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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 June 28, 2024
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: 001-41770
VERALTO CORPORATION
(Exact name of registrant as specified in its charter)
| Delaware | 92-1941413 | ||||||||||
| (State of Incorporation) | (I.R.S. Employer Identification Number) | ||||||||||
| 225 Wyman Street, Suite 250 | 02451 | ||||||||||
| Waltham, | Massachusetts | ||||||||||
| (Address of Principal Executive Offices) | (Zip Code) |
Registrant’s telephone number, including area code: 781-755-3655
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
| Common stock, $0.01 par value | VLTO | New York Stock Exchange | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large Accelerated Filer | ☐ | Accelerated Filer | ☐ | |||||||||||||||||
| Non-accelerated Filer | ☒ | Smaller Reporting Company | ☐ | |||||||||||||||||
| Emerging Growth Company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐ No ☒
The number of shares of common stock outstanding at July 17, 2024 was 247,106,400.
VERALTO CORPORATION
TABLE OF CONTENTS
FORM 10-Q
VERALTO CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
($ in millions, except per share amount)
(unaudited)
| June 28, 2024 | December 31, 2023 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 1,043 | $ | 762 | |||||||
| Trade accounts receivable, less allowance for credit losses of $34 and $36, respectively | 803 | 826 | |||||||||
| Inventories: | |||||||||||
| Finished goods | 132 | 126 | |||||||||
| Work in process | 43 | 42 | |||||||||
| Raw materials | 137 | 129 | |||||||||
| Total inventories | 312 | 297 | |||||||||
| Prepaid expenses and other current assets | 175 | 188 | |||||||||
| Total current assets | 2,333 | 2,073 | |||||||||
| Property, plant and equipment, net of accumulated depreciation of $481 and $472, respectively | 263 | 262 | |||||||||
| Other long-term assets | 416 | 398 | |||||||||
| Goodwill | 2,490 | 2,533 | |||||||||
| Other intangible assets, net | 401 | 427 | |||||||||
| Total assets | $ | 5,903 | $ | 5,693 | |||||||
| LIABILITIES AND EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Trade accounts payable | $ | 397 | $ | 431 | |||||||
| Accrued expenses and other liabilities | 793 | 834 | |||||||||
| Total current liabilities | 1,190 | 1,265 | |||||||||
| Other long-term liabilities | 426 | 410 | |||||||||
| Long-term debt | 2,615 | 2,629 | |||||||||
| Equity: | |||||||||||
| Preferred stock - $0.01 par value, as of June 28, 2024 and December 31, 2023, 15 million shares authorized as of both dates; and 0 shares issued and outstanding as of both dates | — | — | |||||||||
| Common stock - $0.01 par value, as of June 28, 2024 and December 31, 2023, 1.0 billion shares authorized as of both dates; and 247.1 million and 246.3 million shares issued and outstanding, respectively | 2 | 2 | |||||||||
| Additional paid-in capital | 2,150 | 2,157 | |||||||||
| Retained earnings | 521 | 178 | |||||||||
| Accumulated other comprehensive loss | (1,007) | (954) | |||||||||
| Total Veralto equity | 1,666 | 1,383 | |||||||||
| Noncontrolling interests | 6 | 6 | |||||||||
| Total equity | 1,672 | 1,389 | |||||||||
| Total liabilities and equity | $ | 5,903 | $ | 5,693 |
See the accompanying Notes to the Consolidated and Combined Condensed Financial Statements.
VERALTO CORPORATION
CONSOLIDATED AND COMBINED CONDENSED STATEMENTS OF EARNINGS
($ and shares in millions, except per share amounts)
(unaudited)
| Three-Month Period Ended | Six-Month Period Ended | ||||||||||||||||||||||||||||
| June 28, 2024 | June 30, 2023 | June 28, 2024 | June 30, 2023 | ||||||||||||||||||||||||||
| Sales | $ | 1,288 | $ | 1,253 | $ | 2,534 | $ | 2,478 | |||||||||||||||||||||
| Cost of sales | (514) | (529) | (1,013) | (1,046) | |||||||||||||||||||||||||
| Gross profit | 774 | 724 | 1,521 | 1,432 | |||||||||||||||||||||||||
| Operating costs: | |||||||||||||||||||||||||||||
| Selling, general and administrative expenses | (414) | (378) | (808) | (738) | |||||||||||||||||||||||||
| Research and development expenses | (61) | (57) | (121) | (113) | |||||||||||||||||||||||||
| Operating profit | 299 | 289 | 592 | 581 | |||||||||||||||||||||||||
| Nonoperating income (expense): | |||||||||||||||||||||||||||||
| Other income (expense), net | 1 | (14) | (14) | (14) | |||||||||||||||||||||||||
| Interest expense, net | (30) | — | (58) | — | |||||||||||||||||||||||||
| Earnings before income taxes | 270 | 275 | 520 | 567 | |||||||||||||||||||||||||
| Income taxes | (67) | (66) | (133) | (133) | |||||||||||||||||||||||||
| Net earnings | $ | 203 | $ | 209 | $ | 387 | $ | 434 | |||||||||||||||||||||
| Net earnings per common share: | |||||||||||||||||||||||||||||
| Basic | $ | 0.82 | $ | 0.85 | $ | 1.57 | $ | 1.76 | |||||||||||||||||||||
| Diluted | $ | 0.81 | $ | 0.85 | $ | 1.55 | $ | 1.76 | |||||||||||||||||||||
| Average common stock and common equivalent shares outstanding: | |||||||||||||||||||||||||||||
| Basic | 247.2 | 246.3 | 247.1 | 246.3 | |||||||||||||||||||||||||
| Diluted | 249.3 | 246.3 | 249.1 | 246.3 | |||||||||||||||||||||||||
See the accompanying Notes to the Consolidated and Combined Condensed Financial Statements.
VERALTO CORPORATION
CONSOLIDATED AND COMBINED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
($ in millions)
(unaudited)
| Three-Month Period Ended | Six-Month Period Ended | ||||||||||||||||||||||
| June 28, 2024 | June 30, 2023 | June 28, 2024 | June 30, 2023 | ||||||||||||||||||||
| Net earnings | $ | 203 | $ | 209 | $ | 387 | $ | 434 | |||||||||||||||
| Other comprehensive income (loss), net of income taxes: | |||||||||||||||||||||||
| Foreign currency translation adjustments | (29) | 7 | (65) | 28 | |||||||||||||||||||
| Unrealized gain on net investment hedge | 3 | — | 12 | — | |||||||||||||||||||
| Total other comprehensive income (loss), net of income taxes | (26) | 7 | (53) | 28 | |||||||||||||||||||
| Comprehensive income | $ | 177 | $ | 216 | $ | 334 | $ | 462 |
See the accompanying Notes to the Consolidated and Combined Condensed Financial Statements.
VERALTO CORPORATION
CONSOLIDATED AND COMBINED CONDENSED STATEMENTS OF EQUITY
($ and shares in millions)
(unaudited)
| Common Stock | |||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Additional Paid-In Capital | Retained Earnings | Net Former Parent Investment | Accumulated Other Comprehensive Income (Loss) | Noncontrolling Interest | |||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2023 | 246.3 | $ | 2 | $ | 2,157 | $ | 178 | $ | — | $ | (954) | $ | 6 | ||||||||||||||||||||||||||||||||||
| Net earnings for the period | — | — | — | 184 | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Dividends declared | — | — | — | (22) | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Separation related adjustments | — | — | (54) | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | — | (27) | — | ||||||||||||||||||||||||||||||||||||||||
| Common stock-based award activity | 0.5 | — | 18 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Balance, March 29, 2024 | 246.8 | $ | 2 | $ | 2,121 | $ | 340 | $ | — | $ | (981) | $ | 6 | ||||||||||||||||||||||||||||||||||
| Net earnings for the period | — | — | — | 203 | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Dividends declared | — | — | — | (22) | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | — | (26) | — | ||||||||||||||||||||||||||||||||||||||||
| Common stock-based award activity | 0.3 | — | 29 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Balance, June 28, 2024 | 247.1 | $ | 2 | $ | 2,150 | $ | 521 | $ | — | $ | (1,007) | $ | 6 |
| Common Stock | |||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Additional Paid-In Capital | Retained Earnings | Net Former Parent Investment | Accumulated Other Comprehensive Income (Loss) | Noncontrolling Interests | |||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2022 | — | $ | — | $ | — | $ | — | $ | 4,189 | $ | (954) | $ | 5 | ||||||||||||||||||||||||||||||||||
| Net earnings for the period | — | — | — | — | 225 | — | — | ||||||||||||||||||||||||||||||||||||||||
| Net transfers to Former Parent | — | — | — | — | (147) | — | — | ||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | — | 21 | — | ||||||||||||||||||||||||||||||||||||||||
| Former Parent common stock-based award activity | — | — | — | — | 9 | — | — | ||||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2023 | — | $ | — | $ | — | $ | — | $ | 4,276 | $ | (933) | $ | 5 | ||||||||||||||||||||||||||||||||||
| Net earnings for the period | — | — | — | — | 209 | — | — | ||||||||||||||||||||||||||||||||||||||||
| Net transfers to Former Parent | — | — | — | — | (291) | — | — | ||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | — | 7 | — | ||||||||||||||||||||||||||||||||||||||||
| Former Parent common stock-based award activity | — | — | — | — | 13 | — | — | ||||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2023 | — | $ | — | $ | — | $ | — | $ | 4,207 | $ | (926) | $ | 5 |
See the accompanying Notes to the Consolidated and Combined Condensed Financial Statements.
VERALTO CORPORATION
CONSOLIDATED AND COMBINED CONDENSED STATEMENTS OF CASH FLOWS
($ in millions)
(unaudited)
| Six-Month Period Ended | |||||||||||
| June 28, 2024 | June 30, 2023 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net earnings | $ | 387 | $ | 434 | |||||||
| Noncash items: | |||||||||||
| Depreciation | 20 | 20 | |||||||||
| Amortization of intangible assets | 21 | 24 | |||||||||
| Stock-based compensation expense | 35 | 22 | |||||||||
| Loss on product line disposition | 15 | — | |||||||||
| Impairment of equity method investment | — | 15 | |||||||||
| Change in trade accounts receivable, net | 15 | 16 | |||||||||
| Change in inventories | (18) | 16 | |||||||||
| Change in trade accounts payable | (30) | (53) | |||||||||
| Change in prepaid expenses and other assets | (3) | 8 | |||||||||
| Change in accrued expenses and other liabilities | (76) | (45) | |||||||||
| Net cash provided by operating activities | 366 | 457 | |||||||||
| Cash flows from investing activities: | |||||||||||
| Payments for additions to property, plant and equipment | (24) | (21) | |||||||||
| All other investing activities | (10) | 2 | |||||||||
| Net cash used in investing activities | (34) | (19) | |||||||||
| Cash flows from financing activities: | |||||||||||
| Payment of dividends | (44) | — | |||||||||
| Proceeds from the issuance of common stock | 11 | — | |||||||||
| Net transfers to Former Parent | — | (438) | |||||||||
| Net cash used in financing activities | (33) | (438) | |||||||||
| Effect of exchange rate changes on cash and cash equivalents | (18) | — | |||||||||
| Net change in cash and cash equivalents | 281 | — | |||||||||
| Beginning balance of cash and cash equivalents | 762 | — | |||||||||
| Ending balance of cash and cash equivalents | $ | 1,043 | $ | — | |||||||
| Supplemental disclosures: | |||||||||||
| Cash interest payments | $ | 57 | $ | — | |||||||
| Cash income tax payments | $ | 142 | $ | — |
See the accompanying Notes to the Consolidated and Combined Condensed Financial Statements.
VERALTO CORPORATION
NOTES TO CONSOLIDATED AND COMBINED CONDENSED FINANCIAL STATEMENTS
(unaudited)
NOTE 1. GENERAL
Veralto Corporation’s (“Veralto” or the “Company”) unifying purpose is Safeguarding the World’s Most Vital ResourcesTM. Its diverse group of associates and leading operating companies provide essential technology solutions that monitor, enhance and protect key resources around the globe. The Company is committed to the advancement of public health and safety and believes it is positioned to support its customers as they address large global challenges including environmental resource sustainability, water scarcity, management of severe weather events and food and pharmaceutical security. Through its core offerings in water analytics, water treatment, marking and coding and packaging and color, customers look to the Company’s solutions to help ensure the safety, quality, efficiency and reliability of their products and processes. The Company operates through two segments – Water Quality and Product Quality & Innovation. Through the Water Quality segment, the Company improves the quality and reliability of water through leading brands including Hach, Trojan Technologies and ChemTreat. Through the Product Quality & Innovation segment, the Company promotes consumer trust in products and helps enable product innovation through leading brands including Videojet, Linx, Esko, X-Rite and Pantone.
Separation from Danaher Corporation—Veralto completed its separation from Danaher Corporation (“Danaher” or “Former Parent”) on September 30, 2023 (the “Separation”), the first day of its fiscal fourth quarter. The Separation was completed on such date in the form of a pro rata distribution to Danaher stockholders of record on September 13, 2023 of all of the issued and outstanding shares of Veralto common stock held by Danaher. Each Danaher stockholder of record as of the close of business on September 13, 2023 received one share of Veralto common stock for every three shares of Danaher common stock held on the record date. Because September 30, 2023 was a Saturday, not a business day, the shares were credited to “street name” stockholders through the Depository Trust Company on the first trading day thereafter, October 2, 2023. Veralto’s common stock began “regular way” trading on the New York Stock Exchange under the ticker symbol “VLTO” on October 2, 2023. For further discussion of the Separation refer to Note 1 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Annual Report on Form 10-K”).
Basis of Presentation—Veralto prepared the unaudited Consolidated and Combined Condensed Financial Statements included herein in accordance with accounting principles generally accepted in the United States (“GAAP”) and the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) applicable for interim periods. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations; however, the Company believes the disclosures are adequate to make the information presented not misleading. The Consolidated and Combined Condensed Financial Statements included herein should be read in conjunction with the audited annual Consolidated and Combined Financial Statements as of and for the year ended December 31, 2023 and the Notes thereto included within the 2023 Annual Report on Form 10-K.
In the opinion of the Company, the accompanying financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to fairly present the financial position of the Company as of June 28, 2024 and December 31, 2023, and its results of operations for the three and six-month periods ended June 28, 2024 and June 30, 2023 and its cash flows for each of the six-month periods then ended.
Prior to the Separation, Veralto’s businesses were comprised of certain Danaher operating units (the “Veralto Businesses”). The Combined Condensed Financial Statements for periods prior to the Separation were derived from Danaher’s Consolidated Financial Statements and accounting records and prepared in accordance with GAAP for the preparation of carved-out combined financial statements. Prior to the Separation, all revenues and costs as well as assets and liabilities directly associated with Veralto have been included in the Combined Condensed Financial Statements. Additionally, the Combined Condensed Financial Statements for periods prior to the Separation included allocations of certain general, administrative, sales and marketing expenses and cost of sales from Danaher’s corporate office and other Danaher businesses to Veralto, and allocations of related assets, and liabilities, as applicable. The allocations were determined on a reasonable basis; however, the amounts are not necessarily representative of the amounts that would have been reflected in the financial statements had Veralto been operating independently of Danaher during the applicable periods. Accordingly, the Combined Condensed Financial Statements may not be indicative of Veralto’s results had the Company been a separate stand-alone entity throughout the periods presented. For further discussion of related party allocations prior to the Separation, including the method for such allocation, refer to Note 18 of the 2023 Annual Report on Form 10-K.
Following the Separation, the Consolidated Financial Statements include the accounts of Veralto and those of its subsidiaries and no longer include any allocations from Danaher. Accordingly:
-
The Consolidated Condensed Balance Sheets at June 28, 2024 and December 31, 2023 consist of the Company’s consolidated balances.
-
The Consolidated Condensed Statement of Earnings, Statement of Comprehensive Income and Statement of Equity for the three and six-month periods ended June 28, 2024 consist of the Company’s consolidated results. The Combined Condensed Statement of Earnings, Statement of Comprehensive Income and Statement of Equity for the three and six-month periods ended June 30, 2023 consist of the combined results of the Veralto Businesses.
-
The Consolidated Condensed Statement of Cash Flows for the six-month period ended June 28, 2024 consist of the Company’s consolidated results and the Combined Condensed Statement of Cash Flows for the six-month period ended June 30, 2023 consist of the combined results of the Veralto Businesses.
There have been no changes to the Company’s significant accounting policies described within the 2023 Annual Report on Form 10-K that have a material impact on the Company’s Consolidated and Combined Condensed Financial Statements and the related Notes.
Recent Accounting Pronouncements—On March 6, 2024, the SEC adopted the final rule under SEC Release No. 33-11275, The Enhancement and Standardization of Climate-Related Disclosures for Investors, which requires registrants to disclose material climate-related risks, activities to mitigate or adapt to such risks, information about board oversight of climate-related risks, and climate-related targets or goals that are material to the registrant’s business, results of operations, or financial condition. Annual disclosure requirements, including disclosure of a registrant’s greenhouse gas emissions, could be effective for the Company as early as the fiscal year beginning January 1, 2025. However, in April 2024, the SEC voluntarily stayed the final rules pending the resolution of certain legal challenges. The Company is currently assessing the impact of these final rules on its Consolidated Financial Statements and disclosures.
In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09, Improvements to Income Tax Disclosures, which enhances the transparency of income tax disclosures in ASC 740, Income Taxes, primarily related to rate reconciliation and income taxes paid information. The ASU is effective for fiscal years beginning after December 15, 2024 and early adoption is permitted. On January 1, 2024, the Company adopted the ASU and it will first apply to the Company’s Consolidated Financial Statements and related disclosures for the year ending December 31, 2024, which the Company is in the process of drafting.
In November 2023, the FASB issued ASU 2023-07, Improvements to Reportable Segment Disclosures, which improves the reportable segment disclosure requirements in ASC 280, Segment Reporting, primarily through enhanced disclosures about significant expenses. The ASU is effective for fiscal years beginning after December 15, 2023 and early adoption is permitted. The Company is currently assessing the impact on its Consolidated Financial Statements and related segment disclosures.
Cash and Cash Equivalents—The Company considers all highly liquid investments with a maturity of three months or less at the date of purchase to be cash equivalents.
Operating Leases—As of June 28, 2024 and December 31, 2023, operating lease right-of-use assets where the Company was the lessee were $154 million and $144 million, respectively, and are included within other long-term assets in the accompanying Consolidated Condensed Balance Sheets. The associated operating lease liabilities were $162 million and $148 million 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.
Prepaid Expenses and Other Current Assets—Prepaid expenses and other current assets primarily result from advance payments to vendors for goods and services and are capitalized until the related goods are received or services are performed. Included in the Company’s prepaid expenses and other current assets as of June 28, 2024 and December 31, 2023 are prepaid expenses of $140 million and $143 million, respectively.
NOTE 2. NET EARNINGS PER COMMON SHARE
Earnings per Common Share
Basic net earnings per share (“EPS”) is calculated by dividing net earnings by the weighted average number of shares of common stock outstanding for the applicable period. Diluted EPS is computed based on the weighted average number of shares of common stock outstanding increased by the number of additional shares that would have been outstanding had the potentially dilutive shares of common stock been issued and reduced by the number of shares the Company could have repurchased with the proceeds from the issuance of the potentially dilutive shares.
We were incorporated on October 26, 2022; accordingly, we had no shares or common equivalent shares outstanding prior to that date. The total number of shares outstanding at Separation was 246.3 million and is utilized for the calculation of both basic and diluted EPS for all periods prior to the Separation.
Information related to the calculation of net earnings per common share for the three and six-month periods ended June 28, 2024 and June 30, 2023 is summarized as follows ($ and shares in millions, except per share amounts):
| Three-Month Period Ended | Six-Month Period Ended | ||||||||||||||||||||||
| June 28, 2024 | June 30, 2023 | June 28, 2024 | June 30, 2023 | ||||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
| Net earnings | $ | 203 | $ | 209 | $ | 387 | $ | 434 | |||||||||||||||
| Denominator: | |||||||||||||||||||||||
| Weighted average common shares outstanding used in Basic EPS | 247.2 | 246.3 | 247.1 | 246.3 | |||||||||||||||||||
| Incremental shares from assumed exercise of dilutive options and vesting of dilutive restricted stock units ("RSUs") and performance stock units ("PSUs") | 2.1 | — | 2.0 | — | |||||||||||||||||||
| Weighted average common shares outstanding used in Diluted EPS | 249.3 | 246.3 | 249.1 | 246.3 | |||||||||||||||||||
| Basic EPS | $ | 0.82 | $ | 0.85 | $ | 1.57 | $ | 1.76 | |||||||||||||||
| Diluted EPS | $ | 0.81 | $ | 0.85 | $ | 1.55 | $ | 1.76 |
NOTE 3. REVENUE
The following tables present the Company’s revenues disaggregated by geographical region and revenue type for the three and six-month periods ended June 28, 2024 and June 30, 2023 ($ in millions). Sales taxes and other usage-based taxes collected from customers are excluded from revenue.
| Water Quality | Product Quality & Innovation | Total | |||||||||||||||
| For the Three-Month Period Ended June 28, 2024: | |||||||||||||||||
| Geographical region: | |||||||||||||||||
| North America(a) | $ | 446 | $ | 170 | $ | 616 | |||||||||||
| Western Europe | 132 | 152 | 284 | ||||||||||||||
| Other developed markets | 17 | 12 | 29 | ||||||||||||||
| High-growth markets(b) | 182 | 177 | 359 | ||||||||||||||
| Total | $ | 777 | $ | 511 | $ | 1,288 | |||||||||||
| Revenue type: | |||||||||||||||||
| Recurring | $ | 473 | $ | 321 | $ | 794 | |||||||||||
| Nonrecurring | 304 | 190 | 494 | ||||||||||||||
| Total | $ | 777 | $ | 511 | $ | 1,288 | |||||||||||
| For the Three-Month Period Ended June 30, 2023: | |||||||||||||||||
| Geographical region: | |||||||||||||||||
| North America(a) | $ | 418 | $ | 164 | $ | 582 | |||||||||||
| Western Europe | 134 | 151 | 285 | ||||||||||||||
| Other developed markets | 17 | 14 | 31 | ||||||||||||||
| High-growth markets(b) | 187 | 168 | 355 | ||||||||||||||
| Total | $ | 756 | $ | 497 | $ | 1,253 | |||||||||||
| Revenue type: | |||||||||||||||||
| Recurring | $ | 437 | $ | 305 | $ | 742 | |||||||||||
| Nonrecurring | 319 | 192 | 511 | ||||||||||||||
| Total | $ | 756 | $ | 497 | $ | 1,253 |
| Water Quality | Product Quality & Innovation | Total | |||||||||||||||
| For the Six-Month Period Ended June 28, 2024: | |||||||||||||||||
| Geographical region: | |||||||||||||||||
| North America(a) | $ | 881 | $ | 338 | $ | 1,219 | |||||||||||
| Western Europe | 263 | 302 | 565 | ||||||||||||||
| Other developed markets | 32 | 24 | 56 | ||||||||||||||
| High-growth markets(b) | 350 | 344 | 694 | ||||||||||||||
| Total | $ | 1,526 | $ | 1,008 | $ | 2,534 | |||||||||||
| Revenue type: | |||||||||||||||||
| Recurring | $ | 915 | $ | 637 | $ | 1,552 | |||||||||||
| Nonrecurring | 611 | 371 | 982 | ||||||||||||||
| Total | $ | 1,526 | $ | 1,008 | $ | 2,534 | |||||||||||
| For the Six-Month Period Ended June 30, 2023: | |||||||||||||||||
| Geographical region: | |||||||||||||||||
| North America(a) | $ | 827 | $ | 331 | $ | 1,158 | |||||||||||
| Western Europe | 265 | 298 | 563 | ||||||||||||||
| Other developed markets | 33 | 27 | 60 | ||||||||||||||
| High-growth markets(b) | 360 | 337 | 697 | ||||||||||||||
| Total | $ | 1,485 | $ | 993 | $ | 2,478 | |||||||||||
| Revenue type: | |||||||||||||||||
| Recurring | $ | 859 | $ | 607 | $ | 1,466 | |||||||||||
| Nonrecurring | 626 | 386 | 1,012 | ||||||||||||||
| Total | $ | 1,485 | $ | 993 | $ | 2,478 |
(a) The Company defines North America as the United States and Canada.
(b) 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 (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 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 chemistries for water testing instruments and cartridges for marking and coding equipment. Additionally, some of the Company’s consumables are used on a stand-alone 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 to a customer on a nonrecurring basis. Recurring revenue includes revenue from consumables, services, spare parts 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 $20 million for each period. For the six-month periods ended June 28, 2024 and June 30, 2023, lease revenue was $39 million for each period. Service and software revenue was immaterial for all periods presented. Software revenues for point-in-time licenses are nonrecurring while revenues for Software as a Service and over time licenses are recurring.
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 $277 million. The Company expects to recognize revenue on approximately 43% of the remaining performance obligations over the next 12 months, 34% over the subsequent 12 months, and the remainder recognized thereafter.
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 June 28, 2024 and December 31, 2023, contract liabilities were $228 million and $223 million, respectively, and are included within accrued expenses and other liabilities and other long-term liabilities in the accompanying Consolidated Condensed Balance Sheets. Revenue recognized during the six-month periods ended June 28, 2024 and June 30, 2023 that was included in the opening contract liability balance was $139 million and $126 million, respectively.
NOTE 4. SEGMENT INFORMATION
The Company operates and reports its results in two separate business segments consisting of the Water Quality and Product Quality & Innovation segments. When determining the reportable segments, the Company aggregated operating segments based upon similar economic and operating characteristics. Operating profit represents total revenues less operating expenses, excluding nonoperating income and expense, interest and income taxes. Operating profit amounts in the Other segment consist of unallocated corporate costs and other costs not considered part of management’s evaluation of reportable segment operating performance. The identifiable assets by segment are those used in the applicable segment’s operations. Intersegment amounts are not significant and are eliminated to arrive at combined totals.
Segment results are shown below ($ in millions):
| Three-Month Period Ended | Six-Month Period Ended | ||||||||||||||||||||||
| June 28, 2024 | June 30, 2023 | June 28, 2024 | June 30, 2023 | ||||||||||||||||||||
| Sales: | |||||||||||||||||||||||
| Water Quality | $ | 777 | $ | 756 | $ | 1,526 | $ | 1,485 | |||||||||||||||
| Product Quality & Innovation | 511 | 497 | 1,008 | 993 | |||||||||||||||||||
| Total | $ | 1,288 | $ | 1,253 | $ | 2,534 | $ | 2,478 | |||||||||||||||
| Operating profit: | |||||||||||||||||||||||
| Water Quality | $ | 188 | $ | 180 | $ | 369 | $ | 348 | |||||||||||||||
| Product Quality & Innovation | 135 | 122 | 268 | 257 | |||||||||||||||||||
| Other | (24) | (13) | (45) | (24) | |||||||||||||||||||
| Total | $ | 299 | $ | 289 | $ | 592 | $ | 581 |
NOTE 5. 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 | 24.8 | % | 24.0 | % | 25.6 | % | 23.5 | % |
The Company operates globally, including in certain jurisdictions with higher statutory tax rates than the United States (“U.S.”). Therefore, based on earnings mix, the impact of operating in such jurisdictions contributes to a higher 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% principally due to the geographic mix of earnings described above, net discrete expense of $3 million related primarily to the tax impact of uncertain tax positions, partially offset by excess tax benefits from stock-based compensation. The net discrete expense increased the effective tax rate by 1.1% 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% principally due to the geographic mix of earnings described above, the unfavorable impact of a non-deductible loss on the sale of a product line of $3 million, net discrete expense of $4 million related primarily to the tax impact of uncertain tax positions, partially offset by excess tax benefits from stock-based compensation. The net discrete expense increased the effective tax rate by 1.3% 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% principally due to the geographic mix of earnings described above, partially offset by net discrete benefits of $1 million related
primarily to excess tax benefits from stock-based compensation and changes in estimates associated with prior period uncertain tax positions. The net discrete benefits reduced the effective tax rate by 0.4% 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% principally due to the geographic mix of earnings described above, partially offset by net discrete benefits of $6 million related primarily to excess tax benefits from stock-based compensation and changes in estimates associated with prior period uncertain tax positions. The net discrete benefits reduced the effective tax rate by 1.1% for the six-month period ended June 30, 2023.
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 6 to the financial statements included within the 2023 Annual Report on Form 10-K.
NOTE 6. NONOPERATING INCOME (EXPENSE)
Other Components of Net Periodic Benefit Costs
The Company disaggregates the service cost component of net periodic benefit costs of noncontributory defined benefit pension plans and other postretirement employee benefit plans and presents the other components of net periodic benefit costs 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 and resulted in nonoperating income of $1 million for the three and six-month periods ended June 28, 2024, and nonoperating income of less than $1 million for the three and six-month periods ended June 30, 2023.
Loss on Sale of Product Line
During the six-month period ended June 28, 2024, the Company divested a product line, which was reported in the Water Quality segment, and recorded a $15 million loss associated with the sale that is presented in other income (expense), net. The divestiture of this product line 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.
Impairment of Equity Method Investment
During the three and six-month periods ended June 30, 2023, the Company recorded an impairment of $15 million related to an equity method investment, which is reflected in nonoperating income (expense).
NOTE 7. GOODWILL AND OTHER INTANGIBLE ASSETS
The following is a rollforward of the Company’s goodwill ($ in millions):
| Balance, December 31, 2023 | $ | 2,533 | |||
| Attributable to 2024 acquisitions | 3 | ||||
| Foreign currency translation and other | (46) | ||||
| Balance, June 28, 2024 | $ | 2,490 |
The carrying value of goodwill by segment is summarized as follows ($ in millions):
| June 28, 2024 | December 31, 2023 | ||||||||||
| Water Quality | $ | 1,280 | $ | 1,305 | |||||||
| Product Quality & Innovation | 1,210 | 1,228 | |||||||||
| Total | $ | 2,490 | $ | 2,533 |
The Company has not identified any “triggering” events which indicate an impairment of goodwill in the three and six-month periods ended June 28, 2024 and June 30, 2023.
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 impairment triggers during the second quarter of 2023 which resulted in the impairment of customer relationships totaling $6 million within the Product Quality & Innovation segment.
NOTE 8. FAIR VALUE MEASUREMENTS
Accounting standards define fair value based on an exit price model, establish a framework for measuring fair value for assets and liabilities required to be carried at fair value and provide for certain disclosures related to the valuation methods used within the valuation hierarchy as established within the accounting standards. This hierarchy prioritizes the inputs into three broad levels as follows.
-
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.
-
Level 2 inputs are quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets in markets that are not active, or other observable characteristics for the asset or liability, including interest rates, yield curves and credit risks, or inputs that are derived principally from, or corroborated by, observable market data through correlation.
-
Level 3 inputs are unobservable inputs based on the Company’s assumptions. A financial asset’s or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement in its entirety.
A summary of financial liabilities that are measured at fair value on a recurring basis were as follows ($ in millions):
| Quoted Prices in Active Market (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | ||||||||||||||||||||
| June 28, 2024 | |||||||||||||||||||||||
| Deferred compensation liabilities | $ | 28 | $ | — | $ | — | $ | 28 | |||||||||||||||
| December 31, 2023 | |||||||||||||||||||||||
| Deferred compensation liabilities | $ | 23 | $ | — | $ | — | $ | 23 |
Certain management employees participate in the Company’s nonqualified deferred compensation programs, which permit such employees to defer a portion of their compensation, on a pretax basis, until after their termination of employment. All amounts deferred under such plans are unfunded, unsecured obligations and are presented as a component of the compensation and benefits accrual included in other long-term liabilities in the accompanying Consolidated Condensed Balance Sheets. Participants may choose among alternative earnings rates for the amounts they defer, which are primarily based on investment options within the defined contribution plans for the benefit of U.S. employees (“401(k) Programs”) (except that the earnings rates for amounts contributed unilaterally by the Company are entirely based on changes in the value of the Company’s common stock). Changes in the deferred compensation liability under these programs are recognized based on changes in the fair value of the participants’ accounts, which are based on the applicable earnings rates.
Fair Value of Financial Instruments
The carrying amounts and fair values of the Company’s financial instruments were as follows ($ in millions):
| June 28, 2024 | December 31, 2023 | ||||||||||||||||||||||
| Carrying Amount | Fair Value | Carrying Amount | Fair Value | ||||||||||||||||||||
| Long-term debt | $ | 2,615 | $ | 2,622 | $ | 2,629 | $ | 2,710 |
As of June 28, 2024, long-term borrowings were categorized as Level 1. The fair value of long-term borrowings was based on quoted market prices. 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 9. FINANCING
As of June 28, 2024, the Company was in compliance with all of its debt covenants. The components of the Company’s debt were as follows ($ in millions):
| Outstanding Amount | |||||||||||
| Description and Aggregate Principal Amount | June 28, 2024 | December 31, 2023 | |||||||||
| 5.50% senior unsecured notes due 9/18/2026 ($700 million) (the "2026 Notes") | $ | 697 | $ | 696 | |||||||
| 5.35% senior unsecured notes due 9/18/2028 ($700 million) (the "2028 Notes") | 695 | 695 | |||||||||
| 4.15% senior unsecured notes due 9/19/2031 (€500 million) (the "2031 Notes") | 530 | 546 | |||||||||
| 5.45% senior unsecured notes due 9/18/2033 ($700 million) (the "2033 Notes") | 693 | 692 | |||||||||
| Long-term debt | $ | 2,615 | $ | 2,629 |
Unamortized debt discounts and debt issuance costs totaled $21 million and $24 million as of June 28, 2024 and December 31, 2023, respectively. Debt discounts and issuance costs are presented as a reduction of debt in the Consolidated Condensed Balance Sheets and are amortized as a component of interest expense over the term of the related debt. Refer to Note 12 of the 2023 Annual Report on Form 10-K for a description of the Company’s debt financing.
There were no amounts outstanding under the credit facility or commercial paper program as of June 28, 2024.
NOTE 10. HEDGING TRANSACTIONS
The Company is neither a dealer nor a trader in derivative instruments. The Company has generally accepted the exposure to transactional exchange rate movements without using derivative instruments to manage this risk. The Company has €500 million of foreign currency denominated long-term debt that is designated as a partial hedge of its net investment in foreign operations against adverse movements in exchange rates between the U.S. dollar and the euro. This foreign currency denominated long-term debt issuance is designated and qualifies as a nonderivative hedging instrument. Accordingly, the foreign currency translation of this debt instrument is recorded in accumulated other comprehensive income (loss), offsetting the foreign currency translation adjustment of the Company’s related net investment that is also recorded in accumulated other comprehensive income (loss). This instrument matures in September 2031.
The following table summarizes the notional values as of June 28, 2024 and pretax impact of changes in the fair values of instruments designated as net investment hedges in accumulated other comprehensive income (“OCI”) for the three and six-month periods ended June 28, 2024 ($ in millions):
| Notional Amount Outstanding | Gain (Loss) Recognized in OCI | Amounts Reclassified from OCI | |||||||||||||||||||||
| For the Three-Month Period Ended June 28, 2024: | |||||||||||||||||||||||
| Net investment hedges: | |||||||||||||||||||||||
| Foreign currency denominated debt | $ | 530 | $ | 4 | $ | — | |||||||||||||||||
| For the Six-Month Period Ended June 28, 2024: | |||||||||||||||||||||||
| Net investment hedges: | |||||||||||||||||||||||
| Foreign currency denominated debt | $ | 530 | $ | 16 | $ | — | |||||||||||||||||
There was no foreign currency denominated debt as of June 30, 2023.
The Company did not reclassify any other deferred gains or losses related to the net investment hedge from accumulated other comprehensive income (loss) to earnings during the three and six-month periods ended June 28, 2024. In addition, the Company did not have any ineffectiveness related to the net investment hedge during the three and six-month periods ended June 28, 2024, and should they arise, any ineffective portions of the hedge would be reclassified from accumulated other comprehensive income (loss) into earnings during the period of change.
The Company’s nonderivative debt instrument designated and qualifying as a net investment hedge, was classified in the Company’s Consolidated Condensed Balance Sheets within Long-term debt as of June 28, 2024.
NOTE 11. DEFINED BENEFIT PLANS
For a description of the noncontributory defined benefit pension plans refer to Note 14 of the 2023 Annual Report on Form 10-K.
The following sets forth the components of the Company’s net periodic benefit cost of the non-U.S. noncontributory defined benefit pension plans ($ in millions):
| Three-Month Period Ended | Six-Month Period Ended | ||||||||||||||||||||||
| June 28, 2024 | June 30, 2023 | June 28, 2024 | June 30, 2023 | ||||||||||||||||||||
| Service cost | $ | (1) | $ | (1) | $ | (2) | $ | (2) | |||||||||||||||
| Interest cost | (1) | (1) | (2) | (2) | |||||||||||||||||||
| Expected return on plan assets | 2 | 1 | 3 | 2 | |||||||||||||||||||
| Amortization of net loss | — | — | — | — | |||||||||||||||||||
| Net periodic cost | $ | — | $ | (1) | $ | (1) | $ | (2) |
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.
NOTE 12. 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 16 of the Company’s financial statements as of and for the year ended December 31, 2023 included within the 2023 Annual Report on Form 10-K.
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 twenty 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 June 28, 2024 and December 31, 2023, the Company had accrued warranty liabilities of $32 million and $34 million, respectively.
NOTE 13. STOCKHOLDERS' EQUITY AND STOCK-BASED COMPENSATION
For a description of the stock-based compensation programs in which certain employees of the Company participate, reference is made to Note 17 of the Company’s financial statements as of and for the year ended December 31, 2023 included within the 2023 Annual Report on Form 10-K.
The Company’s stock-based compensation expense for the three-month periods ended June 28, 2024 and June 30, 2023 was $20 million and $13 million, respectively. The Company’s stock-based compensation expense for the six-month periods ended June 28, 2024 and June 30, 2023 was $35 million and $22 million, respectively.
Stock-based compensation has been recognized as a component of selling, general and administrative expenses in the accompanying Consolidated and Combined Condensed Statements of Earnings. As of June 28, 2024, $48 million of total unrecognized compensation cost related to restricted stock units (“RSUs”) and performance stock units (“PSUs”) is expected to be recognized over a weighted average period of approximately two years. As of June 28, 2024, $47 million of total unrecognized compensation cost related to stock options is expected to be recognized over a weighted average period of approximately two years. Future compensation amounts will be adjusted for any changes in estimated forfeitures.
Accumulated Other Comprehensive Income (Loss)
Accumulated other comprehensive income (loss) refers to certain gains and losses that under GAAP are included in comprehensive income (loss) but are excluded from net earnings as these amounts are initially recorded as an adjustment to equity. Foreign currency translation adjustments are generally not adjusted for income taxes as they relate to indefinite investments in non-U.S. subsidiaries. Net investment hedge adjustments reflect the gains or losses on the foreign currency denominated long-term debt issuance designated as a nonderivative hedging instrument. Pension and postretirement plan benefit adjustments relate to unrecognized prior service credits and actuarial losses.
The changes in accumulated other comprehensive income (loss) by component are summarized below ($ in millions).
| Foreign Currency Translation Adjustments | Net Investment Hedges | Pension and Postretirement Plan Benefit Adjustments | Accumulated Comprehensive Income (Loss) | ||||||||||||||||||||||||||
| For the Three-Month Period Ended June 28, 2024: | |||||||||||||||||||||||||||||
| Balance, March 29, 2024 | $ | (975) | $ | (5) | $ | (1) | $ | (981) | |||||||||||||||||||||
| Other comprehensive income (loss): | |||||||||||||||||||||||||||||
| Increase (decrease) | (29) | 4 | — | (25) | |||||||||||||||||||||||||
| Income tax impact | — | (1) | — | (1) | |||||||||||||||||||||||||
| Net other comprehensive income (loss), net of income taxes | (29) | 3 | — | (26) | |||||||||||||||||||||||||
| Balance, June 28, 2024 | $ | (1,004) | $ | (2) | $ | (1) | $ | (1,007) | |||||||||||||||||||||
| For the Three-Month Period Ended June 30, 2023: | |||||||||||||||||||||||||||||
| Balance, March 31, 2023 | $ | (947) | $ | — | $ | 14 | $ | (933) | |||||||||||||||||||||
| Other comprehensive income (loss): | |||||||||||||||||||||||||||||
| Increase | 7 | — | — | 7 | |||||||||||||||||||||||||
| Income tax impact | — | — | — | — | |||||||||||||||||||||||||
| Net other comprehensive income (loss), net of income taxes | 7 | — | — | 7 | |||||||||||||||||||||||||
| Balance, June 30, 2023 | $ | (940) | $ | — | $ | 14 | $ | (926) | |||||||||||||||||||||
| Foreign Currency Translation Adjustments | Net Investment Hedges | Pension and Postretirement Plan Benefit Adjustments | Accumulated Comprehensive Income (Loss) | ||||||||||||||||||||||||||
| For the Six-Month Period Ended June 28, 2024: | |||||||||||||||||||||||||||||
| Balance, December 31, 2023 | $ | (939) | $ | (14) | $ | (1) | $ | (954) | |||||||||||||||||||||
| Other comprehensive income (loss): | |||||||||||||||||||||||||||||
| Increase (decrease) | (65) | 16 | — | (49) | |||||||||||||||||||||||||
| Income tax impact | — | (4) | — | (4) | |||||||||||||||||||||||||
| Net other comprehensive income (loss), net of income taxes | (65) | 12 | — | (53) | |||||||||||||||||||||||||
| Balance, June 28, 2024 | $ | (1,004) | $ | (2) | $ | (1) | $ | (1,007) | |||||||||||||||||||||
| For the Six-Month Period Ended June 30, 2023: | |||||||||||||||||||||||||||||
| Balance, December 31, 2022 | $ | (968) | $ | — | $ | 14 | $ | (954) | |||||||||||||||||||||
| Other comprehensive income (loss): | |||||||||||||||||||||||||||||
| Increase | 28 | — | — | 28 | |||||||||||||||||||||||||
| Income tax impact | — | — | — | — | |||||||||||||||||||||||||
| Net other comprehensive income (loss), net of income taxes | 28 | — | — | 28 | |||||||||||||||||||||||||
| Balance, June 30, 2023 | $ | (940) | $ | — | $ | 14 | $ | (926) | |||||||||||||||||||||
NOTE 14. RELATED PARTY TRANSACTIONS
Related Party Agreements
In connection with the Separation, on September 29, 2023, Veralto entered into the agreements that govern the Separation and the relationships between the parties following the Separation, including an employee matters agreement, a tax matters agreement, an intellectual property matters agreement, a Veralto Enterprise System license agreement and a transition services agreement. Such agreements are described in Note 18 of the 2023 Annual Report on Form 10-K.
Allocated Expenses
Prior to the Separation, Veralto operated as part of Danaher and not as a stand-alone company. Accordingly, certain shared costs for management and support functions which were provided on a centralized basis within Danaher were allocated to Veralto and are reflected as expenses in these financial statements prior to the Separation date. The Company considers the allocation methodologies used to be reasonable and appropriate reflections of the related expenses attributable to Veralto for purposes of the carved-out financial statements; however, the expenses reflected in these financial statements for periods prior
to the Separation date may not be indicative of the actual expenses that would have been incurred during the periods presented if the Company had operated as a separate stand-alone entity. In addition, the expenses reflected in the financial statements may not be indicative of expenses that the Company will incur in the future.
Corporate Expenses
Certain corporate overhead and shared expenses incurred by Danaher and its subsidiaries have been allocated to the Company and are reflected in the Consolidated and Combined Condensed Statements of Earnings. These amounts include, but are not limited to, items such as general management and executive oversight, costs to support Danaher’s information technology infrastructure, facilities, compliance, human resources, marketing and legal functions and financial management and transaction processing including public company reporting, consolidated tax filings and tax planning, Danaher benefit plan administration, risk management and consolidated treasury services, certain employee benefits and incentives, and stock based compensation administration. These costs are allocated using methodologies that management believes are reasonable for the item being allocated. Allocation methodologies include the Company’s relative share of revenues, headcount, or functional spend as a percentage of the total.
Corporate Expenses allocated to Veralto from Danaher and its subsidiaries for the three and six-month periods ended June 30, 2023 were $14 million and $27 million, respectively. Following the Separation, the Company independently incurs expenses as a stand-alone company and no expenses are allocated by Danaher.
Insurance Programs Administered by Danaher
In addition to the corporate allocations discussed above, the Company was allocated expenses related to certain insurance programs Danaher administers on behalf of the Company, including workers compensation, property, cargo, automobile, crime, fiduciary, product, general and directors’ and officers’ liability insurance. These amounts were allocated using various methodologies, as described below.
Included within the insurance cost allocation are allocations related to programs for which Danaher is self-insured up to a certain amount. For the self-insured component, costs were allocated to the Company based on its incurred claims. Danaher has premium based policies which cover amounts in excess of the self-insured retentions. The Company was allocated a portion of the total insurance cost incurred by Danaher based on its pro-rata portion of Danaher’s total underlying exposure base. An estimated liability relating to the Company’s known and incurred but not reported claims has been allocated to the Company and reflected on the accompanying Consolidated Condensed Balance Sheets.
Insurance programs expenses allocated to Veralto from Danaher and its subsidiaries for three and six-month periods ended June 30, 2023 were $2 million and $4 million, respectively.
Medical Insurance Programs Administered by Danaher
In addition to the corporate allocations discussed above, the Company was allocated expenses related to the medical insurance programs Danaher administers on behalf of the Company. These amounts were allocated using actual medical claims incurred during the period for the associated employees attributable to the Company.
Medical insurance programs expenses allocated to Veralto from Danaher and its subsidiaries for three and six-month periods ended June 30, 2023 were $20 million and $41 million, respectively.
Deferred Compensation Program Administered by Danaher
Refer to Note 8 for information regarding the deferred compensation program. In connection with the Separation, the Company established a similar independent, nonqualified deferred compensation program.
Deferred compensation program expenses incurred for three and six-month periods ended June 30, 2023 were $1 million and $2 million, respectively.
Revenue and other transactions entered into in the ordinary course of business
Prior to the Separation, the Company operated as part of Danaher and not as a stand-alone company and certain of its revenue arrangements related to contracts entered into in the ordinary course of business with Danaher and its affiliates.
During the three-month periods ended June 28, 2024 and June 30, 2023, Veralto recorded revenues from sales to Danaher and its subsidiaries of $5 million and $7 million, respectively. During the six-month periods ended June 28, 2024 and June 30, 2023, Veralto recorded revenues from sales to Danaher and its subsidiaries of $10 million and $14 million, respectively. Following the Separation, Veralto continues to enter into revenue arrangements in the ordinary course of business with Danaher and its subsidiaries, although certain agreements were entered into or terminated as a result of the Separation.
In addition to transactions entered into in the ordinary course of business, the Company made net payments of approximately $2 million and approximately $16 million during the three and six-month periods ended June 28, 2024, respectively, in accordance with the transition services agreement for various services provided to the Company by Danaher.
Next: Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS