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Cover and table of contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 29, 2023

OR

☐TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-08089

DHR Logo.jpg

DANAHER CORPORATION

(Exact name of registrant as specified in its charter)

Delaware59-1995548
(State of Incorporation)(I.R.S. Employer Identification Number)
2200 Pennsylvania Avenue, N.W., Suite 800W20037-1701
Washington,DC
(Address of Principal Executive Offices)(Zip Code)

Registrant’s telephone number, including area code: 202-828-0850

Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, $0.01 par valueDHRNew York Stock Exchange
1.700% Senior Notes due 2024DHR 24New York Stock Exchange
0.200% Senior Notes due 2026DHR/26New York Stock Exchange
2.100% Senior Notes due 2026DHR 26New York Stock Exchange
1.200% Senior Notes due 2027DHR/27New York Stock Exchange
0.450% Senior Notes due 2028DHR/28New York Stock Exchange
2.500% Senior Notes due 2030DHR 30New York Stock Exchange
0.750% Senior Notes due 2031DHR/31New York Stock Exchange
1.350% Senior Notes due 2039DHR/39New York Stock Exchange
1.800% Senior Notes due 2049DHR/49New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer☒Accelerated Filer☐
Non-accelerated Filer☐Smaller Reporting Company☐
Emerging Growth Company☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐ No ☒

The number of shares of common stock outstanding at October 19, 2023 was 738,927,107.

DANAHER CORPORATION

INDEX

FORM 10-Q

Page
PART I -FINANCIAL INFORMATION
Item 1.Financial Statements
Consolidated Condensed Balance Sheets1
Consolidated Condensed Statements of Earnings2
Consolidated Condensed Statements of Comprehensive Income3
Consolidated Condensed Statements of Stockholders’ Equity4
Consolidated Condensed Statements of Cash Flows5
Notes to Consolidated Condensed Financial Statements6
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations24
Item 3.Quantitative and Qualitative Disclosures About Market Risk42
Item 4.Controls and Procedures42
PART II -OTHER INFORMATION
Item 1.Legal Proceedings43
Item 1A.Risk Factors43
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds43
Item 5.Other Information43
Item 6.Exhibits44
Signatures46

DANAHER CORPORATION AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEETS

($ in millions, except per share amount)

(unaudited)

September 29, 2023December 31, 2022
ASSETS
Current assets:
Cash and equivalents$12,277$5,995
Trade accounts receivable, less allowance for doubtful accounts of $136 and $126, respectively4,2014,918
Inventories:
Finished goods1,4471,504
Work in process497473
Raw materials1,0801,133
Total inventories3,0243,110
Prepaid expenses and other current assets1,7031,860
Total current assets21,20515,883
Property, plant and equipment, net of accumulated depreciation of $4,122 and $3,893, respectively4,3023,956
Other long-term assets4,2864,459
Goodwill39,15539,752
Other intangible assets, net18,78620,300
Total assets$87,734$84,350
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Notes payable and current portion of long-term debt$2,547$591
Trade accounts payable1,8942,296
Accrued expenses and other liabilities4,9265,502
Total current liabilities9,3678,389
Other long-term liabilities6,4396,785
Long-term debt19,51319,086
Stockholders’ equity:
Preferred stock, no par value, 15.0 million shares authorized; no shares issued and outstanding as of September 29, 2023; 1.72 million shares of 5.00% Mandatory Convertible Preferred Stock, Series B, issued and outstanding as of December 31, 2022—1,668
Common stock - $0.01 par value, 2.0 billion shares authorized; 880.2 million issued and 738.9 million outstanding as of September 29, 2023; 869.3 million issued and 728.3 million outstanding as of December 31, 202299
Additional paid-in capital14,08512,072
Retained earnings42,27239,205
Accumulated other comprehensive income (loss)(3,959)(2,872)
Total Danaher stockholders’ equity52,40750,082
Noncontrolling interests88
Total stockholders’ equity52,41550,090
Total liabilities and stockholders’ equity$87,734$84,350

See the accompanying Notes to the Consolidated Condensed Financial Statements.

DANAHER CORPORATION AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS

($ and shares in millions, except per share amounts)

(unaudited)

Three-Month Period EndedNine-Month Period Ended
September 29, 2023September 30, 2022September 29, 2023September 30, 2022
Sales$6,873$7,663$21,197$23,102
Cost of sales(2,873)(3,079)(8,786)(9,092)
Gross profit4,0004,58412,41114,010
Operating costs:
Selling, general and administrative expenses(2,145)(2,149)(6,486)(6,326)
Research and development expenses(417)(420)(1,264)(1,292)
Operating profit1,4382,0154,6616,392
Nonoperating income (expense):
Other income (expense), net(47)(51)(52)(158)
Interest expense(73)(42)(208)(147)
Interest income79918612
Earnings before income taxes1,3971,9314,5876,099
Income taxes(268)(359)(902)(1,122)
Net earnings1,1291,5723,6854,977
Mandatory convertible preferred stock dividends—(21)(21)(84)
Net earnings attributable to common stockholders$1,129$1,551$3,664$4,893
Net earnings per common share:
Basic$1.53$2.13$4.98(a)$6.76
Diluted$1.51$2.10$4.94$6.67(a)
Average common stock and common equivalent shares outstanding:
Basic739.4728.5735.4723.8
Diluted745.9737.4742.1737.0

(a) Net earnings per common share amounts for the relevant three-month periods do not add to the nine-month period amount due to rounding.

See the accompanying Notes to the Consolidated Condensed Financial Statements.

DANAHER CORPORATION AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME

($ in millions)

(unaudited)

Three-Month Period EndedNine-Month Period Ended
September 29, 2023September 30, 2022September 29, 2023September 30, 2022
Net earnings$1,129$1,572$3,685$4,977
Other comprehensive income (loss), net of income taxes:
Foreign currency translation adjustments(303)(1,039)(982)(2,824)
Pension and postretirement plan benefit adjustments17128
Cash flow hedge adjustments(81)(77)(106)(31)
Total other comprehensive income (loss), net of income taxes(383)(1,109)(1,087)(2,827)
Comprehensive income$746$463$2,598$2,150

See the accompanying Notes to the Consolidated Condensed Financial Statements.

DANAHER CORPORATION AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY

($ in millions)

(unaudited)

Three-Month Period EndedNine-Month Period Ended
September 29, 2023September 30, 2022September 29, 2023September 30, 2022
Preferred stock:
Balance, beginning of period$—$1,668$1,668$3,268
Conversion of Mandatory Convertible Preferred Stock to common stock——(1,668)(1,600)
Balance, end of period$—$1,668$—$1,668
Common stock:
Balance, beginning and end of period$9$9$9$9
Additional paid-in capital:
Balance, beginning of period$13,939$11,854$12,072$10,090
Common stock-based award146131345309
Common stock issued in connection with Mandatory Convertible Preferred Stock conversions——1,6681,600
Acquisition of noncontrolling interests———(14)
Balance, end of period$14,085$11,985$14,085$11,985
Retained earnings:
Balance, beginning of period$41,344$35,808$39,205$32,827
Net earnings1,1291,5723,6854,977
Common stock dividends declared(201)(182)(597)(543)
Mandatory Convertible Preferred Stock dividends declared—(21)(21)(84)
Balance, end of period$42,272$37,177$42,272$37,177
Accumulated other comprehensive income (loss):
Balance, beginning of period$(3,576)$(2,745)$(2,872)$(1,027)
Other comprehensive income (loss)(383)(1,109)(1,087)(2,827)
Balance, end of period$(3,959)$(3,854)$(3,959)$(3,854)
Noncontrolling interests:
Balance, beginning of period$8$7$8$10
Change in noncontrolling interests—1—(2)
Balance, end of period$8$8$8$8
Total stockholders’ equity, end of period$52,415$46,993$52,415$46,993

See the accompanying Notes to the Consolidated Condensed Financial Statements.

DANAHER CORPORATION AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

($ in millions)

(unaudited)

Nine-Month Period Ended
September 29, 2023September 30, 2022
Cash flows from operating activities:
Net earnings$3,685$4,977
Noncash items:
Depreciation526537
Amortization of intangible assets1,1471,120
Stock-based compensation expense280270
Investment (gains) losses58186
Change in trade accounts receivable, net709(134)
Change in inventories(25)(729)
Change in trade accounts payable(399)(180)
Change in prepaid expenses and other assets331(104)
Change in accrued expenses and other liabilities(767)35
Net cash provided by operating activities5,5455,978
Cash flows from investing activities:
Cash paid for acquisitions—(304)
Payments for additions to property, plant and equipment(981)(823)
Proceeds from sales of property, plant and equipment89
Payments for purchases of investments(152)(354)
Proceeds from sales of investments3318
All other investing activities2836
Total cash used in investing activities(1,064)(1,418)
Cash flows from financing activities:
Proceeds from the issuance of common stock in connection with stock-based compensation, net5115
Payment of dividends(621)(615)
Net borrowings (maturities longer than 90 days)2,605—
Net repayments of borrowings (maturities of 90 days or less)(9)(719)
Net repayments of borrowings (maturities longer than 90 days)—(265)
All other financing activities(53)(80)
Total cash provided by (used in) financing activities1,973(1,664)
Effect of exchange rate changes on cash and equivalents(172)(332)
Net change in cash and equivalents6,2822,564
Beginning balance of cash and equivalents5,9952,586
Ending balance of cash and equivalents$12,277$5,150
Supplemental disclosures:
Cash interest payments$289$250
Cash income tax payments1,1701,094

See the accompanying Notes to the Consolidated Condensed Financial Statements.

DANAHER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(unaudited)

NOTE 1. GENERAL

The Consolidated Condensed Financial Statements included herein have been prepared by Danaher Corporation (“Danaher” or the “Company”) without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). In this quarterly report, the terms “Danaher” or the “Company” refer to Danaher Corporation, Danaher Corporation and its consolidated subsidiaries, or the consolidated subsidiaries of Danaher Corporation, as the context requires. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) have been condensed or omitted pursuant to SEC rules and regulations; however, the Company believes that the disclosures are adequate to make the information presented not misleading. The Consolidated Condensed Financial Statements included herein should be read in conjunction with the financial statements as of and for the year ended December 31, 2022 and the Notes thereto included in the Company’s 2022 Annual Report on Form 10-K filed on February 22, 2023 (the “2022 Annual Report”).

In the opinion of the Company, the accompanying financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position of the Company as of September 29, 2023 and December 31, 2022, its results of operations for the three and nine-month periods ended September 29, 2023 and September 30, 2022 and its cash flows for each of the nine-month periods then ended.

There have been no changes to the Company’s significant accounting policies described in the Company’s 2022 Annual Report that have a material impact on the Company’s Consolidated Condensed Financial Statements and the related Notes. Reclassifications of certain prior year amounts have been made to conform to the current year presentation.

Accounting Standards Recently Adopted—In August 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-05, Business Combinations—Joint Venture Formations (Subtopic 805-60): Recognition and Initial Measurement. The ASU requires that a joint venture apply a new basis of accounting upon formation in which the joint venture will recognize and initially measure its assets and liabilities at fair value (with exceptions to fair value measurement that are consistent with the business combinations guidance). The ASU is effective prospectively for all joint venture formations with a formation date on or after January 1, 2025, with early adoption permitted. The Company early adopted the ASU effective September 30, 2023 on a prospective basis.

Operating Leases—As of September 29, 2023 and December 31, 2022, operating lease right-of-use assets where the Company was the lessee were approximately $1.0 billion and are included within other long-term assets in the accompanying Consolidated Condensed Balance Sheets. The associated operating lease liabilities were approximately $1.1 billion as of September 29, 2023 and December 31, 2022, and are included in accrued expenses and other liabilities and other long-term liabilities.

NOTE 2. PENDING ACQUISITION

On August 28, 2023, the Company entered into a definitive agreement to acquire all of the outstanding shares of Abcam plc (“Abcam”) for a cash purchase price of approximately $5.7 billion, including assumed indebtedness and net of acquired cash (the “Abcam Acquisition”). Abcam is a leading global supplier of protein consumables, including highly validated antibodies, reagents, biomarkers and assays to address targets in biological pathways that are critical for advancing drug discovery, life sciences research and diagnostics. Abcam generated revenues of £362 million in 2022. The Company expects to include the Abcam business within its Life Sciences segment. The transaction is subject to customary closing conditions, including receipt of applicable regulatory approvals and Abcam shareholder approval.

The Company expects to finance the Abcam Acquisition using cash on hand and/or the proceeds from the issuance of commercial paper.

NOTE 3. ENVIRONMENTAL & APPLIED SOLUTIONS SEPARATION

On September 30, 2023 (the “Distribution Date”), the Company completed the separation (the “Separation”) of its former Environmental & Applied Solutions business by distributing to Danaher stockholders on a pro rata basis all of the issued and outstanding common stock of Veralto Corporation (“Veralto”), the entity Danaher incorporated to hold such businesses. To effect the Separation, Danaher distributed to its stockholders one share of Veralto common stock for every three shares of Danaher common stock outstanding as of September 13, 2023, the record date for the distribution. Fractional shares of Veralto common stock that otherwise would have been distributed were aggregated and sold into the public market and the proceeds distributed to Danaher stockholders who otherwise would have received fractional shares of Veralto common stock.

In preparation for the Separation, in September 2023 Veralto issued approximately $2.6 billion in debt securities (refer to Note 11). The proceeds of these issuances were used to fund the approximately $2.6 billion net cash distributions Veralto made to Danaher prior to the Distribution Date. In accordance with the applicable tax rules, Danaher intends to use a portion of the cash distribution proceeds it received from Veralto to meet upcoming commercial paper and bond maturities and to use the balance of the proceeds to partially fund certain of the Company’s regular, quarterly cash dividends to shareholders.

As the disposition occurred during the fourth quarter of 2023, the Company will classify Veralto as a discontinued operation in its historical financial statements beginning with the fourth quarter of 2023. The Environmental & Applied Solutions business had sales for the year ended December 31, 2022 of approximately $4.8 billion. Below is a summary of the Environmental & Applied Solutions business' sales and operating profit ($ in millions):

Three-Month Period EndedNine-Month Period Ended
September 29, 2023September 30, 2022September 29, 2023September 30, 2022
Sales$1,249$1,208$3,712$3,593
Operating profit286286887829

The Company incurred separation costs of $36 million ($31 million after-tax) and $101 million ($90 million after-tax) in the three and nine-month periods ended September 29, 2023, respectively, related to preparation for the separation of the Company’s Environmental & Applied Solutions business primarily related to professional fees for legal, tax, finance, banking and information technology services and duplicative general and administrative costs.

In connection with the Separation, Danaher and Veralto entered into various agreements to effect the Separation and provide a framework for their relationship after the Separation, including a separation and distribution agreement, transition services agreement, an employee matters agreement, a tax matters agreement, an intellectual property matters agreement and a Danaher Business System (“DBS”) license agreement. These agreements provide for the allocation between Danaher and Veralto of assets, employees, liabilities and obligations (including investments, property and employee benefits and tax-related assets and liabilities) attributable to periods prior to, at and after Veralto’s separation from Danaher and will govern certain relationships between Danaher and Veralto after the Separation.

NOTE 4. NET EARNINGS PER COMMON SHARE

Basic net earnings per common share (“EPS”) is calculated by taking net earnings less the Mandatory Convertible Preferred Stock (“MCPS”) dividends divided by the weighted average number of common shares outstanding for the applicable period. Diluted net EPS is computed by taking net earnings less the MCPS dividends divided by the weighted average number of common shares outstanding increased by the number of additional shares that would have been outstanding had the potentially dilutive common shares been issued and reduced by the number of shares the Company could have repurchased with the proceeds from the issuance of the potentially dilutive shares. For the three-month periods ended September 29, 2023 and September 30, 2022, approximately 2.5 million and 538 thousand options, respectively, and for the nine-month periods ended September 29, 2023 and September 30, 2022, approximately 3.2 million and 1.1 million options, respectively, to purchase shares were excluded from the diluted EPS calculation, as the impact of their inclusion would have been anti-dilutive. Basic and diluted EPS are computed independently for each quarter and year-to-date period, and each period involves the use of different weighted-average share count figures. As a result, and after factoring the effect of rounding to the nearest cent per share, the sum of prior quarterly EPS figures may not equal year-to-date EPS.

The impact of the MCPS Series B calculated under the if-converted method was anti-dilutive for the nine-month period ended September 29, 2023 and the three and nine-month periods ended September 30, 2022, and as such 3.4 million shares for the nine-month period ended September 29, 2023 and 8.6 million for both the three and nine-month periods ended September 30, 2022 underlying the MCPS Series B were excluded from the calculation of diluted EPS and the related MCPS Series B dividends of $21 million for the nine-month period ended September 29, 2023 and $21 million and $64 million for the three and nine-month periods ended September 30, 2022, respectively, were included in the calculation of net earnings for diluted EPS. As of April 17, 2023, all outstanding shares of the MCPS Series B converted into 8.6 million shares of the Company’s common stock.

The impact of the MCPS Series A calculated under the if-converted method was dilutive for the nine-month period ended September 30, 2022, and as such 4.0 million shares underlying the MCPS Series A were included in the calculation of diluted EPS. The related MCPS Series A dividends of $20 million for the nine-month period ended September 30, 2022 were excluded from the calculation of net earnings for diluted EPS. On April 15, 2022, all outstanding shares of the MCPS Series A converted into 11.0 million shares of the Company’s common stock. Refer to Note 15 for additional information about the MCPS Series A and B conversions.

Information related to the calculation of net earnings per common share is summarized as follows ($ and shares in millions, except per share amounts):

Three-Month Period EndedNine-Month Period Ended
September 29, 2023September 30, 2022September 29, 2023September 30, 2022
Numerator:
Net earnings$1,129$1,572$3,685$4,977
MCPS dividends—(21)(21)(84)
Net earnings attributable to common stockholders for Basic EPS1,1291,5513,6644,893
Adjustment for MCPS dividends for dilutive MCPS———20
Net earnings attributable to common stockholders after assumed conversions for Diluted EPS$1,129$1,551$3,664$4,913
Denominator:
Weighted average common shares outstanding used in Basic EPS739.4728.5735.4723.8
Incremental common shares from:
Assumed exercise of dilutive options and vesting of dilutive restricted stock units (“RSUs”) and performance stock units (“PSUs”)6.58.96.79.2
Weighted average MCPS converted shares———4.0
Weighted average common shares outstanding used in Diluted EPS745.9737.4742.1737.0
Basic EPS$1.53$2.13$4.98$6.76
Diluted EPS$1.51$2.10$4.94$6.67

NOTE 5. REVENUE

The following tables present the Company’s revenues disaggregated by geographical region and revenue type for the three and nine-month periods ended September 29, 2023 and September 30, 2022 ($ in millions). Sales taxes and other usage-based taxes collected from customers are excluded from revenue.

BiotechnologyLife SciencesDiagnosticsEnvironmental & Applied SolutionsTotal
For the Three-Month Period Ended September 29, 2023:
Geographical region:
North America(a)$593$728$1,054$599$2,974
Western Europe5083563342691,467
Other developed markets(b)7811710530330
High-growth markets(c)4855057613512,102
Total$1,664$1,706$2,254$1,249$6,873
Revenue type:
Recurring$1,390$1,062$1,986$744$5,182
Nonrecurring2746442685051,691
Total$1,664$1,706$2,254$1,249$6,873
For the Three-Month Period Ended September 30, 2022:
Geographical region:
North America(a)$723$785$1,397$575$3,480
Western Europe5993143882401,541
Other developed markets(b)7111812228339
High-growth markets(c)6605067723652,303
Total$2,053$1,723$2,679$1,208$7,663
Revenue type:
Recurring$1,662$1,038$2,396$729$5,825
Nonrecurring3916852834791,838
Total$2,053$1,723$2,679$1,208$7,663
BiotechnologyLife SciencesDiagnosticsEnvironmental & Applied SolutionsTotal
For the Nine-Month Period Ended September 29, 2023:
Geographical region:
North America(a)$1,822$2,193$3,160$1,748$8,923
Western Europe1,8391,0951,1198304,883
Other developed markets(b)229369322901,010
High-growth markets(c)1,5231,5542,2601,0446,381
Total$5,413$5,211$6,861$3,712$21,197
Revenue type:
Recurring$4,435$3,205$6,056$2,210$15,906
Nonrecurring9782,0068051,5025,291
Total$5,413$5,211$6,861$3,712$21,197
For the Nine-Month Period Ended September 30, 2022:
Geographical region:
North America(a)$2,303$2,301$3,938$1,674$10,216
Western Europe1,9389821,3657755,060
Other developed markets(b)244366361921,063
High-growth markets(c)2,0501,4412,2201,0526,763
Total$6,535$5,090$7,884$3,593$23,102
Revenue type:
Recurring$5,267$3,143$7,067$2,138$17,615
Nonrecurring1,2681,9478171,4555,487
Total$6,535$5,090$7,884$3,593$23,102

(a) The Company defines North America as the United States and Canada.

(b) The Company defines other developed markets as Japan, Australia and New Zealand.

(c) The Company defines high-growth markets as developing markets of the world experiencing accelerated growth, over extended periods, in gross domestic product and infrastructure which include Eastern Europe, the Middle East, Africa, Latin America (including Mexico) and Asia (with the exception of Japan, Australia and New Zealand). The Company defines developed markets as all markets of the world that are not high-growth markets.

The Company sells equipment to customers as well as consumables and services, some of which customers purchase on a recurring basis. Consumables sold for use with the equipment sold by the Company are typically critical to the use of the equipment and are typically used on a one-time or limited basis, requiring frequent replacement in the customer’s operating cycle. Examples of these consumables include reagents used in diagnostic tests, chromatography resins used for research and bioprocessing, filters used in filtration, separation and purification processes and (prior to the Separation) cartridges for marking and coding equipment. Additionally, some of the Company’s consumables are used on a standalone basis, such as custom nucleic acids, genomics solutions and (prior to the Separation) water treatment solutions. The Company separates its goods and services between those typically sold to a customer on a recurring basis and those typically sold to a customer on a nonrecurring basis. Recurring revenue includes revenue from consumables, services and operating-type leases (“OTLs”). Nonrecurring revenue includes sales of equipment and sales-type leases (“STLs”). OTLs and STLs are included in the above revenue amounts. For the three-month periods ended September 29, 2023 and September 30, 2022, lease revenue was $125 million and $120 million, respectively. For the nine-month periods ended September 29, 2023 and September 30, 2022, lease revenue was $363 million and $361 million, respectively.

Remaining performance obligations related to Topic 606, Revenue from Contracts with Customers, represent the aggregate transaction price allocated to performance obligations with an original contract term greater than one year which are fully or partially unsatisfied at the end of the period. As of September 29, 2023, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $4.9 billion. The Company expects to recognize revenue on approximately 51% of the remaining performance obligations over the next 12 months, 27% over the subsequent 12 months, and the remainder recognized thereafter.

The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (“contract assets”) and deferred revenue, customer deposits and billings in excess of revenue recognized (“contract liabilities”) on the Consolidated Condensed Balance Sheets.

Most of the Company’s long-term contracts are billed as work progresses in accordance with the contract terms and conditions, either at periodic intervals or upon achievement of certain milestones. Often this results in billing occurring subsequent to revenue recognition resulting in contract assets. Contract assets are generally classified as other current assets in the Consolidated Condensed Balance Sheets. The balance of contract assets as of September 29, 2023 and December 31, 2022 was $63 million and $90 million, respectively.

The Company often receives cash payments from customers in advance of the Company’s performance resulting in contract liabilities that are classified as either current or long-term in the Consolidated Condensed Balance Sheets based on the timing of when the Company expects to recognize revenue. As of both September 29, 2023 and December 31, 2022, contract liabilities were approximately $1.9 billion, and are included within accrued expenses and other liabilities and other long-term liabilities in the accompanying Consolidated Condensed Balance Sheets. Revenue recognized during both the nine-month periods ended September 29, 2023 and September 30, 2022 that was included in the contract liability balance on December 31, 2022 and December 31, 2021, respectively, was approximately $1.2 billion. Contract assets and liabilities are reported on a net basis on the accompanying Consolidated Condensed Balance Sheets on a contract-by-contract basis at the end of each reporting period.

NOTE 6. SEGMENT INFORMATION

The Company operates and reports its results in business segments consisting of the Biotechnology, Life Sciences, Diagnostics, and (prior to the Separation) Environmental & Applied Solutions segments. When determining the reportable segments, the Company aggregated operating segments based on their similar economic and operating characteristics. Operating profit represents total revenues less operating expenses, excluding nonoperating income and expense, interest and income taxes. Operating profit amounts in the Other segment consist of unallocated corporate costs, including separation costs related to preparation for the separation of the Company’s Environmental & Applied Solutions business of $36 million and $101 million in the three and nine-month periods ended September 29, 2023, respectively, and other costs not considered part of management’s evaluation of reportable segment operating performance. Intersegment amounts are not significant and are eliminated to arrive at consolidated totals.

Segment results are shown below ($ in millions):

Three-Month Period EndedNine-Month Period Ended
September 29, 2023September 30, 2022September 29, 2023September 30, 2022
Sales:
Biotechnology$1,664$2,053$5,413$6,535
Life Sciences1,7061,7235,2115,090
Diagnostics2,2542,6796,8617,884
Environmental & Applied Solutions1,2491,2083,7123,593
Total$6,873$7,663$21,197$23,102
Operating profit:
Biotechnology$417$691$1,493$2,315
Life Sciences3133549741,022
Diagnostics5397611,6402,447
Environmental & Applied Solutions286286887829
Other(117)(77)(333)(221)
Total$1,438$2,015$4,661$6,392

NOTE 7. INCOME TAXES

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

Three-Month Period EndedNine-Month Period Ended
September 29, 2023September 30, 2022September 29, 2023September 30, 2022
Effective tax rate19.2%18.6%19.7%18.4%

The Company operates globally, including in certain jurisdictions with lower tax rates than the United States (“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 29, 2023 differs from the U.S. federal statutory rate of 21.0% due to the geographic mix of earnings described above. Discrete tax benefits from excess tax benefits from stock-based compensation were offset by charges related to tax costs related to the separation of the Environmental & Applied Solutions business and changes in estimates associated with prior period uncertain tax positions.

The effective tax rate for the nine-month period ended September 29, 2023 differs from the U.S. federal statutory rate of 21.0% principally due to the geographic mix of earnings described above, partially offset by net discrete tax charges of $13 million. Net discrete tax charges related primarily to tax costs related to the separation of the Environmental & Applied Solutions business, tax costs related to legal and operational actions taken to realign certain businesses and changes in estimates associated with prior period uncertain tax positions, partially offset by excess tax benefits from stock-based compensation and interest on prior year tax refunds. The net discrete charges increased the effective tax rate by 0.3% for the nine-month period ended September 29, 2023.

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 to 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 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.

In the fourth quarter of 2022, the U.S. Internal Revenue Service (“IRS”) proposed significant adjustments to the Company’s taxable income for the years 2016 through 2018 with respect to the deferral of tax on certain premium income related to the Company’s self-insurance programs. For income tax purposes, the recognition of premium income has been deferred in accordance with U.S. tax laws related to insurance. The IRS challenged the deferral of premium income for certain types of the Company’s self-insurance policies. The proposed adjustments would have increased the Company’s taxable income over the 2016 through 2018 periods by approximately $2.5 billion. In the first quarter of 2023, the Company settled these proposed adjustments with the IRS, although the audit is still open with respect to other matters for the 2016 through 2018 period. The impact of the settlement with respect to the Company’s self-insurance policies was not material to the Company’s financial statements, including cash flows and the effective tax rate. As the settlement with the IRS was specific to the audit period, the settlement does not preclude the IRS from proposing similar adjustments to the Company’s self-insurance programs with respect to periods subsequent to 2018. Management believes the positions the Company has taken in its U.S. tax returns are in accordance with the relevant tax laws.

For a description of the Company’s significant tax matters, reference is made to the financial statements as of and for the year ended December 31, 2022 and Note 7 thereto included in the Company’s 2022 Annual Report.

NOTE 8. OTHER INCOME (EXPENSE), NET

The following sets forth the components of the Company’s other income (expense), net ($ in millions):

Three-Month Period EndedNine-Month Period Ended
September 29, 2023September 30, 2022September 29, 2023September 30, 2022
Other components of net periodic benefit costs$1$13$6$28
Investment gains (losses):
Realized investment gains (losses)1202712091
Unrealized investment gains (losses)(168)(91)(178)(277)
Total investment gains (losses)(48)(64)(58)(186)
Total other income (expense), net$(47)$(51)$(52)$(158)

Other Components of Net Periodic Benefit Costs

The Company disaggregates the service cost component of net periodic benefit costs of noncontributory defined benefit pension plans and other postretirement employee benefit plans and presents the other components of net periodic benefit costs in other income (expense), net. These other components of net periodic benefit costs include the assumed rate of return on plan assets, partially offset by amortization of actuarial losses and interest. The Company’s net periodic benefit costs for the nine-month period ended September 30, 2022 included a settlement loss of $10 million ($9 million after-tax) as a result of the transfer of a portion of its non-U.S. pension liabilities related to one defined benefit plan to a third-party.

Investment Gains (Losses)

The Company estimates the fair value of its investments in equity securities using the Fair Value Alternative and records adjustments to fair value within net earnings. Additionally, the Company is a limited partner in partnerships that invest primarily in early-stage companies. While the partnerships record these investments at fair value, the Company’s investments in the partnerships are accounted for under the equity method of accounting. The investment gains (losses) include realized and unrealized gains and losses related to changes in the fair value of the Company’s investments in equity securities and the Company’s equity in earnings of the partnerships that reflect the changes in fair value of the investments of the partnerships, and related management fees and operating expenses. In addition, the Company recorded an impairment of $46 million ($35 million after-tax) related to equity method investments that is reflected in unrealized investment gains (losses) for the nine-month period ended September 29, 2023.

NOTE 9. GOODWILL AND OTHER INTANGIBLE ASSETS

The following is a rollforward of the Company’s goodwill ($ in millions):

Balance, December 31, 2022$39,752
Adjustments due to finalization of purchase price allocations(2)
Foreign currency translation and other(595)
Balance, September 29, 2023$39,155

The carrying value of goodwill by segment is summarized as follows ($ in millions):

September 29, 2023December 31, 2022
Biotechnology$21,643$22,087
Life Sciences8,2278,314
Diagnostics6,8056,875
Environmental & Applied Solutions2,4802,476
Total$39,155$39,752

The Company has not identified any “triggering” events which indicate an impairment of goodwill in 2023.

The Company reviews identified intangible assets for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. The Company identified impairment triggers during the second and third quarters of 2023 and the second quarter of 2022 which resulted in the impairment charges of certain long-lived assets, including technology, customer relationships and trade names. The Company recorded impairment charges totaling $6 million and $40 million in the three and nine-month periods ended September 29, 2023, respectively, and $9 million in the nine-month period ended September 30, 2022 related to these long-lived assets. In addition, during the nine-month period ended September 29, 2023, the Company recorded a $14 million impairment related to a facility.

NOTE 10. FAIR VALUE MEASUREMENTS

Accounting standards define fair value based on an exit price model, establish a framework for measuring fair value where the Company’s assets and liabilities are required to be carried at fair value and provide for certain disclosures related to the valuation methods used within a valuation hierarchy as established within the accounting standards. This hierarchy prioritizes the inputs into three broad levels as follows. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets in markets that are not active, or other observable characteristics for the asset or liability, including interest rates, yield curves and credit risks, or inputs that are derived principally from, or corroborated by, observable market data through correlation. Level 3 inputs are unobservable inputs based on the Company’s assumptions. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement in its entirety.

A summary of financial assets that are measured at fair value on a recurring basis were as follows ($ in millions):

BalanceQuoted Prices in Active Market (Level 1)Significant Other Observable Inputs (Level 2)Significant Unobservable Inputs (Level 3)
September 29, 2023December 31, 2022September 29, 2023December 31, 2022September 29, 2023December 31, 2022September 29, 2023December 31, 2022
Assets:
Available-for-sale debt securities$4$11$—$—$4$11$—$—
Investment in equity securities44431513116————
Cross-currency swap derivative contracts547653——547653——

Available-for-sale debt securities, which are included in other long-term assets in the accompanying Consolidated Condensed Balance Sheets, are measured at fair value using quoted prices reported by investment brokers and dealers based on the underlying terms of the security and comparison to similar securities traded on an active market. As of September 29, 2023 and December 31, 2022, available-for-sale debt securities primarily included U.S. Treasury Notes and corporate debt securities.

The Company’s investments in equity securities consist of investments in publicly traded equity securities and investments in non-marketable equity securities. The publicly traded securities are classified as Level 1 in the fair value hierarchy as they are measured based on quotes in active markets. For the non-marketable equity securities, the Company estimates the fair value of the investments in equity securities based on the measurement alternative and adjusts for impairments and observable price changes with a same or similar security from the same issuer within net earnings (the “Fair Value Alternative”). The Company’s investments in these equity securities are not classified in the fair value hierarchy due to the use of these measurement methods. Additionally, the Company is a limited partner in partnerships that invest primarily in early-stage companies. While the partnerships record these investments at fair value, the Company’s investments in the partnerships are accounted for under the equity method of accounting and are not subject to fair value measurement disclosures noted above. As of both September 29, 2023 and December 31, 2022, the Company’s equity method investments included investments in partnerships with a carrying value of approximately $1.5 billion. Refer to Note 8 for additional information on gains and losses on the Company’s investments including investments in the partnerships.

The cross-currency swap derivative contracts are used to partially hedge the Company’s net investments in non-U.S. operations against adverse movements in exchange rates between the U.S. dollar and the Danish kroner, Japanese yen, euro and Swiss franc. The Company also uses cross-currency swap derivative contracts to hedge the exchange rate exposure from long-term debt issuances in a foreign currency other than the functional currency of the borrower. The cross-currency swap derivative contracts are classified as Level 2 in the fair value hierarchy as they are measured using the income approach with the relevant interest rates and current foreign currency exchange rates and forward curves as inputs. Refer to Note 12 for additional information.

Fair Value of Other Financial Instruments

The carrying amounts and fair values of the Company’s other financial instruments were as follows ($ in millions):

September 29, 2023December 31, 2022
Carrying AmountFair ValueCarrying AmountFair Value
Debt obligations:
Notes payable and current portion of long-term debt$2,547$2,534$591$584
Long-term debt19,51316,24519,08616,079

As of September 29, 2023 and December 31, 2022, short and long-term borrowings were categorized as Level 1. The fair value of long-term borrowings was based on quoted market prices. The difference between the fair value and the carrying amounts of long-term borrowings is attributable to changes in market interest rates and/or the Company’s credit ratings subsequent to the incurrence of the borrowing. The fair values of borrowings with original maturities of one year or less, as well as cash and cash equivalents, trade accounts receivable, net and trade accounts payable generally approximate their carrying amounts due to the short-term maturities of these instruments.

NOTE 11. FINANCING

As of September 29, 2023, the Company was in compliance with all of its debt covenants. The components of the Company’s debt were as follows ($ in millions):

Outstanding Amount
Description and Aggregate Principal AmountSeptember 29, 2023December 31, 2022
Euro-denominated commercial paper (€1.9 billion)(e)$1,982$2,013
0.5% senior unsecured bonds due 12/08/2023 (CHF 540 million) (the “2023 CHF Bonds”)(c)590584
1.7% senior unsecured notes due 3/30/2024 (€900 million) (the “2024 Euronotes”)(f)951962
2.2% senior unsecured notes due 11/15/2024 ($700 million) (the “2024 Biopharma Notes”)(b)699698
3.35% senior unsecured notes due 9/15/2025 ($500 million) (the “2025 U.S. Notes”)(f)499499
0.2% senior unsecured notes due 3/18/2026 (€1.3 billion) (the “2026 Biopharma Euronotes”)(b)1,3171,333
2.1% senior unsecured notes due 9/30/2026 (€800 million) (the “2026 Euronotes”)(f)844854
0.3% senior unsecured notes due 5/11/2027 (¥30.8 billion) (the “2027 Yen Notes”)(d)206234
1.2% senior unsecured notes due 6/30/2027 (€600 million) (the “2027 Euronotes”)(a)632639
0.45% senior unsecured notes due 3/18/2028 (€1.3 billion) (the “2028 Biopharma Euronotes”)(b)1,3151,331
1.125% senior unsecured bonds due 12/08/2028 (CHF 210 million) (the “2028 CHF Bonds”)(c)232230
2.6% senior unsecured notes due 11/15/2029 ($800 million) (the “2029 Biopharma Notes”)(b)796796
2.5% senior unsecured notes due 3/30/2030 (€800 million) (the “2030 Euronotes”)(f)846856
0.75% senior unsecured notes due 9/18/2031 (€1.8 billion) (the “2031 Biopharma Euronotes”)(b)1,8411,863
0.65% senior unsecured notes due 5/11/2032 (¥53.2 billion) (the “2032 Yen Notes”)(d)355404
1.35% senior unsecured notes due 9/18/2039 (€1.3 billion) (the “2039 Biopharma Euronotes”)(b)1,3071,323
3.25% senior unsecured notes due 11/15/2039 ($900 million) (the “2039 Biopharma Notes”)(b)891890
4.375% senior unsecured notes due 9/15/2045 ($500 million) (the “2045 U.S. Notes”)(f)499499
1.8% senior unsecured notes due 9/18/2049 (€750 million) (the “2049 Biopharma Euronotes”)(b)784794
3.4% senior unsecured notes due 11/15/2049 ($900 million) (the “2049 Biopharma Notes”)(b)890889
2.6% senior unsecured notes due 10/01/2050 ($1.0 billion) (the “2050 U.S. Notes”)(f)981981
2.8% senior unsecured notes due 12/10/2051 ($1.0 billion) (the “2051 U.S. Notes”)(f)984984
Other1521
Subtotal$19,456$19,677
Veralto debt:
5.50% senior unsecured bonds due 9/18/2026 ($700 million) (the “2026 Veralto Bonds”)(g)695—
5.35% senior unsecured bonds due 9/18/2028 ($700 million) (the “2028 Veralto Bonds”)(g)694—
4.15% senior unsecured bonds due 9/19/2031 (€500 million) (the “2031 Veralto Bonds”)(g)523—
5.45% senior unsecured bonds due 9/18/2033 ($700 million) (the “2033 Veralto Bonds”)(g)692—
Total Veralto debt$2,604$—
Total debt22,06019,677
Less: currently payable(2,547)(591)
Long-term debt$19,513$19,086

(a) Issued by DH Europe Finance S.A. (“Danaher International”).

(b) Issued by DH Europe Finance II S.a.r.l. (“Danaher International II”).

(c) Issued by DH Switzerland Finance S.A. (“Danaher Switzerland”).

(d) Issued by DH Japan Finance S.A. (“Danaher Japan”).

(e) Issued by Danaher Corporation or Danaher International II.

(f) Issued by Danaher Corporation.

(g) Issued by Veralto Corporation.

Debt discounts, premiums and debt issuance costs totaled $135 million and $118 million as of September 29, 2023 and December 31, 2022, respectively, and have been netted against the aggregate principal amounts of the related debt in the components of debt table above. For additional details regarding the Company’s debt financing, refer to Note 14 of the Company’s financial statements as of and for the year ended December 31, 2022 included in the Company’s 2022 Annual Report.

The Company has historically satisfied short-term liquidity needs that are not met through operating cash flow and available cash primarily through issuances of commercial paper under its U.S. dollar and euro-denominated commercial paper programs.

As of September 29, 2023, borrowings outstanding under the Company’s euro-denominated commercial paper program had a weighted average annual interest rate of 4.0% and a weighted average remaining maturity of approximately 38 days.

Revolving Credit Facility

On August 11, 2023, the Company replaced its existing $5.0 billion unsecured, multiyear revolving credit facility with a third amended and restated $5.0 billion unsecured, multiyear revolving credit facility (the “Credit Facility”) with a syndicate of lenders. The Credit Facility expires on August 11, 2028, subject to a one-year extension option at the request of Danaher and with the consent of the lenders. The Credit Facility also contains an expansion option permitting Danaher to request up to five increases of up to an aggregate additional $2.5 billion from lenders that elect to make such increase available, upon the satisfaction of certain conditions. No borrowings were outstanding under the existing credit facility at the time it was replaced with the Credit Facility.

Borrowings under the Credit Facility bear interest as follows: (i) in the case of borrowings denominated in U.S. dollars, (1) Term Secured Overnight Financing Rate (“SOFR”) Loans (as defined in the Credit Facility) bear interest at a variable rate equal to the Term SOFR (as defined in the Credit Facility) plus a margin of between 58.5 and 101.5 basis points, depending on Danaher’s long-term debt credit rating; (2) Base Rate Committed Loans and Swing Line Loans (each as defined in the Credit Facility) bear interest at a variable rate equal to the highest of (a) the Federal funds rate (as published by the Federal Reserve Bank of New York from time to time) plus 1/2 of 1%, (b) Bank of America’s “prime rate” as publicly announced from time to time, (c) Term SOFR (based on one-month interest period plus 1%) and (d) 1%, plus in each case a margin of between 0 to 1.5 basis points depending on Danaher’s long-term debt credit rating; and (ii) in the case of borrowings denominated in an Alternative Currency (as defined in the Credit Facility), Alternative Currency Loans and Swing Line Loans (each as defined in the Credit Facility) bear interest at the applicable variable benchmark rate plus, in each case, a margin of between 58.5 and 101.5 basis points, depending on Danaher’s long-term debt credit rating. In no event will Term SOFR Loans, Swing Line Loans or Alternative Currency Loans bear interest at a rate lower than 0.0%. In addition, Danaher is required to pay a per annum facility fee of between 4.0 and 11.0 basis points (depending on Danaher’s long-term debt credit rating) based on the aggregate commitments under the Credit Facility, regardless of usage.

The Credit Facility requires Danaher to maintain a Consolidated Leverage Ratio (as defined in the Credit Facility) of 0.65 to 1.00 or less. Borrowings under the Credit Facility are prepayable at Danaher’s option at any time in whole or in part without premium or penalty.

Danaher’s obligations under the Credit Facility are unsecured. Danaher has unconditionally and irrevocably guaranteed the obligations of each of its subsidiaries in the event a subsidiary is named a borrower under the Credit Facility. The Credit Facility contains customary representations, warranties, conditions precedent, events of default, indemnities and affirmative and negative covenants. Danaher intends to use the Credit Facility for liquidity support for Danaher’s U.S. dollar and euro-denominated commercial paper programs and for general corporate purposes.

Indebtedness Related to the Veralto Separation

In September 2023, the Company received net cash distributions of approximately $2.6 billion from Veralto as partial consideration for the Company’s contribution of assets to Veralto in connection with the Separation. Veralto financed these cash payments through the issuance of approximately $2.6 billion of debt, consisting of $700 million aggregate principal amount of 5.50% senior unsecured bonds due 2026, $700 million aggregate principal amount of 5.35% senior unsecured bonds due 2028, $700 million aggregate principal amount of 5.45% senior unsecured bonds due 2033 and €500 million aggregate principal amount of 4.15% senior unsecured bonds due 2031 (collectively, the “Veralto Debt”). Danaher initially guaranteed the Veralto Debt, and the guarantee automatically terminated effective as of the Distribution Date. As of September 29, 2023, Veralto was a wholly-owned, consolidated subsidiary of the Company, and as a result, the Company’s Consolidated Balance Sheet as of September 29, 2023 includes the Veralto Debt. The transfer of the liabilities associated with the Veralto Debt, as well as all other assets and liabilities transferred to Veralto, will be reflected in the Company's financial statements in the fourth quarter of 2023.

In addition, Veralto Corporation entered into a revolving credit agreement with a syndicate of lenders providing for a five-year $1.5 billion unsecured revolving credit facility (the “Veralto Credit Facility”). No amounts were outstanding under the Veralto Credit Facility at any time prior to the Separation. As of September 29, 2023, Veralto was in compliance with all covenants under the Veralto Credit Facility.

Guarantors of Debt

The Company has guaranteed long-term debt and commercial paper issued by certain of its wholly-owned finance subsidiaries: Danaher International, Danaher International II, Danaher Switzerland and Danaher Japan. All of the outstanding and future securities issued by each of these entities are or will be fully and unconditionally guaranteed by the Company and these guarantees rank on parity with the Company’s unsecured and unsubordinated indebtedness. In addition, prior to the Separation, the Company guaranteed the long-term debt issued by Veralto Corporation. This guarantee terminated as of the time of the Separation.

NOTE 12. HEDGING TRANSACTIONS AND DERIVATIVE FINANCIAL INSTRUMENTS

The Company uses cross-currency swap derivative contracts to partially hedge its net investments in non-U.S. operations against adverse movements in exchange rates between the U.S. dollar and the Danish kroner, Japanese yen, euro and Swiss franc. The cross-currency swap derivative contracts are agreements to exchange fixed-rate payments in one currency for fixed-rate payments in another currency. These contracts effectively convert U.S. dollar-denominated bonds to obligations denominated in Danish kroner, Japanese yen, euro and Swiss franc, and partially offset the impact of changes in currency rates on the Company’s foreign currency denominated net investments. These contracts also reduce the interest rate from the stated interest rates on the U.S. dollar-denominated debt to the interest rates of the swaps. The changes in the spot rate of these instruments are recorded in accumulated other comprehensive income (loss) in stockholders’ equity, partially offsetting the foreign currency translation adjustment of the Company’s related net investment that is also recorded in accumulated other comprehensive income (loss). The interest income or expense from these swaps are recorded in interest expense in the accompanying Consolidated Condensed Statements of Earnings consistent with the classification of interest expense attributable to the underlying debt. These instruments mature on dates ranging from September 2025 to November 2032.

The Company also uses cross-currency swap derivative contracts to hedge U.S. dollar-denominated long-term debt issuances in a foreign subsidiary whose functional currency is the euro against adverse movements in exchange rates between the U.S. dollar and the euro. These contracts effectively convert these U.S. dollar-denominated bonds to obligations denominated in euro. The changes in the fair value of these instruments are recorded in accumulated other comprehensive income (loss), with a reclassification from accumulated other comprehensive income (loss) to net earnings to offset the remeasurement of the hedged debt that is also recorded in net earnings. The interest income or expense from these swaps are recorded in interest expense in the accompanying Consolidated Condensed Statements of Earnings consistent with the classification of interest expense attributable to the underlying debt. These instruments mature on dates ranging from November 2024 to November 2049.

The Company has also issued foreign currency denominated long-term debt as partial hedges of its net investments in foreign operations against adverse movements in exchange rates between the U.S. dollar and the euro, Japanese yen and Swiss franc. These foreign currency denominated long-term debt issuances are designated and qualify as nonderivative hedging instruments. Accordingly, the foreign currency translation of these debt instruments is recorded in accumulated other comprehensive income (loss), offsetting the foreign currency translation adjustment of the Company’s related net investment that is also recorded in accumulated other comprehensive income (loss). These instruments mature on dates ranging from October 2023 to May 2032.

The Company used interest rate swap agreements to hedge the variability in cash flows due to changes in benchmark interest rates related to a portion of the U.S. debt the Company issued to fund the acquisition of Cytiva and a portion of the 2051 U.S. Notes. These contracts effectively fixed the interest rate for a portion of the Company’s U.S. dollar-denominated debt equal to the notional amount of the swaps to the rate specified in the interest rate swap agreements and were settled in November 2019 and December 2021, respectively. The changes in the fair value of these instruments were recorded in accumulated other comprehensive income (loss) prior to the issuance of the debt and are subsequently being reclassified to interest expense over the life of the related debt.

The following table summarizes the notional values as of September 29, 2023 and September 30, 2022 and pretax impact of changes in the fair values of instruments designated as net investment hedges and cash flow hedges in accumulated other comprehensive income (“OCI”) for the three and nine-month periods ended September 29, 2023 and September 30, 2022 ($ in millions):

Original Notional AmountNotional Amount OutstandingGain (Loss) Recognized in OCIAmounts Reclassified from OCI
For the Three-Month Period Ended September 29, 2023:
Net investment hedges:
Cross-currency contracts$3,875$3,000$28$—
Foreign currency denominated debt6,1796,179181—
Cash flow hedges:
Cross-currency contracts4,0003,30022(102)
Interest rate swaps1,600———
Total$15,654$12,479$231$(102)
For the Three-Month Period Ended September 30, 2022:
Net investment hedges:
Cross-currency contracts$3,875$3,000$127$—
Foreign currency denominated debt5,5225,522174—
Cash flow hedges:
Cross-currency contracts4,0004,000214(240)
Interest rate swaps1,600———
Total$14,997$12,522$515$(240)
For the Nine-Month Period Ended September 29, 2023:
Net investment hedges:
Cross-currency contracts$3,875$3,000$(38)$—
Foreign currency denominated debt6,1796,179130—
Cash flow hedges:
Cross-currency contracts4,0003,300(68)(39)
Interest rate swaps1,600——2
Total$15,654$12,479$24$(37)
For the Nine-Month Period Ended September 30, 2022:
Net investment hedges:
Cross-currency contracts$3,875$3,000$394$—
Foreign currency denominated debt5,5225,522569—
Cash flow hedges:
Cross-currency contracts4,0004,000720(580)
Interest rate swaps1,600——2
Total$14,997$12,522$1,683$(578)

Gains or losses related to the net investment hedges are classified as foreign currency translation adjustments in the schedule of changes in OCI in Note 15, as these items are attributable to the Company’s hedges of its net investment in foreign operations. Gains or losses related to the cash flow hedges are classified as cash flow hedge adjustments in the schedule of changes in OCI in Note 15. The amount reclassified from other comprehensive income (loss) for the cross-currency swap derivative contracts that are cash flow hedges of the Company’s U.S. dollar-denominated debt was equal to the remeasurement amount recorded in the three and nine-month periods on the hedged debt.

The Company did not reclassify any other deferred gains or losses related to net investment hedges or cash flow hedges from accumulated other comprehensive income (loss) to earnings during the three and nine-month periods ended September 29, 2023 and September 30, 2022. In addition, the Company did not have any ineffectiveness related to net investment hedges or cash flow hedges during the three and nine-month periods ended September 29, 2023 and September 30, 2022, and, should they arise, any ineffective portions of the hedges would be reclassified from accumulated other comprehensive income (loss) into earnings during the period of change. The cash inflows and outflows associated with the Company’s derivative contracts designated as net investment hedges are classified in all other investing activities in the accompanying Consolidated Condensed Statements of Cash Flows. The cash inflows and outflows associated with the Company’s derivative contracts designated as cash flow hedges are classified in cash flows from operating activities in the accompanying Consolidated Condensed Statements of Cash Flows.

The Company’s derivative instruments, as well as its nonderivative debt instruments designated and qualifying as net investment hedges, were classified in the Company’s Consolidated Condensed Balance Sheets as follows ($ in millions):

September 29, 2023December 31, 2022
Derivative assets:
Other long-term assets$547$653
Nonderivative hedging instruments:
Notes payable and current portion of long-term debt2,541—
Long-term debt3,6385,777

Amounts related to the Company’s derivatives expected to be reclassified from accumulated other comprehensive income (loss) to net earnings during the next 12 months, if interest rates and foreign exchange rates remain unchanged, are not significant.

NOTE 13. DEFINED BENEFIT PLANS

The following sets forth the components of the Company’s net periodic benefit costs of the noncontributory defined benefit pension plans and other postretirement employee benefit plans ($ in millions):

Three-Month Period EndedNine-Month Period Ended
September 29, 2023September 30, 2022September 29, 2023September 30, 2022
U.S. pension benefits:
Service cost$—$—$—$—
Interest cost(25)(13)(73)(40)
Expected return on plan assets31329497
Amortization of actuarial loss(3)(8)(9)(26)
Amortization of prior service cost(1)—(1)—
Net periodic pension benefit$2$11$11$31
Non-U.S. pension benefits:
Service cost$(8)$(10)$(24)$(29)
Interest cost(12)(6)(37)(18)
Expected return on plan assets10102828
Amortization of actuarial gain (loss)2—6(1)
Amortization of prior service credit—111
Settlement losses recognized—(1)—(11)
Net periodic pension cost$(8)$(6)$(26)$(30)
Other postretirement employee benefit plans:
Service cost$—$—$—$—
Interest cost(2)(1)(5)(2)
Amortization of actuarial loss—(1)—(1)
Amortization of prior service credit1—21
Net periodic benefit cost$(1)$(2)$(3)$(2)

The service cost component of net periodic benefit costs is presented in cost of goods sold and selling, general and administrative expenses while the other cost components are presented in other income (expense), net. The Company’s net periodic pension cost for the nine-month period ended September 30, 2022 included a settlement loss of $10 million as a result of the transfer of a portion of its non-U.S. pension liabilities related to one defined benefit plan to a third-party.

Employer Contributions

During 2023, the Company’s cash contribution requirements for its U.S. and non-U.S. defined benefit pension plans are forecasted to be approximately $10 million and $39 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.

NOTE 14. COMMITMENTS AND CONTINGENCIES

The Company reviews the adequacy of its legal reserves on a quarterly basis and establishes reserves for loss contingencies that are both probable and reasonably estimable. For a further description of the Company’s litigation and contingencies, refer to Note 18 of the Company’s financial statements as of and for the year ended December 31, 2022 included in the Company’s 2022 Annual Report.

In connection with the Separation and in accordance with the separation and distribution and related agreements Danaher and Veralto entered into, the Company agreed to indemnify Veralto and its affiliates against certain damages and expenses that might occur in the future. These indemnification obligations cover a variety of liabilities, including, but not limited to, employee and tax matters.

The Company generally accrues estimated warranty costs at the time of sale. In general, manufactured products are warranted against defects in material and workmanship when properly used for their intended purpose, installed correctly and appropriately maintained. Warranty periods depend on the nature of the product and range from the date of such sale up to twenty years. The amount of the accrued warranty liability is determined based on historical information such as past experience, product failure rates or number of units repaired, estimated cost of material and labor and in certain instances estimated property damage. As of September 29, 2023 and December 31, 2022, the Company had accrued warranty liabilities of $97 million and $95 million, respectively.

NOTE 15. STOCKHOLDERS' EQUITY AND STOCK-BASED COMPENSATION

Stockholders’ Equity

On July 16, 2013, the Company’s Board of Directors approved a repurchase program (the “Repurchase Program”) authorizing the repurchase of up to 20 million shares of the Company’s common stock from time to time on the open market or in privately negotiated transactions. As of September 29, 2023, approximately 20 million shares remained available for repurchase pursuant to the Repurchase Program.

The following table summarizes the Company’s share activity (shares in millions):

Three-Month Period EndedNine-Month Period Ended
September 29, 2023September 30, 2022September 29, 2023September 30, 2022
Preferred stock - shares issued:
Balance, beginning of period—1.71.73.4
Conversion of MCPS to common stock——(1.7)(1.7)
Balance, end of period—1.7—1.7
Common stock - shares issued:
Balance, beginning of period879.5868.4869.3855.7
Common stock-based compensation awards0.70.52.32.2
Conversion of MCPS to common stock——8.611.0
Balance, end of period880.2868.9880.2868.9

As of April 17, 2023, all outstanding shares of the Company’s 5.00% MCPS Series B converted to common shares at a rate of 5.0175 common shares per share of preferred stock into an aggregate of 8.6 million shares of the Company’s common stock, pursuant to the terms of the Certificate of Designation governing the Series B Preferred Stock. On April 15, 2022, all outstanding shares of the Company’s 4.75% MCPS Series A converted to common shares at a rate of 6.6632 common shares per share of preferred stock into an aggregate of 11.0 million shares of the Company’s common stock, pursuant to the terms of the Certificate of Designation governing the Series A Preferred Stock. For additional information on the MCPS, refer to Note 19 in the Company’s 2022 Annual Report.

Stock-Based Compensation

For a full description of the Company’s stock-based compensation programs, refer to Note 19 of the Company’s financial statements as of and for the year ended December 31, 2022 included in the Company’s 2022 Annual Report. As of September 29, 2023, approximately 41 million shares of the Company’s common stock were reserved for issuance under the 2007 Omnibus Incentive Plan.

The following information about the Company's stock-based compensation programs includes amounts for both the Company's and Veralto's employees. In connection with the Separation and in accordance with the employee matters agreement Danaher and Veralto have entered into, the Company has made certain adjustments to the exercise price and the number of stock-based compensation awards with the intention of preserving the intrinsic value of the awards immediately prior to the Separation. Stock-based compensation awards have been converted into awards of the company that employs the employee post-separation, and Veralto has responsibility for the awards that were converted into Veralto awards. The adjustment to the Company’s stock-based compensation awards as a result of the Separation is not expected to have a significant impact to the Company’s stock compensation expense. Stock-based compensation disclosures reflecting the impact of the Separation will be included in the Company's Annual Report on Form 10-K for the year ending December 31, 2023.

The following summarizes the components of the Company’s stock-based compensation expense ($ in millions):

Three-Month Period EndedNine-Month Period Ended
September 29, 2023September 30, 2022September 29, 2023September 30, 2022
RSUs/PSUs:
Pretax compensation expense$51$52$157$156
Income tax benefit(11)(11)(32)(32)
RSU/PSU expense, net of income taxes4041125124
Stock options:
Pretax compensation expense4137123114
Income tax benefit(8)(7)(25)(23)
Stock option expense, net of income taxes33309891
Total stock-based compensation:
Pretax compensation expense9289280270
Income tax benefit(19)(18)(57)(55)
Total stock-based compensation expense, net of income taxes$73$71$223$215

Stock-based compensation has been recognized as a component of selling, general and administrative expenses in the accompanying Consolidated Condensed Statements of Earnings. As of September 29, 2023, $222 million of total unrecognized compensation cost related to RSUs/PSUs is expected to be recognized over a weighted average period of approximately two years. As of September 29, 2023, $269 million of total unrecognized compensation cost related to stock options is expected to be recognized over a weighted average period of approximately two years. Future compensation amounts will be adjusted for any changes in estimated forfeitures.

Accumulated Other Comprehensive Income

Accumulated other comprehensive income (loss) refers to certain gains and losses that under U.S. GAAP are included in comprehensive income (loss) but are excluded from net earnings as these amounts are initially recorded as an adjustment to stockholders’ equity. Foreign currency translation adjustments generally relate to indefinite investments in non-U.S. subsidiaries, as well as the impact from the Company’s hedges of its net investment in foreign operations, including the Company’s cross-currency swap derivatives, net of any income tax impacts.

The changes in accumulated other comprehensive income (loss) by component are summarized below ($ in millions).

Foreign Currency Translation AdjustmentsPension and Postretirement Plan Benefit AdjustmentsCash Flow Hedge AdjustmentsAccumulated Comprehensive Income (Loss)
For the Three-Month Period Ended September 29, 2023:
Balance, June 30, 2023$(3,323)$(341)$88$(3,576)
Other comprehensive income (loss) before reclassifications:
Increase (decrease)(296)—22(274)
Income tax impact(7)——(7)
Other comprehensive income (loss) before reclassifications, net of income taxes(303)—22(281)
Reclassification adjustments:
Increase (decrease)—1(a)(102)(b)(101)
Income tax impact——(1)(1)
Reclassification adjustments, net of income taxes—1(103)(102)
Net other comprehensive income (loss), net of income taxes(303)1(81)(383)
Balance, September 29, 2023$(3,626)$(340)$7$(3,959)
For the Three-Month Period Ended September 30, 2022:
Balance, July 1, 2022$(2,324)$(529)$108$(2,745)
Other comprehensive income (loss) before reclassifications:
Increase (decrease)(1,008)—214(794)
Income tax impact(31)—(51)(82)
Other comprehensive income (loss) before reclassifications, net of income taxes(1,039)—163(876)
Reclassification adjustments:
Increase (decrease)—9(a)(240)(b)(231)
Income tax impact—(2)—(2)
Reclassification adjustments, net of income taxes—7(240)(233)
Net other comprehensive income (loss), net of income taxes(1,039)7(77)(1,109)
Balance, September 30, 2022$(3,363)$(522)$31$(3,854)
Foreign Currency Translation AdjustmentsPension and Postretirement Plan Benefit AdjustmentsCash Flow Hedge AdjustmentsAccumulated Comprehensive Income (Loss)
For the Nine-Month Period Ended September 29, 2023:
Balance, December 31, 2022$(2,644)$(341)$113$(2,872)
Other comprehensive income (loss) before reclassifications:
Increase (decrease)(991)—(68)(1,059)
Income tax impact9——9
Other comprehensive income (loss) before reclassifications, net of income taxes(982)—(68)(1,050)
Reclassification adjustments:
Increase (decrease)—1(a)(37)(b)(36)
Income tax impact——(1)(1)
Reclassification adjustments, net of income taxes—1(38)(37)
Net other comprehensive income (loss), net of income taxes(982)1(106)(1,087)
Balance, September 29, 2023$(3,626)$(340)$7$(3,959)
For the Nine-Month Period Ended September 30, 2022:
Balance, December 31, 2021$(539)$(550)$62$(1,027)
Other comprehensive income (loss) before reclassifications:
Increase (decrease)(2,729)—720(2,009)
Income tax impact(95)—(173)(268)
Other comprehensive income (loss) before reclassifications, net of income taxes(2,824)—547(2,277)
Reclassification adjustments:
Increase (decrease)—37(a)(578)(b)(541)
Income tax impact—(9)—(9)
Reclassification adjustments, net of income taxes—28(578)(550)
Net other comprehensive income (loss), net of income taxes(2,824)28(31)(2,827)
Balance, September 30, 2022$(3,363)$(522)$31$(3,854)

(a) This accumulated other comprehensive income (loss) component is included in the computation of net periodic benefit cost (refer to Notes 8 and 13 for additional details).

(b) Reflects reclassification to earnings related to cash flow hedges of certain long-term debt (refer to Note 12 for additional details).

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