July 26, 2023 - 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 30, 2023


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 21, 2023 was 352,024,375.

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	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	39
Item 4.	Controls and Procedures	39
PART II -	OTHER INFORMATION
Item 1A.	Risk Factors	39
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40
Item 5.	Other Information	40
Item 6.	Exhibits	41
	Signatures	42

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PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

FORTIVE CORPORATION AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEETS

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


	As of
	June 30, 2023		December 31, 2022
	(unaudited)
ASSETS
Current assets:
Cash and equivalents	$	712.8	$	709.2
Trade accounts receivable less allowance for doubtful accounts of $40.4 at June 30, 2023 and $43.9 at December 31, 2022	935.2		958.5
Inventories:
Finished goods	231.2		215.3
Work in process	105.2		96.4
Raw materials	224.8		225.0
Inventories	561.2		536.7
Prepaid expenses and other current assets	265.4		272.6
Total current assets	2,474.6		2,477.0

Property, plant and equipment, net of accumulated depreciation of $789.2 at June 30, 2023 and $754.5 at December 31, 2022	425.9		421.9
Other assets	474.3		455.8
Goodwill	9,051.9		9,048.5
Other intangible assets, net	3,304.0		3,487.4
Total assets	$	15,730.7	$	15,890.6

LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt	$	999.9	$	999.7
Trade accounts payable	585.6		623.0
Accrued expenses and other current liabilities	999.5		1,104.4
Total current liabilities	2,585.0		2,727.1

Other long-term liabilities	1,195.7		1,223.3
Long-term debt	1,978.2		2,251.6
Commitments and Contingencies (Note 8)

Equity:

Common stock: $0.01 par value, 2.0 billion shares authorized; 362.7 million issued and 351.9 million outstanding at June 30, 2023; 361.5 million issued and 352.9 million outstanding at December 31, 2022	3.6		3.6
Additional paid-in capital	3,778.7		3,706.3
Treasury shares, at cost	(572.0)		(442.9)
Retained earnings	7,075.4		6,742.1
Accumulated other comprehensive loss	(319.9)		(325.7)
Total Fortive stockholders’ equity	9,965.8		9,683.4
Noncontrolling interests	6.0		5.2
Total stockholders’ equity	9,971.8		9,688.6
Total liabilities and equity	$	15,730.7	$	15,890.6

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
	June 30, 2023		July 1, 2022		June 30, 2023		July 1, 2022
Sales of products and software	$	1,290.8	$	1,229.4	$	2,527.4	$	2,382.1
Sales of services	235.6		233.9		459.7		457.7
Total sales	1,526.4		1,463.3		2,987.1		2,839.8

Cost of product and software sales	(500.1)		(508.3)		(985.2)		(973.4)
Cost of service sales	(120.9)		(121.5)		(248.3)		(240.9)
Total cost of sales	(621.0)		(629.8)		(1,233.5)		(1,214.3)

Gross profit	905.4		833.5		1,753.6		1,625.5
Operating costs:
Selling, general and administrative expenses	(514.0)		(484.9)		(1,021.7)		(965.5)
Research and development expenses	(100.1)		(100.1)		(200.2)		(199.2)
Russia exit and wind down costs	—		(16.2)		—		(16.2)
Operating profit	291.3		232.3		531.7		444.6
Non-operating income (expense), net:
Interest expense, net	(33.1)		(21.0)		(65.2)		(39.8)



Other non-operating expense, net	(7.8)		(3.1)		(10.3)		(5.8)
Earnings before income taxes	250.4		208.2		456.2		399.0
Income taxes	(41.4)		(35.2)		(73.6)		(60.9)
Net earnings	$	209.0	$	173.0	$	382.6	$	338.1

Net earnings per share:
Basic	$	0.59	$	0.48	$	1.08	$	0.94
Diluted	$	0.59	$	0.48	$	1.07	$	0.93
Average common stock and common equivalent shares outstanding:
Basic	353.0		357.4		353.3		358.3
Diluted	355.5		359.8		356.0		364.2

See the accompanying Notes to Consolidated Condensed Financial Statements.

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FORTIVE CORPORATION AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

($ in millions)

(unaudited)


	Three Months Ended				Six Months Ended
	June 30, 2023		July 1, 2022		June 30, 2023		July 1, 2022
Net earnings	$	209.0	$	173.0	$	382.6	$	338.1
Other comprehensive income (loss), net of income taxes:
Foreign currency translation adjustments	(7.4)		(118.6)		6.0		(158.0)
Pension adjustments	(0.2)		0.4		(0.2)		0.9
Total other comprehensive income (loss), net of income taxes	(7.6)		(118.2)		5.8		(157.1)
Comprehensive income	$	201.4	$	54.8	$	388.4	$	181.0

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		Additional Paid-In Capital		Treasury Shares		Retained Earnings		Accumulated Other Comprehensive Loss		Noncontrolling Interests
		Shares Outstanding											Amount
Balance, December 31, 2022		352.9	$	3.6	$	3,706.3	$	(442.9)	$	6,742.1	$	(325.7)	$	5.2


Net earnings for the period		—	—		—		—		173.6		—		—
Dividends to common shareholders		—	—		—		—		(24.7)		—		—
Other comprehensive income		—	—		—		—		—		13.4		—
Common stock-based award activity		0.8	—		36.3		—		—		—		—

Shares withheld for taxes		(0.2)	—		(12.1)		—		—		—		—
Change in noncontrolling interests		—	—		—		—		—		—		0.6
Balance, March 31, 2023		353.5	$	3.6	$	3,730.5	$	(442.9)	$	6,891.0	$	(312.3)	$	5.8
Net earnings for the period		—	—		—		—		209.0		$	—	$	—
Dividends to common shareholders		—	—		—		—		(24.6)		—		—
Other comprehensive income (loss)		—	—		—		—		—		(7.6)		—
Common stock-based award activity		0.5	—		52.3		—		—		—		—
Common stock repurchases		(2.0)	—		—		(129.1)		—		—		—
Shares withheld for taxes		(0.1)	—		(4.1)		—		—		—		—
Change in noncontrolling interests		—	—		—		—		—		—		0.2
Balance, June 30, 2023		351.9	$	3.6	$	3,778.7	$	(572.0)	$	7,075.4	$	(319.9)	$	6.0


	Common Stock		Additional Paid-In Capital		Treasury Shares		Retained Earnings		Accumulated Other Comprehensive Loss		Noncontrolling Interests
		Shares Outstanding											Amount
Balance, December 31, 2021		359.1	$	3.6	$	3,670.0	$	—	$	6,023.6	$	(185.0)	$	4.8
Adoption of ASU 2020-06		—	—		(65.7)		—		62.8		—		—
Balance, January 1, 2022		359.1	3.6		3,604.3		—		6,086.4		(185.0)		4.8
Net earnings for the period		—	—		—		—		165.1		—		—
Dividends to common shareholders		—	—		—		—		(25.1)		—		—
Other comprehensive income (loss)		—	—		—		—		—		(38.9)		—
Common stock-based award activity		0.5	—		23.8		—		—		—		—
Common stock repurchases		(1.0)	—		—		(63.8)		—		—		—
Shares withheld for taxes		(0.2)	—		(9.0)		—		—		—		—
Change in noncontrolling interest		—	—		—		—		—		—		0.5
Balance, April 1, 2022		358.4	$	3.6	$	3,619.1	$	(63.8)	$	6,226.4	$	(223.9)	$	5.3
Net earnings for the period		—	—		—		—		173.0		—		—
Dividends to common shareholders		—	—		—		—		(24.9)		—		—
Other comprehensive income		—	—		—		—		—		(118.2)		—
Common stock-based award activity		0.2	—		32.7		—		—		—		—
Common stock repurchases		(3.0)	—		—		(179.1)		—		—		—
Shares withheld for taxes		—	—		(0.6)		—		—		—		—
Change in noncontrolling interests		—	—		—		—		—		—		(0.2)
Balance, July 1, 2022		355.6	$	3.6	$	3,651.2	$	(242.9)	$	6,374.5	$	(342.1)	$	5.1

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
	June 30, 2023		July 1, 2022
Cash flows from operating activities:
Net earnings	$	382.6	$	338.1
Noncash items:
Amortization	184.2		192.1
Depreciation	42.1		41.9
Stock-based compensation expense	55.7		45.0
Russia exit and wind down costs	—		9.2





Change in trade accounts receivable, net	26.0		(37.7)
Change in inventories	(27.4)		(50.7)
Change in trade accounts payable	(36.4)		40.1
Change in prepaid expenses and other assets	(13.1)		(39.2)
Change in accrued expenses and other liabilities	(118.3)		(29.6)


Net cash provided by operating activities	495.4		509.2

Cash flows from investing activities:
Payments for additions to property, plant and equipment	(45.8)		(37.1)
Proceeds from sale of property	4.9		—
Cash paid for acquisitions, net of cash received	—		(1.6)




Net cash used in investing activities	(40.9)		(38.7)

Cash flows from financing activities:
Net proceeds from (repayments of) commercial paper borrowings	(268.6)		481.3
Proceeds from borrowings (maturities greater than 90 days), net of issuance costs	—		397.0
Payment of 0.875% convertible senior notes due 2022	—		(1,156.5)
Repurchase of common shares	(129.1)		(242.9)
Payment of dividends	(49.3)		(50.0)


All other financing activities	5.6		(11.8)


Net cash used in financing activities	(441.4)		(582.9)

Effect of exchange rate changes on cash and equivalents	(9.5)		(24.0)
Net change in cash and equivalents	3.6		(136.4)
Beginning balance of cash and equivalents	709.2		819.3
Ending balance of cash and equivalents	$	712.8	$	682.9

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 provider of essential technologies for connected workflow solutions across a range of attractive end-markets. Our strategic segments - Intelligent Operating Solutions, Precision Technologies, and Advanced Healthcare Solutions - include well-known brands with leading positions in their markets. Our businesses design, develop, manufacture, and service professional and engineered products, software, and services, 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 around the world.

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 omitted pursuant to such rules and regulations; however, we believe the disclosures are adequate to make the information presented not misleading. The unaudited 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, 2022 and the footnotes (“Notes”) thereto included within our 2022 Annual Report on Form 10-K.

In our opinion, the accompanying financial statements contain all adjustments, which consist of only normal, recurring accruals necessary to fairly present our financial position, results of operations, comprehensive income, stockholders’ equity, and cash flows for the periods presented. The results of operations for the three and six months ended June 30, 2023, are not necessarily indicative of the results for the full year.

Russia Ukraine Conflict

In February 2022, Russian forces invaded Ukraine (“Russia Ukraine Conflict”) resulting in broad economic sanctions being imposed on Russia. In the second quarter of 2022, the Company exited business operations in Russia, other than for ASP’s sterilization products, which are exempt from international sanctions as humanitarian products.

In the three and six-month periods ended July 1, 2022, the Company recorded pre-tax charges of $16.2 million primarily relating to the write-off of net assets, the write-off of the cumulative translation adjustment in earnings for legal entities deemed substantially liquidated, and to record provisions for employee severance and legal contingencies. These costs are identified as the “Russia exit and wind down costs” in the Condensed Consolidated Statements of Earnings. The exit activities were completed in 2022 and we did not incur additional charges in 2023.

Accumulated Other Comprehensive Loss

Foreign currency translation adjustments are generally not adjusted for income taxes as they relate to indefinite investments in non-U.S. subsidiaries. During the second quarter of 2022, our ¥14.4 billion Yen-denominated term loan and our €275 million Euro-denominated term loan were designated as net investment hedges of our investment in applicable foreign operations.

We recognized after-tax foreign currency transaction gains of $5.1 million and $3.6 million, respectively, during the three-month periods ended June 30, 2023 and July 1, 2022, and gains of $3.4 million and $3.6 million, respectively, during the six-month periods ended June 30, 2023 and July 1, 2022, on the debt that was 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 30, 2023 and July 1, 2022.

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


	Foreign currency translation adjustments		Pension & post-retirement plan benefit adjustments (a)			Total
For the Three Months Ended June 30, 2023:
Balance, March 31, 2023	$	(288.0)	$	(24.3)		$	(312.3)
Other comprehensive income (loss) before reclassifications, net of income taxes	(7.4)		—			(7.4)
Amounts reclassified from accumulated other comprehensive income (loss):
Increase (decrease)	—		(0.5)		(b)	(0.5)
Income tax impact	—		0.3			0.3
Amounts reclassified from accumulated other comprehensive income (loss), net of income taxes	—		(0.2)			(0.2)
Net current period other comprehensive income (loss), net of income taxes	(7.4)		(0.2)			(7.6)
Balance, June 30, 2023	$	(295.4)	$	(24.5)		$	(319.9)

For the Three Months Ended July 1, 2022:
Balance, April 1, 2022	$	(162.1)	$	(61.8)		$	(223.9)
Other comprehensive income (loss) before reclassifications, net of income taxes	(121.3)		—			(121.3)
Amounts reclassified from accumulated other comprehensive income (loss):
Increase (decrease)	2.7		0.5		(b)	3.2
Income tax impact	—		(0.1)			(0.1)
Amounts reclassified from accumulated other comprehensive income (loss), net of income taxes	2.7		0.4			3.1
Net current period other comprehensive income (loss), net of income taxes	(118.6)		0.4			(118.2)
Balance, July 1, 2022	$	(280.7)	$	(61.4)		$	(342.1)

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	Foreign currency translation adjustments		Pension & post-retirement plan benefit adjustments (a)			Total
For the Six Months Ended June 30, 2023:
Balance, December 31, 2022	$	(301.4)	$	(24.3)		$	(325.7)
Other comprehensive income (loss) before reclassifications, net of income taxes	6.0		—			6.0
Amounts reclassified from accumulated other comprehensive income (loss):
Increase (decrease)	—		(0.4)		(b)	(0.4)
Income tax impact	—		0.2			0.2
Amounts reclassified from accumulated other comprehensive income (loss), net of income taxes	—		(0.2)			(0.2)
Net current period other comprehensive income (loss)	6.0		(0.2)			5.8
Balance, June 30, 2023	$	(295.4)	$	(24.5)		$	(319.9)

For the Six Months Ended July 1, 2022:
Balance, December 31, 2021	$	(122.7)	$	(62.3)		$	(185.0)
Other comprehensive income (loss) before reclassifications, net of income taxes	(160.7)		—			(160.7)
Amounts reclassified from accumulated other comprehensive income (loss):
Increase (decrease)	2.7		1.1		(b)	3.8
Income tax impact	—		(0.2)			(0.2)
Amounts reclassified from accumulated other comprehensive income (loss), net of income taxes	2.7		0.9			3.6
Net current period other comprehensive income (loss)	(158.0)		0.9			(157.1)
Balance, July 1, 2022	$	(280.7)	$	(61.4)		$	(342.1)

(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 12 in our most recently filed Form 10-K for additional details).

Allowances for Doubtful Accounts

All trade accounts and unbilled receivables are reported in the Consolidated Condensed Balance Sheets 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. During the three and six-month periods ending June 30, 2023 and July 1, 2022, the activity was immaterial.

Restructuring

We initiated a discrete plan in the first quarter of 2023 that is expected to be completed by December 31, 2023. The nature of these activities were broadly consistent throughout our segments and consist primarily of targeted workforce reductions in response to overall macroeconomic and other external conditions. We incurred these costs to position ourselves to provide superior products and services to customers in a cost-efficient manner, while taking into consideration the impact of broad economic uncertainties. During the three and six-month periods ended June 30, 2023, we incurred charges of $10.7 million and $28.3 million, respectively. These charges are included in Cost of sales and Selling, general, and administrative expenses in the Consolidated Condensed Statements of Earnings. Accrued restructuring costs were $14.2 million as of June 30, 2023 and are included within Accrued expenses and other current liabilities in the Consolidated Condensed Balance Sheets. The total

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restructuring charges we expect to recognize during the year ending December 31, 2023 under this discrete plan are approximately $30 to $35 million.

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 (“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. Upon conversion of the Convertible Notes, holders were entitled to receive cash, shares of our common stock, or a combination thereof, at our election. Upon adopting 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 (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), on January 1, 2022, we accounted for the Convertible Notes under the if-converted method in our calculation of diluted EPS, as required under the new guidance.

On February 15, 2022, the maturity date of the Convertible Notes, Fortive repaid, in cash, $1.2 billion in outstanding principal and accrued interest thereon.

Recently Issued Accounting Standard

The Financial Accounting Standards Board (“FASB”) establishes changes to accounting principles under GAAP in the form of accounting standards updates (“ASUs”) to the Accounting Standards Codification (“ASC”). We consider the applicability and impact of all ASUs. Any recently issued ASUs were assessed and determined to be either not applicable or are expected to have an immaterial impact on the Company’s result of operations, financials position or cash flows.

NOTE 2. GOODWILL

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


Balance,	Intelligent Operating Solutions		Precision Technologies		Advanced Healthcare Solutions		Total Goodwill
Balance, December 31, 2022	$	4,074.4	$	1,810.2	$	3,163.9	$	9,048.5


Foreign currency translation and other	13.5		(5.1)		(5.0)		3.4
Balance, June 30, 2023	$	4,087.9	$	1,805.1	$	3,158.9	$	9,051.9

NOTE 3. 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
June 30, 2023
Deferred compensation liabilities	$	—	$	37.5	$	—	$	37.5
December 31, 2022
Deferred compensation liabilities	—		31.5		—		31.5

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 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 and are recorded within Selling, general and administrative in the Consolidated Condensed Statements of Earnings.

Non-recurring 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 events or circumstances that may indicate the carrying value of our non-financial assets may not be fully recoverable during the three and six-month periods ended June 30, 2023, and recorded no material impairments.

Fair Value of Financial Instruments

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


	June 30, 2023				December 31, 2022
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Current portion of long-term debt	$	999.9	$	1,000.0	$	999.7	$	1,000.0
Long-term debt, net of current maturities	1,978.2		1,824.4		2,251.6		2,078.1

As of June 30, 2023 and December 31, 2022, the current portion of long-term debt and long-term debt, net of current maturities were categorized as Level 1.

The fair values of long-term borrowings 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 borrowing. The fair value of cash and cash equivalents, trade accounts receivable, net, trade accounts payable, and commercial paper approximates their carrying value due to the short-term maturities of these instruments.

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NOTE 4. FINANCING

The components of our debt were as follows ($ in millions):


	June 30, 2023		December 31, 2022
U.S. dollar-denominated commercial paper	$	135.0	$	405.0
Delayed-Draw Term Loan due 2023	1,000.0		1,000.0
Euro Term Loan due 2025	300.0		294.4
Yen Term Loan due 2025	99.8		109.8
3.15% senior unsecured notes due 2026	900.0		900.0
4.30% senior unsecured notes due 2046	550.0		550.0
Long-term debt, principal amounts	2,984.8		3,259.2
Less: aggregate unamortized debt discounts, premiums, and issuance costs	6.7		7.9
Long-term debt, carrying value	2,978.1		3,251.3
Less: current portion of long-term debt	999.9		999.7
Long-term debt, net of current maturities	$	1,978.2	$	2,251.6

Refer to Note 11 of our 2022 Annual Report on Form 10-K for further details of our debt financing.

Other Liquidity Sources

We generally satisfy any short-term liquidity needs that are not met through operating cash flows and available cash primarily through issuances of commercial paper under our U.S. dollar and Euro-denominated commercial paper programs (“Commercial Paper Programs”). Under these programs, we may issue unsecured promissory notes with maturities not exceeding 397 and 183 days, respectively.

Interest expense on commercial paper is paid at maturity and is generally based on our credit ratings at the time of issuance and prevailing short-term interest rates.

The details of our outstanding Commercial Paper Programs as of June 30, 2023 were as follows ($ in millions):


	Carrying value (a)		Annual effective rate		Weighted average maturity (in days)
U.S. dollar-denominated commercial paper	$	134.8	5.39	%	17
(a) Net of unamortized debt discount.

Credit support for the Commercial Paper Programs is provided by a five-year $2.0 billion senior unsecured revolving credit facility that expires on October 18, 2027 (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 June 30, 2023, no borrowings were outstanding under the Revolving Credit Facility.

We classified our borrowings outstanding under the Commercial Paper Programs as Long-term debt in the accompanying Consolidated Condensed Balance Sheets as we had the intent and ability, as supported by availability under the Revolving Credit Facility, to refinance these borrowings for at least one year from the balance sheet date.

NOTE 5. SALES

We derive revenue primarily from the sale of products, including software, and services. Revenue is recognized when control of promised products 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.

Product sales include revenue from the sale of products and equipment, which includes our software and SaaS product offerings and equipment rentals. Service sales include revenues from extended warranties, post-contract customer support (“PCS”), maintenance contracts or services, contract labor to perform ongoing service at a customer location, services related to previously sold products, and software implementation services.

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

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subject to the passage of time. Contract assets were $97 million as of June 30, 2023 and $82 million as of December 31, 2022. Contract assets are recorded in Prepaid expenses and other current assets in our Consolidated Condensed Balance Sheets.

Contract Costs — We incur and capitalize incremental costs to obtain certain contracts, typically sales-related commissions where the amortization period is greater than one year and costs associated with assets used by our customers in certain service arrangements. As of June 30, 2023 and December 31, 2022, we had $48 million and $42 million, respectively, in net revenue-related contract costs primarily related to certain software contracts. Revenue-related contract costs are recorded in the Prepaid expenses and other current assets and Other assets line items in our Consolidated Condensed Balance Sheets. These assets have estimated useful lives between three and five years.

Contract Liabilities — Our contract liabilities consist of deferred revenue generally related to subscription-based software contracts, PCS and extended warranty sales, where we generally receive up-front payment and recognize revenue over the service or support term. We classify deferred revenue as current or noncurrent based on the timing of when we expect to recognize revenue. The current portion of deferred revenue is included in Accrued expenses and other current liabilities and the noncurrent portion of deferred revenue is included in Other long-term liabilities in our Consolidated Condensed Balance Sheets.

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


	June 30, 2023		December 31, 2022
Deferred revenue - current	$	495.4	$	509.6
Deferred revenue - noncurrent	41.5		38.0
Total contract liabilities	$	536.9	$	547.6

During the three and six-month periods ended June 30, 2023, we recognized revenue related to our contract liabilities at December 31, 2022 of $113 million and $288 million. The change in our contract liabilities from December 31, 2022 to June 30, 2023 was primarily due to the timing of billings and revenue recognized for subscription-based software contracts, PCS and extended warranty services.

Remaining Performance Obligations — Our remaining performance obligations represent the transaction price of firm, non-cancelable orders and the average contract value for software contracts, 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 remaining performance obligations attributable to each of our segments is as follows ($ in millions):


	June 30, 2023
Intelligent Operating Solutions	$	565.8
Precision Technologies	54.7
Advanced Healthcare Solutions	58.4
Total remaining performance obligations	$	678.9

The majority of remaining performance obligations are related to service and support contracts, which we expect to fulfill approximately 75 percent within the next two years, approximately 90 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 June 30, 2023 is presented as follows ($ in millions):


	Total		Intelligent Operating Solutions		Precision Technologies		Advanced Healthcare Solutions
Sales:
Sales of products and software	$	1,290.8	$	546.4	$	481.0	$	263.4
Sales of services	235.6		106.7		56.4		72.5
Total	$	1,526.4	$	653.1	$	537.4	$	335.9

Geographic:
United States	$	827.8	$	362.0	$	273.2	$	192.6
China	178.9		58.6		94.1		26.2
All other (each country individually less than 5% of total sales)	519.7		232.5		170.1		117.1
Total	$	1,526.4	$	653.1	$	537.4	$	335.9

End markets:(a)
Direct sales:
Healthcare	$	359.6	$	11.6	$	35.3	$	312.7
Industrial & Manufacturing	357.8		232.6		117.8		7.4
Utilities & Power	104.6		46.3		58.3		—
Government	132.9		77.2		47.0		8.7
Communications, Electronics & Semiconductor	97.4		23.3		73.4		0.7
Aerospace & Defense	76.3		0.2		76.1		—
Oil & Gas	71.6		67.6		4.0		—
Retail & Consumer	84.4		62.1		22.3		—
Other	181.6		100.1		81.5		—
Total direct sales	1,466.2		621.0		515.7		329.5
Distributors	60.2		32.1		21.7		6.4
Total	$	1,526.4	$	653.1	$	537.4	$	335.9

(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 July 1, 2022 is presented as follows ($ in millions):


	Total		Intelligent Operating Solutions		Precision Technologies		Advanced Healthcare Solutions
Sales:
Sales of products and software	$	1,229.4	$	534.2	$	444.7	$	250.5
Sales of services	233.9		95.9		54.4		83.6
Total	$	1,463.3	$	630.1	$	499.1	$	334.1

Geographic:
United States	$	779.0	$	341.1	$	249.6	$	188.3
China	182.7		56.1		101.6		25.0
All other (each country individually less than 5% of total sales)	501.6		232.9		147.9		120.8
Total	$	1,463.3	$	630.1	$	499.1	$	334.1

End markets:(a)
Direct sales:
Healthcare	$	369.8	$	13.2	$	41.3	$	315.3
Industrial & Manufacturing	341.9		227.4		107.7		6.8
Utilities & Power	94.0		47.9		46.1		—
Government	110.1		60.5		41.4		8.2
Communications, Electronics & Semiconductor	102.1		26.3		75.4		0.4
Aerospace & Defense	64.7		0.2		64.5		—
Oil & Gas	68.6		65.8		2.8		—
Retail & Consumer	84.4		60.6		23.8		—
Other	158.5		90.1		68.4		—
Total direct sales	1,394.1		592.0		471.4		330.7
Distributors	69.2		38.1		27.7		3.4
Total	$	1,463.3	$	630.1	$	499.1	$	334.1

(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 six-month period ended June 30, 2023 is presented as follows ($ in millions):


	Total		Intelligent Operating Solutions		Precision Technologies		Advanced Healthcare Solutions
Sales:
Sales of products and software	$	2,527.4	$	1,083.8	$	941.3	$	502.3
Sales of services	459.7		201.4		111.6		146.7
Total	$	2,987.1	$	1,285.2	$	1,052.9	$	649.0

Geographic:
United States	$	1,599.3	$	702.1	$	524.5	$	372.7
China	360.3		123.5		186.3		50.5
All other (each country individually less than 5% of total sales)	1,027.5		459.6		342.1		225.8
Total	$	2,987.1	$	1,285.2	$	1,052.9	$	649.0

End markets:(a)
Direct sales:
Healthcare	$	699.0	$	22.5	$	69.8	$	606.7
Industrial & Manufacturing	711.0		460.9		236.0		14.1
Utilities & Power	203.5		93.6		109.9		—
Government	244.0		139.0		87.9		17.1
Communications, Electronics & Semiconductor	203.3		48.9		153.0		1.4
Aerospace & Defense	143.9		0.3		143.6		—
Oil & Gas	141.9		133.5		8.4		—
Retail & Consumer	167.3		124.4		42.9		—
Other	351.7		195.1		156.6		—
Total direct sales	2,865.6		1,218.2		1,008.1		639.3
Distributors	121.5		67.0		44.8		9.7
Total	$	2,987.1	$	1,285.2	$	1,052.9	$	649.0

(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 six-month period ended July 1, 2022 is presented as follows ($ in millions):


	Total		Intelligent Operating Solutions		Precision Technologies		Advanced Healthcare Solutions
Sales:
Sales of products and software	$	2,382.1	$	1,034.7	$	855.3	$	492.1
Sales of services	457.7		183.0		106.2		168.5
Total	$	2,839.8	$	1,217.7	$	961.5	$	660.6

Geographic:
United States	$	1,518.9	$	663.0	$	483.6	$	372.3
China	328.1		104.0

Form: 10-Q

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