What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-04-26 compared with 2022-10-26 · 159 added, 255 removed, 200 unchanged (67% of the section changed)

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We are headquartered in Everett, Washington and employ a team of more than 18,000 research and development, manufacturing, sales, distribution, service, and administrative employees in more than 50 countries around the world.

On October 9, 2020, we completed the separation of Vontier Corporation (“Vontier”), the entity we created to hold our former Industrial Technologies segment (the “Separation”).

The accounting requirements for reporting the Vontier business as a discontinued operation were met when the Separation was completed.

Accordingly, the consolidated condensed financial statements reflect the results of separation activities associated with the prior Vontier business as a discontinued operation, which was immaterial for all periods presented.

On January 19, 2021, we completed an exchange (the “Debt-for-Equity Exchange”) of 33.5 million shares of common stock of Vontier, representing all of the Retained Vontier Shares, for $1.1 billion in aggregate principal amount of indebtedness of the Company held by Goldman Sachs & Co.

Interest expense and extinguishment costs related to the Debt-for-Equity Exchange during the first quarter of 2021 are included in continuing operations.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is designed to provide a reader of our financial statements with a narrative from the perspective of management.

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new or modified laws, regulations and accounting pronouncements;

impact of climate-related events or transition activities;

outstanding claims, legal proceedings, tax audits and assessments and other contingent liabilities;

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impact of changes to tax laws;

general economic and capital markets conditions;

general economic and capital markets conditions, including impact of inflation or interest rate changes;

impact of geopolitical events, including the impact of Ukraine/Russia conflict and other hostilities;

the timing of any of the foregoing;

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Forward-looking statements are based on assumptions and assessments made by our management in light of their experience and perceptions of historical trends, current conditions, expected future developments, and other factors they believe to be appropriate.

Forward-looking statements are not guarantees of future performance and actual results may differ materially from

the results, developments and business decisions contemplated by our forward-looking statements.

Forward-looking statements are not guarantees of future performance and actual results may differ materially from the results, developments and business decisions contemplated by our forward-looking statements.

Accordingly, you should not place undue reliance on any such forward-looking statements.

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Risk Related to Our Business Operations

• Conditions in the global economy, the markets we serve, and the financial markets and banking systems may adversely affect our business and financial statements.

• If we cannot adjust our manufacturing capacity, supply chain management or the purchases required for our manufacturing activities to reflect changes in market conditions, customer demand and supply chain or transportation disruptions, our profitability may suffer.

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• Our financial results are subject to fluctuations in the cost and availability of commodities or components that we use in our operations.

• Conditions in the global economy, the markets we serve, and the financial markets may adversely affect our business and financial statements.

• The effect of the COVID-19 pandemic, including the corresponding government-mandated mitigation efforts, on our global operations and the operations of our customers, suppliers, and vendors has had and may continue to have a material, adverse impact on our business and results of operations.

• The spread of, and the remedial efforts related to, COVID-19 in certain key jurisdictions on supply chain, labor force, and the operations of our customers, suppliers, and vendors are continuing to have an adverse impact on our business and results of operations.

• Our growth could suffer if the markets into which we sell our products and services decline, do not grow as anticipated, or experience cyclicality.

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Risk Related to our International Operations

• International economic, political, legal, compliance, and business factors including, but not limited to, the impact of the invasion of Ukraine by Russia and the corresponding sanctions and supply chain disruptions, could negatively affect our financial statements.

• International economic, political, legal, compliance, and business factors could negatively affect our financial statements.

• Trade relations between China and the United States could have a material adverse effect on our business and financial statements.

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• Divestitures or other dispositions could negatively impact our business, and contingent liabilities from businesses that we have sold could adversely affect our financial statements.

• Potential indemnification liabilities to Vontier pursuant to the separation agreement could materially and adversely affect our businesses, financial condition, results of operations, and cash flows.

• Potential indemnification liabilities to Vontier Corporation (“Vontier”) pursuant to the separation agreement could materially and adversely affect our businesses, financial condition, results of operations, and cash flows.

Risk Related to Regulatory and Compliance Matters

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failure to comply with those regulations could adversely affect our financial statements and reputation.

• Climate change, or related governmental initiatives, including legal or regulatory measures, may negatively affect us.

Risk Related to Our Tax and Accounting Matters

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In addition, audits by tax authorities could result in additional tax payments for prior periods.

• We could incur significant liability if any of our separation from Danaher, our separation of our Automation and Specialty business or our separation of Vontier (collectively, the “Separation Transactions”) is determined to be a taxable transaction .

• We could incur significant liability if our separation from Danaher, our separation of our Automation and Specialty business or our separation of Vontier (collectively, the “Separation Transactions”) are determined to be a taxable transaction.

• Changes in U.S.

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Risk Related to Our Financing Activities

• We have incurred a significant amount of debt, and our debt obligations, including the cost of such debt, will increase further if we incur additional debt and do not retire existing debt, or if the applicable interest rates continue to rise.

Risk Related to Shareholder Rights

• Certain provisions in our amended and restated certificate of incorporation and bylaws, and of Delaware law, may prevent or delay an acquisition of our company, which could decrease the trading price of our common stock.

• Our amended and restated certificate of incorporation designates the state courts in the State of Delaware or, if no state court located within the State of Delaware has jurisdiction, the federal court for the District of Delaware, as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our shareholders, which could discourage lawsuits against us and our directors and officers.

• We have incurred a significant amount of debt, and our debt obligations, including the cost of such debt, will increase further if we incur additional debt and do not retire existing debt, our credit rating declines, or if the applicable interest rates rise.

See “Item 1A.

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We do not assume any obligation to update or revise any forward-looking statement, whether as a result of new information, future events and developments or otherwise.

Fortive is a multinational business with global operations with approximately 49% of our sales derived from customers outside of the United States in 2021.

Fortive is a multinational business with global operations with approximately 46% of our sales derived from customers outside the United States in 2022.

As a company with global operations, our businesses are affected by worldwide, regional, and industry-specific economic and political factors.

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We are making significant investments, organically and through acquisitions, to address technological change in the markets we serve and to improve our manufacturing, research and development, and customer-facing resources in order to be responsive to our customers throughout the world.

Provation Acquisition

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

(“Provation”), a privately held, leading provider of clinical workflow software solutions used in hospitals and ambulatory surgery centers.

The acquisition of Provation extends our digital offering and software capabilities in the healthcare space.

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

We preliminarily recorded $977 million of goodwill related to the acquisition, which is not tax deductible.

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

ServiceChannel Acquisition

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

(“ServiceChannel”), a privately held, global provider of Software as a Service (“SaaS”) based multi-site facilities maintenance service solutions with an integrated service-provider network.

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

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

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

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

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

Vontier Separation

On October 9, 2020, we completed the Separation.

The accounting requirements for reporting the Vontier business as a discontinued operation were met when the Separation was completed.

Accordingly, the consolidated condensed financial

statements reflect the results of separation activities associated with the prior Vontier business as a discontinued operation, which was immaterial for all periods presented.

On January 19, 2021, we completed the Debt-for-Equity Exchange of 33.5 million shares of common stock of Vontier, representing all of the Vontier common stock retained by the Company immediately following the Separation (the “Retained Vontier Shares”), for $1.1 billion in aggregate principal amount of indebtedness of the Company held by Goldman Sachs & Co.

Interest expense and extinguishment costs related to the Debt-for-Equity Exchange during the first quarter of 2021 are included in continuing operations.

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

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

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

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

Russia Ukraine Conflict

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

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

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

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

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

Segment Presentation

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

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

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

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

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

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

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

Our Intelligent Operating Solutions segment provides advanced instrumentation, software and services to tens of thousands of customers enabling their mission-critical workflows.

These offerings include electrical test & measurement, facility and asset lifecycle software applications, connected worker safety and compliance solutions across a range of vertical end markets, including manufacturing, process industries, healthcare, utilities and power, communications and electronics, among others.

Typical users of these safety, productivity and sustainability solutions include electrical engineers, electricians, electronic technicians, EHS professionals, network technicians, facility managers, first-responders, and maintenance professionals.

Our Precision Technologies segment helps solve tough technical challenges to speed breakthroughs in a wide range of applications, from food and beverage production and manufacturing to next-generation electric vehicles and clean energy, as our customers seek new test solutions to enable the electrification and connectivity of everything.

Our expertise in materials, methods and measurements are reflected in our electrical test & measurement, sensing and material technologies offered to a broad set of customers and vertical end markets, including industrial, power and energy, automotive, medical equipment, food and beverage, aerospace and defense, semiconductor, and other general industries.

Customers for these products and services include design engineers for advanced electronic devices and equipment, process and quality engineers focused on improved process capability and productivity, facility maintenance managers driving increased uptime, and other customers for whom precise measurement, reliability, and compliance are critical in their applications.

Our Advanced Healthcare Solutions segment supplies critical workflow solutions enabling healthcare providers to deliver exceptional patient care more efficiently.

Our offerings include instrument sterilization solutions, instrument tracking, cell therapy equipment design and manufacturing, biomedical test tools, radiation detection and safety monitoring, and end-to-end clinical productivity software and solutions.

Our healthcare offerings help ensure critical safety standards are met, instruments and operating rooms are working at peak performance, and complex procedures are followed accurately in these mission-critical healthcare environments.

Non-GAAP Measures

In this report, references to sales from existing businesses refer to sales from operations calculated according to generally accepted accounting principles in the United States (“GAAP”) but excluding (1) the impact from acquired businesses and (2) the impact of currency translation.

References to sales attributable to acquisitions or acquired businesses refer to GAAP sales from acquired businesses recorded prior to the first anniversary of the acquisition and the effect of purchase accounting adjustments, less the amount of sales attributable to certain divested businesses or product lines not considered discontinued operations prior to the first anniversary of the divestiture.

The portion of sales attributable to the impact of currency translation is calculated as the difference between (a) the period-to-period change in sales (excluding sales impact from acquired businesses) and (b) the period-to-period change in sales (excluding sales impact from acquired businesses) after applying the

current period foreign exchange rates to the prior year period.

In this report, references to sales from existing businesses refer to sales from operations calculated according to generally accepted accounting principles in the United States (“GAAP”) but excluding (1) the impact from acquired and divested businesses and (2) the impact of currency translation.

considered discontinued operations prior to the first anniversary of the divestiture.

Sales from existing businesses should be considered in addition to, and not as a replacement for or superior to, sales, and may not be comparable to similarly titled measures reported by other companies.

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Management believes the exclusion of the effect of acquisitions and divestitures and currency translation may facilitate the assessment of underlying business trends and may assist in comparisons of long-term performance.

References to sales volume from existing businesses refer to the impact of both price and unit sales.

Restructuring

We initiated a discrete plan in the first quarter of 2023 focused on improvements in our operational efficiency, which is expected to be completed by December 31, 2023.

The nature of these activities were broadly consistent throughout our segments and consist of targeted workforce reductions and facility consolidations or closures in response to overall macroeconomic and other external conditions.

We incurred these costs to position ourselves to provide superior products and services to customers in a cost-efficient manner, while taking into consideration the impact of broad economic uncertainties.

The total restructuring charges we expect to recognize under this discrete plan are approximately $25 to $30 million, with charges of $17.6 million incurred in the first quarter, which primarily related to employee severance.

These charges are included in Cost of Sales and Selling, general, and administrative expenses in the Consolidated Condensed Statement of Earnings.

Accrued restructuring costs were $13.4 million as of March 31, 2023 and were included within Accrued expenses and other current liabilities in the Consolidated Condensed Balance Sheets.

Business Performance and Outlook

Business Performance For the Period Ended September 30, 2022

We experienced robust demand for our products and services during the three and nine month periods ended September 30, 2022 (“the quarter” or the “third quarter” and “year-to-date period”, respectively).

During the third quarter and year-to-date period, and despite challenging macroeconomic and supply chain conditions, year-over-year sales increased 11.9% and 10.7%, respectively, with contributions from both existing and newly acquired businesses, all partially offset by unfavorable changes in foreign exchange rates.

Sales from existing businesses increased 12.1% and 8.8% during the third quarter and year-to-date periods, respectively, as compared to the comparable periods in 2021, reflecting strong end-market demand for our offerings as well as focused execution on product and service delivery.

Geographically, in the third quarter, year-over-year sales from existing businesses increased low double-digits, with growth driven by low double-digit growth in North America, mid-teens growth in Western Europe and mid-twenties growth in China.

In the year-to-date period, year-over-year sales from existing businesses increased high single digits with high single digit growth in both North America and China, as well as low double-digit growth in Western Europe.

Year-over-year price increases contributed 6.1% and 4.8% to sales growth during the third quarter and year-to-date period, as compared to the comparable periods in 2021 and is reflected as a component of the change in sales from existing businesses.

In both the third quarter and year-to-date period, price increases exceeded inflationary increases that we experienced on purchased materials.

The strengthening of the U.S.

dollar relative to other currencies reduced our sales by 4.0% and 2.9% in the third quarter and year-to-date periods, respectively, when compared to the comparable periods of 2021 and may continue to impact our results in future periods.

Widespread supply chain challenges persisted in the third quarter, impacting the availability of key materials, resulting in higher costs in each of our three segments.

We continue to apply the Fortive Business System (“FBS”) to help mitigate the impact of these challenges and serve our customers.

The COVID-19 pandemic, including mitigation efforts in China, continues to impact our results and creates operating challenges with logistics, material availability and absenteeism.

We anticipate that the disruption caused by the pandemic will continue to impact future periods.

Despite uncertainty in the macro environment, we anticipate increasing demand for our offerings will continue and are projecting sales to grow on a year-over-year basis of approximately 8.5% in the fourth quarter and approximately 10.0% for the full year.

We anticipate sales growth on a year-over-year basis from existing businesses will be approximately 11.0% for the fourth quarter and approximately 9.5% for the full year.

We expect that foreign exchanges rates will remain unfavorable to us when compared with the rates in effect in the comparable periods of 2021 and relative to assumptions at the start of 2022.

Additionally, this outlook is subject to various assumptions and risks, including but not limited to the resilience and durability of the economies of the United States and other critical regions, ongoing challenges with global logistics and supply chain including the availability of electronic components, the impact of the COVID-19 pandemic, the impact of the Russia Ukraine Conflict, market conditions in key end product segments, elective surgery rates, and the impact of energy disruption in Europe.

We anticipate that supply chain and inflationary pressures will persist throughout 2022 and that our backlog may remain elevated compared to historical levels.

Business Performance For the Period Ended March 31, 2023

During the three month period ended March 31, 2023 (“the quarter” or the “first quarter”) our sales increased by 6.1% from existing businesses, partially offset primarily by unfavorable movements in foreign exchange rates.

Year-over-year sales from existing businesses increased 8.8%, reflecting continued strong demand across end markets, favorable pricing and focused execution on service and delivery.

Geographically, in the first quarter, year-over-year sales from existing businesses in developed markets increased mid-single-digit, with growth driven by mid-single-digit growth in North America and high single-digit growth in Western Europe.

Sales from existing businesses in high growth markets increased year-over-year in the first quarter at a high-teens rate, driven by low thirties growth in China and low double-digit growth in Latin America.

In addition to increased volumes, year-over-year price increases contributed 4.6% to sales growth during the quarter, as compared to the comparable period in 2022 and is reflected as a component of the change in sales from existing businesses.

In the first quarter, price increases exceeded inflation impacts on purchased materials.

Supply chain issues persisted in the quarter, resulting in lingering challenges with logistics, material availability and absenteeism.

We continue to apply the Fortive Business System (“FBS”) to help mitigate the impact of these challenges and to serve our customers.

We anticipate that the disruptions which began with the pandemic will continue to impact future periods.

We anticipate revenue growth to be between 1.5% and 3.5% for the second fiscal quarter of 2023, and 3.0% and 4.5% for the full 2023 fiscal year.

We anticipate growth from existing businesses to be between 2.5% and 4.5% for the second quarter and 4.0% and 5.5% for the full year.

We expect that foreign exchange rates will remain volatile throughout the year and could create unfavorable results relative to foreign exchange rates in 2022.

Additionally, this outlook is subject to various assumptions and risks, including but not limited to the resilience and durability of the economies of the United States and other critical regions, ongoing challenges with global logistics and supply chains including the availability of electronic components, inflationary pressures, the impact of the Russia Ukraine Conflict, market conditions in key product segments and elective surgery rates.

We will continue to deploy FBS to actively manage production challenges, collaborate with customers and suppliers to minimize disruptions and utilize price increases and other countermeasures to offset inflationary pressures.

We continue to monitor the macroeconomic and geopolitical conditions which may impact our business, including the COVID-19 pandemic, monetary and fiscal policies, international trade and relations between the U.S., China and other nations, and investment and taxation policy initiatives being considered in the United States and by the Organization for Economic Co-operation and Development (“OECD”).

We continue to monitor the macroeconomic and geopolitical conditions which may impact our business, including the lingering societal impact of the pandemic, continued geopolitical conflict, global inflation, potential adverse global economic trends and sentiments, monetary and fiscal policies, including impact on our cost of capital, the stability of U.S.

and international banking systems, international trade and relations between the U.S., China and other nations, and investment and taxation policy initiatives being considered in the United States and by the Organization for Economic Co-operation and Development (“OECD”).

RESULTS OF OPERATIONS

All of the financial information presented in this Item 2 has been adjusted to reflect the retroactive adjustment more fully described in Note 1 to the Consolidated Condensed Financial Statements.

The following table summarizes total aggregate year-over-year sales growth and the components of aggregate year-over-year sales growth during the third quarter and year-to-date periods ended September 30, 2022 as compared to the comparable periods of 2021:

The following table summarizes total aggregate year-over-year sales growth and the components thereof for the first quarter as compared to the comparable period of 2022:

Components of Sales Growth

% Change Three Months Ended September 30, 2022 vs.

Comparable 2021 Period % Change Nine Months Ended September 30, 2022 vs.

% Change Three Months Ended March 31, 2023 vs.

Comparable 2022 Period

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Existing businesses (Non-GAAP) 8.8 %

Acquisitions (Non-GAAP)

Acquisitions and divestitures (Non-GAAP) (0.4) %

Currency exchange rates (Non-GAAP) (2.3) %

Operating Profit Margins

Operating profit margin was 17.3% for the third quarter ended September 30, 2022, an increase of 180 basis points as compared to 15.5% in the comparable period of 2021.

Year-over-year changes in operating profit margin were comprised of the following:

• Year-over-year increase in price and sales volumes from existing businesses, which were partially offset by higher year-over-year employee compensation, freight, logistics and material costs and unfavorable foreign exchange rates — favorable 160 basis points

• The year-over-year effect of amortization from existing businesses — favorable 75 basis points

• The year-over-year net effect of acquisition-related transaction costs which were lower in the third quarter than those recognized during the comparable period in 2021 — favorable 65 basis points

• The year-over-year net effect of acquired businesses, including amortization, and acquisition-related fair value adjustments — unfavorable 110 basis points

• Russia exit and wind down costs that were incurred during the third quarter — unfavorable 10 basis points

Operating profit margin was 16.2% for the year-to-date period ended September 30, 2022, an increase of 40 basis points as compared to 15.8% in the comparable period of 2021.

Operating profit margin was 16.5% for the quarter, yielding an increase of 110 basis points as compared to 15.4% in the comparable period of 2022.

Year-over-year changes in operating profit margin were comprised of the following:

• Year-over-year increase in price and sales volumes from existing businesses and gains from productivity measures, which were partially offset by higher year-over-year employee compensation, freight, logistics and material costs, unfavorable foreign exchange rates and growth investments in R&D, sales and marketing — favorable 135 basis points

• Year-over-year increase in price and sales volumes from existing businesses, which were partially offset by higher employee compensation, investments in R&D, sales and marketing and unfavorable foreign exchange rates — favorable 90 basis points

• The year-over-year effect of amortization from existing businesses — favorable 70 basis points

• The year-over-year net effect of acquisition-related transaction costs which were lower during the year-to-date period than those recognized during the comparable period in 2021 — favorable 5 basis points

• The year-over-year net effect of acquired businesses, including amortization, and acquisition-related fair value adjustments — unfavorable 125 basis points

• Russia exit and wind down costs that were incurred during the year-to-date period — unfavorable 40 basis points

• The year-over-year net effect of acquisition-related transaction costs which were lower in the first quarter than those recognized during the comparable period in 2022 — favorable 60 basis points

• The year-over-year net effect of acquired and divested businesses, including amortization, and acquisition-related fair value adjustments — favorable 10 basis points

• The year-over-year effect of costs relating to the formal restructuring plan in 2023 — unfavorable 120 basis points

Business Segments

Sales by business segment for each of the periods indicated were as follows ($ in millions):

Three Months Ended Nine Months Ended

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

Three Months Ended

March 31, 2023 April 1, 2022

Intelligent Operating Solutions $ 632.1 $ 587.6

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INTELLIGENT OPERATING SOLUTIONS

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

We provide a broad and differentiated offering of instrumentation, sensors, software, and services to address these critical workflows for our customers.

Our Intelligent Operating Solutions segment provides advanced instrumentation, software and services to tens of thousands of customers enabling their mission-critical workflows.

Intelligent Operating Solutions Selected Financial Data

Three Months Ended Nine Months Ended

($ in millions) September 30, 2022 October 1, 2021 September 30, 2022 October 1, 2021

Three Months Ended

($ in millions) March 31, 2023 April 1, 2022

Sales $ 632.1 $ 587.6

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Components of Sales Growth

% Change Three Months Ended September 30, 2022 vs.

Comparable 2021 Period % Change Nine Months Ended

September 30, 2022 vs.

% Change Three Months Ended March 31, 2023 vs.

Comparable 2022 Period

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Existing businesses (Non-GAAP) 9.7 %

Acquisitions (Non-GAAP) 4.2 % 6.3 %

Currency exchange rates (Non-GAAP) (2.1) %

Year-over-year sales from existing businesses increased 13.8% and 11.7% during the third quarter and year-to-date period, respectively, as compared to the comparable periods of 2021.

The year-over-year results for both respective periods were driven by price increases and continued strong demand for test and measurement instrumentation, gas detection offerings and software and related services.

Geographically, sales from existing businesses in developed markets increased in the third quarter by mid-teens, driven by low double digit growth in North America and mid-teens growth in Western Europe.

Sales in high growth markets increased by mid-teens, driven by low-twenties growth in China, as well as low double-digits growth in Latin America, and low twenties growth in Other Asia.

On a year-to-date basis, sales from existing businesses in developed markets increased by low double-digits and high growth markets increased by high-single digits.

Year-over-year price increases in our Intelligent Operating Solutions segment contributed 6.8% and 5.3% to sales growth during the third quarter and year-to-date period, as compared to the comparable periods of 2021, and is reflected as a component of the change in sales from existing businesses.

Operating profit margin increased 450 basis points during the third quarter as compared to the comparable period of 2021.

Year-over-year sales from existing businesses increased 9.7% during the quarter, as compared to the comparable period of 2022.

The year-over-year results were driven by price increases and strong demand for test and measurement instrumentation, gas detection offerings and software and service offerings in facility and asset lifecycle applications.

Geographically, sales from existing businesses in developed markets increased in the quarter by mid-single-digits, driven by mid-single-digit growth in North America and mid-single-digit growth in Western Europe.

Sales in high growth markets increased by mid-twenties, driven by mid-forties growth in China, as well as high single-digit growth in Latin America, and mid-teens growth in Other Asia.

Year-over-year price increases in our Intelligent Operating Solutions segment contributed 5.6% to sales growth during the quarter, as compared to the comparable period of 2022, and is reflected as a component of the change in sales from existing businesses.

Operating profit margin increased 290 basis points during the quarter as compared to the comparable period of 2022.

Year-over-year changes in operating profit margin were comprised of the following:

• Year-over-year increase in price and sales volume from existing businesses and gains from productivity measures were partially offset by higher year-over-year employee compensation costs, freight, logistics and material costs, unfavorable foreign exchange rates and growth investments in R&D, sales and marketing— favorable 345 basis points

• Year-over-year increase in price and sales volume from existing businesses and gains from productivity measures were partially offset by higher employee compensation costs, unfavorable foreign exchange rates and growth investments in R&D, sales and marketing— favorable 300 basis points

• The year-over-year effect of amortization from existing businesses — favorable 60 basis points

• The year-over-year net effect of acquisition-related transaction costs, which were lower than those recognized during the comparable period in 2022 — favorable 110 basis points

• The year-over-year effect of acquisitions, including amortization — unfavorable 160 basis points

Operating profit margin increased 30 basis points during the year-to-date period, as compared to the comparable period of 2021.

Year-over-year operating profit margin comparisons were impacted by:

• Year-over-year increase in price and sales volume from existing businesses and gains from productivity measures, partially offset by higher year- over-year freight, logistics and material costs and employee compensation costs, and growth investments in R&D, sales and marketing — favorable 185 basis points

• The year-over-year effect of amortization from existing businesses — favorable 100 basis points

• The year-over-year effect of acquired businesses, including amortization — unfavorable 255 basis points

• The year-over-year effect of costs relating to the formal restructuring plan in 2023 — unfavorable 180 basis points

PRECISION TECHNOLOGIES

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

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

Our expertise in materials, methods and measurements are reflected in our electrical test & measurement, sensing and material technologies offered to a

broad set of customers and vertical end markets, including industrial, power and energy, automotive, medical equipment, food and beverage, aerospace and defense, semiconductor, and other general industries.

Precision Technologies Selected Financial Data

Three Months Ended Nine Months Ended

($ in millions) September 30, 2022 October 1, 2021 September 30, 2022 October 1, 2021

Three Months Ended

($ in millions) March 31, 2023 April 1, 2022

Sales $ 515.5 $ 462.4

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Components of Sales Growth

% Change Three Months Ended September, 2022 vs.

Comparable 2021 Period % Change Nine Months Ended

September 30, 2022 vs.

% Change Three Months Ended March 31, 2023 vs.

Comparable 2022 Period

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Existing businesses (Non-GAAP) 13.7 %

Acquisitions (Non-GAAP)

Currency exchange rates (Non-GAAP) (2.2) %

Year-over-year sales from existing businesses increased 19.0% and 10.7% during the third quarter and the year-to-date period compared to the comparable periods of 2021.

The year-over-year results for both respective periods were driven by price

increases, market growth and share gains in key verticals and improved production execution with our energetic materials products.

Geographically, sales from existing businesses in developed markets increased by mid-teens in the third quarter driven by mid-teens growth in North America and high teens growth in Western Europe.

Sales in high growth markets increased by low-thirties in the third quarter driven by China.

On a year-to-date basis, sales from existing businesses in developed markets increased by high-single digits and high growth markets increased by mid-teens, respectively.

Year-over-year price increases in our Precision Technologies segment contributed 8.1% and 6.3% to sales growth for the third quarter and year-to-date period, respectively, as compared to the comparable periods of 2021, and is reflected as a component of the change in sales from existing businesses.

Operating profit margin increased 300 basis points for the third quarter as compared to the comparable period of 2021.

Year-over-year sales from existing businesses increased 13.7% during the quarter, as compared to the comparable period of 2022.

The year-over-year results were driven by price increases, strong performance in our test and measurement business, and improved production execution with our energetic materials product line.

Geographically, sales from existing businesses in developed markets increased by high single-digits in the quarter, driven by high single-digit growth in North America and low double-digit growth in Western Europe.

Sales in high growth markets increased by high twenties in the first quarter driven by high thirties growth in China as well as mid-single-digit growth in Other Asia.

Year-over-year price increases in our Precision Technologies segment contributed 4.9% to sales growth for the quarter, as compared to the comparable period of 2022, and is reflected as a component of the change in sales from existing businesses.

Operating profit margin increased 190 basis points for the quarter as compared to the comparable period of 2022.

Year-over-year changes in operating profit margin were comprised of the following:

• Higher year-over-year increases in price and volume, partially offset by higher material, freight and employee compensation costs and unfavorable exchange rates — favorable 280 basis points

• The year-over-year effect of amortization from existing businesses — favorable 20 basis points

Operating profit margin increased 160 basis points during the year-to-date period as compared to the comparable period of 2021.

Year over year operating profit margins were comprised of the following

• Higher year-over-year increases in price and volume, partially offset by higher material, freight and employee compensation costs and unfavorable exchange rates — favorable 140 basis points

• Higher year-over-year increases in price and volume, partially offset by higher employee compensation costs and unfavorable exchange rates — favorable 190 basis points

• The year-over-year effect of amortization from existing businesses — favorable 60 basis points

• The year-over-year effect of costs relating to the formal restructuring plan in 2023 — unfavorable 60 basis points

ADVANCED HEALTHCARE SOLUTIONS

Our Advanced Healthcare Solutions segment serves healthcare customers with enabling products and services for critical activities that help ensure safe, efficient, and timely healthcare.

We provide broad hardware and software portfolio offerings optimized around our end-users’ most critical workflows, including instrument and device reprocessing, instrument tracking, cell therapy equipment design and manufacturing, biomedical test tools, radiation safety monitoring, and asset management.

Our Advanced Healthcare Solutions segment supplies critical workflow solutions enabling healthcare providers to deliver exceptional patient care more efficiently.

Advanced Healthcare Solutions Financial Data

Three Months Ended Nine Months Ended

($ in millions) September 30, 2022 October 1, 2021 September 30, 2022 October 1, 2021

Three Months Ended

($ in millions) March 31, 2023 April 1, 2022

Sales $ 313.1 $ 326.5

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Components of Sales Growth

% Change Three Months Ended

September 30, 2022 vs.

Comparable 2021 Period % Change Nine Months Ended

September 30, 2022 vs.

% Change Three Months Ended March 31, 2023 vs.

Comparable 2022 period

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Existing businesses (Non-GAAP) 0.1 %

Acquisitions (Non-GAAP)

Acquisitions and divestitures (Non-GAAP)

Currency exchange rates (Non-GAAP) (2.5) %

Year-over-year sales from existing businesses decreased 0.8% in the third quarter and grew 1.0% in the year-to-date period, as compared to the comparable periods of 2021.

The year-over-year results in the third quarter were driven by price increases,

partially offset by volume declines.

The overall decline in volume included increased demand for sterilization products, software offerings and radiation monitoring with declines in design services and hardware offerings, which were impacted by supply chain challenges.

The year-over-year results for the year-to-date period were driven by price increases partially offset by volume changes consistent with those in the third quarter.

Geographically in the third quarter, sales from existing businesses were up slightly in developed markets driven mid-single digit growth in Western Europe, which was partially offset by a low-single digit decline in North America.

In high growth markets, sales from existing businesses declined by mid-single digits mainly in China and other Asia.

On a year-to-date basis, sales from existing businesses in developed markets increased by low-single digits and high growth markets declined by low-single digits.

Year-over-year price increases in our Advanced Healthcare Solutions segment contributed 2.1% and 1.6% to sales growth during the third quarter and year-to-date periods, as compared to the comparable periods of 2021, and is reflected as a component of the change in sales from existing businesses.

Operating profit margin decreased 580 basis points during the third quarter as compared to the comparable period of 2021.

Year-over-year changes in operating profit margin were comprised of the following:

• Year-over-year sales increase in price from existing businesses were more than offset by a decline in volume from existing businesses, increased freight, logistics and employee compensation costs, reserves for uncollectible receivables and unfavorable foreign exchange rates — unfavorable 395 basis points

• The year-over-year effect of amortization from existing businesses — favorable 35 basis points

• The year-over-year net effect of acquisition-related transaction costs which were higher in the third quarter than those recognized in the comparable period in 2021 — unfavorable 30 basis points

• The year-over-year effect of acquired businesses, including amortization, and acquisition-related fair value adjustments to inventory — unfavorable 190 basis points

Operating profit margin decreased 80 basis points during the year-to-date period as compared to the comparable period of 2021.

Year-over-year sales from existing businesses increased 0.1% during the quarter, as compared to the comparable period of 2022.

The year-over-year results in the quarter were driven by price increases and higher software revenue, which were mostly offset by reduced volume for sterilization products in North America and China, supply issues with quality assurance equipment and reduced demand for system design and related services.

Geographically in the quarter, sales from existing businesses increased by low single-digit in developed markets driven by slight growth in North America and mid-single-digit growth in Western Europe.

In high growth markets, sales from existing businesses declined by mid-single-digit, driven by a high single-digit decline China.

Year-over-year price increases in our Advanced Healthcare Solutions segment contributed 2.2% to sales growth during the quarter, as compared to the comparable period of 2022, and is reflected as a component of the change in sales from existing businesses.

Operating profit margin decreased 340 basis points during the quarter, as compared to the comparable period of 2022.

Year-over-year changes in operating profit margin were comprised of the following:

• Year-over-year sales increases in price from existing businesses were more than offset by increasing freight, logistics and employee compensation costs, reserves for uncollectible receivables and unfavorable foreign exchange rates, as well as a slight decrease in volume — unfavorable 90 basis points

• The year-over-year effect of amortization from existing businesses — favorable 75 basis points

• The year-over-year net effect of acquisition-related transaction costs which were less than those recognized in the comparable period in 2021 — favorable 40 basis points

• The year-over-year effect of acquired businesses, including amortization, and acquisition-related fair value adjustments to inventory — unfavorable 105 basis points

• Year-over-year increase in price from existing businesses was offset by reductions in volume, unfavorable product mix, higher employee compensation and material costs, sales and marketing costs and unfavorable changes in foreign exchange rates — unfavorable 300 basis points

• The year-over-year effect of amortization from existing businesses — unfavorable 25 basis points

• The year-over-year net effect of acquisition-related transaction costs which were lower in the quarter than those recognized in the comparable period in 2022 — favorable 40 basis points

• The year-over-year effect of acquired and divested businesses, including amortization, and acquisition-related fair value adjustments to inventory — favorable 45 basis points

• The year-over-year effect of costs relating to the formal restructuring plan in 2023 — unfavorable 100 basis points

COST OF SALES AND GROSS PROFIT

Three Months Ended Nine Months Ended

($ in millions) September 30, 2022 October 1, 2021 September 30, 2022 October 1, 2021

Three Months Ended

($ in millions) March 31, 2023 April 1, 2022

Sales $ 1,460.7 $ 1,376.5

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Gross profit margin 58.1 % 57.5 %

The year-over-year increase in gross profit during the third quarter and the year-to-date period as compared to the comparable periods of 2021, is due primarily to year-over-year increases in sales volumes and price increases from existing and newly acquired businesses, which were partially offset by higher material, freight and employee compensation costs and the unfavorable impact of foreign currency exchange rates.

The year-over-year increase in gross profit during the quarter, as compared to the comparable period of 2022, is due primarily to year-over-year increases in price and sales volumes, and productivity gains from FBS, partially offset by higher employee compensation costs, the unfavorable impact of changes in foreign currency exchange rates, unfavorable product mix and restructuring charges.

OPERATING EXPENSES

Three Months Ended Nine Months Ended

Three Months Ended

($ in millions)

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

March 31, 2023 April 1, 2022

Sales $ 1,460.7 $ 1,376.5

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Research and development (“R&D”) 100.1 99.1

Russia exit and wind down costs 1.1 — 17.3 —

SG&A as a % of sales 34.8 % 34.9 %

R&D as a % of sales 6.9 % 7.2 %

SG&A increased during the third quarter and year-to-date period, respectively as compared to the comparable periods of 2021 due to higher intangible amortization and incremental expenses from our recent acquisitions and increased employee compensation expenses, customer acquisition and marketing costs.

On a year-over-year basis, SG&A represented as a percentage of sales, decreased 130 basis points and 60 basis points during the third quarter and year-to-date period, respectively, with higher amortization expenses from our recent acquisitions more than offset by leverage on SG&A costs, which grew at a slower rate than did our sales.

R&D, consisting principally of internal and contract engineering personnel costs, increased during the third quarter and year-to-date period compared to the comparable periods of 2021 due to incremental costs from our recent acquisitions, investments in innovation and key initiatives and higher employee compensation costs.

On a year-over-year basis, R&D expenses represented as a percentage of sales increased by 20 basis points in the third quarter and 30 basis points in the year-to-date period mainly on our recent acquisitions, where R&D spending is higher as a percentage of sales than in existing businesses.

RUSSIA EXIT AND WIND DOWN COSTS

We incurred pre-tax costs totaling $17.3 million in the year-to-date period, primarily in the second quarter, for the write-off of net assets, the cumulative translation adjustment in earnings for legal entities deemed substantially liquidated, and to record provisions for employee severance and legal contingencies.

Of the $17.3 million incurred, approximately $9.2 million represents non-cash charges and is reflected as such in the Consolidated Condensed Statement of Cash Flows.

The costs were primarily related to our segments, as follows:

Intelligent Operating Solutions $13.8 million, Precision Technologies $2.2 million and Advanced Healthcare Solutions $1.3 million.

SG&A increased during the quarter, as compared to the comparable period of 2022 due to increased employee compensation expenses, customer acquisition and marketing costs and restructuring costs, partially offset by the impact of changes in currency exchange rates.

On a year-over-year basis, SG&A represented as a percentage of sales, decreased 10 basis points during the first quarter due to leverage on SG&A costs, which grew at a slower rate than our sales.

R&D, consisting principally of internal and contract engineering personnel costs, increased slightly during the first quarter, as compared to the comparable period of 2022 due to ongoing investment in innovation and key initiatives and higher employee compensation costs.

On a year-over-year basis, R&D expenses represented as a percentage of sales decreased by 30 basis points in the first quarter given R&D grew at a slower rate than our sales.

INTEREST COSTS

For a discussion of our outstanding indebtedness, refer to Note 4 to the consolidated condensed financial statements.

Net interest expense for the third quarter and year-to-date period was $26 million and $66 million as compared to $25 million and $78 million in the comparable periods in 2021.

The increase in interest expense in the third quarter as compared to the comparable period of 2021 was due to higher outstanding debt balances.

The decrease in interest expense in the year-to-date period as compared to the comparable period was due to lower year-over-year effective interest rates on debt instruments, despite overall higher debt balances.

This decrease was partially driven by lower non-cash interest expense on the Convertible Senior Notes in the year-to-date period as compared to the comparable period in 2021 as the notes were settled in the first quarter of 2022.

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.

Net interest expense for the quarter was $32 million as compared to $19 million in the comparable period in 2022.

The year-over-year increase in interest expense was due to higher interest rates incurred on floating rate debt instruments, despite overall lower debt balances.

Our effective tax rates for the three month period ended March 31, 2023 was 15.7%, as compared to 13.5%, for the three month period ended April 1, 2022.

The year-over-year increase in the effective tax rate for the three month period ended March 31, 2023 as compared to the three month period ended April 1, 2022 was primarily due to uncertain tax position reserves released during the three month period ending April 1, 2022.

Our effective tax rates for the three month periods ended March 31, 2023 and April 1, 2022, differ from the U.S.

federal statutory rate of 21% due primarily to the impact of credits and deductions provided by law and changes in our uncertain tax position reserves.

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.

Based upon our analysis of the Inflation Reduction Act of 2022 and subsequently released guidance, we believe that the corporate alternative minimum tax will not have a material impact on our financial statements in 2023 .

COMPREHENSIVE INCOME

Comprehensive income decreased by $39 million during the third quarter as compared to the comparable period in 2021 due primarily to unfavorable changes in foreign currency translation adjustments of $77 million, partially offset by an increase in net income.

Comprehensive income decreased by $133 million during the year-to-date period as compared to the comparable period in 2021 due primarily to unfavorable changes in foreign currency translation adjustments of $217 million, partially offset by an increase in net income.

Comprehensive income increased by $61 million during the first quarter as compared to the comparable period in 2022 due primarily to favorable changes in foreign currency translation adjustments of $53 million, and an increase in net income.

LIQUIDITY AND CAPITAL RESOURCES

We assess our liquidity in terms of our ability to generate cash to fund our operating, investing, and financing activities.

We generate substantial cash from operating activities and believe that our operating cash flow and other sources of liquidity, which consist of access to bank loans, commercial paper, capital markets, and our revolving credit facility will be sufficient to allow us to continue funding and investing in our existing businesses, consummate strategic acquisitions, make interest and principal payments on our outstanding indebtedness, fulfill our contractual obligations, and manage our capital structure on a short and long-term basis.

We generate substantial cash from operating activities and believe that our operating cash flow and other sources of liquidity, which consist of available cash, our revolving credit facility, and access to commercial paper, bank loans, and capital markets, will be sufficient to allow us to continue funding and investing in our existing businesses, consummate strategic acquisitions, make interest and principal payments on our outstanding indebtedness, fulfill our contractual obligations, and manage our capital structure on a short and long-term basis.

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

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

Credit support for the Commercial Paper Programs is provided by a five-year $2.0 billion senior unsecured revolving credit facility that expires on November 30, 2023 (the “Revolving Credit Facility”) which, to the extent not otherwise providing credit support for the commercial paper programs, can also be used for working capital and other general corporate purposes.

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

Subsequent Events

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

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

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 Programs is provided by a five-year $2.0 billion senior unsecured revolving credit facility that expires on October 18, 2027 (the “Revolving Credit Facility”) which, to the extent not otherwise providing credit support for the commercial paper programs, can also be used for working capital and other general corporate purposes.

As of March 31, 2023, no borrowings were outstanding under the Revolving Credit Facility.

The availability of the Revolving Credit Facility as a standby liquidity facility to repay maturing commercial paper is an important factor in maintaining the existing credit ratings of the Commercial Paper Programs when we have outstanding borrowings.

We expect to limit any future borrowings under the Revolving Credit Facility to amounts that would leave sufficient credit available under the facility to allow us to borrow, if needed, and repay any outstanding commercial paper as it matures.

We continue to monitor the financial markets and general global economic conditions.

If changes in financial markets or other areas of the economy adversely affect our access to the capital markets, we would expect to rely on a combination of available cash and existing available capacity under our credit facilities to provide short-term funding.

We continue to monitor the financial markets, the stability of U.S and international banks and general global economic conditions.

If changes in financial markets or other areas of the economy adversely affect our access to the capital markets and other financing sources, we would expect to rely on a combination of available cash and existing available capacity under our credit facilities to provide short-term funding.

Overview of Cash Flows and Liquidity

Following is an overview of our cash flows and liquidity ($ in millions):

Nine Months Ended

($ in millions) September 30, 2022 October 1, 2021

Total operating cash provided by continuing operations $ 839.0 $ 705.9

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

Three Months Ended

($ in millions) March 31, 2023 April 1, 2022

Net cash provided by operating activities $ 174.4 $ 214.8

Payments for additions to property, plant and equipment $ (24.8) $ (18.8)

Proceeds from sale of business 6.6 —

All other investing activities — 1.1

Total investing cash used in continuing operations $ (68.3) $ (1,183.6)

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

Net proceeds from commercial paper borrowings 381.3 215.0

Cash paid for acquisitions, net of cash received — 0.9

Net cash used in investing activities $ (24.8) $ (17.9)

Net proceeds from (repayments of) commercial paper borrowings $ (159.3) $ 930.7

Payment of 0.875% convertible senior notes due 2022 — (1,156.5)

Repurchase of common shares — (63.8)

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)

Payment of dividends (24.7) (25.1)

All other financing activities (3.1) (17.9)

Total financing cash used in continuing operations $ (838.4) $ (485.1)

Net cash used in financing activities $ (187.1) $ (332.6)

Operating Activities

Operating cash flows from continuing operations can fluctuate significantly from period-to-period as working capital needs and the timing of payments for income taxes, interest, pension funding, and other items impact reported cash flows.

Operating cash flows from continuing operations were $839 million during the year-to-date period yielding an increase of $133 million, or 19%, as compared to the comparable period of 2021.

The year-over-year change in operating cash flows from continuing operations was primarily attributable to the following factors:

• Year-over-year increases of $140 million in Operating cash flows from net earnings from continuing operations, net of non-cash items (Amortization, Depreciation, Stock-based compensation, Loss on extinguishment of debt, Gain on investment in Vontier Corporation, Gain on litigation resolution and Russia exit and wind down costs).

• The aggregate changes in trade accounts receivable, inventories, and trade accounts payable used $48 million of cash during the year-to-date period as compared to using $52 million in the comparable period of 2021.

Cash flows from operating activities can fluctuate significantly from period-to-period as working capital needs and the timing of payments for income taxes, interest, pension funding, and other items impact reported cash flows.

Operating cash flows were $174 million during the quarter, representing a decrease of 40 million, or 19%, as compared to the comparable period of 2022.

The year-over-year change in operating cash flows was primarily attributable to the following factors:

• Year-over-year increases of $10 million in Operating cash flows from net earnings, net of non-cash items (Amortization, Depreciation, and Stock-based compensation).

• The aggregate changes in trade accounts receivable, inventories, and trade accounts payable used $44 million of cash during the quarter as compared to using $25 million in the comparable period of 2022.

The amount of cash flow generated from or used by the aggregate of trade accounts receivable, inventories, and trade accounts payable depends upon how effectively we manage the cash conversion cycle, which generally represents the number of days that elapse from the day we pay for the purchase of raw materials and components to the collection of cash from our customers, and can be significantly impacted by the timing of collections and payments in a period.

• The aggregate changes in prepaid expenses, other assets, accrued expenses and other liabilities used $94 million of cash in the year-to-date period as compared to using $63 million of cash in the comparable period of 2022.

The year-over-year changes were driven by timing differences in tax payments and employee compensation and benefits.

The year-over-year changes were driven b y timing differences related to contract liabilities, tax payments, and employee compensation and benefits.

Investing Activities

Investing cash flows from continuing operations, consisting primarily of cash paid for acquisitions and capital expenditures, decreased $1.1 billion during the year-to-date period as a result of our acquisition of ServiceChannel in 2021, which was partially offset by increased capital expenditures of approximately $32 million in 2022.

Capital expenditures are made primarily for increasing production capacity, replacing aged equipment, supporting product development initiatives for hardware and software offerings, improving information technology systems, and purchasing

equipment that is used in revenue arrangements with customers.

Cash flows from investing activities, consisting primarily of capital expenditures and cash paid for acquisitions, decreased $7 million during the first quarter, as compared to the comparable period of 2022.

The increase in investing cash flows was primarily due to a year-over-year increase in capital expenditures of approximately $6 million.

For the current year, we expect capital spending to be approximately $90-110 million, although actual expenditures will ultimately depend on business conditions.

Financing Activities and Indebtedness

Financing cash flows from continuing operations consist primarily of cash flows associated with the issuance of equity, the issuance and repayment of debt and commercial paper, payments of cash dividends to shareholders and share repurchases.

Financing activities from continuing operations used cash of $838 million during the year-to-date period, reflecting the following transactions:

• On June 17, 2022, we entered into a three-year ¥14.4 billion senior unsecured facility yielding net proceeds of approximately $107 million.

• On June 21, 2022, we entered into a three-year €275 million senior unsecured facility yielding net proceeds of approximately $290 million.

• On February 15, 2022, the maturity date of the Convertible Notes, we repaid, in cash, $1.2 billion in outstanding principal and accrued interest thereon.

• During 2022, we incurred $381 million in net commercial paper borrowings under the U.S.

Cash flows from financing activities consist primarily of cash flows associated with the issuance and repayment of debt and commercial paper, payments of cash dividends to shareholders and share repurchases.

In the first quarter of 2023, financing activities used cash of $187 million, reflecting the following transactions:

• Incurred $159 million in net commercial paper repayments under the U.S.

dollar-denominated commercial paper program, which had a weighted annual effective rate of 4.98% and a weighted average maturity of approximately 30 days.

• Dividend payments to common shareholders totaling $25 million.

In the comparable 2022 period, financing activities used cash of $333 million, reflecting the following transaction:

• Incurred $931 million in net commercial paper borrowings under the U.S.

dollar-denominated commercial paper program, which had a weighted annual effective rate of 0.91% and a weighted average remaining maturity of approximately 39 days.

• During 2022, we repurchased 6,000,000 shares for approximately $376 million under our publicly-announced share repurchase program.

• During 2022, we made dividend payments to common shareholders totaling $75 million.

In the comparable 2021 period, financing activities from continuing operations used cash of $485 million, which included payments of $317 million on the Delayed-Draw Term loan due in April 2020 and repurchases of $281 million in Convertible Notes.

On January 19, 2021, we completed the non-cash Debt-for-Equity Exchange of 33.5 million shares of common stock of Vontier, representing all of the Retained Vontier Shares, for $1.1 billion in aggregate principal amount of indebtedness of the Company held by Goldman Sachs & Co.

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

• Repurchased 1,000,000 shares for approximately $64 million under our share repurchase program.

• Made dividend payments to common shareholders totaling $25 million.

• 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.

Refer to Note 4 of the consolidated condensed financial statements for additional information regarding our financing activities and indebtedness.

Cash and Cash Requirements

As of September 30, 2022, we held approximately $705 million of cash and equivalents that were invested in highly liquid investment-grade instruments with a maturity of 90 days or less and yielded insignificant interest income during the year-to-date period.

As of March 31, 2023, we held approximately $673 million of cash and equivalents that were invested in highly liquid investment-grade instruments with a maturity of 90 days or less and yielded insignificant interest income during the first quarter.

Approximately 90% of the $673 million in cash and equivalents was held outside of the United States.

We have cash requirements to support working capital needs, capital expenditures and acquisitions, pay interest and service debt, pay taxes and any related interest or penalties, fund our pension plans as required, pay dividends to shareholders, and support other business needs or objectives.

support other business needs or objectives.

With respect to our cash requirements, we generally intend to use available cash and internally generated funds to meet these cash requirements, but in the event that additional liquidity is required, particularly in connection with acquisitions and repayment of maturing debt, we may also borrow under our commercial paper programs or credit facilities or enter into new credit facilities and either borrow directly thereunder or use such credit facilities to backstop additional borrowing capacity under our commercial paper programs.

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The amount of foreign remittance taxes that may be applicable to such earnings is not readily determinable given local law restrictions that may apply to a portion of such earnings, unknown changes in foreign tax law that may occur during the applicable restriction periods caused by applicable local corporate law for cash repatriation, and the various tax planning alternatives we could employ if we repatriated these earnings.

As of September 30, 2022, we expect to have sufficient liquidity to satisfy our cash needs for the foreseeable future.

As of March 31, 2023, we expect to have sufficient liquidity to satisfy our cash needs for the foreseeable future.

CRITICAL ACCOUNTING ESTIMATES

There were no material changes during the three and nine month periods ended September 30, 2022 to the items we disclosed as our critical accounting estimates in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2021 Annual Report on Form 10-K.

There were no material changes during the first quarter to the items we disclosed as our critical accounting estimates in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2022 Annual Report on Form 10-K.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis