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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.
−Removed: Our well-known brands hold leading positions in intelligent operating solutions, precision technologies, and advanced healthcare solutions.
−Removed: Our businesses design, develop, service, manufacture, and market professional and engineered products, software, and services for a variety of end markets, building upon leading brand names, innovative technologies, and significant market positions.
−Removed: Our research and development, manufacturing, sales, distribution, service, and administrative facilities are located in more than 50 countries across North America, Asia Pacific, Europe, and Latin America.
−Removed: On October 9, 2020 (the “Distribution Date”), the Company completed the separation of its Industrial Technologies segment by distributing 80.1% of the outstanding shares of Vontier Corporation (“Vontier”), the entity incorporated to hold such businesses, to Fortive stockholders (the “Vontier Separation”) on a pro rata basis.
−Removed: To effect the Vontier Separation, the Company distributed to its stockholders two shares of Vontier common stock for every five shares of the Company’s common stock outstanding held on September 25, 2020, the record date for the distribution, with the Company retaining 19.9% of the shares of Vontier common stock outstanding immediately following the Vontier Separation (the “Retained Vontier Shares”).
−Removed: On January 19, 2021, we completed an exchange (the “Debt-for-Equity Exchange”) of 33.5 million shares of Vontier common stock, 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.
−Removed: The accounting requirements for reporting the Vontier business as a discontinued operation were met when the Vontier Separation was completed.
−Removed: Accordingly, the consolidated financial statements reflect the results of the Vontier business as a discontinued operation for all periods presented.
−Removed: 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 nine month period ended October 1, 2021.
+Added: Our strategic segments - Intelligent Operating Solutions, Precision Technologies, and Advanced Healthcare Solutions - include well-known brands with leading positions in their markets.
+Added: 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.
+Added: 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.
+Added: 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”).
+Added: The accounting requirements for reporting the Vontier business as a discontinued operation were met when the Separation was completed.
+Added: 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.
+Added: 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.
+Added: 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.
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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.
−Removed: Forward-looking statements are not guarantees of future performance and actual results may differ materially from the results, developments and business decisions contemplated by our forward-looking statements.
+Added: Forward-looking statements are not guarantees of future performance and actual results may differ materially from
+Added: 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.
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Risk Related to Our Business Operations
−Removed: • Significant uncertainty remains about how the COVID-19 pandemic may further impact our global operations and the operations of our customers, suppliers, and vendors.
+Added: • 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 is continuing to have a material, adverse impact on our business and results of operations.
+Added: • 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.
+Added: In addition, our reliance upon sole or limited sources of supply for certain materials, components, and services could cause production interruptions, delays, and inefficiencies.
+Added: • 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.
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• 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.
−Removed: • Our financial results are subject to fluctuations in the cost and availability of commodities or components that we use in our operations.
−Removed: • If we cannot adjust our manufacturing capacity or the purchases required for our manufacturing activities to reflect changes in market conditions and customer demand, our profitability may suffer.
−Removed: • Our reliance upon sole or limited sources of, or any delay in, supply for certain materials, components, and services could cause production interruptions, delays, and inefficiencies.
−Removed: • Our restructuring actions could have long-term adverse effects on our business.
+Added: • 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.
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Risk Related to our International Operations
−Removed: • International economic, political, legal, compliance, and business factors could negatively affect our financial statements.
+Added: • 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.
• Trade relations between China and the United States could have a material adverse effect on our business and financial statements.
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In addition, audits by tax authorities could result in additional tax payments for prior periods.
−Removed: • We could incur significant liability if the separation and distribution of Vontier is determined to be a taxable transaction.
+Added: • 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.
−Removed: generally accepted accounting principles in the United States (“GAAP”) could adversely affect our reported financial results and may require significant changes to our internal accounting systems and processes.
+Added: 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.
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• We have incurred a significant amount of debt, and our debt will increase further if we incur additional debt and do not retire existing debt.
−Removed: • The interest rates on our credit facilities may be impacted by the phase out of the London Interbank Offered Rate .
Risk Related to Shareholder Rights
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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.
−Removed: Given the broad range of products manufactured, software and services provided, and geographies served, we use general economic trends to predict the overall outlook for the Company.
+Added: 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.
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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.
−Removed: We are making significant investments, organically and through acquisitions, to address technological
−Removed: 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.
+Added: 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.
+Added: Provation Acquisition
+Added: On December 27, 2021, we acquired Provation Software, Inc.
+Added: (“Provation”), a leading provider of clinical workflow software solutions used in hospitals and ambulatory surgery centers.
+Added: The acquisition of Provation extends our digital offering and software capabilities in the healthcare space.
+Added: 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.
+Added: We preliminarily recorded $978 million of goodwill related to the acquisition, which is not tax deductible.
+Added: During the three month period ended April 1, 2022, provisional goodwill increased by $8.1 million for measurement period adjustments.
+Added: Provation had revenue in 2020 of approximately $90 million and is an operating company within our Advanced Healthcare Solutions segment.
ServiceChannel Acquisition
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The acquisition of ServiceChannel broadens our offering of software-enabled solutions for the facility and asset lifecycle workflow.
−Removed: 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.
+Added: 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.
−Removed: We preliminarily recorded approximately $897 million of goodwill related to the ServiceChannel acquisition, which is not tax deductible.
+Added: We preliminarily recorded approximately $873 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.
−Removed: ASP Acquisition
−Removed: On April 1, 2019 (the “Principal Closing Date”), we acquired the Advanced Sterilization Products business (“ASP”) of Johnson & Johnson, a New Jersey corporation (“Johnson & Johnson”) for an aggregate purchase price of $2.7 billion (the “Transaction”), subject to certain post-closing adjustments set forth in a Stock and Asset Purchase Agreement, dated effective as of June 6, 2018, between the Company and Ethicon, Inc., a New Jersey corporation (“Ethicon”) and a wholly owned subsidiary of Johnson & Johnson.
−Removed: ASP engages in the research, development, manufacture, marketing, distribution, and sale of low-temperature terminal sterilization and high-level disinfection products.
−Removed: Refer to Note 2 to the consolidated condensed financial statements for additional information regarding the Transaction.
−Removed: 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.
−Removed: 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.
−Removed: Following the Principal Closing Date, management continually evaluated the likelihood and magnitude of the asserted claims based on any new information that became available.
−Removed: 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.
−Removed: 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.
Vontier Separation
−Removed: On October 9, 2020 (the “Distribution Date”), the Company completed the separation of its Industrial Technologies segment by distributing 80.1% of the outstanding shares of Vontier Corporation (“Vontier”), the entity incorporated to hold such businesses, to Fortive stockholders (the “Vontier Separation”) on a pro rata basis.
−Removed: To effect the Vontier Separation, the Company distributed to its stockholders two shares of Vontier common stock for every five shares of the Company’s common stock outstanding held on September 25, 2020, the record date for the distribution, with the Company retaining 19.9% of the shares of Vontier common stock outstanding immediately following the Vontier Separation (the “Retained Vontier Shares”).
−Removed: On the Distribution Date, Vontier paid the Company $1.8 billion, including $1.6 billion as part of the consideration for the contribution of certain assets and liabilities to Vontier by the Company in connection with the Vontier Separation and $202 million as an adjustment for excess cash balances remaining with Vontier (collectively, the “Cash Consideration”).
−Removed: We have used the Cash Consideration to repay certain outstanding indebtedness, make interest payments on certain debt instruments, and pay certain of the Company’s regular, quarterly cash dividends.
−Removed: 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.
−Removed: Refer to Note 11 of our 2020 Annual Report on Form 10-K and Note 6 to the consolidated condensed financial statements for the description of the debt repayments made subsequent to the Distribution Date.
−Removed: Interest expense and extinguishment costs related to the debt retired during the first quarter of 2021 are included in our results from continuing operations for the nine month period ended October 1, 2021.
−Removed: The accounting requirements for reporting the Vontier business as a discontinued operation were met when the Vontier Separation was completed.
−Removed: Accordingly, the consolidated condensed financial statements reflect the results of the Vontier business as a discontinued operation for all periods presented.
−Removed: 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 nine month period ended October 1, 2021.
−Removed: In connection with the Vontier Separation, Fortive and Vontier entered into various agreements to effect the Vontier Separation and provide a framework for Vontier’s relationship with Fortive after the Vontier Separation, including a transition services agreement, an employee matters agreement, a tax matters agreement, an intellectual property matters agreement, a Fortive Business System license agreement, and a stockholder’s and registration rights agreement (the “Agreements”).
−Removed: These Agreements govern the Vontier Separation between Fortive and Vontier of the assets, employees, liabilities and obligations (including its investments, property and employee benefits and tax-related assets and liabilities) of Fortive and its subsidiaries attributable to periods prior to, at and after the Vontier Separation and also govern certain relationships between Fortive and Vontier after the Vontier Separation.
−Removed: The impact of these services on our consolidated condensed financial statements was immaterial.
+Added: On October 9, 2020, we completed the Separation.
+Added: The accounting requirements for reporting the Vontier business as a discontinued operation were met when the Separation was completed.
+Added: Accordingly, the consolidated condensed financial
+Added: statements reflect the results of separation activities associated with the prior Vontier business as a discontinued operation, which was immaterial for all periods presented.
+Added: 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.
+Added: Interest expense and extinguishment costs related to the Debt-for-Equity Exchange during the first quarter of 2021 are included in continuing operations.
Segment Presentation
−Removed: 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.
−Removed: Our chief operating decision maker assesses performance and allocates resources based on our new operating segments, which are also our new reportable segments.
−Removed: Our new reportable segments are comprised of Intelligent Operating Solutions, Precision Technologies, and Advanced Healthcare Solutions.
−Removed: All prior period segment information has been restated to reflect our new reportable segments.
+Added: 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.
+Added: 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.
+Added: We provide differentiated instrumentation and sensors, software and services to address our customers’ toughest workflow challenges.
+Added: 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.
+Added: 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.
+Added: Our Advanced Healthcare Solutions segment supplies critical workflow solutions to hospitals and other healthcare customers, enabling safer, more efficient, and higher quality healthcare.
+Added: 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
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Business Performance and Outlook
−Removed: COVID-19 directly impacted our business and operating results during the three and nine month periods ended September 25, 2020, as we experienced a decline in demand from customers in nonessential end-markets and reduced demand resulting from macroeconomic disruption or disruption in adjacent end markets.
−Removed: Our results were severely impacted within certain geographies, most notably Asia in the first quarter of 2020, and North America and Europe in the second quarter of 2020, as virus control measures in varying magnitude were deployed in those geographies at varying times.
−Removed: As such, the year-over-year comparisons for the three and nine month periods ended October 1, 2021 reflect the greater detrimental impacts of COVID-19 on our 2020 results.
−Removed: Business Performance For the Period Ended October 1, 2021
−Removed: Overall demand for our products and services has continued to accelerate during the three and nine month periods ended October 1, 2021, as the distribution and administration of vaccinations in developed countries has led to easing of virus control measures.
−Removed: For the three and nine month periods ended October 1, 2021, aggregate year-over-year sales increased 12.0% and 17.2%, respectively, and were largely driven by increased demand from our existing businesses.
−Removed: Sales from existing businesses increased 9.1% and 12.9% during the three and nine month periods ended October 1, 2021, respectively, as compared to the comparable periods of 2020, reflecting positive, broad-based momentum and focused execution across our portfolio, most notably within our short-cycle industrial and SAAS businesses.
−Removed: Geographically, year-over-year sales from existing businesses in both high growth and developed markets increased at a high single-digit rate during three month period ended October 1, 2021, driven by high single-digit growth in North America and Europe, greater than 20% growth in Latin America, and mid-single-digit growth in Asia.
−Removed: During the nine month period ended October 1, 2021, year-over-year sales from existing businesses in developed and high growth markets increased at a low double-digit rate and at a rate in the mid-teens, respectively, driven by low double-digit growth in North America and Asia, growth at a rate in the mid-teens in Europe, and greater than 20% growth in Latin America.
−Removed: Year-over-year price increases contributed 2.2% and 1.5% to sales growth during the three and nine month periods ended October 1, 2021, respectively, as compared to the comparable periods of 2020, and is reflected as a component of the change in sales from existing businesses.
−Removed: For the three month period ended October 1, 2021, price increases outpaced material cost increases.
−Removed: During the third quarter of 2021, widespread supply chain challenges due to labor, raw material, and component shortages as well as logistics issues with port congestion affected multiple industries and raised material and shipping costs.
−Removed: Our supply chain was largely responsive to these dynamics and we successfully implemented solutions to effectively support our near-term operations, countermeasure production material shortages and distribution limitations, and manage product margins to drive year-over-year growth and market share gains in the third quarter of 2021.
−Removed: However, due to the widespread supply chain and logistics issues, demand outpaced our ability to deliver products, order growth significantly outpaced revenue growth, and our backlog grew substantially during the quarter.
−Removed: Further, we have increased the employee capacity at the majority of our facilities in compliance with local COVID-19 guidelines and have implemented additional safety and space management protocols to help ensure the health and safety of our employees.
−Removed: We plan to be in compliance with vaccine mandates, including the September 9, 2021 Executive Order on Ensuring Adequate COVID Safety Protocols for Federal Contractors (the “Executive Order”), to the extent applicable to us.
−Removed: Our results in the third quarter of 2021 demonstrated broad-based demand across our portfolio, which we expect to continue in the fourth quarter of 2021.
−Removed: We expect year-over-year revenue from sales of our products and services to increase between 6.5% and 8.5% in the fourth quarter of 2021 and between 14% and 14.5% for the year ending December 31, 2021, based on our current assumptions about easing global virus control measures, continued recovery of certain end markets, elective surgery rates remaining below pre-pandemic levels, the availability of electronic components and our ability to convert backlog, and sustaining workforce levels and manufacturing capacity.
−Removed: While we expect the positive, broad-based momentum in demand across our portfolio to continue in the fourth quarter of 2021, we will continue deploying and applying the Fortive Business System to help drive near-term performance by actively managing our supply chain and continuing to collaborate with our customers and suppliers to minimize anticipated material and component delays and production and logistics disruptions.
−Removed: We expect these supply chain challenges and inflationary pressures will continue during the fourth quarter of 2021;
−Removed: however, we believe we will largely offset these inflationary cost pressures with price increases and other countermeasures.
−Removed: Additionally, we are monitoring the risks of new COVID-19 variants which may be more contagious or severe, or less responsive to treatment and vaccines, and may impact the rate that virus control measures ease or become more restrictive, which could impact our future results.
−Removed: Further, we are monitoring the impact of vaccine mandates, including the Executive Order, on our workforce, supply chain, and global manufacturing capacity.
−Removed: We are also continuing to monitor any escalation of geopolitical uncertainties related to governmental policies toward international trade, monetary and fiscal policies, relations between the U.S.
−Removed: and China, and we are continuing to evaluate the impacts of proposed and recently enacted legislation on our business and the potential impacts of various investment and taxation policy initiatives in the United States and by the Organisation for Economic Co-operation and Development.
−Removed: As of the filing date of this report, we are unable to quantify the anticipated impacts on our financial results for the year ending December 31, 2021, if any, and any impact in future periods, and will continue monitoring these developments.
+Added: Business Performance For the Period Ended April 1, 2022
+Added: We experienced robust demand for our products and services during the three month period ended April 1, 2022 (“the quarter” or the “first quarter”).
+Added: Despite ongoing COVID-19 and supply chain challenges, year-over-year sales increased 9.3% with contributions from both existing and newly acquired businesses.
+Added: Sales from existing businesses increased 5.3% during the quarter, as compared to the comparable period in 2021 reflecting broad-based momentum and focused execution across our portfolio, most notably within our short-cycle industrial and SaaS businesses.
+Added: Geographically, in the first quarter, year-over-year sales from existing businesses increased in developed markets at a high single-digit rate, driven by high single-digit growth in North America and low single-digit growth in Europe.
+Added: In our high growth markets, year-over-year sales from existing businesses decreased at a low single-digit rate, driven by a low double-digit decline in China where business activity was constrained by government mandated COVID-19 containment measures, partially offset by high-teens growth in Latin America.
+Added: Year-over-year price increases contributed 3.2% to sales growth during the quarter, as compared to the comparable period in 2021 and is reflected as a component of the change in sales from existing businesses.
+Added: In the first quarter, the price increases that we deployed exceeded inflationary increases that we experienced on purchased materials.
+Added: Widespread supply chain and logistics challenges persisted in the quarter, impacting the availability of key materials, including electronic components, and resulting in higher production and logistics costs.
+Added: We continue to apply the Fortive Business System (“FBS”) to help mitigate the impact of these challenges but demand for our products outpaced our shipments in the quarter and our backlog increased from December 31, 2021.
+Added: COVID-19 continues to impact our results, creating operating challenges with logistics, material availability and absenteeism.
+Added: The government mandated COVID-19 containment measures in China directly reduced our production levels and shipments in the quarter and creates ongoing risk and uncertainty.
+Added: We anticipate that the uncertainty and disruption of the pandemic on global commerce will continue into future periods.
+Added: In February 2022, Russian forces invaded Ukraine (“Russia Ukraine Conflict”) resulting in broad economic sanctions being imposed on Russia that has further increased existing global supply chain, logistic, and inflationary challenges.
+Added: As of the filing date of this report, we have temporarily suspended commercial operations in Russia, other than for sales of ASP’s sterilization products, which are exempted from international sanctions and deemed to be humanitarian products.
+Added: Our business in Russia and Ukraine were not material to our results and accounted for less than 1% of total revenue for the fiscal year ended December 31, 2021.
+Added: As of April 1, 2022, our net assets in Russia totaled approximately $15 million, including those net assets associated with ASP.
+Added: We anticipate that the strong demand for our offerings experienced in the first quarter will persist throughout 2022 driven by innovation, share gains and robust end markets.
+Added: Revenue growth is projected to be between 5.0% and 8.0% for the second quarter of 2022, and 9.5% and 12.0% for the full year.
+Added: We anticipate growth from existing businesses will be between 2.0% and 5.0% for the second quarter of 2022 and 6.0% and 8.5% for the full year.
+Added: This outlook is subject to various assumptions and risks, including but not limited to, the global supply chain and logistic challenges, magnitude of the impact of the COVID-19 pandemic on macroeconomic conditions, the Russia Ukraine Conflict, continued strength of key end markets, elective surgery rates, the availability of electronic components, our ability to convert backlog and maintain manufacturing capacity.
+Added: We anticipate that supply chain and inflationary pressures will persist throughout 2022 and that although our backlog may decline compared to 2021, it may remain elevated compared to historical levels.
+Added: 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.
+Added: We are monitoring the ongoing impact of COVID-19 on the global economy and our business, including government mandated containment measures, such as the lockdown implemented recently in Shanghai, China.
+Added: Continued implementation or expansion of government mandated containment measures, including shutdowns in countries such as China, could have a material adverse impact on our future results.
+Added: We are also monitoring developments in international trade, monetary and fiscal policies and relations between the U.S.
+Added: and China, as well as evaluating proposed investment and taxation policy initiatives being debated in the United States and by the Organization for Economic Co-operation and Development (“OECD”).
+Added: We continue to monitor the Russia Ukraine Conflict and the impact on our business and operations.
+Added: As of the filing date of this report, we are unable to quantify the impact of these matters on our financial results.
RESULTS OF OPERATIONS
−Removed: The following table summarizes total aggregate year-over-year sales growth and the components of aggregate year-over-year sales growth during the three and nine month periods ended October 1, 2021 as compared to the comparable periods of 2020:
+Added: The following table summarizes total aggregate year-over-year sales growth and the components of aggregate year-over-year sales growth during the three month periods ended April 1, 2022 as compared to the comparable periods of 2021:
Components of Sales Growth
−Removed: % Change Three Months Ended
−Removed: October 1, 2021 vs.
−Removed: Comparable 2020 Period % Change Nine Months Ended
−Removed: October 1, 2021 vs.
+Added: % Change Three Months Ended April 1, 2022 vs.
Comparable 2021 Period
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Operating Profit Margins
−Removed: Operating profit margin was 15.5% for the three month period ended October 1, 2021, an increase of 360 basis points as compared to 11.9% in the comparable period of 2020.
−Removed: Year-over-year operating profit margin comparisons were favorably impacted by:
−Removed: • Higher year-over-year sales volumes from existing businesses, price increases, and to a lesser extent, incremental year-over-year cost savings associated with restructuring and productivity improvement initiatives, which were partially offset by higher year-over-year employee compensation costs and higher selling, general, and administrative expenses (“SG&A costs”) due to broad cost reduction efforts in the comparable period of 2020 that reduced expenses to better align with reductions in demand and higher freight and logistics costs — favorable 325 basis points
−Removed: • The year-over-year net effect of acquisition-related transaction costs which were less during the three month period ended October 1, 2021 than those recognized during the comparable period in 2020 — favorable 15 basis points
−Removed: • The year-over-year effect of amortization from existing businesses — favorable 70 basis points
−Removed: Year-over-year operating profit margin comparisons were unfavorably impacted by:
−Removed: • The year-over-year net effect of acquired businesses, including amortization, and acquisition-related fair value adjustments to deferred revenue — unfavorable 50 basis points
−Removed: Operating profit margin was 15.7% for the nine month period ended October 1, 2021, an increase of 500 basis points as compared to 10.7% in the comparable period of 2020.
−Removed: Year-over-year operating profit margin comparisons were favorably impacted by:
−Removed: • Higher year-over-year sales volumes from existing businesses and price increases, and to a lesser extent, lower year-over-year material costs, incremental year-over-year cost savings associated with restructuring and productivity improvement initiatives, and a favorable sales mix, which were partially offset by higher year-over-year employee compensation costs and higher SG&A costs due to broad cost reduction efforts in the comparable periods of 2020 that reduced expenses to better align with reductions in demand and higher freight and logistics costs — favorable 270 basis points
−Removed: • The year-over-year net effect of acquisition-related transaction costs which were less in the nine month period ended October 1, 2021 than those recognized in the comparable period in 2020 — favorable 110 basis points
+Added: Operating profit margin was 15.4% for the first quarter, a decrease of 30 basis points as compared to 15.7% in the comparable period of 2021.
+Added: Year-over-year operating profit margin comparisons were impacted by:
+Added: • Year-over-year price increases and sales volumes from existing businesses, which were partially offset by higher year-over-year freight, logistics and material costs, employee compensation, and investments in R&D, sales and marketing.
+Added: — favorable 30 basis points
• The year-over-year effect of amortization from existing businesses — favorable 50 basis points
−Removed: • The year-over-year effect of acquired businesses, including amortization, and acquisition-related fair value adjustments to deferred revenue and inventory which were less in the nine month period ended October 1, 2021 than those recognized in the comparable period in 2020 — favorable 20 basis points
+Added: • The year-over-year net effect of acquisition-related transaction costs which were higher during the first quarter than those recognized during the comparable period in 2021 — unfavorable 10 basis points
+Added: • The year-over-year net effect of acquired businesses, including amortization, and acquisition-related fair value adjustments — unfavorable 100 basis points
Business Segments
Sales by business segment for each of the periods indicated were as follows ($ in millions):
−Removed: Three Months Ended Nine Months Ended
−Removed: October 1, 2021 September 25, 2020 October 1, 2021 September 25, 2020
+Added: Three Months Ended
+Added: April 1, 2022 April 2, 2021
Intelligent Operating Solutions $ 587.6 $ 510.9
4 unchanged sentences
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.
−Removed: The businesses in our Intelligent Operating Solutions segment provide a broad and differentiated offering of instrumentation, sensors, software, and services to address these critical workflows for our customers.
+Added: 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
−Removed: Three Months Ended Nine Months Ended
−Removed: ($ in millions) October 1, 2021 September 25, 2020 October 1, 2021 September 25, 2020
+Added: Three Months Ended
+Added: ($ in millions) April 1, 2022 April 2, 2021
Sales $ 587.6 $ 510.9
6 unchanged sentences
Components of Sales Growth
−Removed: % Change Three Months Ended
−Removed: October 1, 2021 vs.
−Removed: Comparable 2020 Period % Change Nine Months Ended
−Removed: October 1, 2021 vs.
+Added: % Change Three Months Ended April 1, 2022 vs.
Comparable 2021 Period
3 unchanged sentences
Currency exchange rates (Non-GAAP) (1.4) %
−Removed: Year-over-year sales of products and services from existing businesses of Intelligent Operating Solutions increased 13.1% and 14.7% during the three and nine month periods ended October 1, 2021, respectively, as compared to the comparable periods of 2020.
−Removed: The year-over-year results for both respective periods were driven by broad-based increases in demand, particularly from our industrial channel partners, critical safety, facilities, and maintenance SAAS product offerings, and portable gas detection instruments.
−Removed: The results during the nine month period ended October 1, 2021 were partially offset by a decline in demand for our industrial imaging products, as demand for those products was elevated during the comparable period in 2020 for COVID-19 monitoring.
−Removed: Geographically, demand from existing businesses in our Intelligent Operating Solutions segment increased in both developed and high growth markets during the three and nine month periods ended October 1, 2021.
−Removed: The results in both respective periods were driven by growth in every major geography, led by North America and Europe, and to a lesser extent, China and Latin America.
−Removed: Year-over-year price increases in our Intelligent Operating Solutions segment contributed 2.1% and 1.6% to sales growth during the three and nine month periods ended October 1, 2021, respectively, as compared to the comparable periods of 2020, and is reflected as a component of the change in sales from existing businesses.
−Removed: Operating profit margin decreased 10 basis points during the three month period ended October 1, 2021 as compared to the comparable period of 2020.
−Removed: Year-over-year operating profit margin comparisons were favorably impacted by:
−Removed: • Higher year-over-year sales volumes from existing businesses, price increases, and to a lesser extent, incremental year-over-year cost savings associated with restructuring and productivity improvement initiatives, which were partially offset by higher SG&A costs due to broad cost reduction efforts in the comparable period of 2020 that reduced expenses to better align with reductions in demand and higher year-over-year material and freight costs — favorable 310 basis points
−Removed: • The year-over-year effect of amortization from existing businesses — favorable 120 basis points
−Removed: Year-over-year operating profit margin comparisons were unfavorably impacted by:
−Removed: • The year-over-year effect of acquired businesses, including amortization, and acquisition-related fair value adjustments to deferred revenue — unfavorable 200 basis points
−Removed: • The incremental year-over-year dilutive effect of acquisition-related transaction costs — unfavorable 240 basis points
−Removed: Operating profit margin increased 380 basis points during the nine month period ended October 1, 2021 as compared to the comparable period of 2020.
−Removed: Year-over-year operating profit margin comparisons were favorably impacted by:
−Removed: • Higher year-over-year sales volumes from existing businesses, price increases, a favorable sales mix, and to a lesser extent, lower year-over-year material costs and incremental year-over-year cost savings associated with restructuring and productivity improvement initiatives, which were partially offset by higher year-over-year employee compensation and SG&A costs due to broad cost reduction efforts in the comparable period of 2020 that reduced expenses to better align with reductions in demand and increased investment in key growth and innovation initiatives — favorable 370 basis points
+Added: Year-over-year sales of products and services from existing businesses of Intelligent Operating Solutions increased 8.7% during the first quarter, as compared to the comparable period of 2021.
+Added: The year-over-year results were driven by higher pricing, continued strong demand for SaaS products and related services, gas detection instruments, and test & measurement products, as well as improved factory throughput on gains from supply chain and logistics countermeasures.
+Added: Geographically, during the first quarter, sales from existing businesses in Intelligent Operating Solutions increased in developed markets by low double digits on North America and Western Europe.
+Added: Sales in high growth markets declined by low single digits on declines in China which were impacted by government mandated COVID-19 containment measures, partially offset by growth in Latin America and the Middle East.
+Added: Year-over-year price increases in our Intelligent Operating Solutions segment contributed 3.0% to sales growth during the first quarter, as compared to the comparable period of 2021, and is reflected as a component of the change in sales from existing businesses.
+Added: Operating profit margin decreased 300 basis points during the first quarter as compared to the comparable period of 2021.
+Added: Year-over-year operating profit margin comparisons were impacted by:
• The year-over-year effect of amortization from existing businesses — favorable 90 basis points
−Removed: Year-over-year operating profit margin comparisons were unfavorably impacted by:
−Removed: • The incremental year-over-year net dilutive effect of acquisition-related transaction costs — unfavorable 90 basis points
−Removed: • The year-over-year effect of acquired businesses, including amortization, and acquisition-related fair value adjustments to deferred revenue — unfavorable 30 basis points
+Added: • The year-over-year net effect of acquisition-related transaction costs, which were higher during first quarter than those recognized during the comparable period in 2021 — unfavorable 110 basis points
+Added: • Year-over-year increase in price and volumes from existing businesses were offset by higher year- over-year freight, logistics and material costs and employee compensation costs — flat
+Added: • The year-over-year effect of acquired businesses, including amortization — unfavorable 280 basis points
PRECISION TECHNOLOGIES
2 unchanged sentences
Precision Technologies Selected Financial Data
−Removed: Three Months Ended Nine Months Ended
−Removed: ($ in millions) October 1, 2021 September 25, 2020 October 1, 2021 September 25, 2020
+Added: Three Months Ended
+Added: ($ in millions) April 1, 2022 April 2, 2021
Sales $ 462.4 $ 447.4
6 unchanged sentences
Components of Sales Growth
−Removed: % Change Three Months Ended
−Removed: October 1, 2021 vs.
−Removed: Comparable 2020 Period % Change Nine Months Ended
−Removed: October 1, 2021 vs.
+Added: % Change Three Months Ended April 1, 2022 vs.
Comparable 2021 Period
3 unchanged sentences
Currency exchange rates (Non-GAAP) (1.2) %
−Removed: Year-over-year sales of products and services from existing businesses of Precision Technologies increased 7.7% and 13.7% during the three and nine month periods ended October 1, 2021, respectively, as compared to the comparable periods of 2020.
−Removed: The year-over-year results for both respective periods were driven by broad-based demand for test and measurement instruments, increased demand for sensing technologies in the industrial and semiconductor end markets, and increased demand for energetic materials, which were partially offset by a decrease in demand in the medical end market for ventilator components that supported COVID-19 patient treatment efforts in the comparable periods of 2020.
−Removed: Geographically, demand from existing businesses in our Precision Technologies segment increased in developed markets and slightly declined in high growth markets during the three month period ended October 1, 2021, driven by growth in North America, Europe, and Asia that was partially offset by slight declines in Latin America and Middle East and Africa.
−Removed: nine month period ended October 1, 2021, demand increased in both developed and high growth markets and the results were driven by growth in every major geography, led by North America, Asia, and Europe.
−Removed: Year-over-year price increases in our Precision Technologies segment contributed 2.3% and 1.5% to sales growth during the three and nine month periods ended October 1, 2021, respectively, as compared to the comparable periods of 2020, and is reflected as a component of the change in sales from existing businesses.
−Removed: Operating profit margin increased 260 basis points during the three month period ended October 1, 2021 as compared to the comparable period of 2020.
−Removed: Year-over-year operating profit margin comparisons were favorably impacted by:
−Removed: • Higher year-over-year sales volumes from existing businesses, price increases, and incremental year-over-year cost savings associated with restructuring and productivity improvement initiatives, which were partially offset by higher year-over-year employee compensation expense, and to a lesser extent, higher material and freight costs — favorable 250 basis points
−Removed: • The year-over-year effect of amortization from existing businesses — favorable 10 basis points
−Removed: Operating profit margin increased 230 basis points during the nine month period ended October 1, 2021 as compared to the comparable period of 2020.
−Removed: Year-over-year operating profit margin comparisons were favorably impacted by:
−Removed: • Higher year-over-year sales volumes from existing businesses, price increases, and incremental year-over-year cost savings associated with restructuring and productivity improvement initiatives, and to a lesser extent, lower year-over-year material costs, which were partially offset by higher year-over-year employee compensation costs and an unfavorable sales mix — favorable 210 basis points
+Added: Year-over-year sales of products and services from existing businesses in Precision Technologies increased 4.6% during the first quarter as compared to the comparable period of 2021.
+Added: The year-over-year results were driven by price increases, market growth and share gains in key verticals and increased shipments of energetic materials, all partially offset by reductions in sales in China as a result of the government mandated COVID-19 containment measures.
+Added: Geographically, sales from existing businesses in our Precision Technologies segment increased during the first quarter in developed markets, driven by growth in North America and Europe, and slightly declined in high growth markets where, despite growth in Latin America, the Middle East and Africa, we experienced a large decrease in China, which was a result of government mandated COVID-10 containment measures.
+Added: Year-over-year price increases in our Precision Technologies segment contributed 4.6% to sales growth for the first quarter, as compared to the comparable period of 2021, and is reflected as a component of the change in sales from existing businesses.
+Added: Operating profit margin increased 50 basis points for the first quarter as compared to the comparable period of 2021.
+Added: Year-over-year operating profit margin comparisons were impacted by:
+Added: • Higher year-over-year price increases which were partially offset by higher material, freight and employee compensation costs — favorable 30 basis points
• The year-over-year effect of amortization from existing businesses — favorable 20 basis points
1 unchanged sentence
Our Advanced Healthcare Solutions segment serves healthcare customers with enabling products and services for critical activities that help ensure safe, efficient, and timely healthcare.
−Removed: Through the Advanced Healthcare Solutions segment, 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.
+Added: 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
−Removed: Three Months Ended Nine Months Ended
−Removed: ($ in millions) October 1, 2021 September 25, 2020 October 1, 2021 September 25, 2020
+Added: Three Months Ended
+Added: ($ in millions) April 1, 2022 April 2, 2021
Sales $ 326.5 $ 300.9
7 unchanged sentences
% Change Three Months Ended
−Removed: October 1, 2021 vs.
−Removed: Comparable 2020 Period % Change Nine Months Ended
−Removed: October 1, 2021 vs.
+Added: April 1, 2022 vs.
Comparable 2021 Period
3 unchanged sentences
Currency exchange rates (Non-GAAP) (2.1) %
−Removed: Year-over-year sales of products and services from existing businesses of Advanced Healthcare Solutions increased 4.7% and 8.7% during the three and nine month periods ended October 1, 2021, respectively, as compared to the comparable periods of 2020.
−Removed: The year-over-year results in the three month period ended October 1, 2021 were driven by increased demand for sterilization capital equipment and consumables, radiation safety monitoring, and surgical instrument tracking SAAS products.
−Removed: The year-over-year results in the nine month period ended October 1, 2021 were driven by increased demand for sterilization capital equipment and consumables, radiation safety monitoring, cell therapy equipment design and manufacturing, and surgical instrument tracking SAAS products.
−Removed: Several of our Advanced Healthcare Solutions businesses are impacted by elective surgical procedure volumes, which decreased from pre-COVID-19 levels at a rate in the low teens across most major geographic markets during the third quarter of 2021.
−Removed: We expect elective surgical procedure volumes in the fourth quarter of 2021 to remain largely consistent with those realized in the third quarter of 2021 and continue to be below 2019 benchmark rates by a high single-digit rate.
−Removed: Geographically, demand from existing businesses in our Advanced Healthcare Solutions segment increased in both developed and high growth markets during the three and nine month periods ended October 1, 2021.
−Removed: The results in both respective periods were driven by growth in North America and Asia, and growth in Europe contributed to the results in the nine month period ended October 1, 2021.
−Removed: Year-over-year price increases in our Advanced Healthcare Solutions segment contributed 2.3% and 1.4% to sales growth during the three and nine month periods ended October 1, 2021, respectively, as compared to the comparable periods of 2020, and is reflected as a component of the change in sales from existing businesses.
−Removed: Operating profit margin increased 1,060 basis points during the three month period ended October 1, 2021 as compared to the comparable period of 2020.
−Removed: Year-over-year operating profit margin comparisons were favorably impacted by:
−Removed: • Higher year-over-year sales volumes from existing businesses, a favorable sales mix, price increases, and to a lesser extent, lower year-over-year material costs, which were partially offset by higher year-over-year employee compensation costs and changes in foreign currency exchange rates — favorable 380 basis points
−Removed: • The year-over-year net effect of acquisition-related transaction costs which were less in the three month period ended October 1, 2021 than those recognized in the comparable period in 2020 — favorable 460 basis points
−Removed: • The year-over-year effect of amortization from existing businesses — favorable 105 basis points
−Removed: • The year-over-year effect of acquired businesses, including amortization, and acquisition-related fair value adjustments to deferred revenue and inventory which were less in the three month period ended October 1, 2021 than those recognized in the comparable period in 2020 — favorable 115 basis points
−Removed: Operating profit margin increased 1,030 basis points during the nine month period ended October 1, 2021 as compared to the comparable period of 2020.
−Removed: Year-over-year operating profit margin comparisons were favorably impacted by:
−Removed: • Higher year-over-year sales volumes from existing businesses, a favorable sales mix, price increases, and to a lesser extent, lower year-over-year material costs, which were partially offset by higher year-over-year freight and logistics costs and higher year-over-year employee compensation costs — favorable 105 basis points
−Removed: • The year-over-year net effect of acquisition-related transaction costs which were less in the nine month period ended October 1, 2021 than those recognized in the comparable period in 2020 — favorable 610 basis points
+Added: Year-over-year sales of products and services from existing businesses of Advanced Healthcare Solutions increased 0.6% during the first quarter, as compared to the comparable period of 2021.
+Added: The year-over-year results were driven by higher pricing and increased demand for radiation management and surgical instrument tracking offerings partially offset by reductions in cell therapy equipment design and sterilization products, primarily in China and impacted by the government mandated COVID-19 containment measures.
+Added: Sales from existing businesses in our Advanced Healthcare Solutions segment increased low single digits during the first quarter in developed markets, driven by a mid single digit increase in North America, which was partially offset by a low single digit decrease in Europe.
+Added: High growth markets declined by low single digits on government mandated COVID-19 containment measures in China and declines in the Middle East and Africa.
+Added: Year-over-year price increases in our Advanced Healthcare Solutions segment contributed 1.3% to sales growth during the first quarter, as compared to the comparable period of 2021, and is reflected as a component of the change in sales from existing businesses.
+Added: Operating profit margin increased 230 basis points during the three month period ended April 1, 2022 as compared to the comparable period of 2021.
+Added: Year-over-year operating profit margin comparisons were impacted by:
+Added: • The year-over-year net effect of acquisition-related transaction costs which were less in the first quarter than those recognized in the comparable period in 2021 — favorable 150 basis points
• The year-over-year effect of amortization from existing businesses — favorable 90 basis points
−Removed: • The year-over-year effect of acquired businesses, including amortization, and acquisition-related fair value adjustments to deferred revenue and inventory which were less in the nine month period ended October 1, 2021 than those recognized in the comparable period in 2020 — favorable 125 basis points
+Added: • The year-over-year effect of acquired businesses, including amortization, and acquisition-related fair value adjustments to inventory — favorable 30 basis points
+Added: • Lower year-over-year sales volumes from existing businesses and higher employee compensation costs, which were partially offset by higher year-over-year price increases — unfavorable 40 basis points
COST OF SALES AND GROSS PROFIT
−Removed: Three Months Ended Nine Months Ended
−Removed: ($ in millions) October 1, 2021 September 25, 2020 October 1, 2021 September 25, 2020
+Added: Three Months Ended
+Added: ($ in millions) April 1, 2022 April 2, 2021
Sales $ 1,376.5 $ 1,259.2
2 unchanged sentences
Gross profit margin 57.5 % 56.5 %
−Removed: The year-over-year increase in cost of sales during the three month period ended October 1, 2021, as compared to the comparable period in 2020, is due primarily to higher year-over-year sales volumes from existing businesses, and to a lesser extent, incremental expenses from our recently acquired businesses and higher year-over material and freight and logistics costs, which were partially offset by restructuring and productivity and improvement initiatives.
−Removed: The year-over-year increase in cost of sales during the nine month period ended October 1, 2021, as compared to the comparable period in 2020, is due primarily to higher year-over-year sales volumes from existing businesses, which was partially offset by lower year-over material costs and productivity improvement initiatives.
−Removed: Year-over-year changes in currency exchange rates increased cost of sales during the three and nine month periods ended October 1, 2021.
−Removed: The year-over-year increase in gross profit and gross profit margin for the three and nine month periods ended October 1, 2021, as compared to the comparable periods in 2020, is due primarily to higher year-over-year sales volumes, price increases, and a favorable sales mix, which were partially offset by changes in foreign currency exchange rates and higher freight and logistics costs.
−Removed: Gross profit and gross profit margin for the three month period ended October 1, 2021 were also unfavorably impacted by higher year-over-year material costs.
+Added: The year-over-year increase in cost of sales during the first quarter, as compared to the comparable period in 2021, is due primarily to year-over-year increases in sales volumes from existing and newly acquired businesses, and higher material, freight and employee compensation costs.
+Added: Year-over-year changes in currency exchange rates decreased cost of sales during the first quarter.
+Added: The year-over-year increase in gross profit and gross profit margin for the first quarter, as compared to the comparable period in 2021, is due primarily to higher year-over-year sales volumes and price increases, which were partially offset by higher material, freight and employee compensation costs.
OPERATING EXPENSES
−Removed: Three Months Ended Nine Months Ended
+Added: Three Months Ended
($ in millions)
−Removed: October 1, 2021 September 25, 2020 October 1, 2021 September 25, 2020
+Added: April 1, 2022 April 2, 2021
Sales $ 1,376.5 $ 1,259.2
3 unchanged sentences
R&D as a % of sales 7.2 % 6.8 %
−Removed: SG&A expenses increased during the three and nine month periods ended October 1, 2021 as compared to the comparable periods of 2020.
−Removed: The year-over-year increase in SG&A expenses for both respective periods was primarily driven by higher employee compensation costs and SG&A expenses due to broad cost reduction efforts in the comparable periods of 2020 to better align with reductions in demand, and to a lesser extent, changes in foreign currency exchange rates.
−Removed: Lower year-over-year net acquisition-related costs and incremental year-over-year cost savings associated with restructuring and productivity improvement initiatives partially offset the increase in SG&A expenses in both respective periods.
−Removed: Incremental SG&A expenses and amortization from ServiceChannel also impacted the results for the three month period ended October 1, 2021.
−Removed: On a year-over-year basis, SG&A expenses as a percentage of sales decreased 240 and 330 basis points during the three and nine month periods ended October 1, 2021, respectively, primarily due to demand for our products and services which grew at a faster rate than our fixed costs.
−Removed: Additionally, lower year-over-year net acquisition-related costs and incremental year-over-year cost savings associated with restructuring and productivity improvement initiatives reduced SG&A expenses as a percentage of sales.
−Removed: R&D expenses (consisting principally of internal and contract engineering personnel costs) increased during the three and nine months ended October 1, 2021 as compared to the comparable periods of 2020 primarily due to targeted investments in key growth initiatives and innovation.
−Removed: On a year-over-year basis, R&D expenses were flat as a percentage of sales during the three month period ended October 1, 2021.
−Removed: During the nine month period ended October 1, 2021, R&D expenses decreased as a percentage of sales, reflecting demand for our products and services that grew at a faster rate than our investments in key growth initiatives and innovation.
+Added: SG&A expenses increased during the first quarter as compared to the comparable period of 2021 due to higher intangible amortization and incremental expenses from our recent acquisitions, increased employee compensation expenses and customer acquisition and marketing costs.
+Added: On a year-over-year basis, SG&A expenses as a percentage of sales increased 90 basis points in the first quarter as a result of higher amortization expenses from our recent acquisitions, partially offset by leverage on SG&A costs, which grew at a slower rate than our sales growth.
+Added: R&D expenses (consisting principally of internal and contract engineering personnel costs) increased during the first quarter as compared to the comparable period of 2021 due to incremental costs from our recent acquisitions, investments in innovation and key initiatives and higher employee compensation costs.
+Added: On a year-over-year basis, R&D expenses increased as a percentage of sales by 40 basis points in the first quarter mainly driven by our recent acquisitions, where R&D spending is higher as a percentage of sales than in existing businesses.
INTEREST COSTS
For a discussion of our outstanding indebtedness, refer to Note 5 to the consolidated condensed financial statements.
−Removed: Net interest expense for the three and nine month periods ended October 1, 2021 was $25 million and $78 million compared to $37 million and $112 million for the three and nine month periods ended September 25, 2020, respectively.
−Removed: The year-over-year decrease in interest expense was due to lower year-over-year average debt balances.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: Our effective tax rate for the three and nine month periods ended October 1, 2021 differs from the U.S.
+Added: Net interest expense for the three month period ended April 1, 2022 was $19 million compared to $28 million for the three month period ended April 2, 2021.
+Added: The year-over-year decrease in interest expense was due to lower year-over-year effective interest rates on debt instruments.
+Added: Our effective tax rate for the quarter was 13.5% as compared to 5.9% in the comparable period in 2021 and the year-over year increase was primarily due to a non-recurring permanent difference on the Q1 2021 gain on our Retained Vontier Shares due to the tax-free treatment of our disposition of the shares through the Debt-for-Equity Exchange and increases in certain federal tax benefits during the first quarter.
+Added: Our effective tax rate for the first quarter and the comparable period in 2021, differ 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.
−Removed: Specific to the nine month period ended October 1, 2021, our effective tax rate also differs from the U.S.
+Added: Specific to the three month period
+Added: ended April 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.
−Removed: Specific to the nine month period ended September 25, 2020, our effective tax rate also differs from the U.S.
−Removed: federal statutory rate of 21% due to the repatriation of a portion of our previously reinvested earnings outside of the United States.
COMPREHENSIVE INCOME
−Removed: Comprehensive income decreased by $175 million during the three month period ended October 1, 2021 as compared to the comparable period in 2020 due primarily to unfavorable changes in foreign currency translation adjustments of $100 million and net earnings that were lower by $75 million.
−Removed: Comprehensive income increased by $29 million during the nine month period ended October 1, 2021 as compared to the comparable period in 2020 due primarily to net earnings that were higher by $44 million, partially offset by unfavorable changes in foreign currency translation adjustments of $17 million.
+Added: Comprehensive income increased by $50 million during the first quarter as compared to the comparable period in 2021 due primarily to net earnings that were higher by $55 million, partially offset by unfavorable changes in foreign currency translation adjustments of $4 million.
LIQUIDITY AND CAPITAL RESOURCES
3 unchanged sentences
dollar and Euro-denominated commercial paper programs (“Commercial Paper Programs”).
−Removed: 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 a 364-day delayed-draw term loan due March 22, 2021 (the “Term Loan due March 2021”) that was subsequently retired in the Debt-for-Equity Exchange.
−Removed: In August 2021, we resumed borrowing under our Commercial Paper Program to fund, in part, the ServiceChannel acquisition.
−Removed: 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
−Removed: support for the commercial paper programs, can also be used for working capital and other general corporate purposes.
−Removed: As of October 1, 2021, no borrowings were outstanding under the Revolving Credit Facility.
+Added: Credit support for the Commercial Paper Programs is provided by a five-year $2.0 billion senior unsecured revolving credit facility that expires on November 30, 2023 (the “Revolving Credit Facility”) which, to the extent not otherwise providing credit support for the commercial paper programs, can also be used for working capital and other general corporate purposes.
+Added: As of April 1, 2022, no borrowings were outstanding under the Revolving Credit Facility.
The availability of the Revolving Credit Facility as a standby liquidity facility to repay maturing commercial paper is an important factor in maintaining the existing credit ratings of the Commercial Paper Programs when we have outstanding borrowings.
We expect to limit any future borrowings under the Revolving Credit Facility to amounts that would leave sufficient credit available under the facility to allow us to borrow, if needed, and repay any outstanding commercial paper as it matures.
−Removed: We continue to monitor the financial markets and general global economic conditions and if changes in financial markets or other areas of the economy adversely affect our access to the capital markets, we would expect to rely on a combination of available cash and existing available capacity under our credit facilities to provide short-term funding.
+Added: We continue to monitor the financial markets and general global economic conditions.
+Added: If changes in financial markets or other areas of the economy adversely affect our access to the capital markets, we would expect to rely on a combination of available cash and existing available capacity under our credit facilities to provide short-term funding.
Overview of Cash Flows and Liquidity
−Removed: Following is an overview of our cash flows and liquidity for the nine month period ended October 1, 2021:
−Removed: Nine Months Ended
−Removed: ($ in millions) October 1, 2021 September 25, 2020
+Added: Following is an overview of our cash flows and liquidity for the three month period ended April 1, 2022:
+Added: Three Months Ended
+Added: ($ in millions) April 1, 2022 April 2, 2021
Total operating cash provided by continuing operations $ 214.8 $ 152.0
3 unchanged sentences
Total investing cash used in continuing operations $ (17.9) $ (8.6)
−Removed: Net proceeds from (repayment of) commercial paper borrowings $ 215.0 $ (1,141.9)
−Removed: Proceeds from borrowings (maturities greater than 90 days), net of issuance costs of $8 million in 2020 — 741.7
+Added: Payment of 0.875% convertible senior notes due 2022 $ (1,156.5) $ —
+Added: Net proceeds from commercial paper borrowings 930.7 —
Repayment of borrowings (maturities greater than 90 days) — (611.1)
1 unchanged sentence
Payment of mandatory convertible preferred stock cash dividend to shareholders — (23.7)
+Added: Repurchase of common shares (63.8) (17.3)
All other financing activities (17.9) (2.8)
2 unchanged sentences
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, pension funding, and other items impact reported cash flows.
−Removed: Operating cash flows from continuing operations were $706 million during the first nine months of 2021, an increase of $58 million, or 9%, as compared to the comparable period of 2020.
+Added: Operating cash flows from continuing operations were $215 million during the first quarter, an increase of $63 million, or 41%, 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:
−Removed: • Operating cash flows were impacted by higher net earnings for the first nine months of 2021 as compared to the comparable period in 2020.
−Removed: Net earnings for the nine month period ended October 1, 2021 were impacted by a year-over-year increase in operating profit of $254 million, a decrease in net interest expense of $34 million associated with the net repayment of debt, a gain on the Retained Vontier Shares of $57 million and a gain on litigation dismissal of $26 million, which were partially offset by the loss on extinguishment of debt of $105 million.
−Removed: The gain on the Retained Vontier Shares and litigation dismissal, and substantially all of the loss on the extinguishment of debt, are non-cash items that impact net earnings without a corresponding impact to operating cash flows.
−Removed: • The aggregate of accounts receivable, inventories, and trade accounts payable used $52 million of cash during the first nine months of 2021 as compared to providing $64 million in the comparable period of 2020.
+Added: • Year-over-year increases of $31.9 million in Operating cash flows from net earnings from continuing operations, net of non-cash expenses (Depreciation, Amortization, Stock-based compensation, Loss on extinguishment of debt and Gain on investment in Vontier Corporation)
+Added: • The aggregate of accounts receivable, inventories, and trade accounts payable used $25 million of cash during the first quarter of 2022 as compared to using $44 million in the comparable period of 2021.
The amount of cash flow generated from or used by the aggregate of 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.
−Removed: • The aggregate of prepaid expenses and other assets and accrued expenses and other liabilities used $55 million of cash during the first nine months of 2021 as compared to providing $45 million of cash in the comparable period of 2020.
−Removed: The year over year change was largely driven by the funding of the $36 million deferred compensation liability associated with the ServiceChannel acquisition, which was paid into escrow upon closing of the transaction, and various compensation and benefit payments.
+Added: • The aggregate of prepaid expenses and other assets and accrued expenses and other liabilities used $63 million of cash during the first quarter of 2022 as compared to using $77 million of cash in the comparable period of 2021.
+Added: The year-over-year changes were driven by reduced tax cash payments, timing on deferred revenue, partially offset by higher payments for employee compensation and benefits.
Investing Activities
−Removed: Investing cash flows from continuing operations consist primarily of cash paid for acquisitions and capital expenditures, and increased $1.1 billion during the nine month period ended October 1, 2021 as compared to the comparable period of 2020.
−Removed: The increase in investing cash flows was due to the $1.2 billion acquisition of ServiceChannel that was partially offset by a year-over-year decrease in capital expenditures of $31 million largely due to higher spending in the comparable period in 2020 related to the integration of the ASP business.
+Added: Investing cash flows from continuing operations consist primarily of cash paid for acquisitions and capital expenditures, and increased $9.3 million during the first quarter as compared to the comparable period of 2021.
+Added: The increase in investing cash flows was primarily due to a year-over-year increase in capital expenditures of approximately $10 million.
Capital expenditures are made primarily for increasing capacity, replacing equipment, supporting product development initiatives, improving information technology systems, and purchasing equipment that is used in revenue arrangements with customers.
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Financing cash flows from continuing operations consist primarily of cash flows associated with the issuance of equity, the issuance and repayments of debt and commercial paper, and payments of quarterly cash dividends to shareholders.
−Removed: Financing activities from continuing operations used cash of $485 million during the nine month period ended October 1, 2021, reflecting the following transactions:
−Removed: • On January 21, 2021, we repaid the remaining $317 million outstanding of the Delayed-Draw Term Loan Due 2020 using the cash proceeds received from Vontier in the Vontier Separation.
−Removed: • On February 9, 2021, we repurchased $281 million of the 0.875% Convertible Senior Notes due 2022 using the remaining cash proceeds received from Vontier in the Separation and other cash on hand.
−Removed: 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.
−Removed: • During the third quarter of 2021, we resumed borrowing under our Commercial Paper Programs to fund, in part, the ServiceChannel acquisition.
−Removed: As of October 1, 2021, commercial paper outstanding under the U.S.
−Removed: dollar-denominated commercial paper program had a weighted annual effective rate of 0.19% and a weighted average remaining maturity of approximately 12 days.
−Removed: In the comparable 2020 period, financing activities from continuing operations used $756 million of cash, reflecting borrowings from our Term Loan due March 2021, which were more than offset by repayments of commercial paper of $1.1 billion and $250 million of our 2020 Term Loan.
−Removed: 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., 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.
−Removed: 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.
+Added: Financing activities from continuing operations used cash of $333 million during the three month period ended April 1, 2022, reflecting the following transactions:
+Added: • 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.
+Added: • During the first quarter, we incurred $931 million in net commercial paper borrowings under the U.S.
+Added: dollar-denominated commercial paper program, which had a weighted annual effective rate of 0.91% and a weighted average remaining maturity of approximately 39 days.
+Added: • During the first quarter we repurchased 1,000,000 shares for approximately $64 million under our share repurchase program.
+Added: In the comparable 2021 period, financing activities from continuing operations used $655 million of cash, reflecting payment of the remaining $317 million outstanding of the Delayed-Draw Term loan due April 2020, and repurchase of $281 million of the Convertible Notes.
+Added: 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.
+Added: We recorded a loss on extinguishment of the debt included in the Debt-for-Equity Exchange of $94.4 million in the three month period ended April 1, 2021.
Refer to Note 5 to the consolidated condensed financial statements for information regarding our financing activities and indebtedness.
−Removed: Aggregate cash payments for preferred and common stock dividends paid to shareholders during the nine month period ended October 1, 2021 were $107 million and are recorded as dividends to shareholders in the Consolidated Condensed Statement of Changes in Equity and the Consolidated Condensed Statement of Cash Flows.
+Added: Aggregate cash payments for common stock dividends paid to shareholders during the first quarter were $25 million and are recorded as dividends to shareholders in the Consolidated Condensed Statement of Changes in Equity and the Consolidated Condensed Statement of Cash Flows.
+Added: On April 7, 2022, we declared a regular quarterly cash dividend of $0.07 per share payable on June 24, 2022 to common stockholders of record on May 27, 2022.
Cash and Cash Requirements
−Removed: As of October 1, 2021, we held approximately $838 million of cash and equivalents that were invested in highly liquid investment-grade instruments with a maturity of 90 days or less that yielded insignificant interest income during the three and nine month periods ended October 1, 2021.
−Removed: Approximately 80% of the $838 million of cash and equivalents we held as of October 1, 2021 was held outside of the United States.
+Added: As of April 1, 2022, we held approximately $684 million of cash and equivalents that were invested in highly liquid investment-grade instruments with a maturity of 90 days or less that yielded insignificant interest income during the three period ended April 1, 2022.
+Added: Approximately 90% of the $684 million of cash and equivalents we held as of April 1, 2022 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.
6 unchanged sentences
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.
−Removed: As of October 1, 2021, we expect to have sufficient liquidity to satisfy our cash needs for the foreseeable future.
+Added: As of April 1, 2022, we expect to have sufficient liquidity to satisfy our cash needs for the foreseeable future.
CRITICAL ACCOUNTING ESTIMATES
−Removed: There were no material changes during the three and nine month periods ended October 1, 2021 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 2020 Annual Report on Form 10-K.
+Added: There were no material changes during the three month period ended April 1, 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.
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.