What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-07-24 compared with 2024-04-24 · 163 added, 103 removed, 273 unchanged (49% of the section changed)

22 unchanged sentences

impact of changes to tax laws;

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

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

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

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

the timing of any of the foregoing;

11 unchanged sentences

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

• Future pandemics and epidemics, 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.

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

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

Risk Related to our International Operations

38 unchanged sentences

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.

In January 2024, we realigned Invetech from the AHS segment to the PT segment (the “Segment Realignment”) based on our strategic decision to divest the equipment design and manufacturing businesses of Invetech, while retaining the motion solution businesses (the “Motion Solution Business”) that 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.

In June 2024, we divested and transferred ownership of Invetech, excluding the Motion Solution Business, to its management team (the “Invetech Divestiture”).

As a result of the divestiture, in the three and six-month periods ended June 28, 2024, we recorded a net realized loss of $25.6 million, which is identified as “Loss from divestiture” in the Consolidated Condensed Statements of Earnings.

The divested businesses accounted for less than 1.0% of total revenue and less than 1.0% of total assets for the fiscal year ended December 31, 2023.

The Invetech Divestiture did not represent a strategic shift with a major effect on the Company’s operations and financial results, and therefore the divested businesses are not reported as discontinued operations.

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

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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.

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

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

Our 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 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.

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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 initiated a discrete restructuring 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 consisted 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-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 $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.

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

Business Performance and Outlook

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, 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 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 the aforementioned dynamics.

Business Performance for the Period Ended June 28, 2024

During the three and six-month periods ended June 28, 2024 (the “quarter” or the “second quarter” and “year-to-date period,” respectively), our sales increased by 1.7% and 3.0%, respectively.

The year-over-year increase in sales in the second quarter was driven by a 2.7% increase from acquisitions, net of divestitures partially offset by a 1.0% decrease due to unfavorable currency translation.

Core revenue growth was essentially flat in the second quarter, where favorable pricing of 2.6% and volume gains in IOS and AHS were offset by volume declines in PT.

Year-over-year increases in the year-to-date period were driven by a 1.2% increase in our core revenue and a 2.6% increase from acquisitions, net of divestitures, partially offset by a decline of 0.8% due to unfavorable currency translation.

The core revenue growth performance in the year-to-date period of 1.2% was comprised of favorable pricing of 2.4% and volume gains in IOS and AHS offset by volume declines in PT.

Geographically, in the second quarter, year-over-year core revenue in developed markets was essentially flat, driven by slight growth in North America, a mid-single-digits growth in Japan, offset by a mid-single-digit decline in Western Europe.

Core revenue in high growth markets was up slightly year-over-year in the second quarter, driven by low-twenties growth in Latin America, offset by a mid-single-digit decline in China.

Geographically, in the year-to-date period, year-over-year sales from existing businesses in developed markets increased slightly, driven by low single-digit growth in North America while Western Europe and Japan were essentially flat.

Sales from existing businesses in high growth markets increased year-over-year in the year-to-date period by low single-digits, driven by high-teens growth in Latin America, partially offset by a mid-single-digit decline in China.

We anticipate revenue growth to be between 3% and 4.5% for the third quarter of 2024, and approximately 3% and 4% for the full year.

We anticipate core revenue growth to be between 2% and 3.5% for the third quarter and approximately 2% and 3% for the full year.

We expect foreign exchange rates to remain volatile throughout the year, which could continue to 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, China and other critical regions, ongoing geopolitical developments and events, the 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 these challenges, collaborate with customers and suppliers to minimize disruptions and utilize pricing and other countermeasures to offset the aforementioned 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”), 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 first quarter as compared to the comparable period of 2023:

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 2023:

Components of Sales Growth

% Change Three Months Ended March 29, 2024 vs.

% Change Three Months Ended June 28, 2024 vs.

Comparable 2023 Period

% Change Six Months Ended June 28, 2024 vs.

Comparable 2023 Period

Total revenue growth (GAAP) 1.7 % 3.0 %

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Operating Profit Margins

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.

Operating profit margin was 19.4% for the second quarter, yielding an increase of 30 basis points as compared to 19.1% 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 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

• Year-over-year increase in price from existing businesses, volume gains in IOS and AHS, and gains from productivity measures, partially offset by a volume decline in certain businesses and end markets within our PT segment, higher employee compensation, customer acquisition and marketing costs, as well as unfavorable changes in foreign currency exchange rates — favorable 65 basis points

• The year-over-year effect of amortization from existing businesses, and impairment of intangible assets incurred in 2023 — favorable 25 basis points

• The year-over-year net effect of acquisition and divestiture-related transaction costs incurred in the second quarter of 2024 — unfavorable 15 basis points

• The year-over-year net effect of acquired and divested businesses, including amortization, and acquisition-related fair value adjustments — unfavorable 115 basis points

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

Operating profit margin was 19.6% for the year-to-date period ended June 28, 2024, an increase of 180 basis points as compared to 17.8% in the comparable period of 2023.

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

• Year-over-year fluctuations were consistent with those in the second quarter.

Namely price from existing businesses, volume gains in IOS and AHS, and gains from productivity measures, partially offset by volume decline in certain businesses and end markets within our PT segment, higher employee compensation, customer acquisition and marketing costs, as well as unfavorable foreign exchange rates — favorable 85 basis points

• The year-over-year effect of amortization from existing businesses, and impairment of intangible assets incurred in 2023 — favorable 25 basis points

• The year-over-year net effect of acquisition and divestiture-related transaction costs incurred in the year-to-date period — unfavorable 95 basis points

• The year-over-year net effect of acquired and divested businesses, including amortization and acquisition-related fair value adjustments — unfavorable 135 basis points

• The year-over-year effect of costs relating to the discrete restructuring plan initiated and completed in 2023 — favorable 95 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 205 basis points

1 unchanged sentence

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

Three Months Ended

March 29, 2024 March 31, 2023

Three Months Ended Six Months Ended

June 28, 2024 June 30, 2023 June 28, 2024 June 30, 2023

Intelligent Operating Solutions $ 677.0 $ 653.1 $ 1,342.7 $ 1,285.2

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Intelligent Operating Solutions Selected Financial Data

Three Months Ended

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

Three Months Ended Six Months Ended

($ in millions) June 28, 2024 June 30, 2023 June 28, 2024 June 30, 2023

Sales $ 677.0 $ 653.1 $ 1,342.7 $ 1,285.2

6 unchanged sentences

Components of Sales Growth

% Change Three Months Ended March 29, 2024 vs.

% Change Three Months Ended June 28, 2024 vs.

Comparable 2023 Period

% Change Six Months Ended June 28, 2024 vs.

Comparable 2023 Period

Total revenue growth (GAAP) 3.7 % 4.5 %

2 unchanged sentences

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

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.

The sales results for both the second quarter and year-to-date period 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 second quarter by low single-digits, driven by a mid-single-digit growth in North America and a low single-digit growth in Western Europe.

Core revenue in high growth markets was low single-digits, driven by mid-teens growth in Latin America, partially offset by a mid-single-digit decline in China.

Geographically, 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 mid-single-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-single-digits, driven by mid-single-digit growth in Asia, where China contributed a low single-digit growth, and mid-teens growth in Latin America.

Year-over-year price increases in our IOS segment contributed 2.4% and 2.6% to sales growth during the second quarter and year-to-date period, respectively, and is reflected as a component of the change in sales from existing businesses.

Operating profit margin increased 80 basis points during the second 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 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 first quarter of 2023 — relatively flat

• Year-over-year increase in price and sales volumes from existing businesses, offset by higher employee compensation and customer acquisition and marketing costs, as well as unfavorable changes in foreign currency exchange rates — relatively flat

• The year-over-year effect of amortization from existing businesses, and impairment of intangible assets incurred in 2023 — favorable 65 basis points

• The year-over-year net effect of acquisition-related transaction costs incurred in the second quarter of 2024 — unfavorable 25 basis points

• The year-over-year net effect of acquired business, including amortization — unfavorable 30 basis points

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

Operating profit margin increased 210 basis points during the year-to-date period, as compared to the comparable period of 2023.

Year-over-year changes in 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 and customer acquisition and marketing costs, as well as unfavorable changes in foreign currency exchange rates — favorable 85 basis points

• The year-over-year effect of amortization from existing businesses, and impairment of intangible assets incurred in 2023 — favorable 50 basis points

• The year-over-year net effect of acquisition-related transaction costs incurred in the year-to-date period — unfavorable 15 basis points

• The year-over-year net effect of acquired business, including amortization, and acquisition-related fair value adjustments — unfavorable 35 basis points

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

PRECISION TECHNOLOGIES

Precision Technologies Selected Financial Data

Three Months Ended

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

Three Months Ended Six Months Ended

($ in millions) June 28, 2024 June 30, 2023 June 28, 2024 June 30, 2023

Sales $ 551.8 $ 560.3 $ 1,110.8 $ 1,101.4

6 unchanged sentences

C omponents of Sales Growth

% Change Three Months Ended March 29, 2024 vs.

% Change Three Months Ended June 28, 2024 vs.

Comparable 2023 Period

% Change Six Months Ended June 28, 2024 vs.

Comparable 2023 period

Total revenue growth (GAAP) (1.5) % 0.9 %

Core (Non-GAAP)

(6.6) % (4.1) %

Acquisitions and divestiture (Non-GAAP)

Currency exchange rates (Non-GAAP) (0.9) % (0.8) %

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.

The sales results for both the second quarter and year-to-date periods were impacted by price increases across 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 the Invetech Divestiture, contributed 6.0% and 5.8% to revenue growth during the second quarter and year-to-date period, respectively.

Geographically, core revenue in developed markets decreased by mid-single-digits in the second quarter, driven by a mid-single-digit decline in North America, a mid-teens decline in Western Europe, and a mid-single-digit growth in Japan.

Core revenue in high growth markets decreased by high single-digits in the second quarter, driven by a high single-digit decline in Asia where China decreased by high single-digits.

Geographically, on a year-to-date basis, sales from existing businesses in developed markets decreased by mid-single-digits, driven by a low single-digit decline in North America, a high single-digit decline in Western Europe, and a low double-digit decline in Japan.

Sales from existing businesses in high growth markets decreased year-over-year in the year-to-date period by mid-single-digits, driven by low double-digits decline in China.

Year-over-year price increases in our PT segment contributed 2.3% and 1.8% to sales growth for the second quarter and year-to-date period, respectively, and is reflected as a component of the change in sales from existing businesses.

Operating profit margin decreased 350 basis points for the second 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 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 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

• Year-over-year increase in price from existing businesses and gains from productivity measures, offset by net volume reductions in the segment and unfavorable changes in foreign currency exchange rates — unfavorable 100 basis points

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

• The year-over-year net effect of acquisition and divestiture-related transaction costs, which were incurred in the second quarter of 2024, primarily related to the EA acquisition — unfavorable 10 basis points

• The year-over-year net effect of acquired and divested businesses, including amortization, and acquisition-related fair value adjustments — unfavorable 270 basis points

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

Operating profit margin increased 20 basis points during the year-to-date period as compared to the comparable period of 2023.

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

• Year-over-year increase in price from existing businesses and gains from productivity measures, offset by net volume reduction in the segment, higher employee compensation costs, and unfavorable changes in foreign currency exchange rates — unfavorable 15 basis points

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

• The year-over-year net effect of acquisition and divestiture-related transaction costs incurred in the year-to-date period primarily related to the EA acquisition — unfavorable 250 basis points

• The year-over-year net effect of acquired and divested businesses, 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 50 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 570 basis points

4 unchanged sentences

Advanced Healthcare Solutions Financial Data

Three Months Ended

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

Three Months Ended Six Months Ended

($ in millions) June 28, 2024 June 30, 2023 June 28, 2024 June 30, 2023

Sales $ 323.6 $ 313.0 $ 623.4 $ 600.5

6 unchanged sentences

Components of Sales Growth

% Change Three Months Ended March 29, 2024 vs.

% Change Three Months Ended June 28, 2024 vs.

Comparable 2023 period

% Change Six Months Ended June 28, 2024 vs.

Comparable 2023 Period

Total revenue growth (GAAP) 3.4 % 3.8 %

1 unchanged sentence

Currency exchange rates (Non-GAAP) (1.6) % (1.5) %

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.

The sales results for both the second quarter and year-to-date period were driven by growth in our existing businesses due to price increases across the segment and volume increases in our sterilization products.

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

In high growth markets, core revenue increased by low double-digits in the second quarter, driven by mid-thirties growth in Latin America, while China was essentially flat.

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

Sales from existing businesses in high growth markets increased by low double-digits, driven by high twenties growth in Latin America and mid-single-digit growth in China.

Year-over-year price increases in our AHS segment contributed 3.5% and 3.2% to sales growth during the second quarter and year-to-date period, respectively, and is reflected as a component of the change in sales from existing businesses.

Operating profit margin increased 430 basis points during the second 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, increased volume, and gains from productivity measures, partially offset by higher employee compensation and customer acquisition and marketing costs — favorable 200 basis points

• Year-over-year increases in price and volume from existing businesses and gains from productivity measures, partially offset by higher employee compensation costs — favorable 260 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 initiated and completed in 2023 — favorable 120 basis points

Operating profit margin increased 410 basis points during the year-to-date period 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 and volume from existing businesses and gains from productivity measures, partially offset by higher employee compensation and customer acquisition and marketing costs — favorable 235 basis points

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

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

COST OF SALES AND GROSS PROFIT

Three Months Ended

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

Three Months Ended Six Months Ended

($ in millions) June 28, 2024 June 30, 2023 June 28, 2024 June 30, 2023

Sales $ 1,552.4 $ 1,526.4 $ 3,076.9 $ 2,987.1

2 unchanged sentences

Gross profit margin 59.8 % 59.3 % 59.6 % 58.7 %

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.

The year-over-year increase in gross profit during the second quarter and year-to-date period was due to contributions from our acquired businesses, price increases from existing businesses, increased volume with IOS and AHS, productivity measures and FBS initiatives.

The volume decline in our PT segment, higher employee compensation costs, and unfavorable changes in foreign currency exchange rates partially offset the year-over-year increase.

OPERATING EXPENSES

Three Months Ended

Three Months Ended Six Months Ended

($ in millions)

March 29, 2024 March 31, 2023

June 28, 2024 June 30, 2023 June 28, 2024 June 30, 2023

Sales $ 1,552.4 $ 1,526.4 $ 3,076.9 $ 2,987.1

3 unchanged sentences

R&D as a % of sales 6.5 % 6.6 % 6.7 % 6.7 %

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.

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

R&D, consisting principally of internal and contract engineering personnel costs, increased during the second quarter and year-to-date period, 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

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.

Net interest expense for the second quarter and year-to-date period was $38.7 million and $82.7 million as compared to $33.1 million and $65.2 million in the comparable periods in 2023.

The year-over-year increase in net interest expense was due to higher overall debt balances 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.

Loss from divestiture

During the second quarter and year-to-date period, we recognized a net realized loss of $25.6 million related to the Invetech Divestiture.

For further discussion of this transaction, refer to Note 1 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.

Other non-operating expense for the second quarter and year-to-date period was $8.8 million and $33.0 million, respectively, as compared to $7.8 million and $10.3 million, respectively, in the comparable period in 2023.

The year-over-year increase during the year-to-date period 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.

Our effective tax rates for the three and six-month periods ended June 28, 2024 were 14.7% and 13.0%, respectively, as compared to 16.5% and 16.1%, respectively, for the three and six-month periods ended June 30, 2023.

The decrease in the effective tax rate for the three-month period ended June 28, 2024 as compared to the three-month period ended June 30, 2023 was primarily related to change in valuation allowances, resulting in a benefit in the three-month period ended June 28, 2024.

The decrease in the effective tax rate for the six-month period ended June 28, 2024 as compared to the six-month period ended June 30, 2023 was primarily related to cash repatriation, resulting in a discrete tax credit, and changes in valuation allowances in the six-month period ended June 28, 2024.

Our effective tax rates for the three and six-month periods ended June 28 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.

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.

The OECD has published the framework for a “Pillar Two” global minimum corporate income tax rate of fifteen percent (15%).

For the current year, portions of Pillar Two are effective in certain countries where the Company conducts business, and the impact has been included within the provision for income taxes.

The Company continues to monitor for further corporate tax legislative developments and changes to the Pillar Two framework.

COMPREHENSIVE 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.

Comprehensive income decreased by $27 million during the second quarter as compared to the comparable period in 2023 due to a decrease in net income and unfavorable changes in foreign currency translation adjustments of $14 million.

Comprehensive income decreased by $83 million during the year-to-date period as compared to the comparable period in 2023 due primarily to unfavorable changes in foreign currency translation adjustments of $104 million, offsetting the 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 March 29, 2024, no borrowings were outstanding under the Revolving Credit Facility.

As of June 28, 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.

For example, in February 2024, we 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.

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

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

Three Months Ended

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

Six Months Ended

($ in millions) June 28, 2024 June 30, 2023

Net cash provided by operating activities $ 565.6 $ 495.4

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Proceeds from sale of property 10.8 4.9

Cash infusion into divestiture (14.0) —

All other investing activities (1.6) —

Net cash used in investing activities $ (1,782.2) $ (40.9)

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

Repurchase of common shares (152.9) (129.1)

Payment of dividends (56.1) (49.3)

All other financing activities 31.9 5.6

Net cash provided by (used in) financing activities

Net cash used in financing activities

$ (15.1) $ (441.4)

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

• 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).

• Year-over-year increases of $27 million in Operating cash flows from net earnings, net of non-cash items (Amortization, Depreciation, Stock-based compensation, Gain on sale of property, and Loss from divestiture).

• The aggregate changes in trade accounts receivable, inventories, and trade accounts payable generated $43 million of cash during the year-to-date period as compared to using $38 million in the comparable period of 2023.

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• The aggregate changes in prepaid expenses, other assets, accrued expenses, and other liabilities used $169 million of cash in the year-to-date period as compared to using $131 million of cash in the comparable period of 2023.

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

The year-over-year changes were driven by timing differences related to tax and interest payments, employee compensation and benefits, and restructuring activities in the prior year.

Investing Activities

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.

Cash outflows from investing activities increased by $1.74 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 $1.72 billion and a year-over-year increase in capital expenditures of approximately $10 million, and the cash infusion into the Invetech Divestiture entity totaling $14 million, partially offset by the year-over-year increase in proceeds from sale of property of approximately $6 million.

equipment that is used in revenue arrangements with customers.

For the current year, we expect capital spending to be approximately $100-$120 million, although actual expenditures will ultimately depend on business conditions.

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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 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.

• 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.

In the year-to-date period, financing activities used cash of $15 million, reflecting the following transactions:

• On January 2, 2024, we drew down an additional $450 million of the 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 repaid $572 million in net commercial paper repayments under the U.S.

dollar-denominated commercial paper program.

• We repurchased 2 million shares of our common stock for approximately $153 million under our share repurchase program.

• We made dividend payments to common shareholders totaling $56 million.

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dollar-denominated commercial paper program.

• We repurchased 2 million shares of our common stock for approximately $129 million under our share repurchase program.

• We made dividend payments to common shareholders totaling $49 million.

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Cash and Cash Requirements

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.

As of June 28, 2024, we held approximately $644 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 95% 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 March 29, 2024, we expect to have sufficient liquidity to satisfy our cash needs for the foreseeable future.

As of June 28, 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-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.

There were no material changes during the three and six-month periods ended June 28, 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.

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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.

In connection with the EA acquisition in the first quarter of 2024, we recorded approximately $1.17 billion of goodwill and approximately $681 million 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