DANAHER CORPORATION
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 Danaher Corporation's ("Danaher," the "Company," "we," "us" or
"our") 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. The Company's MD&A is divided into five
sections:
•Information Relating to Forward-Looking Statements
•Overview
•Results of Operations
•Liquidity and Capital Resources
•Critical Accounting Estimates
You should read this discussion along with the Company's MD&A and audited financial statements and Notes thereto as of and for the year endedDecember 31, 2021 , included in the Company's 2021 Annual Report and the Company's Consolidated Condensed Financial Statements and related Notes as of and for the three and nine-month periods endedSeptember 30, 2022 included in this Quarterly Report on Form 10-Q ("Report").
Unless otherwise indicated, all financial results in this Report refer to continuing operations.
INFORMATION RELATING TO FORWARD-LOOKING STATEMENTS
Certain statements included or incorporated by reference in this Report, in other documents we file with or furnish to theSecurities and Exchange Commission , in our press releases, webcasts, conference calls, materials delivered to shareholders and other communications, are "forward-looking statements" within the meaning of theU.S. 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, pricing, tax rates, tax provisions, cash flows, pension and benefit obligations and funding requirements, our liquidity position or other projected financial measures; management's plans and strategies for future operations, including statements relating to anticipated operating performance, cost reductions, restructuring activities, new product and service developments, competitive strengths or market position, acquisitions and the integration thereof, divestitures, spin-offs, split-offs, initial public offerings or other distributions, strategic opportunities, other securities offerings, stock repurchases, dividends and executive compensation; growth, declines and other trends in markets we sell into; new or modified laws, regulations and accounting pronouncements; future regulatory approvals and the timing and conditionality thereof; outstanding claims, legal proceedings, tax audits and assessments and other contingent liabilities; future foreign currency exchange rates and fluctuations in those rates; the potential or anticipated direct or indirect impact of COVID-19 on our business, results of operations and/or financial condition; general economic and capital markets conditions; the anticipated timing of any of the foregoing; assumptions underlying any of the foregoing; and any other statements that address events or developments that Danaher intends or believes will or may occur in the future. Terminology such as "believe," "anticipate," "should," "could," "intend," "will," "plan," "expect," "estimate," "project," "target," "may," "possible," "potential," "forecast" and "positioned" and similar references to future periods are intended to identify forward-looking statements, although not all forward-looking statements are accompanied by such words. Forward-looking statements are based on assumptions and assessments made by our management in light of their experience and perceptions of historical trends, current conditions, expected future developments and other factors. Forward-looking statements are not guarantees of future performance and actual results may differ materially from the results, developments and business decisions contemplated by our forward-looking statements. Accordingly, you should not place undue reliance on any such forward-looking statements. Important factors that in some cases have affected us in the past and that in the future could cause actual results to differ materially from those envisaged in the forward-looking statements include the following:
Business and Strategic Risks
•The COVID-19 pandemic has adversely impacted, and continues to pose risks to,
certain elements of our business and our financial statements, the nature and
extent of which are highly uncertain and unpredictable.
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•Conditions in the global economy (including the current, high levels of inflation and global supply chain disruptions), the particular markets we serve and the financial markets can adversely affect our business and financial statements.
•We face intense competition and if we are unable to compete effectively, we may experience decreased demand and market share. Even if we compete effectively, we may be required to reduce the prices we charge.
•Our growth depends on the timely development and commercialization, and customer acceptance, of new and enhanced products and services based on technological innovation. Our growth can also suffer if the markets into which we sell our products and services decline, do not grow as anticipated or experience cyclicality.
•The health care industry and related industries that we serve have undergone, and are in the process of undergoing, significant changes in an effort to reduce (and increase the predictability of) costs, which can adversely affect our business and financial statements. •Non-U.S. economic, political, legal, compliance, social and business factors (including the conflict inUkraine and the related impact on energy supplies and prices, and theUnited Kingdom's ("U.K") departure from theEuropean Union ("EU")) can negatively affect our business and financial statements. •Collaborative partners and other third-parties we rely on for development, supply and marketing of certain products, potential products and technologies could fail to perform sufficiently.
Acquisitions, Divestitures and Investment Risks
•Any inability to consummate acquisitions at our historical rate and appropriate prices, and to make appropriate investments that support our long-term strategy, could negatively impact our business. Our acquisition of businesses, investments, joint ventures and other strategic relationships could also negatively impact our business and financial statements and our indemnification rights may not fully protect us from liabilities related thereto. •Divestitures or other dispositions could negatively impact our business, and contingent liabilities from businesses that we or our predecessors dispose could adversely affect our business and financial statements. For example, we could incur significant liability if any of the split-off or spin-off transactions we have consummated or will consummate are determined to be a taxable transaction or otherwise pursuant to our indemnification obligations with respect to such transactions. Please see Part II-Item 1A of this report for additional details regarding risks related to the planned separation of our Environmental & Applied Solutions segment. Operational Risks
•Significant disruptions in, or breaches in security of, our information technology systems or data; other losses or disruptions due to catastrophe; and labor disputes can all 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. •If we encounter problems manufacturing products, fail or are unable to adjust our manufacturing capacity or related purchases to reflect changing conditions, or suffer disruptions due to sole or limited sources of supply or due to limited availability of labor, our business and financial statements may suffer. Adverse changes with respect to key distributors and other channel partners can also adversely affect our business and financial statements.
•Climate change, or legal or regulatory measures to address climate change, may negatively affect us.
•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.
Intellectual Property Risks
•Any inability to adequately protect or avoid third-party infringement of our
intellectual property, and third-party claims we are infringing intellectual
property rights, can adversely affect our business and financial statements.
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Financial and Tax Risks
•Our outstanding debt has increased significantly as a result of acquisitions and we may incur additional debt in the future. Our existing and future indebtedness may limit our operations and our use of our cash flow and negatively impact our credit ratings; and any failure to comply with the covenants that apply to our indebtedness could adversely affect our business and financial statements. •Our business and financial statements can be adversely affected by foreign currency exchange rates, changes in our tax rates (including as a result of changes in tax laws) or income tax liabilities/assessments, the outcome of tax audits or litigation, financial market risks related to our defined benefit pension plans, recognition of impairment charges for our goodwill or other intangible assets and fluctuations in the cost and availability of commodities.
Legal, Regulatory, Compliance and Reputational Risks
•Our businesses are subject to extensive regulation (including regulations applicable to the healthcare industry). Failure to comply with those regulations (including by our employees, agents or business partners) or significant developments or changes inU.S. laws or policies can adversely affect our business and financial statements. Changes in governmental regulations can also reduce demand for our offerings or increase our expenses. •With respect to the regulated medical devices we offer, certain modifications to such products may require new regulatory clearance (such as 510(k) clearances) or other marketing authorizations and may require us to recall or cease marketing such products; off-label marketing of such products could result in liabilities; and clinical trials we conduct with respect to such products or potential products may have results that are unexpected or are perceived unfavorably by the market, all of which 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.
•Our operations, products and services also expose us to the risk of environmental, health and safety liabilities, costs and violations that could adversely affect our business and financial statements.
•Our By-law exclusive forum provisions could limit our stockholders' ability to choose their preferred judicial forum for disputes with us or our directors, officers or employees. See Part I-Item 1A of the Company's 2021 Annual Report and Part II-Item 1A of this report for further discussion regarding reasons that actual results may differ materially from the results, developments and business decisions contemplated by our forward-looking statements. Forward-looking statements speak only as of the date of the report, document, press release, webcast, call, materials or other communication in which they are made. Except to the extent required by applicable law, we do not assume any obligation to update or revise any forward-looking statement, whether as a result of new information, future events and developments or otherwise.
OVERVIEW
General
As a result of the Company's geographic and industry diversity, the Company
faces a variety of opportunities and challenges, including rapid technological
development in most of the Company's served markets, the expansion and evolution
of opportunities in high-growth markets, trends and costs associated with a
global labor force, consolidation of the Company's competitors and increasing
regulation. The Company operates in a highly competitive business environment
in most markets, and the Company's long-term growth and profitability will
depend in particular on its ability to expand its business in high-growth
geographies and high-growth market segments, identify, consummate and integrate
appropriate acquisitions and identify and consummate appropriate investments and
strategic partnerships, develop innovative and differentiated new products and
services with higher gross profit margins, expand and improve the effectiveness
of the Company's sales force, continue to reduce costs and improve operating
efficiency and quality and effectively address the demands of an increasingly
regulated global environment. The Company is making significant investments,
organically and through acquisitions and investments, to address the rapid pace
of technological change in its served markets and to globalize its
manufacturing, research and development and customer-facing resources
(particularly in high-growth markets) to be responsive to the Company's
customers throughout the world and improve the efficiency of the Company's
operations.
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Business Performance and Outlook
During the third quarter of 2022, the Company's overall revenues increased 6.0% compared to the comparable period of 2021. Core sales increased 10.0% in the third quarter of 2022 compared to the comparable prior year period and acquisitions contributed 1.5% to the increase in revenues. The impact of currency translation decreased reported sales 5.5%. For the nine-month period endedSeptember 30, 2022 , overall revenues increased 8.5%. Core sales increased 10.5% in the nine-month period endedSeptember 30, 2022 compared to the comparable prior year period and acquisitions contributed 2.0% to the increase in revenues. The impact of foreign currency exchange rates decreased revenues by 4.0%. For the definition of "core sales" refer to "-Results of Operations" below. Geographically, the Company saw increases in core sales in both developed markets and the high-growth markets during the third quarter of 2022 compared to the third quarter of 2021. Developed markets core sales grew at a mid-teens rate, driven primarily by high-teens core sales growth inNorth America and high-single digit core sales growth inWestern Europe . High-growth markets core sales grew mid-single digits, driven primarily by high-single digit core sales growth inChina . High-growth markets represented approximately 30% of the Company's total sales in the third quarter of 2022. For additional information regarding the Company's sales by geographical region during the three and nine-month periods endedSeptember 30, 2022 andOctober 1, 2021 , refer to Note 5 to the accompanying Consolidated Condensed Financial Statements. The Company's net earnings from continuing operations for the three and nine-month periods endedSeptember 30, 2022 totaled approximately$1.6 billion and$5.0 billion , respectively, and the Company's net earnings from continuing operations for the three and nine-month periods endedOctober 1, 2021 totaled approximately$1.2 billion and$4.6 billion , respectively. Net earnings attributable to common stockholders for the three and nine-month periods endedSeptember 30, 2022 totaled approximately$1.6 billion or$2.10 per diluted common share and$4.9 billion or$6.67 per diluted common share, respectively, compared to approximately$1.1 billion or$1.54 per diluted common share and$4.5 billion or$6.22 per diluted common share, respectively, for the three and nine-month periods endedOctober 1, 2021 . Increased core sales and the impact of the third quarter 2021 modification and partial termination of a prior commercial arrangement and resolution of the associated litigation, partially offset by the adverse impact of foreign currency exchange rates, investment losses, higher material, transportation and labor costs and higher restructuring and productivity improvement initiatives in the 2022 periods drove the year-over-year increase in net earnings from continuing operations and diluted net earnings per common share from continuing operations for both the three and nine-month periods endedSeptember 30, 2022 . During the three and nine-month periods endedSeptember 30, 2022 , supply chain disruptions (including in some cases shortages of supply, cost inflation and shipping delays), labor availability constraints and labor costs impacted a number of the Company's businesses, however the Company experienced fewer supply chain disruptions in the third quarter of 2022 compared to the second quarter of 2022. During this period, logistics improved as freight costs began to stabilize and material availability experienced modest improvements, although certain electronic components remained difficult to procure. Through the application of DBS tools and processes (including price increases), the Company largely mitigated the impact of these pressures on the Company's profitability and as a result such disruptions did not have a material adverse effect on the business in the three and nine-month periods endedSeptember 30, 2022 . In 2022, various central banks around the world (including theFederal Reserve in theU.S. ) raised interest rates. While these rate increases have not had a significant adverse impact on the Company to date, the impact of such rate increases on the overall financial markets and the economy may adversely impact the Company in the future. The Company continues to monitor these supply chain, inflation and interest rate factors, as well as the uncertainty resulting from the overall economic environment. Russia-Ukraine Conflict In response to the ongoing conflict inUkraine , in addition to suspending sales prohibited by sanctions, the Company has suspended the shipment of products toRussia with the exception of products for the purposes of diagnosing and treating patients and producing vaccines and therapeutics. In the first quarter of 2022, the Company recorded a pretax charge of$43 million , primarily related to the impairment of accounts receivable and inventory, as well as accruals for contractual obligations related to Russian operations.Russia has significantly reduced the export of natural gas toEurope , resulting in increased natural gas prices and a reduced supply of natural gas. If this trend continues, the Company's European manufacturing facilities would face increased costs and risks of production disruptions. The Company's European customers and suppliers would experience similar adverse impacts, which could further adversely impact the Company's supply chain and also adversely impact the demand for its products. The Company will continue monitoring the military, social, political, regulatory and economic environment inUkraine andRussia and its broader impacts, and will consider further actions as appropriate.
The COVID-19 Pandemic
The Company continues to actively monitor the COVID-19 pandemic, including the
current spread of certain variants of the virus and plan for potential impacts
on its business. The Company is also deploying our capabilities, expertise and
scale to
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address the critical health needs related to COVID-19, including developing and making available diagnostic tests for the rapid detection of COVID-19 as well as providing critical support to firms that are developing and producing vaccines and therapies for COVID-19. While conditions related to the pandemic generally have improved in 2022 compared to 2021, conditions vary significantly by geography. For example, late in the first quarter of 2022, an increase of COVID-19 related cases in certain parts ofChina resulted in the re-imposition of widespread shut-downs and restrictions which continued through most of the second quarter of 2022. During the third quarter of 2022,China experienced additional intermittent shut-downs and restrictions, however, the Company's operations were not significantly impacted. The extent to which these restrictions may recur in the future and the resulting impact to the Company will depend upon the prevalence of COVID-19 in the impacted regions ofChina . Due to the speed with which the COVID-19 situation continues to evolve, the global breadth of its spread, the range of governmental and community responses thereto and our geographic and business line diversity, its further impact on our business remains highly uncertain, but may be materially negative to certain elements of our business. The potential negative impact will depend on future developments including but not limited to:
•the degree of spread and severity of COVID-19 variants and government responses thereto;
•the timing and durability of continued recovery in the global demand for our non-COVID-19 related products and services; and
•the degree of ongoing demand for products supporting COVID-19 testing and for products related to developing and producing vaccines and therapies for COVID-19.
For additional information on the risks of COVID-19 to the Company's operations, refer to the "Item 1A. Risk Factors" section of the Company's 2021 Annual Report.
Acquisitions and Proposed Separation of the Environmental & Applied Solutions Business
During the nine-month period endedSeptember 30, 2022 , the Company acquired five businesses for total consideration of$304 million in cash, net of cash acquired. The businesses acquired complement existing units of the Company's Life Science and Environmental & Applied Solutions segments. The aggregate annual sales of the five businesses acquired in 2022 at the time of acquisition, in each case based on the company's revenues for its last completed fiscal year prior to the acquisition, were$53 million .
For a description of Danaher's plan to separate its Environmental & Applied Solutions business into a publicly traded company, see "Results of Operations-Environmental & Applied Solutions."
Currency Exchange Rates On a year-over-year basis, currency exchange rates negatively impacted reported sales by approximately 5.5% and 4.0% for the three and nine-month periods endedSeptember 30, 2022 , respectively, compared to the comparable periods of 2021, primarily due to the strengthening of theU.S. dollar against the euro and most other major currencies in 2022. If the currency exchange rates in effect as ofSeptember 30, 2022 were to prevail throughout the remainder of 2022, currency exchange rates would decrease the Company's fourth quarter 2022 sales by approximately 6.0% and full year sales by approximately 4.5% on a year-over-year basis. FromSeptember 30, 2022 through the date of this Report, theU.S. dollar continued to strengthen compared to other major currencies including the euro. Any further strengthening of theU.S. dollar against major currencies would adversely impact the Company's sales and results of operations for the remainder of the year, and any weakening of theU.S. dollar against major currencies would positively impact the Company's sales and results of operations for the remainder of the year. RESULTS OF OPERATIONS Non-GAAP Measures In this report, references to the non-GAAP measures of core sales (also referred to as core revenues or sales/revenues from existing businesses) refer to sales calculated according toU.S. GAAP, but excluding:
•sales from acquired businesses (as defined below, as applicable); and
•the impact of currency translation.
References to sales or operating profit attributable to acquisitions or acquired
businesses refer to sales or operating profit, as applicable, from acquired
businesses recorded prior to the first anniversary of the acquisition less any
sales and operating profit,
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during the applicable period, attributable to divested product lines not considered 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)); and
•the period-to-period change in revenue (excluding sales from acquired businesses (as defined above)) 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, and may not be comparable to similarly titled
measures reported by other companies. Management believes that reporting this
non-GAAP financial measure provides useful information to investors by helping
identify underlying growth trends in Danaher's business and facilitating
comparisons of Danaher's revenue performance with its performance in prior and
future periods and to Danaher's peers. Management also uses this non-GAAP
financial measure to measure the Company's operating and financial performance
and uses core sales growth as one of the performance measures in the Company's
executive short-term cash incentive compensation program. The Company excludes
the effect of currency translation from this measure 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.
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 the Danaher Business System.
Core Sales Growth
% Change Three-Month % Change Nine-Month
Period Ended September Period Ended September
30, 2022 vs. Comparable 30, 2022 vs.
2021 Period Comparable 2021 PeriodTotal sales growth (GAAP) 6.0 % 8.5 % Impact of: Acquisitions/divestitures (1.5) % (2.0) % Currency exchange rates 5.5 % 4.0 % Core sales growth (non-GAAP) 10.0 % 10.5 % 2022 Sales Compared to 2021 Total sales increased 6.0% and 8.5% during the three and nine-month periods endedSeptember 30, 2022 compared to the three and nine-month periods endedOctober 1, 2021 , respectively, primarily as a result of the increase in core sales resulting from the factors discussed below by segment as well as increases in sales from acquired businesses. The impact of currency translation decreased reported sales 5.5% and 4.0% on a year-over-year basis during the three and nine-month periods endedSeptember 30, 2022 , respectively, primarily due to the unfavorable impact of the strengthening of theU.S. dollar against the euro and most other major currencies in 2022 versus the comparable periods of 2021. Price increases contributed 4.5% and 3.5% to sales growth on a year-over-year basis during the three and nine-month periods endedSeptember 30, 2022 , respectively, and are reflected as a component of core sales growth above.
Operating Profit Performance
Operating profit margins increased 820 basis points from 18.1% during the
three-month period ended
Third quarter 2022 vs. third quarter 2021 operating profit margin comparisons were favorably impacted by:
•Third quarter 2021 impact of the modification and partial termination of a prior commercial arrangement and resolution of the associated litigation - 755 basis points •Third quarter 2021 acquisition-related fair value adjustments to inventory and transaction costs deemed significant related to the acquisition ofAldevron - 65 basis points 31
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•Higher third quarter 2022 core sales and the impact of product mix, net of incremental year-over-year costs associated with sales and marketing growth initiatives, material, transportation and labor costs and restructuring and continuing productivity improvement initiatives - 50 basis points
Third quarter 2022 vs. third quarter 2021 operating profit margin comparisons were unfavorably impacted by:
•Incremental dilutive effect in 2022 of acquired businesses - 50 basis points
Operating profit margins increased 280 basis points from 24.9% during the
nine-month period ended
Year-to-date 2022 vs. Year-to-date 2021 operating profit margin comparisons were favorably impacted by:
•Third quarter 2021 impact of the modification and partial termination of a prior commercial arrangement and resolution of the associated litigation - 255 basis points •Higher 2022 core sales and the impact of product mix, net of incremental year-over-year costs associated with various new product development, sales and marketing growth initiatives, material, transportation and labor costs and restructuring and continuing productivity improvement initiatives in the first nine months of 2022- 35 basis points
•First nine months of 2021 acquisition-related fair value adjustments to inventory and deferred revenue related to the acquisition of Cytiva - 25 basis points
•First nine months of 2021 acquisition-related fair value adjustments to
inventory and transaction costs deemed significant related to the acquisition of
Year-to-date 2022 vs. Year-to-date 2021 operating profit margin comparisons were unfavorably impacted by:
•Incremental dilutive effect in 2022 of acquired businesses, net of product line dispositions which did not qualify as discontinued operations - 40 basis points
•First nine months of 2022 impairment of accounts receivable and inventory as
well as accruals for contractual obligations in
Business Segments
Sales by business segment for each of the periods indicated were as follows ($
in millions):
Three-Month Period Ended Nine-Month Period Ended
September 30, September 30,
2022 October 1, 2021 2022 October 1, 2021
Life Sciences $ 3,776 $ 3,632 $ 11,625 $ 10,912
Diagnostics 2,679 2,449 7,884 6,963
Environmental & Applied Solutions 1,208 1,148 3,593 3,430
Total $ 7,663 $ 7,229 $ 23,102 $ 21,305
For information regarding the Company's sales by geographical region, refer to Note 5 to the accompanying Consolidated Condensed Financial Statements.
LIFE SCIENCES
The Life Sciences segment offers a broad range of instruments and consumables
that are primarily used by customers to study the basic building blocks of life,
including genes, proteins, metabolites and cells, in order to understand the
causes of disease, identify new therapies and test and manufacture new drugs and
vaccines.
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Life Sciences Selected Financial Data
Three-Month Period Ended Nine-Month Period Ended
September 30,
($ in millions) 2022 October 1, 2021 September 30, 2022 October 1, 2021
Sales $ 3,776 $ 3,632 $ 11,625 $ 10,912
Operating profit 1,045 975 3,337 3,270
Depreciation 69 71 211 187
Amortization of intangible assets 300 298 931 855
Operating profit as a % of sales 27.7 % 26.8 % 28.7 % 30.0 %
Depreciation as a % of sales 1.8 % 2.0 % 1.8 % 1.7 %
Amortization as a % of sales 7.9 % 8.2 % 8.0 % 7.8 %
Core Sales Growth
% Change Three-Month % Change Nine-Month
Period Ended September Period Ended September
30, 2022 vs. Comparable 30, 2022 vs.
2021 Period Comparable 2021 PeriodTotal sales growth (GAAP) 4.0 % 6.5 % Impact of: Acquisitions/divestitures (2.5) % (3.5) % Currency exchange rates 6.5 % 4.5 % Core sales growth (non-GAAP) 8.0 % 7.5 % Price increases in the segment contributed 5.5% and 4.0% to sales growth on a year-over-year basis during the three and nine-month periods endedSeptember 30, 2022 , respectively, and are reflected as a component of core sales growth. Total segment sales increased 4.0% and 6.5% during the three and nine-month periods, respectively, led by increased core sales resulting from the factors discussed below as well as the impact of the acquisition ofAldevron L.L.C. (for a description of the Aldevron Acquisition, refer to Note 2 in the Company's 2021 Annual Report), partially offset by the impact of changes in currency exchange rates. Core sales in the bioprocess business increased during the three and nine-month periods with continued strong underlying demand for non-COVID-19 related instruments and consumables offsetting a decline in sales of instruments and consumables used in the research and development of COVID-19-related treatments and vaccines and the completion of a major project in the first nine months of 2021. Geographically, core sales in the business in the three and nine-month periods were led byNorth America andWestern Europe . Core sales for filtration, separation and purification technologies increased in the three and nine-month periods of 2022 versus the comparable periods in 2021, led byNorth America ,Western Europe and high-growth markets in both periods. Demand for these products in both periods was led by the biopharmaceuticals, microelectronics and aerospace end-markets. Demand for the Company's flow cytometry, genomics, lab automation, centrifugation, particle counting and characterization business was flat in the three-month period and decreased in the nine-month period, primarily as a result of declines inWestern Europe due to lower demand for genomic sample preparation consumables used in COVID-19 testing, partially offset by core sales growth in all other major product lines. Core sales in the mass spectrometry business increased during both the three and nine-month periods across most major end-markets and geographies driven in part by demand from recent product launches.
Operating Profit Performance
Operating profit margins increased 90 basis points during the three-month period
ended
Third quarter 2022 vs. third quarter 2021 operating profit margin comparisons were favorably impacted by:
•Third quarter 2021 acquisition-related fair value adjustments to inventory and transaction costs deemed significant related to the acquisition ofAldevron - 125 basis points •Higher third quarter 2022 core sales and the impact of product mix, net of incremental year-over-year costs associated with material, transportation and labor, restructuring and continuing productivity improvement initiatives and sales, sales and marketing growth initiatives - 30 basis points 33
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Third quarter 2022 vs. third quarter 2021 operating profit margin comparisons were unfavorably impacted by:
•The incremental dilutive effect in 2022 of acquired businesses - 65 basis points
Operating profit margins decreased 130 basis points during the nine-month period
ended
Year-to-date 2022 vs. Year-to-date 2021 operating profit margin comparisons were favorably impacted by:
•First nine months of 2021 acquisition-related fair value adjustments to inventory and deferred revenue related to the acquisition of Cytiva - 40 basis points
•First nine months of 2021 acquisition-related fair value adjustments to
inventory and transaction costs deemed significant related to the acquisition of
Year-to-date 2022 vs. Year-to-date 2021 operating profit margin comparisons were unfavorably impacted by:
•The incremental dilutive effect of 2022 of acquired businesses - 110 basis points
•The incremental year-over-year costs associated with various new product development, sales, service and marketing growth investments, incremental year-over-year material, transportation and labor costs, the impact of product mix and incremental year-over year costs associated with restructuring and continuing productivity improvement initiatives in the first nine months of 2022, net of the impact of higher 2022 core sales - 65 basis points
•First nine months of 2022 impairment of accounts receivable and inventory as
well as accruals for contractual obligations in
DIAGNOSTICS
The Diagnostics segment offers clinical instruments, reagents, consumables, software and services that hospitals, physicians' offices, reference laboratories and other critical care settings use to diagnose disease and make treatment decisions.
Diagnostics Selected Financial Data
Three-Month Period Ended Nine-Month Period Ended
September 30,
($ in millions) 2022 October 1, 2021 September 30, 2022 October 1, 2021
Sales $ 2,679 $ 2,449 $ 7,884 $ 6,963
Operating profit 761 145 2,447 1,420
Depreciation 98 105 290 300
Amortization of intangible assets 50 52 151 154
Operating profit as a % of sales 28.4 % 5.9 % 31.0 % 20.4 %
Depreciation as a % of sales 3.7 % 4.3 % 3.7 % 4.3 %
Amortization as a % of sales 1.9 % 2.1 % 1.9 % 2.2 %
Core Sales Growth
% Change Three-Month % Change Nine-Month
Period Ended September Period Ended September
30, 2022 vs. Comparable 30, 2022 vs.
2021 Period Comparable 2021 PeriodTotal sales growth (GAAP) 9.5 % 13.0 % Impact of: Acquisitions/divestitures (0.5) % (1.0) % Currency exchange rates 4.5 % 4.0 % Core sales growth (non-GAAP) 13.5 % 16.0 %
Price increases in the segment contributed 1.0% to sales growth on a
year-over-year basis during both the three and nine-month periods ended
Total segment sales increased 9.5% and 13.0% during the three and nine-month
periods, respectively, primarily as a result of increased core sales resulting
from the factors discussed below, particularly higher year-over-year core sales
of molecular
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diagnostics tests for COVID-19 which contributed significantly to overall segment core sales growth, partially offset by the impact of changes in currency exchange rates. During the three and nine-month periods, core sales in the molecular diagnostics business increased on a year-over-year basis led byNorth America andWestern Europe as the business experienced strong growth in sales of consumables. The increase was driven primarily by increased sales of diagnostic test solutions for COVID-19 as well as higher year-over-year demand for non-respiratory disease tests. Additional production capacity added in 2021 allowed the business to produce more diagnostic tests and meet continued strong demand by private and government customers. Core sales in the segment's clinical lab business grew on a year-over-year basis in the three and nine-month periods endedSeptember 30, 2022 . Core sales in the three-month period were driven by the high-growth markets (excludingChina ), partially offset byChina . Core sales in the nine-month period were driven byNorth America and the high-growth markets, partially offset byChina . The chemistry and immunoassay product lines drove core sales growth in both periods. Core sales in the acute care diagnostic business increased year-over-year in the three and nine-month periods primarily due to increased demand for its blood gas product line. Geographically, demand was driven byNorth America ,Western Europe andChina in both the three and nine-month periods. Core sales in the pathology business grew year-over-year driven by core histology and advanced staining instruments and consumables in both the three and nine-month periods endedSeptember 30, 2022 across all major geographies.
Operating Profit Performance
Operating profit margins increased 2,250 basis points during the three-month
period ended
Third quarter 2022 vs. third quarter 2021 operating profit margin comparisons were favorably impacted by:
•Third quarter 2021 impact of the modification and partial termination of a prior commercial arrangement and resolution of the associated litigation - 2,235 basis points •Higher third quarter 2022 core sales, the impact of product mix and lower incremental year-over-year costs associated with various new product development initiatives, net of incremental year-over-year costs associated with material, transportation and labor, restructuring and continuing productivity improvement initiatives and sales and marketing growth initiatives - 60 basis points
Third quarter 2022 vs. third quarter 2021 operating profit margin comparisons were unfavorably impacted by:
•The incremental dilutive effect in third quarter 2022 of acquired businesses - 45 basis points
Operating profit margins increased 1,060 basis points during the nine-month
period ended
Year-to-date 2022 vs. Year-to-date 2021 operating profit margin comparisons were favorably impacted by:
•Third quarter 2021 impact of the modification and partial termination of a prior commercial arrangement and resolution of the associated litigation - 785 basis points •Higher 2022 core sales and the impact of product mix, net of incremental year-over-year costs associated with material, transportation and labor, restructuring and continuing productivity improvement initiatives, sales and marketing growth initiatives and various new product development initiatives in the first nine months of 2022 - 255 basis points
•First quarter 2021 impairment charge related to a trade name - 15 basis points
•The incremental accretive effect in 2022 of acquired businesses - 10 basis points
Year-to-date 2022 vs. Year-to-date 2021 operating profit margin comparisons were unfavorably impacted by:
•2022 impairments of accounts receivable as well as accruals for contractual
obligations in
ENVIRONMENTAL & APPLIED SOLUTIONS
The Environmental & Applied Solutions segment offers products and services that
help protect precious resources and keep global food and water supplies safe.
The Company's water quality business provides instrumentation, consumables,
software, services and disinfection systems to help analyze, treat and manage
the quality of ultra-pure, potable, industrial, waste, ground, source and ocean
water in residential, commercial, municipal, industrial and natural resource
applications. The Company's product identification business provides
instruments, software, services and consumables for various color and appearance
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management, packaging design and quality management, packaging converting, printing, marking, coding and traceability applications for consumer, pharmaceutical and industrial products.
Environmental & Applied Solutions Selected Financial Data
Three-Month Period Ended Nine-Month Period Ended
September 30,
($ in millions) 2022 October 1, 2021 September 30, 2022 October 1, 2021
Sales $ 1,208 $ 1,148 $ 3,593 $ 3,430
Operating profit 286 256 829 821
Depreciation 10 11 31 33
Amortization of intangible assets 11 15 38 47
Operating profit as a % of sales 23.7 % 22.3 % 23.1 % 23.9 %
Depreciation as a % of sales 0.8 % 1.0 % 0.9 % 1.0 %
Amortization as a % of sales 0.9 % 1.3 % 1.1 % 1.4 %
Core Sales Growth
% Change Three-Month % Change Nine-Month
Period Ended September Period Ended September
30, 2022 vs. Comparable 30, 2022 vs.
2021 Period Comparable 2021 PeriodTotal sales growth (GAAP) 5.0 % 5.0 % Impact of: Acquisitions/divestitures - % 0.5 % Currency exchange rates 5.5 % 3.5 % Core sales growth (non-GAAP) 10.5 % 9.0 % Price increases in the segment contributed 9.0% and 7.5% to sales growth on a year-over-year basis during the three and nine-month periods endedSeptember 30, 2022 , respectively, and are reflected as a component of core sales growth.
Total segment sales increased 5.0% during both the three and nine-month periods primarily as a result of core sales growth driven by the factors discussed below, partially offset by the impact of changes in currency exchange rates.
Core sales in the segment's water quality businesses increased at a mid-teens and low-double digit rate during the three and nine-month periods endedSeptember 30, 2022 , respectively, compared to the comparable periods of 2021. Year-over-year core sales in the analytical instrumentation product line increased in both the three and nine-month periods driven by increased core sales in the municipal and industrial end-markets. Geographically, core sales increased across most major geographies. Core sales in the business' chemical treatment solutions product line increased during both the three and nine-month periods as a result of increased core sales across most major end-markets. Geographically, the increase in core sales of chemical treatment solutions was driven byNorth America andLatin America in both the three and nine-month periods. Core sales in the segment's product identification businesses grew at a low-single and mid-single digit rate during the three and nine-month periods endedSeptember 30, 2022 , respectively, compared to the comparable periods of 2021. Core sales in the marking and coding business increased during both the three and nine-month periods led by the food and beverage end-market in the three-month period and across all major end-markets in the nine-month period. Geographically, the increase in core sales for the marking and coding business in both the three and nine-month periods was led byNorth America ,Western Europe andLatin America . For the packaging and color solutions products and services, core sales increased in both the three and nine-month periods, geographically led byNorth America and the high-growth markets. InSeptember 2022 , the Company announced its intention to separate its Environmental & Applied Solutions business into a publicly traded company. The Environmental & Applied Solutions business had sales for the year endedDecember 31, 2021 of approximately$4.7 billion . The transaction is expected to be tax-free to the Company's shareholders. The Company is targeting to complete the separation of the Environmental & Applied Solutions business in the fourth quarter of 2023, subject to the satisfaction of certain conditions, including obtaining final approval from the Danaher Board of Directors, satisfactory completion of financing, receipt of tax opinions, receipt of favorable rulings from theIRS and receipt of other regulatory approvals. Until the completion of the separation, the Environmental & Applied Solutions business will be reported as continuing operations. 36
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Operating Profit Performance
Operating profit margins increased 140 basis points during the three-month
period ended
Third quarter 2022 vs. third quarter 2021 operating profit margin comparisons were favorably impacted by:
•Higher third quarter 2022 core sales, incrementally lower year-over-year costs associated with various new product development initiatives and sales, service and marketing growth investments, net of incremental year-over-year costs associated with material, transportation and labor and restructuring and continuing productivity improvement initiatives - 135 basis points
•The incremental net accretive effect in 2022 of acquired businesses - 5 basis points
Operating profit margins decreased 80 basis points during the nine-month period
ended
Year-to-date 2022 vs. Year-to-date 2021 operating profit margin comparisons were favorably impacted by:
•The incremental net accretive effect in 2022 of acquired businesses and product line dispositions which did not qualify as discontinued operations - 25 basis points
Year-to-date 2022 vs. Year-to-date 2021 operating profit margin comparisons were unfavorably impacted by:
•Incremental year-over-year costs associated with various new sales, service and marketing growth investments, material, transportation and labor, the impact of product mix and incremental year-over year costs associated with restructuring and continuing productivity improvement initiatives in the first nine months of 2022, net of higher 2022 core sales - 80 basis points
•Second quarter 2022 impairment charge related to technology and customer relationships - 25 basis points
COST OF SALES AND GROSS PROFIT
Three-Month Period Ended Nine-Month Period Ended
($ in millions) September 30, 2022 October 1, 2021 September 30, 2022 October 1, 2021
Sales $ 7,663 $ 7,229 $ 23,102 $ 21,305
Cost of sales (3,079) (2,870) (9,092) (8,296)
Gross profit $ 4,584 $ 4,359 $ 14,010 $ 13,009
Gross profit margin 59.8 % 60.3 % 60.6 % 61.1 %
The year-over-year increase in cost of sales during both the three and
nine-month periods ended September 30, 2022 as compared to the comparable
periods in 2021, was due primarily to the impact of higher year-over-year sales
volumes, including sales from recently acquired businesses, and incremental
year-over-year costs associated with material, transportation, labor and
restructuring and continuing productivity improvement initiatives. Additionally,
cost of sales for the first nine months of 2022 included an inventory charge
related to reduction of business activities in Russia . These cost increases were
partially offset by the impact of acquisition-related charges associated with
fair value adjustments to inventory in connection with the acquisitions of
Aldevron and Cytiva which increased cost of sales by $17 million and $46 million
in the three and nine-month periods ended October 1, 2021 , respectively.
Year-over-year gross profit margins decreased during both the three and
nine-month periods ended September 30, 2022 as compared to the comparable
periods in 2021. The gross profit margins in both periods were negatively
impacted by incremental year-over-year costs associated with material,
transportation, labor and restructuring and continuing productivity improvement
initiatives. In addition, the gross profit margin for the first nine months of
2022 was negatively impacted by an inventory charge related to reduction of
business activities in Russia . Gross profit margins in both periods were
favorably impacted by increased core sales and product mix as well as the impact
of acquisition-related charges in the first nine months of 2021. The
acquisition-related charges included fair value adjustments to inventory in
connection with the acquisition of Aldevron during the third quarter of 2021 and
inventory and deferred revenue recorded in connection with the acquisition of
Cytiva during the first quarter of 2021, totaling $17 million and $63 million in
the three and nine-month periods, respectively.
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OPERATING EXPENSES
Three-Month Period Ended Nine-Month Period Ended
($ in millions) September 30, 2022 October 1, 2021 September 30, 2022 October 1, 2021
Sales $ 7,663 $ 7,229 $ 23,102 $ 21,305
Selling, general and administrative
("SG&A") expenses 2,149 2,062 6,326 5,904
Research and development ("R&D")
expenses 420 441 1,292 1,247
Other operating expenses - 547 - 547
SG&A as a % of sales 28.0 % 28.5 % 27.4 % 27.7 %
R&D as a % of sales 5.5 % 6.1 % 5.6 % 5.9 %
Other operating expenses as a % of sales - % 7.6 % - % 2.6 %
SG&A expenses as a percentage of sales declined slightly for both the three and
nine-month periods ended September 30, 2022 as compared to the comparable
periods in 2021, driven in both periods by the benefit of increased leverage of
the Company's general and administrative cost base, including amortization
expense, resulting from higher 2022 sales, including sales volumes from recently
acquired businesses, as well as the benefit from 2021 transaction costs for the
acquisition of Aldevron incurred in the third quarter of 2021. These declines
were partially offset in both the three and nine-month periods by continued
investments in sales and marketing growth initiatives, increased labor costs,
and incremental restructuring and continuing productivity improvement costs, as
well as higher amortization expense for the nine-month period. Additionally, the
declines were partially offset in the nine-month period by an impairment charge
related to technology and customer relationships incurred in the second quarter
of 2022, net of the impact of an impairment charge related to a trade name which
was incurred in the first quarter of 2021 and a charge related to impairments of
certain accounts receivable and accrual of contractual obligations incurred in
Russia during the first quarter of 2022.
R&D expenses (consisting principally of internal and contract engineering
personnel costs) as a percentage of sales declined during both the three and
nine-month periods ended
Other operating expenses and other operating expenses as a percentage of sales decreased during both the three and nine-month periods endedSeptember 30, 2022 as compared to the comparable periods of 2021 as a result of the 2021 contract settlement expense related to the modification and partial termination of a commercial arrangement and resolution of the associated litigation during the third quarter of 2021. Refer to Note 8 to the accompanying Consolidated Condensed Financial Statements.
OTHER INCOME (EXPENSE), NET
For a description of the Company's other income (expense), net during the three and nine-month periods endedSeptember 30, 2022 andOctober 1, 2021 , refer to Note 9 to the accompanying Consolidated Condensed Financial Statements.
INTEREST COSTS AND FINANCING
For a discussion of the Company's outstanding indebtedness, refer to Note 12 to the accompanying Consolidated Condensed Financial Statements.
In
Interest expense of$42 million and$147 million for the three and nine-month periods endedSeptember 30, 2022 , respectively, was$20 million lower and$35 million lower than the comparable periods of 2021, due primarily to lower average debt balances in the three and nine-month periods in 2022 versus the comparable periods of 2021 and the impact of the strongerU.S. dollar in 2022 on the interest expense for the Company's foreign currency denominated debt (andU.S. dollar debt that has been converted into a foreign currency through cross-currency swap derivative contracts). For a discussion of the Company's cross-currency swap derivative contracts, refer to Note 13 to the accompanying Consolidated Condensed Financial Statements.
Interest income of
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INCOME TAXES
The following table summarizes the Company's effective tax rate:
Three-Month Period Ended Nine-Month Period Ended
September 30, 2022 October 1, 2021 September 30, 2022 October 1, 2021
Effective tax rate 18.6 % 16.5 % 18.4 % 17.3 %
The Company operates globally, including in certain jurisdictions with lower tax
rates than the U.S. federal statutory rate. Therefore, the impact of operating
in such jurisdictions contributes to a lower effective tax rate compared to the
U.S. federal statutory tax rate.
The effective tax rate for the three-month period ended September 30, 2022
differs from the U.S. federal statutory rate of 21.0% principally due the
geographic mix of earnings described above and net discrete benefits of
$3 million related primarily to excess tax benefits from stock-based
compensation, partially offset by changes in estimates associated with prior
period uncertain tax positions. The net discrete benefits reduced the effective
tax rate by 0.2% for the three-month period ended September 30, 2022 .
The effective tax rate for the nine-month period ended September 30, 2022
differs from the U.S. federal statutory rate of 21.0% principally due to the
geographic mix of earnings described above and net discrete benefits of
$52 million related primarily to excess tax benefits from stock-based
compensation and changes in estimates associated with prior period uncertain tax
positions. The net discrete benefits reduced the effective tax rate by 0.9% for
the nine-month period ended September 30, 2022 .
The effective tax rate for the three-month period ended October 1, 2021 differs
from the U.S. federal statutory rate of 21.0% principally due to net discrete
benefits of $23 million related primarily to excess tax benefits from
stock-based compensation, audit settlements and a higher tax benefit associated
with the pretax expense in the quarter related to the modification and partial
termination of a commercial arrangement and resolution of the associated
litigation. These factors reduced the effective tax rate by 3.2% for the
three-month period ended October 1, 2021 .
The effective tax rate for the nine-month period ended October 1, 2021 differs
from the U.S. federal statutory rate of 21.0% principally due to net discrete
benefits of $143 million related primarily to release of reserves for uncertain
tax positions due to the expiration of statutes of limitation, audit
settlements, excess tax benefits from stock-based compensation and a higher tax
benefit associated with the pretax expense in the quarter related to the
modification and partial termination of a commercial arrangement and resolution
of the associated litigation, net of changes in estimates associated with prior
period uncertain tax positions. These factors reduced the effective tax rate by
2.9% for the nine-month period ended October 1, 2021 .
The Company conducts business globally, and files numerous consolidated and
separate income tax returns in federal, state and foreign jurisdictions. In
addition to the Company's significant presence in the U.S. , the Company also has
a significant presence in China , Denmark , Germany , Singapore , Sweden ,
Switzerland and the UK . Excluding these jurisdictions, the Company believes that
a change in the statutory tax rate of any individual foreign country would not
have a material impact on the Company's financial statements given the
geographical dispersion of the Company's taxable income.
The Company and its subsidiaries are routinely examined by various domestic and
international taxing authorities. The IRS has completed the examinations of
substantially all of the Company's federal income tax returns through 2015 and
is currently examining certain of the Company's federal income tax returns for
2016 through 2018. In addition, the Company has subsidiaries in Belgium , Canada ,
China , Denmark , France , Germany , India , Italy , Japan , Korea , Switzerland , the UK
and various other countries, states and provinces that are currently under audit
for years ranging from 2004 through 2020.
The Company expects its effective tax rate for the remainder of 2022 to be approximately 19.3%. The Company's effective tax rate could vary as a result of many factors, including but not limited to the following:
•The expected rate for the remainder of 2022 includes the anticipated discrete income tax benefits from excess tax deductions related to the Company's stock compensation programs, which are reflected as a reduction in tax expense, though the actual benefits (if any) will depend on the Company's stock price and stock option exercise patterns.
•The actual mix of earnings by jurisdiction could fluctuate from the Company's projection.
•The tax effects of other discrete items, including accruals related to tax contingencies, the resolution of worldwide tax matters, tax audit settlements, statute of limitations expirations and changes in tax regulations.
•Any future changes in tax law or the implementation of recently proposed increases in tax rates, the impact of future regulations and any related additional tax planning efforts to address these changes.
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As a result of the uncertainty in predicting these items, it is reasonably possible that the actual effective tax rate used for financial reporting purposes will change in future periods.
Refer to Note 7 to the Consolidated Condensed Financial Statements for discussion regarding the Company's significant tax matters.
DISCONTINUED OPERATIONS
OnJuly 2, 2016 , the Company completed the separation of its former Test & Measurement segment, Industrial Technologies segment (excluding the product identification businesses) and retail/commercial petroleum business by distributing to Danaher stockholders on a pro rata basis all of the issued and outstanding common stock of Fortive, the entity the Company incorporated to hold such businesses. For the nine-month period endedOctober 1, 2021 , the Company recorded an income tax benefit of$86 million related to the release of previously provided reserves associated with uncertain tax positions on certain of the Company's tax returns which were jointly filed with Fortive entities. These reserves were released due to the expiration of statutes of limitations for those returns. This income tax benefit is included in earnings from discontinued operations, net of income taxes in the accompanying Consolidated Condensed Statements of Earnings.
COMPREHENSIVE INCOME
In 2022, comprehensive income decreased$309 million for the three-month period endedSeptember 30, 2022 and decreased approximately$1.8 billion for the nine-month period endedSeptember 30, 2022 as compared to the comparable periods of 2021, primarily driven by increased losses from foreign currency translation adjustments and higher losses from cash flow hedge adjustments, partially offset by higher net earnings. The Company recorded foreign currency translation losses of approximately$1.0 billion and$2.8 billion for the three and nine-month periods endedSeptember 30, 2022 , respectively, as compared to losses of$396 million and$910 million for the three and nine-month periods endedOctober 1, 2021 , respectively. The Company recorded losses of$77 million and$31 million from cash flow hedge adjustments related to the Company's cross-currency swap derivative contracts for the three and nine-month periods endedSeptember 30, 2022 , respectively, as compared to a loss of$2 million and a gain of$184 million for the comparable periods of 2021.
LIQUIDITY AND CAPITAL RESOURCES
Management assesses the Company's liquidity in terms of its ability to generate
cash to fund its operating, investing and financing activities. The Company
continues to generate substantial cash from operating activities and believes
that its operating cash flow, cash on hand and other sources of liquidity will
be sufficient to allow it to continue investing in existing businesses
(including capital expenditures), consummating strategic acquisitions and
investments, paying interest and servicing debt, paying dividends, funding
restructuring activities, repurchasing common stock and managing its capital
structure on a short-term and long-term basis.
The Company has relied primarily on borrowings under its commercial paper
program to address liquidity requirements that exceed the capacity provided by
its operating cash flows and cash on hand, while also accessing the capital
markets from time to time including to secure financing for more significant
acquisitions. Subject to any limitations that may result from the COVID-19
pandemic or other market disruptions, the Company anticipates following the same
approach in the future.
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Overview of Cash Flows and Liquidity
Following is an overview of the Company's cash flows and liquidity ($ in
millions):
Nine-Month Period Ended
($ in millions) September
30, 2022
$ 6,025
Cash paid for acquisitions $ (304) $ (10,628)
Payments for additions to property, plant and equipment (823) (874)
Proceeds from sales of property, plant and equipment 9 13
Payments for purchases of investments (354) (784)
Proceeds from sales of investments 18 104
Proceeds from sale of product lines - 26
All other investing activities 36 35
Total cash used in investing activities for continuing operations
$ (1,418) $ (12,108)
Proceeds from the issuance of common stock in connection with stock-based compensation, net
$ 15 $ 63
Payment of dividends (615) (551)
Net (repayments of) proceeds from borrowings (maturities of 90 days or less)
(719) 3,496
Net repayments of borrowings (maturities longer than 90 days) (265)
(279)
All other financing activities (80) (12)
Total cash (used in) provided by financing activities for continuing operations
$ (1,664) $ 2,717 •Operating cash flows from continuing operations decreased$47 million , or 1%, during the nine-month period endedSeptember 30, 2022 as compared to the comparable period of 2021, as higher net earnings from continuing operations (after excluding in both periods charges for depreciation, amortization (including intangible assets and inventory step-up), stock compensation, gain on sale of product lines and unrealized investment gains/losses in both periods and the contract settlement expense in 2021) were more than offset by higher cash used in aggregate for accounts receivables, inventories, trade accounts payable and accrued and prepaid expenses in 2022 compared to the prior year. •Net cash used in investing activities for continuing operations consisted primarily of investments and capital expenditures and decreased year-over-year primarily as a result of lower cash paid for acquisitions and investments in the 2022 period compared to 2021. Refer to Note 2 to the accompanying Consolidated Condensed Financial Statements for information on the Company's acquisitions.
•As of
Operating Activities Cash flows from operating activities provided by continuing operations can fluctuate significantly from period-to-period as working capital needs and the timing of payments for income taxes, restructuring activities and productivity improvement initiatives, pension funding and other items impact reported cash flows. Operating cash flows from continuing operations were approximately$6.0 billion for the first nine months of 2022, a decrease of$47 million , or 1%, as compared to the comparable period of 2021. The year-over-year change in operating cash flows from 2021 to 2022 was primarily attributable to the following factors: •2022 operating cash flows reflected an increase of$418 million in net earnings from continuing operations for the first nine months of 2022 as compared to the comparable period in 2021. •Net earnings for the first nine months of 2022 also reflected an increase of$128 million of depreciation, intangible asset amortization, stock compensation expense and unrealized investment gains/losses and the gain on sale of product lines as compared to the comparable period of 2021, net of a decrease in amortization of an acquisition-related inventory step-up and contract settlement expense in 2022 compared to 2021. Amortization expense primarily relates to the amortization of intangible assets and inventory fair value adjustments. Depreciation expense relates to both the Company's manufacturing and operating facilities as well as instrumentation leased to customers under operating-type 41
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lease arrangements. Contract settlement expense represents the pretax charge related to the modification and partial termination of the prior commercial arrangement and resolution of the associated litigation. Refer to Note 8 to the accompanying Consolidated Condensed Financial Statements for additional information on the contract settlement expense. Depreciation, amortization and stock compensation are noncash expenses that decrease earnings without a corresponding impact to operating cash flows. Cash flows from the gain on sale of product lines are reflected in cash flows from investing activities while unrealized investment gains/losses impact net earnings without immediately impacting cash flows as the cash flow impact from investments occurs when the invested capital is returned to the Company. •The aggregate of trade accounts receivable, inventories and trade accounts payable used approximately$1.0 billion in operating cash flows during the first nine months of 2022, compared to$490 million of operating cash flows used in the comparable period of 2021. The amount of cash flow generated from or used by the aggregate of trade accounts receivable, inventories and trade accounts payable depends upon how effectively the Company manages the cash conversion cycle, which effectively represents the number of days that elapse from the day it pays for the purchase of raw materials and components to the collection of cash from its customers and can be significantly impacted by the timing of collections and payments in a period, as well as actions to increase inventory to mitigate supply chain disruptions. •The aggregate of prepaid expenses and other assets, deferred income taxes and accrued expenses and other liabilities used$69 million of operating cash flows during the first nine months of 2022, compared to$29 million of operating cash flows used in the comparable period of 2021. The timing of cash payments for various employee-related liabilities, customer funding and changes in accrued expenses drove the majority of this change.
Investing Activities
Cash flows relating to investing activities consist primarily of cash used for acquisitions and capital expenditures, including instruments leased to customers, cash used for investments and cash proceeds from divestitures of businesses or assets.
Net cash used in investing activities decreased approximately$10.7 billion in the nine-month period endedSeptember 30, 2022 compared to the comparable period of 2021, primarily as a result of cash used for the Company's acquisitions in the first nine months of 2021 exceeding the cash used for acquisitions in the first nine months of 2022. For a discussion of the Company's acquisitions during the first nine months of 2022 refer to "-Overview". In addition, in the first nine months of 2022 and 2021, the Company invested$354 million and$784 million , respectively, in non-marketable equity securities and partnerships. Capital expenditures are made primarily for increasing manufacturing capacity, replacing equipment, supporting new product development, improving information technology systems and the manufacture of instruments that are used in OTL arrangements that certain of the Company's businesses enter into with customers. Capital expenditures decreased$51 million on a year-over-year basis for the nine-month period endedSeptember 30, 2022 compared to the comparable period in 2021, due to higher 2021 expenditures related to diagnostic testing capacity and declines in expenditures for instruments used in operating-type lease arrangements, partially offset by incremental capital expenditures at Cytiva andAldevron . For the full year 2022, the Company forecasts capital spending to be approximately$1.5 billion , driven primarily by continued expenditures to support customer demand.
Financing Activities and Indebtedness
Cash flows relating to financing activities typically consist primarily of cash flows associated with the issuance and repayments of commercial paper, issuance and repayment of long-term debt, borrowings under committed credit facilities, issuance and repurchases of common stock, issuance of preferred stock and payments of cash dividends to shareholders. Financing activities used cash of approximately$1.7 billion during the nine-month period endedSeptember 30, 2022 compared to approximately$2.7 billion of cash provided in the comparable period of 2021. The year-over-year increase in cash used by financing activities was due primarily to repayment of borrowings in 2022. For a description of the Company's outstanding debt as ofSeptember 30, 2022 and the Company's commercial paper programs and credit facility, refer to Note 12 to the accompanying Consolidated Condensed Financial Statements. As ofSeptember 30, 2022 , the Company was in compliance with all of its respective debt covenants. All outstanding shares of the Company's 4.75% MCPS Series A converted to common shares onApril 15, 2022 at a rate of 6.6632 common shares per share of preferred stock. For a description of the conversion, refer to Note 16 in the accompanying Consolidated Condensed Financial Statements. 42 -------------------------------------------------------------------------------- Table of Contents Stock Repurchase Program
For information regarding the Company's stock repurchase program, refer to Part
II-Item 2, "Unregistered Sales of
Dividends
Aggregate cash payments for dividends on Company common stock during the nine-month period endedSeptember 30, 2022 were$511 million and aggregate cash payments for dividends on the Company's MCPS during the nine-month period endedSeptember 30, 2022 were$104 million . The increase in dividend payments for common stock over the comparable period of 2021 primarily relates to the increase in the quarterly dividend rate for common stock beginning with respect to the dividend paid in the second quarter of 2021. The decrease in MCPS dividend payments compared to the comparable period of 2021 primarily relates to the conversion of all outstanding shares of the Company's 4.75% MCPS Series A to common shares onApril 15, 2022 . The final quarterly cash dividend of$11.875 per share for 4.75% MCPS Series A shares was paid onApril 15, 2022 . In the third quarter of 2022, the Company declared a regular quarterly dividend of$0.25 per share of Company common stock payable onOctober 28, 2022 to holders of record as ofSeptember 30, 2022 . In addition, the Company declared a quarterly cash dividend of$12.50 per MCPS Series B that was paid onOctober 15, 2022 to holders of record as ofSeptember 30, 2022 .
Cash and Cash Requirements
As ofSeptember 30, 2022 , the Company held approximately$5.2 billion of cash and cash equivalents that were held on deposit with financial institutions or invested in highly liquid investment-grade debt instruments with a maturity of 90 days or less. Of the cash and cash equivalents, approximately$2.9 billion was held withinthe United States and approximately$2.3 billion was held outside ofthe United States . The Company will continue to have cash requirements to support general corporate purposes, which may include working capital needs, capital expenditures, acquisitions and investments, paying interest and servicing debt, paying taxes and any related interest or penalties, funding its restructuring activities and pension plans as required, paying dividends to shareholders, repurchasing shares of the Company's common stock and supporting other business needs. The Company generally intends to use available cash and internally generated funds to meet these cash requirements, but in the event that additional liquidity is required, the Company may also borrow under its commercial paper programs (if available) or borrow under the Company's Five-Year Facility, enter into new credit facilities and either borrow directly thereunder or use such credit facilities to backstop additional borrowing capacity under its commercial paper programs (if available) and/or access the capital markets (if available). The Company also may from time to time seek to access the capital markets to take advantage of favorable interest rate environments or other market conditions. With respect to the commercial paper and other notes scheduled to mature during the remainder of 2022, the Company expects to repay the principal amounts when due using available cash, proceeds from new issuances of commercial paper (if available), drawing on its Five-Year Facility and/or proceeds from other debt issuances. While repatriation of some cash held outsidethe United States may be restricted by local laws, most of the Company's foreign cash could be repatriated tothe United States . Following enactment of the Tax Cuts and Jobs Act and the associated Transition Tax, in general, repatriation of cash tothe United States can be completed with no incrementalU.S. tax; however, repatriation of cash could subject the Company to non-U.S. taxes on distributions. The cash that the Company's non-U.S. subsidiaries hold for indefinite reinvestment is generally used to finance foreign operations and investments, including acquisitions. The income taxes, if any, applicable to such earnings including basis differences in our foreign subsidiaries are not readily determinable. As ofSeptember 30, 2022 , management believes that it has sufficient sources of liquidity to satisfy its cash needs, including its cash needs inthe United States . For information on the second quarter repatriation of cash held outsidethe United States , refer to "-Interest Costs and Financing." During 2022, the Company's cash contribution requirements for itsU.S. and non-U.S. defined benefit pension plans are forecasted to be approximately$10 million and$41 million , respectively. The ultimate amounts to be contributed depend upon, among other things, legal requirements, underlying asset returns, the plan's funded status, the anticipated tax deductibility of the contribution, local practices, market conditions, interest rates and other factors.
CRITICAL ACCOUNTING ESTIMATES
There have been no material changes to the Company's critical accounting estimates as described in the 2021 Annual Report.
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