Form: 10-Q

Quarterly report pursuant to Section 13 or 15(d)

April 30, 2020

Documents

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 UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________________________
FORM 10-Q
 ________________________________________________
(Mark One)  
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: March 27, 2020
Or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from            to            
Commission file number 1-37654
 ________________________________________________
Fortive Corporation
(Exact name of registrant as specified in its charter)
________________________________________________ 
 
Delaware   47-5654583
(State or other jurisdiction of
incorporation or organization)		   (I.R.S. employer
identification number)

6920 Seaway Blvd
Everett, WA 98203
(Address of principal executive offices) (Zip code)
Registrant’s telephone number, including area code: (425) 446-5000

Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading symbols Name of each exchange on which registered
Common stock, par value $0.01 per share FTV New York Stock Exchange
5% Mandatory convertible preferred stock, Series A, par value $0.01 per share FTV. PRA New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.






Large accelerated filer ☒ Accelerated filer ☐
Non-accelerated filer ☐ Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of shares of common stock outstanding at April 23, 2020 was 336,856,117.



FORTIVE CORPORATION
INDEX
FORM 10-Q
 
PART I - FINANCIAL INFORMATION Page
Item 1.
Item 2.
Item 3.
Item 4.
PART II - OTHER INFORMATION
Item 1A.
Item 2.
Item 6.

3
Table of Contents
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

FORTIVE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
($ in millions, except per share amounts)
  As of
  March 27, 2020 December 31, 2019
  (unaudited)  
ASSETS
Current assets:
Cash and equivalents $ 1,040.5    $ 1,205.2   
Accounts receivable, net 1,317.6    1,384.5   
Inventories:
Finished goods 282.7    285.6   
Work in process 103.1    100.4   
Raw materials 264.6    254.3   
Inventories 650.4    640.3   
Prepaid expenses and other current assets 433.8    455.6   
Current assets, discontinued operations 3.3    3.2   
Total current assets 3,445.6    3,688.8   
Property, plant and equipment, net of accumulated depreciation of $843.2 and $838.7 at March 27, 2020 and December 31, 2019, respectively
 520.0    519.5   
Operating lease right-of-use assets 200.0    206.8   
Other assets 744.0    779.6   
Goodwill 8,271.1    8,399.3   
Other intangible assets, net 3,751.0    3,845.0   
Total assets $ 16,931.7    $ 17,439.0   
LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt $ 250.0    $ 1,500.0   
Trade accounts payable 745.4    765.5   
Current operating lease liabilities 53.3    54.9   
Accrued expenses and other current liabilities 1,072.4    1,146.8   
Total current liabilities 2,121.1    3,467.2   
Operating lease liabilities 154.5    159.0   
Other long-term liabilities 1,576.7    1,584.2   
Long-term debt 5,826.1    4,828.4   
Commitments and Contingencies
Equity:
Preferred stock: $0.01 par value, 15.0 million shares authorized; 5.0% Mandatory convertible preferred stock, series A, 1.4 million shares designated, issued and outstanding at March 27, 2020 and December 31, 2019
 —    —   
Common stock: $0.01 par value, 2.0 billion shares authorized; 337.7 and 336.9 million issued; 336.8 and 336.0 million outstanding at March 27, 2020 and December 31, 2019, respectively
 3.4    3.4   
Additional paid-in capital 3,333.7    3,311.1   
Retained earnings 4,098.6    4,128.8   
Accumulated other comprehensive income (loss) (193.6)   (56.3)  
Total Fortive stockholders’ equity 7,242.1    7,387.0   
Noncontrolling interests 11.2    13.2   
Total stockholders’ equity 7,253.3    7,400.2   
Total liabilities and equity $ 16,931.7    $ 17,439.0   
See the accompanying Notes to Consolidated Condensed Financial Statements.
4
Table of Contents
FORTIVE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
($ and shares in millions, except per share amounts)
(unaudited)
 
  Three Months Ended
  March 27, 2020 March 29, 2019
Sales of products and software $ 1,487.8    $ 1,405.1   
Sales of services 225.7    187.8   
Total sales 1,713.5    1,592.9   
Cost of product and software sales (692.5)   (647.9)  
Cost of service sales (145.2)   (132.3)  
Total cost of sales (837.7)   (780.2)  
Gross profit 875.8    812.7   
Operating costs:
Selling, general and administrative expenses (557.2)   (486.4)  
Research and development expenses (113.7)   (109.0)  
Impairment of goodwill (85.3)   —   
Operating profit 119.6    217.3   
Non-operating expenses, net:
Interest expense, net (43.6)   (25.3)  
Other non-operating expenses, net (4.6)   0.4   
Earnings from continuing operations before income taxes 71.4    192.4   
Income taxes (29.1)   (28.4)  
Net earnings from continuing operations 42.3    164.0   
Earnings (loss) from discontinued operations, net of income taxes (0.4)   0.4   
Net earnings 41.9    164.4   
Mandatory convertible preferred dividends (17.3)   (17.3)  
Net earnings attributable to common stockholders $ 24.6    $ 147.1   
Net earnings per common share from continuing operations:
Basic $ 0.07    $ 0.44   
Diluted $ 0.07    $ 0.43   
Net earnings per share from discontinued operations:
Basic $ —    $ —   
Diluted $ —    $ —   
Net earnings per share:
Basic $ 0.07    $ 0.44   
Diluted $ 0.07    $ 0.43   
Average common stock and common equivalent shares outstanding:
Basic 336.8    335.1   
Diluted 340.0    339.5   
See the accompanying Notes to Consolidated Condensed Financial Statements.

5
Table of Contents
FORTIVE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
($ in millions)
(unaudited)
 
  Three Months Ended
March 27, 2020 March 29, 2019
Net earnings $ 41.9    $ 164.4   
Other comprehensive income, net of income taxes:
Foreign currency translation adjustments (136.3)   16.7   
Pension adjustments (1.0)   0.5   
Total other comprehensive income (loss), net of income taxes (137.3)   17.2   
Comprehensive income (loss) $ (95.4)   $ 181.6   
See the accompanying Notes to Consolidated Condensed Financial Statements.

6
Table of Contents
FORTIVE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN EQUITY
($ and shares in millions)
(unaudited)
 
Common Stock Preferred Stock Additional Paid-In Capital Retained Earnings Accumulated
Other
Comprehensive
Income (Loss)		 Noncontrolling
Interests
Shares Amount Shares Amount
Balance, December 31, 2019 336.0    $ 3.4    1.4    $ —    $ 3,311.1    $ 4,128.8    $ (56.3)   $ 13.2   
Adoption of accounting standard —    —    —    —    —    (31.3)   —    —   
Balance, January 1, 2020 336.0    $ 3.4    1.4    $ —    $ 3,311.1    $ 4,097.5    $ (56.3)   $ 13.2   
Net earnings for the period —    —    —    —    —    41.9    —    —   
Dividends to common shareholders —    —    —    —    —    (23.5)   —    —   
Mandatory convertible preferred stock cumulative dividends —    —    —    —    —    (17.3)   —    —   
Other comprehensive income (loss) —    —    —    —    —    —    (137.3)   —   
Common stock-based award activity 0.8    —    —    —    22.6    —    —    —   
Change in noncontrolling interests —    —    —    —    —    —    —    (2.0)  
Balance, March 27, 2020 336.8    $ 3.4    1.4    $ —    $ 3,333.7    $ 4,098.6    $ (193.6)   $ 11.2   


Common Stock Preferred Stock Additional Paid-In Capital Retained Earnings Accumulated
Other
Comprehensive
Income (Loss)		 Noncontrolling
Interests
Shares Amount Shares Amount
Balance, December 31, 2018 334.5    $ 3.4    1.4    $ —    $ 3,126.0    $ 3,552.7    $ (86.6)   $ 17.4   
Net earnings for the period —    —    —    —    —    164.4    —    —   
Dividends to common shareholders —    —    —    —    —    (23.4)   —    —   
Mandatory convertible preferred stock cumulative dividends —    —    —    —    —    (17.3)   —    —   
Other comprehensive income —    —    —    —    —    —    17.2    —   
Common stock-based award activity 0.5    —    —    —    13.9    —    —    —   
Issuance of 0.875% senior convertible notes due 2022
 —    —    —    —    100.4    —    —   
Change in noncontrolling interests —    —    —    —    —    —    —    (5.4)  
Balance, March 29, 2019 335.0    $ 3.4    1.4    $ —    $ 3,240.3    $ 3,676.4    $ (69.4)   $ 12.0   
See the accompanying Notes to Consolidated Condensed Financial Statements.

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FORTIVE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
($ in millions)
(unaudited)
  Three Months Ended
  March 27, 2020 March 29, 2019
Cash flows from operating activities:
Net earnings from continuing operations $ 42.3    $ 164.0   
Noncash items:
Depreciation 32.1    29.7   
Amortization 85.5    52.2   
Stock-based compensation expense 16.1    12.9   
Impairment of goodwill 85.3    —   
Change in trade accounts receivable, net 22.8    49.9   
Change in inventories (16.6)   (33.3)  
Change in trade accounts payable (6.7)   (40.6)  
Change in prepaid expenses and other assets 30.2    (60.4)  
Change in accrued expenses and other liabilities (99.6)   (13.2)  
Total operating cash provided by continuing operations 191.4    161.2   
Total operating cash used in discontinued operations (0.4)   (5.0)  
Net cash provided by operating activities 191.0    156.2   
Cash flows from investing activities:
Payments for additions to property, plant and equipment (33.8)   (24.0)  
Cash paid for acquisitions, net of cash received (10.6)   —   
All other investing activities 0.2    —   
Net cash used in investing activities (44.2)   (24.0)  
Cash flows from financing activities:
Net proceeds from (repayments of) commercial paper borrowings (382.8)   443.8   
Proceeds from borrowings (maturities longer than 90 days), net of issuance costs of $1 million and $24 million in 2020 and 2019, respectively
 373.8    2,417.8   
Repayment of borrowings (maturities greater than 90 days) (250.0)   (402.9)  
Payment of common stock cash dividend to shareholders (23.5)   (23.4)  
Payment of mandatory convertible preferred stock cash dividend to shareholders —    (17.3)  
All other financing activities (0.7)   (6.8)  
Net cash (used in) provided by financing activities (283.2)   2,411.2   
Effect of exchange rate changes on cash and equivalents (28.3)   7.1   
Net change in cash and equivalents (164.7)   2,550.5   
Beginning balance of cash and equivalents 1,205.2    1,178.4   
Ending balance of cash and equivalents $ 1,040.5    $ 3,728.9   
See the accompanying Notes to Consolidated Condensed Financial Statements.

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FORTIVE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 1. BUSINESS OVERVIEW
Fortive Corporation (“Fortive,” the “Company,” “we,” “us,” or “our”) is a diversified industrial technology growth company encompassing businesses that are recognized leaders in attractive markets. Our well-known brands hold leading positions in field solutions, product realization, sensing technologies, health, transportation technologies, and franchise distribution. Our businesses design, develop, service, manufacture, and market professional and engineered products, software, and services for a variety of end markets, building upon leading brand names, innovative technology, and significant market positions.
We prepared the unaudited consolidated condensed financial statements included herein in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) applicable for interim periods. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations; however, we believe the disclosures are adequate to make the information presented not misleading. The consolidated condensed financial statements included herein should be read in conjunction with the audited annual consolidated financial statements as of and for the year ended December 31, 2019 and the footnotes (“Notes”) thereto included within our 2019 Annual Report on Form 10-K.
In our opinion, the accompanying financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to fairly present our financial position as of March 27, 2020 and December 31, 2019, our results of operations for the three months ended March 27, 2020 and March 29, 2019, and cash flows for the three months ended March 27, 2020 and March 29, 2019.
Beginning January 1, 2020, our Hengstler and Dynapar businesses are reported within our Professional Instrumentation segment. Previously, these businesses were reported within our Industrial Technologies segment. Reclassification of certain prior year amounts have been made to conform to current year presentation.
On September 4, 2019, we announced our intention to separate into two independent, publicly traded companies, subject to the satisfaction of certain conditions. The separation will create (i) an industrial technology company, retaining the Fortive name, with a differentiated portfolio of growth-oriented businesses focused on connected workflow solutions that incorporate advanced sensors, instrumentation, software, data, and analytics, and (ii) a global industrial company (“Vontier”) consisting of our Transportation Technologies and Franchise Distribution platforms with a focus on growth opportunities in the rapidly evolving transportation and mobility markets. The proposed separation is expected to be structured in a tax-efficient manner. The timing and structure of the separation will depend, in part, on the state of the capital market environment over time as affected by the future evolution of the COVID-19 pandemic and its impact on the global economy. All assets, liabilities, revenues, and expenses of the businesses comprising Vontier are included in continuing operations in the accompanying consolidated condensed financial statements.
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On October 1, 2018, we completed the split-off of businesses in our automation and specialty platform (the “A&S Business”) and have reported the A&S Business as discontinued operations in our Consolidated Condensed Statements of Earnings, Consolidated Condensed Balance Sheets, and Consolidated Condensed Statements of Cash Flows for all periods presented. The impact of discontinued operations in our consolidated condensed financial statements was immaterial for both periods presented, and therefore, discussion within these notes to the consolidated condensed financial statements relates to continuing operations.
Accumulated Other Comprehensive Income (Loss)—Foreign currency translation adjustments are generally not adjusted for income taxes as they relate to indefinite investments in non-U.S. subsidiaries. We have designated our Euro-denominated commercial paper and ¥13.8 billion senior unsecured term facility loan as net investment hedges of our investment in certain foreign operations. Accordingly, foreign currency transaction gains or losses on the debt are deferred in the foreign currency translation component of Accumulated other comprehensive income (loss) (“AOCI”) as an offset to the foreign currency translation adjustments on our investments in foreign subsidiaries. We recognized gains of $0.9 million and $7.2 million for the three months ended March 27, 2020 and March 29, 2019, respectively, in other comprehensive income related to the net investment hedges. Any amounts deferred in AOCI will remain until the hedged investment is sold or substantially liquidated. We recorded no ineffectiveness from our net investment hedges during the three-month periods ended March 27, 2020 and March 29, 2019.
The changes in AOCI by component are summarized below ($ in millions):
Foreign
currency
translation
adjustments
Pension
adjustments (b)
Total
For the Three Months Ended March 27, 2020:
Balance, December 31, 2019 $ 21.2    $ (77.5)   $ (56.3)  
Other comprehensive income (loss) before reclassifications, net of income taxes (136.3)   —    (136.3)  
Amounts reclassified from accumulated other comprehensive income (loss):
Decrease —    (1.2)  
(a)
 (1.2)  
Income tax impact —    0.2    0.2   
Amounts reclassified from accumulated other comprehensive income (loss), net of income taxes —    (1.0)   (1.0)  
Net current period other comprehensive income (loss), net of income taxes (136.3)   (1.0)   (137.3)  
Balance, March 27, 2020 $ (115.1)   $ (78.5)   $ (193.6)  
For the Three Months Ended March 29, 2019:
Balance, December 31, 2018 $ (29.3)   $ (57.3)   $ (86.6)  
Other comprehensive income (loss) before reclassifications, net of income taxes 16.7    —    16.7   
Amounts reclassified from accumulated other comprehensive income (loss):
Increase —    0.7   
(a)
 0.7   
Income tax impact —    (0.2)   (0.2)  
Amounts reclassified from accumulated other comprehensive income (loss), net of income taxes —    0.5    0.5   
Net current period other comprehensive income (loss), net of income taxes 16.7    0.5    17.2   
Balance, March 29, 2019 $ (12.6)   $ (56.8)   $ (69.4)  
(a) This component of AOCI is included in the computation of net periodic pension cost (refer to Note 7 for additional details).
(b) Includes balances relating to defined benefit plans, supplemental executive retirement plans, and other postretirement employee benefit plans.

Recently Adopted Accounting Standard—In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which amends the impairment model by requiring entities to use a forward-looking approach, based on expected losses, to estimate credit losses on certain types of financial instruments, including financing, trade accounts, and unbilled receivables. On January 1, 2020, we adopted
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ASU 2016-13 and recognized in our Consolidated Condensed Balance Sheet as of January 1, 2020 an increase in the allowance for trade accounts, unbilled, and financing receivables of $40.0 million, with a corresponding net of tax adjustment to beginning retained earnings of $31.3 million.
Results for reporting periods beginning January 1, 2020 reflect the adoption of ASU 2016-13, while prior period amounts were not adjusted and continue to be reported in accordance with our historical accounting practices.

Prior to the adoption of ASU 2016-13 on January 1, 2020, we recognized an allowance for incurred losses when they were probable based on many quantitative and qualitative factors, including delinquency. After the adoption of ASU 2016-13, we measure our allowance to reflect expected credit losses over the remaining contractual life of the asset. We pool assets with similar risk characteristics for this measurement based on attributes that may include asset type, duration, and/or credit risk rating. The future expected losses of each pool are estimated based on numerous quantitative and qualitative factors reflecting management’s estimate of collectibility over the remaining contractual life of the pooled assets, including:
•duration;
•historical, current, and forecasted future loss experience by asset type;
•historical, current, and forecasted delinquency and write-off trends;
•historical, current, and forecasted economic conditions; and
•historical, current, and forecasted credit risk.
Expected credit losses of the assets originated during the quarter ended March 27, 2020, as well as changes to expected losses during the same period, are recognized in earnings for the period ended March 27, 2020.

As a result of the adoption of ASU 2016-13, we have updated our significant accounting policy related to unbilled, trade accounts, and financing receivables and allowances for credit losses as of March 27, 2020 from what was previously disclosed in our audited financial statements for the year ended December 31, 2019 as follows:

All trade accounts, financing, and unbilled receivables are reported in the accompanying Consolidated Condensed Balance Sheet adjusted for any write-offs and net of allowances for credit losses. The allowances for credit losses represent management’s best estimate of the credit losses expected from our unbilled, trade accounts, and financing receivable portfolios over the life of the underlying assets. Determination of the allowances requires management to exercise judgment about the severity of credit losses, which includes judgments regarding the risk profile of each underlying receivable and expectations regarding the impact of current and future economic conditions on the creditworthiness of its customers. We regularly perform detailed reviews of our portfolios to evaluate the collectability of receivables based on a combination of past, current, and future financial and qualitative factors that may affect customers’ ability to pay, including customers’ financial condition, collateral, debt-servicing ability, payment experience, credit bureau information, and economic conditions. In circumstances where we are aware of a specific customer’s inability to meet its financial obligations, a specific reserve is recorded against amounts due to reduce the recognized receivable to the amount reasonably expected to be collected. Additions to the allowances are charged to current period earnings, amounts determined to be uncollectible are charged directly against the allowances, while amounts recovered on previously written-off accounts increase the allowances.

Recent deterioration in overall global economic conditions and worldwide capital markets as a result of the COVID-19 pandemic may negatively impact our customers’ ability to pay and, as a result, may increase the difficulty in collecting trade accounts, financing, and unbilled receivables. We did not realize notable increases in loss rates and delinquencies during the first quarter ended March 27, 2020, and given the nature of our portfolio of receivables, our historical experience during times of challenging economic conditions, and our forecasted future impact of COVID-19 on our customer’s ability to pay, we did not record material provisions for credit losses as a result of the COVID-19 pandemic during the first quarter ended March 27, 2020. If the financial condition of our customers were to deteriorate beyond our current estimates, resulting in an impairment of their ability to make payments, we would be required to write-off additional receivable balances, which would adversely impact our net earnings and financial condition.

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The following is a rollforward of the aggregated allowance for credit losses related to our trade accounts, unbilled, and financing receivables as of March 27, 2020 ($ in millions):
Balance, December 31, 2019 $ 82.1   
Transition Adjustment 40.0   
Provision 12.0   
Write-offs (13.2)  
FX and Other (5.1)  
Balance, March 27, 2020 $ 115.8   

NOTE 2. ACQUISITIONS
For a description of our material acquisition activity refer to Note 3 of our 2019 Annual Report on Form 10-K.
We continually evaluate potential mergers, acquisitions, and divestitures that align with our strategy and expedite the evolution of our portfolio of businesses into new and attractive areas. We have completed a number of acquisitions that have been accounted for as purchases and resulted in the recognition of goodwill in our financial statements. This goodwill arises because the purchase price for each acquired business reflects a number of factors including the complimentary fit, acceleration of our strategy and synergies the business brings with respect to our existing operations, the future earnings and cash flow potential of the business, the potential to add other strategically complimentary acquisitions to the acquired business, the scarce or unique nature of the business in its markets, competition to acquire the business, the valuation of similar businesses in the marketplace (as reflected in a multiple of revenues, earnings or cash flows), and the avoidance of the time and costs which would be required (and the associated risks that would be encountered) to enhance our existing offerings to key target markets and develop new and profitable businesses.
We make an initial allocation of the purchase price at the date of acquisition based on our understanding of the fair value of the acquired assets and assumed liabilities. We obtain this information during due diligence and through other sources. In the months after closing, as we obtain additional information about these assets and liabilities, including through tangible and intangible asset appraisals, and learn more about the newly acquired business, we are able to refine the estimates of fair value and more accurately allocate the purchase price. Only items identified as of the acquisition date are considered for subsequent adjustment. We are in the process of obtaining valuations of certain acquired assets and evaluating the tax impact of certain acquisitions. We make appropriate adjustments to purchase price allocations prior to completion of the applicable measurement period, as required.
During the three months ended March 27, 2020, we recorded adjustments to the preliminary purchase price allocation of acquisitions that closed during 2019 that resulted in a net increase to goodwill of $13.2 million, prior to foreign currency translation impacts.
Advanced Sterilization Products
On April 1, 2019 (the “Principal Closing Date”), we acquired the advanced sterilization products business (“ASP”) of Johnson & Johnson, a New Jersey corporation (“Johnson & Johnson”) for an aggregate purchase price of $2.7 billion (the “Transaction”), subject to certain post-closing adjustments set forth in a Stock and Asset Purchase Agreement, dated effective as of June 6, 2018 (the “Purchase Agreement”), between the Company and Ethicon, Inc., a New Jersey corporation (“Ethicon”) and a wholly owned subsidiary of Johnson & Johnson. ASP engages in the research, development, manufacture, marketing, distribution, and sale of low-temperature terminal sterilization and high-level disinfection products. ASP generated annual revenues of approximately $800 million in 2018.

On the Principal Closing Date, we paid $2.7 billion in cash and obtained the transferred assets and assumed liabilities in 20 countries (“Principal Countries”), general patent and trademark assignments, and all transferred equity interests in ASP. ASP has operations in an additional 39 countries (“Non-Principal Countries”). The transferred assets and liabilities associated with these operations will close when requirements of country-specific agreements or regulatory approvals are satisfied.

The $2.7 billion purchase price was paid in exchange for ASP’s businesses in both Principal and Non-Principal Countries. As of March 27, 2020, we have closed 20 Principal Countries and six Non-Principal Countries that, in aggregate, accounted for approximately 99% of the preliminary valuation of ASP. The remaining Non-Principal Countries represent approximately 1% of the preliminary valuation of ASP, or $31.1 million, which is included as a prepaid asset in Other assets in the Condensed Consolidated Balance Sheet. As each Non-Principal Country closes, we reduce the prepaid asset and record the fair value of the
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assets acquired and liabilities assumed. All of the provisional goodwill associated with the Transaction is included in goodwill at March 27, 2020, and the majority of the provisional goodwill is tax deductible.

In addition, the Company entered into a transition services agreement with Johnson & Johnson for certain administrative and operational services, and distribution agreements in the Non-Principal Countries. Under the distribution agreements, ASP sells finished goods to Ethicon at prices agreed by the parties. ASP recognizes these sales as revenue when the conditions for revenue recognition are met. Following the sale of finished goods by ASP, Ethicon obtains title of the finished goods, has full authority to sell and market the finished goods to end customers as it sees fit, and retains any revenue and profit from sale. As of March 27, 2020, no further services are being provided under the transition services agreement in the U.S., Canada, Mexico, Australia, and New Zealand.
The following table summarizes the provisional fair value estimates of the assets acquired and liabilities assumed of Principal and Non-Principal Countries that have been transferred to ASP as of March 27, 2020, prior to foreign currency impacts; we did not acquire accounts receivable or accounts payable from Johnson & Johnson:
Advanced Sterilization Products
Inventories $ 176.4   
Property, plant and equipment 47.5   
Goodwill 1,437.2   
Other intangible assets, primarily customer relationships, trade names and technology 1,123.5   
Other assets and liabilities, net (79.7)  
Total consideration allocated to Principal Countries and closed Non-Principal Countries 2,704.9   
Prepaid acquisition asset related to remaining Non-Principal Countries 31.1   
Net cash consideration $ 2,736.0   
Revenue and operating loss attributable to ASP for the three months ended March 27, 2020 were $159 million and $26 million, respectively, and are included in our Professional Instrumentation segment. Operating loss includes a combined $52 million of amortization of intangible assets, acquisition-related fair value adjustments, and post-close transaction and integration costs associated with the Transaction of for the three months ended March 27, 2020.
Post-close transaction and integration costs associated with the Transaction were approximately $20 million and are recorded in selling, general, and administrative expenses for the three months ended March 27, 2020, and were primarily amounts paid to third-party advisers.
NOTE 3. GOODWILL
The following is a rollforward of our carrying value of goodwill by segment ($ in millions):
Professional Instrumentation (a)
Industrial Technologies (a)
Total Goodwill
Balance, December 31, 2019 $ 7,242.6    $ 1,156.7    $ 8,399.3   
Acquisitions 13.2    —    13.2   
Impairment charge —    (85.3)   (85.3)  
Foreign currency translation and other (26.9)   (29.2)   (56.1)  
Balance, March 27, 2020 $ 7,228.9    $ 1,042.2    $ 8,271.1   
(a) Beginning January 1, 2020, our Hengstler and Dynapar businesses are reported within our Professional Instrumentation segment. Previously, these businesses were reported within our Industrial Technologies segment. Prior year balances have been reclassified to reflect current year presentation.
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We test goodwill for impairment annually in the fourth quarter of each year and may review goodwill in interim periods if certain events occur or circumstances change. Based on our most annual impairment assessment, we concluded that the goodwill for our twelve reporting units was not impaired as of December 31, 2019.
The results of our fourth quarter 2019 goodwill impairment testing indicated the excess of the estimated fair value over the carrying value (expressed as a percentage of carrying value) of our Telematics reporting unit was approximately 5%, and as such, management continued to monitor the performance of Telematics during the first quarter of 2020. In connection with management’s updated forecast for the Telematics reporting unit that indicated a decline in sales and operating profit to levels lower than previously forecasted, due in large part to the impacts of the COVID-19 pandemic, we performed a quantitative impairment assessment over the Telematics reporting unit on March 27, 2020.
We estimated the fair value of the Telematics reporting unit by considering an income approach, using the discounted cash flow method. The income approach was based on projected future (debt-free) cash flows that were discounted to present value and assumed a terminal growth value. The discount rate was based on the reporting unit’s weighted average cost of capital, taking into account market participant assumptions. Management’s revenue and profitability forecasts used in the valuation considered recent and historical performance of the reporting unit, strategic initiatives, industry trends, and the current and future expectations of the macroeconomic environment. Assumptions used in the valuation were similar to those that would be used by market participants performing independent valuations of this reporting unit.

Key assumptions developed by management and used in the quantitative analysis included the following:

•Near-term revenue declines in 2020 with later-term improvements over the projection period;
•Improved profitability over the projection period, trending consistent with revenues; and
•Market-based discount rates.
We did not consider the market approach in our fair value calculation given the near term uncertainty in the market data and forecasts of the guideline companies upon which the approach relies.
As a result of the interim impairment testing performed, we concluded that the estimated fair value of our Telematics reporting unit was less than our carrying value as of March 27, 2020, and recorded a non-cash goodwill impairment charge of $85.3 million during the three months ended March 27, 2020 to reduce the carrying value of goodwill to $235.9 million. The charge is included in the operating results of our Industrial Technologies segment.
The impairment testing of goodwill utilized significant unobservable inputs (Level 3 in the fair value hierarchy) to determine the estimated fair value. The factors used in our impairment analysis are inherently subject to uncertainty, particularly in light of the recent deterioration in overall global economic conditions and capital markets due to COVID-19. While we believe we made reasonable estimates and assumptions to calculate the fair value of the Telematics reporting unit, alternative interpretations of the qualitative inputs considered may have resulted in different conclusions regarding the size of the impairment, and it is possible our conclusions could change in future periods.

The results of our 2019 impairment testing indicated our eleven other reporting units had fair values that were significantly in excess of their carrying values. We evaluated the impact of the deterioration in overall global economic conditions as a result of the COVID-19 pandemic, including the change in our market capitalization and changes in forecasts for each reporting unit, and determined no triggering events had occurred. There can be no assurance the estimates and assumptions used in our goodwill impairment testing performed in the first quarter of 2020 will prove to be accurate predictions of the future. Specifically, variations in our assumptions related to business performance and execution of planned growth strategies and the discount rate could impact future conclusions. A future impairment charge for goodwill could have a material effect on our consolidated financial position and results of operations.
NOTE 4. FAIR VALUE MEASUREMENTS
Accounting standards define fair value based on an exit price model, establish a framework for measuring fair value where our assets and liabilities are required to be carried at fair value and provide for certain disclosures related to the valuation methods used within a valuation hierarchy as established within the accounting standards. This hierarchy prioritizes the inputs into three broad levels as follows:
•Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.
•Level 2 inputs are quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets in markets that are not active, or other observable characteristics for the asset or liability, including interest rates, yield curves and credit risks, or inputs that are derived principally from, or corroborated by, observable market data through correlation.
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•Level 3 inputs are unobservable inputs based on our assumptions. The classification of a financial asset or liability within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement in its entirety.
Below is a summary of financial liabilities that are measured at fair value on a recurring basis ($ in millions):
Quoted Prices
in Active
Market
(Level 1)		 Significant Other
Observable Inputs
(Level 2)		 Significant
Unobservable
Inputs
(Level 3)		 Total
March 27, 2020
Deferred compensation liabilities $ —    $ 27.3    $ —    $ 27.3   
December 31, 2019
Deferred compensation liabilities $ —    $ 29.6    $ —    $ 29.6   
Certain management employees participate in our nonqualified deferred compensation programs that permit such employees to defer a portion of their compensation, on a pretax basis, until after their termination of employment. All amounts deferred under such plans are unfunded, unsecured obligations and are presented as a component of our compensation and benefits accrual included in Other long-term liabilities in the accompanying Consolidated Condensed Balance Sheets. Participants may choose among alternative earnings rates for the amounts they defer, which are primarily based on investment options within our defined contribution plans for the benefit of U.S. employees (except that the earnings rates for amounts contributed unilaterally by the Company are entirely based on changes in the value of Fortive common stock). Changes in the deferred compensation liability under these programs are recognized based on changes in the fair value of the participants’ accounts, which are based on the applicable earnings rates.
Nonrecurring Fair Value Measurements
Certain non-financial assets, primarily property, plant, and equipment, goodwill, and intangible assets, are not required to be measured at fair value on a recurring basis and are reported at their carrying value. However, these assets are required to be assessed for impairment whenever events or circumstances indicate that their carrying value may not be fully recoverable, and at least annually for goodwill and indefinite-lived intangible assets.
On March 27, 2020, we evaluated our Telematics reporting unit for impairment and recorded an impairment of goodwill of $85.3 million to adjust the carrying value of the reporting unit to the estimated fair value. Refer to Note 3 for additional information regarding the inputs and methodology used to estimate the fair value.
We evaluated our other non-financial assets as of March 27, 2020 and determined no impairment was necessary.
Fair Value of Financial Instruments
The carrying amount and fair value of financial instruments are as follows ($ in millions):
March 27, 2020 December 31, 2019
Carrying Amount Fair Value Carrying Amount Fair Value
Current portion of long-term debt $ 250.0    $ 250.0    $ 1,500.0    $ 1,500.0   
Long-term debt, net of current maturities $ 5,826.1    $ 5,755.9    $ 4,828.4    $ 4,992.3   
As of March 27, 2020 and December 31, 2019, the current portion of long-term debt and long-term debt, net of current maturities were categorized as Level 1.
The fair values of the current portion of long-term debt and long-term debt were based on quoted market prices. The difference between the fair value and the carrying amounts of long-term borrowings may be attributable to changes in market interest rates and/or our credit ratings subsequent to the incurrence of the borrowing. The fair value of cash and cash equivalents, accounts receivable, net and trade accounts payable approximates their carrying amount due to the short-term maturities of these instruments.