EX-99.1 2 exhibit991-veraltoform10a.htm EX-99.1 Document
Exhibit 99.1
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                    , 2023
Dear Danaher Corporation Stockholder:
On September 14, 2022, we announced our intention to separate our Environmental & Applied Solutions businesses to create a separate, publicly traded company, which will occur by means of a spin-off of all of the outstanding shares of common stock of a newly formed company named Veralto Corporation (“Veralto”) to Danaher stockholders. We believe that the spin-off will position Danaher and Veralto to further grow their respective businesses and enhance long-term value for all of our stockholders, customers and associates. We further believe that Veralto can be more effective as a stand-alone company, with greater focus on both organic growth and inorganic investment opportunities. The principles of the Danaher Business System will remain the foundation of both companies.
Veralto will have outstanding brands and market-leading positions in a broad range of water quality and product quality and innovation related instruments, consumables, software and services. It will be comprised of the businesses included in Danaher’s existing Environmental & Applied Solutions segment, which consists of Danaher’s existing Water Quality and Product Quality & Innovation (previously referred to as Product Identification) businesses. As a stand-alone entity, Veralto will be better positioned to accelerate its growth trajectory, drive margin expansion, and pursue acquisition opportunities. We believe that the separation will support an even more attractive earnings profile for Veralto going forward.
Following the spin-off, Danaher will continue to hold leading positions in areas of biotechnology, life sciences and diagnostics that are exposed to favorable secular and structural growth trends. These positions are comprised of leading brands that share common characteristics including: a high percentage of recurring revenue, an attractive growth and margin profile, and, predominantly, a direct to end customer commercial strategy. Danaher will be well positioned to grow organically, improve profitability, and deploy capital to generate substantial earnings growth.
The spin-off will provide current Danaher stockholders with ownership interests in both Danaher and Veralto, and will be in the form of a pro rata distribution of all of the outstanding shares of Veralto common stock to holders of Danaher common stock. Each Danaher stockholder will receive one share of Veralto common stock for every three shares of Danaher common stock held at the close of business on September 13, 2023, the record date for the distribution. You do not need to take any action to receive shares of Veralto common stock to which you are entitled as a Danaher stockholder. You do not need to pay any consideration or surrender or exchange your shares of Danaher common stock to participate in the spin-off.
The distribution is intended to be tax-free to Danaher stockholders for U.S. federal income tax purposes, except for any cash received by stockholders in lieu of fractional shares. You should consult your own tax advisor as to the particular consequences of the distribution to you, including the applicability and effect of any U.S. federal, state and local and non-U.S. tax laws.
I encourage you to read the attached information statement, which is being provided to all Danaher stockholders who held shares on the record date for the distribution. The information statement describes the separation in detail and contains important business and financial information about Veralto.
We believe that the spin-off is a positive step for Danaher and Veralto and is in the best interests of Danaher and its stockholders. We remain committed to working on your behalf to continue to build long-term stockholder value.
Sincerely,
Rainer M. Blair
President and Chief Executive Officer
Danaher Corporation


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                    , 2023
Dear Future Veralto Stockholder:
I am excited for you to get to know our business and look forward to welcoming you as a stockholder of Veralto Corporation (“Veralto”) when we become a separate publicly traded company. We plan to list Veralto on the New York Stock Exchange under the ticker symbol “VLTO”. Veralto is a leader in public health and safety with an attractive operating profile and a proven business system designed to create long-term shareholder value. This strong foundation was born from our rich heritage at Danaher, and we are committed to building on our legacy of growth, innovation, and continuous improvement by carrying forward the principles of the Danaher Business System as we transition to the Veralto Enterprise System (“VES”).
Veralto stands for our commitment to the highest levels of excellence in pursuit of our unifying purpose: Safeguarding the World’s Most Vital ResourcesTM. We are committed to the advancement of public health and safety and believe we are well positioned to help address some of the world’s most challenging environmental and sustainability issues.
Veralto is comprised of long-established operating companies with leading brands focused on solving global challenges, including water quality, water scarcity, food safety, and labor shortages in our served industries. The breadth of our product offering is complemented by technical applications expertise, digital capabilities, and customer service; all of which help support our customers’ objectives to reduce operating costs, minimize their environmental impact, and support consumer health and safety.
Strong secular trends continue to shape the industries in which we participate and provide opportunities for future growth. These trends include increasing regulatory standards for drinking water and wastewater discharge, growing global demand for safe and affordable water, enhanced focus on product safety, along with a heightened focused on sustainability. Given Veralto's history of helping customers navigate significant regulatory, sustainability and product safety challenges, we believe we are well positioned to capitalize on these secular trends.
Veralto’s leadership team is diverse, talented and experienced and includes a balance of Danaher veterans and external hires with public company experience. Our team of 16,000 associates is data driven and results oriented with a growth and continuous improvement mindset. We strive to create and sustain a culture of empowerment and accountability where our associates feel a sense of belonging in an inclusive workplace that is challenging, rewarding and offers the ability to make meaningful, enduring contributions to humanity.
As a separate publicly traded company we see significant opportunities to create future value by executing against three strategic imperatives:
1.Safeguarding the world’s most vital resourcesTM: We seek to have a positive, enduring impact by supporting public health and safety, delivering quality and reliability, and fostering trust and innovation. We believe our track record of innovation and performance, combined with regulatory, environmental and sustainability secular growth drivers position Veralto to play a leading role in helping ensure the vitality of everyday life.
2.Drive operational excellence through the application of VES: Our operating businesses have leveraged DBS (known as VES at Veralto) to continuously improve their operational and financial results across our business for over 20 years. VES is paramount to our results-oriented, growth, innovation, and continuous improvement mindset. In the spirit of continuous improvement, we intend to tailor VES to our culture and portfolio of operating businesses to maximize its impact across our enterprise.


3.Execute strategic, disciplined capital allocation: We intend to re-invest the substantial free cash flow we expect from our operations, after taking into account any debt servicing payments and potential dividends, towards actions that we believe drive long-term shareholder value creation - prioritizing accretive organic growth initiatives and acquisitions that strategically expand the offerings of our businesses and help us address new and emerging challenges impacting our customers, while maintaining our flexibility to return capital to shareholders.
I personally invite you to learn more about Veralto by reading the attached information statement. Our team looks forward to earning your trust as we focus on delivering results through customer-inspired ingenuity and continuous improvement that leaves an enduring impact.

Sincerely,
Jennifer L. Honeycutt
President & Chief Executive Officer
Veralto Corporation


Information contained herein is subject to completion or amendment. A Registration Statement on Form 10 relating to these securities has been filed with the U.S. Securities and Exchange Commission under the U.S. Securities Exchange Act of 1934, as amended, but has not yet become effective.
PRELIMINARY AND SUBJECT TO COMPLETION, DATED AUGUST 25, 2023
INFORMATION STATEMENT
Veralto Corporation
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This information statement is being furnished in connection with the distribution by Danaher Corporation (“Danaher”) to its stockholders of all of the outstanding shares of common stock of Veralto Corporation, a wholly owned subsidiary of Danaher that will hold, directly or indirectly, substantially all of the assets and liabilities associated with Danaher’s existing Environmental & Applied Solutions segment (consisting of Danaher’s existing Water Quality and Product Identification businesses) (“Veralto”). To implement the distribution, Danaher will distribute all of the shares of Veralto common stock on a pro rata basis to the Danaher stockholders.
For every three shares of Danaher common stock held of record by you as of the close of business on September 13, 2023, the record date for the distribution, you will receive one share of Veralto common stock. You will receive cash in lieu of any fractional shares of Veralto common stock that you would have received after application of the above ratio. As discussed under “The Separation and Distribution—Trading Between the Record Date and Distribution Date,” if you sell your shares of Danaher common stock “regular-way” after the record date and before the distribution, you also will be selling your right to receive shares of Veralto common stock in connection with the separation. Veralto expects the shares of Veralto common stock to be distributed by Danaher on September 30, 2023. We refer to the date of the distribution of the shares of Veralto common stock as the “distribution date.” Because September 30, 2023 is a Saturday and not a business day, the shares are expected to be credited to “street name” stockholders through the Depository Trust Company (“DTC”) on the first trading day thereafter, Monday, October 2, 2023.
The distribution is expected to be tax-free to Danaher stockholders for U.S. federal income tax purposes, except for any cash received in lieu of fractional shares.
No vote of Danaher stockholders is required for the distribution. Therefore, you are not being asked for a proxy, and you are requested not to send Danaher a proxy, in connection with the distribution. You do not need to pay any consideration, exchange or surrender your existing shares of Danaher common stock or take any other action to receive your shares of Veralto common stock.
There is no current trading market for Veralto common stock, although Veralto expects that a limited market, commonly known as a “when-issued” trading market, will develop on the third trading day prior to the distribution date, and Veralto expects “regular-way” trading of Veralto common stock to begin on the first trading day following the distribution. Veralto has applied to have its common stock authorized for listing on the New York Stock Exchange (the “NYSE”) under the symbol “VLTO.” Following the distribution, Danaher will continue to trade on the NYSE under the symbol “DHR.”
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In reviewing this information statement, you should carefully consider the matters described under the caption “Risk Factors” beginning on page 17.
Neither the U.S. Securities and Exchange Commission nor any state securities commission has approved or disapproved these securities or determined if this information statement is truthful or complete. Any representation to the contrary is a criminal offense.
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This information statement does not constitute an offer to sell or the solicitation of an offer to buy any securities.
The date of this information statement is [l], 2023.
A notice of Internet Availability of Information Statement Materials containing instructions describing how to access this information statement was first mailed to Danaher stockholders on or about [l], 2023. This information statement will be mailed to Danaher’s stockholders who previously elected to receive a paper copy of Danaher’s materials.


TABLE OF CONTENTS
Presentation of Information
Unless the context otherwise requires, (i) references in this information statement to “Veralto,” the “Company,” “we,” “us” and “our” refer to Veralto Corporation, a Delaware corporation, and its consolidated subsidiaries after giving effect to the separation, (ii) references in this information statement to the “Environmental & Applied Solutions businesses,” “Water Quality and Product Quality & Innovation businesses” or the Company’s historical business and operations refer to the business and operations of Danaher’s Environmental & Applied Solutions segment (consisting of Danaher’s Water Quality and Product Identification businesses) that will be transferred to the Company in connection with the separation and distribution and (iii) references in this information statement to “Danaher” and “Parent” refer to Danaher Corporation, a Delaware corporation, and its consolidated subsidiaries, unless the context otherwise requires.
In connection with the separation and distribution, we will enter into a series of transactions with Danaher pursuant to which Danaher will transfer substantially all of the assets and liabilities of its Environmental & Applied Solutions segment to us in exchange for shares of our common stock and a Cash Distribution (as defined herein). As used herein, (i) the “separation” refers to the separation of the Environmental & Applied Solutions businesses from Danaher and the creation of a separate company holding the Environmental & Applied Solutions businesses and (ii) the “distribution” refers to the distribution of all of the shares of Veralto common stock owned by Danaher to Danaher stockholders as of the record date. Except as otherwise indicated or unless the context otherwise requires, the information included in this information statement about Veralto assumes the completion of all of the transactions referred to in this information statement in connection with the separation and distribution.


Market, Industry and Other Data
Unless otherwise indicated, information contained in this information statement concerning Veralto’s industry and the markets in which Veralto operates, including its general expectations and market position, market opportunity and market share, is based on information from third-party sources and management estimates. Veralto’s management estimates are derived from publicly available information, Veralto’s knowledge of its industry and assumptions based on such information and knowledge, which Veralto believes to be reasonable. Veralto’s management estimates have not been verified by any independent source. In addition, assumptions and estimates of Veralto and its industry’s future performance are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in “Risk Factors.” These and other factors could cause future performance to differ materially from Veralto’s assumptions and estimates. For additional information, please refer to “Cautionary Statement Concerning Forward-Looking Statements.”
Trademarks, Trade Names and Service Marks
The name and mark, Veralto, and other trademarks, trade names and service marks of the Company appearing in this information statement are Veralto’s property or, as applicable, licensed to Veralto, or, as applicable, are the property of Danaher. The name and mark, Danaher, and other trademarks, trade names and service marks of Danaher appearing in this information statement are the property of Danaher. This information statement also contains additional trade names, trademarks and service marks belonging to other companies. Veralto does not intend its use or display of other parties’ trademarks, trade names or service marks to imply, and such use or display should not be construed to imply, a relationship with, or endorsement or sponsorship of Veralto by, these other parties.


QUESTIONS AND ANSWERS ABOUT THE SEPARATION AND DISTRIBUTION
What is Veralto and why is Danaher separating Veralto’s businesses and distributing Veralto common stock?
Veralto, which is currently a wholly owned subsidiary of Danaher, was formed to hold Danaher’s Environmental & Applied Solutions businesses. The separation of Veralto from Danaher and the distribution of Veralto common stock are intended to provide you with equity investments in two separate, publicly traded companies that will be able to focus on each of their respective business strategies. Danaher and Veralto believe that the separation will result in enhanced long-term performance of each business for the reasons discussed in “The Separation and Distribution—Background” and “The Separation and Distribution—Reasons for the Separation.”
Why am I receiving this document?
Danaher is delivering this document to you because you are a holder of Danaher common stock. If you are a holder of Danaher common stock as of the close of business on September 13, 2023, the record date for the distribution, you will be entitled to receive one share of Veralto common stock for every three shares of Danaher common stock that you held at the close of business on such date. This document will help you understand how the separation and distribution will affect your investment in Danaher and your investment in Veralto after the separation.
How will the separation of Veralto from Danaher work?
To accomplish the separation, Danaher will distribute all of the outstanding shares of Veralto common stock to Danaher stockholders on a pro rata basis in a distribution intended to be tax-free for U.S. federal income tax purposes, except for cash received in lieu of fractional shares.
Why is the separation of Veralto structured as a distribution?
Danaher believes that a distribution of shares of Veralto common stock to Danaher stockholders that is tax-free for U.S. federal income tax purposes is an efficient way to separate the Environmental & Applied Solutions businesses in a manner that will create long-term value for Danaher and its stockholders.
What is the record date for the distribution?
The record date for the distribution will be the close of business on September 13, 2023.
When will the distribution occur?
It is expected that all of the shares of Veralto common stock will be distributed by Danaher on September 30, 2023, to holders of record of Danaher common stock at the close of business on September 13, 2023, the record date for the distribution. Because September 30, 2023 is a Saturday and not a business day, the shares are expected to be credited to “street name” stockholders through DTC on the first trading day thereafter, Monday, October 2, 2023.
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What do stockholders need to do to participate in the distribution?
Stockholders of Danaher as of the record date for the distribution will not be required to take any action to receive Veralto common stock in the distribution, but you are urged to read this entire information statement carefully. No stockholder approval of the distribution is required. You are not being asked for a proxy. You do not need to pay any consideration, exchange or surrender your existing shares of Danaher common stock or take any other action to receive your shares of Veralto common stock. Please do not send in your Danaher stock certificates. The distribution will not affect the number of outstanding Danaher shares or any rights of Danaher stockholders, although it will affect the market value of each outstanding share of Danaher common stock.
How will shares of Veralto common stock be issued?
You will receive shares of Veralto common stock through the same or substantially similar channels that you currently use to hold or trade shares of Danaher common stock, whether through a brokerage account, 401(k) plan or other channel. Receipt of shares of Veralto common stock will be documented for you in substantially the same manner that you typically receive stockholder updates, such as monthly broker statements and 401(k) statements.
If you own shares of Danaher common stock as of the close of business on the record date for the distribution, including shares owned in certificate form, Danaher, with the assistance of Computershare Trust Company, N.A. (“Computershare”), the settlement and distribution agent, will electronically distribute shares of Veralto common stock to you or to your brokerage firm on your behalf in book-entry form. Computershare will mail you a book-entry account statement that reflects your shares of Veralto common stock, or your bank or brokerage firm will credit your account for the shares.
How many shares of Veralto common stock will I receive in the distribution?
Danaher will distribute to you one share of Veralto common stock for every three shares of Danaher common stock held by you as of the record date for the distribution. Based on approximately 738,185,234 shares of Danaher common stock outstanding as of June 30, 2023, assuming a distribution of all of the shares of Veralto common stock and applying the distribution ratio (without accounting for cash to be distributed in lieu of fractional shares), Veralto expects that a total of approximately 246,061,744 shares of Veralto common stock will be distributed to Danaher’s stockholders. For additional information on the distribution, please refer to “The Separation and Distribution.”
Will Veralto issue fractional shares of its common stock in the distribution?
No. Veralto will not issue fractional shares of its common stock in the distribution. Fractional shares that Danaher stockholders would otherwise have been entitled to receive will be aggregated into whole shares and sold in the public market by the distribution agent. The aggregate net cash proceeds of these sales will be distributed pro rata (based on the fractional share such holder would otherwise be entitled to receive) to those stockholders who would otherwise have been entitled to receive fractional shares. Recipients of cash in lieu of fractional shares will not be entitled to any interest on the amounts of payment made in lieu of fractional shares. The receipt of cash in lieu of fractional shares will generally be taxable to the recipient stockholders for U.S. federal income tax purposes as described in “U.S. Federal Income Tax Considerations.”
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What are the conditions to the distribution?
The distribution is subject to the satisfaction (or, to the extent permitted by applicable law, waiver by Danaher in its sole discretion) of the following conditions:
•the transfer of assets and liabilities to Veralto in accordance with the separation and distribution agreement by and between Danaher and Veralto (the “separation agreement”) will have been completed, other than any assets and liabilities intended to transfer after the distribution;
•Danaher will have received (i) a private letter ruling from the IRS with respect to certain aspects of the anticipated non-taxable nature of the transactions (the “Ruling”) and (ii) an opinion of Skadden, Arps, Slate, Meagher & Flom LLP, tax counsel to Danaher, regarding the qualification of the distribution and certain related transactions as a reorganization within the meaning of Sections 355(a) and 368(a)(1)(D) of the Internal Revenue Code of 1986, as amended (the “Code”);
•the making of a cash distribution of approximately $2.7 billion (the “Cash Distribution”) from Veralto to Danaher as partial consideration for the contribution of assets to Veralto by Danaher in connection with the separation;
•the U.S. Securities and Exchange Commission (the “SEC”) will have declared effective the registration statement on Form 10 of which this information statement forms a part, no stop order relating to the registration statement will be in effect, no proceedings seeking such stop order will be pending before or threatened by the SEC, and this information statement will have been distributed to Danaher stockholders;
•all registrations, consents and filings required under applicable U.S. federal, U.S. state or other securities laws will have been received or made;
•no order, injunction or decree issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the separation, the distribution or any of the related transactions will be in effect;
•the Danaher board of directors will have declared the distribution and approved all related transactions (and such declaration or approval will not have been withdrawn);
•the agreements relating to the separation will have been duly executed and delivered by the parties to those agreements;
•the shares of Veralto common stock to be distributed will have been accepted for listing on the NYSE, subject to official notice of distribution;
•the financing described under “Description of Certain Indebtedness” will have been completed; and
•no other event or development will have occurred or exist that, in the judgment of Danaher’s board of directors, in its sole discretion, makes it inadvisable to effect the separation, the distribution or the other related transactions.
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Danaher and Veralto cannot assure you that any or all of these conditions will be met, or that the distribution will be consummated even if all of these conditions are met. Danaher can decline at any time to go forward with the distribution. In addition, each of these conditions may be waived by Danaher (to the extent permitted by applicable law). The fourth, fifth, sixth and seventh conditions listed above may not be waived pursuant to applicable law. If the distribution is completed and the Danaher board of directors waived any such condition, such waiver could have a material adverse effect on Veralto’s business and financial statements, the trading price of Veralto’s common stock, or the ability of Veralto stockholders to sell their shares after the distribution, including, without limitation, as a result of illiquid trading due to the failure of Veralto common stock to be accepted for listing. If Danaher elects to proceed with the distribution notwithstanding that one or more of the conditions to the distribution has not been met, Danaher has informed us that it would issue a press release publicly announcing any such decision. For a complete discussion of all of the conditions to the distribution, see “The Separation and Distribution—Conditions to the Distribution.”
What is the expected date of completion of the separation and distribution?
The completion and timing of the separation and distribution are dependent upon a number of conditions. It is expected that the shares of Veralto common stock will be distributed by Danaher at 12:01 a.m., Eastern time, on September 30, 2023 to the holders of record of shares of Danaher common stock at the close of business on September 13, 2023, the record date for the distribution. However, no assurance can be provided as to the timing of the separation or that all conditions to the distribution will be met. Because September 30, 2023 is a Saturday and not a business day, the shares are expected to be credited to “street name” stockholders through DTC on the first trading day thereafter, Monday, October 2, 2023.
Can Danaher decide to cancel the distribution of Veralto common stock even if all the conditions have been met?
Yes. The distribution is subject to the satisfaction or waiver (to the extent permitted by applicable law) of certain conditions. See “The Separation and Distribution—Conditions to the Distribution.” Until the distribution has occurred, Danaher has the right to terminate or modify the distribution, even if all of the conditions are satisfied.
What if I want to sell my Danaher common stock or my Veralto common stock?
You should consult with your financial advisors, such as your stockbroker, bank or tax advisor.
What is “regular-way” and “ex-distribution” trading of Danaher stock?
Beginning on the third trading day prior to the distribution date and continuing up to and through the distribution date, it is expected that there will be two markets in Danaher common stock: a “regular-way” market and an “ex-distribution” market. Shares of Danaher common stock that trade in the “regular-way” market will trade with an entitlement to shares of Veralto common stock distributed pursuant to the distribution. Shares that trade in the “ex-distribution” market will trade without an entitlement to shares of Veralto common stock distributed pursuant to the distribution.
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If you decide to sell any shares of Danaher common stock before the distribution date, you should make sure your stockbroker, bank or other nominee understands whether you want to sell your Danaher common stock with or without your entitlement to Veralto common stock pursuant to the distribution.
Where will I be able to trade shares of Veralto common stock?
Veralto intends to apply to list its common stock on the NYSE under the symbol “VLTO.” Veralto anticipates that trading in shares of its common stock will begin on a “when-issued” basis on the third trading day prior to the distribution date and will continue up to the distribution date and that “regular-way” trading in Veralto common stock will begin on the first trading day following the completion of the distribution. If trading begins on a “when-issued” basis, you may purchase or sell Veralto common stock up to the distribution date, but your transaction will not settle until after the distribution date. Veralto cannot predict the trading prices for its common stock before, on or after the distribution date.
What will happen to the listing of Danaher common stock?
Danaher common stock will continue to trade on the NYSE after the distribution under the symbol “DHR.”
Will the number of shares of Danaher common stock that I own change as a result of the distribution?
No. The number of shares of Danaher common stock that you own will not change as a result of the distribution.
Will the distribution affect the market price of my Danaher shares?
Yes. As a result of the distribution, Danaher expects the trading price of shares of Danaher common stock immediately following the distribution to be lower than the “regular-way” trading price of such shares immediately prior to the distribution because the trading price will no longer reflect the value of the Environmental & Applied Solutions businesses held by Veralto. There can be no assurance that the aggregate market value of the Danaher common stock and the Veralto common stock following the separation will be higher or lower than the market value of Danaher common stock if the separation did not occur. This means, for example, that the combined trading prices of one share of Danaher common stock and one-third of a share of Veralto common stock after the distribution (representing the number of shares of Veralto common stock to be received per every one share of Danaher common stock in the distribution) may be equal to, greater than or less than the trading price of one share of Danaher common stock before the distribution.
What are the U.S. federal income tax consequences of the separation and the distribution?
Assuming that the distribution, together with certain related transactions, qualifies as a transaction that is tax-free to Danaher and Danaher’s stockholders, for U.S. federal income tax purposes, under Sections 368(a)(1)(D) and 355 of the Code, Danaher stockholders will not recognize any gain or loss, for U.S. federal income tax purposes (except with respect to any cash received in lieu of fractional shares) or to include any amount in their income, upon the receipt of shares of Veralto’s common stock pursuant to the distribution.
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See “U.S. Federal Income Tax Considerations” for further information regarding the potential U.S. federal income tax considerations to Danaher stockholders of the distribution, together with certain related transactions. You should consult your tax advisor as to the particular tax consequences of the separation and distribution to you.
How will I determine my tax basis in the shares I receive in the distribution?
Assuming that the distribution is tax-free to Danaher stockholders, except for cash received in lieu of fractional shares, for U.S. federal income tax purposes, your aggregate basis in the common shares that you hold in Danaher and the new Veralto common stock received in the distribution (including any fractional share interest in Veralto common stock for which cash is received) immediately following the distribution will equal the aggregate basis in the shares of Danaher common stock held by you immediately before the distribution, allocated between your Danaher common stock and the Veralto common stock (including any fractional share interest in Veralto common stock for which cash is received) you receive in the distribution in proportion to the relative fair market value of each on the distribution date.
You should consult your tax advisor about the particular tax consequences of the separation and distribution to you, including the application of the tax basis allocation rules and the application of state, local and foreign tax laws.
What will Veralto’s relationship be with Danaher following the separation?
Veralto expects to enter into a separation and distribution agreement with Danaher to effect the separation and provide a framework for Veralto’s relationship with Danaher after the separation and to enter into certain other agreements, including a transition services agreement, an employee matters agreement, a tax matters agreement, an intellectual property matters agreement and a Danaher Business System (“DBS”) license agreement. These agreements will govern the separation between Veralto and Danaher of the assets, employees, liabilities and obligations (including its investments, property and employee benefits and tax-related assets and liabilities) of Danaher and its subsidiaries attributable to periods prior to, at and after Veralto’s separation from Danaher and will govern certain relationships between Veralto and Danaher after the separation. For additional information regarding the separation agreement and other transaction agreements, see “Risk Factors—Risks Related to the Separation and our Relationship With Danaher” and “Certain Relationships and Related Person Transactions.”
Who will manage Veralto after the separation?
Veralto benefits from having in place a management team with an extensive background in the industries in which our Water Quality and Product Quality & Innovation businesses operate. Led by Jennifer L. Honeycutt, who will be Veralto’s President and Chief Executive Officer after the separation, Veralto’s management team possesses deep knowledge of, and extensive experience in, its industry. For more information regarding Veralto’s management, see “Management.”
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Are there risks associated with owning Veralto common stock?
Yes. Ownership of Veralto common stock is subject to both general and specific risks, including those relating to Veralto’s businesses, the industries in which it operates, its ongoing contractual relationships with Danaher after the separation and its status as a separate, publicly traded company. Ownership of Veralto common stock is also subject to risks relating to the separation. These risks are described in the “Risk Factors” section of this information statement beginning on page 17. You are encouraged to read that section carefully.
Does Veralto plan to pay dividends?
We have not yet determined the extent to which we will pay any dividends on our common stock. The payment of any dividends in the future, and the timing and amount thereof, is within the discretion of the board of directors of Veralto (the “Board”). The Board’s decisions regarding the payment of dividends will depend on many factors, such as our financial condition, earnings, capital requirements, debt service obligations, restrictive covenants in our then existing debt agreements, industry practice, legal requirements and other factors that our Board deems relevant. Our ability to pay dividends will depend on our ongoing ability to generate cash from operations and on our access to the capital markets. We cannot guarantee that we will pay a dividend in the future or continue to pay any dividends if we commence paying dividends. Please refer to “Dividend Policy.”
What will govern my rights as a Veralto stockholder?
Your rights as a Veralto stockholder will be governed by Delaware law, as well as our amended and restated certificate of incorporation and our amended and restated bylaws. Except with respect to (i) the plurality voting standard for the election of directors, (ii) classified board, (iii) removal of directors, (iv) requirement of stockholder supermajority vote to amend certain provisions of the certificate of incorporation and the bylaws, (v) stockholder’s right to call special meetings, (vi) stockholder action by written consent, (vii) exculpation of officers (in addition to directors) from personal liability for breaches of the fiduciary duty of care other than claims brought by or in the name of Veralto, and (viii) exclusive forum with respect to Securities Act claims, at the time of the distribution, we expect that there will be no other material differences in stockholder rights between Danaher common stock and Veralto common stock. For additional details regarding the Veralto common stock and Veralto stockholder rights, please refer to “Description of Veralto’s Capital Stock.”
Will Veralto incur any indebtedness prior to or at the time of the distribution?
Yes. Veralto anticipates issuing unsecured notes in multiple tranches with terms and maturities to be determined, which is expected to yield proceeds of approximately $2.6 billion in connection with the separation, which proceeds (together with approximately $100 million of cash on hand) are expected to be paid to Danaher as partial consideration for the contribution of assets to Veralto by Danaher in connection with the separation. In addition, prior to the separation and distribution, Veralto will enter into a credit agreement with a syndicate of banks providing for a five-year $1.5 billion senior revolving credit facility. Veralto also anticipates implementing a commercial paper program (supported by the revolving credit facility) prior to the separation and distribution. Veralto does not anticipate borrowing under this facility or issuing commercial paper prior to the separation and distribution. For more information, please refer to the sections entitled “Description of Certain Indebtedness” and “Risk Factors—Risks Related to Veralto’s Business.”
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Who will be the distribution agent, transfer agent, registrar and information agent for the Veralto common stock?
The distribution agent, transfer agent and registrar for the Veralto common stock will be Computershare. For questions relating to the transfer or mechanics of the distribution, you should contact:
Computershare Trust Company, N.A.
P.O. Box 43006
Providence, RI 02940-3006
United States
800-568-3476
If your shares are held by a bank, broker or other nominee, you may call the information agent for the distribution, Computershare, toll-free at 800-568-3476.
Where can I find more information about Danaher and Veralto?
Before the distribution, if you have any questions relating to Danaher’s business performance, you should contact:
Danaher Corporation
2200 Pennsylvania Ave. N.W., Suite 800W
Washington, D.C., 20037-1701
Attention: Investor Relations
After the distribution, Veralto stockholders who have any questions relating to Veralto’s business performance should contact Veralto at:
Veralto Corporation
225 Wyman St., Suite 250
Waltham, Massachusetts 02451
Attention: Investor Relations
We maintain an Internet website at www.veralto.com. Our website, and the information contained therein, or connected thereto, is not incorporated by reference into this information statement or the registration statement of which this information statement forms a part.
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INFORMATION STATEMENT SUMMARY
This summary highlights information included elsewhere in this information statement and does not contain all of the information that may be important to you. You should read this entire information statement carefully, including the sections entitled “Risk Factors,” “Cautionary Statement Concerning Forward-Looking Statements,” “Unaudited Pro Forma Combined Financial Statements” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our Combined Financial Statements and the notes thereto (the “Combined Financial Statements”).
Our Company
Veralto’s unifying purpose is Safeguarding the World’s Most Vital Resources. Our diverse group of leading operating companies provide essential technology solutions that monitor, enhance and protect key resources around the globe. We are committed to the advancement of public health and safety and believe we are positioned to support our customers as they address large global challenges including environmental resource sustainability, water scarcity, management of severe weather events, food and pharmaceutical security, and the impact of an aging workforce. For decades, we have used our scientific expertise and innovative technologies to address complex challenges our customers face across regulated industries – including municipal utilities, food and beverage, pharmaceutical and industrials – where the consequence of failure is high. Through our core offerings in water analytics, water treatment, marking and coding, and packaging and color, customers look to our solutions to help ensure the safety, quality, efficiency and reliability of their products, processes and people globally. Upon the separation, Veralto will be headquartered in Waltham, Massachusetts with a workforce of approximately 16,000 associates strategically located in more than 45 countries.
Veralto operates through two segments – Water Quality (“WQ”) and Product Quality & Innovation (“PQI”). Our businesses within these segments have strong globally recognized brands as a result of our leadership in served markets over several decades. Through WQ, we improve the quality and reliability of water through leading brands including Hach, Trojan Technologies and ChemTreat. Through PQI, we promote consumer trust in products and help enable product innovation through leading brands including Videojet, Linx, Esko, X-Rite and Pantone. We believe our leading positions result from the strength of our commercial organizations, our legacy of innovation, and our close and long-term connectivity to our customers and knowledge of their workflows, underpinned by our culture of continuous improvement. This has resulted in a large installed base of instruments that drive ongoing consumables and software sales to support our customers. As a result, our business generates recurring sales which represented approximately 59% of total sales during the year ended December 31, 2022. Our business model also supports a strong margin profile with limited capital expenditure requirements and has generated attractive cash flows. We believe these attributes allow us to deliver financial performance that is resilient across economic cycles.
We also believe that Veralto’s history with the Danaher Business System (“DBS”) provides the Company with a strong foundation for competitive differentiation. DBS is a business management system that consists of a philosophy, processes and tools that guide what Danaher does and measure how well Danaher executes, grounded in a culture of continuous improvement. The DBS processes and tools are organized around the areas of Lean, Growth and Leadership, and are rooted in foundational tools known as the DBS Fundamentals, which are relevant to every associate and business function. The DBS Fundamentals are focused on core competencies such as using visual representations of processes to identify inefficiencies, defining and solving problems in a structured way, and continuously improving processes to drive consistent execution.
Members of the team that will serve as Veralto management have served as Danaher leaders and have been integral to the evolution of DBS. For example, Veralto’s President and Chief Executive Officer has practiced and championed DBS in multiple operating companies across multiple geographies and industries since 1999 and has contributed meaningfully to the evolution of DBS over that period. Veralto’s Senior Vice President, Water Quality previously led the Danaher Business System Office, which bears central responsibility for stewardship of the DBS processes and tools and development of DBS practitioners who support the operating companies and train business leaders in the application of DBS. Many of the other Danaher associates who will become Veralto senior leaders have years of experience practicing DBS and deploying it in their particular businesses and functions.
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Danaher will license to Veralto the DBS tools and processes as they exist at the separation. Following the separation, Veralto will use and evolve those tools and processes as the Veralto Enterprise System (“VES”). We expect to use VES tools to improve our profitability and cash flows, which support our ability to expand our addressable market and improve our market position through investments in areas such as our commercial organization and research and development (“R&D”), including software and digital solutions. Our cash flows also support acquisitions to enhance our product capabilities and expansion into new and attractive markets, which we have successfully done through the acquisition of approximately 80 businesses over more than two decades.
Our two segments are described below:
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Our Water Quality segment provides one of the most comprehensive portfolios of water analytics and differentiated water treatment solutions that enable the reliable delivery of safe drinking water by public and private utilities - from source water to the consumer and back into the water cycle. In addition, we help improve the efficiency of processes and production operations of our customers and ensure that their wastewater discharge meets regulatory standards and corporate targets. Under our Hach, ChemTreat, Trojan Technologies and other globally recognized WQ brands, we provide proprietary precision instrumentation and advanced water treatment technologies that our customers rely on to measure, analyze and treat the world’s water in residential, commercial, municipal, industrial, research and natural resource applications. In addition to instrumentation, our suite of water solutions includes elements used on a recurring basis such as chemical reagents, services and digital solutions. Together, these offerings help promote the quality and reliability of water and optimize our customers’ operations, decision making and regulatory compliance activities.
WQ focuses on what management believes are the most attractive sub-segments of the water value chain helping our customers address some of their most pressing and complex challenges, such as water scarcity, water safety, severe weather events and management of precious natural resources. Our businesses have been at the forefront of delivering breakthrough innovations to our customers. For example, Hach has been a leading player in the field of turbidity testing for over 60 years, pioneering the first regulated method used and introducing multiple new generations of instruments and related products. Today, we have one of the most complete portfolios of solutions allowing our customers to test the broadest range of analytical parameters and the ability to harness their data across installed assets. Increasingly, our customers leverage our digital solutions to support regulatory compliance, automate workflows and allow for remote operations and predictive capabilities to address new challenges posed by changing regulations and an aging and less experienced workforce.
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Our key WQ brands provide solutions that our customers rely upon to manage critical operations involving water.
•Hach, the best known of our global brands in the WQ segment, recognized for simple and reliable tests, offers analytical measurement instruments, digital solutions and related consumables that test water quality; it serves over 125,000 customers, including small community water utilities, large public and private water utilities and industrial customers and helps to ensure safe water for more than 3.4 billion people every day - approximately 40% of the global population.
•ChemTreat associates work alongside industrial customers to understand their water challenges and tailor chemical treatment plans and dosing protocols to help optimize customers’ water usage and maximize reuse; our solutions helped customers save over 80 billion gallons of water in 2022.
•Trojan Technologies offers UV and membrane filtration systems for water disinfection and contaminant removal; our systems treat and support the recycling of 12 trillion gallons of water annually and in turn help to improve access to clean water for more than 250 million people every day.
Our Product Quality & Innovation segment provides a broad set of solutions for brand owners and consumer packaged goods companies that enable speed to market as well as traceability and quality control of their products. Our solutions play a central role in helping our customers ensure the quality and safety of their products and build trust with consumers. Under our Videojet, Esko, Linx, X-Rite, Pantone and other globally recognized PQI brands, we provide marking and coding, and packaging and color instrumentation and related consumables. Our customers across consumer, pharmaceutical and industrial sectors utilize our offerings to bring products to market, mark packaging in compliance with industry and regulatory standards and convey the safety of products to customers. Our solutions also enable the effective execution of product recalls, thereby helping to mitigate public health risks. Our software solutions are designed to address higher-value, design-oriented portions of the packaging management value chain, such as digital asset management (“DAM”), marketing resource management (“MRM”) and product information management (“PIM”), that help our customers maximize efficiency of operations while generating an attractive source of recurring sales for us. We estimate that a majority of the top 25 global consumer packaged goods (“CPG”) brands (based on 2022 revenues) and a majority of the top 20 pharmaceutical brands (based on 2022 revenues) use PQI’s solutions, enabling confidence and trust in the brands and products consumers use daily.
Our PQI brands provide brand owners and consumer packaged goods companies with essential solutions that improve their ability to develop, maintain and ensure authenticity of their brands.
•Videojet, our largest operating company within PQI, and Linx offer technologies that mark and code packaged goods and related consumables. Videojet is a leading provider of inline printing solutions for products and packaging with marking and coding systems used by many of the top global consumer brands. Our solutions help ensure transparency, safety, authenticity, tracking and traceability of an estimated more than 10 billion codes printed around the world daily.
•Esko facilitates the creation of new packaging designs through design software and imaging systems. Esko’s offerings are used by over 25,000 established and emerging brands and their suppliers in over 140 countries.
•X-Rite serves over 13,000 brands across 140 countries by providing color management solutions that measure the quality and consistency of color and appearance on printed packages and consumer and industrial products.
•Pantone is the preeminent color standard in the design industry leveraged by more than 10 million designers, marketers and others in the creative community, not only to ensure color standardization but also to understand the impact of color on consumers.
In 2022, Veralto generated $4.9 billion in sales derived from a business mix that is highly diversified by geography and end-market. Our business model is highly resilient with approximately 59% of our sales derived from consumables (e.g., reagents, inks and process chemicals), spare parts, services (e.g., maintenance and inspection),
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and software (including Software-as-a-Service, or “SaaS”, and term-based licenses). We serve a broad range of customers spanning the municipal, industrial, food & beverage (“F&B”) and CPG end markets, many of which are highly regulated. We generated 46% of our 2022 sales from North America, 22% from Western Europe, 3% from other developed markets and 29% from high-growth markets. We define other developed markets as Japan, Australia and New Zealand. We define high-growth markets as developing markets of the world experiencing extended periods of accelerated growth in gross domestic product and infrastructure, which encompass all markets outside of the developed markets and consist of Eastern Europe, the Middle East, Africa, Latin America and Asia Pacific (with the exception of Japan, Australia and New Zealand). Our strategic investments in these markets have scaled our presence in high-growth markets to approximately 5,000 associates with 10 local manufacturing facilities.
Sales Diversification for the Year Ended December 31, 2022
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Our History
Veralto was established over the past 25 years through strategic acquisitions in attractive and highly regulated markets. These strategic acquisitions, combined with the application of DBS and investment in innovation and commercial resources, have resulted in compounded sales and earnings growth. In turn, Veralto has grown from approximately $770 million in sales in 2002 to $4.9 billion in sales in 2022 with an operating profit margin of 23%.
Danaher’s acquisition of Hach Company in 1999 solidified our foundation in the attractive water analytics sub-segment of the water industry. We successfully applied DBS to expand our commercial opportunity and bring innovative new products to market, while also optimizing costs to enhance our margin profile. As part of an effort to expand the strategic scope of WQ beyond water measurement, we added water treatment capabilities by acquiring Trojan Technologies in 2004 and ChemTreat in 2007. In addition to approximately 50 acquisitions, we have continued to expand the scope of our leading brands technically and geographically through organic investments in commercial resources and new product innovations, transforming our WQ segment from approximately $485 million in sales in 2002 to $2.9 billion in sales in 2022 with an operating profit margin of 23%.
We entered the product quality and innovation industry through the acquisition of Videojet in 2002. Under Danaher’s ownership, Videojet applied DBS to enhance its profit margins and sales growth through operational improvements, strengthened commercial execution and speed of innovation. Since then, we have expanded the business through acquisitions, most notably EskoArtwork in 2011 and X-Rite in 2012. In total, we have acquired and integrated approximately 30 businesses over the past 20 years, transforming our PQI segment from
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approximately $285 million in sales in 2002 to approximately $2.0 billion in sales in 2022 with an operating profit margin of 25%.
The history of WQ and PQI charts the evolution of DBS, a cornerstone of our culture and source of our competitive advantage. DBS, and now VES, is a set of tools at the core of our operating model centered around improving commercial execution, product innovation, operations and talent acquisition and management. As long-time practitioners of VES (and its predecessor, DBS), the Veralto team will continue to use these tools to better understand and address the technical problems of the markets we serve and our customers’ evolving needs.
We have made strategic acquisitions in both WQ and PQI to add digital and software capabilities to address our customers’ evolving digitization requirements and offer more comprehensive workflow solutions. Within WQ, a combination of acquisitions of software capabilities together with Hach’s organic development of its Claros software platform, accelerated our ability to streamline workflows across our customers’ enterprises, improving data management, remote operations, asset utilization and maintenance and regulatory compliance reporting. Within PQI, a major milestone was the acquisition of EskoArtwork. Subsequent additional investments have enhanced Esko’s scope to encompass modern cloud-based SaaS offerings, tools which automate and connect the packaging development and production workflows, and systems which accelerate the go-to-market processes for brand owners and consumer packaged goods companies. These enhanced and expanded digital capabilities enable us to better serve and support our customers through solutions that are integrated throughout the customers’ value chain – design to consumer – and by allowing them to leverage data in real time to help maximize up-time and optimize production.
Industry Overview
Water Quality Industry Overview
The global water quality industry is large and growing given the criticality of water management and conservation and the increasingly stringent regulation around water safety. Product and service solutions offered in this industry help customers accurately measure and treat water across a range of parameters, drive water management efficiencies, ensure compliance with regulatory requirements and meet their environmental and sustainability goals.
Management estimates that the global water industry generated over $800 billion in sales during 2022, which includes all aspects of the water value chain. However, Veralto has strategically selected what management believes are some of the most attractive segments of this industry to participate in based on opportunities for growth and our ability to help our customers manage their greatest challenges, such as water scarcity, water safety, severe weather events and management of precious natural resources. Currently, the segments of the water quality industry we participate in include measurement (including environmental testing) and water and wastewater treatment. Geographically, North America and Europe are the most mature regions and we believe high-growth markets present an attractive opportunity given the relative scarcity of drinking water, the rising need for the treatment of sewage and drainage water and increasing regulatory compliance requirements.
We believe continued growth in the global water quality industry will be driven by a variety of factors that we are well positioned to benefit from, including:
•Increasing global demand for safe and affordable water
•Increasing government funding to support water and wastewater infrastructure
•Increasing threats to water access from growing scarcity and frequency of severe weather events
•The need to upgrade and optimize wastewater treatment facilities to cope with rising costs, energy demands and increasing capacity challenges
•Increasing regulatory standards and reporting requirements for drinking water supply and wastewater discharge
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•Growing need to detect and destroy emerging water contaminants that are increasingly impacting public health
•Heightened focus on achieving environmental targets and the sustainable use of resources by the public and private sectors
•Increasing adoption of digitization and demand for automation-based platforms and predictive capabilities by the industry driven by an aging and less experienced workforce and increased compliance requirements
•Growing demand for environmental resource conservation and renewable energy
Product Quality & Innovation Industry Overview
The product quality and innovation industry spans the full design, color, packaging, and marking and coding value chain. Product and service solutions offered in this industry seek to help customers streamline workflows, reduce time to market of new products, and ensure traceability of products throughout the supply chain — from manufacturer to distributor to retailer. The industry is broad and rapidly changing with the adoption of new technologies that digitize customers’ design and operational workflows and help optimize the supply chain.
The segments of the product quality and innovation industry we currently participate in include marking and coding (e.g., lot, date, and bar codes applied at filling plants and stored for supply chain tracking) and packaging and color (e.g., front-end packaging strategy, design, artwork preparation and packaging printing). PQI focuses on the broader horizontal workflow addressing needs across the entire product quality and innovation industry.
We believe continued growth in the global product quality and innovation industry will be driven by a variety of factors that we are well positioned to benefit from, including:
•Increasing regulation and consumer pressure on brands to help ensure product safety and transparency
•Growing regulatory pressure and customer priorities to minimize the environmental impact of packaging
•Labor shortages and the need for greater speed to market driving adoption of digitization, automation, and connected devices
•Changes in brand strategies and the proliferation of smaller brands, leading to faster packaging cycles and more frequent press runs
•Growing need to centralize and control product code management to improve efficiency and product security
Our Competitive Strengths
We believe Veralto has significant competitive strengths driven by our company culture with VES tools at its core and our leadership position across key market segments and geographies. Some of our key competitive strengths are:
•Strategically Positioned with Leading Brands and Technologies in the Most Attractive Parts of our Industries. Many of our operating companies have been leaders in their respective markets for decades and have built strong brand recognition and competitive positions. Our historic focus on product innovation has resulted in differentiated solutions that solve critical customer needs. Moreover, we expect our leading brands and competitive positions will drive future consumable and aftermarket opportunities.
•Global Presence and Reach. We operate globally, with diverse sales channels, manufacturing operations and product development capabilities that help us competitively address local requirements. We have experienced management teams located in key geographies around the world, providing a strong local presence and a deep understanding of our customers’ workflows, needs and challenges. This customer intimacy is reflected in the fact that 75% of Veralto’s sales in 2022 were direct sales to customers.
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•Uniquely Positioned to Address Customers’ Regulatory and Sustainability Priorities. We have a long history of helping customers navigate regulatory changes, address sustainability priorities and ensure the safety of consumer products. For instance, our WQ chemical treatment solutions help customers save water and reduce energy consumption and PQI’s package design and pallet optimization software helps customers reduce energy and packaging material consumption and waste. More broadly, several of our businesses help customers understand the impact of climate change and support the advancement of renewable energies, such as solar and wind.
•Superior Execution and Customer Impact Through the Application of VES. Our operating businesses have leveraged DBS to continuously improve operational and financial results across the business for over 20 years. DBS, which will be known as VES under Veralto, supports commercial execution, product innovation, operations and talent acquisition and management. Our use of VES to continuously refine our processes also contributes to our effectiveness in supporting our customers as they seek to optimize their own operations and achieve their ESG objectives. We believe that our ability to use VES to improve across these dimensions will increase customer satisfaction and help us maintain and grow our competitive advantage.
•Leading Track Record of Innovation and Customer-Centric Solutions. Management believes our decades of experience and our customer-centric approach has allowed us to develop high levels of technical know-how, process expertise, and customer intimacy. We leveraged these abilities to innovate solutions to address challenges faced by our customers. For example, in our Hach business, automatic samplers and digitally enabled instrumentation combined with Hach’s Claros SaaS offerings help municipal and industrial water operators optimize their processes, remotely operate, monitor and maintain equipment, comply with regulations, and analyze data to facilitate predictive operations. In our Esko business, our workflow software helps to simplify packaging design for users, reduce the design process timeline and associated labor costs and maximize yield from production runs.
•Durable Business Model with High Recurring Sales. Our businesses typically sell low-cost, high value-add systems that generate attractive aftermarket revenue through the sale of consumables (e.g., chemicals, reagents), spare parts, software and services used in the ongoing operation of our installed systems. Many of our products were launched to help customers comply with new regulations, resulting in sustainable positions in complex workflows with multiple stakeholders. Our business model drives recurring sales which represented approximately 59% of total sales for the year ended December 31, 2022, reducing volatility and cyclicality across our business portfolio. Our businesses are primarily exposed to customers’ operating expense budgets rather than capital expenditure budgets and given the operationally essential nature of our solutions in customers’ workflows, our businesses have a track record of resilient performance across economic cycles.
•Attractive Margins and Cash Flow Profile. We believe our products provide high value, differentiated solutions for customers’ critical workflows, which has helped us achieve attractive operating profit margins. Additionally, VES helps us drive efficiency in our cost structure promoting strong profitability and cash flows from operations. These factors, along with our modest capital expenditure requirements, help us deliver a high free cash flow to net income conversion ratio.
•Experienced Management Team with Extensive Danaher and Sector Experience. Our management team includes long-tenured leaders from Danaher with a proven track record of applying DBS, and now VES, to execute our strategic and operational goals. Our executive officer team has extensive water and product quality and innovation industry experience. Under their leadership, we believe we have positioned our business for organic and inorganic growth and diversified our sales globally.
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Our Business Strategy
Our strategy is to maximize stockholder value and advance public health and safety through several key initiatives:
•Sustainable Competitive Advantage Through Innovation and Customer Applications Expertise. We believe our businesses are leaders in attractive segments of the markets they serve, which are generally characterized by significant growth and relative profitability. Our focus on customers’ needs and our associates’ application expertise has guided our innovation, and in turn has helped us maintain and grow our industry position, particularly in areas of public health and safety, resource management, and environmental sustainability. In many end markets, we believe we are a leader in the evolution of technology – for example, the development of enabled and connected instruments, and software-driven products and business models. As our customers face increasingly complex challenges that extend beyond their operations into their enterprises and communities, we seek opportunities to address those challenges with innovative solutions that integrate into existing workflows.
•Drive Operational Excellence Through the Application of VES. VES has helped us deliver what we believe is above market core sales growth and operating profit margins. We will continue to evolve VES to drive continuous improvement in our processes around commercial execution, product innovation, operational improvements, and talent acquisition and management. We believe this focus on operational excellence and understanding customer needs has underpinned our long-term track record of growth and long-term, recurring customer relationships.
•Redeploy Our Free Cash Flow to Grow and Improve Our Businesses. We intend to re-invest the substantial free cash flow we expect from our operations, after taking into account any debt servicing payments and potential dividends, towards actions we believe drive long-term shareholder value creation - prioritizing accretive organic growth initiatives and acquisitions that strategically expand the offerings of our businesses and help us address new and emerging challenges impacting our customers while maintaining our flexibility to return capital to shareholders. We have identified several attractive areas for investment across our businesses, including R&D, facility improvement and expansion, and organic market expansion. We believe that our management team has considerable skill and experience deploying capital to drive growth, improve our leadership positioning and maximize stockholder value.
•Growth Through Acquisitions. As demonstrated through approximately 80 acquisitions completed as part of Danaher, we have developed an effective acquisition playbook to complement our core organic growth strategy. We plan to build upon our track record of success in acquiring and effectively integrating acquisitions with solutions that expand our capabilities to help customers and communities advance public health and safety. In addition to target identification, target cultivation and transaction execution, our M&A playbook supports the efficient on-boarding of acquisitions. Longer term, we expect the application of VES at acquired businesses to facilitate improved sales growth, profitability and cash flows. Our plan to continue to build upon our track record of success in targeting and effectively integrating acquisitions is an important aspect of our growth strategy. We believe that our free cash flow from operations and leverage profile will enable us to grow through acquisitions after giving effect to any dividend payments and debt servicing obligations.
•Leverage and Expand Our Global Business Presence. Approximately 54% of our sales are generated outside North America, and we have significant operations around the world in key geographic markets. We expect this reach to facilitate our entry into new markets as we leverage existing sales channels, our familiarity with local customer needs and regulations, and the experience of our locally based management teams. We expect to continue prioritizing the development of localized solutions for high-growth markets with local manufacturing and product development capabilities.
•Attract and Retain Talent. We believe that our team of talented associates, united by a customer-centric approach, commitment to advance public health and safety and common culture of employing VES in pursuit of continuous improvement, allows us to maintain a significant competitive advantage. We seek to
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continue to attract, develop and retain world-class leaders and associates globally and to drive their engagement with our customers and broader workforce. We intend to closely align individual incentives to the objectives of the Company and its stockholders.
The Separation and Distribution
On September 14, 2022, Danaher announced its intention to separate its Environmental & Applied Solutions businesses from the remainder of its businesses.
It is expected that the Danaher board of directors will approve the distribution of all of Veralto’s issued and outstanding shares of common stock on the basis of one share of Veralto common stock for every three shares of Danaher common stock held as of the close of business on September 13, 2023, the record date for the distribution. Danaher has received a private letter ruling from the Internal Revenue Service (“IRS”) to the effect that, among other things, the distribution and certain related transactions will qualify as a transaction that is tax-free for U.S. federal income tax purposes under Sections 355 and 368(a)(1)(D) of the Internal Revenue Code, or the Code (the “Ruling”).
Veralto’s Post-Separation Relationship with Danaher
Veralto is a wholly owned subsidiary of Danaher, and all of Veralto’s outstanding shares of common stock are owned by Danaher. Following the separation and distribution, Veralto and Danaher will operate separately, each as a public company.
Prior to the completion of the distribution, Veralto will enter into a separation and distribution agreement with Danaher, which is referred to in this information statement as the “separation agreement.” Veralto will also enter into various other agreements to effect the separation and provide a framework for its relationship with Danaher after the separation, including a transition services agreement, an employee matters agreement, a tax matters agreement, an intellectual property matters agreement and a DBS license agreement. These agreements will provide for the allocation between Veralto and Danaher of Danaher’s assets, employees, services, liabilities and obligations (including its investments, property and employee benefits and tax-related assets and liabilities) attributable to periods prior to, at and after Veralto’s separation from Danaher and will govern certain relationships between Veralto and Danaher after the separation. In exchange for the transfer of the assets and liabilities of Danaher’s Environmental & Applied Solutions businesses to Veralto, Veralto will deliver to Danaher shares of Veralto common stock and a Cash Distribution in the amount of approximately $2.7 billion. For additional information regarding the separation agreement and such other transaction agreements, see the sections entitled “Risk Factors—Risks Related to the Separation and Veralto’s Relationship With Danaher,” “Certain Relationships and Related Person Transactions” and “The Separation and Distribution.”
Reasons for the Separation
The Danaher board of directors believes that separating Danaher’s Environmental & Applied Solutions businesses from the remainder of Danaher’s businesses is in the best interests of Danaher and its stockholders. The Danaher board of directors considered the following potential benefits of the separation:
•Enhanced strategic and management focus. The separation will allow each of Danaher and Veralto to more effectively pursue its distinct operating priorities and strategies and enable its respective management to focus exclusively on its unique opportunities for long-term growth and profitability;
•More efficient allocation of capital. The separation will permit Veralto to concentrate its financial resources solely on its own operations without having to compete with other Danaher businesses for investment capital. This will provide greater flexibility to invest capital in Veralto’s businesses in a time and manner appropriate for its distinct strategy and business needs;
•Distinct investment identity. The separation will allow investors to separately value each of Danaher and Veralto based on its distinct investment identity. Veralto’s businesses differ from Danaher’s other businesses in several respects, such as the market for products and services, manufacturing processes and
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R&D capabilities. The separation will enable investors to evaluate the merits, performance and future prospects of each company’s respective businesses and to invest in each company separately based on their distinct characteristics;
•Direct access to capital markets. The separation will create a separate equity structure that will afford Veralto direct access to the capital markets and facilitate Veralto’s ability to capitalize on its unique growth opportunities and effect future acquisitions utilizing its common stock; and
•Alignment of incentives with performance objectives. The separation, and Veralto’s status as a separate publicly traded company, will further enhance Veralto’s ability to attract talent. The separation will permit the Company to offer stock-based incentive compensation to its employees and executives that is more closely aligned with the performance of Veralto’s businesses.
Neither Veralto nor Danaher can assure you that, following the separation, any of the benefits described above or otherwise will be realized to the extent anticipated or at all.
The Danaher board of directors also considered the following potentially negative factors in evaluating the separation:
•Loss of joint purchasing power and increased costs. As a current part of Danaher, the Environmental & Applied Solutions businesses benefit from Danaher’s size and purchasing power in procuring certain goods, services and technologies. After the separation, as a separate entity, Veralto may be unable to obtain these goods, services and technologies at prices or on terms as favorable as those Danaher obtained prior to the separation. Veralto may also incur costs for certain functions previously performed by Danaher, such as accounting, tax, legal, human resources and other general administrative functions, that are higher than the amounts reflected in Veralto’s historical financial statements, which could cause Veralto’s profitability to decrease.
•Disruptions to the business as a result of the separation. The actions required to separate Veralto’s and Danaher’s respective businesses could disrupt Veralto’s and Danaher’s operations after the separation.
•Increased significance of certain costs and liabilities. Certain costs and liabilities that were otherwise less significant to Danaher as a whole will be more significant for Veralto and Danaher, after the separation, as stand-alone companies.
•One-time costs of the separation. Veralto (and, prior to the separation, Danaher) will incur costs in connection with the transition to being a stand-alone public company that may include accounting, tax (including transaction taxes, which will be borne solely by Danaher), legal and other professional services costs, recruiting and relocation costs associated with hiring or reassigning Veralto personnel, costs related to establishing a new brand identity in the marketplace and costs to separate information systems.
•Inability to realize anticipated benefits of the separation. Veralto may not achieve the anticipated benefits of the separation for a variety of reasons, including, among others: (i) the separation will require significant amounts of management’s time and effort, which may divert management’s attention from operating and growing Veralto’s businesses; (ii) following the separation, Veralto may be more susceptible to market fluctuations and other adverse events than if it were still a part of Danaher; and (iii) following the separation, Veralto’s businesses will be less diversified than Danaher’s businesses prior to the separation.
•Limitations placed upon Veralto as a result of the tax matters agreement. To preserve the tax-free treatment for U.S. federal income tax purposes to Danaher of the distribution and certain related transactions, under the tax matters agreement that Veralto will enter into with Danaher, Veralto will be restricted from taking any action that adversely affects the distribution, together with certain related transactions, from being tax-free for U.S. federal income tax purposes. These restrictions may limit Veralto’s ability to pursue certain strategic transactions or engage in other transactions that might increase the value of its businesses.
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While all of the bullets above are considered to be potentially negative factors to Veralto, only the second, third and fourth bullets above are considered to be potentially negative factors to Danaher.
The Danaher board of directors also considered the indebtedness that Veralto would incur in connection with the separation and concluded that although a portion of Veralto’s free cash flow would need to be used to service such indebtedness following the separation, such indebtedness incurred by Veralto would generate proceeds to enable Danaher to reduce its own indebtedness and is not expected to impair Veralto’s ability to implement its strategy and realize the benefits of the separation, As such, the Danaher board did not consider the indebtedness being incurred by Veralto as either a positive or negative factor in approving the separation.
The Danaher board of directors concluded that the potential benefits of the separation to Danaher and its stockholders outweighed the negative factors.
Description of Indebtedness
Veralto intends to issue unsecured notes in multiple tranches with terms and maturities to be determined, which is expected to yield proceeds of approximately $2.6 billion in connection with the separation, which proceeds (together with approximately $100 million of cash on hand) will be paid to Danaher as partial consideration for the contribution of assets to Veralto by Danaher in connection with the separation. In addition, prior to the separation and distribution, Veralto will enter into a credit agreement with a syndicate of banks providing for a five-year $1.5 billion senior revolving credit facility. Veralto also anticipates implementing a commercial paper program (supported by the revolving credit facility) prior to the separation and distribution. Veralto does not anticipate borrowing under this facility or issuing commercial paper prior to the separation and distribution. For more information, see “Description of Certain Indebtedness,” “Risk Factors—Risks Related to Veralto’s Businesses” and “Unaudited Pro Forma Combined Financial Statements.”
Risks Associated With Our Businesses and the Separation and Distribution
An investment in Veralto’s common stock is subject to a number of risks, including risks relating to the separation and distribution, the successful implementation of Veralto’s strategy and the ability to grow Veralto’s business. The following list of risk factors is not exhaustive. Please read the information in “Risk Factors” for a more thorough description of these and other risks.
Risks Related to Veralto’s Businesses
•The COVID-19 pandemic has adversely impacted and could in the future continue to adversely impact certain elements of our business and our financial statements.
•We face intense competition and if we are unable to compete effectively, we may experience decreased demand and decreased market share. Even if we compete effectively, we may be required to reduce the prices we charge.
•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 growth can suffer if the markets into which we sell our products and services decline, do not grow as anticipated or experience cyclicality.
•Significant disruptions in, or breaches in security of, our information technology systems or data or violation of data privacy laws can adversely affect our business and financial statements.
•Defects and unanticipated use or inadequate disclosure with respect to our products or services, or allegations thereof, can adversely affect our business and financial statements.
•Climate change, or legal or regulatory measures to address climate change, may negatively affect us.
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•Our financial results are subject to fluctuations in the cost and availability of the supplies that we use in, and the labor we need for, our operations.
•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 business and financial statements.
•Our success depends on our ability to recruit, retain and motivate talented employees representing diverse backgrounds, experiences and skill sets.
•Our restructuring actions can have long-term adverse effects on 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 may 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.
•Our businesses are subject to extensive regulation; failure to comply with those regulations could adversely affect our business and financial statements.
•We are subject to or otherwise responsible for 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.
Risks Related to the Separation and Veralto’s Relationship with Danaher
•Veralto has no history of operating as a separate, publicly traded company, and its historical and pro forma financial information is not necessarily representative of the results that it would have achieved as a separate, publicly traded company and may not be a reliable indicator of its future results.
•As a separate, publicly traded company, Veralto may not enjoy the same benefits that it did as a part of Danaher.
•The Unaudited Pro Forma Combined Financial Statements included in this information statement are presented for informational purposes only and may not be an indication of Veralto’s financial condition or results of operations in the future.
•If there is a determination that the separation and/or the distribution, together with certain related transactions, is taxable for U.S. federal income tax purposes because the facts, assumptions, representations or undertakings underlying Danaher’s tax opinion, or the Ruling, are incorrect or for any other reason, then Danaher and its stockholders could incur significant U.S. federal income tax liabilities, and we could also incur significant liabilities.
•After the distribution, certain of Veralto’s executive officers and directors may have actual or potential conflicts of interest because of their equity interest in Danaher. Also, certain of Danaher’s current directors (Linda Filler, Walter G. Lohr, Jr. and John T. Schwieters) as well as a current Danaher officer (William H. King) and a current Danaher employee who previously served as Danaher’s Chief Financial Officer (Daniel L. Comas) are expected to join Veralto’s Board, which may create conflicts of interest or the appearance of conflicts of interest.
•As of the date of this information statement, we expect to have outstanding indebtedness at the closing of the distribution of approximately $2.6 billion and the ability to incur an additional $1.5 billion of indebtedness under a revolving credit facility, and in the future we may incur additional indebtedness. This indebtedness could adversely affect our businesses and our ability to meet our obligations and pay dividends.
•Following the distribution, Veralto will be dependent on Danaher to provide it with certain transition services, which may not be sufficient to meet its needs, and it may have difficulty finding replacement
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services or be required to pay increased costs to replace these services after its transition services agreement with Danaher expires.
Risks Related to Shares of Veralto Common Stock
•Veralto cannot be certain that an active trading market for its common stock will develop or be sustained after the separation, and following the separation, the price of Veralto common stock may fluctuate significantly, which could cause the value of your investment to decline.
•If Veralto is unable to implement and maintain effective internal control over financial reporting in the future, investors may lose confidence in the accuracy and completeness of Veralto’s financial reports and the market price of Veralto common stock may be negatively affected.
•The obligations associated with being a public company will require significant resources and management attention.
•Your percentage ownership in Veralto may be diluted in the future.
Corporate Information
Veralto Corporation was incorporated in Delaware on October 26, 2022, for the purpose of holding Danaher’s Environmental & Applied Solutions businesses in connection with the separation and distribution. Prior to the separation, which is expected to occur immediately prior to completion of the distribution, Veralto has had no operations. The address of Veralto’s principal executive offices is 225 Wyman St., Suite 250, Waltham, Massachusetts 02451. Veralto’s telephone number is 630-860-7300.
Veralto maintains an Internet site at www.veralto.com. Veralto’s website, and the information contained therein, or connected thereto, is not incorporated by reference into this information statement or the registration statement of which this information statement forms a part.
Reason for Furnishing This Information Statement
This information statement is being furnished solely to provide information to stockholders of Danaher who will receive shares of Veralto common stock in the distribution. It is not, and is not to be construed as, an inducement or encouragement to buy or sell any of Veralto’s securities. The information contained in this information statement is believed by Veralto to be accurate as of the date set forth on its cover. Changes may occur after that date and neither Danaher nor Veralto will update the information except as required by federal securities laws or in the normal course of their and our respective disclosure obligations and practices.
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SUMMARY HISTORICAL AND PRO FORMA COMBINED FINANCIAL DATA
The following unaudited summary financial data reflects the combined assets and results of operations of the Environmental & Applied Solutions segment of Danaher. The Company derived the summary historical and pro forma combined statement of earnings data for the years ended December 31, 2022, December 31, 2021 and December 31, 2020, and combined balance sheet data as of December 31, 2022 and December 31, 2021, as set forth below, from its audited annual Combined Financial Statements, which are included in the “Index to Financial Statements” section of this information statement and from its unaudited combined pro forma financial statements included in the “Unaudited Pro Forma Combined Financial Statements” section of this information statement. The Company’s underlying financial records were derived from the financial records of Danaher for the periods reflected herein. We derived the summary historical and pro forma combined statement of earnings data for the six-month periods ended June 30, 2023 and July 1, 2022 and the combined balance sheet data as of June 30, 2023 from our unaudited Combined Condensed Financial Statements included elsewhere in this information statement. We have prepared the unaudited Combined Condensed Financial Statements on the same basis as the audited Combined Financial Statements and have included all adjustments, consisting only of normal recurring adjustments that, in our opinion, are necessary to state fairly the financial information set forth in those statements. As a result, the historical results may not necessarily reflect the Company’s business and financial statements for future periods or what they would have been had the Company been a separate, stand-alone company during the periods presented.
The summary unaudited pro forma combined financial data presented has been prepared to reflect the separation. The unaudited pro forma combined statement of earnings data presented reflects the financial results as if the separation occurred on January 1, 2022, which was the first day of fiscal 2022. The unaudited pro forma combined balance sheet data reflects the financial position as if the separation occurred on June 30, 2023. The assumptions used and pro forma adjustments derived from such assumptions are based on currently available information.
The Unaudited Pro Forma Combined Financial Statements are not necessarily indicative of the Company’s results of operations or financial condition had the distribution and its anticipated post-separation capital structure been completed on the dates assumed. Also, they may not reflect the results of operations or financial condition that would have resulted had the Company been operating as a separate, publicly traded company during such periods. In addition, they are not necessarily indicative of its future business and financial statements.
This summary historical and pro forma combined financial data should be reviewed in combination with “Unaudited Pro Forma Combined Financial Statements,” “Capitalization,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“MD&A”) and the Combined and Combined Condensed Financial Statements and accompanying notes included in this information statement ($ in millions, except per share data).
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Six-Month Period Ended
Year Ended December 31
Pro FormaHistoricalPro FormaHistorical
June 30, 2023
June 30, 2023
July 1, 2022
2022
202220212020
(unaudited)(unaudited)(unaudited)(unaudited)
Selected Statement of Earnings Information:
Sales$2,482$2,478$2,403$4,879$4,870$4,700 $4,348 
Cost of sales(1,046)(1,046)(1,048)(2,110)(2,110)(1,987)(1,838)
Gross profit1,4361,4321,3552,7692,7602,713 2,510 
Operating costs:
Selling, general and administrative expenses(756)(738)(710)(1,474)(1,431)(1,428)(1,340)
Research and development expenses(113)(113)(112)(217)(217)(244)(219)
Operating profit5675815331,0781,1121,041 951 
Nonoperating income (expense), net:
Other income (expense), net(14)(14)—116 (1)
Interest expense(73)——(146)—— — 
Earnings before income taxes4805675339331,1131,047 950 
Income taxes(112)(133)(122)(224)(268)(186)(226)
Net earnings$368$434$411$709$845$861 $724 
Net earnings as a percent of sales 15%18%17%15%17%18%17%
Net earnings per share:
Basic$1.51 N/AN/A$2.93 N/AN/AN/A
Diluted$1.49 N/AN/A$2.89 N/AN/AN/A
Weighted average shares outstanding:
Basic244.5N/AN/A241.7N/AN/AN/A
Diluted246.7N/AN/A245.7N/AN/AN/A
Selected Statement of Cash Flows Information:
Net cash provided by (used in):
Operating activities$457 $276 $870 $896 $1,001 
Investing activities(19)(34)(89)(97)(157)
Capital expenditures(21)(20)(34)(54)(36)
Financing activities(438)(242)(781)(799)(844)
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As of As of June 30, 2023As of December 31,
Pro FormaHistoricalHistorical
(unaudited)(unaudited)20222021
Selected Balance Sheet Information:
Current assets$1,493 $1,243 $1,280 $1,205 
Current liabilities1,007 1,010 1,123 1,121 
Property, plant and equipment, net249 249 247 260 
Total assets5,092 4,787 4,825 4,840 
Total liabilities4,059 1,501 1,585 1,639 
Long-term debt2,580 — — — 
Total equity1,033 3,286 3,240 3,201 
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RISK FACTORS
You should carefully consider the risks and uncertainties described below, together with the information included elsewhere in this information statement. We have identified the risks and uncertainties described below as material, but they are not the only risks and uncertainties facing us. Our business is also subject to general risks and uncertainties that affect many other companies, such as market conditions, economic conditions, geopolitical events, changes in laws, regulations or accounting rules, fluctuations in interest rates, terrorism, wars or conflicts, major health concerns including pandemics, natural disasters or other disruptions of expected business conditions. Additional risks and uncertainties not currently known to us or that we currently believe are immaterial also may impair our business and financial statements, including our results of operations, liquidity and financial condition, and our stock price.
Risks Related to Veralto’s Businesses
Business and Strategic Risks
The COVID-19 pandemic has adversely impacted and could in the future continue to adversely impact certain elements of our business and our financial statements.
Our global operations expose us to risks associated with public health crises, including epidemics and pandemics such as COVID-19. The global spread of COVID-19 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 undertook to mitigate the spread.
The direct impact of COVID-19 and the preventive measures implemented as a result thereof adversely affected certain elements of our Company (including to a different degree our operations, commercial organizations, supply chains and distribution systems). Please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for a discussion of how COVID-19 impacted our business and financial statements in 2022. While the direct impact of COVID-19 and many of the preventive measures moderated in 2022, any resurgence of COVID-19 (or the outbreak of any other epidemic or pandemic) or the reinstatement of similar preventive measures in the future could negatively impact the economies and financial markets of the world and our business 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.
Our business is sensitive to general economic conditions. Slower economic growth in the domestic and/or international markets, inflation, actual or anticipated default on sovereign debt, volatility in the currency and credit markets, high levels of unemployment or underemployment, labor availability constraints, reduced levels of capital expenditures, changes or anticipation of potential changes in government trade, fiscal, tax and monetary policies, changes in capital requirements for financial institutions, government budget negotiation dynamics, sequestration, austerity measures and other challenges that affect economies of the world have in the past adversely affected, and may in the future adversely affect, the Company and its distributors, customers and suppliers, including having the effect of:
•reducing demand for our products and services (in this information statement, references to products and services also includes software), limiting the financing available to our customers and suppliers, increasing order cancellations and resulting in longer sales cycles and slower adoption of new technologies;
•increasing the difficulty in collecting accounts receivable and the risk of excess and obsolete inventories;
•increasing price competition in our served markets;
•supply interruptions, delays or cost increases, which can disrupt our ability to produce or deliver our products and/or increase our costs;
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•increasing the risk of impairment of goodwill and other long-lived assets, and the risk that we may not be able to fully recover the value of other assets such as real estate and tax assets;
•increasing the risk that counterparties to our contractual arrangements will become insolvent or otherwise unable to fulfill their contractual obligations which, in addition to increasing the risks identified above, could result in preference actions against us; and adversely impacting market sizes and growth rates.
If growth in any key economy of the world or in any of the markets we serve slows for a significant period, if there is significant deterioration in any such economy or such markets or if economic improvements do not benefit the markets we serve, our business and financial statements can be adversely affected.
We face intense competition and if we are unable to compete effectively, we may experience decreased demand and decreased market share. Even if we compete effectively, we may be required to reduce the prices we charge.
Our businesses operate in industries that are intensely competitive and have been subject to increasing consolidation. Because of the range of the products and services we sell and the variety of markets we serve, we encounter a wide variety of competitors; please refer to “Business—Competition” for additional details. In order to compete effectively, we must retain longstanding relationships with major customers and continue to grow our business by establishing relationships with new customers, continually developing new products and services to maintain and expand our brand recognition and leadership position in various product and service categories and penetrating new markets, including high-growth markets.
Our ability to compete can also be impacted by changing customer preferences and requirements (for example increased demand for products incorporating digital capabilities or more environmentally-friendly products and supplier practices). Cost containment efforts by governments and the private sector are also resulting in increased emphasis on products that reduce costs and improve efficiency and effectiveness. In addition, significant shifts in industry market share have occurred and may in the future occur in connection with product problems, safety alerts and publications about products, reflecting the competitive significance of product quality, product efficacy and quality systems in our industry.
Our failure to compete effectively and/or pricing pressures resulting from competition may adversely impact our business and financial statements, and our expansion into new markets may result in greater-than-expected risks, liabilities and expenses. In addition, the Company’s competitors and customers have from time to time introduced, and may in the future introduce, private label, generic or low-cost products that compete with the Company’s products at lower price points. New, disruptive technologies may emerge that displace the Company’s existing technologies. Competitors’ products can capture significant market share or lead to a decrease in market prices overall, resulting in an adverse effect on the Company’s business and financial statements.
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.
We generally sell our products and services in industries that are characterized by rapid technological changes, frequent new product introductions and changing industry standards. If we do not develop innovative new and enhanced products and services on a timely basis, our offerings will become obsolete over time and our business and financial statements will suffer. Our success will depend on several factors, including our ability to:
•correctly identify customer needs and preferences and predict future needs and preferences;
•allocate our R&D funding to products and services with higher growth prospects;
•anticipate and respond to our competitors’ development of new products and services and technological innovations;
•differentiate our offerings from our competitors’ offerings and avoid commoditization;
•innovate and develop new technologies and applications, and acquire or obtain rights to third-party technologies that may have valuable applications in our served markets;
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•obtain adequate intellectual property rights with respect to key technologies before our competitors do;
•successfully commercialize new technologies in a timely manner, price them competitively and cost-effectively manufacture and deliver sufficient volumes of new products of appropriate quality on time;
•obtain necessary regulatory approvals of appropriate scope; and
•stimulate customer demand for and convince customers to adopt new technologies.
If we fail to accurately predict future customer needs and preferences or fail to produce viable technologies, we may invest heavily in R&D of products and services that do not lead to significant revenue, which would adversely affect our business and financial statements. Even when we successfully innovate and develop new and enhanced products and services, we often incur substantial costs in doing so, and our profitability may suffer. Competitors may also develop after-market services and parts for our products which may detract from our sales.
Non-U.S. economic, political, legal, compliance, social and business factors can negatively affect our business and financial statements.
In 2022, approximately 57% of our sales were derived from customers outside the U.S. In addition, many of our manufacturing operations, suppliers and employees are located outside the U.S. Since our growth strategy depends in part on our ability to further penetrate markets outside the U.S. and increase the localization of our products and services, we expect to continue to increase our sales and presence outside the U.S., particularly in the high-growth markets. Our non-U.S. business (and particularly our business in high-growth markets) is subject to risks that include:
•public health crises and epidemics, such as COVID-19;
•interruption in the transportation of materials to us and finished goods to our customers;
•differences in terms of sale, including longer payment terms than are typical in the U.S.;
•local product preferences or requirements;
•changes in a country’s or region’s political, legal, social, compliance, business or economic conditions, such as the devaluation of particular currencies;
•trade protection measures, tariffs, embargoes and import or export restrictions and requirements;
•unexpected changes in laws or regulatory requirements, including changes in tax laws;
•capital controls and limitations on ownership and on repatriation of earnings and cash;
•the potential for nationalization of enterprises;
•complex data privacy and cybersecurity requirements;
•limitations on legal rights and our ability to enforce such rights, including differing protection of intellectual property;
•difficulty in staffing and managing widespread operations;
•workforce instability and differing labor or employment regulations;
•difficulties in implementing restructuring actions on a timely or comprehensive basis;
•greater uncertainty, risk, expense and delay in commercializing products in certain foreign jurisdictions, including with respect to product and other regulatory approvals; and
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•remaining uncertainties relating to the impact of the exit of the United Kingdom (“UK”) from the European Union (“EU”) in 2020.
International business risks have in the past negatively affected, and may in the future negatively affect, our business and financial statements.
In 2022, we generated approximately 8% of our sales from China. Accordingly, political, economic, legal, compliance, social and business conditions in China generally can adversely influence our business and financial statements. Additionally, China’s government continues to play a significant role in regulating industry development by imposing sector-specific policies, and it maintains control over China’s economic growth through setting monetary policy and determining treatment of particular industries or companies. Further, considerable uncertainty exists regarding the long-term effects of the expansionary monetary and fiscal policies adopted by the central banks and financial authorities of some of the world’s leading economies, including the U.S. and China. Uncertainty or adverse changes to conditions in China or the policies of China’s government or its laws and regulations can adversely affect the overall economic growth of China, or of the particular industries in which we participate, and can adversely affect our business and financial statements.
Our growth can suffer if the markets into which we sell our products and services decline, do not grow as anticipated or experience cyclicality.
Our growth depends in part on the growth of the markets which we serve, and visibility into our markets can be limited (particularly for markets into which we sell through distribution). Our quarterly sales and profits depend substantially on the volume and timing of orders received during the quarter, which are difficult to forecast. Any decline or lower than expected growth in our served markets can diminish demand for our products and services and adversely affect our business and financial statements. Certain of our businesses operate in industries that have experienced and may experience periodic, cyclical downturns. In addition, in certain of our businesses demand depends on customers’ capital spending budgets as well as government funding policies, and matters of public policy and government budget dynamics as well as product and economic cycles can affect the spending decisions of these entities. Demand for our products and services is also sensitive to changes in customer order patterns, which may be affected by announced price changes, marketing or promotional programs, new product introductions, the timing of industry trade shows and changes in distributor or customer inventory levels due to distributor or customer management thereof or other factors. Any of these factors could adversely affect our business and financial statements in any given period.
Risks Related to Acquisition, Divestiture and Investment
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 business.
Our ability to grow revenues, earnings and cash flow at or above our historic rates depends in part upon our ability to identify and successfully acquire and integrate businesses at appropriate prices and realize anticipated synergies, and to make appropriate investments that support our long-term strategy. We may not be able to consummate acquisitions at rates similar to the past, which could adversely impact our business. Promising acquisitions and investments are difficult to identify and complete for a number of reasons, including high valuations, competition among prospective buyers or investors, the availability of affordable funding in the capital markets and the need to satisfy applicable closing conditions and obtain applicable antitrust and other regulatory approvals on acceptable terms. In addition, competition for acquisitions and investments has resulted, and may result in, higher purchase prices. Changes in accounting or regulatory requirements or instability in the credit markets could also adversely impact our ability to consummate acquisitions and investments.
Our acquisition of businesses, investments, joint ventures and other strategic relationships can negatively impact our business and financial statements.
As part of our business strategy, we acquire businesses, make investments and enter into joint ventures and other strategic relationships in the ordinary course, and we also, from time to time, complete more significant transactions; please refer to “Management’s Discussion and Analysis of Financial Condition and Results of
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Operations” for additional details. Acquisitions, investments, joint ventures and strategic relationships involve a number of financial, accounting, managerial, operational, legal, compliance and other risks and challenges, including, but not limited to, the following, any of which can adversely affect our business and our financial statements:
•businesses, technologies, services and products that we acquire or invest in have sometimes under-performed relative to our expectations and the price that we paid, failed to perform in accordance with our anticipated timetable or failed to achieve and/or sustain profitability;
•we may incur or assume significant debt in connection with our acquisitions, investments, joint ventures or strategic relationships, which can also cause a deterioration of our credit ratings, result in increased borrowing costs and interest expense and diminish our future access to the capital markets;
•acquisitions, investments, joint ventures or strategic relationships can cause our financial results to differ from our own or the investment community’s expectations in any given period, or over the long-term;
•pre-closing and post-closing earnings charges can adversely impact our results in any given period, and the impact may be substantially different from period-to-period;
•acquisitions, investments, joint ventures or strategic relationships can create demands on our management, operational resources and financial and internal control systems that we are unable to effectively address;
•we can experience difficulty in integrating cultures, personnel, operations and financial and other controls and systems and retaining key employees and customers, and former employees of our existing businesses or businesses we acquire sometimes compete with us;
•we are not always able to achieve cost savings or other synergies anticipated in connection with acquisitions, investments, joint ventures or strategic relationships;
•we have assumed and may assume unknown liabilities, known contingent liabilities that become realized, known liabilities that prove greater than anticipated, internal control deficiencies or exposure to regulatory sanctions resulting from the acquired company’s or investee’s activities; and the realization of any of these liabilities or deficiencies can increase our expenses, adversely affect our financial position or cause us to fail to meet our public financial reporting obligations;
•in connection with acquisitions and joint ventures, we often enter into post-closing financial arrangements such as purchase price adjustments, earn-out obligations and indemnification obligations, which can have unpredictable financial results;
•as a result of our acquisitions and investments, we have recorded significant goodwill and other assets on our balance sheet and if we are not able to realize the value of these assets, or if the value of our investments declines, we are required to incur impairment charges;
•we may have interests that diverge from those of our joint venture partners or other strategic partners or the companies we invest in, and we are not always able to direct or influence the management and operations of the joint venture, other strategic relationship or investee in the manner we believe is most appropriate, exposing us to additional risk; and
•investing in or making loans to early-stage companies often entails a high degree of risk, including uncertainty regarding the company’s ability to successfully develop new technologies and services, bring these new technologies and services to market and gain market acceptance, maintain adequate capitalization and access to cash or other forms of liquidity, and retain critical management personnel; we do not always achieve the strategic, technological, financial or commercial benefits we anticipate; we may lose our investment or fail to recoup our loan; or our investment may be illiquid for a greater-than-expected period of time.
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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.
Certain of the acquisition agreements by which we have acquired companies require the former owners to indemnify us against certain liabilities related to the operation of the acquired company before we acquired it. In most of these agreements, however, the liability of the former owners is limited and certain former owners may be unable to meet their indemnification responsibilities. In addition, we obtain or receive the benefits of representations and warranties insurance in connection with certain acquisitions. There can be no assurance that these indemnification provisions or insurance coverages will protect us fully or at all, and as a result we may face unexpected liabilities that adversely affect our business and financial statements.
Divestitures or other dispositions could negatively impact our business, and contingent liabilities from businesses that we or our predecessors have disposed of could adversely affect our business and financial statements.
We continually assess the strategic fit of our existing businesses and may divest, spin-off, split-off or otherwise dispose of businesses for strategic, financial or other reasons. Such transactions pose risks and challenges that could negatively impact our business and financial statements. For example, divestitures or other dispositions can dilute the Company’s earnings per share, have other adverse financial, tax and accounting impacts and distract management, and disputes can arise with the new owners of the divested/disposed business. In addition, we have retained responsibility for and/or have agreed to indemnify buyers against some known and unknown contingent liabilities related to a number of businesses we or our predecessors have sold or disposed. The resolution of these contingencies has not had a material effect on our business or financial statements but there can be no assurance that this favorable pattern will continue.
Operational Risks
Significant disruptions in, or breaches in security of, our information technology systems or data or violation of data privacy laws can adversely affect our business and financial statements.
We rely on information technology systems, some of which are provided and/or managed by third-parties, to process, transmit and store electronic information (including sensitive data such as confidential business information and personal data relating to employees, customers and other business partners), and to manage or support a variety of critical business processes and activities (such as receiving and fulfilling orders, billing, collecting and making payments, shipping products, providing services and support to customers and fulfilling contractual obligations). In addition, some of our remote monitoring products and services incorporate software and information technology that house personal data and some products or software we sell to customers connect to our systems for maintenance or other purposes. These systems, products and services (including those we acquire through business acquisitions) can be damaged, disrupted or shut down due to attacks by computer hackers, computer viruses, ransomware, human error or malfeasance (including by employees), power outages, hardware failures, telecommunication or utility failures, catastrophes or other unforeseen events, and in any such circumstances our system redundancy and other disaster recovery planning may be ineffective or inadequate. Attacks can also target hardware, software and information installed, stored or transmitted in our products after such products have been purchased and incorporated into third-party products, facilities or infrastructure. Security breaches of systems provided or enabled by us, regardless of whether the breach is attributable to a vulnerability in our products or services, or security breaches of third-party suppliers we rely on to process, store or transmit electronic information, can result in the misappropriation, destruction or unauthorized disclosure of confidential information or personal data belonging to us or to our employees, partners, customers or suppliers. Like most multinational corporations, our information technology systems and data have been subject to computer viruses, malicious codes, unauthorized access and other cyber-attacks and we expect the sophistication and frequency of such attacks to continue to increase. Unauthorized tampering, adulteration or interference with our products may also adversely affect product functionality and result in loss of data and product recalls or field actions. The attacks, breaches, misappropriations and other disruptions and damage described above can interrupt our operations or the operations of our customers and partners, delay production and shipments, result in theft of our and our customers’ intellectual property and trade secrets, result in disclosure of personal data, damage customer, business partner and employee relationships and our reputation and result in defective products or services, legal claims and proceedings, liability and penalties under privacy and other
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laws and increased costs for security and remediation, in each case resulting in an adverse effect on our business and financial statements. We cannot guarantee that any processes, procedures and internal controls we have implemented or will implement will prevent cyber intrusions. Our liability insurance may not be sufficient in type or amount to cover us against claims related to security breaches, cyber-attacks and other related breaches.
In addition, our information technology systems require an ongoing commitment of significant resources to maintain and enhance existing systems and develop new systems to keep pace with continuing changes in information processing technology, evolving legal and regulatory standards, evolving customer expectations, changes in the techniques used to obtain unauthorized access to data and information systems, and the information technology needs associated with our changing products and services. There can be no assurance that we will be able to successfully maintain, enhance and upgrade our systems as necessary to effectively address these requirements. Further, a greater number of our employees have been working remotely since the beginning of the COVID-19 pandemic, which exposes us to greater cybersecurity and data privacy risks.
Any inability to maintain reliable information technology systems and appropriate controls with respect to global data privacy and security requirements and prevent data breaches can result in adverse regulatory and business consequences and litigation. As a global organization, we are subject to data privacy and security laws, regulations, and customer-imposed controls in numerous jurisdictions as a result of having access to and processing confidential, personal and/or sensitive data in the course of our business. Please see “Business—Regulatory Matters” for additional information. Failure to comply with the requirements of the EU General Data Protection Regulation that became effective in May 2018 (“GDPR”) and the applicable national data protection laws of the EU member states and other states subject to the GDPR may result in fines of up to €20 million or up to 4% of total worldwide annual turnover for the preceding financial year, whichever is higher, and other administrative penalties. Several other countries such as China and Russia have passed, and other countries have passed or are considering passing, laws that require some or all personal data relating to their citizens to be maintained on local servers or impose significant restrictions on data transfer. State privacy laws in California impose some of the same features as the GDPR and have prompted several other states to enact similar laws.
Additionally, a bipartisan bill under consideration in Congress would, if adopted, impose broad privacy requirements at the U.S. federal level and provide enhanced enforcement authority to the FTC. Government investigations and enforcement actions can be costly and interrupt the regular operation of our business, and data breaches or violations of data privacy laws can result in civil and criminal, monetary and non-monetary penalties and damage to customer, business partner and employee relationships and to our reputation, any of which may adversely affect our business and financial statements. In addition, compliance with the varying data privacy regulations across the U.S. and around the world has required significant expenditures and may require additional expenditures, and may require further changes in our products or business models that increase competition or reduce revenue.
Defects and unanticipated use or inadequate disclosure with respect to our products or services, or allegations thereof, can adversely affect our business and financial statements.
Manufacturing or design defects or “bugs” in, unanticipated use of, safety or quality issues (or the perception of such issues) with respect to, “off label” use of, or inadequate disclosure of risks relating to the use of products and services that we make or sell (including items that we source from third-parties) can lead to personal injury, death, property damage and/or regulatory violations that can adversely affect our business and financial statements. These events can lead to recalls or safety alerts, result in the removal of a product or service from the market and result in product liability or similar claims being brought against us. Recalls, removals and product liability and similar claims (regardless of their validity or ultimate outcome) can result in significant costs, as well as negative publicity and damage to our reputation that could reduce demand for our products and services. Any of the above can result in the discontinuation of marketing of such products in one or more countries and give rise to claims for damages from persons who believe they have been injured as a result of product issues, including claims by individuals or groups seeking to represent a class.
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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 facilities, supply chains, distribution systems and information technology systems are subject to catastrophic loss due to fire, flood, cyber-attack, earthquake, hurricane, power shortage or outage, public health crisis (including epidemics and pandemics) and the reaction thereto, war, terrorism, riot, public protest or other natural or man-made disasters, such as the COVID-19 pandemic. If any of these facilities, supply chains or systems were to experience a catastrophic loss, it could disrupt our operations, delay production and shipments, result in defective products or services, diminish demand, damage customer relationships and our reputation and result in legal exposure and significant repair or replacement expenses. The third-party insurance coverage that we maintain varies from time to time in both type and amount depending on cost, availability and our decisions regarding risk retention, and may be unavailable or insufficient to protect us against such losses.
Climate change, legal or regulatory measures to address climate change and any inability on our part to address stakeholder expectations relating to climate change may negatively affect us.
Climate change resulting from increased concentrations of carbon dioxide and other greenhouse gases in the atmosphere presents risks to our operations. Physical risk resulting from acute changes (such as hurricane, tornado, wildfire or flooding) or chronic changes (such as droughts, heat waves or sea level changes) in climate patterns can adversely impact our facilities and operations and disrupt our supply chains and distribution systems. Concern over climate change can also result in new or additional legal, regulatory or quasi-regulatory requirements designed to reduce greenhouse gas emissions and/or mitigate the effects of climate change on the environment (such as taxation of, or caps on the use of, carbon-based energy). Any such new or additional requirements may increase the costs associated with, or disrupt, sourcing, manufacturing and distribution of our products, which may adversely affect our business and financial statements. In addition, any failure to adequately address stakeholder expectations with respect to environmental, social and governance (“ESG”) matters may result in the loss of business, adverse reputational impacts, diluted market valuations and challenges in attracting and retaining customers and talented employees. For example, our ability to achieve any ESG goals we may establish is uncertain and subject to numerous risks, including evolving regulatory requirements and stakeholder expectations, our ability to recruit, develop and retain a diverse workforce, the availability of suppliers and other business partners that can meet our ESG expectations, the effects of the organic and inorganic growth of our business, cost considerations and the development and availability of cost-effective technologies or resources that would support any such goals.
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 business and financial statements could suffer.
The manufacture of many of our products is a highly exacting and complex process. Problems can arise during manufacturing for a variety of reasons, including equipment malfunction, failure to follow specific protocols and procedures, problems with raw materials or components, cyber-attacks, natural disasters and environmental factors, and if not discovered before the product is released to market can result in recalls and product liability exposure. An alternative manufacturer is not always available on a timely basis to replace lost production capacity. Any of these manufacturing problems could result in adverse impacts to our business and financial statements.
Our financial results are subject to fluctuations in the cost and availability of the supplies that we use in, and the labor we need for, our operations.
Prices for and availability of the components, raw materials and other commodities we use in our business, as well as for labor, have fluctuated significantly in the past, including during 2022. Please see “Business—Materials” for a discussion of the inputs we use in our business, supply chain and labor availability disruptions and constraints our businesses have faced and are facing, and the adverse impacts that we have incurred and may incur relating thereto. The supply chains for our businesses can be disrupted by supplier capacity constraints, fluctuations in demand, decreased availability of key raw materials or commodities, legislative or regulatory changes, bankruptcy or exiting of the business for other reasons and external events such as natural disasters, pandemic health issues, war, terrorist actions and governmental actions (such as trade protectionism). In addition, some of our businesses purchase certain requirements from sole or limited source suppliers for reasons of quality assurance, cost
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effectiveness, availability or uniqueness of design. In the event of interruptions in the supply, or increases in the cost, of such supplies, we might not be able to quickly establish or qualify replacement sources of supply. Sustained interruptions in the supply of, or increase in the cost of, key components, raw materials, other commodities and labor can result in production interruptions, delays, extended lead times and inefficiencies and adversely affect our business and financial statements. In addition, due to the highly competitive nature of the industries that we serve, the cost-containment efforts of our customers and the terms of certain contracts we are party to, when supply and labor prices rise we are not always able to pass along cost increases through higher prices for our products. If we are unable to fully recover higher supply and labor costs through price increases or offset these increases through cost reductions, or if there is a time delay between the increase in costs and our ability to recover or offset these costs, our margins and profitability can decline and our business and financial statements can be adversely affected.
Our profitability could also be adversely impacted if we are unable to adjust our purchases to reflect changes in customer demand and market fluctuations, including those caused by seasonality or cyclicality. During a market upturn, suppliers from time to time extend lead times, limit supplies or increase prices. Conversely, in order to secure supplies for the production of products, we sometimes enter into noncancelable purchase commitments with vendors, which can impact our ability to adjust our inventory to reflect declining market demands.
Because we cannot always immediately adapt our production capacity and related cost structures to changing market conditions, at times our manufacturing capacity exceeds or falls short of our production requirements. Any or all of these problems can result in the loss of customers or cost inefficiencies, provide an opportunity for competing products to gain market acceptance and otherwise adversely affect our business and financial statements.
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 business and financial statements.
Certain of our businesses sell a significant amount of their products to or through key distributors and other channel partners that have valuable relationships with customers and end-users. Some of these distributors and other partners also sell our competitors’ products or compete with us directly, and if they favor competing products for any reason they may fail to market our products effectively. Adverse changes in our relationships with these distributors and other partners, reduction or discontinuation of their purchases from us or adverse developments in their financial condition, performance or purchasing patterns, can adversely affect our business and financial statements. The levels of inventory maintained by our key distributors and other channel partners, and changes in those levels, also impacts our business and financial statements in any given period. In addition, the consolidation of distributors and customers in certain of our served industries can adversely impact our business and financial statements.
Our success depends on our ability to recruit, retain and motivate talented employees representing diverse backgrounds, experiences and skill sets.
The market for highly skilled workers and leaders in our industries, particularly in the areas of science and technology, is extremely competitive and expectations from qualified talent in many areas of the labor market have evolved and escalated recently. In addition, in 2022 we faced labor availability constraints and labor cost inflation in certain areas of our business. If we are less successful in our recruiting efforts, if we cannot retain and motivate highly skilled workers and key leaders representing diverse backgrounds, experiences and skill sets, or if we experience labor disputes, our business and financial statements may be adversely affected.
Our restructuring actions can have long-term adverse effects on our business and financial statements.
We have implemented significant restructuring activities across our businesses to adjust our cost structure, and we may engage in similar restructuring activities in the future. These restructuring activities and our regular ongoing cost reduction activities could diminish our resources and competitiveness, and delays or failures in implementing planned restructuring activities may diminish the expected operational or financial benefits from such actions. Any of the circumstances described above could adversely impact our business and financial statements.
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Intellectual Property Risks
If we are unable to adequately protect our intellectual property, or if third-parties infringe our intellectual property rights, we may 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.
Many of the markets we serve are technology-driven, and as a result intellectual property rights play a significant role in product development and differentiation. We own numerous patents, trademarks, copyrights, trade secrets and other intellectual property and licenses to intellectual property owned by others, which in aggregate are important to our business. The intellectual property rights that we obtain, however, are not always sufficiently broad and do not always provide us a significant competitive advantage, and patents may not be issued for pending or future patent applications owned by or licensed to us. In addition, the steps that we and our licensors have taken to maintain and protect our intellectual property do not always prevent it from being challenged, invalidated, circumvented, designed-around or becoming subject to compulsory licensing.
In some circumstances, enforcement is not available to us because an infringer has a dominant intellectual property position or for other business reasons. We also rely on nondisclosure and noncompetition agreements with employees, consultants and other parties to protect, in part, trade secrets and other proprietary rights. There can be no assurance that these agreements adequately protect our trade secrets and other proprietary rights and will not be breached, that we will have adequate remedies for any breach, that others will not independently develop substantially equivalent proprietary information or that third-parties will not otherwise gain access to our trade secrets or other proprietary rights. Our failure to obtain or maintain intellectual property rights that convey competitive advantage and adequately protect our intellectual property, our failure to detect or prevent circumvention or unauthorized use of such property and the cost of enforcing our intellectual property rights each can adversely impact our business and financial statements.
These risks are particularly pronounced in countries in which we do business that do not have levels of protection of corporate proprietary information, intellectual property, technology and other assets comparable to the United States. The risks we encounter in such countries include but are not limited to the following:
•Joint ventures that we participate in can include restrictions that could compromise our control over the intellectual property, technology and proprietary information of the joint venture;
•As we expand our operations globally, increasing amounts of our data, intellectual property and technology is used and stored in countries outside the United States, and regulations in certain countries require data to be stored locally. These factors increase the risk that such data, intellectual property and technology could be stolen or otherwise compromised;
•Certain of our products have been counterfeited and we may encounter additional and/or increased levels of counterfeiting in the future;
•Governmental entities may adopt regulations or other requirements that give them rights to certain of our intellectual property, technology and/or proprietary information, such as through compulsory licensing or ownership restrictions or requirements;
•In certain countries, we do not have the same ability to enforce intellectual property rights as we do in the U.S.;
•Governmental regulations relating to state secrecy or other topics limit our ability to transfer data or technology out of certain jurisdictions; and
•Risks, costs and challenges of operating in a particular jurisdiction can result in a decision to relocate or divert operations to a different jurisdiction, potentially at higher cost.
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Any of these risks can adversely impact our business and financial statements. Please refer to “—International economic, political, legal, compliance, social and business factors could negatively affect our financial statements” for a discussion of additional risks relating to our international operations.
Third-parties from time to time claim that we are infringing or misappropriating their intellectual property rights and we could suffer significant litigation expenses, losses or licensing expenses or be prevented from selling products or services.
From time to time, we receive notices from third parties alleging intellectual property infringement or misappropriation of third parties’ intellectual property and cannot be certain that the conduct of our business does not and will not infringe or misappropriate the intellectual property rights of others. Disputes or litigations regarding intellectual property can be costly and time-consuming to defend due to the complexity of many of our technologies and the uncertainty of intellectual property litigation. Our intellectual property portfolio may not be useful in asserting a counterclaim, or negotiating a license, in response to a claim of infringement or misappropriation. In addition, as a result of such claims of infringement or misappropriation, we could lose our rights to critical technology, be unable to license critical technology or sell critical products and services, be required to pay substantial damages or license fees with respect to the infringed rights, be required to license technology or other intellectual property rights from others, be required to cease marketing, manufacturing or using certain products or be required to redesign, re-engineer or re-brand our products at substantial cost, any of which could adversely impact our business and financial statements. Third-party intellectual property rights may also make it more difficult or expensive for us to meet market demand for particular product or design innovations. When we are required to seek licenses under patents or other intellectual property rights of others, we are not always able to acquire these licenses on acceptable terms, if at all. Even if we successfully defend against claims of infringement or misappropriation, we may incur significant costs and diversion of management attention and resources, which could adversely affect our business and financial statements.
Financial and Tax Risks
We may be required to recognize impairment charges for our goodwill and other intangible assets.
As of June 30, 2023, the net carrying value of our goodwill and other intangible assets totaled approximately $3.0 billion. Significant negative industry or economic trends, disruptions to our business, inability to effectively integrate acquired businesses, unexpected significant changes or planned changes in use of our assets, changes in the structure of our business, divestitures, market capitalization declines, or increases in associated discount rates can impair our goodwill and other intangible assets. In the past, we have recognized impairment charges relating to certain non-goodwill intangible assets, and in the future, we could recognize charges related to the impairment of goodwill or other intangible assets. Any such impairment charges adversely affect our financial statements in the periods recognized.
Foreign currency exchange rates can adversely affect our financial statements.
Sales and purchases in currencies other than the U.S. dollar expose us to fluctuations in foreign currencies relative to the U.S. dollar, which have in the past and may in the future adversely affect our financial statements. Increased strength of the U.S. dollar increases the effective price of our products sold in U.S. dollars into other countries, which can adversely affect sales or require us to lower our prices.
Decreased strength of the U.S. dollar adversely affects the cost of materials, products and services we purchase overseas. Sales and expenses of our non-U.S. businesses are also translated into U.S. dollars for reporting purposes and the strengthening of the U.S. dollar generally results in unfavorable translation effects. In addition, certain of our businesses invoice customers in a currency other than the business’ functional currency, and movements in the invoiced currency relative to the functional currency can also result in unfavorable translation effects. The Company also faces exchange rate risk from its investments in subsidiaries owned and operated in foreign countries.
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Changes in our tax rates or exposure to additional income tax liabilities or assessments could affect our profitability. In addition, audits by tax authorities could result in additional tax payments for prior periods.
We are subject to income taxes in the U.S. and in numerous non-U.S. jurisdictions. Due to the potential for changes to tax laws and regulations or changes to the interpretation thereof (including regulations and interpretations pertaining to the U.S. Tax Cuts and Jobs Act (“TCJA”)), the ambiguity of tax laws and regulations, the subjectivity of factual interpretations, the complexity of our intercompany arrangements, uncertainties regarding the geographic mix of earnings in any particular period, and other factors, our estimates of effective tax rate and income tax assets and liabilities can be incorrect and our financial statements could be adversely affected. Please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for a discussion of additional factors that may adversely affect our effective tax rate and decrease our profitability in any period.
The impact of the factors referenced in the preceding sentence may be substantially different from period-to-period. In addition, the amount of income taxes we pay is subject to ongoing audits by U.S. federal, state and local tax authorities and by non-U.S. tax authorities, such as the audits described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Company’s Combined Financial Statements. If audits result in payments or assessments different from our reserves, our financial results can be adversely affected. Any further changes to the tax system in the United States or in other jurisdictions could also adversely affect our financial statements.
Changes in tax law relating to multinational corporations could adversely affect our tax position.
Legislative bodies and government agencies in the U.S. and other countries as well as the Organisation for Economic Co-operation and Development (“OECD”) have focused on issues related to the taxation of multinational corporations. One example is in the area of “base erosion and profit shifting,” for which the OECD has released several components of its comprehensive plan that have been adopted and expanded by many taxing authorities to address perceived tax abuse and inconsistencies between tax jurisdictions. As a result, the tax laws in the United States and other countries in which we do business could change on a prospective or retroactive basis, and any such changes could adversely affect our business and financial statements.
The military conflict between Russia and Ukraine has adversely affected and may further adversely affect our business and financial statements.
The military conflict between Russia and Ukraine has adversely affected and may further adversely affect our business and financial statements. In 2022, the Company suspended the shipment of products to Russia. We incurred a pretax charge of $1 million in the first quarter of 2022 as a result of Russia-related asset impairments and similar items and we may incur additional charges in the future. In 2021, approximately 1% of the Company’s sales were derived from customers based in Russia and a de minimis percentage of sales were derived from customers based in Ukraine, and in 2022 Russia and Ukraine sales accounted for less than 1% of the Company’s sales. The conflict in Ukraine may escalate and/or expand in scope and the broader consequences of this conflict, which have included and/or may in the future include sanctions, embargoes, regional instability, geopolitical shifts and adverse impacts on energy supplies and prices; potential retaliatory action by the Russian government against companies, including the Company, such as nationalization of foreign businesses in Russia. Further, increased tensions between the United States and countries in which we operate cannot be predicted, nor can we predict the conflict’s future impact on the global economy and on our business and financial statements.
The Russia and Ukraine conflict also heightens many other risks disclosed in this information statement, any of which can adversely affect our business and financial statements. Such risks include, but are not limited to, adverse effects on macroeconomic conditions, including increased inflation, constraints on the availability of commodities, supply chain disruption and decreased business spending; disruptions to our or our business partners’ global technology infrastructure, including through cyber-attack or cyber-intrusion; adverse changes in international trade policies and relations; claims, litigation and regulatory enforcement; our ability to implement and execute our business strategy; terrorist activities; our exposure to foreign currency fluctuations; reputational risk; and constraints, volatility, or disruption in the capital markets.
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Our defined benefit pension plans and health care costs are subject to financial and other market risks that could adversely affect our financial statements.
Significant changes in market interest rates, decreases in the fair value of plan assets, investment losses on plan assets and changes in discount rates can increase our defined benefit pension plan funding obligations, and upward pressure on the cost of providing health care coverage to current employees and retirees can increase our future funding obligations. Any of these risks can adversely affect our financial statements.
Legal, Regulatory, Compliance and Reputational Risks
Significant developments or changes in national laws or policies to protect or promote domestic interests and/or address foreign competition can have an adverse effect on our business and financial statements.
Significant developments or changes in national laws or policies to protect or promote domestic interests and/or address foreign competition, including laws and policies in areas such as trade, manufacturing, government purchasing, intellectual property and investment/development, can adversely affect our business and financial statements. For example, certain governments have implemented policies to induce “re-shoring” of supply chains, reduce reliance on imported supplies and promote national production. In addition, in recent years the U.S. has increased tariffs on certain imported goods and trade tensions between the U.S. and China escalated, with each country imposing significant, additional tariffs on a wide range of goods imported from the other country.
Our business and financial statements can be impaired by improper conduct by any of our employees, agents or business partners.
There can be no assurance that our internal controls and compliance systems, including our Code of Conduct, always protect us from acts committed by employees, agents or business partners of ours (or of businesses we acquire or partner with) that violate laws, including the laws governing payments to government officials, bribery, fraud, kickbacks and false claims, pricing, sales and marketing practices, conflicts of interest, competition, employment practices and workplace behavior, export and import compliance, economic and trade sanctions, money laundering and data privacy. In particular, the U.S. Foreign Corrupt Practices Act, the UK Bribery Act and similar anti-bribery laws in other jurisdictions generally prohibit companies and their intermediaries from making improper payments to government officials for the purpose of obtaining or retaining business, and we operate in many parts of the world that have experienced governmental corruption to some degree. Any such improper actions or allegations of such acts could damage our reputation and subject us to civil or criminal investigations and related stockholder lawsuits, could lead to substantial civil and criminal, monetary and non-monetary penalties and could cause us to incur significant legal and investigatory fees. In addition, the government may seek to hold us liable for violations committed by companies in which we invest or that we acquire. We also rely on our suppliers to adhere to Danaher’s Supplier Code of Conduct, and violations of such code of conduct could adversely affect our business and financial statements.
Our businesses are subject to extensive regulation; failure to comply with those regulations could adversely affect our business and financial statements.
In addition to the environmental, health, safety, anticorruption, data privacy and other regulations noted elsewhere in this information statement, our businesses are subject to extensive regulation by U.S. and non-U.S. governmental and self-regulatory entities at the supranational, federal, state, local and other jurisdictional levels, including for example the following:
•We are required to comply with various import laws and export control and economic sanctions laws, which may affect our transactions with certain customers, business partners and other persons and dealings between our employees and between our subsidiaries. In certain circumstances, export control and economic sanctions regulations may prohibit the export of certain products, services and technologies. In other circumstances, we may be required to obtain an export license before exporting the controlled item. Compliance with the various import laws that apply to our businesses can restrict our access to, and increase the cost of obtaining, certain products and at times can interrupt our supply of imported inventory. In addition, we sell and provide products and technology to third parties, such as agents, representatives
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and distributors, who may export such items to end-users. If we or any of these third parties do not comply with applicable export or import laws we may incur liability. We have established policies and procedures designed to ensure compliance with the laws and regulations referenced above, but there can be no assurance that the policies and procedures have prevented and will prevent violations of these regulations, and any such violation can adversely affect our business and financial statements.
•We also have agreements to sell products and services to government entities and are subject to various statutes and regulations that apply to companies doing business with government entities (less than 2% of our 2022 sales were made to the U.S. federal government). The laws governing government contracts differ from the laws governing private contracts. For example, many government contracts contain pricing and other terms and conditions that are not applicable to private contracts. Our agreements with government entities are in some cases subject to termination, reduction or modification at the convenience of the government or in the event of changes in government requirements, reductions in federal spending and other factors, and we may underestimate our costs of performing under the contract. In certain cases, a governmental entity may require us to pay back amounts it has paid to us. Government contracts that have been awarded to us following a bid process can become the subject of a bid protest by a losing bidder, which could result in loss of the contract. We are also subject to investigation and audit for compliance with the requirements governing government contracts.
These are not the only regulations that our businesses must comply with. The regulations we are subject to have tended to become more stringent over time and can be inconsistent across jurisdictions. We, our representatives and the industries in which we operate are at times under review and/or investigation by regulatory authorities. Failure to comply (or any alleged or perceived failure to comply) with the regulations referenced above or any other regulations can result in import detentions, fines, damages, civil and administrative penalties, injunctions, consent decrees, suspensions or losses of regulatory approvals, recall or seizure of products, operating restrictions, refusal of the government to approve product export applications or allow us to enter into supply contracts, disbarment from selling to certain governmental agencies, integrity oversight and reporting obligations to resolve allegations of non-compliance, disruption of our business, limitation on our ability to manufacture, import, export and sell products and services, loss of customers, significant legal and investigatory fees, disgorgement, individual imprisonment, reputational harm, contractual damages, diminished profits, curtailment or restricting of business operations, criminal prosecution and other monetary and non-monetary penalties. Compliance with these and other regulations can also affect our returns on investment, require us to incur significant expenses or modify our business model or impair our flexibility in modifying product, marketing, pricing or other strategies for growing our business. Our products and operations are also often subject to the rules of industrial standards bodies such as the International Standards Organization, and failure to comply with these rules can result in withdrawal of certifications needed to sell our products and services and otherwise adversely impact our business and financial statements. For additional information regarding these risks, please refer to “Business—Regulatory Matters.”
We are subject to or otherwise responsible for 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.
We are, or following the distribution, may become, subject to or otherwise responsible for a variety of litigation and other legal and regulatory proceedings in the course of our business (or related to the business operations of previously owned entities), including claims or counterclaims for damages arising out of the use of products or services and claims relating to intellectual property matters, employment matters, tax matters, commercial disputes, breach of contract claims, competition and sales and trading practices, environmental matters, personal injury, insurance coverage, acquisition or divestiture-related matters, as well as regulatory subpoenas, requests for information, investigations and enforcement. We also from time to time become subject to lawsuits as a result of acquisitions or as a result of liabilities retained from, or representations, warranties or indemnities provided in connection with, businesses divested by us or our predecessors. The types of claims made in lawsuits include claims for compensatory damages, consequential damages, punitive damages and/or injunctive relief. The defense of these lawsuits can divert our management’s attention, we from time to time incur significant expenses in defending these lawsuits, and we can be required to pay damage awards or settlements or become subject to equitable remedies that adversely affect our business and financial statements. Moreover, any insurance or indemnification rights that we may have may be insufficient or unavailable to protect us against such losses. Because most contingencies are
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resolved over long periods of time, new developments (including litigation developments, the discovery of new facts, changes in legislation and outcomes of similar cases), changes in assumptions or changes in the Company’s strategy in any given period can require us to adjust the loss contingency estimates that we have recorded in our financial statements, record estimates for liabilities or assets previously not susceptible of reasonable estimates or pay cash settlements or judgments. Any of these developments can adversely affect our business and financial statements in any particular period. There can be no assurance that our liabilities in connection with current and future litigation and other legal and regulatory proceedings will not exceed our estimates or adversely affect our financial statements and business. However, based on our experience, information and applicable law as of the date of this information statement, we do not believe that it is reasonably possible that any amounts we may be required to pay in connection with litigation and other legal and regulatory proceedings in excess of our reserves as of the date of this information statement will have a material effect on our business or financial statements.
From time to time, we become aware through our internal audits and other internal control procedures, employees or other parties of possible compliance matters, such as complaints or concerns relating to accounting, internal controls, financial reporting, auditing or ethical matters or relating to compliance with laws. When we become aware of such possible compliance matters, we investigate internally and take what we believe to be appropriate corrective action. Internal investigations can lead to the assertion of claims or the commencement of legal or regulatory proceedings against us and adversely affect our business and financial statements.
Our operations, products and services expose us to the risk of environmental, health and safety liabilities, costs and violations that could adversely affect our business and financial statements.
Our operations, products and services are subject to numerous U.S. federal, state, local and non-U.S. environmental, health and safety laws and regulations concerning, among other things, the health and safety of our employees, the generation, storage, use and transportation of hazardous materials, emissions or discharges of substances into the environment, investigation and remediation of hazardous substances or materials at various sites, chemical constituents in products and end-of-life disposal and take-back programs for products sold. There can be no assurance that our environmental, health and safety compliance program (or the compliance programs of businesses we acquire) have been or will at all times be effective. Failure to comply with any of these laws can result in civil and criminal, monetary and non-monetary penalties and damage to our reputation. In addition, there can be no assurance that our costs of complying with current or future environmental protection and health and safety laws will not exceed our estimates or adversely affect our business or financial statements.
In addition, we from time to time incur costs related to remedial efforts or alleged environmental damage associated with past or current waste disposal practices or other hazardous materials handling practices. We are also from time to time party to personal injury, property damage or other claims brought by private parties alleging injury or damage due to the presence of or exposure to hazardous substances. We can also become subject to additional remedial, compliance or personal injury costs due to future events such as changes in existing laws or regulations, changes in agency direction or enforcement policies, developments in remediation technologies, changes in the conduct of our operations and changes in accounting rules. For additional information regarding these risks, refer to the Combined Financial Statements included in this information statement. There can be no assurance that our liabilities arising from past or future releases of, or exposures to, hazardous substances will not exceed our estimates or adversely affect our reputation and financial statements or that we will not be subject to additional claims for personal injury or remediation in the future based on our past, present or future business activities. However, based on the information we have as of the date of this information statement we do not believe that it is reasonably possible that any amounts we may be required to pay in connection with environmental matters in excess of our reserves as of the date of this information statement will have a material effect on our business or financial statements.
Changes in governmental regulations can reduce demand for our products or services or increase our expenses.
We compete in markets in which we and our customers must comply with supranational, federal, state, local and other jurisdictional regulations, such as regulations governing health and safety, the environment and privacy. We develop, configure and market our products and services to meet customer needs created by these regulations. Any significant change in any of these regulations (or in the interpretation or application thereof)
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can reduce demand for, increase our costs of producing or delay the introduction of new or modified products and services, or restrict our existing activities, products and services.
Risks Related to the Separation and Our Relationship With Danaher
Veralto has no history of operating as a separate, publicly traded company, and its historical and pro forma financial information is not necessarily representative of the results that it would have achieved as a separate, publicly traded company and may not be a reliable indicator of its future results.
The historical information about Veralto in this information statement refers to Veralto’s businesses as operated by and integrated with Danaher. Veralto’s historical and pro forma financial information included in this information statement is derived from the consolidated financial statements and accounting records of Danaher. Accordingly, the historical and pro forma financial information included in this information statement does not necessarily reflect the financial condition, results of operations or cash flows that Veralto would have achieved as a separate, publicly traded company during the periods presented or those that Veralto will achieve in the future primarily as a result of the factors described below:
•prior to the separation, Veralto’s businesses have been operated by Danaher as part of its broader corporate organization, rather than as a separate, publicly traded company. Danaher or one of its affiliates performed various corporate functions for Veralto such as legal, treasury, accounting, auditing, human resources, corporate affairs and finance. Veralto’s historical and pro forma financial results reflect allocations of corporate expenses from Danaher for such functions and are likely to be less than the expenses Veralto would have incurred had it operated as a separate publicly traded company. Following the separation, Veralto’s cost related to such functions previously performed by Danaher may therefore increase;
•currently, Veralto’s businesses are integrated with the other businesses of Danaher. Historically, Veralto has shared economies of scope and scale in costs, employees, vendor relationships and customer relationships. Although Veralto will enter into transition agreements with Danaher, these arrangements will be temporary and may not fully capture the benefits that Veralto has enjoyed as a result of being integrated with Danaher and may result in Veralto paying higher charges than in the past for these services. This could have an adverse effect on Veralto’s business and financial statements following the completion of the separation;
•generally, Veralto’s working capital requirements and capital for its general corporate purposes, including acquisitions and capital expenditures, have historically been satisfied as part of the corporate-wide cash management policies of Danaher. Following the completion of the separation, Veralto may need to obtain additional financing from banks, through public offerings or private placements of debt or equity securities, strategic relationships or other arrangements;
•after the completion of the separation, the cost of capital for Veralto’s businesses may be higher than Danaher’s cost of capital prior to the separation; and
•Veralto’s historical financial information does not reflect the debt or the associated interest expense that Veralto is expected to incur as part of the separation and distribution.
Other significant changes may occur in Veralto’s cost structure, management, financing and business operations as a result of operating as a company separate from Danaher. For additional information about the past financial performance of Veralto’s businesses and the basis of presentation of the historical Combined Financial Statements and the Unaudited Pro Forma Combined Financial Statements of Veralto’s businesses, please refer to the sections entitled “Unaudited Pro Forma Combined Financial Statements,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the audited Combined Financial Statements and accompanying notes included elsewhere in this information statement.
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As a separate, publicly traded company, Veralto may not enjoy the same benefits that Veralto did as a part of Danaher.
There is a risk that, by separating from Danaher, Veralto may become more susceptible to market fluctuations and other adverse events than it would have been if it were still a part of the current Danaher organizational structure. As part of Danaher, Veralto has been able to enjoy certain benefits from Danaher’s operating diversity, purchasing power and opportunities to pursue integrated strategies with Danaher’s other businesses. As a separate, publicly traded company, Veralto will not have similar diversity or integration opportunities and may not have similar purchasing power or access to capital markets. Additionally, as part of Danaher, Veralto has been able to leverage the Danaher historical market reputation and performance and brand identity to recruit and retain key personnel to run its business. As a separate, publicly traded company, Veralto will not have the same historical market reputation and performance or brand identity as Danaher and it may be more difficult for us to recruit or retain such key personnel.
The Unaudited Pro Forma Combined Condensed Financial Statements included in this information statement are presented for informational purposes only and may not be an indication of Veralto’s financial condition or results of operations in the future.
The Unaudited Pro Forma Combined Condensed Financial Statements included in this information statement are presented for informational purposes only and are not necessarily indicative of what Veralto’s actual financial condition or results of operations would have been had the separation been completed on the date indicated. The assumptions used in preparing the pro forma financial information may not prove to be accurate and other factors may affect Veralto’s financial condition or results of operations. Accordingly, Veralto’s financial condition and results of operations in the future may not be evident from or consistent with such pro forma financial information.
Future sales of Veralto common stock, or the perception that such sales or distributions may occur, could depress the price of Veralto common stock.
Sales or distributions of a substantial number of shares after the distribution, or a perception that such sales or distributions could occur, could significantly reduce the market price of Veralto common stock. Upon completion of the distribution, except as otherwise described herein, all shares of Veralto common stock that are being distributed hereby will be freely tradable without restriction, assuming they are not held by Veralto’s affiliates.
Immediately following the distribution, Veralto intends to file a registration statement on Form S-8 registering under the Securities Act the shares of Veralto common stock reserved for issuance under the Veralto 2023 Stock Incentive Plan. If equity securities granted under the Veralto 2023 Stock Incentive Plan are sold or it is perceived that they will be sold in the public market, the trading price of Veralto common stock could decline substantially. These sales also could impede Veralto’s ability to raise future capital.
We expect that any Veralto director, officer or employee who is also a director, officer or employee of Danaher will have limited liability to Veralto or you for breach of fiduciary duty with respect to certain corporate opportunities.
The Veralto amended and restated certificate of incorporation will provide that, Danaher will have no duty to communicate information regarding a corporate opportunity to Veralto or to refrain from engaging in the same or similar activities or lines of business as Veralto, doing business with any client, customer or vendor of Veralto or employing or otherwise engaging any director, officer or employee of Veralto, and that to the fullest extent permitted by law, except as otherwise provided in the Veralto amended and restated certificate of incorporation, no officer, director or employee of Veralto who is also a director, officer or employee of Danaher will be deemed to have breached his or her fiduciary duties, if any, to Veralto solely by reason of Danaher’s engaging in any such activity. The Veralto amended and restated certificate of incorporation will also provide that, for so long as Danaher has one or more directors, officers or employees serving as a Veralto director, officer or employee, in the event that any of Veralto’s directors, officers or employees who is also a director, officer or employee of Danaher acquires knowledge of a potential transaction or matter that may be a corporate opportunity for Veralto and Danaher, such director, officer or employee shall to the fullest extent permitted by law have fully satisfied and fulfilled his or her fiduciary duty, if any, with respect to such corporate opportunity, and Veralto, to the fullest extent permitted by law,
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renounces any interest or expectancy in such corporate opportunity, and waives any claim that such corporate opportunity constituted a corporate opportunity that should have been presented to Veralto or any of its affiliates, if he or she acts in a manner consistent with the following policy: such corporate opportunity offered to any person who is Veralto’s director, officer or employee and who is also a director, officer or employee of Danaher shall belong to Veralto only if such opportunity is expressly offered to such person solely in his or her capacity as Veralto’s director or officer and otherwise shall belong to Danaher. As such, any director, officer or employee of Veralto who is also a director, officer or employee of Danaher will have limited liability to Veralto or to Veralto’s stockholders for breach of fiduciary duty by reason of not presenting a corporate opportunity to Veralto or any of its affiliates if such person has followed the aforementioned policy with respect to such corporate opportunity.
Veralto’s customers, prospective customers, suppliers or other companies with whom Veralto conducts business may conclude that Veralto’s financial stability as a separate, publicly traded company is insufficient to satisfy their requirements for doing or continuing to do business with them.
Some of Veralto’s customers, prospective customers, suppliers or other companies with whom we conduct business may conclude that Veralto’s financial stability as a separate, publicly traded company is insufficient to satisfy their requirements for doing or continuing to do business with them, or may require Veralto to provide additional credit support, such as letters of credit or other financial guarantees. Any failure of parties to be satisfied with Veralto’s financial stability could have a material adverse effect on Veralto’s business and financial statements.
Potential indemnification liabilities to Danaher pursuant to the separation agreement could materially and adversely affect Veralto’s business and financial statements.
The separation agreement, among other things, provides for indemnification obligations (for uncapped amounts) designed to make Veralto financially responsible for substantially all liabilities that may exist relating to its business activities, whether incurred prior to or after the separation, as well as any other liabilities it agrees to assume pursuant to the separation agreement. If Veralto is required to indemnify Danaher under the circumstances set forth in the separation agreement, Veralto may be subject to substantial liabilities. Please refer to “Certain Relationships and Related Person Transactions—The Separation Agreement—Release of Claims and Indemnification.”
In connection with Veralto’s separation from Danaher, Danaher will indemnify Veralto for certain liabilities. However, there can be no assurance that the indemnity will be sufficient to insure Veralto against the full amount of such liabilities, or that Danaher’s ability to satisfy its indemnification obligation will not be impaired in the future.
Pursuant to the separation agreement and certain other agreements with Danaher, Danaher will agree to indemnify Veralto for certain liabilities as discussed further in “Certain Relationships and Related Person Transactions.” However, third parties could also seek to hold Veralto responsible for any of the liabilities that Danaher has agreed to retain, and there can be no assurance that the indemnity from Danaher will be sufficient to protect Veralto against the full amount of such liabilities, or that Danaher will be able to fully satisfy its indemnification obligations. In addition, Danaher’s insurance will not necessarily be available to Veralto for liabilities associated with occurrences of indemnified liabilities prior to the separation, and in any event Danaher’s insurers may deny coverage to Veralto for liabilities associated with certain occurrences of indemnified liabilities prior to the separation. Moreover, even if Veralto ultimately succeeds in recovering from Danaher or such insurance providers any amounts for which Veralto is held liable, Veralto may be temporarily required to bear these losses. Each of these risks could negatively affect Veralto’s business and financial statements.
If there is a determination that the separation and/or the distribution, together with certain related transactions, is taxable for U.S. federal income tax purposes because the facts, assumptions, representations or undertakings underlying the IRS private letter ruling and/or any tax opinion are incorrect or for any other reason, then Danaher and its stockholders could incur significant U.S. federal income tax liabilities, and we could also incur significant liabilities.
The distribution, along with certain related transactions, is conditioned upon the receipt by Danaher of (i) the Ruling from the IRS substantially to the effect that, among other things, the distribution, together with certain related transactions, will qualify as a transaction that is tax-free for U.S. federal income tax purposes under Sections 355
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and 368(a)(1)(D) of the Code and (ii) an opinion of Skadden, Arps, Slate, Meagher & Flom LLP, tax counsel to Danaher, to the effect that, among other things, the distribution, together with certain related transactions, will qualify as a reorganization within the meaning of Sections 355 and 368(a)(1)(D) of the Code. Danaher has received the Ruling from the IRS. The Ruling relies and the opinion of tax counsel will rely on certain facts, assumptions, representations and undertakings from Danaher and Veralto regarding the past and future conduct of the companies’ respective businesses and other matters. If any of these facts, assumptions, representations or undertakings are incorrect or not otherwise satisfied, Danaher and its stockholders may not be able to rely on the Ruling or the opinion of tax counsel and could be subject to significant tax liabilities. Notwithstanding the Ruling or opinion of tax counsel, the IRS could determine on audit that the distribution or any of the certain related transactions is taxable if it determines that any of these facts, assumptions, representations or undertakings are not correct or have been violated or if it disagrees with the conclusions in the opinion that are not covered by the Ruling, or for other reasons, including as a result of certain significant changes in the stock ownership of Danaher or Veralto after the distribution. If the distribution or any of the certain related transactions is determined to be taxable for U.S. federal income tax purposes, Danaher and/or its stockholders could incur significant U.S. federal income tax liabilities, and Veralto could also incur significant liabilities. For a discussion of the tax consequences of the distribution, together with certain related transactions, please refer to “U.S. Federal Income Tax Considerations.”
In addition, under the tax matters agreement between Danaher and Veralto, Veralto will generally be required to indemnify Danaher against taxes and related liabilities incurred by Danaher that result from a breach of any representation made by us, or as a result of us taking or failing to take, as the case may be, certain actions, including in each case those provided in connection with the Ruling from the IRS or opinion of tax counsel, that result in the distribution, together with certain related transactions, failing to meet the requirements of a tax-free distribution under Sections 355 and 368(a)(1)(D) of the Code. For a discussion of the tax matters agreement, please refer to “Certain Relationships and Related Person Transactions—Tax Matters Agreement.”
Veralto may be affected by significant restrictions, including on its ability to engage in certain corporate transactions for a two-year period after the distribution in order to avoid triggering significant tax-related liabilities.
To preserve the tax-free treatment for U.S. federal income tax purposes to Danaher and its stockholders of the distribution and certain related transactions, under the tax matters agreement that Veralto will enter into with Danaher, Veralto will generally be restricted from taking any action that prevents the distribution, together with certain related transactions, from being tax-free for U.S. federal income tax purposes. Under the tax matters agreement, for the two-year period following the distribution, as described in “Certain Relationships and Related Person Transactions—Tax Matters Agreement—Preservation of the Tax-Free Status of Certain Aspects of the Separation,” Veralto will be subject to specific restrictions on its ability to enter into acquisition, merger, liquidation, sale and stock redemption transactions. These restrictions may limit Veralto’s ability to pursue certain strategic transactions or other transactions that it may believe to be in the best interests of its stockholders or that might increase the value of its business. These restrictions will not limit the acquisition of other businesses by Veralto for cash consideration. In addition, under the tax matters agreement, Veralto may be required to indemnify Danaher against any such tax liabilities as a result of an acquisition of Veralto’s stock or assets, even if Veralto does not participate in or otherwise facilitate the acquisition. Furthermore, Veralto will be subject to specific restrictions on discontinuing the active conduct of its trade or business, issuing or selling its stock or other securities (including securities convertible into Veralto stock but excluding certain compensatory arrangements), and selling its assets outside the ordinary course of business. Such restrictions may reduce Veralto’s strategic and operating flexibility. For more information, please refer to “Certain Relationships and Related Person Transactions—Tax Matters Agreement.”
After the distribution, certain of Veralto’s executive officers and directors may have actual or potential conflicts of interest because of their equity interest in Danaher. Also, certain of Danaher’s current directors and a current Danaher officer and current Danaher employee are expected to join Veralto’s Board, which may create conflicts of interest or the appearance of conflicts of interest.
Because of their current or former positions with Danaher, certain of Veralto’s expected executive officers and directors own equity interests in Danaher. Continuing ownership of shares of Danaher common stock and equity
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awards could create, or appear to create, potential conflicts of interest if Veralto and Danaher face decisions that could have implications for both Danaher and Veralto after the separation. In addition, certain of Danaher’s current directors (Linda Filler, Walter G. Lohr, Jr. and John T. Schwieters) as well as a current Danaher officer (William H. King) and a current Danaher employee who previously served as Danaher’s Chief Financial Officer (Daniel L. Comas) are expected to join Veralto’s Board, and this could create, or appear to create, potential conflicts of interest when Veralto and Danaher encounter opportunities or face decisions that could have implications for both companies following the separation or in connection with the allocation of such directors’ time between Danaher and Veralto.
Danaher may compete with Veralto.
Danaher will not be restricted from competing with Veralto. If Danaher in the future decides to engage in the type of business Veralto conducts, it may have a competitive advantage over Veralto, which may cause Veralto’s business and financial statements to be materially adversely affected.
Veralto may not achieve some or all of the expected benefits of the separation, and the separation may adversely affect Veralto’s businesses.
Veralto may not be able to achieve the full strategic and financial benefits expected to result from the separation, or such benefits may be delayed or not occur at all. The separation is expected to provide the following benefits, among others:
•the separation will allow investors to separately value Danaher and Veralto based on their distinct investment identities. Veralto’s businesses differ from Danaher’s other businesses in several respects, such as the market for products, manufacturing processes and R&D capabilities. The separation will enable investors to evaluate the merits, performance and future prospects of each company’s respective businesses and to invest in each company separately based on their distinct characteristics;
•the separation will allow Veralto and Danaher to more effectively pursue their distinct operating priorities and strategies and enable management of both companies to focus on unique opportunities for long-term growth and profitability. For example, while Veralto’s management will be enabled to focus exclusively on its businesses, the management of Danaher will be able to grow its businesses. The separate management teams of Veralto and Danaher will also be able to focus on executing the companies’ differing strategic plans without diverting attention from the other businesses;
•the separation will permit each company to concentrate its financial resources solely on its own operations without having to compete with each other for investment capital. This will provide each company with greater flexibility to invest capital in its businesses in a time and manner appropriate for its distinct strategy and business needs;
•the separation will create a separate equity structure that will afford Veralto direct access to the capital markets and facilitate Veralto’s ability to capitalize on its unique growth opportunities; and
•the separation will facilitate incentive compensation arrangements for employees more directly tied to the performance of the relevant company’s businesses, and may enhance employee hiring and retention by, among other things, improving the alignment of management and employee incentives with performance and growth objectives.
Veralto may not achieve these and other anticipated benefits for a variety of reasons, including, among others:
•as a current part of Danaher, the Environmental & Applied Solutions businesses that will become part of Veralto benefits from Danaher’s size and purchasing power in procuring certain goods and services. After the separation, as a separate entity, Veralto may be unable to obtain these goods, services and technologies at prices or on terms as favorable as those Danaher obtained prior to the separation. Veralto may also incur costs for certain functions previously performed by Danaher, such as accounting, tax, legal, human
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resources and other general administrative functions that are higher than the amounts reflected in Veralto’s historical financial statements, which could cause Veralto’s profitability to decrease;
•the actions required to separate Veralto’s and Danaher’s respective businesses could disrupt Veralto’s and Danaher’s operations;
•certain costs and liabilities that were otherwise less significant to Danaher as a whole will be more significant for Veralto and Danaher as separate companies after the separation;
•Veralto (and prior to the separation, Danaher) will incur costs in connection with the transition to being a separate, publicly traded company that may include accounting, tax, legal and other professional services costs, recruiting and relocation costs associated with hiring or reassigning Veralto personnel, costs related to establishing a new brand identity in the marketplace and costs to separate information systems;
•Veralto may not achieve the anticipated benefits of the separation for a variety of reasons, including, among others: (i) the separation will require significant amounts of management’s time and effort, which may divert management’s attention from operating and growing Veralto’s businesses; (ii) following the separation, Veralto may be more susceptible to market fluctuations and other adverse events than if it were still a part of Danaher; and (iii) following the separation, Veralto’s businesses will be less diversified than Danaher’s businesses prior to the separation; and
•to preserve the tax-free treatment for U.S. federal income tax purposes to Danaher of the distribution, together with certain related transactions, under the tax matters agreement that Veralto will enter into with Danaher, Veralto will be restricted from taking any action that prevents such transactions from being tax-free for U.S. federal income tax purposes. These restrictions may limit Veralto’s ability to pursue certain strategic transactions or engage in other transactions that might increase the value of its businesses.
If Veralto fails to achieve some or all of the benefits expected to result from the separation, or if such benefits are delayed, the businesses, operating results and financial condition of Veralto could be adversely affected.
Veralto may have received better terms from unaffiliated third parties than the terms it will receive in its agreements with Danaher.
The agreements Veralto will enter into with Danaher in connection with the separation, including the separation agreement, transition services agreement, employee matters agreement, tax matters agreement, intellectual property matters agreement and DBS license agreement were prepared in the context of Veralto’s separation from Danaher while Veralto was still a wholly owned subsidiary of Danaher. Accordingly, during the period in which the terms of those agreements were prepared, Veralto did not have a separate or independent board of directors or a management team that was separate from or independent of Danaher. As a result, the terms of those agreements may not reflect terms that would have resulted from arm’s-length negotiations between unaffiliated third parties. Arm’s-length negotiations between Danaher and an unaffiliated third party in another form of transaction, such as a buyer in a sale of a business transaction, may have resulted in more favorable terms to the unaffiliated third party. For more information, please refer to “Certain Relationships and Related Person Transactions.”
Veralto or Danaher may fail to perform under various transaction agreements that will be executed as part of the separation or Veralto may fail to have necessary systems and services in place when certain of the transaction agreements expire.
The separation agreement and other agreements to be entered into in connection with the separation will determine the allocation of assets and liabilities between the companies following the separation for those respective areas and will include any necessary indemnifications related to liabilities and obligations. The transition services agreement will provide for the performance of certain services by each company for the benefit of the other for a period of time after the separation. Veralto will rely on Danaher after the separation to satisfy its performance and payment obligations under these agreements. If Danaher is unable or unwilling to satisfy its obligations under these agreements, including its indemnification obligations, Veralto could incur operational difficulties or losses. If Veralto does not have in place its own systems and services, or if Veralto does not have agreements with other
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providers of these services once certain transition services terminate, Veralto may not be able to operate its businesses effectively and its profitability may decline. Veralto is in the process of creating its own, or engaging third parties to provide, systems and services to replace many of the systems and services that Danaher currently provides to Veralto. However, Veralto may not be successful in implementing these systems and services or in transitioning data from Danaher’s systems to Veralto’s.
In addition, Veralto expects this process to be complex, time-consuming and costly. Veralto is also establishing or expanding its own tax, treasury, internal audit, investor relations, corporate governance and listed company compliance and other corporate functions. Veralto expects to incur one-time costs to replicate, or outsource from other providers, these corporate functions to replace the corporate services that Danaher historically provided Veralto prior to the separation. Any failure or significant downtime in Veralto’s own financial, administrative or other support systems or in the Danaher financial, administrative or other support systems during the transitional period during which Danaher provides Veralto with support could negatively impact Veralto’s business and financial statements or prevent Veralto from paying its suppliers and employees, executing business combinations and foreign currency transactions or performing administrative or other services on a timely basis, which could negatively affect Veralto’s business and financial statements.
In particular, Veralto’s day-to-day business operations rely on information technology systems. A significant portion of the communications among Veralto’s personnel, customers and suppliers take place on information technology platforms. Veralto expects the transfer of information technology systems from Danaher to Veralto to be complex, time consuming and costly. There is also a risk of data loss in the process of transferring information technology. As a result of Veralto’s reliance on information technology systems, the cost of such information technology integration and transfer and any such loss of key data could have an adverse effect on Veralto’s business and financial statements.
As of the date of this information statement, we expect to have outstanding indebtedness at the closing of the distribution of approximately $2.6 billion and the ability to incur an additional $1.5 billion of indebtedness under a revolving credit facility, and in the future we may incur additional indebtedness. This indebtedness could adversely affect our businesses and our ability to meet our obligations and pay dividends.
As of the date of this information statement, Veralto expects to have outstanding indebtedness at the closing of the separation of approximately $2.6 billion and the ability to incur an additional $1.5 billion of indebtedness under a revolving credit facility to be entered into prior to the closing of the separation. See “Description of Certain Indebtedness.” This debt could have important, adverse consequences to Veralto and its investors, including:
•requiring a substantial portion of Veralto’s cash flow from operations to make interest payments;
•making it more difficult to satisfy other obligations;
•increasing the risk of a future credit ratings downgrade of Veralto’s debt, which could increase future debt costs and limit the future availability of debt financing;
•increasing Veralto’s vulnerability to general adverse economic and industry conditions;
•reducing the cash flow available to fund capital expenditures and other corporate purposes and to grow Veralto’s businesses;
•limiting Veralto’s ability to pay dividends;
•limiting Veralto’s flexibility in planning for, or reacting to, changes in its businesses and industries; and
•limiting Veralto’s ability to borrow additional funds as needed or take advantage of business opportunities as they arise, pay cash dividends or repurchase shares of Veralto common stock.
The revolving credit facility will not be available for borrowings until the date on which certain conditions are satisfied, which Veralto expects will be satisfied concurrently with the completion of the distribution. The instruments governing Veralto’s indebtedness will contain restrictive covenants that will limit Veralto’s ability to
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engage in activities that may be in Veralto’s long-term interest, including for example an EBITDA-based net leverage ratio. If Veralto breaches any of the restrictive covenants and cannot obtain a waiver from the lenders on favorable terms, subject to applicable cure periods, the outstanding indebtedness (and any other indebtedness with cross-default provisions) could be declared immediately due and payable, which would adversely affect Veralto’s liquidity and financial statements. In addition, any failure to obtain and maintain credit ratings from independent rating agencies would adversely affect Veralto’s cost of funds and could adversely affect Veralto’s liquidity and access to the capital markets. For additional information regarding Veralto’s indebtedness, please refer to “Description of Certain Indebtedness.”
The risks described above will increase with the amount of indebtedness Veralto incurs, and in the future Veralto may incur significant indebtedness in addition to the indebtedness described above. In addition, Veralto’s actual cash requirements in the future may be greater than expected. Veralto’s cash flow from operations may not be sufficient to service Veralto’s outstanding debt or to repay the outstanding debt as it becomes due, and Veralto may not be able to borrow money, sell assets or otherwise raise funds on acceptable terms, or at all, to service or refinance its debt.
Veralto may not be able to generate sufficient cash to service all of Veralto’s indebtedness and may be forced to take other actions to satisfy its obligations under Veralto’s indebtedness, which may not be successful.
Veralto’s ability to make scheduled payments on or refinance our debt obligations depends on its financial condition and operating performance, which are subject to prevailing economic and competitive conditions and to certain financial, business, legislative, regulatory and other factors beyond Veralto’s control. Veralto may be unable to maintain a level of cash flows from operating activities sufficient to permit it to pay the principal and interest on its indebtedness.
If Veralto’s cash flows and capital resources are insufficient to fund its debt service obligations, Veralto could face substantial liquidity problems and could be forced to reduce or delay investments and capital expenditures, or to dispose of material assets or operations, alter its dividend policy (if Veralto pays dividends), seek additional debt or equity capital or restructure or refinance its indebtedness. Veralto may not be able to effect any such alternative measures on commercially reasonable terms or at all and, even if successful, those alternative actions may not allow Veralto to meet its scheduled debt service obligations. The instruments that will govern Veralto’s indebtedness may restrict its ability to dispose of assets and may restrict the use of proceeds from those dispositions. Veralto may not be able to consummate those dispositions or to obtain proceeds in an amount sufficient to meet any debt service obligations when due.
In addition, Veralto conducts operations through its subsidiaries. Accordingly, repayment of Veralto’s indebtedness will depend on the generation of cash flow by Veralto’s subsidiaries, including certain international subsidiaries, and their ability to make such cash available to Veralto, by dividend, debt repayment or otherwise. Veralto’s subsidiaries may not have any obligation to pay amounts due on Veralto’s indebtedness or to make funds available for that purpose. Veralto’s subsidiaries may not be able to, or may not be permitted to, make adequate distributions to enable Veralto to make payments in respect of Veralto’s indebtedness. Each subsidiary is a distinct legal entity and, under certain circumstances, legal, tax and contractual restrictions may limit Veralto’s ability to obtain cash from its subsidiaries. In the event that Veralto does not receive distributions from its subsidiaries, Veralto may be unable to make required principal and interest payments on its indebtedness.
Veralto’s inability to generate sufficient cash flows to satisfy its debt obligations, or to refinance its indebtedness on commercially reasonable terms or at all, may materially adversely affect its business and financial statements and its ability to satisfy its obligations under its indebtedness or pay dividends on its common stock.
Following the distribution, Veralto will be dependent on Danaher to provide it with certain transition services, which may not be sufficient to meet its needs, and it may have difficulty finding replacement services or be required to pay increased costs to replace these services after its transition services agreement with Danaher expires.
Historically, Danaher has provided, and until Veralto’s separation from Danaher, Danaher will continue to provide, significant corporate and shared services related to corporate functions such as executive oversight, risk
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management, information technology, accounting, audit, legal, investor relations, human resources, tax, treasury, procurement and other services. Following Veralto’s separation from Danaher, Veralto expects Danaher to continue to provide many of these services on a transitional basis for a fee. While these services are being provided to Veralto by Danaher, Veralto will be dependent on Danaher for services that are critical to its operation as a separate, publicly traded company, and its operational flexibility to modify or implement changes with respect to such services and the amounts we pay for them will be limited. After the expiration of the transition services agreement, Veralto may not be able to replace these services or enter into appropriate third-party agreements on terms and conditions, including cost and quality of service, comparable to those that it will receive from Danaher under the transition services agreement. Although Veralto intends to replace portions of the services currently provided by Danaher following the separation, Veralto may encounter difficulties replacing certain services or be unable to negotiate pricing or other terms as favorable as those it currently has in effect.
Certain entities or assets that are part of Veralto’s separation from Danaher may not be transferred to Veralto prior to the distribution or at all.
Certain entities and assets that are part of Veralto’s separation from Danaher may not be transferred prior to the distribution or at all because the entities or assets, as applicable, are subject to foreign government or third-party approvals that Veralto may not receive prior to the distribution or at all. Such approvals may include, but are not limited to, approvals to merge or demerge, to form new legal entities (including obtaining required registrations and/or licenses or permits) and to transfer assets and/or liabilities. It is currently anticipated that all material transfers will occur without delays that extend beyond the separation, but Veralto cannot offer any assurance that such transfers will not be delayed beyond the separation or assurance that such transfers will ultimately occur at all. To the extent such transfers do not occur prior to the distribution, under the separation agreement, the economic benefits and burdens of owning such assets and/or entities will, to the extent reasonably possible and permitted by applicable law, be provided to the Company.
In the event such transfers do not occur or are significantly delayed because Veralto does not receive the required approvals, Veralto may not realize all of the anticipated benefits of Veralto’s separation from Danaher and Veralto may be dependent on Danaher for transition services for a longer period of time than would otherwise be the case. For additional information, see “Risk Factors—Risks Related to Veralto’s Business” and “—Following the distribution, Veralto will be dependent on Danaher to provide it with certain transition services, which may not be sufficient to meet its needs, and it may have difficulty finding replacement services or be required to pay increased costs to replace these services after its transition services agreement with Danaher expires.”
Risks Related to Shares of Veralto Common Stock
Veralto cannot be certain that an active trading market for its common stock will develop or be sustained after the separation, and following the separation, the price of Veralto common stock may fluctuate significantly, which could cause the value of your investment to decline.
Prior to the completion of the distribution, there has been no public market for Veralto common stock. Veralto cannot guarantee that an active trading market will develop or be sustained for its common stock after the distribution. If an active trading market does not develop, you may have difficulty selling your shares of Veralto common stock at an attractive price, or at all.
Even if a trading market develops, the market price of Veralto common stock may be highly volatile and could be subject to wide fluctuations. Veralto cannot predict the prices at which shares of Veralto common stock may trade after the distribution. Securities markets worldwide experience significant price and volume fluctuations. This market volatility, as well as general economic, market or political conditions, could reduce the market price of shares of Veralto common stock regardless of Veralto’s operating performance. In addition, Veralto’s operating results could be below the expectations of public market analysts and investors due to a number of potential factors, including variations in Veralto’s quarterly operating results or dividends, if any, to stockholders, additions or departures of key management personnel, failure to meet analysts’ earnings estimates, publication of research reports about our industry, litigation and government investigations, changes or proposed changes in laws or regulations or differing interpretations or enforcement thereof affecting Veralto’s business, adverse market reaction
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to any indebtedness Veralto may incur or securities Veralto may issue in the future, changes in market valuations of similar companies or speculation in the press or investment community, announcements by us or our competitors of significant contracts, acquisitions, dispositions, strategic partnerships, joint ventures or capital commitments, adverse publicity about the industries Veralto participates in or individual scandals, and in response the market price of shares of Veralto common stock could decrease significantly.
In the past few years, stock markets have experienced extreme price and volume fluctuations. In the past, following periods of volatility in the overall market and the market price of a company’s securities, securities class action litigation has often been instituted against these companies. Such litigation, if instituted against Veralto and/or its directors and officers, could result in substantial costs and a diversion of our management’s attention and resources.
If Veralto is unable to implement and maintain effective internal control over financial reporting in the future, investors may lose confidence in the accuracy and completeness of Veralto’s financial reports and the market price of Veralto common stock may be negatively affected.
As a public company, Veralto will be required to maintain internal controls over financial reporting and to report any material weaknesses in such internal controls. In addition, beginning with Veralto’s second annual report on Form 10-K, Veralto expects it will be required to furnish a report by management on the effectiveness of its internal control over financial reporting, pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”). Veralto’s independent registered public accounting firm will also be required to express an opinion as to the effectiveness of its internal control over financial reporting. At such time, Veralto’s independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which Veralto’s internal control over financial reporting is documented, designed or operating.
The process of designing, implementing, and testing the internal control over financial reporting required to comply with this obligation is time consuming, costly, and complicated. If Veralto identifies material weaknesses in its internal control over financial reporting, if Veralto is unable to comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner or to assert that its internal control over financial reporting is effective, or if Veralto’s independent registered public accounting firm is unable to express an opinion as to the effectiveness of its internal control over financial reporting, investors may lose confidence in the accuracy and completeness of Veralto’s financial reports and the market price of Veralto common stock could be negatively affected, and Veralto could become subject to investigations by the stock exchange on which its securities are listed, the SEC, or other regulatory authorities, which could require additional financial and management resources.
The obligations associated with being a public company will require significant resources and management attention.
Currently, Veralto is not directly subject to the reporting and other requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Following the effectiveness of the registration statement of which this information statement forms a part, Veralto will be directly subject to such reporting and other obligations under the Exchange Act and the rules of the NYSE. As a separate public company, Veralto is required to, among other things:
•prepare and distribute periodic reports, proxy statements and other stockholder communications in compliance with the federal securities laws and rules;
•have its own board of directors and committees thereof, which comply with federal securities laws and rules and applicable stock exchange requirements;
•maintain an internal audit function;
•institute its own financial reporting and disclosure compliance functions;
•establish an investor relations function;
•establish internal policies, including those relating to trading in its securities and disclosure controls and procedures; and
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•comply with the rules and regulations implemented by the SEC, the Sarbanes-Oxley Act, the Dodd-Frank Act, the Public Company Accounting Oversight Board and the NYSE.
These reporting and other obligations will place significant demands on Veralto’s management and Veralto’s administrative and operational resources, and Veralto expects to face increased legal, accounting, administrative and other costs and expenses relating to these demands that it had not incurred as a part of Danaher. Certain of these functions will be provided on a transitional basis by Danaher pursuant to a transition services agreement. Please refer to “Certain Relationships and Related Person Transactions.” Veralto’s investment in compliance with existing and evolving regulatory requirements will result in increased administrative expenses and a diversion of management’s time and attention from sales-generating activities to compliance activities, which could have an adverse effect on its business and financial statements.
Veralto cannot guarantee the payment of dividends on its common stock, or the timing or amount of any such dividends.
Veralto has not yet determined whether or the extent to which it will pay any dividends on its common stock. The payment of any dividends in the future, and the timing and amount thereof, to Veralto stockholders will fall within the discretion of the Board. The Board’s decisions regarding the payment of dividends will depend on many factors, such as Veralto’s financial condition, earnings, capital requirements, debt service obligations, restrictive covenants in Veralto’s then existing debt arrangements, industry practice, legal requirements and other factors that the Board deems relevant. For more information, please refer to “Dividend Policy.” Veralto’s ability to pay dividends will depend on its ongoing ability to generate cash from operations and on its access to the capital markets. Veralto cannot guarantee that it will pay a dividend in the future or continue to pay any dividends if Veralto commences paying dividends.
Your percentage ownership in Veralto may be diluted in the future.
In the future, your percentage ownership in Veralto may be diluted because of equity issuances for acquisitions, capital market transactions or otherwise, including equity awards that Veralto will be granting to Veralto’s directors, officers and employees. In addition, following the distribution, Veralto’s employees will have rights to purchase or receive shares of Veralto common stock as a result of the conversion of their Danaher equity awards into Veralto equity awards. The conversion of these Danaher awards into Veralto awards is described in further detail in “Treatment of Outstanding Equity Awards at the Time of the Separation.” As of the date of this information statement, the exact number of shares of Veralto common stock that will be subject to the converted Veralto equity awards is not determinable, and, therefore, it is not possible to determine the extent to which your percentage ownership in Veralto could be diluted as a result of the conversion. It is anticipated that the Veralto Compensation Committee will grant additional equity awards to Veralto’s employees and directors after the distribution, from time to time, under Veralto’s employee benefits plans. These additional awards will have a dilutive effect on Veralto’s earnings per share, which could adversely affect the market price of Veralto’s common stock.
In addition, Veralto’s amended and restated certificate of incorporation will authorize Veralto to issue, without the approval of Veralto’s stockholders, one or more classes or series of preferred stock having such designation, powers, preferences and relative, participating, optional and other special rights, including preferences over Veralto common stock respecting dividends and distributions, as the Board generally may determine. The terms of one or more classes or series of preferred stock could dilute the voting power or reduce the value of Veralto common stock. For example, Veralto could grant the holders of preferred stock the right to elect some number of Veralto’s directors in all events or on the happening of specified events or the right to veto specified transactions. Similarly, the repurchase or redemption rights or liquidation preferences that Veralto could assign to holders of preferred stock could affect the residual value of the common stock. Please refer to “Description of Veralto’s Capital Stock.”
Certain provisions in Veralto’s amended and restated certificate of incorporation and bylaws, and of Delaware law, may prevent or delay an acquisition of Veralto, which could decrease the trading price of Veralto’s common stock.
Veralto’s amended and restated certificate of incorporation and amended and restated bylaws will contain, and Delaware law contains, provisions that are intended to deter coercive takeover practices and inadequate takeover
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bids and to encourage prospective acquirers to negotiate with the Board rather than to attempt an unsolicited takeover not approved by the Board. These provisions include, among others:
•the inability of Veralto’s stockholders to call a special meeting;
•the inability of Veralto’s stockholders to act by written consent;
•rules regarding how stockholders may present proposals or nominate directors for election at stockholder meetings;
•the right of the Board to issue preferred stock without stockholder approval;
•the division of the Board into three classes of directors, with each class serving a staggered three-year term, and this classified board provision could have the effect of making the replacement of incumbent directors more time consuming and difficult;
•a provision that stockholders may only remove directors with cause;
•the ability of Veralto’s directors, and not stockholders, to fill vacancies (including those resulting from an enlargement of the Board) on the Board; and
•the requirement that the affirmative vote of stockholders holding at least 66-2/3% of Veralto’s voting stock is required to amend Veralto’s amended and restated bylaws and certain provisions in Veralto’s amended and restated certificate of incorporation.
In addition, because Veralto has not chosen to be exempt from Section 203 of the Delaware General Corporation Law (the “DGCL”), this provision could also delay or prevent a change of control that you may favor. Section 203 provides that, subject to limited exceptions, persons that acquire, or are affiliated with a person that acquires, more than 15% of the outstanding voting stock of a Delaware corporation (an “interested stockholder”) shall not engage in any business combination with that corporation, including by merger, consolidation or acquisitions of additional shares, for a three-year period following the date on which the person became an interested stockholder, unless (i) prior to such time, the board of directors of such corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of such corporation at the time the transaction commenced (excluding for purposes of determining the voting stock outstanding (but not the outstanding voting stock owned by the interested stockholder) the voting stock owned by directors who are also officers or held in employee benefit plans in which the employees do not have a confidential right to tender or vote stock held by the plan); or (iii) on or subsequent to such time the business combination is approved by the board of directors of such corporation and authorized at a meeting of stockholders by the affirmative vote of at least two-thirds of the outstanding voting stock of such corporation not owned by the interested stockholder. Danaher and its affiliates have been approved as an interested stockholder of ours and therefore are not subject to Section 203.
Veralto believes these provisions will protect its stockholders from coercive or otherwise unfair takeover tactics by requiring potential acquirers to negotiate with the Board and by providing the Board with more time to assess any acquisition proposal. These provisions are not intended to make Veralto immune from takeovers. However, these provisions will apply even if the offer may be considered beneficial by some stockholders and could delay or prevent an acquisition that the Board determines is not in the best interests of Veralto and Veralto’s stockholders. These provisions may also prevent or discourage attempts to remove and replace incumbent directors.
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Veralto’s amended and restated certificate of incorporation will designate the state courts in the State of Delaware or, if no state court located within the State of Delaware has jurisdiction, the federal court for the District of Delaware, as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by Veralto’s stockholders. Veralto’s amended and restated certificate of incorporation will further designate the federal district courts of the United States of the America as the sole and exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act. These forum selection provisions could discourage lawsuits against Veralto and Veralto’s directors, officers, employees and stockholders.
Veralto’s amended and restated certificate of incorporation will provide that, unless Veralto consents otherwise, the state courts in the State of Delaware or, if no state court located within the State of Delaware has jurisdiction, the federal court for the District of Delaware, will be the sole and exclusive forum for any derivative action or proceeding brought on behalf of Veralto, any action asserting a claim of breach of a fiduciary duty owed by any of Veralto’s directors, officers, employees or stockholders to Veralto or Veralto’s stockholders, any action asserting a claim arising pursuant to any provision of the DGCL or Veralto’s amended and restated certificate of incorporation or bylaws, or any action asserting a claim governed by the internal affairs doctrine. We recognize that this forum selection clause may impose additional litigation costs on stockholders in pursuing any such claims, particularly if the stockholders do not reside in or near the State of Delaware. Veralto’s amended restated certificate of incorporation will further provide that, unless Veralto consents otherwise, the federal district courts of the United States of America shall, to the fullest extent permitted by law, be the sole and exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act.
These exclusive forum provisions do not apply to actions arising under the Exchange Act or the rules and regulations thereunder. While the Delaware Supreme Court ruled in March 2020 that federal forum selection provisions purporting to require claims under the Securities Act be brought in federal court are “facially valid” under Delaware law, there is uncertainty as to whether other courts will enforce our federal forum provision described above. Our stockholders will not be deemed to have waived compliance with the federal securities laws and the rules and regulations thereunder.
These forum selection provisions may limit the ability of Veralto’s stockholders to bring a claim in a judicial forum that such stockholders find favorable for disputes with Veralto or Veralto’s directors or officers, which may discourage such lawsuits against Veralto and Veralto’s directors, officers, employees and stockholders, and such provision may also make it more expensive for Veralto’s stockholders to bring such claims. Alternatively, if a court were to find these exclusive forum provisions inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings described above, Veralto may incur additional costs associated with resolving such matters in other jurisdictions, which could materially and adversely affect Veralto’s business and financial statements.
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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
Certain statements included or incorporated by reference in this information statement, in other documents Danaher and Veralto file with or furnish to the SEC, in press releases, webcasts, conference calls, materials delivered to Danaher stockholders 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, Veralto’s liquidity position or other financial measures; Veralto’s 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, divestitures, spin-offs, split-offs or other distributions, strategic opportunities, securities offerings, stock repurchases, dividends and executive compensation; the effects of the separation or the distribution, if consummated, on Veralto’s business; growth, declines and other trends in markets Veralto sells into; new or modified laws, regulations and accounting pronouncements; future regulatory approvals and the timing thereof; outstanding claims, legal proceedings, tax audits and assessments and other contingent liabilities; future foreign currency exchange rates and fluctuations in those rates; 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 Veralto intends or believes will or may occur in the future. Terminology such as “believe,” “anticipate,” “will,” “should,” “could,” “intend,” “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 Veralto’s management in light of their experience and perceptions of historical trends, current conditions, expected future developments and other factors they believe to be appropriate. These forward-looking statements are subject to a number of risks and uncertainties, including, but not limited to, the risks and uncertainties set forth under “Risk 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. Forward-looking statements speak only as of the date of the information statement, document, press release, webcast, call, materials or other communication in which they are made. Except to the extent required by applicable law, neither Danaher nor Veralto assume any obligation to update or revise any forward-looking statement, whether as a result of new information, future events and developments or otherwise.
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DIVIDEND POLICY
We have not yet determined the extent to which we will pay any dividends on our common stock. The payment of any dividends in the future, and the timing and amount thereof, is within the discretion of the Board. The Board’s decisions regarding the payment of dividends will depend on many factors, such as our financial condition, earnings, capital requirements, debt service obligations, restrictive covenants in our then existing debt agreements, industry practice, legal requirements and other factors that our Board deems relevant. Our ability to pay dividends will depend on our ongoing ability to generate cash from operations and on our access to the capital markets. We cannot guarantee that we will pay a dividend in the future or continue to pay any dividends if we commence paying dividends.
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CAPITALIZATION
The following table sets forth our cash and cash equivalents and capitalization as of June 30, 2023:
•on a historical basis; and
•on a pro forma basis to give effect to the Pro Forma Transactions, as defined in “Unaudited Pro Forma Combined Financial Statements.”
The information below is not necessarily indicative of what our cash and cash equivalents and capitalization would have been had the separation, distribution and related transactions been completed as of June 30, 2023. In addition, it is not indicative of our future cash and equivalents and capitalization. This table should be read in conjunction with “Unaudited Pro Forma Combined Financial Statements,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our Combined Condensed Financial Statements and notes thereto included elsewhere in this information statement (amounts in millions, except share data).
As of June 30, 2023
Historical
Pro Forma
(unaudited)
Cash and cash equivalents (1)
$— $250 
Capitalization:
Total long-term debt$— $2,580 
Equity:
Common stock ($0.01 par value per share); 1.0 billion shares authorized, 246.1 million shares issued and outstanding, pro forma (2)
— 2 
Additional paid-in-capital— 1,952 
Net Parent investment (3)
4,207 — 
Accumulated other comprehensive income (loss)(926)(926)
Noncontrolling interest5 5 
Total equity3,286 1,033 
Total capitalization$3,286 $3,613 
__________________
(1)In connection with the separation, the Company expects to have $250 million in cash and cash equivalents as reflected on the Company’s unaudited pro forma combined balance sheet.
(2)The number of Veralto pro forma shares issued and outstanding is based on the number of Parent common shares issued and outstanding as of June 30, 2023, assuming a distribution ratio of one share of Veralto common stock for every three shares of Parent common stock outstanding.
(3)Reflects the impact to Net Parent investment as a result of the anticipated post-distribution capital structure.
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UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Combined Financial Statements consist of the unaudited pro forma combined statements of earnings for the year ended December 31, 2022 and the six-month period ended June 30, 2023 and an unaudited pro forma combined balance sheet as of June 30, 2023. The unaudited pro forma combined statement of earnings for the year ended December 31, 2022 was derived from the Company’s historical audited Combined Financial Statements for the year ended December 31, 2022 included in this information statement. The unaudited pro forma combined statement of earnings for six-month period ended June 30, 2023 and the unaudited pro forma combined balance sheet as of June 30, 2023 were derived from our unaudited Combined Condensed Financial Statements included in this information statement. The pro forma adjustments give effect to the separation and the related transactions, as described in the notes to the Unaudited Pro Forma Combined Financial Statements. The unaudited pro forma combined statements of earnings for the year ended December 31, 2022 and the six-month period ended June 30, 2023 give effect to the separation as if it had occurred on January 1, 2022, the first day of fiscal 2022. The unaudited pro forma combined balance sheet gives effect to the separation as if it had occurred on June 30, 2023, the Company’s latest balance sheet date. References in this section and in the following Unaudited Pro Forma Combined Financial Statements and the Company’s Combined Financial Statements and notes thereto included in this information statement to the “Company” or “Veralto” shall mean the Environmental & Applied Solutions segment of Danaher Corporation.
The Unaudited Pro Forma Combined Financial Statements have been prepared to reflect transaction accounting and autonomous entity adjustments to present the financial condition and results of operations as if the Company was a separate stand-alone entity. In addition, we have provided a presentation of management adjustments that management believes are necessary to enhance an understanding of the pro forma effects of the transaction. The Unaudited Pro Forma Combined Financial Statements have been adjusted to give effect to the following (collectively, the “Pro Forma Transactions”):
•The transfer to us from Parent and Parent affiliates of substantially all of the assets and liabilities of the Environmental & Applied Solutions business pursuant to the separation agreement in consideration for shares of our common stock and the Cash Distribution;
•The anticipated post-separation capital structure, including the issuance of approximately $2.6 billion of long-term debt at an estimated weighted average interest rate of 5.50%, additional details can be found in note (a) and under “Description of Certain Indebtedness”;
•The impact of the tax matters agreement to be entered into with Danaher in connection with the separation;
•The impact of the transition services agreements to be entered into with Danaher in connection with the separation (see “Certain Relationships and Related Person Transactions – Other Commercial Agreements”);
•The impact of certain commercial supply and license agreements expected to be entered into with Danaher in connection with the separation (see “Certain Relationships and Related Person Transactions”);
•Transaction and incremental costs expected to be incurred as an autonomous entity and specifically related to the separation;
•Other adjustments described in the notes to the Unaudited Pro Forma Combined Financial Statements; and
•Management adjustments which consist of reasonably estimated transaction effects expected to occur.
The Unaudited Pro Forma Combined Financial Statements were prepared in accordance with Article 11 of Regulations S-X.
The Unaudited Pro Forma Combined Financial Statements are subject to the assumptions and adjustments described in the accompanying notes. These Unaudited Pro Forma Combined Financial Statements are subject to change as Danaher and the Company finalize the terms of the separation agreement and other agreements and transactions related to the separation.
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In connection with the separation, the Company expects to enter into a transition services agreement with Danaher, pursuant to which Danaher will provide the Company with certain specified services on a temporary basis, including various information technology, financial and administrative services. The charges for the transition services generally are expected to allow Danaher to fully recover all out-of-pocket costs and expenses it actually incurs in connection with providing the service, plus, in some cases, the allocated indirect costs of providing the services, generally without profit. The adjustment for the transition services agreement is not expected to have a material impact on pro forma net earnings for the year ended December 31, 2022 or the six-month period ended June 30, 2023, since the historical combined statements of earnings for these periods already reflect Danaher’s existing allocations of costs for corporate services. Any incremental costs expected to be incurred from the transition services agreement are reflected as an autonomous entity adjustment.
The Unaudited Pro Forma Combined Financial Statements have been presented for informational purposes only. The pro forma information is not necessarily indicative of the Company’s results of operations or financial condition had the separation and the related transactions been completed on the dates assumed and should not be relied upon as a representation of the Company’s future performance.
The following Unaudited Pro Forma Combined Financial Statements should be read in conjunction with the historical Combined and Combined Condensed Financial Statements for the Company and MD&A and “Description of Certain Indebtedness” included in this information statement.
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VERALTO CORPORATION
UNAUDITED PRO FORMA COMBINED BALANCE SHEETS
($ and shares in millions, except per share amounts)
As of June 30, 2023
HistoricalTransaction Accounting AdjustmentsAutonomous Entity AdjustmentsPro Forma
ASSETS
Current Assets:
Cash and cash equivalents$— $250 (a)$— $250 
Trade accounts receivable, less allowance for doubtful accounts of $33
809 — — 809 
Inventories:
Finished goods143 — — 143 
Work in process49 — — 49 
Raw materials141 — — 141 
Total Inventories333 — — 333 
Prepaid expenses and other current assets101 — — 101 
Total current assets1,243 250 — 1,493 
Property, plant and equipment, net of accumulated depreciation of $479249 — — 249 
Other long-term assets334 55 (c)— 389 
Goodwill2,506 — — 2,506 
Other intangible assets, net455 — — 455 
Total assets$4,787 $305 $— $5,092 
LIABILITIES AND PARENT’S EQUITY
Current liabilities:
Trade accounts payable$392 $— $— $392 
Accrued expenses and other liabilities618 (3)(b)— 615 
Total current liabilities1,010 (3)— 1,007 
Long-term debt— 2,580 (d)— 2,580 
Other long-term liabilities491 (19)(b)— 472 
Equity:
Net Parent investment4,207 (4,207)(e)— — 
Common stock, $0.01 par value— 2 (e)— 2 
Additional paid-in capital— 1,952 (e)— 1,952 
Retained earnings— — — — 
Accumulated other comprehensive income (loss)(926)— — (926)
Total Shareholders’ equity3,281 (2,253)— 1,028 
Noncontrolling interests5 — — 5 
Total equity3,286 (2,253)— 1,033 
Total liabilities and equity$4,787 $305 $— $5,092 
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VERALTO CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF EARNINGS
($ and shares in millions, except per share amounts)
Six-Month Period Ended June 30, 2023
HistoricalTransaction Accounting AdjustmentsAutonomous Entity AdjustmentsPro Forma
Sales$2,478 $— $4 (i)$2,482 
Cost of sales(1,046)— — (1,046)
Gross profit1,432 — 4 1,436 
Operating costs:
Selling, general and administrative expenses(738)— (18)(j)(756)
Research and development expenses(113)— — (113)
Operating profit581 — (14)567 
Nonoperating income (expense):
Other income (expense), net(14)— — (14)
Interest expense— (73)(f)— (73)
Earnings before income taxes567 (73)(14)480 
Income taxes(133)18 (g)3 (k)(112)
Net earnings$434 $(55)$(11)$368 
Net earnings per share:
Basic(h)$1.51 
Diluted(h)$1.49 
Average common stock and common equivalent shares outstanding:
Basic(h)244.5
Diluted(h)246.7
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VERALTO CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF EARNINGS
($ and shares in millions, except per share amounts)
Year Ended December 31, 2022
HistoricalTransaction Accounting AdjustmentsAutonomous Entity AdjustmentsPro Forma
Sales$4,870 $— $9 (i)$4,879 
Cost of sales(2,110)— — (2,110)
Gross profit2,760 — 9 2,769 
Operating costs:
Selling, general and administrative expenses(1,431)— (43)(j)(1,474)
Research and development expenses(217)— — (217)
Operating profit1,112 — (34)1,078 
Nonoperating income (expense):
Other income (expense), net1 — — 1 
Interest expense— (146)(f)— (146)
Earnings before income taxes1,113 (146)(34)933 
Income taxes(268)36 (g)8 (k)(224)
Net earnings$845 $(110)$(26)$709 
Net earnings per share:
Basic (h)$2.93 
Diluted(h)$2.89 
Average common stock and common equivalent shares outstanding:
Basic(h)241.7
Diluted(h)245.7
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NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
For further information regarding the historical Combined Financial Statements of Veralto, please refer to the Combined and Combined Condensed Financial Statements and the notes thereto in this information statement. The unaudited pro forma combined balance sheet as of June 30, 2023 and unaudited pro forma combined statement of earnings for the year ended December 31, 2022 and the six-month period ended June 30, 2023, include adjustments related to the following:
Transaction Accounting Adjustments:
(a)Reflects a pro forma adjustment to cash calculated as follows (in millions):
Net proceeds from senior unsecured notes$2,580 
Unremitted cash held by Veralto at June 30, 2023
329 
Less: Distribution of net proceeds from senior unsecured notes to Parent (2,659)
Total pro forma adjustment $250 
In connection with the separation, Parent will transfer to Veralto certain cash balances. The ultimate amount of net cash that Parent will transfer to Veralto will be determined by Parent prior to the date of separation.
(b)Reflects adjustments of $29 million ($22 million, net of tax impact) for certain liabilities related to the Veralto deferred compensation plans which represent the value of Parent common stock interests held by Veralto participants that will be converted into interests in Veralto Corporation common stock in connection with the separation.
(c)Reflects indemnification asset of $55 million associated with Parent’s retention of certain net tax liabilities of Veralto that are subject to joint and several liabilities with Parent in accordance with the tax matters agreement.
(d)Reflects approximately $2.6 billion of estimated proceeds from the senior unsecured notes expected to be incurred in connection with the separation, net of approximately $20 million in estimated financing costs. Proceeds from these anticipated borrowings and available cash are expected to be used to fund a dividend payment to Parent of approximately $2.7 billion in connection with the separation.
(e)Reflects the elimination of Parent’s net investment (including the adjustments described above) as a result of the anticipated post-separation capital structure. As of the separation date, the net Parent investment in Veralto after reflecting the impact of the dividend payment to Parent (note (d)) will be adjusted to reflect the distribution of Veralto common stock to Parent stockholders. Veralto’s common stock account reflects an adjustment for the par value of the anticipated approximately 246.1 million outstanding shares of Veralto common stock, par value of $0.01 per share, expected to be issued upon separation. Veralto’s additional paid-in capital account reflects an adjustment related to the reclassification of Parent’s net investment in Veralto. The Company has assumed the number of outstanding shares of Veralto’s common stock based on 738.2 million shares of Danaher common stock outstanding as of June 30, 2023 and assumed a distribution of all of the outstanding shares of Veralto’s common stock to Danaher’s stockholders, on the basis of one share of Veralto’s common stock for every three shares of Danaher common stock. The actual number of shares issued will not be known until the record date for the spin-off.
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The adjustment to additional paid-in capital resulting from the separation is calculated as follows ($ and shares in millions):
Distribution of net proceeds from senior unsecured notes to Parent (1)
$(2,659)
Contribution of assets from Parent (2)
384 
Reclassification of deferred compensation liabilities to additional paid-in capital22 
246.1 million shares of common stock ($0.01 par value) issued and outstanding
(2)
Reclassification of Parent’s net investment to additional paid-in capital4,207 
Total pro forma adjustment $1,952 
____________
(1)The total proceeds from the senior unsecured notes and certain cash balances will be paid to Parent. This represents the adjustment to reflect the distribution of an amount of cash equal to substantially all of the proceeds from senior unsecured notes Veralto received.
(2)Reflects the cash balances and tax indemnification asset that will transfer to Veralto upon separation.
(f)Reflects estimated interest expense of $146 million for the year ended December 31, 2022 and $73 million for the six-month period ended June 30, 2023 related to the anticipated borrowings to be incurred in connection with the separation reflecting an estimated average borrowing cost of approximately 5.50% per annum.
(g)Reflects the income tax impact of the transaction pro forma adjustments for the year ended December 31, 2022 and the six-month period ended June 30, 2023. This adjustment was calculated by applying the statutory federal income tax rate of 21.0% and state income tax rate, net of federal benefit, of 3.5% to the pre-tax pro forma adjustments. The applicable tax rates could be impacted (either higher or lower) depending on certain factors subsequent to the separation including the legal entity structure implemented and may be materially different from the pro forma results.
(h)The number of Veralto shares used to compute pro forma basic and diluted earnings per share is based on the number of shares of Veralto common stock assumed to be outstanding, based on the number of Parent common shares used for determination of Parent’s basic and diluted earnings per share on December 31, 2022 and the six-month period ended June 30, 2023, assuming a distribution ratio of one share of Veralto common stock for every three shares of Parent common stock outstanding. This calculation does not take into account the dilutive effect that will result from the issuance of Veralto stock-based compensation awards in connection with the adjustment and conversion of outstanding Parent stock-based compensation awards held by Veralto employees or the grant of new Veralto stock-based compensation awards. The number of dilutive shares of Veralto common stock underlying Veralto’s stock-based compensation awards issued in connection with the adjustment and conversion of outstanding Parent stock-based compensation awards will not be determined until after the distribution date.
Autonomous Entity Adjustments:
(i)Reflects the impact of commercial supply and license agreements Veralto and Danaher expect to enter into in connection with the separation. The increase in sales of $4 million and $9 million for the six-month period ended June 30, 2023 and for the year ended December 31, 2022, respectively, reflects the impacts of the commercial pricing in the agreement applied to historical purchases of goods and services by the Parent from Veralto.
(j)Reflects the impact of new lease agreements for corporate offices and the net impact of new compensation agreements for current executives of Veralto and incremental employees of Veralto. The lease adjustment recognizes incremental rent expense of $1 million for both the year ended December 31, 2022 and the six-month period ended June 30, 2023.
As a separate public company, Veralto expects to incur certain additional costs including costs resulting from the separation and establishment of Veralto as a separate company primarily related to incremental full-time employees associated with business support functions that were previously shared with Danaher.
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Accordingly, the pro forma condensed combined financial statements have been adjusted to depict the Company as an autonomous entity. As a result, for the year ended December 31, 2022 and the six-month period ended June 30, 2023, Veralto expects to incur approximately $42 million and $17 million of expenses, respectively, in addition to Danaher’s corporate costs allocated in the historical combined financial statements related to the incremental full-time employees and the new compensation agreements for current executives of Veralto. The additional resources required by Veralto have been identified based on the anticipated corporate support structure of the Company post-spin. Where additional resource needs were identified, they were addressed through planned or actual external hiring. However, actual additional costs that will be incurred could differ from these estimates and would depend on several factors, including the economic environment and strategic decisions made in areas such as selling and marketing, finance and information technology.
(k)Reflects the income tax impact of the autonomous entity pro forma adjustments for the year ended December 31, 2022 and the six-month period ended June 30, 2023. This adjustment was calculated by applying the statutory federal income tax rate of 21.0% and state income tax rate, net of federal benefit, of 3.5% to the pre-tax pro forma adjustments. The applicable tax rates could be impacted (either higher or lower) depending on certain factors subsequent to the separation including the legal entity structure implemented and may be materially different from the pro forma results.
Management Adjustments:
The Company has elected to present management adjustments to the pro forma financial information and included all adjustments necessary for a fair statement of such information. As a separate public company, Veralto expects to incur incremental costs within certain corporate functions including finance, tax, legal, human resources and other general and administrative related functions. The Company received the benefit of economies of scale as a segment within the Parent, however, in establishing these functions independently, the expenses will be higher than the prior corporate allocation from Parent.
As a separate public company, Veralto expects to incur certain costs reflected in the autonomous entity adjustments and described in note (j) above, including costs resulting from recurring and ongoing corporate governance costs, including board of director compensation and expenses, audit and other professional services fees, annual report and proxy statement costs, SEC filing fees, transfer agent fees, consulting and legal fees and stock exchange fees. The Company expects to incur these costs beginning at the spin-off.
The Company estimated that it would incur approximately $27 million and $14 million of total incremental expenses for the year ended December 31, 2022 and for the six-month period ended June 30, 2023, respectively.
The Company estimated these additional expenses by assessing the resources and associated recurring costs each function (e.g., finance, information technology, human resources, etc.) will require to stand up and operate as part of a separate publicly traded company. The Company expects to address any required resources incremental to the services provided by Danaher under the transition services agreement through additional hiring or incremental vendor and other third-party services spend.
The additional expenses have been estimated based on assumptions that our management believes are reasonable. However, actual additional costs that will be incurred could differ from these estimates and would depend on several factors, including the economic environment, results of contractual negotiations with third party vendors, ability to execute on proposed separation plans and strategic decisions made in areas such as manufacturing, selling and marketing, research and development, information technology and infrastructures. In addition, adverse effects and limitations including those discussed in the section entitled “Risk Factors” to this document may impact actual costs incurred. The Company may also decide to increase or reduce resources or invest more heavily in certain areas in the future, which may result in further differences between management’s estimates and actual costs incurred in the future.
These management adjustments include forward-looking information that is subject to the safe harbor protections of the Exchange Act. The tax effect has been determined by applying the respective statutory tax rates to the aforementioned adjustments in jurisdictions where valuation allowances were not required.
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For the six-month period ended June 30, 2023:
($ in millions except per share amounts)Net incomeBasic earnings per shareDiluted earnings per share
Unaudited pro forma combined net earnings*$368 $1.51 $1.49 
Management adjustments(14)(0.06)(0.06)
Tax effect3 0.01 0.01 
Unaudited pro forma combined net earnings after management adjustments$357 $1.46 $1.45 (a)
Weighted average number of common shares outstanding
Basic244.5
Diluted246.7
_________________
*As shown in the unaudited pro forma combined statement of earnings
(a)    Net earnings per share amounts do not sum due to rounding
For the year ended December 31, 2022:
($ in millions except per share amounts)Net incomeBasic earnings per shareDiluted earnings per share
Unaudited pro forma combined net earnings*$709 $2.93 $2.89 
Management adjustments(27)(0.11)(0.11)
Tax effect7 0.03 0.03 
Unaudited pro forma combined net earnings after management adjustments$689 $2.85 $2.80 (a)
Weighted average number of common shares outstanding
Basic241.7 
Diluted245.7 
_________________
*As shown in the unaudited pro forma combined statement of earnings
(a)    Net earnings per share amounts do not sum due to rounding
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Unless the context otherwise requires, references in this Management’s Discussion and Analysis of Financial Condition and Results of Operations to “Veralto” or the “Company” shall mean the businesses comprising Danaher Corporation’s (“Danaher” or “Parent”) Environmental & Applied Solutions segment. Veralto Corporation has engaged in no business activities to date and it has no assets or liabilities of any kind, other than those incident to its formation.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is designed to provide material information relevant to an assessment of the Company’s financial condition and results of operations, including an evaluation of the amounts and certainty of cash flows from operations and from outside sources. The MD&A is designed to focus specifically on material events and uncertainties known to management that are reasonably likely to cause reported financial information not to be necessarily indicative of future operating results or of future financial condition. This includes descriptions and amounts of matters that have had a material impact on reported operations, as well as matters that are reasonably likely based on management’s assessment to have a material impact on future operations. You should read the following discussion in conjunction with the “Unaudited Pro Forma Combined Financial Statements,” the Company’s Combined Financial Statements and notes thereto and the section entitled “Business” included in this information statement. The Company’s MD&A is divided into the following seven sections:
•Basis of Presentation;
•Overview;
•Results of Operations;
•Financial Instruments and Risk Management;
•Liquidity and Capital Resources;
•Critical Accounting Estimates; and
•New Accounting Standards.
BASIS OF PRESENTATION
The accompanying Combined Financial Statements present the historical financial position, results of operations, changes in Danaher’s equity and cash flows of the Company in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for the preparation of carved-out Combined Financial Statements.
The Company has historically operated as part of Danaher and not as a stand-alone company. The financial statements have been derived from Danaher’s historical accounting records and are presented on a carve-out basis. All revenues and costs, as well as assets and liabilities, directly associated with the business activity of the Company are included as a component of the financial statements. The financial statements also include allocations of certain general, administrative, and sales and marketing expenses from Danaher’s corporate office and from other Danaher businesses to the Company. The allocations have been determined on a reasonable basis; however, the amounts are not necessarily representative of the amounts that would have been reflected in the financial statements had the Company been an entity that operated independently of Danaher. Related party allocations, including the method for such allocation, are discussed further in Note 14 of the Notes to the audited Combined Financial Statements.
As part of Danaher, the Company is dependent upon Danaher for all of its working capital and financing requirements as Danaher uses a centralized approach to cash management and financing of its operations. Financial transactions relating to the Company are accounted for through the Company’s “net Parent investment” account. Accordingly, none of Danaher’s cash, cash equivalents or debt at the corporate level has been assigned to the Company in the financial statements.
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The Company’s business consists of two segments: Water Quality and Product Quality & Innovation. For additional details regarding these businesses, please refer to the section titled “Business” included in this information statement.
OVERVIEW
General
Refer to “Business” for a discussion of the Company’s strategic objectives and methodologies for delivering long-term stockholder value.
Business Overview
The Company’s unifying purpose is Safeguarding the World’s Most Vital Resources. Our diverse group of associates and leading operating companies provide essential technology solutions that monitor, enhance and protect key resources around the globe. The Company is committed to the advancement of public health and safety and believes it is positioned to support its customers as they address large global challenges including environmental resource sustainability, water scarcity, management of severe weather events, food and pharmaceutical security, and the impact of an aging workforce. For decades, the Company has used its scientific expertise and innovative technologies to address complex challenges our customers face across regulated industries – including municipal utilities, food and beverage, pharmaceutical and industrials – where the consequence of failure is high. Through its core offerings in water analytics, water treatment, marking and coding, and packaging and color, customers look to the Company’s solutions to help ensure the safety, quality, efficiency, and reliability of their products, processes, and people globally. Upon the separation, Veralto will be headquartered in Waltham, Massachusetts with a workforce of approximately 16,000 associates strategically located in more than 45 countries.
The Company operates through two segments – Water Quality (“WQ”) and Product Quality & Innovation (“PQI”). The Company’s businesses within these segments have strong globally recognized brands as a result of its leadership in served markets over several decades. Through WQ, the Company improves the quality and reliability of water through leading brands including Hach, Trojan Technologies and ChemTreat. Through PQI, the Company promotes consumer trust in products and help enable product innovation through leading brands including Videojet, Linx, Esko, X-Rite and Pantone. The Company believes its leading positions result from the strength of our commercial organizations, our legacy of innovation, and our close and long-term connectivity to its customers and knowledge of their workflows, underpinned by our culture of continuous improvement. This has resulted in a large installed base of instruments that drive ongoing consumables and software sales to support the Company’s customers. As a result, the Company’s business generates recurring sales which represented approximately 59% of total sales during the year ended December 31, 2022. The Company’s business model also supports a strong margin profile with limited capital expenditure requirements and has generated attractive cash flows. The Company believes these attributes allow it to deliver financial performance that is resilient across economic cycles.
We also believe that Veralto’s history with the Danaher Business System (“DBS”) provides the Company with a strong foundation for competitive differentiation. DBS is a business management system that consists of a philosophy, processes and tools that guide what Danaher does and measure how well Danaher executes, grounded in a culture of continuous improvement. The DBS processes and tools are organized around the areas of Lean, Growth and Leadership, and are rooted in foundational tools known as the DBS Fundamentals, which are relevant to every associate and business function. The DBS Fundamentals are focused on core competencies such as using visual representations of processes to identify inefficiencies, defining and solving problems in a structured way, and continuously improving processes to drive consistent execution.
Members of the team that will serve as Veralto management have served as Danaher leaders and have been integral to the evolution of DBS. For example, Veralto’s President and Chief Executive Officer has practiced and championed DBS in multiple operating companies across multiple geographies and industries since 1999 and has contributed meaningfully to the evolution of DBS over that period. Veralto’s Senior Vice President, Water Quality previously led the Danaher Business System Office, which bears central responsibility for stewardship of the DBS processes and tools and development of DBS practitioners who support the operating companies and train business
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leaders in the application of DBS. Many of the other Danaher associates who will become Veralto senior leaders have years of experience practicing DBS and deploying it in their particular businesses and functions.
Danaher will license to Veralto the DBS tools and processes as they exist at the separation. Following the separation, Veralto will use and evolve those tools and processes as the Veralto Enterprise System (“VES”). We expect to use VES tools to improve our profitability and cash flows, which support our ability to expand our addressable market and improve our market position through investments in areas such as our commercial organization and research and development (“R&D”), including software and digital solutions. Our cash flows also support acquisitions to enhance our product capabilities and expansion into new and attractive markets, which we have successfully done through the acquisition of approximately 80 businesses over more than two decades.
Business Performance
Sales for the six-month period ended June 30, 2023 increased 3.0% as compared to the comparable period of 2022. Core sales increased 4.0%, as compared to the comparable period of 2022, primarily driven by core sales in the Water Quality segment. Acquisitions, net of divestitures contributed 0.5% to the increase in sales and the impact of currency translation decreased reported sales 1.5%. The Company’s continued investments in sales growth initiatives and the other business-specific factors referenced below contributed to core sales growth. For the definition of “core sales,” refer to “—Non-GAAP Financial Measures” below.
Geographically, the Company’s reported sales in the six-month period ended June 30, 2023 in developed markets increased year-over-year by 4.0% driven by increased sales of 4.5% both in North America and Western Europe. For the same period, core sales in developed markets increased 4.5% driven by an increase in core sales of 4.5% in both North America and Western Europe. Reported sales in high-growth markets remained flat year over year, due primarily to declines in China of 8.5% and the suspension of sales to Russia beginning in the first quarter of 2022, offset by increased reported sales in Latin America of 6.5%. For the same period, core sales in high-growth markets increased 3.0% as core sales increased 6.0% in Latin America partially offset by a core sales decline of 3.0% in China and the suspension of shipments to Russia. High-growth markets represented approximately 28% of the Company’s total reported sales during the six-month period ended June 30, 2023. For additional information regarding the Company’s reported sales by geographical region during the six-month periods ended June 30, 2023 and July 1, 2022, refer to Note 2 to the accompanying Quarterly Combined Condensed Financial Statements.
The Company’s net earnings for the six-month period ended June 30, 2023 totaled $434 million, compared to $411 million for the six-month period ended July 1, 2022. The increase in net earnings during the six-month period ended June 30, 2023 as compared to the comparable period in 2022 was driven by increased revenues, partially offset by the adverse impact of foreign exchange rates during the six-month period ended June 30, 2023 as compared to the comparable period in 2022. Refer to “—Results of Operations” for further discussion of the year-over-year changes in net earnings for the six-month period ended June 30, 2023.
Sales for the year ended December 31, 2022 increased 3.5% as compared to 2021. The impact of currency translation decreased reported sales 4.0% and divestitures, net of acquisitions decreased reported sales by 0.5%. Core sales increased 8.0% in 2022 compared to 2021. The Company’s continued investments in sales growth initiatives and the other business-specific factors referenced below contributed to core sales growth.
Geographically, the Company’s reported sales for the year ended December 31, 2022 in developed markets increased year-over-year by 5.0%, as increased reported sales in North America of 10.0% more than offset the impact of currency translation on reported sales in Western Europe, which declined 3.5%. For the same period, core sales in developed markets grew 10.5% and were driven by North America and Western Europe, which increased 11.0% and 9.0%, respectively. Reported sales in high-growth markets were flat in 2022 as compared to 2021, as the impact of currency translation and the loss of revenue resulting from the suspension of sales to Russia offset increased sales in Latin America, which increased 10.0%. For the same period, core sales in high-growth markets grew 4.5%, led by increased core sales of 12.5% in Latin America, partially offset by the loss of revenue resulting from the suspension of shipments to Russia. High-growth markets represented approximately 29% of the Company’s total reported sales in 2022. For additional information regarding the Company’s reported sales by geographical region, refer to Note 3 to the audited Combined Financial Statements.
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The Company’s net earnings for the year ended December 31, 2022 totaled $845 million, compared to $861 million for the year ended December 31, 2021. The decrease in net earnings in 2022 as compared to 2021 was driven by a higher effective tax rate in 2022 driven by lower discrete tax benefits in 2022 compared to 2021, partially offset by increased operating profit driven by the increase in revenues. Refer to “—Results of Operations” for further discussion of the year-over-year changes in net earnings for the year ended December 31, 2022.
For a discussion of the impact of supply chain disruptions, labor availability constraints and increased labor costs on our businesses in 2022, refer to section titled “Business – Materials.” For a discussion of the impact of the Russia-Ukraine conflict on our businesses in 2022, refer to section titled “Business – Russia-Ukraine Conflict.”
The COVID-19 Pandemic
Overall, while conditions related to the COVID-19 pandemic generally have improved in 2023 compared to 2022 (including the announcement on April 10, 2023 that the U.S. public health emergency related to COVID-19 ended), conditions vary by geography. In response to COVID-19 evolving to an endemic status, the Company continues to review and adjust its cost structure.
For additional information on the risks of COVID-19 to the Company’s operations, refer to the section titled “Risk Factors” included in this information statement.
Acquisitions
The Company’s growth strategy contemplates future acquisitions. The Company’s operations and results can be affected by the rate and extent to which appropriate acquisition opportunities are available, acquired businesses are effectively integrated and anticipated synergies or cost savings are achieved.
There were no business acquisitions during the six-month period ended June 30, 2023.
During 2022, the Company acquired three businesses for a total consideration of $55 million in cash, net of cash acquired and recorded goodwill and intangible assets of $38 million and $18 million, respectively. The businesses acquired complement existing units of the Company’s Product Quality & Innovation segment.
During 2021, the Company acquired two businesses for total consideration of $60 million in cash, net of cash acquired and recorded goodwill and intangible assets of $48 million and $12 million, respectively. The businesses acquired complement existing units of both of the Company’s segments.
During 2020, the Company acquired two businesses for total consideration of $121 million in cash, net of cash acquired and recorded goodwill and intangible assets of $111 million and $20 million, respectively. The businesses acquired complement existing units of the Company’s Water Quality segment.
Public Company Expenses
As a result of this offering, we will become subject to the reporting requirements of the Exchange Act and the Sarbanes-Oxley Act. We will have additional procedures and practices to establish as a separate publicly traded company. As a result, we will incur additional costs, including corporate governance, internal audit, investor relations, stock administration and regulatory compliance costs.
Non-GAAP Financial Measures
In this information statement, references to the non-GAAP financial measure of core sales (also referred to as core revenues or sales/revenues from existing businesses) refer to sales from continuing operations calculated according to GAAP but excluding sales from acquired businesses (as defined below) 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 any sales and operating profit, during the applicable period, attributable to divested product lines not considered
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discontinued operations. 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.
Core sales growth should be considered in addition to, and not as a replacement for or superior to, sales growth, and may not be comparable to similarly titled measures reported by other companies. Management believes that reporting the non-GAAP financial measure of core sales growth provides useful information to investors by helping identify underlying growth trends in the Company’s business and facilitating comparisons of the Company’s revenue performance with its performance in prior and future periods and to the Company’s peers. Management also uses core sales growth to measure the Company’s operating and financial performance. The Company excludes the effect of currency translation from core sales 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 and divestiture-related items because the nature, size, timing and number of acquisitions and divestitures can vary 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.
Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information calculated in accordance with U.S. GAAP. Investors are encouraged to review the reconciliation of each non-GAAP financial measure to its most directly comparable U.S. GAAP financial measure.
Cash Flow, Free Cash Flow and Free Cash Flow to Net Earnings Conversion Ratio
The non-GAAP performance measures free cash flow and free cash flow to net earnings conversion ratio are included in this information statement because they help investors understand Veralto’s ability to generate cash without external financings, strengthen its balance sheet, invest in its business and grow its business through acquisitions and other strategic opportunities (although a limitation of free cash flow is that it does not take into account non-discretionary expenditures, and as a result the entire free cash flow amount is not necessarily available for discretionary expenditures). Additionally, the free cash flow measures are used as a measure of performance in the Parent’s executive compensation program. With respect to the free cash flow measures, we exclude payments for additions to property, plant and equipment (net of the proceeds from capital disposals) to demonstrate the amount of operating cash flow for the period that remains after accounting for the Company’s capital expenditure requirements.
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The following table sets forth a reconciliation of cash provided by operating activities, the most directly comparable U.S. GAAP financial measure, to free cash flow and the operating cash flow to net earnings ratio to free cash flow to net earnings ratio.
Six Months EndedYear Ended December 31
($ in millions)June 30, 2023July 1, 2022202220212020
Total Cash Flows:
Total cash provided by operating activities (GAAP)$457 $276 $870 $896 $1,001 
Total cash used in investing activities (GAAP)$(19)$(34)$(89)$(97)$(157)
Total cash used in financing activities (GAAP)$(438)$(242)$(781)$(799)$(844)
Free Cash Flow:
Total cash provided by operating activities (GAAP)$457 $276 $870 $896 $1,001 
Less: payments for additions to property, plant & equipment (capital expenditures) (GAAP)(21)(20)(34)(54)(36)
Plus: proceeds from sales of property, plant & equipment (capital disposals) (GAAP) 2 — — — — 
Free cash flow (non-GAAP) $438 $256 $836 $842 $965 
Operating Cash Flow to Net Earnings Ratio (GAAP):
Total cash provided by operating activities (GAAP) $457 $276 $870 $896 $1,001 
Net earnings (GAAP)$434 $411 $845 $861 $724 
Operating cash flow to net earnings conversion ratio 1.05 0.67 1.03 1.04 1.38 
Free Cash Flow to Net Earnings Ratio (non-GAAP):
Free cash flow from above (non-GAAP)$438 $256 $836 $842 $965 
Net earnings (GAAP)$434 $411 $845 $861 $724 
Free cash flow to net earnings conversion ratio (non-GAAP)1.01 0.62 0.99 0.98 1.33 
RESULTS OF OPERATIONS
Throughout this discussion, references to sales growth or decline 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 DBS.
The following discussion and analysis of our combined statements of earnings should be read together with our Combined Financial Statements included elsewhere in this information statement, which reflect the results of operations of the business compromising Danaher’s Environmental & Applied Solutions segment to be transferred to us. For more information on the combined basis of preparation, see Note 1 to our audited Combined Financial Statements elsewhere in this information statement.
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Sales Growth and Core Sales Growth
Six-Month
Period Ended June 30, 2023
vs. Comparable 2022 Period
2022 vs 2021
2021 vs 2020
Total sales growth (GAAP)3.0 %3.5 %8.0 %
Impact of:
Acquisitions/divestitures(0.5)%0.5 %1.5 %
Currency exchange rates 1.5 %4.0 %(1.5)%
Core sales growth (non-GAAP)4.0 %8.0 %8.0 %
Six-Month Period Ended June 30, 2023 Compared to the Six-Month Period Ended July 1, 2022
Total sales increased 3.0% on a year-over-year basis for the six-month period ended June 30, 2023, primarily as a result of core sales growth driven by the factors discussed in the Business Performance section above and the discussion below by segment and by an increase in sales attributable to acquisitions, net of divestitures. The impact of currency translation decreased reported sales by 1.5% on a year-over-year basis, primarily due to the unfavorable impact of the strengthening of the U.S. dollar against most major currencies in 2023.
Operating profit margins were 23.4% for the six-month period ended June 30, 2023 as compared to 22.2% for the comparable period of 2022. The following factors favorably impacted year-over-year operating profit margin comparisons:
•Higher first half 2023 core sales and incremental year-over-year cost savings associated with restructuring and continuing productivity improvement initiatives, net of the impact of product mix and incremental year-over-year costs associated with material and labor and sales and marketing growth initiatives - 90 basis points
•Second quarter 2022 impairment charges related to customer relationships, net of second quarter 2023 impairment charge related to technology and customer relationships - 15 basis points
•The incremental net accretive effect in 2023 of acquired businesses - 10 basis points
•First half 2022 impairments of accounts receivable and inventory in Russia - 5 basis points
2022 Compared to 2021
Total sales increased 3.5% on a year-over-year basis in 2022 primarily as a result of core sales growth driven by the factors discussed below by segment, partially offset by a decrease in sales attributable to divestitures, net of acquisitions. The impact of currency translation decreased reported sales by 4.0% on a year-over-year basis in 2022, primarily due to the unfavorable impact of the strengthening of the U.S. dollar against most other major currencies in 2022.
Operating profit margins were 22.8% for the year ended December 31, 2022 as compared to 22.1% in 2021. The following factors impacted year-over-year operating profit margin comparisons.
2022 vs. 2021 operating profit margin comparisons were favorably impacted by:
•Higher 2022 core sales and incrementally lower year-over-year costs associated with various new product development initiatives, net of the impact of product mix, incremental year-over-year costs associated with material, transportation and labor and restructuring and continuing productivity improvement initiatives and incremental year-over-year costs for sales, service and marketing growth investments - 75 basis points
•The incremental net accretive effect in 2022 of acquired businesses and product line dispositions which did not qualify as discontinued operations - 20 basis points
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2022 vs. 2021 operating profit margin comparisons were unfavorably impacted by:
•Second quarter 2022 impairment charge related to technology and customer relationships in the Water Quality segment - 20 basis points
•2022 impairments of accounts receivable and inventory in Russia - 5 basis points
2021 Compared to 2020
Total sales increased 8.0% on a year-over-year basis in 2021 primarily as a result of an increase in core sales resulting from the factors discussed below by segment, partially offset by a decrease in sales attributable to divestitures, net of acquisitions. The impact of currency translation increased reported sales by 1.5% on a year-over-year basis in 2021 primarily due to the favorable impact of the weakening of the U.S. dollar against most other major currencies in 2021.
Operating profit margins were 22.1% for the year ended December 31, 2021 as compared to 21.9% in 2020. The following factors impacted year-over-year operating profit margin comparisons:
2021 vs. 2020 operating profit margin comparisons were favorably impacted by:
•Impairment charges related to trade names and other intangible assets in 2020 in the Product Quality & Innovation segment - 40 basis points
2021 vs. 2020 operating profit margin comparisons were unfavorably impacted by:
•Incremental year-over-year costs associated with sales, service and marketing growth investments and incremental year-over-year material and labor costs, net of higher 2021 core sales volumes, incremental year-over-year cost savings associated with continuing productivity improvement initiatives and the impact of currency exchange rates in 2021 - 20 basis points
Business Segments
Sales by business segment were as follows ($ in millions):
Six-Month Period EndedYear Ended December 31
June 30, 2023July 1, 2022202220212020
Water Quality$1,485 $1,390 $2,887 $2,669 $2,487 
Product Quality & Innovation993 1,013 1,983 2,031 1,861 
Total$2,478 $2,403 $4,870 $4,700 $4,348 
For information regarding the Company’s sales by geographical region, refer to Note 3 to the audited Combined Financial Statements.
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WATER QUALITY
The Company’s Water Quality segment provides proprietary precision instrumentation, consumables, software, services and advanced water treatment technologies to help measure, analyze and treat the world’s water in residential, commercial, municipal, industrial, research and natural resource applications.
Water Quality Selected Financial Data
Six-Month Period EndedYear Ended December 31
($ in millions)June 30, 2023July 1, 2022202220212020
Sales$1,485 $1,390 $2,887 $2,669 $2,487 
Operating profit348 300 668 584 573 
Depreciation 12 13 24 27 28 
Amortization10 12 22 27 27 
Operating profit as a % of sales23.4%21.6%23.1%21.9%23.0%
Depreciation as a % of sales0.8%0.9%0.8%1.0%1.1%
Amortization as a % of sales0.7%0.9%0.8%1.0%1.1%
Sales Growth and Core Sales Growth
Six-Month
Period Ended
June 30, 2023
vs. Comparable
2022 Period		2022 vs. 20212021 vs. 2020
Total sales growth (GAAP)7.0 %8.0 %7.5 %
Impact of:
Acquisitions/divestitures— %— %(1.0)%
Currency exchange rates1.0 %3.5 %(1.5)%
Core sales growth (non-GAAP)8.0 %11.5 %5.0 %
Six-Month Period Ended June 30, 2023 Compared to the Six-Month Period Ended July 1, 2022
For the six-month period ended June 30, 2023, total Water Quality segment sales increased 7.0%, primarily as a result of core sales growth driven by the factors discussed below. Additionally, currency translation decreased reported sales 1.0% for the six-month period ended June 30, 2023. Geographically, the year-over-year increase in reported sales was driven by North America, Western Europe and the high-growth markets, which increased 7.5%, 6.5% and 6.5%, respectively.
Price increases in the segment contributed 6.5% to sales growth on a year-over-year basis for the six-month period ended June 30, 2023, as compared to the comparable period in 2022 and are reflected as a component of the change in core sales growth.
Core sales in the Water Quality segment increased 8.0% year-over-year during the six-month period ended June 30, 2023 compared to the comparable period of 2022. Geographically, the year-over-year increase in core sales was driven by North America, Western Europe and the high-growth markets, which increased 8.0%, 7.5% and 9.0%, respectively. The increase in core sales was driven primarily by the analytical instrumentation product line, and to a lesser extent by the chemical treatment solutions product line. Year-over-year core sales in the analytical instrumentation product line increased 7.5%, driven by the industrial and municipal end-markets in the developed markets and the high-growth markets. Core sales in the business’ chemical treatment solutions product line increased 11.5% year-over-year as a result of increased core sales across most major served end-markets. Core sales in the ultraviolet water disinfection business increased 2.0% in 2022, driven primarily by the municipal end-market and to a lesser extent by the industrial end-market.
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Operating profit margins were 23.4% for the six-month period ended June 30, 2023 as compared to 21.6% for the six-month period ended July 1, 2022. The following factors favorably impacted year-over-year operating profit margin comparisons:
•Higher first half 2023 core sales and incremental year-over-year cost savings associated with restructuring and continuing productivity improvement initiatives, net of the impact of product mix and incremental year-over-year costs associated with material and labor and sales and marketing growth initiatives - 120 basis points
•Second quarter 2022 impairment charges related to technology and customer relationships - 60 basis points
2022 Compared to 2021
In 2022, total Water Quality segment sales increased 8.0%, primarily as a result of core sales growth, which refers to the impact of both price and unit sales, driven by the factors discussed below. Additionally, the impact of currency translation decreased reported sales 3.5% in 2022. Geographically, the increase in reported sales was driven by North America, which increased 13.0%.
Price increases in the segment contributed 9.5% to sales growth on a year-over-year basis during 2022 as compared with 2021 and are reflected as a component of the change in core sales growth.
Core sales in the Water Quality segment increased 11.5% year-over-year compared to the comparable period of 2021. Geographically, the year-over-year increase in core sales was driven by North America, Western Europe and the high-growth markets, which increased 13.5%, 13.5% and 8.0%, respectively. The increase in core sales was driven primarily by the analytical instrumentation business and to a lesser extent by the chemical treatment solutions business. In addition, the ultraviolet water disinfection business modestly contributed to segment core growth. Year-over-year core sales in the analytical instrumentation business increased 11.5% driven primarily by higher core sales in the municipal end-market and to a lesser extent the industrial end-market. Core sales in the chemical treatment solutions business increased 15.0% as a result of higher core sales across all major served end-markets. Core sales in the ultraviolet water disinfection business increased 7.5% in 2022, driven primarily by the municipal end-market and to a lesser extent by the industrial end-market.
Operating profit margins were 23.1% for the year ended December 31, 2022 as compared to 21.9% in 2021. The following factors impacted year-over-year operating profit margin comparisons:
2022 vs. 2021 operating profit margin comparisons were favorably impacted by:
•Higher 2022 core sales, incremental year-over-year cost savings associated with continuing productivity improvement initiatives and incrementally lower year-over-year costs associated with various new product development initiatives, net of the impact of product mix, incremental year-over-year costs associated with material, transportation and labor, incremental year-over-year costs for sales, service and marketing growth investments - 155 basis points
2022 vs. 2021 operating profit margin comparisons were unfavorably impacted by:
•Second quarter 2022 impairment charge related to technology and customer relationships - 30 basis points
•The incremental net dilutive effect in 2022 of acquired businesses - 5 basis points
Depreciation as a percentage of sales decreased in 2022 as compared with 2021 primarily as a result of the increase in sales and the impact of currency exchange rates in 2022. Amortization of intangible assets as a percentage of sales decreased in 2022 as compared with 2021 primarily as a result of certain intangible assets becoming fully amortized in 2022 and the impairment of an intangible asset in 2022.
2021 Compared to 2020
In 2021, total Water Quality segment sales increased 7.5%, primarily as a result of core sales growth, which
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refers to the impact of both price and unit sales, driven by the factors discussed below. Additionally, acquisitions increased reported sales by 1.0% in 2021 and the impact of currency translation increased reported sales 1.5% in 2021, primarily due to the favorable impact of the weakening of the U.S. dollar in 2021 compared to 2020. Geographically, the increase in reported sales was driven by North America, Western Europe and the high-growth markets, which increased 7.0%, 6.5% and 8.5%, respectively.
Price increases in the segment contributed 1.5% to sales growth on a year-over-year basis during 2021 as compared with 2020 and are reflected as a component of the change in core sales growth.
During 2021, Water Quality core sales increased 5.0% year-over-year as a result of increased core sales of consumables and equipment, driven in part by the recovery from the decline in equipment demand in 2020 as a result of the COVID-19 pandemic. Geographically, the increase in core sales was driven by North America and the high-growth markets, which increased 6.0% and 5.5%, respectively. The year-over-year increase in core sales was driven primarily by the analytical instrumentation business and to a lesser extent by the chemical treatment solutions business. In addition, the ultraviolet water disinfection business modestly contributed to segment core growth. Year-over-year core sales in the analytical instrumentation business increased 4.5% driven primarily by demand in both the municipal and industrial end-markets. Core sales in the chemical treatment solutions business increased 5.5% as a result of broad-based demand across most major served end-markets Core sales in the ultraviolet water disinfection business increased 7.0% in 2021, driven primarily by the municipal end-market followed by the industrial and residential end-markets, in order of significance.
Operating profit margins were 21.9% for the year ended December 31, 2021 as compared to 23.0% in 2020. The following factors unfavorably impacted year-over-year operating margin comparisons:
•Incremental year-over-year costs associated with sales, service and marketing growth investments and incremental year-over-year material, transportation and labor costs, net of higher 2021 core sales volumes, incremental year-over-year cost savings associated with continuing productivity improvement initiatives and the impact of currency exchange rates in 2021 - 80 basis points
•The incremental net dilutive effect in 2021 of acquired businesses - 30 basis points
PRODUCT QUALITY & INNOVATION
The Company’s Product Quality & Innovation segment provides instruments, software, services and consumables for various color and appearance management, packaging design and quality management, packaging converting, printing, marking and coding, and traceability applications for consumer, pharmaceutical and industrial products.
Product Quality & Innovation Selected Financial Data
Six-Month Period EndedYear Ended December 31
($ in millions)June 30, 2023July 1, 2022202220212020
Sales$993$1,013$1,983$2,031$1,861
Operating profit257255488496419
Depreciation 88161719
Amortization1415283536
Operating profit as a % of sales25.9 %25.2 %24.6 %24.4 %22.5 %
Depreciation as a % of sales0.8 %0.8 %0.8 %0.8 %1.0 %
Amortization as a % of sales1.4 %1.5 %1.4 %1.7 %1.9 %
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Sales (Decline) Growth and Core Sales (Decline) Growth
Six-Month
Period Ended June 30, 2023
vs. Comparable 2022 Period		2022 vs. 20212021 vs. 2020
Total sales (decline) growth (GAAP)(2.0)%(2.5)%9.0 %
Impact of:
Acquisitions/divestitures(1.0)%1.0 %4.5 %
Currency exchange rates1.5 %5.0 %(2.0)%
Core sales (decline) growth (non-GAAP)(1.5)%3.5 %11.5 %
Six-Month Period Ended June 30, 2023 Compared to the Six-Month Period Ended July 1, 2022
For the six-month period ended June 30, 2023, total Product Quality & Innovation segment sales decreased 2.0% year-over-year, as a result of core sales decline driven by the factors discussed below. Additionally, currency translation decreased reported sales 1.5% and acquisitions, net of divestitures increased reported sales by 1.0% for the six-month period ended June 30, 2023. Geographically, reported sales declined 2.5% in North America and 4.5% in the high-growth markets, partially offset by an increase of 3.0% in Western Europe.
Price increases in the segment contributed 2.5% to sales growth on a year-over-year basis for the six-month period ended June 30, 2023, as compared to the comparable period of 2022 and are reflected as a component of the change in core sales growth.
Core sales in the Product Quality & Innovation segment decreased 1.5% during the six-month period ended June 30, 2023, as compared to the comparable period of 2022. Geographically, the year-over-year decrease in core sales was driven by a decrease of 2.5% in North America and the suspension of sales to Russia, partially offset by an increase of 2.0% in Western Europe. The decrease in core sales in the segment was primarily driven by the marking and coding business where core sales decreased 2.0% during the six-month period driven by lower demand in the industrial and consumer packaged goods end-markets. For the packaging and color solutions products and services business, core sales were essentially flat in the six-month period primarily driven by reduced capital spending across the consumer packed goods and industrial end-markets.
Operating profit margins were 25.9% for the six-month period ended June 30, 2023 compared to 25.2% for the six-month period ended July 1, 2022. The following factors impacted year-over-year operating profit margin comparisons.
Year-to-date 2023 vs. year-to-date 2022 operating profit margin comparisons were favorably impacted by:
•Incremental year-over-year cost savings associated with restructuring and continuing productivity improvement initiatives, net of lower first half 2023 core sales, the impact of product mix and incremental year-over-year costs associated with material and labor and sales and marketing growth initiatives - 90 basis points
•The incremental net accretive effect in 2023 of acquired businesses - 25 basis points
•First half 2022 impairments of accounts receivable and inventory in Russia - 10 basis points
Year-to-date 2023 vs. year-to-date 2022 operating profit margin comparisons were unfavorably impacted by:
•Second quarter 2023 impairment charges related to technology and customer relationships - 55 basis points
2022 Compared to 2021
In 2022, total Product Quality & Innovation segment sales decreased 2.5%, primarily due to the impact of currency translation, which decreased reported sales 5.0% in 2022 due to the unfavorable impact of the
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strengthening of the U.S. dollar in 2022 compared to 2021. Divestitures, net of acquisitions also decreased reported sales by 1.0% in 2022. Geographically, reported sales decreased by 8.0% in Western Europe and 3.0% in the high-growth markets, partially offset by an increase of 3.5% in North America
Price increases in the segment contributed 5.0% to sales growth on a year-over-year basis during 2022 as compared with 2021 and is reflected as a component of the change in core sales growth.
Core sales in the Product Quality & Innovation segment increased 3.5% year-over-year. Geographically, the year-over-year increase in core sales was driven by North America and Western Europe, which increased 5.5% and 5.0%, respectively, partially offset by the suspension of sales to Russia beginning in the first quarter of 2022. The year-over-year increase in core sales was primarily driven by the marking and coding business and to a lesser extent by the packaging and color solutions products and services business. Core sales in the marking and coding business increased 4.5%, led by the food and beverage end-market. Year-over-year core sales in the packaging and color solutions products and services business increased 1.5%.
Operating profit margins were 24.6% for the year ended December 31, 2022 as compared to 24.4% in 2021. The following factors impacted year-over-year operating profit margin comparisons.
2022 vs. 2021 operating profit margin comparisons were favorably impacted by:
•The incremental accretive effect in 2022 of 2021 product line dispositions which did not qualify as discontinued operations, net of acquisitions - 55 basis points
2022 vs. 2021 operating profit margin comparisons were unfavorably impacted by:
•Incremental year-over-year costs for material, transportation, labor and restructuring and continuing productivity improvement initiatives and incremental year-over-year costs for sales, service and marketing growth investments, net of higher 2022 core sales and incrementally lower year-over-year costs associated with various new product development initiatives - 30 basis points
•2022 impairments of accounts receivable and inventory in Russia - 5 basis points
Amortization of intangible assets as a percentage of sales decreased in 2022 as compared with 2021 primarily as a result of certain intangible assets becoming fully amortized in 2022.
2021 Compared to 2020
In 2021, total Product Quality & Innovation segment sales increased 9.0%, primarily as a result of core sales growth, which refers to the impact of both price and unit sales, driven by the factors discussed below. Additionally, the impact of currency translation increased reported sales 2.0% in 2021, primarily due to the favorable impact of the weakening of the U.S. dollar in 2021 compared to 2020. Divestitures, net of acquisitions, decreased reported sales by 4.5% in 2021. Geographically, the increase in reported sales was driven by the high-growth markets, Western Europe and North America, which increased 15.0%, 9.5% and 5.0%, respectively.
Price increases in the segment contributed 2.0% to sales growth on a year-over-year basis during 2021 as compared with 2020 and are reflected as a component of the change in core sales growth.
During 2021, total Product Quality & Innovation core sales increased 11.5% as a result of increased sales for consumables and equipment, driven in part by the recovery from lower equipment volumes in 2020 resulting from the COVID-19 pandemic. Geographically, the year-over-year increase in core sales was driven by the high-growth markets, Western Europe and North America, which increased 14.0%, 11.0% and 9.0%, respectively. The year-over-year increase in core sales was driven primarily by the marking and coding business and to a lesser extent by the packaging and color solutions products and services business. Core sales in the marking and coding business increased 10.0% with increased core sales across most major end-markets. Year-over-year core sales in the packaging and color solutions products and services business increased 14.5%.
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Operating profit margins were 24.4% for the year ended December 31, 2021 as compared to 22.5% in 2020. The following factors favorably impacted year-over-year operating margin comparisons:
•Impairment charges related to trade names and other intangible assets in 2020 - 95 basis points
•The incremental accretive effect in 2021 of product line dispositions which did not qualify as discontinued operations net of acquisitions - 50 basis points