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Danaher Corporation (NYSE: DHR) (the "Company") today announced results for the fourth quarter and full year 2022. All results in this release reflect only continuing operations unless otherwise noted. Net earnings refers to net earnings attributable to common shareholders.
For the quarter ended December 31, 2022 , net earnings were $2.2 billion , or $2.99 per diluted common share which represents a 25.0% year-over-year increase from the comparable 2021 period. Non-GAAP adjusted diluted net earnings per common share were $2.87 which represents a 6.5% increase over the comparable 2021 period.
Revenues increased 2.5% year-over-year in the fourth quarter of 2022 to $8.4 billion . Non-GAAP core revenue growth was 7.5%, including 7.5% non-GAAP base business core revenue growth.
For the full year 2022, net earnings were $7.1 billion , or $9.66 per diluted common share which represents a 13.5% year-over-year increase. Non-GAAP adjusted diluted net earnings per common share for the year were $10.95 , which represents a 9.0% increase over the comparable 2021 amount.
Revenues for the full year 2022 increased 7.0% to $31.5 billion . Non-GAAP core revenue growth was 9.5%, including 8.0% non-GAAP base business core revenue growth.
Operating cash flow for the full year 2022 was $8.5 billion and non-GAAP free cash flow was $7.4 billion .
The Company provides forecasted sales only on a non-GAAP basis because of the difficulty in estimating the other components of GAAP revenue, such as currency translation, acquisitions and divested product lines.
Starting with the first quarter 2023, the Company will revise its definition of base business core growth to exclude revenues related to COVID-19 testing, vaccines and therapeutics, in addition to the exclusion of currency translation, acquisitions and divested product lines.
For the first quarter 2023, the Company anticipates that non-GAAP base business core revenue growth will be up mid-single digits. For the full year 2023, the Company anticipates non-GAAP base business core revenue to be up high-single digits.
Rainer M. Blair , President and Chief Executive Officer, stated, "2022 was another great year for Danaher. Broad-based strength across the portfolio helped us deliver nearly 10% core revenue growth and double-digit earnings per share growth. Our team executed well in a challenging operating environment, enabling us to expand operating margins and generate strong cash flows. We believe this strong execution, paired with our investments in innovation drove market share gains in many of our businesses."
Blair continued, "Looking ahead, we believe the combination of our leading portfolio, the power of the Danaher Business System and the strength of our balance sheet position Danaher to continue generating sustainable, long-term shareholder value for many years to come."
Danaher will discuss its results during its quarterly investor conference call today starting at 8:00 a.m. ET . The call and an accompanying slide presentation will be webcast on the "Investors" section of Danaher's website, www.danaher.com , under the subheading "Events & Presentations" and additional materials will be posted to the same section of Danaher's website. A replay of the webcast will be available in the same section of Danaher's website shortly after the conclusion of the presentation and will remain available until the next quarterly earnings call.
The conference call can be accessed by dialing 800-245-3047 within the U.S. or by dialing +1 203-518-9765 outside the U.S. a few minutes before the 8:00 a.m. ET start and telling the operator that you are dialing in for Danaher's earnings conference call (Conference ID: DHRQ422). A replay of the conference call will be available shortly after the conclusion of the call and until February 7 , 2023. You can access the replay dial-in information on the "Investors" section of Danaher's website under the subheading "Events & Presentations." In addition, presentation materials relating to Danaher's results have been posted to the "Investors" section of Danaher's website under the subheading "Quarterly Earnings."
ABOUT DANAHER
Danaher is a global science and technology innovator committed to helping its customers solve complex challenges and improving quality of life around the world. Its family of world class brands has leadership positions in the demanding and attractive health care, environmental and applied end-markets. With more than 20 operating companies, Danaher's globally diverse team of approximately 81,000 associates is united by a common culture and operating system, the Danaher Business System, and its Shared Purpose, Helping Realize Life's Potential . For more information, please visit www.danaher.com .
NON-GAAP MEASURES
In addition to the financial measures prepared in accordance with generally accepted accounting principles (GAAP), this earnings release also contains non-GAAP financial measures. Calculations of these measures, the reasons why we believe these measures provide useful information to investors, a reconciliation of these measures to the most directly comparable GAAP measures, as applicable, and other information relating to these non-GAAP measures are included in the supplemental reconciliation schedule attached.
FORWARD-LOOKING STATEMENTS
Statements in this release that are not strictly historical, including the statements regarding the Company's expected financial performance for the first quarter and full year 2023, Danaher's prospects, future shareholder value generation and any other statements regarding events or developments that we believe or anticipate will or may occur in the future are "forward-looking" statements within the meaning of the federal securities laws. There are a number of important factors that could cause actual results, developments and business decisions to differ materially from those suggested or indicated by such forward-looking statements and you should not place undue reliance on any such forward-looking statements. These factors include, among other things, the highly uncertain and unpredictable severity, magnitude and duration of the COVID-19 pandemic (and the related governmental, business and community responses thereto) on our business, results of operations and financial condition, the impact of our debt obligations on our operations and liquidity, deterioration of or instability in the economy, the markets we serve and the financial markets (including as a result of the COVID-19 pandemic), uncertainties relating to U.S. laws or policies, including potential changes in U.S. trade policies and tariffs and the reaction of other countries thereto, contractions or growth rates and cyclicality of markets we serve, competition, our ability to develop and successfully market new products and technologies and expand into new markets, the potential for improper conduct by our employees, agents or business partners, our compliance with applicable laws and regulations (including rules relating to off-label marketing and other regulations relating to medical devices and the health care industry), the results of our clinical trials and perceptions thereof, our ability to effectively address cost reductions and other changes in the health care industry, our ability to successfully identify and consummate appropriate acquisitions and strategic investments and successfully complete divestitures and other dispositions, our ability to integrate the businesses we acquire and achieve the anticipated growth, synergies and other benefits of such acquisitions, contingent liabilities and other risks relating to acquisitions, investments, strategic relationships and divestitures (including tax-related and other contingent liabilities relating to past and future IPOs, split-offs or spin-offs), security breaches or other disruptions of our information technology systems or violations of data privacy laws, the impact of our restructuring activities on our ability to grow, risks relating to potential impairment of goodwill and other intangible assets, currency exchange rates, tax audits and changes in our tax rate and income tax liabilities, changes in tax laws applicable to multinational companies, litigation and other contingent liabilities including intellectual property and environmental, health and safety matters, the rights of the United States government to use, disclose and license certain intellectual property we license if we fail to commercialize it, risks relating to product, service or software defects, product liability and recalls, risks relating to product manufacturing, our relationships with and the performance of our channel partners, uncertainties relating to collaboration arrangements with third-parties, commodity costs and surcharges, our ability to adjust purchases and manufacturing capacity to reflect market conditions, reliance on sole sources of supply, the impact of deregulation on demand for our products and services, the impact of climate change, or legal or regulatory measures to address climate change, labor matters and our ability to recruit, retain and motivate talented employees, international economic, political, legal, compliance, social and business factors (including the impact of the military conflict between Russia and Ukraine and the United Kingdom's separation from the European Union), disruptions relating to man-made and natural disasters (including pandemics such as COVID-19), pension plan costs, inflation and supply chain disruption. Additional information regarding the factors that may cause actual results to differ materially from these forward-looking statements is available in our SEC filings, including our 2021 Annual Report on Form 10-K and Quarterly Report on Form 10-Q for the third quarter of 2022. These forward-looking statements speak only as of the date of this release and except to the extent required by applicable law, the Company does not assume any obligation to update or revise any forward-looking statement, whether as a result of new information, future events and developments or otherwise.
DANAHER CORPORATION | |||||||
Diluted Net Earnings Per Common Share from Continuing Operations and Adjusted Diluted Net Earnings Per | |||||||
Three-Month Period Ended | Year Ended | ||||||
December 31, | December 31, | December 31, | December 31, | ||||
Diluted Net Earnings Per Common Share From | $ 2.99 | $ 2.39 | $ 9.66 | $ 8.50 | |||
Amortization of acquisition-related intangible assets A | 0.49 | 0.53 | 1.99 | 1.95 | |||
Fair value net (gains) losses on investments B | 0.11 | (0.10) | 0.36 | (0.54) | |||
Separation costs C | 0.01 | — | 0.01 | — | |||
Impairments and other charges D | — | — | 0.07 | 0.01 | |||
Loss on partial settlement of a defined benefit plan E | — | — | 0.01 | — | |||
Acquisition-related items F | — | 0.02 | — | 0.14 | |||
Gain on disposition of certain product lines G | — | — | — | (0.02) | |||
Contract settlement expense H | — | — | — | 0.73 | |||
Loss on early extinguishment of debt I | — | 0.13 | — | 0.13 | |||
Tax effect of the above adjustments J | (0.13) | (0.12) | (0.48) | (0.51) | |||
Discrete tax adjustments K | (0.61) | (0.16) | (0.68) | (0.35) | |||
MCPS "as if converted" L | — | — | — | 0.01 | |||
Rounding | 0.01 | — | 0.01 | — | |||
Adjusted Diluted Net Earnings Per Common Share | $ 2.87 | $ 2.69 | $ 10.95 | $ 10.05 | |||
1 | Each of the per share adjustment amounts above have been calculated assuming the Mandatory Convertible Preferred Stock ("MCPS") had been converted into shares of common stock. |
Notes to Reconciliation of GAAP to Non-GAAP Financial Measures | |
A | Amortization of acquisition-related intangible assets in the following historical periods ($ in millions) (only the pretax amounts set forth below are reflected in the amortization line item above): |
Three-Month Period Ended | Year Ended | ||||||
December 31, 2022 | December 31, 2021 | December 31, 2022 | December 31, 2021 | ||||
Pretax | $ 364 | $ 394 | $ 1,484 | $ 1,450 | |||
After-tax | 294 | 315 | 1,198 | 1,157 | |||
B | Net (gains) losses, including impairments, on the Company's equity and limited partnership investments recorded in the following historical periods ($ in millions) (only the pretax amounts set forth below are reflected in the fair value net (gains) losses on investments line above): |
Three-Month Period Ended | Year Ended | ||||||
December 31, 2022 | December 31, 2021 | December 31, 2022 | December 31, 2021 | ||||
Pretax | $ 85 | $ (71) | $ 271 | $ (401) | |||
After-tax | 57 | (57) | 198 | (315) | |||
C | Costs incurred in the three-month period and year ended December 31, 2022 related to preparation for the anticipated separation of the Company's Environmental & Applied Solutions business primarily related to professional fees for legal, tax, finance and information technology services ($9 million pretax as reported in this line item, $8 million after-tax). |
D | Impairment charges related to technology and customer relationships in the Environmental & Applied Solutions segment recorded in the year ended December 31, 2022 ($9 million pretax as reported in this line item, $7 million after-tax). Additionally, in the year ended December 31, 2022 charges incurred primarily related to impairments of accounts receivable and inventory as well as accruals for contractual obligations in Russia ($43 million pretax as reported in this line item, $40 million after-tax). Impairment charges related to a trade name in the Diagnostics segment recorded in the year ended December 31, 2021 ($10 million pretax as reported in this line item, $8 million after-tax). |
E | Loss on a partial settlement of a defined benefit plan as a result of the transfer of a portion of the Company's non-U.S. pension liabilities related to one defined benefit plan to a third-party in the year ended December 31, 2022 ($10 million pretax as reported in this line item, $9 million after-tax). |
F | Costs incurred for fair value adjustments to inventory related to the acquisition of Aldevron in the three-month period ended December 31, 2021 ($13 million pretax as reported in this line item, $10 million after-tax). Costs incurred for fair value adjustments to inventory and deferred revenue and transaction costs deemed significant related to the acquisitions of Cytiva and Aldevron in the year ended December 31, 2021 ($104 million pretax as reported in this line item, $82 million after-tax). |
G | Gain on disposition of certain product lines in the year ended December 31, 2021 ($13 million pretax as reported in this line item, $10 million after-tax). |
H | Expense related to the modification and partial termination of a prior commercial arrangement and resolution of the associated litigation in the year ended December 31, 2021 ($547 million pretax as reported in this line item, $415 million after-tax). |
I | Loss on early extinguishment of debt resulting from "make-whole" payments and deferred costs associated with the retirement of the 2025 Euronotes in both the three-month period and the year ended December 31, 2021 ($96 million pretax as reported in this line item, $73 million after-tax). |
J | This line item reflects the aggregate tax effect of all nontax adjustments reflected in the preceding line items of the table. In addition, the footnotes above indicate the after-tax amount of each individual adjustment item. Danaher estimates the tax effect of each adjustment item by applying Danaher's overall estimated effective tax rate to the pretax amount, unless the nature of the item and/or the tax jurisdiction in which the item has been recorded requires application of a specific tax rate or tax treatment, in which case the tax effect of such item is estimated by applying such specific tax rate or tax treatment. The MCPS dividends are not tax deductible and therefore the tax effect of the adjustments does not include any tax impact of the MCPS dividends. |
K | Discrete tax adjustments and other tax-related adjustments for both the three-month period and year ended December 31, 2022, include the impact of net discrete tax benefits of $452 million and $504 million, respectively, due principally to net deferred tax benefits resulting from legal and operational actions undertaken to realign certain of its businesses, as well as excess tax benefits from stock-based compensation, the release of reserves for uncertain tax positions due to the expiration of statutes of limitation and audit settlements and changes in estimates related to prior year tax filing positions, net of changes in estimates associated with prior period uncertain tax positions. Discrete tax adjustments for both the three-month and year ended December 31, 2021, include the impact of net discrete tax benefits of $120 million and $263 million, respectively, related primarily to release of reserves for uncertain tax positions due to the expiration of statutes of limitation and audit settlements, excess tax benefits from stock-based compensation and the mix of earnings between the U.S. and certain jurisdictions with lower overall tax rates, net of changes in estimates associated with prior period uncertain tax positions. The Company anticipates excess tax benefits from stock compensation of approximately $7 million per quarter and therefore excludes benefits in excess of this amount in the calculation of adjusted diluted net earnings from continuing operations per common share. |
L | In March 2019, the Company issued $1.65 billion in aggregate liquidation preference of 4.75% MCPS Series A. In May 2020, the Company issued $1.72 billion in aggregate liquidation preference of 5.0% MCPS Series B. Dividends on the MCPS Series A were, and on the Series B are, payable on a cumulative basis at an annual rate of 4.75% and 5.0%, respectively, on the liquidation preference of $1,000 per share. Each share of MCPS Series A converted on April 15, 2022 into 6.6632 shares of Danaher's common stock. Unless earlier converted, each share of MCPS Series B will automatically convert on April 15, 2023 into between 5.0156 and 6.1441 shares of Danaher's common stock, subject to further anti-dilution adjustments. The number of shares of Danaher's common stock issuable on conversion of the MCPS will be determined based on the volume weighted average price ("VWAP") 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 April 15, 2023 for the MCPS Series B. For the calculation of net earnings per common share from continuing operations, the impact of the dilutive MCPS is calculated under the if-converted method and the related MCPS dividends are excluded. For the purposes of calculating adjusted earnings per common share from continuing operations, the Company has excluded the paid and anticipated MCPS cash dividends and assumed the "if-converted" method of share dilution (the incremental shares of common stock deemed outstanding applying the "if-converted" method of calculating share dilution only with respect to any MCPS the conversion of which would be dilutive in the particular period are referred to as the "Converted Shares") for any MCPS that were anti-dilutive for the given period. For additional information about the impact of the MCPS on the calculation of diluted EPS, see note 2 in the Adjusted Average Common Stock and Common Equivalent Diluted Shares Outstanding table below. |
Average and Adjusted Average Common Stock and Common Equivalent Diluted Shares Outstanding (shares in millions) | |||||||
Three-Month Period Ended | Year Ended | ||||||
December 31, | December 31, | December 31, | December 31, | ||||
Average common stock and common equivalent shares | 745.7 | 738.4 | 737.1 | 736.8 | |||
Converted shares 3 | — | 8.6 | 8.6 | 8.6 | |||
Adjusted average common stock and common equivalent | 745.7 | 747.0 | 745.7 | 745.4 | |||
2 | The impact of the MCPS Series A calculated under the if-converted method was dilutive for the year ended December 31, 2022 and the three-month period and year ended December 31, 2021, and as such 3.0 million shares, 11.0 million shares and 11.0 million shares, respectively, underlying the MCPS Series A were included in the calculation of diluted EPS in the periods and the related MCPS Series A dividends of $20 million, $20 million and $78 million were excluded from the calculation of net earnings for diluted EPS for the respective periods. |
The impact of the MCPS Series B calculated under the if-converted method was dilutive for the three-month period ended December 31, 2022, and as such 8.6 million shares underlying the MCPS Series B were included in the calculation of diluted EPS in the period and the related MCPS Series B dividends of $22 million were excluded from the calculation of net earnings for diluted EPS for the period. | |
The impact of the MCPS Series B calculated under the if-converted method was anti-dilutive for the year ended December 31, 2022 and the three-month period and year ended December 31, 2021, and as such 8.6 million shares underlying the MCPS Series B were excluded from the diluted EPS calculation in all periods and the related MCPS Series B dividends of $86 million, $21 million and $86 million were included in the calculation of net earnings for diluted EPS for the respective periods. | |
3 | The number of converted shares assumes the conversion of all MCPS and issuance of the underlying shares applying the "if-converted" method of accounting and using an average 20 trading-day trailing VWAP of $266.27 and $316.06 as of December 31, 2022 and December 31, 2021, respectively. |
Sales Growth, Core Sales Growth by Segment and Base Business Core Sales Growth | |||||||||
% Change Three-Month Period Ended December 31, 2022 vs. Comparable 2021 Period | |||||||||
Segments | |||||||||
Total Company | Biotechnology | Life Sciences | Diagnostics | Environmental & | |||||
Total sales growth (GAAP) | 2.5 % | (1.0) % | 8.0 % | 3.0 % | 1.0 % | ||||
Impact of: | |||||||||
Acquisitions/divestitures | — % | — % | — % | — % | (0.5) % | ||||
Currency exchange rates | 5.0 % | 5.0 % | 5.0 % | 4.5 % | 5.0 % | ||||
Core sales growth (non-GAAP) | 7.5 % | 4.0 % | 13.0 % | 7.5 % | 5.5 % | ||||
Impact of COVID-19 related testing | — % | ||||||||
Base business core sales growth (non-GAAP) | 7.5 % | ||||||||
% Change Year Ended December 31, 2022 vs. Comparable 2021 Period | |||||||||
Segments | |||||||||
Total Company | Biotechnology | Life Sciences | Diagnostics | Environmental & | |||||
Total sales growth (GAAP) | 7.0 % | 2.0 % | 10.0 % | 10.0 % | 4.0 % | ||||
Impact of: | |||||||||
Acquisitions/divestitures | (1.5) % | (0.5) % | (5.5) % | (0.5) % | 0.5 % | ||||
Currency exchange rates | 4.0 % | 4.5 % | 5.0 % | 4.0 % | 3.5 % | ||||
Core sales growth (non-GAAP) | 9.5 % | 6.0 % | 9.5 % | 13.5 % | 8.0 % | ||||
Impact of COVID-19 related testing | (1.5) % | ||||||||
Base business core sales growth (non-GAAP) | 8.0 % | ||||||||
Note: We expect overall demand for the Company's COVID-19 related products to continue moderating as the pandemic subsides and evolves toward endemic status. We believe certain demand for the Company's products that support COVID-19 related vaccines and therapeutics (including initiatives that seek to prevent or mitigate similar, future pandemics) and COVID-19 testing will continue, though that demand will likely be uncertain and will vary from period to period. At the beginning of 2022, the Company believed that on a relative basis, the level of ongoing demand for products supporting COVID-19 testing would be subject to more fluctuations in demand than the level of demand for products supporting COVID-19 related vaccines and therapeutics, due in part to expected COVID-19 case levels, vaccination rates and use of therapies. However, as a result of lower vaccination rates and the spread of less severe variants of the virus, 2022 demand for the Company's products supporting COVID-19 related vaccines and therapeutics fluctuated and declined more than anticipated at the beginning of the year. Therefore, beginning with the first quarter of 2023, we have revised the definition of "base business core sales growth" on a basis that not only excludes revenues related to COVID-19 testing but also excludes revenues from products that support COVID-19 related vaccines and therapeutics. We believe this adjusted definition of "base business core sales growth" will provide more useful information to investors by facilitating period-to-period comparisons of our financial performance and identifying underlying growth trends in the Company's business that otherwise may be obscured by fluctuations in demand for COVID-19 related products. |
Forecasted Core Sales Growth and Base Business Core Sales Growth | |||
The Company provides forecasted sales only on a non-GAAP basis because of the difficulty in estimating the other components | |||
% Change Three-Month | % Change Year Ending | ||
Core sales growth (non-GAAP) | -Mid-single digit | -Mid-single digit | |
Impact of COVID-19 related testing, vaccines and therapeutics | +High-single to low-double digit | +Low-double digit | |
Base business core sales growth (non-GAAP) | +Mid-single digit | +High-single digit | |
Operating Profit Margins from Continuing Operations; Year-Over-Year Core Operating Margin Changes from Continuing Operations | ||||||||||
Segments | ||||||||||
Total Company | Biotechnology | Life Sciences | Diagnostics | Environmental | ||||||
Three-Month Period Ended December 31, | 26.40 % | 34.80 % | 17.60 % | 31.00 % | 19.10 % | |||||
Fourth quarter 2021 impact from operating | (0.10) | (0.20) | (0.20) | — | 0.05 | |||||
Fourth quarter 2021 acquisition-related fair | 0.15 | — | 0.70 | — | — | |||||
Fourth quarter 2022 costs incurred related | (0.10) | — | — | — | — | |||||
Year-over-year core operating profit margin | 1.05 | (3.40) | 2.00 | 2.40 | 5.65 | |||||
Three-Month Period Ended December 31, | 27.40 % | 31.20 % | 20.10 % | 33.40 % | 24.80 % | |||||
Note: The Company deems acquisition-related transaction costs incurred in a given period to be significant (generally relating to the Company's |
Operating Profit Margins from Continuing Operations; Year-Over-Year Core Operating Margin Changes from Continuing Operations | ||||||||||
Segments | ||||||||||
Total Company | Biotechnology | Life Sciences | Diagnostics | Environmental | ||||||
Year Ended December 31, 2021 Operating | 25.30 % | 35.90 % | 20.20 % | 23.50 % | 22.70 % | |||||
Full year 2022 impact from operating | (0.30) | (0.30) | (1.15) | 0.10 | 0.20 | |||||
Full year 2022 impairments of accounts | (0.15) | (0.15) | (0.35) | (0.05) | (0.05) | |||||
Second quarter 2022 impairment charge | — | — | — | 0.10 | (0.20) | |||||
Fourth quarter 2022 costs incurred related | (0.05) | — | — | — | — | |||||
Full year 2021 acquisition-related fair | 0.20 | — | 0.90 | — | — | |||||
Full year 2021 acquisition-related fair | 0.15 | 0.55 | — | — | — | |||||
Third quarter 2021 impact of the | 1.85 | — | — | 5.55 | — | |||||
Year-over-year core operating profit margin | 0.60 | (1.70) | 0.50 | 2.50 | 0.85 | |||||
Year Ended December 31, 2022 Operating | 27.60 % | 34.30 % | 20.10 % | 31.70 % | 23.50 % | |||||
Note: The Company deems acquisition-related transaction costs incurred in a given period to be significant (generally relating to the Company's larger |
Cash Flow from Continuing Operations and Free Cash Flow from Continuing Operations ($ in millions) | |||||||||||
Three-Month Period Ended | Year-over- | Year Ended | Year-over- | ||||||||
December 31, | December 31, | December 31, | December 31, | ||||||||
Total Cash Flows from Continuing | |||||||||||
Total cash provided by operating | $ 2,541 | $ 2,333 | $ 8,519 | $ 8,358 | |||||||
Total cash used in investing activities | $ (816) | $ (879) | $ (2,234) | $ (12,987) | |||||||
Total cash (used in) provided by financing | $ (906) | $ (1,422) | $ (2,570) | $ 1,295 | |||||||
Free Cash Flow from Continuing | |||||||||||
Total cash provided by operating | $ 2,541 | $ 2,333 | ~9.0 % | $ 8,519 | $ 8,358 | ~2.0 % | |||||
Less: payments for additions to property, | (329) | (420) | (1,152) | (1,294) | |||||||
Plus: proceeds from sales of property, | — | — | 9 | 13 | |||||||
Free cash flow from continuing | $ 2,212 | $ 1,913 | ~15.5 % | $ 7,376 | $ 7,077 | ~4.0 % | |||||
Note: The Company defines free cash flow as operating cash flows from continuing operations, less payments for additions to property, plant and equipment from |
Statement Regarding Non-GAAP Measures
Each of the non-GAAP measures set forth above should be considered in addition to, and not as a replacement for or superior to, the comparable GAAP measure, and may not be comparable to similarly titled measures reported by other companies. Management believes that these measures provide useful information to investors by offering additional ways of viewing Danaher Corporation's ("Danaher" or the "Company") results that, when reconciled to the corresponding GAAP measure, help our investors:
- with respect to the profitability-related non-GAAP measures, understand the long-term profitability trends of our business and compare our profitability to prior and future periods and to our peers;
- with respect to core sales and related sales measures, identify underlying growth trends in our business and compare our sales performance with prior and future periods and to our peers; and
- with respect to free cash flow from continuing operations and related cash flow measures (the "FCF Measure"), understand Danaher's ability to generate cash without external financings, strengthen its balance sheet, invest in its business and grow its business through acquisitions and other strategic opportunities (although a limitation of free cash flow is that it does not take into account the Company's debt service requirements and other non-discretionary expenditures, and as a result the entire free cash flow amount is not necessarily available for discretionary expenditures).
We expect overall demand for the Company's COVID-19 related products to continue moderating as the pandemic subsides and evolves toward endemic status. We believe certain demand for the Company's products that support COVID-19 related vaccines and therapeutics (including initiatives that seek to prevent or mitigate similar, future pandemics) and COVID-19 testing will continue, though that demand will likely be uncertain and will vary from period to period. At the beginning of 2022, the Company believed that on a relative basis, the level of ongoing demand for products supporting COVID-19 testing would be subject to more fluctuations in demand than the level of demand for products supporting COVID-19 related vaccines and therapeutics, due in part to expected COVID-19 case levels, vaccination rates and use of therapies. However, as a result of lower vaccination rates and the spread of less severe variants of the virus, 2022 demand for the Company's products supporting COVID-19 related vaccines and therapeutics fluctuated and declined more than anticipated at the beginning of the year. Therefore, beginning with the first quarter of 2023, we have revised the definition of "base business core sales growth" on a basis that not only excludes revenues related to COVID-19 testing but also excludes revenues from products that support COVID-19 related vaccines and therapeutics. We believe this adjusted definition of "base business core sales growth" will provide more useful information to investors by facilitating period-to-period comparisons of our financial performance and identifying underlying growth trends in the Company's business that otherwise may be obscured by fluctuations in demand for COVID-19 related products.
Management uses these non-GAAP measures to measure the Company's operating and financial performance, and uses core sales and non-GAAP measures similar to Adjusted Diluted Net Earnings Per Common Share from Continuing Operations and the FCF Measure in the Company's executive compensation program.
The items excluded from the non-GAAP measures set forth above have been excluded for the following reasons:
- With respect to Adjusted Diluted Net Earnings Per Common Share from Continuing Operations:
- Amortization of Intangible Assets: We exclude the amortization of acquisition-related intangible assets because the amount and timing of such charges are significantly impacted by the timing, size, number and nature of the acquisitions we consummate. While we have a history of significant acquisition activity we do not acquire businesses on a predictable cycle, and the amount of an acquisition's purchase price allocated to intangible assets and related amortization term are unique to each acquisition and can vary significantly from acquisition to acquisition. Exclusion of this amortization expense facilitates more consistent comparisons of operating results over time between our newly acquired and long-held businesses, and with both acquisitive and non-acquisitive peer companies. We believe however that it is important for investors to understand that such intangible assets contribute to sales generation and that intangible asset amortization related to past acquisitions will recur in future periods until such intangible assets have been fully amortized.
- Restructuring Charges: We exclude costs incurred pursuant to discrete restructuring plans that are fundamentally different (in terms of the size, strategic nature and planning requirements, as well as the inconsistent frequency, of such plans) from the ongoing productivity improvements that result from application of the Danaher Business System. Because these restructuring plans are incremental to the core activities that arise in the ordinary course of our business and we believe are not indicative of Danaher's ongoing operating costs in a given period, we exclude these costs to facilitate a more consistent comparison of operating results over time.
- Other Adjustments: With respect to the other items excluded from Adjusted Diluted Net Earnings Per Common Share from Continuing Operations, we exclude these items because they are of a nature and/or size that occur with inconsistent frequency, occur for reasons that may be unrelated to Danaher's commercial performance during the period and/or we believe that such items may obscure underlying business trends and make comparisons of long-term performance difficult. For example, we excluded the first quarter 2022 charge for asset impairments, accruals for contractual obligations and similar items related to our Russia operations because, even though it is possible we could incur additional charges in the future, we do not believe these charges are indicative of Danaher's ongoing operating costs.
- With respect to adjusted average common stock and common equivalent shares outstanding, Danaher's Mandatory Convertible Preferred Stock ("MCPS") Series A converted into Danaher common stock on April 15, 2022 and MCPS Series B will mandatorily convert into Danaher common stock on the mandatory conversion date, which is expected to be April 15, 2023 (unless converted or redeemed earlier in accordance with the terms of the applicable certificate of designations). With respect to the calculation of Adjusted Diluted Net Earnings Per Common Share from Continuing Operations, we apply the "if converted" method of share dilution to the MCPS Series A and B in all applicable periods irrespective of whether such preferred shares would be dilutive or anti-dilutive in the period. We believe this presentation provides useful information to investors by helping them understand what the net impact will be on Danaher's earnings per share-related measures once the MCPS convert into Danaher common stock.
- With respect to core operating profit margin changes, in addition to the explanation set forth in the bullets above relating to "restructuring charges" and "other adjustments", we exclude the impact of businesses owned for less than one year (or disposed of during such period and not treated as discontinued operations) because the timing, size, number and nature of such transactions can vary significantly from period to period and may obscure underlying business trends and make comparisons of long-term performance difficult.
- With respect to core sales related measures, (1) we exclude the impact of currency translation because it is not under management's control, is subject to volatility and can obscure underlying business trends, and (2) we exclude the effect of acquisitions and divested product lines because the timing, size, number and nature of such transactions can vary significantly from period-to-period and between us and our peers, which we believe may obscure underlying business trends and make comparisons of long-term performance difficult.
- With respect to the FCF Measure, we exclude payments for additions to property, plant and equipment (net of the proceeds from capital disposals) to demonstrate the amount of operating cash flow for the period that remains after accounting for the Company's capital expenditure requirements.
The Company provides forecasted sales only on a non-GAAP basis because of the difficulty in estimating the other components of GAAP revenue, such as currency translation, acquisitions and divested product lines.
DANAHER CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (unaudited) ($ in millions, except per share amount) | |||
As of December 31 | |||
2022 | 2021 | ||
ASSETS | |||
Current assets: | |||
Cash and equivalents | $ 5,995 | $ 2,586 | |
Trade accounts receivable, less allowance for doubtful accounts of $126 as of | 4,918 | 4,631 | |
Inventories | 3,110 | 2,767 | |
Prepaid expenses and other current assets | 1,860 | 1,664 | |
Total current assets | 15,883 | 11,648 | |
Property, plant and equipment, net | 3,956 | 3,790 | |
Other long-term assets | 4,459 | 3,719 | |
Goodwill | 39,752 | 41,184 | |
Other intangible assets, net | 20,300 | 22,843 | |
Total assets | $ 84,350 | $ 83,184 | |
LIABILITIES AND STOCKHOLDERS' EQUITY | |||
Current liabilities: | |||
Notes payable and current portion of long-term debt | $ 591 | $ 8 | |
Trade accounts payable | 2,296 | 2,569 | |
Accrued expenses and other liabilities | 5,502 | 5,563 | |
Total current liabilities | 8,389 | 8,140 | |
Other long-term liabilities | 6,785 | 7,699 | |
Long-term debt | 19,086 | 22,168 | |
Stockholders' equity: | |||
Preferred stock, no par value, 15.0 million shares authorized; no shares and 1.65 million | 1,668 | 3,268 | |
Common stock - $0.01 par value, 2.0 billion shares authorized; 869.3 million issued and | 9 | 9 | |
Additional paid-in capital | 12,072 | 10,090 | |
Retained earnings | 39,205 | 32,827 | |
Accumulated other comprehensive income (loss) | (2,872) | (1,027) | |
Total Danaher stockholders' equity | 50,082 | 45,167 | |
Noncontrolling interests | 8 | 10 | |
Total stockholders' equity | 50,090 | 45,177 | |
Total liabilities and stockholders' equity | $ 84,350 | $ 83,184 | |
This information is presented for reference only. Final audited financial statements will include footnotes, which should be referenced when | |||
DANAHER CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (unaudited) ($ and shares in millions, except per share amounts) | ||||||||
Three-Month Period Ended | Year Ended | |||||||
December 31, | December 31, | December 31, | December 31, | |||||
Sales | $ 8,369 | $ 8,148 | $ 31,471 | $ 29,453 | ||||
Cost of sales | (3,430) | (3,205) | (12,522) | (11,501) | ||||
Gross profit | 4,939 | 4,943 | 18,949 | 17,952 | ||||
Operating costs: | ||||||||
Selling, general and administrative expenses | (2,190) | (2,294) | (8,516) | (8,198) | ||||
Research and development expenses | (453) | (495) | (1,745) | (1,742) | ||||
Other operating expenses | — | — | — | (547) | ||||
Operating profit | 2,296 | 2,154 | 8,688 | 7,465 | ||||
Nonoperating income (expense): | ||||||||
Other income (expense), net | (68) | 82 | (226) | 456 | ||||
Loss on early extinguishment of borrowings | — | (96) | — | (96) | ||||
Interest expense | (64) | (56) | (211) | (238) | ||||
Interest income | 29 | 1 | 41 | 11 | ||||
Earnings from continuing operations before income taxes | 2,193 | 2,085 | 8,292 | 7,598 | ||||
Income taxes | 39 | (297) | (1,083) | (1,251) | ||||
Net earnings from continuing operations | 2,232 | 1,788 | 7,209 | 6,347 | ||||
Earnings from discontinued operations, net of income taxes | — | — | — | 86 | ||||
Net earnings | 2,232 | 1,788 | 7,209 | 6,433 | ||||
Mandatory convertible preferred stock dividends | (22) | (41) | (106) | (164) | ||||
Net earnings attributable to common stockholders | $ 2,210 | $ 1,747 | $ 7,103 | $ 6,269 | ||||
Net earnings per common share from continuing operations: | ||||||||
Basic | $ 3.03 | $ 2.44 | $ 9.80 | (a) | $ 8.65 | |||
Diluted | $ 2.99 | $ 2.39 | $ 9.66 | (a) | $ 8.50 | |||
Net earnings per common share from discontinued operations: | ||||||||
Basic | $ — | $ — | $ — | $ 0.12 | ||||
Diluted | $ — | $ — | $ — | $ 0.12 | ||||
Net earnings per common share: | ||||||||
Basic | $ 3.03 | $ 2.44 | $ 9.80 | (a) | $ 8.77 | |||
Diluted | $ 2.99 | $ 2.39 | $ 9.66 | (a) | $ 8.61 | (b) | ||
Average common stock and common equivalent shares outstanding: | ||||||||
Basic | 728.9 | 715.6 | 725.1 | 714.6 | ||||
Diluted | 745.7 | 738.4 | 737.1 | 736.8 | ||||
(a) Net earnings per common share amount for the relevant three-month periods do not add to the full year period amount due to rounding. | ||||||||
(b) Net earnings per common share amount does not add due to rounding. | ||||||||
This information is presented for reference only. Final audited financial statements will include footnotes, which should be referenced when | ||||||||
DANAHER CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) ($ in millions) | |||
Year Ended December 31 | |||
2022 | 2021 | ||
Cash flows from operating activities: | |||
Net earnings | $ 7,209 | $ 6,433 | |
Less: earnings from discontinued operations, net of income taxes | — | (86) | |
Net earnings from continuing operations | 7,209 | 6,347 | |
Noncash items: | |||
Depreciation | 738 | 718 | |
Amortization of intangible assets | 1,484 | 1,450 | |
Amortization of acquisition-related inventory fair value step-up | — | 59 | |
Stock-based compensation expense | 336 | 218 | |
Contract settlement expense | — | 542 | |
Pretax loss on early extinguishment of borrowings | — | 96 | |
Pretax gain on sale of product lines and investment (gains) losses | 271 | (414) | |
Change in deferred income taxes | (559) | (229) | |
Change in trade accounts receivable, net | (477) | (611) | |
Change in inventories | (486) | (502) | |
Change in trade accounts payable | 5 | 549 | |
Change in prepaid expenses and other assets | (78) | (4) | |
Change in accrued expenses and other liabilities | 76 | 139 | |
Total operating cash provided by continuing operations | 8,519 | 8,358 | |
Cash flows from investing activities: | |||
Cash paid for acquisitions | (637) | (10,961) | |
Payments for additions to property, plant and equipment | (1,152) | (1,294) | |
Proceeds from sales of property, plant and equipment | 9 | 13 | |
Payments for purchases of investments | (523) | (934) | |
Proceeds from sales of investments | 18 | 126 | |
Proceeds from sale of product lines | — | 26 | |
All other investing activities | 51 | 37 | |
Total cash used in investing activities from continuing operations | (2,234) | (12,987) | |
Cash flows from financing activities: | |||
Proceeds from the issuance of common stock in connection with stock-based | 31 | 86 | |
Payment of dividends | (818) | (742) | |
Net (repayments of) proceeds from borrowings (maturities of 90 days or less) | (723) | 2,265 | |
Proceeds from borrowings (maturities longer than 90 days) | — | 984 | |
Repayments of borrowings (maturities longer than 90 days) | (965) | (1,186) | |
Make-whole premiums to redeem borrowings prior to maturity | — | (96) | |
All other financing activities | (95) | (16) | |
Net cash (used in) provided by financing activities for continuing operations | (2,570) | 1,295 | |
Effect of exchange rate changes on cash and equivalents | (306) | (115) | |
Net change in cash and equivalents | 3,409 | (3,449) | |
Beginning balance of cash and equivalents | 2,586 | 6,035 | |
Ending balance of cash and equivalents | $ 5,995 | $ 2,586 | |
This information is presented for reference only. Final audited financial statements will include footnotes, which should be referenced when | |||
DANAHER CORPORATION AND SUBSIDIARIES SEGMENT INFORMATION (unaudited) ($ in millions) | |||||||
Three-Month Period Ended | Year Ended | ||||||
December 31, | December 31, | December 31, | December 31, | ||||
Sales: | |||||||
Biotechnology | $ 2,223 | $ 2,242 | $ 8,758 | $ 8,570 | |||
Life Sciences | 1,946 | 1,804 | 7,036 | 6,388 | |||
Diagnostics | 2,965 | 2,881 | 10,849 | 9,844 | |||
Environmental & Applied Solutions | 1,235 | 1,221 | 4,828 | 4,651 | |||
Total Company | $ 8,369 | $ 8,148 | $ 31,471 | $ 29,453 | |||
Operating Profit: | |||||||
Biotechnology | $ 693 | $ 780 | $ 3,008 | $ 3,074 | |||
Life Sciences | 392 | 317 | 1,414 | 1,293 | |||
Diagnostics | 989 | 893 | 3,436 | 2,313 | |||
Environmental & Applied Solutions | 306 | 233 | 1,135 | 1,054 | |||
Other | (84) | (69) | (305) | (269) | |||
Total Company | $ 2,296 | $ 2,154 | $ 8,688 | $ 7,465 | |||
Operating Profit Margins: | |||||||
Biotechnology | 31.2 % | 34.8 % | 34.3 % | 35.9 % | |||
Life Sciences | 20.1 % | 17.6 % | 20.1 % | 20.2 % | |||
Diagnostics | 33.4 % | 31.0 % | 31.7 % | 23.5 % | |||
Environmental & Applied Solutions | 24.8 % | 19.1 % | 23.5 % | 22.7 % | |||
Total Company | 27.4 % | 26.4 % | 27.6 % | 25.3 % | |||
This information is presented for reference only. Final audited financial statements will include footnotes, which should be referenced when | |||||||
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SOURCE Danaher Corporation
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