EVERETT, Wash.--(BUSINESS WIRE)--Fortive Corporation (“Fortive”) (NYSE: FTV) today announced results for
the fourth quarter 2018.
For the fourth quarter ended December 31, 2018, net earnings from
continuing operations attributable to common stockholders were $222.8
million. For the same period, adjusted net earnings from continuing
operations were $325.1 million. Diluted net earnings per share from
continuing operations for the fourth quarter ended December 31, 2018
were $0.66. For the same period, adjusted diluted net earnings per share
from continuing operations were $0.91.
For the fourth quarter of 2018, revenues from continuing operations
increased 11.4% year-over-year to $1.8 billion, with core revenue growth
of 7.4%.
James A. Lico, President and Chief Executive Officer, stated, “The
fourth quarter provided a strong finish to what was another
transformational year for Fortive, as we generated high single-digit
core revenue growth and 30% adjusted net earnings growth. This
performance demonstrated strong execution by our team as we continued to
leverage the power of the Fortive Business System to reposition our
portfolio in higher growth end-markets, while delivering continued share
gains and driving innovation to enhance our long-term competitive
advantage.”
For the first quarter of 2019, Fortive anticipates diluted net earnings
per share from continuing operations to be in the range of $0.40 to
$0.44 and adjusted diluted net earnings per share from continuing
operations to be in the range of $0.64 to $0.68. For the full year 2019,
Fortive expects diluted net earnings per share from continuing
operations to be in the range of $2.56 to $2.66. For the full year 2019,
Fortive expects adjusted diluted net earnings per share from continuing
operations to be in the range of $3.40 to $3.50, which excludes any
contribution from the pending acquisition of the Advanced Sterilization
Products business from Johnson & Johnson (NYSE: JNJ).
Mr. Lico added, “The fundamentals across our enhanced portfolio remain
strong and we expect to deliver another year of double-digit adjusted
net earnings growth for our shareholders in 2019. We believe our
businesses are well positioned to sustain continued out-performance in
the year ahead, and we particularly look forward to welcoming ASP into
the Fortive family and discussing the attractive opportunities ahead
when the transaction closes.”
Fortive will discuss results and outlook during its quarterly investor
conference call today starting at 5:30 p.m. ET. The call and an
accompanying slide presentation will be webcast on the “Investors”
section of the website, www.fortive.com,
under “Events & Presentations.” A replay of the webcast will be
available at the same location shortly after the conclusion of the
presentation and will remain available until the next quarterly earnings
call.
The conference call can be accessed by dialing 844-443-2871 within the
U.S. or by dialing 213-660-0916 outside the U.S. a few minutes before
5:30 p.m. ET and notifying the operator that you are dialing in for
Fortive’s earnings conference call (access code 5894859). A replay of
the conference call will be available two hours after the completion of
the call until Friday, February 22, 2019. Once available, you can access
the conference call replay by dialing 800-585-8367 within the U.S. or
404-537-3406 outside the U.S. (access code 5894859) or visit the
“Investors” section of the website under “Events & Presentations.”
ABOUT FORTIVE
Fortive is a diversified industrial growth company comprised of
Professional Instrumentation and Industrial Technologies businesses that
are recognized leaders in attractive markets. Fortive’s well-known
brands hold leading positions in field instrumentation, transportation,
sensing, product realization, and franchise distribution. Fortive is
headquartered in Everett, Washington and employs a team of more than
24,000 research and development, manufacturing, sales, distribution,
service and administrative employees in more than 50 countries around
the world. With a culture rooted in continuous improvement, the core of
our company’s operating model is the Fortive Business System. For more
information please visit: www.fortive.com.
DIVESTITURE OF THE A&S BUSINESS
On October 1, 2018, Fortive completed the previously announced split-off
of its Automation & Specialty platform (excluding Fortive’s Hengstler
and Dynapar businesses) (the “A&S Business”) and the operating results
and related assets and liabilities of the A&S Business are presented as
discontinued operations for all periods.
NON-GAAP FINANCIAL MEASURES
In addition to the financial measures prepared in accordance with
generally accepted accounting principles (GAAP), this earnings release
also references “adjusted net earnings,” “adjusted diluted net earnings
per share,” and “core revenue,” which are non-GAAP financial measures.
The reasons why we believe these measures, when used in conjunction with
the GAAP financial measures, provide useful information to investors,
how management uses such non-GAAP financial measures, a reconciliation
of these measures to the most directly comparable GAAP measures and
other information relating to these measures are included in the
supplemental reconciliation schedule attached. The non-GAAP financial
measures should not be considered in isolation or as a substitute for
the GAAP financial measures, but should instead be read in conjunction
with the GAAP financial measures. The non-GAAP financial measures used
by Fortive in this release may be different from similarly-titled
non-GAAP measures used by other companies.
FORWARD-LOOKING STATEMENTS
Statements in this release that are not strictly historical, statements
regarding Fortive’s anticipated earnings, business and acquisition
opportunities, timing of acquisitions and dispositions, anticipated
revenue growth, anticipated operating margin expansion, anticipated cash
flow, economic conditions, future prospects, shareholder value, and any
other statements identified by their use of words like “anticipate,”
“expect,” “believe,” “outlook,” “guidance,” or “will” or other words of
similar meaning are “forward-looking” statements within the meaning of
the federal securities laws. There are a number of important factors
that could cause actual results, developments and business decisions to
differ materially from those suggested or indicated by such
forward-looking statements and you should not place undue reliance on
any such forward-looking statements. These factors include, among other
things: deterioration of or instability in the economy, the markets we
serve, international trade policies and the financial markets, changes
in trade relations with China, contractions or lower growth rates and
cyclicality of markets we serve, competition, changes in industry
standards and governmental regulations, our ability to successfully
identify, consummate, integrate and realize the anticipated value of
appropriate acquisitions and successfully complete divestitures and
other dispositions, our ability to develop and successfully market new
products, software, and services and expand into new markets, the
potential for improper conduct by our employees, agents or business
partners, contingent liabilities relating to acquisitions and
divestitures, impact of changes to tax laws, our compliance with
applicable laws and regulations and changes in applicable laws and
regulations, risks relating to international economic, political, legal,
compliance and business factors, risks relating to potential impairment
of goodwill and other intangible assets, currency exchange rates, tax
audits and changes in our tax rate and income tax liabilities, the
impact of our debt obligations on our operations, litigation and other
contingent liabilities including intellectual property and
environmental, health and safety matters, our ability to adequately
protect our intellectual property rights, risks relating to product,
service or software defects, product liability and recalls, risks
relating to product manufacturing, our relationships with and the
performance of our channel partners, commodity costs and surcharges, our
ability to adjust purchases and manufacturing capacity to reflect market
conditions, reliance on sole sources of supply, security breaches or
other disruptions of our information technology systems, adverse effects
of restructuring activities, labor matters, and disruptions relating to
man-made and natural disasters. Additional information regarding the
factors that may cause actual results to differ materially from these
forward-looking statements is available in our SEC filings, including
our Annual Report on Form 10-K for the year ended December 31, 2017 and
our Quarterly Report on Form 10-Q for the quarters ended March 30, 2018
and June 29, 2018. These forward-looking statements speak only as of the
date of this release, and Fortive does not assume any obligation to
update or revise any forward-looking statement, whether as a result of
new information, future events and developments or otherwise.
|
|
|
FORTIVE CORPORATION AND SUBSIDIARIES
|
|
|
CONSOLIDATED BALANCE SHEETS
|
|
|
($ and shares in millions, except per share amounts)
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
As of December 31
|
|
|
2018
|
|
2017
|
ASSETS
|
|
|
|
|
Current assets:
|
|
|
|
|
Cash and equivalents
|
|
$
|
1,178.4
|
|
|
$
|
962.1
|
|
Accounts receivable less allowance for doubtful accounts of $54.9
million and $43.2 million at December 31, 2018 and December 31,
2017, respectively
|
|
1,195.1
|
|
|
1,020.5
|
|
Inventories
|
|
574.5
|
|
|
506.7
|
|
Prepaid expenses and other current assets
|
|
193.2
|
|
|
243.7
|
|
Current assets, discontinued operations
|
|
30.0
|
|
|
203.8
|
|
Total current assets
|
|
3,171.2
|
|
|
2,936.8
|
|
Property, plant and equipment, net
|
|
576.1
|
|
|
610.4
|
|
Other assets
|
|
548.9
|
|
|
469.5
|
|
Goodwill
|
|
6,133.1
|
|
|
4,560.3
|
|
Other intangible assets, net
|
|
2,476.3
|
|
|
1,256.4
|
|
Other assets, discontinued operations
|
|
—
|
|
|
667.2
|
|
Total assets
|
|
$
|
12,905.6
|
|
|
$
|
10,500.6
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
Current liabilities:
|
|
|
|
|
Notes payable and current portion of long-term debt
|
|
$
|
455.6
|
|
|
$
|
—
|
|
Trade accounts payable
|
|
706.5
|
|
|
629.0
|
|
Accrued expenses and other current liabilities
|
|
999.3
|
|
|
815.3
|
|
Current liabilities, discontinued operations
|
|
30.7
|
|
|
158.0
|
|
Total current liabilities
|
|
2,192.1
|
|
|
1,602.3
|
|
Other long-term liabilities
|
|
1,125.9
|
|
|
969.7
|
|
Long-term debt
|
|
2,974.7
|
|
|
4,056.2
|
|
Long-term liabilities, discontinued operations
|
|
—
|
|
|
64.2
|
|
Equity:
|
|
|
|
|
5.0% Mandatory convertible preferred stock, series A: $0.01 par
value, 15.0 million shares authorized; 1.4 million shares issued and
outstanding at December 31, 2018; no shares issued or outstanding at
December 31, 2017
|
|
—
|
|
|
—
|
|
Common stock: $0.01 par value, 2.0 billion shares authorized; 335.1
million and 348.2 million issued; 334.5 million and 347.8 million
outstanding at December 31, 2018 and December 31, 2017, respectively
|
|
3.4
|
|
|
3.5
|
|
Additional paid-in capital
|
|
3,126.0
|
|
|
2,444.1
|
|
Retained earnings
|
|
3,552.7
|
|
|
1,350.3
|
|
Accumulated other comprehensive income (loss)
|
|
(86.6
|
)
|
|
(7.6
|
)
|
Total Fortive stockholders’ equity
|
|
6,595.5
|
|
|
3,790.3
|
|
Noncontrolling interests
|
|
17.4
|
|
|
17.9
|
|
Total stockholders’ equity
|
|
6,612.9
|
|
|
3,808.2
|
|
Total liabilities and stockholders’ equity
|
|
$
|
12,905.6
|
|
|
$
|
10,500.6
|
|
This information is presented for reference only. Final audited
financial statements will include footnotes, which should be
referenced when available, to more fully understand the contents of
this information.
|
|
|
|
|
|
|
|
FORTIVE CORPORATION AND SUBSIDIARIES
|
CONSOLIDATED STATEMENTS OF EARNINGS
|
($ and shares in millions, except per share amounts)
|
(unaudited)
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Year Ended
|
|
|
December 31,
2018
|
|
December 31,
2017
|
|
|
December 31,
2018
|
|
December 31,
2017
|
Sales
|
|
$
|
1,757.5
|
|
|
$
|
1,577.9
|
|
|
|
$
|
6,452.7
|
|
|
$
|
5,756.1
|
|
Cost of sales
|
|
(859.2
|
)
|
|
(764.3
|
)
|
|
|
(3,131.4
|
)
|
|
(2,834.7
|
)
|
Gross profit
|
|
898.3
|
|
|
813.6
|
|
|
|
3,321.3
|
|
|
2,921.4
|
|
Operating costs:
|
|
|
|
|
|
|
|
|
|
Selling, general, and administrative expenses
|
|
(495.0
|
)
|
|
(409.0
|
)
|
|
|
(1,728.6
|
)
|
|
(1,409.1
|
)
|
Research and development expenses
|
|
(108.8
|
)
|
|
(99.6
|
)
|
|
|
(414.3
|
)
|
|
(369.3
|
)
|
Operating profit
|
|
294.5
|
|
|
305.0
|
|
|
|
1,178.4
|
|
|
1,143.0
|
|
Non-operating income (expense):
|
|
|
|
|
|
|
|
|
|
Gain from acquisition
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
15.3
|
|
Interest expense, net
|
|
(26.7
|
)
|
|
(24.7
|
)
|
|
|
(97.0
|
)
|
|
(88.7
|
)
|
Other non-operating expenses
|
|
(0.4
|
)
|
|
6.3
|
|
|
|
(3.0
|
)
|
|
4.0
|
|
Earnings from continuing operations before income taxes
|
|
267.4
|
|
|
286.6
|
|
|
|
1,078.4
|
|
|
1,073.6
|
|
Income taxes
|
|
(27.3
|
)
|
|
11.1
|
|
|
|
(160.1
|
)
|
|
(189.3
|
)
|
Net earnings from continuing operations
|
|
240.1
|
|
|
297.7
|
|
|
|
918.3
|
|
|
884.3
|
|
Mandatory convertible preferred dividends
|
|
(17.3
|
)
|
|
—
|
|
|
|
(34.9
|
)
|
|
—
|
|
Net earnings from continuing operations attributable to common
stockholders
|
|
222.8
|
|
|
297.7
|
|
|
|
883.4
|
|
|
884.3
|
|
Earnings from discontinued operations, net of income taxes
|
|
1,872.2
|
|
|
39.2
|
|
|
|
1,995.5
|
|
|
160.2
|
|
Net earnings attributable to common stockholders
|
|
$
|
2,095.0
|
|
|
$
|
336.9
|
|
|
|
$
|
2,878.9
|
|
|
$
|
1,044.5
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per share from continuing operations:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.67
|
|
|
$
|
0.86
|
|
|
|
$
|
2.56
|
|
|
$
|
2.54
|
|
Diluted
|
|
$
|
0.66
|
|
|
$
|
0.84
|
|
|
|
$
|
2.52
|
|
|
$
|
2.51
|
|
Net earnings per share from discontinued operations:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
5.60
|
|
|
$
|
0.11
|
|
|
|
$
|
5.78
|
|
|
$
|
0.46
|
|
Diluted
|
|
$
|
5.52
|
|
|
$
|
0.11
|
|
|
|
$
|
5.69
|
|
|
$
|
0.45
|
|
Net earnings per share:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
6.26
|
|
|
$
|
0.97
|
|
|
|
$
|
8.33
|
|
|
$
|
3.01
|
|
Diluted
|
|
$
|
6.17
|
|
|
$
|
0.95
|
|
|
|
$
|
8.21
|
|
|
$
|
2.96
|
|
Average common stock and common equivalent shares outstanding:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
334.6
|
|
|
348.1
|
|
|
|
345.5
|
|
|
347.5
|
|
Diluted
|
|
339.3
|
|
|
353.9
|
|
|
|
350.7
|
|
|
352.6
|
|
This information is presented for reference only. Final audited
financial statements will include footnotes, which should be
referenced when available, to more fully understand the contents of
this information.
|
|
|
|
|
FORTIVE CORPORATION AND SUBSIDIARIES
|
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
|
($ in millions)
|
(unaudited)
|
|
|
|
|
|
Year Ended December 31
|
|
|
2018
|
|
2017
|
|
2016
|
Cash flows from operating activities:
|
|
|
|
|
|
|
Net earnings from continuing operations
|
|
$
|
918.3
|
|
|
$
|
884.3
|
|
|
$
|
740.2
|
|
Noncash items:
|
|
|
|
|
|
|
Depreciation
|
|
125.7
|
|
|
93.3
|
|
|
75.6
|
|
Amortization
|
|
135.1
|
|
|
65.0
|
|
|
85.3
|
|
Stock-based compensation expense
|
|
50.8
|
|
|
44.2
|
|
|
40.7
|
|
Impairment charges on intangible assets
|
|
1.1
|
|
|
2.3
|
|
|
4.8
|
|
Gain on acquisition
|
|
—
|
|
|
(15.3
|
)
|
|
—
|
|
Gain on sale of property
|
|
—
|
|
|
(8.0
|
)
|
|
—
|
|
Change in deferred income taxes
|
|
7.7
|
|
|
(61.0
|
)
|
|
(15.3
|
)
|
Change in trade accounts receivable, net
|
|
(105.9
|
)
|
|
(55.4
|
)
|
|
33.8
|
|
Change in inventories
|
|
(73.4
|
)
|
|
17.5
|
|
|
(31.3
|
)
|
Change in trade accounts payable
|
|
76.2
|
|
|
17.7
|
|
|
12.3
|
|
Change in prepaid expenses and other assets
|
|
63.3
|
|
|
(100.5
|
)
|
|
(16.7
|
)
|
Change in accrued expenses and other liabilities
|
|
2.4
|
|
|
136.0
|
|
|
53.0
|
|
Total operating cash provided by continuing operations
|
|
1,201.3
|
|
|
1,020.1
|
|
|
982.4
|
|
Total operating cash provided by discontinued operations
|
|
143.1
|
|
|
156.3
|
|
|
154.5
|
|
Net cash provided by operating activities
|
|
1,344.4
|
|
|
1,176.4
|
|
|
1,136.9
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
Cash paid for acquisitions, net of cash received
|
|
(2,815.1
|
)
|
|
(1,556.6
|
)
|
|
(190.1
|
)
|
Payments for additions to property, plant and equipment
|
|
(112.3
|
)
|
|
(111.1
|
)
|
|
(110.1
|
)
|
Proceeds from sale of property
|
|
—
|
|
|
21.5
|
|
|
9.0
|
|
All other investing activities
|
|
(42.1
|
)
|
|
1.5
|
|
|
—
|
|
Total investing cash used in continuing operations
|
|
(2,969.5
|
)
|
|
(1,644.7
|
)
|
|
(291.2
|
)
|
Total investing cash provided by discontinued operations
|
|
1,002.9
|
|
|
(25.0
|
)
|
|
(19.6
|
)
|
Net cash used in investing activities
|
|
(1,966.6
|
)
|
|
(1,669.7
|
)
|
|
(310.8
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
Net (repayments of) proceeds from borrowings (maturities of 90 days
or less)
|
|
(266.1
|
)
|
|
556.2
|
|
|
373.8
|
|
Proceeds from borrowings (maturities greater than 90 days)
|
|
1,750.0
|
|
|
125.9
|
|
|
2,978.1
|
|
Repayment of borrowings (maturities greater than 90 days)
|
|
(1,850.0
|
)
|
|
—
|
|
|
—
|
|
Proceeds from issuance of mandatory convertible preferred stock, net
of $43 million of issuance costs
|
|
1,337.4
|
|
|
—
|
|
|
—
|
|
Payment of common stock cash dividend to shareholders
|
|
(96.6
|
)
|
|
(97.2
|
)
|
|
(48.4
|
)
|
Payment of mandatory convertible preferred stock cash dividend to
shareholders
|
|
(34.9
|
)
|
|
—
|
|
|
—
|
|
Payment of cash dividend to former Parent
|
|
—
|
|
|
—
|
|
|
(3,000.0
|
)
|
Net transfers to former Parent
|
|
—
|
|
|
—
|
|
|
(301.4
|
)
|
Other financing activities
|
|
39.3
|
|
|
13.4
|
|
|
0.3
|
|
Total financing cash provided by continuing operations
|
|
879.1
|
|
|
598.3
|
|
|
2.4
|
|
Total financing cash provided by discontinued operations
|
|
—
|
|
|
1.4
|
|
|
1.4
|
|
Net cash provided by financing activities
|
|
879.1
|
|
|
599.7
|
|
|
3.8
|
|
Effect of exchange rate changes on cash and equivalents
|
|
(40.6
|
)
|
|
52.5
|
|
|
(26.7
|
)
|
Net change in cash and equivalents
|
|
216.3
|
|
|
158.9
|
|
|
803.2
|
|
Beginning balance of cash and equivalents
|
|
962.1
|
|
|
803.2
|
|
|
—
|
|
Ending balance of cash and equivalents
|
|
$
|
1,178.4
|
|
|
$
|
962.1
|
|
|
$
|
803.2
|
|
This information is presented for reference only. Final audited
financial statements will include footnotes, which should be
referenced when available, to more fully understand the contents of
this information.
|
|
|
|
|
|
|
|
FORTIVE CORPORATION AND SUBSIDIARIES
|
SEGMENT INFORMATION
|
($ in millions)
|
(unaudited)
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Year Ended
|
|
|
December 31,
2018
|
|
December 31,
2017
|
|
|
December 31,
2018
|
|
December 31,
2017
|
Sales:
|
|
|
|
|
|
|
|
|
|
Professional Instrumentation
|
|
$
|
1,000.3
|
|
|
$
|
877.2
|
|
|
|
$
|
3,655.1
|
|
|
$
|
3,139.1
|
|
Industrial Technologies
|
|
757.2
|
|
|
700.7
|
|
|
|
2,797.6
|
|
|
2,617.0
|
|
Total
|
|
$
|
1,757.5
|
|
|
$
|
1,577.9
|
|
|
|
$
|
6,452.7
|
|
|
$
|
5,756.1
|
|
|
|
|
|
|
|
|
|
|
|
Operating Profit:
|
|
|
|
|
|
|
|
|
|
Professional Instrumentation
|
|
$
|
161.3
|
|
|
$
|
189.7
|
|
|
|
$
|
749.6
|
|
|
$
|
712.9
|
|
Industrial Technologies
|
|
155.1
|
|
|
136.1
|
|
|
|
525.6
|
|
|
503.6
|
|
Other (a)
|
|
(21.9
|
)
|
|
(20.8
|
)
|
|
|
(96.8
|
)
|
|
(73.5
|
)
|
Total
|
|
$
|
294.5
|
|
|
$
|
305.0
|
|
|
|
$
|
1,178.4
|
|
|
$
|
1,143.0
|
|
|
|
|
|
|
|
|
|
|
|
Operating Margins:
|
|
|
|
|
|
|
|
|
|
Professional Instrumentation
|
|
16.1
|
%
|
|
21.6
|
%
|
|
|
20.5
|
%
|
|
22.7
|
%
|
Industrial Technologies
|
|
20.5
|
%
|
|
19.4
|
%
|
|
|
18.8
|
%
|
|
19.2
|
%
|
Total
|
|
16.8
|
%
|
|
19.3
|
%
|
|
|
18.3
|
%
|
|
19.9
|
%
|
(a) Operating profit amounts in the Other category
consist of unallocated corporate costs and other costs not
considered part of our evaluation of reportable segment operating
performance.
|
|
This information is presented for reference only. Final audited
financial statements will include footnotes, which should be
referenced when available, to more fully understand the contents of
this information.
|
|
FORTIVE CORPORATION AND SUBSIDIARIES
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
AND OTHER INFORMATION
Adjusted Net Earnings from Continuing Operations and Adjusted Diluted
Net Earnings per Share from Continuing Operations
We disclose the non-GAAP measures of historical adjusted net earnings
from continuing operations and historical and forecasted adjusted
diluted net earnings per share from continuing operations, which make
the following adjustments to GAAP net earnings and GAAP diluted net
earnings per share:
-
Excluding on a pretax basis amortization of acquisition-related
intangible assets;
-
Excluding on a pretax basis acquisition-related costs deemed
significant (“Transaction Costs”);
-
Excluding on a pretax basis the effect of deferred revenue fair value
adjustments related to significant acquisitions;
-
Excluding on a pretax basis a non-recurring gain resulting from the
sale of real property (“Gain on Sale of Real Property”); and
-
Excluding the tax effect of the adjustments noted above. The tax
effect of such adjustments was calculated by applying our overall
estimated effective tax rate to the pretax amount of each adjustment
(unless the nature of the item and/or the tax jurisdiction in which
the item has been recorded requires application of a specific tax rate
or tax treatment, in which case the tax effect of such item is
estimated by applying such specific tax rate or tax treatment). We
expect to apply our overall estimated effective tax rate to each
adjustment going forward, and, as such, we are applying the estimated
effective tax rate to each adjustment for the forecasted periods to
facilitate comparisons in future periods;
-
Excluding a non-recurring gain on a prior investment as a result of a
corresponding acquisition (“Gain from Acquisition”);
-
Excluding the 2017 provisional amount estimated in connection with the
Tax Cut and Jobs Act (the “TCJA Adjustments”) and subsequent
adjustments to the provisional estimates; and
-
Including the impact of the assumed conversion of our Mandatory
Convertible Preferred Stock.
While we have a history of acquisition activity, we do not acquire
businesses on a predictable cycle, and the amount of an acquisition’s
purchase price allocated to intangible assets and related amortization
term and the deferred revenue fair value adjustments are unique to each
acquisition and can vary significantly from acquisition to acquisition.
In addition, the Transaction Costs are unique to each transaction, are
impacted from period to period depending on the number of acquisitions
or divestitures evaluated, pending or completed during such period, and
the complexity of such transactions. We believe, however, that it is
important for investors to understand that such intangible assets
contribute to revenue generation and that intangible assets and deferred
revenue fair value adjustments related to past acquisitions will recur
in future periods until such intangible assets and deferred revenue fair
value adjustments, as applicable, have been fully amortized.
In June 2018, we issued $1.38 billion in aggregate liquidation
preference of shares of our 5.00% Mandatory Convertible Preferred Stock
(“MCPS”). Dividends on the MCPS are payable on a cumulative basis at an
annual rate of 5.00% on the liquidation preference of $1,000 per share.
Unless earlier converted, each share of the MCPS will automatically
convert on July 1, 2021 into between, after giving effect to the prior
anti-dilution adjustment, 10.9041 and 13.3575 shares of our common
stock, subject to further anti-dilution adjustments. The number of
shares of our common stock issuable on conversion of the Mandatory
Convertible Preferred Stock will be determined based on the average
volume weighted average price (“VWAP”) per share of our common stock
over the 20 consecutive trading day period beginning on and including
the 22nd scheduled trading day immediately preceding July 1, 2021. For
the purposes of calculating adjusted earnings and adjusted earnings per
share, we have excluded the MCPS dividend and, for the purposes of
adjusted earnings per share, assumed the “if-converted” method of share
dilution (the incremental shares of common stock deemed outstanding
applying the “if-converted” method of share dilution, the “Converted
Shares”). We believe that using the “if-converted” method provides
additional insight to investors on the potential impact of the MCPS once
they are converted into common stock no later than July 1, 2021.
The forecasted adjusted diluted net earnings per share from continuing
operations does not reflect certain adjustments that are inherently
difficult to predict or estimate due to their unknown timing, effect
and/or significance.
The TCJA Adjustments identified above have been excluded from the GAAP
measures identified above because items of this nature and/or size occur
with inconsistent frequency or occur for reasons that may be unrelated
to our commercial performance during the period and/or because we
believe the corresponding adjustments are useful in assessing our
potential ongoing operating costs or gains in a given period. We will
adjust for, and identify as significant, acquisition and
divestiture-related transaction costs, acquisition related fair value
adjustments to inventory and deferred revenue, and corresponding
restructuring charges primarily related to acquisitions, in each case,
incurred in a given period, if we determine that such costs and
adjustments exceed the range of our typical transaction costs and
adjustments, respectively, in a given period.
Management believes that these non-GAAP financial measures provide
useful information to investors by reflecting additional ways of viewing
aspects of our operations that, when reconciled to the corresponding
GAAP measure, help our investors to understand the long-term
profitability trends of our business, and facilitate comparisons of our
profitability to prior and future periods and to our peers.
These non-GAAP measures should be considered in addition to, and not as
a replacement for or superior to, the comparable GAAP measures, and may
not be comparable to similarly titled measures reported by other
companies.
Core Revenue
We use the term “core revenue” when referring to a corresponding GAAP
revenue measure, excluding (1) the impact from acquired businesses and
(2) the impact of currency translation. References to sales attributable
to acquisitions or acquired businesses refer to GAAP sales from acquired
businesses recorded prior to the first anniversary of the acquisition
less the amount of sales attributable to certain divested businesses or
product lines not considered discontinued operations prior to the first
anniversary of the divestiture. The portion of sales attributable to the
impact of currency translation is calculated as the difference between
(a) the period-to-period change in sales (excluding sales impact from
acquired businesses) and (b) the period-to-period change in sales
(excluding sales impact from acquired businesses) after applying the
current period foreign exchange rates to the prior year period. This
non-GAAP measure should be considered in addition to, and not as a
replacement for or superior to, the comparable GAAP measure, and may not
be comparable to similarly titled measures reported by other companies.
Management believes that this non-GAAP measure provides useful
information to investors by helping identify underlying growth trends in
our business and facilitating comparisons of our revenue performance
with prior and future periods and to our peers. We exclude the effect of
acquisitions 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 measures because currency translation is not
under management’s control and is subject to volatility. We believe that
such exclusions, when presented with the corresponding GAAP measures,
may assist in assessing the business trends and making comparisons of
long-term performance.
|
|
|
|
|
|
Adjusted Net Earnings From Continuing Operations
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Year Ended
|
($ in millions)
|
|
December 31,
2018
|
|
December 31,
2017
|
|
|
December 31,
2018
|
|
December 31,
2017
|
Net Earnings From Continuing Operations Attributable to Common
Shareholders (GAAP)
|
|
$
|
222.8
|
|
|
$
|
297.7
|
|
|
|
$
|
883.4
|
|
|
$
|
884.3
|
|
Dividends on the mandatory convertible preferred stock to apply
if-converted method
|
|
17.3
|
|
|
—
|
|
|
|
34.9
|
|
|
—
|
|
Net Earnings from Continuing Operations (GAAP)
|
|
240.1
|
|
|
297.7
|
|
|
|
918.3
|
|
|
884.3
|
|
Pretax amortization of acquisition-related intangible assets in the
three months ($54 million pretax, $45 million after tax) and year
ended ($135 million pretax, $113 million after tax) December 31,
2018, and in the three months ($24 million pretax, $19 million after
tax) and year ended ($65 million pretax, $49 million after tax)
December 31, 2017
|
|
53.8
|
|
|
24.0
|
|
|
|
135.2
|
|
|
65.3
|
|
Acquisition-related transaction costs in the three months ($27
million pretax, $22 million after tax) and year ended ($67 million
pretax, $56 million after tax) December 31, 2018 and in the three
months ($11 million pretax, $8 million after tax) and year ended
($22 million pretax, $16 million after tax) December 31, 2017
|
|
26.8
|
|
|
10.6
|
|
|
|
67.4
|
|
|
21.8
|
|
Acquisition-related fair value adjustments to deferred revenue
related to completed acquisitions in the three months ($31 million
pretax, $26 million after tax) and year ended ($34 million pretax,
$28 million after tax) December 31, 2018
|
|
31.4
|
|
|
—
|
|
|
|
34.4
|
|
|
—
|
|
Gain on sale of real property in the three months and year ended
December 31, 2017 ($8 million pretax, $5 million after tax)
|
|
—
|
|
|
(8.0
|
)
|
|
|
—
|
|
|
(8.0
|
)
|
Tax effect of the adjustments reflected above (a)
|
|
(19.5
|
)
|
|
(4.6
|
)
|
|
|
(42.0
|
)
|
|
(18.6
|
)
|
Gain from acquisition in the year ended December 31, 2017 ($15
million after tax)
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
(15.3
|
)
|
TCJA adjustments
|
|
(7.5
|
)
|
|
(70.3
|
)
|
|
|
(12.5
|
)
|
|
(70.3
|
)
|
Adjusted Net Earnings from Continuing Operations (Non-GAAP)
|
|
$
|
325.1
|
|
|
$
|
249.4
|
|
|
|
$
|
1,100.8
|
|
|
$
|
859.2
|
|
(a) The MCPS are not tax deductible and therefore the tax effect of
the adjustments includes only the amortization of
acquisition-related intangible assets, acquisition-related
transaction costs, acquisition-related fair value adjustments to
deferred revenue, and the gain on sale of real property.
|
|
|
|
|
|
|
|
Adjusted Diluted Net Earnings Per Share from Continuing
Operations
|
|
|
|
|
|
|
|
|
Three Months Ended
(a)
|
|
|
Year Ended
(a)
|
|
|
December 31,
2018
|
|
December 31,
2017
|
|
|
December 31,
2018
|
|
December 31,
2017
|
Diluted Net Earnings Per Share from Continuing Operations
Attributable to Common Stockholders (GAAP)
|
|
$
|
0.66
|
|
|
$
|
0.84
|
|
|
|
$
|
2.52
|
|
|
$
|
2.51
|
|
Dividends on the mandatory convertible preferred stock to apply
if-converted method
|
|
0.05
|
|
|
—
|
|
|
|
0.10
|
|
|
—
|
|
Assumed dilutive impact on the Diluted Net Earnings Per Share
Attributable to Common Stockholders if the Converted Shares had been
outstanding
|
|
(0.04
|
)
|
|
—
|
|
|
|
(0.06
|
)
|
|
—
|
|
Pretax amortization of acquisition-related intangible assets in the
three months ($54 million pretax, $45 million after tax) and year
ended ($135 million pretax, $113 million after tax) December 31,
2018, and in the three months ($24 million pretax, $19 million after
tax) and year ended ($65 million pretax, $49 million after tax)
December 31, 2017
|
|
0.15
|
|
|
0.07
|
|
|
|
0.38
|
|
|
0.19
|
|
Acquisition-related transaction costs in the three months ($27
million pretax, $22 million after tax) and year ended ($67 million
pretax, $56 million after tax) December 31, 2018 and in the three
months ($11 million pretax, $8 million after tax) and year ended
($22 million pretax, $16 million after tax) December 31, 2017
|
|
0.07
|
|
|
0.03
|
|
|
|
0.19
|
|
|
0.06
|
|
Acquisition-related fair value adjustments to deferred revenue
related to completed acquisitions in the three months ($31 million
pretax, $26 million after tax) and year ended ($34 million pretax,
$28 million after tax) December 31, 2018
|
|
0.09
|
|
|
—
|
|
|
|
0.10
|
|
|
—
|
|
Gain on sale of real property in the three months and year ended
December 31, 2017 ($8 million pretax, $5 million after tax)
|
|
—
|
|
|
(0.02
|
)
|
|
|
—
|
|
|
(0.02
|
)
|
Tax effect of the adjustments reflected above (b)
|
|
(0.05
|
)
|
|
(0.01
|
)
|
|
|
(0.12
|
)
|
|
(0.05
|
)
|
Gain from acquisition in the year ended December 31, 2017 ($15
million after tax)
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
(0.04
|
)
|
TCJA Adjustments
|
|
(0.02
|
)
|
|
(0.20
|
)
|
|
|
(0.03
|
)
|
|
(0.20
|
)
|
Adjusted Diluted Net Earnings Per Share from Continuing
Operations (Non-GAAP)
|
|
$
|
0.91
|
|
|
$
|
0.70
|
|
|
|
$
|
3.06
|
|
|
$
|
2.44
|
|
(a) Each of the per share adjustments below was calculated assuming
the Converted Shares had been outstanding.
|
(b) The MCPS are not tax deductible and therefore the tax effect of
the adjustments includes only the amortization of
acquisition-related intangible assets, acquisition-related
transaction costs, acquisition-related fair value adjustments to
deferred revenue, and the gain on sale of real property.
|
|
The sum of the components of adjusted diluted net earnings per share
from continuing operations may not equal due to rounding.
|
|
|
|
|
|
|
|
Adjusted Diluted Shares Outstanding
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Year Ended
|
(shares in millions)
|
|
December 31,
2018
|
|
December 31,
2017
|
|
|
December 31,
2018
|
|
December 31,
2017
|
Average common diluted stock outstanding
|
|
339.3
|
|
353.9
|
|
|
350.7
|
|
352.6
|
Converted Shares (a)
|
|
18.4
|
|
—
|
|
|
8.7
|
|
—
|
Adjusted average common stock and common equivalent shares
outstanding
|
|
357.7
|
|
353.9
|
|
|
359.4
|
|
352.6
|
(a) The number of Converted Shares assumes the conversion of all
1.38 million shares applying the “if-converted” method and using an
average 20-day VWAP of $69.06 as of December 31, 2018.
|
|
|
|
|
|
|
|
Core Revenue Growth
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Change
Three Months Ended
December 31,
2018 vs.
Comparable 2017
Period
|
|
|
% Change
Year Ended
December 31, 2018
vs.
Comparable 2017
Period
|
Total Revenue Growth (GAAP)
|
|
11.4
|
%
|
|
|
12.1
|
%
|
Core (Non-GAAP)
|
|
7.4
|
%
|
|
|
4.1
|
%
|
Acquisitions (Non-GAAP)
|
|
5.8
|
%
|
|
|
7.6
|
%
|
Impact of currency translation (Non-GAAP)
|
|
(1.8
|
)%
|
|
|
0.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forecasted Adjusted Diluted Net Earnings Per Share from
Continuing Operations
|
|
|
|
|
|
|
|
|
Three Months Ending
March 29, 2019
|
|
|
Year Ending
December 31, 2019
|
|
|
Low End
|
|
High End
|
|
|
Low End
|
|
High End
|
Forecasted Diluted Net Earnings Per Share from Continuing
Operations Attributable to Common Stockholders
|
|
$
|
0.40
|
|
|
$
|
0.44
|
|
|
|
$
|
2.56
|
|
|
$
|
2.66
|
|
Anticipated dividends on mandatory convertible preferred stock in
the three months ending March 29, 2019 ($17 million) and year ending
December 31, 2019 ($69 million)
|
|
0.05
|
|
|
0.05
|
|
|
|
0.20
|
|
|
0.20
|
|
Anticipated dilutive impact on Forecasted Diluted Net Earnings Per
Share from Continuing Operations if the Converted Shares (18.4
million shares in the three months ending March 29, 2019 and year
ending December 31, 2019) had been outstanding
|
|
(0.02
|
)
|
|
(0.02
|
)
|
|
|
(0.14
|
)
|
|
(0.14
|
)
|
Impact of anticipated pretax amortization of acquisition-related
intangible assets in the three months ending March 29, 2019 ($51
million pretax (or $0.14 per share), $42 million after tax (or $0.12
per share)) and year ending December 31, 2019 ($202 million pretax
(or $0.56 per share), $167 million after tax (or $0.46 per share))
|
|
0.14
|
|
|
0.14
|
|
|
|
0.56
|
|
|
0.56
|
|
Anticipated pretax significant acquisition-related transaction costs
in the three months ending March 29, 2019 ($34 million pretax (or
$0.10 per share), $28 million after tax (or $0.08 per share)) and
the year ending December 31, 2019 ($110 million pretax (or $0.31 per
share), $91 million after tax (or $0.26 per share))
|
|
0.10
|
|
|
0.10
|
|
|
|
0.31
|
|
|
0.31
|
|
Anticipated pretax fair value adjustments to deferred revenue
related to completed significant acquisition in the three months
ending March 29, 2019 ($15 million pretax (or $0.04 per share), $12
million after tax (or $0.03 per share)) and year ending December 31,
2019 ($24 million pretax (or $0.07 per share), $20 million after tax
(or $0.05 share)
|
|
0.04
|
|
|
0.04
|
|
|
|
0.07
|
|
|
0.07
|
|
Tax effect of the adjustments reflected above (a)
|
|
(0.07
|
)
|
|
(0.07
|
)
|
|
|
(0.16
|
)
|
|
(0.16
|
)
|
Forecasted Adjusted Diluted Net Earnings Per Share from
Continuing Operations
|
|
$
|
0.64
|
|
|
$
|
0.68
|
|
|
|
$
|
3.40
|
|
|
$
|
3.50
|
|
(a) The MCPS are not tax deductible and therefore the tax effect of
the adjustments includes only the amortization of
acquisition-related intangible assets, acquisition-related
transaction costs, and acquisition-related fair value adjustments to
deferred revenue.
|
|
The sum of the components of forecasted adjusted diluted net
earnings per share from continuing operations may not equal due to
rounding.
|
Griffin Whitney
Investor Relations
Fortive Corporation
6920 Seaway Boulevard
Everett, WA 98203
Telephone: (425) 446-5000