What changed in this filing

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Item 1. Financial Statements

2022-10-26 compared with 2022-07-28 · 150 added, 99 removed, 569 unchanged (30% of the section changed)

3 unchanged sentences

($ in millions, except per share amounts)

July 1, 2022 December 31, 2021

September 30, 2022 December 31, 2021

Current assets:

7 unchanged sentences

Total current assets 2,447.9 2,514.9

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

Property, plant and equipment, net of accumulated depreciation of $ 740.6 and $ 679.0 at September 30, 2022 and December 31, 2021, respectively

Other assets 494.2 512.9

12 unchanged sentences

Preferred stock:

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

$ 0.01 par value, 15.0 million shares authorized and no shares issued or outstanding at September 30, 2022 and December 31, 2021

Common stock:

1 unchanged sentence

361.4 and 360.4 million issued;

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

353.8 and 359.1 million outstanding at September 30, 2022 and December 31, 2021, respectively

Additional paid-in capital 3,677.4 3,670.0

10 unchanged sentences

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

Three Months Ended Six Months Ended

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

Three Months Ended Nine Months Ended

September 30, 2022 October 1, 2021 September 30, 2022 October 1, 2021

Sales of products and software $ 1,227.7 $ 1,107.1 $ 3,609.8 $ 3,320.3

40 unchanged sentences

($ in millions)

Three Months Ended Six Months Ended

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

Three Months Ended Nine Months Ended

September 30, 2022 October 1, 2021 September 30, 2022 October 1, 2021

Net earnings $ 189.9 $ 152.3 $ 528.0 $ 443.4

8 unchanged sentences

($ and shares in millions)

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

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

Comprehensive

Income (Loss) Noncontrolling

Shares Outstanding Amount Shares Amount

Loss Noncontrolling

Shares Amount Shares Outstanding Amount

Balance, December 31, 2021 — $ — 359.1 $ 3.6 $ 3,670.0 $ — $ 6,023.6 $ ( 185.0 ) $ 4.8

17 unchanged sentences

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

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

Net earnings for the period — — — — — — 189.9 $ — $ —

Dividends to common shareholders — — — — — — ( 24.8 ) — —

Other comprehensive income (loss) — — — — — — — ( 111.6 ) —

Common stock-based award activity — — 0.2 — 28.3 — — — —

Common stock repurchases — — ( 2.0 ) — — ( 133.2 ) — — —

Shares withheld for taxes — — — — ( 2.1 ) — — — —

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

Balance, September 30, 2022 — $ — 353.8 $ 3.6 $ 3,677.4 $ ( 376.1 ) $ 6,539.6 $ ( 453.7 ) $ 4.9

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

Comprehensive

Income (Loss) Noncontrolling

Shares Outstanding Amount Shares Amount

Loss Noncontrolling

Shares Amount Shares Outstanding Amount

Balance, December 31, 2020 1.4 $ — 339.0 $ 3.4 $ 3,554.5 $ — $ 5,547.4 $ ( 141.1 ) $ 8.5

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

Net earnings for the period — — — — — — 152.3 — —

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

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

Common stock-based award activity — — 0.2 — 27.6 — — — —

Shares withheld for tax — — — — ( 1.6 ) — — — —

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

Balance, October 1, 2021 — $ — 358.6 $ 3.6 $ 3,624.3 $ — $ 5,883.7 $ ( 192.1 ) $ 4.8

See the accompanying Notes to Consolidated Condensed Financial Statements.

2 unchanged sentences

($ in millions)

Six Months Ended

July 1, 2022 July 2, 2021

Nine Months Ended

September 30, 2022 October 1, 2021

Cash flows from operating activities:

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Stock-based compensation expense 67.9 55.2

Russia exit and wind down costs 9.2 —

Loss on extinguishment of debt — 104.2

1 unchanged sentence

Gain on litigation resolution — ( 26.0 )

Russia exit and wind down costs 9.2 —

Change in trade accounts receivable, net ( 21.4 ) ( 20.4 )

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Payments for additions to property, plant and equipment ( 59.7 ) ( 28.0 )

Proceeds from sale of business 6.6 —

All other investing activities — 1.1

1 unchanged sentence

Cash flows from financing activities:

Proceeds from borrowings (maturities greater than 90 days), net of issuance costs 396.9 —

Net proceeds from commercial paper borrowings 381.3 215.0

Payment of 0.875 % convertible senior notes due 2022

( 1,156.5 ) —

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 )

Repurchase of common shares ( 376.1 ) —

Payment of common stock cash dividend to shareholders ( 74.8 ) ( 72.6 )

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

Payment of mandatory convertible preferred stock cash dividend to shareholders — ( 34.5 )

Repurchase of common shares ( 242.9 ) —

All other financing activities ( 9.2 ) 18.1

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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 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.

In our opinion, the accompanying financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to fairly present our financial position as of September 30, 2022 and December 31, 2021, our results of operations, comprehensive income, and stockholders’ equity for the three and nine month periods ended September 30, 2022 and October 1, 2021, and cash flows for the nine month periods ended September 30, 2022 and October 1, 2021.

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

Additionally, in the fourth quarter of 2021, Fortive adopted ASU No.

2021-08, Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.

The amendments in this update required that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, rather than at fair value as previously required under Topic 805.

The amendments have been applied to all business combinations that occurred on or after January 1, 2021.

The adoption only impacted the ServiceChannel acquisition which occurred in Q3 2021.

Amounts previously reported for the three and nine month periods ended October 1, 2021 were retroactively adjusted to reflect a $ 1.5 million increase in both revenue and earnings as a result of the adoption of this pronouncement.

Vontier Separation and Discontinued Operations

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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.

In the three and nine month periods ended September 30, 2022, the Company recorded pre-tax charges of $ 1.1 million and $ 17.3 million, respectively, primarily relating to the write-off of net assets, the write-off of the cumulative translation adjustment in earnings for legal entities deemed substantially liquidated, and to record provisions for employee severance and legal contingencies.

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

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subsidiaries.

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.

During the second quarter of 2022, we designated our ¥ 14.4 billion Yen-denominated variable interest rate term loan and our € 275 million Euro-denominated variable interest rate term loan outstanding as net investment hedges of our investment in certain foreign operations.

During the three and nine month periods ended September 30, 2022, we recognized after-tax foreign currency transaction gains of $ 14.6 million and $ 18.3 million, respectively, on the debt that were deferred in the foreign currency translation component of Accumulated other comprehensive income (loss) (“AOCI”) as an offset to the foreign currency translation adjustments on our investments in foreign subsidiaries.

Any amounts deferred in AOCI will remain until the hedged investment is sold or substantially liquidated.

We recorded no ineffectiveness from our net investment hedges during the three and six month periods ended July 1, 2022.

We recorded no ineffectiveness from our net investment hedges during the three and nine month periods ended September 30, 2022.

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

adjustments Pension

adjustments (a)

For the Three Months Ended July 1, 2022:

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

adjustments Pension adjustments (a)

For the Three Months Ended September 30, 2022:

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

Other comprehensive income (loss) before reclassifications, net of income taxes ( 112.4 ) — ( 112.4 )

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Net current period other comprehensive income (loss), net of income taxes ( 112.4 ) 0.8 ( 111.6 )

Balance, September 30, 2022 $ ( 393.1 ) $ ( 60.6 ) $ ( 453.7 )

For the Three Months Ended October 1, 2021:

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

For the Three Months Ended July 2, 2021:

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

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

4 unchanged sentences

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

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

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

adjustments Pension adjustments (a)

For the Six Months Ended July 1, 2022:

For the Nine Months Ended September 30, 2022:

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

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Net current period other comprehensive income (loss) ( 270.4 ) 1.7 ( 268.7 )

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

For the Six Months Ended July 2, 2021:

Balance, September 30, 2022 $ ( 393.1 ) $ ( 60.6 ) $ ( 453.7 )

For the Nine Months Ended October 1, 2021:

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

5 unchanged sentences

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

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

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

(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 roll forward of the aggregated allowance for credit losses related to our trade accounts receivables as of July 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 September 30, 2022 ($ in millions):

Balance, December 31, 2021 $ 39.7

2 unchanged sentences

Foreign currency exchange and other ( 1.4 )

Balance, July 1, 2022 $ 37.9

Balance, September 30, 2022 $ 41.5

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

11 unchanged sentences

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 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 applied the if-converted method to all convertible instruments when calculating EPS for the nine months ended September 30, 2022.

As of September 30, 2022, we had no convertible instruments outstanding subject to the guidance in ASU 2020-06.

ACQUISITIONS AND DIVESTITURES

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

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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 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.

During the three and nine month periods ended September 30, 2022, insignificant adjustments were made to the purchase price allocation of prior year acquisitions, which are shown in Note 3.

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

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The acquisition of ServiceChannel broadens our offering of software-enabled solutions for the facility and asset lifecycle workflow.

The total consideration paid was approximately $ 1.2 billion, net of acquired cash, and included approximately $ 28 million of deferred compensation consideration that is being recognized ratably over a twelve month service period.

The total consideration paid was approximately $ 1.2 billion, net of acquired cash, and included approximately $ 28 million of deferred compensation consideration that was recognized ratably over a twelve month service period.

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

We recorded approximately $ 868 million of goodwill related to the acquisition, which is not tax deductible.

ServiceChannel had revenue in 2020 of approximately $ 70 million and is an operating company within our Intelligent Operating Solutions segment.

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):

ServiceChannel

had revenue in 2020 of approximately $ 70 million and is an operating company within our Intelligent Operating Solutions segment.

Revenue and operating losses attributable to the Provation and ServiceChannel acquisitions were $ 198.0 million and $ 38.0 million for the nine month period ended September 30, 2022.

The operating losses include $ 57.9 million of intangible asset amortization and $ 18.8 million of transaction and integration costs, which were primarily comprised of employee compensation and retention costs and amounts paid to third party advisors, and are recorded in Selling, general and administration expenses, respectively.

The following table summarizes the estimated fair value of the assets acquired and liabilities assumed from ServiceChannel and Provation as of September 30, 2022 ($ in millions):

Provation ServiceChannel Total

6 unchanged sentences

Net cash consideration $ 1,404.7 $ 1,166.3 $ 2,571.0

On September 30, 2022, we completed the sale of our Therapy Physics product line, which was reported in our Advanced Healthcare Solutions segment, to an unrelated third party for total consideration of $ 9.6 million.

As a result of the sale, in the three and nine month periods ended September 30, 2022, we recorded a net realized pre-tax gain totaling $ 2.3 million, net of transaction costs, which is recorded as “Other non-operating expense, net” in the Consolidated Condensed Statements of Earnings.

The divested business accounted for less than 1.0 % of total revenue and less than 1.0 % of total assets for the fiscal year ended December 31, 2021.

The divestiture of this product line did not represent a strategic shift with a major effect on the Company’s operations and financial results and therefore the divested product line is not reported as a discontinued operation.

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

2 unchanged sentences

Measurement period adjustments for 2021 acquisitions ( 5.9 ) — 8.4 2.5

Attributable to 2022 acquisitions and divestitures — 0.7 ( 2.6 ) ( 1.9 )

Foreign currency translation and other ( 79.1 ) ( 57.7 ) ( 38.3 ) ( 175.1 )

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

Balance, September 30, 2022 $ 4,041.0 $ 1,783.0 $ 3,153.5 $ 8,977.5

FAIR VALUE MEASUREMENTS

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(Level 3) Total

September 30, 2022

Deferred compensation liabilities $ — $ 29.7 $ — $ 29.7

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Changes in the deferred compensation liability under these programs are recognized based on changes in the fair value of the participants’ accounts, which are based on the applicable earnings rates.

Nonrecurring Fair Value Measurements

Non-recurring Fair Value Measurements

Certain non-financial assets, primarily property, plant, and equipment, goodwill, and intangible assets, are not required to be measured at fair value on a recurring basis and are reported at their carrying value.

However, these assets are required to be assessed for impairment whenever events or circumstances indicate that their carrying value may not be fully recoverable, and at least annually for goodwill and indefinite-lived intangible assets.

We evaluated events 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.

We evaluated events and circumstances that, as of September 30, 2022, indicated the carrying value of an equity investment in a third-party entity held by our Intelligent Operating Solutions segment was no longer recoverable.

As a result, in the three and nine month periods ended September 30, 2022, we recorded a pre-tax impairment loss of $ 8.1 million to write down the investment to fair value.

The loss was recorded in “Other non-operating expense, net” in our Consolidated Condensed Statement of Earnings.

Fair Value of Financial Instruments

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

July 1, 2022 December 31, 2021

September 30, 2022 December 31, 2021

Carrying Amount Fair Value Carrying Amount Fair Value

1 unchanged sentence

Long-term debt, net of current maturities 2,559.0 2,381.0 1,807.3 1,978.9

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.

As of September 30, 2022 and December 31, 2021, the current portion of long-term debt and long-term debt, net of current maturities were categorized as Level 1.

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

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

July 1, 2022 December 31, 2021

September 30, 2022 December 31, 2021

dollar-denominated commercial paper $ 747.3 $ 364.9

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Long-term debt, net of current maturities $ 2,559.0 $ 1,807.3

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.

Aggregate unamortized debt discounts, premiums, and issuance costs of $ 8.1 million and $ 13.0 million as of September 30, 2022 and December 31, 2021, respectively, are netted against the principal amounts of the components of debt in the table above.

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

1 unchanged sentence

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.

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

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

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

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

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

Euro Term Loan

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

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

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

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

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On February 9, 2021, we repurchased $ 281 million of the Convertible Notes at fair value using the remaining cash proceeds received from Vontier in the Vontier Separation and other cash on hand.

In connection with the repurchase, we recorded a loss on debt extinguishment during the six month period ended July 2, 2021 of $ 10.5 million.

In connection with the repurchase, we recorded a loss on debt extinguishment during the nine month period ended October 1, 2021 of $ 10.5 million.

In addition, upon repurchase we recorded $ 11.6 million as a reduction to additional paid-in capital related to the equity component of the repurchased Convertible Notes.

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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 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.

We recognized $ 2.1 million in interest expense during the nine month period ended September 30, 2022, of which $ 1.3 million was related to the contractual coupon rate of 0.875 % and $ 0.8 million was attributable to the amortization of debt issuance costs for each respective period.

We recognized $ 11.1 million and $ 34.5 million in interest expense during the three and nine month period ended October 1, 2021, of which $ 2.5 million and $ 7.9 million was related to the contractual coupon rate of 0.875 %, $ 1.5 million and $ 4.7 million was attributable to the amortization of debt issuance costs, and $ 7.1 million and $ 21.9 million was attributable to the amortization of the discount for each respective period.

Other Liquidity Sources

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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 July 1, 2022 were as follows ($ in millions):

The details of our outstanding Commercial Paper Programs as of September 30, 2022 were as follows ($ in millions):

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

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

As of September 30, 2022, no borrowings were outstanding under the Revolving Credit Facility.

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

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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 six month period ended July 2, 2021.

We recorded a loss on extinguishment of the debt included in the Debt-for-Equity Exchange of $ 94.4 million in the nine month period ended October 1, 2021.

Subsequent Events

On October 18, 2022, we entered into a second amended and restated credit agreement (the “Amended and Restated Credit Agreement”) extending the availability period of the Revolving Credit Facility to October 18, 2027 with an additional two one year extension options at our request and with the consent of the lenders.

The Amended and Restated Credit Agreement also contains an option permitting us to request an increase in the amounts available under the Revolving Credit Facility of up to an aggregate additional $ 1.0 billion.

We are obligated to pay an annual facility fee for the Revolving Credit Facility of between 6.5 and 15 basis points varying according to our long-term debt credit rating.

Borrowings under the new Revolving Credit Facility in U.S Dollars bear interest at a rate equal, at our option, to either (1) Term Secured Overnight Financing Rate (“Term SOFR”), plus a 10 basis points Credit Spread Adjustment (“CSA”) plus a margin of between 68.5 and 110.0 basis points, depending on our long-term debt credit rating or (2) the highest of (a) the Federal funds rate plus 50 basis points, (b) the prime rate, (c) Term SOFR plus 100 basis points and (d) 1.0 %, plus in each case a margin between zero and 10 basis points depending on our long-term debt credit rating.

In addition, beginning with our 2023 performance relative to our annual greenhouse gas reduction targets, the interest rate on any borrowings can increase or decrease by 4.0 basis points and the facility fee can increase or decrease by 1.0 basis points, for a maximum impact of an increase or decrease of 5.0 basis points.

The Amended and Restated Credit Agreement requires us to maintain a consolidated net leverage ratio of debt to consolidated EBITDA (as defined in the Credit Agreement) of less than 3.5 to 1.0.

The maximum consolidated net leverage ratio will be increased to 4.0 to 1.0 for the four consecutive full fiscal quarters immediately following the consummation of any acquisition by us in which the purchase price exceeds $ 250 million.

The Amended and Restated Credit Agreement also contains customary representations, warranties, conditions precedent, events of default, indemnities, and affirmative and negative covenants.

On October 18, 2022, we entered into a $ 1.0 billion delayed-draw senior unsecured term facility (“Delayed-Draw Term Loan Due 2023”).

We intend to use proceeds of the Delayed-Draw Term Loan Due 2023 to repay the outstanding principal balance of the Delayed-Draw Term Loan Due 2022, which matures in December 2022.

The Delayed-Draw Term Loan Due 2023 bears interest at a variable rate equal to Term SOFR plus a CSA of 10 basis points plus a spread of 82.5 basis points at our current credit rating.

Borrowing under the Term Loan Due 2023 are prepayable at our option in whole or in part without premium or penalty and amounts borrowed may not be reborrowed once repaid.

Credit support for the Commercial Paper Program will continue to be provided by the Amended and Restated Credit Agreement.

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

Contract assets were $ 84 million as of September 30, 2022 and $ 71 million as of December 31, 2021.

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

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

As of 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 .

As of September 30, 2022 and December 31, 2021, we had $ 37 million and $ 27 million, respectively, in net revenue-related contract costs primarily related to certain software contracts.

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

These assets have estimated useful lives between three and eight years .

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

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

July 1, 2022 December 31, 2021

September 30, 2022 December 31, 2021

Deferred revenue - current $ 472.2 $ 457.6

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Total contract liabilities $ 507.4 $ 491.4

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.

During the three and nine month period ended September 30, 2022, we recognized revenue related to our contract liabilities at December 31, 2021 of $ 63 million and $ 319 million, respectively.

The change in our contract liabilities from December 31, 2021 to September 30, 2022 was primarily due to the timing of billings and recognition as revenue of subscription-based software contracts, PCS and extended warranty services.

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):

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

September 30, 2022

Intelligent Operating Solutions $ 584.2

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We disaggregate revenue from contracts with customers by sales of products and software and services, geographic location, and end market for each of our segments, as we believe it best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors.

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

Disaggregation of revenue for the three month period ended September 30, 2022 is presented as follows ($ in millions):

Total Intelligent Operating Solutions Precision Technologies Advanced Healthcare Solutions

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

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

Total Intelligent Operating Solutions Precision Technologies Advanced Healthcare Solutions

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

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

Disaggregation of revenue for the nine month period ended September 30, 2022 is presented as follows ($ in millions):

Total Intelligent Operating Solutions Precision Technologies Advanced Healthcare Solutions

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

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

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

Total Intelligent Operating Solutions Precision Technologies Advanced Healthcare Solutions

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

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.

Our effective tax rates for the three and nine month periods ended September 30, 2022 were 12.7 % and 14.4 %, respectively, as compared to 13.1 % and 11.1 %, respectively, for the three and nine month periods ended October 1, 2021.

The year-over-year decrease in the effective tax rate for the three month period ended September 30, 2022 was relatively consistent as compared to the three month period ended October 1, 2021.

The year-over-year increase in the effective tax rate for the nine month period ended September 30, 2022 as compared to the nine month period ended October 1, 2021 was primarily due to a non-recurring permanent difference on the Q1 2021 gain on our Retained Vontier Shares as a result of the tax-free treatment of our disposition of the shares through the Debt-for-Equity Exchange and the effect of Russia exit including wind down costs for which no tax benefit was recognized.

Our effective tax rate for the three and nine month periods ended September 30, 2022 differs from the U.S.

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

federal permanent differences, the impacts of credits and deductions provided by law, an increase to in our uncertain tax positions relating to higher interest rates, and the effect of Russia exit and wind down costs for which no tax benefit was recognized.

On August 16, 2022, the U.S.

enacted the Inflation Reduction Act of 2022, which, among other provisions, implements a 15% corporate alternative minimum tax on book income on corporations whose average annual adjusted financial statement income during the most recently-completed three-year period exceeds $1.0 billion, a 1% excise tax on net stock repurchases, and several tax incentives to promote clean energy.

This provision is effective for tax years beginning after December 31, 2022.

Based on our current analysis of the provisions, we do not believe this legislation will have a material impact on our consolidated financial statements.

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

As of September 30, 2022, approximately 16 million shares of our common stock were available for subsequent issuance under the Stock Plan.

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

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

Three Months Ended Six Months Ended

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

Three Months Ended Nine Months Ended

September 30, 2022 October 1, 2021 September 30, 2022 October 1, 2021

Stock Awards:

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Total stock-based compensation expense, net of income taxes $ 18.9 $ 15.0 $ 56.8 $ 45.5

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

The following summarizes the unrecognized compensation cost for the Stock Plan awards as of September 30, 2022.

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

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Effect of foreign currency translation and other ( 0.4 )

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.

Balance, September 30, 2022 $ 23.0

Operating lease cost for the three month periods ended September 30, 2022 and October 1, 2021 was $ 13 million and $ 15 million, respectively.

Operating lease cost for the nine month periods ended September 30, 2022 and October 1, 2021 was $ 42 million and $ 45 million, respectively.

During the nine month periods ended September 30, 2022 and October 1, 2021, cash paid for operating leases included in operating cash flows was $ 38 million and $ 40 million, respectively.

Right-of-use assets obtained in exchange for operating lease obligations were $ 18 million and $ 24 million during the nine month periods ended September 30, 2022 and October 1, 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 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.

Anti-dilutive options excluded from the diluted EPS calculation for the three and nine month periods ended September 30, 2022 were both 7.3 million, and were 0.2 million and 0.3 million for the three and nine month periods ended October 1, 2021, respectively.

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

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

Because the fair value of our common stock was below the conversion price, the Convertible Notes had no impact on our earnings per share for the six month period ended July 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 nine month period ended October 1, 2021.

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

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

Three Months Ended Six Months Ended

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

Three Months Ended Nine Months Ended

September 30, 2022 October 1, 2021 September 30, 2022 October 1, 2021

Net earnings from continuing operations $ 189.9 $ 152.6 $ 528.0 $ 446.3

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Second quarter 0.07 24.9 — —

Third quarter 0.07 24.8 — —

Total $ 0.21 $ 74.8 $ — $ —

1 unchanged sentence

Second quarter 0.07 23.7 12.5 17.2

Third quarter 0.07 25.2 — —

Total $ 0.21 $ 72.6 $ 25.0 $ 34.5

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

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

As of September 30, 2022, there were 14.0 million shares remaining for repurchase under the program.

SEGMENT INFORMATION

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

Three Months Ended Six Months Ended

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

Three Months Ended Nine Months Ended

September 30, 2022 October 1, 2021 September 30, 2022 October 1, 2021

Intelligent Operating Solutions $ 613.7 $ 536.9 $ 1,831.4 $ 1,589.6

16 unchanged sentences

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