SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
[ X ] SECURITIES AND EXCHANGE ACT OF 1934
For the Quarter ended September 28, 2001
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 1-8089
DANAHER CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 59-1995548
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(State of incorporation) (I.R.S. Employer
Identification number)
2099 Pennsylvania Ave., 12/th/ Fl.
Washington, D.C. 20006
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: 202-828-0850
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
The number of shares of common stock outstanding at October 12, 2001 was
142,922,233.
DANAHER CORPORATION
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INDEX
FORM 10-Q
PART I - FINANCIAL INFORMATION Page
Item 1. Financial Statements
Consolidated Condensed Balance Sheets
at September 28, 2001 and December 31, 2000 3
Consolidated Condensed Statements of
Earnings for the three months and
nine months ended September 28, 2001 and
September 29, 2000 4
Consolidated Condensed Statements of
Stockholder' Equity for the nine months
ended September 29, 2001 5
Consolidated Condensed Statements of
Cash Flow for the nine months ended
September 28, 2001 and September 29, 2000 6
Notes to Consolidated Condensed
Financial Statements 7-10
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 10-13
PART II - OTHER INFORMATION
Item 6. (a) Exhibits: None 14
(b) Reports on Form 8-K:
DANAHER CORPORATION
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CONSOLIDATED CONDENSED BALANCE SHEETS
-------------------------------------
(000's omitted)
---------------
(Unaudited)
September 28, December 31,
2001 2000
---- ----
(Note 1)
ASSETS
------
Current Assets:
Cash and cash equivalents $ 646,466 $ 176,924
Accounts receivable, net 632,811 704,214
Inventories:
Finished goods 166,772 152,509
Work in process 99,048 95,402
Raw material and supplies 196,956 212,699
----------- -----------
Total inventories 462,776 460,610
Prepaid expenses and other
current assets 127,978 132,558
----------- -----------
Total current assets 1,870,031 1,474,306
Property, plant and equipment, net
of accumulated depreciation of
$720,000 and $633,000, respectively 536,991 575,531
Other assets 133,041 117,942
Excess of cost over net assets of
acquired companies, net 2,174,949 1,863,900
----------- -----------
Total assets $ 4,715,012 $ 4,031,679
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Notes payable and current
portion of long-term debt $ 74,405 $ 81,633
Accounts payable 252,410 262,095
Accrued expenses 645,436 674,812
----------- -----------
Total current liabilities 972,251 1,018,540
Other liabilities 417,656 357,249
Long-term debt 1,121,697 713,557
Stockholders' equity:
Common stock-$.01 par value 1,569 1,556
Additional paid-in capital 382,069 364,426
Retained earnings 1,891,487 1,635,481
Accumulated other comprehensive
income (71,717) (59,130)
----------- -----------
Total stockholders' equity 2,203,408 1,942,333
----------- -----------
Total liabilities and
stockholders' equity $ 4,715,012 $ 4,031,679
=========== ===========
See notes to consolidated condensed financial statements.
3
DANAHER CORPORATION
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CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
---------------------------------------------
(000's omitted except per share amounts)
(unaudited)
Quarter Ended Nine Months Ended
September 28, September 29, September 28, September 29,
2001 2000 2001 2000
---- ---- ---- ----
Net sales $901,588 $986,786 $2,863,512 $2,745,408
Operating costs and expenses:
Cost of sales 547,630 599,814 1,757,328 1,678,957
Selling, general and
administrative expenses 190,481 227,265 617,690 631,887
Goodwill and other
amortization 15,837 12,863 45,823 33,426
-------- -------- ---------- ----------
Total operating costs and
expenses 753,948 839,942 2,420,841 2,344,270
-------- -------- ---------- ----------
Operating profit 147,640 146,844 442,671 401,138
Interest expense, net 7,244 11,965 19,385 19,769
-------- -------- ---------- ----------
Earnings before income taxes 140,396 134,879 423,286 381,369
Income taxes 52,650 51,254 158,733 144,920
-------- -------- ---------- ----------
Net Earnings $ 87,746 $ 83,625 $ 264,553 $ 236,449
======== ======== ========== ==========
Basic earnings per share $ .61 $ .59 $1.84 $ 1.66
======== ======== ========== ==========
Average shares outstanding 143,835 142,363 143,575 142,453
======== ======== ========== ==========
Diluted earnings per share $ .59 $ .58 $ 1.78 $ 1.63
======== ======== ========== ==========
Average common stock and
equivalent shares
outstanding 152,198 145,290 151,769 145,301
======== ======== =========== ==========
See notes to consolidated condensed financial statements.
4
DANAHER CORPORATION
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CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY
---------------------------------------------------------
(000's omitted)
(unaudited)
Accumulated
Additional Other
Common Stock Paid-In Retained Comprehensive Comprehensive
Shares Amount Capital Earnings Income Income
----------------------------------------------------------------------
Balance, December 31, 2000 155,650 $1,556 $364,426 $1,635,481 $(59,130) --
Net earnings for the period -- -- -- 264,553 -- $264,553
Dividends declared -- -- -- (8,547) -- --
Common stock issued for
options exercised 1,284 13 26,811 -- -- --
Purchase of common stock -- -- (9,168) -- -- --
Decrease from translation
of foreign financial
statements -- -- -- -- (12,587) (12,587)
------- ------ -------- ---------- -------- --------
Balance, September 28, 2001 156,934 $1,569 $382,069 $1,891,487 $(71,717) $251,966
======= ====== ======== ========== ======== ========
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DANAHER CORPORATIO
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CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW
----------------------------------------------
(000's omitted)
(unaudited)
Nine Months Ended
September 28, September 29,
2001 2000
---- ----
Cash flows from operating activities:
Net earnings from operations $ 264,553 $ 236,449
Noncash items, depreciation
and amortization 129,954 109,226
Change in accounts receivable 78,067 10,792
Change in inventories 24,171 (62,762)
Change in accounts payable (26,700) (3,058)
Change in other assets and liabilities (39,716) 106,078
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Total operating cash flows 430,329 396,725
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Cash flows from investing activities:
Payments for additions to property,
plant, and equipment, net (57,224) (61,047)
Cash paid for acquisitions (318,511) (640,693)
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Net cash used in investing activities (375,735) (701,740)
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Cash flows from financing activities:
Proceeds from issuance of common stock 26,824 12,831
Proceeds from borrowing of debt, net 406,482 275,988
Payment of dividends (8,547) (7,175)
Purchase of treasury stock (9,168) (82,174)
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Net cash provided by financing
activities 415,591 199,470
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Effect of exchange rate changes on cash (643) (945)
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Net change in cash and cash equivalents 469,542 (106,490)
Beginning balance of cash and cash
equivalents 176,924 260,281
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Ending balance of cash and cash
equivalents $ 646,466 $ 153,791
========= =========
Supplemental disclosures:
Cash interest payments $ 20,672 $ 11,442
========= =========
Cash income tax payments $ 21,981 $ 29,824
========= =========
See notes to consolidated condensed financial statements.
6
DANAHER CORPORATION
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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
----------------------------------------------------
(unaudited)
NOTE 1. GENERAL
The consolidated condensed financial statements included herein have
been prepared by Danaher Corporation (the Company) without audit, pursuant to
the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States have been condensed or omitted pursuant to such rules and
regulations; however, the Company believes that the disclosures are adequate to
make the information presented not misleading. The condensed financial
statements included herein should be read in conjunction with the financial
statements and the notes thereto included in the Company's 2000 Annual Report on
Form 10-K.
In the opinion of the registrant, the accompanying financial
statements contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial position of the Company at
September 28, 2001 and December 31, 2000, its results of operations for the
three months and nine months ended September 28, 2001 and September 29, 2000,
and its cash flows for the nine months ended September 28, 2001 and September
29, 2000.
Total comprehensive income was as follows:
2001 2000
---- ----
(millions)
Quarter $ 92.4 $ 85.3
Nine Months $252.0 $220.4
Total comprehensive income for all periods represents net income and the change
in cumulative foreign translation adjustment.
NOTE 2. SEGMENT INFORMATION
Segment information is presented consistently with the basis described
in the 2000 Annual Report. There has been no material change in total assets or
liabilities by segment. Segment results for the quarter and nine months ended
September 28, 2001 and September 29, 2000 are shown below:
7
Sales
Third Quarter Nine Months
2001 2000 2001 2000
---- ---- ---- ----
Process/Environmental Controls $616,628 $664,663 $2,007,746 $1,735,388
Tool and Components 284,960 322,123 855,766 1,010,020
-------- -------- ---------- ----------
$901,588 $986,786 $2,863,512 $2,745,408
======== ======== ========== ==========
Operating Profit
Third Quarter Nine Months
2001 2000 2001 2000
---- ---- ---- ----
Process/Environmental Controls $108,425 $104,092 $341,551 $276,566
Tool and Components 43,513 47,739 114,933 138,509
Other (4,298) (4,987) (13,813) (13,937)
-------- -------- -------- --------
$147,640 $146,844 $442,671 $401,138
======== ======== ======== ========
NOTE 3. EARNINGS PER SHARE
Basic EPS is calculated by dividing earnings by the weighted average
number of common shares outstanding for the applicable period. Diluted EPS is
calculated after adjusting the numerator and the denominator of the basic EPS
calculation for the effect of all potential dilutive common shares outstanding
during the period. Information related to the calculation of earnings per share
of common stock is summarized as follows:
Net Earnings Shares Per Share
(Numerator) (Denominator) Amount
----------------------------------------
For the Three Months Ended
September 28, 2001
Basic EPS: $87,746 143,835 $.61
Adjustment for interest
on convertible debentures: 1,935 -
Incremental shares from
assumed exercise of
dilutive options: - 2,332
Incremental shares from
assumed conversion of the
convertible debenture: - 6,031
------------------------
Diluted EPS: $89,681 152,198 $.59
======= ======= ====
8
Net Earnings Shares Per Share
(Numerator) (Denominator) Amount
----------------------------------------
For the Three Months Ended
September 29, 2000
Basic EPS: $83,625 142,363 $.59
Incremental shares from
assumed exercise of
dilutive options: - 2,927
------------------------
Diluted EPS: $83,625 145,290 $.58
======= ======= ====
Net Earnings Shares Per Share
(Numerator) (Denominator) Amount
----------------------------------------
For the Nine Months Ended
September 28, 2001
Basic EPS: $264,553 143,575 $1.84
Adjustment for interest
on convertible debentures: 5,303 -
Incremental shares from
assumed exercise of
dilutive options: - 2,737
Incremental shares from
assumed conversion of the
convertible debenture: - 5,457
------------------------
Diluted EPS: $269,856 151,769 $1.78
======== ======= =====
Net Earnings Shares Per Share
(Numerator) (Denominator) Amount
----------------------------------------
For the Nine Months Ended
September 29, 2000
Basic EPS: $236,449 142,453 $1.66
Incremental shares from
assumed exercise of
dilutive options: - 2,848
------------------------
Diluted EPS: $236,449 145,301 $1.63
======== ======= =====
9
NOTE 4. ACQUISITIONS
In the third quarter of 2001, the Company acquired three companies for
total consideration of approximately $125 million. All acquisitions have been
accounted for as purchases. The fair value of the assets acquired was
approximately $138 million, and approximately $13 million of liabilities were
assumed.
On July 3, 2000, the motion control businesses of Warner Electric
Company were acquired and merged into the Company. Total consideration was
approximately $147 million. The fair value of the assets acquired was
approximately $185 million and approximately $38 million of liabilities were
assumed. The transaction is being accounted for as a purchase.
On June 20, 2000, Kollmorgen Corporation was acquired and merged into
the Company. Total consideration was approximately $363 million, including the
assumption of approximately $96 million of debt. The fair value of the assets
acquired was approximately $537 million and approximately $174 million of
liabilities were assumed. The transaction is being accounted for as a purchase.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
Results of Operations
---------------------
Net sales for the 2001 third quarter of $901.6 million were 8.6% lower
than the 2000 quarter of $986.8 million. The Tools and Components business
segment revenues declined 11.5% for the quarter. Declines in demand for the hand
tool, engine retarder, and drill chuck product lines caused the revenue decline.
Revenues in the Process/Environmental Controls business segment fell 7.2% for
the third quarter. Core volume for this segment declined 10%, which was offset
by 3% growth from recent acquisitions. Declines in the motion and power quality
business units were somewhat offset by increases in the environmental business
units. On a consolidated basis, the Company experienced core volume declines of
10.6% and acquisition growth of 2%.
Net sales for the 2001 nine month period grew 4.3% over the 2000
period. Revenues from acquisitions accounted for 10.8% growth, and were offset
by core volume declines of 5.9% and negative currency impacts of 0.6%.
Gross profit margin for the 2001 third quarter of 39.3% was flat
compared to the 2000 third quarter. Declining production volumes caused downward
pressure on margins, but were entirely offset
10
by aggressive cost reductions, productivity improvements, and a continuing shift
toward higher margin Process/Environmental Controls product lines.
Gross profit margin for the 2001 nine month period of 38.6% was
slightly below the prior year margin of 38.8%. Aggressive cost reductions across
both business segments combined with productivity improvements to offset the
lower gross margins of businesses acquired during 2000 and 2001.
Selling, general and administrative expenses fell $36.8 million for
the third quarter and $14.2 million for the nine month period. Aggressive cost
reductions, controls on discretionary spending, and lower variable expenses were
only slightly offset by the increases from newly acquired companies. As a
percentage of sales, these expenses fell 1.9 points for the quarter and 1.4
points for the nine month period, reflecting the cost reductions and spending
controls put in place throughout the year.
Interest expense for the 2001 third quarter was $4.7 million lower
than the 2000 third quarter. Average net debt levels were lower during 2001,
reflecting strong cash flow generated throughout the year. For the nine month
period, interest expense was essentially flat compared to 2000, as costs of
borrowings undertaken to finance acquisitions, and a lower interest rate
environment on invested cash, were both offset by strong cash flows used to
reduce net debt.
The effective tax rate of 37.5% for the third quarter and the
nine-month period in 2001 is 0.5 percentage points lower than in the respective
periods of 2000, primarily due to a higher proportion of foreign earnings in
2001 compared to 2000.
In July 2001, the FASB issued Statement of Financial Accounting
Standards No. 141, "Business Combinations" ("SFAS 141") and Statement of
Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets"
("SFAS 142"). SFAS 141 requires all business combinations to be accounted for
using the purchase method of accounting and is effective for all business
combinations initiated after June 30, 2001. SFAS 142 requires goodwill to be
tested for impairment under certain circumstances, and written off when
impaired, rather than being amortized as previous standards required. The
adoption of SFAS 141 did not have a material effect on our operating results or
financial condition. With respect to acquisitions completed prior to June 30,
2001, the Company intends to implement SFAS No. 142 in the first quarter of 2002
and is currently in the process of assessing the impact of adoption.
Liquidity and Capital Resources
-------------------------------
The Company continues to experience strong operating cash flow, driven
primarily by reductions in working capital and a 11.9% increase in net earnings
for the nine month period. Operating cash flow of $430.3 million for the 2001
nine month period reached record levels and was 8.5% over the same period last
year. Total debt increased to $1.2 billion at September 28, 2001, compared to
$795.2 million at
11
December 31, 2000. During the first quarter of 2001, the Company issued $830
million (value at maturity) in zero-coupon convertible senior notes due 2021
known as Liquid Yield Option Notes or LYONS. The net proceeds to the Company
were approximately $505 million, of which approximately $100 million was used to
pay down debt, and the balance will be used for general corporate purposes,
including potential future acquisitions. The LYONS are convertible into
approximately 6.0 million common shares of the Company, and carry a yield to
maturity of 2.375%.
Net cash paid for acquisitions was $125 million and $319 million,
respectively, for the quarter and nine months ended September 28, 2001. In the
first quarter of 2001, the Company acquired United Power Corporation for a cash
price of approximately $108 million. The Company also disposed of two small
product lines during the first quarter of 2001, yielding cash proceeds of
approximately $32 million. There was no material gain or loss recognized on the
sale of these product lines. In the second and third quarters of 2001, the
Company acquired several smaller companies for an aggregate cash price of $243
million.
In the third quarter of 2001, the Company repurchased 200,500 shares
of its common stock at a cost of $9.2 million. The Company has remaining
authorization to repurchase up to an additional 4.7 million shares.
In the first quarter of 2000, the Company repurchased $82 million of
the Company's common stock and acquired American Precision Industries, Inc. for
a cash price of approximately $246 million including assumption of debt, or
$19.25 per share. In the second quarter of 2000, the Company acquired Kollmorgen
Corporation for a cash price of approximately $363 million including the
assumption of debt, or $23 per share.
On June 28, 2001, the Company replaced its $250 million bank credit
facility with a new $500 million credit facility. The new facility provides
funds for general corporate purposes and has a five year term. There have been
no borrowings under either facility during 2001.
In the third quarter of 2000, on July 3, 2000, the Company purchased
the motion control businesses of Warner Electric for $144 million in cash.
A regular quarterly dividend of $.02 per share was declared, payable
on October 31, 2001 to shareholders of record on September 28, 2001.
12
The cash and cash equivalents of $646.5 million on the September 28,
2001 balance sheet were invested in highly liquid investment grade short term
instruments. Interest income of $4.3 and $16.3 million was recognized in the
third quarter and nine month period of 2001, respectively. The Company's cash
provided from operations, as well as credit facilities available, should provide
sufficient available funds to meet normal working capital requirements, capital
expenditures, dividends, scheduled debt repayments, and to fund acquisitions, if
applicable.
13
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
----------------------------------------
(a) Exhibits: None
(b) Reports on Form 8-K: The Company filed a Current Report on Form 8-K
dated August 1, 2001 reporting on its announcement that it had made a
merger proposal to Cooper Industries, Inc.
14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DANAHER CORPORATION:
Date: October 17, 2001 By: /s/ Patrick W. Allender
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Patrick W. Allender
Chief Financial Officer
Date: October 17, 2001 By: /s/ Christopher C. McMahon
---------------- --------------------------
Christopher C. McMahon
Controller
15