Danaaher Corp. 10-Q Summary: Quarter Ended June 27, 2003
Business Context and Reporting Period
This Form 10-Q covers the quarterly and six-month periods ended June 27, 2003, for Danaaher Corporation, a Delaware corporation. The company operates in two primary segments: Process/Environmental Controls and Tools and Components. The financial statements are unaudited and prepared in accordance with SEC rules.
Key Financial Metrics
| Metric | Q2 2003 | Q2 2002 | YTD 2003 | YTD 2002 |
|---|---|---|---|---|
| Net Sales ($000s) | $1,299,432 | $1,146,326 | $2,495,647 | $2,150,533 |
| Operating Profit ($000s) | $201,211 | $169,575 | $368,204 | $306,796 |
| Net Earnings ($000s) | $125,144 | $103,665 | $228,270 | $12,650* |
| Diluted EPS | $0.79 | $0.66 | $1.44 | $0.11* |
| Operating Cash Flow (YTD $000s) | $449,248 (vs $393,446 YTD 2002) | |||
| Total Assets ($000s) | $6,464,800 (vs $6,029,145 Dec 31, 2002) | |||
| Total Debt ($000s) | $1,326,059 (Current + Long-term) | |||
| Cash & Equivalents ($000s) | $1,068,110 |
*YTD 2002 Net Earnings and EPS were significantly impacted by a $173.75 million charge related to an accounting change (goodwill write-down) in the first quarter of 2002. Net earnings before this change were $186.4 million.
Material Changes vs. Prior Period
- Revenue Growth: Consolidated revenues increased 13% in Q2 and 16% YTD compared to 2002. Acquisitions accounted for 11% of Q2 growth and 13% of YTD growth. Favorable currency translation contributed 3.5% to both periods. Organic sales from existing businesses declined slightly (1.5% in Q2, 0.5% YTD).
- Segment Performance:
- Process/Environmental Controls: Revenues grew 20% in Q2 and 23% YTD, driven by acquisitions (Thomson Industries, Willett International, Raytek) and currency. Operating margins improved to 16.2% in Q2 from 15.4% in 2002.
- Tools and Components: Revenues declined 6% in Q2 and 3.4% YTD due to weakness in hand tools (customer inventory reductions) and diesel engine retarders. Operating margins improved slightly to 15.3% in Q2.
- Profitability: Gross profit margins increased to 40.4% in Q2 from 38.8% in 2002, aided by restructuring savings. Operating expenses as a percentage of sales increased slightly due to spending on growth opportunities and higher expense structures in acquired businesses.
- Acquisitions: The company completed five acquisitions in the first half of 2003 for approximately $123 million in cash, plus $45 million in assumed debt. These were all added to the Process/Environmental Controls segment.
Outlook, Risks, and Management Commentary
- Outlook: Management expects global manufacturing markets to remain generally stable for the balance of 2003. The company anticipates full-year 2003 capital spending of approximately $100 million.
- Tax Rate: The effective tax rate for 2003 is expected to decrease further due to a higher proportion of foreign earnings and restructuring in foreign jurisdictions.
- Liquidity: The company maintains a strong liquidity position with $1.07 billion in cash and a $500 million unutilized revolving credit facility. A new $500 million credit facility is expected to be entered into in Q3 2003.
- Risks: Key risks include currency exchange rate fluctuations (particularly Euro/USD), raw material commodity prices, integration of acquired businesses, and changes in environmental regulations affecting demand.
- Unusual Items: The 2002 comparative period included a significant non-cash goodwill impairment charge. No such charge occurred in 2003.
Investor Verification Checklist
- Verify the sustainability of organic sales growth given the reported decline in existing business sales.
- Monitor the integration progress and margin performance of recent acquisitions (Thomson, Willett, Raytek).
- Assess the impact of currency fluctuations on future earnings, given the significant exposure to European currencies.
- Review the status of the Thomson Industries purchase price allocation and potential adjustments to goodwill.
- Confirm the timeline and terms of the new $500 million credit facility negotiation.