July 28, 2020 - 10-Q: Quarterly report pursuant to Section 13 or 15(d)

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: June 26, 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,

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 July 21, 2020 was 337,071,495.

FORTIVE CORPORATION

INDEX

FORM 10-Q


PART I -	FINANCIAL INFORMATION	Page
Item 1.	Financial Statements
	Consolidated Condensed Balance Sheets	4
	Consolidated Condensed Statements of Earnings	5
	Consolidated Condensed Statements of Comprehensive Income	6
	Consolidated Condensed Statements of Changes in Equity	7
	Consolidated Condensed Statements of Cash Flows	9
	Notes to Consolidated Condensed Financial Statements	10
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	30
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	49
Item 4.	Controls and Procedures	49
PART II -	OTHER INFORMATION
Item 1A.	Risk Factors	49

Item 6.	Exhibits	51
	Signatures	53

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
	June 26, 2020		December 31, 2019
	(unaudited)
ASSETS
Current assets:
Cash and equivalents	$	1,063.0	$	1,205.2
Accounts receivable, net	1,129.2		1,384.5
Inventories:
Finished goods	294.9		285.6
Work in process	102.5		100.4
Raw materials	267.1		254.3
Inventories	664.5		640.3
Prepaid expenses and other current assets	390.4		455.6
Current assets, discontinued operations	3.3		3.2
Total current assets	3,250.4		3,688.8
Property, plant and equipment, net of accumulated depreciation of $867.9 and $838.7 at June 26, 2020 and December 31, 2019, respectively	519.8		519.5
Operating lease right-of-use assets	207.8		206.8
Other assets	758.7		779.6
Goodwill	8,297.7		8,399.3
Other intangible assets, net	3,671.3		3,845.0

Total assets	$	16,705.7	$	17,439.0
LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt	$	998.8	$	1,500.0
Trade accounts payable	733.0		765.5
Current operating lease liabilities	52.6		54.9
Accrued expenses and other current liabilities	1,092.0		1,146.8

Total current liabilities	2,876.4		3,467.2
Operating lease liabilities	163.8		159.0
Other long-term liabilities	1,572.4		1,584.2
Long-term debt	4,686.2		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 June 26, 2020 and December 31, 2019	—		—
Common stock: $0.01 par value, 2.0 billion shares authorized; 337.9 and 336.9 million issued; 337.0 and 336.0 million outstanding at June 26, 2020 and December 31, 2019, respectively	3.4		3.4
Additional paid-in capital	3,360.7		3,311.1
Retained earnings	4,187.8		4,128.8
Accumulated other comprehensive income (loss)	(156.6)		(56.3)
Total Fortive stockholders’ equity	7,395.3		7,387.0
Noncontrolling interests	11.6		13.2
Total stockholders’ equity	7,406.9		7,400.2
Total liabilities and equity	$	16,705.7	$	17,439.0

See the accompanying Notes to Consolidated Condensed Financial Statements.

Table of Contents

FORTIVE CORPORATION AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS

($ and shares in millions, except per share amounts)

(unaudited)


	Three Months Ended						Six Months Ended
	June 26, 2020		June 28, 2019		June 26, 2020		June 28, 2019
Sales of products and software	$	1,367.7	$	1,623.0	$	2,855.5	$	3,028.1
Sales of services	203.5		241.7		429.2		429.5
Total sales	1,571.2		1,864.7		3,284.7		3,457.6
Cost of product and software sales	(634.9)		(808.0)		(1,327.4)		(1,455.9)
Cost of service sales	(122.0)		(152.7)		(267.2)		(285.0)
Total cost of sales	(756.9)		(960.7)		(1,594.6)		(1,740.9)
Gross profit	814.3		904.0		1,690.1		1,716.7
Operating costs:
Selling, general and administrative expenses	(516.6)		(537.1)		(1,073.8)		(1,023.5)
Research and development expenses	(106.6)		(117.4)		(220.3)		(226.4)
Impairment of goodwill	—		—		(85.3)		—
Operating profit	191.1		249.5		310.7		466.8
Non-operating expenses, net:

Interest expense, net	(43.2)		(44.4)		(86.8)		(69.7)
Other non-operating income (expense), net	5.3		(0.8)		0.7		(0.4)
Earnings from continuing operations before income taxes	153.2		204.3		224.6		396.7
Income taxes	(22.9)		(29.0)		(52.0)		(57.4)
Net earnings from continuing operations	130.3		175.3		172.6		339.3
Loss from discontinued operations, net of income taxes	(0.3)		(0.7)		(0.7)		(0.3)
Net earnings	130.0		174.6		171.9		339.0
Mandatory convertible preferred dividends	(17.2)		(17.2)		(34.5)		(34.5)
Net earnings attributable to common stockholders	$	112.8	$	157.4	$	137.4	$	304.5

Net earnings per common share from continuing operations:
Basic	$	0.34	$	0.47	$	0.41	$	0.91
Diluted	$	0.33	$	0.47	$	0.41	$	0.90
Net earnings per share from discontinued operations:
Basic	$	—	$	—	$	—	$	—
Diluted	$	—	$	—	$	—	$	—
Net earnings per share:
Basic	$	0.33	$	0.47	$	0.41	$	0.91
Diluted	$	0.33	$	0.46	$	0.40	$	0.90
Average common stock and common equivalent shares outstanding:
Basic	337.3		335.6		337.1		335.4
Diluted	339.7		339.7		339.9		339.8

See the accompanying Notes to Consolidated Condensed Financial Statements.

Table of Contents

FORTIVE CORPORATION AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME

($ in millions)

(unaudited)


	Three Months Ended						Six Months Ended
	June 26, 2020		June 28, 2019		June 26, 2020		June 28, 2019
Net earnings	$	130.0	$	174.6	$	171.9	$	339.0
Other comprehensive income, net of income taxes:
Foreign currency translation adjustments	36.0		1.3		(100.3)		18.0
Pension adjustments	1.0		0.5		—		1.0
Total other comprehensive income (loss), net of income taxes	37.0		1.8		(100.3)		19.0
Comprehensive income (loss)	$	167.0	$	176.4	$	71.6	$	358.0

See the accompanying Notes to Consolidated Condensed Financial Statements.

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
Net earnings for the period	—	—		—	—			—		130.0		—		—
Dividends to common shareholders	—	—		—	—			—		(23.6)		—		—
Mandatory convertible preferred stock cumulative dividends	—	—		—	—			—		(17.2)		—		—
Other comprehensive income	—	—		—	—			—		—		37.0		—
Common stock-based award activity	0.2	—		—	—			27.0		—		—		—
Change in noncontrolling interests	—	—		—	—			—		—		—		0.4
Balance, June 26, 2020	337.0	$	3.4	1.4	$	—		$	3,360.7	$	4,187.8	$	(156.6)	$	11.6

Table of Contents


	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
Net earnings for the period	—	—		—	—			—		174.6		—		—
Dividends to common shareholders	—	—		—	—			—		(23.4)		—		—
Mandatory convertible preferred stock cumulative dividends	—	—		—	—			—		(17.2)		—		—
Other comprehensive income	—	—		—	—			—		—		1.8		—
Common stock-based award activity	0.4	—		—	—			25.1		—		—		—
Changes in noncontrolling interests	—	—		—	—			—		—		—		(0.7)
Balance, June 28, 2019	335.4	$	3.4	1.4	$	—		$	3,265.4	$	3,810.4	$	(67.6)	$	11.3

See the accompanying Notes to Consolidated Condensed Financial Statements.

Table of Contents

FORTIVE CORPORATION AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

($ in millions)

(unaudited)


	Six Months Ended
	June 26, 2020		June 28, 2019
Cash flows from operating activities:
Net earnings from continuing operations	$	172.6	$	339.3
Noncash items:
Depreciation	66.6		62.7
Amortization	170.1		129.6
Stock-based compensation expense	38.8		28.8
Impairment of goodwill	85.3		—

Gain on sale of assets	(5.3)		—


Change in trade accounts receivable, net	214.8		(102.3)
Change in inventories	(28.9)		45.8
Change in trade accounts payable	(23.4)		(11.7)
Change in prepaid expenses and other assets	55.4		(67.2)
Change in accrued expenses and other liabilities	(75.0)		(3.6)
Total operating cash provided by continuing operations

Form: 10-Q

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