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| | $ | | | | $ | | | | $ | | |
| Additional paid-in capital: | | | | | | | |
| Balance, beginning of period | $ | | | | $ | | | | $ | | | | $ | | |
| Common stock-based award | | | | | | | | | | | |
| Repurchase of common stock, including excise taxes | () | | | | | | () | | | | |
|
| Common stock issued in connection with Mandatory Convertible Preferred Stock conversions | | | | | | | | | | | |
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| Acquisition of controlling interests | | | | | | | | | | | |
|
| Balance, end of period | $ | | | | $ | | | | $ | | | | $ | | |
| Retained earnings: | | | | | | | |
| Balance, beginning of period | $ | | | | $ | | | | $ | | | | $ | | |
|
| Net earnings | | | | | | | | | | | |
| Common stock dividends declared | () | | | () | | | () | | | () | |
| Mandatory Convertible Preferred Stock dividends declared | | | | | | | | | | () | |
| Balance, end of period | $ | | | | $ | | | | $ | | | | $ | | |
| Accumulated other comprehensive income (loss): | | | | | | | |
| Balance, beginning of period | $ | () | | | $ | () | | | $ | () | | | $ | () | |
|
| Other comprehensive income (loss) | | | | () | | | () | | | () | |
| Balance, end of period | $ | () | | | $ | () | | | $ | () | | | $ | () | |
| Noncontrolling interests: | | | | | | | |
| Balance, beginning of period | $ | | | | $ | | | | $ | | | | $ | | |
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| Payment of dividends | () | | | () | |
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| Net proceeds from (repayments of) borrowings (maturities of 90 days or less) | | | | () | |
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| Net repayments of borrowings (maturities longer than 90 days) | () | | | | |
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| Payments for repurchase of common stock | () | | | | |
| All other financing activities | () | | | () | |
| Total cash used in financing activities | () | | | () | |
| Effect of exchange rate changes on cash and equivalents | () | | | () | |
| Net change in cash and equivalents | () | | | | |
| Beginning balance of cash and equivalents | | | | | |
| Ending balance of cash and equivalents | $ | | | | $ | | |
| Supplemental disclosures: | | | |
| Cash interest payments | $ | | | | $ | | |
| Cash income tax payments | | | | | |
See the accompanying Notes to the Consolidated Condensed Financial Statements.
DANAHER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
NOTE 1.
million and $ million, respectively, and taxes receivable for income and other taxes of $ million and $ million, respectively.
billion and are included within other long-term assets in the accompanying Consolidated Condensed Balance Sheets. The associated operating lease liabilities were approximately $ billion and $ billion as of June 28, 2024 and December 31, 2023, respectively, and are included in accrued expenses and other liabilities and other long-term liabilities in the accompanying Consolidated Condensed Balance Sheets.
NOTE 2.
business for total consideration of $ million in cash, net of cash acquired. The business acquired complements existing units of the Company’s Life Sciences segment. The aggregate annual sales of the business acquired in 2024 at the time of acquisition, based on the company’s revenues for its last completed fiscal year prior to the acquisition, were less than $ million. The Company is continuing to evaluate certain pre-acquisition contingencies associated with the 2023 acquisition of Abcam plc (“Abcam”) and its 2024 acquisition and is also in the process of obtaining valuations of certain acquisition-related assets and liabilities in connection with these acquisitions. The Company will make appropriate adjustments to the purchase price allocation prior to completion of the measurement period, as required. Pro Forma Financial Information
The unaudited pro forma information for the periods set forth below gives effect to the 2023 and 2024 acquisitions as if they had occurred as of January 1, 2023, including the results from operations for the acquired businesses as well as the impact of assumed financing of the transaction and the impact of the purchase price allocation (including the amortization of acquired intangible assets).
| | $ | | | | $ | | | | $ | | | Net earnings from continuing operations | | | | | | | | | | | |
Diluted net earnings per common share from continuing operations (a) | | | | | | | | | | | |
.
million non-recurring acquisition date fair value adjustment to inventory. The six-month period ended June 30, 2023 million non-recurring acquisition date fair value adjustments to inventory and the settlement of pre-acquisition share-based payment awards related to the acquisition of Abcam, reflecting these fourth quarter of 2023 and first quarter of 2024 charges as if the acquisition had occurred as of January 1, 2023.
NOTE 3.
| | $ | | | | Cost of sales | () | | | () | |
| Selling, general and administrative expenses | () | | | () | |
| Research and development expenses | () | | | () | |
| Other income (expense) | () | | | () | |
| Interest expense | () | | | () | |
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| Income from discontinued operations before income taxes | | | | | |
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| Income tax expense | () | | | () | |
| Earnings from discontinued operations, net of income taxes | $ | | | | $ | | |
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NOTE 5.
| | $ | | | | $ | | | | $ | | |
| Western Europe | | | | | | | | | | | |
Other developed markets(b) | | | | | | | | | | | |
High-growth markets(c) | | | | | | | | | | | |
| Total | $ | | | | $ | | | | $ | | | | $ | | |
| | | | | | | |
| Revenue type: | | | | | | | |
| Recurring | $ | | | | $ | | | | $ | | | | $ | | |
| Nonrecurring | | | | | | | | | | | |
| Total | $ | | | | $ | | | | $ | | | | $ | | |
| | | | | | | |
| For the Three-Month Period Ended June 30, 2023: | | | | | | | |
| Geographical region: | | | | | | | |
North America(a) | $ | | | | $ | | | | $ | | | | $ | | |
| Western Europe | | | | | | | | | | | |
Other developed markets(b) | | | | | | | | | | | |
High-growth markets(c) | | | | | | | | | | | |
| Total | $ | | | | $ | | | | $ | | | | $ | | |
| | | | | | | |
| Revenue type: | | | | | | | |
| Recurring | $ | | | | $ | | | | $ | | | | $ | | |
| Nonrecurring | | | | | | | | | | | |
| Total | $ | | | | $ | | | | $ | | | | $ | | |
| | $ | | | | $ | | | | $ | | |
| Western Europe | | | | | | | | | | | |
Other developed markets(b) | | | | | | | | | | | |
High-growth markets(c) | | | | | | | | | | | |
| Total | $ | | | | $ | | | | $ | | | | $ | | |
| | | | | | | |
| Revenue type: | | | | | | | |
| Recurring | $ | | | | $ | | | | $ | | | | $ | | |
| Nonrecurring | | | | | | | | | | | |
| Total | $ | | | | $ | | | | $ | | | | $ | | |
| | | | | | | |
| For the Six-Month Period Ended June 30, 2023: | | | | | | | |
| Geographical region: | | | | | | | |
North America(a) | $ | | | | $ | | | | $ | | | | $ | | |
| Western Europe | | | | | | | | | | | |
Other developed markets(b) | | | | | | | | | | | |
High-growth markets(c) | | | | | | | | | | | |
| Total | $ | | | | $ | | | | $ | | | | $ | | |
| | | | | | | |
| Revenue type: | | | | | | | |
| Recurring | $ | | | | $ | | | | $ | | | | $ | | |
| Nonrecurring | | | | | | | | | | | |
| Total | $ | | | | $ | | | | $ | | | | $ | | |
(a) The Company defines North America as the United States and Canada.
(b) The Company defines other developed markets as all the markets of the world that are not North America, Western Europe or high-growth markets.
(c) The Company defines high-growth markets as developing markets of the world experiencing accelerated growth, over extended periods, in gross domestic product and infrastructure which include Eastern Europe, the Middle East, Africa, Latin America (including Mexico) and Asia (with the exception of Japan, Australia and New Zealand). The Company defines developed markets as all markets of the world that are not high-growth markets.
The Company’s products and services primarily consist of life sciences research, biopharmaceutical drug production and medical diagnostic, products and services. The Company sells equipment to customers as well as consumables, software and services, some of which customers purchase on a recurring basis. Consumables sold for use with the equipment sold by the Company are typically critical to the use of the equipment and are typically used on a one-time or limited basis, requiring frequent replacement in the customer’s operating cycle. Examples of these consumables include reagents used in diagnostic tests, chromatography resins used for research and bioprocessing and filters used in filtration, separation and purification processes. Additionally, some of the Company’s consumables are used on a standalone basis, such as custom nucleic acids, genomics solutions, antibodies and immunoassays. The Company separates its goods and services between those typically sold to a customer on a recurring basis and those typically sold to a customer on a nonrecurring basis. Recurring revenue includes revenue from consumables (both used with Company equipment and used on a standalone basis), services and operating-type leases (“OTLs”). Nonrecurring revenue includes sales of equipment and sales-type leases (“STLs”). OTLs and STLs are included in the above revenue amounts. For the three-month periods ended June 28, 2024 and June 30, 2023, lease revenue was $ million and $ million, respectively. For the six-month periods ended June 28, 2024 and June 30, 2023, lease revenue was $ million and $ million, respectively.
Remaining performance obligations related to Topic 606, Revenue from Contracts with Customers, represent the aggregate transaction price allocated to performance obligations with an original contract term greater than one year which are fully or partially unsatisfied at the end of the period. As of June 28, 2024, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $ billion. The Company expects to
% of the remaining performance obligations over the next months, % over the subsequent months, and the remainder recognized thereafter.The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (“contract assets”) and deferred revenue, customer deposits and billings in excess of revenue recognized (“contract liabilities”) on the Consolidated Condensed Balance Sheets. Contract assets and liabilities are reported on a net basis on the accompanying Consolidated Condensed Balance Sheets on a contract-by-contract basis at the end of each reporting period.
billion and $ billion, respectively, and are included within accrued expenses and other liabilities and other long-term liabilities in the accompanying Consolidated Condensed Balance Sheets. The decrease in the contract liability balance during the six-month period ended June 28, 2024 was primarily a result of amounts recognized as revenue, partially offset by cash payments received in advance of satisfying performance obligations. Revenue recognized during the six-month periods ended June 28, 2024 and June 30, 2023 that was included in the contract liability balance on December 31, 2023 and December 31, 2022 was $ million and $ million, respectively.
NOTE 6.
| | $ | | | | $ | | | | $ | | | | Life Sciences | | | | | | | | | | | |
| Diagnostics | | | | | | | | | | | |
| Total | $ | | | | $ | | | | $ | | | | $ | | |
| | | | | | | |
| Operating profit: | | | | | | | |
| Biotechnology | $ | | | | $ | | | | $ | | | | $ | | |
| Life Sciences | | | | | | | | | | | |
| Diagnostics | | | | | | | | | | | |
| Other | () | | | () | | | () | | | () | |
| Total | $ | | | | $ | | | | $ | | | | $ | | |
NOTE 7.
% | | | % | | | % | | | % | The Company operates globally, including in certain jurisdictions with lower tax rates than the United States (“U.S.”) federal statutory rate. Therefore, the impact of operating in such jurisdictions contributes to a lower effective tax rate compared to the U.S. federal statutory tax rate.
The effective tax rate for the three-month period ended June 28, 2024 differs from the U.S. federal statutory rate of % principally due to the impact of the Company’s global operations, research tax credits, foreign-derived intangible income and aggregate net discrete benefits of $ million related primarily to excess tax benefits from stock-based compensation. The aggregate net discrete benefits reduced the effective tax rate by % for the three-month period ended June 28, 2024.
% principally due to the impact of the Company’s global operations, research tax credits, foreign-derived intangible income and aggregate net discrete benefits of $ million related primarily to excess tax benefits from stock-based compensation, release of reserves for uncertain tax positions due to the expiration of statutes of limitation and changes in estimates associated with prior period uncertain tax positions. The aggregate net discrete benefits reduced the effective tax rate by % for the six-month period ended June 28, 2024.The effective tax rate for the three-month period ended June 30, 2023 differs from the U.S. federal statutory rate of % principally due to the impact of its global operations, research tax credits and foreign-derived intangible income, partially offset by net discrete tax charges of $ million. Net discrete tax charges related primarily to tax costs related to the separation of the Environmental & Applied Solutions business, tax costs related to legal and operational actions taken to realign certain businesses and changes in estimates associated with prior period uncertain tax positions, partially offset by interest on prior year tax refunds. The net discrete charges increased the effective tax rate by % for the three-month period ended June 30, 2023.
The effective tax rate for the six-month period ended June 30, 2023 differs from the U.S. federal statutory rate of % principally due to the impact of its global operations, research tax credits and foreign-derived intangible income, partially offset by net discrete tax charges of $ million. Net discrete tax charges related primarily to tax costs related to the separation of the Environmental & Applied Solutions business, tax costs related to legal and operational actions taken to realign certain businesses and changes in estimates associated with prior period uncertain tax positions, partially offset by excess tax benefits from stock-based compensation and interest on prior year tax refunds. The net discrete charges increased the effective tax rate by % for the six-month period ended June 30, 2023.
In the fourth quarter of 2022, the U.S. Internal Revenue Service (“IRS”) proposed significant adjustments to the Company’s taxable income for the years 2016 through 2018 with respect to the deferral of tax on certain premium income related to the Company’s self-insurance programs. For income tax purposes, the recognition of premium income has been deferred in accordance with U.S. tax laws related to insurance. The proposed adjustments would have increased the Company’s taxable income over the 2016 through 2018 periods by approximately $ billion. In the first quarter of 2023, the Company settled these proposed adjustments with the IRS, although the audit is still open with respect to other matters for the 2016 through 2018 period. The impact of the settlement with respect to the Company’s self-insurance policies was not material to the Company’s financial statements, including cash flows and the effective tax rate. As the settlement with the IRS was specific to the audit period, the settlement does not preclude the IRS from proposing similar adjustments to the Company’s self-insurance programs with respect to periods subsequent to 2018. Management believes the positions the Company has taken in its U.S. tax returns are in accordance with the relevant tax laws.
For a description of the Company’s significant tax matters, reference is made to the financial statements as of and for the year ended December 31, 2023 and Note 7 thereto included in the Company’s 2023 Annual Report.
NOTE 8.
| | $ | | | | $ | | | | $ | | | | Investment gains (losses): | | | | | | | |
| Realized investment gains (losses) | | | | | | | () | | | | |
| Unrealized investment gains (losses) | () | | | () | | | () | | | | |
| Total investment gains (losses) | () | | | () | | | () | | | | |
|
| Total other income (expense), net | $ | () | | | $ | () | | | $ | () | | | $ | | |
| Adjustments due to finalization of purchase price allocations | () | |
| Foreign currency translation and other | () | |
| Balance, June 28, 2024 | $ | | |
The carrying value of goodwill by segment is summarized as follows ($ in millions): | | | | | | | | | | | |
| June 28, 2024 | | December 31, 2023 |
| Biotechnology | $ | | | | $ | | |
| Life Sciences | | | | | |
| Diagnostics | | | | | |
| Total | $ | | | | $ | | |
The Company has not identified any “triggering” events which indicate an impairment of goodwill in 2024.
million in the three and six-month periods ended June 30, 2023 related to these long-lived assets. In addition, during the three and six-month periods ended June 30, 2023, the Company recorded a $ million impairment related to a facility.
NOTE 10.
| | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | Investment in equity securities | | | | | | | | | | | | | | | | | | | | | | | |
| Cross-currency swap derivative contracts | | | | | | | | | | | | | | | | | | | | | | | |
| | | | |
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| | | | | Available-for-sale debt securities, which are included in other long-term assets in the accompanying Consolidated Condensed Balance Sheets, are measured at fair value using quoted prices reported by investment brokers and dealers based on the underlying terms of the security and comparison to similar securities traded on an active market. As of December 31, 2023, available-for-sale debt securities primarily included U.S. Treasury Notes and corporate debt securities.
The Company’s investments in equity securities consist of investments in publicly traded equity securities and investments in non-marketable equity securities. The publicly traded securities are classified as Level 1 in the fair value hierarchy as they are measured based on quotes in active markets. For the non-marketable equity securities, the Company estimates the fair value of the investments using the Fair Value Alternative. The Company’s investments in these equity securities are not classified in the fair value hierarchy due to the use of these measurement methods. Additionally, the Company is a limited partner in partnerships that invest primarily in early-stage companies. While the partnerships record these investments at fair value, the Company’s investments in the partnerships are accounted for under the equity method of accounting and are not subject to fair value measurement disclosures noted above. As of June 28, 2024 and December 31, 2023, the Company’s equity method investments included investments in partnerships with a carrying value of approximately $ billion and $ billion, respectively. Refer to Note 8 for additional information on gains and losses on the Company’s investments including investments in the partnerships.
The cross-currency swap derivative contracts are classified as Level 2 in the fair value hierarchy as they are measured using the income approach with the relevant interest rates and current currency exchange rates and forward curves as inputs. Refer to Note 12 for additional information.
Fair Value of Other Financial Instruments
| | $ | | | | $ | | | | $ | | |
| Long-term debt | | | | | | | | | | | |
As of June 28, 2024 and December 31, 2023, short and long-term borrowings were categorized as Level 1. The fair value of long-term borrowings was based on quoted market prices. The difference between the fair value and the carrying amounts of long-term borrowings is attributable to changes in market interest rates and/or the Company’s credit ratings subsequent to the incurrence of the borrowing. The fair values of borrowings with original maturities of one year or less, as well as cash and cash equivalents, trade accounts receivable, net and trade accounts payable generally approximate their carrying amounts due to the short-term maturities of these instruments.
NOTE 11.
million)(e) | $ | | | | $ | | | |
|
|
% senior unsecured notes due 3/30/2024 (€ million) (the “2024 Euronotes”)(f) | | | | | | |
|
% senior unsecured notes due 11/15/2024 ($ million) (the “2024 Biopharma Notes”)(b) | | | | | | |
% senior unsecured notes due 9/15/2025 ($ million) (the “2025 U.S. Notes”)(f) | | | | | | |
% senior unsecured notes due 3/18/2026 (€ billion) (the “2026 Biopharma Euronotes”)(b) | | | | | | |
% senior unsecured notes due 9/30/2026 (€ million) (the “2026 Euronotes”)(f) | | | | | | |
% senior unsecured notes due 5/11/2027 (¥ billion) (the “2027 Yen Notes”)(d) | | | | | | |
% senior unsecured notes due 6/30/2027 (€ million) (the “2027 Euronotes”)(a) | | | | | | |
% senior unsecured notes due 3/18/2028 (€ billion) (the “2028 Biopharma Euronotes”)(b) | | | | | | |
% senior unsecured bonds due 12/08/2028 (CHF million) (the “2028 CHF Bonds”)(c) | | | | | | |
% senior unsecured notes due 11/15/2029 ($ million) (the “2029 Biopharma Notes”)(b) | | | | | | |
% senior unsecured notes due 3/30/2030 (€ million) (the “2030 Euronotes”)(f) | | | | | | |
% senior unsecured notes due 9/18/2031 (€ billion) (the “2031 Biopharma Euronotes”)(b) | | | | | | |
% senior unsecured notes due 5/11/2032 (¥ billion) (the “2032 Yen Notes”)(d) | | | | | | |
% senior unsecured notes due 9/18/2039 (€ billion) (the “2039 Biopharma Euronotes”)(b) | | | | | | |
% senior unsecured notes due 11/15/2039 ($ million) (the “2039 Biopharma Notes”)(b) | | | | | | |
% senior unsecured notes due 9/15/2045 ($ million) (the “2045 U.S. Notes”)(f) | | | | | | |
% senior unsecured notes due 9/18/2049 (€ million) (the “2049 Biopharma Euronotes”)(b) | | | | | | |
% senior unsecured notes due 11/15/2049 ($ million) (the “2049 Biopharma Notes”)(b) | | | | | | |
% senior unsecured notes due 10/01/2050 ($ billion) (the “2050 U.S. Notes”)(f) | | | | | | |
% senior unsecured notes due 12/10/2051 ($ billion) (the “2051 U.S. Notes”)(f) | | | | | | |
| Other | | | | | | |
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| Total debt | | | | | | |
| Less: currently payable | | () | | | () | |
| Long-term debt | | $ | | | | $ | | |
Debt discounts, premiums and debt issuance costs totaled $ million and $ million as of June 28, 2024 and December 31, 2023, respectively, and have been netted against the aggregate principal amounts of the related debt in the components of debt table above. For additional details regarding the Company’s debt financing, refer to Note 14 of the Company’s financial statements as of and for the year ended December 31, 2023 included in the Company’s 2023 Annual Report.
The Company has historically satisfied short-term liquidity needs that are not met through operating cash flow and available cash primarily through issuances of commercial paper under its U.S. dollar and euro-denominated commercial paper programs. The Company’s $ billion unsecured, multi-year revolving credit facility with a syndicate of banks that expires on August 11, 2028 (the “Credit Facility”), is available for direct borrowings and provides credit support for the commercial paper programs. For a description of the Credit Facility, refer to the Company’s 2023 Annual Report.
% and a weighted average remaining maturity of approximately days. There were borrowings outstanding under the U.S. dollar-denominated commercial paper program as of June 28, 2024.Guarantors of Debt
The Company has guaranteed long-term debt and commercial paper issued by certain of its wholly-owned finance subsidiaries: Danaher International, Danaher International II, Danaher Switzerland and Danaher Japan. All of the outstanding and future securities issued by each of these entities are or will be fully and unconditionally guaranteed by the Company and these guarantees rank on parity with the Company’s unsecured and unsubordinated indebtedness.
Long-Term Debt Repayments
million aggregate principal amount of the 2024 Euronotes upon their maturity using cash distributions received from Veralto prior to the Separation.
NOTE 12.
| | $ | | | | $ | | | | $ | | | | Foreign currency denominated debt | | | | | | | | | | | |
| Cash flow hedges: | | | | | | | |
| Cross-currency contracts | | | | | | | | | | () | |
| Interest rate swaps | | | | | | | | | | | |
| Total | $ | | | | $ | | | | $ | | | | $ | () | |
| | | | | | | |
| For the Three-Month Period Ended June 30, 2023: | | | | | | | |
| Net investment hedges: | | | | | | | |
| Cross-currency contracts | $ | | | | $ | | | | $ | () | | | $ | | |
| Foreign currency denominated debt | | | | | | | | | | | |
| Cash flow hedges: | | | | | | | |
| Cross-currency contracts | | | | | | | () | | | | |
| Interest rate swaps | | | | | | | | | | | |
| Total | $ | | | | $ | | | | $ | () | | | $ | | |
| | | | | | | |
| For the Six-Month Period Ended June 28, 2024: | | | | | | | |
| Net investment hedges: | | | | | | | |
| Cross-currency contracts | $ | | | | $ | | | | $ | | | | $ | | |
| Foreign currency denominated debt | | | | | | | | | | | |
| Cash flow hedges: | | | | | | | |
| Cross-currency contracts | | | | | | | | | | () | |
| Interest rate swaps | | | | | | | | | | | |
| Total | $ | | | | $ | | | | $ | | | | $ | () | |
| | | | | | | |
| For the Six-Month Period Ended June 30, 2023: | | | | | | | |
| Net investment hedges: | | | | | | | |
| Cross-currency contracts | $ | | | | $ | | | | $ | () | | | $ | | |
| Foreign currency denominated debt | | | | | | | () | | | | |
| Cash flow hedges: | | | | | | | |
| Cross-currency contracts | | | | | | | () | | | | |
| Interest rate swaps | | | | | | | | | | | |
| Total | $ | | | | $ | | | | $ | () | | | $ | | |
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Gains or losses related to the net investment hedges are classified as foreign currency translation adjustments in the schedule of changes in OCI in Note 13, as these items are attributable to the Company’s hedges of its net investment in foreign operations. Gains or losses related to the cash flow hedges are classified as cash flow hedge adjustments in the schedule of changes in OCI in Note 13. The amount reclassified from OCI for the cross-currency swap derivative contracts that are cash flow hedges of the Company’s U.S. dollar-denominated debt was equal to the remeasurement amount recorded in the three and six-month periods on the hedged debt.
| | $ | | |
| | | |
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| Nonderivative hedging instruments: | | | |
| Notes payable and current portion of long-term debt | | | | | |
| Long-term debt | | | | | |
Amounts related to the Company’s derivatives expected to be reclassified from accumulated OCI to net earnings during the next 12 months, if interest rates and foreign exchange rates remain unchanged, were not significant.
NOTE 13.
million shares of the Company’s common stock from time to time on the open market or in privately negotiated transactions. During the second quarter of 2024, the Company repurchased approximately million shares of the Company’s common stock for approximately $ billion (which includes $ million of excise taxes which will be paid in 2025) as part of the Repurchase Program. As of June 28, 2024, approximately million shares remained available for repurchase pursuant to the Repurchase Program. In July 2024, the Company repurchased approximately million shares under the Repurchase Program. On July 22, 2024, the Company’s Board of Directors approved a new repurchase program (the “New Repurchase Program”) authorizing the repurchase of up to an additional million shares of the Company’s common stock from time to time on the open market or in privately negotiated transactions (in addition to the shares remaining available for repurchase under the Repurchase Program). There is no expiration date for either the Repurchase Program or the New Repurchase Program, and the timing and amount of any shares repurchased under either program will be determined by members of the Company’s management based on its evaluation of market conditions and other factors. Either program may be suspended or discontinued at any time. Any repurchased shares will be available for use in connection with the Company’s equity compensation plans (or any successor plans) and for other corporate purposes. | | | | | | | | | | | Conversion of MCPS to common stock | | | | () | | | | | | () | |
| Balance, end of period | | | | | | | | | | | |
| | | | | | | |
| Common stock - shares issued: | | | | | | | |
| Balance, beginning of period | | | | | | | | | | | |
| Common stock-based compensation awards | | | | | | | | | | | |
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)| | | | $ | () | |
(a) This accumulated other comprehensive income (loss) component is included in the computation of net periodic benefit cost (refer to Note 8 for additional details).
(b) Reflects reclassification to earnings related to cash flow hedges of certain long-term debt (refer to Note 12 for additional details).
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is designed to provide material information relevant to an assessment of Danaher Corporation’s (“Danaher,” the “Company,” “we,” “us” or “our”) financial condition and results of operations, including an evaluation of the amounts and certainty of cash flows from operations and from outside sources. The MD&A is designed to focus specifically on material events and uncertainties known to management that are reasonably likely to cause reported financial information not to be necessarily indicative of future operating results or of future financial condition. This includes descriptions and amounts of matters that have had a material impact on reported operations, as well as matters that are reasonably likely based on management’s assessment to have a material impact on future operations. The Company’s MD&A is divided into five sections:
•Information Relating to Forward-Looking Statements
•Overview
•Results of Operations
•Liquidity and Capital Resources
•Critical Accounting Estimates
You should read this discussion along with the Company’s MD&A and audited financial statements and Notes thereto as of and for the year ended December 31, 2023, included in the Company’s 2023 Annual Report and the Company’s Consolidated Condensed Financial Statements and related Notes as of and for the three and six-month periods ended June 28, 2024 included in this Quarterly Report on Form 10-Q (“Report”).
INFORMATION RELATING TO FORWARD-LOOKING STATEMENTS
Certain statements included or incorporated by reference in this Report, in other documents we file with or furnish to the Securities and Exchange Commission, in our press releases, webcasts, conference calls, materials delivered to shareholders and other communications, are “forward-looking statements” within the meaning of the U.S. federal securities laws. All statements other than historical factual information are forward-looking statements, including without limitation statements regarding: projections of revenue, expenses, profit, profit margins, pricing, tax rates, tax provisions, cash flows, pension and benefit obligations and funding requirements, asset values, our liquidity position or other projected financial measures; management’s plans and strategies for future operations, including statements relating to anticipated operating performance, customer demand, cost reductions, restructuring activities, new product and service developments, competitive strengths or market position, acquisitions and the integration thereof, divestitures, spin-offs, split-offs, initial public offerings, other securities offerings, or other distributions, strategic opportunities, stock repurchases, dividends and executive compensation and potential executive stock sales or purchases; growth, declines and other trends in markets we sell into; new or modified laws, regulations and accounting pronouncements; future laws, regulations or public policy changes; regulatory approvals and the timing and conditionality thereof; outstanding claims, legal proceedings, tax audits and assessments and other contingent liabilities; future currency exchange rates and fluctuations in those rates; the potential or anticipated direct or indirect impact of public health crises, climate change, military conflicts or other man-made or natural disasters on our business, results of operations and/or financial condition; general economic and capital markets conditions; the anticipated timing of any of the foregoing; assumptions underlying any of the foregoing; and any other statements that address events or developments that Danaher intends or believes will or may occur in the future. Terminology such as “believe,” “anticipate,” “should,” “could,” “intend,” “will,” “plan,” “expect,” “estimate,” “project,” “target,” “may,” “possible,” “potential,” “forecast” and “positioned” and similar references to future periods are intended to identify forward-looking statements, although not all forward-looking statements are accompanied by such words.
Forward-looking statements are based on assumptions and assessments made by our management in light of their experience and perceptions of historical trends, current conditions, expected future developments and other factors. Forward-looking statements are not guarantees of future performance and actual results may differ materially from the results, developments and business decisions contemplated by our forward-looking statements. Accordingly, you should not place undue reliance on any such forward-looking statements. Important factors that in the future could cause actual results to differ materially from those envisaged in the forward-looking statements, and that in some cases have affected us in the past, include the following:
Business and Strategic Risks
•We face intense competition and if we are unable to compete effectively, we may experience decreased demand and decreased market share. Even if we compete effectively, we may be required to reduce the prices we charge.
•Our growth depends on the timely development and commercialization, and customer acceptance, of new and enhanced products and services based on technological innovation. Our growth can also suffer if the markets into which we sell our products and services decline, do not grow as anticipated or experience cyclicality.
•The healthcare industry and related industries that we serve are undergoing significant changes in an effort to reduce (and increase the predictability of) costs, which can adversely affect our business and financial statements.
•Economic, political, geopolitical, legal, compliance, social and business factors (including the impact of military conflicts), both in the United States (“U.S.”) and outside the U.S., can negatively affect our business and financial statements. For example, elections in the U.S. and other countries may result in significant political shifts and/or disruptions, including changes in the regulatory environment, and recent Supreme Court decisions in the U.S. may also result in regulatory uncertainty.
•Uncertainties with respect to the development, deployment, and use of artificial intelligence in our business and products may result in harm to our business and reputation.
•Collaborative partners and other third-parties we rely on for development, supply and/or marketing of certain products, potential products and technologies could fail to perform sufficiently.
Acquisitions, Divestitures and Investment Risks
•Any inability to consummate acquisitions at our historical rate and appropriate prices, and to make appropriate investments that support our long-term strategy, could negatively impact our business. Our acquisition of businesses, investments, joint ventures and other strategic relationships could also negatively impact our business and financial statements and our indemnification rights may not fully protect us from liabilities related thereto.
•Divestitures or other dispositions could negatively impact our business, and contingent liabilities from businesses that we or our predecessors have previously disposed could adversely affect our business and financial statements. For example, we could incur significant liability if any of the split-off or spin-off transactions we have previously consummated are determined to be a taxable transaction or otherwise pursuant to our indemnification obligations with respect to such transactions.
Operational Risks
•Significant disruptions in, or breaches in security of, our information technology (“IT”) systems or data; data privacy violations; other losses or disruptions to facilities, supply chains, distribution systems or IT systems due to catastrophe; and labor disputes can all adversely affect our business and financial statements.
•Defects and unanticipated use or inadequate disclosure with respect to our products or services, or allegations thereof, can adversely affect our business and financial statements.
•Our financial results are subject to fluctuations in the cost and availability of the supplies we use in, and the labor we need for, our operations.
•Climate change, legal or regulatory measures to address climate change and any inability to address regulatory requirements or stakeholder expectations with respect to climate change, may negatively affect us.
•Our success depends on our ability to recruit, retain and motivate talented employees representing diverse backgrounds, experiences and skill sets.
•Our restructuring actions can have long-term adverse effects on our business and financial statements.
Intellectual Property Risks
•Any inability to adequately protect or avoid third-party infringement of our intellectual property, and third-party claims we are infringing intellectual property rights, can adversely affect our business and financial statements.
•The U.S. government has certain rights with respect to incremental production capacity attributable to, and/or the intellectual property we have developed using, government financing. In addition, in times of national emergency the U.S. government could also control our allocation of manufacturing capacity.
Financial and Tax Risks
•Our outstanding debt has increased significantly as a result of acquisitions, and we may incur additional debt. Such indebtedness may limit our operations and use of cash flow and negatively impact our credit ratings; and failure to comply with our indebtedness-related covenants could adversely affect our business and financial statements.
•Our business and financial statements can be adversely affected by foreign currency exchange rates, changes in our tax rates (including as a result of changes in tax laws) or income tax liabilities/assessments, the outcome of tax audits, recognition of impairment charges for our goodwill or other intangible assets, and fluctuations in the cost and availability of commodities.
Legal, Regulatory, Compliance and Reputational Risks
•Significant developments or changes in national laws or policies to protect or promote domestic interests and/or address foreign competition can have an adverse effect on our business and financial statements.
•Our businesses are subject to extensive regulation (including those applicable to the healthcare industry). Failure to comply with those regulations (including by our employees, agents or business partners) or significant developments or changes in U.S. laws or policies can adversely affect our business and financial statements.
•With respect to the regulated medical devices we offer, product introductions or modifications can require regulatory clearance or authorizations and we can be required to recall or cease marketing such products; off-label marketing can result in penalties; and clinical trials can have results that are unexpected or are perceived unfavorably by the market, all of which can adversely affect our business and financial statements.
•We are subject to or otherwise responsible for a variety of litigation and other legal and regulatory proceedings in the course of our business that can adversely affect our business and financial statements.
•Our operations, products and services also expose us to the risk of environmental, health and safety liabilities, costs and violations that can adversely affect our business and financial statements.
•Our By-law exclusive forum provisions could limit our stockholders’ ability to choose their preferred judicial forum for disputes.
See “Part I—Item 1A. Risk Factors” of the Company’s 2023 Annual Report for further discussion regarding reasons that actual results may differ materially from the results, developments and business decisions contemplated by our forward-looking statements. Forward-looking statements speak only as of the date of the report, document, press release, webcast, call, materials or other communication in which they are made. Except to the extent required by applicable law, we do not assume any obligation to update or revise any forward-looking statement, whether as a result of new information, future events and developments or otherwise.
OVERVIEW
General
As a result of the Company’s geographic and industry diversity, the Company faces a variety of opportunities and challenges, including rapid technological development in most of the Company’s served markets, the expansion and evolution of opportunities in high-growth markets, trends and costs associated with a global labor force, consolidation of the Company’s competitors and increasing regulation. The Company operates in a highly competitive business environment in most markets, and the Company’s long-term growth and profitability will depend in particular on its ability to expand its business in high-growth geographies and high-growth market segments, identify, consummate and integrate appropriate acquisitions and identify and consummate appropriate investments and strategic partnerships, develop innovative and differentiated new products and services with higher gross profit margins, expand and improve the effectiveness of the Company’s sales force, continue to reduce costs and improve operating efficiency and quality and effectively address the demands of an increasingly regulated global environment. The Company is making significant investments, organically and through acquisitions and investments, to address the rapid pace of technological change in its served markets and to globalize its manufacturing, research and development and customer-facing resources (particularly in high-growth markets) to be responsive to the Company’s customers throughout the world and improve the efficiency of the Company’s operations.
Business Performance and Outlook
During the second quarter of 2024, the Company’s overall revenues decreased 3.0% compared to the comparable period of 2023. Core sales decreased 3.5% in the second quarter of 2024 compared to the comparable prior year period due primarily to lower core sales in the Biotechnology segment, and to a lesser extent in the Life Sciences segment, partially offset by increases in demand for certain products and services in the Diagnostics segment. The impact of currency translation decreased reported sales 1.5% in the second quarter of 2024 compared to the comparable prior year period and the impact of acquisitions increased reported sales 2.0%. For the six-month period ended June 28, 2024, overall revenues decreased 2.5% and core sales decreased 3.5% compared to the comparable prior year period primarily due to lower core sales in the Biotechnology segment, and to a lesser extent in the Life Sciences segment, partially offset by increases in demand for certain products and services in the Diagnostics segment. The impact of currency translation decreased reported sales 1.0% and the impact of acquisitions increased reported sales 2.0% in the six-month period compared to the comparable prior year period. Price increases contributed 1.0% and 1.5%, respectively, to sales growth on a year-over-year basis during the three and six-month periods ended June 28, 2024 and are reflected as a component of core sales decline above. For the definitions of “core sales” and “acquisitions” refer to “—Results of Operations” below.
Geographically, the Company’s sales in the three-month period ended June 28, 2024 in developed markets decreased year-over-year by 1% and core sales in the developed markets decreased at a low-single digit rate driven primarily by decreased sales in Western Europe, partially offset by increased sales in North America. The decline in core sales in developed markets was primarily driven by reduced demand in the Biotechnology and Life Sciences segments, partially offset by increased demand in the Diagnostics segment. For the same period, sales in high-growth markets decreased year-over-year by 8% and core sales in high-growth markets decreased at a high-single digit rate, due primarily to high-teens core revenue declines in China. The decline in core sales in high-growth markets was primarily driven by declines in the Life Sciences and Biotechnology segments primarily due to weakness in the funding environment and lower underlying activity levels. High-growth markets represented approximately 30% of the Company’s total sales in the second quarter of 2024. For additional information regarding the Company’s sales by geographical region during the three and six-month periods ended June 28, 2024 and June 30, 2023, refer to Note 5 to the accompanying Consolidated Condensed Financial Statements.
The Company’s net earnings from continuing operations for the three and six-month periods ended June 28, 2024 totaled $907 million and approximately $2.0 billion or $1.22 and $2.68 per diluted common share from continuing operations, respectively, compared to $920 million and approximately $2.2 billion or $1.24 and $2.89 per diluted common share from continuing operations, respectively, for the three and six-month periods ended June 30, 2023. Net earnings attributable to common stockholders for the three and six-month periods ended June 28, 2024 totaled $907 million and approximately $2.0 billion or $1.22 and $2.68 per diluted common share, respectively, compared to approximately $1.1 billion and $2.5 billion or $1.49 and $3.42 per diluted common share, respectively, for the three and six-month periods ended June 30, 2023. Decreased core sales and increased other expenses in the 2024 period drove the year-over-year decline in net earnings from continuing operations and diluted net earnings per common share from continuing operations for the three and six-month periods ended June 28, 2024. In addition to the above factors, lower earnings from discontinued operations contributed to the lower net earnings in both the three and six-month periods ended June 28, 2024.
Currency exchange rates decreased reported sales by approximately 1.5% and 1.0% for the three and six-month periods ended June 28, 2024, respectively, compared to the comparable periods of 2023, primarily due to the exchange rates of the U.S. dollar compared to the euro and other major currencies in 2024. Strengthening of the U.S. dollar against other major currencies compared to the exchange rates in effect as of June 28, 2024 would adversely impact the Company’s sales and results of operations on an overall basis, and any weakening of the U.S. dollar against other major currencies compared to the exchange rates in effect as of June 28, 2024 would positively impact the Company’s sales and results of operations for the remainder of the year.
RESULTS OF OPERATIONS
Non-GAAP Measures
In this report, references to the non-GAAP measure of core sales (also referred to as core revenues or sales/revenues from existing businesses) refer to sales calculated according to U.S. GAAP, but excluding:
•sales from acquired businesses (as defined below); and
•the impact of currency translation.
References to sales or operating profit attributable to acquisitions or acquired businesses refer to sales or operating profit, as applicable, from acquired businesses recorded prior to the first anniversary of the acquisition less any sales and
operating profit, during the applicable period, attributable to divested product lines not considered discontinued operations. The portion of revenue attributable to currency translation is calculated as the difference between:
•the period-to-period change in revenue (excluding sales from acquired businesses (as defined above)); and
•the period-to-period change in revenue (excluding sales from acquired businesses (as defined above)) after applying current period foreign exchange rates to the prior year period.
Core sales (decline) growth should be considered in addition to, and not as a replacement for or superior to, sales, and may not be comparable to similarly titled measures reported by other companies. Management believes that reporting this non-GAAP financial measure provides useful information to investors by helping identify underlying growth trends in Danaher’s business and facilitating comparisons of Danaher’s revenue performance with its performance in prior and future periods and to Danaher’s peers. Management also uses this non-GAAP financial measure to measure the Company’s operating and financial performance and uses core sales growth as one of the performance measures in the Company’s executive short-term cash incentive compensation program. The Company excludes the effect of currency translation from this measure because currency translation is not under management’s control, is subject to volatility and can obscure underlying business trends, and excludes the effect of acquisitions and divestiture-related items because the nature, size, timing and number of acquisitions and divestitures can vary dramatically from period-to-period and between the Company and its peers and can also obscure underlying business trends and make comparisons of long-term performance difficult.
Throughout this discussion, references to sales growth or decline refer to the impact of both price and unit sales and references to productivity improvements generally refer to improved cost-efficiencies resulting from the ongoing application of the Danaher Business System.
Sales (Decline) Growth and Core Sales (Decline) Growth
| | | | | | | | | | | |
| % Change Three-Month Period Ended June 28, 2024 vs. Comparable 2023 Period | | % Change Six-Month Period Ended June 28, 2024 vs. Comparable 2023 Period |
| Total sales (decline) growth (GAAP) | (3.0) | % | | (2.5) | % |
| Impact of: | | | |
| Acquisitions | (2.0) | % | | (2.0) | % |
| Currency exchange rates | 1.5 | % | | 1.0 | % |
| Core sales (decline) growth (non-GAAP) | (3.5) | % | | (3.5) | % |
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Operating Profit Performance
Operating profit margins increased 60 basis points from 19.7% during the three-month period ended June 30, 2023 to 20.3% for the three-month period ended June 28, 2024.
Second quarter 2024 vs. second quarter 2023 operating profit margin comparisons were favorably impacted by:
•Improvements in the Company’s operational and administrative cost structure and 2023 inventory write-offs, net of lower second quarter 2024 core sales and the impact of product mix - 75 basis points
•Second quarter 2023 impairment charges related to technology and other assets in the Biotechnology segment - 70 basis points
Second quarter 2024 vs. second quarter 2023 operating profit margin comparisons were unfavorably impacted by:
•Incremental dilutive effect in 2024 of acquired businesses - 85 basis points
Operating profit margins decreased 110 basis points from 22.6% during the six-month period ended June 30, 2023 to 21.5% for the six-month period ended June 28, 2024.
Year-to-date 2024 vs. year-to-date 2023 operating profit margin comparisons were unfavorably impacted by:
•Incremental dilutive effect in 2024 of acquired businesses - 80 basis points
•Lower first half of 2024 core sales and the impact of product mix, partially offset by improvements in the Company’s operational and administrative cost structure and 2023 inventory write-offs - 45 basis points
•First half of 2024 acquisition-related fair value adjustment to inventory related to the acquisition of Abcam plc (“Abcam”) - 20 basis points
Year-to-date 2024 vs. year-to-date 2023 operating profit margin comparisons were favorably impacted by:
•Second quarter 2023 impairment charges related to technology and other assets in the Biotechnology segment - 35 basis points
Business Segments
Sales by business segment for each of the periods indicated were as follows ($ in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three-Month Period Ended | | Six-Month Period Ended |
| | June 28, 2024 | | June 30, 2023 | | June 28, 2024 | | June 30, 2023 |
| Biotechnology | $ | 1,713 | | | $ | 1,885 | | | $ | 3,237 | | | $ | 3,749 | |
| Life Sciences | 1,770 | | | 1,796 | | | 3,515 | | | 3,505 | |
| Diagnostics | 2,260 | | | 2,231 | | | 4,787 | | | 4,607 | |
| Total | $ | 5,743 | | | $ | 5,912 | | | $ | 11,539 | | | $ | 11,861 | |
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| | Price increases in the segment contributed 2.5% to sales growth on a year-over-year basis during both the three and six-month periods ended June 28, 2024 and are reflected as a component of core sales decline above.
Total segment sales decreased 9.0% and 13.5% during the three and six-month periods, respectively, led by decreased core sales in the bioprocessing business, and to a lesser extent the impact of currency exchange rates. The decrease in total segment core sales was driven by Western Europe and China, and to a lesser extent North America. Core sales in the bioprocessing business decreased year-over-year at a high-single digit rate and a low-double digit rate during the three and six-month periods, respectively, primarily due to lower demand as customers reduced their inventory levels. Revenue declines moderated compared to the first quarter 2024 as the Company believes that its larger customers in the
U.S. and Europe have, in aggregate, reduced the majority of their excess inventory levels and are returning to normal ordering patterns. Additionally, while the Company believes that emerging biotech customers are continuing to manage their liquidity, we also believe they are prioritizing select cell and gene therapy projects, and we further believe that the improvement in the overall funding environment in the period is a positive leading indicator for these customers. The Company expects core revenue for the bioprocessing business to decline for the full year 2024 on a year-over-year basis with an anticipated gradual year-over-year improvement in demand through the remainder of the year. Core sales in the discovery and medical business decreased year-over-year during both the three and six-month periods due primarily to lower demand for equipment, partially offset by an increase in demand for consumables.
Operating Profit Performance
Operating profit margins increased 150 basis points during the three-month period ended June 28, 2024 as compared to the comparable period of 2023.
Second quarter 2024 vs. second quarter 2023 operating profit margin comparisons were favorably impacted by:
•Second quarter 2023 impairment charges related to technology and other assets - 220 basis points
Second quarter 2024 vs. second quarter 2023 operating profit margin comparisons were unfavorably impacted by:
•Lower second quarter 2024 core sales, net of improvements in the Company’s operational and administrative cost structure, the impact of product mix and 2023 inventory write-offs - 70 basis points
Operating profit margins decreased 440 basis points during the six-month period ended June 28, 2024 as compared to the comparable period of 2023.
Year-to-date 2024 vs. year-to-date 2023 operating profit margin comparisons were unfavorably impacted by:
•Lower first half of 2024 core sales and the impact of product mix, net of improvements in the Company’s operational and administrative cost structure and 2023 inventory write-offs - 550 basis points
Year-to-date 2024 vs. year-to-date 2023 operating profit margin comparisons were favorably impacted by:
•Second quarter 2023 impairment charges related to technology and other assets - 110 basis points
Amortization of intangible assets as a percentage of sales increased during both the three and six-month periods ended June 28, 2024 as compared to the comparable periods of 2023, primarily as a result of the decrease in sales.
LIFE SCIENCES
The Life Sciences segment offers a broad range of instruments, consumables, services and software that are primarily used by customers to study genomics and the basic building blocks of life, including DNA and RNA, nucleic acid, proteins, metabolites and cells, in order to understand the causes of disease, identify new therapies, and test and manufacture new drugs, vaccines and gene editing technologies. Additionally, the segment provides products and consumables used to filter and remove contaminants from a variety of liquids and gases in many end-market applications.
Life Sciences Selected Financial Data
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three-Month Period Ended | | Six-Month Period Ended |
| ($ in millions) | June 28, 2024 | | June 30, 2023 | | June 28, 2024 | | June 30, 2023 |
| Sales | $ | 1,770 | | | $ | 1,796 | | $ | 3,515 | | | $ | 3,505 | |
| Operating profit | 233 | | | 340 | | 468 | | | 661 | |
| Depreciation | 41 | | | 32 | | 79 | | | 61 | |
| Amortization of intangible assets | 140 | | | 104 | | 281 | | | 209 | |
| Operating profit as a % of sales | 13.2 | % | | 18.9 | % | | 13.3 | % | | 18.9 | % |
| Depreciation as a % of sales | 2.3 | % | | 1.8 | % | | 2.2 | % | | 1.7 | % |
| Amortization as a % of sales | 7.9 | % | | 5.8 | % | | 8.0 | % | | 6.0 | % |
Sales (Decline) Growth and Core Sales (Decline) Growth
| | | | | | | | | | | |
| % Change Three-Month Period Ended June 28, 2024 vs. Comparable 2023 Period | | % Change Six-Month Period Ended June 28, 2024 vs. Comparable 2023 Period |
| Total sales (decline) growth (GAAP) | (1.5) | % | | 0.5 | % |
| Impact of: | | | |
| Acquisitions | (6.0) | % | | (6.5) | % |
| Currency exchange rates | 2.0 | % | | 1.5 | % |
| Core sales (decline) growth (non-GAAP) | (5.5) | % | | (4.5) | % |
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Price increases in the segment contributed 1.0% and 1.5%, respectively, to sales growth on a year-over-year basis during the three and six-month periods ended June 28, 2024 and are reflected as a component of core sales decline.
Total segment sales decreased 1.5% during the three-month period ended June 28, 2024, primarily as a result of decreased segment core sales, and to a lesser extent the impact of currency exchange rates, partially offset by acquisitions. Total segment sales increased 0.5% during the six-month period, primarily as a result of acquisitions, largely offset by decreased segment core sales, and to a lesser extent the impact of currency exchange rates. Core sales decreased in the three and six-month periods across most major geographic regions, led by China. The core sales decline in the mass spectrometry, flow cytometry and lab automation solutions and microscopy businesses in both periods was primarily the result of demand weakness in equipment, in most major end-markets, partially offset by increased demand for consumables and service. Core sales also declined in the three-month period in the genomics consumables business led by lower core sales in the plasmids, proteins and next-generation sequencing product lines, partially offset by increased demand in the gene writing and editing product line. The core sales decline in the genomics consumables business during the six-month period was driven by lower demand in next-generation sequencing, partially offset by higher demand for plasmids and proteins.
Operating Profit Performance
Operating profit margins decreased 570 basis points during the three-month period ended June 28, 2024 as compared to the comparable period of 2023. The following factors unfavorably impacted year-over-year operating profit margin:
•Lower second quarter 2024 core sales and the impact of product mix, net of improvements in the Company’s operational and administrative cost structure - 340 basis points
•The incremental dilutive effect in 2024 of acquired businesses - 230 basis points
Operating profit margins decreased 560 basis points during the six-month period ended June 28, 2024 as compared to the comparable period of 2023. The following factors unfavorably impacted year-over-year operating profit margin:
•Lower first half of 2024 core sales and the impact of product mix, net of improvements in the Company’s operational and administrative cost structure - 260 basis points
•The incremental dilutive effect in 2024 of acquired businesses - 230 basis points
•First half of 2024 acquisition-related fair value adjustment to inventory related to the acquisition of Abcam - 70 basis points
Depreciation and amortization of intangible assets increased as a percentage of sales during both the three and six-month periods ended June 28, 2024, primarily due to the acquisition of Abcam.
DIAGNOSTICS
The Diagnostics segment offers clinical instruments, consumables, software and services that hospitals, physicians’ offices, reference laboratories and other critical care settings use to diagnose disease and make treatment decisions.
Diagnostics Selected Financial Data
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three-Month Period Ended | | Six-Month Period Ended |
| ($ in millions) | June 28, 2024 | | June 30, 2023 | | June 28, 2024 | | June 30, 2023 |
| Sales | $ | 2,260 | | | $ | 2,231 | | $ | 4,787 | | | $ | 4,607 | |
| Operating profit | 556 | | | 424 | | 1,386 | | | 1,101 | |
| Depreciation | 100 | | | 96 | | 197 | | | 189 | |
| Amortization of intangible assets | 48 | | | 50 | | 96 | | | 100 | |
| Operating profit as a % of sales | 24.6 | % | | 19.0 | % | | 29.0 | % | | 23.9 | % |
| Depreciation as a % of sales | 4.4 | % | | 4.3 | % | | 4.1 | % | | 4.1 | % |
| Amortization as a % of sales | 2.1 | % | | 2.2 | % | | 2.0 | % | | 2.2 | % |
Sales Growth and Core Sales Growth
| | | | | | | | | | | |
| % Change Three-Month Period Ended June 28, 2024 vs. Comparable 2023 Period | | % Change Six-Month Period Ended June 28, 2024 vs. Comparable 2023 Period |
| Total sales growth (GAAP) | 1.5 | % | | 4.0 | % |
| Impact of: | | | |
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| Currency exchange rates | 1.5 | % | | 1.0 | % |
| Core sales growth (non-GAAP) | 3.0 | % | | 5.0 | % |
Price increases in the segment did not have a significant impact on sales growth on a year-over-year basis during the three-month period but contributed 0.5% to sales growth during the six-month period ended June 28, 2024 and are reflected as a component of core sales growth.
Total segment sales increased 1.5% and 4.0%, respectively, during the three and six-month periods, primarily as a result of increased core sales resulting from the factors discussed below. Changes in currency exchange rates negatively impacted sales in both periods. Overall segment core sales growth in both periods was driven primarily by North America, partially offset by lower year-over-year demand in the high-growth markets. During both the three and six-month periods, core sales in the segment’s clinical diagnostics businesses grew on a year-over-year basis led by the clinical lab business, primarily in North America and the high-growth markets, and to a lesser extent, by the pathology and acute care businesses. Core sales in the molecular diagnostics business declined slightly during the three-month period as lower year-over-year demand in Western Europe and the high-growth markets offset increased core sales of both respiratory and non-respiratory disease tests in North America. For the six-month period, core sales in the molecular diagnostics business grew on a year-over-year basis, led by North America, as the business experienced increased sales of both respiratory and non-respiratory disease tests.
Operating Profit Performance
Operating profit margin increased 560 basis points during the three-month period ended June 28, 2024 as compared to the comparable period of 2023. Year-over-year operating profit margin was favorably impacted by higher second quarter 2024 core sales, improvements in the Company’s operational and administrative cost structure and the impact of product mix.
Operating profit margin increased 510 basis points during the six-month period ended June 28, 2024 as compared to the comparable period of 2023. Year-over-year operating profit margin was favorably impacted by higher first half of 2024 core sales, improvements in the Company’s operational and administrative cost structure and the impact of product mix.
Amortization of intangible assets as a percentage of sales decreased slightly during both the three and six-month periods ended June 28, 2024, primarily as a result of the increase in sales.
COST OF SALES AND GROSS PROFIT
| | | | | | | | | | | | | | | | | | | | | | | |
| Three-Month Period Ended | | Six-Month Period Ended |
| ($ in millions) | June 28, 2024 | | June 30, 2023 | | June 28, 2024 | | June 30, 2023 |
| Sales | $ | 5,743 | | | $ | 5,912 | | | $ | 11,539 | | | $ | 11,861 | |
| Cost of sales | (2,315) | | | (2,594) | | | (4,624) | | | (4,881) | |
| Gross profit | $ | 3,428 | | | $ | 3,318 | | | $ | 6,915 | | | $ | 6,980 | |
| Gross profit margin | 59.7 | % | | 56.1 | % | | 59.9 | % | | 58.8 | % |
Cost of sales decreased year-over-year during both the three and six-month periods ended June 28, 2024 as compared to the comparable periods in 2023, primarily due to the impact of lower year-over-year sales volumes and $87 million of charges incurred in the second quarter of 2023 related to inventory, partially offset by the impact of recently acquired businesses. Additionally, an acquisition-related charge associated with the fair value adjustment to inventory recorded in connection with the acquisition of Abcam increased cost of sales by $25 million in the six-month period ended June 28, 2024.
Year-over-year gross profit margin increased during both the three and six-month periods ended June 28, 2024 as compared to the comparable period in 2023. These increases were due primarily to inventory charges incurred in the second quarter of 2023 and the positive impact from the gross profit margin of Abcam, net of the impact of product mix and an acquisition-related charge recorded in the first half of 2024 referenced above.
OPERATING EXPENSES
| | | | | | | | | | | | | | | | | | | | | | | |
| Three-Month Period Ended | | Six-Month Period Ended |
| ($ in millions) | June 28, 2024 | | June 30, 2023 | | June 28, 2024 | | June 30, 2023 |
| Sales | $ | 5,743 | | | $ | 5,912 | | | $ | 11,539 | | | $ | 11,861 | |
| Selling, general and administrative (“SG&A”) expenses | 1,869 | | | 1,794 | | | 3,676 | | | 3,566 | |
| Research and development (“R&D”) expenses | 391 | | | 361 | | | 759 | | | 734 | |
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| SG&A as a % of sales | 32.5 | % | | 30.3 | % | | 31.9 | % | | 30.1 | % |
| R&D as a % of sales | 6.8 | % | | 6.1 | % | | 6.6 | % | | 6.2 | % |
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SG&A expenses as a percentage of sales increased during both the three and six-month periods ended June 28, 2024 as compared to the comparable periods in 2023, primarily driven by the impact of the acquisition of Abcam, including the associated amortization expense. To a lesser extent, the increase in SG&A as a percentage of sales was driven by decreased leverage of the Company’s general and administrative cost base, including amortization expense, resulting from lower 2024 sales.
R&D expenses (consisting principally of internal and contract engineering personnel costs) as a percentage of sales increased during both the three and six-month periods ended June 28, 2024 as compared to the comparable periods of 2023 as a result of increased spending on R&D activities and the impact of lower year-over-year sales.
OTHER INCOME (EXPENSE), NET
For a description of the Company’s other income (expense), net during the three and six-month periods ended June 28, 2024 and June 30, 2023, refer to Note 8 to the accompanying Consolidated Condensed Financial Statements.
INTEREST COSTS AND FINANCING
For a discussion of the Company’s outstanding indebtedness, refer to Note 11 to the accompanying Consolidated Condensed Financial Statements.
Interest expense of $65 million and $130 million for the three and six-month periods ended June 28, 2024, respectively, was consistent with the comparable periods of 2023.
Interest income of $39 million and $99 million for the three and six-month periods ended June 28, 2024, respectively, was $20 million lower and $8 million lower than the comparable periods of 2023, due primarily to lower average cash balances in 2024 as a result of share repurchases and acquisitions.
INCOME TAXES
The following table summarizes the Company’s effective tax rate:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three-Month Period Ended | | Six-Month Period Ended |
| June 28, 2024 | | June 30, 2023 | | June 28, 2024 | | June 30, 2023 |
| Effective tax rate | 16.3 | % | | 19.4 | % | | 15.3 | % | | 18.9 | % |
The Company operates globally, including in certain jurisdictions with lower tax rates than the U.S. federal statutory rate. Therefore, the impact of operating in such jurisdictions contributes to a lower effective tax rate compared to the U.S. federal statutory tax rate.
The effective tax rate for the three-month period ended June 28, 2024 differs from the U.S. federal statutory rate of 21.0% principally due to the impact of the Company’s global operations, research tax credits, foreign-derived intangible income and aggregate net discrete benefits of $9 million related primarily to excess tax benefits from stock-based compensation. The aggregate net discrete benefits reduced the effective tax rate by 0.8% for the three-month period ended June 28, 2024.
The effective tax rate for the six-month period ended June 28, 2024 differs from the U.S. federal statutory rate of 21.0% principally due to the impact of the Company’s global operations, research tax credits, foreign-derived intangible income and aggregate net discrete benefits of $45 million related primarily to excess tax benefits from stock-based compensation, release of reserves for uncertain tax positions due to the expiration of statutes of limitation and changes in estimates associated with prior period uncertain tax positions. The aggregate net discrete benefits reduced the effective tax rate by 1.9% for the six-month period ended June 28, 2024.
The effective tax rate for the three-month period ended June 30, 2023 differs from the U.S. federal statutory rate of 21.0% principally due to the impact of its global operations, research tax credits and foreign-derived intangible income, partially offset by net discrete tax charges of $19 million. Net discrete tax charges related primarily to tax costs related to the separation of the Environmental & Applied Solutions business, tax costs related to legal and operational actions taken to realign certain businesses and changes in estimates associated with prior period uncertain tax positions, partially offset by interest on prior year tax refunds. The net discrete charges increased the effective tax rate by 1.7% for the three-month period ended June 30, 2023.
The effective tax rate for the six-month period ended June 30, 2023 differs from the U.S. federal statutory rate of 21.0% principally due to the impact of its global operations, research tax credits and foreign-derived intangible income, partially offset by net discrete tax charges of $19 million. Net discrete tax charges related primarily to tax costs related to the separation of the Environmental & Applied Solutions business, tax costs related to legal and operational actions taken to realign certain businesses and changes in estimates associated with prior period uncertain tax positions, partially offset by excess tax benefits from stock-based compensation and interest on prior year tax refunds. The net discrete charges increased the effective tax rate by 0.7% for the six-month period ended June 30, 2023.
The Company (including its subsidiaries) conducts business globally, and files numerous consolidated and separate income tax returns in federal, state and foreign jurisdictions. In addition to the Company’s significant presence in the U.S., the Company also has a significant presence in China, Denmark, Germany, Singapore, Sweden, Switzerland and the United Kingdom. Excluding these jurisdictions, the Company believes that a change in the statutory tax rate of any individual foreign country would not have a material impact on the Company’s financial statements given the geographical dispersion of the Company’s taxable income.
The Company and its subsidiaries are routinely examined by various domestic and international taxing authorities. The U.S. Internal Revenue Service (“IRS”) has completed the examinations of substantially all of the Company’s federal income tax returns through 2015 and is currently examining certain of the Company’s federal income tax returns for 2016 through 2022. In addition, the Company has subsidiaries in Canada, China, Denmark, France, Germany, India, Italy, Switzerland, the United Kingdom and various other countries, states and provinces that are currently under audit for years ranging from 2004 through 2023.
In the fourth quarter of 2022, the IRS proposed significant adjustments to the Company’s taxable income for the years 2016 through 2018 with respect to the deferral of tax on certain premium income related to the Company’s self-insurance programs. For income tax purposes, the recognition of premium income has been deferred in accordance with U.S. tax laws related to insurance. The proposed adjustments would have increased the Company’s taxable income over the 2016 through 2018 periods by approximately $2.5 billion. In the first quarter of 2023, the Company settled these proposed adjustments with the IRS, although the audit is still open with respect to other matters for the 2016 through 2018 period. The impact of the settlement with respect to the Company’s self-insurance policies was not material to the Company’s financial statements, including cash flows and the effective tax rate. As the settlement with the IRS was specific to the audit period, the settlement does not preclude the IRS from proposing similar adjustments to the Company’s self-
insurance programs with respect to periods subsequent to 2018. Management believes the positions the Company has taken in its U.S. tax returns are in accordance with the relevant tax laws.
The Company expects its effective tax rate for the remainder of 2024 to be approximately 17.5% based on its projected mix of earnings. The Company’s effective tax rate could vary as a result of many factors, including but not limited to the following:
•The expected rate for the remainder of 2024 includes the anticipated discrete income tax benefits from excess tax deductions related to the Company’s stock compensation programs, which are reflected as a reduction in tax expense, though the actual benefits (if any) will depend on the Company’s stock price and stock option exercise patterns.
•The actual mix of earnings by jurisdiction could fluctuate from the Company’s projection.
•The tax effects of other discrete items, including accruals related to tax contingencies, the resolution of worldwide tax matters, tax audit settlements, statute of limitations expirations and changes in tax regulations.
•Any future changes in tax law or the implementation of increases in tax rates, the impact of future regulations and any related additional tax planning efforts to address these changes.
As a result of the uncertainty in predicting these items, it is reasonably possible that the actual effective tax rate used for financial reporting purposes will change in future periods.
Refer to Note 7 to the Consolidated Condensed Financial Statements for discussion regarding the Company’s significant tax matters.
COMPREHENSIVE INCOME
Comprehensive income increased $764 million for the three-month period ended June 28, 2024 and decreased $700 million for the six-month period ended June 28, 2024, as compared to the comparable periods of 2023. For the three-month period ended June 28, 2024, the increase in comprehensive income was primarily driven by increased gains from foreign currency translation adjustments, partially offset by lower net earnings. For the six-month period ended June 28, 2024, the decrease in comprehensive income was primarily driven by lower net earnings and increased losses from foreign currency translation adjustments. The Company recorded foreign currency translation gains of $121 million for the three-month period ended June 28, 2024 compared to losses of $704 million for the three-month period ended June 30, 2023. The Company recorded foreign currency translation losses of $827 million and $679 million for the six-month periods ended June 28, 2024 and June 30, 2023, respectively. The foreign currency translation gains in the three-month period ended June 28, 2024 and losses in the six-month period ended June 28, 2024 were primarily driven by the change in the exchange rates between the U.S. dollar and the Swedish krona and the euro. Foreign currency translation adjustments reflect the gain or loss resulting from the impact of the change in currency exchange rates on the Company’s foreign operations as they are translated to the Company’s reporting currency, the U.S. dollar. The Company recorded gains of $30 million and losses of $20 million from cash flow hedge adjustments related to the Company’s cross-currency swap derivative contracts for the three and six-month periods ended June 28, 2024, respectively, as compared to losses of $106 million and $25 million for the comparable periods of 2023.
LIQUIDITY AND CAPITAL RESOURCES
Management assesses the Company’s liquidity in terms of its ability to generate cash to fund its operating, investing and financing activities. The Company continues to generate substantial cash from operating activities and believes that its operating cash flow, cash on hand and other sources of liquidity will be sufficient to allow it to continue investing in existing businesses (including capital expenditures), consummating strategic acquisitions and investments, paying interest and servicing debt, paying dividends and funding restructuring activities, as well as to repurchase common stock when deemed appropriate and manage its capital structure on a short-term and long-term basis.
The Company has relied primarily on borrowings under its commercial paper program to address liquidity requirements that exceed the capacity provided by its operating cash flows and cash on hand, while also accessing the capital markets from time to time including to secure financing for more significant acquisitions. Subject to any limitations that may result from market disruptions, the Company anticipates following the same approach in the future.
Overview of Cash Flows and Liquidity
Following is an overview of the Company’s cash flows and liquidity ($ in millions):
| | | | | | | | | | | |
| Six-Month Period Ended |
| June 28, 2024 | | June 30, 2023 |
| Total operating cash provided by operating activities from continuing operations | $ | 3,156 | | | $ | 3,452 | |
| Total operating cash provided by discontinued operations | — | | | 421 | |
| Net cash provided by operating activities | $ | 3,156 | | | $ | 3,873 | |
| | | |
| Cash paid for acquisitions | $ | (12) | | | $ | — | |
| Payments for additions to property, plant and equipment | (578) | | | (595) | |
| Proceeds from sales of property, plant and equipment | 1 | | | 2 | |
| Payments for purchases of investments | (127) | | | (144) | |
| Proceeds from sales of investments | 9 | | | 4 | |
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| All other investing activities | 26 | | | 17 | |
| Total investing cash used in continuing operations | (681) | | | (716) | |
| Total investing cash used in discontinued operations | — | | | (19) | |
| Total cash used in investing activities | $ | (681) | | | $ | (735) | |
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| Proceeds from (payments for) the issuance of common stock in connection with stock-based compensation, net | $ | 76 | | | $ | (4) | |
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| Payment of dividends | (377) | | | (422) | |
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| Net proceeds from (repayments of) borrowings (maturities of 90 days or less) | 15 | | | (7) | |
| Net repayments of borrowings (maturities longer than 90 days) | (974) | | | — | |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | | | | | | | |
| | DANAHER CORPORATION |
| | | |
| Date: | July 22, 2024 | By: | /s/ Matthew R. McGrew |
| | | Matthew R. McGrew |
| | | Executive Vice President and Chief Financial Officer |
| | | |
| Date: | July 22, 2024 | By: | /s/ Christopher M. Bouda |
| | | Christopher M. Bouda |
| | | Vice President and Chief Accounting Officer |
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