filings.toolsCover and table of contents
108K characters. Original on sec.gov · Markdown
Cover and table of contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended April 1, 2022
OR
| ☐ | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-08089
DANAHER CORPORATION
(Exact name of registrant as specified in its charter)
| Delaware | 59-1995548 | ||||||||||
| (State of Incorporation) | (I.R.S. Employer Identification Number) | ||||||||||
| 2200 Pennsylvania Avenue, N.W., Suite 800W | 20037-1701 | ||||||||||
| Washington, | DC | ||||||||||
| (Address of Principal Executive Offices) | (Zip Code) |
Registrant’s telephone number, including area code: 202-828-0850
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
| Common stock, $0.01 par value | DHR | New York Stock Exchange | ||||||
| 4.75% Mandatory Convertible Preferred Stock, Series A, without par value | DHR.PRA | New York Stock Exchange | ||||||
| 5.00% Mandatory Convertible Preferred Stock, Series B, without par value | DHR.PRB | New York Stock Exchange | ||||||
| Floating Rate Senior Notes due 2022 | DHR/22A | New York Stock Exchange | ||||||
| 1.700% Senior Notes due 2024 | DHR 24 | New York Stock Exchange | ||||||
| 0.200% Senior Notes due 2026 | DHR/26 | New York Stock Exchange | ||||||
| 2.100% Senior Notes due 2026 | DHR 26 | New York Stock Exchange | ||||||
| 1.200% Senior Notes due 2027 | DHR/27 | New York Stock Exchange | ||||||
| 0.450% Senior Notes due 2028 | DHR/28 | New York Stock Exchange | ||||||
| 2.500% Senior Notes due 2030 | DHR 30 | New York Stock Exchange | ||||||
| 0.750% Senior Notes due 2031 | DHR/31 | New York Stock Exchange | ||||||
| 1.350% Senior Notes due 2039 | DHR/39 | New York Stock Exchange | ||||||
| 1.800% Senior Notes due 2049 | DHR/49 | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large Accelerated Filer | ☒ | Accelerated Filer | ☐ | |||||||||||||||||
| Non-accelerated Filer | ☐ | Smaller Reporting Company | ☐ | |||||||||||||||||
| Emerging Growth Company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐ No ☒
The number of shares of common stock outstanding at April 19, 2022 was 727,076,766.
DANAHER CORPORATION
INDEX
FORM 10-Q
DANAHER CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
($ in millions, except per share amount)
(unaudited)
| April 1, 2022 | December 31, 2021 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and equivalents | $ | 3,717 | $ | 2,586 | |||||||
| Trade accounts receivable, less allowance for doubtful accounts of $130 and $124, respectively | 4,407 | 4,631 | |||||||||
| Inventories: | |||||||||||
| Finished goods | 1,493 | 1,343 | |||||||||
| Work in process | 530 | 473 | |||||||||
| Raw materials | 1,049 | 951 | |||||||||
| Total inventories | 3,072 | 2,767 | |||||||||
| Prepaid expenses and other current assets | 1,474 | 1,664 | |||||||||
| Total current assets | 12,670 | 11,648 | |||||||||
| Property, plant and equipment, net of accumulated depreciation of $3,517 and $3,465, respectively | 3,815 | 3,790 | |||||||||
| Other long-term assets | 4,098 | 3,719 | |||||||||
| Goodwill | 40,663 | 41,184 | |||||||||
| Other intangible assets, net | 22,146 | 22,843 | |||||||||
| Total assets | $ | 83,392 | $ | 83,184 | |||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Notes payable and current portion of long-term debt | $ | 10 | $ | 8 | |||||||
| Trade accounts payable | 2,357 | 2,569 | |||||||||
| Accrued expenses and other liabilities | 5,180 | 5,563 | |||||||||
| Total current liabilities | 7,547 | 8,140 | |||||||||
| Other long-term liabilities | 7,715 | 7,699 | |||||||||
| Long-term debt | 21,768 | 22,168 | |||||||||
| Stockholders’ equity: | |||||||||||
| Preferred stock, no par value, 15.0 million shares authorized; 1.65 million shares of 4.75% Mandatory Convertible Preferred Stock, Series A, issued and outstanding as of April 1, 2022 and December 31, 2021; 1.72 million shares of 5.00% Mandatory Convertible Preferred Stock, Series B, issued and outstanding as of April 1, 2022 and December 31, 2021 | 3,268 | 3,268 | |||||||||
| Common stock - $0.01 par value, 2.0 billion shares authorized; 857.0 million issued and 716.0 million outstanding as of April 1, 2022; 855.7 million issued and 715.0 million outstanding as of December 31, 2021 | 9 | 9 | |||||||||
| Additional paid-in capital | 10,123 | 10,090 | |||||||||
| Retained earnings | 34,332 | 32,827 | |||||||||
| Accumulated other comprehensive income (loss) | (1,376) | (1,027) | |||||||||
| Total Danaher stockholders’ equity | 46,356 | 45,167 | |||||||||
| Noncontrolling interests | 6 | 10 | |||||||||
| Total stockholders’ equity | 46,362 | 45,177 | |||||||||
| Total liabilities and stockholders’ equity | $ | 83,392 | $ | 83,184 |
See the accompanying Notes to the Consolidated Condensed Financial Statements.
DANAHER CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
($ and shares in millions, except per share amounts)
(unaudited)
| Three-Month Period Ended | |||||||||||||||||||||||||||||
| April 1, 2022 | April 2, 2021 | ||||||||||||||||||||||||||||
| Sales | $ | 7,688 | $ | 6,858 | |||||||||||||||||||||||||
| Cost of sales | (2,983) | (2,605) | |||||||||||||||||||||||||||
| Gross profit | 4,705 | 4,253 | |||||||||||||||||||||||||||
| Operating costs: | |||||||||||||||||||||||||||||
| Selling, general and administrative expenses | (2,092) | (1,876) | |||||||||||||||||||||||||||
| Research and development expenses | (441) | (380) | |||||||||||||||||||||||||||
| Operating profit | 2,172 | 1,997 | |||||||||||||||||||||||||||
| Nonoperating income (expense): | |||||||||||||||||||||||||||||
| Other income (expense), net | (20) | 140 | |||||||||||||||||||||||||||
| Interest expense | (54) | (58) | |||||||||||||||||||||||||||
| Interest income | 1 | 4 | |||||||||||||||||||||||||||
| Earnings before income taxes | 2,099 | 2,083 | |||||||||||||||||||||||||||
| Income taxes | (374) | (381) | |||||||||||||||||||||||||||
| Net earnings | 1,725 | 1,702 | |||||||||||||||||||||||||||
| Mandatory convertible preferred stock dividends | (41) | (41) | |||||||||||||||||||||||||||
| Net earnings attributable to common stockholders | $ | 1,684 | $ | 1,661 | |||||||||||||||||||||||||
| Net earnings per common share: | |||||||||||||||||||||||||||||
| Basic | $ | 2.35 | $ | 2.33 | |||||||||||||||||||||||||
| Diluted | $ | 2.31 | $ | 2.29 | |||||||||||||||||||||||||
| Average common stock and common equivalent shares outstanding: | |||||||||||||||||||||||||||||
| Basic | 716.3 | 713.2 | |||||||||||||||||||||||||||
| Diluted | 737.7 | 735.1 |
See the accompanying Notes to the Consolidated Condensed Financial Statements.
DANAHER CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
($ in millions)
(unaudited)
| Three-Month Period Ended | |||||||||||||||||||||||
| April 1, 2022 | April 2, 2021 | ||||||||||||||||||||||
| Net earnings | $ | 1,725 | $ | 1,702 | |||||||||||||||||||
| Other comprehensive income (loss), net of income taxes: | |||||||||||||||||||||||
| Foreign currency translation adjustments | (343) | (922) | |||||||||||||||||||||
| Pension and postretirement plan benefit adjustments | 14 | 10 | |||||||||||||||||||||
| Cash flow hedge adjustments | (20) | (42) | |||||||||||||||||||||
| Total other comprehensive income (loss), net of income taxes | (349) | (954) | |||||||||||||||||||||
| Comprehensive income | $ | 1,376 | $ | 748 |
See the accompanying Notes to the Consolidated Condensed Financial Statements.
DANAHER CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY
($ in millions)
(unaudited)
| Three-Month Period Ended | |||||||||||||||||||||||
| April 1, 2022 | April 2, 2021 | ||||||||||||||||||||||
| Preferred stock: | |||||||||||||||||||||||
| Balance, beginning and end of period | $ | 3,268 | $ | 3,268 | |||||||||||||||||||
| Common stock: | |||||||||||||||||||||||
| Balance, beginning and end of period | $ | 9 | $ | 9 | |||||||||||||||||||
| Additional paid-in capital: | |||||||||||||||||||||||
| Balance, beginning of period | $ | 10,090 | $ | 9,698 | |||||||||||||||||||
| Common stock-based award | 48 | 62 | |||||||||||||||||||||
| Common stock issued in connection with LYONs’ conversions, including tax benefit of $0 and $10, respectively | — | 34 | |||||||||||||||||||||
| Change in noncontrolling interests | (15) | — | |||||||||||||||||||||
| Balance, end of period | $ | 10,123 | $ | 9,794 | |||||||||||||||||||
| Retained earnings: | |||||||||||||||||||||||
| Balance, beginning of period | $ | 32,827 | $ | 27,159 | |||||||||||||||||||
| Net earnings | 1,725 | 1,702 | |||||||||||||||||||||
| Common stock dividends declared | (179) | (150) | |||||||||||||||||||||
| Mandatory Convertible Preferred Stock dividends declared | (41) | (41) | |||||||||||||||||||||
| Balance, end of period | $ | 34,332 | $ | 28,670 | |||||||||||||||||||
| Accumulated other comprehensive income (loss): | |||||||||||||||||||||||
| Balance, beginning of period | $ | (1,027) | $ | (368) | |||||||||||||||||||
| Other comprehensive income (loss) | (349) | (954) | |||||||||||||||||||||
| Balance, end of period | $ | (1,376) | $ | (1,322) | |||||||||||||||||||
| Noncontrolling interests: | |||||||||||||||||||||||
| Balance, beginning of period | $ | 10 | $ | 11 | |||||||||||||||||||
| Change in noncontrolling interests | (4) | — | |||||||||||||||||||||
| Balance, end of period | $ | 6 | $ | 11 | |||||||||||||||||||
| Total stockholders’ equity, end of period | $ | 46,362 | $ | 40,430 |
See the accompanying Notes to the Consolidated Condensed Financial Statements.
DANAHER CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
($ in millions)
(unaudited)
| Three-Month Period Ended | |||||||||||
| April 1, 2022 | April 2, 2021 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net earnings | $ | 1,725 | $ | 1,702 | |||||||
| Noncash items: | |||||||||||
| Depreciation | 179 | 158 | |||||||||
| Amortization of intangible assets | 386 | 344 | |||||||||
| Amortization of acquisition-related inventory fair value step-up | — | 29 | |||||||||
| Stock-based compensation expense | 80 | 54 | |||||||||
| Pretax gain on sale of product lines and investment (gains) losses | 24 | (102) | |||||||||
| Change in trade accounts receivable, net | 80 | 59 | |||||||||
| Change in inventories | (431) | (171) | |||||||||
| Change in trade accounts payable | (131) | (38) | |||||||||
| Change in prepaid expenses and other assets | (22) | 239 | |||||||||
| Change in accrued expenses and other liabilities | 78 | (403) | |||||||||
| Net cash provided by operating activities | 1,968 | 1,871 | |||||||||
| Cash flows from investing activities: | |||||||||||
| Cash paid for acquisitions | (17) | (419) | |||||||||
| Payments for additions to property, plant and equipment | (250) | (251) | |||||||||
| Proceeds from sales of property, plant and equipment | 2 | 12 | |||||||||
| Payments for purchases of investments | (274) | (420) | |||||||||
| Proceeds from sales of investments | 17 | 43 | |||||||||
| Proceeds from sale of product lines | — | 26 | |||||||||
| All other investing activities | 19 | 16 | |||||||||
| Total cash used in investing activities | (503) | (993) | |||||||||
| Cash flows from financing activities: | |||||||||||
| Payments for the issuance of common stock in connection with stock-based compensation, net | (46) | (12) | |||||||||
| Payment of dividends | (191) | (169) | |||||||||
| Net proceeds from (repayments of) borrowings (maturities of 90 days or less) | 10 | (1) | |||||||||
| Net repayments of borrowings (maturities longer than 90 days) | — | (279) | |||||||||
| All other financing activities | (47) | 12 | |||||||||
| Total cash used in financing activities | (274) | (449) | |||||||||
| Effect of exchange rate changes on cash and equivalents | (60) | (134) | |||||||||
| Net change in cash and equivalents | 1,131 | 295 | |||||||||
| Beginning balance of cash and equivalents | 2,586 | 6,035 | |||||||||
| Ending balance of cash and equivalents | $ | 3,717 | $ | 6,330 | |||||||
| Supplemental disclosures: | |||||||||||
| Cash interest payments | $ | 84 | $ | 83 | |||||||
| Cash income tax payments | 227 | 122 |
See the accompanying Notes to the Consolidated Condensed Financial Statements.
DANAHER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
NOTE 1. GENERAL
The Consolidated Condensed Financial Statements included herein have been prepared by Danaher Corporation (“Danaher” or the “Company”) without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). In this quarterly report, the terms “Danaher” or the “Company” refer to Danaher Corporation, Danaher Corporation and its consolidated subsidiaries, or the consolidated subsidiaries of Danaher Corporation, as the context requires. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) have been condensed or omitted pursuant to SEC rules and regulations; however, the Company believes that the disclosures are adequate to make the information presented not misleading. The Consolidated Condensed Financial Statements included herein should be read in conjunction with the financial statements as of and for the year ended December 31, 2021 and the Notes thereto included in the Company’s 2021 Annual Report on Form 10-K filed on February 23, 2022 (the “2021 Annual Report”).
In the opinion of the Company, the accompanying financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position of the Company as of April 1, 2022 and December 31, 2021, its results of operations for the three-month periods ended April 1, 2022 and April 2, 2021 and its cash flows for each of the three-month periods then ended.
There have been no changes to the Company’s significant accounting policies described in the Company’s 2021 Annual Report that have a material impact on the Company’s Consolidated Condensed Financial Statements and the related Notes. Reclassifications of certain prior year amounts have been made to conform to the current year presentation.
Accounting Standards Recently Adopted—In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The ASU includes amendments to the guidance on convertible instruments and the derivative scope exception for contracts in an entity’s own equity and simplifies the accounting for convertible instruments which include beneficial conversion features or cash conversion features by removing certain separation models in Subtopic 470-20. Additionally, the ASU requires entities to use the “if-converted” method when calculating diluted earnings per common share for convertible instruments. On January 1, 2022, the Company adopted the ASU and the ASU did not have a significant impact on the Company’s financial statements.
In November 2021, the FASB issued ASU No. 2021-10, Government Assistance (Topic 832), which requires annual disclosures of transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy. For the Company, these disclosures will initially be required for the Company’s financial statements for the year ended December 31, 2022. These required annual disclosures include information on the nature of transactions and related accounting policies used to account for transactions, detail of the line items on the balance sheet and income statement affected by these transactions, including amounts applicable to each line, and significant terms and conditions of the transactions including commitments and contingencies. On January 1, 2022, the Company adopted the ASU. The Company is in the process of assessing the impact of this ASU and drafting the annual disclosures.
Operating Leases—As of April 1, 2022 and December 31, 2021, operating lease right-of-use assets where the Company was the lessee were approximately $1.0 billion in both periods and are included within other long-term assets in the accompanying Consolidated Condensed Balance Sheets. The associated operating lease liabilities were approximately $1.1 billion as of April 1, 2022 and December 31, 2021, respectively, and are included in accrued expenses and other liabilities and other long-term liabilities.
NOTE 2. ACQUISITIONS
For a description of the Company’s acquisition activity for the year ended December 31, 2021, reference is made to the financial statements as of and for the year ended December 31, 2021 and Note 2 thereto included in the Company’s 2021 Annual Report.
The Company continually evaluates potential acquisitions that either strategically fit with the Company’s existing portfolio or expand the Company’s portfolio into a new and attractive business area. The Company has completed a number of acquisitions that have been accounted for as purchases and have resulted in the recognition of goodwill in the Company’s financial statements. This goodwill arises because the purchase prices for these businesses exceed the fair value of acquired identifiable
net assets due to a number of factors including the future earnings and cash flow potential of these businesses, the multiple to earnings, cash flow and other factors at which similar businesses have been purchased by other acquirers, the competitive nature of the processes by which the Company acquired the businesses, avoidance of the time and costs which would be required (and the associated risks that would be encountered) to enhance the Company’s existing product offerings to key target markets and enter into new and profitable businesses and the complementary strategic fit and resulting synergies these businesses bring to existing operations.
The Company makes an initial allocation of the purchase price at the date of acquisition based upon its understanding of the fair value of the acquired assets and assumed liabilities. The Company obtains the information used for the purchase price allocation during due diligence and through other sources. In the months after closing, as the Company obtains additional information about these assets and liabilities, including through tangible and intangible asset appraisals, and learns more about the newly acquired business, it is able to refine the estimates of fair value and more accurately allocate the purchase price. The fair values of acquired intangibles are determined based on estimates and assumptions that are deemed reasonable by the Company. Significant assumptions include the discount rates and certain assumptions that form the basis of the forecasted results of the acquired business including earnings before interest, taxes, depreciation and amortization (“EBITDA”), revenue, revenue growth rates, royalty rates and technology obsolescence rates. These assumptions are forward looking and could be affected by future economic and market conditions. The Company engages third-party valuation specialists who review the Company’s critical assumptions and calculations of the fair value of acquired intangible assets in connection with significant acquisitions. Only facts and circumstances that existed as of the acquisition date are considered for subsequent adjustment. The Company is continuing to evaluate certain pre-acquisition contingencies associated with its 2021 and 2022 acquisitions 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.
During the three-month period ended April 1, 2022, the Company acquired one business for total consideration of $13 million in cash, net of cash acquired and recorded goodwill and intangible assets of $3 million and $10 million, respectively. The business acquired complements an existing unit of the Company’s Environmental & Applied Solutions segment. The aggregate annual sales of this business at the time of acquisition based on the company’s revenues for its last completed fiscal year prior to the acquisition, were $7 million. The Company also paid $4 million for working capital adjustments related to 2021 acquisitions during the first quarter of 2022.
Pro Forma Financial Information
The unaudited pro forma information for the periods set forth below gives effect to the 2021 and 2022 acquisitions as if they had occurred as of January 1, 2021. The pro forma information is presented for informational purposes only and is not necessarily indicative of the results of operations that actually would have been achieved had the acquisitions been consummated as of that time ($ in millions, except per share amounts):
| Three-Month Period Ended | |||||||||||||||||||||||
| April 1, 2022 | April 2, 2021 | ||||||||||||||||||||||
| Sales | $ | 7,689 | $ | 6,967 | |||||||||||||||||||
| Net earnings | 1,725 | 1,629 | |||||||||||||||||||||
| Diluted net earnings per common share (a) | 2.31 | 2.19 |
(a) Diluted net earnings per common share is calculated by deducting the Mandatory Convertible Preferred Stock (“MCPS”) dividends from net earnings for the anti-dilutive MCPS shares (refer to Note 3 for additional information).
NOTE 3. NET EARNINGS PER COMMON SHARE
Basic net earnings per common share (“EPS”) is calculated by taking net earnings less the MCPS dividends divided by the weighted average number of common shares outstanding for the applicable period. Diluted net EPS is computed by taking net earnings less the MCPS dividends divided by the weighted average number of common shares outstanding increased by the number of additional shares that would have been outstanding had the potentially dilutive common shares been issued and reduced by the number of shares the Company could have repurchased with the proceeds from the issuance of the potentially dilutive shares. For the three-month periods ended April 1, 2022 and April 2, 2021, approximately 418 thousand and 71 thousand options, respectively, to purchase shares were excluded from the diluted EPS calculation, as the impact of their inclusion would have been anti-dilutive.
The impact of the MCPS Series A calculated under the if-converted method was dilutive for the three-month periods ended April 1, 2022 and April 2, 2021, and as such 11.0 million shares underlying the MCPS Series A were included in the calculation of diluted EPS for both three-month periods and the related MCPS Series A dividends of $20 million were excluded from the calculation of net earnings for diluted EPS for both periods.
The impact of the MCPS Series B calculated under the if-converted method was anti-dilutive for the three-month periods ended April 1, 2022 and April 2, 2021, and as such 8.6 million shares underlying the MCPS Series B were excluded from the calculation of diluted EPS in both periods and the related MCPS Series B dividends of $21 million were included in the calculation of net earnings for diluted EPS for both periods.
Information related to the calculation of net earnings per common share is summarized as follows ($ and shares in millions, except per share amounts):
| Three-Month Period Ended | ||||||||||||||||||||||||||
| April 1, 2022 | April 2, 2021 | |||||||||||||||||||||||||
| Numerator: | ||||||||||||||||||||||||||
| Net earnings | $ | 1,725 | $ | 1,702 | ||||||||||||||||||||||
| MCPS dividends | (41) | (41) | ||||||||||||||||||||||||
| Net earnings attributable to common stockholders for Basic EPS | 1,684 | 1,661 | ||||||||||||||||||||||||
| Adjustment for MCPS dividends for dilutive MCPS | 20 | 20 | ||||||||||||||||||||||||
| Net earnings attributable to common stockholders after assumed conversions for Diluted EPS | $ | 1,704 | $ | 1,681 | ||||||||||||||||||||||
| Denominator: | ||||||||||||||||||||||||||
| Weighted average common shares outstanding used in Basic EPS | 716.3 | 713.2 | ||||||||||||||||||||||||
| Incremental common shares from: | ||||||||||||||||||||||||||
| Assumed exercise of dilutive options and vesting of dilutive RSUs and PSUs | 10.4 | 10.7 | ||||||||||||||||||||||||
| Assumed conversion of the convertible debentures | — | 0.2 | ||||||||||||||||||||||||
| Weighted average MCPS converted shares | 11.0 | 11.0 | ||||||||||||||||||||||||
| Weighted average common shares outstanding used in Diluted EPS | 737.7 | 735.1 | ||||||||||||||||||||||||
| Basic EPS | $ | 2.35 | $ | 2.33 | ||||||||||||||||||||||
| Diluted EPS | $ | 2.31 | $ | 2.29 |
NOTE 4. REVENUE
The following tables present the Company’s revenues disaggregated by geographical region and revenue type for the three-month periods ended April 1, 2022 and April 2, 2021 ($ in millions). Sales taxes and other usage-based taxes collected from customers are excluded from revenue.
| Life Sciences | Diagnostics | Environmental & Applied Solutions | Total | ||||||||||||||||||||
| For the Three-Month Period Ended April 1, 2022: | |||||||||||||||||||||||
| Geographical region: | |||||||||||||||||||||||
| North America | $ | 1,520 | $ | 1,306 | $ | 528 | $ | 3,354 | |||||||||||||||
| Western Europe | 1,035 | 524 | 269 | 1,828 | |||||||||||||||||||
| Other developed markets | 222 | 124 | 32 | 378 | |||||||||||||||||||
| High-growth markets (a) | 1,105 | 690 | 333 | 2,128 | |||||||||||||||||||
| Total | $ | 3,882 | $ | 2,644 | $ | 1,162 | $ | 7,688 | |||||||||||||||
| Revenue type: | |||||||||||||||||||||||
| Recurring | $ | 2,838 | $ | 2,370 | $ | 690 | $ | 5,898 | |||||||||||||||
| Nonrecurring | 1,044 | 274 | 472 | 1,790 | |||||||||||||||||||
| Total | $ | 3,882 | $ | 2,644 | $ | 1,162 | $ | 7,688 | |||||||||||||||
| For the Three-Month Period Ended April 2, 2021: | |||||||||||||||||||||||
| Geographical region: | |||||||||||||||||||||||
| North America | $ | 1,263 | $ | 972 | $ | 492 | $ | 2,727 | |||||||||||||||
| Western Europe | 970 | 415 | 279 | 1,664 | |||||||||||||||||||
| Other developed markets | 225 | 118 | 29 | 372 | |||||||||||||||||||
| High-growth markets (a) | 1,088 | 673 | 334 | 2,095 | |||||||||||||||||||
| Total | $ | 3,546 | $ | 2,178 | $ | 1,134 | $ | 6,858 | |||||||||||||||
| Revenue type: | |||||||||||||||||||||||
| Recurring | $ | 2,529 | $ | 1,902 | $ | 648 | $ | 5,079 | |||||||||||||||
| Nonrecurring | 1,017 | 276 | 486 | 1,779 | |||||||||||||||||||
| Total | $ | 3,546 | $ | 2,178 | $ | 1,134 | $ | 6,858 |
(a) The Company defines high-growth markets as developing markets of the world experiencing extended periods of accelerated growth in gross domestic product and infrastructure which include Eastern Europe, the Middle East, Africa, Latin America and Asia (with the exception of Japan, Australia and New Zealand). The Company defines developed markets as all markets that are not high-growth markets.
The Company sells equipment to customers as well as consumables 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, filters used in filtration, separation and purification processes and cartridges for marking and coding equipment. Additionally, some of the Company’s consumables are used on a standalone basis, such as water treatment solutions. The Company separates its goods and services between those typically sold to a customer on a recurring basis and those typically sold on a nonrecurring basis. Recurring revenue includes revenue from consumables, services and operating-type leases (“OTLs”). Nonrecurring revenue includes sales from equipment and sales-type leases (“STLs”). OTLs and STLs are included in the above revenue amounts. For the three-month periods ended April 1, 2022 and April 2, 2021, lease revenue was $124 million and $117 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 April 1, 2022, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $4.8 billion. The Company expects to recognize revenue on approximately 56% of the remaining performance obligations over the next 12 months, 22% over the subsequent 12 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.
Most of the Company’s long-term contracts are billed as work progresses in accordance with the contract terms and conditions, either at periodic intervals or upon achievement of certain milestones. Often this results in billing occurring subsequent to revenue recognition resulting in contract assets. Contract assets are generally classified as other current assets in the Consolidated Condensed Balance Sheets. The balance of contract assets as of April 1, 2022 and December 31, 2021 was $89 million and $75 million, respectively.
The Company often receives cash payments from customers in advance of the Company’s performance resulting in contract liabilities that are classified as either current or long-term in the Consolidated Condensed Balance Sheets based on the timing of when the Company expects to recognize revenue. As of April 1, 2022 and December 31, 2021, contract liabilities were approximately $2.1 billion and $1.8 billion, respectively, and are included within accrued expenses and other liabilities and other long-term liabilities in the accompanying Consolidated Condensed Balance Sheets. The increase in the contract liability balance during the three-month period ended April 1, 2022 was primarily a result of cash payments received in advance of satisfying performance obligations, partially offset by revenue recognized during the period that was included in the opening contract liability balance. Revenue recognized during the three-month periods ended April 1, 2022 and April 2, 2021 that was included in the contract liability balance on December 31, 2021 and December 31, 2020 was $662 million and $520 million, respectively. Contract assets and liabilities are reported on a net basis on the accompanying Consolidated Condensed Balance Sheets on a contract-by-contract basis at the end of each reporting period.
NOTE 5. SEGMENT INFORMATION
The Company operates and reports its results in three separate business segments consisting of the Life Sciences, Diagnostics, and Environmental & Applied Solutions segments. When determining the reportable segments, the Company aggregated operating segments based on their similar economic and operating characteristics. Operating profit represents total revenues less operating expenses, excluding nonoperating income and expense, interest and income taxes. Operating profit amounts in the Other segment consist of unallocated corporate costs and other costs not considered part of management’s evaluation of reportable segment operating performance. Intersegment amounts are not significant and are eliminated to arrive at consolidated totals.
Segment results are shown below ($ in millions):
| Three-Month Period Ended | |||||||||||||||||||||||
| April 1, 2022 | April 2, 2021 | ||||||||||||||||||||||
| Sales: | |||||||||||||||||||||||
| Life Sciences | $ | 3,882 | $ | 3,546 | |||||||||||||||||||
| Diagnostics | 2,644 | 2,178 | |||||||||||||||||||||
| Environmental & Applied Solutions | 1,162 | 1,134 | |||||||||||||||||||||
| Total | $ | 7,688 | $ | 6,858 | |||||||||||||||||||
| Operating profit: | |||||||||||||||||||||||
| Life Sciences | $ | 1,118 | $ | 1,151 | |||||||||||||||||||
| Diagnostics | 886 | 626 | |||||||||||||||||||||
| Environmental & Applied Solutions | 236 | 285 | |||||||||||||||||||||
| Other | (68) | (65) | |||||||||||||||||||||
| Total | $ | 2,172 | $ | 1,997 |
NOTE 6. INCOME TAXES
The following table summarizes the Company’s effective tax rate:
| Three-Month Period Ended | |||||||||||||||||||||||
| April 1, 2022 | April 2, 2021 | ||||||||||||||||||||||
| Effective tax rate | 17.8 | % | 18.3 | % |
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 reduces the effective tax rate compared to the U.S. statutory tax rate.
The effective tax rate for the three-month period ended April 1, 2022 differs from the U.S. federal statutory rate of 21.0% principally due to net discrete benefits of $41 million related primarily to excess tax benefits from stock-based compensation and changes in estimates associated with prior period uncertain tax positions. These factors reduced the effective tax rate by 2.0% for the three-month period ended April 1, 2022.
The effective tax rate for the three-month period ended April 2, 2021 differs from the U.S. federal statutory rate of 21.0% principally due to net discrete benefits of $44 million related primarily to excess tax benefits from stock-based compensation and the benefit from release of reserves for uncertain tax positions from audit settlements, net of changes in estimates associated with prior period uncertain tax positions. These factors reduced the effective tax rate by 2.1% for the three-month period ended April 2, 2021.
For a description of the Company’s significant tax matters, reference is made to the financial statements as of and for the year ended December 31, 2021 and Note 7 thereto included in the Company’s 2021 Annual Report.
NOTE 7. OTHER INCOME (EXPENSE), NET
The following sets forth the components of the Company’s other income (expense), net ($ in millions):
| Three-Month Period Ended | |||||||||||||||||||||||||||||||||||
| April 1, 2022 | April 2, 2021 | ||||||||||||||||||||||||||||||||||
| Other components of net periodic benefit costs | $ | 4 | $ | 11 | |||||||||||||||||||||||||||||||
| Investment gains (losses): | |||||||||||||||||||||||||||||||||||
| Realized investment gains (losses) | 37 | 27 | |||||||||||||||||||||||||||||||||
| Unrealized investment gains (losses) | (61) | 89 | |||||||||||||||||||||||||||||||||
| Total investment gains (losses) | (24) | 116 | |||||||||||||||||||||||||||||||||
| Gain on sale of product lines | — | 13 | |||||||||||||||||||||||||||||||||
| Total other income (expense), net | $ | (20) | $ | 140 |
Other Components of Net Periodic Benefit Costs
The Company disaggregates the service cost component of net periodic benefit costs of the noncontributory defined benefit pension plans and other postretirement employee benefit plans and presents the other components of net periodic benefit cost in other income (expense), net. These other components of net periodic benefit costs include the assumed rate of return on plan assets, partially offset by amortization of actuarial losses and interest. The Company’s net periodic pension cost for the three-month period ended April 1, 2022 includes a settlement loss of $10 million ($9 million after-tax) as a result of the transfer of a portion of its non-U.S. pension liabilities related to one defined benefit plan to a third-party.
Investment Gains (Losses)
The Company estimates the fair value of its investments in equity securities using the Fair Value Alternative and records adjustments to fair value within net earnings. 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. The investment gains (losses) include realized and unrealized gains and losses related to changes in the fair value of the Company’s investments in equity securities and the Company’s equity in earnings of the partnerships that reflect the changes in fair value of the investments of the partnerships.
Gain on Sale of Product Lines
During the first quarter of 2021, the Company divested certain product lines for a cash purchase price, net of cash transferred and transaction costs, of $26 million and recognized a pretax gain on sale of $13 million ($10 million after-tax). The divested product lines generated revenues of approximately $88 million in the Environmental & Applied Solutions segment in 2020. The divestiture of these product lines did not represent a strategic shift with a major effect on the Company’s operations and financial results and therefore is not reported as a discontinued operation.
NOTE 8. GOODWILL AND OTHER INTANGIBLE ASSETS
The following is a rollforward of the Company’s goodwill ($ in millions):
| Balance, December 31, 2021 | $ | 41,184 | |||
| Attributable to 2022 acquisitions | 3 | ||||
| Adjustments due to finalization of purchase price allocations | (18) | ||||
| Foreign currency translation and other | (506) | ||||
| Balance, April 1, 2022 | $ | 40,663 |
The carrying value of goodwill by segment is summarized as follows ($ in millions):
| April 1, 2022 | December 31, 2021 | ||||||||||
| Life Sciences | $ | 31,158 | $ | 31,638 | |||||||
| Diagnostics | 7,012 | 7,044 | |||||||||
| Environmental & Applied Solutions | 2,493 | 2,502 | |||||||||
| Total | $ | 40,663 | $ | 41,184 |
The Company has not identified any “triggering” events which indicate an impairment of goodwill in 2022.
The Company reviews identified intangible assets for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. The Company identified an impairment trigger during the first quarter of 2021 which resulted in the impairment of a trade name. The Company recorded an impairment charge totaling $10 million in the three-month period ended April 2, 2021 related to the trade name.
NOTE 9. FAIR VALUE MEASUREMENTS
Accounting standards define fair value based on an exit price model, establish a framework for measuring fair value where the Company’s assets and liabilities are required to be carried at fair value and provide for certain disclosures related to the valuation methods used within a valuation hierarchy as established within the accounting standards. This hierarchy prioritizes the inputs into three broad levels as follows. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets in markets that are not active, or other observable characteristics for the asset or liability, including interest rates, yield curves and credit risks, or inputs that are derived principally from, or corroborated by, observable market data through correlation. Level 3 inputs are unobservable inputs based on the Company’s assumptions. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement in its entirety.
A summary of financial assets and liabilities that are measured at fair value on a recurring basis were as follows ($ in millions):
| Balance | Quoted Prices in Active Market (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||||||||||||||||||||||||||
| April 1, 2022 | December 31, 2021 | April 1, 2022 | December 31, 2021 | April 1, 2022 | December 31, 2021 | April 1, 2022 | December 31, 2021 | ||||||||||||||||||||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||||||||||||||||||||||||||
| Available-for-sale debt securities | $ | 17 | $ | 20 | $ | — | $ | — | $ | 17 | $ | 20 | $ | — | $ | — | |||||||||||||||||||||||||||||||
| Investment in equity securities | 336 | 336 | 54 | 88 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Cross-currency swap derivative contracts | 226 | 50 | — | — | 226 | 50 | — | — | |||||||||||||||||||||||||||||||||||||||
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 April 1, 2022 and December 31, 2021, 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 in equity securities based on the measurement alternative and adjusts for impairments and observable price changes with a same or similar security from the same issuer within net earnings (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. As of April 1, 2022 and December 31, 2021, the Company’s equity method investments included investments in partnerships with a carrying value of approximately $1.5 billion and $1.3 billion, respectively. During the three-month periods ended April 1, 2022 and April 2, 2021, the Company recorded net realized and unrealized losses of $24 million and net realized and unrealized gains of $116 million, respectively, related to changes in the fair value of the Company’s investments in equity securities and the Company’s equity in earnings of the partnerships that reflect the changes in fair value of the investments of the partnerships. Refer to Note 7 for additional information on gains and losses on the Company’s investments including investments in the partnerships. These gains and losses are reflected in other income (expense), net in the Company’s Consolidated Condensed Statements of Earnings.
The cross-currency swap derivative contracts are used to partially hedge the Company’s net investments in non-U.S. operations against adverse movements in exchange rates between the U.S. dollar and the Danish kroner, Japanese yen, euro and Swiss franc. The Company also uses cross-currency swap derivative contracts to hedge the exchange rate exposure from long-term debt issuances in a foreign currency other than the functional currency of the borrower. The cross-currency swap derivative contracts are classified as Level 2 in the fair value hierarchy as they are measured using the income approach with the relevant interest rates and foreign currency current exchange rates and forward curves as inputs. Refer to Note 11 for additional information.
Fair Value of Other Financial Instruments
The carrying amounts and fair values of the Company’s other financial instruments were as follows ($ in millions):
| April 1, 2022 | December 31, 2021 | ||||||||||||||||||||||
| Carrying Amount | Fair Value | Carrying Amount | Fair Value | ||||||||||||||||||||
| Debt obligations: | |||||||||||||||||||||||
| Notes payable and current portion of long-term debt | $ | 10 | $ | 10 | $ | 8 | $ | 8 | |||||||||||||||
| Long-term debt | 21,768 | 20,944 | 22,168 | 22,796 |
As of April 1, 2022 and December 31, 2021, 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 approximate their carrying amounts due to the short-term maturities of these instruments.
NOTE 10. FINANCING
As of April 1, 2022, the Company was in compliance with all of its debt covenants. The components of the Company’s debt were as follows ($ in millions):
| Description and Aggregate Principal Amount | April 1, 2022 | December 31, 2021 | ||||||||||||
| U.S. dollar-denominated commercial paper | $ | 1,450 | $ | 1,440 | ||||||||||
| Euro-denominated commercial paper (€1.2 billion) | 1,326 | 1,366 | ||||||||||||
| Floating rate senior unsecured notes due 6/30/2022 (€250 million) (the “Floating Rate 2022 Euronotes”) | 276 | 284 | ||||||||||||
| 2.05% senior unsecured notes due 11/15/2022 (the “2022 Biopharma Notes”) | 699 | 699 | ||||||||||||
| 0.5% senior unsecured bonds due 12/08/2023 (CHF 540 million) (the “2023 CHF Bonds”) | 584 | 592 | ||||||||||||
| 1.7% senior unsecured notes due 3/30/2024 (€900 million) (the “2024 Euronotes”) | 992 | 1,021 | ||||||||||||
| 2.2% senior unsecured notes due 11/15/2024 (the “2024 Biopharma Notes”) | 698 | 698 | ||||||||||||
| 3.35% senior unsecured notes due 9/15/2025 (the “2025 U.S. Notes”) | 498 | 498 | ||||||||||||
| 0.2% senior unsecured notes due 3/18/2026 (€1.3 billion) (the “2026 Biopharma Euronotes”) | 1,375 | 1,416 | ||||||||||||
| 2.1% senior unsecured notes due 9/30/2026 (€800 million) (the “2026 Euronotes”) | 881 | 907 | ||||||||||||
| 0.3% senior unsecured notes due 5/11/2027 (¥30.8 billion) (the “2027 Yen Notes”) | 251 | 267 | ||||||||||||
| 1.2% senior unsecured notes due 6/30/2027 (€600 million) (the “2027 Euronotes”) | 661 | 680 | ||||||||||||
| 0.45% senior unsecured notes due 3/18/2028 (€1.3 billion) (the “2028 Biopharma Euronotes”) | 1,373 | 1,413 | ||||||||||||
| 1.125% senior unsecured bonds due 12/08/2028 (CHF 210 million) (the “2028 CHF Bonds”) | 230 | 233 | ||||||||||||
| 2.6% senior unsecured notes due 11/15/2029 (the “2029 Biopharma Notes”) | 795 | 795 | ||||||||||||
| 2.5% senior unsecured notes due 3/30/2030 (€800 million) (the “2030 Euronotes”) | 884 | 910 | ||||||||||||
| 0.75% senior unsecured notes due 9/18/2031 (€1.8 billion) (the “2031 Biopharma Euronotes”) | 1,922 | 1,980 | ||||||||||||
| 0.65% senior unsecured notes due 5/11/2032 (¥53.2 billion) (the “2032 Yen Notes”) | 433 | 461 | ||||||||||||
| 1.35% senior unsecured notes due 9/18/2039 (€1.3 billion) (the “2039 Biopharma Euronotes”) | 1,365 | 1,406 | ||||||||||||
| 3.25% senior unsecured notes due 11/15/2039 (the “2039 Biopharma Notes”) | 890 | 890 | ||||||||||||
| 4.375% senior unsecured notes due 9/15/2045 (the “2045 U.S. Notes”) | 499 | 499 | ||||||||||||
| 1.8% senior unsecured notes due 9/18/2049 (€750 million) (the “2049 Biopharma Euronotes”) | 819 | 844 | ||||||||||||
| 3.4% senior unsecured notes due 11/15/2049 (the “2049 Biopharma Notes”) | 889 | 889 | ||||||||||||
| 2.6% senior unsecured notes due 10/01/2050 (the “2050 U.S. Notes”) | 980 | 980 | ||||||||||||
| 2.8% senior unsecured notes due 12/10/2051 (the “2051 U.S. Notes”) | 984 | 983 | ||||||||||||
| Other | 24 | 25 | ||||||||||||
| Total debt | 21,778 | 22,176 | ||||||||||||
| Less: currently payable | (10) | (8) | ||||||||||||
| Long-term debt | $ | 21,768 | $ | 22,168 |
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, 2021 included in the Company’s 2021 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 $5.0 billion unsecured, multi-year revolving credit facility with a syndicate of banks that expires on August 27, 2024 (the “Five-Year Facility”), is available for direct borrowings and provides credit support for the commercial paper programs. For a description of the Five-Year Facility, refer to the Company’s 2021 Annual Report. On February 21, 2022, the Company and the syndicate of banks amended the Five-Year Facility to replace references to the London Interbank Offered Rate with references to the Sterling Overnight Index Average Reference Rate, the Tokyo Interbank Offer Rate or the Euro Interbank Offer Rate depending on the applicable currency of the borrowing.
As of April 1, 2022, borrowings outstanding under the Company’s U.S. dollar and euro-denominated commercial paper program had a weighted average annual interest rate of 0.2% and a weighted average remaining maturity of approximately 13 days.
Debt discounts, premiums and debt issuance costs totaled $127 million and $130 million as of April 1, 2022 and December 31, 2021, respectively, and have been netted against the aggregate principal amounts of the related debt in the components of debt table above.
Guarantors of Debt
The Company has guaranteed long-term debt issued by certain of its wholly-owned subsidiaries. The Floating Rate 2022 Euronotes and 2027 Euronotes were issued by DH Europe Finance S.A. (“Danaher International”). The 2022 Biopharma Notes, 2024 Biopharma Notes, 2026 Biopharma Euronotes, 2028 Biopharma Euronotes, 2029 Biopharma Notes, 2031 Biopharma Euronotes, 2039 Biopharma Euronotes, 2039 Biopharma Notes, 2049 Biopharma Euronotes and 2049 Biopharma Notes were issued by DH Europe Finance II S.a.r.l. (“Danaher International II”). The 2023 CHF Bonds and 2028 CHF Bonds were issued by DH Switzerland Finance S.A. (“Danaher Switzerland”). The 2027 Yen Notes and 2032 Yen Notes were issued by DH Japan Finance S.A. (“Danaher Japan”). Each of Danaher International, Danaher International II, Danaher Switzerland and Danaher Japan are wholly-owned finance subsidiaries of Danaher Corporation. 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.
NOTE 11. HEDGING TRANSACTIONS AND DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses cross-currency swap derivative contracts to partially hedge its net investments in non-U.S. operations against adverse movements in exchange rates between the U.S. dollar and the Danish kroner, Japanese yen, euro and Swiss franc. The cross-currency swap derivative contracts are agreements to exchange fixed-rate payments in one currency for fixed-rate payments in another currency. These contracts effectively convert U.S. dollar-denominated bonds to obligations denominated in Danish kroner, Japanese yen, euro and Swiss franc, and partially offset the impact of changes in currency rates on the Company’s foreign currency denominated net investments. These contracts also reduce the interest rate from the stated interest rates on the U.S. dollar-denominated debt to the interest rates of the swaps. The changes in the spot rate of these instruments are recorded in accumulated other comprehensive income (loss) in stockholders’ equity, partially offsetting the foreign currency translation adjustment of the Company’s related net investment that is also recorded in accumulated other comprehensive income (loss). Any ineffective portions of net investment hedges are reclassified from accumulated other comprehensive income (loss) into earnings during the period of change. The interest income or expense from these swaps are recorded in interest expense in the accompanying Consolidated Condensed Statements of Earnings consistent with the classification of interest expense attributable to the underlying debt. These instruments mature on dates ranging from September 2025 to December 2031.
The Company also uses cross-currency swap derivative contracts to hedge U.S. dollar-denominated long-term debt issuances in a foreign subsidiary whose functional currency is the euro against adverse movements in exchange rates between the U.S. dollar and the euro. These contracts effectively convert these U.S. dollar-denominated bonds to obligations denominated in euro. The changes in the fair value of these instruments are recorded in accumulated other comprehensive income (loss), with a reclassification from accumulated other comprehensive income (loss) to net earnings to offset the remeasurement of the hedged debt that is also recorded in net earnings. Any ineffective portions of the cash flow hedges are reclassified from accumulated other comprehensive income (loss) into earnings during the period of change. The interest income or expense from these swaps are recorded in interest expense in the accompanying Consolidated Condensed Statements of Earnings consistent with the classification of interest expense attributable to the underlying debt. These instruments mature on dates ranging from November 2022 to November 2049.
The Company has also issued foreign currency denominated long-term debt as partial hedges of its net investments in foreign operations against adverse movements in exchange rates between the U.S. dollar and the euro, Japanese yen and Swiss franc. These foreign currency denominated long-term debt issuances are designated and qualify as nonderivative hedging instruments. Accordingly, the foreign currency translation of these debt instruments is recorded in accumulated other comprehensive income (loss), offsetting the foreign currency translation adjustment of the Company’s related net investment that is also recorded in accumulated other comprehensive income (loss). Any ineffective portions of net investment hedges are reclassified from accumulated other comprehensive income (loss) into earnings during the period of change. These instruments mature on dates ranging from April 2022 to May 2032.
The Company used interest rate swap agreements to hedge the variability in cash flows due to changes in benchmark interest rates related to a portion of the U.S. debt the Company issued to fund the acquisition of Cytiva and a portion of the 2051 Notes. These contracts effectively fixed the interest rate for a portion of the Company’s U.S. dollar-denominated debt equal to the notional amount of the swaps to the rate specified in the interest rate swap agreements and were settled in November 2019 and December 2021, respectively. The changes in the fair value of these instruments were recorded in accumulated other comprehensive income (loss) prior to the issuance of the debt and are subsequently being reclassified to interest expense over the life of the related debt.
The following table summarizes the notional values as of April 1, 2022 and April 2, 2021 and pretax impact of changes in the fair values of instruments designated as net investment hedges and cash flow hedges in accumulated other comprehensive income (“OCI”) for the three-month periods ended April 1, 2022 and April 2, 2021 ($ in millions):
| Original Notional Amount | Notional Amount Outstanding | Gain (Loss) Recognized in OCI | Amounts Reclassified from OCI | ||||||||||||||||||||
| For the Three-Month Period Ended April 1, 2022: | |||||||||||||||||||||||
| Net investment hedges: | |||||||||||||||||||||||
| Cross-currency contracts | $ | 3,875 | $ | 3,000 | $ | 51 | $ | — | |||||||||||||||
| Foreign currency denominated debt | 3,761 | 3,761 | 124 | — | |||||||||||||||||||
| Cash flow hedges: | |||||||||||||||||||||||
| Cross-currency contracts | 4,000 | 4,000 | 125 | (116) | |||||||||||||||||||
| Interest rate swaps | 1,600 | — | — | 1 | |||||||||||||||||||
| Total | $ | 13,236 | $ | 10,761 | $ | 300 | $ | (115) | |||||||||||||||
| For the Three-Month Period Ended April 2, 2021: | |||||||||||||||||||||||
| Net investment hedges: | |||||||||||||||||||||||
| Cross-currency contracts: | $ | 2,875 | $ | 2,000 | $ | 23 | $ | — | |||||||||||||||
| Foreign currency denominated debt | 3,783 | 3,783 | 220 | — | |||||||||||||||||||
| Cash flow hedges: | |||||||||||||||||||||||
| Cross-currency contracts | 4,000 | 4,000 | 110 | (152) | |||||||||||||||||||
| Interest rate swaps | 850 | — | — | — | |||||||||||||||||||
| Total | $ | 11,508 | $ | 9,783 | $ | 353 | $ | (152) | |||||||||||||||
Gains or losses related to net investment hedges are classified as foreign currency translation adjustments in the schedule of changes in OCI in Note 14, 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 and interest rate swaps are classified as cash flow hedge adjustments in the schedule of changes in OCI in Note 14. The amounts reclassified from other comprehensive income (loss) 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-month period on the hedged debt.
The Company did not reclassify any other deferred gains or losses related to net investment hedges or cash flow hedges from accumulated other comprehensive income (loss) to earnings during the three-month periods ended April 1, 2022 and April 2, 2021. In addition, the Company did not have any ineffectiveness related to net investment hedges or cash flow hedges during the three-month periods ended April 1, 2022 and April 2, 2021. The cash inflows and outflows associated with the Company’s derivative contracts designated as net investment hedges are classified in all other investing activities in the accompanying Consolidated Condensed Statements of Cash Flows. The cash inflows and outflows associated with the Company’s derivative contracts designated as cash flow hedges are classified in cash flows from operating activities in the accompanying Consolidated Condensed Statements of Cash Flows.
The Company’s derivative instruments, as well as its nonderivative debt instruments designated and qualifying as net investment hedges, were classified in the Company’s Consolidated Condensed Balance Sheets as follows ($ in millions):
| April 1, 2022 | December 31, 2021 | ||||||||||
| Derivative assets: | |||||||||||
| Other long-term assets | $ | 226 | $ | 50 | |||||||
| Nonderivative hedging instruments: | |||||||||||
| Long-term debt | 3,761 | 3,883 |
Amounts related to the Company’s derivatives expected to be reclassified from accumulated other comprehensive income (loss) to net earnings during the next 12 months, if interest rates and foreign exchange rates remain unchanged, are not significant.
NOTE 12. DEFINED BENEFIT PLANS
The following sets forth the components of the Company’s net periodic benefit (cost) of the noncontributory defined benefit pension plans and other postretirement employee benefit plans ($ in millions):
| Three-Month Period Ended | |||||||||||||||||||||||||||||||||||
| April 1, 2022 | April 2, 2021 | ||||||||||||||||||||||||||||||||||
| U.S. pension benefits: | |||||||||||||||||||||||||||||||||||
| Service cost | $ | — | $ | — | |||||||||||||||||||||||||||||||
| Interest cost | (13) | (12) | |||||||||||||||||||||||||||||||||
| Expected return on plan assets | 32 | 31 | |||||||||||||||||||||||||||||||||
| Amortization of actuarial loss | (9) | (11) | |||||||||||||||||||||||||||||||||
| Net periodic pension benefit | $ | 10 | $ | 8 | |||||||||||||||||||||||||||||||
| Non-U.S. pension benefits: | |||||||||||||||||||||||||||||||||||
| Service cost | $ | (10) | $ | (11) | |||||||||||||||||||||||||||||||
| Interest cost | (6) | (5) | |||||||||||||||||||||||||||||||||
| Expected return on plan assets | 10 | 11 | |||||||||||||||||||||||||||||||||
| Amortization of actuarial loss | — | (3) | |||||||||||||||||||||||||||||||||
| Settlement losses recognized | (10) | — | |||||||||||||||||||||||||||||||||
| Net periodic pension cost | $ | (16) | $ | (8) | |||||||||||||||||||||||||||||||
| Other postretirement employee benefit plans: | |||||||||||||||||||||||||||||||||||
| Service cost | $ | — | $ | — | |||||||||||||||||||||||||||||||
| Interest cost | (1) | (1) | |||||||||||||||||||||||||||||||||
| Amortization of prior service credit | 1 | 1 | |||||||||||||||||||||||||||||||||
| Net periodic cost | $ | — | $ | — |
The service cost component of net periodic benefit costs is presented in cost of goods sold and selling, general and administrative expenses while the other cost components are presented in other income (expense), net. The Company’s net periodic pension cost for the three-month period ended April 1, 2022 includes a settlement loss of $10 million as a result of the transfer of a portion of its non-U.S. pension liabilities related to one defined benefit plan to a third-party.
Employer Contributions
During 2022, the Company’s cash contribution requirements for its U.S. and non-U.S. defined benefit pension plans are forecasted to be approximately $10 million and $49 million, respectively. The ultimate amounts to be contributed depend upon, among other things, legal requirements, underlying asset returns, the plan’s funded status, the anticipated tax deductibility of the contribution, local practices, market conditions, interest rates and other factors.
NOTE 13. COMMITMENTS AND CONTINGENCIES
The Company reviews the adequacy of its legal reserves on a quarterly basis and establishes reserves for loss contingencies that are both probable and reasonably estimable. For a further description of the Company’s litigation and contingencies, refer to Note 18 of the Company’s financial statements as of and for the year ended December 31, 2021 included in the Company’s 2021 Annual Report.
The Company generally accrues estimated warranty costs at the time of sale. In general, manufactured products are warranted against defects in material and workmanship when properly used for their intended purpose, installed correctly and appropriately maintained. Warranty periods depend on the nature of the product and range from the date of such sale up to ten years. The amount of the accrued warranty liability is determined based on historical information such as past experience, product failure rates or number of units repaired, estimated cost of material and labor and in certain instances estimated property damage. As of April 1, 2022 and December 31, 2021, the Company had accrued warranty liabilities of $93 million and $97 million, respectively.
NOTE 14. STOCKHOLDERS' EQUITY AND STOCK-BASED COMPENSATION
Stockholders’ Equity
Neither the Company nor any “affiliated purchaser” repurchased any shares of Company common stock during the three-month period ended April 1, 2022. On July 16, 2013, the Company’s Board of Directors approved a repurchase program (the “Repurchase Program”) authorizing the repurchase of up to 20 million shares of the Company’s common stock from time to time on the open market or in privately negotiated transactions. As of April 1, 2022, 20 million shares remained available for repurchase pursuant to the Repurchase Program.
The following table summarizes the Company’s share activity (shares in millions):
| Three-Month Period Ended | |||||||||||||||||||||||||||||||||||
| April 1, 2022 | April 2, 2021 | ||||||||||||||||||||||||||||||||||
| Preferred stock - shares issued: | |||||||||||||||||||||||||||||||||||
| Balance, beginning and end of period | 3.4 | 3.4 | |||||||||||||||||||||||||||||||||
| Common stock - shares issued: | |||||||||||||||||||||||||||||||||||
| Balance, beginning of period | 855.7 | 851.3 | |||||||||||||||||||||||||||||||||
| Common stock-based compensation awards | 1.3 | 1.5 | |||||||||||||||||||||||||||||||||
| Common stock issued in connection with Liquid Yield Option Notes (“LYONs”) conversions | — | 0.9 | |||||||||||||||||||||||||||||||||
| Balance, end of period | 857.0 | 853.7 |
Unless converted earlier in accordance with the terms of the applicable certificate of designations, each share of MCPS Series A and MCPS Series B (together, the “MCPS Shares”) mandatorily converts on their respective Mandatory Conversion Date, set forth below, into a number of shares of the Company’s common stock between the applicable Minimum Conversion Rate and the applicable Maximum Conversion Rate, set forth below, (subject to further anti-dilution adjustments). The number of shares of the Company’s common stock issued and issuable upon conversion is determined based on the average volume-weighted average price per share of the Company’s common stock over the 20 consecutive trading day period beginning on, and including, the 21st scheduled trading day immediately before the applicable Mandatory Conversion Date. Subject to certain exceptions, at any time prior to the Mandatory Conversion Date, holders may elect to convert the MCPS Shares into common stock based on the applicable Minimum Conversion Rate (subject to further anti-dilution adjustments). In the event of a fundamental change, the MCPS Shares will convert at the fundamental change rates specified in the applicable certificate of designations, and the holders of MCPS Shares would be entitled to a fundamental change make-whole dividend. In the first quarter of 2022, holders converted 180 shares of MCPS Series A into 1,196 shares of Danaher common stock.
Holders of MCPS Shares are entitled to receive, when and if declared by the Company’s Board of Directors, cumulative dividends at the applicable Annual Cumulative Dividend Rate of the Liquidation Preference per share, payable in cash or, subject to certain limitations, by delivery of shares of the Company’s common stock or any combination of cash and shares of the Company’s common stock, at the Company’s election. If declared, dividends on the MCPS Shares are payable quarterly on January 15, April 15, July 15 and October 15 of each year (to, and including, the Mandatory Conversion Date), to the holders of record of the MCPS Shares as they appear on the Company’s stock register at the close of business on the immediately preceding December 31, March 31, June 30 and September 30, respectively.
The following summarizes the key terms of the MCPS Shares:
| Annual Cumulative Dividend Rate | Liquidation Preference per share | Minimum Conversion Rate | Maximum Conversion Rate | Mandatory Conversion Date | |||||||||||||||||||||||||
| Series A | 4.75 | % | $ | 1,000 | 6.6632 shares | 8.1624 shares | April 15, 2022 | ||||||||||||||||||||||
| Series B | 5.00 | % | $ | 1,000 | 5.0115 shares | 6.1391 shares | April 15, 2023 |
On April 15, 2022, all outstanding shares of the Company’s 4.75% MCPS Series A converted at a rate of 6.6632 common shares per share of preferred stock into an aggregate of 11.0 million shares of the Company’s common stock, pursuant to the terms of the Certificate of Designation governing the Series A Preferred Stock. Danaher issued cash in lieu of fractional shares of common stock in the conversion. The final quarterly cash dividend of $11.875 per share was paid on April 15, 2022. The impact of the MCPS Series A calculated under the if-converted method was dilutive for the periods in 2022 prior to conversion.
Stock-Based Compensation
For a full description of the Company’s stock-based compensation programs, refer to Note 19 of the Company’s financial statements as of and for the year ended December 31, 2021 included in the Company’s 2021 Annual Report. As of April 1, 2022, approximately 44 million shares of the Company’s common stock were reserved for issuance under the 2007 Omnibus Incentive Plan.
The following summarizes the components of the Company’s stock-based compensation expense ($ in millions):
| Three-Month Period Ended | |||||||||||||||||||||||
| April 1, 2022 | April 2, 2021 | ||||||||||||||||||||||
| Restricted stock units (“RSUs”)/performance stock units (“PSUs”): | |||||||||||||||||||||||
| Pretax compensation expense | $ | 46 | $ | 33 | |||||||||||||||||||
| Income tax benefit | (9) | (7) | |||||||||||||||||||||
| RSU/PSU expense, net of income taxes | 37 | 26 | |||||||||||||||||||||
| Stock options: | |||||||||||||||||||||||
| Pretax compensation expense | 34 | 21 | |||||||||||||||||||||
| Income tax benefit | (7) | (4) | |||||||||||||||||||||
| Stock option expense, net of income taxes | 27 | 17 | |||||||||||||||||||||
| Total stock-based compensation: | |||||||||||||||||||||||
| Pretax compensation expense | 80 | 54 | |||||||||||||||||||||
| Income tax benefit | (16) | (11) | |||||||||||||||||||||
| Total stock-based compensation expense, net of income taxes | $ | 64 | $ | 43 |
Stock-based compensation has been recognized as a component of selling, general and administrative expenses in the accompanying Consolidated Condensed Statements of Earnings. As of April 1, 2022, $353 million of total unrecognized compensation cost related to RSUs/PSUs is expected to be recognized over a weighted average period of approximately two years. As of April 1, 2022, $340 million of total unrecognized compensation cost related to stock options is expected to be recognized over a weighted average period of approximately two years. Future compensation amounts will be adjusted for any changes in estimated forfeitures.
Accumulated Other Comprehensive Income
Accumulated other comprehensive income (loss) refers to certain gains and losses that under U.S. GAAP are included in comprehensive income (loss) but are excluded from net earnings as these amounts are initially recorded as an adjustment to stockholders’ equity. Foreign currency translation adjustments generally relate to indefinite investments in non-U.S. subsidiaries, as well as the impact from the Company’s hedges of its net investment in foreign operations, including the Company’s cross-currency swap derivatives, net of any income tax impacts.
The changes in accumulated other comprehensive income (loss) by component are summarized below ($ in millions).
| Foreign Currency Translation Adjustments | Pension and Postretirement Plan Benefit Adjustments | Cash Flow Hedge Adjustments | Accumulated Comprehensive Income (Loss) | ||||||||||||||||||||||||||
| For the Three-Month Period Ended April 1, 2022: | |||||||||||||||||||||||||||||
| Balance, December 31, 2021 | $ | (539) | $ | (550) | $ | 62 | $ | (1,027) | |||||||||||||||||||||
| Other comprehensive income (loss) before reclassifications: | |||||||||||||||||||||||||||||
| (Decrease) increase | (331) | — | 125 | (206) | |||||||||||||||||||||||||
| Income tax impact | (12) | — | (30) | (42) | |||||||||||||||||||||||||
| Other comprehensive income (loss) before reclassifications, net of income taxes | (343) | — | 95 | (248) | |||||||||||||||||||||||||
| Reclassification adjustments: | |||||||||||||||||||||||||||||
| Increase (decrease) | — | 18 | (a) | (115) | (b) | (97) | |||||||||||||||||||||||
| Income tax impact | — | (4) | — | (4) | |||||||||||||||||||||||||
| Reclassification adjustments, net of income taxes | — | 14 | (115) | (101) | |||||||||||||||||||||||||
| Net other comprehensive income (loss), net of income taxes | (343) | 14 | (20) | (349) | |||||||||||||||||||||||||
| Balance, April 1, 2022 | $ | (882) | $ | (536) | $ | 42 | $ | (1,376) | |||||||||||||||||||||
| For the Three-Month Period Ended April 2, 2021: | |||||||||||||||||||||||||||||
| Balance, December 31, 2020 | $ | 745 | $ | (928) | $ | (185) | $ | (368) | |||||||||||||||||||||
| Other comprehensive income (loss) before reclassifications: | |||||||||||||||||||||||||||||
| (Decrease) increase | (917) | — | 110 | (807) | |||||||||||||||||||||||||
| Income tax impact | (5) | — | — | (5) | |||||||||||||||||||||||||
| Other comprehensive income (loss) before reclassifications, net of income taxes | (922) | — | 110 | (812) | |||||||||||||||||||||||||
| Reclassification adjustments: | |||||||||||||||||||||||||||||
| Increase (decrease) | — | 13 | (a) | (152) | (b) | (139) | |||||||||||||||||||||||
| Income tax impact | — | (3) | — | (3) | |||||||||||||||||||||||||
| Reclassification adjustments, net of income taxes | — | 10 | (152) | (142) | |||||||||||||||||||||||||
| Net other comprehensive income (loss), net of income taxes | (922) | 10 | (42) | (954) | |||||||||||||||||||||||||
| Balance, April 2, 2021 | $ | (177) | $ | (918) | $ | (227) | $ | (1,322) | |||||||||||||||||||||
(a) This accumulated other comprehensive income (loss) component is included in the computation of net periodic pension cost (refer to Notes 7 and 12 for additional details).
(b) Reflects reclassification to earnings related to cash flow hedges of certain long-term debt (refer to Note 11 for additional details).
Next: Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS