What changed in this filing

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Item 1. Financial Statements

2021-10-28 compared with 2021-07-29 · 174 added, 127 removed, 603 unchanged (33% of the section changed)

3 unchanged sentences

($ in millions, except per share amounts)

July 2, 2021 December 31, 2020

October 1, 2021 December 31, 2020

Current assets:

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Total current assets 2,425.3 4,446.9

Property, plant and equipment, net of accumulated depreciation of $ 696.2 and $ 674.5 at July 2, 2021 and December 31, 2020, respectively

Property, plant and equipment, net of accumulated depreciation of $ 701.1 and $ 674.5 at October 1, 2021 and December 31, 2020, respectively

Operating lease right-of-use assets 180.3 188.7

5 unchanged sentences

Current liabilities:

Commercial paper $ 215.0 $ —

Current portion of long-term debt 1,143.2 1,399.8

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Preferred stock:

$ 0.01 par value, 15.0 million shares authorized at July 2, 2021 and December 31, 2020;

5.0 % Mandatory convertible preferred stock, series A, 0.0 million and 1.4 million shares designated, issued and outstanding at July 2, 2021 and December 31, 2020, respectively

$ 0.01 par value, 15.0 million shares authorized at October 1, 2021 and December 31, 2020;

5.0 % Mandatory convertible preferred stock, series A, 0.0 million and 1.4 million shares designated, issued, and outstanding at October 1, 2021 and December 31, 2020, respectively

Common stock:

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359.9 and 339.0 million issued;

358.4 and 337.9 million outstanding at July 2, 2021 and December 31, 2020, respectively

358.6 and 337.9 million outstanding at October 1, 2021 and December 31, 2020, respectively

Additional paid-in capital 3,624.3 3,554.5

Retained earnings 5,882.2 5,547.4

Accumulated other comprehensive income (loss) ( 157.3 ) ( 141.1 )

Accumulated other comprehensive loss ( 192.1 ) ( 141.1 )

Total Fortive stockholders’ equity 9,318.0 8,964.2

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

Three Months Ended Six Months Ended

July 2, 2021 June 26, 2020 July 2, 2021 June 26, 2020

Three Months Ended Nine Months Ended

October 1, 2021 September 25, 2020 October 1, 2021 September 25, 2020

Sales of products and software $ 1,105.6 $ 988.1 $ 3,318.8 $ 2,820.6

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($ in millions)

Three Months Ended Six Months Ended

July 2, 2021 June 26, 2020 July 2, 2021 June 26, 2020

Three Months Ended Nine Months Ended

October 1, 2021 September 25, 2020 October 1, 2021 September 25, 2020

Net earnings $ 150.8 $ 225.8 $ 441.9 $ 397.7

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Balance, July 2, 2021 358.4 $ 3.6 — $ — $ 3,602.1 $ 5,756.6 $ ( 157.3 ) $ 4.7

Net earnings for the period — — — — — 150.8

Dividends to common shareholders — — — — — ( 25.2 ) — —

Other comprehensive income (loss) — — — — — — ( 34.8 ) —

Common stock-based award activity 0.2 — — — 26.0 — — —

Changes in noncontrolling interests — — — — ( 3.8 ) — — 0.1

Balance, October 1, 2021 358.6 $ 3.6 — $ — $ 3,624.3 $ 5,882.2 $ ( 192.1 ) $ 4.8

See the accompanying Notes to Consolidated Condensed Financial Statements.

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Balance, June 26, 2020 337.0 $ 3.4 1.4 $ — $ 3,360.7 $ 4,187.8 $ ( 156.6 ) $ 11.6

Net earnings for the period — — — — — 225.8 — —

Dividends to common shareholders — — — — — ( 23.6 ) — —

Mandatory convertible preferred stock cumulative dividends — — — — — ( 17.3 ) — —

Other comprehensive income — — — — — — 64.9 —

Common stock-based award activity 0.2 — — — 31.0 — — —

Change in noncontrolling interests — — — — — — — 0.4

Balance, September 25, 2020 337.2 $ 3.4 1.4 $ — $ 3,391.7 $ 4,372.7 $ ( 91.7 ) $ 12.0

See the accompanying Notes to Consolidated Condensed Financial Statements.

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($ in millions)

Six Months Ended

July 2, 2021 June 26, 2020

Nine Months Ended

October 1, 2021 September 25, 2020

Cash flows from operating activities:

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Cash flows from investing activities:

Payments for additions to property, plant and equipment ( 17.1 ) ( 45.5 )

Cash paid for acquisitions, net of cash received ( 1,156.7 ) ( 15.2 )

Payments for additions to property, plant and equipment ( 28.0 ) ( 58.9 )

All other investing activities 1.1 5.3

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Cash flows from financing activities:

Net repayments of commercial paper borrowings — ( 1,141.9 )

Proceeds from borrowings (maturities longer than 90 days), net of issuance costs of $ 1 million in 2020

Net proceeds from (repayment of) commercial paper borrowings 215.0 ( 1,141.9 )

Proceeds from borrowings (maturities greater than 90 days), net of issuance costs of $ 8 million in 2020

Repayment of borrowings (maturities greater than 90 days) ( 611.1 ) ( 250.0 )

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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, 2020 and the footnotes (“Notes”) thereto included within our 2020 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 July 2, 2021 and December 31, 2020, our results of operations for the three and six month periods ended July 2, 2021 and June 26, 2020, and cash flows for the six month periods ended July 2, 2021 and June 26, 2020.

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 October 1, 2021 and December 31, 2020, our results of operations for the three and nine month periods ended October 1, 2021 and September 25, 2020, and cash flows for the nine month periods ended October 1, 2021 and September 25, 2020.

Reclassification of certain prior year amounts have been made to conform to current year presentation.

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Accordingly, the consolidated financial statements reflect the results of the Vontier business as a discontinued operation for all periods presented.

Fortive did not retain a controlling interest in Vontier and therefore the Retained Vontier Shares were included in our assets of continuing operations as of December 31, 2020 and subsequent fair value changes in the Retained Vontier Shares prior to the Debt-for-Equity Exchange are included in our results from continuing operations for the six month period ended July 2, 2021.

Segment Presentation

In light of the Vontier Separation, we changed our internal reporting structure on the first day of the fourth quarter, September 26, 2020, to reflect organizational and leadership changes that allow us to better assess the operational performance of, and

allocate resources to, our businesses.

In light of the Vontier Separation, we changed our internal reporting structure on the first day of the fourth quarter of 2020, September 26, 2020, to reflect organizational and leadership changes that allow us to better assess the operational performance of, and allocate resources to, our businesses.

Our chief operating decision maker assesses performance and allocates resources based on our new operating segments, which are also our new reportable segments.

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subsidiaries.

We designated our ¥ 13.8 billion senior unsecured term facility loan and our Euro-denominated commercial paper outstanding during the six month period ended June 26, 2020 as net investment hedges of our investment in certain foreign operations;

We designated our ¥ 13.8 billion senior unsecured term facility loan and our Euro-denominated commercial paper outstanding during the nine month period ended September 25, 2020 as net investment hedges of our investment in certain foreign operations;

we exited our Euro-denominated commercial paper positions during the second quarter of 2020 and repaid our ¥ 13.8 billion senior unsecured term facility loan during the fourth quarter of 2020.

As of July 2, 2021 and December 31, 2020, we had no designated net investment hedges.

During the three and six month periods ended June 26, 2020, we recognized foreign currency transaction gains of $ 3.1 million and $ 4.0 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.

As of October 1, 2021 and December 31, 2020, we had no designated net investment hedges.

During the three and nine month periods ended September 25, 2020, we recognized foreign currency transaction losses of $ 2.0 million and gains of $ 2.0 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 six month periods ended June 26, 2020.

We recorded no ineffectiveness from our net investment hedges during the three and nine month periods ended September 25, 2020.

The changes in AOCI by component are summarized below ($ in millions):

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adjustments (a)

For the Three Months Ended July 2, 2021:

Balance, April 2, 2021 $ ( 88.7 ) $ ( 86.1 ) $ ( 174.8 )

For the Three Months Ended October 1, 2021:

Balance, July 2, 2021 $ ( 72.1 ) $ ( 85.2 ) $ ( 157.3 )

Other comprehensive income (loss) before reclassifications, net of income taxes ( 35.7 ) — ( 35.7 )

Amounts reclassified from accumulated other comprehensive income (loss):

Increase — 1.2 (b)

Increase (decrease) — 1.2 (b)

Income tax impact — ( 0.3 ) ( 0.3 )

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Net current period other comprehensive income (loss), net of income taxes ( 35.7 ) 0.9 ( 34.8 )

Balance, July 2, 2021 $ ( 72.1 ) $ ( 85.2 ) $ ( 157.3 )

For the Three Months Ended June 26, 2020:

Balance, March 27, 2020 $ ( 115.1 ) $ ( 78.5 ) $ ( 193.6 )

Balance, October 1, 2021 $ ( 107.8 ) $ ( 84.3 ) $ ( 192.1 )

For the Three Months Ended September 25, 2020:

Balance, June 26, 2020 $ ( 79.1 ) $ ( 77.5 ) $ ( 156.6 )

Other comprehensive income (loss) before reclassifications, net of income taxes 63.9 — 63.9

Amounts reclassified from accumulated other comprehensive income (loss):

Decrease — 1.2 (b)

Increase (decrease) — 1.2 (b)

Income tax impact — ( 0.2 ) ( 0.2 )

1 unchanged sentence

Net current period other comprehensive income (loss), net of income taxes 63.9 1.0 64.9

Balance, June 26, 2020 $ ( 79.1 ) $ ( 77.5 ) $ ( 156.6 )

Balance, September 25, 2020 $ ( 15.2 ) $ ( 76.5 ) $ ( 91.7 )

adjustments Pension adjustments (a)

For the Six Months Ended July 2, 2021:

For the Nine Months Ended October 1, 2021:

Balance, December 31, 2020 $ ( 54.0 ) $ ( 87.1 ) $ ( 141.1 )

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Net current period other comprehensive income (loss) ( 53.8 ) 2.8 ( 51.0 )

Balance, July 2, 2021 $ ( 72.1 ) $ ( 85.2 ) $ ( 157.3 )

For the Six Months Ended June 26, 2020:

Balance, October 1, 2021 $ ( 107.8 ) $ ( 84.3 ) $ ( 192.1 )

For the Nine Months Ended September 25, 2020:

Balance, December 31, 2019 $ 21.2 $ ( 77.5 ) $ ( 56.3 )

1 unchanged sentence

Amounts reclassified from accumulated other comprehensive income (loss):

Increase (decrease) — — —

Increase (decrease) — 1.2 (b)

Income tax impact — ( 0.2 ) ( 0.2 )

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Net current period other comprehensive income (loss) ( 36.4 ) 1.0 ( 35.4 )

Balance, June 26, 2020 $ ( 79.1 ) $ ( 77.5 ) $ ( 156.6 )

Balance, September 25, 2020 $ ( 15.2 ) $ ( 76.5 ) $ ( 91.7 )

(a) Includes balances relating to defined benefit plans, supplemental executive retirement plans, and other postretirement employee benefit plans.

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Additions to the allowances are charged to current period earnings, amounts determined to be uncollectible are charged directly against the allowances, while amounts recovered on previously written-off accounts increase the allowances.

The following is a rollforward of the aggregated allowance for credit losses related to our trade accounts receivables as of July 2, 2021 ($ in millions):

The following is a rollforward of the aggregated allowance for credit losses related to our trade accounts receivables as of October 1, 2021 ($ in millions):

Balance, December 31, 2020 $ 42.5

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Write-offs ( 6.1 )

FX and Other 0.1

Balance, July 2, 2021 $ 38.4

Foreign currency exchange and other 0.3

Balance, October 1, 2021 $ 36.3

The allowance for unbilled receivables was immaterial for all periods presented.

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We are currently evaluating the impact of this standard on our financial statements and the method of adoption .

For a description of our material acquisition activity, refer to Note 3 of our 2020 Annual Report on Form 10-K.

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 markets.

We have completed a number of acquisitions that have been accounted for as purchases and resulted in the recognition of goodwill in our financial statements.

We have completed a number of acquisitions that have been accounted for as business combinations 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.

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We make appropriate adjustments to purchase price allocations prior to completion of the applicable measurement period, as required.

During the three and six month periods ended July 2, 2021, immaterial adjustments were recorded to the preliminary purchase price allocation of acquisitions that closed during 2020.

During the three and nine month periods ended October 1, 2021, immaterial adjustments were recorded to the preliminary purchase price allocation of acquisitions that closed during 2020.

Advanced Sterilization Products

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The $ 2.7 billion purchase price was paid in exchange for ASP’s businesses in both Principal and Non-Principal Countries.

As of July 2, 2021 we have closed 20 Principal Countries and 38 Non-Principal Countries that, in aggregate, accounted for approximately 99 % of the preliminary valuation of ASP.

As of October 1, 2021 we have closed 20 Principal Countries and 38 Non-Principal Countries that, in aggregate, accounted for approximately 99 % of the preliminary valuation of ASP.

The remaining Non-Principal Country represents less than 1 % of the preliminary valuation of ASP, or $ 1.0 million, which is included as a prepaid asset in Other assets in the Consolidated Condensed Balance Sheet.

As each Non-Principal Country closes, we reduce the prepaid asset and record the fair value of the assets acquired and liabilities assumed.

All of the provisional goodwill associated with the Transaction is included in goodwill at July 2, 2021, and the majority of the provisional goodwill is tax deductible.

There were no material measurement period adjustments recorded for the Non-Principal Countries during the three and six month periods ended July 2, 2021.

All of the provisional goodwill associated with the Transaction is included in goodwill at October 1, 2021, and the majority of the provisional goodwill is tax deductible.

There were no material measurement period adjustments recorded for the Non-Principal Countries during the three and nine month periods ended October 1, 2021.

In addition, the Company entered into a transition services agreement with Johnson & Johnson for certain administrative and operational services (“TSA”) and distribution agreements in the Non-Principal Countries.

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ASP recognizes these sales as revenue when the conditions for revenue recognition are met.

Following the sale of finished goods by ASP, Ethicon obtains title of the finished goods, has full authority to sell and market the finished goods to end customers as it sees fit, and retains any revenue and profit from sale.

As of July 2, 2021, ASP had exited the TSAs and substantially all of the distribution agreements.

ASP expects to close the remaining Non-Principal Country in 2021.

Prior to our acquisition of ASP, Johnson & Johnson received a Civil Investigative Demand (“CID”) from the United States Department of Justice (“DOJ”) regarding a False Claims Act investigation arising from a whistleblower lawsuit pertaining to the pricing, quality, marketing, and promotion of certain of ASP’s products.

As of October 1, 2021, ASP had exited the TSAs and substantially all of the distribution agreements.

ASP expects to close the remaining Non-Principal Country in the fourth quarter of 2021.

Prior to our acquisition of ASP, Johnson & Johnson received a Civil Investigative Demand from the United States Department of Justice (“DOJ”) regarding a False Claims Act investigation arising from a whistleblower lawsuit pertaining to the pricing, quality, marketing, and promotion of certain of ASP’s products.

Based on the totality of available information at the Principal Closing Date and throughout the applicable measurement period, management allocated $ 26 million of the $ 2.7 billion purchase price to a potential liability related to the aforementioned litigation.

Since the Principal Closing Date, management has continually evaluated the likelihood and magnitude of the asserted claims based on any new information that became available.

Following the Principal Closing Date, management continually evaluated the likelihood and magnitude of the asserted claims based on any new information that became available.

In the second quarter of 2021, following the unsealing of the whistleblower lawsuit and DOJ’s declination to intervene in the litigation, the plaintiff dismissed the whistleblower lawsuit.

Based on these developments, management derecognized the litigation liability from our Consolidated Condensed Balance Sheet and recorded the gain on litigation dismissal of $ 26 million within Non-operating income (expense), net in our Consolidated Condensed Statements of Earnings for the three and six month periods ended July 2, 2021.

Pending Acquisition of ServiceChannel

On July 8, 2021, the Company entered into a definitive agreement with Bayard Capital and Accel Partners to acquire ServiceChannel Holdings, Inc.

Based on these developments, management derecognized the litigation liability from our Consolidated Condensed Balance Sheet and recorded the gain on litigation dismissal of $ 26 million within Non-operating income (expense), net in our Consolidated Condensed Statements of Earnings during the nine month period ended October 1, 2021.

ServiceChannel

ServiceChannel is a global provider of SaaS-based multi-site facilities maintenance service solutions with an integrated service-provider network.

The ServiceChannel acquisition is subject to customary closing conditions, including regulatory approvals.

Upon closing of the acquisition we will pay total consideration of $ 1.2 billion, which includes approximately $ 60 million of deferred compensation consideration, and the acquisition will be financed primarily with available cash.

On August 24, 2021, we acquired ServiceChannel Holdings, Inc.

(“ServiceChannel”), a privately held, global provider of software as a service 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 includes approximately $ 36 million of deferred compensation consideration that will be 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 $ 897 million of goodwill related to the ServiceChannel 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.

The following table summarizes the preliminary estimated fair value of the assets acquired and liabilities assumed from ServiceChannel as of October 1, 2021 ($ in millions):

Goodwill $ 897.3

Other intangible assets, primarily customer relationships, technology, database, and trade names 343.8

Other assets and liabilities, net ( 82.4 )

Net cash consideration $ 1,158.7

Revenue and operating loss attributable to ServiceChannel for both the three and nine month periods ended October 1, 2021 were $ 10.1 million and $ 19.5 million, respectively, consistent with our expectations.

The operating loss includes a combined $ 18.2 million of intangible asset amortization, acquisition-related fair value adjustments, and transaction and integration costs for both the three and nine month periods ended October 1, 2021.

Transaction and integration related costs were approximately $ 13.2 million and are recorded in Selling, general and administration expenses, which are primarily comprised of compensation cost for employee retention bonuses and amounts paid to third-party advisors.

DISCONTINUED OPERATIONS

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Accordingly, the impairment charge is recorded in Earnings from discontinued operations, net of income taxes in the Consolidated Statement of Earnings.

The key components of income from discontinued operations for the three and six month periods ended July 2, 2021 and June 26, 2020 were as follows ($ in millions):

Three Months Ended Six Months Ended

July 2, 2021 June 26, 2020 July 2, 2021 June 26, 2020

The key components of income from discontinued operations for the three and nine month periods ended October 1, 2021 and September 25, 2020 were as follows ($ in millions):

Three Months Ended Nine Months Ended

October 1, 2021 September 25, 2020 October 1, 2021 September 25, 2020

Sales $ — $ 746.7 $ — $ 1,889.6

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The following table summarizes the major classes of assets and liabilities of discontinued operations that were included in the Company’s Consolidated Balance Sheets ($ in millions):

July 2, 2021 December 31, 2020

October 1, 2021 December 31, 2020

Other current assets $ — $ 30.4

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Total liabilities, discontinued operations $ ( 1.2 ) $ ( 33.3 )

GOODWILL AND OTHER INTANGIBLES

The following is a rollforward of our carrying value of goodwill by segment ($ in millions):

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Measurement period adjustments for 2020 acquisitions 0.5 — ( 4.0 ) ( 3.5 )

Attributable to 2021 acquisitions 897.3 — — 897.3

Foreign currency translation and other ( 13.3 ) ( 19.7 ) 1.5 ( 31.5 )

Balance, July 2, 2021 $ 3,269.0 $ 1,853.7 $ 2,224.6 $ 7,347.3

We have not identified any triggering events which would have indicated a potential impairment of goodwill in the three and six month periods ended July 2, 2021 .

Balance, October 1, 2021 $ 4,153.3 $ 1,848.2 $ 2,220.0 $ 8,221.5

The increase in the goodwill balance of the Intelligent Operating Solutions segment for the nine month period ended October 1, 2021 is a result of the ServiceChannel acquisition.

Refer to Note 2 for more information.

During the three and nine month periods ended October 1, 2021, we identified no triggering events indicating a potential impairment of goodwill.

The following summarizes the gross carrying value and accumulated amortization for each major category of intangible asset ($ in millions):

October 1, 2021 December 31, 2020

Gross Carrying Amount Accumulated Amortization Gross Carrying Amount Accumulated Amortization

Finite-lived intangibles:

Patents and technology $ 1,051.8 $ ( 449.4 ) $ 983.3 $ ( 401.1 )

Customer relationships and other intangibles 3,106.5 ( 1,008.8 ) 2,958.3 ( 896.8 )

Trademarks and trade names 67.2 ( 2.3 ) 18.0 ( 1.4 )

Total finite-lived intangibles 4,225.5 ( 1,460.5 ) 3,959.6 ( 1,299.3 )

Indefinite-lived intangibles:

Trademarks and trade names 627.0 — 630.3 —

Total intangibles $ 4,852.5 $ ( 1,460.5 ) $ 4,589.9 $ ( 1,299.3 )

Finite-lived intangible assets are amortized over the shorter of their legal or estimated useful lives.

During the three and nine month periods ended October 1, 2021, we acquired finite-lived intangible assets, consisting primarily of customer relationships, developed technology, and trade names, with a weighted average life of approximately 12 years as a result of the ServiceChannel Acquisition .

Refer to Note 2 for additional information on the intangible assets acquired.

FAIR VALUE MEASUREMENTS

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(Level 3) Total

October 1, 2021

Deferred compensation liabilities $ — $ 40.1 $ — $ 40.1

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On October 9, 2020, we completed the Vontier Separation and retained 19.9 % of the shares of Vontier common stock outstanding immediately following the Vontier Separation.

We did not retain a controlling interest in Vontier and therefore the fair value of our Retained Vontier Shares were included in our assets of continuing operations as of December 31, 2020, and subsequent fair value changes are included in our results from continuing operations for the six month period ended July 2, 2021.

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 held by Goldman Sachs & Co., including (i) all $ 400.0 million of the 364 -day delayed draw term loan due March 22, 2021 (the “Term Loan due March 2021”) and (ii) $ 683.2 million of the delayed-draw term loan due May 30, 2021 (the “Term Loan due May 2021”).

The change in fair value of the Retained Vontier Shares and the resulting gain of $ 57.0 million was recorded in the six month period ended July 2, 2021.

We recorded a loss on extinguishment of the debt included in the Debt-for-Equity Exchange of $ 94.4 million in the six month period ended July 2, 2021.

The change in fair value of the Retained Vontier Shares and the resulting gain of $ 57.0 million was recorded in the nine month period ended October 1, 2021.

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.

Nonrecurring Fair Value Measurements

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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 or circumstances that may indicate the carrying value of our non-financial assets may not be fully recoverable during the three month period ended July 2, 2021, and recorded no material impairments.

We evaluated events or circumstances that may indicate the carrying value of our non-financial assets may not be fully recoverable during the three and nine month periods ended October 1, 2021, and recorded no impairments.

Fair Value of Financial Instruments

The carrying amount and fair value of financial instruments are as follows ($ in millions):

July 2, 2021 December 31, 2020

October 1, 2021 December 31, 2020

Carrying Amount Fair Value Carrying Amount Fair Value

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Long-term debt, net of current maturities $ 1,442.1 $ 1,627.2 $ 2,830.3 $ 3,155.5

As of July 2, 2021 and December 31, 2020, the current portion of long-term debt and long-term debt, net of current maturities were categorized as Level 1.

As of October 1, 2021 and December 31, 2020, the current portion of long-term debt and long-term debt, net of current maturities were categorized as Level 1.

The fair values of the current portion of long-term debt and long-term debt 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 incurrence of the borrowing.

The fair value of cash and cash equivalents, accounts receivable, net and trade accounts payable approximates their carrying amount due to the short-term maturities of these instruments.

The fair value of cash and cash equivalents, accounts receivable, net, and trade accounts payable, and commercial paper approximates their carrying amount due to the short-term maturities of these instruments.

FINANCING AND CAPITAL

The carrying value of the components of our long-term debt were as follows ($ in millions):

July 2, 2021 December 31, 2020

October 1, 2021 December 31, 2020

3.15 % senior unsecured notes due 2026

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Long-term debt, net of current maturities $ 1,442.1 $ 2,830.3

Aggregate unamortized debt discounts, premiums, and issuance costs of $ 30 million and $ 57 million as of July 2, 2021 and December 31, 2020, respectively, are netted against the principal amounts of the components of debt in the table above.

Aggregate unamortized debt discounts, premiums, and issuance costs of $ 21 million and $ 57 million as of October 1, 2021 and December 31, 2020, respectively, are netted against the principal amounts of the components of debt in the table above.

Refer to Note 11 of our 2020 Annual Report on Form 10-K for further details of our debt financing.

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 held by Goldman Sachs & Co., including (i) all $ 400.0 million of the Term Loan due March 2021 and (ii) $ 683.2 million of the

Term Loan due May 2021.

We recorded a loss on extinguishment of the debt included in the Debt-for-Equity Exchange of $ 94.4 million in the six month period ended July 2, 2021.

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 held by Goldman Sachs & Co., including (i) all $ 400.0 million of the Term Loan due March 2021 and (ii) $ 683.2 million of the Term Loan due May 2021.

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.

Term Loan due May 2021

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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 six month period ended July 2, 2021 of $ 10.5 million.

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.

We recognized $ 11.1 million and $ 23.3 million in interest expense during the three and six month periods ended July 2, 2021, respectively, of which $ 2.5 million and $ 5.3 million was related to the contractual coupon rate of 0.875 %, $ 1.5 million and $ 3.2 million was attributable to the amortization of debt issuance costs and $ 7.1 million and $ 14.8 million was attributable to the amortization of the discount for each respective period.

We recognized $ 13.6 million and $ 27.0 million in interest expense during the three and six month periods ended June 26, 2020, respectively, of which $ 3.2 million and $ 6.3 million related to the contractual coupon rate of 0.875 %, $ 1.9 million and $ 3.8 million was attributable to the amortization of debt issuance costs, and $ 8.5 million and $ 16.9 million was attributable to the amortization of the discount for each respective period.

We recognized $ 11.1 million and $ 34.5 million in interest expense during the three and nine month periods ended October 1, 2021, respectively, 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.

We recognized $ 13.6 million and $ 40.6 million in interest expense during the three and nine month periods ended September 25, 2020, respectively, of which $ 3.2 million and $ 9.5 million related to the contractual coupon rate of 0.875 %, $ 1.8 million and $ 5.6 million was attributable to the amortization of debt issuance costs, and $ 8.6 million and $ 25.5 million was attributable to the amortization of the discount for each respective period.

The discount at issuance was $ 102.2 million and is being amortized over a three-year period.

The unamortized discount at July 2, 2021 was $ 18.1 million.

The unamortized discount at October 1, 2021 was $ 11.0 million.

Prior to November 15, 2021, the Convertible Notes will be convertible only upon the occurrence of certain events and will be convertible thereafter at any time until the close of business on the business day immediately preceding the maturity date of the Convertible Notes.

Classification of Debt Due within the Next Twelve Months

Our Convertible Senior Notes are recorded in the Current portion of long-term debt line item in the Consolidated Condensed Balance Sheet as of October 1, 2021.

Other Liquidity Sources

In prior periods, we 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.

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”).

Due to the volatility and disruption in the commercial paper markets during the first six

months of 2020, we temporarily reduced our reliance on this source of funding, and consequently paid down and refinanced our outstanding commercial paper with the Term Loan due March 2021 that was retired in the Debt-for-Equity Exchange.

Under these programs, we may issue unsecured promissory notes with maturities not exceeding 397 and 183 days, respectively.

Due to the volatility and disruption in the commercial paper markets during the first six months of 2020, we temporarily reduced our reliance on this source of funding, and consequently paid down and refinanced our outstanding commercial paper with the Term Loan due March 2021 that was retired in the Debt-for-Equity Exchange.

In August 2021, we resumed borrowing under our Commercial Paper Program to fund, in part, the ServiceChannel acquisition.

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 October 1, 2021 were as follows ($ in millions):

Carrying value Annual effective rate Weighted average remaining maturity (in days)

dollar-denominated commercial paper $ 215.0 0.19 % 12

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 July 2, 2021, no borrowings were outstanding under the Revolving Credit Facility.

Classification of Debt Due within the Next Twelve Months

Our Convertible Senior Notes are recorded in the Current portion of long-term debt line item in the Consolidated Condensed Balance Sheet as of July 2, 2021.

As of October 1, 2021, no borrowings were outstanding under the Revolving Credit Facility.

We derive revenues primarily from the sale of products, software, and services.

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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 $ 70 million as of July 2, 2021 and $ 56 million as of December 31, 2020.

Contract assets were $ 77 million as of October 1, 2021 and $ 56 million as of December 31, 2020.

Contract Costs — We incur 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 generally not capitalized as the amortization period is one year or less, and we elected to use the practical expedient to expense these sales commissions as incurred.

As of July 2, 2021 and December 31, 2020, we had $ 29 million and $ 31 million, respectively, in net revenue-related contract assets primarily related to certain software contracts.

As of October 1, 2021 and December 31, 2020, we had $ 28 million and $ 31 million, respectively, in net revenue-related contract assets primarily related to certain software contracts.

Revenue-related contract assets are recorded in the Prepaid expenses and other current assets and Other assets line items in our Condensed Consolidated Balance Sheets.

These assets have estimated useful lives between 3 and 8 years.

Impairment losses recognized on our revenue-related contract assets were immaterial during the three and six month periods ended July 2, 2021 and June 26, 2020.

Impairment losses recognized on our revenue-related contract assets were immaterial during the three and nine month periods ended October 1, 2021 and September 25, 2020.

Contract Liabilities — Our contract liabilities consist of deferred revenue generally related to PCS and extended warranty sales, where in most cases we receive up-front payment and recognize revenue over the support term.

We classify deferred revenue as current or noncurrent based on the timing of when we expect to recognize revenue.

We classify deferred revenue as

current or noncurrent based on the timing of when we expect to recognize revenue.

The noncurrent portion of deferred revenue is included in Other long-term liabilities in the Consolidated Condensed Balance Sheets.

Our contract liabilities consisted of the following ($ in millions):

July 2, 2021 December 31, 2020

October 1, 2021 December 31, 2020

Deferred revenue - current $ 400.5 $ 376.4

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Total contract liabilities $ 431.3 $ 410.6

During the three and six month periods ended July 2, 2021, we recognized revenue related to our contract liabilities at December 31, 2020 of $ 65 million and $ 188 million, respectively.

The change in our contract liabilities from December 31, 2020 to July 2, 2021 was primarily due to the timing of cash receipts and sales of PCS and extended warranty services.

Remaining Performance Obligations — Our remaining performance obligations represent the transaction price of firm, noncancelable orders, with expected delivery dates to customers greater than one year from July 2, 2021, for which work has not been performed.

During the three and nine month periods ended October 1, 2021, we recognized revenue related to our contract liabilities at December 31, 2020 of $ 82 million and $ 270 million, respectively.

The change in our contract liabilities from December 31, 2020 to October 1, 2021 was primarily due to the timing of cash receipts and sales of PCS and extended warranty services.

Remaining Performance Obligations — Our remaining performance obligations represent the transaction price of firm, noncancelable orders, with expected delivery dates to customers greater than one year from October 1, 2021, for which work has not been performed.

We have excluded performance obligations with an original expected duration of one year or less from the amounts below.

The aggregate performance obligations attributable to each of our segments is as follows ($ in millions):

October 1, 2021

Intelligent Operating Solutions $ 109.4

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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 July 2, 2021 is presented as follows ($ in millions):

Disaggregation of revenue for the three month period ended October 1, 2021 is presented as follows ($ in millions):

Total Intelligent Operating Solutions Precision Technologies Advanced Healthcare Solutions

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(a) Direct sales by end market include sales made through third-party distributors where we have visibility into the end customer.

Disaggregation of revenue for the three month period ended June 26, 2020 is presented as follows ($ in millions):

Disaggregation of revenue for the three month period ended September 25, 2020 is presented as follows ($ in millions):

Total Intelligent Operating Solutions Precision Technologies Advanced Healthcare Solutions

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(a) Direct sales by end market include sales made through third-party distributors where we have visibility into the end customer.

Disaggregation of revenue for the six month period ended July 2, 2021 is presented as follows ($ in millions):

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

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(a) Direct sales by end market include sales made through third-party distributors where we have visibility into the end customer.

Disaggregation of revenue for the six month period ended June 26, 2020 is presented as follows ($ in millions):

Disaggregation of revenue for the nine month period ended September 25, 2020 is presented as follows ($ in millions):

Total Intelligent Operating Solutions Precision Technologies Advanced Healthcare Solutions

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The following sets forth the components of our net periodic costs associated with our noncontributory defined benefit pension plans ($ in millions):

Three Months Ended Six Months Ended

July 2, 2021 June 26, 2020 July 2, 2021 June 26, 2020

Three Months Ended Nine Months Ended

October 1, 2021 September 25, 2020 October 1, 2021 September 25, 2020

Pension Benefits:

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The actual amounts to be contributed depend upon, among other things, legal requirements, underlying asset returns, the plan’s funded status, the anticipated tax deductibility of the contribution, local practices, market conditions, interest rates, and other factors.

Our effective tax rate for the three and six month periods ended July 2, 2021 was 12.3 % and 10.0 % as compared to 16.9 % and 20.6 %, respectively, for the three and six month periods ended June 26, 2020.

The year-over-year decrease in the effective tax rate for the three month period ended July 2, 2021 as compared to the three month period ended June 26, 2020 was due primarily to a reduction in our uncertain tax positions and increases in certain federal benefits during the three month period ended July 2, 2021.

The year-over-year decrease in the effective tax rate for the six month period ended July 2, 2021 as compared to the six month period ended June 26, 2020 was due primarily to a permanent difference on the gain on our Retained Vontier Shares due to the tax-free treatment of our disposition of the shares through the Debt-for-Equity Exchange, a reduction to our uncertain tax positions, and increases in certain federal tax benefits for the six month period ended July 2, 2021.

Additionally, the tax costs incurred during the six month period ended June 26, 2020 associated with the repatriation of a portion of our previously reinvested earnings outside of the United States contributed to the year-over-year decrease in the effective tax rate for the six month period ended July 2, 2021.

Our effective tax rate for the three and six month periods ended July 2, 2021 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 (“TCJA”), U.S.

Our effective tax rate for the three and nine month periods ended October 1, 2021 was 13.2 % and 11.1 % as compared to 13.4 % and 17.7 %, respectively, for the three and nine month periods ended September 25, 2020.

The effective tax rate for the three month period ended October 1, 2021 was relatively consistent with the effective tax rate for the three month period ended September 25, 2020.

The year-over-year decrease in the effective tax rate for the nine month period ended October 1, 2021 as compared to the nine month period ended September 25, 2020 was due primarily to a permanent difference on the gain on our Retained Vontier Shares due to the tax-free treatment of our disposition of the shares through the Debt-for-Equity Exchange, a reduction to our uncertain tax positions, and increases in certain federal tax benefits for the nine month period ended October 1, 2021.

Additionally, the tax costs incurred during the nine month period ended September 25, 2020 associated with the repatriation of a portion of our previously reinvested earnings outside of the United States contributed to the year-over year decrease in the effective tax rate for the nine month period ended October 1, 2021.

Our effective tax rate for the three and nine month periods ended October 1, 2021 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 impact of credits and deductions provided by law, and a reduction in our uncertain tax positions.

Specific to the six month period ended July 2, 2021, our effective tax rate also differs from the U.S.

Specific to the nine month period ended October 1, 2021, our effective tax rate also differs from the U.S.

federal statutory rate of 21% due to a permanent difference on the gain on our Retained Vontier Shares due to the tax-free treatment of our disposition of the shares through the Debt-for-Equity Exchange.

Specific to the six month period ended June 26, 2020, our effective tax rate also differs from the U.S.

Specific to the nine month period ended September 25, 2020, our effective tax rate also differs from the U.S.

federal statutory rate of 21% due to the repatriation of a portion of our previously reinvested earnings outside of the United States.

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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 July 2, 2021, approximately 19 million shares of our common stock were available for subsequent issuance under the Stock Plan.

As of October 1, 2021, approximately 19 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 2020 Annual Report on Form 10-K.

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The following summarizes the components of our stock-based compensation expense under the Stock Plan ($ in millions):

Three Months Ended Six Months Ended

July 2, 2021 June 26, 2020 July 2, 2021 June 26, 2020

Three Months Ended Nine Months Ended

October 1, 2021 September 25, 2020 October 1, 2021 September 25, 2020

Stock Awards:

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Total stock-based compensation expense, net of income taxes $ 15.0 $ 13.1 $ 45.5 $ 38.1

The following summarizes the unrecognized compensation cost for the Stock Plan awards as of July 2, 2021.

The following summarizes the unrecognized compensation cost for the Stock Plan awards as of October 1, 2021.

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.

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Settlements made ( 12.1 )

Balance, July 2, 2021 $ 25.5

Operating lease cost for the three month periods ended July 2, 2021 and June 26, 2020 was $ 15 million in both respective periods.

Operating lease cost for the six month periods ended July 2, 2021 and June 26, 2020 was $ 30 million in both respective periods.

During the six-month periods ended July 2, 2021 and June 26, 2020, cash paid for operating leases included in operating cash flows was $ 28 million and $ 27 million, respectively.

Right-of-use assets obtained in exchange for operating lease obligations were $ 13 million and $ 24 million during the six month periods ended July 2, 2021 and June 26, 2020, respectively.

As of July 2, 2021, we had entered into operating leases for which the lease term had not yet commenced.

These operating leases will commence in 2021 with lease terms between 1 and 5 years and have aggregate fixed payments over the non-cancelable lease terms of $ 2 million.

Balance, October 1, 2021 $ 25.8

Operating lease cost for the three month periods ended October 1, 2021 and September 25, 2020 was $ 15 million and $ 14 million, respectively.

Operating lease cost for the nine month periods ended October 1, 2021 and September 25, 2020 was $ 45 million and $ 44 million, respectively.

During the nine month periods ended October 1, 2021 and September 25, 2020, cash paid for operating leases included in operating cash flows was $ 40 million and $ 37 million, respectively.

Right-of-use assets obtained in exchange for operating lease obligations were $ 24 million and $ 34 million during the nine month periods ended October 1, 2021 and September 25, 2020, respectively.

NET EARNINGS PER SHARE

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Diluted EPS is similarly calculated, except that the calculation includes the dilutive effect of 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 month period ended July 2, 2021 were immaterial and there were 5.7 million of anti-dilutive options excluded for the three month period ended June 26, 2020.

There were 0.2 million and 5.7 million anti-dilutive options excluded for the six month periods ended July 2, 2021 and June 26, 2020, respectively.

Anti-dilutive options excluded from the diluted EPS calculation for the three month periods ended October 1, 2021 and September 25, 2020 were 0.2 million and 5.3 million, respectively.

There were 0.3 million and 5.5 million anti-dilutive options excluded for the nine month periods ended October 1, 2021 and September 25, 2020, respectively.

As described in Note 6, upon conversion of the Convertible Notes, holders will receive cash, shares of our common stock, or a combination thereof, at our election.

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We believe we have the ability to settle these obligations as intended, and therefore we have accounted for the conversion features under the treasury stock method in our calculation of EPS.

Because the fair value of our common stock is below the conversion price, the Convertible Notes had no impact on our earnings per share for the three and six month periods ended July 2, 2021 and June 26, 2020.

Because the fair value of our common stock is below the conversion price, the Convertible Notes had no impact on our earnings per share for the three and nine month periods ended October 1, 2021 and September 25, 2020.

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.

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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 Six Months Ended

July 2, 2021 June 26, 2020 July 2, 2021 June 26, 2020

Three Months Ended Nine Months Ended

October 1, 2021 September 25, 2020 October 1, 2021 September 25, 2020

Net earnings from continuing operations $ 151.1 $ 86.0 $ 444.8 $ 200.6

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Net earnings from continuing operations per common share - Diluted $ 0.42 $ 0.20 $ 1.18 $ 0.44

We declared and paid cash dividends per common share for both 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, while the MCPS dividends for the first and second quarter of 2020 were declared, accrued, and paid as follows:

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, while the MCPS dividends for the first, second and third quarter of 2020 were declared, accrued, and paid as follows:

Common Share Amount

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Second quarter 0.07 23.7 12.5 17.2

Third quarter 0.07 25.2 — —

Total $ 0.21 $ 72.6 $ 25.0 $ 34.5

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Second quarter 0.07 23.6 12.5 17.2

Third quarter 0.07 23.6 12.5 17.3

Total $ 0.21 $ 70.7 $ 37.5 $ 51.8

* The sum of the components of total dividends paid may not equal the total amount due to rounding.

The first quarter 2020 MCPS dividends were paid on April 1, 2020 and the second quarter 2020 MCPS dividends were paid on July 1, 2020.

The first quarter 2020 MCPS dividends were paid on April 1, 2020, the second quarter 2020 MCPS dividends were paid on July 1, 2020, and the third quarter 2020 MCPS dividends were paid on October 1, 2020.

SEGMENT INFORMATION

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Our segment results are as follows ($ in millions):

Three Months Ended Six Months Ended

July 2, 2021 June 26, 2020 July 2, 2021 June 26, 2020

Three Months Ended Nine Months Ended

October 1, 2021 September 25, 2020 October 1, 2021 September 25, 2020

Intelligent Operating Solutions $ 535.4 $ 459.1 $ 1,588.1 $ 1,338.8

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements