Form 10-Q Fortive Corp For: Sep 30
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E-mailUNITED 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 30, 2022
| Or | |||||
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
| For the transition period from to | |||||
Commission file number 1-37654
________________________________________________
(Exact name of registrant as specified in its charter)
________________________________________________
| (State or other jurisdiction of incorporation or organization) | (I.R.S. employer identification number) | |||||||
| (Address of principal executive offices) | (Zip code) | ||||||||||
Registrant’s telephone number, including area code: (425 ) 446-5000
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol | Name of each exchange on which registered | ||||||
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 (the “Exchange Act”) 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.
| ☒ | 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 by Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of shares of common stock outstanding at October 24, 2022 was 353,808,253 .
FORTIVE CORPORATION
INDEX
FORM 10-Q
| PART I - | FINANCIAL INFORMATION | Page | ||||||
| Item 1. | ||||||||
| Item 2. | ||||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
| PART II - | OTHER INFORMATION | |||||||
| Item 1A. | ||||||||
| Item 2. | ||||||||
| Item 6. | ||||||||
3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FORTIVE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
($ in millions, except per share amounts)
See the accompanying Notes to Consolidated Condensed Financial Statements.
| As of | |||||||||||
| September 30, 2022 | December 31, 2021 | ||||||||||
| (unaudited) | |||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and equivalents | $ | $ | |||||||||
| Trade accounts receivable, net | |||||||||||
| Inventories: | |||||||||||
| Finished goods | |||||||||||
| Work in process | |||||||||||
| Raw materials | |||||||||||
| Inventories | |||||||||||
| Prepaid expenses and other current assets | |||||||||||
| Total current assets | |||||||||||
Property, plant and equipment, net of accumulated depreciation of $ | |||||||||||
| Other assets | |||||||||||
| Goodwill | |||||||||||
| Other intangible assets, net | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES AND EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Current portion of long-term debt | $ | $ | |||||||||
| Trade accounts payable | |||||||||||
| Accrued expenses and other current liabilities | |||||||||||
| Total current liabilities | |||||||||||
| Other long-term liabilities | |||||||||||
| Long-term debt | |||||||||||
| Commitments and Contingencies | |||||||||||
| Equity: | |||||||||||
Preferred stock: $ | |||||||||||
Common stock: $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Treasury shares, at cost | ( | ||||||||||
| Retained earnings | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Total Fortive stockholders’ equity | |||||||||||
| Noncontrolling interests | |||||||||||
| Total stockholders’ equity | |||||||||||
| Total liabilities and equity | $ | $ | |||||||||
4
FORTIVE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
($ and shares in millions, except per share amounts)
(unaudited)
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, 2022 | October 1, 2021 | September 30, 2022 | October 1, 2021 | ||||||||||||||||||||
| Sales of products and software | $ | $ | $ | $ | |||||||||||||||||||
| Sales of services | |||||||||||||||||||||||
| Total sales | |||||||||||||||||||||||
| Cost of product and software sales | ( | ( | ( | ( | |||||||||||||||||||
| Cost of service sales | ( | ( | ( | ( | |||||||||||||||||||
| Total cost of sales | ( | ( | ( | ( | |||||||||||||||||||
| Gross profit | |||||||||||||||||||||||
| Operating costs: | |||||||||||||||||||||||
| Selling, general and administrative expenses | ( | ( | ( | ( | |||||||||||||||||||
| Research and development expenses | ( | ( | ( | ( | |||||||||||||||||||
| Russia exit and wind down costs | ( | ( | |||||||||||||||||||||
| Operating profit | |||||||||||||||||||||||
| Non-operating income (expense), net: | |||||||||||||||||||||||
| Interest expense, net | ( | ( | ( | ( | |||||||||||||||||||
| Loss on extinguishment of debt | ( | ||||||||||||||||||||||
| Gain on investment in Vontier Corporation | |||||||||||||||||||||||
| Gain on litigation resolution | |||||||||||||||||||||||
| Other non-operating expense, net | ( | ( | ( | ( | |||||||||||||||||||
| Earnings from continuing operations before income taxes | |||||||||||||||||||||||
| Income taxes | ( | ( | ( | ( | |||||||||||||||||||
| Net earnings from continuing operations | |||||||||||||||||||||||
| Earnings (loss) from discontinued operations, net of income taxes | ( | ( | |||||||||||||||||||||
| Net earnings | |||||||||||||||||||||||
| Mandatory convertible preferred dividends | ( | ||||||||||||||||||||||
| Net earnings attributable to common stockholders | $ | $ | $ | $ | |||||||||||||||||||
| Net earnings per common share from continuing operations: | |||||||||||||||||||||||
| Basic | $ | $ | $ | $ | |||||||||||||||||||
| Diluted | $ | $ | $ | $ | |||||||||||||||||||
| Net earnings (loss) per share from discontinued operations: | |||||||||||||||||||||||
| Basic | $ | $ | $ | $ | ( | ||||||||||||||||||
| Diluted | $ | $ | $ | $ | ( | ||||||||||||||||||
| Net earnings per share: | |||||||||||||||||||||||
| Basic | $ | $ | $ | $ | |||||||||||||||||||
| Diluted | $ | $ | $ | $ | |||||||||||||||||||
| Average common stock and common equivalent shares outstanding: | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
| The sum of net earnings per share amounts may not add due to rounding. | |||||||||||||||||||||||
5
FORTIVE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
($ in millions)
(unaudited)
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, 2022 | October 1, 2021 | September 30, 2022 | October 1, 2021 | ||||||||||||||||||||
| Net earnings | $ | $ | $ | $ | |||||||||||||||||||
| Other comprehensive income (loss), net of income taxes: | |||||||||||||||||||||||
| Foreign currency translation adjustments | ( | ( | ( | ( | |||||||||||||||||||
| Pension adjustments | |||||||||||||||||||||||
| Total other comprehensive income (loss), net of income taxes | ( | ( | ( | ( | |||||||||||||||||||
| Comprehensive income | $ | $ | $ | $ | |||||||||||||||||||
See the accompanying Notes to Consolidated Condensed Financial Statements.
6
FORTIVE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN EQUITY
($ and shares in millions)
(unaudited)
| Preferred Stock | Common Stock | Additional Paid-In Capital | Treasury Shares | Retained Earnings | Accumulated Other Comprehensive Loss | Noncontrolling Interests | |||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares Outstanding | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||||||||
| — | — | — | — | ( | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Balance, January 1, 2022 | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net earnings for the period | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Dividends to common shareholders | — | — | — | — | — | — | ( | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | — | — | — | ( | — | ||||||||||||||||||||||||||||||||||||||||||||
| Common stock-based award activity | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Common stock repurchases | — | — | ( | — | — | ( | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Shares withheld for taxes | — | — | ( | — | ( | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Change in noncontrolling interests | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Balance, April 1, 2022 | $ | $ | $ | $ | ( | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||||||
| Net earnings for the period | — | — | — | — | — | — | $ | — | $ | — | |||||||||||||||||||||||||||||||||||||||||||
| Dividends to common shareholders | — | — | — | — | — | — | ( | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | — | — | — | ( | — | ||||||||||||||||||||||||||||||||||||||||||||
| Common stock-based award activity | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Common stock repurchases | — | — | ( | — | — | ( | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Shares withheld for taxes | — | — | — | — | ( | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Change in noncontrolling interests | — | — | — | — | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Balance, July 1, 2022 | $ | $ | $ | $ | ( | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||||||
| Net earnings for the period | — | — | — | — | — | — | $ | — | $ | — | |||||||||||||||||||||||||||||||||||||||||||
| Dividends to common shareholders | — | — | — | — | — | — | ( | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | — | — | — | ( | — | ||||||||||||||||||||||||||||||||||||||||||||
| Common stock-based award activity | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
| Common stock repurchases | — | — | ( | — | — | ( | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Shares withheld for taxes | — | — | — | — | ( | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Change in noncontrolling interests | — | — | — | — | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Balance, September 30, 2022 | $ | $ | $ | $ | ( | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||||||
7
| Preferred Stock | Common Stock | Additional Paid-In Capital | Treasury Shares | Retained Earnings | Accumulated Other Comprehensive Loss | Noncontrolling Interests | |||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares Outstanding | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2020 | $ | $ | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||||||||
| Net earnings for the period | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
| Dividends to common shareholders | — | — | — | — | — | — | ( | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Mandatory convertible preferred stock cumulative dividends | — | — | — | — | — | — | ( | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | — | — | — | ( | — | ||||||||||||||||||||||||||||||||||||||||||||
| Common stock-based award activity | — | — | ( | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Shares withheld for tax | — | — | ( | — | ( | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
Early extinguishment of | — | — | — | — | ( | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Change in noncontrolling interest | — | — | — | — | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Balance, April 2, 2021 | $ | $ | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||||||||
| Net earnings for the period | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Dividends to common shareholders | — | — | — | — | — | — | ( | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Mandatory convertible preferred stock cumulative dividends | — | — | — | — | — | — | ( | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Common stock-based award activity | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Shares withheld for tax | — | — | ( | — | ( | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Conversion of Mandatory convertible preferred stock to common stock | ( | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Change in noncontrolling interests | — | — | — | — | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Balance, July 2, 2021 | $ | $ | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||||||||
| Net earnings for the period | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Dividends to common shareholders | — | — | — | — | — | — | ( | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | — | — | — | ( | — | ||||||||||||||||||||||||||||||||||||||||||||
| Common stock-based award activity | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Shares withheld for tax | — | — | — | — | ( | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Change in noncontrolling interests | — | — | — | — | ( | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Balance, October 1, 2021 | $ | $ | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||||||||
See the accompanying Notes to Consolidated Condensed Financial Statements.
8
FORTIVE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
($ in millions)
(unaudited)
| Nine Months Ended | |||||||||||
| September 30, 2022 | October 1, 2021 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net earnings from continuing operations | $ | $ | |||||||||
| Noncash items: | |||||||||||
| Amortization | |||||||||||
| Depreciation | |||||||||||
| Stock-based compensation expense | |||||||||||
| Russia exit and wind down costs | |||||||||||
| Loss on extinguishment of debt | |||||||||||
| Gain on investment in Vontier Corporation | ( | ||||||||||
| Gain on litigation resolution | ( | ||||||||||
| Change in trade accounts receivable, net | ( | ( | |||||||||
| Change in inventories | ( | ( | |||||||||
| Change in trade accounts payable | |||||||||||
| Change in prepaid expenses and other assets | ( | ( | |||||||||
| Change in accrued expenses and other liabilities | ( | ||||||||||
| Total operating cash provided by continuing operations | |||||||||||
| Total operating cash used in discontinued operations | ( | ||||||||||
| Net cash provided by operating activities | |||||||||||
| Cash flows from investing activities: | |||||||||||
| Cash paid for acquisitions, net of cash received | ( | ( | |||||||||
| Payments for additions to property, plant and equipment | ( | ( | |||||||||
| Proceeds from sale of business | |||||||||||
| All other investing activities | |||||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Cash flows from financing activities: | |||||||||||
| Proceeds from borrowings (maturities greater than 90 days), net of issuance costs | |||||||||||
| Net proceeds from commercial paper borrowings | |||||||||||
Payment of | ( | ||||||||||
| Repurchase of common shares | ( | ||||||||||
| Payment of common stock cash dividend to shareholders | ( | ( | |||||||||
| Repayment of borrowings (maturities greater than 90 days) | ( | ||||||||||
| Payment of mandatory convertible preferred stock cash dividend to shareholders | ( | ||||||||||
| All other financing activities | ( | ||||||||||
| Net cash used in financing activities | ( | ( | |||||||||
| Effect of exchange rate changes on cash and equivalents | ( | ( | |||||||||
| Net change in cash and equivalents | ( | ( | |||||||||
| Beginning balance of cash and equivalents | |||||||||||
| Ending balance of cash and equivalents | $ | $ | |||||||||
See the accompanying Notes to Consolidated Condensed Financial Statements.
9
FORTIVE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 1. BUSINESS OVERVIEW
Fortive Corporation (“Fortive,” “the Company,” “we,” “us,” or “our”) is a provider of essential technologies for connected workflow solutions across a range of attractive end-markets. Our strategic segments - Intelligent Operating Solutions, Precision Technologies, and Advanced Healthcare Solutions - include well-known brands with leading positions in their markets. Our businesses design, develop, manufacture, and service professional and engineered products, software, and services, building upon leading brand names, innovative technologies, and significant market positions. Our research and development, manufacturing, sales, distribution, service, and administrative facilities are located in more than 50 countries around the world.
We prepared the unaudited consolidated condensed financial statements included herein in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) applicable for interim periods. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted pursuant to such rules and regulations; however, we believe 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 audited annual consolidated financial statements as of and for the year ended December 31, 2021 and the footnotes (“Notes”) thereto included within our 2021 Annual Report on Form 10-K.
In our opinion, the accompanying financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to fairly present our financial position as of September 30, 2022 and December 31, 2021, our results of operations, comprehensive income, and stockholders’ equity for the three and nine month periods ended September 30, 2022 and October 1, 2021, and cash flows for the nine month periods ended September 30, 2022 and October 1, 2021. Reclassification of certain prior year amounts have been made to conform to current year presentation.
Additionally, in the fourth quarter of 2021, Fortive adopted ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The amendments in this update required that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, rather than at fair value as previously required under Topic 805. The amendments have been applied to all business combinations that occurred on or after January 1, 2021. The adoption only impacted the ServiceChannel acquisition which occurred in Q3 2021. Amounts previously reported for the three and nine month periods ended October 1, 2021 were retroactively adjusted to reflect a $1.5
Vontier Separation and Discontinued Operations
On October 9, 2020, we completed the separation of Vontier Corporation (“Vontier”), the entity we created to hold our former Industrial Technologies segment (the “Separation”). The accounting requirements for reporting the Vontier business as a discontinued operation were met when the Separation was completed. Accordingly, the consolidated condensed financial statements reflect the results of separation activities associated with the prior Vontier business as a discontinued operation, which was immaterial for all periods presented.
On January 19, 2021, we completed an exchange (the “Debt-for-Equity Exchange”) of 33.5 million shares of common stock of Vontier, representing all of the Retained Vontier Shares, for $1.1 billion in aggregate principal amount of indebtedness of the Company held by Goldman Sachs & Co. Interest expense and extinguishment costs related to the Debt-for-Equity Exchange during the first quarter of 2021 are included in continuing operations.
10
Russia Ukraine Conflict
In February 2022, Russian forces invaded Ukraine (“Russia Ukraine Conflict”) resulting in broad economic sanctions being imposed on Russia. In the second quarter of 2022, the Company exited business operations in Russia, other than for ASP’s sterilization products, which are exempt from international sanctions as humanitarian products. Our business in Russia and Ukraine accounted for less than 1 % of total revenue and less than 0.2 % of total assets for the fiscal year ended December 31, 2021.
In the three and nine month periods ended September 30, 2022, the Company recorded pre-tax charges of $1.1 million and $17.3 million, respectively, primarily relating to the write-off of net assets, the write-off of the cumulative translation adjustment in earnings for legal entities deemed substantially liquidated, and to record provisions for employee severance and legal contingencies. These costs are identified as the “Russia exit and wind down costs” in the Condensed Consolidated Statements of Earnings. The total costs expected to be incurred in connection with the Russia exit are $18.4 million.
Accumulated Other Comprehensive Income (Loss)
Foreign currency translation adjustments are generally not adjusted for income taxes as they relate to indefinite investments in non-U.S. subsidiaries. During the second quarter of 2022, we designated our ¥14.4 billion Yen-denominated variable interest rate term loan and our €275 million Euro-denominated variable interest rate term loan outstanding as net investment hedges of our investment in certain foreign operations.
During the three and nine month periods ended September 30, 2022, we recognized after-tax foreign currency transaction gains of $14.6 million and $18.3 million, respectively, on the debt that were deferred in the foreign currency translation component of Accumulated other comprehensive income (loss) (“AOCI”) as an offset to the foreign currency translation adjustments on our investments in foreign subsidiaries. Any amounts deferred in AOCI will remain until the hedged investment is sold or substantially liquidated. We recorded no ineffectiveness from our net investment hedges during the three and nine month periods ended September 30, 2022.
| Foreign currency translation adjustments | Pension adjustments (a) | Total | |||||||||||||||
| For the Three Months Ended September 30, 2022: | |||||||||||||||||
| Balance, July 1, 2022 | $ | ( | $ | ( | $ | ( | |||||||||||
| Other comprehensive income (loss) before reclassifications, net of income taxes | ( | ( | |||||||||||||||
| Amounts reclassified from accumulated other comprehensive income (loss): | |||||||||||||||||
| Increase (decrease) | (b) | ||||||||||||||||
| Income tax impact | ( | ( | |||||||||||||||
| Amounts reclassified from accumulated other comprehensive income (loss), net of income taxes | |||||||||||||||||
| Net current period other comprehensive income (loss), net of income taxes | ( | ( | |||||||||||||||
| Balance, September 30, 2022 | $ | ( | $ | ( | $ | ( | |||||||||||
| For the Three Months Ended October 1, 2021: | |||||||||||||||||
| Balance, July 2, 2021 | $ | ( | $ | ( | $ | ( | |||||||||||
| Other comprehensive income (loss) before reclassifications, net of income taxes | ( | ( | |||||||||||||||
| Amounts reclassified from accumulated other comprehensive income (loss): | |||||||||||||||||
| Increase (decrease) | (b) | ||||||||||||||||
| Income tax impact | ( | ( | |||||||||||||||
| Amounts reclassified from accumulated other comprehensive income (loss), net of income taxes | |||||||||||||||||
| Net current period other comprehensive income (loss), net of income taxes | ( | ( | |||||||||||||||
| Balance, October 1, 2021 | $ | ( | $ | ( | $ | ( | |||||||||||
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| Foreign currency translation adjustments | Pension adjustments (a) | Total | |||||||||||||||
| For the Nine Months Ended September 30, 2022: | |||||||||||||||||
| Balance, December 31, 2021 | $ | ( | $ | ( | $ | ( | |||||||||||
| Other comprehensive income (loss) before reclassifications, net of income taxes | ( | ( | |||||||||||||||
| Amounts reclassified from accumulated other comprehensive income (loss): | |||||||||||||||||
| Increase (decrease) | (b) | ||||||||||||||||
| Income tax impact | ( | ( | |||||||||||||||
| Amounts reclassified from accumulated other comprehensive income (loss), net of income taxes | |||||||||||||||||
| Net current period other comprehensive income (loss) | ( | ( | |||||||||||||||
| Balance, September 30, 2022 | $ | ( | $ | ( | $ | ( | |||||||||||
| For the Nine Months Ended October 1, 2021: | |||||||||||||||||
| Balance, December 31, 2020 | $ | ( | $ | ( | $ | ( | |||||||||||
| Other comprehensive income (loss) before reclassifications, net of income taxes | ( | ( | |||||||||||||||
| Amounts reclassified from accumulated other comprehensive income (loss): | |||||||||||||||||
| Increase (decrease) | (b) | ||||||||||||||||
| Income tax impact | ( | ( | |||||||||||||||
| Amounts reclassified from accumulated other comprehensive income (loss), net of income taxes | |||||||||||||||||
| Net current period other comprehensive income (loss) | ( | ( | |||||||||||||||
| Balance, October 1, 2021 | $ | ( | $ | ( | $ | ( | |||||||||||
(a) Includes balances relating to defined benefit plans, supplemental executive retirement plans, and other postretirement employee benefit plans. | |||||||||||||||||
(b) This component of AOCI is included in the computation of net periodic pension cost (refer to Note 12 in our most recently filed Form 10-K for additional details). | |||||||||||||||||
The following is a roll forward of the aggregated allowance for credit losses related to our trade accounts receivables as of September 30, 2022 ($ in millions):
| Balance, December 31, 2021 | $ | ||||
| Provision | |||||
| Write-offs | ( | ||||
| Foreign currency exchange and other | ( | ||||
| Balance, September 30, 2022 | $ | ||||
The allowance for unbilled receivables was immaterial for all periods presented.
Recently Issued Accounting Standard
In August 2020, the Financial Accounting Standards Board issued Accounting Standards Update No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic
12
815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which amends the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity. On January 1, 2022, we adopted ASU 2020-06 using a modified retrospective approach and recognized in our balance sheet, as of January 1, 2022, a net of tax adjustment to reduce Additional Paid-in Capital by $65.7 million and increase debt by $3.7 million, with a corresponding net of tax adjustment to beginning retained earnings of $62.8 million. These adjustments are related to our 0.875 % Convertible Senior Notes (the “Convertible Notes”), which were the only outstanding instruments impacted by the new standard at the time of adoption.
Results for reporting periods beginning January 1, 2022 reflect the adoption of ASU 2020-06, while prior period amounts were not adjusted and continue to be reported in accordance with our historical accounting practices.
Prior to our adoption of ASU 2020-06 on January 1, 2022, we recognized the fair value of the nonconvertible debt component of our Convertible Notes subject to the cash conversion guidance as debt and attributed the residual value to the conversion feature which was recognized in APIC. Subsequent to the issuance of our Convertible Notes in February 2019, we accreted the debt discount as non-cash interest expense in our Statements of Earnings. Further, we applied the treasury stock method to our Convertible Notes when calculating earnings per share (“EPS”) in all periods prior to our adoption of ASU 2020-06. After our adoption of ASU 2020-06, we account for convertible debt instruments wholly as debt, unless a convertible instrument contains features that require bifurcation as a derivative under ASC 815 or a convertible debt instrument is issued at a substantial premium.
On January 1, 2022, we reclassified the unamortized cost basis of our outstanding Convertible Notes wholly as debt, which subsequently matured and was settled on February 15, 2022. We applied the if-converted method to all convertible instruments when calculating EPS for the nine months ended September 30, 2022. As of September 30, 2022, we had no convertible instruments outstanding subject to the guidance in ASU 2020-06.
NOTE 2. ACQUISITIONS AND DIVESTITURES
We continually evaluate potential mergers, acquisitions, and divestitures that align with our strategy and expedite the evolution of our portfolio of businesses into new and attractive areas. We have completed a number of acquisitions that have been accounted for as purchases of businesses and resulted in the recognition of goodwill in our financial statements. This goodwill arises because the purchase price for each acquired business reflects a number of factors, including the complementary fit, acceleration of our strategy and synergies the business brings with respect to our existing operations, the future earnings and cash flow potential of the business, the potential to add other strategically complementary acquisitions to the acquired business, the scarce or unique nature of the business in its markets, competition to acquire the business, the valuation of similar businesses in the marketplace (as reflected in a multiple of revenues, earnings, or cash flows), and the avoidance of the time and costs which would be required (and the associated risks that would be encountered) to enhance our existing offerings to key target markets and develop new and profitable businesses.
Acquisitions
During the three and nine month periods ended September 30, 2022, insignificant adjustments were made to the purchase price allocation of prior year acquisitions, which are shown in Note 3.
Provation
On December 27, 2021, we acquired Provation Software, Inc. (“Provation”), a leading provider of clinical workflow software solutions used in hospitals and ambulatory surgery centers. The acquisition of Provation extends our digital offering and software capabilities in the healthcare space. The total consideration paid was approximately $1.4 billion, net of acquired cash and was primarily financed with proceeds from our financing activities and available cash. We recorded $977 million of goodwill related to the acquisition, which is not tax deductible. Provation had revenue in 2020 of approximately $90 million and is an operating company within our Advanced Healthcare Solutions segment.
ServiceChannel
On August 24, 2021, we acquired ServiceChannel Holdings, Inc. (“ServiceChannel”), a privately held, global provider of Software as a Service (“SaaS”) based multi-site facilities maintenance service solutions with an integrated service-provider network. The acquisition of ServiceChannel broadens our offering of software-enabled solutions for the facility and asset lifecycle workflow. The total consideration paid was approximately $1.2 billion, net of acquired cash, and included approximately $28 million of deferred compensation consideration that was recognized ratably over a twelve month service period. The ServiceChannel acquisition was primarily financed with available cash and proceeds from our financing activities. We recorded approximately $868 million of goodwill related to the acquisition, which is not tax deductible. ServiceChannel
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had revenue in 2020 of approximately $70 million and is an operating company within our Intelligent Operating Solutions segment.
Revenue and operating losses attributable to the Provation and ServiceChannel acquisitions were $198.0 million and $38.0 million for the nine month period ended September 30, 2022. The operating losses include $57.9 million of intangible asset amortization and $18.8 million of transaction and integration costs, which were primarily comprised of employee compensation and retention costs and amounts paid to third party advisors, and are recorded in Selling, general and administration expenses, respectively.
| Provation | ServiceChannel | Total | |||||||||||||||
| Accounts receivable | $ | $ | $ | ||||||||||||||
| Goodwill | |||||||||||||||||
| Other intangible assets, primarily customer relationships, technology, database, and trade names | |||||||||||||||||
| Deferred revenue, current | ( | ( | ( | ||||||||||||||
| Deferred tax liabilities | ( | ( | ( | ||||||||||||||
| Other assets and liabilities, net | ( | ( | ( | ||||||||||||||
| Net cash consideration | $ | $ | $ | ||||||||||||||
Divestitures
NOTE 3. GOODWILL
The following is a roll forward of our carrying value of goodwill by segment ($ in millions):
| Intelligent Operating Solutions | Precision Technologies | Advanced Healthcare Solutions | Total Goodwill | ||||||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | $ | |||||||||||||||||||
| Measurement period adjustments for 2021 acquisitions | ( | ||||||||||||||||||||||
| Attributable to 2022 acquisitions and divestitures | ( | ( | |||||||||||||||||||||
| Foreign currency translation and other | ( | ( | ( | ( | |||||||||||||||||||
| Balance, September 30, 2022 | $ | $ | $ | $ | |||||||||||||||||||
NOTE 4. FAIR VALUE MEASUREMENTS
Accounting standards define fair value based on an exit price model, establish a framework for measuring fair value where our 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) for identical assets or liabilities in active markets.
•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.
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Below is a summary of financial liabilities that are measured at fair value on a recurring basis ($ in millions):
| Quoted Prices in Active Market (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | ||||||||||||||||||||
| September 30, 2022 | |||||||||||||||||||||||
| Deferred compensation liabilities | $ | $ | $ | $ | |||||||||||||||||||
| December 31, 2021 | |||||||||||||||||||||||
| Deferred compensation liabilities | |||||||||||||||||||||||
Certain management employees participate in our nonqualified deferred compensation programs that permit such employees to defer a portion of their compensation, on a pretax basis, until after their termination of employment. All amounts deferred under such plans are unfunded, unsecured obligations and are presented as a component of our compensation and benefits accrual included in Other long-term liabilities in the Consolidated Condensed Balance Sheets. Participants may choose among alternative earnings rates for the amounts they defer, which are primarily based on investment options within our defined contribution plans for the benefit of U.S. employees (except that the earnings rates for amounts contributed unilaterally by the Company are entirely based on changes in the value of Fortive common stock). Changes in the deferred compensation liability under these programs are recognized based on changes in the fair value of the participants’ accounts, which are based on the applicable earnings rates.
Non-recurring Fair Value Measurements
Certain non-financial assets, primarily property, plant, and equipment, goodwill, and intangible assets, are not required to be measured at fair value on a recurring basis and are reported at their carrying value. However, these assets are required to be assessed for impairment whenever events or circumstances indicate that their carrying value may not be fully recoverable, and at least annually for goodwill and indefinite-lived intangible assets.
We evaluated events and circumstances that, as of September 30, 2022, indicated the carrying value of an equity investment in a third-party entity held by our Intelligent Operating Solutions segment was no longer recoverable. As a result, in the three and nine month periods ended September 30, 2022, we recorded a pre-tax impairment loss of $8.1
Fair Value of Financial Instruments
| September 30, 2022 | December 31, 2021 | ||||||||||||||||||||||
| Carrying Amount | Fair Value | Carrying Amount | Fair Value | ||||||||||||||||||||
| Current portion of long-term debt | $ | $ | $ | $ | |||||||||||||||||||
| Long-term debt, net of current maturities | |||||||||||||||||||||||
As of September 30, 2022 and December 31, 2021, the current portion of long-term debt and long-term debt, net of current maturities were categorized as Level 1.
The fair values of long-term borrowings were based on quoted market prices. The difference between the fair value and the carrying amounts of long-term borrowings may be attributable to changes in market interest rates and/or our credit ratings subsequent to the borrowing. The fair value of cash and cash equivalents, trade accounts receivable, net, trade accounts payable, and commercial paper approximates their carrying value due to the short-term maturities of these instruments.
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NOTE 5. FINANCING AND CAPITAL
| September 30, 2022 | December 31, 2021 | ||||||||||
| U.S. dollar-denominated commercial paper | $ | $ | |||||||||
| Delayed-Draw Term Loan due 2022 | |||||||||||
| Yen Term Loan due 2025 | |||||||||||
| Euro Term Loan due 2025 | |||||||||||
| Long-term debt | |||||||||||
| Less: current portion of long-term debt | |||||||||||
| Long-term debt, net of current maturities | $ | $ | |||||||||
Aggregate unamortized debt discounts, premiums, and issuance costs of $8.1 million and $13.0 million as of September 30, 2022 and December 31, 2021, respectively, are netted against the principal amounts of the components of debt in the table above. Refer to Note 11 of our 2021 Annual Report on Form 10-K for further details of our debt financing.
Yen Term Loan
On June 17, 2022, we entered into a three-year , ¥14.4 billion senior unsecured term facility (“Yen Term Loan”). On the same day, we drew and converted the entire available balance under the facility, which yielded net proceeds of $107 million. The Yen Term Loan is due on June 17, 2025 and is pre-payable at our option. The Yen Term Loan bears interest at a rate of Tokyo Term Risk Free Rate (“TORF”), plus 65 basis points; provided, however, that the TORF may not be less than zero for the Yen Term Loan.
Euro Term Loan
On June 21, 2022, we entered into a three-year €275 million senior unsecured term facility (“Euro Term Loan”). On June 28, 2022, we drew and converted the entire available balance under the facility, which yielded net proceeds of $290 million. The Euro Term Loan is due on June 23, 2025 and is pre-payable at our option. The Euro Term Loan bears interest at a rate of Euro Interbank Offered Rate (“Euribor”), plus 55 basis points; provided, however that the Euribor may not be less than zero for the Euro Term Loan.
Convertible Senior Notes
On February 22, 2019, we issued $1.4 billion in aggregate principal amount of our 0.875 % Convertible Senior Notes due 2022, including $187.5 million in aggregate principal amount resulting from an exercise in full of an over-allotment option. The Convertible Notes were issued in a private placement to certain initial purchasers for resale to qualified institutional buyers pursuant to Rule 144A under the Securities Act.
Of the $1.4 billion in principal amount from the issuance of the Convertible Notes, $1.3 billion was classified as debt and $102.2 million was classified as equity, using an assumed effective interest rate of 3.38 %. Debt issuance costs of $24.3 million were proportionately allocated to debt and equity.
On February 9, 2021, we repurchased $281 million of the Convertible Notes at fair value using the remaining cash proceeds received from Vontier in the Vontier Separation and other cash on hand. In connection with the repurchase, we recorded a loss on debt extinguishment during the nine month period ended October 1, 2021 of $10.5 million. In addition, upon repurchase we recorded $11.6 million as a reduction to additional paid-in capital related to the equity component of the repurchased Convertible Notes.
On January 1, 2022, we adopted ASU 2020-06, as further detailed in Note 1. We reclassified the carrying value of the instrument wholly to debt, eliminating the value formerly attributable to the conversion feature and the associated debt issuance costs that were previously classified as equity.
On February 15, 2022, the maturity date of the Convertible Notes, Fortive repaid, in cash, $1.2 billion in outstanding principal and accrued interest thereon.
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We recognized $2.1 million in interest expense during the nine month period ended September 30, 2022, of which $1.3 million was related to the contractual coupon rate of 0.875 % and $0.8 million was attributable to the amortization of debt issuance costs for each respective period. We recognized $11.1 million and $34.5 million in interest expense during the three and nine month period ended October 1, 2021, of which $2.5 million and $7.9 million was related to the contractual coupon rate of 0.875 %, $1.5 million and $4.7 million was attributable to the amortization of debt issuance costs, and $7.1 million and $21.9 million was attributable to the amortization of the discount for each respective period.
Other Liquidity Sources
We generally satisfy any short-term liquidity needs that are not met through operating cash flows and available cash primarily through issuances of commercial paper under our U.S. dollar and Euro-denominated commercial paper programs (“Commercial Paper Programs”). Under these programs, we may issue unsecured promissory notes with maturities not exceeding 397 and 183 days, respectively.
Interest expense on commercial paper is paid at maturity and is generally based on our credit ratings at the time of issuance and prevailing short-term interest rates.
The details of our outstanding Commercial Paper Programs as of September 30, 2022 were as follows ($ in millions):
| Carrying value | Annual effective rate | Weighted average remaining maturity (in days) | |||||||||||||||
| U.S. dollar-denominated commercial paper | $ | % | |||||||||||||||
Credit support for the Commercial Paper Programs is provided by a five-year $2.0 billion senior unsecured revolving credit facility that expires on November 30, 2023 (the “Revolving Credit Facility”) which, to the extent not otherwise providing credit support for our commercial paper programs, can also be used for working capital and other general corporate purposes. As of September 30, 2022, no borrowings were outstanding under the Revolving Credit Facility.
We classified our borrowings outstanding under the Commercial Paper Programs as Long-term debt in the accompanying Consolidated Condensed Balance Sheets as we had the intent and ability, as supported by availability under the Revolving Credit Facility, to refinance these borrowings for at least one year from the balance sheet date.
Debt-for-Equity Exchange
On January 19, 2021, we completed the Debt-for-Equity Exchange of 33.5 million shares of common stock of Vontier, representing all of the Retained Vontier Shares, for $1.1 billion in aggregate principal amount of indebtedness of the Company. During the first quarter of 2021 we recognized a gain of $57.0 million related to the subsequent change in the fair value of the Retained Vontier Shares. We recorded a loss on extinguishment of the debt included in the Debt-for-Equity Exchange of $94.4 million in the nine month period ended October 1, 2021.
Subsequent Events
On October 18, 2022, we entered into a second amended and restated credit agreement (the “Amended and Restated Credit Agreement”) extending the availability period of the Revolving Credit Facility to October 18, 2027 with an additional two one year extension options at our request and with the consent of the lenders. The Amended and Restated Credit Agreement also contains an option permitting us to request an increase in the amounts available under the Revolving Credit Facility of up to an aggregate additional $1.0 billion.
We are obligated to pay an annual facility fee for the Revolving Credit Facility of between 6.5 and 15 basis points varying according to our long-term debt credit rating. Borrowings under the new Revolving Credit Facility in U.S Dollars bear interest at a rate equal, at our option, to either (1) Term Secured Overnight Financing Rate (“Term SOFR”), plus a 10 basis points Credit Spread Adjustment (“CSA”) plus a margin of between 68.5 and 110.0 basis points, depending on our long-term debt credit rating or (2) the highest of (a) the Federal funds rate plus 50 basis points, (b) the prime rate, (c) Term SOFR plus 100 basis points and (d) 1.0 %, plus in each case a margin between zero and 10 basis points depending on our long-term debt credit rating.
In addition, beginning with our 2023 performance relative to our annual greenhouse gas reduction targets, the interest rate on any borrowings can increase or decrease by 4.0 basis points and the facility fee can increase or decrease by 1.0 basis points, for a maximum impact of an increase or decrease of 5.0 basis points.
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The Amended and Restated Credit Agreement requires us to maintain a consolidated net leverage ratio of debt to consolidated EBITDA (as defined in the Credit Agreement) of less than 3.5 to 1.0. The maximum consolidated net leverage ratio will be increased to 4.0 to 1.0 for the four consecutive full fiscal quarters immediately following the consummation of any acquisition by us in which the purchase price exceeds $250 million. The Amended and Restated Credit Agreement also contains customary representations, warranties, conditions precedent, events of default, indemnities, and affirmative and negative covenants.
On October 18, 2022, we entered into a $1.0 billion delayed-draw senior unsecured term facility (“Delayed-Draw Term Loan Due 2023”). We intend to use proceeds of the Delayed-Draw Term Loan Due 2023 to repay the outstanding principal balance of the Delayed-Draw Term Loan Due 2022, which matures in December 2022. The Delayed-Draw Term Loan Due 2023 bears interest at a variable rate equal to Term SOFR plus a CSA of 10 basis points plus a spread of 82.5 basis points at our current credit rating. Borrowing under the Term Loan Due 2023 are prepayable at our option in whole or in part without premium or penalty and amounts borrowed may not be reborrowed once repaid.
NOTE 6. SALES
We derive revenue primarily from the sale of products and software, and services. Revenue is recognized when control of promised products or services is transferred to customers in an amount that reflects the consideration we expect to be entitled to in exchange for those products, software, or services.
Product sales include revenue from the sale of products and equipment, which includes our software and SaaS product offerings and equipment rentals.
Service sales include revenues from extended warranties, post-contract customer support (“PCS”), maintenance contracts or services, contract labor to perform ongoing service at a customer location, and services related to previously sold products.
Contract Assets — In certain circumstances, we record contract assets which include unbilled amounts typically resulting from sales under contracts when revenue recognized exceeds the amount billed to the customer, and right to payment is not only subject to the passage of time. Contract assets were $84 million as of September 30, 2022 and $71 million as of December 31, 2021.
Contract Costs — We incur and capitalize direct incremental costs to obtain certain contracts, typically sales-related commissions and costs associated with assets used by our customers in certain software arrangements. Deferred sales-related commissions are not capitalized when the amortization period is one year or less, as we elected to use the practical expedient to expense these sales commissions as incurred. As of September 30, 2022 and December 31, 2021, we had $37 million and $27 million, respectively, in net revenue-related contract costs primarily related to certain software contracts. Revenue-related contract costs are recorded in the Prepaid expenses and other current assets and Other assets line items in our Consolidated Condensed Balance Sheets. These assets have estimated useful lives between and eight years .
Contract Liabilities — Our contract liabilities consist of deferred revenue generally related to subscription-based software contracts, PCS and extended warranty sales, where in most cases we receive up-front payment and recognize revenue over the service or support term. The noncurrent portion of deferred revenue is included in Other long-term liabilities in the Consolidated Condensed Balance Sheets.
| September 30, 2022 | December 31, 2021 | ||||||||||
| Deferred revenue - current | $ | $ | |||||||||
| Deferred revenue - noncurrent | |||||||||||
| Total contract liabilities | $ | $ | |||||||||
During the three and nine month period ended September 30, 2022, we recognized revenue related to our contract liabilities at December 31, 2021 of $63 million and $319 million, respectively. The change in our contract liabilities from December 31, 2021 to September 30, 2022 was primarily due to the timing of billings and recognition as revenue of subscription-based software contracts, PCS and extended warranty services.
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| September 30, 2022 | |||||
| Intelligent Operating Solutions | $ | ||||
| Precision Technologies | |||||
| Advanced Healthcare Solutions | |||||
| Total remaining performance obligations | $ | ||||
The majority of remaining performance obligations are related to service and support contracts, which we expect to fulfill approximately 80 percent within the next two years , approximately 90 percent within the next three years , and substantially all within four years .
Disaggregation of Revenue
We disaggregate revenue from contracts with customers by sales of products and software and services, geographic location, and end market for each of our segments, as we believe it best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors.
Disaggregation of revenue for the three month period ended September 30, 2022 is presented as follows ($ in millions):
| Total | Intelligent Operating Solutions | Precision Technologies | Advanced Healthcare Solutions | ||||||||||||||||||||
| Sales: | |||||||||||||||||||||||
| Sales of products and software | $ | $ | $ | $ | |||||||||||||||||||
| Sales of services | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
| Geographic: | |||||||||||||||||||||||
| United States | $ | $ | $ | $ | |||||||||||||||||||
| China | |||||||||||||||||||||||
| All other (each country individually less than 5% of total sales) | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
End markets:(a) | |||||||||||||||||||||||
| Direct sales: | |||||||||||||||||||||||
| Healthcare | $ | $ | $ | $ | |||||||||||||||||||
| Industrial & Manufacturing | |||||||||||||||||||||||
| Utilities & Power | |||||||||||||||||||||||
| Government | |||||||||||||||||||||||
| Communications, Electronics & Semiconductor | |||||||||||||||||||||||
| Aerospace & Defense | |||||||||||||||||||||||
| Oil & Gas | |||||||||||||||||||||||
| Retail & Consumer | |||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Total direct sales | |||||||||||||||||||||||
| Distributors | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
(a) Direct sales by end market include sales made through third-party distributors where we have visibility into the end customer. | |||||||||||||||||||||||
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| Total | Intelligent Operating Solutions | Precision Technologies | Advanced Healthcare Solutions | ||||||||||||||||||||
| Sales: | |||||||||||||||||||||||
| Sales of products and software | $ | $ | $ | $ | |||||||||||||||||||
| Sales of services | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
| Geographic: | |||||||||||||||||||||||
| United States | $ | $ | $ | $ | |||||||||||||||||||
| China | |||||||||||||||||||||||
| All other (each country individually less than 5% of total sales) | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
End markets:(a) | |||||||||||||||||||||||
| Direct sales: | |||||||||||||||||||||||
| Healthcare | $ | $ | $ | $ | |||||||||||||||||||
| Industrial & Manufacturing | |||||||||||||||||||||||
| Utilities & Power | |||||||||||||||||||||||
| Government | |||||||||||||||||||||||
| Communications, Electronics & Semiconductor | |||||||||||||||||||||||
| Aerospace & Defense | |||||||||||||||||||||||
| Oil & Gas | |||||||||||||||||||||||
| Retail & Consumer | |||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Total direct sales | |||||||||||||||||||||||
| Distributors | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
(a) Direct sales by end market include sales made through third-party distributors where we have visibility into the end customer. | |||||||||||||||||||||||
20
Disaggregation of revenue for the nine month period ended September 30, 2022 is presented as follows ($ in millions):
| Total | Intelligent Operating Solutions | Precision Technologies | Advanced Healthcare Solutions | ||||||||||||||||||||
| Sales: | |||||||||||||||||||||||
| Sales of products and software | $ | $ | $ | $ | |||||||||||||||||||
| Sales of services | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
| Geographic: | |||||||||||||||||||||||
| United States | $ | $ | $ | $ | |||||||||||||||||||
| China | |||||||||||||||||||||||
| All other (each country individually less than 5% of total sales) | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
End markets:(a) | |||||||||||||||||||||||
| Direct sales: | |||||||||||||||||||||||
| Healthcare | $ | $ | $ | $ | |||||||||||||||||||
| Industrial & Manufacturing | |||||||||||||||||||||||
| Utilities & Power | |||||||||||||||||||||||
| Government | |||||||||||||||||||||||
| Communications, Electronics & Semiconductor | |||||||||||||||||||||||
| Aerospace & Defense | |||||||||||||||||||||||
| Oil & Gas | |||||||||||||||||||||||
| Retail & Consumer | |||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Total direct sales | |||||||||||||||||||||||
| Distributors | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
(a) Direct sales by end market include sales made through third-party distributors where we have visibility into the end customer. | |||||||||||||||||||||||
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Disaggregation of revenue for the nine month period ended October 1, 2021 is presented as follows ($ in millions):
| Total | Intelligent Operating Solutions | Precision Technologies | Advanced Healthcare Solutions | ||||||||||||||||||||
| Sales: | |||||||||||||||||||||||
| Sales of products and software | $ | $ | $ | $ | |||||||||||||||||||
| Sales of services | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
| Geographic: | |||||||||||||||||||||||
| United States | $ | $ | $ | $ | |||||||||||||||||||
| China | |||||||||||||||||||||||
| All other (each country individually less than 5% of total sales) | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
End markets:(a) | |||||||||||||||||||||||
| Direct sales: | |||||||||||||||||||||||
| Healthcare | $ | $ | $ | $ | |||||||||||||||||||
| Industrial & Manufacturing | |||||||||||||||||||||||
| Utilities & Power | |||||||||||||||||||||||
| Government | |||||||||||||||||||||||
| Communications, Electronics & Semiconductor | |||||||||||||||||||||||
| Aerospace & Defense | |||||||||||||||||||||||
| Oil & Gas | |||||||||||||||||||||||
| Retail & Consumer | |||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Total direct sales | |||||||||||||||||||||||
| Distributors | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
(a) Direct sales by end market include sales made through third-party distributors where we have visibility into the end customer. | |||||||||||||||||||||||
NOTE 7. INCOME TAXES
Our effective tax rates for the three and nine month periods ended September 30, 2022 were 12.7 % and 14.4 %, respectively, as compared to 13.1 % and 11.1 %, respectively, for the three and nine month periods ended October 1, 2021. The year-over-year decrease in the effective tax rate for the three month period ended September 30, 2022 was relatively consistent as compared to the three month period ended October 1, 2021. The year-over-year increase in the effective tax rate for the nine month period ended September 30, 2022 as compared to the nine month period ended October 1, 2021 was primarily due to a non-recurring permanent difference on the Q1 2021 gain on our Retained Vontier Shares as a result of the tax-free treatment of our disposition of the shares through the Debt-for-Equity Exchange and the effect of Russia exit including wind down costs for which no tax benefit was recognized.
Our effective tax rate for the three and nine month periods ended September 30, 2022 differs from the U.S. federal statutory rate of 21% due primarily to the positive and negative effects of the Tax Cuts and Jobs Act, U.S. federal permanent differences, the impacts of credits and deductions provided by law, an increase to in our uncertain tax positions relating to higher interest rates, and the effect of Russia exit and wind down costs for which no tax benefit was recognized.
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NOTE 8. STOCK-BASED COMPENSATION
Our stock-based compensation program (the “Stock Plan”) provides for the grant of stock appreciation rights, performance stock units, restricted stock units, restricted stock awards, and performance stock awards (collectively, “Stock Awards”), stock options, or any other stock-based award. As of September 30, 2022, approximately 16 million shares of our common stock were available for subsequent issuance under the Stock Plan. For a full description of our stock-based compensation program refer to Note 17 of our 2021 Annual Report on Form 10-K.
Stock-based Compensation Expense
Stock-based compensation has been recognized as a component of Selling, general and administrative expenses in the Consolidated Condensed Statements of Earnings based on the portion of the awards that are ultimately expected to vest.
The following summarizes the components of our stock-based compensation expense under the Stock Plan ($ in millions):
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, 2022 | October 1, 2021 | September 30, 2022 | October 1, 2021 | ||||||||||||||||||||
| Stock Awards: | |||||||||||||||||||||||
| Pretax compensation expense | $ | $ | $ | $ | |||||||||||||||||||
| Income tax benefit | ( | ( | ( | ( | |||||||||||||||||||
| Stock Award expense, net of income taxes | |||||||||||||||||||||||
| Stock options: | |||||||||||||||||||||||
| Pretax compensation expense | |||||||||||||||||||||||
| Income tax benefit | ( | ( | ( | ( | |||||||||||||||||||
| Stock option expense, net of income taxes | |||||||||||||||||||||||
| Total stock-based compensation: | |||||||||||||||||||||||
| Pretax compensation expense | |||||||||||||||||||||||
| Income tax benefit | ( | ( | ( | ( | |||||||||||||||||||
| Total stock-based compensation expense, net of income taxes | $ | $ | $ | $ | |||||||||||||||||||
The following summarizes the unrecognized compensation cost for the Stock Plan awards as of September 30, 2022. This compensation cost is expected to be recognized over a weighted average period of approximately two years , representing the remaining service period related to the awards. Future compensation amounts will be adjusted for any changes in estimated forfeitures ($ in millions):
| Stock Awards | $ | ||||
| Stock options | |||||
| Total unrecognized compensation cost | $ | ||||
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NOTE 9. COMMITMENTS AND CONTINGENCIES
For a description of our litigation and contingencies and additional information about our leases, refer to Note 16 and Note 10, respectively, in our 2021 Annual Report on Form 10-K.
Warranty
We generally accrue 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 period terms depend on the nature of the product and range from 90 days up to the life of the product. 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. The accrued warranty liability is reviewed on a quarterly basis and may be adjusted as additional information regarding expected warranty costs becomes known.
| Balance, December 31, 2021 | $ | ||||
| Accruals for warranties issued during the period | |||||
| Settlements made | ( | ||||
| Effect of foreign currency translation and other | ( | ||||
| Balance, September 30, 2022 | $ | ||||
Leases
NOTE 10. NET EARNINGS PER SHARE
Basic net EPS is calculated by dividing net earnings attributable to common stockholders by the weighted average number of shares of common stock outstanding for the applicable period. Diluted EPS is similarly calculated, except that the calculation includes the dilutive effect of the assumed conversion of Convertible Notes and associated issuance of shares under the if-converted method and the assumed issuance of shares under stock-based compensation plans under the treasury stock method, except where the inclusion of such shares would have an anti-dilutive impact. Anti-dilutive options excluded from the diluted EPS calculation for the three and nine month periods ended September 30, 2022 were both 7.3 0.2 million and 0.3 million for the three and nine month periods ended October 1, 2021, respectively.
As described in Note 5, upon conversion of the Convertible Notes, holders were entitled to receive cash, shares of our common stock, or a combination thereof, at our election. As described in Note 1, prior to our adoption of ASU 2020-06 on January 1, 2022, we accounted for the conversion feature under the treasury stock method in our calculation of EPS since we intended and had the ability to settle such conversions through cash up to the principal amount of the Convertible Notes and, if applicable, through shares of our common stock for conversion value, if any, in excess of the principal amount of the Convertible Notes. Because the fair value of our common stock was below the conversion price, the Convertible Notes had no impact on our earnings per share for the nine month period ended October 1, 2021. Upon adopting ASU 2020-06 on January 1, 2022, we accounted for the Convertible Notes under the if-converted method in our calculation of diluted EPS, as required under the new guidance.
On July 1, 2021, all outstanding shares of our 5.0 % Mandatory Convertible Preferred Stock (“MCPS”) converted at a rate of 14.0978 common shares per share of preferred stock into an aggregate of approximately 19.4 million shares (net of fractional shares) of the Company’s common stock, pursuant to the terms of the Certificate of Designation governing the Series A Preferred Stock. Fortive issued cash in lieu of fractional shares of common stock in the conversion. These payments were recorded as a reduction to additional paid-in capital. The impact of the MCPS calculated under the if-converted method was anti-dilutive for the periods in 2021 prior to conversion.
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Information related to the calculation of net earnings per share of common stock is summarized as follows ($ and shares in millions, except per share amounts):
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, 2022 | October 1, 2021 | September 30, 2022 | October 1, 2021 | ||||||||||||||||||||
| Numerator | |||||||||||||||||||||||
| Net earnings from continuing operations | $ | $ | $ | $ | |||||||||||||||||||
| Mandatory convertible preferred stock cumulative dividends | ( | ||||||||||||||||||||||
| Convertible note interest add-back (if converted method) | |||||||||||||||||||||||
| Diluted Net Earnings from Continuing Operations | $ | $ | $ | $ | |||||||||||||||||||
| Denominator | |||||||||||||||||||||||
| Weighted average common shares outstanding used in basic earnings per share | |||||||||||||||||||||||
| Incremental common shares from: | |||||||||||||||||||||||
| Assumed exercise of dilutive options and vesting of dilutive Stock Awards | |||||||||||||||||||||||
| Conversion of convertible notes (if converted method) | |||||||||||||||||||||||
| Weighted average common shares outstanding used in diluted earnings per share | |||||||||||||||||||||||
| Net earnings from continuing operations per common share - Basic | $ | $ | $ | $ | |||||||||||||||||||
| Net earnings from continuing operations per common share - Diluted | $ | $ | $ | $ | |||||||||||||||||||
We declared and paid cash dividends per common share for the periods as presented below. We declared and paid the MCPS dividend in the first quarter of 2021, and declared and paid the final dividend in the second quarter of 2021.
| Dividend Per Common Share | Amount ($ in millions) | Dividend per MCPS | Amount ($ in millions) | ||||||||||||||||||||
| 2022: | |||||||||||||||||||||||
| First quarter | $ | $ | $ | $ | |||||||||||||||||||
| Second quarter | |||||||||||||||||||||||
| Third quarter | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
| 2021: | |||||||||||||||||||||||
| First quarter | $ | $ | $ | $ | |||||||||||||||||||
| Second quarter | |||||||||||||||||||||||
| Third quarter | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
| * The sum of the components of total dividends paid may not equal the total amount due to rounding. | |||||||||||||||||||||||
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NOTE 11. SEGMENT INFORMATION
We report our results in three separate business segments consisting of Intelligent Operating Solutions, Precision Technologies, and Advanced Healthcare Solutions.
Our Intelligent Operating Solutions segment provides leading workflow solutions to accelerate industrial and facility reliability and performance, as well as compliance and safety across a range of vertical end markets, including manufacturing, process industries, healthcare, utilities and power, communications and electronics, among others. We provide differentiated instrumentation and sensors, software and services to address our customers’ toughest workflow challenges.
Our Precision Technologies segment supplies instrumentation and sensing technologies to a broad set of vertical end markets, enabling our customers to accelerate the development, manufacture and launch of innovative products and solutions. We provide our customers with electrical test and measurement instruments and services, energetic material devices, and a broad portfolio of sensor and control system solutions.
Our Advanced Healthcare Solutions segment supplies critical workflow solutions to hospitals and other healthcare customers, enabling safer, more efficient, and higher quality healthcare. We provide hardware, consumables, software and services that optimize our customers’ most critical workflows, including instrument sterilization and device reprocessing, instrument tracking, cell therapy equipment design and manufacturing, biomedical test tools, radiation safety monitoring, end-to-end clinical productivity solutions and asset management.
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Our chief operating decision maker (“CODM”) assesses performance and allocates resources based on our operating segments, which are also our reportable segments. Operating profit amounts in the Other category and Russia exit and wind down costs consist of unallocated corporate costs and other costs not utilized or reviewed by our CODM at a segment level in evaluating segment operating performance. Our segment results are as follows ($ in millions):
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, 2022 | October 1, 2021 | September 30, 2022 | October 1, 2021 | ||||||||||||||||||||
| Sales: | |||||||||||||||||||||||
| Intelligent Operating Solutions | $ | $ | $ | $ | |||||||||||||||||||
| Precision Technologies | |||||||||||||||||||||||
| Advanced Healthcare Solutions | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
| Operating Profit: | |||||||||||||||||||||||
| Intelligent Operating Solutions | $ | $ | $ | $ | |||||||||||||||||||
| Precision Technologies | |||||||||||||||||||||||
| Advanced Healthcare Solutions | |||||||||||||||||||||||
| Other | ( | ( | ( | ( | |||||||||||||||||||
| Russia exit and wind down costs | ( | ( | |||||||||||||||||||||
| Total Operating Profit | |||||||||||||||||||||||
| Interest expense, net | ( | ( | ( | ( | |||||||||||||||||||
| Loss on extinguishment of debt | ( | ||||||||||||||||||||||
| Gain on investment in Vontier Corporation | |||||||||||||||||||||||
| Gain on litigation resolution | |||||||||||||||||||||||
| Other non-operating expense, net | ( | ( | ( | ( | |||||||||||||||||||
| Earnings from continuing operations before income taxes | $ | $ | $ | $ | |||||||||||||||||||
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Fortive Corporation (“Fortive,” the “Company,” “we,” “us,” or “our”) is a provider of essential technologies for connected workflow solutions across a range of attractive end-markets. Our strategic segments - Intelligent Operating Solutions, Precision Technologies, and Advanced Healthcare Solutions - include well-known brands with leading positions in their markets. Our businesses design, develop, manufacture, and service professional and engineered products, software, and services, building upon leading brand names, innovative technologies, and significant market positions. We are headquartered in Everett, Washington and employ a team of more than 18,000 research and development, manufacturing, sales, distribution, service, and administrative employees in more than 50 countries around the world.
On October 9, 2020, we completed the separation of Vontier Corporation (“Vontier”), the entity we created to hold our former Industrial Technologies segment (the “Separation”). The accounting requirements for reporting the Vontier business as a discontinued operation were met when the Separation was completed. Accordingly, the consolidated condensed financial statements reflect the results of separation activities associated with the prior Vontier business as a discontinued operation, which was immaterial for all periods presented.
On January 19, 2021, we completed an exchange (the “Debt-for-Equity Exchange”) of 33.5 million shares of common stock of Vontier, representing all of the Retained Vontier Shares, for $1.1 billion in aggregate principal amount of indebtedness of the Company held by Goldman Sachs & Co. Interest expense and extinguishment costs related to the Debt-for-Equity Exchange during the first quarter of 2021 are included in continuing operations.
This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is designed to provide a reader of our financial statements with a narrative from the perspective of management. The following discussion should be read in conjunction with the MD&A and consolidated financial statements included in our 2021 Annual Report on Form 10-K. Our MD&A is divided into five sections:
•Information Relating to Forward-Looking Statements
•Overview
•Results of Operations
•Liquidity and Capital Resources
•Critical Accounting Estimates
INFORMATION RELATING TO FORWARD-LOOKING STATEMENTS
Certain statements included or incorporated by reference in this quarterly 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 United States federal securities laws. All statements other than historical factual information are forward-looking statements, including without limitation statements regarding: projections of revenue, expenses, profit, profit margins, tax rates, tax provisions, cash flows, pension and benefit obligations and funding requirements, our liquidity position or other 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, divestitures, strategic opportunities, securities offerings, stock repurchases, dividends and executive compensation; growth, declines and other trends in markets we sell into, including the expected impact of trade and tariff policies; new or modified laws, regulations and accounting pronouncements; outstanding claims, legal proceedings, tax audits and assessments and other contingent liabilities; foreign currency exchange rates and fluctuations in those rates; impact of changes to tax laws; general economic and capital markets conditions; the timing of any of the foregoing; assumptions underlying any of the foregoing; and any other statements that address events or developments that we intend or believe 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 they believe to be appropriate. Forward-looking statements are not guarantees of future performance and actual results may differ materially from
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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 could cause actual results to differ materially from those envisaged in the forward-looking statements include, among others, the following:
Risk Related to Our Business Operations
•If we cannot adjust our manufacturing capacity, supply chain management or the purchases required for our manufacturing activities to reflect changes in market conditions, customer demand and supply chain or transportation disruptions, our profitability may suffer. In addition, our reliance upon sole or limited sources of supply for certain materials, components, and services could cause production interruptions, delays, and inefficiencies.
•Our financial results are subject to fluctuations in the cost and availability of commodities or components that we use in our operations.
•Conditions in the global economy, the markets we serve, and the financial markets may adversely affect our business and financial statements.
•The effect of the COVID-19 pandemic, including the corresponding government-mandated mitigation efforts, on our global operations and the operations of our customers, suppliers, and vendors has had and may continue to have a material, adverse impact on our business and results of operations.
•Our growth could suffer if the markets into which we sell our products and services decline, do not grow as anticipated, or experience cyclicality.
•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 prices for our products and services.
•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.
•If we are unable to recruit and retain key employees, our business may be harmed.
•A significant disruption in, or breach in security of, our information technology systems could adversely affect our business.
•Defects and unanticipated use or inadequate disclosure with respect to our products (including software) or services could adversely affect our business, reputation, and financial statements.
•Adverse changes in our relationships with, or the financial condition, performance, purchasing patterns, or inventory levels of, key distributors and other channel partners could adversely affect our financial statements.
•Our restructuring activities could have long-term adverse effects on our business.
•Work stoppages, works council campaigns, and other labor disputes could adversely impact our productivity and results of operations.
•If we suffer loss to our facilities, supply chains, distribution systems, or information technology systems due to catastrophe or other events, our operations could be seriously harmed.
•If we do not or cannot adequately protect our intellectual property, or if third parties infringe our intellectual property rights, we may suffer competitive injury or expend significant resources enforcing our rights.
•Third parties may claim that we are infringing or misappropriating their intellectual property rights and we could suffer significant litigation expenses, losses, or licensing expenses or be prevented from selling products or services.
•We are subject to a variety of litigation and other legal and regulatory proceedings in the course of our business that could adversely affect our financial statements.
Risk Related to our International Operations
•International economic, political, legal, compliance, and business factors including, but not limited to, the impact of the invasion of Ukraine by Russia and the corresponding sanctions and supply chain disruptions, could negatively affect our financial statements.
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•Trade relations between China and the United States could have a material adverse effect on our business and financial statements.
•Foreign currency exchange rates, including the volatility thereof, may adversely affect our financial statements.
Risk Related to Our Acquisitions, Investments, and Dispositions
•Any inability to consummate acquisitions at our anticipated rate and at appropriate prices could negatively impact our growth rate and stock price.
•Our acquisition of businesses, joint ventures, and strategic relationships could negatively impact our financial statements.
•The indemnification provisions of acquisition agreements by which we have acquired companies may not fully protect us and as a result we may face unexpected liabilities.
•Divestitures or other dispositions could negatively impact our business, and contingent liabilities from businesses that we have sold could adversely affect our financial statements.
•Potential indemnification liabilities to Vontier pursuant to the separation agreement could materially and adversely affect our businesses, financial condition, results of operations, and cash flows.
Risk Related to Regulatory and Compliance Matters
•Changes in industry standards and governmental regulations may reduce demand for our products or services or increase our expenses.
•Our reputation, ability to do business, and financial statements may be impaired by improper conduct by any of our employees, agents, or business partners.
•Our operations, products, and services expose us to the risk of environmental, health, and safety liabilities, costs, and violations that could adversely affect our reputation and financial statements.
•Our businesses are subject to extensive regulation; failure to comply with those regulations could adversely affect our financial statements and reputation.
Risk Related to Our Tax and Accounting Matters
•Changes in our effective tax rates or exposure to additional income tax liabilities or assessments could affect our profitability. In addition, audits by tax authorities could result in additional tax payments for prior periods.
•We could incur significant liability if any of our separation from Danaher, our separation of our Automation and Specialty business or our separation of Vontier (collectively, the “Separation Transactions”) is determined to be a taxable transaction.
•Changes in U.S. GAAP could adversely affect our reported financial results and may require significant changes to our internal accounting systems and processes.
•We may be required to recognize impairment charges for our goodwill and other intangible assets.
Risk Related to Our Financing Activities
•We have incurred a significant amount of debt, and our debt obligations, including the cost of such debt, will increase further if we incur additional debt and do not retire existing debt, or if the applicable interest rates continue to rise.
Risk Related to Shareholder Rights
•Certain provisions in our amended and restated certificate of incorporation and bylaws, and of Delaware law, may prevent or delay an acquisition of our company, which could decrease the trading price of our common stock.
•Our amended and restated certificate of incorporation designates the state courts in the State of Delaware or, if no state court located within the State of Delaware has jurisdiction, the federal court for the District of Delaware, as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our shareholders, which could discourage lawsuits against us and our directors and officers.
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See “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 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 (or such earlier date as may be specified in such statement). 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
Fortive is a multinational business with global operations with approximately 49% of our sales derived from customers outside of the United States in 2021. As a company with global operations, our businesses are affected by worldwide, regional, and industry-specific economic and political factors. Our geographic and industry diversity, as well as the range of products, software, and services we offer, typically help limit the impact of any one industry or the economy of any single country (except for the United States) on our operating results. Given the broad range of products manufactured, software and services provided, and geographies served, we do not use any indices other than general economic trends to predict the overall outlook for the Company. Our individual businesses monitor key competitors and customers, including their sales, to the extent possible, to gauge relative performance and the outlook for the future.
As a result of our geographic and industry diversity, we face a variety of opportunities and challenges, including technological development in most of the markets we serve, the expansion and evolution of opportunities in high-growth markets, trends and costs associated with a global labor force, and consolidation of our competitors. We define high-growth markets as developing markets of the world experiencing extended periods of accelerated growth in gross domestic product and infrastructure which include Eastern Europe, the Middle East, Africa, Latin America, and Asia with the exception of Japan and Australia. We operate in a highly competitive business environment in most markets, and our long-term growth and profitability will depend, in particular, on our ability to expand our business across geographies and market segments, identify, consummate, and integrate appropriate acquisitions, develop innovative and differentiated new products, services, and software, expand and improve the effectiveness of our sales force, continue to reduce costs and improve operating efficiency and quality, attract relevant talent and retain, grow, and empower our talented workforce, and effectively address the demands of an increasingly regulated environment. We are making significant investments, organically and through acquisitions, to address technological change in the markets we serve, and to improve our manufacturing, research and development, and customer-facing resources in order to be responsive to our customers throughout the world.
Provation Acquisition
On December 27, 2021, we acquired Provation Software, Inc. (“Provation”), a privately held, leading provider of clinical workflow software solutions used in hospitals and ambulatory surgery centers. The acquisition of Provation extends our digital offering and software capabilities in the healthcare space. The total consideration paid was approximately $1.4 billion, net of acquired cash and was primarily financed with proceeds from our financing activities and available cash. We preliminarily recorded $977 million of goodwill related to the acquisition, which is not tax deductible. Provation had revenue in 2020 of approximately $90 million and is an operating company within our Advanced Healthcare Solutions segment.
ServiceChannel Acquisition
On August 24, 2021, we acquired ServiceChannel Holdings, Inc. (“ServiceChannel”), a privately held, global provider of Software as a Service (“SaaS”) based multi-site facilities maintenance service solutions with an integrated service-provider network. The acquisition of ServiceChannel broadens our offering of software-enabled solutions for the facility and asset lifecycle workflow. The total consideration paid was approximately $1.2 billion, net of acquired cash, and included approximately $28 million of deferred compensation consideration that is being recognized ratably over a twelve month service period. The ServiceChannel acquisition was primarily financed with available cash and proceeds from our financing activities. We preliminarily recorded approximately $868 million of goodwill related to the acquisition, which is not tax deductible. ServiceChannel had revenue in 2020 of approximately $70 million and is an operating company within our Intelligent Operating Solutions segment.
Vontier Separation
On October 9, 2020, we completed the Separation. The accounting requirements for reporting the Vontier business as a discontinued operation were met when the Separation was completed. Accordingly, the consolidated condensed financial
31
statements reflect the results of separation activities associated with the prior Vontier business as a discontinued operation, which was immaterial for all periods presented.
On January 19, 2021, we completed the Debt-for-Equity Exchange of 33.5 million shares of common stock of Vontier, representing all of the Vontier common stock retained by the Company immediately following the Separation (the “Retained Vontier Shares”), for $1.1 billion in aggregate principal amount of indebtedness of the Company held by Goldman Sachs & Co. Interest expense and extinguishment costs related to the Debt-for-Equity Exchange during the first quarter of 2021 are included in continuing operations.
Divestiture
On September 30, 2022, we completed the sale of our Therapy Physics product line, which was reported in our Advanced Healthcare Solutions segment, to an unrelated third party for total consideration of $9.6 million. As a result of the sale, in the three and nine month periods ended September 30, 2022, we recorded a net realized pre-tax gain totaling $2.3 million, net of transaction costs, which is recorded as “Other non-operating expense, net” in the Consolidated Condensed Statements of Earnings. The divested business accounted for less than 1.0% of total revenue and less than 1.0% of total assets for the fiscal year ended December 31, 2021. The divestiture of this product line did not represent a strategic shift with a major effect on the Company’s operations and financial results and therefore the divested product line is not reported as a discontinued operation.
Russia Ukraine Conflict
In February 2022, Russian forces invaded Ukraine (“Russia Ukraine Conflict”) resulting in broad economic sanctions being imposed on Russia. In the second quarter of 2022, the Company exited business operations in Russia, other than for ASP’s sterilization products, which are exempt from international sanctions as humanitarian products. Our business in Russia and Ukraine accounted for less than 1% of total revenue and less than 0.2% of total assets for the fiscal year ended December 31, 2021. In the three and nine month periods ended September 30, 2022, the Company recorded pre-tax charges of $1.1 million and $17.3 million, respectively, primarily relating to the write-off of net assets, the write-off of the cumulative translation adjustment in earnings for legal entities deemed substantially liquidated, and to record provisions for employee severance and legal contingencies. These costs are identified as the “Russia exit and wind down costs” in the Condensed Consolidated Statements of Earnings.
Segment Presentation
We operate and report our results in three segments, Intelligent Operating Solutions, Precision Technologies, and Advanced Healthcare Solutions, each of which is further described below.
Our Intelligent Operating Solutions segment provides leading workflow solutions to accelerate industrial and facility reliability and performance, as well as compliance and safety across a range of vertical end markets, including manufacturing, process industries, healthcare, utilities and power, communications and electronics, among others. We provide differentiated instrumentation and sensors, software and services to address our customers’ toughest workflow challenges.
Our Precision Technologies segment supplies instrumentation and sensing technologies to a broad set of vertical end markets, enabling our customers to accelerate the development, manufacture and launch of innovative products and solutions. We provide our customers with electrical test and measurement instruments and services, energetic material devices, and a broad portfolio of sensor and control system solutions.
Our Advanced Healthcare Solutions segment supplies critical workflow solutions to hospitals and other healthcare customers, enabling safer, more efficient, and higher quality healthcare. We provide hardware, consumables, software and services that optimize our customers’ most critical workflows, including instrument sterilization and device reprocessing, instrument tracking, cell therapy equipment design and manufacturing, biomedical test tools, radiation safety monitoring, end-to-end clinical productivity solutions and asset management.
Non-GAAP Measures
In this report, references to sales from existing businesses refer to sales from operations calculated according to generally accepted accounting principles in the United States (“GAAP”) but excluding (1) the impact from acquired businesses and (2) the impact of currency translation. References to sales attributable to acquisitions or acquired businesses refer to GAAP sales from acquired businesses recorded prior to the first anniversary of the acquisition and the effect of purchase accounting adjustments, less the amount of sales attributable to certain divested businesses or product lines not considered discontinued operations prior to the first anniversary of the divestiture. The portion of sales attributable to the impact of currency translation is calculated as the difference between (a) the period-to-period change in sales (excluding sales impact from acquired businesses) and (b) the period-to-period change in sales (excluding sales impact from acquired businesses) after applying the
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current period foreign exchange rates to the prior year period. Sales from existing businesses 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 the non-GAAP financial measure of sales from existing businesses provides useful information to investors by helping identify underlying growth trends in our business and facilitating comparisons of our sales performance with our performance in prior and future periods and to our peers. We exclude the effect of acquisition and divestiture related items because the nature, size, and number of such transactions can vary dramatically from period to period and between us and our peers. We exclude the effect of currency translation from sales from existing businesses because the impact of currency translation is not under management’s control and is subject to volatility. Management believes the exclusion of the effect of acquisitions and divestitures and currency translation may facilitate the assessment of underlying business trends and may assist in comparisons of long-term performance.
Business Performance and Outlook
Business Performance For the Period Ended September 30, 2022
We experienced robust demand for our products and services during the three and nine month periods ended September 30, 2022 (“the quarter” or the “third quarter” and “year-to-date period”, respectively). During the third quarter and year-to-date period, and despite challenging macroeconomic and supply chain conditions, year-over-year sales increased 11.9% and 10.7%, respectively, with contributions from both existing and newly acquired businesses, all partially offset by unfavorable changes in foreign exchange rates. Sales from existing businesses increased 12.1% and 8.8% during the third quarter and year-to-date periods, respectively, as compared to the comparable periods in 2021, reflecting strong end-market demand for our offerings as well as focused execution on product and service delivery.
Geographically, in the third quarter, year-over-year sales from existing businesses increased low double-digits, with growth driven by low double-digit growth in North America, mid-teens growth in Western Europe and mid-twenties growth in China. In the year-to-date period, year-over-year sales from existing businesses increased high single digits with high single digit growth in both North America and China, as well as low double-digit growth in Western Europe.
Year-over-year price increases contributed 6.1% and 4.8% to sales growth during the third quarter and year-to-date period, as compared to the comparable periods in 2021 and is reflected as a component of the change in sales from existing businesses. In both the third quarter and year-to-date period, price increases exceeded inflationary increases that we experienced on purchased materials.
The strengthening of the U.S. dollar relative to other currencies reduced our sales by 4.0% and 2.9% in the third quarter and year-to-date periods, respectively, when compared to the comparable periods of 2021 and may continue to impact our results in future periods.
Widespread supply chain challenges persisted in the third quarter, impacting the availability of key materials, resulting in higher costs in each of our three segments. We continue to apply the Fortive Business System (“FBS”) to help mitigate the impact of these challenges and serve our customers. The COVID-19 pandemic, including mitigation efforts in China, continues to impact our results and creates operating challenges with logistics, material availability and absenteeism. We anticipate that the disruption caused by the pandemic will continue to impact future periods.
Outlook
Despite uncertainty in the macro environment, we anticipate increasing demand for our offerings will continue and are projecting sales to grow on a year-over-year basis of approximately 8.5% in the fourth quarter and approximately 10.0% for the full year. We anticipate sales growth on a year-over-year basis from existing businesses will be approximately 11.0% for the fourth quarter and approximately 9.5% for the full year. We expect that foreign exchanges rates will remain unfavorable to us when compared with the rates in effect in the comparable periods of 2021 and relative to assumptions at the start of 2022. Additionally, this outlook is subject to various assumptions and risks, including but not limited to the resilience and durability of the economies of the United States and other critical regions, ongoing challenges with global logistics and supply chain including the availability of electronic components, the impact of the COVID-19 pandemic, the impact of the Russia Ukraine Conflict, market conditions in key end product segments, elective surgery rates, and the impact of energy disruption in Europe.
We anticipate that supply chain and inflationary pressures will persist throughout 2022 and that our backlog may remain elevated compared to historical levels. We will continue to deploy FBS to actively manage production challenges, collaborate with customers and suppliers to minimize disruptions and utilize price increases and other countermeasures to offset inflationary pressures.
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We continue to monitor the macroeconomic and geopolitical conditions which may impact our business, including the COVID-19 pandemic, monetary and fiscal policies, international trade and relations between the U.S., China and other nations, and investment and taxation policy initiatives being considered in the United States and by the Organization for Economic Co-operation and Development (“OECD”).
RESULTS OF OPERATIONS
All of the financial information presented in this Item 2 has been adjusted to reflect the retroactive adjustment more fully described in Note 1 to the Consolidated Condensed Financial Statements.
Sales Growth
The following table summarizes total aggregate year-over-year sales growth and the components of aggregate year-over-year sales growth during the third quarter and year-to-date periods ended September 30, 2022 as compared to the comparable periods of 2021:
Components of Sales Growth
| % Change Three Months Ended September 30, 2022 vs. Comparable 2021 Period | % Change Nine Months Ended September 30, 2022 vs. Comparable 2021 Period | ||||||||||
| Total revenue growth (GAAP) | 11.9 | % | 10.7 | % | |||||||
| Existing businesses (Non-GAAP) | 12.1 | % | 8.8 | % | |||||||
Acquisitions (Non-GAAP) | 3.8 | % | 4.8 | % | |||||||
| Currency exchange rates (Non-GAAP) | (4.0) | % | (2.9) | % | |||||||
Operating Profit Margins
Operating profit margin was 17.3% for the third quarter ended September 30, 2022, an increase of 180 basis points as compared to 15.5% in the comparable period of 2021. Year-over-year changes in operating profit margin were comprised of the following:
•Year-over-year increase in price and sales volumes from existing businesses, which were partially offset by higher year-over-year employee compensation, freight, logistics and material costs and unfavorable foreign exchange rates — favorable 160 basis points
•The year-over-year effect of amortization from existing businesses — favorable 75 basis points
•The year-over-year net effect of acquisition-related transaction costs which were lower in the third quarter than those recognized during the comparable period in 2021 — favorable 65 basis points
•The year-over-year net effect of acquired businesses, including amortization, and acquisition-related fair value adjustments — unfavorable 110 basis points
•Russia exit and wind down costs that were incurred during the third quarter — unfavorable 10 basis points
Operating profit margin was 16.2% for the year-to-date period ended September 30, 2022, an increase of 40 basis points as compared to 15.8% in the comparable period of 2021. Year-over-year changes in operating profit margin were comprised of the following:
•Year-over-year increase in price and sales volumes from existing businesses and gains from productivity measures, which were partially offset by higher year-over-year employee compensation, freight, logistics and material costs, unfavorable foreign exchange rates and growth investments in R&D, sales and marketing — favorable 135 basis points
•The year-over-year effect of amortization from existing businesses — favorable 65 basis points
•The year-over-year net effect of acquisition-related transaction costs which were lower during the year-to-date period than those recognized during the comparable period in 2021 — favorable 5 basis points
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•The year-over-year net effect of acquired businesses, including amortization, and acquisition-related fair value adjustments — unfavorable 125 basis points
•Russia exit and wind down costs that were incurred during the year-to-date period — unfavorable 40 basis points
Business Segments
Sales by business segment for each of the periods indicated were as follows ($ in millions):
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, 2022 | October 1, 2021 | September 30, 2022 | October 1, 2021 | ||||||||||||||||||||
| Intelligent Operating Solutions | $ | 613.7 | $ | 536.9 | $ | 1,831.4 | $ | 1,589.6 | |||||||||||||||
| Precision Technologies | 523.7 | 455.7 | 1,485.2 | 1,375.0 | |||||||||||||||||||
| Advanced Healthcare Solutions | 318.6 | 308.4 | 979.2 | 915.3 | |||||||||||||||||||
| Total | $ | 1,456.0 | $ | 1,301.0 | $ | 4,295.8 | $ | 3,879.9 | |||||||||||||||
INTELLIGENT OPERATING SOLUTIONS
Our Intelligent Operating Solutions segment provides leading solutions to accelerate industrial and facility reliability and performance, as well as compliance and safety across a range of vertical end markets, including manufacturing, process industries, healthcare, utilities and power, communications and electronics, among others. We provide a broad and differentiated offering of instrumentation, sensors, software, and services to address these critical workflows for our customers.
Intelligent Operating Solutions Selected Financial Data
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| ($ in millions) | September 30, 2022 | October 1, 2021 | September 30, 2022 | October 1, 2021 | |||||||||||||||||||
| Sales | $ | 613.7 | $ | 536.9 | $ | 1,831.4 | $ | 1,589.6 | |||||||||||||||
| Operating profit | 132.1 | 91.5 | 369.0 | 314.9 | |||||||||||||||||||
| Depreciation | 7.8 | 6.1 | 26.4 | 18.3 | |||||||||||||||||||
| Amortization | 45.6 | 40.9 | 137.9 | 116.8 | |||||||||||||||||||
| Operating profit as a % of sales | 21.5 | % | 17.0 | % | 20.1 | % | 19.8 | % | |||||||||||||||
| Depreciation as a % of sales | 1.3 | % | 1.1 | % | 1.4 | % | 1.2 | % | |||||||||||||||
| Amortization as a % of sales | 7.4 | % | 7.6 | % | 7.5 | % | 7.3 | % | |||||||||||||||
Components of Sales Growth
| % Change Three Months Ended September 30, 2022 vs. Comparable 2021 Period | % Change Nine Months Ended September 30, 2022 vs. Comparable 2021 Period | ||||||||||
| Total revenue growth (GAAP) | 14.3 | % | 15.2 | % | |||||||
| Existing businesses (Non-GAAP) | 13.8 | % | 11.7 | % | |||||||
| Acquisitions (Non-GAAP) | 4.2 | % | 6.3 | % | |||||||
| Currency exchange rates (Non-GAAP) | (3.7) | % | (2.7) | % | |||||||
Year-over-year sales from existing businesses increased 13.8% and 11.7% during the third quarter and year-to-date period, respectively, as compared to the comparable periods of 2021. The year-over-year results for both respective periods were driven by price increases and continued strong demand for test and measurement instrumentation, gas detection offerings and software and related services.
Geographically, sales from existing businesses in developed markets increased in the third quarter by mid-teens, driven by low double digit growth in North America and mid-teens growth in Western Europe. Sales in high growth markets increased by mid-teens, driven by low-twenties growth in China, as well as low double-digits growth in Latin America, and low twenties growth in Other Asia. On a year-to-date basis, sales from existing businesses in developed markets increased by low double-digits and high growth markets increased by high-single digits.
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Year-over-year price increases in our Intelligent Operating Solutions segment contributed 6.8% and 5.3% to sales growth during the third quarter and year-to-date period, as compared to the comparable periods of 2021, and is reflected as a component of the change in sales from existing businesses.
Operating profit margin increased 450 basis points during the third quarter as compared to the comparable period of 2021. Year-over-year changes in operating profit margin were comprised of the following:
•Year-over-year increase in price and sales volume from existing businesses and gains from productivity measures were partially offset by higher year-over-year employee compensation costs, freight, logistics and material costs, unfavorable foreign exchange rates and growth investments in R&D, sales and marketing— favorable 345 basis points
•The year-over-year effect of amortization from existing businesses — favorable 100 basis points
•The year-over-year net effect of acquisition-related transaction costs, which were lower than those recognized during the comparable period in 2021 — favorable 165 basis points
•The year-over-year effect of acquisitions, including amortization — unfavorable 160 basis points
Operating profit margin increased 30 basis points during the year-to-date period, as compared to the comparable period of 2021. Year-over-year operating profit margin comparisons were impacted by:
•Year-over-year increase in price and sales volume from existing businesses and gains from productivity measures, partially offset by higher year- over-year freight, logistics and material costs and employee compensation costs, and growth investments in R&D, sales and marketing — favorable 185 basis points
•The year-over-year effect of amortization from existing businesses — favorable 100 basis points
•The year-over-year effect of acquired businesses, including amortization — unfavorable 255 basis points
PRECISION TECHNOLOGIES
Our Precision Technologies segment supplies technologies to a broad set of vertical end markets, enabling our customers to accelerate the development of innovative products and solutions. We provide our customers with electrical test and measurement instruments and services, energetic material devices, and a broad portfolio of sensor and control system solutions.
Precision Technologies Selected Financial Data
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| ($ in millions) | September 30, 2022 | October 1, 2021 | September 30, 2022 | October 1, 2021 | |||||||||||||||||||
| Sales | $ | 523.7 | $ | 455.7 | $ | 1,485.2 | $ | 1,375.0 | |||||||||||||||
| Operating profit | 131.8 | 101.1 | 348.5 | 301.1 | |||||||||||||||||||
| Depreciation | 5.9 | 6.3 | 18.1 | 18.9 | |||||||||||||||||||
| Amortization | 3.6 | 4.2 | 10.8 | 12.7 | |||||||||||||||||||
| Operating profit as a % of sales | 25.2 | % | 22.2 | % | 23.5 | % | 21.9 | % | |||||||||||||||
| Depreciation as a % of sales | 1.1 | % | 1.4 | % | 1.2 | % | 1.4 | % | |||||||||||||||
| Amortization as a % of sales | 0.7 | % | 0.9 | % | 0.7 | % | 0.9 | % | |||||||||||||||
Components of Sales Growth
| % Change Three Months Ended September, 2022 vs. Comparable 2021 Period | % Change Nine Months Ended September 30, 2022 vs. Comparable 2021 Period | ||||||||||
| Total revenue growth (GAAP) | 14.9 | % | 8.0 | % | |||||||
| Existing businesses (Non-GAAP) | 19.0 | % | 10.7 | % | |||||||
Acquisitions (Non-GAAP) | — | % | — | % | |||||||
| Currency exchange rates (Non-GAAP) | (4.0) | % | (2.7) | % | |||||||
Year-over-year sales from existing businesses increased 19.0% and 10.7% during the third quarter and the year-to-date period compared to the comparable periods of 2021. The year-over-year results for both respective periods were driven by price
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increases, market growth and share gains in key verticals and improved production execution with our energetic materials products.
Geographically, sales from existing businesses in developed markets increased by mid-teens in the third quarter driven by mid-teens growth in North America and high teens growth in Western Europe. Sales in high growth markets increased by low-thirties in the third quarter driven by China. On a year-to-date basis, sales from existing businesses in developed markets increased by high-single digits and high growth markets increased by mid-teens, respectively.
Year-over-year price increases in our Precision Technologies segment contributed 8.1% and 6.3% to sales growth for the third quarter and year-to-date period, respectively, as compared to the comparable periods of 2021, and is reflected as a component of the change in sales from existing businesses.
Operating profit margin increased 300 basis points for the third quarter as compared to the comparable period of 2021. Year-over-year changes in operating profit margin were comprised of the following:
•Higher year-over-year increases in price and volume, partially offset by higher material, freight and employee compensation costs and unfavorable exchange rates — favorable 280 basis points
•The year-over-year effect of amortization from existing businesses — favorable 20 basis points
Operating profit margin increased 160 basis points during the year-to-date period as compared to the comparable period of 2021. Year over year operating profit margins were comprised of the following
•Higher year-over-year increases in price and volume, partially offset by higher material, freight and employee compensation costs and unfavorable exchange rates — favorable 140 basis points
•The year-over-year effect of amortization from existing businesses — favorable 20 basis points
ADVANCED HEALTHCARE SOLUTIONS
Our Advanced Healthcare Solutions segment serves healthcare customers with enabling products and services for critical activities that help ensure safe, efficient, and timely healthcare. We provide broad hardware and software portfolio offerings optimized around our end-users’ most critical workflows, including instrument and device reprocessing, instrument tracking, cell therapy equipment design and manufacturing, biomedical test tools, radiation safety monitoring, and asset management.
Advanced Healthcare Solutions Financial Data
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| ($ in millions) | September 30, 2022 | October 1, 2021 | September 30, 2022 | October 1, 2021 | |||||||||||||||||||
| Sales | $ | 318.6 | $ | 308.4 | $ | 979.2 | $ | 915.3 | |||||||||||||||
| Operating profit | 17.3 | 34.4 | 73.4 | 75.8 | |||||||||||||||||||
| Depreciation | 4.9 | 4.9 | 14.3 | 15.6 | |||||||||||||||||||
| Amortization | 46.1 | 35.3 | 138.7 | 105.9 | |||||||||||||||||||
| Operating profit as a % of sales | 5.4 | % | 11.2 | % | 7.5 | % | 8.3 | % | |||||||||||||||
| Depreciation as a % of sales | 1.5 | % | 1.6 | % | 1.5 | % | 1.7 | % | |||||||||||||||
| Amortization as a % of sales | 14.5 | % | 11.4 | % | 14.2 | % | 11.6 | % | |||||||||||||||
Components of Sales Growth
| % Change Three Months Ended September 30, 2022 vs. Comparable 2021 Period | % Change Nine Months Ended September 30, 2022 vs. Comparable 2021 Period | ||||||||||
| Total revenue growth (GAAP) | 3.3 | % | 7.0 | % | |||||||
| Existing businesses (Non-GAAP) | (0.8) | % | 1.0 | % | |||||||
Acquisitions (Non-GAAP) | 8.6 | % | 9.3 | % | |||||||
| Currency exchange rates (Non-GAAP) | (4.4) | % | (3.3) | % | |||||||
Year-over-year sales from existing businesses decreased 0.8% in the third quarter and grew 1.0% in the year-to-date period, as compared to the comparable periods of 2021. The year-over-year results in the third quarter were driven by price increases,
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partially offset by volume declines. The overall decline in volume included increased demand for sterilization products, software offerings and radiation monitoring with declines in design services and hardware offerings, which were impacted by supply chain challenges. The year-over-year results for the year-to-date period were driven by price increases partially offset by volume changes consistent with those in the third quarter.
Geographically in the third quarter, sales from existing businesses were up slightly in developed markets driven mid-single digit growth in Western Europe, which was partially offset by a low-single digit decline in North America. In high growth markets, sales from existing businesses declined by mid-single digits mainly in China and other Asia. On a year-to-date basis, sales from existing businesses in developed markets increased by low-single digits and high growth markets declined by low-single digits.
Year-over-year price increases in our Advanced Healthcare Solutions segment contributed 2.1% and 1.6% to sales growth during the third quarter and year-to-date periods, as compared to the comparable periods of 2021, and is reflected as a component of the change in sales from existing businesses.
Operating profit margin decreased 580 basis points during the third quarter as compared to the comparable period of 2021. Year-over-year changes in operating profit margin were comprised of the following:
•Year-over-year sales increase in price from existing businesses were more than offset by a decline in volume from existing businesses, increased freight, logistics and employee compensation costs, reserves for uncollectible receivables and unfavorable foreign exchange rates — unfavorable 395 basis points
•The year-over-year effect of amortization from existing businesses — favorable 35 basis points
•The year-over-year net effect of acquisition-related transaction costs which were higher in the third quarter than those recognized in the comparable period in 2021 — unfavorable 30 basis points
•The year-over-year effect of acquired businesses, including amortization, and acquisition-related fair value adjustments to inventory — unfavorable 190 basis points
Operating profit margin decreased 80 basis points during the year-to-date period as compared to the comparable period of 2021. Year-over-year changes in operating profit margin were comprised of the following:
•Year-over-year sales increases in price from existing businesses were more than offset by increasing freight, logistics and employee compensation costs, reserves for uncollectible receivables and unfavorable foreign exchange rates, as well as a slight decrease in volume — unfavorable 90 basis points
•The year-over-year effect of amortization from existing businesses — favorable 75 basis points
•The year-over-year net effect of acquisition-related transaction costs which were less than those recognized in the comparable period in 2021 — favorable 40 basis points
•The year-over-year effect of acquired businesses, including amortization, and acquisition-related fair value adjustments to inventory — unfavorable 105 basis points
COST OF SALES AND GROSS PROFIT
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| ($ in millions) | September 30, 2022 | October 1, 2021 | September 30, 2022 | October 1, 2021 | |||||||||||||||||||
| Sales | $ | 1,456.0 | $ | 1,301.0 | $ | 4,295.8 | $ | 3,879.9 | |||||||||||||||
| Cost of sales | (610.6) | (555.3) | (1,824.9) | (1,666.8) | |||||||||||||||||||
| Gross profit | $ | 845.4 | $ | 745.7 | $ | 2,470.9 | $ | 2,213.1 | |||||||||||||||
| Gross profit margin | 58.1 | % | 57.3 | % | 57.5 | % | 57.0 | % | |||||||||||||||
The year-over-year increase in gross profit during the third quarter and the year-to-date period as compared to the comparable periods of 2021, is due primarily to year-over-year increases in sales volumes and price increases from existing and newly acquired businesses, which were partially offset by higher material, freight and employee compensation costs and the unfavorable impact of foreign currency exchange rates.
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OPERATING EXPENSES
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
($ in millions) | September 30, 2022 | October 1, 2021 | September 30, 2022 | October 1, 2021 | |||||||||||||||||||
| Sales | $ | 1,456.0 | $ | 1,301.0 | $ | 4,295.8 | $ | 3,879.9 | |||||||||||||||
| Selling, general and administrative (“SG&A”) | 491.3 | 455.6 | 1,456.8 | 1,340.1 | |||||||||||||||||||
| Research and development (“R&D”) | 101.1 | 87.8 | 300.3 | 261.8 | |||||||||||||||||||
| Russia exit and wind down costs | 1.1 | — | 17.3 | — | |||||||||||||||||||
| SG&A as a % of sales | 33.7 | % | 35.0 | % | 33.9 | % | 34.5 | % | |||||||||||||||
| R&D as a % of sales | 6.9 | % | 6.7 | % | 7.0 | % | 6.7 | % | |||||||||||||||
SG&A increased during the third quarter and year-to-date period, respectively as compared to the comparable periods of 2021 due to higher intangible amortization and incremental expenses from our recent acquisitions and increased employee compensation expenses, customer acquisition and marketing costs.
On a year-over-year basis, SG&A represented as a percentage of sales, decreased 130 basis points and 60 basis points during the third quarter and year-to-date period, respectively, with higher amortization expenses from our recent acquisitions more than offset by leverage on SG&A costs, which grew at a slower rate than did our sales.
R&D, consisting principally of internal and contract engineering personnel costs, increased during the third quarter and year-to-date period compared to the comparable periods of 2021 due to incremental costs from our recent acquisitions, investments in innovation and key initiatives and higher employee compensation costs. On a year-over-year basis, R&D expenses represented as a percentage of sales increased by 20 basis points in the third quarter and 30 basis points in the year-to-date period mainly on our recent acquisitions, where R&D spending is higher as a percentage of sales than in existing businesses.
RUSSIA EXIT AND WIND DOWN COSTS
We incurred pre-tax costs totaling $17.3 million in the year-to-date period, primarily in the second quarter, for the write-off of net assets, the cumulative translation adjustment in earnings for legal entities deemed substantially liquidated, and to record provisions for employee severance and legal contingencies. Of the $17.3 million incurred, approximately $9.2 million represents non-cash charges and is reflected as such in the Consolidated Condensed Statement of Cash Flows. The costs were primarily related to our segments, as follows: Intelligent Operating Solutions $13.8 million, Precision Technologies $2.2 million and Advanced Healthcare Solutions $1.3 million.
INTEREST COSTS
For a discussion of our outstanding indebtedness, refer to Note 5 to the consolidated condensed financial statements.
Net interest expense for the third quarter and year-to-date period was $26 million and $66 million as compared to $25 million and $78 million in the comparable periods in 2021. The increase in interest expense in the third quarter as compared to the comparable period of 2021 was due to higher outstanding debt balances. The decrease in interest expense in the year-to-date period as compared to the comparable period was due to lower year-over-year effective interest rates on debt instruments, despite overall higher debt balances. This decrease was partially driven by lower non-cash interest expense on the Convertible Senior Notes in the year-to-date period as compared to the comparable period in 2021 as the notes were settled in the first quarter of 2022.
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INCOME TAXES
Our effective tax rates for the three and nine month periods ended September 30, 2022 were 12.7% and 14.4%, respectively, as compared to 13.1% and 11.1%, respectively, for the three and nine month periods ended October 1, 2021. The year-over-year decrease in the effective tax rate for the three month period ended September 30, 2022 was relatively consistent as compared to the three month period ended October 1, 2021. The year-over-year increase in the effective tax rate for the nine month period ended September 30, 2022 as compared to the nine month period ended October 1, 2021 was primarily due to a non-recurring permanent difference on the Q1 2021 gain on our Retained Vontier Shares as a result of the tax-free treatment of our disposition of the shares through the Debt-for-Equity Exchange and the effect of Russia exit including wind down costs for which no tax benefit was recognized.
Our effective tax rate for the three and nine month periods ended September 30, 2022 differs from the U.S. federal statutory rate of 21% due primarily to the positive and negative effects of the Tax Cuts and Jobs Act, U.S. federal permanent differences, the impacts of credits and deductions provided by law, an increase to in our uncertain tax positions relating to higher interest rates, and the effect of Russia exit and wind down costs for which no tax benefit was recognized.
On August 16, 2022, the U.S. enacted the Inflation Reduction Act of 2022, which, among other provisions, implements a 15% corporate alternative minimum tax on book income on corporations whose average annual adjusted financial statement income during the most recently-completed three-year period exceeds $1.0 billion, a 1% excise tax on net stock repurchases, and several tax incentives to promote clean energy. This provision is effective for tax years beginning after December 31, 2022. Based on our current analysis of the provisions, we do not believe this legislation will have a material impact on our consolidated financial statements.
COMPREHENSIVE INCOME
Comprehensive income decreased by $39 million during the third quarter as compared to the comparable period in 2021 due primarily to unfavorable changes in foreign currency translation adjustments of $77 million, partially offset by an increase in net income.
Comprehensive income decreased by $133 million during the year-to-date period as compared to the comparable period in 2021 due primarily to unfavorable changes in foreign currency translation adjustments of $217 million, partially offset by an increase in net income.
LIQUIDITY AND CAPITAL RESOURCES
We assess our liquidity in terms of our ability to generate cash to fund our operating, investing, and financing activities. We generate substantial cash from operating activities and believe that our operating cash flow and other sources of liquidity, which consist of access to bank loans, commercial paper, capital markets, and our revolving credit facility will be sufficient to allow us to continue funding and investing in our existing businesses, consummate strategic acquisitions, make interest and principal payments on our outstanding indebtedness, fulfill our contractual obligations, and manage our capital structure on a short and long-term basis.
We have generally satisfied any short-term liquidity needs that are not met through operating cash flows and available cash through issuances of commercial paper under our U.S. dollar and Euro-denominated commercial paper programs (“Commercial Paper Programs”).
Credit support for the Commercial Paper Programs is provided by a five-year $2.0 billion senior unsecured revolving credit facility that expires on November 30, 2023 (the “Revolving Credit Facility”) which, to the extent not otherwise providing credit support for the commercial paper programs, can also be used for working capital and other general corporate purposes. As of September 30, 2022, no borrowings were outstanding under the Revolving Credit Facility.
Subsequent Events
On October 18, 2022, we entered into a second amended and restated credit agreement (the “Amended and Restated Credit Agreement”) extending the availability period of the Revolving Credit Facility to October 18, 2027 with an additional two one year extension options at our request and with the consent of the lenders. The Amended and Restated Credit Agreement also contains an option permitting us to request an increase in the amounts available under the Revolving Credit Facility of up to an aggregate additional $1.0 billion.
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We are obligated to pay an annual facility fee for the Revolving Credit Facility of between 6.5 and 15 basis points varying according to our long-term debt credit rating. Borrowings under the new Revolving Credit Facility in U.S Dollars bear interest at a rate equal, at our option, to either (1) Term Secured Overnight Financing Rate (“Term SOFR”), plus a 10 basis points Credit Spread Adjustment (“CSA”) plus a margin of between 68.5 and 110.0 basis points, depending on our long-term debt credit rating or (2) the highest of (a) the Federal funds rate plus 50 basis points, (b) the prime rate, (c) Term SOFR plus 100 basis points and (d) 1.0%, plus in each case a margin between zero and 10 basis points depending on our long-term debt credit rating.
In addition, beginning with our 2023 performance relative to our annual greenhouse gas reduction targets, the interest rate on any borrowings can increase or decrease by 4.0 basis points and the facility fee can increase or decrease by 1.0 basis points, for a maximum impact of an increase or decrease of 5.0 basis points.
The Amended and Restated Credit Agreement requires us to maintain a consolidated net leverage ratio of debt to consolidated EBITDA (as defined in the Credit Agreement) of less than 3.5 to 1.0. The maximum consolidated net leverage ratio will be increased to 4.0 to 1.0 for the four consecutive full fiscal quarters immediately following the consummation of any acquisition by us in which the purchase price exceeds $250 million. The Amended and Restated Credit Agreement also contains customary representations, warranties, conditions precedent, events of default, indemnities, and affirmative and negative covenants.
On October 18, 2022, we entered into a $1.0 billion delayed-draw senior unsecured term facility (“Delayed-Draw Term Loan Due 2023”). We intend to use proceeds of the Delayed-Draw Term Loan Due 2023 to repay the outstanding principal balance of the Delayed-Draw Term Loan Due 2022, which matures in December 2022. The Delayed-Draw Term Loan Due 2023 bears interest at a variable rate equal to Term SOFR plus a CSA of 10 basis points plus a spread of 82.5 basis points at our current credit rating. Borrowing under the Term Loan Due 2023 are prepayable at our option in whole or in part without premium or penalty and amounts borrowed may not be reborrowed once repaid.
The availability of the Revolving Credit Facility as a standby liquidity facility to repay maturing commercial paper is an important factor in maintaining the existing credit ratings of the Commercial Paper Programs when we have outstanding borrowings. We expect to limit any future borrowings under the Revolving Credit Facility to amounts that would leave sufficient credit available under the facility to allow us to borrow, if needed, and repay any outstanding commercial paper as it matures.
We continue to monitor the financial markets and general global economic conditions. If changes in financial markets or other areas of the economy adversely affect our access to the capital markets, we would expect to rely on a combination of available cash and existing available capacity under our credit facilities to provide short-term funding.
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Overview of Cash Flows and Liquidity
Following is an overview of our cash flows and liquidity ($ in millions):
Operating Activities
| Nine Months Ended | |||||||||||
| ($ in millions) | September 30, 2022 | October 1, 2021 | |||||||||
| Total operating cash provided by continuing operations | $ | 839.0 | $ | 705.9 | |||||||
| Cash paid for acquisitions, net of cash received | $ | (15.2) | $ | (1,156.7) | |||||||
| Payments for additions to property, plant and equipment | (59.7) | (28.0) | |||||||||
| Proceeds from sale of business | 6.6 | — | |||||||||
| All other investing activities | — | 1.1 | |||||||||
| Total investing cash used in continuing operations | $ | (68.3) | $ | (1,183.6) | |||||||
| Proceeds from borrowings (maturities greater than 90 days), net of issuance costs | $ | 396.9 | $ | — | |||||||
| Net proceeds from commercial paper borrowings | 381.3 | 215.0 | |||||||||
| Payment of 0.875% convertible senior notes due 2022 | (1,156.5) | — | |||||||||
| Repurchase of common shares | (376.1) | — | |||||||||
| Payment of common stock cash dividend to shareholders | (74.8) | (72.6) | |||||||||
| Repayment of borrowings (maturities greater than 90 days) | — | (611.1) | |||||||||
| Payment of mandatory convertible preferred stock cash dividend to shareholders | — | (34.5) | |||||||||
| All other financing activities | (9.2) | 18.1 | |||||||||
| Total financing cash used in continuing operations | $ | (838.4) | $ | (485.1) | |||||||
Operating cash flows from continuing operations can fluctuate significantly from period-to-period as working capital needs and the timing of payments for income taxes, interest, pension funding, and other items impact reported cash flows.
Operating cash flows from continuing operations were $839 million during the year-to-date period yielding an increase of $133 million, or 19%, as compared to the comparable period of 2021. The year-over-year change in operating cash flows from continuing operations was primarily attributable to the following factors:
•Year-over-year increases of $140 million in Operating cash flows from net earnings from continuing operations, net of non-cash items (Amortization, Depreciation, Stock-based compensation, Loss on extinguishment of debt, Gain on investment in Vontier Corporation, Gain on litigation resolution and Russia exit and wind down costs).
•The aggregate changes in trade accounts receivable, inventories, and trade accounts payable used $48 million of cash during the year-to-date period as compared to using $52 million in the comparable period of 2021. The amount of cash flow generated from or used by the aggregate of trade accounts receivable, inventories, and trade accounts payable depends upon how effectively we manage the cash conversion cycle, which generally represents the number of days that elapse from the day we pay for the purchase of raw materials and components to the collection of cash from our customers, and can be significantly impacted by the timing of collections and payments in a period.
•The aggregate changes in prepaid expenses, other assets, accrued expenses and other liabilities used $67 million of cash in the year-to-date period as compared to using $57 million of cash in the comparable period of 2021. The year-over-year changes were driven by timing differences in tax payments and employee compensation and benefits.
Investing Activities
Investing cash flows from continuing operations, consisting primarily of cash paid for acquisitions and capital expenditures, decreased $1.1 billion during the year-to-date period as a result of our acquisition of ServiceChannel in 2021, which was partially offset by increased capital expenditures of approximately $32 million in 2022.
Capital expenditures are made primarily for increasing production capacity, replacing aged equipment, supporting product development initiatives for hardware and software offerings, improving information technology systems, and purchasing
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equipment that is used in revenue arrangements with customers. For the current year, we expect capital spending to be approximately $80-100 million, although actual expenditures will ultimately depend on business conditions.
Financing Activities and Indebtedness
Financing cash flows from continuing operations consist primarily of cash flows associated with the issuance of equity, the issuance and repayment of debt and commercial paper, payments of cash dividends to shareholders and share repurchases.
Financing activities from continuing operations used cash of $838 million during the year-to-date period, reflecting the following transactions:
•On June 17, 2022, we entered into a three-year ¥14.4 billion senior unsecured facility yielding net proceeds of approximately $107 million.
•On June 21, 2022, we entered into a three-year €275 million senior unsecured facility yielding net proceeds of approximately $290 million.
•On February 15, 2022, the maturity date of the Convertible Notes, we repaid, in cash, $1.2 billion in outstanding principal and accrued interest thereon.
•During 2022, we incurred $381 million in net commercial paper borrowings under the U.S. dollar-denominated commercial paper program, which had a weighted annual effective rate of 3.19% and a weighted average remaining maturity of approximately 29 days.
•During 2022, we repurchased 6,000,000 shares for approximately $376 million under our publicly-announced share repurchase program.
•During 2022, we made dividend payments to common shareholders totaling $75 million.
In the comparable 2021 period, financing activities from continuing operations used cash of $485 million, which included payments of $317 million on the Delayed-Draw Term loan due in April 2020 and repurchases of $281 million in Convertible Notes.
On January 19, 2021, we completed the non-cash Debt-for-Equity Exchange of 33.5 million shares of common stock of Vontier, representing all of the Retained Vontier Shares, for $1.1 billion in aggregate principal amount of indebtedness of the Company held by Goldman Sachs & Co. We recorded a loss on extinguishment of the debt included in the Debt-for-Equity Exchange of $94.4 million in the nine month period ended October 1, 2021.
Refer to Note 5 of the consolidated condensed financial statements for additional information regarding our financing activities and indebtedness.
Cash and Cash Requirements
As of September 30, 2022, we held approximately $705 million of cash and equivalents that were invested in highly liquid investment-grade instruments with a maturity of 90 days or less and yielded insignificant interest income during the year-to-date period. Approximately 89% of the $705 million in cash and equivalents was held outside of the United States.
We have cash requirements to support working capital needs, capital expenditures and acquisitions, pay interest and service debt, pay taxes and any related interest or penalties, fund our pension plans as required, pay dividends to shareholders, and support other business needs or objectives. With respect to our cash requirements, we generally intend to use available cash and internally generated funds to meet these cash requirements, but in the event that additional liquidity is required, particularly in connection with acquisitions and repayment of maturing debt, we may also borrow under our commercial paper programs or credit facilities or enter into new credit facilities and either borrow directly thereunder or use such credit facilities to backstop additional borrowing capacity under our commercial paper programs. We also may from time to time access the capital markets, including to take advantage of favorable interest rate environments or other market conditions.
Foreign cumulative earnings remain subject to foreign remittance taxes. We have made an election regarding the amount of earnings that we do not intend to repatriate due to local working capital needs, local law restrictions, high foreign remittance costs, previous investments in physical assets and acquisitions, or future growth needs. For most of our foreign operations, we make an assertion regarding the amount of earnings in excess of intended repatriation that are expected to be held for indefinite reinvestment. No provisions for foreign remittance taxes have been made with respect to earnings that are planned to be reinvested indefinitely. The amount of foreign remittance taxes that may be applicable to such earnings is not readily determinable given local law restrictions that may apply to a portion of such earnings, unknown changes in foreign tax law that may occur during the applicable restriction periods caused by applicable local corporate law for cash repatriation, and the various tax planning alternatives we could employ if we repatriated these earnings.
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As of September 30, 2022, we expect to have sufficient liquidity to satisfy our cash needs for the foreseeable future.
CRITICAL ACCOUNTING ESTIMATES
There were no material changes during the three and nine month periods ended September 30, 2022 to the items we disclosed as our critical accounting estimates in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2021 Annual Report on Form 10-K.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our concentrations of credit risk arising from trade receivables is limited due to the diversity of our customers. Our businesses perform credit evaluations of their customers’ financial conditions as appropriate and also obtain collateral or other security when appropriate.
Additional quantitative and qualitative disclosures about market risk appear in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Financial Instruments and Risk Management,” in our 2021 Annual Report on Form 10-K. There were no material changes during the three and nine month periods ended September 30, 2022 to the information reported in our 2021 Annual Report on Form 10-K relating to our evaluation of interest rate, foreign currency exchange, and commodity price risk. Refer to Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations for discussion around the impact of these items in the third quarter and year-to-date period.
ITEM 4. CONTROLS AND PROCEDURES
Our management, with the participation of the President and Chief Executive Officer, and the Senior Vice President and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, the President and Chief Executive Officer, and the Senior Vice President and Chief Financial Officer, have concluded that, as of the end of such period, these disclosure controls and procedures were effective.
There have been no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the most recent completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1A. RISK FACTORS
Information regarding risk factors appears in “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Information Relating to Forward-Looking Statements,” in Part I - Item 2 of this Form 10-Q and in the “Risk Factors” section of our 2021 Annual Report on Form 10-K. There were no material changes during the quarter and year ended September 30, 2022 to the risk factors reported in the “Risk Factors” section of our 2021 Annual Report on Form 10-K.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On February 17, 2022, the Company's Board of Directors approved a share repurchase program authorizing the Company to repurchase up to 20 million shares of the Company's outstanding common stock from time to time on the open market or in privately negotiated transactions. There is no expiration date for the repurchase program, and the timing and amount of repurchases under the program are determined by the Company's management based on market conditions and other factors. The repurchase program may be suspended or discontinued at any time by the Board of Directors. During the year-to-date period ended September 30, 2022, the Company purchased 6,000,000 shares of its common stock at an average share price of
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$62.67, including 2,000,000 shares at an average share price of $66.57 during the third quarter of 2022, leaving 14 million shares authorized for repurchase under the share repurchase program as of September 30, 2022.
The following table provides details about our share repurchases during the fiscal quarter ended September 30, 2022.
| Period | Total number of shares (or units) purchased | Average price paid per share (or unit) | Total number of shares (or units) purchased as part of publicly announced plans or programs | Maximum number (or approximate dollar value) of shares (or units) that may yet be purchased under the plans or programs | |||||||||||||||||||
| July 2 - July 31 | — | $ | — | N/A | N/A | ||||||||||||||||||
| Aug 1 - Aug 31 | 2,000,000 | 66.57 | 2,000,000 | 14,000,000 | |||||||||||||||||||
| Sep 1 - Sep 30 | — | — | N/A | N/A | |||||||||||||||||||
| Total | 2,000,000 | $ | 66.57 | 2,000,000 | 14,000,000 | ||||||||||||||||||
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ITEM 6. EXHIBITS
| Exhibit Number | Description | |||||||
| 3.1 | ||||||||
| 3.2 | ||||||||
| 10.1 | ||||||||
| 10.2 | ||||||||
| 31.1 | ||||||||
| 31.2 | ||||||||
| 32.1 | ||||||||
| 32.2 | ||||||||
| 101.INS | XBRL Instance Document (1) - the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. | |||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document (1) | |||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document (1) | |||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document (1) | |||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document (1) | |||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document (1) | |||||||
| 104 | The cover page from this Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, formatted in Inline XBRL and contained in Exhibit 101 | |||||||
(1) Exhibit 101 to this report includes the following documents formatted in Inline XBRL (Extensible Business Reporting Language): (i) Consolidated Condensed Balance Sheets as of September 30, 2022 and December 31, 2021, (ii) Consolidated Condensed Statements of Earnings for the three and nine month periods ended September 30, 2022 and October 1, 2021, (iii) Consolidated Condensed Statements of Comprehensive Income for the three and nine month periods ended September 30, 2022 and October 1, 2021, (iv) Consolidated Condensed Statement of Changes in Equity for the three and nine month periods ended September 30, 2022 and October 1, 2021, (v) Consolidated Condensed Statements of Cash Flows for the nine month periods ended September 30, 2022 and October 1, 2021, and (vi) Notes to Consolidated Condensed Financial Statements.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| FORTIVE CORPORATION: | ||||||||
| Date: October 26, 2022 | By: | /s/ Charles E. McLaughlin | ||||||
| Charles E. McLaughlin | ||||||||
| Senior Vice President and Chief Financial Officer | ||||||||
| Date: October 26, 2022 | By: | /s/ Christopher M. Mulhall | ||||||
| Christopher M. Mulhall | ||||||||
| Chief Accounting Officer | ||||||||
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ATTACHMENTS / EXHIBITS
XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT
XBRL TAXONOMY EXTENSION CALCULATION LINKBASE DOCUMENT
XBRL TAXONOMY EXTENSION DEFINITION LINKBASE DOCUMENT
XBRL TAXONOMY EXTENSION LABEL LINKBASE DOCUMENT
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