Danaher Corporation — FY2009 Form 10-K
Reporting period: Fiscal year ended December 31, 2009. The filing also reports unaudited fourth-quarter results. Danaher is a diversified manufacturer operating through Professional Instrumentation, Medical Technologies, Industrial Technologies, and Tools & Components.
Financial performance
| Metric | FY2009 | FY2008 |
|---|---|---|
| Sales | $11.185 billion | $12.697 billion |
| Operating profit | $1.542 billion | $1.869 billion |
| Operating margin | 13.8% | 14.7% |
| Net earnings | $1.152 billion | $1.318 billion |
| Diluted EPS | $3.46 | $3.95 |
| Gross margin | 47.2% | 46.8% |
| Operating cash flow | $1.801 billion | $1.859 billion |
| Capital expenditures | $189 million | $194 million |
| Total debt at year-end | $2.933 billion | $2.619 billion |
| Cash and equivalents at year-end | $1.722 billion | $393 million |
Sales declined 12% year over year: existing businesses fell 12%, currency reduced reported sales by about 2 percentage points, and acquisitions added about 2 points. Operating margin contracted mainly from lower volumes and higher restructuring charges. Gross margin improved with restructuring savings and lower material costs. Operating cash flow was supported by $228 million of working-capital contribution, including lower inventory and stronger receivable collections.
By segment, sales fell 11% in Professional Instrumentation, 4% in Medical Technologies, 19% in Industrial Technologies, and 19% in Tools & Components. Medical Technologies operating profit rose to $395 million from $370 million, but operating profit declined in the other three segments.
Fourth-quarter sales were $3.133 billion versus $3.177 billion in Q4 2008; net earnings were $267 million versus $306 million, and diluted EPS was $0.80 versus $0.92. Management said the year-over-year sales decline rate improved in Q4 compared with the first three quarters.
Material changes and unusual items
- Danaher recorded $238.5 million of 2009 restructuring and related charges, including $192.3 million under April and August plans. The actions generated about $50 million of pretax savings in 2009; management expected approximately $170 million of incremental year-over-year pretax savings in 2010.
- A settlement with Align Technology produced an $85 million pretax gain ($53 million after tax, or $0.16 per share), including cash and Align shares.
- The 19.2% effective tax rate included about $97 million ($0.29 per diluted share) of net discrete tax benefits. The filing identifies this as a significant benefit to reported earnings.
- Danaher acquired 15 businesses in 2009 for approximately $704 million cash, net of cash acquired. After year-end it completed the $1.1 billion AB SCIEX and Molecular Devices acquisitions, funded with cash on hand; these were expected to add about $650 million in annual Medical Technologies revenue.
- Year-end goodwill was $9.818 billion. The annual impairment test found no impairment; sensitivity analysis identified three reporting units whose fair values would fall below carrying values under a hypothetical 10% fair-value decline.
Liquidity, debt, and outlook
Cash increased substantially during the year, while debt rose by approximately $314 million. Debt included $180 million of commercial paper and long-term notes, Eurobonds, LYONs, and other borrowings. The company had $1.525 billion of revolving credit facilities supporting its commercial paper program and was in compliance with its leverage covenant. About $1.5 billion of year-end cash was held outside the United States. The subsequent $1.1 billion acquisition reduced available cash after year-end.
Management expected modest overall sales growth in 2010, assuming economic conditions continued to stabilize and did not deteriorate significantly. It expected 2010 effective tax rate of approximately 25%, capital spending of about $225 million, and continued benefit from restructuring savings. These are outlook statements, not guarantees; the filing gives no specific EPS guidance.
Risks and contingencies
- Weak or volatile economic conditions could suppress customer demand, capital spending, pricing, collections, and utilization of manufacturing capacity; recovery remained uncertain.
- Restructuring could reduce available talent and capacity or impair responsiveness if demand rebounds. The expected savings depend on successful execution.
- Acquisition integration, purchase-price allocation, and the substantial goodwill and intangible-asset balances create execution and impairment risks.
- Foreign currency movements affect reported sales and profit; 52% of 2009 revenue came from outside the United States.
- Defined-benefit pension plans were underfunded by approximately $664 million in aggregate at year-end ($393 million U.S.; $271 million non-U.S.). Market performance and discount rates may change funding needs and expense.
- Environmental remediation, product liability, litigation, tax audits, regulatory requirements, supplier constraints, and healthcare-market changes may result in costs or business disruption. Management did not expect currently disclosed proceedings or environmental matters to have a material adverse effect, but outcomes and estimates remain uncertain.
Management and the auditor concluded internal control over financial reporting was effective; the financial-statement audit opinion was unqualified.
Investor verification priorities
- Separate recurring operating performance from the $85 million litigation gain and approximately $97 million of discrete tax benefits; assess the effect of restructuring charges.
- Track whether modest 2010 sales growth and projected restructuring savings materialized, including segment-level demand trends.
- Assess liquidity and leverage after the post-year-end $1.1 billion acquisitions, including cash availability, commercial-paper access, and debt maturities.
- Review integration results and subsequent purchase accounting for AB SCIEX and Molecular Devices, alongside goodwill impairment sensitivity.
- Monitor pension funding assumptions and environmental, litigation, and uncertain-tax-position exposures; the contractual-obligations table excludes $503 million of gross unrecognized tax benefits with uncertain timing.