What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-10-25 compared with 2023-07-26 · 138 added, 117 removed, 297 unchanged (46% of the section changed)

47 unchanged sentences

• Our restructuring activities could have long-term adverse effects on our business.

• Work stoppages, works council campaigns, and other labor disputes could adversely impact our productivity and results of operations.

• Work stoppages, works council campaigns, and other labor disputes could adversely impact our productivity, economic conditions, and results of operations.

• If we suffer loss to our facilities, supply chains, distribution systems, or information technology systems due to catastrophe or other events, our operations could be seriously harmed.

2 unchanged sentences

• We are subject to a variety of litigation and other legal and regulatory proceedings in the course of our business that could adversely affect our financial statements.

• Climate change, or legal or regulatory measures to address climate change, may negatively affect us.

Risk Related to our International Operations

14 unchanged sentences

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

33 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 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.

9 unchanged sentences

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.

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.

During the three and nine-month periods ended September 29, 2023, we incurred charges of $0.9 million and $29.2 million, respectively.

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

Accrued restructuring costs were $10 million as of September 29, 2023 and are recorded within Accrued expenses and other current liabilities in the Consolidated Condensed Balance Sheets.

During the third quarter, the plan was amended due to on-going macroeconomic and external conditions.

As a result, we now expect to recognize approximately $60 to $65 million under this discrete plan during the year ending December 31, 2023.

Acquisitions and Divestiture

During the three and nine month periods ended September 29, 2023, we made three acquisitions (“the Q3 2023 acquisitions”) in our Intelligent Operating Solutions segment for an aggregate cash consideration of $59 million, which includes an immaterial deferred payment, net of acquired cash.

The Q3 2023 acquisitions accelerate our strategy and strengthen our product portfolio, providing world-class solutions to our customers.

We recorded approximately $36 million of goodwill related to the acquisitions, which is not tax deductible.

Pending Acquisition

On October 22, 2023, we entered into a definitive agreement to acquire EA Elektro-Automatik Holding GmbH, a leading supplier of high-power electronic test solutions for energy storage, mobility, hydrogen, and renewable energy applications, for a total purchase price of approximately $1.665 billion in cash.

The acquisition is subject to customary closing conditions and regulatory approvals and is expected to close early in the first quarter of 2024.

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 within Other non-operating expense, net in the Consolidated Condensed Statements of

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.

Business Performance and Outlook

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.

Business Performance For the Period Ended September 29, 2023

During the three and nine-month periods ended September 29, 2023 (“the quarter” or the “third quarter” and “year-to-date period”, respectively), our sales increased by 2.6% and 4.3%, respectively.

Year-over-year sales from existing businesses increased 2.5% and 5.5% during the third quarter and year-to-date period, respectively.

Favorable pricing contributed to sales growth in both the third quarter and year-to-date period.

In the third quarter, volume contracted relative to the prior year period, principally in Precision Technologies, but also in Advanced Healthcare Solutions.

In the year-to-date period, volume increased across many of our end markets driven by focused execution and customer demand.

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

Sales from existing businesses in high growth markets decreased low single-digit year-over-year in the third quarter, with low double-digit growth in Latin America and mid-teens growth in India more than offset by a low double-digit decline in China.

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 North America, low single-digit growth in Western Europe, and low double-digit growth in Japan.

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

Price increases contributed 4.2% and 4.6% to sales growth during the third quarter and year-to-date period, respectively, as compared to the comparable periods in 2022 and is reflected as a component of the change in sales from existing businesses.

Supply chain challenges persisted and impacted product shipments in the third quarter and the year-to-date periods.

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

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 anticipate revenue growth to be between 1.5% and 3.0% for the fourth quarter of 2023, and approximately 4.0% for the full year.

We anticipate growth from existing businesses to be between 1.5% and 3.0% for the fourth quarter and approximately 5.0% for the full year.

We experienced network infrastructure disruptions in early October 2023 as a result of a cybersecurity incident.

We implemented robust containment and remedial measures as well as contingency plans to address these disruptions with the assistance from leading cybersecurity experts.

As of October 24, 2023, we believe that our operations remain substantially unaffected.

However, we are in the process of completing our investigation and, consistent with our business continuity plans, implementing the final remediation measures.

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

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 or other events, 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 second 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 third quarter and year-to-date periods ended September 29, 2023 as compared to the comparable periods of 2022:

Components of Sales Growth

% Change Three Months Ended June 30, 2023 vs.

% Change Three Months Ended September 29, 2023 vs.

Comparable 2022 Period

% Change Six Months Ended June 30, 2023 vs.

% Change Nine Months Ended September 29, 2023 vs.

Comparable 2022 Period

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Operating Profit Margins

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.

Operating profit margin was 19.5% for the third quarter, yielding an increase of 220 basis points as compared to 17.3% 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, 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

• Year-over-year increase in price from existing businesses and gains from productivity measures, which were partially offset by higher employee compensation and volume reductions — favorable 150 basis points

• The year-over-year effect of amortization from existing businesses offset by impairment of intangible assets — favorable 30 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 net effect of acquisition-related transaction costs incurred in the third quarter of 2022 — favorable 35 basis points

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

• The year-over-year effect of costs relating to the discrete restructuring plan incurred in 2023 — unfavorable 5 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.

• Russia exit and wind down costs which were incurred during the third quarter of 2022 — favorable 10 basis points

Operating profit margin was 18.4% for the year-to-date period ended September 29, 2023, an increase of 220 basis points as compared to 16.2% 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

• 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, as well as unfavorable product mix and foreign exchange rates — favorable 140 basis points

• The year-over-year effect of amortization from existing businesses offset by impairment of intangible assets — favorable 45 basis points

5 unchanged sentences

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

Three Months Ended Six Months Ended

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

Three Months Ended Nine Months Ended

September 29, 2023 September 30, 2022 September 29, 2023 September 30, 2022

Intelligent Operating Solutions $ 644.3 $ 613.7 $ 1,929.5 $ 1,831.4

6 unchanged sentences

Intelligent Operating Solutions Selected Financial Data

Three Months Ended Six Months Ended

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

Three Months Ended Nine Months Ended

($ in millions) September 29, 2023 September 30, 2022 September 29, 2023 September 30, 2022

Sales $ 644.3 $ 613.7 $ 1,929.5 $ 1,831.4

6 unchanged sentences

Components of Sales Growth

% Change Three Months Ended June 30, 2023 vs.

% Change Three Months Ended September 29, 2023 vs.

Comparable 2022 Period

% Change Six Months Ended June 30, 2023 vs.

% Change Nine Months Ended September 29, 2023 vs.

Comparable 2022 Period

1 unchanged sentence

Existing businesses (Non-GAAP) 4.0 % 5.9 %

Acquisitions and divestiture (Non-GAAP) 0.3 % 0.1 %

Currency exchange rates (Non-GAAP) 0.7 % (0.6) %

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.

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

Geographically, sales from existing businesses in developed markets increased in the third quarter by mid-single-digits, driven by mid-single-digit growth in North America, partially offset by a slight decline in Western Europe.

Sales from existing businesses in high growth markets increased by mid-single-digits, driven by low single-digit growth in Latin America, high twenties growth in India, partially offset by low single-digit decline in China.

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, partially offset by a slight decline in Western Europe.

Sales from existing businesses in high growth markets increased year-over-year in the year-to-date period by low double-digits, driven by mid-teens growth in Asia, principally in China where sales were up mid-teens.

Price increases contributed 3.1% and 4.6% to sales growth during the third 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 280 basis points during the third 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, 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

• Year-over-year increase in price and sales volumes from existing businesses and gains from productivity measures, partially offset by higher employee compensation — favorable 230 basis points

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

• The year-over-year net effect of acquisition-related transaction costs, which were incurred in the third quarter of 2022 — favorable 50 basis points

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

• The year-over-year effect of costs relating to the discrete restructuring plan in 2023 — unfavorable 15 basis points

1 unchanged sentence

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

• Year-over-year increases in price and sales volume from existing businesses, gains from productivity measures, partially offset by higher employee compensation — favorable 320 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 80 basis points

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

• The year-over-year effect of costs relating to the discrete restructuring plan in 2023 — unfavorable 85 basis points

3 unchanged sentences

Precision Technologies Selected Financial Data

Three Months Ended Six Months Ended

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

Three Months Ended Nine Months Ended

($ in millions) September 29, 2023 September 30, 2022 September 29, 2023 September 30, 2022

Sales $ 530.6 $ 523.7 $ 1,583.5 $ 1,485.2

6 unchanged sentences

Components of Sales Growth

% Change Three Months Ended June 30, 2023 vs.

% Change Three Months Ended September 29, 2023 vs.

Comparable 2022 Period

% Change Six Months Ended June 30, 2023 vs.

% Change Nine Months Ended September 29, 2023 vs.

Comparable 2022 period

2 unchanged sentences

Currency exchange rates (Non-GAAP) 0.4 % (0.8) %

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.

The sales results for the third quarter were driven by price increases across the segment and volume increases with energetic materials, partially offset by a volume reduction in test and measurement products and sensing technologies.

The sales results for the 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 high single-digits in the third quarter, driven by high single-digit growth in North America and low single-digit growth in Western Europe.

Sales from existing businesses in high growth markets decreased by low double-digits in the third quarter driven by a mid-teens decline in Asia, attributable to a high-teens decline in China.

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

Sales from existing businesses in high growth markets increased year-over-year in the year-to-date period by mid-single-digits, driven by low single-digit growth in Asia, where China contributed low single-digit growth.

Price increases in our Precision Technologies segment contributed 6.4% and 5.7% to sales growth for the third 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 110 basis points for the third 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, partially offset by higher employee compensation costs — favorable 190 basis points

• Year-over-year increase in price from existing businesses and gains from productivity measures, partially offset by volume reductions and higher employee compensation — favorable 60 basis points

• The year-over-year effect of amortization from existing businesses — favorable 50 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 170 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

• 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 product mix — favorable 145 basis points

• The year-over-year effect of amortization from existing businesses — favorable 55 basis points

• The year-over-year effect of costs relating to the discrete restructuring plan in 2023 — unfavorable 30 basis points

4 unchanged sentences

Advanced Healthcare Solutions Financial Data

Three Months Ended Six Months Ended

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

Three Months Ended Nine Months Ended

($ in millions) September 29, 2023 September 30, 2022 September 29, 2023 September 30, 2022

Sales $ 319.6 $ 318.6 $ 968.6 $ 979.2

6 unchanged sentences

Components of Sales Growth

% Change Three Months Ended June 30, 2023 vs.

% Change Three Months Ended September 29, 2023 vs.

Comparable 2022 period

% Change Six Months Ended June 30, 2023 vs.

% Change Nine Months Ended September 29, 2023 vs.

Comparable 2022 Period

4 unchanged sentences

Currency exchange rates (Non-GAAP) (0.5) % (1.6) %

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.

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

Geographically, sales from existing businesses in developed markets were essentially flat in the third quarter with low single-digit growth in Western Europe and mid-teens growth in Japan, offset by a low single-digit decline in North America.

In high growth markets, sales from existing businesses increased by high single-digits in the third quarter, driven by low-twenties growth in Latin America and high single-digit growth in Asia with high single-digit growth in China.

Sales from existing businesses in high growth markets increased by low single-digits, driven by high-teens growth in Latin America and a low single-digit growth in China, offset by a high single-digit decline in the rest of Asia and a high-teens decline in Eastern Europe driven by the exit from Russia in 2022.

Price increases in our Advanced Healthcare Solutions segment contributed 2.9% and 2.8% to sales growth during the third 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 290 basis points during the third 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 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

• Year-over-year increases in price from existing businesses and gains from productivity measures, partially offset by volume reductions, unfavorable product mix, higher employee compensation, and other operating expenses — favorable 185 basis points

• The year-over-year effect of amortization from existing businesses — favorable 25 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 net effect of acquisition-related transaction costs which were incurred in the third quarter of 2022 — favorable 70 basis points

• The year-over-year effect of divested businesses, including amortization, and acquisition-related fair value adjustments to inventory — favorable 10 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 40 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

• Year-over-year increases in price from existing businesses and gains from productivity measures were more than offset by unfavorable product mix, reductions in volume, higher employee compensation, and other operating expenses— unfavorable 60 basis points

• The year-over-year effect of amortization from existing businesses — favorable 10 basis points

3 unchanged sentences

COST OF SALES AND GROSS PROFIT

Three Months Ended Six Months Ended

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

Three Months Ended Nine Months Ended

($ in millions) September 29, 2023 September 30, 2022 September 29, 2023 September 30, 2022

Sales $ 1,494.5 $ 1,456.0 $ 4,481.6 $ 4,295.8

2 unchanged sentences

Gross profit margin 59.8 % 58.1 % 59.1 % 57.5 %

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.

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

Additionally, the third quarter was also impacted by a decrease in volume, while the year-to-date period experienced an increase in volume, partially offset by unfavorable product mix, and unfavorable changes in foreign currency exchange rates.

OPERATING EXPENSES

Three Months Ended Six Months Ended

Three Months Ended Nine Months Ended

($ in millions)

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

September 29, 2023 September 30, 2022 September 29, 2023 September 30, 2022

Sales $ 1,494.5 $ 1,456.0 $ 4,481.6 $ 4,295.8

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R&D as a % of sales 6.6 % 6.9 % 6.7 % 7.0 %

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.

SG&A increased during the third 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, and restructuring costs, partially offset by savings from productivity measures.

R&D, consisting principally of internal and contract engineering personnel costs, decreased slightly during both the third quarter and year-to-date period, as compared to the comparable periods of 2022 due to favorable timing of project expenditures, partially offset by higher 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.

In the three and nine-month periods ended September 30, 2022, we incurred pre-tax costs totaling $1.1 million and $17.3 million, respectively, 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.

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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.

The exit activities were completed in 2022 and we have not incurred additional charges in 2023.

INTEREST COSTS

For a discussion of our outstanding indebtedness, refer to Note 5 to the consolidated condensed financial statements.

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.

Net interest expense for the third quarter and year-to-date period was $30 million and $95 million as compared to $26 million and $66 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 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.

Our effective tax rates for the three and nine-month period ended September 29, 2023 were 15.2% and 15.8%, respectively, as compared to 12.7% and 14.4%, respectively, for the three and nine-month period ended September 30, 2022.

The increase in the effective tax rate for the three-month period ended September 29, 2023 as compared to the three-month period ended September 30, 2022 was primarily due to a change in non-recurring permanent differences recognized.

The increase in the effective tax rate for the nine-month period ended September 29, 2023 as compared to the nine-month period ended September 30, 2022 was primarily due to uncertain tax position reserves recorded.

Our effective tax rates for the three and nine-month periods ended September 29, 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.

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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.

During 2021, the Organisation for Economic Co-operation and Development (the “OECD”) announced an agreed framework for “Pillar Two” and released detailed model rules for a global minimum corporate tax rate of fifteen percent (15%) which requires multilateral agreement(s) and/or country-specific legislative action to be effective.

A few jurisdictions have implemented legislation with effective dates spanning from 2024 through 2026.

We will continue to monitor further legislation by individual countries and are currently evaluating the potential impact of Pillar Two to our business in future periods.

COMPREHENSIVE 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 $94 million during the third quarter as compared to the comparable period in 2022 due primarily to favorable changes in foreign currency translation adjustments of $66 million, and an increase in net income.

Comprehensive income increased by $301 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 $230 million, and an increase in net income.

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Credit support for the Commercial Paper Programs is provided by a five-year $2.0 billion senior unsecured revolving credit facility that expires on 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 June 30, 2023, no borrowings were outstanding under the Revolving Credit Facility.

As of September 29, 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.

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

Six Months Ended

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

Nine Months Ended

($ in millions) September 29, 2023 September 30, 2022

Net cash provided by operating activities $ 906.8 $ 839.0

Payments for additions to property, plant and equipment $ (73.7) $ (59.7)

Proceeds from sale of property 4.9 —

Cash paid for acquisitions, net of cash received (57.7) (15.2)

Proceeds from sale of property 7.2 —

Proceeds from sale of business — 6.6

Net cash used in investing activities $ (124.2) $ (68.3)

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

Repayment of borrowings (maturities greater than 90 days) (250.0) —

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

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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 $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.

Operating cash flows were $907 million during the year-to-date period, representing an increase of $68 million, or 8.1%, 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 $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.

• Year-over-year increases of $73 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 in 2022).

• The aggregate changes in trade accounts receivable, inventories, and trade accounts payable used $42 million of cash during the year-to-date period as compared to using $48 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 $78 million of cash in the year-to-date period as compared to using $67 million of cash in the comparable period of 2022.

The year-over-year changes were driven by 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 tax payments and contract liabilities.

Investing Activities

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.

Cash outflows from investing activities increased by $56 million during the year-to-date period, as compared to the comparable period of 2022 with the increase primarily due to cash used for acquisitions, net of cash acquired totaling $58 million and a year-over-year increase in capital expenditures of approximately $14 million, partially offset by proceeds from sale 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.

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• Incurred $253 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.

dollar-denominated commercial paper program.

• During the third quarter, Fortive repaid $250 million in outstanding principal of the Delayed-Draw Term Loan due 2023.

• As of September 29, 2023, we repurchased 3 million shares of our common stock for approximately $208 million under our share repurchase program.

• Dividend payments to common shareholders totaling $74 million.

In the comparable 2022 period, financing activities used cash of $838 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 $381 million in net commercial paper borrowings under the U.S.

dollar-denominated commercial paper program, which had a weighted annual effective rate of 3.19% and a weighted average remaining maturity of approximately 29 days.

• 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, Fortive repaid, in cash, $1.2 billion in outstanding principal and accrued interest thereon.

• Repurchased 6 million shares for approximately $376 million under our share repurchase program.

• Made dividend payments to common shareholders totaling $75 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 5 of the consolidated condensed financial statements for additional information regarding our financing activities and indebtedness.

Cash and Cash Requirements

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.

As of September 29, 2023, we held approximately $714 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 87% of the $714 million in cash and equivalents was held outside of the United States.

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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 June 30, 2023, we expect to have sufficient liquidity to satisfy our cash needs for the foreseeable future.

As of September 29, 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 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.

There were no material changes during the three and nine-month periods ended September 29, 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