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Item 2. Management’s Discussion and Analysis

2024-04-24 compared with 2023-10-25 · 149 added, 208 removed, 227 unchanged (61% of the section changed)

1 unchanged sentence

Fortive Corporation (“Fortive,” the “Company,” “we,” “us,” or “our”) is a provider of essential technologies for connected workflow solutions across a range of attractive end-markets.

Our strategic segments - Intelligent Operating Solutions, Precision Technologies, and Advanced Healthcare Solutions - include well-known brands with leading positions in their markets.

Our strategic segments - Intelligent Operating Solutions (“IOS”), Precision Technologies (“PT”), and Advanced Healthcare Solutions (“AHS”) - include well-known brands with leading positions in their markets.

Our businesses design, develop, manufacture, and service professional and engineered products, software, and services, building upon leading brand names, innovative technologies, and significant market positions.

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

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

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

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

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

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

the timing of any of the foregoing;

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

• 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.

• Pandemics and epidemics, including any resurgence in the spread of COVID-19, and any 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.

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• If we are unable to recruit and retain key employees, our business may be harmed.

• A significant disruption in, or breach in security of, our information technology systems could adversely affect our business.

• Significant disruptions in, or breaches in security of, our information technology systems have adversely affected, and in the future could adversely affect, our business.

• We use artificial intelligence in our business and our products, and challenges with properly managing its use could result in reputational harm, competitive harm, and legal liability, and adversely affect our results of operations.

• Defects and unanticipated use or inadequate disclosure with respect to our products (including software) or services could adversely affect our business, reputation, and financial statements.

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

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

existing or future failures to comply with those regulations could adversely affect our financial statements and reputation.

Risk Related to Our Tax and Accounting Matters

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Fortive is a multinational business with global operations with approximately 46% of our sales derived from customers outside the United States in 2023.

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

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

Our geographic and industry diversity, as well as the range of products, software, and services we offer, typically help limit the impact of any one industry or the economy of any single country (except for the United States) on our operating results.

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Segment Presentation

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

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

We operate and report our results in three segments, IOS, PT, and AHS, each of which is further described below.

In January 2024, we realigned Invetech from the AHS segment to the PT segment, as we explored strategic alternatives for certain products and services of Invetech (the “Segment Realignment”).

In March 2024, we entered into a non-binding memorandum of understanding with the management of Invetech, pursuant to which we will transfer ownership of certain product lines of Invetech to its current management team.

The products and operations of Invetech that we will retain following such transfer of ownership are more closely aligned with the PT segment than the AHS segment.

Prior period segment amounts below have been recast to conform to the revised segment presentation.

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

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

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

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

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

Our PT 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, and cell therapy equipment design and manufacturing offered to a broad set of customers and vertical end markets, including industrial, power and energy, automotive, medical equipment, food and beverage, aerospace and defense, semiconductor, and other general industries.

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

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

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

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

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

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

Non-GAAP Measures

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

In this report, references to sales from existing businesses (“core revenue”) 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 businesses or product lines that have been divested or, at the time of reporting, are pending divestiture but are not, and will not be, 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.

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

Management believes that reporting the non-GAAP financial measure of sales from existing businesses provides useful information to investors by helping identify underlying growth trends in our business and facilitating comparisons of our sales performance with our performance in prior and future periods and to our peers.

Management believes that reporting the non-GAAP financial measure of core revenue provides useful information to investors by helping identify underlying growth trends in our business and facilitating comparisons of our sales performance with our performance in prior and future periods and to our peers.

We exclude the effect of acquisition and divestiture related items because the nature, size, and number of such transactions can vary dramatically from period to period and between us and our peers.

We exclude the effect of currency translation from sales from existing businesses because the impact of currency translation is not under management’s control and is subject to volatility.

We exclude the effect of currency translation from core revenue because the impact of currency translation is not under management’s control and is subject to volatility.

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

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

Restructuring

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

On January 3, 2024, we acquired EA Elektro-Automatik Holding GmbH (“EA”), a leading supplier of high-power electronic test solutions for energy storage, mobility, hydrogen, and renewable energy applications.

The acquisition of EA will bolster our innovative portfolio of products and services for engineers with complementary test and measurement solutions enabling the global energy transition.

The total consideration paid was approximately $1.72 billion, net of acquired cash.

We recorded approximately $1.2 billion of goodwill related to the EA acquisition, which is not tax deductible.

Other Matters

We initiated a discrete plan in the first quarter of 2023 that was completed during the fourth quarter of 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.

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

During the three-month period ended March 31, 2023, we incurred charges of $17.6 million.

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.

Accrued restructuring costs were $13 million and $26 million as of March 29, 2024 and December 31, 2023 and are recorded within Accrued expenses and other current liabilities in the Consolidated Condensed Balance Sheets.

Business Performance and Outlook

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 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.

Business Performance for the Period Ended March 29, 2024

During the three-month period ended March 29, 2024 (the “quarter” or the “first quarter”), our sales increased by 4.4%, driven by a 2.5% increase in our core revenue, and a 2.5% increase from acquisitions, net of divestitures, partially offset by 0.6% decrease from unfavorable currency translation.

Core revenue growth was comprised of favorable pricing of 2.3% and increased volume of 0.2%.

The increase in volume from IOS and AHS were mostly offset by declines in PT.

Geographically, in the first quarter, year-over-year core revenue in developed markets increased low single-digits, driven by low single-digit growth in North America and mid-single-digit growth in Western Europe.

Core revenue in high growth markets increased mid-single-digit year-over-year in the first quarter, driven by low double-digit growth in Latin America and low single-digit growth in Asia, despite a low single-digit decline in China.

We anticipate revenue growth to be between 2% and 3% for the second quarter of 2024, and approximately 4.5% and 6% for the full year.

We anticipate core revenue growth to be between flat and 2% for the second quarter and approximately 2% and 4% for the full year.

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.

Additionally, our financial outlook is subject to various assumptions and risks, including but not limited to, macroeconomic conditions in the United States, China and other critical regions, ongoing challenges with global logistics and supply chains, disruption in supply or transportation resulting from geopolitical developments, 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 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”), including the potential impact of the Pillar Two initiative.

RESULTS OF OPERATIONS

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:

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 2023:

Components of Sales Growth

% Change Three Months Ended September 29, 2023 vs.

Comparable 2022 Period

% Change Nine Months Ended September 29, 2023 vs.

% Change Three Months Ended March 29, 2024 vs.

Comparable 2023 Period

Total revenue growth (GAAP) 4.4 %

Existing businesses (Non-GAAP) 2.5 % 5.5 %

Core (Non-GAAP)

Acquisitions and divestitures (Non-GAAP) 2.5 %

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Operating Profit Margins

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 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 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 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.

Operating profit margin was 19.8% for the first quarter, yielding an increase of 330 basis points as compared to 16.5% in the comparable period of 2023.

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, 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

• 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 50 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 60 basis points

• Russia exit and wind down costs which were incurred during the year-to-date period of 2022 — favorable 40 basis points

• Year-over-year increase in price from existing businesses, a slight increase in overall demand despite a decline in certain businesses in PT, and gains from productivity measures, which were partially offset by higher employee compensation, customer acquisition and marketing costs — favorable 90 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 incurred in the first quarter of 2024 — unfavorable 180 basis points

• The year-over-year net effect of acquired and divested businesses, including amortization, and acquisition-related fair value adjustments — unfavorable 140 basis points

• The year-over-year effect of costs relating to the discrete restructuring plan initiated and completed in 2023 — favorable 120 basis points

• The year-over-year effect of the gain on sale of land and certain office buildings in the PT segment in the first quarter of 2024 — favorable 410 basis points

Business Segments

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

Three Months Ended Nine Months Ended

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

Three Months Ended

March 29, 2024 March 31, 2023

Intelligent Operating Solutions $ 665.7 $ 632.1

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INTELLIGENT OPERATING SOLUTIONS

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

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

Intelligent Operating Solutions Selected Financial Data

Three Months Ended Nine Months Ended

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

Three Months Ended

($ in millions) March 29, 2024 March 31, 2023

Sales $ 665.7 $ 632.1

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Components of Sales Growth

% Change Three Months Ended September 29, 2023 vs.

Comparable 2022 Period

% Change Nine Months Ended September 29, 2023 vs.

% Change Three Months Ended March 29, 2024 vs.

Comparable 2023 Period

Total revenue growth (GAAP) 5.3 %

Existing businesses (Non-GAAP) 4.0 % 5.9 %

Core (Non-GAAP)

Acquisitions and divestiture (Non-GAAP) 1.1 %

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

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.

The sales results for the first quarter were driven primarily by growth in our existing businesses due to price increases and increased volume in our test and measurement instrumentation and gas detection products as well as software and service offerings in both EHS and facility and asset lifecycle applications.

Geographically, core revenue in developed markets increased in the first quarter by low single-digits, driven by low single-digit growth in North America and high single-digit growth in Western Europe.

Core revenue in high growth markets increased by high single-digits, driven by high single-digit growth in China and mid-teens growth in Latin America.

Year-over-year price increases in our IOS segment contributed 2.9% to sales growth in the first quarter and is reflected as a component of the change in sales from existing businesses.

Operating profit margin increased 360 basis points during the first quarter as compared to the comparable period of 2023.

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, partially offset by higher employee compensation — favorable 230 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 and customer acquisition and marketing costs — favorable 180 basis points

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

• The year-over-year net effect of acquisition-related transaction costs, which were 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

Operating profit margin increased 330 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, 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

• The year-over-year net effect of acquisition-related transaction costs, which were incurred in the first quarter of 2023 — relatively flat

• The year-over-year net effect of acquired business, including amortization — unfavorable 35 basis points

• The year-over-year effect of costs relating to the discrete restructuring plan initiated and completed in 2023 — favorable 180 basis points

PRECISION TECHNOLOGIES

Precision Technologies Selected Financial Data

Three Months Ended Nine Months Ended

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

Three Months Ended

($ in millions) March 29, 2024 March 31, 2023

Sales $ 559.0 $ 541.1

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Amortization as a % of sales 3.8 % 0.2 %

Components of Sales Growth

% Change Three Months Ended September 29, 2023 vs.

Comparable 2022 Period

% Change Nine Months Ended September 29, 2023 vs.

C omponents of Sales Growth

% Change Three Months Ended March 29, 2024 vs.

Comparable 2023 Period

Total revenue growth (GAAP) 3.3 %

Existing businesses (Non-GAAP) 0.9 % 7.4 %

Core (Non-GAAP)

Acquisitions and divestiture (Non-GAAP)

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

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.

The sales results for the first quarter were impacted by the overall price increases in the segment and volume increases in energetic materials which were offset by volume reductions in test and measurement and sensing technology products.

The acquisition of EA, partially offset by product line divestments at Invetech, contributed 5.6% to revenue growth.

Geographically, core revenue in developed markets decreased slightly in the first quarter, with low single-digit growth in North America being offset by a slight decline in Western Europe and a mid-twenties decline in Japan.

Core revenue in high growth markets decreased by low single-digits in the first quarter driven by a low double-digit decline in China, partially offset by high single-digit growth in Other Asia.

Year-over-year price increases in our PT segment contributed 1.3% to sales growth in the first quarter and is reflected as a component of the change in sales from existing businesses.

Operating profit margin increased 390 basis points for the first quarter as compared to the comparable period of 2023.

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, 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

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 product mix — favorable 145 basis points

• Year-over-year increase in price from existing businesses and gains from productivity measures, partially offset by volume reduction and higher employee compensation — favorable 10 basis points

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

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

• The year-over-year net effect of acquisition-related transaction costs, which were incurred in the first quarter of 2024 related to the EA acquisition — unfavorable 485 basis points

• The year-over-year net effect of acquired and divested business, including amortization, and acquisition-related fair value adjustments — unfavorable 335 basis points

• The year-over-year effect of costs relating to the discrete restructuring plan initiated and completed in 2023 — favorable 60 basis points

• The year-over-year effect of the gain on sale of land and certain office buildings in the first quarter of 2024 — favorable 1,130 basis points

ADVANCED HEALTHCARE SOLUTIONS

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

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

Advanced Healthcare Solutions Financial Data

Three Months Ended Nine Months Ended

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

Three Months Ended

($ in millions) March 29, 2024 March 31, 2023

Sales $ 299.8 $ 287.5

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Components of Sales Growth

% Change Three Months Ended September 29, 2023 vs.

Comparable 2022 period

% Change Nine Months Ended September 29, 2023 vs.

% Change Three Months Ended March 29, 2024 vs.

Comparable 2023 period

Total revenue growth (GAAP) 4.3 %

Existing businesses (Non-GAAP) 2.2 % 2.0 %

Acquisitions and divestitures (Non-GAAP)

(1.4) % (1.5) %

Core (Non-GAAP)

Currency exchange rates (Non-GAAP) (1.2) %

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.

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, while Western Europe was essentially flat.

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, 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 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

Operating profit margin decreased 40 basis points during the year-to-date period as compared to the comparable period of 2022.

The sales results for the first quarter were driven by growth in our existing businesses due to price increases across the segment and volume increases, primarily with sterilization products

Geographically, core revenue in developed markets increased mid-single-digits in the first quarter, driven by mid-single-digit growth in North America, low single-digit growth in Western Europe, and high single-digit growth in Japan.

In high growth markets, core revenue increased by high single-digits in the first quarter, driven by low double-digit growth in China and mid-teens growth in Latin America.

Year-over-year price increases in our AHS segment contributed 2.8% to sales growth in the first quarter and is reflected as a component of the change in sales from existing businesses.

Operating profit margin increased 380 basis points during the first quarter, as compared to the comparable period of 2023.

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, reductions in volume, higher employee compensation, and other operating expenses— unfavorable 60 basis points

• Year-over-year increases in price from existing businesses, increased volume, and gains from productivity measures, partially offset by higher employee compensation and customer acquisition and marketing costs — favorable 200 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 incurred in the year-to-date period of 2022 — favorable 65 basis points

• The year-over-year effect of divested businesses, including amortization, and acquisition-related fair value adjustments to inventory — favorable 25 basis points

• The year-over-year effect of costs relating to the discrete restructuring plan in 2023 — unfavorable 80 basis points

• The year-over-year effect of costs relating to the discrete restructuring plan initiated and completed in 2023 — favorable 110 basis points

COST OF SALES AND GROSS PROFIT

Three Months Ended Nine Months Ended

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

Three Months Ended

($ in millions) March 29, 2024 March 31, 2023

Sales $ 1,524.5 $ 1,460.7

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Gross profit margin 59.3 % 58.1 %

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.

The year-over-year increase in gross profit during the first quarter was due to year-over-year increases in price and volume from both existing and acquired businesses, productivity measures and FBS initiatives, partially offset by higher employee compensation costs.

OPERATING EXPENSES

Three Months Ended Nine Months Ended

Three Months Ended

($ in millions)

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

March 29, 2024 March 31, 2023

Sales $ 1,524.5 $ 1,460.7

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Research and development (“R&D”) 104.1 100.1

Russia exit and wind down costs — 1.1 — 17.3

SG&A as a % of sales 36.8 % 34.8 %

R&D as a % of sales 6.8 % 6.9 %

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 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.

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 have not incurred additional charges in 2023.

The year-over-year increase in SG&A during the first quarter was due to higher intangible amortization and incremental operating costs and transaction expenses from our recent acquisitions, employee compensation costs, customer acquisition and marketing costs, partially offset by productivity measures.

R&D, consisting principally of internal and contract engineering personnel costs, increased during the first quarter, as compared to the comparable period of 2023 due to the incremental costs from our recent acquisitions and ongoing investments in innovation.

NON-OPERATING INCOME (EXPENSE), NET

Interest Costs

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

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 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.

Net interest expense for the first quarter was $44 million as compared to $32 million in the comparable period in 2023.

The year-over-year increase in net interest expense was due to higher overall debt balance and higher interest rates incurred on floating rate debt instruments.

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

Other non-operating expense, net

Other non-operating expense for the first quarter was $24.2 million as compared to $2.5 million in the comparable period in 2023.

The year-over-year increase was primarily due to a charitable contribution made in the first quarter of 2024.

For further discussion of this transaction, refer to Note 1 to the consolidated condensed financial statements.

Our effective tax rates for the three-month period ended March 29, 2024 were 11.4%, as compared to 15.7%, for the three-month period ended March 31, 2023.

The decrease in the effective tax rate for the three-month period ended March 29, 2024 as compared to the three-month period ended March 31, 2023 was primarily related to cash repatriation, resulting in a discrete tax credit in the three-month period ended March 29, 2024

Our effective tax rates for the three-month period ended March 29, 2024, 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.

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.

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COMPREHENSIVE 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.

Comprehensive income decreased by $56 million during the first quarter as compared to the comparable period in 2023 due primarily to unfavorable changes in foreign currency translation adjustments of $90 million, partially offset by an increase in net income.

LIQUIDITY AND CAPITAL RESOURCES

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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 September 29, 2023, no borrowings were outstanding under the Revolving Credit Facility.

As of March 29, 2024, 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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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.

For example, we recently completed our offering of €500 million aggregate principal amount of our 3.7% Euro-denominated senior unsecured notes due 2026 (the “2026 Notes”) and €700 million aggregate principal amount of our 3.7% Euro-denominated senior unsecured notes due 2029 (the “2029 Notes”) under the Shelf Registration Statement.

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

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

In addition, our access to the capital markets and other financing sources are impacted by any change in our credit rating.

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

Overview of Cash Flows and Liquidity

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

Nine Months Ended

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

Three Months Ended

($ in millions) March 29, 2024 March 31, 2023

Net cash provided by operating activities $ 256.7 $ 174.4

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

Cash paid for acquisitions, net of cash received $ (1,721.8) $ —

Payments for additions to property, plant and equipment (26.4) (24.8)

Proceeds from sale of property 10.8 —

Proceeds from sale of business — 6.6

Net cash used in investing activities $ (1,737.4) $ (24.8)

2 unchanged sentences

Repayment of borrowings (maturities greater than 90 days) (1,000.0) —

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

Repurchase of common shares (207.9) (376.1)

Payment of dividends (28.1) (24.7)

All other financing activities 25.4 (3.1)

Net cash used in financing activities $ (766.3) $ (838.4)

Net cash provided by (used in) financing activities

$ 306.9 $ (187.1)

Operating Activities

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

• 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.

• Year-over-year decreases of $3 million in Operating cash flows from net earnings, net of non-cash items (Amortization, Depreciation, Stock-based compensation, and Gain on sale of property).

• The aggregate changes in trade accounts receivable, inventories, and trade accounts payable generated $52 million of cash during the year-to-date period as compared to using $44 million in the comparable period of 2023.

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 $105 million of cash in the year-to-date period as compared to using $94 million of cash in the comparable period of 2023.

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

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

Investing Activities

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.

Cash outflows from investing activities increased by $1.7 billion during the year-to-date period, as compared to the comparable period of 2023 with the increase primarily due to cash used for acquisitions, net of cash acquired, totaling $1.7 billion and a year-over-year increase in capital expenditures of approximately $2 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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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 year-to-date period, financing activities used cash of $766 million, reflecting the following transactions:

• Incurred $253 million in net commercial paper repayments under the U.S.

In the year-to-date period, financing activities generated cash of $307 million, reflecting the following transactions:

• We repaid $427 million in net commercial paper repayments under the U.S.

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.

• On January 2, 2024, we drew down an additional $450 million of the $1.3 billion Delayed-Draw Term Loan due 2024 as part of the funding for the acquisition of EA.

• On February 13, 2024, we completed the sale of our registered offering of the 2026 Notes and the 2029 Notes, yielding net proceeds of approximately $1.3 billion.

• On February 13 2024, Fortive repaid $1.0 billion in outstanding principal of the Delayed-Draw Term Loan due 2024, using net proceeds from the 2026 Notes and 2029 Notes.

• We made dividend payments to common shareholders totaling $28 million.

In the comparable 2023 period, financing activities used cash of $187 million, reflecting the following transaction:

• 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.

• We repaid $159 million in net commercial paper borrowings under the U.S.

dollar-denominated commercial paper program.

• We made dividend payments to common shareholders totaling $25 million.

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 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.

As of March 29, 2024, we held approximately $705 million of cash and equivalents that were invested in highly liquid investment-grade instruments with a maturity of 90 days or less, of which approximately 85% 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.

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

As of September 29, 2023, we expect to have sufficient liquidity to satisfy our cash needs for the foreseeable future.

As of March 29, 2024, we expect to have sufficient liquidity to satisfy our cash needs for the foreseeable future.

CRITICAL ACCOUNTING ESTIMATES

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

There were no material changes during the three-month period ended March 29, 2024 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 2023 Annual Report on Form 10-K, except as noted below.

Our business acquisitions, including EA, typically result in the recognition of goodwill, customer relationships, developed technology, and other intangible assets, which affect the amount of future period amortization expense and possible impairment charges that we may incur.

The fair value of acquired intangible assets are determined using information available near the acquisition date based on estimates and assumptions that are deemed reasonable by us.

Significant assumptions include the discount rates and certain assumptions that form the basis of the forecasted cash flows of the acquired business including earnings before interest, taxes, depreciation and amortization (“EBITDA”), revenue, revenue growth rates, royalty rates, customer attrition rates, and technology obsolescence rates.

These assumptions are forward looking and could be affected by future economic and market conditions.

We engage third-party valuation specialists who review our critical assumptions and calculations of the fair value of acquired intangible assets in connection with material acquisitions.

In connection with the EA acquisition in the first quarter of 2024, we recorded approximately $1.2 billion of goodwill and approximately $0.7 billion of intangible assets.

Refer to Note 2 for additional information of the EA acquisition.

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