NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
NOTE 1. GENERAL
The Consolidated Condensed Financial Statements included herein have been prepared by Danaher Corporation (“Danaher” or the “Company”) without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). In this quarterly report, the terms “Danaher” or the “Company” refer to Danaher Corporation, Danaher Corporation and its consolidated subsidiaries (including Envista Holdings Corporation (“Envista”), unless otherwise indicated or the context otherwise requires) or the consolidated subsidiaries of Danaher Corporation (including Envista, unless otherwise indicated or the context otherwise requires), as the context requires. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) have been condensed or omitted pursuant to SEC rules and regulations; however, the Company believes that the disclosures are adequate to make the information presented not misleading. The Consolidated Condensed Financial Statements included herein should be read in conjunction with the financial statements as of and for the year ended December 31, 2018 and the Notes thereto included in the Company’s 2018 Annual Report on Form 10-K filed on February 21, 2019 (the “2018 Annual Report” or “2018 Annual Report on Form 10-K”).
In the opinion of the Company, the accompanying financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position of the Company as of September 27, 2019 and December 31, 2018, its results of operations for the three and nine-month periods ended September 27, 2019 and September 28, 2018 and its cash flows for each of the nine-month periods then ended.
Accounting Standards Recently Adopted
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842), which requires lessees to recognize a right-of-use (“ROU”) asset and a lease liability for all leases with terms greater than 12 months and also requires disclosures by lessees and lessors about the amount, timing and uncertainty of cash flows arising from leases. The accounting applied by a lessor is largely unchanged from that applied under the prior standard. Subsequent to the issuance of Topic 842, the FASB clarified the guidance through several ASUs; hereinafter the collection of lease guidance is referred to as “ASC 842”.
On January 1, 2019, the Company adopted ASC 842 using the modified retrospective method for all lease arrangements at the beginning of the period of adoption. Results for reporting periods beginning January 1, 2019 are presented under ASC 842, while prior period amounts were not adjusted and continue to be reported in accordance with the Company’s historic accounting under ASC 840, Leases (“ASC 840”). The standard had a material impact on the Company’s Consolidated Condensed Balance Sheet but did not have a significant impact on the Company’s consolidated net earnings and cash flows. The most significant impact was the recognition of ROU assets and lease liabilities for operating leases, while the accounting for finance leases remained substantially unchanged. For leases that commenced before the effective date of ASC 842, the Company elected the permitted practical expedients to not reassess the following: (i) whether any expired or existing contracts contain leases; (ii) the lease classification for any expired or existing leases; and (iii) initial direct costs for any existing leases. The Company also elected to include leases with a term of 12 months or less in the recognized ROU assets and lease liabilities.
As a result of the cumulative impact of adopting ASC 842, the Company recorded operating lease ROU assets of $971 million and operating lease liabilities of $1,012 million as of January 1, 2019, primarily related to real estate and automobile leases, based on the present value of the future lease payments on the date of adoption. Refer to Note 5 for the additional disclosures required by ASC 842.
The Company determines if an arrangement is a lease at inception. For leases where the Company is the lessee, ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent an obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit interest rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The ROU asset also consists of any prepaid lease payments, lease incentives received, costs which will be incurred in exiting a lease and the amount of any asset or liability recognized on business combinations relating to favorable or unfavorable lease terms. The lease terms used to calculate the ROU asset and related lease liability include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for operating leases is recognized on a straight-line basis over the lease term as an operating expense while the expense for finance leases is recognized as depreciation expense and interest expense using the accelerated interest
method of recognition. The Company has lease agreements which require payments for lease and non-lease components and has elected to account for these as a single lease component.
The Company leases Life Sciences, Diagnostics, and Environmental & Applied Solutions equipment to customers in both operating-type lease (“OTL”) and sales-type lease (“STL”) arrangements. Equipment lease revenue for OTL agreements is recognized on a straight-line basis over the life of the lease, and the costs of customer-leased equipment are recorded within property, plant and equipment, net in the accompanying Consolidated Condensed Balance Sheets and depreciated over the equipment’s estimated useful life. Depreciation expense associated with the leased equipment under OTL arrangements is reflected in cost of sales in the accompanying Consolidated Condensed Statements of Earnings. The OTLs are generally not cancellable until after an initial term and may or may not require the customer to purchase a minimum number of consumables or tests throughout the contract term. Certain of the Company’s lease contracts are customized for larger customers and often result in complex terms and conditions that typically require significant judgment in applying the criteria used to evaluate whether the arrangement should be considered an OTL or an STL. An STL results in earlier recognition of equipment revenue as compared to an OTL. Some of the Company’s leases include a purchase option for the customer to purchase the leased asset at the end of the lease arrangement for a purchase price equal to the asset’s fair market value at the time of the purchase. The Company manages its risk on the unguaranteed residual asset for leased equipment through the pricing and term of the leases. In certain geographies, equipment coming off OTL and STL arrangements after the initial lease term may be leased to other customers or used for spare parts.
For lease arrangements with lease and non-lease components where the Company is the lessor, the Company allocates the contract’s transaction price to the lease and non-lease components on a relative standalone selling price basis using the Company’s best estimate of the standalone selling price of each distinct product or service in the contract. The primary method used to estimate standalone selling price is the price observed in standalone sales to customers; however, when prices in standalone sales are not available the Company may use third-party pricing for similar products or services or estimate the standalone selling price. Allocation of the transaction price is determined at the inception of the lease arrangement. The Company’s leases primarily consist of leases with fixed lease payments. For those leases with variable lease payments, the variable lease payment is typically based upon use of the leased equipment or the purchase of consumables used with the leased equipment.
In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, which expands and refines hedge accounting for both financial and non-financial risk components, aligns the recognition and presentation of the effects of hedging instruments and hedge items in the financial statements and includes certain targeted improvements to ease the application of current guidance related to the assessment of hedge effectiveness. The ASU was effective for public entities for fiscal years beginning after December 15, 2018. In January 2019, the Company entered into approximately $1.9 billion of cross-currency swap derivative contracts to hedge its net investment in foreign operations against adverse changes in the exchange rates between the U.S. dollar and the Danish kroner, Japanese yen, euro and Swiss franc. In June 2019, the Company entered into interest rate swap agreements with a notional amount of $850 million which represents a portion of the amount of U.S. dollar-denominated bonds (with terms ranging from 10 to 30 years) the Company anticipates issuing to finance a portion of the acquisition of the Biopharma Business of General Electric Company (“GE”) Life Sciences (the “GE Biopharma Business” or “GE Biopharma”). These contracts effectively fixed the interest rate for a portion of the Company’s anticipated U.S. dollar-denominated debt issuance equal to the notional amount of the swaps to the rate specified in the interest rate swap agreements. Refer to Note 8 for additional disclosures about the Company’s debt issuances related to the pending GE Biopharma acquisition and Note 9 for additional disclosures about the Company’s hedging activities.
In addition to the cross-currency swaps entered into by the Company in January 2019, in September 2019, Envista entered into $650 million of cross-currency swap derivative contracts with respect to its senior unsecured term loan facility. These contracts effectively convert the senior unsecured term loan facility to an obligation denominated in euro and partially offset the impact of changes in currency rates on Envista’s euro-denominated net investments in foreign operations. In addition, Envista entered into $650 million of interest rate swap derivative contracts to convert the variable interest rate for the senior unsecured term loan facility to a fixed interest rate.
Except for the above accounting policy for leases that was updated as a result of adopting ASC 842, there have been no changes to the Company’s significant accounting policies described in the Annual Report on Form 10-K for the year ended December 31, 2018 that have a material impact on the Company’s Consolidated Condensed Financial Statements and the related Notes.
Accounting Standards Not Yet Adopted
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which amends the impairment model by requiring entities to use a forward-looking approach
based on expected losses rather than incurred losses to estimate credit losses on certain types of financial instruments, including trade receivables. This may result in the earlier recognition of allowances for losses. The ASU is effective for public entities for fiscal years beginning after December 15, 2019, with early adoption permitted. The ASU will be adopted using a modified retrospective transition method, with the adoption impact recognized through a cumulative-effect adjustment to retained earnings in the period of adoption. In November 2018, April 2019 and May 2019, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments and ASU No. 2019-05, Financial Instruments-Credit Losses (Topic 326): Targeted Transition Relief which provided additional implementation guidance on the previously issued ASU. Management has not yet completed its assessment of the impact of the new standard on the Company’s financial statements. The Company is in the process of implementing changes to its accounting policies and processes for the new standard. Currently, the Company believes that the most notable impact of this ASU will relate to its processes around the assessment of the adequacy of its allowance for doubtful accounts on trade accounts receivable and the recognition of credit losses.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820), which modifies the disclosures on fair value measurements by removing the requirement to disclose the amount and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy and the policy for timing of such transfers. The ASU expands the disclosure requirements for Level 3 fair value measurements, primarily focused on changes in unrealized gains and losses included in other comprehensive income (loss). The ASU is effective for public entities for fiscal years beginning after December 15, 2019, with early adoption permitted. Management has not yet completed its assessment of the impact of the new standard on the Company’s financial statements.
In August 2018, the FASB issued ASU No. 2018-14, Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans, which amends ASC 715, Compensation—Retirement Benefits, to add, remove, and clarify disclosure requirements related to defined benefit pension and other postretirement plans. The ASU is effective for public entities for fiscal years beginning after December 15, 2020, with early adoption permitted. Management has not yet completed its assessment of the impact of the new standard on the Company’s financial statements.
Accumulated Other Comprehensive Income (Loss)—Accumulated other comprehensive income (loss) refers to certain gains and losses that under U.S. GAAP are included in comprehensive income (loss) but are excluded from net earnings as these amounts are initially recorded as an adjustment to stockholders’ equity. The changes in accumulated other comprehensive income (loss) by component are summarized below ($ in millions). Foreign currency translation adjustments generally relate to indefinite investments in non-U.S. subsidiaries, as well as the impact from the Company’s hedges of its net investment in foreign operations, including the Company’s cross-currency swap derivatives, net of any tax impacts.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency Translation Adjustments
|
|
Pension & Postretirement Plan Benefit Adjustments
|
|
Unrealized Gain (Loss) on Available-For-Sale Securities Adjustments
|
|
Cash Flow Hedge Adjustments
|
|
Total
|
|
For the Three-Month Period Ended September 27, 2019:
|
|
|
|
Balance, June 28, 2019
|
$
|
(2,155.4
|
)
|
|
$
|
(681.1
|
)
|
|
$
|
(1.0
|
)
|
|
$
|
(6.8
|
)
|
|
$
|
(2,844.3
|
)
|
|
Other comprehensive income (loss) before reclassifications:
|
|
|
|
|
|
|
|
|
|
|
(Decrease) increase
|
(226.8
|
)
|
|
—
|
|
|
0.6
|
|
|
(55.1
|
)
|
|
(281.3
|
)
|
|
Income tax impact
|
(9.0
|
)
|
|
—
|
|
|
(0.1
|
)
|
|
13.3
|
|
|
4.2
|
|
|
Other comprehensive income (loss) before reclassifications, net of income taxes
|
(235.8
|
)
|
|
—
|
|
|
0.5
|
|
|
(41.8
|
)
|
|
(277.1
|
)
|
|
Amounts reclassified from accumulated other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
Increase
|
—
|
|
|
7.5
|
|
(a)
|
—
|
|
|
—
|
|
|
7.5
|
|
|
Income tax impact
|
—
|
|
|
(1.7
|
)
|
|
—
|
|
|
—
|
|
|
(1.7
|
)
|
|
Amounts reclassified from accumulated other comprehensive income (loss), net of income taxes
|
—
|
|
|
5.8
|
|
|
—
|
|
|
—
|
|
|
5.8
|
|
|
Net current period other comprehensive income (loss), net of income taxes
|
(235.8
|
)
|
|
5.8
|
|
|
0.5
|
|
|
(41.8
|
)
|
|
(271.3
|
)
|
(b)
|
Balance, September 27, 2019
|
$
|
(2,391.2
|
)
|
|
$
|
(675.3
|
)
|
|
$
|
(0.5
|
)
|
|
$
|
(48.6
|
)
|
|
(3,115.6
|
)
|
|
Less: accumulated other comprehensive income attributable to noncontrolling interests
|
|
(27.3
|
)
|
|
Accumulated other comprehensive income attributable to controlling interests
|
|
$
|
(3,088.3
|
)
|
|
For the Three-Month Period Ended September 28, 2018:
|
|
|
|
Balance, June 29, 2018
|
$
|
(1,812.9
|
)
|
|
$
|
(664.6
|
)
|
|
$
|
(1.7
|
)
|
|
$
|
—
|
|
|
$
|
(2,479.2
|
)
|
|
Other comprehensive income (loss) before reclassifications:
|
|
|
|
|
|
|
|
|
|
|
Decrease
|
(162.4
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(162.4
|
)
|
|
Income tax impact
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Other comprehensive income (loss) before reclassifications, net of income taxes
|
(162.4
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(162.4
|
)
|
|
Amounts reclassified from accumulated other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
Increase
|
—
|
|
|
7.7
|
|
(a)
|
—
|
|
|
—
|
|
|
7.7
|
|
|
Income tax impact
|
—
|
|
|
(1.8
|
)
|
|
—
|
|
|
—
|
|
|
(1.8
|
)
|
|
Amounts reclassified from accumulated other comprehensive income (loss), net of income taxes
|
—
|
|
|
5.9
|
|
|
—
|
|
|
—
|
|
|
5.9
|
|
|
Net current period other comprehensive income (loss), net of income taxes
|
(162.4
|
)
|
|
5.9
|
|
|
—
|
|
|
—
|
|
|
(156.5
|
)
|
|
Balance, September 28, 2018
|
$
|
(1,975.3
|
)
|
|
$
|
(658.7
|
)
|
|
$
|
(1.7
|
)
|
|
$
|
—
|
|
|
$
|
(2,635.7
|
)
|
|
(a) This accumulated other comprehensive income (loss) component is included in the computation of net periodic pension cost. Refer to Note 10 for additional details.
(b) Accumulated other comprehensive income (loss) for the three-month period ended September 27, 2019 consists of $270.1 million of accumulated other comprehensive loss attributable to controlling interest and $1.2 million of accumulated other comprehensive loss attributable to noncontrolling interest.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency Translation Adjustments
|
|
Pension & Postretirement Plan Benefit Adjustments
|
|
Unrealized Gain (Loss) on Available-For-Sale Securities Adjustments
|
|
Cash Flow Hedge Adjustments
|
|
Total
|
|
For the Nine-Month Period Ended September 27, 2019:
|
|
|
|
Balance, December 31, 2018
|
$
|
(2,098.1
|
)
|
|
$
|
(691.1
|
)
|
|
$
|
(1.9
|
)
|
|
$
|
—
|
|
|
$
|
(2,791.1
|
)
|
|
Other comprehensive income (loss) before reclassifications:
|
|
|
|
|
|
|
|
|
|
|
(Decrease) increase
|
(286.0
|
)
|
|
—
|
|
|
1.8
|
|
|
(64.0
|
)
|
|
(348.2
|
)
|
|
Income tax impact
|
(7.1
|
)
|
|
—
|
|
|
(0.4
|
)
|
|
15.4
|
|
|
7.9
|
|
|
Other comprehensive income (loss) before reclassifications, net of income taxes
|
(293.1
|
)
|
|
—
|
|
|
1.4
|
|
|
(48.6
|
)
|
|
(340.3
|
)
|
|
Amounts reclassified from accumulated other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
Increase
|
—
|
|
|
20.7
|
|
(a)
|
—
|
|
|
—
|
|
|
20.7
|
|
|
Income tax impact
|
—
|
|
|
(4.9
|
)
|
|
—
|
|
|
—
|
|
|
(4.9
|
)
|
|
Amounts reclassified from accumulated other comprehensive income (loss), net of income taxes
|
—
|
|
|
15.8
|
|
|
—
|
|
|
—
|
|
|
15.8
|
|
|
Net current period other comprehensive income (loss), net of income taxes
|
(293.1
|
)
|
|
15.8
|
|
|
1.4
|
|
|
(48.6
|
)
|
|
(324.5
|
)
|
(b)
|
Balance, September 27, 2019
|
$
|
(2,391.2
|
)
|
|
$
|
(675.3
|
)
|
|
$
|
(0.5
|
)
|
|
$
|
(48.6
|
)
|
|
(3,115.6
|
)
|
|
Less: accumulated other comprehensive income attributable to noncontrolling interests
|
|
(27.3
|
)
|
|
Accumulated other comprehensive income attributable to controlling interests
|
|
$
|
(3,088.3
|
)
|
|
For the Nine-Month Period Ended September 28, 2018:
|
|
|
|
Balance, December 31, 2017
|
$
|
(1,422.1
|
)
|
|
$
|
(571.2
|
)
|
|
$
|
(0.9
|
)
|
|
$
|
—
|
|
|
$
|
(1,994.2
|
)
|
|
Adoption of accounting standards
|
(43.8
|
)
|
|
(107.2
|
)
|
|
(0.2
|
)
|
|
—
|
|
|
(151.2
|
)
|
|
Balance, January 1, 2018
|
(1,465.9
|
)
|
|
(678.4
|
)
|
|
(1.1
|
)
|
|
—
|
|
|
(2,145.4
|
)
|
|
Other comprehensive income (loss) before reclassifications:
|
|
|
|
|
|
|
|
|
|
|
Decrease
|
(509.4
|
)
|
|
—
|
|
|
(0.8
|
)
|
|
—
|
|
|
(510.2
|
)
|
|
Income tax impact
|
—
|
|
|
—
|
|
|
0.2
|
|
|
—
|
|
|
0.2
|
|
|
Other comprehensive income (loss) before reclassifications, net of income taxes
|
(509.4
|
)
|
|
—
|
|
|
(0.6
|
)
|
|
—
|
|
|
(510.0
|
)
|
|
Amounts reclassified from accumulated other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
Increase
|
—
|
|
|
25.8
|
|
(a)
|
—
|
|
|
—
|
|
|
25.8
|
|
|
Income tax impact
|
—
|
|
|
(6.1
|
)
|
|
—
|
|
|
—
|
|
|
(6.1
|
)
|
|
Amounts reclassified from accumulated other comprehensive income (loss), net of income taxes
|
—
|
|
|
19.7
|
|
|
—
|
|
|
—
|
|
|
19.7
|
|
|
Net current period other comprehensive income (loss), net of income taxes
|
(509.4
|
)
|
|
19.7
|
|
|
(0.6
|
)
|
|
—
|
|
|
(490.3
|
)
|
|
Balance, September 28, 2018
|
$
|
(1,975.3
|
)
|
|
$
|
(658.7
|
)
|
|
$
|
(1.7
|
)
|
|
$
|
—
|
|
|
$
|
(2,635.7
|
)
|
|
(a) This accumulated other comprehensive income (loss) component is included in the computation of net periodic pension cost. Refer to Note 10 for additional details.
(b) Accumulated other comprehensive income (loss) for the nine-month period ended September 27, 2019 consists of $323.3 million of accumulated other comprehensive loss attributable to controlling interest and $1.2 million of accumulated other comprehensive loss attributable to noncontrolling interest.
NOTE 2. REVENUE
The following tables present the Company’s revenues disaggregated by geographical region and revenue type for the three and nine-month periods ended September 27, 2019 and September 28, 2018 ($ in millions). Sales taxes and other usage-based taxes collected from customers are excluded from revenue.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life Sciences
|
|
Diagnostics
|
|
Dental / Envista
|
|
Environmental & Applied Solutions
|
|
Total
|
Three-month period ended September 27, 2019:
|
|
|
|
|
|
|
|
|
|
Geographical region:
|
|
|
|
|
|
|
|
|
|
North America
|
$
|
637.2
|
|
|
$
|
602.9
|
|
|
$
|
327.7
|
|
|
$
|
465.5
|
|
|
$
|
2,033.3
|
|
Western Europe
|
444.1
|
|
|
257.9
|
|
|
127.5
|
|
|
252.8
|
|
|
1,082.3
|
|
Other developed markets
|
149.2
|
|
|
108.4
|
|
|
45.6
|
|
|
32.5
|
|
|
335.7
|
|
High-growth markets (a)
|
465.1
|
|
|
632.7
|
|
|
158.5
|
|
|
329.7
|
|
|
1,586.0
|
|
Total
|
$
|
1,695.6
|
|
|
$
|
1,601.9
|
|
|
$
|
659.3
|
|
|
$
|
1,080.5
|
|
|
$
|
5,037.3
|
|
|
|
|
|
|
|
|
|
|
|
Revenue type:
|
|
|
|
|
|
|
|
|
|
Recurring
|
$
|
1,084.3
|
|
|
$
|
1,343.2
|
|
|
$
|
479.4
|
|
|
$
|
595.2
|
|
|
$
|
3,502.1
|
|
Nonrecurring
|
611.3
|
|
|
258.7
|
|
|
179.9
|
|
|
485.3
|
|
|
1,535.2
|
|
Total
|
$
|
1,695.6
|
|
|
$
|
1,601.9
|
|
|
$
|
659.3
|
|
|
$
|
1,080.5
|
|
|
$
|
5,037.3
|
|
|
|
|
|
|
|
|
|
|
|
Three-month period ended September 28, 2018:
|
|
|
|
|
|
|
|
|
|
Geographical region:
|
|
|
|
|
|
|
|
|
|
North America
|
$
|
584.0
|
|
|
$
|
574.0
|
|
|
$
|
339.8
|
|
|
$
|
439.7
|
|
|
$
|
1,937.5
|
|
Western Europe
|
447.1
|
|
|
262.3
|
|
|
137.2
|
|
|
257.5
|
|
|
1,104.1
|
|
Other developed markets
|
134.5
|
|
|
91.8
|
|
|
42.5
|
|
|
31.0
|
|
|
299.8
|
|
High-growth markets (a)
|
431.1
|
|
|
574.4
|
|
|
160.0
|
|
|
346.2
|
|
|
1,511.7
|
|
Total
|
$
|
1,596.7
|
|
|
$
|
1,502.5
|
|
|
$
|
679.5
|
|
|
$
|
1,074.4
|
|
|
$
|
4,853.1
|
|
|
|
|
|
|
|
|
|
|
|
Revenue type:
|
|
|
|
|
|
|
|
|
|
Recurring
|
$
|
1,030.9
|
|
|
$
|
1,273.3
|
|
|
$
|
478.2
|
|
|
$
|
571.1
|
|
|
$
|
3,353.5
|
|
Nonrecurring
|
565.8
|
|
|
229.2
|
|
|
201.3
|
|
|
503.3
|
|
|
1,499.6
|
|
Total
|
$
|
1,596.7
|
|
|
$
|
1,502.5
|
|
|
$
|
679.5
|
|
|
$
|
1,074.4
|
|
|
$
|
4,853.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life Sciences
|
|
Diagnostics
|
|
Dental / Envista
|
|
Environmental & Applied Solutions
|
|
Total
|
Nine-month period ended September 27, 2019:
|
|
|
|
|
|
|
|
|
|
Geographical region:
|
|
|
|
|
|
|
|
|
|
North America
|
$
|
1,878.1
|
|
|
$
|
1,836.3
|
|
|
$
|
966.4
|
|
|
$
|
1,403.0
|
|
|
$
|
6,083.8
|
|
Western Europe
|
1,363.7
|
|
|
828.5
|
|
|
443.7
|
|
|
774.1
|
|
|
3,410.0
|
|
Other developed markets
|
436.1
|
|
|
295.6
|
|
|
131.0
|
|
|
92.7
|
|
|
955.4
|
|
High-growth markets (a)
|
1,357.2
|
|
|
1,796.6
|
|
|
490.0
|
|
|
980.8
|
|
|
4,624.6
|
|
Total
|
$
|
5,035.1
|
|
|
$
|
4,757.0
|
|
|
$
|
2,031.1
|
|
|
$
|
3,250.6
|
|
|
$
|
15,073.8
|
|
|
|
|
|
|
|
|
|
|
|
Revenue type:
|
|
|
|
|
|
|
|
|
|
Recurring
|
$
|
3,264.4
|
|
|
$
|
4,047.9
|
|
|
$
|
1,489.3
|
|
|
$
|
1,770.2
|
|
|
$
|
10,571.8
|
|
Nonrecurring
|
1,770.7
|
|
|
709.1
|
|
|
541.8
|
|
|
1,480.4
|
|
|
4,502.0
|
|
Total
|
$
|
5,035.1
|
|
|
$
|
4,757.0
|
|
|
$
|
2,031.1
|
|
|
$
|
3,250.6
|
|
|
$
|
15,073.8
|
|
|
|
|
|
|
|
|
|
|
|
Nine-month period ended September 28, 2018:
|
|
|
|
|
|
|
|
|
|
Geographical region:
|
|
|
|
|
|
|
|
|
|
North America
|
$
|
1,642.4
|
|
|
$
|
1,760.1
|
|
|
$
|
977.2
|
|
|
$
|
1,308.7
|
|
|
$
|
5,688.4
|
|
Western Europe
|
1,346.5
|
|
|
861.4
|
|
|
483.3
|
|
|
785.5
|
|
|
3,476.7
|
|
Other developed markets
|
417.9
|
|
|
275.3
|
|
|
133.5
|
|
|
94.9
|
|
|
921.6
|
|
High-growth markets (a)
|
1,271.1
|
|
|
1,676.3
|
|
|
491.5
|
|
|
1,003.9
|
|
|
4,442.8
|
|
Total
|
$
|
4,677.9
|
|
|
$
|
4,573.1
|
|
|
$
|
2,085.5
|
|
|
$
|
3,193.0
|
|
|
$
|
14,529.5
|
|
|
|
|
|
|
|
|
|
|
|
Revenue type:
|
|
|
|
|
|
|
|
|
|
Recurring
|
$
|
3,057.3
|
|
|
$
|
3,892.8
|
|
|
$
|
1,513.5
|
|
|
$
|
1,702.7
|
|
|
$
|
10,166.3
|
|
Nonrecurring
|
1,620.6
|
|
|
680.3
|
|
|
572.0
|
|
|
1,490.3
|
|
|
4,363.2
|
|
Total
|
$
|
4,677.9
|
|
|
$
|
4,573.1
|
|
|
$
|
2,085.5
|
|
|
$
|
3,193.0
|
|
|
$
|
14,529.5
|
|
(a) The Company defines high-growth markets as developing markets of the world experiencing extended periods of accelerated growth in gross domestic product and infrastructure which include Eastern Europe, the Middle East, Africa, Latin America and Asia (with the exception of Japan and Australia). The Company defines developed markets as all markets that are not high-growth markets.
The Company sells equipment to customers as well as consumables, spare parts, software licenses and services, some of which customers purchase on a recurring basis. In most of the Company’s businesses, consumables are typically critical to the use of the equipment and are typically used on a one-time or limited basis, requiring frequent replacement in the customer’s operating cycle. Examples of these consumables include reagents used in diagnostic tests, filters used in filtration, separation and purification processes and cartridges for marking and coding equipment. Additionally, some of the Company’s consumables are used on a standalone basis, such as dental implants and water treatment solutions. The Company separates its goods and services between those sold on a recurring basis and those sold on a nonrecurring basis. Recurring revenue includes revenue from consumables, services, spare parts, software licenses recognized over time, software-as-a-service, sales-and-usage based royalties and OTLs. Nonrecurring revenue includes sales from equipment, software licenses recognized at a point in time and STLs. OTLs and STLs are included in the above revenue amounts. For the three-month periods ended September 27, 2019 and September 28, 2018, revenue accounted for under ASC 842 and ASC 840 was $108 million and $115 million, respectively. For the nine-month periods ended September 27, 2019 and September 28, 2018, revenue accounted for under ASC 842 and ASC 840 was $321 million and $308 million, respectively.
Remaining performance obligations related to Topic 606, Revenue from Contracts with Customers (“ASC 606”) represent the aggregate transaction price allocated to performance obligations with an original contract term greater than one year which are fully or partially unsatisfied at the end of the period. As of September 27, 2019, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $2.0 billion. The Company expects to recognize revenue on
approximately 39% of the remaining performance obligations over the next 12 months, 25% over the subsequent 12 months, and the remainder thereafter.
The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (contract assets) and deferred revenue, customer deposits and billings in excess of revenue recognized (contract liabilities) on the Consolidated Condensed Balance Sheets. Most of the Company’s long-term contracts are billed as work progresses in accordance with the contract terms and conditions, either at periodic intervals or upon achievement of certain milestones. Often this results in billing occurring subsequent to revenue recognition resulting in contract assets. Contract assets are generally classified as other current assets in the Consolidated Condensed Balance Sheets. The balance of contract assets as of September 27, 2019 and December 31, 2018 were $77 million and $82 million, respectively.
The Company often receives cash payments from customers in advance of the Company’s performance resulting in contract liabilities. These contract liabilities are classified as either current or long-term in the Consolidated Condensed Balance Sheets based on the timing of when the Company expects to recognize revenue. As of September 27, 2019 and December 31, 2018, contract liabilities were $801 million and $799 million, respectively, and are included within accrued expenses and other liabilities and other long-term liabilities in the accompanying Consolidated Condensed Balance Sheets. Revenue recognized during the nine-month periods ended September 27, 2019 and September 28, 2018 that was included in the contract liability balance on December 31, 2018 and at the date of adoption of ASC 606 on January 1, 2018 was $544 million and $568 million, respectively. Contract assets and liabilities are reported on the accompanying Consolidated Condensed Balance Sheets on a contract-by-contract basis.
NOTE 3. ACQUISITIONS
For a description of the Company’s acquisition activity for the year ended December 31, 2018, reference is made to the financial statements as of and for the year ended December 31, 2018 and Note 3 thereto included in the Company’s 2018 Annual Report.
The Company continually evaluates potential acquisitions that either strategically fit with the Company’s existing portfolio or expand the Company’s portfolio into a new and attractive business area. The Company has completed a number of acquisitions that have been accounted for as purchases and have resulted in the recognition of goodwill in the Company’s financial statements. This goodwill arises because the purchase prices for these businesses reflect a number of factors including the future earnings and cash flow potential of these businesses, the multiple to earnings, cash flow and other factors at which similar businesses have been purchased by other acquirers, the competitive nature of the processes by which the Company acquired the businesses, avoidance of the time and costs which would be required (and the associated risks that would be encountered) to enhance the Company’s existing product offerings to key target markets and enter into new and profitable businesses and the complementary strategic fit and resulting synergies these businesses bring to existing operations.
The Company makes an initial allocation of the purchase price at the date of acquisition based upon its understanding of the fair value of the acquired assets and assumed liabilities. The Company obtains this information during due diligence and through other sources. In the months after closing, as the Company obtains additional information about these assets and liabilities, including through tangible and intangible asset appraisals, and learns more about the newly acquired business, it is able to refine the estimates of fair value and more accurately allocate the purchase price. Only items identified as of the acquisition date are considered for subsequent adjustment. The Company is continuing to evaluate certain pre-acquisition contingencies associated with its 2019 acquisitions and is also in the process of obtaining valuations of acquired intangible assets and certain acquisition-related liabilities in connection with these acquisitions. The Company will make appropriate adjustments to the purchase price allocation prior to completion of the measurement period, as required.
During the nine-month period ended September 27, 2019, the Company acquired five businesses for total consideration of $331 million in cash, net of cash acquired. The businesses acquired complement existing units of the Life Sciences, Diagnostics and Environmental & Applied Solutions segments. The aggregate annual sales of these businesses at the time of their acquisition, based on the companies’ revenues for their last completed fiscal year prior to the acquisition, were $72 million. The Company preliminarily recorded an aggregate of $215 million of goodwill related to these acquisitions.
The following summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition for the acquisitions consummated during the nine-month period ended September 27, 2019 ($ in millions):
|
|
|
|
|
Trade accounts receivable
|
$
|
8.6
|
|
Inventories
|
8.8
|
|
Property, plant and equipment
|
3.9
|
|
Goodwill
|
214.9
|
|
Other intangible assets, primarily customer relationships, trade names and technology
|
112.3
|
|
Trade accounts payable
|
(2.8
|
)
|
Other assets and liabilities, net
|
(14.6
|
)
|
Net cash consideration
|
$
|
331.1
|
|
Pro Forma Financial Information
The unaudited pro forma information for the periods set forth below gives effect to the 2019 and 2018 acquisitions as if they had occurred as of January 1, 2018. The pro forma information is presented for informational purposes only and is not necessarily indicative of the results of operations that actually would have been achieved had the acquisitions been consummated as of that time ($ in millions, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Period Ended
|
|
Nine-Month Period Ended
|
|
September 27, 2019
|
|
September 28, 2018
|
|
September 27, 2019
|
|
September 28, 2018
|
Sales
|
$
|
5,037.3
|
|
|
$
|
4,873.4
|
|
|
$
|
15,082.6
|
|
|
$
|
14,685.8
|
|
Net earnings attributable to common stockholders
|
648.4
|
|
|
658.1
|
|
|
1,681.2
|
|
|
1,888.5
|
|
Diluted net earnings per share
|
0.89
|
|
|
0.93
|
|
|
2.32
|
|
|
2.66
|
|
Acquisition-related transaction costs of $15 million associated with the IDT acquisition were excluded from pro forma earnings in 2018.
Pending Acquisition
On February 25, 2019, the Company entered into an Equity and Asset Purchase Agreement (the “GE Biopharma Purchase Agreement”) with GE to acquire the GE Biopharma Business for a cash purchase price of approximately $21.0 billion, subject to certain adjustments, and the assumption of approximately $0.4 billion of pension liabilities (the “GE Biopharma Acquisition”). The GE Biopharma Business is a leading provider of instruments, consumables and software that support the research, discovery, process development and manufacturing workflows of biopharmaceutical drugs. Based on audited carve-out financial statements provided by GE, the GE Biopharma Business generated revenues of approximately $3.0 billion in 2018. The Company expects to include the GE Biopharma Business within the Life Sciences segment. The GE Biopharma Acquisition is expected to provide additional sales and earnings growth opportunities for the Company’s Life Sciences segment by expanding the business’ geographic and product line diversity, including new product and service offerings that complement the Company’s current biologics workflow solutions. As a condition to obtaining certain regulatory approvals for the closing of the transaction, the Company will be required to divest certain of its existing product lines. In furtherance thereof, on October 18, 2019, the Company signed an agreement to sell certain of its product lines, contingent upon the Company closing the GE Biopharma Acquisition. These product lines had annual revenue in 2018 of $140 million. Though the timing of obtaining the regulatory approvals necessary to close the GE Biopharma Acquisition is uncertain, the Company continues to make progress with respect thereto and expects to close the transaction in the first quarter of 2020.
The Company expects to finance the GE Biopharma Acquisition with approximately $3.0 billion of proceeds from the March 1, 2019 underwritten public offerings of its Common Stock and Mandatory Convertible Preferred Stock (“MCPS”), proceeds from the September 2019 issuance of debt, proceeds from the issuance of additional debt or other borrowings and available cash on hand. Refer to Note 8 for additional information related to the issuance of debt and to Note 14 for additional information related to the March 1, 2019 public offerings.
NOTE 4. ENVISTA INITIAL PUBLIC OFFERING
On September 20, 2019, Envista, a subsidiary of the Company, completed an underwritten initial public offering (the “Envista IPO”) of 30.8 million shares of its common stock, which represents 19.4% of Envista’s outstanding shares, at a public offering
price of $22.00 per share (the “IPO price”). Envista shares trade on the New York Stock Exchange under the symbol “NVST”. Envista realized net proceeds of $643 million from the Envista IPO, after deducting underwriting discounts and deal expenses.
In connection with the completion of the Envista IPO, through a series of equity and other transactions, the Company transferred its dental businesses to Envista. In exchange, Envista transferred consideration of approximately $2.0 billion to the Company, which consists primarily of the net proceeds from the Envista IPO and approximately $1.3 billion of proceeds from Envista’s term debt financing. The excess of the net book value of the business transferred to Envista over the net proceeds from the IPO was $60 million and was recorded as a reduction to additional paid-in capital in the accompanying Consolidated Condensed Balance Sheet. Of the Company’s consolidated cash and cash equivalents as of September 27, 2019, $193 million is owned by Envista.
Danaher continues to consolidate Envista, as the Company owns 80.6% of Envista’s outstanding common shares and retains control over Envista. The earnings attributable to the noncontrolling interest of Envista for the period from the Envista IPO until September 27, 2019 were $6 million. As of September 27, 2019, the noncontrolling interest of $681 million associated with Envista is reflected in noncontrolling interests in the accompanying Consolidated Condensed Balance Sheet.
Danaher intends to use a portion of the consideration received from Envista to redeem $882 million in aggregate principal amount of outstanding indebtedness in the fourth quarter of 2019 (consisting of the Company’s 2.4% senior unsecured notes due 2020 and 5.0% senior unsecured notes due 2020. The Company expects the make-whole premiums required in connection with the redemption will be $7 million ($5 million after-tax or $0.01 per diluted share). The Company intends to use the balance of the consideration it received from Envista for quarterly cash dividend payments to its shareholders.
The Company intends to make a tax-free distribution to its stockholders of all or a portion of its remaining equity interest in Envista, which may include one or more distributions effected as a dividend to all Danaher stockholders, one or more distributions in exchange for Danaher shares or other securities or any combination thereof (the “Distribution”). The Company has no obligation to pursue or consummate any further dispositions of its ownership interest in Envista, including through the Distribution, by any specified date or at all. If pursued, the Distribution may be subject to various conditions, including receipt of any necessary regulatory or other approvals, the existence of satisfactory market conditions and the receipt of an opinion of counsel to the effect that the separation, together with such Distribution, will be tax-free to Danaher and its stockholders for U.S. federal income tax purposes.
NOTE 5. LEASES
The Company has operating leases for office space, warehouses, distribution centers, research and development facilities, manufacturing locations and certain equipment, primarily automobiles. Many leases include one or more options to renew, some of which include options to extend the leases for up to 30 years, and some leases include options to terminate the leases within 30 days. In certain of the Company’s lease agreements, the rental payments are adjusted periodically to reflect actual charges incurred for common area maintenance, utilities, inflation and/or changes in other indexes. The Company’s finance leases were not material as of September 27, 2019 and for both the three and nine-month periods then ended. ROU assets arising from finance leases are included in property, plant and equipment, net and the liabilities are included in notes payable and current portion of long-term debt and long-term debt in the accompanying Consolidated Condensed Balance Sheets.
The components of operating lease expense were as follows ($ in millions):
|
|
|
|
|
|
|
|
|
|
Three-Month Period Ended
|
|
Nine-Month Period Ended
|
|
September 27, 2019
|
|
September 27, 2019
|
Fixed operating lease expense (a)
|
$
|
58.7
|
|
|
$
|
178.1
|
|
Variable operating lease expense
|
13.4
|
|
|
38.3
|
|
Total operating lease expense
|
$
|
72.1
|
|
|
$
|
216.4
|
|
(a) Includes short-term leases and sublease income, both of which were immaterial.
Supplemental cash flow information related to the Company’s operating leases for the nine-month period ended September 27, 2019 was as follows ($ in millions):
|
|
|
|
|
Cash paid for amounts included in the measurement of operating lease liabilities
|
$
|
177.7
|
|
ROU assets obtained in exchange for operating lease obligations
|
165.1
|
|
The following table presents the lease balances within the Consolidated Condensed Balance Sheet, weighted average remaining
lease term and weighted average discount rates related to the Company’s operating leases as of September 27, 2019 ($ in millions):
|
|
|
|
|
|
Lease Assets and Liabilities
|
Classification
|
|
Assets:
|
|
|
Operating lease ROU assets
|
Other long-term assets
|
$
|
956.1
|
|
|
|
|
Liabilities:
|
|
|
Current:
|
|
|
Operating lease liabilities
|
Accrued expenses and other liabilities
|
$
|
182.0
|
|
Long-term:
|
|
|
Operating lease liabilities
|
Other long-term liabilities
|
817.0
|
|
Total operating lease liabilities
|
|
$
|
999.0
|
|
|
|
|
Weighted average remaining lease term
|
7 years
|
|
Weighted average discount rate
|
3.1
|
%
|
The following table presents the maturity of the Company’s operating lease liabilities as of September 27, 2019 ($ in millions):
|
|
|
|
|
Remainder of 2019
|
$
|
55.8
|
|
2020
|
197.3
|
|
2021
|
160.4
|
|
2022
|
140.6
|
|
2023
|
122.0
|
|
Thereafter
|
460.3
|
|
Total operating lease payments
|
1,136.4
|
|
Less: imputed interest
|
137.4
|
|
Total operating lease liabilities
|
$
|
999.0
|
|
As of September 27, 2019, the Company had no additional significant operating or finance leases that had not yet commenced.
NOTE 6. GOODWILL
The following is a rollforward of the Company’s goodwill ($ in millions):
|
|
|
|
|
Balance, December 31, 2018
|
$
|
25,906.0
|
|
Attributable to 2019 acquisitions
|
214.9
|
|
Adjustments due to finalization of purchase price allocations
|
(6.9
|
)
|
Foreign currency translation and other
|
(389.2
|
)
|
Balance, September 27, 2019
|
$
|
25,724.8
|
|
The carrying value of goodwill by segment is summarized as follows ($ in millions):
|
|
|
|
|
|
|
|
|
|
September 27, 2019
|
|
December 31, 2018
|
Life Sciences
|
$
|
13,300.2
|
|
|
$
|
13,311.0
|
|
Diagnostics
|
6,829.9
|
|
|
6,925.6
|
|
Dental / Envista
|
3,283.2
|
|
|
3,325.5
|
|
Environmental & Applied Solutions
|
2,311.5
|
|
|
2,343.9
|
|
Total
|
$
|
25,724.8
|
|
|
$
|
25,906.0
|
|
The Company has not identified any “triggering” events which indicate an impairment of goodwill in the nine-month period ended September 27, 2019.
NOTE 7. FAIR VALUE MEASUREMENTS
Accounting standards define fair value based on an exit price model, establish a framework for measuring fair value where the Company’s assets and liabilities are required to be carried at fair value and provide for certain disclosures related to the valuation methods used within a valuation hierarchy as established within the accounting standards. This hierarchy prioritizes the inputs into three broad levels as follows. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets in markets that are not active, or other observable characteristics for the asset or liability, including interest rates, yield curves and credit risks, or inputs that are derived principally from, or corroborated by, observable market data through correlation. Level 3 inputs are unobservable inputs based on the Company’s assumptions. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement in its entirety.
A summary of financial assets and liabilities that are measured at fair value on a recurring basis were as follows ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in Active Market (Level 1)
|
|
Significant Other Observable Inputs (Level 2)
|
|
Significant Unobservable Inputs (Level 3)
|
|
Total
|
September 27, 2019:
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
Available-for-sale debt securities
|
$
|
—
|
|
|
$
|
35.7
|
|
|
$
|
—
|
|
|
$
|
35.7
|
|
Investment in equity securities
|
—
|
|
|
—
|
|
|
314.4
|
|
|
314.4
|
|
Cross-currency swap derivative contracts
|
—
|
|
|
36.8
|
|
|
—
|
|
|
36.8
|
|
Liabilities:
|
|
|
|
|
|
|
|
Interest rate swap derivative contracts
|
—
|
|
|
64.0
|
|
|
—
|
|
|
64.0
|
|
Deferred compensation plans
|
—
|
|
|
64.6
|
|
|
—
|
|
|
64.6
|
|
|
|
|
|
|
|
|
|
December 31, 2018:
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
Available-for-sale debt securities
|
$
|
—
|
|
|
$
|
38.3
|
|
|
$
|
—
|
|
|
$
|
38.3
|
|
Investment in equity securities
|
—
|
|
|
—
|
|
|
148.9
|
|
|
148.9
|
|
Liabilities:
|
|
|
|
|
|
|
|
Deferred compensation plans
|
—
|
|
|
60.9
|
|
|
—
|
|
|
60.9
|
|
Available-for-sale debt securities, which are included in other long-term assets in the accompanying Consolidated Condensed Balance Sheets, are measured at fair value using quoted prices reported by investment brokers and dealers based on the underlying terms of the security and comparison to similar securities traded on an active market. As of September 27, 2019, available-for-sale debt securities primarily include U.S. Treasury Notes and corporate debt securities, which are valued based on instruments with similar terms traded on an active market.
The Company’s investments in equity securities are classified as Level 3 in the fair value hierarchy because the Company estimates the fair value based on the measurement alternative and adjusts for impairments and observable price changes with a same or similar security from the same issuer within net earnings (the “Fair Value Alternative”). The investments in equity securities includes investments that the Company has made as a limited partner in a partnership for which the underlying investments are recorded on a fair value basis.
The cross-currency swap derivative contracts are used to partially hedge the Company’s net investments in foreign operations against adverse movements in exchange rates between the U.S. dollar and the Danish kroner, Japanese yen, euro and Swiss franc. Envista uses cross-currency swap derivative contracts to partially hedge its net investment in foreign operations against adverse movements in exchange rates between the U.S. dollar and the euro. The cross-currency swap derivative contracts are classified as Level 2 in the fair value hierarchy as they are measured using the income approach with the relevant interest rates and foreign currency current exchange rates and forward curves as inputs. Refer to Note 9 for additional information.
In June 2019, the Company entered into interest rate swap agreements with a notional amount of $850 million which represents a portion of the amount of U.S. dollar-denominated bonds (with terms ranging from 10 to 30 years) the Company anticipates issuing to finance a portion of the GE Biopharma Acquisition. These contracts effectively fixed the interest rate for a portion of the Company’s anticipated U.S. dollar-denominated debt issuance equal to the notional amount of the swaps to the rate specified in the interest rate swap agreements. In September 2019, Envista entered into $650 million of interest rate swap derivative contracts to convert the variable interest rate for the Envista Term Loan Facility to a fixed interest rate. The interest rate swap derivative contracts are classified as Level 2 in the fair value hierarchy as they are measured using the income approach, based on the relevant interest rate yield curves. Refer to Note 8 and Note 9 for additional information.
The Company has established nonqualified contribution and deferred compensation programs that permit the Company to make tax-deferred contributions to officers and certain other employees, and also permit directors, officers and certain other employees to voluntarily defer taxation on a portion of their compensation. All amounts contributed or deferred under such plans are unfunded, unsecured obligations of the Company and are presented as a component of the Company’s compensation and benefits accrual included in other long-term liabilities in the accompanying Consolidated Condensed Balance Sheets. Non-director participants may choose among alternative earning rates for the amounts they defer, which are primarily based on investment options within the Company’s 401(k) program. Changes in the deferred compensation liability under these programs are recognized based on changes in the fair value of the participants’ accounts, which are based on the applicable earnings rates. Amounts voluntarily deferred by directors and amounts unilaterally contributed to participant accounts by the Company are deemed invested in the Company’s common stock and future distributions of such contributions (as well as future distributions of any voluntary deferrals allocated at any time to the Danaher common stock investment option) will be made solely in shares of Company common stock, and therefore are not reflected in the above amounts.
Fair Value of Financial Instruments
The carrying amounts and fair values of the Company’s financial instruments were as follows ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 27, 2019
|
|
December 31, 2018
|
|
Carrying Amount
|
|
Fair Value
|
|
Carrying Amount
|
|
Fair Value
|
Assets:
|
|
|
|
|
|
|
|
Available-for-sale debt securities
|
$
|
35.7
|
|
|
$
|
35.7
|
|
|
$
|
38.3
|
|
|
$
|
38.3
|
|
Investment in equity securities
|
314.4
|
|
|
314.4
|
|
|
148.9
|
|
|
148.9
|
|
Cross-currency swap derivative contracts
|
36.8
|
|
|
36.8
|
|
|
—
|
|
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
|
Interest rate swap derivative contracts
|
64.0
|
|
|
64.0
|
|
|
—
|
|
|
—
|
|
Notes payable and current portion of long-term debt
|
1,068.6
|
|
|
1,068.6
|
|
|
51.8
|
|
|
51.8
|
|
Long-term debt
|
16,536.2
|
|
|
17,045.5
|
|
|
9,688.5
|
|
|
9,990.6
|
|
As of September 27, 2019 and December 31, 2018, investments in non-marketable equity securities were categorized as Level 3, available-for-sale debt securities, cross-currency swap derivative contracts and interest rate swap derivative contracts were categorized as Level 2 and short and long-term borrowings were categorized as Level 1.
The fair value of long-term borrowings was based on quoted market prices. The difference between the fair value and the carrying amounts of long-term borrowings (other than the Company’s Liquid Yield Option Notes due 2021 (the “LYONs”)) is attributable to changes in market interest rates and/or the Company’s credit ratings subsequent to the incurrence of the borrowing. In the case of the LYONs, differences in the fair value from the carrying value are attributable to changes in the price of the Company’s common stock due to the LYONs’ conversion features. The fair values of borrowings with original maturities of one year or less, as well as cash and cash equivalents, trade accounts receivable, net and trade accounts payable approximate their carrying amounts due to the short-term maturities of these instruments.
NOTE 8. FINANCING
As of September 27, 2019, the Company was in compliance with all of its debt covenants. The components of the Company’s debt were as follows ($ in millions):
|
|
|
|
|
|
|
|
|
|
September 27, 2019
|
|
December 31, 2018
|
U.S. dollar-denominated commercial paper
|
$
|
—
|
|
|
$
|
72.8
|
|
Euro-denominated commercial paper (€2.7 billion and €2.1 billion, respectively)
|
2,933.2
|
|
|
2,377.5
|
|
1.0% senior unsecured notes due 2019 (€600.0 million aggregate principal amount) (the “2019 Euronotes”)
|
—
|
|
|
687.0
|
|
2.4% senior unsecured notes due 2020
|
499.2
|
|
|
498.5
|
|
5.0% senior unsecured notes due 2020 (the “2020 Assumed Pall Notes”)
|
382.8
|
|
|
386.7
|
|
Zero-coupon LYONs due 2021
|
34.6
|
|
|
56.2
|
|
0.352% senior unsecured notes due 2021 (¥30.0 billion aggregate principal amount) (the “2021 Yen Notes”)
|
277.6
|
|
|
273.2
|
|
1.7% senior unsecured notes due 2022 (€800.0 million aggregate principal amount) (the “2022 Euronotes”)
|
872.6
|
|
|
913.2
|
|
Floating rate senior unsecured notes due 2022 (€250.0 million aggregate principal amount) (the “Floating Rate 2022 Euronotes”)
|
272.9
|
|
|
285.7
|
|
Envista senior unsecured term loan facility due 2022 (the “Envista Term Loan Facility”)
|
648.6
|
|
|
—
|
|
Envista senior unsecured term loan facility due 2022 (€600.0 million aggregate principal amount) (the “Envista Euro Term Loan Facility”)
|
655.6
|
|
|
—
|
|
0.5% senior unsecured bonds due 2023 (CHF 540.0 million aggregate principal amount) (the “2023 CHF Bonds”)
|
546.0
|
|
|
550.7
|
|
2.5% senior unsecured notes due 2025 (€800.0 million aggregate principal amount) (the “2025 Euronotes”)
|
871.7
|
|
|
912.6
|
|
3.35% senior unsecured notes due 2025
|
497.1
|
|
|
496.8
|
|
0.2% senior unsecured notes due 2026 (€1.3 billion aggregate principal amount) (the “2026 Biopharma Euronotes”)
|
1,357.5
|
|
|
—
|
|
0.3% senior unsecured notes due 2027 (¥30.8 billion aggregate principal amount) (the “2027 Yen Notes”)
|
284.4
|
|
|
279.9
|
|
1.2% senior unsecured notes due 2027 (€600.0 million aggregate principal amount) (the “2027 Euronotes”)
|
651.5
|
|
|
682.0
|
|
0.45% senior unsecured notes due 2028 (€1.3 billion aggregate principal amount) (the “2028 Biopharma Euronotes”)
|
1,355.6
|
|
|
—
|
|
1.125% senior unsecured bonds due 2028 (CHF 210.0 million aggregate principal amount) (the “2028 CHF Bonds”)
|
216.0
|
|
|
218.1
|
|
0.75% senior unsecured notes due 2031 (€1.8 billion aggregate principal amount) (the “2031 Biopharma Euronotes”)
|
1,900.7
|
|
|
—
|
|
0.65% senior unsecured notes due 2032 (¥53.2 billion aggregate principal amount) (the “2032 Yen Notes”)
|
491.1
|
|
|
483.4
|
|
1.35% senior unsecured notes due 2039 (€1.3 billion aggregate principal amount) (the “2039 Biopharma Euronotes”)
|
1,349.2
|
|
|
—
|
|
4.375% senior unsecured notes due 2045
|
499.4
|
|
|
499.3
|
|
1.8% senior unsecured notes due 2049 (€750.0 million aggregate principal amount) (the “2049 Biopharma Euronotes”)
|
810.3
|
|
|
—
|
|
Other
|
197.2
|
|
|
66.7
|
|
Total debt
|
17,604.8
|
|
|
9,740.3
|
|
Less: currently payable
|
1,068.6
|
|
|
51.8
|
|
Long-term debt
|
$
|
16,536.2
|
|
|
$
|
9,688.5
|
|
For additional details regarding the Company’s debt financing, refer to Note 10 of the Company’s financial statements as of and for the year ended December 31, 2018 included in the Company’s 2018 Annual Report.
The Company satisfies any short-term liquidity needs that are not met through operating cash flow and available cash primarily through issuances of commercial paper under its U.S. dollar and euro-denominated commercial paper programs. Until August
27, 2019, credit support for the commercial paper programs was generally provided by the Company’s $4.0 billion unsecured, multi-year revolving credit facility with a syndicate of banks that was scheduled to expire on July 10, 2020 (the “Superseded Credit Facility”), which was also available for working capital and other general corporate purposes. During the duration of the Superseded Credit Facility, no borrowings were outstanding under the Superseded Credit Facility and the Company was in compliance with all covenants thereunder. Effective as of August 27, 2019, credit support for the Company’s U.S. dollar and euro-denominated commercial paper programs is provided by the 2020 Credit Facilities, as described below. In addition, the Company has also entered into reimbursement agreements with various commercial banks to support the issuance of letters of credit.
As of September 27, 2019, borrowings outstanding under the Company’s euro-denominated commercial paper program had a weighted average annual interest rate of negative 0.2% and a weighted average remaining maturity of approximately 42 days. There were no borrowings outstanding under the Company’s U.S. dollar-denominated commercial paper program as of September 27, 2019.
The Company repaid the €600 million aggregate principal amount of the 2019 Euronotes and accrued interest upon their maturity on July 8, 2019 using proceeds from the issuance of euro-denominated commercial paper. The Company has classified the 2.4% senior unsecured notes due 2020 and the 2020 Assumed Pall Notes as short-term debt as of September 27, 2019 since the Company plans to extinguish these obligations in the fourth quarter of 2019 (refer to Note 4 for additional information). The Company has classified approximately $2.9 billion of its borrowings outstanding under the euro-denominated commercial paper program as of September 27, 2019 as long-term debt in the accompanying Consolidated Condensed Balance Sheet as the Company had the intent and ability, as supported by availability under the 2020 Credit Facilities, to refinance these borrowings for at least one year from the balance sheet date.
Debt discounts, premiums and debt issuance costs totaled $86 million and $19 million as of September 27, 2019 and December 31, 2018, respectively, and have been netted against the aggregate principal amounts of the related debt in the components of debt table above.
2019 Debt Issuances
Long-Term Indebtedness Related to the Pending GE Biopharma Acquisition
On September 18, 2019, DH Europe Finance II S.a.r.l. (“Danaher International II”), a wholly-owned finance subsidiary of the Company, completed the underwritten public offering of senior unsecured notes due 2026, 2028, 2031, 2039 and 2049 (collectively the “Biopharma Euronotes”). The following summarizes the key terms of the offering (€ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate Principal Amount
|
|
Stated Annual Interest Rate
|
|
Issue Price (as % of Principal Amount)
|
|
Maturity Date
|
|
Interest Payment Dates (in arrears)
|
2026 Biopharma Euronotes
|
€
|
1,250.0
|
|
|
0.200
|
%
|
|
99.833
|
%
|
|
March 18, 2026
|
|
March 18
|
2028 Biopharma Euronotes
|
€
|
1,250.0
|
|
|
0.450
|
%
|
|
99.751
|
%
|
|
March 18, 2028
|
|
March 18
|
2031 Biopharma Euronotes
|
€
|
1,750.0
|
|
|
0.750
|
%
|
|
99.920
|
%
|
|
September 18, 2031
|
|
September 18
|
2039 Biopharma Euronotes
|
€
|
1,250.0
|
|
|
1.350
|
%
|
|
99.461
|
%
|
|
September 18, 2039
|
|
September 18
|
2049 Biopharma Euronotes
|
€
|
750.0
|
|
|
1.800
|
%
|
|
99.564
|
%
|
|
September 18, 2049
|
|
September 18
|
The Biopharma Euronotes are fully and unconditionally guaranteed by the Company. The Company received net proceeds from the Biopharma Euronotes, after underwriting discounts and commissions and offering expenses, of approximately €6.2 billion (approximately $6.8 billion based on currency exchange rates as of the date of the pricing of the notes). The Company plans to use the proceeds from the Biopharma Euronotes to fund a portion of the pending GE Biopharma Acquisition. Pending completion of the GE Biopharma Acquisition, the Company has invested the net proceeds in short-term bank deposits and/or interest-bearing, investment-grade securities.
Long-Term Indebtedness Related to Envista
In September 2019, the Company received net cash distributions of approximately $2.0 billion from Envista as consideration for the Company’s contribution of assets to Envista in connection with the Envista IPO. Envista financed these cash payments through the issuance of common stock and proceeds from approximately $1.3 billion of term debt, consisting of $650 million aggregate principal amount of borrowings under a three-year, senior unsecured term loan facility with variable interest rates and €600 million aggregate principal amount of borrowings under a three-year, senior unsecured term loan facility with variable interest rates (together, the “Envista Debt”). In addition, Envista entered into a revolving credit agreement with a syndicate of banks providing for a five-year $250 million senior unsecured revolving credit facility (the “Envista Credit
Facility”). Envista had no borrowings outstanding under the Envista Credit Facility as of September 27, 2019. As of September 27, 2019, Danaher owns 80.6% of the common stock of Envista, and as a result, the Company consolidates Envista and therefore the Company’s Consolidated Condensed Balance Sheet as of September 27, 2019 includes the Envista Debt. As of September 27, 2019, Envista was in compliance with all covenants under the Envista Credit Facility.
364-Day and Five-Year Revolving Credit Facilities
On August 27, 2019, the Company replaced the Superseded Credit Facility with a $5.0 billion unsecured revolving credit facility with a syndicate of banks that expires on August 27, 2024, subject to a one-year extension option at the request of the Company with the consent of the lenders (the “Five-Year Facility”). The Five-Year Facility also contains an expansion option permitting Danaher to request up to five increases of up to an aggregate additional $2.5 billion from lenders that elect to make such increase available, upon the satisfaction of certain conditions. At the same time, the Company entered into a $5.0 billion 364-day unsecured revolving credit facility with a syndicate of banks that expires on August 26, 2020 (the “Scheduled Termination Date”) (the “364-Day Facility” and together with the Five-Year Facility, the “2020 Credit Facilities”), to provide additional liquidity support for issuances under the Company’s U.S. dollar and euro-denominated commercial paper programs. The Company may elect, upon the payment of a fee equal to 0.75% of the principal amount of the loans then outstanding and, upon the satisfaction of certain conditions, to convert any loans outstanding on the Scheduled Termination Date into term loans that are due and payable one year following the Scheduled Termination Date. The increase in the size of the Company’s commercial paper programs, as supported by the 2020 Credit Facilities, provides capacity for the Company to use proceeds from the commercial paper programs to fund a portion of the pending GE Biopharma Acquisition.
Borrowings under the Five-Year Facility bear interest as follows: (1) Eurocurrency Rate Committed Loans (as defined in the Five-Year Facility) bear interest at a variable rate equal to the London inter-bank offered rate plus a margin of between 58.5 and 100.0 basis points, depending on Danaher’s long-term debt credit rating; (2) Base Rate Committed Loans and Swing Line Loans (each as defined in the Five-Year Facility) bear interest at a variable rate equal to the highest of (a) the Federal funds rate (as published by the Federal Reserve Bank of New York from time to time) plus 50 basis points; (b) Bank of America’s “prime rate” as publicly announced from time to time and (c) the Eurocurrency Rate (as defined in the Five-Year Facility) plus 100 basis points; and (3) Bid Loans (as defined in the Five-Year Facility) bear interest at the rate bid by the particular lender providing such loan. In addition, Danaher is required to pay a per annum facility fee of between 4.0 and 12.5 basis points (depending on Danaher’s long-term debt credit rating) based on the aggregate commitments under the Five-Year Facility, regardless of usage.
Borrowings under the 364-Day Facility bear interest as follows: (1) Eurodollar Rate Loans (as defined in the 364-Day Facility) bear interest at a variable rate per annum equal to the London inter-bank offered rate plus a margin of between 59.5 and 100.5 basis points, depending on Danaher’s long-term debt credit rating; and (2) Base Rate Loans (as defined in the 364-Day Facility) bear interest at a variable rate per annum equal to the highest of (a) the Federal funds rate (as published by the Federal Reserve Bank of New York from time to time) plus 50 basis points, (b) Bank of America’s “prime rate” as publicly announced from time to time and (c) the Eurodollar Rate (as defined in the 364-Day Facility) plus 100 basis points, plus in each case a margin of up to 0.5 basis points depending on Danaher’s long-term debt credit rating. In addition, Danaher is required to pay a per annum facility fee of between 3.0 and 12.0 basis points (depending on Danaher’s long-term debt credit rating) based on the aggregate commitments under the 364-Day Facility, regardless of usage.
The 2020 Credit Facilities require the Company to maintain a consolidated leverage ratio (as defined in the facilities) of 0.65 to 1.00 or less. Borrowings under the 2020 Credit Facilities are prepayable at the Company’s option at any time in whole or in part without premium or penalty.
The Company’s obligations under the 2020 Credit Facilities are unsecured. The Company has unconditionally and irrevocably guaranteed the obligations of each of its subsidiaries in the event a subsidiary is named a borrower under either of the 2020 Credit Facilities. Each of the 2020 Credit Facilities contain customary representations, warranties, conditions precedent, events of default, indemnities and affirmative and negative covenants. The 2020 Credit Facilities are available for liquidity support for Danaher’s expanded U.S. dollar and euro commercial paper programs, as discussed above, and for general corporate purposes.
Guarantors of Debt
The Company has guaranteed long-term debt and commercial paper issued by certain of its wholly-owned subsidiaries. The 2019 Euronotes, 2022 Euronotes, Floating Rate 2022 Euronotes, 2025 Euronotes and 2027 Euronotes were issued by DH Europe Finance S.a.r.l., formerly known as DH Europe Finance S.A. (“Danaher International”). The 2026 Biopharma Euronotes, 2028 Biopharma Euronotes, 2031 Biopharma Euronotes, 2039 Biopharma Euronotes and 2049 Biopharma Euronotes were issued by Danaher International II. The 2023 CHF Bonds and 2028 CHF Bonds were issued by DH Switzerland Finance S.A. (“Danaher Switzerland”). The 2021 Yen Notes, 2027 Yen Notes and 2032 Yen Notes were issued by DH Japan Finance S.A. (“Danaher Japan”). Each of Danaher International, Danaher International II, Danaher Switzerland and Danaher Japan are wholly-owned finance subsidiaries of Danaher Corporation. All of the outstanding and future securities issued by each of these entities, as well as the 2020 Assumed Pall Notes, are or will be fully and unconditionally guaranteed by the Company and these guarantees rank on parity with the Company’s unsecured and unsubordinated indebtedness.
LYONs Redemption
During the nine-month period ended September 27, 2019, holders of certain of the Company’s LYONs converted such LYONs into an aggregate of 891 thousand shares of the Company’s common stock, par value $0.01 per share. The Company’s deferred tax liability of $9 million associated with the book and tax basis difference in the converted LYONs was transferred to additional paid-in capital as a result of the conversions.
NOTE 9. HEDGING TRANSACTIONS AND DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses cross-currency swap derivative contracts to partially hedge its net investments in foreign operations against adverse movements in exchange rates between the U.S. dollar and the Danish kroner, Japanese yen, euro and Swiss franc. The cross-currency swap derivative contracts are agreements to exchange fixed-rate payments in one currency for fixed-rate payments in another currency. In January 2019, the Company entered into cross-currency swap derivative contracts with respect to approximately $1.9 billion of its U.S. dollar-denominated bonds and approximately $1.0 billion of these derivative contracts remain outstanding as of September 27, 2019. These contracts effectively convert these U.S. dollar-denominated bonds to obligations denominated in Danish kroner, Japanese yen, euro and Swiss franc, and partially offset the impact of changes in currency rates on foreign currency denominated net investments. The changes in the spot rate of these instruments are recorded in accumulated other comprehensive income (loss) in stockholders’ equity, partially offsetting the foreign currency translation adjustment of the Company’s related net investment that is also recorded in accumulated other comprehensive income (loss) in the Company’s Consolidated Condensed Statements of Stockholders’ Equity. Any ineffective portions of net investment hedges are reclassified from accumulated other comprehensive income (loss) into earnings during the period of change. The interest income or expense from these swaps are recorded in interest expense in the Company’s Consolidated Condensed Statements of Earnings consistent with the classification of interest expense attributable to the underlying debt. These instruments mature on dates ranging up to September 2028.
The Company has also issued foreign currency denominated long-term debt as partial hedges of its net investments in foreign operations against adverse movements in exchange rates between the U.S. dollar and the euro, Japanese yen and Swiss franc. These foreign currency denominated long-term debt issuances are designated and qualify as nonderivative hedging instruments. Accordingly, the foreign currency translation of these debt instruments is recorded in accumulated other comprehensive income (loss) in stockholders’ equity in the accompanying Consolidated Condensed Balance Sheets, offsetting the foreign currency translation adjustment of the Company’s related net investment that is also recorded in accumulated other comprehensive income (loss). Any ineffective portions of net investment hedges are reclassified from accumulated other comprehensive income (loss) into earnings during the period of change. These instruments mature on dates ranging from September 2025 to May 2032.
The Company has used interest rate swap agreements to hedge the variability in cash flows due to changes in benchmark interest rates related to a portion of the U.S. debt the Company anticipates issuing to fund the GE Biopharma Acquisition. The interest rate swap agreements are agreements in which the Company agrees to pay a fixed interest rate based on the rate specified in the agreement in exchange for receiving a floating interest rate from a third-party bank based upon a specified benchmark interest rate. In June 2019, the Company entered into interest rate swap agreements with a notional amount of $850 million. These contracts effectively fixed the interest rate for a portion of the Company’s anticipated U.S. dollar-denominated debt issuance equal to the notional amount of the swaps to the rate specified in the interest rate swap agreements. The changes in the fair value of these instruments are recorded in accumulated other comprehensive income (loss) in stockholders’ equity and are subsequently reclassified to interest expense over the life of the related debt.
Envista uses cross-currency swap derivative contracts to partially hedge its net investments in foreign operations against adverse movements in exchange rates between the U.S. dollar and the euro. The cross-currency swap derivative contracts are
agreements to exchange fixed-rate payments in one currency for fixed-rate payments in another currency. In September 2019, Envista entered into cross-currency swap derivative contracts with respect to $650 million of the Envista Term Loan Facility and $650 million of these derivative contracts remain outstanding as of September 27, 2019. These contracts effectively convert the Envista Term Loan Facility to an obligation denominated in euro and partially offset the impact of changes in currency rates on foreign currency denominated net investments. The changes in the fair value of these instruments are recorded in accumulated other comprehensive income (loss) in equity, partially offsetting the foreign currency translation adjustment of Envista’s related net investment that is also recorded in accumulated other comprehensive income (loss). Any ineffective portions of net investment hedges are reclassified from accumulated other comprehensive income (loss) into earnings during the period of change. The interest income or expense from these swaps are recorded in interest expense, consistent with the classification of interest expense attributable to the underlying debt. These instruments mature on dates ranging from September 2020 to September 2022.
Envista issued the euro-denominated Envista Euro Credit Facility as a partial hedge of its net investments in foreign operations against adverse movements in exchange rates between the U.S. dollar and the euro. This foreign currency denominated long-term debt issuance is designated and qualifies as a nonderivative hedging instrument. Accordingly, the foreign currency translation of this debt instrument is recorded in accumulated other comprehensive income (loss) in stockholders’ equity in the accompanying Consolidated Condensed Balance Sheet, offsetting the foreign currency translation adjustment of the Company’s related net investment that is also recorded in accumulated other comprehensive income (loss). Any ineffective portions of the net investment hedge is reclassified from accumulated other comprehensive income (loss) into earnings during the period of change. This debt matures in September 2022.
In addition to the cross-currency swaps entered into by the Company in January 2019, in September 2019, Envista entered into $650 million of interest rate swap derivative contracts to convert the variable interest rate for the Envista Term Loan Facility to a fixed interest rate. The interest rate swap agreements are agreements in which Envista agrees to pay a fixed interest rate based on the rate specified in the agreement in exchange for receiving a floating interest rate from a third-party bank based upon a specified benchmark interest rate. These contracts effectively fixed the interest rate for the Envista Term Loan Facility. The changes in the fair value of these instruments are recorded in accumulated other comprehensive income (loss) in stockholders’ equity and are subsequently reclassified to interest expense over the life of the Envista Term Loan Facility.
The following table summarizes the notional values as of September 27, 2019 and pretax impact of changes in the fair values of instruments designated as net investment hedges and cash flow hedges in accumulated other comprehensive income (“OCI”) for the three and nine-month periods then ended ($ in millions):
|
|
|
|
|
|
|
|
|
|
Notional Amount
|
|
Gain (Loss) Recognized in OCI
|
For the Three-Month Period Ended September 27, 2019:
|
|
|
|
Foreign currency contracts
|
$
|
1,650.0
|
|
|
$
|
41.5
|
|
Foreign currency denominated debt
|
8,073.6
|
|
|
255.2
|
|
Interest rate swaps
|
1,500.0
|
|
|
(55.1
|
)
|
Total
|
$
|
11,223.6
|
|
|
$
|
241.6
|
|
For the Nine-Month Period Ended September 27, 2019:
|
|
|
|
Foreign currency contracts
|
$
|
1,650.0
|
|
|
$
|
36.8
|
|
Foreign currency denominated debt
|
8,073.6
|
|
|
263.5
|
|
Interest rate swaps
|
1,500.0
|
|
|
(64.0
|
)
|
Total
|
$
|
11,223.6
|
|
|
$
|
236.3
|
|
Gains or losses related to the foreign currency contracts and foreign currency denominated debt are classified as foreign currency translation adjustments in the schedule of changes in OCI in Note 1, as these items are attributable to the Company’s hedges of its net investment in foreign operations. Gains or losses related to the interest rate swaps are classified as cash flow hedge adjustments in the schedule of changes in OCI in Note 1. The Company did not reclassify any deferred gains or losses related to net investment hedges or cash flow hedges from accumulated other comprehensive income (loss) to earnings during the three or nine-month periods ended September 27, 2019. In addition, the Company did not have any ineffectiveness related to net investment hedges or interest rate swaps during the three or nine-month periods ended September 27, 2019. The cash inflows and outflows associated with the Company’s derivative contracts designated as net investment hedges are classified in all other investing activities in the accompanying Consolidated Condensed Statement of Cash Flows. The cash inflows and outflows associated with the Company’s derivative contracts designated as cash flow hedges are classified in cash flows from operating activities in the accompanying Consolidated Condensed Statement of Cash Flows.
The Company’s derivative instruments, as well as its nonderivative debt instruments designated and qualifying as net investment hedges, were classified as of September 27, 2019 in the Company’s Consolidated Condensed Balance Sheet as follows ($ in millions):
|
|
|
|
|
Derivative assets:
|
|
Prepaid expenses and other current assets
|
$
|
36.8
|
|
|
|
Derivative liabilities:
|
|
Accrued expenses and other liabilities
|
64.0
|
|
|
|
Nonderivative hedging instruments:
|
|
Long-term debt
|
8,073.6
|
|
Amounts related to the Company’s derivatives expected to be reclassified from accumulated other comprehensive income (loss) to net earnings during the next 12 months are not significant.
NOTE 10. DEFINED BENEFIT PLANS
The following sets forth the components of the Company’s net periodic benefit (cost) of the noncontributory defined benefit pension plans ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Period Ended
|
|
Nine-Month Period Ended
|
|
September 27, 2019
|
|
September 28, 2018
|
|
September 27, 2019
|
|
September 28, 2018
|
U.S. pension benefits:
|
|
|
|
|
|
|
|
Service cost
|
$
|
(1.6
|
)
|
|
$
|
(1.2
|
)
|
|
$
|
(4.8
|
)
|
|
$
|
(5.4
|
)
|
Interest cost
|
(22.1
|
)
|
|
(20.3
|
)
|
|
(66.6
|
)
|
|
(60.7
|
)
|
Expected return on plan assets
|
31.0
|
|
|
33.0
|
|
|
94.2
|
|
|
99.2
|
|
Amortization of actuarial loss
|
(6.7
|
)
|
|
(8.0
|
)
|
|
(19.2
|
)
|
|
(23.6
|
)
|
Amortization of prior service cost
|
(0.2
|
)
|
|
(0.2
|
)
|
|
(0.7
|
)
|
|
(0.7
|
)
|
Net periodic pension benefit
|
$
|
0.4
|
|
|
$
|
3.3
|
|
|
$
|
2.9
|
|
|
$
|
8.8
|
|
|
|
|
|
|
|
|
|
Non-U.S. pension benefits:
|
|
|
|
|
|
|
|
Service cost
|
$
|
(8.2
|
)
|
|
$
|
(8.6
|
)
|
|
$
|
(24.4
|
)
|
|
$
|
(26.2
|
)
|
Interest cost
|
(6.6
|
)
|
|
(6.3
|
)
|
|
(19.9
|
)
|
|
(19.6
|
)
|
Expected return on plan assets
|
10.9
|
|
|
11.6
|
|
|
32.7
|
|
|
35.6
|
|
Amortization of actuarial loss
|
(3.9
|
)
|
|
(1.5
|
)
|
|
(3.7
|
)
|
|
(4.5
|
)
|
Amortization of prior service credit
|
2.6
|
|
|
0.2
|
|
|
0.2
|
|
|
0.4
|
|
Curtailment gain recognized
|
—
|
|
|
—
|
|
|
1.1
|
|
|
—
|
|
Settlement loss recognized
|
0.1
|
|
|
1.2
|
|
|
—
|
|
|
0.8
|
|
Net periodic pension cost
|
$
|
(5.1
|
)
|
|
$
|
(3.4
|
)
|
|
$
|
(14.0
|
)
|
|
$
|
(13.5
|
)
|
The following sets forth the components of the Company’s net periodic benefit cost of the other postretirement employee benefit plans ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Period Ended
|
|
Nine-Month Period Ended
|
|
September 27, 2019
|
|
September 28, 2018
|
|
September 27, 2019
|
|
September 28, 2018
|
Service cost
|
$
|
(0.1
|
)
|
|
$
|
—
|
|
|
$
|
(0.3
|
)
|
|
$
|
(0.3
|
)
|
Interest cost
|
(1.3
|
)
|
|
(1.2
|
)
|
|
(3.8
|
)
|
|
(3.5
|
)
|
Amortization of prior service credit
|
0.6
|
|
|
0.6
|
|
|
1.6
|
|
|
1.8
|
|
Net periodic cost
|
$
|
(0.8
|
)
|
|
$
|
(0.6
|
)
|
|
$
|
(2.5
|
)
|
|
$
|
(2.0
|
)
|
The net periodic benefit cost of the noncontributory defined benefit pension plans and other postretirement employee benefit plans incurred during the three and nine-month periods ended September 27, 2019 and September 28, 2018 are reflected in the following captions in the accompanying Consolidated Condensed Statements of Earnings ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Period Ended
|
|
Nine-Month Period Ended
|
|
September 27, 2019
|
|
September 28, 2018
|
|
September 27, 2019
|
|
September 28, 2018
|
Service cost:
|
|
|
|
|
|
|
|
Cost of sales
|
$
|
(2.0
|
)
|
|
$
|
(1.6
|
)
|
|
$
|
(6.2
|
)
|
|
$
|
(7.0
|
)
|
Selling, general and administrative expenses
|
(7.9
|
)
|
|
(8.2
|
)
|
|
(23.3
|
)
|
|
(24.9
|
)
|
Total service cost
|
(9.9
|
)
|
|
(9.8
|
)
|
|
(29.5
|
)
|
|
(31.9
|
)
|
Other net periodic benefit costs:
|
|
|
|
|
|
|
|
Other income, net
|
4.4
|
|
|
9.1
|
|
|
15.9
|
|
|
25.2
|
|
Total
|
$
|
(5.5
|
)
|
|
$
|
(0.7
|
)
|
|
$
|
(13.6
|
)
|
|
$
|
(6.7
|
)
|
Employer Contributions
During 2019, the Company’s cash contribution requirements for its U.S. and non-U.S. defined benefit pension plans are forecasted to be approximately $10 million and $50 million, respectively. The ultimate amounts to be contributed depend upon, among other things, legal requirements, underlying asset returns, the plan’s funded status, the anticipated tax deductibility of the contribution, local practices, market conditions, interest rates and other factors.
NOTE 11. INCOME TAXES
The following table summarizes the Company’s effective tax rate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Period Ended
|
|
Nine-Month Period Ended
|
|
September 27, 2019
|
|
September 28, 2018
|
|
September 27, 2019
|
|
September 28, 2018
|
Effective tax rate
|
20.1
|
%
|
|
17.2
|
%
|
|
29.3
|
%
|
|
19.0
|
%
|
The effective tax rate for the three-month period ended September 27, 2019 differs from the U.S. federal statutory rate of 21.0% principally due to the impact of earnings outside the United States which generally are taxed at rates lower than the U.S. federal rate.
The effective tax rate for the nine-month period ended September 27, 2019 differs from the U.S. federal statutory rate of 21.0% principally due to the impact of net discrete charges of $227 million ($0.31 per diluted share) related primarily to changes in estimates associated with prior period uncertain tax positions and audit settlements, net of the release of reserves for uncertain tax positions due to the expiration of statutes of limitation, release of valuation allowances associated with certain foreign tax credits, tax benefits resulting from changes in tax law and excess tax benefits from stock-based compensation. These discrete income tax charges increased the reported tax rate by 9.2% on a net basis.
The Company’s effective tax rates for both the three and nine-month periods ended September 28, 2018 were lower than the U.S. federal statutory rate of 21.0% due principally to the impact of the Company’s earnings outside the United States which overall are taxed at rates lower than the U.S. federal rate. The effective tax rate for the three and nine-month periods ended
September 28, 2018 reflects a U.S. corporate income tax rate of 21.0% from the enactment of the Tax Cuts and Jobs Act (“TCJA”), partially offset by a new minimum tax on certain non-U.S. earnings as a result of the TCJA. The effective tax rate for the three-month period ended September 28, 2018 includes net tax benefits of $23 million ($0.03 per diluted share) related primarily to the release of valuation allowances associated with certain foreign operating losses and excess tax benefits from stock-based compensation, which in aggregate reduced the reported tax rate by 2.9%. The effective tax rate for the nine-month period ended September 28, 2018 also includes these benefits, in addition to net tax benefits of $9 million ($0.01 per diluted share) recorded in the second quarter of 2018 related to the release of reserves upon the expiration of statutes of limitation and excess tax benefits from stock-based compensation, which were partially offset by increases in estimates associated with prior period uncertain tax positions.
In the fourth quarter of 2018 and in the first quarter of 2019, the Internal Revenue Service (“IRS”) proposed significant adjustments to the Company’s taxable income for the years 2012 through 2015 with respect to the deferral of tax on certain premium income related to the Company’s self-insurance programs. For income tax purposes, the recognition of premium income has been deferred in accordance with U.S. tax laws related to insurance. The IRS is challenging the deferral of premiums for certain types of insurance policies. The proposed adjustments would increase the Company’s taxable income over the 2012-2015 period by approximately $2.7 billion. Management believes the positions the Company has taken in its U.S. tax returns are in accordance with the relevant tax laws, intends to vigorously defend these positions and is currently considering all of its alternatives. Due to the enactment of the TCJA in 2017 and the resulting reduction in the U.S. corporate tax rate for years after 2017, the Company revalued its deferred tax liabilities related to the temporary differences associated with this deferred premium income from 35.0% to 21.0%. If the Company is not successful in defending these assessments, the taxes owed to the IRS may be computed under the previous 35.0% statutory tax rate and the Company may be required to revalue the related deferred tax liabilities from 21.0% to 35.0%, which in addition to any interest due on the amounts assessed, would require a charge to future earnings. The ultimate resolution of this matter is uncertain, could take many years and could result in a material adverse impact to the Company’s Consolidated Condensed Financial Statements, including its cash flows and effective tax rate.
Tax authorities in Denmark have raised significant issues related to interest accrued by certain of the Company’s subsidiaries. On December 10, 2013, the Company received assessments from the Danish tax authority (“SKAT”) totaling approximately DKK 1.7 billion including interest through September 27, 2019 (approximately $256 million based on the exchange rate as of September 27, 2019), imposing withholding tax relating to interest accrued in Denmark on borrowings from certain of the Company’s subsidiaries for the years 2004-2009. The Company appealed these assessments to the Danish National Tax Tribunal in 2014. The appeal is pending, awaiting the final outcome of other withholding tax cases brought to the Court of Justice of the European Union (“CJEU”). In February 2019, the CJEU decided several other cases related to Danish withholding tax on dividends and interest. In these cases, the CJEU ruled that the exemption of interest payments from withholding taxes provided in the applicable European Union (“EU”) directive should be denied where taxpayers use the directive for abusive or fraudulent purposes, and that it is up to the national courts to make this determination. SKAT has maintained a similar position related to withholding tax on interest accrued in Denmark on borrowings from certain of the Company’s subsidiaries with respect to tax years 2010-2012 and on August 27, 2019, the Company received assessments for these matters totaling approximately DKK 1.0 billion including interest through September 27, 2019 (approximately $152 million based on the exchange rate as of September 27, 2019). The Company is appealing these assessments as well. The Company remains in discussions with SKAT on similar withholding tax matters for the years 2013-2015 and anticipates receiving additional assessments of approximately DKK 735 million including interest through September 27, 2019 (approximately $108 million based on the exchange rate as of September 27, 2019). Management believes the positions the Company has taken in Denmark are in accordance with the relevant tax laws and is vigorously defending its positions related to the received and anticipated assessments related to the 2004-2009, 2010-2012, and 2013-2015 years. The Company intends on pursuing this matter through the Danish High Court should the appeal to the Danish National Tax Tribunal be unsuccessful. The Company will continue to monitor decisions of both the Danish courts and the CJEU and evaluate the impact of these court rulings on the Company’s tax positions in Denmark. The ultimate resolution of this matter is uncertain, could take many years, and could result in a material adverse impact to the Company’s Consolidated Condensed Financial Statements, including its cash flow and effective tax rate.
NOTE 12. NONOPERATING INCOME (EXPENSE)
The Company disaggregates the service cost component of net periodic benefit costs of the noncontributory defined benefit pension plans and other postretirement employee benefit plans and presents the other components of net periodic benefit cost in other income, net. These other components include the assumed rate of return on plan assets partially offset by amortization of actuarial losses and interest and aggregated to a gain of $4 million and $16 million for the three and nine-month periods ended September 27, 2019, respectively, compared to a gain of $9 million and $25 million for the three and nine-month periods ended September 28, 2018, respectively.
NOTE 13. COMMITMENTS AND CONTINGENCIES
For a description of the Company’s litigation and contingencies, refer to Note 17 of the Company’s financial statements as of and for the year ended December 31, 2018 included in the Company’s 2018 Annual Report. The Company reviews the adequacy of its legal reserves on a quarterly basis and establishes reserves for loss contingencies that are both probable and reasonably estimable. During the nine-month period ended September 27, 2019, the Company recorded a provision of $36 million ($29 million after-tax or $0.04 per diluted share) for costs and estimated liabilities related to a legal contingency.
The Company generally accrues estimated warranty costs at the time of sale. In general, manufactured products are warranted against defects in material and workmanship when properly used for their intended purpose, installed correctly and appropriately maintained. Warranty periods depend on the nature of the product and range from the date of such sale up to the life of the product. The amount of the accrued warranty liability is determined based on historical information such as past experience, product failure rates or number of units repaired, estimated cost of material and labor and in certain instances estimated property damage. The accrued warranty liability is reviewed on a quarterly basis and may be adjusted as additional information regarding expected warranty costs becomes known.
The following is a rollforward of the Company’s accrued warranty liability ($ in millions):
|
|
|
|
|
Balance, December 31, 2018
|
$
|
77.4
|
|
Accruals for warranties issued during the period
|
46.6
|
|
Settlements made
|
(43.7
|
)
|
Effect of foreign currency translation
|
(1.2
|
)
|
Balance, September 27, 2019
|
$
|
79.1
|
|
NOTE 14. STOCK TRANSACTIONS AND STOCK-BASED COMPENSATION
Neither the Company nor any “affiliated purchaser” repurchased any shares of Company common stock during the nine-month period ended September 27, 2019. On July 16, 2013, the Company’s Board of Directors approved a repurchase program (the “Repurchase Program”) authorizing the repurchase of up to 20 million shares of the Company’s common stock from time to time on the open market or in privately negotiated transactions. As of September 27, 2019, 20 million shares remained available for repurchase pursuant to the Repurchase Program.
The following table summarizes the Company’s share activity (shares in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Period Ended
|
|
Nine-Month Period Ended
|
|
September 27, 2019
|
|
September 28, 2018
|
|
September 27, 2019
|
|
September 28, 2018
|
Preferred stock - shares issued:
|
|
|
|
|
|
|
|
Balance, beginning of period
|
1.7
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Issuance of MCPS
|
—
|
|
|
—
|
|
|
1.7
|
|
|
—
|
|
Balance, end of period
|
1.7
|
|
|
—
|
|
|
1.7
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Common stock - shares issued:
|
|
|
|
|
|
|
|
Balance, beginning of period
|
834.0
|
|
|
816.0
|
|
|
817.9
|
|
|
812.5
|
|
Common stock-based award activity
|
1.0
|
|
|
1.2
|
|
|
4.1
|
|
|
4.0
|
|
Common stock issued in connection with acquisitions
|
—
|
|
|
—
|
|
|
—
|
|
|
0.2
|
|
Common stock issued in connection with LYONs’ conversions
|
—
|
|
|
—
|
|
|
0.9
|
|
|
0.5
|
|
Issuance of common stock
|
—
|
|
|
—
|
|
|
12.1
|
|
|
—
|
|
Balance, end of period
|
835.0
|
|
|
817.2
|
|
|
835.0
|
|
|
817.2
|
|
On March 1, 2019, the Company completed the underwritten public offering of 12.1 million shares of Danaher common stock at a price to the public of $123.00 per share (the “Common Stock Offering”), resulting in net proceeds of approximately $1.4 billion, after deducting expenses and the underwriters’ discount of $45 million. Simultaneously, the Company completed the underwritten public offering of 1.65 million shares of its 4.75% MCPS, Series A, without par value and with a liquidation preference of $1,000 per share (the “MCPS Offering”), resulting in net proceeds of approximately $1.6 billion, after deducting expenses and the underwriters’ discount of $50 million. The Company intends to use the net proceeds from the Common Stock
Offering and the MCPS Offering to fund a portion of the cash consideration payable for, and certain costs associated with, the GE Biopharma Acquisition. Pending completion of the GE Biopharma Acquisition, the Company has invested the net proceeds in short-term bank deposits and/or interest-bearing, investment-grade securities.
As a result of the dividend paid to shareholders of the Company’s common stock in July 2019, the Company triggered an anti-dilution adjustment pursuant to the terms of the MCPS and after giving affect to this adjustment, each share of MCPS will mandatorily convert on the mandatory conversion date, which is expected to be April 15, 2022, into between 6.6382 and 8.1318 shares of the Company’s common stock, subject to further anti-dilution adjustments. The number of shares of the Company’s common stock issuable upon conversion will be determined based on the average volume-weighted average price 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, 2022. Subject to certain exceptions, at any time prior to April 15, 2022, holders may elect to convert each share of the MCPS into 6.6382 shares of common stock, subject to further anti-dilution adjustments. In the event of a fundamental change, the MCPS will convert at the fundamental change rates specified in the certificate of designations, and the holders of MCPS would be entitled to a fundamental change make-whole dividend.
Holders of MCPS will be entitled to receive, when and if declared by the Company’s Board of Directors, cumulative dividends at the annual rate of 4.75% of the liquidation preference of $1,000 per share (equivalent to $47.50 annually per share), payable in cash or, subject to certain limitations, by delivery of shares of the Company’s common stock or any combination of cash and shares of the Company’s common stock, at the Company’s election. If declared, dividends on the MCPS will be payable quarterly on January 15, April 15, July 15 and October 15 of each year (commencing on July 15, 2019 to, and including, April 15, 2022), to the holders of record of the MCPS as they appear on the Company’s stock register at the close of business on the immediately preceding December 31, March 31, June 30 and September 30, respectively.
If the GE Biopharma Acquisition has not closed on or before 5:00 p.m. (New York City time) on August 25, 2020, the GE Biopharma Purchase Agreement is terminated or the Company’s Board of Directors, in its good faith judgment, determines that the GE Biopharma Acquisition will not occur, the Company has the option to redeem the shares of MCPS, in whole but not in part, subject to certain terms and conditions.
For a full description of the Company’s stock-based compensation programs, refer to Note 18 of the Company’s financial statements as of and for the year ended December 31, 2018 included in the Company’s 2018 Annual Report. As of September 27, 2019, approximately 46 million shares of the Company’s common stock were reserved for issuance under the 2007 Omnibus Incentive Plan.
In connection with the Envista IPO, Envista has adopted a stock-based compensation plan, which provides for grants of stock options, performance stock units (“PSUs”), restricted stock units (“RSUs”) and other stock-based awards denominated in shares of Envista common stock. Envista employees who participated in the Danaher stock compensation program prior to the IPO will continue to participate in such program solely with respect to outstanding compensation awards received prior to the Envista IPO, until the Distribution (at which time such awards will be converted into awards denominated in Envista common stock under the Envista stock compensation plan). From and after the Envista IPO, all equity compensation awarded to Envista associates will be awarded under the Envista stock compensation plan. Stock-based compensation expense for the Envista stock-based compensation plan is included in the Company’s consolidated stock-based compensation expense.
The following summarizes the components of the Company’s stock-based compensation expense ($ in millions):
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Three-Month Period Ended
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Nine-Month Period Ended
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September 27, 2019
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September 28, 2018
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September 27, 2019
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September 28, 2018
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RSUs/PSUs:
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Pretax compensation expense
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$
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27.6
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$
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24.0
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$
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79.8
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$
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69.6
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Income tax benefit
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(5.7
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)
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(5.0
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)
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(16.6
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)
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(14.6
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)
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RSU/PSU expense, net of income taxes
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21.9
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19.0
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63.2
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55.0
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Stock options:
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Pretax compensation expense
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17.0
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14.2
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50.2
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42.0
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Income tax benefit
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(3.5
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)
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(3.0
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)
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(10.5
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)
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(8.9
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)
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Stock option expense, net of income taxes
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13.5
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11.2
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39.7
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33.1
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Total stock-based compensation:
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Pretax compensation expense
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44.6
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38.2
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130.0
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111.6
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Income tax benefit
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(9.2
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)
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(8.0
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)
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(27.1
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)
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(23.5
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)
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Total stock-based compensation expense, net of income taxes
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$
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35.4
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$
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30.2
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$
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102.9
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$
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88.1
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Stock-based compensation has been recognized as a component of selling, general and administrative expenses in the accompanying Consolidated Condensed Statements of Earnings. As of September 27, 2019, $192 million of total unrecognized compensation cost related to RSUs/PSUs is expected to be recognized over a weighted average period of approximately two years. As of September 27, 2019, $178 million of total unrecognized compensation cost related to stock options is expected to be recognized over a weighted average period of approximately three years. Future compensation amounts will be adjusted for any changes in estimated forfeitures.
NOTE 15. NET EARNINGS PER SHARE
Basic net earnings per share (“EPS”) is calculated by dividing net earnings attributable to common stockholders by the weighted average number of common shares outstanding for the applicable period. Diluted net EPS is computed based on the weighted average number of common shares outstanding increased by the number of additional shares that would have been outstanding had the potentially dilutive common shares (including subsidiary denominated equity) been issued and reduced by the number of shares the Company could have repurchased with the proceeds from the issuance of the potentially dilutive shares. For both the three and nine-month periods ended September 27, 2019 and the three-month period ended September 28, 2018, no options to purchase shares were excluded from the diluted EPS calculation. For the nine-month period ended September 28, 2018, approximately one million options to purchase shares were not included in the diluted EPS calculation as the impact of their inclusion would have been anti-dilutive.
The impact of the MCPS calculated under the if-converted method was anti-dilutive, and as such 12 million shares and 9 million shares underlying the MCPS were excluded from the diluted EPS calculation for the three and nine-month periods ended September 27, 2019, respectively. The inclusion of Envista’s dilutive securities in the calculation of the Company’s net earnings attributable to common stockholders after assumed conversions did not significantly impact the Company’s diluted EPS for the three and nine-month periods ended September 27, 2019, respectively.
Information related to the calculation of net earnings per share is summarized as follows ($ and shares in millions, except per share amounts):
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Three-Month Period Ended
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Nine-Month Period Ended
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September 27, 2019
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September 28, 2018
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September 27, 2019
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September 28, 2018
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Numerator:
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Net earnings
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$
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673.9
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$
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663.7
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$
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1,739.0
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$
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1,904.1
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Net earnings attributable to noncontrolling interests
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(5.9
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)
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—
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(5.9
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)
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—
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MCPS dividends
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(19.6
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)
|
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—
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(48.8
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)
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—
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Net earnings attributable to common stockholders (used in Basis EPS)
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648.4
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663.7
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1,684.3
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1,904.1
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Adjustment for interest on convertible debentures
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0.4
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0.6
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1.4
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1.7
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Net earnings attributable to common stockholders after assumed conversions (used in Diluted EPS)
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$
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648.8
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$
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664.3
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$
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1,685.7
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$
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1,905.8
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Denominator:
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Weighted average common shares outstanding (used in Basic EPS)
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718.8
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701.4
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714.7
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|
700.1
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Incremental common shares from:
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Assumed exercise of dilutive options and vesting of dilutive RSUs and PSUs
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9.1
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6.9
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8.9
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7.3
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Assumed conversion of the convertible debentures
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1.4
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2.3
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1.6
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2.5
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Weighted average common shares outstanding (used in Diluted EPS)
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729.3
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|
710.6
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|
725.2
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|
|
709.9
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|
|
|
|
|
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Basic EPS
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$
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0.90
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|
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$
|
0.95
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|
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$
|
2.36
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|
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$
|
2.72
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Diluted EPS
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$
|
0.89
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$
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0.93
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$
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2.32
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$
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2.68
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NOTE 16. SEGMENT INFORMATION
The Company operates and reports its results in four separate business segments consisting of the Life Sciences, Diagnostics, Dental/Envista and Environmental & Applied Solutions segments. When determining the reportable segments, the Company
aggregated operating segments based on their similar economic and operating characteristics. Operating profit represents total revenues less operating expenses, excluding nonoperating income and expense, interest and income taxes. Operating profit amounts in the Other segment consist of unallocated corporate costs and other costs not considered part of management’s evaluation of reportable segment operating performance. Intersegment amounts are not significant and are eliminated to arrive at consolidated totals.
Segment results are shown below ($ in millions):
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Three-Month Period Ended
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Nine-Month Period Ended
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September 27, 2019
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September 28, 2018
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September 27, 2019
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September 28, 2018
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Sales:
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Life Sciences
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$
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1,695.6
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$
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1,596.7
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$
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5,035.1
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$
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4,677.9
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Diagnostics
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1,601.9
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1,502.5
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4,757.0
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4,573.1
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Dental / Envista
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659.3
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679.5
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2,031.1
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2,085.5
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Environmental & Applied Solutions
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1,080.5
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1,074.4
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3,250.6
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3,193.0
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Total
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$
|
5,037.3
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$
|
4,853.1
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$
|
15,073.8
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$
|
14,529.5
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Operating profit:
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Life Sciences
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$
|
342.5
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$
|
312.8
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$
|
995.5
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$
|
875.6
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Diagnostics
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266.0
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235.1
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782.0
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757.4
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Dental / Envista
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78.7
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|
|
86.1
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|
|
206.4
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|
|
241.8
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Environmental & Applied Solutions
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256.5
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|
|
254.3
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|
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761.3
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|
732.5
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Other
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(108.9
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)
|
|
(57.6
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)
|
|
(302.8
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)
|
|
(166.1
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)
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Total
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$
|
834.8
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$
|
830.7
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|
$
|
2,442.4
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$
|
2,441.2
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Segment identifiable assets are shown below ($ in millions):
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|
September 27, 2019
|
|
December 31, 2018
|
Life Sciences
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$
|
22,115.0
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|
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$
|
22,122.4
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Diagnostics
|
14,175.1
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|
|
14,031.1
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Dental / Envista
|
6,009.5
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|
|
5,897.3
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Environmental & Applied Solutions
|
4,741.3
|
|
|
4,637.3
|
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Other
|
14,490.2
|
|
|
1,144.4
|
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Total
|
$
|
61,531.1
|
|
|
$
|
47,832.5
|
|
NOTE 17. SUBSEQUENT EVENTS
On October 24, 2019, the Company will redeem the $500 million aggregate principal amount of 2.4% Senior Notes due 2020 and the $375 million aggregate principal amount of 5.0% 2020 Assumed Pall Notes, in each case at a redemption price equal to the outstanding principal amount and a make-whole premium as specified in the applicable indenture, plus accrued and unpaid interest. The Company expects the make-whole premiums required in connection with the redemption will be $7 million ($5 million after-tax or $0.01 per diluted share). The payment of the make-whole premiums will be reflected as a loss on early extinguishment of borrowings in the Company’s fourth quarter financial statements, as the extinguishment is expected to occur in the fourth quarter. The Company is funding the redemption using a portion of the cash distribution it received in connection with the Envista IPO.