Danaher Corporation — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. This is an annual filing, not a standalone fourth-quarter report. Financial amounts are in U.S. dollars; continuing operations are presented separately from discontinued operations unless noted.
Business context and reporting period
Danaher operates in Life Sciences, Diagnostics, and Environmental & Applied Solutions, serving research, healthcare, water-quality, and product-identification markets. It reported 2019 results following the separation and disposition of its dental businesses as Envista. Danaher agreed to acquire GE’s biopharma business, expected to be named Cytiva, for approximately $21.0 billion; the transaction remained pending at the filing date.
Financial performance and liquidity
| Metric | 2019 | 2018 | Change or context |
|---|---|---|---|
| Sales | $17.91 billion | $17.05 billion | Up 5.0% reported; core sales growth was 6.0% |
| Gross profit / margin | $9.98 billion / 55.7% | $9.51 billion / 55.8% | Margin down 0.1 percentage point |
| Operating profit / margin | $3.27 billion / 18.3% | $3.06 billion / 17.9% | Margin up 0.4 percentage point |
| Continuing-operations net earnings | $2.43 billion | $2.41 billion | Up slightly; diluted EPS declined to $3.26 from $3.39 |
| Net earnings attributable to common stockholders | $2.94 billion | $2.65 billion | 2019 includes discontinued operations; diluted EPS was $4.05 versus $3.74 |
| Operating cash flow from continuing operations | $3.66 billion | $3.64 billion | Up less than 1% |
| Capital expenditures | $636 million | $584 million | Company forecast approximately $700 million for 2020 |
| Cash and equivalents | $19.91 billion | $788 million | Includes funds raised ahead of the pending GE Biopharma acquisition |
| Total debt | $21.73 billion | $9.74 billion | Increased substantially to finance the pending acquisition |
Operating cash flow from continuing operations less capital expenditures was approximately $3.02 billion in 2019. Current assets were $25.60 billion and current liabilities were $4.93 billion. The company reported approximately $4.9 billion of additional borrowing capacity under its credit facilities and commercial-paper support arrangements. Its credit facilities include a consolidated leverage-ratio covenant of 0.65 to 1.00 or less; Danaher reported compliance at year-end.
Segment sales and operating margins were: Life Sciences, $6.95 billion and 20.2%; Diagnostics, $6.56 billion and 17.3%; Environmental & Applied Solutions, $4.40 billion and 23.9%. Each segment reported sales growth; core growth was 7.0%, 7.0%, and 3.5%, respectively.
Material changes versus the prior comparable period
- Core sales growth slowed to 6.0% from 7.0% in 2018. Currency translation reduced reported 2019 sales growth by 2 percentage points, while acquisitions and other items reduced it by 1 percentage point.
- Operating margin improved by 0.4 percentage point, primarily from volume growth and productivity savings. Acquisition preparation costs for GE Biopharma reduced the year-over-year margin comparison by about 0.5 percentage point.
- The effective tax rate rose to 26.4% from 18.8%, including net tax charges of about 650 basis points from prior-period tax positions, audit settlements, Envista-related costs, and other items.
- Danaher issued common and mandatory convertible preferred stock for net proceeds of approximately $3.0 billion and issued approximately $10.8 billion of long-term debt during 2019 in anticipation of the GE Biopharma acquisition.
- Envista was fully separated and disposed of in the fourth quarter. The disposition generated a $451 million gain and 2019 discontinued-operations earnings of $576 million, net of tax. The Envista split-off also involved Danaher repurchasing 22.9 million of its own shares in exchange for Envista shares.
Outlook, management commentary, risks, contingencies, and unusual items
- Danaher expected to close the approximately $21 billion GE Biopharma acquisition in the first quarter of 2020, subject to regulatory approval. It anticipated divesting product lines with about $170 million of 2019 revenue as a regulatory condition. The company expected to incur about $2.0 billion of additional debt beyond year-end 2019 debt to help fund the purchase.
- Management expected a 2020 effective tax rate of approximately 19.5% and capital spending of approximately $700 million. The filing does not provide a specific 2020 revenue or earnings forecast.
- Management noted that the coronavirus outbreak originating in China could negatively affect results, but the impact was difficult to assess. China represented approximately 13% of 2019 sales. Brexit-related effects were also uncertain; less than 5% of sales were to UK customers.
- Significant tax uncertainties include IRS proposed adjustments that would increase taxable income by approximately $2.7 billion for 2012–2015, relating to deferred self-insurance premium income. Danaher disputed the proposed adjustments. Danish tax authorities had also assessed approximately $538 million, including interest, across several tax periods; the company was appealing.
- Other principal risks include acquisition closing, integration and execution; higher debt and possible credit-rating downgrades; global economic and currency changes; tariffs and trade tensions; healthcare regulation and reimbursement; competition; cybersecurity and data privacy; supply constraints; and product, environmental, litigation, and pension exposures.
- Danaher recorded a $7 million pretax loss on early debt extinguishment, a $7 million pension settlement loss, and $93 million of transaction-related costs for the pending GE Biopharma acquisition. Goodwill and other intangible assets totaled approximately $32.5 billion; the 2019 goodwill impairment test identified no impairment.
Most important facts for investors to verify
- Whether GE Biopharma closed on schedule, the final purchase price and regulatory divestitures, and the acquired business’s subsequent contribution to growth and earnings.
- Post-acquisition debt, leverage, cash use, borrowing costs, and any credit-rating changes; also confirm how much year-end cash was available for general corporate purposes versus earmarked acquisition funding.
- The resolution and potential financial effects of the IRS and Danish tax disputes, including any changes to reserves, cash taxes, or the effective tax rate.
- Underlying organic performance by segment, particularly the deceleration in Environmental & Applied Solutions core growth and the sustainability of productivity-driven margin gains.
- The effects of coronavirus, tariffs, currency movements, and Brexit on sales, supply chains, and costs, as well as the conversion of the reported $3.1 billion backlog into revenue.