for a given instrument by over 25%. It reduces the touch labor time by an excess of 15%. So improving, obviously, the cost in that lab and ultimately in turnaround time as well. We've had tremendous success driving the install base, we're represented in iconic facilities today, health care facilities today in the U.S., such as the Mayo Clinic, such as MD Anderson in Texas. And we continue to gain share in, not only in North America, but in Japan as well. You see the tremendous growth emplacements in China. And now increasingly, we're improving our position with a direct selling model in countries throughout the world, particularly in Europe most recently. Application support is critical to how we drive our instrumentation placements. Once that instrument is installed, the consumables pull-through is where tremendous profitability is generated. A $100,000 instrument placement might generate $300,000 to $400,000 of consumables pull-through over the next 5 years. And as you see here, we continue to grow our reagent revenue consistently in parallel with that instrumentation placement and see increased profitability associated with that over time as well.
So instrumentation and software in that IT backbone create the foundation for success in the laboratory. But ultimately, value is created through the menu, through the assays themselves. And that value comes from the confidence that's associated with a high-quality menu. On the upper left-hand side, you see a picture of what a slide would look like in a digital imagery associated with a tumor that was extracted from a breast. Breast cancer, unfortunately, is the second leading cause of death behind lung cancer today, globally. Leica has developed an extraordinary assay, referred to as the HER2 assay, that is associated and has the ability to identify patients with HER2 positive breast cancer that can then be treated more specifically with the drug herceptin, ultimately leading to a better outcome than would be associated with general chemotherapy. In the upper right-hand side, you see additions to our menus in breast markers and lymphoma markers. And the color codes that you see represent the specificity and the sensitivity ratings by outside clinicians after testing these assays against the competition, universally compared to superior to its competition in the market today. In addition to adding the breadth of menu, we've also improved the usability of the individual assays in the lab. What you see in the lower left is a series of graphics that simply represent new packaging, moving from concentrated reagents that required a series of steps of dilution before they could be used, now to ready-to-use assays. In packages that create an ability to essentially load and go, reducing again touch labor time and lowering cost in the lab. And then finally, in the lower right, the ChromoPlex detection capability is a unique ability that's provided only by Leica Biosystems to essentially stain a tissue sample with 2 different stains at the same time. And in so doing, improve the level of diagnosis and essentially cut the turnaround time in half by virtue of doing what would amount to 2 tests at the same time. So a very unique capability that builds on that instrumentation and IT backbone with an expanded menu that drives ease of use, higher quality and ultimately, better patient outcomes.
So we've now walked through the steps and the workflow associated with getting to the point where we now want to understand that image and get to a final diagnosis for the patient. And here, we're going to talk about the advent of digital pathology. Years ago, the diagnosis was simply made through what we would refer to as classical microscopy. Obviously, this isn't our father's microscope. This is probably our grandfather's microscope or our great grandfather's microscope. But fundamentally, up until a decade ago, all of that diagnosis was made through the dual lenses of those microscopes. In the most recent decade, we saw the advent of digital microscopy. We saw the presentation of images now on a screen. In fact, I think, those of you who've seen demonstrations of the Leica instrumentation in the past have seen us introduce instruments with these capabilities over the last several years.
Digital microscopy has now moved to what we refer to as digital pathology, the ability not only to capture and store the image, but now to share that image, to analyze that image and ultimately to diagnose from the analytics that are presented through software. So a true breakthrough in moving from store and capture imagery to finally making enhanced diagnoses.
The acquisition of Aperio Technologies vaulted Leica Biosystems into a leadership position in this fast-growth market today, a market growing, as you see here, in excess of 15% annually. As tests become more complicated, as the analysis that is required takes a greater level of sophistication, and as networks now are increasingly looking to share imagery across different pathologists, digital pathology becomes an imperative. And Aperio is a leader in that market today. It brings significant competitive advantages in hardware, as well as the analytics associated with the software. And in addition, brings FDA-cleared tests that allow us to create a competitive advantage and a barrier to entry in some very important assays in this market.
Aperio has been fundamentally underpenetrated across this market today. As you'll learn in a few minutes, the adoption across a variety of markets geographically is still ramping. And so we're making significant investments in Aperio to advance its go-to market, and we think we can take its growth rates to whole new levels. Aperio starts with a competitive advantage associated with having the largest installed base across pathology today, and also the largest team by a factor of 2 of application specialist helping pathologists today with what is fundamentally a new technology.
Now if we look geographically, we would see -- as you saw maybe in the pie chart in the first slide I presented, that this is still a market that is still emerging today. We talk about emerging markets generically. Well, specifically as it relates to advances in histopathology, there is still a level of under penetration in high-growth markets, particularly as it relates to advanced instrumentation, software and certainly in digital pathology. So as you see here, 17% of total sales in high-growth markets for this business, below the average that we would see across our other businesses. But again, suggesting a tremendous opportunity for growth over time. We're seeing China, now at double-digit growth, but frankly still ramping. The adoption rates of advanced technologies in China are still behind the global averages and we expect to see those adoption rates increase over time. There's clearly a lot of investment in these technologies in China and other markets as well. We also see a unique situation emerging in these markets where these are markets where the networks that I talked about and the ability to share imagery for purposes of diagnosis is becoming increasingly important. Where developed markets and clinicians in those markets are now leveraging their talents and capabilities in lower-cost markets, but need the ability to share those imageries seamlessly and quickly across networks. And again, a great opportunity for Leica Biosystems, both by virtue of our positions in those markets, as well as through our now more significant position in digital pathology. We're making significant investments not only on the commercial side, but on the product development side. Now with over 30 folks in China today developing products in China, for China, in histopathology. And as you can see here, China is not the totality of the story, but terrific growth across the other emerging markets as well. So when we pull all of this together, we see a -- and we look back at Leica Biosystems, we see a business with a tremendous trajectory of growth over time. We see how acquisitions have contributed to expanding the scales and the scope of the market that we talked about. Not only through product but also through acquisitions that expanded our go-to-market capabilities such as Finetec in Japan, such as LabIndia in India that expanded our capabilities to reach that market more effectively. DBS has played an enormous role in Leica Biosystems, not only on the operational side but on the commercial side as well. And has clearly made a difference in advancing the innovation engine that is LBS today. And finally, you see how those come together into a terrific growth story and a wonderful business from a profitability perspective as well. So in summary, we're highly advantaged in this market today. The capabilities that we bring at Leica Biosystems in terms of bringing together sample preparation and the capabilities around information technologies, with instrumentation, with breadth of menu and novel test, and now leveraging the technology associated with digital diagnostics puts us in an unrivaled position across the entire market. We hope to continue to use acquisitions to broaden our capability over time. We're going to continue to make sure that we're making aggressive investments in R&D and advancing, particularly, the menu side. And we know that DBS will continue to help us accelerate growth and drive margin expansion in the years to come. So while it probably is obvious to all of us, the value that Leica Biosystems has created for Danaher, for all of us as investors, I think it's also important to appreciate that ultimately, the real value that Leica Biosystems delivers is to patients. And ultimately, to the families of those patients. And with that, we'll take a couple of questions.
Tom, I guess you talked about the potential positive drivers, obviously, and that sounded a little dour after that, that piece there -- that you put up there. But if you think about, at least in the U.S. obviously, there's a potential for significant pressure on reimbursement and we have, obviously, the medical device tax. Could you maybe just talk about, strategically, how you're planning for some of those issues and what makes you confident that Leica can kind of power pass some of those issues?
Thomas P. Joyce
Sure. Yes. No question, reimbursement will continue to be a challenge in the market today. As we've seen recently, some changes in reimbursement that it certainly can create some headwinds for hospitals and cost pressure on us. It's imperative that we continue to be the answer to some of those cost pressures, that the capabilities we bring in terms of automation, in terms of the capabilities to reduce cost in the lab are ultimately the answer, not part of the problem from the standpoint of those cost pressures. So I think that, clearly, is our strategy. The medical device tax comes into play, we expect, after the first of the year. That will be a headwind for us, but we'll be doing everything we can to make sure we're doing the right thing from a cost perspective on our business. And to the extent that we can drive price in a way we normally would, we'll make every effort to try to do that as well. Move the microphone around here for me.
Tom. Just first, to follow-up on that question and then, a second one. On that one, could you be a little more specific on the reimbursement strategy though, I mean, it's great to be positioned in a place where you're driving lower-cost in the system, but how does it really manifest itself so that you're able to change the mix, or what are you actually doing to minimize that pressure over time? Are you currently feeling it in your customer base today, for example?
Thomas P. Joyce
Yes. No, there's no question. I mean, we see reimbursement changes happening, there's no doubt about that. I think, the best we can do is make sure, as -- and I apologize for having a sense, I'm repeating myself so I may have missed what you're driving for there, but we need to make that as that hospital laboratory which, by the way, is typically a profit center for the hospital. As that profit level may be coming down, it's not going away, they're going to continue to be a profit center, we are able to come in and ensure that one of the more significant components of the cost of running that laboratory, which is labor, comes down. The second major component of their cost structure that we helped to reduce or improve is the quality level that's, frankly, associated with rework with having to test over again. And by delivering a higher quality, by better sample tracking and so on, we hope to improve their cost structure. So I think those are the specific things. Ultimately, the decisions that are made on reimbursement are not things that are, frankly, easily influenced or controlled. We do our best to make sure that legislators understand the value we create, but those are challenges.
And the sales force has the capability to value sell at that level already, or is this new capability?
Thomas P. Joyce
No. The Leica sales force is highly qualified as it relates to value selling. It's been a skill set that they've developed over a long period of time and it's a tool well-enabled at LBS.
And just lastly on Beckman, okay, you pointed out mid-single-digit growth for 2014 now, and Troponin's one of the things I thought was sort of a barrier to -- or the idea that you'll be able to drive faster growth there over time. Now you're putting a good, really, more aggressive growth in the table, can you give us a sense for what are the barriers or assumptions for you to get to that mid-single-digit growth, what you're looking at today as opposed to 6 months ago or 1 year ago?
Thomas P. Joyce
I can't recall making a single comment on any Beckman growth in that presentation, but nevertheless -- and I'm certain Larry will take more of those later. But there's no question, we're looking to get to the other side of the Troponin challenge. And as Larry mentioned, the fact that we have submitted those 510(k)s. So we're making progress there and we hope that, that becomes something that is no longer a headwind for us when we get past those approvals. We think there's a variety of other things. Larry showed some of the innovation, some of the new products, the AU 5800, which is doing exceptionally well that we think will contribute as well. So I wouldn't necessarily hang the Beckman growth story exclusively on getting to the other side of Troponin.
Jeffrey T. Sprague - Vertical Research Partners, LLC
Tom, I got it right here. Right here, Tom. Jeff Sprague from Vertical Research. Back to the device tax, as you've looked through this and it's clearly not crystal clear how all this works, should we assume that every piece of physical equipment you sell is going to be hit by this, or are there dual use or multipurpose kind of loopholes that you can try to avoid parts of it, that's question 1. And then, question 2 is, my understanding is it's based on gross sales. And we don't know the structure of your concessions and other things you might do in the channel. Is there a big difference between Danaher, Med Tech gross sales and what we see as net sales in your P&L?
Thomas P. Joyce
The answer to that second question is there's not an enormous delta there. But let me back up to the broader context of the question. First of all, there's a lot that's just getting clarity right now around the med device tax. I think most of you probably recognize that there's a lot about the entirety of the Health Care Reform Act that is still -- still requires clarity. Relative to the specific question you asked, it's focused on instrumentation that we sell in the U.S. It's focused on instrumentation that we sell, fundamentally, to hospitals for health care. I'm not going to go any further than that, not being an expert in either the reading of the law nor frankly, based on the fact that there's still some things that even lawyers and folks who provide guidance in this sort of area are still trying to sort out on behalf of not just Danaher but everybody in the industry. Meg's giving me the hook. Larry, it's all yours.
H. Lawrence Culp
Thanks, Tom. Jeff, operators love tax policy questions, so thank you for that. We'll talk about medical device excise tax a little bit later on when I wrap in terms of how we look at that quantitatively towards the go forward. I hope, for those of you who've not heard the Leica Bio story before, you get a sense as to how we try to look into the future. When we started due diligence of Leica Micro, we were aware of this product line, we had no idea. Certainly, unfortunately, we knew oncology's a growth business, but that only we fully appreciate until we got in there, sort of turning a few of these stones over. The jumping off point with the Leica Microsystems transaction provided us to really create a bonafide growth driver, growth engine on its own at Leica Bio, as you can see from Tom's presentation. I think in a similar vein, our next and final presentation from Dan Daniel, the Executive Vice President with responsibility for our Industrial Technologies segments. His story will really build on what we've done in packaged goods, supply chains, primarily around marking and coding with Videojet and some other related brands, to get into a much broader play in and around the, really the change often described as revolutionary change in the packaged goods supply chains. Dan? It's all yours.
William K. Daniel
Well, thank you, Larry and thanks to all of you for being with us here today. I know it's a busy week, a busy time of the year. And I know Tom, Jim and I really appreciate the opportunity to focus on a key area of our platforms, get into it in some depth and really talk about some of the exciting growth opportunities that we see. And as you all know in Industrial Technologies, we've made a couple of significant investments in our Product Identification business in the last 18 months or so with the acquisition of Esko and X-Rite, these are 2 very exciting and dare I say, fun businesses to be in. I know our teams are fully engaged and are excited about the potential and, really, how to expand our market potential in Product Identification. Before I do that, I just want to spend a minute on the Industrial Technologies platform. As Larry indicated in one of his earlier slides, over the last couple of years, we have done some portfolio work, primarily, around the divestiture of our Aerospace & Defense businesses and we think the portfolio today is positioned -- and much stronger from a growth potential and a growth opportunity standpoint. Margins are strong on our $3.3 billion in sales. We're very much focused on continuing our growth in emerging markets. Product vitality really cuts across all of our businesses and is a key growth driver for us. Really, targeting these 4 key market and end-customers. We'll talk a lot about consumer packaged goods and global packaging companies, primarily, in Product Identification. But also in some of our Motion and specialty businesses, those are attractive markets as well. Our Automation businesses are very much focused on machine and automation OEMs and medical equipment and devices, including Tom's businesses, are important markets for us as well. Product Identification today is almost 50% of the sales in the platform. Just 4 years ago, in 2008, that was roughly about 25%. So clearly, we've emphasized Product ID, the growth potential in our core marking and coding business, both organically and from an M&A standpoint has been outstanding. And really, what we're going to focus today on is our expanded market and addressable market and potential that lies with Esko and X-Rite. It's been a wonderful growth and value creation story over the last 10 years. The platform was started in 2002 with the acquisition of Videojet which, at the time, was about $400 million in sales. Today, a dozen acquisitions later, you can say, we're -- see, we're well over $1.5 billion. It continued with our Linx business in marking and coding in 2005. And these are both businesses that have been growing at an above market rate. We've been gaining share for the last few years, we certainly think that's continued here in the recent past. That's largely been about emerging markets, building our distribution capabilities, feet-on-the-street, but also product vitality. You've heard the 1000 series Videojet story, we recently launched some enhancements to the 1000 line that are really going to continue our share gains in Videojet. Linx are launching new products as well, and both businesses have some new LASER product lines. So product vitality is continuing to drive outstanding organic efforts and growth results across those businesses. Esko and X-Rite are 2, actually, quite similar companies in a very complementary market space, including, going back to the history of the companies. Esko really came together through 2 competitors in the marketplace, Esko and Artwork, both software companies serving the packaging market, came together in 2006. X-Rite came together with X-Rite and Macbeth, followed by Pantone in 2007. So some market combinations during that period of time. Both came through the recession and weathered the downturn and, I think, exited the recession in a stronger position. We believe both have very strong mid-single-digit growth potential. Esko has certainly done that over a long period of time and it's been a growth accelerator for us since we owned the business back to March of 2011. X-Rite has probably not been a mid single-digit grower, but clearly, we believe the opportunities ahead can make that be the case. Both very strong gross margins, both were relatively new to the emerging markets, about 2 to 3-year efforts, so tremendous potential ahead with emerging market growth in these 2 businesses. They're both about 25% of sales today in the broader Product Identification business, as sales from emerging markets in excess of 40%. So a tremendous opportunity in emerging markets as well. Esko is primarily a software business, over 60% of revenues come from recurring software and service revenue, a very important hardware component to the business as well. X-Rite has, historically, been more of a hardware company. But we certainly see opportunities to build the software capability in X-Rite and generate more of the recurring revenue stream. So a couple of-- the greatest things about these 2 businesses is their brand equity and their relative market position, both extremely strong. X-Rite is both in the X-Rite brand and also with Pantone, those are 2 of the strongest brands now in the Danaher portfolio. Esko is really the de facto standard in terms of software in the packaging space. So outstanding brand and relative -- relative share position. Again, very much in a complementary market with their capabilities. Before I talk about how we've expanded our addressable market in Product Identification, let me just sort of paint the picture of the packaging workflow and value stream in the business. It starts on the left-hand side of this screen with a brand-owner who's trying to design a package to put on the far right on a retail shelf. In today's world, competition at the retail shelf level is intense. Product proliferation is extensive, whether that be a global brand trying to penetrate an emerging market, or a local market, or vice versa, product promotions, customizations, packaging proliferation is really expanding and causing a need for an accelerated and expedited workflow. From the brand owner and concept and design, it then goes to design, prepress house who sometimes helps in the design, in other cases helps ready the design for a packaging process, gets it ready to be built. Then, there's a series of printers or converters that actually make the package itself. And then, there's some cutting and some merchandising that really happened before it gets to the retail shelf. Historically, our business has been in the marking and coding, and that was roughly a $5 billion space mid-single-digit growth. That's really at the end of the process. The design work is done. These companies are doing the design work upfront and these are primarily packaging engineers and operational processes that are actually responsible for the marking and coding. It's been a very attractive market for us. What Esko and X-Rite have done is really moved us upstream into the front of this value chain. Both Esko and Pantone are very heavily involved in the design process. I'll talk about Esko software and how it facilitates processes through the packaging value chain. Pantone is the color standard that all designers and graphic artists know and specify. Esko also has software going through the conversion process and some of the operational printing and converting processes. And X-Rite actually has hardware and instruments that help on the upfront side as well, both in terms of measuring color, monitoring color and then, communicating color throughout the value stream. So this is really a market expansion, and we think it adds about $3 billion of served market potential to us, and at the end of the day, gives us the opportunity to really bring value to customers in terms of speed to market, overall lower cost and higher quality, particularly, as it relates to color. From a macro growth driver standpoint, the packaging market is attractive to a number of our operating companies and Industrial Technologies as I said. But particularly, to Videojet, Esko and X-Rite. The globalization of the supply chain continues to expand very rapidly, high growth markets are really growing, really growing quickly in this regard. Higher spending and consumption is one of the drivers. Brand owners are increasingly requiring the products on the shelf in Argentina or China to look exactly the same as they do here in New York City. So it's that color consistency, it's that packaging standardization that's really driving investment and creating growth opportunities in the packaging value chain. As we've seen in our marking and coding business, increased regulatory requirements, more data that has to be displayed on the package and really, what that requires is better upfront planning of the package so the required information gets on, but the packaging remains visually appealing and competitive on the shelf in trying to attract our consumer's dollars. And then, going forward, really see tremendous opportunity to condense this value chain, speed it up through the Internet, through digitization. And we've got some exciting opportunities to help win in that space. So I'll focus on Esko here for a couple of minutes. Esko really touches the entire value chain, but most of what they do focuses on the brand owner. And there's really a handful of key criteria that Esko tries to deliver with brand owners. Everything they do is focused on this, I got a short video here to show you to highlight how we do that with consumers and brand owners.
So speed to market, quality, appearance, cost, these are all things that matter to brand owners. Green, sustainability -- and Esko has a number of tools to help make that happen faster and in a better way. Really, through their software product lines, a number of aspects of the value chain are touched and expedited with Esko's software. It's really the core growth engine of the business. If you start with the same value chain, the workflow within this really starts with the brand owner, as I said earlier, goes on in through the value chain. And there's back-and-forth, there's iterations, there's approvals, there's changes and that workflow has historically been very manual. And in many cases, actually, manual from a visual standpoint to make sure the color matches. And what Esko's software does, through their automation engine is help automate that workflow both in terms of repetition from an approval standpoint. The Web Center is a brand owner tool that helps them manage the entire value chain, and the packaging changes, track approvals, track final drafts and expedite that workflow into a very rapid and higher quality type of process. Historically, the Esko CAD software called ArtiosCAD has become the standard for packaging designers in their CAD work. And with Suite 12, which we launched midyear here with Esko, what we've really developed is 3D capability, and really raised the game in terms of 3D capability for the designers and our software users. And the reason that's important is packaging is not flat. So it allows the designer to see what they're package looks like earlier in the supply chain. And if I can get this computer to work properly, I'll show you a couple visual examples of that. Always a bit of a technology risk. So this is the 3D package that allows a designer, early in the process, to see how it actually looks on a box, once it's shaped, once its bent, once it's formed. Does it end up, as an end result, what they're really looking for in prominently displaying the brand. In addition to that, our 3D capabilities have expanded with our Studio Store Visualizer, which helps a designer even at the first stage of a package and design, to see what it's going to actually look like on a shelf. So with our Studio Store Visualizer, again, it helps from a planogram standpoint so they can see what packaging looks like on the shelf, to see how product needs to be arranged in various configurations, how product can be adapted, turned on shelves for optimal shelf space analysis, color can be changed easily. A few seconds here, I'll show what the package actually looks like in the eyes of the consumer as it comes off the shelf. And again, these are all 3D capabilities that are important parts of our Suite 12 package that we've launched in May of 2012 here and it's been very well received by our brand owners and designers in prepress houses. Now what makes this unique for our Esko users is the ability to make changes and instantly see what it looks like on the shelf. Other competing models of retail visualization aren't able to take the exact packaging and make the changes and see as quickly what it looks like on the shelf. So it's really a chance to integrate and expedite and have that designer see what it actually looks on the shelf immediately, and how various changes actually appear in the eyes of consumers as well. Probably see if you follow up on the shelf here, hopefully, I can get it back. So the software is really, the core growth driver of Esko. We continue to adapt and have plug-ins that expand the software capabilities. And there's also very important hardware component of Esko's business as well. Really, the hardware comes in 2 parts to the business: a CDI which is a digital imager, basically a Cyrel plate is laser-cut for the printing process that you use in flexible packaging. Flexible packaging is the highest growth portion of the packaging market, it's really the quality that the Esko's CDIs have been able to deliver, are one of the growth drivers for flexible packaging in the marketplace years ago, the quality of a flexible package was not the same as an offset or, and it's really the CDIs that have driven the market growth and be able to create that quality in flexible packaging that helps continue to drive growth. We also have cutting tables. These are tables that take the actual package design, that they actually cut into small lot production of packages, they're also used for merchandising and sign and display applications and they really, again, are connected to the early stage of packaging design process and help expedite that product going from design to the retail shelf. Now all of these product lines have their own software that's attached to them, that help run the hardware, but again, it's also a proprietary system that is tied to the Esko software. So that it, again, it creates a strong bond and pull between the Esko hardware and software products and capabilities. So Esko has been a wonderful grower for us since we acquired the business in March of 2011. It's been a business that we've invested in, we invested heavily, initially in feet-on-the-street training and installation capabilities, as well as the software improvement you see here with Suite 12. Now I'll turn to X-Rite and Pantone for a minute. As we owned Esko, it became apparent to us in our interviews and our work with brand owners that color really mattered. And X-Rite had been a business that we'd followed for a number of years, and it really crystallized as we owned Esko and really began to see how important color was and will continue to be going forward in the future. So in May of this year, we actually closed on X-Rite. Our focus with X-Rite has really been around execution and in trying to really focus on the key growth priorities. We really have 5 in the business, and we think these are what's going to really drive us through mid-single-digit growth in this business going forward. And we've actually been able to see that kind of growth here in the early months. I've been very pleased with the team and how they've embraced DBS and X-Rite, and again, very much focused on the growth process side. The marketplace has reacted very positive to Danaher's ownership and some of the things X-Rite is doing to improve their growth in their business. Our highest priorities, again, emerging markets is a big opportunity for X-Rite, Asia Pacific in particular, really just accelerated that effort a couple of years ago, so we are adding some feet-on-the-street, leveraging the Danaher China team and the rest of Asia Pacific to help accelerate growth. Product line vitality, we have some exciting new products to launch in the business. They've been in the works for the last 18 months. It was clearly one of the things we saw in diligence, and DBS is helping to improve our launch execution and are excited about what we're seeing in the marketplace with that. Pantone is a wonderful brand, it's a wonderful growth opportunity, I'll get into that in a minute, actually, headquartered across the river in Carlstadt, New Jersey, took a pretty big blow from Hurricane Sandy. But the way the team responded to get back up and in production and get back on some of the growth initiatives was very impressive. PantoneLIVE is an exciting growth opportunity to digitize the packaging supply chain across the business, both involving Esko and X-Rite. And texture and appearance is really one of those things we call a growth breakthrough, a little bit further out in terms of growth. And what we're really doing with texture and appearance is, taking our color and standards capabilities and working to apply that from a texture and appearance standpoint. To designers, the actual texture is an important feature. We made a very small acquisition of a software company in Germany together with a partnership with the University of Bonn, who has a texture think tank, to help us build out those capabilities and expand on our color capabilities in the texture market. For things like the possible replacement of physical samples and being able to see things on iPad and other computer devices. So these are really the 5 key growth items, some very near-term, some a little bit longer-term. Again, using that same market map that we have with Esko, X-Rite and Pantone is a little more upfront on the design side. The Pantone standard, we also have color management certification and qualification and quality control throughout the value stream. And as I'll show you here in a minute with Pantone, a really strong precedent-- presence in the retail market as well. The product line launches I referred to a few minutes ago, really help drive growth in 2012. These are all product lines that have launched this year. The i1Pro 2, which is the second generation of our most popular hardware device, launched in April; the traction has been strong in the marketplace. eXact is our latest printing color control device launched in October; the marketplace has received these very positively and basically, the capabilities, the connectivity and the ability to link directly into PantoneLIVE are what the advantage these products have in the marketplace over any of the competition. New Light, the NetProfiler color quality control software in X-Rite, is also in the marketplace as well. And again, continuing to drive higher software revenues in the business, is an important growth opportunity with Esko and X-Rite. CapSure is a handheld device that some retailers with strong cosmetics orientation are very much attracted to. The opportunity is to take a shot of a skin and optimize and match the ideal color formula, or the color cosmetics formula. And we actually have launched the Pantone Skin Guide here in 2012 to assist with that initiative. So you'll continue to see some opportunities with retailers around this. As I mentioned, Pantone is just a wonderful brand. Very strong brand awareness in the marketplace, all the leading consumer and retail companies know Pantone, and actually depend on Pantone to make sure the color that they have is represented in the right way around the marketplace. The Pantone standards business is really about the color chips and fan books, and palettes that are used by graphic artists and designers around the world. It's also textile, patches of cloth used for color matching in the textile world. And a recent launch of a plastics line of standards as well, inside Pantone. So the standards business with Pantone and launching new colors is a growth driver. In 2012, we launched 336 new colors. And most importantly, last week, as you may have seen, launched the color of the year for 2013, which is Emerald. The Pantone Color of the Year is a decade-long tradition that really happens through the Pantone Color Institute, which is our own team of designers who spend the better part of the year surveying the marketplace, retailers, designers, consumers. And it really helps set some of the fashion trends for the marketplace. I don't know if you saw last Friday's Wall Street Journal, but you saw a green Emerald box in the front page and in the front page of the Personal Journal with lots of good public relations around Pantone. The Today show, lots of consumer media and Internet media. The X-Rite and Pantone public relations team, really, has done a great job around that. So why does it matter? It continues to strengthen the Pantone brand but I think, monetarily, it helps us drive additional licensing revenue in the Pantone business. It's a small but growing portion of the business, so very strong recurring revenue stream, some of the examples you see on the slide here, Sephora, in 2012, in 500 of their stores, had a point of purchase display of cosmetic line built around last year's Color of the Year, which was Tangerine Tango. The lower, left-hand side of the screen is the Pantone 5, which is actually designed and marketed by Sharp in Japan and they're soon to have a multimillion consumer media campaign built around the Pantone -- phone, a number of retailers leveraging the Pantone Colors of the Year in industrial companies as well. So the licensing business is an attractive part of Pantone and one that we're very focused on growing as well. All of those are great growth opportunities. We're very optimistic and excited about how they're going to help drive growth in the business, but most significant is PantoneLIVE. PantoneLIVE is something that both Esko and X-Rite worked on together prior to the acquisition. PantoneLIVE is basically digital workflow and color in the cloud. So what happens is a brand owner or a converter will take an actual color, and how it reacts with a certain substrate and certain light condition, and digitize that. We store that on the web, it's accessible by all portions of the supply chain and when they access it, they are able to download it in the exact digital format. So no more color variation. It looks a little bit different on this paper or this substrate than it does on another, it helps raise the overall quality throughout the design chain. It's a license-based, subscription-based type of product, there'll be enterprise licenses, there'll be per access charges and it's an opportunity throughout the entire value chain to connect and communicate in a much better and a much more efficient way than it has in the manual processes of the past. Don't necessarily take my word for it, I've got our friend John, from Chesapeake which is a global packaging converter to share his initial thoughts with PantoneLIVE with you today.
William K. Daniel
So Chesapeake is a global package printer and converter. What really the return on investment happens for them is in press capacity. And it's all through that first time, best quality, less iterations that creates that press capacity for them. We have projects underway with other global converters such as Tetra Pak, like Chesapeake, a number of discussions and implementations with some very recognizable global brand owners. This, frankly, is probably a 2 to 3-year rollout in implementation, but it has the opportunity to fundamentally change the value chain in the packaging industry. So it's very exciting. It can only happen with companies like Esko, Pantone and X-Rite due to their very unique position from a standards and from a software standpoint. And PantoneLIVE is very exciting and going to be a strong growth driver for us in the future. So we very much like the businesses that we have. Our marketing and coding space continues to be a strong growth and vitality engine for us. We think Esko and X-Rite really expand our market potential into new and exciting areas. Emerging markets continue to be a significant opportunity and the capability to really build something new and exciting and changing for the industry around software. We're just excited about what we see here with Product IDs. So thank you for your attention, and I'll be happy to take questions from you.
Dan, so Esko [indiscernible] the design software suite. And is there an ambition for Danaher to build and design software as a [indiscernible] going forward? Maybe going into industrial design CAD/CAM? Or do you want to keep this cluster within the FMCG chain?
William K. Daniel
Well, we like our position in Esko and X-Rite world today. And there are some pretty big design firms out there in the broader industrial space. We think there's plenty of growth opportunities to expand our capabilities in the packaging world, so we'd probably be staying pretty close to home over the near term with those opportunities. But certainly, expanding into adjacent markets, companies like Esko and X-Rite really give us that broader landscape to go after.
Just a question, I guess, about how to expand the software opportunity more. I mean you talked about it with X-Rite. And I'm wondering if any of this actually also can be applied back into the core coding and marketing business at all? Or if there's any lessons learned from the new businesses you have there?
William K. Daniel
Absolutely, Esko is one of a handful of Danaher's businesses now really improving and expanding the software development capabilities, Videojet especially in the area of connectivity inside a factory of various printers and ERP systems is something that's a key feature of the new 1000 series product line expansion. Some of the Esko team helped them with some of their early thinking around software development. So Esko, clearly, and their software capabilities, gives us opportunity to improve our overall software capabilities in the platform and other parts of Danaher along with some of Jim's businesses.
We're running a bit over, so we're going to...
William K. Daniel
I think [indiscernible] too. Thank you.
H. Lawrence Culp
Dan, I'm pleased to know this green tie I have on is topical and consistent with current fashion. It is. It's Emerald. It's Emerald. I hope that you saw in Dan's presentation, as well as in Jim and Tom's, a set of common themes relative to how we're running these businesses and how we're going for growth today. I worry though that there's a tie back to some of the DBS fundamentals that have been part of our company for over 25 years. If you think about the lessons we learned from Toyota, around lean, on the shop floor, standard work, 5S, value stream mapping. Those same tools and approaches that helped us drive a lot of productivity in manufacturing back in the day had really been integral to helping us identify these workflow opportunities that you saw in each of the 3 presentations. And in turn, execute product strategies, let alone sales and marketing strategies that have really helped us not only establish these footholds and foundations, but are propelling the growth that you see, the businesses putting up in 2012 is certainly poised to deliver in 2013. I see everybody looking down. I assume you have now received the final chapter, the final deck that we have for this afternoon relative to the guidance presentation. I'll go through this very quickly. Again, we covered I think the salient points in this morning's press release. But with respect to 2013, what we're looking at is top line growth of 1% to 4%. We think that's appropriate given what we know and don't with respect to the macro environment. We come into 2013 with more capacity than we ever have from an M&A perspective. That said, the guidance does not assume anything with respect to acquisitions, but we remain optimistic and are certainly poised to be aggressive in that regard. Slow environments have always been a good M&A environments for Danaher. Again, we're including the Apex Tool Group closing anticipated in the first half of next year. In terms of the earnings, the key assumptions there is a 35% fall through at the midpoint. We tend to talk about 30% to 35%. I think we feel a little bit better about a higher number here in no small part because the cost reductions that Beckman clearly are helpful, not an acquisition from 2012, but rather 2011. But we continue to get that benefit, and otherwise we probably would be looking at a more typical 30% to 35% band in that regard. We will get $140 million of restructuring benefit, $90 million of that coming from the savings, from the actions that we're taking principally here in the fourth quarter. The $50 million of incremental benefit is really a reflection of us anticipating spending about $70 million next year in restructuring as opposed to $120 million that we'll spend this year. That said, I think the $70 million that we would spend sounds like a bigger number than maybe some of those traditional numbers that we've talked about in the past, $40 million, give or take. But given the size of the company today, we're knocking on the door of $20 billion in revenue, we think that's an appropriate number for this stage of the process. And from a tax perspective, we're looking at a 24% effective rate. In terms of the core breakdown by segment, as you can see on the slide, we're looking for environmental to be somewhere in the 1% to 3% range. I'd say there the upside will really be a function of what we're able to do in the industrial verticals and, to a degree, in China. I think some of the downside will be a function of what happens to the municipal spending in Europe, as well as here in the U.S. T&M should be in the 1% to 4% band. Jim, I think, gave you a good feel for everything going on around mobility and security. We're well positioned there. How much of a lift we see in 2013 remains to be seen, but I think that will define the upper end of that range. Conversely, at Tektronix and, to a degree, Fluke will certainly still see sluggish expectations around spending on the research and design benches out there. That will probably help shape the lower end of that range. From an LS&D perspective, I think by and large, the upper end of that range will be a function of execution. Again, lots of progress of Beckman. That continues to build. And in both Life Sciences & Diagnostics, we have a whole slew of new product introductions that if we execute well around those launches should help us. The offset, particularly, in Europe will be what we see from the governments with respect to austerity. Dental, a somewhat similar story. I think we have a lot that we can control, particularly in raising that below-average high-growth-market penetration in dental. On the other side of the band there, we're looking at a tough European environment in all likelihood, given what's happening broadly in the dental space there. So we see how that plays out. But we got dental in at 1% to 3% for next year. And then Industrial Technologies would be flat to up 3%. Here again, I think we're probably tied tightly to what happens from a global PMI perspective on the low end of that range. But as Dan just walked you through, lots of opportunity for us, clearly in Product ID, both around the foundation businesses, Videojet links and the like, but also as we get Esko and X-Rite fully integrated into the portfolio. From an earnings bridge perspective, if you take the midpoint of the current consensus out there, $3.17 for this year, we're looking at a 7% to 12% growth year-on-year getting to that $3.40 to $3.55 range. At this point, FX will either be neutral, we talked earlier about medical device excise tax. We see that as about a $0.04 headwind going into next year. As Tom characterized it, it's probably a conservative position. There are offsets available to us. We'll be working hard as those rules are finalized to do what we can there, but we thought that was the right place for today with respect to the excise tax dynamic. Likewise, even in a tough environment, we think we're playing the long game, so we're not going to walk away from nurturing and expanding our growth investments. On a net basis, that's another $0.04 despite some of the cost reductions and structural cost efforts that are there on an ongoing basis, purchase price variance, labor productivity, things of that nature. On the positive side, with 12.5 million shares bought back in addition to some mid-year bond maturities, we think we got $0.05 of tailwind from the balance sheet in that regard. There's another $0.04 coming from the 2012 acquisitions. And then the restructuring benefit again will be $0.14 as we dial in today. With a core growth band of 1% to 4% again at the midpoint, call it, 2.5% of a 35% fall-through, little less, little more as the core growth moves there, we're looking at the 8% to 23% range there. Add it all up, you get to $3.40 to $3.55. So I think, by and large, we're really pleased with 2012 in terms of not only the performance that we've been able to register, but I think the strengthening the foundation that we've laid for '13 and beyond, the growth investments that we're making organically and inorganically, let alone the firepower we have, I think, gives us just tremendous potential and a numerous degrees of strategic freedom going into next year to grow and to build. And certainly with DBS well in place across the portfolio around the world certainly anxious to deliver that high-single digit, low double-digit earnings growth even in a tepid top line environment in 2013. We're building a global science and technology company at Danaher. We're doing that with DBS. I think you saw 3 great examples today. Fortunately, those aren't the only 3, but those are the ones we wanted to try to shoehorn in inside of a couple of hours for you this afternoon. So again, we appreciate everybody coming out this afternoon, appreciate those on the webcast taking time to listen in. And we'll open it up. I think we've got a few minutes here still for questions.
H. Lawrence Culp
Megan, you have the microphone. Do we have anybody in the back we haven't gotten to yet? I can't even see back there. No? We're going to force someone to ask some question then?
John G. Inch - Deutsche Bank AG, Research Division
No, that's all right. Hey, Larry.
H. Lawrence Culp
Is that John Inch?
John G. Inch - Deutsche Bank AG, Research Division
It is. Hey, so what are your thoughts, as Danaher has become bigger and achieved, in many respects, critical mass, so much more critical mass in a lot of your business clusters. What are your thoughts toward one day, perhaps, establishing a much more meaningful dividend given your ample liquidity?
H. Lawrence Culp
I thought we were going to go somewhere else with that premise. I was thinking we're going to the dividend. But I should know it from John that you never know what you're going to get. John, I think I would just say, with respect to the premise, on one hand we are a big company. But I'd like to think we still have the soul of a small company. There are times when we are an 18 plus billion dollar company, and we act like it, I think, and hopefully, to our advantage. But a lot of what we do, the way we think about the business, the way we run the business, is still brand by brand by brand, operating company by operating company by operating company. And I just -- I never want us to lose that. You're right. We've got critical mass. And I think what you saw, for example, in Jim's presentation is critical mass in communications, where we've got 4 outstanding businesses. But they're coming together increasingly not to dilute their individual positions, but to do what is incremental as that line blurs between the enterprise and the carrier space. I think similarly, you're going to see Tom have Leica Bio, working with Beckman, working with Radiometer in the diagnostics level. Again, still thinking less about Danaher on a day-to-day basis because Danaher rarely serves customers. We're really thinking about the operating companies and the platforms. That said, with respect to capital allocation, I think our priorities at this point are unchanged. And I can say that less than 2 weeks out of a board meeting, where we had another in-depth conversation in this regard. As long as we have the array of opportunities in front of us, John, to continue to build and grow in and around these existing businesses, into adjacencies as appropriate and every once in a while into a new segment, I think you're going to see us do that. From time to time, we'll be in the market opportunistically with respect to the buybacks. I think it's been obviously a bit more active here of late, but no one should read, I think, anything into that. Will the dividend evolve over time? I suspect so, but I still think it's going to be, if you will, third in line relative to those capital allocation options.
John G. Inch - Deutsche Bank AG, Research Division
So given that medical and industrial in under one roof, pretty different end market clusters as they continue to grow under your -- what you've articulated here. Does it make sense that the company stay intact in the long run? Or could you ever see a scenario, again, in the long run, where Danaher becomes sort of 2 larger clusters with independent penetration opportunities?
H. Lawrence Culp
Well, if I recall from my economics studies, in long run, we're all dead. So not going to rule out anything other than that. John, I think right now, we are managing effectively the breadth of the portfolio. Again, I would argue that what's really held us together as we become bigger and perhaps broader is we haven't lost sight of where DBS applies and where it doesn't. I think there's an arc here around instrumentation, around consumables, where DBS applies that you can really trace back to our early days in the environmental ground. And we extended that, obviously significantly, at Fluke and ultimately at Tek into Test & Measurement. I think a lot of those skills, those playbooks have certainly been relevant in what we've done, both in Life Sciences & Diagnostics. And while it's perhaps more of a traditional industrial business, on the shop floor, I would argue many of the plays, the winning plays, in the PID playbook are similar out there. So I think that defines where we allocate capital, where we go in and execute. Clearly, when that no longer holds, when the pieces are worth more than the whole, I think that everything will be on the table. I would argue, with our board and our ownership structure, well before that's obvious to you, it'll be obvious to those of us in the boardroom, and we'll do the right thing for shareholders. But I think, right now, we think we've got a coherent whole. We like our breadth, but are mindful that there are some dynamics that have befallen others. We have to make darn sure they don't take us down. I think Deane's got a question. Then we'll go to Steve here.
Deane M. Dray - Citigroup Inc, Research Division
Larry, on discretionary spending and growth investments, maybe talk a bit about what's protected, what you wouldn't try to pull back from in terms of investments next year, if times get tougher. And a related question is one of the data points you gave on the Beckman update was that you are able to cut CapEx 40% and still not sacrifice any of the growth opportunities. So maybe there are ways you can be creative about that but -- 2-part question.
H. Lawrence Culp
Sure. Well, maybe I'll take the easy one first. The capital expenditure reduction at Beckman was really nothing more than being disciplined, asking why we need X, Y or Z and having that discussion in terms of where our priorities and what returns can we expect on those projects and those investments. And I think as we put that rigor into the process, it wasn't as if we had a lot of tough decisions to make. I think some of the traditional programs and spending efforts really just melted to the side. I think whether it be at Beckman, Deane, or elsewhere, what we've tried to do this year, and I would argue by and large successfully, and clearly what we've set ourselves up to do in the last 8 weeks going to the 2013 budgeting, is to be clear about our strategic priorities, understand how we resource those, and whether that's cutting off other projects or getting into the restructuring program, for example, so that we're clear about what those efforts need and in turn, where we're going to find that money. I think that's really the trick. Didn't mean everybody was happy coming out of budgets. Certainly, a number of tough decision and, for a number of our associates, tough personal implications in that regard. But I think that's always -- and that's been the way we've always tried run the business. There's certainly some wild cards out there in 2013. Given that, I don't think we put anything off the table. But as we think about 2013, I don't think any of us are walking out the door at the end of the year. It’s not about our bonuses next year. It’s really about building outstanding company and creating long-term value. So there are bets we are clearly making. You saw a couple in Dan's presentation. But they're not going to do anything for us next year, and they'd be very easy to cut. But we're going to be here in '14. We're going to be here in '15. So as we weigh through what may be there in the first part of next year, we're going to try to take a long view, be tough minded where we should, but also make sure that those longer-term efforts, that sometimes don't always have a voice when those budget decisions are being made, are certainly protected. Steve?
Steven E. Winoker - Sanford C. Bernstein & Co., LLC., Research Division
I guess there are very few examples of multi-industrial diversified even science and technology companies that grow significantly above the peer average for a sustained period of time. And so my question is around the balance of the portfolio that you have. You talked about recurring revenues going from 25% to 40% of the portfolio now. That brings with it a different kind of growth characteristic in a more cyclical side. How should we think about the maturity or where you're headed in terms of the balance of the market and the portfolio that frankly drive a good chunk of that sustained growth over time? Are you happy? Are you -- where is it? We are you going with this?
H. Lawrence Culp
Well, I would say that we're very happy with where we are. If we could add another $10 billion of revenue or deploy another $10 million of capital around a Danaher-like opportunity as Danaher is defined today, I think we'd be thrilled because we know that would create tremendous value for shareholders. I think as we think about recurring revenue, not sure we would buy into the idea that it makes us more volatile or more cyclical. I think we would argue that the bigger ticket item, by and large, are going to have a little bit choppiness around them. When we get into businesses like Radiometer, like Videojet, those aftermarket businesses are good growers. They're balanced in tough times in the whole and create their own set of opportunities for us, who don't suggest that we can't be an above-average grower over time with that sort of portfolio. So we like those businesses. If we can overweight beyond the 40, I think we'd be back. I don't think we would walk from that, but I wouldn't suggest we've got a target to say we're going to be 45, 50, 55 over time. But I was just speculative. If it goes anywhere, it probably goes North, as opposed to South. Nigel?
Nigel Coe - Morgan Stanley, Research Division
So, Larry, I never thought I'd see share buybacks as a tailwind in your EPS waterfall. But just going back to the first question, I mean, so giving away your free cash flow yield right now, you got an 8% cash on cash, risk-free return from buying back stock, and maybe your deal is 10% year 3 cash on cash. So the decision must be more marginal now between buybacks as M&A in some cases. And I'm wondering if there's any instance this year where you chose not to do a deal because your stock is so cheap.
H. Lawrence Culp
I'm sorry, I didn't hear the last part.
Nigel Coe - Morgan Stanley, Research Division
I guess the question is, are there any deals you choose not to do this year, in the second half of the year because your stock is just too attractive?
H. Lawrence Culp
No. No. Year's not out, but I think that what you'll -- the body of work you'll see us put up in the second half, Nigel, in no way has been influenced, shaped or otherwise affected by the buyback. By and large, we've had, I think, a pretty good year. We spent $1.5 billion at the time where we said we're going to be quiet post Beckman. I think that's a pretty good year. You haven't seen a ton of M&A in our neighborhoods, so I don't think we're a particular outlier in that regard. Clearly the Apex proceeds coming in influences in part the buyback calculus. Not going to accept any criticism on the buyback. It's a hell of a company to buy particularly at these prices, right? But that said, I think M&A will continue to be priority one, and also the capital allocation.
Nigel Coe - Morgan Stanley, Research Division
Okay. And then a quick one on Beckman Coulter. I think you mentioned 4 points -- above 4 points of margin expansion year-over-year, which I think increased about $150 million of EBIT analyzed, and I think with cadence in about $250 million of cost savings. So I'm wondering what’s the offset? Is that restructuring? And if it's not restructuring, then taper off as a growth investments. I'm just wondering what that $100 million offset was?
H. Lawrence Culp
I think as we look forward, we're certainly going to continue to see Beckman all in deliver on those cost savings and help in the short term as those cost savings fall in place contribute to the operating margin expansion in the BCM. So again, as we think about our typical BCM in a low-growth environment, I think we'd be talking something closer to 30 then 35. But again the [indiscernible] we have at 35 around the midpoint of that growth range, let alone what we could do with a little bit more top line, is really a function of the Beckman contribution to the bottom line, but also the Beckman contribution to some of the degrees of freedom to put some of that money back into the growth opportunities, some of which Tom alluded to. Cliff?
When I look at the long-term record of Danaher, there's 2 elements. One is a growth in earnings and cash flow, and the other one is your ability to attract premium multiple. What is your best guess on the root cause -- look, everybody has got possible multiple compression in the last couple of years, including all of your high-quality peers. And if anything is missing in the equation, it's the ability for the market to look at 1%, 2%, 3%, 4% organic growth and give you premium multiple. Do you think there's a factor when you Pareto what keeps your multiple down as bigger than the inability to produce higher organic growth even with the overlay of a slow economy?
H. Lawrence Culp
Cliff, I probably spend less time thinking about that than you may have imagined or maybe I should. We're building and growing this business. We'll leave all the wisdom in the room to put a price on our future. But I think that where we are today, we've never been in a better position as we lead forward, look forward here. How that plays out on any one day in the market, it is what it is.
I would've been happy to have you do my job, but my question was related to something else. I would've expected to hear more about countermeasures to overcome those low organic growth expectations. Are we just not seeing that's the best you could do in this environment?
H. Lawrence Culp
Well, I certainly...
That came out a lot more negatively than I wanted it to, but I think you understand the question.
H. Lawrence Culp
No. I think I get the question. Certainly, in a low growth environment, where we got a number of businesses in transition, I don't -- I think you look at the top line numbers. I don't think that's indicative of what those businesses and Danaher as a whole is capable of delivering. But the numbers are the numbers. So you take the third quarter, for example, there aren't a lot of high 5s, relative to the headline print in Washington. But business by business, I think we're getting better with respect to execution around these sorts of opportunities. These are 3 great examples where I think you can take any one of these businesses, roll back, go to the jumping off point prior to Danaher, I would argue those businesses would have a low probability of being where they are today without the participation of Danaher and without the injection of DBS. I think that's the delta. But we've got a couple of businesses that are clearly feeling the weight of the economy, motion intact particularly, Beckman Coulter, a work in process. So I think the growth equations, one, we solved over time, but I get the question, and we just have to work harder to deliver a better answer. And we'll do that. I think we are capable of that. Shannon, I think you get the last question.
Shannon O'Callaghan - Nomura Securities Co. Ltd., Research Division
So we're in this equipment spending all that you're experiencing now. When you think about the new product cycles, some of which we heard about today, how much do you think you can sort of force your way out of that? I mean If the economy kind of stays slow growth, how much of the new products are so compelling and so different than the prior generation that people aren't going to be able to wait any longer? When do we get to that point?
H. Lawrence Culp
Why, they're all compelling. I think it's a hard question to answer quantitatively. And certainly, qualitatively, even though our equipment numbers are on balanced down slightly, we have a number of business, which you saw a handful today, over-delivering growth in a capital-constrained market. I think that is a function in part of these innovations that we're bringing into market. And in a number of these situations, the mobile operators and perhaps the enterprise security folks being the exceptions, our customers don't have to do what they're doing right now, right? They could push some of these decisions 3 months, 6 months, a year, but they're not. Because you just saw in the Chesapeake video, a lot of these innovations are driven on the back of the voice of the customer with an eye towards that ROI, making sure we're not just persuasive, but the numbers haunt when they're going back to their CFOs and the like trying to get signatures for those purchases. And I think when we're able to deliver innovation with those sorts of business cases behind them, we can make those sales. Where would we be without those innovations? Would those equipment numbers be down 5%, 10% broadly, as opposed to flattish? Hard to say. But I certainly wouldn't -- I would not want to be in this environment without those new product at our disposal. I think they're very much a part of what we've done this year and, certainly, will help us next year, okay?
I think that's about it. We'd be around for a few more minutes. Thank you, again for joining us today. Have a very happy holiday season. We'll see many of you in 2013.
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