April 29, 2021 - 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: April 2, 2021


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 21, 2021 was 338,525,535.

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	8
	Notes to Consolidated Condensed Financial Statements	9
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	40
Item 4.	Controls and Procedures	40
PART II -	OTHER INFORMATION
Item 1A.	Risk Factors	40
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41
Item 6.	Exhibits	42
	Signatures	43

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PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

FORTIVE CORPORATION AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEETS

($ in millions, except per share amounts)


	As of
	April 2, 2021		December 31, 2020
	(unaudited)
ASSETS
Current assets:
Cash and equivalents	$	1,299.6	$	1,824.8
Accounts receivable, net	829.5		810.3
Inventories:
Finished goods	231.3		227.9
Work in process	76.8		75.2
Raw materials	158.5		152.4
Inventories	466.6		455.5
Prepaid expenses and other current assets	205.2		206.7
Investment in Vontier Corporation	—		1,119.2
Current assets, discontinued operations	—		30.4
Total current assets	2,800.9		4,446.9
Property, plant and equipment, net of accumulated depreciation of $680.0 and $674.5 at April 2, 2021 and December 31, 2020, respectively	410.1		422.0
Operating lease right-of-use assets	186.6		188.7
Other assets	331.2		344.1
Goodwill	7,340.4		7,359.2
Other intangible assets, net	3,209.7		3,290.6

Total assets	$	14,278.9	$	16,051.5
LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt	$	1,126.0	$	1,399.8
Trade accounts payable	464.5		480.8
Current operating lease liabilities	44.6		47.0
Accrued expenses and other current liabilities	836.9		899.9
Current liabilities, discontinued operations	2.8		33.3
Total current liabilities	2,474.8		2,860.8
Operating lease liabilities	152.7		154.3
Other long-term liabilities	1,193.2		1,233.4
Long-term debt	1,441.5		2,830.3

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 April 2, 2021 and December 31, 2020	—		—
Common stock: $0.01 par value, 2.0 billion shares authorized; 339.7 and 339.0 million issued; 338.5 and 337.9 million outstanding at April 2, 2021 and December 31, 2020, respectively	3.4		3.4
Additional paid-in capital	3,563.8		3,554.5
Retained earnings	5,616.6		5,547.4
Accumulated other comprehensive income (loss)	(174.8)		(141.1)
Total Fortive stockholders’ equity	9,009.0		8,964.2
Noncontrolling interests	7.7		8.5
Total stockholders’ equity	9,016.7		8,972.7
Total liabilities and equity	$	14,278.9	$	16,051.5

See the accompanying Notes to Consolidated Condensed Financial Statements.

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FORTIVE CORPORATION AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS

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

(unaudited)


	Three Months Ended
		April 2, 2021		March 27, 2020
Sales of products and software		$	1,077.2	$	945.5
Sales of services		182.0		162.6
Total sales		1,259.2		1,108.1
Cost of product and software sales		(444.3)		(400.3)
Cost of service sales		(103.0)		(95.8)
Total cost of sales		(547.3)		(496.1)
Gross profit		711.9		612.0
Operating costs:
Selling, general and administrative expenses		(428.1)		(415.8)
Research and development expenses		(86.2)		(80.8)

Operating profit		197.6		115.4
Non-operating income (expense), net:

Interest expense, net		(27.7)		(38.6)
Loss on extinguishment of debt		(104.9)		—
Gain on investment in Vontier Corporation		57.0		—
Other non-operating expense, net		(3.3)		(4.5)
Earnings from continuing operations before income taxes		118.7		72.3
Income taxes		(7.0)		(17.5)
Net earnings from continuing operations		111.7		54.8
Loss from discontinued operations, net of income taxes		(1.5)		(12.9)
Net earnings		110.2		41.9
Mandatory convertible preferred dividends		(17.3)		(17.3)
Net earnings attributable to common stockholders		$	92.9	$	24.6

Net earnings per common share from continuing operations:
Basic		$	0.28	$	0.11
Diluted		$	0.28	$	0.11
Net earnings per share from discontinued operations:
Basic		$	—	$	(0.04)
Diluted		$	—	$	(0.04)
Net earnings per share:
Basic		$	0.27	$	0.07
Diluted		$	0.27	$	0.07
Average common stock and common equivalent shares outstanding:
Basic		338.6		336.8
Diluted		341.7		340.0

See the accompanying Notes to Consolidated Condensed Financial Statements.

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FORTIVE CORPORATION AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME

($ in millions)

(unaudited)


	Three Months Ended
		April 2, 2021		March 27, 2020
Net earnings		$	110.2	$	41.9
Other comprehensive income, net of income taxes:
Foreign currency translation adjustments		(34.7)		(136.3)
Pension adjustments		1.0		(1.0)
Total other comprehensive income (loss), net of income taxes		(33.7)		(137.3)
Comprehensive income (loss)		$	76.5	$	(95.4)

See the accompanying Notes to Consolidated Condensed Financial Statements.

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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, 2020	339.0	$	3.4	1.4	$	—	$	3,554.5	$	5,547.4	$	(141.1)	$	8.5
Net earnings for the period	—	—		—	—		—		110.2
Dividends to common shareholders	—	—		—	—		—		(23.7)		—		—
Mandatory convertible preferred stock cumulative dividends	—	—		—	—		—		(17.3)		—		—
Other comprehensive income	—	—		—	—		—		—		(33.7)		—
Common stock-based award activity	(0.5)	—		—	—		(2.3)		—		—		—
Early extinguishment of 0.875% senior convertible notes due 2022	—	—		—	—		11.6		—		—		—
Change in noncontrolling interests	—	—		—	—		—		—		—		(0.8)
Balance, April 2, 2021	338.5	$	3.4	1.4	$	—	$	3,563.8	$	5,616.6	$	(174.8)	$	7.7


	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

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
	April 2, 2021		March 27, 2020
Cash flows from operating activities:
Net earnings from continuing operations	$	111.7	$	54.8
Noncash items:
Gain on investment in Vontier Corporation	(57.0)		—
Depreciation	19.5		20.2
Amortization	77.5		78.2
Stock-based compensation expense	16.6		12.8



Loss on extinguishment of debt	104.2		—


Change in trade accounts receivable, net	(26.9)		6.0
Change in inventories	(3.8)		(5.2)
Change in trade accounts payable	(13.0)		12.7
Change in prepaid expenses and other assets	3.8		14.3
Change in accrued expenses and other liabilities	(80.6)		(72.1)
Total operating cash provided by continuing operations	152.0		121.7
Total operating cash provided by (used in) discontinued operations	(7.2)		69.3
Net cash provided by operating activities	144.8		191.0
Cash flows from investing activities:
Payments for additions to property, plant and equipment	(8.4)		(26.2)

Cash paid for acquisitions, net of cash received	(0.2)		(1.1)

Total investing cash used in continuing operations	(8.6)		(27.3)
Total investing cash used in discontinued operations	—		(16.9)
Net cash used in investing activities	(8.6)		(44.2)
Cash flows from financing activities:

Net repayments of commercial paper borrowings	—		(382.8)
Proceeds from borrowings (maturities longer than 90 days), net of issuance costs of $1 million in 2020	—		373.8

Repayment of borrowings (maturities greater than 90 days)	(611.1)		(250.0)

Payment of common stock cash dividend to shareholders	(23.7)		(23.5)
Payment of mandatory convertible preferred stock cash dividend to shareholders	(17.3)		—


All other financing activities	(2.8)		0.3
Total financing cash used in continuing operations	(654.9)		(282.2)
Total financing cash used in discontinued operations	—		(1.0)
Net cash used in financing activities	(654.9)		(283.2)
Effect of exchange rate changes on cash and equivalents	(6.5)		(28.3)
Net change in cash and equivalents	(525.2)		(164.7)
Beginning balance of cash and equivalents	1,824.8		1,205.2
Ending balance of cash and equivalents	$	1,299.6	$	1,040.5

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 provider of essential technologies for connected workflow solutions across a range of attractive end-markets. Our well-known brands hold leading positions in intelligent operating solutions, precision technologies, and advanced healthcare solutions. 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 technologies, and significant market positions. Our research and development, manufacturing, sales, distribution, service, and administrative facilities are located in more than 50 countries across North America, Asia Pacific, Europe, and Latin America.

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, 2020 and the footnotes (“Notes”) thereto included within our 2020 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 April 2, 2021 and December 31, 2020, our results of operations for the three month periods ended April 2, 2021 and March 27, 2020, and cash flows for the three month periods ended April 2, 2021 and March 27, 2020. Reclassification of certain prior year amounts have been made to conform to current year presentation.

Vontier Separation and Discontinued Operations

On October 9, 2020 (the “Distribution Date”), the Company completed the separation of its Industrial Technologies segment by distributing 80.1% of the outstanding shares of Vontier Corporation (“Vontier”), the entity incorporated to hold such businesses, to Fortive stockholders (the “Vontier Separation”) on a pro rata basis. To effect the Vontier Separation, the Company distributed to its stockholders two shares of Vontier common stock for every five shares of the Company’s common stock outstanding held on September 25, 2020, the record date for the distribution, with the Company retaining 19.9% of the shares of Vontier common stock immediately following the Vontier Separation (the “Retained Vontier Shares”).

On September 29, 2020, Vontier entered into a credit agreement with a syndicate of banks and on the Distribution Date, Vontier drew down the full $1.8 billion available under their term loan facilities. Vontier used the proceeds to make payments to the Company, with $1.6 billion used as part of the consideration for the contribution of certain assets and liabilities to Vontier by the Company in connection with the Vontier Separation and $202 million used as an adjustment for excess cash balances remaining with Vontier (collectively, the “Cash Consideration”). We have used the Cash Consideration to repay certain outstanding indebtedness, make interest payments on certain debt instruments, and to pay certain of the Company’s regular, quarterly cash dividends.

On January 19, 2021, we completed an exchange (the “Debt-for-Equity Exchange”) of 33.5 million shares of common stock of Vontier, representing all of the Retained Vontier Shares, for $1.1 billion in aggregate principal amount of indebtedness of the Company held by Goldman Sachs & Co.

Refer to Note 11 of our 2020 Annual Report on Form 10-K and Note 6 to the consolidated condensed financial statements for the description of the debt repayments made subsequent to the Distribution Date. Interest expense and extinguishment costs related to the debt retired during the first quarter of 2021 are included in continuing operations.

The accounting requirements for reporting the Vontier business as a discontinued operation were met when the Vontier Separation was completed. Accordingly, the consolidated financial statements reflect the results of the Vontier business as a discontinued operation for all periods presented. Fortive did not retain a controlling interest in Vontier and therefore the Retained Vontier Shares were included in our assets of continuing operations as of December 31, 2020 and subsequent fair value changes in the Retained Vontier Shares prior to the Debt-for-Equity Exchange are included in our results from continuing operations for the three month period ended April 2, 2021.

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Segment Presentation

In light of the Vontier Separation, we changed our internal reporting structure on the first day of the fourth quarter, September 26, 2020, to reflect organizational and leadership changes that allow us to better assess the operational performance of and allocate resources to our businesses. Our chief operating decision maker assesses performance and allocates resources based on our new operating segments, which are also our new reportable segments. Our new reportable segments are comprised of Intelligent Operating Solutions, Precision Technologies, and Advanced Healthcare Solutions. All prior period segment information has been restated to reflect our new reportable segments.

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 designated our ¥13.8 billion senior unsecured term facility loan and our Euro-denominated commercial paper outstanding during the three month period ended March 27, 2020 as net investment hedges of our investment in certain foreign operations; we exited our Euro-denominated commercial paper positions during the second quarter of 2020 and repaid our ¥13.8 billion senior unsecured term facility loan during the fourth quarter of 2020. As of April 2, 2021 and December 31, 2020, we had no designated net investment hedges.

During the three month period ended March 27, 2020, we recognized foreign currency transaction gains of $0.9 million on the debt that were 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. 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 period ended March 27, 2020.

The changes in AOCI by component are summarized below ($ in millions):


	Foreign currency translation adjustments		Pension adjustments (b)			Total
For the Three Months Ended April 2, 2021:
Balance, December 31, 2020	$	(54.0)	$	(87.1)		$	(141.1)
Other comprehensive income (loss) before reclassifications, net of income taxes	(34.7)		—			(34.7)
Amounts reclassified from accumulated other comprehensive income (loss):
Increase	—		1.3		(a)	1.3
Income tax impact	—		(0.3)			(0.3)
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	(34.7)		1.0			(33.7)
Balance, April 2, 2021	$	(88.7)	$	(86.1)		$	(174.8)

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)











(a) This component of AOCI is included in the computation of net periodic pension cost (refer to Note 8 for additional details).
(b) Includes balances relating to defined benefit plans, supplemental executive retirement plans, and other postretirement employee benefit plans.

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Allowances for Doubtful Accounts

All trade accounts and unbilled receivables are reported in the 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 and trade accounts receivable portfolios over the life of the underlying assets. 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.

The following is a rollforward of the aggregated allowance for credit losses related to our trade accounts receivables as of April 2, 2021 ($ in millions):


Balance, December 31, 2020	$	42.5
Provision	1.6
Write-offs	(3.7)
FX and Other	(0.2)
Balance, April 2, 2021	$	40.2

The allowance for unbilled receivables was immaterial for all periods presented.

Recently Issued Accounting Standard

In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which amends the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity. We may adopt this standard using either a modified retrospective or a fully retrospective method of transition. This standard is effective for us beginning January 1, 2022, with early adoption permitted. We are currently evaluating the impact of this standard on our financial statements and the method of adoption we plan to utilize.

NOTE 2. ACQUISITIONS

For a description of our material acquisition activity refer to Note 3 of our 2020 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 month period ended April 2, 2021, immaterial adjustments were recorded to the preliminary purchase price allocation of acquisitions that closed during 2020.

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

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“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.

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 April 2, 2021 we have closed 20 Principal Countries and 37 Non-Principal Countries that, in aggregate, accounted for approximately 99% of the preliminary valuation of ASP. The remaining two Non-Principal Countries represent less than 1% of the preliminary valuation of ASP, or $2.7 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 assets acquired and liabilities assumed. All of the provisional goodwill associated with the Transaction is included in goodwill at April 2, 2021, and the majority of the provisional goodwill is tax deductible. There were no material measurement period adjustments recorded for the Non-Principal Countries during the three month period ended April 2, 2021.

In addition, the Company entered into a transition services agreement with Johnson & Johnson for certain administrative and operational services (“TSA”) 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 April 2, 2021, ASP had exited the TSAs and substantially all of the distribution agreements. ASP expects to close the remaining Non-Principal Countries in 2021.

NOTE 3. DISCONTINUED OPERATIONS

On October 9, 2020, we completed the Vontier Separation. The accounting requirements for reporting the Vontier business as a discontinued operation were met when the Vontier Separation was completed. Accordingly, the consolidated financial statements reflect the results of the Vontier business as a discontinued operation for all periods presented.

Vontier Impairment Charge

As a result of the interim impairment testing performed, we concluded that the estimated fair value of the Telematics reporting unit was less than its carrying value as of March 27, 2020, and recorded a non-cash goodwill impairment charge of $85.3 million during the three month period ended March 27, 2020. The Telematics reporting unit was included in our former Industrial Technologies segment and part of the Vontier Separation. Accordingly, the impairment charge is recorded in Earnings from discontinued operations, net of income taxes in the Consolidated Statement of Earnings.

The key components of income from discontinued operations for the three month periods ended April 2, 2021 and March 27, 2020 were as follows ($ in millions):


	Three Months Ended
	April 2, 2021		March 27, 2020
Sales	$	—	$	609.2
Cost of sales	—		(346.1)
Selling, general and administrative expenses	(1.9)		(141.0)
Research and development expenses	—		(32.9)
Goodwill impairment	—		(85.3)
Interest expense and other income, net	0.1		(5.2)
Earnings before income taxes	(1.8)		(1.3)
Income taxes	0.3		(11.6)
Net earnings from discontinued operations	$	(1.5)	$	(12.9)

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The following table summarizes the major classes of assets and liabilities of discontinued operations that were included in the Company’s Consolidated Balance Sheets as of December 31 ($ in millions):


	April 2, 2021		December 31, 2020
ASSETS


Other current assets	$	—	$	30.4






Total assets, discontinued operations	$	—	$	30.4
LIABILITIES
Current liabilities:

Accrued expenses and other current liabilities	$	(2.8)	$	(33.3)



Total liabilities, discontinued operations	$	(2.8)	$	(33.3)

NOTE 4. GOODWILL

The following is a rollforward of our carrying value of goodwill by segment ($ in millions):


	Intelligent Operating Solutions		Precision Technologies		Advanced Healthcare Solutions		Total Goodwill
Balance, December 31, 2020	$	3,268.8	$	1,867.9	$	2,222.5	$	7,359.2
Measurement period adjustments for 2020 acquisitions	(0.7)		—		(3.1)		(3.8)

Foreign currency translation and other	(3.8)		(16.0)		4.8		(15.0)
Balance, April 2, 2021	$	3,264.3	$	1,851.9	$	2,224.2	$	7,340.4

We have not identified any triggering events which would have indicated a potential impairment of goodwill in the three month period ended April 2, 2021.

NOTE 5. 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) for identical assets or liabilities in active markets.

•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.

•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.

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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
April 2, 2021
Deferred compensation liabilities	$	—	$	38.1	$	—	$	38.1
December 31, 2020
Investment in Vontier	$	1,119.2	$	—	$	—	$	1,119.2
Deferred compensation liabilities	—		34.8		—		34.8

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 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.

On October 9, 2020, we completed the Vontier Separation and retained 19.9% of the shares of Vontier common stock immediately following the Vontier Separation. We did not retain a controlling interest in Vontier and therefore the fair value of our Retained Vontier Shares were included in our assets of continuing operations as of December 31, 2020, and subsequent fair value changes are included in our results from continuing operations for the three month period ended April 2, 2021.

On January 19, 2021, we completed the Debt-for-Equity Exchange of 33.5 million shares of common stock of Vontier, representing all of the Retained Vontier Shares, for $1.1 billion in aggregate principal amount of indebtedness of the Company held by Goldman Sachs & Co., including (i) all $400.0 million of the 364-day delayed draw term loan due March 22, 2021 (the “Term Loan due March 2021”) and (ii) $683.2 million of the delayed-draw term loan due May 30, 2021 (the “Term Loan due May 2021”). The change in fair value of the Retained Vontier Shares and the resulting gain of $57.0 million was recorded in the three month period ended April 2, 2021. We recorded a loss on extinguishment of the debt included in the Debt-for-Equity Exchange of $94.4 million in the three month period ended April 2, 2021.

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.

We evaluated our non-financial assets as of April 2, 2021 and determined no events or circumstances existed indicating the carrying value may not be fully recoverable.

Fair Value of Financial Instruments

The carrying amount and fair value of financial instruments are as follows ($ in millions):


	April 2, 2021				December 31, 2020
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Current portion of long-term debt	$	1,126.0	$	1,180.4	$	1,399.8	$	1,400.0
Long-term debt, net of current maturities	$	1,441.5	$	1,597.0	$	2,830.3	$	3,155.5

As of April 2, 2021 and December 31, 2020, 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

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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.

NOTE 6. FINANCING AND CAPITAL

The carrying value of the components of our long-term debt were as follows ($ in millions):


	April 2, 2021		December 31, 2020



Term Loan due May 2021	—		1,000.0

Term Loan due March 2021	—		399.8



3.15% senior unsecured notes due 2026	894.3		894.1
4.30% senior unsecured notes due 2046	547.2		547.2
0.875% senior convertible notes due 2022	1,126.0		1,389.0

Long-term debt	2,567.5		4,230.1
Less: current portion of long-term debt	1,126.0		1,399.8
Long-term debt, net of current maturities	$	1,441.5	$	2,830.3

Aggregate unamortized debt discounts, premiums, and issuance costs of $39 million and $57 million as of April 2, 2021 and December 31, 2020, respectively, are netted against the principal amounts of the components of debt in the table above. Refer to Note 11 of our 2020 Annual Report on Form 10-K for further details of our debt financing.

Debt-for-Equity Exchange

Term Loan due May 2021

On January 21, 2021, we repaid the remaining $316.8 million outstanding of the Term Loan due May 2021 from the cash proceeds received from Vontier in the Vontier Separation. The fees associated with the prepayment were immaterial.

Convertible Senior Notes

On February 22, 2019, we issued $1.4 billion in aggregate principal amount of our 0.875% Convertible Senior Notes due 2022 (the “Convertible Notes”), including $187.5 million in aggregate principal amount resulting from an exercise in full of an over-allotment option. The Convertible Notes were issued in a private placement to certain initial purchasers for resale to qualified institutional buyers pursuant to Rule 144A under the Securities Act.

The Convertible Notes bear interest at a rate of 0.875% per year, payable semiannually in arrears on February 15 and August 15 of each year, beginning on August 15, 2019. The Convertible Notes mature on February 15, 2022, unless earlier repurchased or converted in accordance with their terms prior to such date.

As a result of the Vontier Separation and in accordance with the anti-dilution provisions of the Convertible Notes, effective October 9, 2020, the Convertible Notes are convertible into shares of our common stock at an adjusted conversion rate of 10.9568 shares per $1,000 principal amount of Convertible Notes (which is equivalent to an initial conversion price of $91.27 per share), subject to future adjustment upon the occurrence of certain events. The conversion rate is subject to customary anti-dilution adjustments. If certain corporate events described in the Indenture occur prior to the maturity date, the conversion rate will be increased for a holder that elects to convert its Convertible Notes in connection with such corporate event in certain circumstances.

Of the $1.4 billion in principal amount from the issuance of the Convertible Notes, $1.3 billion was classified as debt and $102.2 million was classified as equity, using an assumed effective interest rate of 3.38%. Debt issuance costs of $24.3 million were proportionately allocated to debt and equity. On February 9, 2021, we repurchased $281 million of the Convertible Notes at fair value using the remaining cash proceeds received from Vontier in the Vontier Separation and other cash on hand. In connection with the repurchase, we recorded a loss on debt extinguishment during the three month period ended April 2, 2021

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of $10.5 million. In addition, upon repurchase we recorded $11.6 million as a reduction to additional paid-in capital related to the equity component of the repurchased Convertible Notes.

We recognized $12.2 million in interest expense during the three month period ended April 2, 2021, of which $2.8 million was related to the contractual coupon rate of 0.875%, $1.7 million was attributable to the amortization of debt issuance costs and $7.7 million was attributable to the amortization of the discount. We recognized $13.4 million in interest expense during the three months ended March 27, 2020, of which $3.1 million related to the contractual coupon rate of 0.875%, $1.9 million was attributable to the amortization of debt issuance costs and $8.4 million was attributable to the amortization of the discount. The discount at issuance was $102.2 million and is being amortized over a three-year period. The unamortized discount at April 2, 2021 was $30.5 million.

Prior to November 15, 2021, the Convertible Notes will be convertible only upon the occurrence of certain events and will be convertible thereafter at any time until the close of business on the business day immediately preceding the maturity date of the Convertible Notes.

Other Liquidity Sources

In prior periods, we generally satisfied any short-term liquidity needs that are not met through operating cash flows and available cash through issuances of commercial paper under our U.S. dollar and Euro-denominated commercial paper programs (“Commercial Paper Programs”). Due to the volatility and disruption in the commercial paper markets during the first six months of 2020, we temporarily reduced our reliance on this source of funding, and consequently paid down and refinanced our outstanding commercial paper with the Term Loan due March 2021 that was retired in the Debt-for-Equity Exchange.

Credit support for the Commercial Paper Programs is provided by a five-year $2.0 billion senior unsecured revolving credit facility that expires on November 30, 2023 (the “Revolving Credit Facility”) which, to the extent not otherwise providing credit support for our commercial paper programs, can also be used for working capital and other general corporate purposes. As of April 2, 2021, no borrowings were outstanding under the Revolving Credit Facility.

Classification of Debt Due within the Next Twelve Months

Our Convertible Senior Notes are recorded in the Current portion of long-term debt line item in the Consolidated Condensed Balance Sheet as of April 2, 2021.

NOTE 7. SALES

We derive revenues primarily from the sale of products, software, and services. Revenue is recognized when control of promised products, software, or services is transferred to customers in an amount that reflects the consideration we expect to be entitled to in exchange for those products, software, or services.

Sales of products and software includes revenues from the sale of products and equipment, software product offerings, and equipment rentals.

Sales of services includes revenues from extended warranties, post-contract customer support (“PCS”), maintenance contracts or services, contract labor to perform ongoing service at a customer location, and services related to previously sold products.

Contract Assets — In certain circumstances, we record contract assets which include unbilled amounts typically resulting from sales under contracts when revenue recognized exceeds the amount billed to the customer, and right to payment is not only subject to the passage of time. Contract assets were $67 million as of April 2, 2021 and $56 million as of December 31, 2020.

Contract Costs — We incur direct incremental costs to obtain certain contracts, typically sales-related commissions and costs associated with assets used by our customers in certain software arrangements. Deferred sales-related commissions are generally not capitalized as the amortization period is one year or less, and we elected to use the practical expedient to expense these sales commissions as incurred. As of April 2, 2021 and December 31, 2020, we had $29 million and $31 million, respectively, in net revenue-related contract assets primarily related to certain software contracts. Revenue-related contract assets are recorded in the Prepaid expenses and other current assets and Other assets line items in our Condensed Consolidated Balance Sheets. These assets have estimated useful lives between 3 and 8 years.

Impairment losses recognized on our revenue-related contract assets were immaterial during the three month periods ended April 2, 2021 and March 27, 2020.

Contract Liabilities — Our contract liabilities consist of deferred revenue generally related to PCS and extended warranty sales, where in most cases we receive up-front payment and recognize revenue over the support term. We classify deferred revenue as

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current or noncurrent based on the timing of when we expect to recognize revenue. The noncurrent portion of deferred revenue is included in Other long-term liabilities in the Consolidated Condensed Balance Sheets.

Our contract liabilities consisted of the following ($ in millions):


	April 2, 2021		December 31, 2020
Deferred revenue - current	$	397.8	$	376.4
Deferred revenue - noncurrent	32.3		34.2
Total contract liabilities	$	430.1	$	410.6

During the three month period ended April 2, 2021, we recognized revenue related to our contract liabilities at December 31, 2020 of $123 million. The change in our contract liabilities from December 31, 2020 to April 2, 2021 was primarily due to the timing of cash receipts and sales of PCS and extended warranty services.

Remaining Performance Obligations — Our remaining performance obligations represent the transaction price of firm, noncancelable orders, with expected delivery dates to customers greater than one year from April 2, 2021, for which work has not been performed. We have excluded performance obligations with an original expected duration of one year or less from the amounts below.

The aggregate performance obligations attributable to each of our segments is as follows ($ in millions):


	April 2, 2021
Intelligent Operating Solutions	$	105.2
Precision Technologies	25.4
Advanced Healthcare Solutions	1.2
Total remaining performance obligations	$	131.8

The majority of remaining performance obligations are related to service and support contracts, which we expect to fulfill approximately 55 percent within the next two years, approximately 85 percent within the next three years, and substantially all within four years.

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Disaggregation of Revenue

We disaggregate revenue from contracts with customers by sales of products and software and services, geographic location, and end market for each of our segments, as we believe it best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors. Disaggregation of revenue for the three month period ended April 2, 2021 is presented as follows ($ in millions):


	Total		Intelligent Operating Solutions		Precision Technologies		Advanced Healthcare Solutions
Sales:
Sales of products and software	$	1,077.2	$	453.0	$	393.1	$	231.1
Sales of services	182.0		57.9		54.3		69.8
Total	$	1,259.2	$	510.9	$	447.4	$	300.9

Geographic:
United States	$	620.8	$	248.2	$	219.1	$	153.5
China	164.3		59.5		76.8		28.0

All other (each country individually less than 5% of total sales)	474.1		203.2		151.5		119.4
Total	$	1,259.2	$	510.9	$	447.4	$	300.9

End markets:(a)
Direct sales:
Medical	$	326.8	$	9.4	$	35.0	$	282.4
Industrial & Manufacturing	302.3		196.5		100.0		5.8
Utilities & Power	94.9		54.3		40.6		—
Government	87.9		44.8		34.4		8.7
Communication, Electronics & Semiconductor	87.8		27.5		59.6		0.7
Aerospace & Defense	55.4		—		55.4		—
Oil & Gas	63.3		60.5		2.8		—
Retail & Consumer	45.5		23.5		22.0		—
Other	124.9		56.1		68.8		—
Total direct sales	1,188.8		472.6		418.6		297.6
Distributors	70.4		38.3		28.8		3.3
Total	$	1,259.2	$	510.9	$	447.4	$	300.9

(a) Direct sales by end market include sales made through third-party distributors where we have visibility into the end customer.

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Disaggregation of revenue for the three month period ended March 27, 2020 is presented as follows ($ in millions):

Total

Intelligent Operating Solutions

Precision Technologies

Advanced Healthcare Solutions

Form: 10-Q

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