July 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: July 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 symbol	Name of each exchange on which registered
Common stock, par value $0.01 per share	FTV	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 27, 2021 was 358,390,903.

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	29
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	46
Item 4.	Controls and Procedures	46
PART II -	OTHER INFORMATION
Item 1A.	Risk Factors	46

Item 6.	Exhibits	47
	Signatures	48

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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
	July 2, 2021		December 31, 2020
	(unaudited)
ASSETS
Current assets:
Cash and equivalents	$	1,565.8	$	1,824.8
Accounts receivable, net	817.9		810.3
Inventories:
Finished goods	235.5		227.9
Work in process	80.2		75.2
Raw materials	172.3		152.4
Inventories	488.0		455.5
Prepaid expenses and other current assets	214.7		206.7
Investment in Vontier Corporation	—		1,119.2
Current assets, discontinued operations	—		30.4
Total current assets	3,086.4		4,446.9
Property, plant and equipment, net of accumulated depreciation of $696.2 and $674.5 at July 2, 2021 and December 31, 2020, respectively	400.0		422.0
Operating lease right-of-use assets	180.1		188.7
Other assets	348.0		344.1
Goodwill	7,347.3		7,359.2
Other intangible assets, net	3,133.7		3,290.6

Total assets	$	14,495.5	$	16,051.5
LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt	$	1,134.6	$	1,399.8
Trade accounts payable	489.4		480.8
Current operating lease liabilities	44.2		47.0
Accrued expenses and other current liabilities	900.0		899.9
Current liabilities, discontinued operations	1.5		33.3
Total current liabilities	2,569.7		2,860.8
Operating lease liabilities	145.7		154.3
Other long-term liabilities	1,128.6		1,233.4
Long-term debt	1,441.8		2,830.3

Commitments and Contingencies
Equity:
Preferred stock: $0.01 par value, 15.0 million shares authorized at July 2, 2021 and December 31, 2020; 5.0% Mandatory convertible preferred stock, series A, 0.0 million and 1.4 million shares designated, issued and outstanding at July 2, 2021 and December 31, 2020, respectively	—		—
Common stock: $0.01 par value, 2.0 billion shares authorized; 359.7 and 339.0 million issued; 358.4 and 337.9 million outstanding at July 2, 2021 and December 31, 2020, respectively	3.6		3.4
Additional paid-in capital	3,602.1		3,554.5
Retained earnings	5,756.6		5,547.4
Accumulated other comprehensive income (loss)	(157.3)		(141.1)
Total Fortive stockholders’ equity	9,205.0		8,964.2
Noncontrolling interests	4.7		8.5
Total stockholders’ equity	9,209.7		8,972.7
Total liabilities and equity	$	14,495.5	$	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				Six Months Ended
	July 2, 2021		June 26, 2020		July 2, 2021		June 26, 2020
Sales of products and software	$	1,136.0	$	887.0	$	2,213.2	$	1,832.5
Sales of services	183.7		154.6		365.7		317.2
Total sales	1,319.7		1,041.6		2,578.9		2,149.7
Cost of product and software sales	(464.0)		(375.9)		(908.3)		(776.2)
Cost of service sales	(100.2)		(82.9)		(203.2)		(178.7)
Total cost of sales	(564.2)		(458.8)		(1,111.5)		(954.9)
Gross profit	755.5		582.8		1,467.4		1,194.8
Operating costs:
Selling, general and administrative expenses	(456.4)		(402.8)		(884.5)		(818.6)
Research and development expenses	(87.8)		(77.4)		(174.0)		(158.2)

Operating profit	211.3		102.6		408.9		218.0
Non-operating income (expense), net:

Interest expense, net	(25.2)		(36.2)		(52.9)		(74.8)
Loss on extinguishment of debt	—		—		(104.9)		—
Gain on investment in Vontier Corporation	—		—		57.0		—
Gain on litigation dismissal	26.0		—		26.0		—
Other non-operating expense, net	(4.6)		5.6		(7.9)		1.1
Earnings from continuing operations before income taxes	207.5		72.0		326.2		144.3
Income taxes	(25.5)		(12.2)		(32.5)		(29.7)
Net earnings from continuing operations	182.0		59.8		293.7		114.6
Earnings (loss) from discontinued operations, net of income taxes	(1.1)		70.2		(2.6)		57.3
Net earnings	180.9		130.0		291.1		171.9
Mandatory convertible preferred dividends	(17.2)		(17.2)		(34.5)		(34.5)
Net earnings attributable to common stockholders	$	163.7	$	112.8	$	256.6	$	137.4

Net earnings per common share from continuing operations:
Basic	$	0.49	$	0.13	$	0.76	$	0.24
Diluted	$	0.48	$	0.13	$	0.76	$	0.24
Net earnings (loss) per share from discontinued operations:
Basic	$	—	$	0.21	$	(0.01)	$	0.17
Diluted	$	—	$	0.21	$	(0.01)	$	0.17
Net earnings per share:
Basic	$	0.48	$	0.33	$	0.76	$	0.41
Diluted	$	0.48	$	0.33	$	0.75	$	0.40
Average common stock and common equivalent shares outstanding:
Basic	339.4		337.3		339.0		337.1
Diluted	342.4		339.7		342.1		339.9
The sum of net earnings per share amounts may not add due to rounding.

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				Six Months Ended
	July 2, 2021		June 26, 2020		July 2, 2021		June 26, 2020
Net earnings	$	180.9	$	130.0	$	291.1	$	171.9
Other comprehensive income, net of income taxes:
Foreign currency translation adjustments	16.6		36.0		(18.1)		(100.3)
Pension adjustments	0.9		1.0		1.9		—
Total other comprehensive income (loss), net of income taxes	17.5		37.0		(16.2)		(100.3)
Comprehensive income	$	198.4	$	167.0	$	274.9	$	71.6

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 (loss)	—	—		—	—		—		—		(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
Net earnings for the period	—	—		—	—		—		180.9
Dividends to common shareholders	—	—		—	—		—		(23.7)		—		—
Mandatory convertible preferred stock cumulative dividends	—	—		—	—		—		(17.2)		—		—
Other comprehensive income	—	—		—	—		—		—		17.5		—
Common stock-based award activity	0.5	—		—	—		35.3		—		—		—
Conversion of Mandatory convertible preferred stock to common stock	19.4	0.2		(1.4)	—		—		—		—		—
Changes in noncontrolling interests	—	—		—	—		3.0		—		—		(3.0)
Balance, July 2, 2021	358.4	$	3.6	—	$	—	$	3,602.1	$	5,756.6	$	(157.3)	$	4.7

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, 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

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)


	Six Months Ended
	July 2, 2021		June 26, 2020
Cash flows from operating activities:
Net earnings from continuing operations	$	293.7	$	114.6
Noncash items:
Amortization	155.0		155.6
Depreciation	37.7		42.3
Stock-based compensation expense	36.8		29.7
Loss on extinguishment of debt	104.2		—
Gain on investment in Vontier Corporation	(57.0)		—
Gain on litigation dismissal	(26.0)		—






Change in trade accounts receivable, net	(11.8)		133.4
Change in inventories	(24.0)		(26.0)
Change in trade accounts payable	9.1		3.4
Change in prepaid expenses and other assets	(21.4)		30.5
Change in accrued expenses and other liabilities	(53.3)		(52.7)
Total operating cash provided by continuing operations	443.0		430.8
Total operating cash provided by (used in) discontinued operations	(18.7)		239.5
Net cash provided by operating activities	424.3		670.3
Cash flows from investing activities:
Payments for additions to property, plant and equipment	(17.1)		(45.5)

Cash paid for acquisitions, net of cash received	0.9		(1.8)
All other investing activities	1.1		5.2
Total investing cash used in continuing operations	(15.1)		(42.1)
Total investing cash used in discontinued operations	—		(23.2)
Net cash used in investing activities	(15.1)		(65.3)
Cash flows from financing activities:

Net repayments of commercial paper borrowings	—		(1,141.9)
Proceeds from borrowings (maturities longer than 90 days), net of issuance costs of $1 million in 2020	—		741.7

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

Payment of common stock cash dividend to shareholders	(47.4)		(47.1)
Payment of mandatory convertible preferred stock cash dividend to shareholders	(34.5)		(17.3)


All other financing activities	25.2		(10.0)
Total financing cash used in continuing operations	(667.8)		(724.6)
Total financing cash used in discontinued operations	—		(3.9)
Net cash used in financing activities	(667.8)		(728.5)
Effect of exchange rate changes on cash and equivalents	(0.4)		(18.7)
Net change in cash and equivalents	(259.0)		(142.2)
Beginning balance of cash and equivalents	1,824.8		1,205.2
Ending balance of cash and equivalents	$	1,565.8	$	1,063.0

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 July 2, 2021 and December 31, 2020, our results of operations for the three and six month periods ended July 2, 2021 and June 26, 2020, and cash flows for the six month periods ended July 2, 2021 and June 26, 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 outstanding immediately following the Vontier Separation (the “Retained Vontier Shares”).

On the Distribution Date, Vontier paid the Company $1.8 billion, including $1.6 billion 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 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 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 six month period ended July 2, 2021.

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

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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 six month period ended June 26, 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 July 2, 2021 and December 31, 2020, we had no designated net investment hedges.

During the three and six month periods ended June 26, 2020, we recognized foreign currency transaction gains of $3.1 million and $4.0 million, respectively, 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 and six month periods ended June 26, 2020.

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


	Foreign currency translation adjustments		Pension adjustments (a)			Total
For the Three Months Ended July 2, 2021:
Balance, April 2, 2021	$	(88.7)	$	(86.1)		$	(174.8)
Other comprehensive income (loss) before reclassifications, net of income taxes	16.6		—			16.6
Amounts reclassified from accumulated other comprehensive income (loss):
Increase	—		1.2		(b)	1.2
Income tax impact	—		(0.3)			(0.3)
Amounts reclassified from accumulated other comprehensive income (loss), net of income taxes	—		0.9			0.9
Net current period other comprehensive income (loss), net of income taxes	16.6		0.9			17.5
Balance, July 2, 2021	$	(72.1)	$	(85.2)		$	(157.3)

For the Three Months Ended June 26, 2020:
Balance, March 27, 2020	$	(115.1)	$	(78.5)		$	(193.6)
Other comprehensive income (loss) before reclassifications, net of income taxes	36.0		—			36.0
Amounts reclassified from accumulated other comprehensive income (loss):
Decrease	—		1.2		(b)	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	36.0		1.0			37.0
Balance, June 26, 2020	$	(79.1)	$	(77.5)		$	(156.6)

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	Foreign currency translation adjustments		Pension adjustments (a)			Total
For the Six Months Ended July 2, 2021:
Balance, December 31, 2020	$	(54.0)	$	(87.1)		$	(141.1)
Other comprehensive income (loss) before reclassifications, net of income taxes	(18.1)		—			(18.1)
Amounts reclassified from accumulated other comprehensive income (loss):
Increase (decrease)	—		2.5		(b)	2.5
Income tax impact	—		(0.6)			(0.6)
Amounts reclassified from accumulated other comprehensive income (loss), net of income taxes	—		1.9			1.9
Net current period other comprehensive income (loss)	(18.1)		1.9			(16.2)
Balance, July 2, 2021	$	(72.1)	$	(85.2)		$	(157.3)

For the Six Months Ended June 26, 2020:
Balance, December 31, 2019	$	21.2	$	(77.5)		$	(56.3)
Other comprehensive income (loss) before reclassifications, net of income taxes	(100.3)		—			(100.3)
Amounts reclassified from accumulated other comprehensive income (loss):
Increase (decrease)	—		—			—
Income tax impact	—		—			—
Amounts reclassified from accumulated other comprehensive income (loss), net of income taxes	—		—			—
Net current period other comprehensive income (loss)	(100.3)		—			(100.3)
Balance, June 26, 2020	$	(79.1)	$	(77.5)		$	(156.6)

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

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 July 2, 2021 ($ in millions):


Balance, December 31, 2020	$	42.5
Provision	0.1
Write-offs	(4.3)
FX and Other	0.1
Balance, July 2, 2021	$	38.4

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

Recently Issued Accounting Standard

In August 2020, the Financial Accounting Standards Board issued Accounting Standards Update No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity

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(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. We are currently evaluating the impact of this standard on our financial statements and the method of adoption.

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 markets. 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 complementary 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 complementary 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 and six month periods ended July 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 “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

Form: 10-Q

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