What changed in this filing

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Item 1. Financial Statements

2022-07-28 compared with 2022-04-28 · 216 added, 105 removed, 452 unchanged (42% of the section changed)

3 unchanged sentences

($ in millions, except per share amounts)

April 1, 2022 December 31, 2021

July 1, 2022 December 31, 2021

Current assets:

Cash and equivalents $ 682.9 $ 819.3

Accounts receivable, net 929.0 930.2

Trade accounts receivable, net 940.9 930.2

Finished goods 224.8 215.4

4 unchanged sentences

Total current assets 2,445.3 2,514.9

Property, plant and equipment, net of accumulated depreciation of $ 723.2 and $ 679.0 at April 1, 2022 and December 31, 2021, respectively

Property, plant and equipment, net of accumulated depreciation of $ 733.1 and $ 679.0 at July 1, 2022 and December 31, 2021, respectively

Other assets 481.3 512.9

12 unchanged sentences

Preferred stock:

$ 0.01 par value, 15.0 million shares authorized and no shares issued or outstanding at April 1, 2022 and December 31, 2021

$ 0.01 par value, 15.0 million shares authorized and no shares issued or outstanding at July 1, 2022 and December 31, 2021

Common stock:

1 unchanged sentence

361.2 and 360.4 million issued;

358.4 and 359.1 million outstanding at April 1, 2022 and December 31, 2021, respectively

355.6 and 359.1 million outstanding at July 1, 2022 and December 31, 2021, respectively

Additional paid-in capital 3,651.2 3,670.0

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

Three Months Ended

April 1, 2022 April 2, 2021

Three Months Ended Six Months Ended

July 1, 2022 July 2, 2021 July 1, 2022 July 2, 2021

Sales of products and software $ 1,229.4 $ 1,136.0 $ 2,382.1 $ 2,213.2

8 unchanged sentences

Research and development expenses ( 100.1 ) ( 87.8 ) ( 199.2 ) ( 174.0 )

Russia exit and wind down costs ( 16.2 ) — ( 16.2 ) —

Operating profit 232.3 211.3 444.6 408.9

3 unchanged sentences

Gain on investment in Vontier Corporation — — — 57.0

Gain on litigation resolution — 26.0 — 26.0

Other non-operating expense, net ( 3.1 ) ( 4.6 ) ( 5.8 ) ( 7.9 )

21 unchanged sentences

FORTIVE CORPORATION AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

($ in millions)

Three Months Ended

April 1, 2022 April 2, 2021

Three Months Ended Six Months Ended

July 1, 2022 July 2, 2021 July 1, 2022 July 2, 2021

Net earnings $ 173.0 $ 180.9 $ 338.1 $ 291.1

Other comprehensive income, net of income taxes:

Other comprehensive income (loss), net of income taxes:

Foreign currency translation adjustments ( 118.6 ) 16.6 ( 158.0 ) ( 18.1 )

21 unchanged sentences

Balance, April 1, 2022 358.4 $ 3.6 — $ — $ ( 63.8 ) $ 3,619.1 $ 6,226.4 $ ( 223.9 ) $ 5.3

Net earnings for the period — — — — — — 173.0 $ — $ —

Dividends to common shareholders — — — — — — ( 24.9 ) — —

Other comprehensive income (loss) — — — — — — — ( 118.2 ) —

Common stock-based award activity 0.2 — — — — 32.7 — — —

Common stock repurchases ( 3.0 ) — — — ( 179.1 ) — — — —

Shares withheld for taxes — — — — — ( 0.6 ) — — —

Change in noncontrolling interests — — — — — — — — ( 0.2 )

Balance, July 1, 2022 355.6 $ 3.6 $ — $ — $ ( 242.9 ) $ 3,651.2 $ 6,374.5 $ ( 342.1 ) $ 5.1

Common Stock Preferred Stock Treasury Stock Additional Paid-In Capital Retained Earnings Accumulated

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Balance, April 2, 2021 338.5 $ 3.4 1.4 $ — $ — $ 3,563.8 $ 5,616.6 $ ( 174.8 ) $ 7.7

Net earnings for the period — — — — — — 180.9

Dividends to common shareholders — — — — — — ( 23.7 ) — —

Mandatory convertible preferred stock cumulative dividends — — — — — — ( 17.2 ) — —

Other comprehensive income — — — — — — — 17.5 —

Common stock-based award activity 0.6 — — — — 35.9 — — —

Shares withheld for tax ( 0.1 ) — — — — ( 0.6 ) — — —

Conversion of Mandatory convertible preferred stock to common stock 19.4 0.2 ( 1.4 ) — — — — — —

Change in noncontrolling interests — — — — — 3.0 — — ( 3.0 )

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

See the accompanying Notes to Consolidated Condensed Financial Statements.

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($ in millions)

Three Months Ended

April 1, 2022 April 2, 2021

Six Months Ended

July 1, 2022 July 2, 2021

Cash flows from operating activities:

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Gain on investment in Vontier Corporation — ( 57.0 )

Gain on litigation resolution — ( 26.0 )

Russia exit and wind down costs 9.2 —

Change in trade accounts receivable, net ( 37.7 ) ( 11.8 )

9 unchanged sentences

Payments for additions to property, plant and equipment ( 37.1 ) ( 17.1 )

All other investing activities — 1.1

Net cash used in investing activities ( 38.7 ) ( 15.1 )

3 unchanged sentences

Net proceeds from commercial paper borrowings 481.3 —

Proceeds from borrowings (maturities greater than 90 days), net of issuance costs of $ 0.6 million in 2022

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

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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, 2021 and the footnotes (“Notes”) thereto included within our 2021 Annual Report on Form 10-K.

In our opinion, the accompanying financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to fairly present our financial position as of April 1, 2022 and December 31, 2021, our results of operations and cash flows for the three month periods ended April 1, 2022 and April 2, 2021.

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 1, 2022 and December 31, 2021, our results of operations for the three and six month periods ended July 1, 2022 and July 2, 2021, and cash flows for the six month periods ended July 1, 2022 and July 2, 2021.

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

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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

We operate and report our results in three segments, Intelligent Operating Solutions, Precision Technologies, and Advanced Healthcare Solutions, each of which is further described below.

Our Intelligent Operating Solutions segment provides leading workflow solutions to accelerate industrial and facility reliability and performance, as well as compliance and safety across a range of vertical end markets, including manufacturing, process industries, healthcare, utilities and power, communications and electronics, among others.

We provide differentiated instrumentation and sensors, software and services to address our customers’ toughest workflow challenges.

Our Precision Technologies segment supplies instrumentation and sensing technologies to a broad set of vertical end markets, enabling our customers to accelerate the development, manufacture and launch of innovative products and solutions.

We provide our customers with electrical test and measurement instruments and services, energetic material devices, and a broad portfolio of sensor and control system solutions.

Our Advanced Healthcare Solutions segment supplies critical workflow solutions to hospitals and other healthcare customers, enabling safer, more efficient, and higher quality healthcare.

We provide hardware, consumables, software and services that optimize our customers’ most critical workflows, including instrument sterilization and device reprocessing, instrument tracking, cell therapy equipment design and manufacturing, biomedical test tools, radiation safety monitoring, end-to-end clinical productivity solutions and asset management.

Russia Ukraine Conflict

In February 2022, Russian forces invaded Ukraine (“Russia Ukraine Conflict”) resulting in broad economic sanctions being imposed on Russia.

In the second quarter of 2022, the Company exited business operations in Russia, other than for ASP’s sterilization products, which are exempt from international sanctions as humanitarian products.

Our business in Russia and Ukraine accounted for less than 1 % of total revenue and less than 0.2 % of total assets for the fiscal year ended December 31, 2021.

In the three and six month periods ended July 1, 2022, the Company recorded a pre-tax charge totaling $ 16.2 million primarily relating to the write-off of net assets, the write-off of the cumulative translation adjustment in earnings for legal entities deemed substantially liquidated, and to record provisions for employee severance and legal contingencies.

These costs are identified as the “Russia exit and wind down costs” in the Condensed Consolidated Statements of Earnings.

The total costs expected to be incurred in connection with the Russia exit are $ 18.4 million.

Accumulated Other Comprehensive Income (Loss)

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subsidiaries.

The changes in Accumulated Other Comprehensive Income (“AOCI”) by component are summarized below ($ in millions):

During the three and six month periods ended July 1, 2022, we designated our ¥ 14.4 billion Yen-denominated variable interest rate term loan and our € 275 million Euro-denominated variable interest rate term loan outstanding as net investment hedges of our investment in certain foreign operations.

During the three and six month periods ended July 1, 2022, we recognized after-tax foreign currency transaction gains of $ 3.6 million 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 July 1, 2022.

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

adjustments Pension

adjustments (a)

For the Three Months Ended April 1, 2022:

Balance, December 31, 2021 $ ( 122.7 ) $ ( 62.3 ) $ ( 185.0 )

For the Three Months Ended July 1, 2022:

Balance, April 1, 2022 $ ( 162.1 ) $ ( 61.8 ) $ ( 223.9 )

Other comprehensive income (loss) before reclassifications, net of income taxes ( 121.3 ) — ( 121.3 )

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Net current period other comprehensive income (loss), net of income taxes ( 118.6 ) 0.4 ( 118.2 )

Balance, July 1, 2022 $ ( 280.7 ) $ ( 61.4 ) $ ( 342.1 )

For the Three Months Ended July 2, 2021:

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

For the Three Months Ended April 2, 2021:

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

Other comprehensive income (loss) before reclassifications, net of income taxes 16.6 — 16.6

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Net current period other comprehensive income (loss), net of income taxes 16.6 0.9 17.5

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

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

adjustments Pension adjustments (a)

For the Six Months Ended July 1, 2022:

Balance, December 31, 2021 $ ( 122.7 ) $ ( 62.3 ) $ ( 185.0 )

Other comprehensive income (loss) before reclassifications, net of income taxes ( 160.7 ) — ( 160.7 )

Amounts reclassified from accumulated other comprehensive income (loss):

Increase (decrease) 2.7 1.1 (b)

Income tax impact — ( 0.2 ) ( 0.2 )

Amounts reclassified from accumulated other comprehensive income (loss), net of income taxes 2.7 0.9 3.6

Net current period other comprehensive income (loss) ( 158.0 ) 0.9 ( 157.1 )

Balance, July 1, 2022 $ ( 280.7 ) $ ( 61.4 ) $ ( 342.1 )

For the Six Months Ended July 2, 2021:

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

Other comprehensive income (loss) before reclassifications, net of income taxes ( 18.1 ) — ( 18.1 )

Amounts reclassified from accumulated other comprehensive income (loss):

Increase (decrease) — 2.5 (b)

Income tax impact — ( 0.6 ) ( 0.6 )

Amounts reclassified from accumulated other comprehensive income (loss), net of income taxes — 1.9 1.9

Net current period other comprehensive income (loss) ( 18.1 ) 1.9 ( 16.2 )

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

(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 April 1, 2022 ($ in millions):

The following is a roll forward of the aggregated allowance for credit losses related to our trade accounts receivables as of July 1, 2022 ($ in millions):

Balance, December 31, 2021 $ 39.7

2 unchanged sentences

Foreign currency exchange and other ( 0.6 )

Balance, April 1, 2022 $ 39.4

Balance, July 1, 2022 $ 37.9

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

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On January 1, 2022, we reclassified the unamortized cost basis of our outstanding Convertible Notes wholly as debt, which subsequently matured and was settled on February 15, 2022.

We applied the if-converted method to all convertible instruments when calculating EPS for the three months ended April 1, 2022.

As of April 1, 2022, we had no convertible instruments outstanding subject to the guidance in ASU 2020-06.

We applied the if-converted method to all convertible instruments when calculating EPS for the six months ended July 1, 2022.

As of July 1, 2022, we had no convertible instruments outstanding subject to the guidance in ASU 2020-06.

We continually evaluate potential mergers, acquisitions, and divestitures that align with our strategy and expedite the evolution of our portfolio of businesses into new and attractive areas.

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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.

During the three month period ended April 1, 2022, adjustments were made to the preliminary purchase price allocation of prior year acquisitions as described below.

During the three and six month periods ended July 1, 2022, insignificant adjustments were made to the purchase price allocation of prior year acquisitions, which are shown in Note 3.

On December 27, 2021, we acquired Provation Software, Inc.

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The total consideration paid was approximately $ 1.4 billion, net of acquired cash and was primarily financed with proceeds from our financing activities and available cash.

We preliminarily recorded $ 978 million of goodwill related to the acquisition, which is not tax deductible.

During the three month period ended April 1, 2022, provisional goodwill increased by $ 8.1 million for measurement period adjustments.

We recorded $ 978 million of goodwill related to the acquisition, which is not tax deductible.

Provation had revenue in 2020 of approximately $ 90 million and is an operating company within our Advanced Healthcare Solutions segment.

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The ServiceChannel acquisition was primarily financed with available cash and proceeds from our financing activities.

We preliminarily recorded approximately $ 873 million of goodwill related to the acquisition, which is not tax deductible.

We recorded approximately $ 874 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.

Revenue and operating loss attributable to the Provation and ServiceChannel acquisitions were $ 67.3 million and $ 23.4 million for the three months ended April 1, 2022.

The operating loss includes $ 19.5 million of intangible asset amortization and $ 20.4 million of transaction and integration costs, primary comprised of compensation cost for employee retention and amounts paid to third party advisors, which are recorded in Selling, general and administration expenses.

The following table summarizes the preliminary estimated fair value of the assets acquired and liabilities assumed from ServiceChannel and Provation as of April 1, 2022 ($ in millions):

For the six months ended July 1, 2022, revenue and operating losses attributable to the Provation and ServiceChannel acquisitions were $ 132.8 million and $ 21.7 million, respectively.

The operating losses include $ 38.7 million of intangible asset amortization and $ 12.9 million of transaction and integration costs, which were primarily comprised of employee compensation and retention costs and amounts paid to third party advisors, and are recorded in Selling, general and administration expenses.

The following table summarizes the estimated fair value of the assets acquired and liabilities assumed from ServiceChannel and Provation as of July 1, 2022 ($ in millions):

Provation ServiceChannel Total

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Net cash consideration $ 1,405.6 $ 1,166.3 $ 2,571.9

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

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

Intelligent Operating Solutions Precision Technologies Advanced Healthcare Solutions Total Goodwill

2 unchanged sentences

Foreign currency translation and other ( 44.3 ) ( 37.3 ) ( 22.6 ) ( 104.2 )

Balance, April 1, 2022 $ 4,114.5 $ 1,826.6 $ 3,191.8 $ 9,132.9

During the three month period ended April 1, 2022, we identified no triggering events indicating a potential impairment of goodwill.

Balance, July 1, 2022 $ 4,082.5 $ 1,802.7 $ 3,173.0 $ 9,058.2

FAIR VALUE MEASUREMENTS

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(Level 3) Total

April 1, 2022

Deferred compensation liabilities $ — $ 31.4 $ — $ 31.4

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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 April 1, 2022, and recorded no impairments.

We evaluated events or circumstances that may indicate the carrying value of our non-financial assets may not be fully recoverable during the six month period ended July 1, 2022, and recorded no impairments.

Fair Value of Financial Instruments

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

April 1, 2022 December 31, 2021

July 1, 2022 December 31, 2021

Carrying Amount Fair Value Carrying Amount Fair Value

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Long-term debt, net of current maturities $ 2,682.2 $ 2,584.8 $ 1,807.3 $ 1,978.9

As of April 1, 2022 and December 31, 2021, the current portion of long-term debt and long-term debt, net of current maturities were categorized as Level 1.

The fair values of 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, and commercial paper approximates their carrying amount due to the short-term maturities of these instruments.

As of July 1, 2022 and December 31, 2021, the current portion of long-term debt and long-term debt, net of current maturities were categorized as Level 1.

The fair values of long-term borrowings were based on quoted market prices.

The difference between the fair value and the carrying amounts of long-term borrowings may be attributable to changes in market interest rates and/or our credit ratings subsequent to the borrowing.

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

FINANCING AND CAPITAL

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

April 1, 2022 December 31, 2021

July 1, 2022 December 31, 2021

dollar-denominated commercial paper $ 847.0 $ 364.9

Delayed-Draw Term Loan due 2022 999.9 999.7

Yen Term Loan due 2025 106.4 —

Euro Term Loan due 2025 285.8 —

3.15 % senior unsecured notes due 2026

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Long-term debt, net of current maturities $ 2,682.2 $ 1,807.3

Aggregate unamortized debt discounts, premiums, and issuance costs of $ 8 million and $ 13 million as of April 1, 2022 and December 31, 2021, 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 $ 8 million and $ 13 million as of July 1, 2022 and December 31, 2021, respectively, are netted against the principal amounts of the components of debt in the table above.

Refer to Note 11 of our 2021 Annual Report on Form 10-K for further details of our debt financing.

Yen Term Loan

On June 17, 2022, we entered into a three-year , ¥ 14.4 billion senior unsecured term facility (“Yen Term Loan”).

On the same day, we drew down the entire available balance under the facility, which yielded net proceeds of $ 107 million.

The Yen Term Loan is due on June 17, 2025 and is pre-payable at our option.

The Yen Term Loan bears interest at a rate of Tokyo Term Risk Free Rate (“TORF”), plus 65 basis points;

provided, however, that the TOFR may not be less than zero for the Yen Term Loan.

Euro Term Loan

On June 21, 2022, we entered into a three-year € 275 million senior unsecured term facility (“Euro Term Loan”).

On June 28, 2022, we drew down the entire available balance under the facility, which yielded net proceeds of $ 290 million.

The Euro Term Loan is due on June 23, 2025 and is pre-payable at our option.

The Euro Term Loan bears interest at a rate of Euro Interbank Offered Rate (“Euribor”), plus 55 basis points;

provided, however that the Euribor may not be less than zero for the Euro Term Loan.

Convertible Senior Notes

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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 three month period ended April 2, 2021 of $ 10.5 million.

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 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.

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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.

We recognized $ 2.1 million in interest expense during the three month period ended April 1, 2022, of which $ 1.3 million was related to the contractual coupon rate of 0.875 % and $ 0.8 million was attributable to the amortization of debt issuance costs.

We recognized $ 12.2 million in interest expense during the three month period ended April 2, 2021, of which $ 2.8 million related to the contractual coupon rate of 0.875 %, $ 1.7 million was attributable to the amortization of debt issuance costs, and $ 7.7 million was attributable to the amortization of the discount.

We recognized $ 2.1 million in interest expense during the six month period ended July 1, 2022, of which $ 1.3 million was related to the contractual coupon rate of 0.875 % and $ 0.8 million was attributable to the amortization of debt issuance costs.

We recognized $ 11.1 million and $ 23.3 million in interest expense during the three and six month period ended July 2, 2021, 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.

Other Liquidity Sources

We generally satisfy any short-term liquidity needs that are not met through operating cash flows and available cash primarily through issuances of commercial paper under our U.S.

dollar and Euro-denominated commercial paper programs (“Commercial

Paper Programs”).

dollar and Euro-denominated commercial paper programs (“Commercial Paper Programs”).

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

Interest expense on commercial paper is paid at maturity and is generally based on our credit ratings at the time of issuance and prevailing short-term interest rates.

The details of our outstanding Commercial Paper Programs as of April 1, 2022 were as follows ($ in millions):

The details of our outstanding Commercial Paper Programs as of July 1, 2022 were as follows ($ in millions):

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

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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 April 1, 2022, no borrowings were outstanding under the Revolving Credit Facility.

As of July 1, 2022, no borrowings were outstanding under the Revolving Credit Facility.

We classified our borrowings outstanding under the Commercial Paper Programs as Long-term debt in the accompanying Consolidated Condensed Balance Sheets as we had the intent and ability, as supported by availability under the Revolving Credit Facility, to refinance these borrowings for at least one year from the balance sheet date.

Debt-for-Equity Exchange

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During the first quarter of 2021 we recognized a gain of $ 57.0 million related to the subsequent change in the fair value of the Retained Vontier Shares.

We recorded a loss on extinguishment of the debt included in the Debt-for-Equity Exchange of $ 94.4 million in the three month period ended April 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.

We derive revenue primarily from the sale of products and 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 $ 72 million as of April 1, 2022 and $ 71 million as of December 31, 2021.

Contract assets were $ 83 million as of July 1, 2022 and $ 71 million as of December 31, 2021.

Contract Costs — We incur and capitalize direct incremental costs to obtain certain contracts, typically sales-related commissions and costs associated with assets used by our customers in certain software arrangements.

Deferred sales-related commissions are not capitalized when the amortization period is one year or less, as we elected to use the practical expedient to expense these sales commissions as incurred.

As of April 1, 2022 and December 31, 2021, we had $ 30 million and $ 27 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 Consolidated Condensed Balance Sheets.

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

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.

As of July 1, 2022 and December 31, 2021, we had $ 33 million and $ 27 million, respectively, in net revenue-related contract costs primarily related to certain software contracts.

Revenue-related contract costs

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

These assets have estimated useful lives between three and eight .

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

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

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

April 1, 2022 December 31, 2021

July 1, 2022 December 31, 2021

Deferred revenue - current $ 479.8 $ 457.6

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Total contract liabilities $ 514.9 $ 491.4

During the three month period ended April 1, 2022, we recognized revenue related to our contract liabilities at December 31, 2021 of $ 154 million.

The change in our contract liabilities from December 31, 2021 to April 1, 2022 was primarily due to the timing of billings and recognition as revenue of PCS and extended warranty services.

Remaining Performance Obligations — Our remaining performance obligations represent the transaction price of firm, noncancelable orders and the average contract value for software contracts, for which work has not been performed.

During the three and six month period ended July 1, 2022, we recognized revenue related to our contract liabilities at December 31, 2021 of $ 102 million and $ 256 million, respectively.

The change in our contract liabilities from December 31, 2021 to July 1, 2022 was primarily due to the timing of billings and recognition as revenue of subscription-based software contracts, PCS and extended warranty services.

Remaining Performance Obligations — Our remaining performance obligations represent the transaction price of firm, non-cancelable orders and the average contract value for software contracts, 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):

April 1, 2022

Intelligent Operating Solutions $ 585.9

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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 April 1, 2022 is presented as follows ($ in millions):

Disaggregation of revenue for the three month period ended July 1, 2022 is presented as follows ($ in millions):

Total Intelligent Operating Solutions Precision Technologies Advanced Healthcare Solutions

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Direct sales:

Medical $ 353.3 $ 10.3 $ 37.1 $ 305.9

Healthcare $ 369.8 $ 13.2 $ 41.3 $ 315.3

Industrial & Manufacturing 341.9 227.4 107.7 6.8

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Government 110.1 60.5 41.4 8.2

Communication, Electronics & Semiconductor 87.8 23.8 63.4 0.6

Communications, Electronics & Semiconductor 102.1 26.3 75.4 0.4

Aerospace & Defense 64.7 0.2 64.5 —

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

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

Total Intelligent Operating Solutions Precision Technologies Advanced Healthcare Solutions

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Direct sales:

Medical $ 326.8 $ 9.4 $ 35.0 $ 282.4

Healthcare $ 328.6 $ 8.4 $ 33.9 $ 286.3

Industrial & Manufacturing 312.1 200.7 105.4 6.0

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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.

Our effective tax rate for the three month period ended April 1, 2022 was 13.5 % as compared to 5.9 % for the three month period ended April 2, 2021.

The year-over-year increase in the effective tax rate for the three month period ended April 1, 2022 as compared to the three month period ended April 2, 2021 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 three months ended April 1, 2022.

Our effective tax rates for the three month periods ended April 1, 2022 and April 2, 2021, differ from the U.S.

federal statutory rate of 21% due primarily to the positive net 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 three month period 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 as a result of the tax-free treatment of our disposition of the shares through the Debt-for-Equity Exchange.

Disaggregation of revenue for the six month period ended July 1, 2022 is presented as follows ($ in millions):

Total Intelligent Operating Solutions Precision Technologies Advanced Healthcare Solutions

Sales of products and software $ 2,382.1 $ 1,034.7 $ 855.3 $ 492.1

Sales of services 457.7 183.0 106.2 168.5

Total $ 2,839.8 $ 1,217.7 $ 961.5 $ 660.6

United States $ 1,518.9 $ 663.0 $ 483.6 $ 372.3

China 328.1 104.0 170.9 53.2

All other (each country individually less than 5% of total sales) 992.8 450.7 307.0 235.1

Total $ 2,839.8 $ 1,217.7 $ 961.5 $ 660.6

Direct sales:

Healthcare $ 723.1 $ 23.5 $ 78.4 $ 621.2

Industrial & Manufacturing 663.8 438.5 211.4 13.9

Utilities & Power 180.3 90.9 89.4 —

Government 215.8 112.1 86.1 17.6

Communications, Electronics & Semiconductor 189.9 50.1 138.8 1.0

Aerospace & Defense 120.1 0.3 119.8 —

Oil & Gas 133.4 128.1 5.3 —

Retail & Consumer 165.6 124.3 41.3 —

Other 312.4 177.6 134.7 0.1

Total direct sales 2,704.4 1,145.4 905.2 653.8

Distributors 135.4 72.3 56.3 6.8

Total $ 2,839.8 $ 1,217.7 $ 961.5 $ 660.6

(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):

Total Intelligent Operating Solutions Precision Technologies Advanced Healthcare Solutions

Sales of products and software $ 2,213.2 $ 931.4 $ 810.6 $ 471.2

Sales of services 365.7 121.3 108.7 135.7

Total $ 2,578.9 $ 1,052.7 $ 919.3 $ 606.9

United States $ 1,292.4 $ 524.9 $ 455.4 $ 312.1

China 327.8 113.2 158.5 56.1

All other (each country individually less than 5% of total sales) 958.7 414.6 305.4 238.7

Total $ 2,578.9 $ 1,052.7 $ 919.3 $ 606.9

Direct sales:

Healthcare $ 655.4 $ 17.8 $ 68.9 $ 568.7

Industrial & Manufacturing 614.4 397.2 205.4 11.8

Utilities & Power 192.7 111.5 81.2 —

Government 186.9 96.1 72.3 18.5

Communications, Electronics & Semiconductor 185.4 60.3 123.9 1.2

Aerospace & Defense 121.1 — 121.1 —

Oil & Gas 130.0 124.5 5.5 —

Retail & Consumer 90.1 42.2 47.9 —

Other 262.2 127.8 134.4 —

Total direct sales 2,438.2 977.4 860.6 600.2

Distributors 140.7 75.3 58.7 6.7

Total $ 2,578.9 $ 1,052.7 $ 919.3 $ 606.9

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

Our effective tax rates for the three and six month periods ended July 1, 2022 were 16.9 % and 15.3 %, respectively, as compared to 12.3 % and 10.0 %, respectively, for the three and six month periods ended July 2, 2021.

The year-over-year increase in the effective tax rate for the three month period ended July 1, 2022 as compared to the three month period ended July 2, 2021 was due primarily to a reduction in our uncertain tax positions during the three month period ended July 2, 2021 and the effect of Russia exit and wind down costs for which no tax benefit was recognized in the three month period ended July 2, 2021 .

The year-over-year increase in the effective tax rate for the six month period ended July 1, 2022 as compared to the six month period ended July 2, 2021 was primarily due to a non-recurring permanent difference on the Q1 2021 gain on our Retained Vontier Shares as a result of the tax-free treatment of our disposition of the shares through the Debt-for-Equity Exchange and increases in certain federal tax benefits for the six month period ended July 2, 2021.

Our effective tax rate for the three and six month periods ended July 1, 2022 differs from the U.S.

federal statutory rate of 21% due primarily to the positive and negative effects of the Tax Cuts and Jobs Act (“TCJA”), U.S.

federal permanent differences, the impacts of credits and deductions provided by law, and a reduction in our uncertain tax positions, and the effect of Russia exit and wind down costs for which no tax benefit was recognized.

STOCK-BASED COMPENSATION

Our stock-based compensation program (the “Stock Plan”) provides for the grant of stock appreciation rights, performance stock units, restricted stock units, restricted stock awards, and performance stock awards (collectively, “Stock Awards”), stock

options, or any other stock-based award.

As of April 1, 2022, approximately 17 million shares of our common stock were available for subsequent issuance under the Stock Plan.

As of July 1, 2022, approximately 16 million shares of our common stock were available for subsequent issuance under the Stock Plan.

For a full description of our stock-based compensation program refer to Note 17 of our 2021 Annual Report on Form 10-K.

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

Three Months Ended

April 1, 2022 April 2, 2021

Three Months Ended Six Months Ended

July 1, 2022 July 2, 2021 July 1, 2022 July 2, 2021

Stock Awards:

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Total stock-based compensation expense, net of income taxes $ 20.7 $ 17.0 $ 37.9 $ 30.5

The following summarizes the unrecognized compensation cost for the Stock Plan awards as of April 1, 2022.

The following summarizes the unrecognized compensation cost for the Stock Plan awards as of July 1, 2022.

This compensation cost is expected to be recognized over a weighted average period of approximately two years , representing the remaining service period related to the awards.

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The accrued warranty liability is reviewed on a quarterly basis and may be adjusted as additional information regarding expected warranty costs becomes known.

The following is a rollforward of our accrued warranty liability ($ in millions):

The following is a roll forward of our accrued warranty liability ($ in millions):

Balance, December 31, 2021 $ 25.2

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Settlements made ( 9.2 )

Balance, April 1, 2022 $ 23.2

Operating lease cost for both three month periods ended April 1, 2022 and April 2, 2021 was $ 15 million.

During the three month periods ended April 1, 2022 and April 2, 2021, cash paid for operating leases included in operating cash flows was $ 14 million and $ 16 million, respectively.

Right-of-use assets obtained in exchange for operating lease obligations were $ 2 million and $ 9 million during the three month periods ended April 1, 2022 and April 2, 2021, respectively.

Effect of foreign currency translation and other ( 0.2 )

Balance, July 1, 2022 $ 22.6

Operating lease cost for the three month periods ended July 1, 2022 and July 2, 2021 was $ 14 million and $ 15 million, respectively.

Operating lease cost for the six month periods ended July 1, 2022 and July 2, 2021 was $ 29 million and $ 30 million, respectively.

During the six month periods ended July 1, 2022 and July 2, 2021, cash paid for operating leases included in operating cash flows was $ 26 million and $ 28 million, respectively.

Right-of-use assets obtained in exchange for operating lease obligations were $ 6 million and $ 13 million during the six month periods ended July 1, 2022 and July 2, 2021, respectively.

Operating lease right-of-use assets and operating lease liabilities are reported on the Consolidated Condensed Balance Sheets within Other assets, Accrued expenses and other current liabilities and Other long-term liabilities, respectively.

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Diluted EPS is similarly calculated, except that the calculation includes the dilutive effect of the assumed conversion of Convertible Notes and associated issuance of shares under the if-converted method and the assumed issuance of shares under stock-based compensation plans under the treasury stock method, except where the inclusion of such shares would have an anti-dilutive impact.

Anti-dilutive options excluded from the diluted EPS calculation for the three month periods ended April 1, 2022 and April 2, 2021 were 3.1 million and 0.1 million, respectively.

Anti-dilutive options excluded from the diluted EPS calculation for the three and six month periods ended July 1, 2022 were 7.7 million and 7.5 million, and were immaterial and 0.2 million for the three and six month periods ended July 2, 2021, respectively.

As described in Note 5, upon conversion of the Convertible Notes, holders were entitled to receive cash, shares of our common stock, or a combination thereof, at our election.

As described in Note 1, prior to our adoption of ASU 2020-06 on January 1, 2022, we accounted for the conversion feature under the treasury stock method in our calculation of EPS since we intended and had the ability to settle such conversions through cash up to the principal amount of the Convertible Notes and, if applicable, through shares of our common stock for conversion value, if any, in excess of the principal amount of the Convertible Notes.

Because the fair value of our common stock was below the conversion price, the Convertible Notes had no impact on our earnings per share for the three month period ended April 2, 2021.

Because the fair value of our common stock was below the conversion price, the Convertible Notes had no impact on our earnings per share for the six month period ended July 2, 2021.

Upon adopting ASU 2020-06 on January 1, 2022, we accounted for the Convertible Notes under the if-converted method in our calculation of diluted EPS, as required under the new guidance.

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These payments were recorded as a reduction to additional paid-in capital.

The impact of the MCPS calculated under the if-converted method was anti-dilutive for the three months ended April 2, 2021.

The impact of the MCPS calculated under the if-converted method was anti-dilutive for the periods in 2021 prior to conversion.

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

April 1, 2022 April 2, 2021

Three Months Ended Six Months Ended

July 1, 2022 July 2, 2021 July 1, 2022 July 2, 2021

Net earnings from continuing operations $ 173.0 $ 182.0 $ 338.1 $ 293.7

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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.

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.

Common Share Amount

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First quarter $ 0.07 $ 25.1 $ — $ —

Second quarter 0.07 24.9 — —

Total $ 0.14 $ 50.0 $ — $ —

First quarter $ 0.07 $ 23.7 $ 12.5 $ 17.3

Second quarter 0.07 23.7 12.5 $— 17.2

Total $ 0.14 $ 47.4 $ 25.0 $ 34.5

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

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.

Share Repurchase Program

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The repurchase program may be suspended or discontinued at any time by the Board of Directors.

As of April 1, 2022, there were 19.0 million shares remaining for repurchase under the program.

As of July 1, 2022, there were 16.0 million shares remaining for repurchase under the program.

SEGMENT INFORMATION

We report our results in three separate business segments consisting of Intelligent Operating Solutions, Precision Technologies, and Advanced Healthcare Solutions.

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

Operating profit amounts in the Other category consist of unallocated corporate costs and other costs not considered part of our evaluation of reportable segment operating performance.

We provide differentiated instrumentation and sensors, software and services to address our customers’ toughest workflow challenges.

We provide our customers with electrical test and measurement instruments and services, energetic material devices, and a broad portfolio of sensor and control system solutions.

Our Advanced Healthcare Solutions segment supplies critical workflow solutions to hospitals and other healthcare customers, enabling safer, more efficient, and higher quality healthcare.

Our chief operating decision maker (“CODM”) assesses performance and allocates resources based on our operating segments, which are also our reportable segments.

Operating profit amounts in the Other category and Russia exit and wind down costs consist of unallocated corporate costs and other costs not utilized or reviewed by our CODM at a segment level in evaluating segment operating performance.

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

Three Months Ended

April 1, 2022 April 2, 2021

Three Months Ended Six Months Ended

July 1, 2022 July 2, 2021 July 1, 2022 July 2, 2021

Intelligent Operating Solutions $ 630.1 $ 541.8 $ 1,217.7 $ 1,052.7

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Other ( 24.8 ) ( 30.6 ) ( 48.9 ) ( 55.9 )

Russia exit and wind down costs ( 16.2 ) — ( 16.2 ) —

Total Operating Profit 232.3 211.3 444.6 408.9

2 unchanged sentences

Gain on investment in Vontier Corporation — — — 57.0

Gain on litigation resolution — 26.0 — 26.0

Other non-operating expense, net ( 3.1 ) ( 4.6 ) ( 5.8 ) ( 7.9 )

1 unchanged sentence

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