Danaher Corporation — FY2012 Form 10-K
Reporting period: Fiscal year ended December 31, 2012. Danaher is a diversified manufacturer and services provider operating in five segments: Test & Measurement, Environmental, Life Sciences & Diagnostics, Dental, and Industrial Technologies. Approximately 57% of 2012 sales came from outside the United States.
Financial results and liquidity
| Metric | 2012 | 2011 |
|---|---|---|
| Sales | $18.260 billion | $16.091 billion |
| Operating profit | $3.165 billion | $2.617 billion |
| Operating margin | 17.3% | 16.3% |
| Continuing-operations net earnings | $2.299 billion | $1.935 billion |
| Diluted EPS from continuing operations | $3.23 | $2.77 |
| Net earnings, including discontinued operations | $2.392 billion | $2.172 billion |
| Operating cash flow from continuing operations | $3.502 billion | $2.732 billion |
| Capital expenditures | $458 million | $335 million |
| Total debt | $5.343 billion | $5.305 billion |
| Cash and cash equivalents at year-end | $1.679 billion | $537 million |
Gross margin was 51.6%, up from 50.8%; SG&A was 28.4% of sales and R&D was 6.2%. Operating cash flow less capital expenditures was approximately $3.044 billion, a derived measure. The effective tax rate was 23.6%, versus 20.9% in 2011. Fourth-quarter sales were $4.975 billion, operating profit $863 million, and continuing-operations net earnings $630 million (diluted EPS $0.89).
Year-end current assets were $7.588 billion and current liabilities $4.206 billion. The company had a $2.5 billion revolving credit facility, with no borrowings outstanding and covenant compliance at year-end. Commercial paper outstanding was approximately $1.225 billion; its weighted-average interest rate was 0.2% and remaining maturity approximately seven days. Debt due in 2013 included $660 million of Eurobond Notes and $300 million of floating-rate notes, in addition to commercial paper classified as long-term because Danaher expected and had the ability to refinance it.
Changes versus prior year
- Sales increased 13.5%: existing businesses contributed 2.5% growth, acquisitions 13.0%, and currency translation reduced growth by 2.0%.
- Operating margin rose 100 basis points. Favorable volume, productivity and restructuring savings, and the absence of certain 2011 Beckman Coulter acquisition charges contributed; acquired-business dilution partly offset these benefits.
- Life Sciences & Diagnostics sales rose 40% to $6.485 billion, largely reflecting the full-year contribution of Beckman Coulter, acquired in June 2011. Its operating margin improved to 13.3% from 8.7%, including the benefit of lower comparative acquisition-related charges.
- Test & Measurement sales declined 0.5% and margin fell to 20.7% from 22.2%, amid weak instrument demand. Environmental sales rose 4.0%; Dental rose 0.5%; Industrial Technologies rose 6.0%, with acquisition contributions and currency effects influencing results.
- Continuing-operations operating cash flow increased approximately 28%. Cash and equivalents increased by $1.142 billion during the year.
- Danaher acquired 14 businesses for approximately $1.8 billion net of cash acquired, and repurchased approximately 12.5 million shares for $648 million. It sold Accu-Sort and Kollmorgen Electro-Optical for combined stated sale prices of $337 million and recorded a $94 million after-tax gain.
Outlook, commentary and notable items
- Management expected existing-business sales to grow year over year in 2013, provided there was no significant deterioration in economic conditions. It expected Test & Measurement growth to return, with other segments growing at rates experienced in 2012.
- Management forecast 2013 capital spending of approximately $500 million and an effective tax rate of approximately 24%, excluding a discrete benefit from tax legislation enacted in January 2013. The reinstated R&D tax credit and other provisions were expected to provide a discrete first-quarter benefit.
- A 2012 restructuring plan generated $123 million of pretax charges and was substantially completed by year-end; expected annualized savings were approximately $90 million in 2013. Approximately $94 million of related cash payments were anticipated in 2013.
- The 2.3% U.S. medical-device excise tax became effective in 2013. Danaher estimated it would increase 2013 cost of sales by approximately $35 million versus 2012.
- In February 2013, Danaher and Cooper sold the Apex Tool Group joint venture for approximately $1.6 billion. Danaher expected after-tax net proceeds of approximately $650 million and an after-tax gain of approximately $138 million in the first quarter of 2013.
- Environmental reserves were $143 million at year-end, including $94 million non-current. Management stated it did not believe reasonably possible environmental payments above reserves would materially affect the financial statements. It likewise stated that excess litigation exposure was not reasonably expected to be material.
- Key risks include global economic weakness, especially in Europe; competitive and pricing pressure; acquisition integration and impairment risk; medical-device and other regulatory compliance; foreign-exchange exposure; supply interruptions and commodity costs; cybersecurity and operational disruptions; tax audits; and pension funding sensitivity. Goodwill and other intangible assets totaled approximately $21.8 billion.
Most important facts for investors to verify
- How much of reported growth and margin improvement is sustainable after separating acquisitions, currency effects, restructuring savings, and prior-year Beckman Coulter charges.
- Whether the Life Sciences & Diagnostics integration delivers expected cost synergies and supports margins despite substantial acquired amortization and depreciation.
- Near-term refinancing and funding plans for 2013 maturities, commercial paper, and the company’s ongoing acquisition and capital-spending needs.
- Actual 2013 impact of the medical-device excise tax, tax-rate guidance, and the anticipated Apex sale proceeds and gain.
- Developments in environmental, litigation, tax, pension, and goodwill estimates; the filing reports no material goodwill impairment in 2012.