DANAHER CORPORATION
Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") is designed to provide a reader of Danaher Corporation's
("Danaher," the "Company," "we," "us" or "our") financial statements with a
narrative from the perspective of Company management. The Company's MD&A is
divided into five sections:
•Information Relating to Forward-Looking Statements
•Overview
•Results of Operations
•Liquidity and Capital Resources
•Critical Accounting Estimates
You should read this discussion along with the Company's MD&A and audited
financial statements as of and for the year ended December 31, 2019 and Notes
thereto, included in the Company's 2019 Annual Report on Form 10-K filed on
February 21, 2020 ("2019 Annual Report") and the Company's Consolidated
Condensed Financial Statements and related Notes as of and for the three and
nine-month periods ended October 2, 2020 included in this Report.
Unless otherwise indicated, all financial results in this report refer to
continuing operations.
INFORMATION RELATING TO FORWARD-LOOKING STATEMENTS
Certain statements included or incorporated by reference in this quarterly
report, in other documents we file with or furnish to the Securities and
Exchange Commission , in our press releases, webcasts, conference calls,
materials delivered to shareholders and other communications, are
"forward-looking statements" within the meaning of the United States federal
securities laws. All statements other than historical factual information are
forward-looking statements, including without limitation statements regarding:
projections of revenue, expenses, profit, profit margins, tax rates, tax
provisions, cash flows, pension and benefit obligations and funding
requirements, our liquidity position or other projected financial measures;
management's plans and strategies for future operations, including statements
relating to anticipated operating performance, cost reductions, restructuring
activities, new product and service developments, competitive strengths or
market position, acquisitions and the integration thereof (including the
integration of the acquisition of the Biopharma business of General Electric
Company's ("GE") Life Sciences division, now known as Cytiva (the "Cytiva
Acquisition")), divestitures, spin-offs, split-offs or other distributions,
strategic opportunities, securities offerings, stock repurchases, dividends and
executive compensation; growth, declines and other trends in markets we sell
into; new or modified laws, regulations and accounting pronouncements; future
regulatory approvals and the timing and conditionality thereof; outstanding
claims, legal proceedings, tax audits and assessments and other contingent
liabilities; future foreign currency exchange rates and fluctuations in those
rates; the potential or anticipated direct or indirect impact of COVID-19 on our
business, results of operations and/or financial condition; general economic and
capital markets conditions; the anticipated timing of any of the foregoing;
assumptions underlying any of the foregoing; and any other statements that
address events or developments that Danaher intends or believes will or may
occur in the future. Terminology such as "believe," "anticipate," "should,"
"could," "intend," "will," "plan," "expect," "estimate," "project," "target,"
"may," "possible," "potential," "forecast" and "positioned" and similar
references to future periods are intended to identify forward-looking
statements, although not all forward-looking statements are accompanied by such
words.
Forward-looking statements are based on assumptions and assessments made by our
management in light of their experience and perceptions of historical trends,
current conditions, expected future developments and other factors.
Forward-looking statements are not guarantees of future performance and actual
results may differ materially from the results, developments and business
decisions contemplated by our forward-looking statements. Accordingly, you
should not place undue reliance on any such forward-looking statements.
Important factors that in some cases have affected us in the past and that in
the future could cause actual results to differ materially from those envisaged
in the forward-looking statements include the following:
•The COVID-19 pandemic has adversely impacted, and poses risks to, aspects of
our business, results of operations and financial condition, the nature and
extent of which remain highly uncertain and unpredictable.
•The Cytiva Acquisition could negatively impact our business, results of
operations and financial condition.
•Our outstanding debt has increased significantly as a result of the Cytiva
Acquisition and we may incur additional debt in the future. Our existing and
future indebtedness may limit our operations and our use of our cash flow and
negatively
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impact our credit ratings; and any failure to comply with the covenants that
apply to our indebtedness could adversely affect our liquidity and financial
statements.
•Conditions in the global economy, the particular markets we serve and the
financial markets can adversely affect our business and financial statements.
•Significant developments or uncertainties stemming from the U.S.
administration, including changes in U.S. trade policies, tariffs and the
reaction of other countries thereto, particularly China , can have an adverse
effect on our business.
•Our growth can suffer if the markets into which we sell our products and
services decline, do not grow as anticipated or experience cyclicality.
•We face intense competition and if we are unable to compete effectively, we can
experience decreased demand and decreased market share. Even when we compete
effectively, we can be required to reduce prices for our products and services.
•Our growth depends in part on the timely development and commercialization, and
customer acceptance, of new and enhanced products and services based on
technological innovation.
•Our reputation, ability to do business and financial statements can be impaired
by improper conduct by any of our employees, agents or business partners.
•Certain of our businesses are subject to extensive regulation by the U.S. Food
and Drug Administration and by comparable agencies of other countries, as well
as laws regulating fraud and abuse in the health care industry and the privacy
and security of health information. Failure to comply with those regulations can
adversely affect our reputation, ability to do business and financial
statements.
•Our products are subject to clinical trials, the results of which may be
unexpected, or perceived as unfavorable by the market, and could have a material
adverse effect on our business, financial condition or results of operations.
•Off-label marketing of our products could result in substantial penalties.
•Certain modifications to our products can require new 510(k) clearances or
other marketing authorizations and can require us to recall or cease marketing
our products.
•The health care industry and related industries that we serve have undergone,
and are in the process of undergoing, significant changes in an effort to reduce
costs, which can adversely affect our financial statements.
•Any inability to consummate acquisitions at our historical rate and at
appropriate prices, and to make appropriate investments that support our
long-term strategy, could negatively impact our growth rate and stock price.
•Our acquisition of businesses, investments, joint ventures and other strategic
relationships can negatively impact our financial statements.
•The indemnification provisions of acquisition agreements by which we have
acquired companies may not fully protect us and as a result we may face
unexpected liabilities.
•Divestitures or other dispositions could negatively impact our business and
contingent liabilities from businesses that we or our predecessors have disposed
could adversely affect our financial statements.
•We could incur significant liability if any of the 2015 separation and
split-off of our communications business, the 2016 separation and spin-off of
Fortive Corporation ("Fortive") or the 2019 separation, initial public offering
("IPO") and split-off of Envista Holdings Corporation ("Envista") is determined
to be a taxable transaction.
•Potential indemnification liabilities pursuant to the 2015 separation and
split-off of our communications business, the 2016 separation and spin-off of
Fortive or the 2019 separation, IPO and split-off of Envista could materially
and adversely affect our business and financial statements.
•A significant disruption in, or breach in security of, our information
technology systems or data or violation of data privacy laws can adversely
affect our business, reputation and financial statements.
•Our operations, products and services expose us to the risk of environmental,
health and safety liabilities, costs and violations that can adversely affect
our business, reputation and financial statements.
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•Our businesses are subject to extensive regulation; failure to comply with
those regulations can adversely affect our financial statements and our
business, including our reputation.
•Our restructuring actions can have long-term adverse effects on our business.
•We may be required to recognize impairment charges for our goodwill and other
intangible assets.
•Foreign currency exchange rates can adversely affect our financial statements.
•Changes in our tax rates or exposure to additional income tax liabilities or
assessments can affect our profitability. In addition, audits by tax authorities
can result in additional tax payments for prior periods.
•Changes in tax law relating to multinational corporations could adversely
affect our tax position.
•We are subject to a variety of litigation and other legal and regulatory
proceedings in the course of our business that can adversely affect our business
and financial statements.
•If we are unable to adequately protect our intellectual property, or if third
parties infringe our intellectual property rights, we can suffer competitive
injury or expend significant resources enforcing our rights. These risks are
particularly pronounced in countries in which we do business that do not have
levels of protection of intellectual property comparable to the United States .
•Third parties from time to time claim that we are infringing or
misappropriating their intellectual property rights and we can suffer
significant litigation expenses, losses or licensing expenses or be prevented
from selling products or services.
•The U.S. government has certain rights to use and disclose some of the
intellectual property that we license and could exclusively license it to a
third party if we fail to achieve practical application of the intellectual
property.
•Defects and unanticipated use or inadequate disclosure with respect to our
products or services (including software), or allegations thereof, can adversely
affect our business, reputation and financial statements.
•The manufacture of many of our products is a highly exacting and complex
process, and if we directly or indirectly encounter problems manufacturing
products, our reputation, business and financial statements can suffer.
•Adverse changes in our relationships with, or the financial condition,
performance, purchasing patterns or inventory levels of, key distributors and
other channel partners can adversely affect our financial statements.
•Certain of our businesses rely on relationships with collaborative partners and
other third parties for development, supply and marketing of certain products
and potential products, and such collaborative partners or other third parties
can fail to perform sufficiently.
•Our financial results are subject to fluctuations in the cost and availability
of commodities that we use in our operations.
•If we cannot adjust our manufacturing capacity or the purchases required for
our manufacturing activities to reflect changes in market conditions and
customer demand, our profitability may suffer. In addition, our reliance upon
sole or limited sources of supply for certain materials, components and services
can cause production interruptions, delays and inefficiencies.
•Changes in laws or governmental regulations can reduce demand for our products
or services or increase our expenses.
•Work stoppages, union and works council campaigns and other labor disputes
could adversely impact our productivity and results of operations.
•International economic, political, legal, social, compliance and business
factors could negatively affect our financial statements.
•The United Kingdom's ("UK") departure from the EU could have an adverse effect
on us.
•If we suffer loss to our facilities, supply chains, distribution systems or
information technology systems due to catastrophe or other events, our
operations could be seriously harmed.
•Our defined benefit pension plans are subject to financial market risks that
could adversely affect our financial statements.
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See Part I-Item 1A of the Company's 2019 Annual Report and Part II-Item 1A of
each of this report and the Company's Quarterly Report on Form 10-Q for the
quarters ended April 3, 2020 ("First Quarter 2020 Form 10-Q") and July 3, 2020
("Second Quarter 2020 Form 10-Q") for further discussion regarding reasons that
actual results may differ materially from the results, developments and business
decisions contemplated by our forward-looking statements. Forward-looking
statements speak only as of the date of the report, document, press release,
webcast, call, materials or other communication in which they are made. Except
to the extent required by applicable law, we do not assume any obligation to
update or revise any forward-looking statement, whether as a result of new
information, future events and developments or otherwise.
OVERVIEW
General
As a result of the Company's geographic and industry diversity, the Company
faces a variety of opportunities and challenges, including rapid technological
development (particularly with respect to computing, automation, artificial
intelligence, mobile connectivity, communications and digitization) in most of
the Company's served markets, the expansion and evolution of opportunities in
high-growth markets, trends and costs associated with a global labor force,
consolidation of the Company's competitors and increasing regulation. The
Company operates in a highly competitive business environment in most markets,
and the Company's long-term growth and profitability will depend in particular
on its ability to expand its business in high-growth geographies and high-growth
market segments, identify, consummate and integrate appropriate acquisitions,
develop innovative and differentiated new products and services with higher
gross profit margins, expand and improve the effectiveness of the Company's
sales force, continue to reduce costs and improve operating efficiency and
quality, and effectively address the demands of an increasingly regulated
environment. The Company is making significant investments, organically and
through acquisitions, to address the rapid pace of technological change in its
served markets and to globalize its manufacturing, research and development and
customer-facing resources (particularly in high-growth markets) in order to be
responsive to the Company's customers throughout the world and improve the
efficiency of the Company's operations.
The COVID-19 Pandemic
The global spread of a novel strain of coronavirus (COVID-19) has led to
unprecedented restrictions on, and disruptions in, business and personal
activities, including as a result of preventive and precautionary measures that
we, other businesses, our communities and governments have taken and are taking
to mitigate the spread of the virus and to manage its impact. The Company
continues to actively monitor the pandemic and has taken and intends to continue
taking steps to identify and mitigate the adverse impacts on, and risks to, the
Company's business (including but not limited to its employees, customers,
business partners, manufacturing capabilities and capacity, and supply and
distribution channels) posed by the spread of COVID-19 and the governmental and
community responses thereto. The Company's businesses have activated their
business continuity plans as a result of this pandemic, including taking steps
in an effort to help keep our workforce healthy and safe, and are assessing and
updating those plans on an ongoing basis. As a result of COVID-19 the Company's
businesses have modified certain of their respective business practices
(including in many cases with respect to employee travel, employee work
locations, and cancellation of physical participation in meetings, events and
conferences), and the Company expects to take such further actions as may be
required by government authorities or as determined to be in the best interests
of our employees, customers and other business partners. The Company has
developed return-to-work protocols designed to help ensure the health and safety
of its employees, customers and business partners, for its businesses to apply
as and when return-to-work is legally permissible and deemed appropriate. We are
also working with our suppliers to understand the existing and potential future
negative impacts to our supply chain and take actions in an effort to mitigate
such impacts. To date we have not experienced any significant supply chain
disruptions. Given that the prevalence of COVID-19 and the nature of the
response thereto (including the degree to which restrictions are being relaxed
or re-imposed) varies significantly by geography, the impact of the pandemic on
the Company's different business locations around the world at any given time
also varies significantly.
We are also deploying our capabilities, expertise and scale to address the
critical health needs related to COVID-19. We have developed and made available
a diagnostic test for the rapid detection of COVID-19 and a diagnostic test that
can detect antibodies in blood to confirm current or past exposure to COVID-19.
In addition, our businesses are providing critical support to firms that are
seeking to develop and produce a vaccine for COVID-19, among other support. We
estimate that COVID-19 related demand contributed approximately 1,000 basis
points to core revenue growth including Cytiva in the third quarter of 2020.
While we expect these trends to continue into at least the fourth quarter of
2020, as the COVID-19 pandemic subsides we expect the demand for products and
services related to COVID-19 will also subside. As further discussed below,
while COVID-19 has positively impacted revenues for certain of our businesses,
the pandemic and response thereto had a material negative impact on revenues and
profitability in other of our businesses in the first nine months of 2020 and,
while conditions improved sequentially from the second quarter to the third
quarter of 2020, the global demand for many of our products and services may
remain depressed at least in the near-term if not longer.
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As noted below and subject to the assumptions discussed below, the Company
expects core sales and core sales including Cytiva to grow in the fourth quarter
of 2020 compared to the prior year. However, due to the speed with which the
COVID-19 situation continues to evolve, the global breadth of its spread, the
range of governmental and community responses thereto and our geographic and
business line diversity, its further impact on our business remains highly
uncertain, but may be materially negative and will depend on future developments
including but not limited to:
•the duration of the weaker macroeconomic environment and the timing and extent
of recovery in the global demand for our products and services;
•the pace at which medical providers resume patient care and testing that is not
related to the COVID-19 pandemic, the timing of when research performed by
laboratories and other institutions return to normal levels, and payment and
funding dynamics related to the foregoing; and
•the development and rate of adoption of the products we are offering to help
address the pandemic and the effects thereof; competitive product launches and
related pricing pressure; impacts from changes in the mix of our product
offerings; and the degree to which COVID-19 testing solutions and any vaccines
are made available and utilized.
Business Performance and Outlook
During the third quarter of 2020, the Company's overall revenues increased 34.5%
compared to the comparable period of 2019. The acquisition of Cytiva contributed
24.5% to the increase in revenues in the third quarter of 2020. Year-over-year
core sales increased 9.0% in the third quarter of 2020 compared to the prior
period while core sales including Cytiva increased 14.0% year-over-year. For the
nine-month period ended October 2, 2020 , overall revenues increased by 19.0%.
The acquisition of Cytiva contributed 15.5% to the increase in revenues in the
nine-month period. Core sales increased 4.5% in the nine-month period ended
October 2, 2020 compared to the prior period, primarily as a result of the same
factors which drove core sales for the third quarter of 2020. For the nine-month
period, core sales including Cytiva increased 7.5%, which include the results of
Cytiva beginning with the second quarter of 2020. For the definition of "core
sales" and "core sales including Cytiva" refer to "-Results of Operations"
below.
Despite differences in our businesses, on an overall basis, the Company saw
increased core sales growth in the third quarter, as the performance of the
Company's businesses improved sequentially from the second quarter to the third
quarter of 2020. Geographically, the improvement generally corresponded to areas
where the spread of the coronavirus and related responses have moderated.
COVID-19 related research and development among biotech and pharmaceutical
customers generated strong demand for the Company's bioprocessing, filtration,
genomic and automation solutions in the Company's life science businesses.
Cytiva's core sales grew more than 35% (compared to the third quarter of 2019,
prior to the Cytiva Acquisition) reflecting strength in its served markets and
its support in helping its customers develop and potentially produce a vaccine
for COVID-19. In the remainder of the life sciences businesses, the Company
experienced a lessening of the widespread shutdowns that adversely impacted
non-COVID related research lab activity earlier in the year and improved
performance sequentially from the second quarter to the third quarter of 2020.
In its diagnostics businesses, the Company saw very strong demand for molecular
point-of-care and acute care testing, which also drove a significant increase in
instrument placements globally. While the remainder of the diagnostic businesses
saw reduced demand primarily because of lower volumes of elective procedures and
wellness visits, the Company saw an improvement in patient volumes in the third
quarter versus earlier in the pandemic. In the environmental and applied
solutions businesses, the divergence of demand between consumables and equipment
moderated, as demand for equipment improved sequentially from the second quarter
to the third quarter of 2020.
Geographically, the Company saw increases in core sales including Cytiva in both
developed markets and the high-growth markets. Developed markets grew at a
mid-teens rate during the third quarter of 2020 compared to the third quarter of
2019, led primarily by increases in North America and Western Europe .
High-growth markets increased approximately 10% during the third quarter of 2020
as compared to the comparable period of 2019, driven primarily by increases in
China and India , partially offset by the impact of the COVID-19 pandemic and the
response thereto in other high-growth markets. High-growth markets represented
approximately 31% of the Company's total sales in the third quarter of 2020. For
additional information regarding the Company's sales by geographical region
during the three and nine-month periods ended October 2, 2020 and September 27,
2019 , refer to Note 2 to the accompanying Consolidated Condensed Financial
Statements.
The Company's net earnings from continuing operations for the three and
nine-month periods ended October 2, 2020 totaled $884 million and approximately
$2.4 billion , respectively, compared to $631 million and approximately $1.6
billion for the three and nine-month periods ended September 27, 2019 . Net
earnings attributable to common stockholders for the three and nine-month
periods ended October 2, 2020 totaled $842 million or $1.16 per diluted common
share and approximately $2.3 billion or $3.22 per diluted common share,
respectively, compared to $648 million or $0.89 per diluted common share and
approximately $1.7 billion or $2.32 per diluted common share for the three and
nine-month periods ended September 27, 2019 , respectively. The provision for
uncertain tax positions recorded in the first quarter of 2019 discussed below in
"-Results of
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Operations - Income Taxes" and 2020 net earnings from Cytiva are the primary
drivers of the year-over-year increase in net earnings and diluted net earnings
per common share for the three and nine-month periods ended October 2, 2020 .
While the ultimate impact of COVID-19 on future periods is highly uncertain, the
Company expects core sales and core sales including Cytiva to grow in the fourth
quarter of 2020 compared to the prior year, assuming the impact of the pandemic
continues to moderate and trends in the United States and internationally with
respect to stay-at-home or other quarantine mandates do not materially
deteriorate. Demand for instruments and consumables related to COVID-19-related
testing capabilities as well as supporting customers in pursuit of new
COVID-19-related treatments and vaccines are expected to continue to drive
growth while the performance of the Company's other businesses are expected to
continue to improve. As discussed above, an increase of COVID-19 related cases
and the re-imposition of government required restrictions could have a material
negative impact on the Company's core growth, earnings and cash flows.
Acquisitions
The Company's growth strategy contemplates future acquisitions and strategic
investments. Operations and results can be affected by the rate and extent to
which appropriate acquisition and investment opportunities are available and
successfully consummated, acquired businesses are effectively integrated and
anticipated synergies or cost savings are achieved.
On March 31, 2020 , the Company acquired the Biopharma business of General
Electric Company's Life Sciences division, now known as Cytiva, for a cash
purchase price of approximately $20.7 billion , (net of approximately $0.1
billion of acquired cash) and the assumption of approximately $0.4 billion of
pension liabilities. Cytiva is a leading provider of instruments, consumables
and software that support the research, discovery, process development and
manufacturing workflows of biopharmaceutical drugs. Cytiva is included in the
Company's Life Sciences segment results beginning in the second quarter of 2020.
The acquisition has provided and 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 was required to divest certain of
its existing product lines in the Life Sciences segment that in the aggregate
generated revenues of approximately $170 million in 2019. On April 30, 2020 , the
Company completed the sale of these product lines for a cash purchase price, net
of cash transferred and transaction costs, of $826 million and recognized a
pretax gain on sale of $455 million ($305 million after-tax or $0.42 per diluted
common share) in the second quarter of 2020. For a description of the Company's
Cytiva Acquisition and the financing thereof, refer to Note 3 to the
accompanying Consolidated Condensed Financial Statements. In addition to the
Cytiva Acquisition, during the nine-month period ended October 2, 2020 , the
Company acquired one other business for total consideration of $104 million in
cash, net of cash acquired. The business acquired complements an existing unit
of the Environmental & Applied Solutions segment. The aggregate annual sales of
the two businesses acquired in 2020 at the time of their acquisition, in each
case based on the companies' revenues for its last completed fiscal year prior
to the acquisition, were approximately $3.3 billion .
Currency Exchange Rates
On a year-over-year basis, currency exchange rates positively impacted reported
sales by approximately 1.0% for the three-month period ended October 2, 2020 ,
compared to the comparable period of 2019, primarily due to the weakening of the
U.S. dollar against most major currencies in the third quarter of 2020. For the
nine-month period ended October 2, 2020 , currency exchange rates negatively
impacted reported sales by approximately 1.0% compared to the comparable period
of 2019, reflecting the strength of the U.S. dollar during the first six months
of 2020 which more than offset the weakening experienced in the third quarter of
2020. If the currency exchange rates in effect as of October 2, 2020 were to
prevail throughout the remainder of 2020, currency exchange rates would reduce
the Company's estimated full year 2020 sales by approximately 0.5% on a
year-over-year basis. Any future strengthening of the U.S. dollar against major
currencies would adversely impact the Company's sales and results of operations
for the remainder of the year, and any weakening of the U.S. dollar against
major currencies would positively impact the Company's sales and results of
operations for the remainder of the year.
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UK's Exit From the EU ("Brexit")
The UK formally withdrew from the EU on January 31, 2020 with a transition
period through December 31, 2020 . During the transition period, the UK continues
to follow EU law and is negotiating with the EU on the terms of its relationship
post-2020. Failure to complete negotiations by the implementation deadline of
December 31, 2020 could result in the UK reverting to adverse trade agreements
with the EU. The COVID-19 pandemic has created additional uncertainty regarding
the likelihood that the UK and the EU will complete negotiations by the December
31, 2020 deadline. As a result, the nature of the UK's future relationship with
the EU is still uncertain. The Company continues to monitor the status of Brexit
and plan for potential impacts. To mitigate the potential impact of Brexit on
the import of goods to the UK , the Company continues to strategically manage its
inventory levels and logistical channels with respect to the UK . The ultimate
impact of Brexit on the Company's financial results is uncertain. For additional
information, refer to the "Item 1A-Risk Factors" section of the Company's 2019
Annual Report.
RESULTS OF OPERATIONS
Non-GAAP Measures
In this report, references to the non-GAAP measures of core sales (also referred
to as core revenues or sales/revenues from existing businesses) and core sales
including Cytiva refer to sales from continuing operations calculated according
to U.S. GAAP, but excluding:
•sales from acquired businesses (as defined below, as applicable); and
•the impact of currency translation.
References to sales or operating profit attributable to acquisitions or acquired
businesses refer to sales or operating profit, as applicable, from acquired
businesses recorded prior to the first anniversary of the acquisition less the
amount of sales and operating profit, as applicable, attributable to divested
product lines not considered discontinued operations; provided that in
calculating core sales including Cytiva, Cytiva's sales (net of the sales of the
Company product lines divested in 2020 to obtain regulatory approval to acquire
Cytiva, or the "divested product lines") ("Cytiva sales") are excluded from the
definition of sales attributable to acquisitions or acquired businesses. The
portion of revenue attributable to currency translation is calculated as the
difference between:
•the period-to-period change in revenue (excluding sales from acquired
businesses (as defined above, as applicable)); and
•the period-to-period change in revenue (excluding sales from acquired
businesses (as defined above, as applicable)) after applying current period
foreign exchange rates to the prior year period.
As noted above, beginning with results for the second quarter of 2020, the
Company also presents core sales on a basis that includes Cytiva sales.
Historically Danaher has calculated core sales solely on a basis that excludes
sales from acquired businesses recorded prior to the first anniversary of the
acquisition. However, given Cytiva's significant size and historical core sales
growth rate, in each case compared to Danaher's existing businesses, management
believes it is appropriate to also present core sales on a basis that includes
Cytiva sales. Management believes this presentation provides useful information
to investors by demonstrating the impact Cytiva has on the Company's current
growth profile, rather than waiting to demonstrate such impact 12 months after
the acquisition when Cytiva would normally have been included in Danaher's core
sales calculation. Danaher calculates period-to-period core sales growth
including Cytiva by adding to the baseline period sales Cytiva's historical
sales from such period (when it was owned by GE ), net of the sales of the
divested product lines, and also adding the Cytiva sales to the current period.
Core sales growth (and the related measure of core sales including Cytiva)
should be considered in addition to, and not as a replacement for or superior
to, sales, and may not be comparable to similarly titled measures reported by
other companies. Management believes that reporting these non-GAAP financial
measures provides useful information to investors by helping identify underlying
growth trends in Danaher's business and facilitating comparisons of Danaher's
revenue performance with its performance in prior and future periods and to
Danaher's peers. Management also uses these non-GAAP financial measures to
measure the Company's operating and financial performance and uses core sales
growth as one of the performance measures in the Company's executive short-term
cash incentive program. The Company excludes the effect of currency translation
from these measures because currency translation is not under management's
control, is subject to volatility and can obscure underlying business trends,
and excludes the effect of acquisitions (other than Cytiva sales, in the case of
core growth including Cytiva) and divestiture-related items because the nature,
size, timing and number of acquisitions and divestitures can vary
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dramatically from period-to-period and between the Company and its peers and can
also obscure underlying business trends and make comparisons of long-term
performance difficult.
Throughout this discussion, references to sales volume refer to the impact of
both price and unit sales and references to productivity improvements generally
refer to improved cost-efficiencies resulting from the ongoing application of
the Danaher Business System.
Core Sales Growth and Core Sales Growth Including Cytiva
% Change Three-Month % Change Nine- Month
Period Ended October 2, Period Ended October
2020 vs. Comparable 2, 2020 vs. Comparable
2019 Period 2019 Period
Total sales growth (GAAP) 34.5 % 19.0 %
Impact of:
Acquisitions/divestitures (24.5) % (15.5) %
Currency exchange rates (1.0) % 1.0 %
Core sales growth (non-GAAP) 9.0 % 4.5 %
Impact of Cytiva sales growth (net of divested product lines) 5.0 % 3.0 %
Core sales growth including Cytiva (non-GAAP) 14.0 % 7.5 %
Operating Profit Performance
Operating profit margins increased 80 basis points from 17.7% during the
three-month period ended September 27, 2019 to 18.5% for the three-month period
ended October 2, 2020 .
Third quarter 2020 vs. third quarter 2019 operating profit margin comparisons
were favorably impacted by:
•Higher 2020 core sales volumes, lower overall spending levels for business
travel and other business activities as a result of the pandemic and incremental
year-over-year cost savings associated with continuing productivity improvement
initiatives taken in 2020 and 2019, net of incremental year-over-year costs
associated with various new product development and sales, service and marketing
growth investments - 310 basis points
•The incremental accretive effect in 2020 of acquired businesses, net of product
line dispositions which did not qualify as discontinued operations - 135 basis
points
Third quarter 2020 vs. third quarter 2019 operating profit margin comparisons
were unfavorably impacted by:
•Third quarter 2020 acquisition-related fair value adjustments to inventory and
deferred revenue net of third quarter 2019 incremental transaction costs deemed
significant, in each case related to the acquisition of Cytiva - 340 basis
points
•Impairment charges related to trade names in the Environmental & Applied
Solutions segment incurred in the third quarter of 2020 - 25 basis points
Operating profit margins decreased 80 basis points from 17.7% during the
nine-month period ended September 27, 2019 to 16.9% for the nine-month period
ended October 2, 2020 .
Year-to-date 2020 vs. year-to-date 2019 operating profit margin comparisons were
favorably impacted by:
•Higher 2020 core sales volumes, lower overall spending levels for business
travel and other business activities as a result of the pandemic and incremental
year-over-year cost savings associated with continuing productivity improvement
initiatives taken in 2020 and 2019, net of incremental year-over-year costs
associated with various new product development and sales, service and marketing
growth investments and the impact of foreign currency exchange rates in the
first nine months of 2020 - 85 basis points
•The incremental accretive effect in 2020 of acquired businesses, net of product
line dispositions which did not qualify as discontinued operations - 145 basis
points
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Year-to-date 2020 vs. year-to-date 2019 operating profit margin comparisons were
unfavorably impacted by:
•First nine months of 2020 acquisition-related fair value adjustments to
inventory and deferred revenue, and incremental transaction costs deemed
significant and integration preparation costs, in each case related to the
acquisition of Cytiva - 295 basis points
•Impairment charges related to trade names in the Environmental & Applied
Solutions segment incurred in the third quarter of 2020 - 10 basis points
•Impairment charges related to a facility in the Diagnostics segment and a trade
name and other intangible assets in the Environmental & Applied Solutions
segment incurred in the first quarter of 2020 - 5 basis points
Business Segments
Sales by business segment for each of the periods indicated were as follows ($
in millions):
Nine-Month Period
Three-Month Period Ended Ended
September 27, September 27,
October 2, 2020 2019 October 2, 2020 2019
Life Sciences $ 2,922.5 $
1,695.6
1,889.1 1,601.9 5,176.3 4,757.0
Environmental & Applied Solutions 1,071.6 1,080.5 3,132.1 3,250.6
Total $ 5,883.2 $ 4,378.0 $ 15,523.7 $ 13,042.7
For information regarding the Company's sales by geographical region during the
three and nine-month periods ended October 2, 2020 and September 27, 2019 , refer
to Note 2 to the accompanying Consolidated Condensed Financial Statements.
LIFE SCIENCES
The Company's Life Sciences segment offers a broad range of scientific tools
that researchers use to study the basic building blocks of life, including
genes, proteins, cells, tissues and metabolites in order to understand the
causes of disease, identify new therapies and test new drugs and vaccines. The
segment also offers the necessary tools and consumables to manufacture new life
saving drugs and is a leading provider of filtration, separation and
purification technologies to the biopharmaceutical, food and beverage, medical,
aerospace, microelectronics and general industrial sectors.
Life Sciences Selected Financial Data
Nine-Month Period
Three-Month Period Ended Ended
September 27, September 27,
($ in millions) October 2, 2020 2019 October 2, 2020 2019
Sales $ 2,922.5 $ 1,695.6 $ 7,215.3 $ 5,035.1
Operating profit 504.9 342.5 1,242.9 995.5
Depreciation 51.0 31.7 132.4 96.8
Amortization of intangible assets 263.7 89.0 601.2 267.7
Operating profit as a % of sales 17.3 % 20.2 % 17.2 % 19.8 %
Depreciation as a % of sales 1.7 % 1.9 % 1.8 % 1.9 %
Amortization as a % of sales 9.0 % 5.2 % 8.3 % 5.3 %
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Core Sales Growth and Core Sales Growth Including Cytiva
% Change Three-Month % Change Nine- Month
Period Ended October 2, Period Ended October
2020 vs. Comparable 2, 2020 vs. Comparable
2019 Period 2019 Period
Total sales growth (GAAP) 72.5 % 43.5 %
Impact of:
Acquisitions/divestitures (63.0) % (40.5) %
Currency exchange rates (1.0) % 0.5 %
Core sales growth (non-GAAP) 8.5 % 3.5 %
Impact of Cytiva sales growth (net of divested product lines) 10.0 % 7.0 %
Core sales growth including Cytiva (non-GAAP) 18.5 % 10.5 %
Price increases in the segment contributed 1.0% to sales growth on a
year-over-year basis during both the three and nine-month periods ended
October 2, 2020 and are reflected as a component of core sales growth (or core
sales growth including Cytiva, as applicable).
In the first nine months of 2020, increased demand for instruments and
consumables used in the bioprocessing end-market was partially offset by lower
demand related to non-COVID-19 applications as a result of the COVID-19
pandemic. The Company saw lower demand for equipment late in the first quarter
and in the second quarter as the COVID-19 pandemic spread around the world,
academic research labs closed late in the first quarter of 2020 and customers
deferred purchases of larger instruments. Later in the second quarter and
continuing in the third quarter of 2020, the Company saw the gradual reopening
of certain research labs, led by China and followed by North America and Europe .
Core sales for filtration, separation and purification technologies increased
across most major geographies for both the three and nine-month periods ended
October 2, 2020 versus the comparable periods in 2019, led North America ,
Western Europe and China . Demand for filtration, separation and purification
technologies was led by the biopharmaceutical end-market, partially offset by
weaker demand in the fluid technology and asset protection and aerospace
end-markets. Core sales of microscopy products declined during both the three
and nine-month periods across most major product lines, primarily due to lower
demand in the medical and industrial end-markets in both the three and
nine-month periods and in the life science research end-market in the nine-month
period. Geographically, demand decreased in North America in both the three and
nine-month periods and in Western Europe in the nine-month period, as shutdown
measures to curb COVID-19 reduced year-over-year demand for equipment in
particular. Demand for the Company's flow cytometry and particle counting
business increased across all major geographies in both the three and nine-month
periods. Core sales for the business' flow cytometry solutions were driven by
immune response testing during the COVID-19 pandemic, while particle counting
solutions grew due to increased biologic therapy development demand and genomic
sample preparation consumables and automation grew due to COVID-19 related
increased molecular diagnostic testing. Core sales in the mass spectrometry
business increased during the three-month period, driven by demand for service
and demand in the capillary electrophoresis and pharmaceutical end-markets. Core
sales in the mass spectrometry business declined during the nine-month period,
primarily due to lower demand in the clinical and pharmaceutical end-markets as
a result of the COVID-19 pandemic. Geographically, demand increased in the
three-month period, led by North America and China , and decreased in the
nine-month period, primarily in China , Western Europe and North America . Core
sales in the genomics consumables business increased during both the three and
nine-month periods across all major geographies, driven in part by demand for
primer and probe kits related to COVID-19 testing.
The acquisition of Cytiva on March 31, 2020 has provided, and is expected to
continue 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 biologics workflow solutions. Due to the proximity of
the acquisition date to the end of the first quarter, there are no results of
operations for Cytiva included in the Life Sciences segment in the first quarter
of 2020. Beginning in the second quarter of 2020, Cytiva is included in the Life
Sciences segment results. In the second and third quarter of 2020, Cytiva
experienced increased demand across all major geographies and all major
end-markets, driven significantly by demand for instruments and consumables used
in the research and development of COVID-19-related treatments and vaccines.
Depreciation and amortization increased during both the three and nine-month
periods ended October 2, 2020 as compared to the comparable periods of 2019 due
primarily to the impact of the acquisition of Cytiva.
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Operating Profit Performance
Operating profit margins decreased 290 basis points during the three-month
period ended October 2, 2020 as compared to the comparable period of 2019.
Third quarter 2020 vs. third quarter 2019 operating profit margin comparisons
were favorably impacted by:
•Higher 2020 core sales volumes, lower overall spending levels for business
travel and other business activities as a result of the pandemic, incremental
year-over-year cost savings associated with the continuing productivity
improvement initiatives taken in 2020 and 2019 and the impact of foreign
currency exchange rates in the third quarter of 2020, net of incremental
year-over-year costs associated with various sales, service and marketing growth
investments - 300 basis points
•The incremental accretive effect in 2020 of acquired businesses, net of product
line dispositions which did not qualify as discontinued operations - 200 basis
points
Third quarter 2020 vs. third quarter 2019 operating profit margin comparisons
were unfavorably impacted by:
•Third quarter 2020 acquisition-related fair value adjustments to inventory and
deferred revenue related to the acquisition of Cytiva - 790 basis points
Operating profit margins decreased 260 basis points during the nine-month period
ended October 2, 2020 as compared to the comparable period of 2019.
Year-to-date 2020 vs. year-to-date 2019 operating profit margin comparisons were
favorably impacted by:
•Higher 2020 core sales volumes, lower overall spending levels for business
travel and other business activities as a result of the pandemic, incremental
year-over-year cost savings associated with the continuing productivity
improvement initiatives taken in 2020 and 2019 and the impact of foreign
currency exchange rates in the first nine months of 2020, net of incremental
year-over-year costs associated with various sales, service and marketing growth
investments - 145 basis points
•The incremental accretive effect in 2020 of acquired businesses, net of product
line dispositions which did not qualify as discontinued operations - 235 basis
points
Year-to-date 2020 vs. year-to-date 2019 operating profit margin comparisons were
unfavorably impacted by:
•First nine months of 2020 acquisition-related fair value adjustments to
inventory and deferred revenue related to the acquisition of Cytiva - 640 basis
points
DIAGNOSTICS
The Company's Diagnostics segment offers analytical instruments, reagents,
consumables, software and services that hospitals, physicians' offices,
reference laboratories and other critical care settings use to diagnose disease
and make treatment decisions.
Diagnostics Selected Financial Data
Nine-Month Period
Three-Month Period Ended Ended
September 27, September 27,
($ in millions) October 2, 2020 2019 October 2, 2020 2019
Sales $ 1,889.1 $ 1,601.9 $ 5,176.3 $ 4,757.0
Operating profit 408.0 266.0 952.4 782.0
Depreciation 95.7 94.3 290.6 280.1
Amortization of intangible assets 51.3 51.3 154.0 155.1
Operating profit as a % of sales 21.6 % 16.6 % 18.4 % 16.4 %
Depreciation as a % of sales 5.1 % 5.9 % 5.6 % 5.9 %
Amortization as a % of sales 2.7 % 3.2 % 3.0 % 3.3 %
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Core Sales Growth
% Change Three-Month % Change Nine- Month
Period Ended October 2, Period Ended October
2020 vs. Comparable 2, 2020 vs. Comparable
2019 Period 2019 PeriodTotal sales growth (GAAP) 18.0 % 9.0 % Impact of: Currency exchange rates (0.5) % 1.0 % Core sales growth (non-GAAP) 17.5 % 10.0 % Pricing in the segment did not have a significant impact on sales growth on a year-over-year basis during either the three or nine-month periods endedOctober 2, 2020 . In the first nine months of 2020, increased demand for molecular diagnostics and acute care instruments and consumables to support the response to the COVID-19 pandemic was partially offset by lower demand for instruments and consumables in the clinical lab and pathology businesses as a result of shutdowns and restrictions related to the pandemic. While patient volumes remained down year-over-year, in the third quarter of 2020, the Company has seen sequential improvement in patient volume from the second quarter to the third quarter of 2020. Core sales in the segment's clinical lab business decreased on a year-over-year basis for both the three and nine-month periods endedOctober 2, 2020 , driven by lower demand across all major product lines. Geographically, shutdown measures to curb COVID-19 reduced core laboratory testing volumes year-over-year across all major geographies in both periods. During both the three and nine-month periods, core sales increased in the molecular diagnostics business on a year-over-year basis in both developed and high-growth markets, which contributed significantly to overall segment core sales growth. The business experienced particularly strong growth in sales of instruments and consumables in the infectious disease product line in both the three and nine-month periods endedOctober 2, 2020 , driven by the development and commercialization of diagnostic test solutions for COVID-19. Core sales in the acute care diagnostic business increased year-over-year in both the three and nine-month periods driven in part by increased hospitalizations as a result of the COVID-19 pandemic, led by demand for blood gas instruments in both periods as well as demand for consumables in the nine-month period. Geographically, demand was strong across all major geographies. Core sales in the pathology business grew year-over-year in the three-month period endedOctober 2, 2020 , due to increased demand for advanced staining consumables and pathology imaging products. During the nine-month period, core sales in the pathology business declined year-over-year due to lower demand during the first six months of 2020 as a result of the COVID-19 pandemic. Geographically, core sales increased in the three-month period, led byNorth America ,Western Europe andChina , while in the nine-month period core sales decreased as lower demand inChina ,North America and other developed markets more than offset increased demand inWestern Europe and high-growth markets (other thanChina ). Operating Profit Performance Operating profit margins increased 500 basis points during the three-month period endedOctober 2, 2020 as compared to the comparable period of 2019. Year-over-year operating profit margin comparisons were favorably impacted by higher 2020 core sales volumes, lower overall spending levels for business travel and other business activities as a result of the pandemic and incremental year-over-year cost savings associated with the continuing productivity improvement initiatives taken in 2020 and 2019, net of incremental year-over-year costs associated with various new product development, sales, service and marketing growth investments and the impact of foreign currency exchange rates in the third quarter of 2020. Operating profit margins increased 200 basis points during the nine-month period endedOctober 2, 2020 as compared to the comparable period of 2019. Year-to-date 2020 vs. year-to-date 2019 operating profit margin comparisons were favorably impacted by: •Higher 2020 core sales volumes, lower overall spending levels for business travel and other business activities as a result of the pandemic and incremental year-over-year cost savings associated with the continuing productivity improvement initiatives taken in 2020 and 2019, net of incremental year-over-year costs associated with various new product development, sales, service and marketing growth investments, unfavorable product mix and the impact of foreign currency exchange rates in the first nine months of 2020 - 210 basis points Year-to-date 2020 vs. year-to-date 2019 operating profit margin comparisons were unfavorably impacted by: •Impairment charges related to a facility incurred in the first quarter of 2020 - 10 basis points 42 -------------------------------------------------------------------------------- Table of Contents Depreciation and amortization both decreased as a percentage of sales during both the three and nine-month periods endedOctober 2, 2020 , primarily as a result of the increase in sales in both periods. ENVIRONMENTAL & APPLIED SOLUTIONS The Company's Environmental & Applied Solutions segment offers products and services that help protect important resources and keep global food and water supplies safe. The Company's water quality business provides instrumentation, consumables, software, services and disinfection systems to help analyze, treat and manage the quality of ultra-pure, potable, industrial, waste, ground, source and ocean water in residential, commercial, municipal, industrial and natural resource applications. The Company's product identification business provides equipment, software, services and consumables for various color and appearance management, packaging design and quality management, packaging converting, printing, marking, coding and traceability applications on consumer, pharmaceutical and industrial products. Environmental & Applied Solutions Selected Financial Data Nine-Month Period Three-Month Period Ended Ended September 27, September 27, ($ in millions) October 2, 2020 2019 October 2, 2020 2019 Sales$ 1,071.6 $ 1,080.5 $ 3,132.1 $ 3,250.6 Operating profit 245.1 256.5 707.0 761.3 Depreciation 11.3 11.6 34.6 36.6 Amortization of intangible assets 16.1 15.3 46.4 46.5 Operating profit as a % of sales 22.9 % 23.7 % 22.6 % 23.4 % Depreciation as a % of sales 1.1 % 1.1 % 1.1 % 1.1 % Amortization as a % of sales 1.5 % 1.4 % 1.5 % 1.4 %
Core Sales Growth
% Change Three-Month % Change Nine- Month
Period Ended October 2 , Period Ended October
2020 vs. Comparable 2, 2020 vs. Comparable
2019 Period 2019 PeriodTotal sales decline (GAAP) (1.0) % (3.5) % Impact of: Currency exchange rates - % 1.0 % Core sales decline (non-GAAP) (1.0) % (2.5) % Price increases in the segment contributed 2.0% and 1.5% to sales growth on a year-over-year basis during the three and nine-month periods endedOctober 2, 2020 , respectively, and are reflected as a component of core revenue growth (decline). Core sales in the segment's water quality business decreased at a low-single digit rate during the three-month period endedOctober 2, 2020 compared to the comparable period of 2019 primarily as a result of lower demand year-over-year for equipment as a result of the COVID-19 pandemic. While demand for equipment decreased on a year-over-year basis in the third quarter of 2020, the Company saw sequential improvement in the demand for equipment from the second quarter to the third quarter of 2020. On an overall basis, core sales in the water quality business were essentially flat during the nine-month period endedOctober 2, 2020 compared to the comparable period of 2019 as strong demand for consumables in the first quarter was offset by weakness experienced in the second and third quarters of 2020. Year-over-year core sales in the analytical instrumentation product line decreased in the three-month period, as decreases inWestern Europe and theMiddle East more than offset increases inNorth America andChina . In the nine-month period, core sales decreased as lower core sales inNorth America and theMiddle East more than offset increased core sales inWestern Europe andChina . Core sales in the business' chemical treatment solutions product line decreased during the three-month period and increased during the nine-month period. Core sales were negatively impacted in both periods by lower demand in the oil and gas, primary metals, transportation and mining end-markets, partially offset in the nine-month period by increased demand in the food and beverage, consumer and industrial, and power end-markets. Geographically, year-over-year core sales for chemical treatment solutions increased inNorth America and decreased in the high-growth markets, led byLatin America , during both the three and nine-month periods. Core sales in the business' ultraviolet water disinfection product line increased during both the three and nine-month periods, as increased demand inNorth America offset weaker demand in the high-growth markets. 43 -------------------------------------------------------------------------------- Table of Contents Core sales in the segment's product identification businesses decreased at a low-single digit rate during the three-month period and at a mid-single digit rate during the nine-month period endedOctober 2, 2020 compared to the comparable periods of 2019 driven by lower demand for equipment as a result of the COVID-19 pandemic. While demand for equipment decreased on a year-over-year basis in the third quarter of 2020, the Company saw sequential improvement in the demand for equipment from the second quarter to the third quarter of 2020. Core sales in the marking and coding business increased during the three-month period driven by increased demand inNorth America and the high-growth markets partially offset by lower demand inWestern Europe . During the nine-month period, core sales decreased as weaker demand inWestern Europe and the high-growth markets more than offset increased demand inNorth America . In both periods, demand for marking and coding equipment decreased, offset by growth in consumables in the food and beverage, consumer-packaged goods and pharmaceutical end-markets. For packaging and color solutions products and services, core sales decreased in both the three and nine-month periods, driven by lower demand for equipment inWestern Europe ,North America and the high-growth markets. Operating Profit Performance Operating profit margins decreased 80 basis points during the three-month period endedOctober 2, 2020 as compared to the comparable period of 2019. Third quarter 2020 vs. third quarter 2019 operating profit margin comparisons were favorably impacted by: •Lower overall spending levels for business travel and other business activities as a result of the pandemic, incremental year-over-year cost savings associated with continuing productivity improvement initiatives taken in 2020 and 2019 and the impact of foreign currency exchange rates in the third quarter of 2020, net of lower 2020 core sales volumes and incremental year-over-year costs associated with sales, service and marketing growth investments - 75 basis points Third quarter 2020 vs. third quarter 2019 operating profit margin comparisons were unfavorably impacted by: •Impairment charges related to trade names incurred in the third quarter of 2020 - 130 basis points •The incremental net dilutive effect in 2020 of acquired businesses - 25 basis points Operating profit margins decreased 80 basis points during the nine-month period endedOctober 2, 2020 as compared to the comparable period of 2019. Year-over-year operating profit margin comparisons were unfavorably impacted by: •Lower 2020 core sales volumes, incremental year-over-year costs associated with sales, service and marketing growth investments, net of lower overall spending levels for business travel and other business activities as a result of the pandemic, incremental year-over-year cost savings associated with continuing productivity improvement initiatives taken in 2020 and 2019 and the impact of foreign currency exchange rates in the first nine months of 2020 - 20 basis points •Impairment charges related to trade names incurred in the third quarter of 2020 - 45 basis points •Impairment charges related to a trade name and other intangible assets incurred in the first quarter of 2020 - 10 basis points •The incremental net dilutive effect in 2020 of acquired businesses - 5 basis points
COST OF SALES AND GROSS PROFIT
Nine-Month Period
Three-Month Period Ended Ended
September 27, September 27,
($ in millions) October 2, 2020 2019 October 2, 2020 2019
Sales $ 5,883.2 $ 4,378.0 $ 15,523.7 $ 13,042.7
Cost of sales (2,657.7) (1,936.6) (7,002.8) (5,762.6)
Gross profit $ 3,225.5 $ 2,441.4 $ 8,520.9 $ 7,280.1
Gross profit margin 54.8 % 55.8 % 54.9 % 55.8 %
The year-over-year increase in cost of sales during both the three and
nine-month periods ended October 2, 2020 as compared to the comparable periods
in 2019, was due primarily to the impact of higher year-over-year sales volumes,
including sales volumes from recently acquired businesses, and 2020
acquisition-related charges associated with fair value adjustments to inventory
in connection with the Cytiva Acquisition, which increased cost of sales by $220
million and $417 million during the three and nine-month periods ended
October 2, 2020 , respectively.
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The year-over-year decrease in gross profit margins during both the three and
nine-month periods ended October 2, 2020 as compared to the comparable periods
in 2019, was primarily due to 2020 acquisition-related charges associated with
fair value adjustments to inventory and deferred revenue in connection with the
Cytiva Acquisition, which adversely impacted gross profit margin comparisons by
approximately 380 basis points and 280 basis points during the three and
nine-month periods ended October 2, 2020 , respectively. The impact of higher
year-over-year sales volumes, including sales volumes from recently acquired
businesses, and higher gross profit margins of recently acquired businesses
partially offset this negative factor.
OPERATING EXPENSES
Nine-Month Period
Three-Month Period Ended Ended
September 27, September 27,
($ in millions) October 2, 2020 2019 October 2, 2020 2019
Sales $ 5,883.2 $
4,378.0
1,795.3 1,382.5 4,939.0 4,140.2
Research and development ("R&D")
expenses 342.6 282.6 952.2 832.2
SG&A as a % of sales 30.5 % 31.6 % 31.8 % 31.7 %
R&D as a % of sales 5.8 % 6.5 % 6.1 % 6.4 %
The year-over-year decrease in SG&A expenses as a percentage of sales for the
three-month period ended October 2, 2020 as compared to the comparable period in
2019, was driven by the benefit of increased leverage of the Company's general
and administrative cost base resulting from higher 2020 sales volumes, including
sales volumes from recently acquired companies, incremental year-over-year cost
savings associated with the continuing productivity improvement initiatives
taken in 2020 and 2019, lower travel expenses in 2020 and lower year-over-year
transaction costs related to the Cytiva Acquisition. These decreases were
partially offset by incremental year-over-year amortization charges, primarily
related to the Cytiva Acquisition, which adversely impacted SG&A as a percentage
of sales by approximately 205 basis points, impairment charges related to trade
names in the Environmental & Applied solutions segment incurred in the third
quarter of 2020 and continued investments in sales and marketing growth
initiatives. The year-over-year increase in SG&A expenses as a percentage of
sales for the nine-month period ended October 2, 2020 as compared to the
comparable period in 2019, was driven by incremental year-over-year amortization
charges, primarily related to the Cytiva Acquisition, which adversely impacted
SG&A as a percentage of sales by approximately 155 basis points, impairment
charges related to a facility in the Diagnostics segment and trade name and
other intangible assets in the Environmental & Applied solutions segment
incurred in the first and third quarters of 2020 and continued investments in
sales and marketing growth initiatives. These decreases were partially offset by
the benefit of increased leverage of the Company's general and administrative
cost base resulting from higher 2020 sales volumes, including sales volumes from
recently acquired companies, incremental year-over-year cost savings associated
with the continuing productivity improvement initiatives taken in 2020 and 2019,
lower travel expenses in 2020 and lower year-over-year transaction costs related
to the Cytiva Acquisition.
R&D expenses (consisting principally of internal and contract engineering
personnel costs) as a percentage of sales declined during both the three and
nine-month periods ended October 2, 2020 as compared to the comparable periods
of 2019. The decline was primarily due to lower R&D expenses as a percentage of
sales in businesses recently acquired as well as the impact of sales growth
rates exceeding the spending growth related to the Company's new product
development initiatives.
OTHER (EXPENSE) INCOME, NET
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 (expense) 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 $3
million and $14 million for the three and nine-month periods ended October 2,
2020 , respectively, compared to a gain of $4 million and $14 million for the
three and nine-month periods ended September 27, 2019 .
The Company estimates the fair value of investments in equity securities using
the Fair Value Alternative and records adjustments to fair value within net
earnings. Additionally, the Company is a limited partner in a partnership that
invests in early stage companies. While the partnership records these
investments at fair value, the Company's investment in the partnership is
accounted for under the equity method of accounting. During the three and
nine-month periods ended October 2, 2020 , the Company recorded unrealized gains
of $3 million and unrealized losses of $10 million , respectively, related to
changes in the fair value of these investments. No significant realized or
unrealized gains or losses were recorded in the three
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and nine-month periods ended September 27, 2019 with respect to these
investments.
GAIN ON SALE OF PRODUCT LINES
As a condition to obtaining certain regulatory approvals for the closing of the
Cytiva Acquisition, the Company was required to divest certain of its existing
product lines in the Life Sciences segment that in the aggregate generated
revenues of approximately $170 million in 2019. On April 30, 2020 , the Company
completed the sale of these product lines for a cash purchase price, net of cash
transferred and transaction costs, of $826 million and recognized a pretax gain
on sale of $455 million ($305 million after-tax or $0.42 per diluted common
share) in the second quarter of 2020. The divestiture of these product lines did
not represent a strategic shift with a major effect on the Company's operations
and financial results and therefore is not reported as a discontinued operation.
INTEREST COSTS AND FINANCING
For a discussion of the Company's outstanding indebtedness, refer to Note 7 to
the accompanying Consolidated Condensed Financial Statements.
Interest expense of $77 million and $203 million for the three and nine-month
periods ended October 2, 2020 , respectively, was $53 million higher and $139
million higher than the comparable periods of 2019, due primarily to the higher
average debt balances as a result of the issuances of debt in September 2019 ,
November 2019 , March 2020 and April 2020 , higher U.S. -dollar denominated
commercial paper borrowings in 2020, compared to the comparable periods of 2019,
and 2020 borrowings under the Five-Year Facility and the Superseded 364-Day
Facility.
Interest income of $4 million and $68 million for the three and nine-month
periods ended October 2, 2020 , respectively, was $26 million lower and $4
million lower than the comparable periods of 2019, due primarily to lower rates
on cash deposits, partially offset in the nine-month period by higher average
cash balances during the first quarter of 2020 attributable to the cash raised
to fund the Cytiva Acquisition.
INCOME TAXES
The following table summarizes the Company's effective tax rate:
Three-Month Period Ended Nine-Month Period Ended
October 2, 2020 September 27, 2019 October 2, 2020 September 27, 2019
Effective tax rate 13.5 % 19.8 % 18.5 % 29.6 %
The effective tax rate for the three-month period ended October 2, 2020 differs
from the U.S. federal statutory rate of 21.0% principally due to the release of
reserves for uncertain tax positions from audit settlements and expiration of
statutes of limitation, excess tax benefits from stock-based compensation, and
other items. These items decreased the reported tax rate by 6.1%.
The effective tax rate for the nine-month period ended October 2, 2020 differs
from the U.S. federal statutory rate of 21.0% principally due to release of
reserves for uncertain tax positions from audit settlements and expiration of
statutes of limitation, and excess tax benefits from stock-based compensation,
partially offset by a higher tax rate associated with the gain on the
divestiture of certain product lines in the Life Sciences segment and changes in
estimates associated with prior period uncertain tax positions. These items
decreased the reported tax rate on a net basis by 1.1%.
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 common 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 net discrete income tax charges increased the
reported tax rate by 9.7%.
The Company conducts business globally, and files numerous consolidated and
separate income tax returns in federal, state and foreign jurisdictions. In
addition to the Company's significant presence in the U.S. , the Company also has
a significant presence in China , Denmark , Germany , Singapore , Sweden ,
Switzerland and the UK . Excluding these jurisdictions, the
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Company believes that a change in the statutory tax rate of any individual
foreign country would not have a material impact on the on-going effective tax
rate of the Company given the geographical dispersion of the Company's taxable
income.
The Company and its subsidiaries are routinely examined by various domestic and
international taxing authorities. The Internal Revenue Service ("IRS") has
completed the examinations of substantially all of the Company's federal income
tax returns through 2015 and is currently examining certain of the Company's
federal income tax returns for 2016 through 2018. In addition, the Company has
subsidiaries in Austria , Belgium , Canada , China , Denmark , France , Germany ,
India , Japan , Korea , Switzerland , the UK and various other countries, states and
provinces that are currently under audit for years ranging from 2004 through
2018.
In the fourth quarter of 2018 and in the first quarter of 2019, the 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 challenged the deferral of premiums for certain
types of the Company's self-insurance policies. These proposed adjustments would
have increased the Company's taxable income over the 2012 through 2015 period by
approximately $2.7 billion . In the third quarter of 2020, the Company settled
the 2012 through 2015 audit period with the IRS , including the resolution of
these proposed adjustments. The settlement was not material to the Company's
financial statements, including its cash flows and effective tax rate. As the
settlement with the IRS was specific to the audit period, the settlement does
not preclude the IRS from proposing similar adjustments to the Company's
self-insurance programs in current or future audits. In connection with its
examination of the Company's federal income tax returns for 2016, 2017 and 2018,
the IRS has requested additional information on the Company's self-insurance
programs. Due to the enactment of the Tax Cuts and Jobs Act 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 IRS proposes adjustments related to the Company's self-insurance premiums
with respect to years subsequent to 2015 and the Company is unsuccessful in
defending its position, any 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.
Management believes the positions the Company has taken in its U.S. tax returns
are in accordance with the relevant tax laws.
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") of
approximately DKK 1.9 billion including interest (approximately $292 million
based on the exchange rate as of October 2, 2020 ), imposing withholding tax
relating to interest accrued in Denmark on borrowings by 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, preceding withholding tax cases that were
appealed to the Danish Courts and subsequently to the Court of Justice of the
European Union ("CJEU"). In February 2019 , the CJEU decided several of these
cases and ruled that the exemption of interest payments from withholding taxes
provided in the applicable 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. This decision of the CJEU now awaits
application by the Danish High Court in the other, preceding withholding tax
cases. SKAT has maintained a similar position related to withholding tax on
interest accrued in Denmark on borrowings by certain of the Company's
subsidiaries with respect to tax years 2010-2012 and 2013-2015. On August 27,
2019 and December 16, 2019 , the Company received assessments for these matters
of approximately DKK 1.1 billion including interest (approximately $169 million
based on the exchange rate as of October 2, 2020 ) for tax years 2010-2012 and
DKK 761 million including interest (approximately $120 million based on the
exchange rate as of October 2, 2020 ) for tax years 2013-2015, respectively. The
Company is appealing these assessments as well.
Management believes the positions the Company has taken in Denmark are in
accordance with the relevant tax laws and is vigorously defending its positions.
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 financial
statements, including its cash flow and effective tax rate.
On June 24, 2020 , SKAT issued a press release to announce that it has misapplied
Denmark's interest rules in some assessments concerning withholding tax. The
Company's subsidiaries in Denmark have been notified that they may be one of the
companies potentially overcharged interest but a determination of the impact of
such notice has not been received.
The Company expects its effective tax rate for the remainder of 2020 to be
approximately 19.6%. The Company's effective tax rate could vary as a result of
many factors, including but not limited to the following:
47
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Table of Contents
•The expected rate for the remainder of 2020 includes the anticipated discrete
income tax benefits from excess tax deductions related to the Company's stock
compensation programs, which are reflected as a reduction in tax expense, though
the actual benefits (if any) will depend on the Company's stock price and stock
option exercise patterns.
•The actual mix of earnings by jurisdiction could fluctuate from the Company's
projection, particularly given the uncertainties related to the COVID-19
pandemic.
•The tax effects of other discrete items, including accruals related to tax
contingencies, the resolution of worldwide tax matters, tax audit settlements,
statute of limitations expirations and changes in tax regulations.
•Any future legislative changes or potential tax reform, the impact of future
regulations and guidance implementing the Tax Cuts and Jobs Act and any related
additional tax planning efforts to address these changes.
As a result of the uncertainty in predicting these items, it is reasonably
possible that the actual effective tax rate used for financial reporting
purposes will change in future periods.
COMPREHENSIVE INCOME
For the three and nine-month periods ended October 2, 2020 , comprehensive income
attributable to Danaher increased approximately $1.3 billion and approximately
$3.0 billion , respectively, as compared to the comparable periods of 2019,
primarily driven by gains from foreign currency translation adjustments and
higher net earnings in both the three and nine-month periods and gains from cash
flow hedge adjustments in the nine-month period. The Company recorded foreign
currency translation gains of $923 million and approximately $1.8 billion for
the three and nine-month periods ended October 2, 2020 , respectively, as
compared to foreign currency translation losses of $236 million and $293 million
for the three and nine-month periods ended September 27, 2019 , respectively. The
Company recorded a loss of $90 million and a gain of $176 million from cash flow
hedge adjustments related to the Company's cross-currency swap derivative
contracts for the three and nine-month periods ended October 2, 2020 ,
respectively, as compared to losses of $42 million and $49 million for the three
and nine-month periods ended September 27, 2019 , respectively.
INFLATION
The effect of inflation on the Company's revenues and net earnings was not
significant in the three and nine-month periods ended
LIQUIDITY AND CAPITAL RESOURCES Management assesses the Company's liquidity in terms of its ability to generate cash to fund its operating, investing and financing activities. The Company continues to generate substantial cash from operating activities and believes that its operating cash flows, cash on hand and other available sources of liquidity will be sufficient to allow it to continue investing in existing businesses, consummating strategic acquisitions and investments, paying interest and servicing debt, funding restructuring activities and managing its capital structure on a short-term and long-term basis. Notwithstanding the foregoing, the Company continues to monitor the impact of the COVID-19 pandemic on the Company's liquidity and capital resources and take actions intended to mitigate adverse impacts. Historically, the Company has generally relied on borrowings under its commercial paper program to address liquidity requirements that exceed the capacity provided by its operating cash flows and cash on hand, while also accessing the capital markets from time to time to secure financing for more significant acquisitions. The COVID-19 pandemic adversely affected the availability of new borrowings in the commercial paper markets in the late first quarter and in the second quarter of 2020. Therefore, in March andApril 2020 , the Company borrowed$2.5 billion under the Five-Year Facility and$2.5 billion under the Superseded 364-Day Facility for general corporate purposes (including payment of a portion of the purchase price for the Cytiva Acquisition and repayment of certain commercial paper obligations as they mature), and also issued approximately €2.5 billion (approximately$2.7 billion based on currency exchange rates as of the respective dates of the pricing of the notes) aggregate principal amount of euro-denominated long-term debt, the proceeds of which have been and are being used for general corporate purposes (including repayment of the borrowings under the Superseded 364-Day Facility and the Five-Year Facility, and repayment of certain commercial paper obligations as they mature). Additionally, inMay 2020 , the Company completed the 2020 Common Stock Offering and 2020 MCPS Offering and received net proceeds of approximately$1.73 billion and$1.67 billion , respectively. OnJune 5, 2020 , the Company entered into a new$2.5 billion 364-Day Facility with a syndicate of banks that expires onJune 4, 2021 to replace the Superseded 364-Day Facility. As ofOctober 2, 2020 , after taking into account amounts backstopping 48 -------------------------------------------------------------------------------- Table of Contents outstanding commercial paper, the Company had availability under its Credit Facilities of approximately$5.6 billion for direct borrowings or to backstop the issuance of additional commercial paper to the extent available. Following is an overview of the Company's cash flows and liquidity ($ in millions): Overview of Cash Flows and Liquidity Nine-Month Period Ended September 27, ($ in millions) October 2, 2020 2019
Total operating cash provided by continuing operations
Cash paid for acquisitions$ (20,818.5) $ (331.1) Payments for additions to property, plant and equipment (475.2) (456.5) Proceeds from sales of property, plant and equipment 1.4 12.5 Payments for purchases of investments (214.9) (163.4) Proceeds from sale of product lines 825.9 - All other investing activities 23.6 29.1 Total investing cash used in continuing operations $
(20,657.7)
Proceeds from the issuance of common stock in connection with stock-based compensation
$
125.2
1,443.2
Proceeds from the sale of preferred stock, net of issuance costs
1,668.1 1,599.6
Proceeds from the sale of Envista Holdings Corporation common stock, net of issuance costs
- 643.4
Payment of dividends (445.4) (385.0)
Net (repayments of) proceeds from borrowings (maturities of 90 days or less)
(3,339.3) 744.1
Net proceeds from borrowings (maturities longer than 90 days) 7,691.3
8,137.1
Net repayments of borrowings (maturities longer than 90 days) (5,000.0)
(680.9)
All other financing activities (2.7) (6.0)
Net operating cash provided by financing activities $
2,425.7
•Operating cash flows from continuing operations increased approximately$1.3 billion , or approximately 50%, during the nine-month period endedOctober 2, 2020 as compared to the comparable period of 2019, due to higher net earnings (after excluding noncash impairment charges and fair value adjustments related to certain long-lived assets in 2020, noncash charges for depreciation, amortization and stock compensation in both periods, and noncash discrete tax charges in 2019), higher cash provided by trade accounts receivables, prepaid expenses and other assets, and accrued expenses and other liabilities during the 2020 period compared to the prior year, partially offset by higher cash used for inventories and trade accounts payable in 2020 compared to the prior year. •Net cash used in investing activities consisted primarily of cash paid for acquisitions. The Company acquired Cytiva during the nine-month period endedOctober 2, 2020 for total cash consideration of approximately$20.7 billion (net of approximately$0.1 billion of acquired cash). In addition to Cytiva, the Company acquired one other business for$104 million during the nine-month period endedOctober 2, 2020 . Refer to Note 3 to the accompanying Consolidated Condensed Financial Statements for additional information on the Company's acquisitions. •OnMarch 24, 2020 , the Company borrowed$2.5 billion under the Five-Year Facility and onApril 7, 2020 , the Company borrowed$2.5 billion under the Superseded 364-Day Facility. The Company repaid$1.25 billion of the borrowings under the Five-Year Facility and all of the borrowings under the Superseded 364-Day Facility inMay 2020 . The Company repaid the remaining$1.25 billion of the borrowings under the Five-Year Facility inSeptember 2020 . OnMarch 30, 2020 andApril 8, 2020 , the Company issued senior unsecured Euronotes and received net proceeds of approximately €1.7 billion (approximately$1.9 billion based on currency exchange rates as of the date of the pricing of the notes) and approximately €754 million (approximately$816 million based on currency exchange rates as of the date of the pricing of the notes), respectively. 49 -------------------------------------------------------------------------------- Table of Contents •InMay 2020 , the Company completed the 2020 Common Stock Offering and the 2020 MCPS offering, resulting in net proceeds of approximately$1.73 billion , after deducting expenses and the underwriters' discount of$54 million , and approximately$1.67 billion , after deducting expenses and the underwriters' discount of$49 million , respectively. •As ofOctober 2, 2020 , the Company held approximately$5.7 billion of cash and cash equivalents. Operating Activities Cash flows from operating activities can fluctuate significantly from period-to-period as working capital needs and the timing of payments for income taxes, restructuring activities, pension funding and other items impact reported cash flows. Operating cash flows from continuing operations were approximately$4.0 billion for the first nine months of 2020, an increase of approximately$1.3 billion , or approximately 50%, as compared to the comparable period of 2019. The year-over-year change in operating cash flows from 2019 to 2020 was primarily attributable to the following factors: •2020 operating cash flows reflected an increase of$767 million in net earnings from continuing operations for the first nine months of 2020 as compared to the comparable period in 2019. Partially offsetting the impact of this increase is the fact that 2019 net earnings from continuing operations include$227 million of net discrete noncash tax charges compared to a net discrete noncash tax benefit of$85 million in 2020. In addition, net earnings from continuing operations in 2020 included$32 million in aggregate of noncash impairment charges and fair value adjustments related to certain long-lived assets. Each of these noncash charges and adjustments decreased earnings without a corresponding impact to operating cash flows. •Net earnings for the first nine months of 2020 also reflected an increase of$813 million of depreciation, amortization (intangible assets and inventory step-up) and stock compensation expense as compared to the comparable period of 2019. Amortization expense primarily relates to the amortization of intangible assets and inventory fair value adjustments. Depreciation expense relates to both the Company's manufacturing and operating facilities as well as instrumentation leased to customers under OTL arrangements. Depreciation, amortization and stock compensation are noncash expenses that decrease earnings without a corresponding impact to operating cash flows. •The aggregate of trade accounts receivable, inventories and trade accounts payable used$139 million in operating cash flows during the first nine months of 2020, compared to$236 million of operating cash flows used in the comparable period of 2019. The amount of cash flow generated from or used by the aggregate of trade accounts receivable, inventories and trade accounts payable depends upon how effectively the Company manages the cash conversion cycle, which effectively represents the number of days that elapse from the day it pays for the purchase of raw materials and components to the collection of cash from its customers and can be significantly impacted by the timing of collections and payments in a period. •The aggregate of prepaid expenses and other assets and accrued expenses and other liabilities provided$361 million of operating cash flows during the first nine months of 2020, compared to$251 million of operating cash flows provided in the comparable period of 2019. The noncash discrete tax items noted above, the timing of cash payments for transaction costs incurred in connection with the Cytiva Acquisition and various employee-related liabilities, partially offset by cash payments for income taxes, customer funding and changes in accrued expenses, drove the majority of this change. The continuing impact of the COVID-19 pandemic may have an adverse impact on the Company's operating cash flow if the measures to contain and mitigate the spread of COVID-19 adversely impact the Company's sales and earnings, the collections of accounts receivable, including delays in collections and increases in uncollectible receivables, and/or adversely impact our supply chain and inventory levels. The future impact from the COVID-19 pandemic on the Company's operating cash flow is highly uncertain but may be material. Investing Activities Cash flows relating to investing activities consist of cash used for acquisitions and capital expenditures, including instruments leased to customers, cash used for investments and cash proceeds from divestitures of businesses or assets. Net cash used in investing activities increased approximately$19.7 billion in the nine-month period endedOctober 2, 2020 compared to the comparable period of 2019, primarily as a result of the Company's acquisition of Cytiva in the first quarter of 2020. For a discussion of the Company's acquisitions and divestitures during the first nine months of 2020 refer to "-Overview". 50 -------------------------------------------------------------------------------- Table of Contents Capital expenditures are made primarily for increasing capacity, replacing equipment, supporting new product development, improving information technology systems and the manufacture of instruments that are used in OTL arrangements that certain of the Company's businesses enter into with customers. Capital expenditures increased$19 million on a year-over-year basis for the nine-month period endedOctober 2, 2020 compared to the comparable period in 2019, due to capital expenditures to support production of products related to testing, treatment and vaccines for COVID-19 and capital expenditures at Cytiva, partially offset by declines in expenditures for instruments used in OTL arrangements. For the full year 2020, the Company forecasts capital spending to be approximately$800 million , though actual expenditures will ultimately depend on business conditions. The Company anticipates declines in expenditures for instruments used in OTL arrangements due to the COVID-19 pandemic to be offset by increased capital expenditures to support production of products related to COVID-19 and increases in capital expenditures as a result of the Cytiva Acquisition. Financing Activities and Indebtedness Cash flows relating to financing activities typically consist primarily of cash flows associated with the issuance and repayments of commercial paper, issuance and repayment of notes payable and long-term debt, borrowings under committed credit facilities, issuance and repurchases of common stock, issuance of preferred stock and payments of cash dividends to shareholders. Financing activities provided cash of approximately$2.4 billion during the nine-month period endedOctober 2, 2020 compared to approximately$11.6 billion of cash provided in the comparable period of 2019. The year-over-year decrease in cash provided by financing activities was due primarily to the significant borrowings incurred in 2019 to finance the Cytiva Acquisition, partially offset by borrowings incurred in 2020 to finance the remaining amounts needed to acquire Cytiva and for general corporate purposes. For a description of the Company's financing activities in the nine months of 2020, the Company's outstanding debt as ofOctober 2, 2020 and the Company's commercial paper programs and credit facilities, refer to Note 7 to the accompanying Consolidated Condensed Financial Statements. As ofOctober 2, 2020 , the Company was in compliance with all of its respective debt covenants. Credit support for the Company's commercial paper program is provided by the Five-Year Facility and the 364-Day Facility. For a description of the Company's financing of the Cytiva Acquisition, refer to Note 3 to the accompanying Consolidated Condensed Financial Statements. See Notes 7 and 16 to the accompanying Consolidated Condensed Financial Statements for a description of the Company's plan to redeem the 2022 Euronotes in the fourth quarter of 2020. Stock Repurchase Program For information regarding the Company's stock repurchase program, refer to Part II-Item 2, "Unregistered Sales ofEquity Securities and Use of Proceeds".
Dividends
Aggregate cash payments for dividends on Company common stock during the nine-month period endedOctober 2, 2020 were$371 million and aggregate cash payments for dividends on the Company's MCPS Shares during the nine-month period endedOctober 2, 2020 were$74 million . The increase in dividend payments over the comparable period of 2019 primarily relates to dividends paid on the MCPS Series A and MCPS Series B, which were issuedMarch 1, 2019 andMay 12, 2020 , respectively, as well as an increase in the quarterly dividend rate for common stock beginning with respect to the dividend paid in the second quarter of 2019. In the third quarter of 2020, the Company declared a regular quarterly dividend of$0.18 per share of Company common stock payable onOctober 30, 2020 to holders of record as ofSeptember 28, 2020 . In addition, the Company declared a quarterly cash dividend of$11.875 per MCPS Series A that was paid onOctober 15, 2020 to holders of record as ofSeptember 30, 2020 and quarterly cash dividend of$12.50 per MCPS Series B that was paid onOctober 15, 2020 to holders of record as ofSeptember 30, 2020 . Cash and Cash Requirements As ofOctober 2, 2020 , the Company held approximately$5.7 billion of cash and cash equivalents that were held on deposit with financial institutions or invested in highly liquid investment-grade debt instruments with a maturity of 90 days or less. The Company expects interest income earned on cash in future periods to decline compared to prior periods, as the interest income earned in prior periods was driven by the funds raised to finance the Cytiva Acquisition. Of the cash and cash equivalents, approximately$2.2 billion was held withinthe United States and approximately$3.5 billion was held outside of the United 51
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Table of Contents States. The Company will continue to have cash requirements to support general corporate purposes, which may include working capital needs, capital expenditures and acquisitions, paying interest and servicing debt, paying taxes and any related interest or penalties, funding its restructuring activities and pension plans as required, paying dividends to shareholders, repurchasing shares of the Company's common stock and supporting other business needs. The Company generally intends to use available cash and internally generated funds to meet these cash requirements, but in the event that additional liquidity is required, the Company may also borrow under its commercial paper programs (if available) or the Credit Facilities, enter into new credit facilities and either borrow directly thereunder or use such credit facilities to backstop additional borrowing capacity under its commercial paper programs (if available) and/or access the capital markets (if available). The Company also may from time to time seek to access the capital markets to take advantage of favorable interest rate environments or other market conditions. With respect to the commercial paper scheduled to mature during the remainder of 2020, the Company expects to repay the principal amounts when due using available cash, proceeds from new issuances of commercial paper (if available), drawing on its Credit Facilities and/or proceeds from other debt issuances. While repatriation of some cash held outsidethe United States may be restricted by local laws, most of the Company's foreign cash could be repatriated tothe United States . Following enactment of the Tax Cuts and Jobs Act and the associated Transition Tax, in general, repatriation of cash tothe United States can be completed with no incrementalU.S. tax; however, repatriation of cash could subject the Company to non-U.S. taxes on distributions. The cash that the Company's non-U.S. subsidiaries hold for indefinite reinvestment is generally used to finance foreign operations and investments, including acquisitions. The income taxes, if any, applicable to such earnings including basis differences in our foreign subsidiaries are not readily determinable. As ofOctober 2, 2020 , management believes that it has sufficient sources of liquidity to satisfy its cash needs, including its cash needs inthe United States . During 2020, the Company's cash contribution requirements for itsU.S. and non-U.S. defined benefit pension plans are forecasted to be approximately$85 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. OnMarch 27, 2020 , the Coronavirus Aid, Relief, and Economic Security ("CARES") Act was signed into law and includes a provision that allows employers to defer payment of contributions toU.S. defined benefit pension plans due in 2020 untilJanuary 1, 2021 . The Company has not elected to defer any 2020 contributions to itsU.S. defined benefit pension plans pursuant to this provision. CRITICAL ACCOUNTING ESTIMATES There were no material changes to the Company's critical accounting estimates described in the 2019 Annual Report that have a material impact on the Company's Consolidated Condensed Financial Statements and the related Notes.
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