Acquisitions

3 Months Ended

Apr. 03, 2020

ACQUISITIONS

For a description of the Company’s acquisition activity for the year ended December 31, 2019, reference is made to the financial statements as of and for the year ended December 31, 2019 and Note 3 thereto included in the Company’s 2019 Annual Report.

The Company continually evaluates potential acquisitions that either strategically fit with the Company’s existing portfolio or expand the Company’s portfolio into a new and attractive business area. The Company has completed a number of acquisitions that have been accounted for as purchases and have resulted in the recognition of goodwill in the Company’s financial statements. This goodwill arises because the purchase prices for these businesses reflect a number of factors including the future earnings and cash flow potential of these businesses, the multiple to earnings, cash flow and other factors at which similar businesses have been purchased by other acquirers, the competitive nature of the processes by which the Company acquired the businesses, avoidance of the time and costs which would be required (and the associated risks that would be encountered) to enhance the Company’s existing product offerings to key target markets and enter into new and profitable businesses and the complementary strategic fit and resulting synergies these businesses bring to existing operations.

The Company makes an initial allocation of the purchase price at the date of acquisition based upon its understanding of the fair value of the acquired assets and assumed liabilities. The Company obtains this information during due diligence and through other sources. In the months after closing, as the Company obtains additional information about these assets and liabilities, including through tangible and intangible asset appraisals, and learns more about the newly acquired business, it is able to refine the estimates of fair value and more accurately allocate the purchase price. Only facts and circumstances that existed as of the acquisition date are considered for subsequent adjustment. The Company is continuing to evaluate certain pre-acquisition contingencies associated with its 2020 acquisition of Cytiva (described below) and is also in the process of obtaining valuations of certain acquisition-related assets and liabilities in connection with this acquisition. The Company will make appropriate adjustments to the purchase price allocation prior to completion of the measurement period, as required.

On March 31, 2020, the Company acquired the Biopharma business of General Electric Company’s (“GE”) Life Sciences division, now known as Cytiva, for a cash purchase price of approximately $20.7 billion (net of approximately $0.1 billion of acquired cash), subject to certain adjustments, and the assumption of approximately $0.4 billion of pension liabilities (the “Cytiva Acquisition”). Cytiva is a leading provider of instruments, consumables and software that support the research, discovery, process development and manufacturing workflows of biopharmaceutical drugs. Cytiva had revenues of approximately $3.3 billion in 2019 and is included in the Company’s Life Sciences segment. Due to the proximity of the acquisition date to the end of the Company’s first quarter, there are no results of operations for Cytiva included in the Company’s Consolidated Condensed Statement of Earnings. The impact of the Cytiva Acquisition has been reflected in the Company’s Consolidated Condensed Balance Sheet on a preliminary basis. The acquisition is expected to provide additional sales and earnings growth opportunities for the Company’s Life Sciences segment by expanding the business’ geographic and product line diversity, including new product and service offerings that complement the Company’s current biologics workflow solutions. As a condition to obtaining certain regulatory approvals for the closing of the transaction, the Company was required to divest certain of its existing product lines in the Life Sciences segment that in the aggregate generated revenues of

approximately $170 million in 2019. On April 30, 2020, the Company completed the sale of the majority of these product lines for a cash purchase price of approximately $825 million and will recognize a gain on the sale in the second quarter of 2020. The divestiture of these product lines did not represent a strategic shift with a major effect on the Company's operations and financial results and will not be reported as a discontinued operation.

The Company financed the Cytiva Acquisition with approximately $3.0 billion of proceeds from the March 1, 2019 underwritten public offerings of its Common Stock and Mandatory Convertible Preferred Stock (“MCPS”), approximately $10.8 billion of proceeds from the issuance of euro-denominated and U.S. dollar-denominated long-term debt in the second half of 2019, and approximately $6.9 billion from the aggregate of proceeds from commercial paper borrowings, borrowings under the Company’s Five-Year Facility (as defined below) and cash on hand. The Company preliminarily recorded approximately $11.5 billion of goodwill related to the Cytiva Acquisition.

The following summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition for the Cytiva Acquisition ($ in millions):



Trade accounts receivable	$	488.3
Inventories	817.0
Property, plant and equipment	788.9
Goodwill	11,497.2
Other intangible assets, primarily technology and customer relationships	9,003.0
Trade accounts payable	(250.8		)
Pension liabilities	(417.2		)
Deferred tax liabilities	(796.6		)
Other assets and liabilities, net	(395.3		)
Net cash consideration	$	20,734.5

Pro Forma Financial Information

The unaudited pro forma information for the periods set forth below gives effect to the 2020 and 2019 acquisitions as if they had occurred as of January 1, 2019. The pro forma information is presented for informational purposes only and is not necessarily indicative of the results of operations that actually would have been achieved had the acquisitions been consummated as of that time ($ in millions, except per share amounts):



	Three-Month Period Ended
	April 3, 2020		March 29, 2019
Sales	$	5,119.5	$	4,922.1
Net earnings from continuing operations	711.2		265.3
Diluted net earnings per common share from continuing operations ^(a)	0.98		0.34

^(a)Diluted net earnings per common share from continuing operations is calculated by adding the interest on the Company’s LYONs to net earnings from continuing operations and deducting the MCPS dividends from net earnings from continuing operations.

For the three-month periods ended April 3, 2020 and March 29, 2019, unaudited pro forma revenue and earnings were adjusted to include the pre-tax impact of approximately $3 million and $162 million, respectively, in non-recurring adjustments related to acquisition date fair value adjustments to inventory and deferred revenue related to the Cytiva Acquisition. In addition, acquisition-related transaction costs of $59 million and $15 million associated with the Cytiva Acquisition were excluded from pro forma earnings in the three-month periods ended April 3, 2020 and March 29, 2019, respectively.