Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 ended December 31, 2020, included in the Company’s 2020 Annual Report and the Company’s Consolidated Condensed Financial Statements and related Notes as of and for the three and nine-month periods ended October 1, 2021 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 the Securities and Exchange Commission (“SEC”), in our press releases, webcasts, conference calls, materials delivered to shareholders and other communications, are “forward-looking statements” within the meaning of the U.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 or other distributions, strategic opportunities, securities offerings, stock repurchases, dividends and executive compensation; growth, declines and other trends in markets we sell into; new or modified laws, regulations and accounting pronouncements; future regulatory approvals and the timing and conditionality thereof; outstanding claims, legal proceedings, tax audits and assessments and other contingent liabilities; future foreign currency exchange rates and fluctuations in those rates; the potential or anticipated direct or indirect impact of COVID-19 on our business, results of operations and/or financial condition; general economic and capital markets conditions; the anticipated timing of any of the foregoing; assumptions underlying any of the foregoing; and any other statements that address events or developments that Danaher intends or believes will or may occur in the future. Terminology such as “believe,” “anticipate,” “should,” “could,” “intend,” “will,” “plan,” “expect,” “estimate,” “project,” “target,” “may,” “possible,” “potential,” “forecast” and “positioned” and similar references to future periods are intended to identify forward-looking statements, although not all forward-looking statements are accompanied by such words.

Forward-looking statements are based on assumptions and assessments made by our management in light of their experience and perceptions of historical trends, current conditions, expected future developments and other factors. Forward-looking statements are not guarantees of future performance and actual results may differ materially from the results, developments and business decisions contemplated by our forward-looking statements. Accordingly, you should not place undue reliance on any

such forward-looking statements. Important factors that in some cases have affected us in the past and that in the future could cause actual results to differ materially from those envisaged in the forward-looking statements include the following:

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 remain highly uncertain and unpredictable.
Conditions in the global economy, 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 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 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.
International economic, political, legal, compliance, social and business factors (including without limitation the impact of the United Kingdom’s departure from the European 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 can fail to perform sufficiently.

Acquisitions, Divestitures and Investment Risks

Any inability to consummate acquisitions at our historical rate and at appropriate prices, and to make appropriate investments that support our long-term strategy, could negatively impact our growth rate and stock price. In addition, our acquisition of businesses, investments, joint ventures and other strategic relationships could negatively impact our business and financial statements and our indemnification rights do not always fully protect us from liabilities we may incur related to such transactions.
Divestitures or other dispositions could negatively impact our business, and contingent liabilities from businesses that we or our predecessors have disposed could adversely affect our business and financial statements. For example, we could incur significant liability if any of the split-off or spin-off transactions we have consummated is determined to be a taxable transaction or otherwise pursuant to our indemnification obligations with respect to such transactions.

Operational Risks

Significant disruptions or vulnerabilities in, or breaches in security of, our information technology systems, controls 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 to adjust our manufacturing capacity or related purchases to reflect changing conditions, or suffer disruptions due to sole or limited sources of supply, 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.
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 that we are infringing their intellectual property rights, can adversely affect our business and financial statements.

Financial and Tax Risks

Our outstanding debt has increased significantly as a result of the acquisitions of Cytiva and Aldevron. 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, 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 without limitation regulations applicable to the healthcare industry). Failure to comply with those regulations (including without limitation by our employees, agents or business partners) or significant developments or changes in U.S. laws or policies can adversely affect our business and financial statements. Changes in governmental regulations can also reduce demand for our products or services or increase our expenses.
With respect to the regulated medical devices we offer, certain modifications to such products may require new 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 substantial penalties; 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 expose us to the risk of environmental, health and safety liabilities, costs and violations that could adversely affect our business and financial statements.

See Part I—Item 1A of the Company’s 2020 Annual 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 (particularly with respect to computing, automation, artificial intelligence, mobile connectivity, communications and digitization) in most of the Company’s served markets, the expansion and evolution of opportunities in high-growth markets, trends and costs associated with a global labor force, consolidation of the Company’s competitors and increasing regulation. The Company operates in a highly competitive business environment in most markets, and the Company’s long-term growth and profitability will depend in particular on its ability to expand its business in high-growth geographies and high-growth market segments, identify, consummate and integrate appropriate acquisitions 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) in order to be responsive to the Company’s customers throughout the world and improve the efficiency of the Company’s operations.

Business Performance and Outlook

During the third quarter of 2021, the Company’s overall revenues increased 23.0% compared to the comparable period of 2020. Foreign currency exchange rates contributed 1.5% and acquisitions contributed 1.0% to the increase in revenues. Core sales increased 20.5% in the third quarter of 2021 compared to the prior period. Beginning in the second quarter of 2021, Cytiva sales are included in core sales, and therefore we do not provide the measure “core sales including Cytiva” for quarterly periods beginning with the second quarter of 2021. For the nine-month period ended October 1, 2021, overall revenues increased by 37.0%, with foreign currency exchange rates increasing revenues by 2.5%. Acquisitions, primarily driven by Cytiva, contributed 10.0% of the increase in revenues in the nine-month period. Core sales increased 24.5% and core sales including Cytiva increased 27.0% in the nine-month period ended October 1, 2021 compared to the prior period. For the definition of “core sales” and “core sales including Cytiva” refer to “—Results of Operations” below.

Despite differences in our businesses, on an overall basis, the Company saw continued strong core sales growth in the third quarter of 2021. As the conditions related to the pandemic continued to improve in many geographies compared to conditions in 2020, the Company generally experienced increasing demand in the end-markets it serves. In addition to the impact of the improving pandemic conditions, COVID-19 related research and development among biotech and pharmaceutical customers continued to generate strong demand for bioprocessing and genomic products in the Company’s life science businesses and COVID-19 related testing generated strong demand in the Company’s molecular diagnostics business.

COVID-19 as well as broader market dynamics have also affected the ability of certain suppliers and vendors to provide products and services to certain of our businesses. While we have not experienced widespread disruption to our supply chain or labor availability, labor costs have increased in certain of our businesses and supply constraints have increased for certain components and commodities used in our operations. In certain instances these constraints have resulted in cost inflation and logistics delays. We are working with our suppliers to understand the existing and potential future impacts to our supply chain and are taking actions in an effort to mitigate such impacts, however, we expect these supply chain and labor availability pressures to continue.

Geographically, the Company saw increases in core sales in both developed markets and the high-growth markets. Developed markets grew at nearly 20% during the third quarter of 2021 compared to the third quarter of 2020, driven primarily by North America and Western Europe. High-growth markets increased nearly 25% during the third quarter of 2021 as compared to the comparable period of 2020, led primarily by growth in China. High-growth markets represented approximately 32% of the Company’s total sales in the third quarter of 2021. For additional information regarding the Company’s sales by geographical region during the three and nine-month periods ended October 1, 2021 and October 2, 2020, refer to Note 2 to the accompanying Consolidated Condensed Financial Statements.

The Company’s net earnings from continuing operations for the three and nine-month periods ended October 1, 2021 totaled approximately $1.2 billion and $4.6 billion, respectively, compared to $883 million and approximately $2.4 billion for the three and nine-month periods ended October 2, 2020. Net earnings attributable to common stockholders for the three and nine-month periods ended October 1, 2021 totaled approximately $1.1 billion or $1.54 per diluted common share and approximately $4.5 billion or $6.22 per diluted common share, respectively, compared to $842 million or $1.16 per diluted common share and approximately $2.3 billion or $3.22 per diluted common share for the three and nine-month periods ended October 2, 2020, respectively. Increased core sales and related earnings including the impact of Cytiva, partially offset by the impact of the modification and partial termination of a prior commercial arrangement and resolution of the associated litigation, are the primary drivers of 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 ended October 1, 2021.

While the ultimate impact of COVID-19 on the Company’s financial performance in future periods remains highly uncertain, the Company expects core sales to grow in the fourth quarter of 2021 compared to the prior year, but at lower year-over-year growth rates than experienced in the first nine months of 2021. Demand for products supporting customers in the pursuit and production of COVID-19-related treatments and vaccines as well as demand for consumables related to COVID-19-related testing capabilities are expected to continue in the fourth quarter of 2021. In addition, demand for the Company’s non-COVID-19 related products is expected to continue recovering, driving year-over-year core sales growth in the Company’s other businesses. As discussed below however, an increase of COVID-19 related cases and the re-imposition of significant government required restrictions could have a material negative impact on the Company’s financial statements.

The COVID-19 Pandemic

The global spread of a novel strain of COVID-19 has led to unprecedented restrictions on, and disruptions in, business and personal activities, including as a result of preventive and precautionary measures that we, other businesses, our communities and governments have taken and are taking to mitigate the spread of the virus and to manage its impact. The Company continues to actively monitor the pandemic, including the current spread of certain variants of the virus, and has taken and intends to continue taking steps to identify and mitigate the adverse impacts on, and risks to, the Company’s business (including but not limited to its employees, customers, business partners, manufacturing capabilities and capacity, and supply and distribution channels) posed by the spread of COVID-19 and the governmental and community responses thereto. The Company’s businesses have activated their business continuity plans as a result of this pandemic, including taking steps in an effort to help keep our workforce healthy and safe, and are assessing and updating those plans on an ongoing basis. As a result of COVID-19 the Company’s businesses have modified certain of their respective business practices and the Company expects to take such further actions as may be required by government authorities or as determined to be in the best interests of our employees, customers and other business partners. The Company has developed and is implementing return-to-workplace protocols designed to help ensure the health and safety of its employees, customers and business partners, for its businesses to apply as and when return-to-workplace is legally permissible and deemed appropriate. Given that the prevalence of COVID-19 and the nature of the response thereto (including the degree to which restrictions are being relaxed or re-imposed) varies significantly by geography, the impact of the pandemic on the Company’s different business locations around the world at any given time also varies significantly.

We are also deploying our capabilities, expertise and scale to address the critical health needs related to COVID-19. We have developed and made available diagnostic tests for the rapid detection of COVID-19 and a diagnostic test that can detect antibodies in blood to confirm current or past exposure to COVID-19. In addition, our businesses are providing critical support to firms that are developing and producing vaccines and therapeutics for COVID-19, among other support. As and to the extent the COVID-19 pandemic subsides we expect the demand for products and services related to COVID-19 will moderate, though when and to what level remains unclear.

As noted below and subject to the assumptions discussed below, the Company expects core sales to grow in the fourth quarter of 2021 compared to the prior year, driven by both continued demand for COVID-19 testing solutions and vaccines and therapeutics development and testing, as well as recovering demand in the Company’s other businesses. Although the conditions related to the pandemic generally appear to be improving, 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. Factors that will impact our future performance include, without limitation:

the timing and extent of continued recovery in the global demand for our non-COVID-19 related products and services; and
the level of demand for the products we are offering to help address the pandemic and the effects thereof; and impacts from changes in our production capacity and the mix of our product offerings.

Acquisitions

On August 30, 2021, the Company acquired Aldevron, L.L.C. (“Aldevron”) for a cash purchase price of approximately $9.6 billion (the “Aldevron Acquisition”). Aldevron manufactures high-quality plasmid DNA, mRNA and proteins, serving biotechnology and pharmaceutical customers across research, clinical and commercial applications, and is now part of the Company’s Life Sciences segment. Aldevron generated revenues of approximately $300 million in 2020. The acquisition of Aldevron is expected to provide additional sales and earnings opportunities for the Company by expanding product line diversity, including new product offerings supporting genomic medicine. The Company financed the Aldevron Acquisition using cash on hand and proceeds from the issuance of commercial paper. For a description of the Company’s other acquisitions, refer to Note 3 to the accompanying Consolidated Condensed Financial Statements.

In addition to the Aldevron Acquisition, during the nine-month period ended October 1, 2021, the Company acquired nine other businesses for total consideration of approximately $1.1 billion in cash, net of cash acquired. The businesses acquired complement existing units of each of the Company’s three segments. The aggregate annual sales of these nine businesses at the time of their acquisition, in each case based on the company’s revenues for its last completed fiscal year prior to the acquisition, were approximately $93 million.

Currency Exchange Rates

On a year-over-year basis, currency exchange rates positively impacted reported sales by approximately 1.5% and 2.5% for the three and nine-month periods ended October 1, 2021, respectively, compared to the comparable periods of 2020, primarily due to the weakening of the U.S. dollar against most major currencies in 2021. If the currency exchange rates in effect as of October 1, 2021 were to prevail throughout the remainder of 2021, currency exchange rates would increase the Company’s estimated full year sales by approximately 1.5% on a year-over-year basis. Any strengthening of the U.S. dollar against major currencies would adversely impact the Company’s sales and results of operations for the remainder of the year, and any further weakening of the U.S. dollar against major currencies would positively impact the Company’s sales and results of operations for the remainder of the year.

United Kingdom’s Exit From the EU

The United Kingdom (“UK”) ceased to be a member state of the EU on January 31, 2020 (commonly referred to as “Brexit”), and the parties have agreed to and ratified a trade and cooperation agreement.

The Company continues to monitor the ramifications of Brexit and plan for potential impacts on its business. To mitigate the potential impact of Brexit on the import of goods to the UK, the Company continues to strategically manage its inventory levels and logistical channels with respect to the UK. While the Company experienced only minor disruptions related to Brexit during the nine-month period ended October 1, 2021, the ultimate impact of Brexit on the Company’s financial results in future periods is uncertain. For additional information, refer to the “Item 1A-Risk Factors” section of the Company’s 2020 Annual Report.

RESULTS OF OPERATIONS

Non-GAAP Measures

In this report, references to the non-GAAP measures of core sales (also referred to as core revenues or sales/revenues from existing businesses) and core sales including Cytiva refer to sales calculated according to U.S. GAAP, but excluding:

sales from acquired businesses (as defined below, as applicable); and
the impact of currency translation.

References to sales or operating profit attributable to acquisitions or acquired businesses refer to sales or operating profit, as applicable, from acquired businesses recorded prior to the first anniversary of the acquisition less any sales and operating profit during the applicable period attributable to divested product lines not considered discontinued operations; provided that in calculating core sales including Cytiva, Cytiva’s sales (net of the sales of the Company product lines divested in 2020 to obtain regulatory approval to acquire Cytiva, or the “divested product lines”) (“Cytiva sales”) are excluded from the definition of sales attributable to acquisitions or acquired businesses. The portion of revenue attributable to currency translation is calculated as the difference between:

the period-to-period change in revenue (excluding sales from acquired businesses (as defined above, as applicable)); and
the period-to-period change in revenue (excluding sales from acquired businesses (as defined above, as applicable)) after applying current period foreign exchange rates to the prior year period.

As noted above, beginning with results for the second quarter of 2020, the Company also presents core sales on a basis that includes Cytiva sales. Prior to the acquisition of Cytiva, Danaher calculated core sales growth solely on a basis that excluded sales from acquired businesses recorded prior to the first anniversary of the acquisition. However, given Cytiva’s significant size and historical core sales growth rate, in each case compared to Danaher’s existing businesses, management believes it is appropriate to also present core sales on a basis that includes Cytiva sales. Management believes this presentation provides useful information to investors by demonstrating the impact Cytiva has on the Company’s current growth profile, rather than waiting to demonstrate such impact 12 months after the acquisition when Cytiva would normally have been included in Danaher’s core sales calculation. Danaher calculates period-to-period core sales growth including Cytiva by adding Cytiva sales to core sales for both the baseline and current periods. Beginning in the second quarter of 2021, Cytiva sales are included in core sales, and therefore the measure “core sales including Cytiva” is no longer provided for quarterly periods beginning with the second quarter of 2021.

Core sales growth (and the related measure of core sales including Cytiva) should be considered in addition to, and not as a replacement for or superior to, sales, and may not be comparable to similarly titled measures reported by other companies.

Management believes that reporting these non-GAAP financial measures provides useful information to investors by helping identify underlying growth trends in Danaher’s business and facilitating comparisons of Danaher’s revenue performance with its performance in prior and future periods and to Danaher’s peers. Management also uses these non-GAAP financial measures to measure the Company’s operating and financial performance and uses core sales growth as one of the performance measures in the Company’s executive short-term cash incentive program. The Company excludes the effect of currency translation from these measures because currency translation is not under management’s control, is subject to volatility and can obscure underlying business trends, and excludes the effect of acquisitions (other than Cytiva, in the case of core growth including Cytiva) and divestiture-related items because the nature, size, timing and number of acquisitions and divestitures can vary dramatically from period-to-period and between the Company and its peers and can also obscure underlying business trends and make comparisons of long-term performance difficult.

Throughout this discussion, references to sales volume refer to the impact of both price and unit sales and references to productivity improvements generally refer to improved cost-efficiencies resulting from the ongoing application of the Danaher Business System.

Core Sales Growth and Core Sales Growth Including Cytiva


	% Change Three-Month Period Ended October 1, 2021 vs. Comparable 2020 Period		% Change Nine-Month Period Ended October 1, 2021 vs. Comparable 2020 Period
Total sales growth (GAAP)	23.0	%	37.0	%
Impact of:
Acquisitions/divestitures	(1.0)	%	(10.0)	%
Currency exchange rates	(1.5)	%	(2.5)	%
Core sales growth (non-GAAP)	20.5	%	24.5	%
Impact of Cytiva sales growth (net of divested product lines)			2.5	%
Core sales growth including Cytiva (non-GAAP)			27.0	%

Total Sales Growth

Total sales increased 23.0% and 37.0% during the three and nine-month periods ended October 1, 2021 compared to the three and nine-month periods ended October 2, 2020, respectively, primarily as a result of the increase in core sales resulting from the factors discussed below by segment, as well as the increase in sales resulting from the Cytiva Acquisition for the nine-month period. The impact of currency translation increased reported sales 1.5% and 2.5% on a year-over-year basis during the three and nine-month periods ended October 1, 2021, respectively, primarily due to the favorable impact of the weakening of the U.S. dollar against most other major currencies in 2021 compared to the comparable periods of 2020.

Operating Profit Performance

Operating profit margins decreased 40 basis points from 18.5% during the three-month period ended October 2, 2020 to 18.1% for the three-month period ended October 1, 2021.

Third quarter 2021 vs. third quarter 2020 operating profit margin comparisons were favorably impacted by:

Higher 2021 core sales volumes, an increased proportion of sales of higher margin product lines, incremental year-over-year cost savings associated with continuing productivity improvement initiatives and the impact of foreign currency exchange rates in the third quarter of 2021, net of incremental year-over-year costs associated with various new product development and sales service and marketing growth investments - 390 basis points
Third quarter 2020 acquisition-related fair value adjustments to inventory and deferred revenue, in each case related to the acquisition of Cytiva - 395 basis points
Third quarter 2020 impairment charges related to trade names in the Environmental & Applied Solutions segment - 25 basis points

Third quarter 2021 vs. third quarter 2020 operating profit margin comparisons were unfavorably 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, in each case related to the acquisition of Aldevron - 65 basis points
The incremental dilutive effect in 2021 of acquired businesses, net of product line dispositions which did not qualify as discontinued operations - 30 basis points

Operating profit margins increased 800 basis points from 16.9% during the nine-month period ended October 2, 2020 to 24.9% during the nine-month period ended October 1, 2021.

Year-to-date 2021 vs. year-to-date 2020 operating profit margin comparisons were favorably impacted by:

Higher 2021 core sales volumes, an increased proportion of sales of higher margin product lines, incremental year-over-year cost savings associated with continuing productivity improvement initiatives and the impact of foreign currency exchange rates in 2021, net of incremental year-over-year costs associated with various new product development and sales, service and marketing growth investments - 665 basis points
First nine months of 2020 acquisition-related fair value adjustments to inventory and deferred revenue, transaction costs deemed significant and integration preparation costs, net of first nine months of 2021 acquisition-related fair value adjustments to inventory and deferred revenue in each case related to the acquisition of Cytiva - 305 basis points
The incremental accretive effect in 2021 of acquired businesses, net of product line dispositions which did not qualify as discontinued operations - 95 basis points
First quarter 2021 impairment charge related to a trade name in the Diagnostics segment, net of first quarter 2020 impairment charges related to a facility in the Diagnostics segment and a trade name and other intangible assets in the Environmental & Applied Solutions segment and net of third quarter 2020 impairment charge related to trade names in the Environmental & Applied Solutions segment - 10 basis points

Year-to-date 2021 vs. year-to-date 2020 operating profit margin comparisons were unfavorably 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
Third quarter 2021 acquisition-related fair value adjustments to inventory and transaction costs deemed significant, in each case related to the acquisition of Aldevron - 20 basis points

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
	October 1, 2021		October 2, 2020		October 1, 2021		October 2, 2020
Life Sciences	$	3,632	$	2,923	$	10,912	$	7,215
Diagnostics	2,449		1,889		6,963		5,176
Environmental & Applied Solutions	1,148		1,072		3,430		3,133
Total	$	7,229	$	5,884	$	21,305	$	15,524

For information regarding the Company’s sales by geographical region, refer to Note 2 to the accompanying Consolidated Condensed Financial Statements.

LIFE SCIENCES

The Company’s 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.

Life Sciences Selected Financial Data


	Three-Month Period Ended						Nine-Month Period Ended
($ in millions)	October 1, 2021			October 2, 2020			October 1, 2021			October 2, 2020
Sales	$	3,632		$	2,923		$	10,912		$	7,215
Operating profit	975			505			3,270			1,243
Depreciation	71			51			187			132
Amortization of intangible assets	298			263			855			601
Operating profit as a % of sales	26.8		%	17.3		%	30.0		%	17.2		%
Depreciation as a % of sales	2.0		%	1.7		%	1.7		%	1.8		%
Amortization as a % of sales	8.2		%	9.0		%	7.8		%	8.3		%

Core Sales Growth and Core Sales Growth Including Cytiva


	% Change Three-Month Period Ended October 1, 2021 vs. Comparable 2020 Period		% Change Nine-Month Period Ended October 1, 2021 vs. Comparable 2020 Period
Total sales growth (GAAP)	24.5	%	51.0	%
Impact of:
Acquisitions/divestitures	(2.5)	%	(22.0)	%
Currency exchange rates	(2.0)	%	(3.0)	%
Core sales growth (non-GAAP)	20.0	%	26.0	%
Impact of Cytiva sales growth (net of divested product lines)			5.5	%
Core sales growth including Cytiva (non-GAAP)			31.5	%

Price increases in the segment contributed 2.0% and 1.5% to sales growth on a year-over-year basis during the three and nine-month periods ended October 1, 2021, respectively, and are reflected as a component of core sales growth (or core sales growth including Cytiva, as applicable).

Total segment sales increased 24.5% and 51.0% during the three and nine-month periods, respectively, led primarily by increased core sales resulting from the factors discussed below in both periods and from the increase in sales from the Cytiva Acquisition in the nine-month period. The impact of currency translation increased reported sales by 2.0% in the three-month period and by 3.0% in the nine-month period on a year-over-year basis primarily due to the favorable impact of the weakening of the U.S. dollar in 2021 compared to the respective periods in 2020. On an overall basis, the Life Sciences segment saw continued strong demand for products supporting customers in the pursuit and production of COVID-19-related treatments and vaccines as well as increased demand for its other businesses in both the three and nine-month periods ended October 1, 2021. In the three and nine-month periods of 2021, core sales for filtration, separation and purification technologies increased versus the comparable periods in 2020, led by Western Europe and China in both periods as well as North America in the nine-month period. Demand for these products in both periods was led by the biopharmaceutical and microelectronics end-markets, partially offset by weaker demand in the aerospace end-market for the nine-month period. Core sales of microscopy products increased during the three and nine-month periods across all major product lines, primarily due to increased demand for equipment in the life sciences research, applied and medical end-markets following the easing of shutdowns and restrictions related to the COVID-19 pandemic. Geographically, demand for microscopy products increased in North America and Western Europe in both periods, partially offset by lower core sales in China in the three-month period. Demand for the Company’s flow cytometry and particle counting solutions increased in the three and nine-month periods across all major geographies. While demand for genomic sample preparation consumables increased on a year-over-year basis in the three and nine-month periods in 2021, demand for genomic sample preparation consumables in the third quarter of 2021 was lower sequentially compared to the second quarter of 2021 as a result of reduced COVID-19-related demand. Core sales in the mass spectrometry business increased during the three and nine-month periods across most major end-markets driven in part by demand for new products. Geographically, demand for these products increased across all major geographies in both periods, led by North America, Western Europe, and China. Core sales in the genomics consumables business increased during both the three and nine-month periods across all major geographies and product lines. Demand for primer and probe kits related to COVID-19 testing increased on a year-over-year basis in the nine-month period in 2021, however, demand was lower sequentially in the third quarter of 2021 compared to the demand in the second quarter of 2021 as a result of reduced COVID-19-related demand.

The acquisitions of Cytiva on March 31, 2020 and Aldevron on August 30, 2021 have provided, and are expected to continue to provide, additional sales and earnings growth opportunities for the Company’s Life Sciences segment by expanding the business’ geographic and product line diversity, including new product and service offerings that complement the Company’s biologics workflow and genomic medicine solutions. Due to the proximity of the Cytiva acquisition date to the end of the first quarter of 2020, there are no results of operations for Cytiva included in the Life Sciences segment in the first quarter of 2020. In both the three and nine-month periods ended October 1, 2021, Cytiva experienced significant increased year-over-year demand across all major geographies, driven by continued strong demand for instruments and consumables used in the research and development of COVID-19-related treatments and vaccines and increased demand for non-COVID-19 related products in both periods as well as by the completion of a major project in China for the nine-month period. Aldevron began reporting sales and earnings upon closing the acquisition and also saw sales growth in all major product lines compared to the prior year.

Amortization decreased as a percentage of sales during the three and nine-month periods ended October 1, 2021 as compared to the comparable periods of 2020 primarily as a result of the increase in sales. Depreciation increased as a percentage of sales during the three-month period ended October 1, 2021 as compared to the comparable period of 2020 primarily as a result of the impact of depreciation from recent capital expenditures related to manufacturing capacity expansion.

Operating Profit Performance

Operating profit margins increased 950 basis points during the three-month period ended October 1, 2021 as compared to the comparable period of 2020.

Third quarter 2021 vs. third quarter 2020 operating profit margin comparisons were favorably impacted by:

Higher 2021 core sales volumes, an increased proportion of sales of higher margin product lines, year-over-year cost savings associated with continuing productivity improvement initiatives and the impact of foreign currency exchange rates in the third quarter of 2021, net of incremental year-over-year costs associated with various new product development, sales, service and marketing growth investments - 375 basis points
Third quarter 2020 acquisition-related fair value adjustments to inventory and deferred revenue related to the acquisition of Cytiva - 795 basis points

Third quarter 2021 vs. third quarter 2020 operating profit margin comparisons were unfavorably impacted by:

Third quarter 2021 acquisition-related fair value adjustments to inventory and transaction costs deemed significant related to the acquisition of Aldevron - 125 basis points
The incremental dilutive effect in 2021 of acquired businesses, net of product line dispositions which did not qualify as discontinued operations - 95 basis points

Operating profit margins increased 1,280 basis points during the nine-month period ended October 1, 2021 as compared to the comparable period of 2020.

Year-to-date 2021 vs. year-to-date 2020 operating profit margin comparisons were favorably impacted by:

Higher 2021 core sales volumes, an increased proportion of sales of higher margin product lines, year-over-year cost savings associated with continuing productivity improvement initiatives and the impact of foreign currency exchange rates in the first nine-months of 2021, net of incremental year-over-year costs associated with various new product development, sales service and marketing growth investments - 605 basis points
First nine-months of 2020 acquisition-related fair value adjustments to inventory and deferred revenue, transaction costs deemed significant and integration preparation costs, net of first nine-months of 2021 acquisition-related fair value adjustments to inventory and deferred revenue in each case related to the acquisition of Cytiva - 575 basis points
The incremental accretive effect in 2021 of acquired businesses, net of product line dispositions which did not qualify as discontinued operations - 140 basis points

Year-to-date 2021 vs. year-to-date 2020 operating profit margin comparisons were unfavorably impacted by:

First nine-months of 2021 acquisition-related fair value adjustments to inventory and transaction costs deemed significant related to the acquisition of Aldevron - 40 basis points

DIAGNOSTICS

The Company’s Diagnostics segment offers analytical instruments, reagents, consumables, software and services that hospitals, physicians’ offices, reference laboratories and other critical care settings use to diagnose disease and make treatment decisions.

Diagnostics Selected Financial Data


	Three-Month Period Ended						Nine-Month Period Ended
($ in millions)	October 1, 2021			October 2, 2020			October 1, 2021			October 2, 2020
Sales	$	2,449		$	1,889		$	6,963		$	5,176
Operating profit	145			408			1,420			952
Depreciation	105			96			300			291
Amortization of intangible assets	52			51			154			154
Operating profit as a % of sales	5.9		%	21.6		%	20.4		%	18.4		%
Depreciation as a % of sales	4.3		%	5.1		%	4.3		%	5.6		%
Amortization as a % of sales	2.1		%	2.7		%	2.2		%	3.0		%

Core Sales Growth


	% Change Three-Month Period Ended October 1, 2021 vs. Comparable 2020 Period		% Change Nine-Month Period Ended October 1, 2021 vs. Comparable 2020 Period
Total sales growth (GAAP)	29.5	%	34.5	%
Impact of:

Currency exchange rates	(1.0)	%	(2.5)	%
Core sales growth (non-GAAP)	28.5	%	32.0	%

Price increases in the segment contributed 0.5% to sales growth on a year-over-year basis during both the three and nine-month periods ended October 1, 2021 and are reflected as a component of core sales growth.

Total segment sales increased 29.5% and 34.5% during the three and nine-month periods, respectively, primarily as a result of increased core sales resulting from the factors discussed below. The impact of currency translation increased reported sales by 1.0% in the three-month period and by 2.5% in the nine-month period on a year-over-year basis primarily due to the favorable impact of the weakening of the U.S. dollar in the 2021 periods compared to the respective periods in 2020. In the first nine months of 2021, the segment experienced higher year-over-year demand for molecular diagnostics tests for COVID-19 and demand across its businesses as non-COVID testing volumes increased as individuals resumed visits to healthcare providers following the easing of shutdowns and restrictions related to the pandemic. Core sales in the segment’s clinical lab business increased on a year-over-year basis across all major geographies in both the three and nine-month periods ended October 1, 2021, driven primarily by continued increased demand in the chemistry and immunoassay product lines. During both the three and nine-month periods, core sales in the molecular diagnostics business increased on a year-over-year basis in both developed and high-growth markets, which contributed significantly to overall segment core sales growth. The business continued to experience strong growth in sales of consumables in both the three and nine-month periods ended October 1, 2021, driven by strong demand for diagnostic test solutions for COVID-19 and non-respiratory diseases, partially offset by lower year-over-year instrument demand as a result of the significant COVID-19 related instrument demand in the second and third quarters of 2020. Core sales in the acute care diagnostic business increased year-over-year in both the three and nine-month periods due to continued strong demand for blood gas and immunoassay consumables, partially offset by lower year-over-year demand for instruments largely due to strong COVID-19 related demand for blood gas instruments in the second and third quarters of 2020. Geographically, demand was driven by North America, Western Europe, China and Japan. Core sales in the pathology business grew year-over-year in both the three and nine-month periods driven by increased demand for core histology and advanced staining instruments and consumables and pathology imaging products. Geographically, core sales increased in all major geographies in the nine-month period, while in the three-month period core sales were led by increases in North America and Western Europe.

Operating Profit Performance

Operating profit margins decreased 1,570 basis points during the three-month period ended October 1, 2021 as compared to the comparable period of 2020.

Third quarter 2021 vs. third quarter 2020 operating profit margin comparisons were favorably impacted by:

Higher 2021 core sales volumes, an increased proportion of sales of higher margin product lines, incremental year-over-year cost savings associated with continuing productivity improvement initiatives and the impact of foreign currency exchange rates in the third quarter of 2021, net of incremental year-over-year costs associated with various new product development, sales, service and marketing growth investments - 640 basis points
The incremental accretive effect in 2021 of acquired businesses - 25 basis points

Third quarter 2021 vs. third quarter 2020 operating profit margin comparisons were unfavorably 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

Operating profit margins increased 200 basis points during the nine-month period ended October 1, 2021 as compared to the comparable period of 2020.

Year-to-date 2021 vs. year-to-date 2020 operating profit margin comparisons were favorably impacted by:

Higher 2021 core sales volumes, an increased proportion of sales of higher margin product lines, incremental year-over-year cost savings associated with continuing productivity improvement initiatives and the impact of foreign currency exchange rates in the first nine months of 2021, net of incremental year-over-year costs associated with various new product development, sales, service and marketing growth investments - 985 basis points
The incremental accretive effect in 2021 of acquired businesses - 5 basis points

Year-to-date 2021 vs. year-to-date 2020 operating profit margin comparisons were unfavorably 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
First quarter 2021 impairment charge related to a trade name, net of a first quarter 2020 impairment charge related to a facility - 5 basis points

Depreciation and amortization of intangible assets both decreased as a percentage of sales during the three and nine-month periods ended October 1, 2021, primarily as a result of the increase in sales.

ENVIRONMENTAL & APPLIED SOLUTIONS

The Company’s Environmental & Applied Solutions segment offers products and services that help protect important resources and keep global food and water supplies safe. The Company’s water quality business provides instrumentation, consumables, software, services and disinfection systems to help analyze, treat and manage the quality of ultra-pure, potable, industrial, waste, ground, source and ocean water in residential, commercial, municipal, industrial and natural resource applications. The Company’s product identification business provides instruments, software, services and consumables for various color and appearance 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
($ in millions)	October 1, 2021			October 2, 2020			October 1, 2021			October 2, 2020
Sales	$	1,148		$	1,072		$	3,430		$	3,133
Operating profit	256			245			821			707
Depreciation	11			12			33			35
Amortization of intangible assets	15			17			47			47
Operating profit as a % of sales	22.3		%	22.9		%	23.9		%	22.6		%
Depreciation as a % of sales	1.0		%	1.1		%	1.0		%	1.1		%
Amortization as a % of sales	1.3		%	1.6		%	1.4		%	1.5		%

Core Sales Growth


	% Change Three-Month Period Ended October 1, 2021 vs. Comparable 2020 Period		% Change Nine-Month Period Ended October 1, 2021 vs. Comparable 2020 Period
Total sales growth (GAAP)	7.0	%	9.5	%
Impact of:
Acquisitions/divestitures	2.0	%	1.0	%
Currency exchange rates	(1.5)	%	(2.5)	%
Core sales growth (non-GAAP)	7.5	%	8.0	%

Price increases in the segment contributed 1.5% to sales growth on a year-over-year basis during both the three and nine-month periods ended October 1, 2021 and are reflected as a component of core sales growth.

Total segment sales increased 7.0% and 9.5% during the three and nine-month periods, respectively, primarily as a result of core sales growth driven by the factors discussed below. The impact of currency translation increased reported sales 1.5% and 2.5% during the three and nine-month periods, respectively, primarily due to the favorable impact of the weakening of the U.S. dollar in 2021 compared to the respective periods in 2020. Sales from divestitures, net of acquisitions, decreased reported sales by 2.0% and 1.0% during the three and nine-month periods, respectively.

Core sales in the segment’s water quality business increased at a mid-single digit rate during the three and nine-month periods ended October 1, 2021, compared to the comparable periods of 2020. On an overall basis, the water quality business experienced continuing demand for consumables and increased demand for equipment on a year-over-year basis, driven in part by the decline in equipment demand in 2020 as a result of the COVID-19 pandemic. Year-over-year core sales in the analytical instrumentation product line increased in the three-month period, as increased demand in Western Europe and China more than offset lower core sales in North America. In the nine-month period, core sales increased driven by demand in North America, Western Europe and China. Core sales in the business’ chemical treatment solutions product line increased during the three and nine-month periods, as a result of increased demand in the chemical, commercial and industry and food and beverage end-markets. Geographically, the increase in core sales for the chemical treatment solutions was driven by North America in both periods.

Core sales in the segment’s product identification businesses grew at a low-double digit rate during the three and nine-month periods ended October 1, 2021 compared to the comparable periods of 2020. Core sales in the marking and coding business increased during the three and nine-month periods across all major geographies and most major end-markets as a result of continued demand for consumables along with an increase in demand for equipment, driven in part by lower equipment volumes in 2020 resulting from the COVID-19 pandemic. For the packaging and color solutions products and services, core sales increased in the three and nine-month periods across most major geographies.

Operating Profit Performance

Operating profit margins decreased 60 basis points during the three-month period ended October 1, 2021 as compared to the comparable period of 2020.

Third quarter 2021 vs. third quarter 2020 operating profit margin comparisons were favorably impacted by:

Third quarter 2020 impairment charges related to trade names - 130 basis points
The incremental net accretive effect in 2021 of acquired businesses, net of product line dispositions which did not qualify as discontinued operations - 5 basis points

Third quarter 2021 vs. third quarter 2020 operating profit margin comparisons were unfavorably impacted by:

Incremental year-over-year costs associated with sales, service and marketing growth investments, net of higher 2021 core sales volumes, and incremental year-over-year cost savings associated with continuing productivity improvement initiatives - 195 basis points

Operating profit margins increased 130 basis points during the nine-month period ended October 1, 2021 as compared to the comparable period of 2020.

Year-to-date 2021 vs. year-to-date 2020 operating profit margin comparisons were favorably impacted by:

Higher 2021 core sales volumes, and incremental year-over-year cost savings associated with continuing productivity improvement initiatives and the impact of foreign currency exchange rates in 2021, net of incremental year-over-year costs associated with sales, and service and marketing growth investments - 75 basis points
Impairment charges related to a trade name and other intangible assets in the first quarter of 2020 and a trade name in the third quarter of 2020 - 55 basis points

COST OF SALES AND GROSS PROFIT


	Three-Month Period Ended						Nine-Month Period Ended
($ in millions)	October 1, 2021			October 2, 2020			October 1, 2021			October 2, 2020
Sales	$	7,229		$	5,884		$	21,305		$	15,524
Cost of sales	(2,870)			(2,658)			(8,296)			(7,003)
Gross profit	$	4,359		$	3,226		$	13,009		$	8,521
Gross profit margin	60.3		%	54.8		%	61.1		%	54.9		%

The year-over-year increase in cost of sales during both the three and nine-month periods ended October 1, 2021 as compared to the comparable periods in 2020, was due primarily to the impact of higher year-over-year sales volumes, including sales from recently acquired businesses. This increase was partially offset by lower incremental year-over-year acquisition-related charges associated with fair value adjustments to inventory in connection with acquisitions (the acquisition of Aldevron during the third quarter of 2021 and Cytiva during the first quarter of 2020), which increased cost of sales by $17 million and $46 million in the three and nine-month periods ended October 1, 2021 and $220 million and $417 million in the three and nine-month periods ended October 2, 2020, respectively.

The year-over-year increase in gross profit margins during both the three and nine-month periods ended October 1, 2021 as compared to the comparable periods in 2020, was due primarily to higher year-over-year sales volumes, including sales volumes from recently acquired businesses and the impact of the change in mix of sales to higher margin product lines. 2021 acquisition-related charges associated with fair value adjustments to inventory in connection with the acquisition of Aldevron during the third quarter of 2021 were lower than the fair value adjustments to inventory and deferred revenue recorded in connection with the acquisition of Cytiva during the first quarter of 2020, which also contributed to the increased gross profit margins. These fair value adjustments negatively impacted gross profit by $17 million and $63 million in the three and nine-month periods ended October 1, 2021, respectively, compared to $232 million and $460 million in the three and nine-month periods ended October 2, 2020, respectively. Additionally, the nine-month period in 2021 also benefited from the inclusion of a full nine months of Cytiva sales compared to only six months in the comparable period in 2020.

OPERATING EXPENSES


	Three-Month Period Ended						Nine-Month Period Ended
($ in millions)	October 1, 2021			October 2, 2020			October 1, 2021			October 2, 2020
Sales	$	7,229		$	5,884		$	21,305		$	15,524
Selling, general and administrative (“SG&A”) expenses	2,062			1,796			5,904			4,939
Research and development (“R&D”) expenses	441			342			1,247			952
Other operating expenses	547			—			547			—
SG&A as a % of sales	28.5		%	30.5		%	27.7		%	31.8		%
R&D as a % of sales	6.1		%	5.8		%	5.9		%	6.1		%
Other operating expenses as a % of sales	7.6		%	—		%	2.6		%	—		%

SG&A expenses as a percentage of sales declined for both the three and nine-month periods ended October 1, 2021 as compared to the comparable periods in 2020. The decline was driven by the benefit of increased leverage of the Company’s general and administrative cost base, including amortization expense, resulting from higher 2021 sales volumes, including sales volumes from recently acquired businesses, incremental year-over-year cost savings associated with continuing productivity improvement initiatives, and lower year-over-year impairment charges related to a facility, a trade name and other intangible assets incurred in the first and third quarters of 2020, net of impairment charges relates to a trade name in the first quarter of 2021. 2021 transaction costs for the acquisition of Aldevron were lower than 2020 transaction costs for the acquisition of Cytiva, which also benefited SG&A as a percentage of sales during the nine-month period. These decreases were partially offset by continued investments in sales and marketing growth initiatives in both the three and nine-month periods ended October 1, 2021.

R&D expenses (consisting principally of internal and contract engineering personnel costs) as a percentage of sales increased during the three-month period and declined during the nine-month period ended October 1, 2021 as compared to the comparable periods of 2020. The increase in the three-month period was primarily due to accelerated spending related to the Company's new product development initiatives in the third quarter of 2021. In the nine-month period, R&D expenses as a percentage of sales decreased due to the sales growth rate exceeding the spending growth related to new product development initiatives as well as lower R&D expenses as a percentage of sales in businesses recently acquired.

Other operating expenses and other operating expenses as a percentage of sales increased during both the three and nine-month periods ended October 1, 2021 as compared to the comparable periods of 2020 as a result of the 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 11 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 ended October 1, 2021 and October 2, 2020, refer to Note 12 to the accompanying Consolidated Condensed Financial Statements.

INTEREST COSTS AND FINANCING

For a discussion of the Company’s outstanding indebtedness, refer to Note 7 to the accompanying Consolidated Condensed Financial Statements.

Interest expense of $62 million and $182 million for the three and nine-month periods ended October 1, 2021, respectively, was $16 million lower and $21 million lower than the comparable periods of 2020, due primarily to lower average debt balances in the three and nine-month periods in 2021 versus the comparable periods of 2020, partially offset by the impact of the weaker U.S. dollar in 2021 on the interest expense for the Company’s foreign currency denominated debt (and U.S. dollar debt that has been converted into a foreign currency through cross-currency swap derivative contracts).

Interest income of $3 million and $10 million for the three and nine-month periods ended October 1, 2021, respectively, was $1 million lower and $57 million lower than the comparable periods of 2020, due primarily to lower average cash balances in 2021 due to the use of cash for funding of the Cytiva Acquisition in 2020 and lower interest rates.

INCOME TAXES

The following table summarizes the Company’s effective tax rate:


	Three-Month Period Ended				Nine-Month Period Ended
	October 1, 2021		October 2, 2020		October 1, 2021		October 2, 2020
Effective tax rate	16.5	%	13.5	%	17.3	%	18.5	%

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 effective tax rate for the three-month period ended October 2, 2020 differs from the U.S. federal statutory rate of 21.0% principally due to net discrete benefits related primarily to the release of reserves for uncertain tax positions from audit settlements and the expiration of statutes of limitation, excess tax benefits from stock-based compensation and other items. These factors reduced the effective tax rate by 6.1% for the three-month period ended October 2, 2020.

The effective tax rate for the nine-month period ended October 2, 2020 differs from the U.S. federal statutory rate of 21.0% principally due to the release of reserves for uncertain tax positions from audit settlements and expiration of statutes of limitation and excess tax benefits from stock-based compensation, partially offset by a higher tax rate associated with the gain on the divestiture of certain product lines in the Life Sciences segment in the second quarter of 2020 and changes in estimates associated with prior period uncertain tax positions. These factors reduced the effective tax rate by 1.1% for the nine-month period ended October 2, 2020.

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 Internal Revenue Service (“IRS”) has completed the examinations of substantially all of the Company’s federal income tax returns through 2015 and is currently examining certain of the Company’s federal income tax returns for 2016 through 2018. In addition, the Company has subsidiaries in Austria, Belgium, Canada, China, Denmark, France, Germany, India, Japan, Korea, Switzerland, the UK and various other countries, states and provinces that are currently under audit for years ranging from 2004 through 2020.

Refer to Note 10 to the Consolidated Condensed Financial Statements for discussion regarding the Company’s significant tax matters.

The Company expects its effective tax rate for the remainder of 2021 to be approximately 20.2%. 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 2021 includes the anticipated discrete income tax benefits from excess tax deductions related to the Company’s stock compensation programs, which are reflected as a reduction in tax expense, though the actual benefits (if any) will depend on the Company’s stock price and stock option exercise patterns.
The actual mix of earnings by jurisdiction could fluctuate from the Company’s projection, particularly given the uncertainties related to the COVID-19 pandemic.
The tax effects of other discrete items, including accruals related to tax contingencies, the resolution of worldwide tax matters, tax audit settlements, statute of limitations expirations and changes in tax regulations.
Any future changes in tax law or the implementation of recently proposed increases in tax rates, the impact of future regulations and guidance implementing the Tax Cuts and Jobs Act and any related additional tax planning efforts to address these changes.

As a result of the uncertainty in predicting these items, it is reasonably possible that the actual effective tax rate used for financial reporting purposes will change in future periods.

DISCONTINUED OPERATIONS

On July 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 Corporation (“Fortive”), the entity the Company incorporated to hold such businesses. For the nine-month period ended October 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 2021, comprehensive income decreased $953 million for the three-month period and decreased $500 million for the nine-month period as compared to the comparable periods of 2020, primarily driven the negative impact of foreign currency translation adjustments partially offset by higher net earnings. The Company recorded foreign currency translation losses of $396 million and $909 million for the three and nine-month periods ended October 1, 2021, respectively, as compared to gains of $923 million and approximately $1.8 billion for the three and nine-month periods ended October 2, 2020, respectively. The Company recorded a loss of $2 million and a gain of $184 million from cash flow hedge adjustments related to the Company’s cross-currency swap derivative contracts for the three and nine-month periods ended October 1, 2021, respectively, as compared to a loss of $90 million and a gain of $175 million for the comparable periods of 2020.

LIQUIDITY AND CAPITAL RESOURCES

Management assesses the Company’s liquidity in terms of its ability to generate cash to fund its operating, investing and financing activities. The Company continues to generate substantial cash from operating activities and believes that its operating cash flows, cash on hand and other available sources of liquidity will be sufficient to allow it to continue investing in existing businesses (including capital expenditures), consummating strategic acquisitions and investments, paying interest and servicing debt, paying dividends, funding restructuring activities 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 (such as the disruptions in the financial and capital markets that occurred at times in 2020), the Company anticipates following the same approach in the future.

Following is an overview of the Company’s cash flows and liquidity ($ in millions):

Overview of Cash Flows and Liquidity


	Nine-Month Period Ended
($ in millions)	October 1, 2021		October 2, 2020
Total operating cash provided by continuing operations	$	6,025	$	3,994

Cash paid for acquisitions	$	(10,628)	$	(20,819)
Payments for additions to property, plant and equipment	(874)		(475)
Proceeds from sales of property, plant and equipment	13		1
Payments for purchases of investments	(784)		(215)
Proceeds from sales of investments	104		—
Proceeds from sale of product lines	26		826
All other investing activities	35		24

Total cash used in investing activities for continuing operations	$	(12,108)	$	(20,658)

Proceeds from the issuance of common stock in connection with stock-based compensation	$	63	$	125
Proceeds from the sale of common stock, net of issuance costs	—		1,729
Proceeds from the sale of preferred stock, net of issuance costs	—		1,668

Payment of dividends	(551)		(445)
Net proceeds from (repayments of) borrowings (maturities of 90 days or less)	3,496		(3,339)
Net proceeds from borrowings (maturities longer than 90 days)	—		7,691
Net repayments of borrowings (maturities longer than 90 days)	(279)		(5,000)

All other financing activities	(12)		(3)
Total cash provided by financing activities for continuing operations	$	2,717	$	2,426

Operating cash flows from continuing operations increased approximately $2.0 billion, or 51%, during the nine-month period ended October 1, 2021 as compared to the comparable period of 2020, due to higher net earnings from continuing operations (after excluding in both periods charges for depreciation, amortization, stock compensation, gain on sale of product lines, unrealized investment gains/losses in both periods and the contract settlement expense in 2021). These increases were partially offset by higher cash used in aggregate for accounts receivables, inventories and trade accounts payable and higher cash used for accrued and prepaid expenses in 2021 compared to the prior year.
Net cash used in investing activities consisted primarily of cash paid for acquisitions, investments and capital expenditures and decreased year-over-year primarily as a result of lower cash paid for acquisitions in the 2021 period compared to 2020. Refer to Note 3 to the accompanying Consolidated Condensed Financial Statements for information on the Company’s acquisitions.
As of October 1, 2021, the Company held approximately $2.6 billion of cash and cash equivalents.

Operating Activities

Cash flows from operating activities can fluctuate significantly from period-to-period as working capital needs and the timing of payments for income taxes, restructuring activities, pension funding and other items impact reported cash flows.

Operating cash flows from continuing operations were approximately $6.0 billion for the first nine months of 2021, an increase of approximately $2.0 billion, or 51%, as compared to the comparable period of 2020. The year-over-year change in operating cash flows from 2020 to 2021 was primarily attributable to the following factors:

2021 operating cash flows reflected an increase of approximately $2.2 billion in net earnings from continuing operations for the first nine months of 2021 as compared to the comparable period in 2020.
Net earnings for the first nine months of 2021 also reflected an increase of $609 million of depreciation, amortization (intangible assets and inventory step-up), stock compensation expense, unrealized investment gains/losses, and

contract settlement expense as compared to the comparable period of 2020, offset by a decrease in the amortization of the inventory step-up and a decrease in the gain on sale of product lines in 2021 compared to 2020. Amortization expense primarily relates to the amortization of intangible assets and inventory fair value adjustments. Depreciation expense relates to both the Company’s manufacturing and operating facilities as well as instrumentation leased to customers under OTL arrangements. 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 11 to the accompanying Consolidated Condensed Financial Statements for additional information on the contract settlement expense. Depreciation, amortization, stock compensation, and contract settlement expense 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 impacting cash flows.

The aggregate of trade accounts receivable, inventories and trade accounts payable used $490 million in operating cash flows during the first nine months of 2021, compared to $138 million of operating cash flows used in the comparable period of 2020. 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 growth of the Company’s business and the timing of collections and payments in a period.
The aggregate of prepaid expenses and other assets and accrued expenses and other liabilities used $29 million of operating cash flows during the first nine months of 2021, compared to $351 million of operating cash flows provided in the comparable period of 2020. The timing of cash payments for income taxes, various employee-related liabilities, customer funding and changes in accrued expenses, drove the majority of this change.

Dynamics relating to the COVID-19 pandemic could have a future adverse impact on the Company’s operating cash flow if demand for the Company’s products related to COVID-19 declines or if future measures to contain and mitigate the spread of COVID-19 adversely impact the Company’s sales and earnings or the collections of accounts receivable (including delays in collections and increases in uncollectible receivables), and/or further adversely impact our supply chain and inventory levels.

Investing Activities

Cash flows relating to investing activities consist of cash used for acquisitions and capital expenditures, including instruments leased to customers, cash used for investments and cash proceeds from divestitures of businesses or assets.

Net cash used in investing activities decreased approximately $8.6 billion in the nine-month period ended October 1, 2021 compared to the comparable period of 2020, primarily as a result of cash used for the Company’s acquisition of Cytiva in the first quarter of 2020 partially offset by the approximately $9.6 billion of cash used for the acquisition of Aldevron in the third quarter of 2021. For a discussion of the Company’s acquisitions and divestitures during the first nine months of 2021 refer to “—Overview”. In addition, for a description of the Company’s Aldevron Acquisition, refer to Note 3 to the accompanying Consolidated Condensed Financial Statements.

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 increased $399 million on a year-over-year basis for the nine-month period ended October 1, 2021 compared to the comparable period in 2020, due primarily to incremental capital expenditures to increase manufacturing capacity for diagnostic testing and biopharma products (including to address increased COVID-19 related demand) as well as incremental capital expenditures as a result of the Cytiva Acquisition. For the full year 2021, the Company forecasts capital spending to be approximately $1.5 billion, driven primarily by continued expenditures related to capacity expansion for diagnostic testing and biopharma products.

Financing Activities and Indebtedness

Cash flows relating to financing activities typically consist primarily of cash flows associated with the issuance and repayments of commercial paper, issuance and repayment of notes payable and long-term debt, borrowings under committed credit facilities, issuance and repurchases of common stock, issuance of preferred stock and payments of cash dividends to shareholders. Financing activities provided cash of $2.7 billion during the nine-month period ended October 1, 2021 compared to approximately $2.4 billion of cash provided in the comparable period of 2020. The year-over-year increase in cash provided by financing activities was due primarily to cash provided in 2021 from the issuance of commercial paper used to fund a portion of the Aldevron Acquisition partially offset by cash provided by the sale of common and preferred stock and borrowings incurred in 2020 to finance the remaining amounts needed to acquire Cytiva and for general corporate purposes.

For a description of the Company’s outstanding debt as of October 1, 2021 and the Company’s commercial paper programs and credit facility, refer to Note 7 to the accompanying Consolidated Condensed Financial Statements. As of October 1, 2021, the Company was in compliance with all of its respective debt covenants.

For a description of the Company’s financing of the Cytiva Acquisition, refer to Note 11 in the Company’s 2020 Annual Report. For a description of the Company’s financing of the Aldevron Acquisition, refer to Note 3 to the accompanying Consolidated Condensed Financial Statements.

Stock Repurchase Program

For information regarding the Company’s stock repurchase program, refer to Part II—Item 2, “Unregistered Sales of Equity Securities and Use of Proceeds”.

Dividends

Aggregate cash payments for dividends on Company common stock during the nine-month period ended October 1, 2021 were $428 million and aggregate cash payments for dividends on the Company’s MCPS Shares during the nine-month period ended October 1, 2021 were $123 million. The increase in dividend payments over the comparable period of 2020 primarily relates to dividends paid on the MCPS Series A and MCPS Series B, which were issued March 1, 2019 and May 12, 2020, respectively, as well as an increase in the quarterly dividend rate for common stock beginning with respect to the dividend paid in the second quarter of 2020.

In the third quarter of 2021, the Company declared a regular quarterly dividend of $0.21 per share of Company common stock payable on October 29, 2021 to holders of record as of September 30, 2021. In addition, the Company declared a quarterly cash dividend of $11.875 per MCPS Series A that was paid on October 15, 2021 to holders of record as of September 30, 2021 and quarterly cash dividend of $12.50 per MCPS Series B that was paid on October 15, 2021 to holders of record as of September 30, 2021.

Cash and Cash Requirements

As of October 1, 2021, the Company held approximately $2.6 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, $58 million was held within the United States and approximately $2.5 billion was held outside of the United States. The Company will continue to have cash requirements to support general corporate purposes, which may include working capital needs, capital expenditures and acquisitions, paying interest and servicing debt, paying taxes and any related interest or penalties, funding its restructuring activities and pension plans as required, paying dividends to shareholders, repurchasing shares of the Company’s common stock and supporting other business needs.

The Company generally intends to use available cash and internally generated funds to meet these cash requirements, but in the event that additional liquidity is required, the Company may also borrow under its commercial paper programs (if available) or 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 scheduled to mature during the remainder of 2021, 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 outside the United States may be restricted by local laws, most of the Company’s foreign cash could be repatriated to the United States. Following enactment of the Tax Cuts and Jobs Act and the associated Transition

Tax, in general, repatriation of cash to the United States can be completed with no incremental U.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 of October 1, 2021, management believes that it has sufficient sources of liquidity to satisfy its cash needs, including its cash needs in the United States.

During 2021, the Company’s cash contribution requirements for its non-U.S. defined benefit pension plans are forecasted to be approximately $50 million. The Company is forecasting no cash contributions for its U.S. defined benefit pension plan in 2021. 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 2020 Annual Report.

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