What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-07-26 compared with 2023-04-26 · 160 added, 105 removed, 254 unchanged (51% of the section changed)

37 unchanged sentences

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

• Any resurgence in the spread of COVID-19 and the corresponding constraints on supply chain, labor force, and the operations of our customers, suppliers, and vendors could 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.

26 unchanged sentences

• Our operations, products, and services expose us to the risk of environmental, health, and safety liabilities, costs, and violations that could adversely affect our reputation and financial statements.

• Our businesses are subject to extensive regulation;

• Our businesses are subject to extensive regulation, including healthcare regulations;

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

35 unchanged sentences

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.

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.

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 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.

6 unchanged sentences

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 initiated a discrete plan in the first quarter of 2023 that is expected to be completed by December 31, 2023.

The nature of these activities were broadly consistent throughout our segments and consist primarily of targeted workforce reductions 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.

During the three and six-month periods ended June 30, 2023, we incurred charges of $10.7 million and $28.3 million, respectively.

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

Accrued restructuring costs were $14.2 million as of June 30, 2023 and are included within Accrued expenses and other current liabilities in the Consolidated Condensed Balance Sheets.

The total restructuring charges we expect to recognize during the year ending December 31, 2023 under this discrete plan are approximately $30 to $35 million.

Business Performance and Outlook

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.

Business Performance For the Period Ended June 30, 2023

During the three and six-month periods ended June 30, 2023 (“the quarter” or the “second quarter” and “year-to-date period”, respectively), our sales increased by 4.3% and 5.2%, respectively.

Year-over-year sales from existing businesses increased 5.5% and 7.1% during the second quarter and year-to-date period, respectively, reflecting favorable pricing, increased demand across many of our end markets and focused execution on service and delivery.

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

Sales from existing businesses in high growth markets increased year-over-year in the second quarter at a low single-digit rate, driven by low single-digit growth in China and mid-twenties growth in India.

In the year-to-date period, year-over-year sales from existing businesses in developed markets increased mid-single-digits, driven by mid-single-digit growth in both North America and Western Europe.

Sales from existing businesses in high growth markets increased year-over-year in the year-to-date period at a low double-digit rate, driven by mid-teens growth in China, low-thirties growth in India, and mid-single-digit growth in Latin America.

Price increases contributed 5.0% and 4.8% to sales growth during the second quarter and year-to-date period, as compared to the comparable periods in 2022 and is reflected as a component of the change in sales from existing businesses.

In both the second quarter and year-to-date period, price increases exceeded inflation impacts on purchased materials.

Despite lingering supply chain challenges which impacted our output in the second quarter and the year-to-date period, we have experienced an improvement in our operating results on a year-over-year basis.

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 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”).

We anticipate revenue growth to be between 3.5% and 4.5% for the third quarter of 2023, and 4.0% and 5.0% for the full 2023 year.

We anticipate growth from existing businesses to be between 3.5% and 4.5% for the third quarter and 5.0% and 6.0% for the full year.

We expect foreign exchange rates to remain volatile throughout the year which could adversely impact our financial results in 2023.

Additionally, our financial outlook is subject to various assumptions and risks, including but not limited to, macroeconomic conditions in the United States and other critical regions, ongoing challenges with global logistics and supply chains including the availability of electronic components, disruption in supply or transportation resulting from severe weather events or our vendors experiencing work stoppage from their unionized employees, impact of inflationary dynamics on our expenses or our ability to realize price increases in our sales, interest rates, 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 pricing and other countermeasures to offset inflationary dynamics.

We continue to monitor these conditions which may continue to impact our business, as well as potential adverse global economic trends and sentiments, 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”).

RESULTS OF OPERATIONS

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:

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

Components of Sales Growth

% Change Three Months Ended March 31, 2023 vs.

% Change Three Months Ended June 30, 2023 vs.

Comparable 2022 Period

% Change Six Months Ended June 30, 2023 vs.

Comparable 2022 Period

Total revenue growth (GAAP) 4.3 % 5.2 %

3 unchanged sentences

Operating Profit Margins

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.

Operating profit margin was 19.1% for the second quarter, yielding an increase of 320 basis points as compared to 15.9% 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, 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 in the first quarter than those recognized during the comparable period in 2022 — favorable 60 basis points

• Year-over-year increase in price and sales volumes from existing businesses, gains from productivity measures and favorable foreign exchange rates, which were partially offset by unfavorable product mix, higher employee compensation and sales and marketing.

— favorable 185 basis points

• The year-over-year effect of amortization from existing businesses offset by impairment of intangible assets — favorable 35 basis points

• The year-over-year net effect of acquisition-related transaction costs incurred in the second quarter of 2022 — favorable 55 basis points

• The year-over-year net effect of acquired and divested businesses, including amortization and acquisition-related fair value adjustments — favorable 5 basis points

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

• The year-over-year effect of costs relating to the discrete restructuring plan incurred in 2023 — unfavorable 70 basis points

• Russia exit and wind down costs which were incurred during the second quarter of 2022 — favorable 110 basis points

Operating profit margin was 17.8% for the year-to-date period ended June 30, 2023, an increase of 210 basis points as compared to 15.7% 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 employee compensation, unfavorable product mix, sales and marketing, and unfavorable foreign exchange rates — favorable 140 basis points

• The year-over-year effect of amortization from existing businesses offset by impairment of intangible assets — favorable 50 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 2022 — favorable 55 basis points

• The year-over-year net effect of acquired and divested businesses, including amortization and acquisition-related fair value adjustments — favorable 5 basis points

• The year-over-year effect of costs relating to the discrete restructuring plan in 2023 — unfavorable 95 basis points

• Russia exit and wind down costs which were incurred during the year-to-date period of 2022 — favorable 55 basis points

Business Segments

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

Three Months Ended

March 31, 2023 April 1, 2022

Three Months Ended Six Months Ended

June 30, 2023 July 1, 2022 June 30, 2023 July 1, 2022

Intelligent Operating Solutions $ 653.1 $ 630.1 $ 1,285.2 $ 1,217.7

6 unchanged sentences

Intelligent Operating Solutions Selected Financial Data

Three Months Ended

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

Three Months Ended Six Months Ended

($ in millions) June 30, 2023 July 1, 2022 June 30, 2023 July 1, 2022

Sales $ 653.1 $ 630.1 $ 1,285.2 $ 1,217.7

6 unchanged sentences

Components of Sales Growth

% Change Three Months Ended March 31, 2023 vs.

% Change Three Months Ended June 30, 2023 vs.

Comparable 2022 Period

% Change Six Months Ended June 30, 2023 vs.

Comparable 2022 Period

Total revenue growth (GAAP) 3.6 % 5.5 %

1 unchanged sentence

Currency exchange rates (Non-GAAP) (0.6) % (1.4) %

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.

The sales results for both the second quarter and year-to-date period were driven by price increases, demand for gas detection equipment, software and service offerings in EHS and facility and asset lifecycle applications, partially offset by volume reductions in test and measurement instrumentation.

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

Sales from existing businesses in high growth markets increased by mid-single-digits, driven by low double-digit growth in Asia, principally in China where sales were up by low double-digits, and partially offset by low double-digit declines in Latin America.

On a year-to-date basis, sales from existing businesses in developed markets increased by mid-single-digits, driven by mid-single-digit growth in North America;

Western Europe remained essentially flat.

Sales from existing businesses in high growth markets increased year-over-year in the year-to-date period by mid-teens, on mid-twenties growth in Asia, principally in China where sales were up mid-twenties, and low twenties in the Middle East.

Price increases contributed 5.2% and 5.4% to sales growth during the second quarter and year-to-date period, as compared to the comparable periods of 2022, and is reflected as a component of the change in sales from existing businesses.

Operating profit margin increased 420 basis points during the second 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 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 costs relating to the formal restructuring plan in 2023 — unfavorable 180 basis points

• Year-over-year increase in price from existing businesses, gains from productivity measures and favorable foreign exchange rates, partially offset by higher employee compensation costs and volume reductions — favorable 420 basis points

• The year-over-year effect of amortization from existing businesses offset by impairments of intangible assets — unfavorable 15 basis points

• The year-over-year net effect of acquisition-related transaction costs, which were incurred in the second quarter of 2022 — favorable 85 basis points

• The year-over-year effect of costs relating to the discrete restructuring plan in 2023 — unfavorable 70 basis points

Operating profit margin increased 350 basis points during the year-to-date period, as compared to the comparable period of 2022.

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

• Year-over-year increases in price and sales volume from existing businesses, and gains from productivity measures, partially offset by higher employee compensation costs — favorable 360 basis points

• The year-over-year effect of amortization from existing businesses offset by impairment of intangible assets — favorable 20 basis points

• The year-over-year net effect of acquisition-related transaction costs, which were incurred during the year-to-date period in 2022 — favorable 95 basis points

• The year-over-year effect of costs relating to the discrete restructuring plan in 2023 — unfavorable 125 basis points

PRECISION TECHNOLOGIES

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.

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

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

Three Months Ended Six Months Ended

($ in millions) June 30, 2023 July 1, 2022 June 30, 2023 July 1, 2022

Sales $ 537.4 $ 499.1 $ 1,052.9 $ 961.5

6 unchanged sentences

Components of Sales Growth

% Change Three Months Ended March 31, 2023 vs.

% Change Three Months Ended June 30, 2023 vs.

Comparable 2022 Period

% Change Six Months Ended June 30, 2023 vs.

Comparable 2022 period

Total revenue growth (GAAP) 7.7 % 9.5 %

1 unchanged sentence

Currency exchange rates (Non-GAAP) (0.7) % (1.5) %

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.

The sales results for both the second quarter and year-to-date period were driven by price increases across the segment and volume increases with test and measurement products and energetic materials, partially offset by a volume reduction in sensing technologies.

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

Sales from existing businesses in high growth markets increased by low single-digit in the second quarter driven by high twenties growth in India and mid-teens growth in Latin America, partially offset by a slight decline in Asia, principally due to a mid-single-digit decline in China.

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

Sales from existing businesses in high growth markets increased year-over-year in the year-to-date period by mid-teens, driven by low double-digit growth in Asia, led by China with low double-digit growth, and low thirties growth in India.

Price increases in our Precision Technologies segment contributed 5.8% and 5.4% to sales growth for the second quarter and year-to-date period, respectively, as compared to the comparable periods of 2022, and is reflected as a component of the change in sales from existing businesses.

Operating profit margin increased 230 basis points for the second 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 employee compensation costs and unfavorable exchange rates — favorable 190 basis points

• Year-over-year increase in price and sales volume from existing businesses and gains from productivity measures, partially offset by higher employee compensation costs — favorable 190 basis points

• The year-over-year effect of amortization from existing businesses — favorable 65 basis points

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

• The year-over-year effect of costs relating to the discrete restructuring plan in 2023 — unfavorable 25 basis points

Operating profit margin increased 210 basis points during the year-to-date period as compared to the comparable period of 2022.

Year-over-year operating profit margins were comprised of the following:

• Year-over-year increase in price and sales volume from existing businesses, gains from productivity measures, and spending reductions, all partially offset by higher employee compensation costs, and unfavorable exchange rates — favorable 190

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

• The year-over-year effect of costs relating to the discrete restructuring plan in 2023 — unfavorable 40 basis points

ADVANCED HEALTHCARE SOLUTIONS

3 unchanged sentences

Advanced Healthcare Solutions Financial Data

Three Months Ended

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

Three Months Ended Six Months Ended

($ in millions) June 30, 2023 July 1, 2022 June 30, 2023 July 1, 2022

Sales $ 335.9 $ 334.1 $ 649.0 $ 660.6

6 unchanged sentences

Components of Sales Growth

% Change Three Months Ended March 31, 2023 vs.

% Change Three Months Ended June 30, 2023 vs.

Comparable 2022 period

% Change Six Months Ended June 30, 2023 vs.

Comparable 2022 Period

Total revenue growth (GAAP) 0.6 % (1.8) %

1 unchanged sentence

Acquisitions and divestitures (Non-GAAP)

(1.5) % (1.6) %

Currency exchange rates (Non-GAAP) (1.4) % (2.0) %

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.

The sales results for the second quarter were driven by price increases and slightly higher volume with gains in sterilization and quality assurance products, dosimetry services and software offerings being offset by declines in system design and related services.

The sales results for the year-to-date period were driven by price increases and demand increases for dosimetry and software and related services, which were partially offset by volume declines in sterilization and quality assurance products and system design services.

Geographically, sales from existing businesses in developed markets increased by mid-single-digits in the second quarter primarily due to mid-single-digit growth in North America partially offset by mid-single-digit declines in Western Europe.

In high growth markets, sales from existing businesses increased by low single-digits in the second quarter, driven by high-teens growth in Latin America and low double-digit growth in China, partially offset by a low double-digit decline in the rest of Asia.

On a year-to-date basis, sales from existing businesses in developed markets increased by low single-digits, driven by low single-digit growth in North America and high single-digit growth in Japan, partially offset by a slight decline in Western Europe.

Sales from existing businesses in high growth markets declined by low single-digits, driven by mid-teens growth in Latin America and a low single-digit increase in China, both were more than offset by a low double-digit decline in the rest of Asia and high-teens declines in Eastern Europe driven by the exit from Russia last year.

Price increases in our Advanced Healthcare Solutions segment contributed 3.4% and 2.8% to sales growth during the second quarter and year-to-date period, respectively, as compared to the comparable periods of 2022, and is reflected as a component of the change in sales from existing businesses.

Operating profit margin decreased 70 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 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

• Year-over-year increases in price from existing businesses and gains from productivity measures were more than offset by unfavorable product mix, higher employee compensation and material costs, and higher sales and marketing costs — unfavorable 65 basis points

• The year-over-year effect of amortization from existing businesses — favorable 30 basis points

• The year-over-year net effect of acquisition-related transaction costs which were incurred in the second quarter of 2022 — favorable 80 basis points

• The year-over-year effect of divested businesses, including amortization, and acquisition-related fair value adjustments to inventory — favorable 15 basis points

• The year-over-year effect of costs relating to the discrete restructuring plan in 2023 — unfavorable 130 basis points

Operating profit margin decreased 200 basis points during the year-to-date period 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 from existing businesses and gains from productivity measures was more than 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 180 basis points

• The year-over-year effect of amortization from existing businesses — favorable 5 basis points

• The year-over-year net effect of acquisition-related transaction costs which were incurred in the year-to-date period of 2022 — favorable 60 basis points

• The year-over-year effect of divested businesses, including amortization, and acquisition-related fair value adjustments to inventory — favorable 30 basis points

• The year-over-year effect of costs relating to the discrete restructuring plan in 2023 — unfavorable 115 basis points

COST OF SALES AND GROSS PROFIT

Three Months Ended

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

Three Months Ended Six Months Ended

($ in millions) June 30, 2023 July 1, 2022 June 30, 2023 July 1, 2022

Sales $ 1,526.4 $ 1,463.3 $ 2,987.1 $ 2,839.8

2 unchanged sentences

Gross profit margin 59.3 % 57.0 % 58.7 % 57.2 %

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.

The year-over-year increase in gross profit during the second quarter and year-to-date period, as compared to the comparable periods of 2022, is due primarily to year-over-year increases in price and sales volumes, productivity measures and FBS initiatives, partially offset by unfavorable product mix, higher employee compensation costs, and restructuring charges.

The year-to-date period was also impacted by unfavorable changes in foreign currency exchange rates.

OPERATING EXPENSES

Three Months Ended

Three Months Ended Six Months Ended

($ in millions)

March 31, 2023 April 1, 2022

June 30, 2023 July 1, 2022 June 30, 2023 July 1, 2022

Sales $ 1,526.4 $ 1,463.3 $ 2,987.1 $ 2,839.8

1 unchanged sentence

Research and development (“R&D”) 100.1 100.1 200.2 199.2

Russia exit and wind down costs — 16.2 — 16.2

SG&A as a % of sales 33.7 % 33.1 % 34.2 % 34.0 %

R&D as a % of sales 6.6 % 6.8 % 6.7 % 7.0 %

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.

SG&A increased during the second quarter and year-to-date period, as compared to the comparable periods of 2022 due to increased employee compensation expenses, customer acquisition and marketing costs, restructuring costs partially offset by savings from productivity measures.

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

RUSSIA EXIT AND WIND DOWN COSTS

In the three and six-month periods ended July 1st, 2022, we incurred pre-tax costs totaling $16.2 million 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 $16.2 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.

The exit activities were completed in 2022 and we did not incur additional charges in 2023.

INTEREST COSTS

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

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

Net interest expense for the second quarter and year-to-date period was $33 million and $65 million as compared to $21 million and $40 million in the comparable periods 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.

Our effective tax rates for the three and six-month period ended June 30, 2023 were 16.5% and 16.1%, respectively, as compared to 16.9% and 15.3%, respectively, for the three and six-month period ended July 1, 2022.

The decrease in the effective tax rate for the three-month period ended June 30, 2023 as compared to the three-month period ended July 1, 2022 was primarily due to effect of Russia exit and wind down costs for which no tax benefit was recognized during the three-month period ending July 1, 2022.

The increase in the effective tax rate for the six-month period ended June 30, 2023 as compared to the six-month period ended July 1, 2022 was primarily due to uncertain tax position reserves released during the six-month period ending July 1, 2022.

Our effective tax rates for the three and six-month periods ended June 30, 2023, 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.

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

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 .

enacted the Inflation Reduction Act of 2022, which, among other provisions implements a 15% corporate alternative minimum tax.

Based upon our current analysis of the Inflation Reduction Act of 2022 and subsequently released guidance, we believe the 15% corporate minimum tax will not have a material impact on our financial statements during 2023.

COMPREHENSIVE 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.

Comprehensive income increased by $147 million during the second quarter as compared to the comparable period in 2022 due primarily to favorable changes in foreign currency translation adjustments of $111 million, and an increase in net income.

Comprehensive income increased by $207 million during the year-to-date period as compared to the comparable period in 2022 due primarily to favorable changes in foreign currency translation adjustments of $164 million, and an increase in net income.

LIQUIDITY AND CAPITAL RESOURCES

4 unchanged sentences

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.

As of June 30, 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.

On June 7, 2023, we filed with the SEC an “automatic shelf” registration statement (the “Shelf Registration Statement”).

Under the Shelf Registration Statement, we may from time to time sell shares of common stock, preferred stock, debt securities, depositary shares, purchase contracts, purchase units, warrants and subscription rights in one or more offerings.

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

2 unchanged sentences

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

Three Months Ended

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

Six Months Ended

($ in millions) June 30, 2023 July 1, 2022

Net cash provided by operating activities $ 495.4 $ 509.2

Payments for additions to property, plant and equipment $ (45.8) $ (37.1)

Proceeds from sale of property 4.9 —

Cash paid for acquisitions, net of cash received — (1.6)

1 unchanged sentence

Net proceeds from (repayments of) commercial paper borrowings $ (268.6) $ 481.3

Proceeds from borrowings (maturities greater than 90 days), net of issuance costs — 397.0

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

5 unchanged sentences

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.

Operating cash flows were $495 million during the year-to-date period, representing a decrease of $14 million, or 2.7%, 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).

• Year-over-year increases of $38 million in Operating cash flows from net earnings, net of non-cash items (Amortization, Depreciation, Stock-based compensation, and Russia exit and wind down costs incurred 2022).

• The aggregate changes in trade accounts receivable, inventories, and trade accounts payable used $38 million of cash during the quarter as compared to using $48 million in the comparable period of 2022.

1 unchanged sentence

• The aggregate changes in prepaid expenses, other assets, accrued expenses and other liabilities used $131 million of cash in the year-to-date period as compared to using $69 million of cash in the comparable period of 2022.

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

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

Investing Activities

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.

Cash outflows from investing activities, consisting primarily of capital expenditures, increased $2 million during the year-to-date period, 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 $9 million, partially offset by proceeds from sales of property.

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.

2 unchanged sentences

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:

In the year-to-date period, financing activities used cash of $441 million, reflecting the following transactions:

• Incurred $269 million in net commercial paper repayments under the U.S.

dollar-denominated commercial paper program, which had a weighted annual effective rate of 5.39% and a weighted average maturity of approximately 17 days.

• As of June 30, 2023, we repurchased 2 million shares of our common stock for approximately $129 million under our share repurchase program.

• Dividend payments to common shareholders totaling $49 million.

In the comparable 2022 period, financing activities used cash of $583 million, reflecting the following transaction:

• 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.

• Incurred $481 million in net commercial paper borrowings under the U.S.

dollar-denominated commercial paper program, which had a weighted annual effective rate of 1.84% and a weighted average remaining maturity of approximately 32 days.

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

• Repurchased 4 million shares for approximately $243 million under our share repurchase program.

• Made dividend payments to common shareholders totaling $50 million.

2 unchanged sentences

Cash and Cash Requirements

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.

As of June 30, 2023, we held approximately $713 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.

Approximately 91% of the $713 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.

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.

5 unchanged sentences

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

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

As of June 30, 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 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.

There were no material changes during the three and six-month periods ended June 30, 2023 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