Washington, D.C. 20549
See the accompanying Notes to Consolidated Condensed Financial Statements.
See the accompanying Notes to Consolidated Condensed Financial Statements.
See the accompanying Notes to Consolidated Condensed Financial Statements.
See the accompanying Notes to Consolidated Condensed Financial Statements.
NOTE 1. BUSINESS OVERVIEW
Fortive Corporation (“Fortive,” the “Company,” “we,” “us,” or “our”) is a diversified industrial technology growth company encompassing businesses that are recognized leaders in attractive markets. Our well-known brands hold leading positions in advanced instrumentation andfield solutions, product realization, sensing technologies, health, transportation technology,technologies, and franchise distribution markets.distribution. Our businesses design, develop, service, manufacture, and market professional and engineered products, software, and services for a variety of end markets, building upon leading brand names, innovative technology, and significant market positions.
We prepared the unaudited consolidated condensed financial statements included herein in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) applicable for interim periods. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations; however, we believe the disclosures are adequate to make the information presented not misleading. The consolidated condensed financial statements included herein should be read in conjunction with the audited annual consolidated financial statements as of and for the year ended December 31, 20182019 and the footnotes (“Notes”) thereto included within our 20182019 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 SeptemberMarch 27, 20192020 and December 31, 2018,2019, our results of operations for the three and nine months ended SeptemberMarch 27, 20192020 and September 28, 2018,March 29, 2019, and cash flows for the ninethree months ended SeptemberMarch 27, 20192020 and September 28, 2018.March 29, 2019.
On September 4, 2019, we announced our intention to separate into two independent, publicly traded companies, subject to the satisfaction of certain conditions, including obtaining final approval from our Board of Directors.conditions. The separation will create (i) an industrial technology company, retaining the Fortive name, with a differentiated portfolio of growth-oriented businesses focused on connected workflow solutions that incorporate advanced sensors, instrumentation, software, data, and analytics, and (ii) a global industrial company (“NewCo”Vontier”) focusedconsisting of our Transportation Technologies and Franchise Distribution platforms with a focus on the growth opportunities in the rapidly evolving transportation and mobility markets. The proposed separation is expected to be structured in a tax-efficient mannermanner. The timing and completedstructure of the separation will depend, in part, on the second halfstate of 2020.the capital market environment over time as affected by the future evolution of the COVID-19 pandemic and its impact on the global economy. All assets, liabilities, revenues, and expenses of NewCothe businesses comprising Vontier are included in continuing operations of the Company in the accompanying consolidated condensed financial statements.
On October 1, 2018, we completed the split-off of businesses in our automation and specialty platform (excluding our Hengstler and Dynapar businesses) (the “A&S Business”) and have reported the A&S Business as discontinued operations in our Consolidated Condensed Statements of Earnings, Consolidated Condensed Balance Sheets, and Consolidated Condensed Statements of Cash Flows for all periods presented. Unless otherwise noted,The impact of discontinued operations in our consolidated condensed financial statements was immaterial for both periods presented, and therefore, discussion within these notes to the consolidated condensed financial statements relates to continuing operations. Refer to Note 3 for additional information on discontinued operations.
NOTE 2. ACQUISITIONS
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.
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.
assets acquired and liabilities assumed. All of the provisional goodwill associated with the Transaction is included in goodwill at SeptemberMarch 27, 2019;2020, and the majority of the provisional goodwill is tax deductible.
In addition, the Company entered into a transition services agreement with Johnson & Johnson for certain administrative and operational services, and distribution agreements in the Non-Principal Countries. Under the distribution agreements, ASP will sellsells finished goods to Ethicon at prices agreed by the parties. ASP will recognizerecognizes these sales as revenue when the conditions for revenue recognition are met. Following the sale of finished goods by ASP, Ethicon obtains title of the finished goods, has full authority to sell and market the finished goods to end customers as it sees fit, and retains any revenue and profit from sale. As of March 27, 2020, no further services are being provided under the transition services agreement in the U.S., Canada, Mexico, Australia, and New Zealand.
| | | | | | | | | |
| Advanced Sterilization Products | | | | |
| Inventories | $ | 176.4 | | | | | |
| Property, plant and equipment | 47.5 | | | | | |
| Goodwill | 1,437.2 | | | | | |
| Other intangible assets, primarily customer relationships, trade names and technology | 1,123.5 | | | | | |
| Other assets and liabilities, net | (79.7) | | | | | |
| Total consideration allocated to Principal Countries and closed Non-Principal Countries | 2,704.9 | | | | | |
| Prepaid acquisition asset related to remaining Non-Principal Countries | 31.1 | | | | | |
| Net cash consideration | $ | 2,736.0 | | | | | |
Revenue and operating loss attributable to ASP for the three and nine months ended SeptemberMarch 27, 20192020 were$169.5 million $159 million and $334.4$26 million, respectively, and are included in our Professional Instrumentation segment beginning April 1, 2019.segment. Operating losses attributable to ASP for the three and nine months ended September 27, 2019 were $26.6loss includes a combined $52 million and $90.5 million, respectively, and include amortizationof amortization of intangible assets, acquisition-related fair value adjustments, and post-close transaction and integration costs associated with the Transaction of $64.8 million and $166.6 million, for the three and nine months ended SeptemberMarch 27, 2019, respectively. We incurred2020.
Post-close transaction and integration costs associated with the Transaction were approximately $20 million and $71 million of pretax transaction and integration related costsare recorded in selling, general, and administrative expenses for the three and nine months ended SeptemberMarch 27, 2019, respectively, which2020, and were primarily for banking fees, legal fees and amounts paid to other third-party advisers.
Other Acquisitions and Investments
In addition to the ASP acquisition, we acquired 3 businesses for $683.6 million in cash, net of cash acquired and made additional equity investments of $4.1 million during the nine months ended September 27, 2019.
The businesses acquired complement existing units of our Professional Instrumentation segment. The aggregate annual sales of these business in 2018 were approximately $149 million. We incurred approximately $1 million and $4 million of pretax transaction-related costs recorded in selling, general, and administrative expenses for the three and nine months ended September 27, 2019, respectively, which were primarily for banking fees, legal fees, and amounts paid to other third-party advisers. Approximately $17 million of goodwill associated with these acquisitions is tax deductible. The revenue and operating profit from these acquisitions included in our results during the three and nine months ended September 27, 2019 was immaterial for both periods, respectively.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:
|
| | | |
| Accounts receivable | $ | 39.8 |
|
| Inventories | 16.2 |
|
| Property, plant and equipment | 9.5 |
|
| Goodwill | 454.6 |
|
| Other intangible assets | 252.2 |
|
| Other assets and liabilities, net | (88.7 | ) |
| Net cash consideration | $ | 683.6 |
|
Pro Forma Financial Information
The pro forma information for the periods set forth below gives effect to the acquisitions made in 2019 and 2018 as if they had occurred on January 1, 2018. The pro forma information is presented for informational purposes only and is not indicative of the results of operations that actually would have been achieved had the acquisitions been consummated as of that time ($ in millions except per share amounts):
|
| | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 27, 2019 | | September 28, 2018 | | September 27, 2019 | | September 28, 2018 |
| Sales | $ | 1,877.6 |
| | $ | 1,856.8 |
| | $ | 5,614.7 |
| | $ | 5,558.9 |
|
| Net earnings | $ | 240.3 |
| | $ | 141.9 |
| | $ | 626.1 |
| | $ | 447.0 |
|
| Diluted net earnings per share | $ | 0.71 |
| | $ | 0.40 |
| | $ | 1.84 |
| | $ | 1.26 |
|
NOTE 3. DISCONTINUED OPERATIONS
Divestiture of A&S Business
On October 1, 2018, we completed the split-off of 4 of our operating companies (the “A&S Business”) in a tax efficient Reverse Morris Trust transaction with Altra Industrial Motion Corp. (“Altra”). The total consideration received was $2.7 billion and consisted of (i) $1.3 billion through a fully-subscribed exchange offer, in which we accepted and subsequently retired 15,824,931 shares of our own common stock from our stockholders in exchange for the 35,000,000 shares of common stock of Stevens Holding Company, Inc., an entity created to hold the A&S Business; (ii) $1.0 billion in cash paid to us for the direct sales of certain assets and liabilities of the A&S Business; (iii) $250 million as part of a debt-for-debt exchange that reduced outstanding indebtedness of Fortive; and (iv) $150 million in cash paid to us by Stevens Holding Company, Inc. as a dividend. We recognized an after-tax gain on the transaction of $1.9 billion.
The accounting requirements for reporting the disposition of the A&S Business as a discontinued operation were met when the separation and merger were completed in the fourth quarter of 2018. Accordingly, the accompanying consolidated condensed financial statements reflect the A&S Business as discontinued operations for all periods presented.
We continue to provide certain support services to Altra under transition services agreements. The impact of these services on our consolidated condensed financial statements was immaterial during the three and nine month periods ended September 27, 2019.
The key components of income from discontinued operations for the three and nine month periods ended September 27, 2019 and September 28, 2018 were as follows ($ in millions):
|
| | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 27, 2019 | | September 28, 2018 | | September 27, 2019 | | September 28, 2018 |
| Sales | $ | — |
| | $ | 238.9 |
| | $ | 6.1 |
| | $ | 741.6 |
|
| Cost of sales | (0.1 | ) | | (140.5 | ) | | (6.2 | ) | | (430.6 | ) |
| Selling, general and administrative expenses | — |
| | (49.8 | ) | | (0.5 | ) | | (125.9 | ) |
| Research and development expenses | — |
| | (8.7 | ) | | — |
| | (27.0 | ) |
| Gain (loss) on disposition of discontinued operations before income taxes | (0.6 | ) | | — |
| | (0.4 | ) | | — |
|
| Interest expense and other income, net | 0.5 |
| | (1.3 | ) | | 0.5 |
| | (4.0 | ) |
| Earnings before income taxes | (0.2 | ) | | 38.6 |
| | (0.5 | ) | | 154.1 |
|
| Income taxes | — |
| | (7.3 | ) | | — |
| | (30.8 | ) |
| Net earnings from discontinued operations | $ | (0.2 | ) | | $ | 31.3 |
| | $ | (0.5 | ) | | $ | 123.3 |
|
Interest expense related to the debt retired as part of the debt-for-debt exchange was reclassified to discontinued operations for all periods prior to the disposition.
The following table summarizes the major classes of assets and liabilities of discontinued operations that were included in our accompanying Consolidated Condensed Balance Sheets as of September 27, 2019 and December 31, 2018 ($ in millions):
|
| | | | | | | |
| | September 27, 2019 | | December 31, 2018 |
| ASSETS | | | |
| Accounts receivable, net | $ | 0.1 |
| | $ | 4.2 |
|
| Inventories | — |
| | 4.4 |
|
| Prepaid expenses and other current assets | 17.7 |
| | 21.4 |
|
| Total current assets, discontinued operations | $ | 17.8 |
| | $ | 30.0 |
|
| LIABILITIES | | | |
| Current liabilities: | | | |
| Trade accounts payable | $ | 5.3 |
| | $ | 9.2 |
|
| Accrued expenses and other current liabilities | 10.4 |
| | 21.5 |
|
| Total current liabilities, discontinued operations | $ | 15.7 |
| | $ | 30.7 |
|
NOTE 4. GOODWILL AND OTHER INTANGIBLE ASSETS
The following is a rollforward of our goodwill ($ in millions):
|
| | | |
| Balance, December 31, 2018 | $ | 6,133.1 |
|
| Adjustments to preliminary purchase price allocations for acquisitions completed in 2018 | 72.0 |
|
| Attributable to 2019 acquisitions | 1,839.8 |
|
| Attributable to the Tektronix Video Business Combination | (40.2 | ) |
| Foreign currency translation and other | (9.2 | ) |
| Balance, September 27, 2019 | $ | 7,995.5 |
|
The carrying value of goodwill by segment is summarized as follows ($ in millions):
| | | | | | | | | | | | | | | | | |
| Professional Instrumentation (a) | | Industrial Technologies (a) | | Total Goodwill |
| Balance, December 31, 2019 | $ | 7,242.6 | | | $ | 1,156.7 | | | | $ | 8,399.3 | |
| Acquisitions | 13.2 | | | — | | | | 13.2 | |
| Impairment charge | — | | | (85.3) | | | | (85.3) | |
| Foreign currency translation and other | (26.9) | | | | (29.2) | | | | (56.1) | |
| Balance, March 27, 2020 | $ | 7,228.9 | | | | $ | 1,042.2 | | | | $ | 8,271.1 | |
| (a) Beginning January 1, 2020, our Hengstler and Dynapar businesses are reported within our Professional Instrumentation segment. Previously, these businesses were reported within our Industrial Technologies segment. Prior year balances have been reclassified to reflect current year presentation. | | | | | |
|
| | | | | | | |
| | September 27, 2019 | | December 31, 2018 |
| Professional Instrumentation | $ | 6,759.2 |
| | $ | 4,894.6 |
|
| Industrial Technologies | 1,236.3 |
| | 1,238.5 |
|
| Total goodwill | $ | 7,995.5 |
| | $ | 6,133.1 |
|
We test goodwill for impairment annually in the fourth quarter of each year and may review goodwill in interim periods if certain events occur or circumstances change. Based on our most annual impairment assessment, we concluded that the goodwill for our twelve reporting units was not impaired as of December 31, 2019.
The results of our fourth quarter 2019 goodwill impairment testing indicated the excess of the estimated fair value over the carrying value (expressed as a percentage of carrying value) of our Telematics reporting unit was approximately 5%, and as such, management continued to monitor the performance of Telematics during the first quarter of 2020. In connection with management’s updated forecast for the Telematics reporting unit that indicated a decline in sales and operating profit to levels lower than previously forecasted, due in large part to the impacts of the COVID-19 pandemic, we performed a quantitative impairment assessment over the Telematics reporting unit on March 27, 2020.
We estimated the fair value of the Telematics reporting unit by considering an income approach, using the discounted cash flow method. The income approach was based on projected future (debt-free) cash flows that were discounted to present value and assumed a terminal growth value. The discount rate was based on the reporting unit’s weighted average cost of capital, taking into account market participant assumptions. Management’s revenue and profitability forecasts used in the valuation considered recent and historical performance of the reporting unit, strategic initiatives, industry trends, and the current and future expectations of the macroeconomic environment. Assumptions used in the valuation were similar to those that would be used by market participants performing independent valuations of this reporting unit.
Key assumptions developed by management and used in the quantitative analysis included the following:
•Near-term revenue declines in 2020 with later-term improvements over the projection period;
•Improved profitability over the projection period, trending consistent with revenues; and
•Market-based discount rates.
We did not consider the market approach in our fair value calculation given the near term uncertainty in the market data and forecasts of the guideline companies upon which the approach relies.
As a result of the interim impairment testing performed, we concluded that the estimated fair value of our Telematics reporting unit was less than our carrying value as of March 27, 2020, and recorded a non-cash goodwill impairment charge of $85.3 million during the three months ended March 27, 2020 to reduce the carrying value of goodwill to $235.9 million. The charge is included in the operating results of our Industrial Technologies segment.
The impairment testing of goodwill utilized significant unobservable inputs (Level 3 in the fair value hierarchy) to determine the estimated fair value. The factors used in our impairment analysis are inherently subject to uncertainty, particularly in light of the recent deterioration in overall global economic conditions and capital markets due to COVID-19. While we believe we made reasonable estimates and assumptions to calculate the fair value of the Telematics reporting unit, alternative interpretations of the qualitative inputs considered may have not identified anyresulted in different conclusions regarding the size of the impairment, and it is possible our conclusions could change in future periods.
The results of our 2019 impairment testing indicated our eleven other reporting units had fair values that were significantly in excess of their carrying values. We evaluated the impact of the deterioration in overall global economic conditions as a result of the COVID-19 pandemic, including the change in our market capitalization and changes in forecasts for each reporting unit, and determined no triggering events which wouldhad occurred. There can be no assurance the estimates and assumptions used in our goodwill impairment testing performed in the first quarter of 2020 will prove to be accurate predictions of the future. Specifically, variations in our assumptions related to business performance and execution of planned growth strategies and the discount rate could impact future conclusions. A future impairment charge for goodwill could have indicated a potential impairmentmaterial effect on our consolidated financial position and results of goodwill during the nine months ended September 27, 2019.operations.
Finite-lived intangible assets are amortized over the shorter of their legal or estimated useful lives. The following summarizes the gross carrying value and accumulated amortization for each major category of intangible asset as of September 27, 2019 and December 31, 2018 ($ in millions):
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| | | | | | | | | | | | | | | |
| | September 27, 2019 | | December 31, 2018 |
| | Gross Carrying Amount | | Accumulated Amortization | | Gross Carrying Amount | | Accumulated Amortization |
| Finite-lived intangibles: | | | | | | | |
| Patents and technology | $ | 935.7 |
| | $ | (333.6 | ) | | $ | 614.0 |
| | $ | (280.8 | ) |
| Customer relationships and other intangibles | 3,067.2 |
| | (729.8 | ) | | 2,204.2 |
| | (589.9 | ) |
| Total finite-lived intangibles | 4,002.9 |
| | (1,063.4 | ) | | 2,818.2 |
| | (870.7 | ) |
| Indefinite-lived intangibles: | | | | | | | |
| Trademarks and trade names | 721.1 |
| | — |
| | 528.8 |
| | — |
|
| Total intangibles | $ | 4,724.0 |
| | $ | (1,063.4 | ) | | $ | 3,347.0 |
| | $ | (870.7 | ) |
During the nine months ended September 27, 2019, we acquired finite lived intangible assets, consisting primarily of customer relationships and developed technology, with a weighted average life of 10 years. Refer to Note 2 for additional information on the intangible assets acquired.
NOTE 5.4. FAIR VALUE MEASUREMENTS
Accounting standards define fair value based on an exit price model, establish a framework for measuring fair value where our assets and liabilities are required to be carried at fair value and provide for certain disclosures related to the valuation methods used within a valuation hierarchy as established within the accounting standards. This hierarchy prioritizes the inputs into three broad levels as follows:
•Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.
•Level 2 inputs are quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets in markets that are not active, or other observable characteristics for the asset or liability, including interest rates, yield curves and credit risks, or inputs that are derived principally from, or corroborated by, observable market data through correlation.
•Level 3 inputs are unobservable inputs based on our assumptions. The classification of a financial asset or liability within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement in its entirety.
Below is a summary of financial liabilities that are measured at fair value on a recurring basis ($ in millions):
|
| | | | | | | | | | | | | | | |
| | Quoted Prices in Active Market (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total |
| September 27, 2019 | | | | | | | |
| Deferred compensation liabilities | $ | — |
| | $ | 26.7 |
| | $ | — |
| | $ | 26.7 |
|
| December 31, 2018 | | | | | | | |
| Deferred compensation liabilities | $ | — |
| | $ | 20.8 |
| | $ | — |
| | $ | 20.8 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Quoted Prices
in Active
Market
(Level 1) | | Significant Other
Observable Inputs
(Level 2) | | Significant
Unobservable
Inputs
(Level 3) | | Total |
| March 27, 2020 | | | | | | | |
| Deferred compensation liabilities | $ | — | | | $ | 27.3 | | | $ | — | | | $ | 27.3 | |
| December 31, 2019 | | | | | | | |
| Deferred compensation liabilities | $ | — | | | $ | 29.6 | | | $ | — | | | $ | 29.6 | |
Certain management employees participate in our nonqualified deferred compensation programs that permit such employees to defer a portion of their compensation, on a pretax basis, until after their termination of employment. All amounts deferred under such plans are unfunded, unsecured obligations and are presented as a component of our compensation and benefits accrual included in Other long-term liabilities in the accompanying Consolidated Condensed Balance Sheets. Participants may choose among alternative earningearnings rates for the amounts they defer, which are primarily based on investment options within our defined contribution plans for the benefit of U.S. employees (except that the earnings rates for amounts contributed unilaterally by the Company are entirely based on changes in the value of Fortive common stock). Changes in the deferred compensation liability under these programs are recognized based on changes in the fair value of the participants’ accounts, which are based on the applicable earnings rates.
Nonrecurring Fair Value Measurements
Certain non-financial assets, primarily property, plant, and equipment, goodwill, and intangible assets, are not required to be measured at fair value on a recurring basis and are reported at their carrying value. However, these assets are required to be assessed for impairment whenever events or circumstances indicate that their carrying value may not be fully recoverable, and at least annually for goodwill and indefinite-lived intangible assets.
On March 27, 2020, we evaluated our Telematics reporting unit for impairment and recorded an impairment of goodwill of $85.3 million to adjust the carrying value of the reporting unit to the estimated fair value. Refer to Note 3 for additional information regarding the inputs and methodology used to estimate the fair value.
We evaluated our other non-financial assets as of March 27, 2020 and determined no impairment was necessary.
Fair Value of Financial Instruments
The carrying amount and fair value of financial instruments are as follows ($ in millions):
|
| | | | | | | | | | | | | | | |
| | September 27, 2019 | | December 31, 2018 |
| | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
| Current portion of long-term debt | $ | 1,000.0 |
| | $ | 1,000.0 |
| | $ | 455.6 |
| | $ | 454.9 |
|
| Long-term debt, net of current maturities | $ | 5,015.6 |
| | $ | 5,168.8 |
| | $ | 2,974.7 |
| | $ | 2,867.5 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| March 27, 2020 | | | | December 31, 2019 | | |
| Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
| Current portion of long-term debt | $ | 250.0 | | | $ | 250.0 | | | $ | 1,500.0 | | | $ | 1,500.0 | |
| Long-term debt, net of current maturities | $ | 5,826.1 | | | $ | 5,755.9 | | | $ | 4,828.4 | | | $ | 4,992.3 | |
As of SeptemberMarch 27, 20192020 and December 31, 2018,2019, the current portion of long-term debt and long-term debt, net of current maturities were categorized as Level 1.
The fair values of the current portion of long-term debt and long-term debt were based on quoted market prices. The difference between the fair value and the carrying amounts of long-term borrowings may be attributable to changes in market interest rates and/or our credit ratings subsequent to the incurrence of the borrowing. The fair value of cash and cash equivalents, accounts receivable, net and trade accounts payable approximates their carrying amount due to the short-term maturities of these instruments.
NOTE 6.5. FINANCING AND CAPITAL
The carrying value of the components of our long-term debt were as follows ($ in millions):
|
| | | | | | | |
| | September 27, 2019 | | December 31, 2018 |
| U.S. dollar-denominated commercial paper | $ | 1,086.0 |
| | $ | 390.1 |
|
| Euro-denominated commercial paper | 257.7 |
| | 270.1 |
|
| Delayed-draw term loan due 2019 | — |
| | 400.0 |
|
| Delayed-draw term loan due 2020 | 1,000.0 |
| | — |
|
| Yen variable interest rate term loan due 2022 | 127.9 |
| | 125.7 |
|
| 1.80% senior unsecured notes due 2019 | — |
| | 55.6 |
|
| 2.35% senior unsecured notes due 2021 | 747.9 |
| | 747.0 |
|
| 3.15% senior unsecured notes due 2026 | 892.8 |
| | 891.9 |
|
| 4.30% senior unsecured notes due 2046 | 547.0 |
| | 546.9 |
|
| 0.875% senior convertible notes due 2022 | 1,337.1 |
| | — |
|
| Other | 19.2 |
| | 3.0 |
|
| Long-term debt | 6,015.6 |
| | 3,430.3 |
|
| Less: current portion of long-term debt | 1,000.0 |
| | 455.6 |
|
| Long-term debt, net of current maturities | $ | 5,015.6 |
| | $ | 2,974.7 |
|
| | | | | | | | | | | |
| March 27, 2020 | | December 31, 2019 |
| U.S. dollar-denominated commercial paper | $ | 501.2 | | | $ | 884.4 | |
| Euro-denominated commercial paper | 262.4 | | | 264.1 | |
| | | |
| Delayed-draw term loan due 2020 | 1,000.0 | | | 1,000.0 | |
| Term Loan due 2020 | 250.0 | | | 500.0 | |
| Term Loan due 2021 | 373.9 | | | — | |
| Yen variable interest rate term loan due 2022 | 127.8 | | | 127.1 | |
| | | |
| 2.35% senior unsecured notes due 2021 | 748.6 | | | 748.2 | |
| 3.15% senior unsecured notes due 2026 | 893.3 | | | 893.0 | |
| 4.30% senior unsecured notes due 2046 | 547.0 | | | 547.0 | |
| 0.875% senior convertible notes due 2022 | 1,357.7 | | | 1,347.3 | |
| Other | 14.2 | | | 17.3 | |
| Long-term debt | 6,076.1 | | | 6,328.4 | |
| Less: current portion of long-term debt | 250.0 | | | 1,500.0 | |
| Long-term debt, net of current maturities | $ | 5,826.1 | | | $ | 4,828.4 | |
Aggregate unamortized debt discounts, premiums and issuance costs of $113.7$93 million and $17.0$102 million as of SeptemberMarch 27, 20192020 and December 31, 2018,2019, respectively, are netted against the principal amounts of the components of debt in the table above. Refer to Note 10 of our 20182019 Annual Report on Form 10-K for further details of our debt financing.
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”). Due to recent volatility and disruption in the commercial paper market, we have temporarily reduced our reliance on this source of funding, and consequently refinanced approximately $365 million and $420 million of our outstanding commercial paper during the three months ended March 27, 2020 and in April 2020, respectively, largely with a 364 day delayed-draw term loan, as detailed in the 2021 Term Loan section below. Credit support for the Commercial Paper Programs is provided by a five-yearfive-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 the commercial paper programs, can also be used for working capital and other general corporate purposes. As of SeptemberMarch 27, 2019,2020, 0 borrowings were outstanding under the Revolving Credit Facility.
Our credit facility agreements require, among others, that we maintain certain financial covenants and we were in compliance with all of our financial covenants on March 27, 2020.
In addition, on April 24, 2020, we amended (the “Amendments”) the credit agreement for each of our (i) $500 million delayed draw term loan facility, with $250 million in principal amount outstanding as of March 27, 2020 (“2020 Term Loan”), (ii) $1.0 billion delayed draw term loan facility, with $1.0 billion in principal amount outstanding as of March 27, 2020 (the “2020 Delayed-Draw Term Loan”), (iii) $750 million delayed draw term loan facility, with $375 million in principal amount outstanding as of March 27, 2020 (“2021 Term Loan”), and (iv) $2.0 billion Revolving Credit Facility, with 0 borrowings thereunder as of March 27, 2020 as follows:
•For any four fiscal quarters ending in the periods noted below (each an “Adjusted Four Quarters”) that end prior to the maturity date of the applicable facility, the maximum permitted consolidated net leverage ratio of consolidated net funded indebtedness to consolidated EBITDA was increased from 3.50 to 1.00 to, (i) with respect to the four fiscal quarters ending June 26, 2020, September 25, 2020, December 31, 2020, or April 2, 2021, 4.75 to 1.00, (ii) with respect to the four fiscal quarters ending July 2, 2021, 4.5 to 1.0, (iii) with respect to the four fiscal quarters ending October 1, 2021, 4.25 to 1.0 and (iv) with respect to the four fiscal quarters ending December 31, 2021, 3.75 to 1.0; provided however, that for any four fiscal quarters that are not an Adjusted Four Quarters, the maximum permitted consolidated net leverage ratio remains at 3.5 to 1.0, as may be increased to 4.0 to 1.0 following a material acquisition (the “Unadjusted Maximum Ratio”).
•The maturity date for the 2020 Delayed-Draw Term Loan was extended from August 28, 2020 to May 30, 2021.
•From April 24, 2020 to December 31, 2021, the minimum London inter-bank offered rate (“LIBOR”) for each of the facilities will increase from 0% to 0.25%, and the minimum base rate for each of the facilities will increase from 1.00% to 1.25%. In addition, with respect to the Revolving Credit Facility and for any Adjusted Four Quarters in which the consolidated net leverage ratio is greater than the Unadjusted Maximum Ratio, the applicable margin (as determined based on our long-term debt credit rating) for any LIBOR rate loans will increase from a range of 80.5 and 117.5 basis points to a range of 118.0 and 155.0 basis points and for any base rate loans from a range of 0.0 and 17.5 basis points to a range of 18.0 and 55.0 basis points. Furthermore, with respect to the 2020 Delayed-Draw Term Loan, the applicable margin (as determined based on our long-term debt credit rating) for any LIBOR rate loans will increase from a range of 75.0 and 97.5 basis points to a range of 155.0 and 180.0 basis points and for any base rate loans from 0.0 to a range of 55.0 and 80.0 basis points.
•From April 24, 2020 to December 31, 2021, the maximum principal amount of secured indebtedness, other than certain types of secured indebtedness expressly permitted under each credit agreement, is decreased from 15% of our consolidated net assets (when added together with indebtedness incurred or guaranteed by any of our subsidiaries) to 11.25% of our consolidated net assets (when added together with indebtedness incurred or guaranteed by any of our subsidiaries).
In connection with the Amendments, we incurred approximately $6.5 million of fees.
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 soldissued 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 are fully and unconditionally guaranteed, jointly and severally, on an unsecured basis, by four of our wholly-owned domestic subsidiaries (the “Guarantees”). Under the Indenture, the Convertible Notes are our senior unsecured obligations, and the Convertible Notes and the Guarantees rank equally in right of payment with all of our and the guarantors’ existing and future liabilities that are not subordinated, but effectively rank junior to any of our and the guarantors secured indebtedness to the extent of the value of the assets securing such indebtedness. In addition, the Convertible Notes are structurally subordinated to all of the existing and future obligations, including trade payables, of our subsidiaries that do not guarantee the Convertible Notes.
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.
The Convertible Notes are convertible into shares of our common stock at an initial conversion rate of 9.3777 shares per $1,000 principal amount of Convertible Notes (which is equivalent to an initial conversion price of $106.64 per share), subject to adjustment upon the occurrence of certain events. The initial conversion price represents a premium of approximately 32.5% to the $80.48 per share closing price of our common stock on February 19, 2019. Upon conversion of the Convertible Notes, holders will receive cash, shares of our common stock, or a combination thereof, at Fortive’s election. Our current intention is to settle such conversions through cash up to the principal amount of the converted Convertible Notes and if applicable, through shares of our common stock for conversion value, if any, in excess of the principal amount of the converted Convertible Notes.
Of the $1.4 billion in proceeds receivedprincipal 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. We recognized $13.3$13.4 million in interest expense during the three months ended SeptemberMarch 27, 2019,2020, of which $3.1 million related to the contractual coupon rate of 0.875% and $1.9 million was attributable to the amortization of debt issuance costs. We recognized $32.0 million in interest expense during the nine months ended September 27, 2019, of which $7.6 million related to the contractual coupon rate and $4.7 million was attributable to the amortization of debt issuance costs. The discount at issuance was $102.2 million and is being amortized over a three-yearthree-year period. The unamortized discount at SeptemberMarch 27, 20192020 was $82.5$65.7 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.
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 forOn October 25, 2019, we entered into a holdercredit facility agreement that elects to convert its Convertible Notes in connection with such corporate event in certain circumstances.
The Convertible Notes are not redeemable prior to maturity, and no sinking fund is providedprovides for the Convertible Notes. If we undergo a “fundamental change,” as defined2020 Term Loan in the Indenture, subject to certain conditions, holders may require us to repurchase for cash all or any portion of their Convertible Notes. The fundamental change purchase price will be 100% of the principal amount of the Convertible Notes to be repurchased plus any accrued and unpaid additional interest up to but excluding the fundamental change repurchase date.
The Indenture contains customary terms and covenants, including that upon certain events of default occurring and continuing, either the Trustee or the holders of at least 25% inan aggregate principal amount of $300 million. On October 25, 2019, we drew down the full $300 million available under the 2020 Term Loan in order to fund, in part, the Censis acquisition. We subsequently increased the size of this facility by $200 million on November 8, 2019 and drew the additional amount on the same day resulting in an outstanding Convertible Notes may declare 100%amount of $500 million. The 2020 Term Loan bears interest at a variable rate equal to LIBOR plus a ratings-based margin currently at 75 basis points. As of March 27, 2020, borrowings under this facility bore an interest rate of 1.55% per annum. The 2020 Term Loan is due on October 23, 2020 and prepayable at our option. We are not permitted to re-borrow once the term loan is repaid. The terms and conditions, including covenants, applicable to the 2020 Term Loan are substantially similar to those applicable to our Revolving Credit Facility.
On February 26, 2020, we prepaid $250 million of the principal of, and accrued and unpaid interest, if any, on all the Convertible Notes to be due and payable.
We used the net proceeds from the offering to fund a portion of the cash consideration payable for, and certain costs2020 Term Loan. The prepayment fees associated with our acquisition of ASP.this payment were immaterial.
In connection with this offering of the Convertible Notes, on February 21, 2019, we entered into an amendment to the credit facility agreement associated with our Credit Agreement, dated as of November 30, 2018, to exclude the Guarantee from the limitations on subsidiary indebtedness under the Agreement.
2020 Delayed-Draw Term Loan Due 2020
On March 1, 2019, we entered into a credit facility agreement that provides for a 364-day delayed-draw term loan facility (“the 2020 Delayed-Draw Term Loan”)Loan in an aggregate principal amount of $1.0 billion. On March 20, 2019, we drew down the full $1.0 billion available under the 2020 Delayed-Draw Term Loan in order to fund, in part, the ASP acquisition. The 2020
Delayed-Draw Term Loan bears interest at a variable rate equal to the London inter-bank offered rateLIBOR plus a ratings based margin, currentlyprior to the Amendments, at 75 basis points and, following the Amendments, at 155 basis points. As of SeptemberMarch 27, 2019,2020 and prior to the Amendments noted above, borrowings under this facility bore an interest rate of 2.78%1.52% per annum. The 2020 Delayed-Draw Term Loan is prepayable at our option, and we are not permitted to re-borrow once the term loan is repaid. The terms and conditions, including covenants, applicable to the 2020 Delayed-Draw Term Loan are substantially similar to those applicable to our Revolving Credit Facility.
On February 25, 2020, we extended the maturity of the 2020 Delayed-Draw Term Loan to August 28, 2020. Additionally, on April 24, 2020 we further extended the maturity to May 30, 2021 and therefore, have classified the outstanding amount as long-term debt in our Consolidated Condensed Balance Sheet as of March 27, 2020. We were in compliance with our covenants both before and after the extension. The 2020 Delayed-Draw Term Loan is not callable and remains prepayable at our option.
2021 Term Loan
On March 23, 2020, we entered into a credit facility agreement that provides for the 2021 Term Loan in an aggregate principal amount of $425 million. On the same day, we drew down $375 million available under the 2021 Term Loan. We subsequently increased the size of this facility by $325 million on April 3, 2020, and drew the additional $375 million in April 2020, resulting in an outstanding amount of $750 million. We paid approximately $2.0 million in debt issuance costs associated with the 2021 Term Loan. The borrowings from this credit facility were used for settlement of outstanding commercial paper other than as described below. The 2021 Term Loan bears interest at a variable rate equal to LIBOR plus a ratings-based margin currently at 155 basis points. As of March 27, 2020, borrowings under this facility bore an interest rate of 2.51% per annum. The 2021 Term Loan is due on March 19, 2021 and prepayable at our option. We are not permitted to re-borrow once the term loan is repaid. The terms and conditions, including covenants, applicable to the 2021 Term Loan, are substantially similar to those applicable to our Revolving Credit Facility.
We classified our borrowings outstanding under the 2021 Term Loan as long-term debt in the accompanying Consolidated Condensed Balance Sheet as of March 27, 2020, as we have the intent and ability, as supported by availability under the Revolving Credit Facility.Facility, to refinance these borrowings for at least one year from the balance sheet date. As our short-term credit facilities and commercial paper obligations mature, we may issue additional short-term commercial paper and other short-term debt to refinance all or part of these borrowings.
Commercial Paper
The details of our Commercial Paper Programs as of SeptemberMarch 27, 20192020 are as follows ($ in millions):
|
| | | | | | | | |
| | Carrying value | | Annual effective rate | | Weighted average remaining maturity (in days) |
| U.S. dollar-denominated commercial paper | $ | 1,086.0 |
| | 2.34 | % | | 15 |
| Euro-denominated commercial paper | $ | 257.7 |
| | (0.10 | )% | | 39 |
| | | | | | | | | | | | | | | | | |
| Carrying value | | Annual effective rate | | Weighted average remaining maturity (in days) |
| U.S. dollar-denominated commercial paper | $ | 501.2 | | | 2.67 | % | | 37 |
| Euro-denominated commercial paper | $ | 262.4 | | | (0.11) | % | | 34 |
We classified our borrowings outstanding under the Commercial Paper Programs as long-termLong-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 referenced above, to refinance these borrowings for at least one year from the balance sheet date.
As of September 27, 2019, we were in compliance with all of our covenants.
Repayments
On February 28, 2019, we prepaid the remaining $400.0 million outstanding principal and accrued interest under the delayed-draw term loan due 2019. The prepayment penalties associated with this payment were immaterial. Additionally, on June 15, 2019 we repaid the remaining outstanding principal of $55.3 million of our 1.80% senior unsecured notes.
NOTE 7. LEASES
In February 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842), which requires lessees to recognize a right-of-use (“ROU”) asset and a lease liability for all leases with terms greater than 12 months and also requires disclosures by lessees and lessors about the amount, timing and uncertainty of cash flows arising from leases. Subsequent to the issuance of Topic 842, the FASB clarified the guidance through several ASUs; hereinafter the collection of lease guidance is referred to as “ASC 842”.
On January 1, 2019, we adopted ASC 842 using the modified retrospective transition method for all lease arrangements at the beginning of the period of adoption. Results for reporting periods beginning January 1, 2019 are presented under ASC 842, while prior period amounts were not adjusted and continue to be reported in accordance with our historic accounting under Topic 840, Leases. The standard had a material impact on our Consolidated Condensed Balance Sheet but had no impact on our consolidated net earnings and cash flows. The most significant impact of adopting ASC 842 was the recognition of the ROU asset and lease liabilities for operating leases, which are presented in the following three line items on the Consolidated Condensed Balance Sheet: (i) operating lease right-of-use assets; (ii) current operating lease liabilities; and (iii) operating lease liabilities.
We elected the package of practical expedients for leases that commenced before the effective date of ASC 842 whereby we elected to not reassess the following: (i) whether any expired or existing contracts contain leases; (ii) the lease classification for any expired or existing leases; and (iii) initial direct costs for any existing leases. In addition, we have lease agreements with lease and non-lease components, and we have elected the practical expedient for all underlying asset classes and account for them as a single lease component. Our finance lease and lessor arrangements are immaterial.
We determine if an arrangement is a lease at inception. We have operating leases for office space, warehouses, distribution centers, research and development facilities, manufacturing locations, and certain equipment, primarily automobiles. Many leases include one or more options to renew, some of which include options to extend the leases for up to 15 years, and some of which include options to terminate the leases in less than one year. We considered options to renew in our lease terms and measurement of right-of-use assets and lease liabilities if we determined they were reasonably certain to be exercised.
For the three and nine months ended September 27, 2019, operating lease cost was $23.2 million and $61.2 million, respectively.
Short-term and variable lease cost, and cost for finance leases were immaterial for the three and nine months ended September 27, 2019. During the nine-month period ended September 27, 2019, cash paid for operating leases was $53.4 million and included in operating cash flows. ROU assets obtained in exchange for operating lease obligations were $13.5 million and $57.4 million for the three and nine months ended September 27, 2019, respectively. Of those ROU assets exchanged for operating lease obligations during the nine months ended September 27, 2019, $29.8 million were related to operating leases acquired with ASP.
The following table presents the maturity of our operating lease liabilities as of September 27, 2019 ($ in millions): |
| | | |
| Remainder of 2019 | $ | 20.7 |
|
| 2020 | 51.9 |
|
| 2021 | 39.7 |
|
| 2022 | 29.9 |
|
| 2023 | 20.4 |
|
| Thereafter | 85.2 |
|
| Total lease payments | 247.8 |
|
| Less: imputed interest | (30.3 | ) |
| Total lease liabilities | $ | 217.5 |
|
As previously disclosed in our 2018 Annual Report on Form 10-K and under Topic 840, future minimum lease payments for operating leases having initial or remaining non-cancelable lease terms in excess of one year were as follows ($ in millions):
|
| | | |
| 2019 | $ | 54.2 |
|
| 2020 | 41.2 |
|
| 2021 | 32.4 |
|
| 2022 | 24.0 |
|
| 2023 | 13.5 |
|
| Thereafter | 16.1 |
|
| Total lease payments | $ | 181.4 |
|
As of September 27, 2019, the weighted average lease term of our operating leases was 8.4 years and the weighted average discount rate of our operating leases was 3.2%. We primarily use our incremental borrowing rate as the discount rate for our operating leases, as we are generally unable to determine the interest rate implicit in the lease.
NOTE 8.6. SALES
We derive revenues primarily from the sale of Professional Instrumentation and Industrial Technologies products and software and services. Revenue is recognized when control of promised products and 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 and software or services.
Product Sales includeof products and software includes revenues from the sale of products and equipment, which includes our software as a service product offerings, and equipment rentals.
Service 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 $81.9$76 million as of SeptemberMarch 27, 20192020 and immaterial$79 million as of December 31, 2018.2019.
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 service 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 SeptemberMarch 27, 2020 and December 31, 2019, we had $151.6$119 million and $147 million, respectively, in net revenue-related contract assets primarily related to certain software contractscontracts. Revenue-related contract assets are recorded in the prepaidPrepaid expenses and other current assets and otherOther assets line items in our Condensed Consolidated Balance Sheet. Our revenue-related contract assets at December 31, 2018 were $144.4 million, the majority of which were recorded in property, plant and equipment on the Consolidated Condensed Balance Sheet.Sheets. These assets have estimated useful lives between 3 and 8 years.
Impairment losses recognized on our revenue-related contract assets were immaterial induring the three and nine months ended SeptemberMarch 27, 2019.2020.
Contract Liabilities — Our contract liabilities consist of deferred revenue generally related to PCS and extended warranty sales, where in most cases we receive up-front payment and recognize revenue over the support term. We classify deferred revenue as current or noncurrent based on the timing of when we expect to recognize revenue. The noncurrent portion of deferred revenue is included in otherOther long-term liabilities in the accompanying Consolidated Condensed Balance Sheets.
Our contract liabilities consisted of the following ($ in millions):
|
| | | | | | | |
| | September 27, 2019 | | December 31, 2018 |
| Deferred revenue - current | $ | 384.7 |
| | $ | 288.1 |
|
| Deferred revenue - noncurrent | 97.0 |
| | 92.6 |
|
| Total contract liabilities | $ | 481.7 |
| | $ | 380.7 |
|
| | | | | | | | | | | |
| March 27, 2020 | | December 31, 2019 |
| Deferred revenue - current | $ | 423.5 | | | $ | 410.1 | |
| Deferred revenue - noncurrent | 95.1 | | | 99.2 | |
| Total contract liabilities | $ | 518.6 | | | $ | 509.3 | |
InDuring the three and nine months ended SeptemberMarch 27, 2019,2020, we recognized $41.0 million and $219.1$126 million of revenue related to our contract liabilities at December 31, 2018.2019. The change in our contract liabilities from December 31, 20182019 to SeptemberMarch 27, 20192020 was primarily due to the addition of contract liabilities from our recently acquired businesses and the timing of cash receipts and sales of PCS and extended warranty services.
Remaining Performance Obligations — Our remaining performance obligations represent the transaction price of firm, noncancelable orders, with expected delivery dates to customers greater than one year from SeptemberMarch 27, 2019,2020, for which work has not been performed. We have excluded performance obligations with an original expected duration of one year or less from the amounts below.
The aggregate performance obligations attributable to each of our segments is as follows ($ in millions):
|
| | | |
| | September 27, 2019 |
| Professional Instrumentation | $ | 144.4 |
|
| Industrial Technologies | 395.9 |
|
| Total remaining performance obligations | $ | 540.3 |
|
| | | | | |
| March 27, 2020 |
| Professional Instrumentation | $ | 145.2 | |
| Industrial Technologies | 379.4 | |
| Total remaining performance obligations | $ | 524.6 | |
The majority of remaining performance obligations are related to service and support contracts, which we expect to fulfill approximately 40 percent within the next two years, approximately 7570 percent within the next three years and substantially all within four years.
Disaggregation of Revenue
We disaggregate revenue from contracts with customers by sales of products and software and services, geographic location, major product group 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 months ended SeptemberMarch 27, 2020 is presented as follows ($ in millions):
| | | | | | | | | | | | | | | | | |
| Total | | Professional Instrumentation | | Industrial Technologies |
| Sales: | | | | | |
| Sales of products and software | $ | 1,487.8 | | | $ | 940.5 | | | $ | 547.3 | |
| Sales of services | 225.7 | | | 163.9 | | | 61.8 | |
| Total | $ | 1,713.5 | | | $ | 1,104.4 | | | $ | 609.1 | |
| | | | | |
| Geographic: | | | | | |
| United States | $ | 1,019.8 | | | $ | 594.9 | | | $ | 424.9 | |
| China | 127.5 | | | 119.0 | | | 8.5 | |
| | | | | |
| All other (each country individually less than 5% of total sales) | 566.2 | | | 390.5 | | | 175.7 | |
| Total | $ | 1,713.5 | | | $ | 1,104.4 | | | $ | 609.1 | |
| | | | | |
| Major Products Group: | | | | | |
| Professional tools and equipment | $ | 1,107.3 | | | $ | 658.6 | | | $ | 448.7 | |
| Industrial automation, controls and sensors | 109.6 | | | 109.6 | | | — | |
| Franchise distribution | 160.4 | | | — | | | 160.4 | |
| Medical technologies | 280.0 | | | 280.0 | | | — | |
| All other | 56.2 | | | 56.2 | | | — | |
| Total | $ | 1,713.5 | | | $ | 1,104.4 | | | $ | 609.1 | |
| | | | | |
| End markets: | | | | | |
| Direct sales: | | | | | |
Retail fueling (a) | $ | 396.5 | | | $ | — | | | $ | 396.5 | |
| Industrial & Manufacturing | 109.0 | | | 109.0 | | | — | |
Vehicle repair (a) | 143.2 | | | — | | | 143.2 | |
| Utilities & Power | 43.9 | | | 43.9 | | | — | |
Medical (a) | 280.0 | | | 280.0 | | | — | |
| Other | 355.8 | | | 290.8 | | | 65.0 | |
| Total direct sales | 1,328.4 | | | 723.7 | | | 604.7 | |
Distributors(a) | 385.1 | | | 380.7 | | | 4.4 | |
| Total | $ | 1,713.5 | | | $ | 1,104.4 | | | $ | 609.1 | |
| | | | | |
| (a) Retail fueling, vehicle repair and medical include sales to these end markets made through third-party distributors. Total distributor sales for the three months ended March 27, 2020 was $739.0 million. | | | | | |
| | | | | |
Disaggregation of revenue for the three months ended March 29, 2019 is presented as follows ($ in millions):
| | | | | | | | | | | | | | | | | |
| Total | | Professional Instrumentation (a) | | Industrial Technologies (a) |
| Sales: | | | | | |
| Sales of products and software | $ | 1,405.1 | | | $ | 856.2 | | | $ | 548.9 | |
| Sales of services | 187.8 | | | 121.5 | | | 66.3 | |
| Total | $ | 1,592.9 | | | $ | 977.7 | | | $ | 615.2 | |
| | | | | |
| Geographic: | | | | | |
| United States | $ | 887.6 | | | $ | 496.1 | | | $ | 391.5 | |
| China | 150.0 | | | 131.2 | | | 18.8 | |
| | | | | |
| All other (each country individually less than 5% of total sales) | 555.3 | | | 350.4 | | | 204.9 | |
| Total | $ | 1,592.9 | | | $ | 977.7 | | | $ | 615.2 | |
| | | | | |
| Major Products Group: | | | | | |
| Professional tools and equipment | $ | 1,151.8 | | | $ | 705.6 | | | $ | 446.2 | |
| Industrial automation, controls and sensors | 120.1 | | | 120.1 | | | — | |
| Franchise distribution | 169.0 | | | — | | | 169.0 | |
Medical technologies (d) | 99.0 | | | 99.0 | | | — | |
| All other | 53.0 | | | 53.0 | | | — | |
| Total | $ | 1,592.9 | | | $ | 977.7 | | | $ | 615.2 | |
| | | | | |
| End markets: | | | | | |
| Direct sales: | | | | | |
Retail fueling (c) | $ | 388.2 | | | $ | — | | | $ | 388.2 | |
| Industrial & Manufacturing | 109.6 | | | 109.6 | | | — | |
Vehicle repair (c) | 153.8 | | | — | | | 153.8 | |
| Utilities & Power | 49.6 | | | 49.6 | | | — | |
Medical (c) (b) | 99.0 | | | 99.0 | | | — | |
| Other | 377.7 | | | 309.9 | | | 67.8 | |
| Total direct sales | 1,177.9 | | | 568.1 | | | 609.8 | |
Distributors(c) | 415.0 | | | 409.6 | | | 5.4 | |
| Total | $ | 1,592.9 | | | $ | 977.7 | | | $ | 615.2 | |
| | | | | |
| (a) Beginning January 1, 2020, our Hengstler and Dynapar businesses are reported within our Professional Instrumentation segment. Previously, these businesses were reported within our Industrial Technologies segment. Prior year balances have been reclassified to reflect current year presentation. | | | | | |
| (b) Sales were previously disclosed in Other. | | | | | |
| (c) Retail fueling, vehicle repair and medical include sales to these end markets made through third-party distributors. Total distributor sales for the three months ended March 29, 2019 was $745.2 million. | | | | | |
| (d) Sales were previously disclosed in Professional tools and equipment, Industrial automation, controls and sensors, and All other. | | | | | |
|
| | | | | | | | | | | |
| | Total | | Professional Instrumentation | | Industrial Technologies |
| Sales: | | | | | |
| Sales of products | $ | 1,624.6 |
| | $ | 955.4 |
| | $ | 669.2 |
|
| Sales of services | 235.4 |
| | 160.8 |
| | 74.6 |
|
| Total | $ | 1,860.0 |
| | $ | 1,116.2 |
| | $ | 743.8 |
|
| | | | | | |
| Geographic: | | | | | |
| United States | $ | 1,088.6 |
| | $ | 601.7 |
| | $ | 486.9 |
|
| China | 142.0 |
| | 115.9 |
| | 26.1 |
|
| All other (each country individually less than 5% of total sales) | 629.4 |
| | 398.6 |
| | 230.8 |
|
| Total | $ | 1,860.0 |
| | $ | 1,116.2 |
| | $ | 743.8 |
|
| | | | | | |
| Major Products Group: | | | | | |
| Professional tools and equipment | $ | 1,240.1 |
| | $ | 688.5 |
| | $ | 551.6 |
|
| Industrial automation, controls and sensors | 116.3 |
| | 87.9 |
| | 28.4 |
|
| Franchise distribution | 162.8 |
| | — |
| | 162.8 |
|
| Medical technologies | 274.1 |
| | 273.1 |
| | 1.0 |
|
| All other | 66.7 |
| | 66.7 |
| | — |
|
| Total | $ | 1,860.0 |
| | $ | 1,116.2 |
| | $ | 743.8 |
|
| | | | | | |
| End markets: | | | | | |
| Direct sales: | | | | | |
Retail fueling (a) | $ | 495.7 |
| | $ | — |
| | $ | 495.7 |
|
| Industrial & Manufacturing | 108.2 |
| | 93.5 |
| | 14.7 |
|
Vehicle repair (a) | 147.5 |
| | — |
| | 147.5 |
|
| Utilities & Power | 48.3 |
| | 48.3 |
| | — |
|
Medical (a) | 274.1 |
| | 273.1 |
| | 1.0 |
|
| Other | 406.7 |
| | 341.0 |
| | 65.7 |
|
| Total direct sales | 1,480.5 |
| | 755.9 |
| | 724.6 |
|
Distributors(a) | 379.5 |
| | 360.3 |
| | 19.2 |
|
| Total | $ | 1,860.0 |
| | $ | 1,116.2 |
| | $ | 743.8 |
|
| | | | | | |
| (a) Retail fueling, vehicle repair and medical include sales to these end markets made through third-party distributors. Total distributor sales for the three months ended September 27, 2019 was $778.6 million. |
Disaggregation of revenue for the three months ended September 28, 2018 is presented as follows ($ in millions):
|
| | | | | | | | | | | |
| | Total | | Professional Instrumentation | | Industrial Technologies |
| Sales: | | | | | |
| Sales of products | $ | 1,430.1 |
| | $ | 785.2 |
| | $ | 644.9 |
|
| Sales of services | 171.1 |
| | 108.9 |
| | 62.2 |
|
| Total | $ | 1,601.2 |
| | $ | 894.1 |
| | $ | 707.1 |
|
| | | | | | |
| Geographic: | | | | | |
| United States | $ | 909.4 |
| | $ | 473.1 |
| | $ | 436.3 |
|
| China | 133.1 |
| | 105.1 |
| | 28.0 |
|
| All other (each country individually less than 5% of total sales) | 558.7 |
| | 315.9 |
| | 242.8 |
|
| Total | $ | 1,601.2 |
| | $ | 894.1 |
| | $ | 707.1 |
|
| | | | | | |
| Major Products Group: | | | | | |
| Professional tools and equipment | $ | 1,162.6 |
| | $ | 648.5 |
| | $ | 514.1 |
|
| Industrial automation, controls and sensors | 122.4 |
| | 92.2 |
| | 30.2 |
|
| Franchise distribution | 161.0 |
| | — |
| | 161.0 |
|
Medical technologies (c) | 96.1 |
| | 94.3 |
| | 1.8 |
|
| All other | 59.1 |
| | 59.1 |
| | — |
|
| Total | $ | 1,601.2 |
| | $ | 894.1 |
| | $ | 707.1 |
|
| | | | | | |
| End markets: | | | | | |
| Direct sales: | | | | | |
Retail fueling (a) | $ | 447.0 |
| | $ | — |
| | $ | 447.0 |
|
| Industrial & Manufacturing | 111.5 |
| | 91.6 |
| | 19.9 |
|
Vehicle repair (a) | 146.4 |
| | — |
| | 146.4 |
|
| Utilities & Power | 31.2 |
| | 31.2 |
| | — |
|
Medical (a) (b) | 96.1 |
| | 94.3 |
| | 1.8 |
|
| Other | 349.6 |
| | 273.5 |
| | 76.1 |
|
| Total direct sales | 1,181.8 |
| | 490.6 |
| | 691.2 |
|
Distributors(a) | 419.4 |
| | 403.5 |
| | 15.9 |
|
| Total | $ | 1,601.2 |
| | $ | 894.1 |
| | $ | 707.1 |
|
| | | | | | |
| (a) Retail fueling, vehicle repair and medical include sales to these end markets made through third-party distributors. Total distributor sales for the three months ended September 28, 2018 was $779.3 million. |
| (b) Sales were previously disclosed in Other. |
| (c) Sales were previously disclosed in Professional tools and equipment, Industrial automation, controls and sensors and All other. |
Disaggregation of revenue for the nine months ended September 27, 2019 is presented as follows ($ in millions):
|
| | | | | | | | | | | |
| | Total | | Professional Instrumentation | | Industrial Technologies |
| Sales: | | | | | |
| Sales of products | $ | 4,652.7 |
| | $ | 2,747.7 |
| | $ | 1,905.0 |
|
| Sales of services | 664.9 |
| | 449.1 |
| | 215.8 |
|
| Total | $ | 5,317.6 |
| | $ | 3,196.8 |
| | $ | 2,120.8 |
|
| | | | | | |
| Geographic: | | | | | |
| United States | $ | 3,053.9 |
| | $ | 1,703.3 |
| | $ | 1,350.6 |
|
| China | 446.3 |
| | 370.7 |
| | 75.6 |
|
| All other (each country individually less than 5% of total sales) | 1,817.4 |
| | 1,122.8 |
| | 694.6 |
|
| Total | $ | 5,317.6 |
| | $ | 3,196.8 |
| | $ | 2,120.8 |
|
| | | | | | |
| Major Products Group: | | | | | |
| Professional tools and equipment | $ | 3,648.0 |
| | $ | 2,105.3 |
| | $ | 1,542.7 |
|
| Industrial automation, controls and sensors | 363.6 |
| | 276.8 |
| | 86.8 |
|
| Franchise distribution | 486.0 |
| | — |
| | 486.0 |
|
Medical technologies (c) | 638.4 |
| | 633.1 |
| | 5.3 |
|
| All other | 181.6 |
| | 181.6 |
| | — |
|
| Total | $ | 5,317.6 |
| | $ | 3,196.8 |
| | $ | 2,120.8 |
|
| | | | | | |
| End markets: | | | | | |
| Direct sales: | | | | | |
Retail fueling (a) | $ | 1,370.2 |
| | $ | — |
| | $ | 1,370.2 |
|
| Industrial & Manufacturing | 331.9 |
| | 287.7 |
| | 44.2 |
|
Vehicle repair (a) | 440.8 |
| | — |
| | 440.8 |
|
| Utilities & Power | 147.0 |
| | 147.0 |
| | — |
|
Medical (a) (b) | 638.4 |
| | 633.1 |
| | 5.3 |
|
| Other | 1,175.9 |
| | 971.8 |
| | 204.1 |
|
| Total direct sales | 4,104.2 |
| | 2,039.6 |
| | 2,064.6 |
|
Distributors(a) | 1,213.4 |
| | 1,157.2 |
| | 56.2 |
|
| Total | $ | 5,317.6 |
| | $ | 3,196.8 |
| | $ | 2,120.8 |
|
| | | | | | |
| (a) Retail fueling, vehicle repair and medical include sales to these end markets made through third-party distributors. Total distributor sales for the nine months ended September 27, 2019 was $2,296.9 million. |
| (b) Certain sales were previously disclosed in Other. |
| (c) Certain sales were previously disclosed in Professional tools and equipment, Industrial automation, controls and sensors and All other. |
Disaggregation of revenue for the nine months ended September 28, 2018 is presented as follows ($ in millions):
|
| | | | | | | | | | | |
| | Total | | Professional Instrumentation | | Industrial Technologies |
| Sales: | | | | | |
| Sales of products | $ | 4,202.0 |
| | $ | 2,352.8 |
| | $ | 1,849.2 |
|
| Sales of services | 493.2 |
| | 302.0 |
| | 191.2 |
|
| Total | $ | 4,695.2 |
| | $ | 2,654.8 |
| | $ | 2,040.4 |
|
| | | | | | |
| Geographic: | | | | | |
| United States | $ | 2,559.1 |
| | $ | 1,313.5 |
| | $ | 1,245.6 |
|
| China | 423.3 |
| | 346.8 |
| | 76.5 |
|
| All other (each country individually less than 5% of total sales) | 1,712.8 |
| | 994.5 |
| | 718.3 |
|
| Total | $ | 4,695.2 |
| | $ | 2,654.8 |
| | $ | 2,040.4 |
|
| | | | | | |
| Major Products Group: | | | | | |
| Professional tools and equipment | $ | 3,377.5 |
| | $ | 1,922.8 |
| | $ | 1,454.7 |
|
| Industrial automation, controls and sensors | 383.7 |
| | 289.3 |
| | 94.4 |
|
| Franchise distribution | 486.2 |
| | — |
| | 486.2 |
|
Medical technologies (c) | 290.9 |
| | 285.8 |
| | 5.1 |
|
| All other | 156.9 |
| | 156.9 |
| | — |
|
| Total | $ | 4,695.2 |
| | $ | 2,654.8 |
| | $ | 2,040.4 |
|
| | | | | | |
| End markets: | | | | | |
| Direct sales: | | | | | |
Retail fueling (a) | $ | 1,256.2 |
| | $ | — |
| | $ | 1,256.2 |
|
| Industrial & Manufacturing | 332.7 |
| | 279.2 |
| | 53.5 |
|
Vehicle repair (a) | 442.9 |
| | — |
| | 442.9 |
|
| Utilities & Power | 132.6 |
| | 132.6 |
| | — |
|
Medical (b) | 290.9 |
| | 285.8 |
|
| 5.1 |
|
| Other | 973.0 |
| | 740.6 |
| | 232.4 |
|
| Total direct sales | 3,428.3 |
| | 1,438.2 |
| | 1,990.1 |
|
Distributors(a) | 1,266.9 |
| | 1,216.6 |
| | 50.3 |
|
| Total | $ | 4,695.2 |
| | $ | 2,654.8 |
| | $ | 2,040.4 |
|
| | | | | | |
| (a) Retail fueling, vehicle repair and medical include sales to these end markets made through third-party distributors. Total distributor sales for the nine months ended September 28, 2018 was $2,304.1 million. |
| (b) Sales were previously disclosed in Other. |
| (c) Sales were previously disclosed in Professional tools and equipment, Industrial automation, controls and sensors and All other. |
NOTE 9.7. PENSION PLANS
For a full description of our noncontributory defined benefit pension plans refer to Note 1112 of our 20182019 Annual Report on Form 10-K.
The following sets forth the components of our net periodic pension costs associated with our noncontributory defined benefit pension plans ($ in millions):
| | | | | | | | | | | | | | | |
| | Three Months Ended | | | | | | |
| | March 27, 2020 | | March 29, 2019 | | | | |
| U.S. Pension Benefits: | | | | | | | |
| Interest cost | $ | 0.3 | | | $ | 0.4 | | | | | |
| Expected return on plan assets | (0.3) | | | (0.3) | | | | | |
| Amortization of net loss | 0.1 | | | — | | | | | |
| | | | | | | |
| Net periodic pension cost | $ | 0.1 | | | $ | 0.1 | | | | | |
| | | | | | | |
| Non-U.S. Pension Benefits: | | | | | | | |
| Service cost | $ | 1.1 | | | $ | 0.3 | | | | | |
| Interest cost | 1.0 | | | 1.4 | | | | | |
| Expected return on plan assets | (1.4) | | | (1.4) | | | | | |
| Amortization of net loss | 1.1 | | | 0.7 | | | | | |
| Amortization of prior service cost | 0.1 | | | — | | | | | |
| | | | | | | |
| Net periodic pension cost | $ | 1.9 | | | $ | 1.0 | | | | | |
|
| | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 27, 2019 | | September 28, 2018 | | September 27, 2019 | | September 28, 2018 |
| U.S. Pension Benefits: | | | | | | | |
| Interest cost | $ | 0.4 |
| | $ | 0.3 |
| | $ | 1.2 |
| | $ | 0.9 |
|
| Expected return on plan assets | (0.3 | ) | | (0.4 | ) | | (1.0 | ) | | (1.1 | ) |
| Net periodic pension cost | $ | 0.1 |
| | $ | (0.1 | ) | | $ | 0.2 |
| | $ | (0.2 | ) |
| | | | | | | | |
| Non-U.S. Pension Benefits: | | | | | | | |
| Service cost | $ | 0.7 |
| | $ | 0.3 |
| | $ | 1.7 |
| | $ | 0.9 |
|
| Interest cost | 1.4 |
| | 1.4 |
| | 4.3 |
| | 4.2 |
|
| Expected return on plan assets | (1.5 | ) | | (1.5 | ) | | (4.4 | ) | | (4.5 | ) |
| Amortization of net loss | 0.7 |
| | 0.7 |
| | 2.1 |
| | 2.1 |
|
| Net curtailment and settlement loss recognized | — |
| | 0.2 |
| | — |
| | 0.6 |
|
| Net periodic pension cost | $ | 1.3 |
| | $ | 1.1 |
| | $ | 3.7 |
| | $ | 3.3 |
|
We report all components of net periodic pension costs, with the exception of service costs, in other non-operating expenses as a component of non-operating income in the accompanying Consolidated Condensed Statements of Earnings. Service costs are reported in cost of sales and selling, general and administrative expenses in the accompanying Consolidated Condensed Statements of Earnings according to the classification of the participant’s compensation.
Employer Contributions
During 2019,2020, our cash contribution requirements for our non-U.S. and U.S. defined benefit pension plans are expected to be approximately $11.0 million. We do not expect to make contributions to the U.S. plan during 2019.$10.7 million and $0.8 million, respectively. The actual amounts to be contributed depend upon, among other things, legal requirements, underlying asset returns, the plan’s funded status, the anticipated tax deductibility of the contribution, local practices, market conditions, interest rates and other factors. In response to the COVID-19 pandemic, certain countries have enacted or proposed legislation to enable employers to defer minimum contributions to qualified defined benefit plans during all or part of 2020. We are actively assessing the available reliefs and will continue to monitor and utilize relevant legislative reliefs as we deem prudent. This may reduce our cash contribution requirements under our defined benefit plans in 2020.
NOTE 10.8. INCOME TAXES
Our effective tax ratesrate for the three and nine months ended SeptemberMarch 27, 2019 were 11.8% and 13.5%, respectively,2020 was 40.8% as compared to 17.0% and 16.4%14.8% for the three and nine months ended September 28, 2018, respectively.March 29, 2019. The year-over-year decreaseincrease was due primarily to increases in favorable impactsa non-deductible goodwill impairment and tax costs associated with repatriating a portion of certain federal and international tax benefits andour previously reinvested earnings outside of the United States. These factors were partially offset by favorable impacts of a higher mix of income in jurisdictions with lower tax rates than the U.S. federal statutory rate of 21%. and increases in favorable impacts of certain federal and international tax benefits.
Our effective tax rate for 20192020 and 20182019 differs from the U.S. federal statutory rate of 21% due primarily to the positive and negative effects of the Tax Cuts and Jobs Act (“TCJA”), U.S. federal permanent differences, the impact of credits and deductions provided by law, and current year earnings outside the United States that are indefinitely reinvested and taxed at rates lower than the U.S. federal statutory rate. Specific to 2020, our effective tax rate also differs from the U.S. federal statutory rate of 21% due to a non-deductible goodwill impairment and the tax costs associated with repatriating a portion of our previously reinvested earnings outside of the United States.
On March 27, 2020, the US federal government enacted the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The CARES Act is an emergency economic stimulus package in response to the COVID-19 outbreak which, among other things, contains numerous income tax provisions. Some of these tax provisions are expected to be effective retroactively for years ending before the date of enactment. We anticipate the provisions of the CARES Act will impact income tax in 2020, however we have not identified material impacts to the quarterly provision as of March 27, 2020. We will continue to evaluate the impact of the CARES Act as new clarifying guidance is issued throughout 2020.
NOTE 11.9. STOCK-BASED COMPENSATION
Our stock-based compensation program (the “Stock Plan”) provides for the grant of stock appreciation rights, performance stock units, restricted stock units, restricted stock awards and performance stock awards (collectively, “Stock Awards”), stock options or any other stock-based award. As of SeptemberMarch 27, 2019,2020, approximately 2017 million shares of our common stock were available for subsequent issuance under the Stock Plan. For a full description of our stock-based compensation program refer to Note 17 of our 20182019 Annual Report on Form 10-K.
Stock-based Compensation Expense
Stock-based compensation has been recognized as a component of Selling, general and administrative expenses in the accompanying Consolidated Condensed Statements of Earnings based on the portion of the awards that are ultimately expected to vest.
The following summarizes the components of our stock-based compensation expense under the Stock Plan ($ in millions):
| | | | | | | | | | | | | | | |
| | Three Months Ended | | | | | | |
| | March 27, 2020 | | March 29, 2019 | | | | |
| Stock Awards: | | | | | | | |
| Pretax compensation expense | $ | 10.1 | | | $ | 7.8 | | | | | |
| Income tax benefit | (1.9) | | | (1.7) | | | | | |
| Stock Award expense, net of income taxes | 8.2 | | | 6.1 | | | | | |
| Stock options: | | | | | | | |
| Pretax compensation expense | 6.0 | | | 5.1 | | | | | |
| Income tax benefit | (0.8) | | | (1.1) | | | | | |
| Stock option expense, net of income taxes | 5.2 | | | 4.0 | | | | | |
| Total stock-based compensation: | | | | | | | |
| Pretax compensation expense | 16.1 | | | 12.9 | | | | | |
| Income tax benefit | (2.7) | | | (2.8) | | | | | |
| Total stock-based compensation expense, net of income taxes | $ | 13.4 | | | $ | 10.1 | | | | | |
|
| | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 27, 2019 | | September 28, 2018 | | September 27, 2019 | | September 28, 2018 |
| Stock Awards: | | | | | | | |
| Pretax compensation expense | $ | 11.1 |
| | $ | 7.9 |
| | $ | 29.0 |
| | $ | 22.3 |
|
| Income tax benefit | (2.3 | ) | | (1.7 | ) | | (6.1 | ) | | (4.7 | ) |
| Stock Award expense, net of income taxes | 8.8 |
| | 6.2 |
| | 22.9 |
| | 17.6 |
|
| Stock options: | | | | | | | |
| Pretax compensation expense | 5.6 |
| | 5.0 |
| | 16.5 |
| | 15.0 |
|
| Income tax benefit | (1.2 | ) | | (1.1 | ) | | (3.5 | ) | | (3.2 | ) |
| Stock option expense, net of income taxes | 4.4 |
| | 3.9 |
| | 13.0 |
| | 11.8 |
|
| Total stock-based compensation: | | | | | | | |
| Pretax compensation expense | 16.7 |
| | 12.9 |
| | 45.5 |
| | 37.3 |
|
| Income tax benefit | (3.5 | ) | | (2.8 | ) | | (9.6 | ) | | (7.9 | ) |
| Total stock-based compensation expense, net of income taxes | $ | 13.2 |
| | $ | 10.1 |
| | $ | 35.9 |
| | $ | 29.4 |
|
The following summarizes the unrecognized compensation cost for the Stock Plan awards as of SeptemberMarch 27, 2019.2020. This compensation cost is expected to be recognized over a weighted average period of approximately two years, representing the remaining service period related to the awards. Future compensation amounts will be adjusted for any changes in estimated forfeitures ($ in millions):
| | | | | |
| Stock Awards | $ | 88.3 | |
| Stock options | 115.9 | |
| Total unrecognized compensation cost | $ | 204.2 | |
|
| | | |
| Stock Awards | $ | 68.5 |
|
| Stock options | 60.5 |
|
| Total unrecognized compensation cost | $ | 129.0 |
|
NOTE 12.10. COMMITMENTS AND CONTINGENCIES
For a description of our litigation and contingencies and additional information about our leases, refer to Notes 15Note 16 and 16 ofNote 10, respectively in our 20182019 Annual Report on Form 10-K.
Warranty
We generally accrue estimated warranty costs at the time of sale. In general, manufactured products are warranted against defects in material and workmanship when properly used for their intended purpose, installed correctly, and appropriately maintained. Warranty period terms depend on the nature of the product and range from 90 days up to the life of the product. The amount of the accrued warranty liability is determined based on historical information such as past experience, product failure rates or number of units repaired, estimated cost of material and labor, and in certain instances estimated property damage. The accrued warranty liability is reviewed on a quarterly basis and may be adjusted as additional information regarding expected warranty costs becomes known.
The following is a rollforward of our accrued warranty liability ($ in millions):
| | | | | |
| Balance, December 31, 2019 | $ | 79.0 | |
| Accruals for warranties issued during the period | 15.9 | |
| Settlements made | (16.2) | |
| |
| Effect of foreign currency translation | (0.6) | |
| Balance, March 27, 2020 | $ | 78.1 | |
|
| | | |
| Balance, December 31, 2018 | $ | 72.1 |
|
| Accruals for warranties issued during the period | 46.1 |
|
| Settlements made | (49.5 | ) |
| Additions due to acquisitions | 4.7 |
|
| Balance, September 27, 2019 | $ | 73.4 |
|
Leases
For the three months ended March 27, 2020 and March 29, 2019, operating lease cost was $21 million and $18 million, respectively. During the three-month periods ended March 27, 2020 and March 29, 2019, cash paid for operating leases included in operating cash flows was $19 million and $16 million, respectively. Right-of-use assets obtained in exchange for operating lease obligations were $7 million during the three months ended March 27, 2020 and immaterial during the three months ended March 29, 2019.
As of March 27, 2020, we had entered into operating leases for which the lease had not yet commenced. These operating leases will commence in 2020 with lease terms between 2 and 15 years and have aggregate fixed payments of the non-cancelable lease terms of $23 million.
NOTE 13.11. NET EARNINGS PER SHARE
Basic net earnings per share (“EPS”) is calculated by dividing net earnings attributable to common stockholders by the weighted average number of shares of common stock outstanding for the applicable period. Diluted EPS is similarly calculated, except that the calculation includes the dilutive effect of the assumed issuance of shares under stock-based compensation plans under the treasury stock method, except where the inclusion of such shares would have an anti-dilutive impact. There were 3.35.7 million anti-dilutive options excluded from the diluted EPS calculation for the three months ended SeptemberMarch 27, 20192020 and 01.7 million anti-dilutive options excluded from the diluted EPS calculation for the three months ended September 28, 2018. There were 1.7 million anti-dilutive options excluded for the nine months ended September 27,March 29, 2019. There were an insignificant amount of anti-dilutive options excluded for the nine months ended September 28, 2018.
As described in Note 6,5, upon conversion of the Convertible Notes, holders will receive cash, shares of our common stock, or a combination thereof, at our election. Our intention is to settle such conversions through cash up to the principal amount of the Convertible Notes and, if applicable, through shares of our common stock for conversion value, if any, in excess of the principal amount of the Convertible Notes. We believe we have the ability to settle these obligations as intended, and therefore we have accounted for the conversion features under the treasury stock method in our calculation of EPS. Because the fair value of our common stock is below the conversion price, the Convertible Notes had no impact on our earnings per share for the three and nine months ended SeptemberMarch 27, 2020 and March 29, 2019.
The impact of our Mandatory Convertible Preferred Stock (“MCPS”) calculated under the if-converted method was anti-dilutive for both the three month periods ended March 27, 2020 and as suchMarch 29, 2019, and 18.4 million and 16.7 million shares were excluded from the diluted EPS calculation for the three and nine months ended September 27, 2019.each respective period.
Information related to the calculation of net earnings per share of common stock is summarized as follows ($ and shares in millions, except per share amounts):
|
| | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 27, 2019 | | September 28, 2018 | | September 27, 2019 | | September 28, 2018 |
| Numerator | | | | | | | |
| Net earnings from continuing operations | $ | 207.3 |
| | $ | 214.0 |
| | $ | 546.6 |
| | $ | 678.2 |
|
| Mandatory convertible preferred stock cumulative dividends | (17.3 | ) | | (17.4 | ) | | (51.8 | ) | | (17.6 | ) |
| Net earnings attributable to common stockholders from continuing operations | $ | 190.0 |
| | $ | 196.6 |
| | $ | 494.8 |
| | $ | 660.6 |
|
| | | | | | | | |
| Denominator | | | | | | | |
| Weighted average common shares outstanding used in basic earnings per share | 336.1 |
| | 349.9 |
| | 335.6 |
| | 349.2 |
|
| Incremental common shares from: | | | | | | | |
| Assumed exercise of dilutive options and vesting of dilutive Stock Awards | 3.8 |
| | 5.4 |
| | 4.1 |
| | 5.6 |
|
| Weighted average common shares outstanding used in diluted earnings per share | 339.9 |
| | 355.3 |
| | 339.7 |
| | 354.8 |
|
| | | | | | | | |
| Net earnings from continuing operations per common share - Basic | $ | 0.57 |
| | $ | 0.56 |
| | $ | 1.47 |
| | $ | 1.89 |
|
| Net earnings from continuing operations per common share - Diluted | $ | 0.56 |
| | $ | 0.55 |
| | $ | 1.46 |
| | $ | 1.86 |
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | | | | | |
| | March 27, 2020 | | March 29, 2019 | | | | |
| Numerator | | | | | | | |
| Net earnings from continuing operations | $ | 42.3 | | | $ | 164.0 | | | | | |
| Mandatory convertible preferred stock cumulative dividends | (17.3) | | | (17.3) | | | | | |
| Net earnings attributable to common stockholders from continuing operations | $ | 25.0 | | | $ | 146.7 | | | | | |
| | | | | | | |
| Denominator | | | | | | | |
| Weighted average common shares outstanding used in basic earnings per share | 336.8 | | | 335.1 | | | | | |
| Incremental common shares from: | | | | | | | |
| Assumed exercise of dilutive options and vesting of dilutive Stock Awards | 3.2 | | | 4.4 | | | | | |
| | | | | | | |
| Weighted average common shares outstanding used in diluted earnings per share | 340.0 | | | 339.5 | | | | | |
| | | | | | | |
| Net earnings from continuing operations per common share - Basic | $ | 0.07 | | | $ | 0.44 | | | | | |
| Net earnings from continuing operations per common share - Diluted | $ | 0.07 | | | $ | 0.43 | | | | | |
As of September 27, 2019, we accrued $17.3 million of dividends on our MCPS relating to the third quarter dividend payment that was made on September 30, 2019. We declared and paid cash dividends per common share for both periods as presented below. We declared and perpaid the MCPS duringdividend in the periods presentedfirst quarter of 2019, while the MCPS dividend in the first quarter of 2020 was declared and accrued as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Dividend Per
Common Share | | Amount
($ in millions) | | Dividend per MCPS | | Amount
($ in millions) |
| 2020: | | | | | | | |
| First quarter | $ | 0.07 | | | $ | 23.5 | | | $ | 12.50 | | | $ | 17.3 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| 2019: | | | | | | | |
| First quarter | $ | 0.07 | | | $ | 23.4 | | | $ | 12.50 | | | $ | 17.3 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
|
| | | | | | | | | | | | | | | |
| | Dividend Per Common Share | | Amount ($ in millions) | | Dividend per MCPS | | Amount ($ in millions) |
| 2019: | | | | | | | |
| First quarter | $ | 0.07 |
| | $ | 23.4 |
| | $ | 12.50 |
| | $ | 17.3 |
|
| Second quarter | 0.07 |
| | 23.4 |
| | 12.50 |
| | 17.2 |
|
| Third quarter | 0.07 |
| | 23.5 |
| | 12.50 |
| | 17.3 |
|
| Total | $ | 0.21 |
| | $ | 70.3 |
| | $ | 37.50 |
| | $ | 51.8 |
|
| | | | | | | | |
| 2018: | | | | | | | |
| First quarter | $ | 0.07 |
| | $ | 24.3 |
| | $ | — |
| | $ | — |
|
| Second quarter | 0.07 |
| | 24.4 |
| | — |
| | — |
|
| Third quarter | 0.07 |
| | 24.5 |
| | 12.78 |
| | 17.6 |
|
| Total | $ | 0.21 |
| | $ | 73.2 |
| | $ | 12.78 |
| | $ | 17.6 |
|
| | | | | | | | |
NOTE 14.12. SEGMENT INFORMATION
We report our results in 2 separate business segments consisting of Professional Instrumentation and Industrial Technologies. When determining the reportable segments, we aggregated operating segments based on their similar economic and operating characteristics. Operating profit amounts in the Other category consist of unallocated corporate costs and other costs not considered part of our evaluation of reportable segment operating performance. Our segment results are as follows ($ in millions):
| | | | | | | | | | | | | | | |
| | Three Months Ended | | | | | | |
| | March 27, 2020 | | March 29, 2019 | | | | |
Sales: (a) | | | | | | | |
| Professional Instrumentation | $ | 1,104.4 | | | $ | 977.7 | | | | | |
| Industrial Technologies | 609.1 | | | 615.2 | | | | | |
| Total | $ | 1,713.5 | | | $ | 1,592.9 | | | | | |
Operating Profit: (a) | | | | | | | |
| Professional Instrumentation | $ | 144.5 | | | $ | 142.7 | | | | | |
| Industrial Technologies | (1.5) | | | 98.8 | | | | | |
| Other | (23.4) | | | (24.2) | | | | | |
| Total Operating Profit | 119.6 | | | 217.3 | | | | | |
| | | | | | | |
| Interest expense, net | (43.6) | | | (25.3) | | | | | |
| Other non-operating expenses, net | (4.6) | | | 0.4 | | | | | |
| Earnings from continuing operations before income taxes | $ | 71.4 | | | $ | 192.4 | | | | | |
| | | | | | | |
| (a) Beginning January 1, 2020, our Hengstler and Dynapar businesses are reported within our Professional Instrumentation segment. Previously, these businesses were reported within our Industrial Technologies segment. Prior year balances have been reclassified to reflect current year presentation. | | | | | | | |
|
| | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 27, 2019 | | September 28, 2018 | | September 27, 2019 | | September 28, 2018 |
| Sales: | | | | | | | |
| Professional Instrumentation | $ | 1,116.2 |
| | $ | 894.1 |
| | $ | 3,196.8 |
| | $ | 2,654.8 |
|
| Industrial Technologies | 743.8 |
| | 707.1 |
| | 2,120.8 |
| | 2,040.4 |
|
| Total | $ | 1,860.0 |
| | $ | 1,601.2 |
| | $ | 5,317.6 |
| | $ | 4,695.2 |
|
| Operating Profit: | | | | | | | |
| Professional Instrumentation | $ | 118.7 |
| | $ | 160.2 |
| | $ | 376.9 |
| | $ | 583.3 |
|
| Industrial Technologies | 146.0 |
| | 141.7 |
| | 404.2 |
| | 370.5 |
|
| Other | (22.6 | ) | | (20.3 | ) | | (72.2 | ) | | (69.9 | ) |
| Total Operating Profit | 242.1 |
| | 281.6 |
| | 708.9 |
| | 883.9 |
|
| Gain from combination of business | 41.2 |
| | — |
| | 41.2 |
| | — |
|
| Interest expense, net | (47.0 | ) | | (23.1 | ) | | (116.7 | ) | | (70.3 | ) |
| Other non-operating expenses, net | (1.2 | ) | | (0.8 | ) | | (1.6 | ) | | (2.6 | ) |
| Earnings from continuing operations before income taxes | $ | 235.1 |
| | $ | 257.7 |
| | $ | 631.8 |
| | $ | 811.0 |
|
As of September 27, 2019, the material changes in total assets by segment since December 31, 2018 were due primarily to the acquisitions discussed in Note 2. Our identifiable assets by segment are as follows ($ in millions):
|
| | | | | | | |
| | September 27, 2019 | | December 31, 2018 |
| Professional Instrumentation | $ | 12,397.0 |
| | $ | 8,592.6 |
|
| Industrial Technologies | 3,022.7 |
| | 3,011.2 |
|
| Other | 1,222.9 |
| | 1,271.8 |
|
| Assets of Discontinued Operations | 17.8 |
| | 30.0 |
|
| Total | $ | 16,660.4 |
| | $ | 12,905.6 |
|
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Fortive Corporation (“Fortive,” the “Company,” “we,” “us,” or “our”) is a diversified industrial technology growth company comprised of Professional Instrumentation and Industrial Technologies segments and encompassing businesses that are recognized leaders in attractive markets. Our well-known brands hold leading positions in advanced instrumentation andfield solutions, product realization, sensing technologies, health, transportation technology,technologies, and franchise distribution markets.distribution. Our businesses design, develop, service, manufacture, and market professional and engineered products, software, and services for a variety of end markets, building upon leading brand names, innovative technology, and significant market positions.
This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is designed to provide a reader of our financial statements with a narrative from the perspective of management. The following discussion should be read in conjunction with the MD&A and consolidated and combined financial statements included in our 20182019 Annual Report on Form 10-K. Our MD&A is divided into five sections:
•Information Relating to Forward-Looking Statements
•Overview
•Results of Operations
•Liquidity and Capital Resources
•Critical Accounting Estimates
INFORMATION RELATING TO FORWARD-LOOKING STATEMENTS
Certain statements included or incorporated by reference in this quarterly report, in other documents we file with or furnish to the Securities and Exchange Commission (“SEC”), in our press releases, webcasts, conference calls, materials delivered to shareholders and other communications, are “forward-looking statements” within the meaning of the United States federal securities laws. All statements other than historical factual information are forward-looking statements, including without limitation statements regarding: projections of revenue, expenses, profit, profit margins, tax rates, tax provisions, cash flows, pension and benefit obligations and funding requirements, our liquidity position or other financial measures; management’s plans and strategies for future operations, including statements relating to anticipated operating performance, cost reductions, restructuring activities, new product and service developments, competitive strengths or market position, acquisitions, divestitures, separation into two independent, publicly traded companies, strategic opportunities, securities offerings, stock repurchases, dividends and executive compensation; growth, declines and other trends in markets we sell into; new or modified laws, regulations and accounting pronouncements; outstanding claims, legal proceedings, tax audits and assessments and other contingent liabilities; foreign currency exchange rates and fluctuations in those rates; impact on changes to tax laws; general economic and capital markets conditions; the timing of any of the foregoing; assumptions underlying any of the foregoing; and any other statements that address events or developments that we intend or believe will or may occur in the future. Terminology such as “believe,” “anticipate,” “should,” “could,” “intend,” “will,” “plan,” “expect,” “estimate,” “project,” “target,” “may,” “possible,” “potential,” “forecast” and “positioned” and similar references to future periods are intended to identify forward-looking statements, although not all forward-looking statements are accompanied by such words.
Forward-looking statements are based on assumptions and assessments made by our management in light of their experience and perceptions of historical trends, current conditions, expected future developments and other factors. Forward-looking statements are not guarantees of future performance and actual results may differ materially from the results, developments and business decisions contemplated by our forward-looking statements. Accordingly, you should not place undue reliance on any such forward-looking statements. Important factors that could cause actual results to differ materially from those envisaged in the forward-looking statements include the following:
•The duration and severity of the COVID-19 pandemic and its effect on our global operations and the operations of our customers, suppliers, and vendors.
•Conditions in the global economy, the markets we serve and the financial markets may adversely affect our business and financial statements.
•Our plans to separate into two independent, publicly traded companies may not be completed on the currently contemplated timeline or at all and may not achieve the intended benefits.
•Our growth could suffer if the markets into which we sell our products, software and services decline, do not grow as anticipated or experience cyclicality.
•We face intense competition and if we are unable to compete effectively, we may experience decreased demand and decreased market share. Even if we compete effectively, we may be required to reduce prices for our products and services.
•Changes in industry standards and governmental regulations may reduce demand for our products or services or increase our expenses.
•Trade relations between China and the United States could have a material adverse effect on our business and financial statements.
•Any inability to consummate acquisitions at our anticipated rate and at appropriate prices could negatively impact our growth rate and stock price.
•Our growth depends in part on the timely development and commercialization, and customer acceptance, of new and enhanced products and services based on technological innovation.
•Our reputation, ability to do business and financial statements may be impaired by improper conduct by any of our employees, agents or business partners.
•Our acquisition of businesses, joint ventures and strategic relationships could negatively impact our financial statements.
Our plans to separate into two independent, publicly traded companies may encounter unexpected delays and may not be completed on the currently contemplated timeline or at all and may not achieve the intended benefits.
•The indemnification provisions of acquisition agreements by which we have acquired companies may not fully protect us and as a result we may face unexpected liabilities.
•Divestitures or other dispositions could negatively impact our business, and contingent liabilities from businesses that we have sold could adversely affect our financial statements.
•Our operations, products and services expose us to the risk of environmental, health and safety liabilities, costs and violations that could adversely affect our reputation and financial statements.
•Our businesses are subject to extensive regulation; failure to comply with those regulations could adversely affect our financial statements and reputation.
•International economic, political, legal, compliance and business factors could negatively affect our business and financial statements.
•We may be required to recognize impairment charges for our goodwill and other intangible assets.
•Foreign currency exchange rates may adversely affect our financial statements.
•The interest rates on our credit facilities may be impacted by the phase out of the London Interbank Offered Rate (“LIBOR”).
•Changes in our effective tax rates or exposure to additional income tax liabilities or assessments could affect our profitability. In addition, audits by tax authorities could result in additional tax payments for prior periods.
•We have incurred a significant amount of debt, and our debt will increase further if we incur additional debt and do not retire existing debt.
•We are subject to a variety of litigation and other legal and regulatory proceedings in the course of our business that could adversely affect our financial statements.
•If we do not or cannot adequately protect our intellectual property, or if third parties infringe our intellectual property rights, we may suffer competitive injury or expend significant resources enforcing our rights.
•Third parties may claim that we are infringing or misappropriating their intellectual property rights and we could suffer significant litigation expenses, losses or licensing expenses or be prevented from selling products or services.
•A significant disruption in, or breach in security of, our information technology systems could adversely affect our business.
•Defects and unanticipated use or inadequate disclosure with respect to our products (including software) or services could adversely affect our business, reputation and financial statements.
•Adverse changes in our relationships with, or the financial condition, performance, purchasing patterns or inventory levels of, key distributors and other channel partners could adversely affect our financial statements.
•Our financial results are subject to fluctuations in the cost and availability of commodities that we use in our operations.
•If we cannot adjust our manufacturing capacity or the purchases required for our manufacturing activities to reflect changes in market conditions and customer demand, our profitability may suffer. In addition, our reliance upon sole or limited sources of supply for certain materials, components and services could cause production interruptions, delays and inefficiencies.
•Our restructuring actions could have long-term adverse effects on our business.
•Work stoppages, union and works council campaigns and other labor disputes could adversely impact our productivity and results of operations.
•If we suffer loss to our facilities, supply chains, distribution systems or information technology systems due to catastrophe or other events, our operations could be seriously harmed.
•Certain provisions in our amended and restated certificate of incorporation and bylaws, and of Delaware law, may prevent or delay an acquisition of our company, which could decrease the trading price of our common stock.
•Changes in U.S. GAAP could adversely affect our reported financial results and may require significant changes to our internal accounting systems and processes.
•Our amended and restated certificate of incorporation designates the state courts in the State of Delaware or, if no state court located within the State of Delaware has jurisdiction, the federal court for the District of Delaware, as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our shareholders, which could discourage lawsuits against us and our directors and officers.
Certain of our executive officers and directors may have actual or potential conflicts of interest because of their equity interest in Danaher.
Potential liabilities may arise due to fraudulent transfer considerations, which would adversely affect our financial condition and our results of operations.
International economic, political, legal, compliance and business factors could negatively affect our financial statements.
The interest rates on our credit facilities may be impacted by the phase out of the London Interbank Offered Rate (“LIBOR”).
See “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018 and Form 10-Q for the fiscal quarter ended June 28, 2019 and “Part II - Item 1A.1.A. Risk Factors” in this Form 10-QReport for a further discussion regarding reasons that actual results may differ materially from the results, developments and business decisions contemplated by our forward-looking statements. Forward-looking statements speak only as of the date of the report, document, press release, webcast, call, materials or other communication in which they are made. We do not assume any obligation to update or revise any forward-looking statement, whether as a result of new information, future events and developments or otherwise.
OVERVIEW
General
Fortive is a diversified, multinational industrial technology growth company with global operations and our businesses are affected by worldwide, regional, and industry-specific economic and political factors. Our geographic and industry diversity, as well as the range of our products, software, and services, typically help limit the impact of any one industry or the economy of any single country (except for the United States) on our operating results. Given the broad range of products manufactured, software and services provided, and geographies served, we do not use any indices other than general economic trends to predict the overall outlook for the Company. Our individual businesses monitor key competitors and customers, including to the extent possible their sales, to gauge relative performance and the outlook for the future.
As a result of our geographic and industry diversity, we face a variety of opportunities and challenges, including technological development in most of the markets we serve, the expansion and evolution of opportunities in high-growth markets, trends and
costs associated with a global labor force, and consolidation of our competitors. We define high-growth markets as developing markets of the world experiencing extended periods of accelerated growth in gross domestic product and infrastructure which include Eastern Europe, the Middle East, Africa, Latin America, and Asia with the exception of Japan and Australia. We operate in a highly competitive business environment in most markets, and our long-term growth and profitability will depend in particular on our ability to expand our business across geographies and market segments, identify, consummate, and integrate appropriate acquisitions, develop innovative and differentiated new products, services, and software, expand and improve the effectiveness of our sales force and continue to reduce costs and improve operating efficiency and quality, and effectively address the demands of an increasingly regulated environment. We are making significant investments, organically and through acquisitions, to address technological change in the markets we serve and to improve our manufacturing, research and development, and customer-facing resources in order to be responsive to our customers throughout the world.
Beginning January 1, 2020, our Hengstler and Dynapar businesses are reported within our Professional Instrumentation segment. Previously, these businesses were reported within our Industrial Technologies segment. Reclassification of certain prior year amounts have been made to conform to current year presentation.
On September 4, 2019, we announced our intention to separate into two independent, publicly traded companies, subject to the satisfaction of certain conditions, including obtaining final approval from our Board of Directors.conditions. The separation will create (i) an industrial technology company, retaining the Fortive name, with a differentiated portfolio of growth-oriented businesses focused on connected workflow solutions that incorporate advanced sensors, instrumentation, software, data, and analytics, and (ii) a global industrial company (“NewCo”Vontier”) focusedconsisting of our Transportation Technologies and Franchise Distribution platforms with a focus on the growth opportunities in the rapidly evolving transportation and mobility markets. The proposed separation is expected to be structured in a tax-efficient mannermanner. The timing and completedstructure of the separation will depend, in part, on the second halfstate of 2020.the capital market environment over time as affected by the future evolution of the COVID-19 pandemic and its impact on the global economy. All assets, liabilities, revenues, and expenses of NewCothe businesses comprising Vontier are included in continuing operations of the Company in the accompanying consolidated condensed financial statements.
On July 20, 2019, we completed the combination of the Tektronix Video test and monitoring equipment business (“Tektronix Video Business”) with Telestream, LLC (the “Combined Business”), a portfolio company of Genstar Capital LLC. We recognized a pre-tax gain of $41.2 million upon the combination, and hold a 33% equity stake in the Combined Business. This transaction did not meet the criteria for discontinued operations reporting, and therefore the operating results of the Tektronix Video Business prior to the combination with Telestream are included in continuing operations for all periods presented. Additionally, the equity earnings from our stake in the Combined Business are included in other non-operating expenses, net in the accompanying Consolidated Condensed Statement of Earnings.
On April 1, 2019, 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-temperaturelow-
temperature terminal sterilization and high-level disinfection products. ASP generated annual revenues of approximately $800 million in 2018. Refer to Note 2 to the accompanying consolidated condensed financial statements for additional information regarding the Transaction.
On October 1, 2018, we completed the split-off of four of our operating companies (the “A&S Business”), and have reported the A&S Business as discontinued operations in our Consolidated Condensed Statements of Earnings, Consolidated Condensed Balance Sheets, and Consolidated Condensed Statements of Cash Flows for all periods presented. Unless otherwise noted discussionDiscussion within this MD&A relates to continuing operations.
In this report, references to sales from existing businesses refers to sales from operations calculated according to generally accepted accounting principles in the United States (“GAAP”) but excluding (1) the impact from acquired businesses and (2) the impact of currency translation. References to sales attributable to acquisitions or acquired businesses refer to GAAP sales from acquired businesses recorded prior to the first anniversary of the acquisition less the amount of sales attributable to certain divested businesses or product lines not considered discontinued operations prior to the first anniversary of the divestiture. The portion of sales attributable to the impact of currency translation is calculated as the difference between (a) the period-to-period change in sales (excluding sales impact from acquired businesses) and (b) the period-to-period change in sales (excluding sales impact from acquired businesses) after applying the current period foreign exchange rates to the prior year period. Sales from existing businesses should be considered in addition to, and not as a replacement for or superior to, sales, and may not be comparable to similarly titled measures reported by other companies.
Management believes that reporting the non-GAAP financial measure of sales from existing businesses provides useful information to investors by helping identify underlying growth trends in our business and facilitating comparisons of our sales performance with our performance in prior and future periods and to our peers. We exclude the effect of acquisitions and divestiture related items because the nature, size, and number of such transactions can vary dramatically from period to period and between us and our peers. We exclude the effect of currency translation from sales from existing businesses because the impact of currency translation is not under management’s control and is subject to volatility. Management believes the exclusion of the effect of acquisitions and divestitures and currency translation may facilitate the assessment of underlying
business trends and may assist in comparisons of long-term performance. References to sales volume refer to the impact of both price and unit sales.
Business Performance and Outlook
While differences existBusiness Performance
A novel strain of coronavirus was first identified in Wuhan, China in December 2019, and subsequently declared a pandemic by the World Health Organization in March 2020 (“COVID-19”). This outbreak has surfaced in nearly all regions around the world, resulting in governments implementing increasingly strict measures to help contain or mitigate the spread of the virus, including quarantines, “shelter in place” and “stay at home” orders, travel restrictions, school and commercial facility closures, among others (collectively “virus control measures”). Further, on March 19, 2020, the Department of Homeland Security’s Cybersecurity and Infrastructure Security Agency issued a Guidance document for use by businesses and states defining “critical-infrastructure” industries that may continue to operate despite the virus control measures implemented. These virus control measures have led to slowdowns or shutdowns for businesses deemed both “essential” and “non-essential” in affected areas, causing significant disruption in the financial markets both globally and in the United States.
Given our businesses on an overall basis, demand foroperate globally, have diverse customers, and serve multiple end-markets, COVID-19 impacted our products, softwarebusinesses and services increasedoperating results during the three months ended SeptemberMarch 27, 20192020 directly with reduced demand from customers operating in non-essential end-markets and indirectly with reduced demand created by macroeconomic disruption or disruption in adjacent end-markets. Further, COVID-19 impacted our businesses and operating results during the three months ended March 27, 2020 more severely within certain geographies, most notably Asia, as virus control measures were deployed in that region in advance of the United States and Europe.
For the three months ended March 27, 2020, we recognized aggregate year-over-year total sales growth of 7.6%, which was driven by our recently acquired businesses. Demand from existing businesses decreased 3.8% as compared to the comparable period of 2018 resulting in aggregate year-over-year total2019, with the direct and indirect impacts of COVID-19 contributing to the majority of the decrease.
Geographically, sales growth of 16.2% and sales growth from existing businesses of 2.1%. Our continued application and deployment of the Fortive Business System including investments in sales growth initiatives and new product introductions, as well as increased demanddecreased slightly in developed markets and other business-specific factors discussed below, contributeddeclined at a mid-teen rate in high-growth markets during the three months ended March 27, 2020 as compared to overallthe comparable 2019 period. During the three months ended March 27, 2020, year-over-year sales growth from existing businesses acrossgrew at a high-single digit rate in Latin America and at a low-single digit rate in North America, which was more than offset by a high-single digit decline in Western Europe and over 20% decline in Asia, reflecting the majorityimpact of our businesses in the period.COVID-19 pandemic.
On a year-over-year basis, for the three months ended September 27, 2019, our Industrial Technologies segment reported sales growth from existing businesses of 6.5%1.6%, while our Professional Instrumentation segment reported a decline in sales from existing businesses of 1.3%.7.2% for the three months ended March 27, 2020. In our Industrial Technologies segment, the liability shift related to enhanced credit card security requirements for outdoor payment systems that is expected to occur in October 2020 in the United States based on the Europay, Mastercard, and Visa (“EMV”) global standards is continuing to drive demand within our transportation technologies platform. The increase in EMV-related demand was tempered by declines in demand in Asia resulting from the COVID-19 pandemic.
The decline in our Professional Instrumentation segment reflects slowing macroeconomic conditions across most major markets.both direct and indirect declines in demand resulting from COVID-19 virus pandemic.
Geographically, sales from existing businesses grew atOperating profit margin was 7.0% for the three months ended March 27, 2020, a low-single digit ratedecrease of 660 basis points as compared to 13.6% in developed marketsthe comparable period of 2019. Strong operational execution, the application and declined at a low-single digit ratedeployment of the Fortive Business System, and other cost reduction actions limited the impacts of COVID-19, and resulted in high-growth marketsan increase of 150 basis points during the three months ended SeptemberMarch 27, 2019 as compared2020. These factors were more than offset by the detrimental impacts of the goodwill impairment charge from the Telematics business, transaction and stand-up costs related to the comparable 2018 period. Year-over-year sales from existingproposed Vontier separation, and our recently acquired businesses grewwhich reduced year-over-year operating profit margin by 810 basis points.
Outlook
During the first quarter of 2020, the worldwide capital markets and overall global economic conditions deteriorated significantly as a result of COVID-19. In addition, the economic uncertainties that continue to exist as a result of COVID-19 suggest that global demand for our products and services will continue to contract, at least in the first half of 2020. Despite our critical infrastructure businesses continuing to operate, we expect this pandemic to materially reduce our revenues and net income in the second quarter of 2020, due largely to the virus control measures and weak market conditions reducing customer demand.
Given the diverse nature of our businesses and the end-markets they serve, we believe certain of our businesses will be relatively more resilient against the broad COVID-19 impacts in the second quarter of 2020, while we believe others will be relatively more sensitive, with varied rates of recovery once the virus control measures are lifted. The businesses we believe will be relatively more resilient include our businesses with a low-double digit rategreater proportion of recurring revenue, including our software as a service businesses, and those with longer business cycles. We believe that our businesses that are more dependent on the industrial cycle and production dynamics will experience relatively greater declines in Latin Americademand in the second quarter of 2020 and atwill take longer to recover once the virus control measures are lifted. Geographically, we expect COVID-19 to have more of a low-single digit ratedetrimental year-over-year impact in North America and Europe during the second quarter of 2020 than we experienced during the first quarter of 2020, while saleswe expect the COVID-19 impacts on our results in Asia declined at a low-single digit rate duringin the three months ended September 27, 2019.second quarter of 2020 to be relatively consistent with the impact realized in the first quarter of 2020.
While we expect overall sales toWe continue to growexecute broad cost reduction efforts while emphasizing cash flow generation. These cost reduction efforts include reducing labor expenses to better align with reductions in demand, primarily through the use of furloughs and reductions in salaried compensation costs, as well as other reductions in discretionary spending. We are also pursuing cost reductions throughout our supply chain by targeting reductions in both direct and indirect spending and reducing our facility expenses through temporary closures. In total, we believe we will be able to deliver incremental savings for the year ended December 31, 2020 of at least $300 million through these various cost actions.
In addition, we are closely monitoring the health of our employees as well as the employees of our suppliers and customers, and their ability to maintain production capacity and meet our operational requirements. Individuals contracting or being exposed to COVID-19, or who are unable to report to work due to virus control measures, may significantly disrupt production throughout our supply chain and negatively impact our sales channels. Further, our customers may be directly impacted by business curtailments or weak market conditions, and may not be willing or able to accept shipments of products, may cancel orders, and may not be able to pay us on a year-over-year basistimely basis.
Despite the virus control measures implemented in geographies critical to our supply chain, we have successfully implemented solutions to support our operations and have not experienced material shortages, supply chain constraints, or distribution limitations significantly impacting our operations as of the date of this Report; however, in light of the uncertainty of the COVID-19 severity and duration, we are continuing to evaluate and monitor the condition of our supply chain, including the financial health of our suppliers and their ability to access raw materials and other key inputs and may experience shortages, constraints, or disruptions during the remainder of 2019,2020.
To minimize the impact of the recessionary economic conditions, we expect sales from existingwill continue applying and deploying the Fortive Business System to actively manage our supply chain and drive operating efficiencies, and continue to collaborate with our customers and suppliers to minimize disruption to their businesses. Additionally, we will continue to actively manage our working capital with a focus on maximizing cash flows and cost efficiency, and will continue to assess market conditions and take actions as we deem necessary to appropriately position our businesses in light of the economic environment.
Although recent distress in the financial markets has not had a significant impact on our financial position, liquidity, and ability to be relatively flatmeet our debt covenants as of the filing date of this Report, we continue to monitor macro-economic developmentsthe financial markets and general global economic conditions. Further, we plan to utilize certain provisions of The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) enacted by the corresponding impactU.S. Government to provide additional short-term liquidity, including relief from employer payroll tax remittance, and we are evaluating other potential income tax impacts of the CARES Act. If further changes in financial markets or other areas of the economy adversely affect our access to the capital markets, we would expect to rely on a combination of available cash and existing available capacity under our businesses. In addition, we continuecredit facilities to monitor geopolitical uncertainties, including Brexitprovide short-term funding. Refer to the “Liquidity and global uncertainties related to governmental policies toward international trade, monetary and fiscal policies; and the current uncertainty surrounding the relationship between the United States and China with respect to trade policies, treaties, government regulations, and tariffs. We will also continue to monitor other factors identified above in “—Information Relating to Forward-Looking Statements.”Capital Resources” section for additional discussion.
RESULTS OF OPERATIONS
Sales Growth
The following tables summarize total aggregate year-over-year sales growth and the components of aggregate year-over-year sales growth during the three and nine months ended SeptemberMarch 27, 20192020 as compared to the comparable periodsperiod of 2018:2019:
Components of Sales Growth
|
| | | | | |
| | % Change
Three Months Ended
September 27, 2019 vs.
Comparable 2018
Period | | % Change
Nine Months Ended
September 27, 2019 vs.
Comparable 2018
Period |
| Total revenue growth (GAAP) | 16.2 | % | | 13.3 | % |
| Existing businesses (Non-GAAP) | 2.1 | % | | 2.6 | % |
Acquisitions (Non-GAAP) | 15.3 | % | | 12.7 | % |
| Currency exchange rates (Non-GAAP) | (1.2 | )% | | (2.0 | )% |
| | | | | | | |
| % Change Three Months Ended
March 27, 2020 vs. Comparable 2019 Period | | |
| Total revenue growth (GAAP) | 7.6 | % | | |
| Existing businesses (Non-GAAP) | (3.8) | % | | |
Acquisitions(Non-GAAP) | 13.0 | % | | |
| Currency exchange rates (Non-GAAP) | (1.6) | % | | |
Operating Profit Margins
Operating profit margin was 13.0%7.0% for the three months ended SeptemberMarch 27, 2019,2020, a decrease of 460660 basis points as compared to 17.6%13.6% in the comparable period of 2018.2019. Year-over-year operating profit margin comparisons were unfavorablyfavorably impacted by:
Higher 2019•Price increases, a favorable sales volumes from existing businesses, price increases,mix, lower year-over-year material costs, and incremental year-over-year cost savings associated with restructuring and productivity improvement initiatives which were more than offset by unfavorable
lower year-over-year sales mix, increased material costs associated primarily with inflationary pressures and recently enacted tariffs, and changes in foreign currency exchange ratesvolumes from existing businesses — unfavorable 25favorable 150 basis points
Year-over-year operating profit margin comparisons were unfavorably impacted by:
•The incremental year-over-year net dilutive effect of acquired businesses — unfavorable 415120 basis points
•The incremental year-over-year net dilutive effect of acquisition-related transaction costs and transaction and stand-up costs related to the plannedproposed Vontier separation of Fortive into two independent, publicly traded companies — unfavorable 20120 basis points
Operating profit margin was 13.3% for•The impact of the nine months ended September 27, 2019, a decreasegoodwill impairment of 550our Telematics business — unfavorable 570 basis points as compared to 18.8% in the comparable period of 2018. Year-over-year operating profit margin comparisons were unfavorably impacted by:
Higher 2019 sales volumes from existing businesses, price increases, incremental year-over-year cost savings associated with restructuring and productivity improvement initiatives which were more than offset by unfavorable sales mix, increased material costs associated primarily with inflationary pressures and recently enacted tariffs, and changes in foreign currency exchange rates — unfavorable 20 basis points
The incremental year-over-year net dilutive effect of acquired businesses — unfavorable 400 basis points
The incremental year-over-year net dilutive effect of acquisition-related transaction costs and transaction costs related to the planned separation of Fortive into two independent, publicly traded companies —unfavorable 130 basis points
Business Segments
Sales by business segment for each of the periods indicated were as follows ($ in millions):
| | | | | | | | | | | | | | | |
| | Three Months Ended | | | | | | |
| | March 27, 2020 | | March 29, 2019 | | | | |
| Professional Instrumentation | $ | 1,104.4 | | | $ | 977.7 | | | | | |
| Industrial Technologies | 609.1 | | | 615.2 | | | | | |
| Total | $ | 1,713.5 | | | $ | 1,592.9 | | | | | |
|
| | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 27, 2019 | | September 28, 2018 | | September 27, 2019 | | September 28, 2018 |
| Professional Instrumentation | $ | 1,116.2 |
| | $ | 894.1 |
| | $ | 3,196.8 |
| | $ | 2,654.8 |
|
| Industrial Technologies | 743.8 |
| | 707.1 |
| | 2,120.8 |
| | 2,040.4 |
|
| Total | $ | 1,860.0 |
| | $ | 1,601.2 |
| | $ | 5,317.6 |
| | $ | 4,695.2 |
|
PROFESSIONAL INSTRUMENTATION
Our Professional Instrumentation segment consists of our Advanced Instrumentation & Solutions, and Sensing Technologies, and Advanced Sterilization Products and Censis businesses.
Our Advanced Instrumentation & Solutions businesses provide product realization and field solutions services and products. FieldOur field solutions products include a variety of compact professional test tools, thermal imaging and calibration equipment for electrical, industrial, electronic and calibration applications, online condition-based monitoring equipment; portable gas detection equipment, consumables, and software as a service (SaaS) offerings including safety/user behavior, asset management, environmental, health and safety (EHS) quality management and compliance monitoring; subscription-based technical, analytical, and compliance services to determine occupational and environmental radiation exposure; and software, data analytics and services for critical infrastructure in utility, industrial, energy, construction, facilities management, public safety, mining, EHS, and healthcare applications. ProductOur product realization services and products help developers and engineers across the end-to-end product creation cycle from concepts to finished products. Our test, measurement and monitoring products are used in the design, manufacturing and also include highly-engineered energetic materials components in specialized vertical applications. development of electronics, industrial, and other advanced technologies.
Our Sensing Technologies business offers devices that sense, monitor and control operational or manufacturing variables, such as temperature, pressure, level, flow, turbidity, and conductivity. On April 1, 2019, we acquired the ASPUsers of these products span a wide variety of industrial and manufacturing markets, including medical equipment, food and beverage, marine, industrial, off-highway vehicles, building automation, and semiconductors.
Our Advanced Sterilization Products (“ASP”) business from Johnson & Johnson. ASP provides critical sterilization and disinfection solutions, including low-temperature hydrogen peroxide sterilization solutions for temperature-sensitive equipment, to health careadvance infection prevention and patient safety in healthcare facilities. Our Censis business provides subscription-based surgical inventory management systems to healthcare facilities used in the fields of low-temperature terminal sterilizationto facilitate inventory management and high-level disinfection.
regulatory compliance.
Professional Instrumentation Selected Financial Data
| | | | Three Months Ended | | Nine Months Ended | | Three Months Ended | |
| ($ in millions) | September 27, 2019 | | September 28, 2018 | | September 27, 2019 | | September 28, 2018 | ($ in millions) | March 27, 2020 | | March 29, 2019 | |
| Sales | $ | 1,116.2 |
| | $ | 894.1 |
| | $ | 3,196.8 |
| | $ | 2,654.8 |
| Sales | $ | 1,104.4 | | | $ | 977.7 | | |
| Operating profit | 118.7 |
| | 160.2 |
| | 376.9 |
| | 583.3 |
| Operating profit | 144.5 | | | 142.7 | | |
| Depreciation | 20.7 |
| | 16.0 |
| | 56.6 |
| | 48.5 |
| Depreciation | 19.5 | | | 16.8 | | |
| Amortization | 73.9 |
| | 24.8 |
| | 187.3 |
| | 58.4 |
| Amortization | 78.2 | | | 44.1 | | |
| Operating profit as a % of sales | 10.6 | % | | 17.9 | % | | 11.8 | % | | 22.0 | % | Operating profit as a % of sales | 13.1 | % | | 14.6 | % | |
| Depreciation as a % of sales | 1.9 | % | | 1.8 | % | | 1.8 | % | | 1.8 | % | Depreciation as a % of sales | 1.8 | % | | 1.7 | % | |
| Amortization as a % of sales | 6.6 | % | | 2.8 | % | | 5.9 | % | | 2.2 | % | Amortization as a % of sales | 7.1 | % | | 4.5 | % | |
Components of Sales Growth
|
| | | | | |
| | % Change
Three Months Ended
September 27, 2019 vs.
Comparable 2018
Period | | % Change
Nine Months Ended
September 27, 2019 vs.
Comparable 2018
Period |
| Total revenue growth (GAAP) | 24.8 | % | | 20.4 | % |
| Existing businesses (Non-GAAP) | (1.3 | )% | | 0.2 | % |
| Acquisitions (Non-GAAP) | 27.2 | % | | 22.1 | % |
| Currency exchange rates (Non-GAAP) | (1.1 | )% | | (1.9 | )% |
| | | | | | | |
| % Change Three Months Ended
March 27, 2020 vs. Comparable 2019 Period | | |
| Total revenue growth (GAAP) | 13.0 | % | | |
| Existing businesses (Non-GAAP) | (7.2) | % | | |
| Acquisitions (Non-GAAP) | 21.3 | % | | |
| Currency exchange rates (Non-GAAP) | (1.1) | % | | |
Sales from existing businesses in our Professional Instrumentation segment’s Advanced Instrumentation & Solutions businesses decreased at a low-singlehigh-single digit rate during the three months ended SeptemberMarch 27, 2019 and were relatively flat during the nine months ended September 27, 20192020 as compared to the comparable periodsperiod of 2018.2019.
Year-over-year sales from existing businesses of field solutions products and services declined at a low-singlemid-single digit rate during the three months ended SeptemberMarch 27, 2019 and2020. The results were relatively flat during the nine months ended September 27, 2019, as growth indriven by increased demand for portable gas detectionour thermography tools in response to COVID-19 monitoring and growth in facilities maintenance and asset management offerings, waswhich were more than offset by declines in demand for electrical grid condition-based monitoring equipment, portable gas detection instruments, and slowing demand
from our industrial channel partners all of which were impacted by COVID-19. Demand in North America.both direct and adjacent end-markets was impacted by COVID-19.
Year-over-year sales from existing businesses of product realization products and services decreased slightlydeclined at a high-single digit rate during the three months ended SeptemberMarch 27, 2019,2020, as compared to the comparable period of 2018. For the three month period, increased demand in our energetic materials business was more than offset by slowing demand from our channel partners and2019 due to decreased demand for our Keithley products and oscilloscopes. During the nine months ended September 27, 2019, year-over-year sales from existing businesses of product realization products and services increased slightly, driven by strong growth in our energetic materials business that was largely offsetand test and measurement equipment driven, in part, by declines in demand for our Keithley products.COVID-19.
Geographically, demand from existing businesses in Advanced Instrumentation & Solutions increaseddecreased in Latin America, Japan, and China on a year-over-year basis during the three months ended September 27, 2019, which wasmost of our significant regions, with more than offset bysignificant declines in North America. Demand from existing businesses increased on a year-over-year basis during the nine months ended September 27, 2019 in North America, China, and Japan, which was mostly offset by declines in Western Europe.Asia.
Sales from existing businesses in our segment’s Sensing Technologies businesses declined at a low-singlehigh-single digit rate during the three and nine months ended SeptemberMarch 27, 20192020 as compared to the comparable periodsperiod of 2018,2019, as increased demand in the medical marketcritical environments supporting COVID-19 patient treatment efforts was more than offset by declines in industrial end markets. Industrial end markets forwere impacted both respective periods.directly and indirectly by COVID-19. Geographically, demand decreased in most of our significant regions during the three months ended SeptemberMarch 27, 2019, increased demand from existing businesses in North America and China was more than offset by2020, with sharper declines in Western Europe, Korea, and Japan. For the year-to-date period, increased demand from existing businesses in China was more than offset by declines in North America, Japan,Asia and Western Europe.
Sales from recently acquired businesses in our Professional Instrumentation segment, including ASP, Gordian and Accruent, contributed 27.2% and 22.1%21.3% to overall sales growth for the three and nine months ended SeptemberMarch 27, 2019, respectively.2020. ASP sales for the three months and nine months ended SeptemberMarch 27, 2019,2020, as compared to the comparable period prior to Fortive ownership, increaseddecreased at a low-single digits whichdigit rate as growth in Europe and Mexico was attributable to growthmore than offset by declines in demand in China and Japan for both periods. Gordian and Accruent sales for the three and nine months ended September 27, 2019, as compared to the comparable period prior to
Fortive ownership, increased mid-single digitsNorth America. ASP’s results reflect declines in both periods attributable to growth in facilities maintenance and asset management offerings.elective surgical procedure volumes which were impacted by COVID-19.
Year-over-year price increases in our Professional Instrumentation segment contributed 1.8% and 1.3%1.2% to sales growth during the three and nine months ended SeptemberMarch 27, 2019, respectively,2020 as compared to the comparable periodsperiod of 2018,2019, and are reflected as a component of the change in sales from existing businesses.
Operating profit margin decreased 730150 basis points during the three months ended SeptemberMarch 27, 20192020 as compared to the comparable period of 2018.2019. Year-over-year operating profit margin comparisons were favorably impacted by:
Acquisition-related transaction costs, as the costs related to our acquisition of ASP and acquisition-related restructuring in 2019, were less than the costs associated with the ASP, Gordian, and Accruent acquisitions in 2018 — favorable 150 basis points
Year-over-year operating profit margin comparisons were unfavorably impacted by:
•Price increases, a favorable sales mix, lower year-over-year material costs, and incremental year-over-year cost savings associated with restructuring and productivity improvement initiatives that were more thanpartially offset by a year-over-year decline in sales volumes unfavorable sales mix, incremental year-over-yearfrom existing businesses — favorable 130 basis points
•Acquisition-related transaction costs, as the costs related to our acquisition and integration of ASP in 2020 were less than the costs associated with sales and marketing growth initiatives, increased material costs associated primarily with inflationary pressures and recently enacted tariffs, and changes in currency exchange rates2019 — unfavorable 180favorable 70 basis points
Year-over-year operating profit margin comparisons were unfavorably impacted by:
•The incremental year-over-year net dilutive effect of acquired businesses, including amortization and acquisition-related fair value adjustments to deferred revenue and inventory — unfavorable 700350 basis points
Operating profit margin decreased 1,020 basis points during the nine months ended September 27, 2019 as compared to the comparable period
Higher 2019 sales volumes from existing businesses, price increases and incremental year-over-year cost savings associated with restructuring and productivity improvement initiatives that were more than offset by an unfavorable sales mix, increased material costs associated primarily with inflationary pressures and recently enacted tariffs, and changes in currency exchange rates — unfavorable 170 basis points
The incremental year-over-year net dilutive effect of acquired businesses, including amortization and acquisition-related fair value adjustments to deferred revenue and inventory — unfavorable 680 basis points
Acquisition-related transaction costs, as the costs related to our acquisition of ASP and acquisition-related restructuring in 2019, were less than the costs associated with the ASP, Gordian and Accruent acquisitions in 2018 — unfavorable 170 basis points
INDUSTRIAL TECHNOLOGIES
Our Industrial Technologies segment consists of our Transportation Technologies and Franchise Distribution businesses. Our Transportation Technologies business is a leading worldwide provider of solutions and services focused on fuel dispensing, remote fuel management, point-of-sale and payment systems, environmental compliance, vehicle tracking and fleet management, and traffic management. Our Franchise Distribution business manufactures and distributes professional tools and a full-line of wheel service equipment.
Industrial Technologies Selected Financial Data
| | | | Three Months Ended | | Nine Months Ended | | Three Months Ended | |
| ($ in millions) | September 27, 2019 | | September 28, 2018 | | September 27, 2019 | | September 28, 2018 | ($ in millions) | March 27, 2020 | | March 29, 2019 | |
| Sales | $ | 743.8 |
| | $ | 707.1 |
| | $ | 2,120.8 |
| | $ | 2,040.4 |
| Sales | $ | 609.1 | | | $ | 615.2 | | |
| Operating profit | 146.0 |
| | 141.7 |
| | 404.2 |
| | 370.5 |
| Operating profit | (1.5) | | | 98.8 | | |
| Depreciation | 13.9 |
| | 13.7 |
| | 40.0 |
| | 40.5 |
| Depreciation | 12.0 | | | 12.5 | | |
| Amortization | 7.9 |
| | 7.5 |
| | 24.1 |
| | 22.9 |
| Amortization | 7.3 | | | 8.1 | | |
| Goodwill impairment charge | | Goodwill impairment charge | 85.3 | | | | — | | |
| Operating profit as a % of sales | 19.6 | % | | 20.0 | % | | 19.1 | % | | 18.2 | % | Operating profit as a % of sales | (0.2) | % | | 16.1 | % | |
| Depreciation as a % of sales | 1.9 | % | | 1.9 | % | | 1.9 | % | | 2.0 | % | Depreciation as a % of sales | 2.0 | % | | 2.0 | % | |
| Amortization as a % of sales | 1.1 | % | | 1.1 | % | | 1.1 | % | | 1.1 | % | Amortization as a % of sales | 1.2 | % | | 1.3 | % | |
Components of Sales Growth
|
| | | | | |
| | % Change
Three Months Ended
September 27, 2019 vs.
Comparable 2018
Period | | % Change
Nine Months Ended
September 27, 2019 vs.
Comparable 2018
Period |
| Total revenue growth (GAAP) | 5.2 | % | | 3.9 | % |
| Existing businesses (Non-GAAP) | 6.5 | % | | 5.7 | % |
Acquisitions (Non-GAAP) | 0.1 | % | | 0.5 | % |
| Currency exchange rates (Non-GAAP) | (1.4 | )% | | (2.3 | )% |
| | | | | | | |
| % Change Three Months Ended
March 27, 2020 vs. Comparable 2019 Period | | |
| Total revenue growth (GAAP) | (1.0) | % | | |
| Existing businesses (Non-GAAP) | 1.6 | % | | |
Acquisitions(Non-GAAP) | (0.3) | % | | |
| Currency exchange rates (Non-GAAP) | (2.3) | % | | |
Sales from existing businesses in our Transportation Technologies businesses grew high-single digitsat a low-single digit rate during both the three and nine months ended SeptemberMarch 27, 20192020 as compared to the comparable periodsperiod of 2018.2019. Geographically, demand from existing businesses increased in North America and Western EuropeLatin America and was partially offset by declines in Asia and Western Europe during both the three and nine months ended SeptemberMarch 27, 2019.2020. The results in both periods weresales growth from existing businesses was largely attributable to broad based demand for fuel management systems, specifically in North America and Europe,Latin America, as well as demand for payment solutions. In addition, demand for fuel management systems in China contributed to growth during the nine months ended September 27, 2019. Sales from existing businesses in North America were favorably impacted in both periods by the approaching deadline of the liability shift related to the outdoor EMV global standards.standards, which was tempered by year-over-year declines in demand in China and India and the direct and indirect impacts of COVID-19 across most geographies.
Sales from existing businesses in our Franchise Distribution businesses increaseddeclined at a low-single digit rate during the three months ended SeptemberMarch 27, 2019 and were relatively flat during the nine months ended September 27, 2019,2020 as compared to the comparable periodsperiod of 2018. The results in both periods were2019 due to increaseddecreased demand for hardline tools and shop equipment thatacross most product categories in the later part of March 2020, which was largely offsetdriven by declines in wheel service equipment.COVID-19 virus control measures.
Year-over-year price increasesdecreases in our Industrial Technologies segment contributed 1.1% and 1.9% tonegatively impacted sales growth by 0.1% during the three and nine months ended SeptemberMarch 27, 2019, respectively,2020 as compared to the comparable periodsperiod of 2018,2019, and are reflected as a component of the change in sales from existing businesses.
Operating profit margin decreased 401,630 basis points during the three months ended SeptemberMarch 27, 20192020 as compared to the comparable period of 2018.2019. Year-over-year operating profit margin comparisons were favorably impacted by:
•Higher 20192020 sales volumes from existing businesses, price increases,lower year-over-year material costs and costs associated with product development initiatives, a favorable sales mix, and incremental year-over-year cost savings associated with restructuring and productivity improvement initiatives that were partially offset by increased material costs associated primarily with inflationary pressures and recently enacted tariffs and changes in foreign currency exchange rateslower year-over-year pricing — favorable 190 basis points
Year-over-year operating profit margin comparisons were unfavorably impacted by:
•Transaction and stand-up costs related to the plannedproposed Vontier separation of Fortive into two independent, publicly traded companies — unfavorable 230420 basis points
Operating profit margin increased 90
•The impact of the goodwill impairment of our Telematics business — unfavorable 1,400 basis points during the nine months ended September 27, 2019 as compared to the comparable period of 2018. Year-over-year operating profit margin comparisons were favorably impacted by:
Higher 2019 sales volumes from existing businesses, price increases, and incremental year-over-year cost savings associated with restructuring and productivity improvement initiatives that were partially offset by increased material costs associated primarily with inflationary pressures and recently enacted tariffs and changes in foreign currency exchange rates — favorable 190 basis points
Year-over-year operating profit margin comparisons were unfavorably impacted by:
Transaction costs related to the planned separation of Fortive into two independent, publicly traded companies — unfavorable 90 basis points
The incremental year-over-year net dilutive effect of acquired businesses — unfavorable 10 basis points
COST OF SALES AND GROSS PROFIT
| | | | Three Months Ended | | Nine Months Ended | | Three Months Ended | |
| ($ in millions) | September 27, 2019 | | September 28, 2018 | | September 27, 2019 | | September 28, 2018 | ($ in millions) | March 27, 2020 | | March 29, 2019 | |
| Sales | $ | 1,860.0 |
| | $ | 1,601.2 |
| | $ | 5,317.6 |
| | $ | 4,695.2 |
| Sales | $ | 1,713.5 | | | $ | 1,592.9 | | |
| Cost of sales | (932.3 | ) | | (775.3 | ) | | (2,673.2 | ) | | (2,272.2 | ) | Cost of sales | (837.7) | | | (780.2) | | |
| Gross profit | $ | 927.7 |
| | $ | 825.9 |
| | $ | 2,644.4 |
| | $ | 2,423.0 |
| Gross profit | $ | 875.8 | | | $ | 812.7 | | |
| Gross profit margin | 49.9 | % | | 51.6 | % | | 49.7 | % | | 51.6 | % | Gross profit margin | 51.1 | % | | 51.0 | % | |
The year-over-year increase in cost of sales during the three and nine months ended SeptemberMarch 27, 2019,2020, as compared to the comparable periodsperiod in 2018,2019, is due primarily to the impact of incremental cost of sales from our recently acquired businesses, higherpartially offset by lower year-over-year sales volumes from existing businesses, and increasedlower year-over-year material costs, associated primarily with inflationary pressures and recently enacted tariffs that were partly offset by cost savings associated with restructuring and productivity improvement initiatives, material cost and supply chain improvement actions, and changes in currency exchange rates.
The year-over-year increase in gross profit and the related 10 basis point increase in gross profit margin for the three and nine months ended SeptemberMarch 27, 2019,2020, as compared to the comparable periodsperiod in 2018,2019, is due primarily to the favorable impact of pricing improvements from existing businesses, higher year-over-year sales volumes, including sales volumes from our recently acquired businesses, the favorable impact of pricing improvements from existing businesses, incremental year-over-year cost savings associated with restructuring and productivity improvement initiatives, and material cost and supply chain improvement actions. These factors were partially offset by increased material costs associated primarily with inflationary pressures and recently enacted tariffs and changes in currency exchange rates.
The respective 170 basis point and 190 basis point decrease in gross profit margins for the three and nine months ended September 27, 2019, as compared to the comparable periods in 2018, is due primarily to unfavorable sales mix, acquisition-related fair value adjustments to deferred revenue and inventory, and increased material costs associated primarily with inflationary pressures and recently enacted tariffs. We expect the acquisition-related fair value adjustments to deferred revenue to continue to impact margins during the remainder of 2019.
OPERATING EXPENSES
| | | | Three Months Ended | | Nine Months Ended | | Three Months Ended | |
| ($ in millions) | September 27, 2019 | | September 28, 2018 | | September 27, 2019 | | September 28, 2018 | ($ in millions) | March 27, 2020 | | March 29, 2019 | |
| Sales | $ | 1,860.0 |
| | $ | 1,601.2 |
| | $ | 5,317.6 |
| | $ | 4,695.2 |
| Sales | $ | 1,713.5 | | | $ | 1,592.9 | | |
| Selling, general and administrative (“SG&A”) expenses | 566.5 |
| | 440.6 |
| | 1,590.0 |
| | 1,233.6 |
| Selling, general and administrative (“SG&A”) expenses | 557.2 | | | 486.4 | | |
| Research and development (“R&D”) expenses | 119.1 |
| | 103.7 |
| | 345.5 |
| | 305.5 |
| Research and development (“R&D”) expenses | 113.7 | | | 109.0 | | |
| Impairment of goodwill | | Impairment of goodwill | 85.3 | | | | — | | |
| SG&A as a % of sales | 30.5 | % | | 27.5 | % | | 29.9 | % | | 26.3 | % | SG&A as a % of sales | 32.5 | % | | 30.5 | % | |
| R&D as a % of sales | 6.4 | % | | 6.5 | % | | 6.5 | % | | 6.5 | % | R&D as a % of sales | 6.6 | % | | 6.8 | % | |
| Impairment of goodwill as a % of sales | | Impairment of goodwill as a % of sales | 5.0 | % | | — | | |
SG&A expenses increased during the three and nine months ended SeptemberMarch 27, 2019,2020 as compared to the comparable periodsperiod of 2018,2019, due to higher amortization and incremental expenses from our recently acquired businesses and costs associated with the ASP acquisition and the plannedproposed Vontier separation, of Fortive into two independent, publicly traded companies, and sales and marketing growth initiatives, partially offset by year-over-year cost savings associated with restructuring and productivity improvement initiatives and changes in currency exchange rates for both respective periods.rates.
On a year-over-year basis, SG&A expenses as a percentage of sales increased 300 basis points and 360200 basis points in the three and nine months ended SeptemberMarch 27, 2019, respectively,2020 due to higher amortization and relative spending levels at our recently acquired businesses and costs associated with the ASP acquisition and the plannedproposed Vontier separation, of Fortive into two independent, publicly traded companies, andpartially offset by lower spending on sales and marketing growth initiatives for both periods.initiatives.
R&D expenses (consisting principally of internal and contract engineering personnel costs) increased during the three and nine months ended SeptemberMarch 27, 2019,2020 as compared to the comparable periodsperiod of 2018,2019 due to incremental year-over-year investments in product development initiatives and incremental expenses from our recently acquired businesses. On a year-over-year basis, R&D expenses as a percentage of sales were relatively flatdecreased during the three and nine months ended SeptemberMarch 27, 2019.2020 due to reduced spending on product development initiatives from our existing businesses.
In connection with our updated forecast for our Telematics business that indicated a decline in sales and operating profit to levels lower than previously forecasted, due in large part to the impacts of the COVID-19 pandemic, management determined the change in forecast indicated the related carrying value of goodwill may not be recoverable and performed a quantitative impairment assessment over the Telematics reporting unit on March 27, 2020. This analysis resulted in an impairment of $85.3 million.
INTEREST COSTS
For a discussion of our outstanding indebtedness, refer to Note 65 to the accompanying consolidated condensed financial statements.
Net interest expense for the three and nine months ended SeptemberMarch 27, 20192020 was $47 million and $117 million, respectively.$44 million. Net interest expense for the three and nine months ended September 28, 2018March 29, 2019 was $23 millionand $70 million, respectively.$25 million. The increase in interest expense for both periods was due to higher year-over-year average debt balances used to fund the ASP, Intelex, and Censis acquisitions.
INCOME TAXES
Our effective tax ratesrate for the three and nine months ended SeptemberMarch 27, 2019 were 11.8% and 13.5%, respectively,2020 was 40.8% as compared to 17.0% and 16.4%14.8% for the three and nine months ended September 28, 2018, respectively.March 29, 2019. The year-over-year decreaseincrease was due primarily to increases in favorable impactsa non-deductible goodwill impairment and tax costs associated with repatriating a portion of certain federal and international tax benefits andour previously reinvested earnings outside of the United States. These factors were partially offset by favorable impacts of a higher mix of income in jurisdictions with lower tax rates than the U.S. federal statutory rate of 21%. and increases in favorable impacts of certain federal and international tax benefits.
Our effective tax rate for 20192020 and 20182019 differs from the U.S. federal statutory rate of 21% due primarily to the positive and negative effects of the Tax Cuts and Jobs Act (“TCJA”), U.S. federal permanent differences, the impact of credits and deductions provided by law, and current year earnings outside the United States that are indefinitely reinvested and taxed at rates lower than the U.S. federal statutory rate. Specific to 2020, our effective tax rate also differs from the U.S. federal statutory rate of 21% due to a non-deductible goodwill impairment and the tax costs associated with repatriating a portion of our previously reinvested earnings outside of the United States.
On March 27, 2020, the US federal government enacted the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The CARES Act is an emergency economic stimulus package in response to the COVID-19 outbreak which, among other things, contains numerous income tax provisions. Some of these tax provisions are expected to be effective retroactively for years ending before the date of enactment. We anticipate the provisions of the CARES Act will impact income tax in 2020, however we have not identified material impacts to the quarterly provision as of March 27, 2020. We will continue to evaluate the impact of the CARES Act as new clarifying guidance is issued throughout 2020.
COMPREHENSIVE INCOME
Comprehensive income decreased by $67$277 million during the three months ended SeptemberMarch 27, 20192020 as compared to the comparable period in 20182019 due primarily to net earnings that were lower by $38 million and unfavorable changes in foreign currency translation adjustments of $29 million.
Comprehensive income decreased by $203$153 million during the nine months ended September 27, 2019 as compared to the comparable period in 2018 due primarily toand net earnings that were lower by $255 million, partially offset by favorable changes in foreign currency translation adjustments of $53$123 million.
INFLATION
The effect of inflation on our sales and net earnings was not significant in the three and nine month periodsperiod ended SeptemberMarch 27, 2019.2020.
LIQUIDITY AND CAPITAL RESOURCES
We assess our liquidity in terms of our ability to generate cash to fund our operating, investing, and financing activities. We generate substantial cash from operating activities and expect that our operating cash flow and other sources of liquidity will be sufficient to allow us to continue to invest in existing businesses, consummate strategic acquisitions, make interest payments on our outstanding indebtedness, and manage our capital structure on a short and long-term basis.
Although recent distress in the financial markets has not had a significant impact on our financial position, liquidity, and ability to meet our debt covenants as of the filing date of this Report, we continue to monitor the capital markets and general global economic conditions. The financial markets worldwide, including the United States, have been impacted by COVID-19 and this volatility and disruption has adversely impacted broad access to the capital markets and pricing on new indebtedness. Our credit facilities, including our revolving credit facility, are predominately with institutions that, to date, appear to be relatively unaffected by the disruption. However, the recent distress in the financial markets has resulted in volatility and disruption in the commercial paper market, which negatively impacted our ability to refinance maturing commercial paper with new commercial paper. As a result of the volatility and disruption in the commercial paper market, we refinanced approximately $365 million and $420 million of outstanding commercial paper during the three months ended March 27, 2020 and April 2020, respectively, largely with borrowings under our $750 million delayed-draw term loan facility, as detailed in the 2021 Term Loan section below.
Our credit facility agreements require, among others, that we maintain certain financial covenants, and we were in compliance with all of our financial covenants on March 27, 2020. While we believe that we will remain in compliance with our covenants in effect on March 27, 2020, in light of the unpredictable nature of the COVID-19 pandemic, on April 24, 2020, we amended (the “Amendments”) the credit agreement for each of our (i) $500 million delayed draw term loan facility, with $250 million in principal amount outstanding as of March 27, 2020 (“2020 Term Loan”), (ii) $1.0 billion delayed draw term loan facility, with
$1.0 billion in principal amount outstanding as of March 27, 2020 (the “2020 Delayed-Draw Term Loan”), (iii) $750 million delayed draw term loan facility, with $375 million in principal amount outstanding as of March 27, 2020 (“2021 Term Loan”), and (iv) $2.0 billion Revolving Credit Facility, with no borrowings thereunder as of March 27, 2020 as follows:
•For any four fiscal quarters ending in the periods noted below (each an “Adjusted Four Quarters”) that end prior to the maturity date of the applicable facility, the maximum permitted consolidated net leverage ratio of consolidated net funded indebtedness to consolidated EBITDA was increased from 3.50 to 1.00 to, (i) with respect to the four fiscal quarters ending June 26, 2020, September 25, 2020, December 31, 2020, or April 2, 2021, 4.75 to 1.00, (ii) with respect to the four fiscal quarters ending July 2, 2021, 4.5 to 1.0, (iii) with respect to the four fiscal quarters ending October 1, 2021, 4.25 to 1.0 and (iv) with respect to the four fiscal quarters ending December 31, 2021, 3.75 to 1.0; provided however, that for any four fiscal quarters that is not an Adjusted Four Quarters, the maximum permitted consolidated net leverage ratio remains at 3.5 to 1.0, as may be increased to 4.0 to 1.0 following a material acquisition (the “Unadjusted Maximum Ratio”).
•The maturity date for the 2020 Delayed-Draw Term Loan was extended from August 28, 2020 to May 30, 2021.
•From April 24, 2020 to December 31, 2021, the minimum London inter-bank offered rate (“LIBOR”) for each of the facilities will increase from 0% to 0.25%, and the minimum base rate for each of the facilities will increase from 1.00% to 1.25%. In addition, with respect to the Revolving Credit Facility and for any Adjusted Four Quarters in which the consolidated net leverage ratio is greater the Unadjusted Maximum Ratio, the applicable margin (as determined based on our long-term debt credit rating) for any LIBOR rate loans will increase from a range of 80.5 and 117.5 basis points to a range of 118.0 and 155.0 basis points and for any base rate loans from a range of 0.0 and 17.5 basis points to a range of 18.0 and 55.0 basis points. Furthermore, with respect to the 2020 Delayed-Draw Term Loan, the applicable margin (as determined based on our long-term debt credit rating) for any LIBOR rate loans will increase from a range of 75.0 and 97.5 basis points to a range of 155.0 and 180.0 basis points and for any base rate loans from 0.0 to a range of 55.0 and 80.0 basis points.
•From April 24, 2020 to December 31, 2021, the maximum principal amount of secured indebtedness, other than certain types of secured indebtedness expressly permitted under each credit agreement, is decreased from 15% of our consolidated net assets (when added together with indebtedness incurred or guaranteed by any of our subsidiaries) to 11.25% of our consolidated net assets (when added together with indebtedness incurred or guaranteed by any of our subsidiaries).
In connection with the Amendments, we incurred approximately $6.5 million of fees.
We continue to generate cash from operating activities and believe our cash flow and other sources of liquidity, which consists of access to short-term loans and our revolving credit facility currently, in addition to short-term liquidity benefits provided by cash repatriation and certain provisions of the CARES Act, including relief from employer payroll tax remittance and other tax impacts we are evaluating, will be sufficient to allow us to continue investing in existing businesses and maintain our capital structure on both a short and long-term basis. Further, while the recent distress in the financial markets has resulted in volatility and disruption in the commercial paper market, we intend to utilize our commercial paper programs as a source of liquidity if and when the commercial paper markets are attractive.
Overview of Cash Flows and Liquidity
Following is an overview of our cash flows and liquidity for the ninethree months ended SeptemberMarch 27, 2019:2020:
| | | | Nine Months Ended | | Three Months Ended | |
| ($ in millions) | September 27, 2019 | | September 28, 2018 | ($ in millions) | March 27, 2020 | | March 29, 2019 |
| Total operating cash provided by continuing operations | $ | 800.4 |
| | $ | 778.9 |
| Total operating cash provided by continuing operations | $ | 191.4 | | | $ | 161.2 | |
| | | | | | | | |
| Payments for additions to property, plant and equipment | | Payments for additions to property, plant and equipment | (33.8) | | | (24.0) | |
| Cash paid for acquisitions, net of cash received | $ | (3,387.7 | ) | | $ | (2,825.2 | ) | Cash paid for acquisitions, net of cash received | (10.6) | | | — | |
| Payments for additions to property, plant and equipment | (79.6 | ) | | (76.8 | ) | |
| All other investing activities | — |
| | 4.0 |
| All other investing activities | 0.2 | | | — | |
| Total investing cash used in continuing operations | $ | (3,467.3 | ) | | $ | (2,898.0 | ) | Total investing cash used in continuing operations | $ | (44.2) | | | $ | (24.0) | |
| | | | | | | | |
| Net proceeds from (repayments of) commercial paper borrowings | $ | 695.5 |
| | $ | (64.3 | ) | Net proceeds from (repayments of) commercial paper borrowings | $ | (382.8) | | | $ | 443.8 | |
| Proceeds from borrowings (maturities longer than 90 days), net of issuance costs of $24.3 million for the nine months ended September 27, 2019 | 2,413.2 |
| | 1,750.0 |
| |
| Proceeds from borrowings (maturities longer than 90 days), net of issuance costs of $1 million and $24 million in 2020 and 2019, respectively | | Proceeds from borrowings (maturities longer than 90 days), net of issuance costs of $1 million and $24 million in 2020 and 2019, respectively | 373.8 | | | 2,417.8 | |
| Repayment of borrowings (maturities greater than 90 days) | (455.3 | ) | | (725.0 | ) | Repayment of borrowings (maturities greater than 90 days) | (250.0) | | | (402.9) | |
| Proceeds from issuance of mandatory convertible preferred stock net of $43.0 million of issuance costs | — |
| | 1,337.4 |
| |
| | Payment of common stock cash dividend to shareholders | (70.3 | ) | | (73.2 | ) | Payment of common stock cash dividend to shareholders | (23.5) | | | (23.4) | |
| Payment of mandatory convertible preferred stock cash dividend to shareholders | (34.5 | ) | | (17.6 | ) | Payment of mandatory convertible preferred stock cash dividend to shareholders | — | | | (17.3) | |
| All other financing activities | 16.4 |
| | 27.2 |
| All other financing activities | (0.7) | | | (6.8) | |
| Total financing cash provided by continuing operations | $ | 2,565.0 |
| | $ | 2,234.5 |
| |
| Total financing cash (used in) provided by continuing operations | | Total financing cash (used in) provided by continuing operations | $ | (283.2) | | | $ | 2,411.2 | |
Operating Activities
Cash flows from operating activities can fluctuate significantly from period-to-period as working capital needs and the timing of payments for income taxes, various employee liabilities, restructuring activities and other items impact reported cash flows.
Cash flows from operating activities were approximately $800$191 million during the first ninethree months of 2019,2020, an increase of $22$30 million, as compared to the comparable period of 2018.2019. The year-over-year change in operating cash flows was primarily attributable to the following factors:
2019•2020 operating cash flows were impacted by lower net earnings for the first ninethree months of 20192020 as compared to the comparable period in 2018.2019. Net earnings for the ninethree months ended SeptemberMarch 27, 20192020 were impacted by a year-over-year decrease in operating profits of $175$98 million and an increase in net interest expense of $46$18 million associated with our financing activities related to recent acquisitions that were partially offset by the non-cash $41 million gain on the combination of our Tektronix Video Business with Telestream, LLC.acquisitions. The year-over-year decrease in operating profit was impacted by the non-cash goodwill impairment charge of $85.3 million, and also impacted by costs associated with both the plannedproposed Vontier separation of Fortive into two independent, publicly traded companies and the transaction and integration costs associated with the ASP acquisition, and a net year-over-year increase in depreciation and amortization expenses of $137$36 million largely attributable to recently acquired businesses. Depreciation and amortization and goodwill impairment charges are noncash expenses that decrease earnings without a corresponding impact to operating cash flows.
•The aggregate of accounts receivable, inventories, and trade accounts payable used $72$1 million of cash during the first ninethree months of 20192020 as compared to using $118$24 million in the comparable period of 2018.2019. The amount of cash flow generated from or used by the aggregate of accounts receivable, inventories, and trade accounts payable depends upon how effectively we manage the cash conversion cycle, which effectively represents the number of days that elapse from the day we pay for the purchase of raw materials and components to the collection of cash from our customers, and can be significantly impacted by the timing of collections and payments in a period. The use of cash during the first nine months of 2019 was largely due to our working capital management, partially offset by the acquisition of ASP, as we did not acquire accounts receivable and accounts payable from Johnson & Johnson. We expect ASP to continue to invest in working capital throughout 2019.
•The aggregate of prepaid expenses and other assets and accrued expenses and other liabilities provided $12used $69 million of cash during the first ninethree months of 20192020 as compared to providing $8using $74 million of cash in the comparable period
of 2018.2019. The year over year change was largely driven by the timing of tax payments and various employee benefit accruals.
Investing Activities
Cash flows relating to investing activities consist primarily of cash used for acquisitions and capital expenditures. Net cash used in investing activities increased $569$20 million during the ninethree months ended SeptemberMarch 27, 20192020 as compared to the comparable period of 2018,2019, due primarily to business acquisitions completedan increase in 2019.capital expenditures and cash paid for investments.
Capital expenditures are made primarily for increasing capacity, replacing equipment, supporting product development initiatives, improving information technology systems, and purchasing equipment that is used in revenue arrangements with customers. For the full year 2019,ended December 31, 2020, we expect capital spending to be between approximately $125$80 million and $135
$90 million, which includes approximately $20 million of one-time capital expenditures related to the integration of the ASP acquisition. Actual expenditures will ultimately depend on business conditions.
Financing Activities and Indebtedness
Cash flows from financing activities consist primarily of cash flows associated with the issuance of equity, the issuance and repayments of debt and commercial paper, and payments of quarterly cash dividends to shareholders. Financing activities generatedused cash of $2.6 billion$283 million during the ninethree months ended SeptemberMarch 27, 2019, of which $1.4 billion was due to the issuance of2020, reflecting borrowings from our 0.875% senior convertible notes and $1.0 billion was related to the issuance of our 364-day delayed-draw term loan facility due in 2020 (“2020 Delayed-Draw2021 Term Loan”),Loan, which was partiallymore than offset by the repaymentrepayments of $400commercial paper of $383 million and $250 million of our 2019 delayed draw term loan and $55 million of our 1.80% senior unsecured notes.2020 Term Loan. In the comparable 20182019 period, financing activities generated cash of approximately $2.2 billion. In$2.4 billion, largely due to the nineissuance of our Convertible Senior Notes and borrowings under our2020 Delayed-Draw Term Loan. During the three months ended SeptemberMarch 27, 2019,2020, we made net borrowings of commercial paper under the U.S. and Euro commercial paper programs (“Commercial Paper Programs”) of $696 million and paid $105$24 million of cash dividends to shareholders of our common stock and MCPS.stock.
Convertible Senior Notes2021 Term Loan
On February 22, 2019,March 23, 2020, we issued $1.4 billionentered into a credit facility agreement that provides for the 2021 Term Loan in an aggregate principal amount of our 0.875% Convertible Senior Notes due 2022 (the “Convertible Notes”), including $187.5$425 million. On the same day, we drew down $375 million available under the 2021 Term Loan. We subsequently increased the size of this facility by $325 million on April 3, 2020, and drew the additional $375 million in aggregate principalApril 2020, resulting in an outstanding amount resultingof $750 million. We paid approximately $2.0 million in debt issuance costs associated with the 2021 Term Loan. The borrowings from an exercise in fullthis credit facility were used for settlement of an over-allotment option, to fund, in part, the ASP acquisition.outstanding commercial paper. The Convertible Notes bear2021 Term Loan bears interest at a variable rate equal to LIBOR plus a ratings-based margin currently at 155 basis points. As of March 27, 2020, borrowings under this facility bore an interest rate of 0.875%2.51% per year, payable semiannually in arrearsannum. The 2021 Term Loan is due on February 15March 19, 2021 and August 15 of each year, beginning on August 15, 2019.prepayable at our option. We are not permitted to re-borrow once the term loan is repaid. The Convertible Notes mature on February 15, 2022, unless earlier repurchased or converted in accordance with their terms prior to such date.
The Convertible Notes are convertible into shares of our common stock at an initial conversion rate of 9.3777 shares per $1,000 principal amount of Convertible Notes (which is equivalent to an initial conversion price of $106.64 per share), subject to adjustment upon the occurrence of certain events. The initial conversion price represents a premium of approximately 32.5%and conditions, including covenants, applicable to the $80.48 per share closing price of2021 Term Loan, are substantially similar to those applicable to our common stock on February 19, 2019. Upon conversion of the Convertible Notes, holders will receive cash, shares of our common stock, or a combination thereof, at our election. Our current intention is to settle such conversions through cash up to the principal amount of the converted Convertible Notes and, if applicable, through shares of our common stock for conversion value, if any, in excess of the principal amount of the converted Convertible Notes.Revolving Credit Facility.
2020 Delayed-Draw Term Loan Due 2020
On March 1, 2019, we entered into thea credit facility agreement that provides for a 364-day delayed-draw term loan facilitythe 2020 Delayed-Draw Term Loan in an aggregate principal amount of $1.0 billion. On March 20, 2019, we drew down the full $1.0 billion available under the 2020 Delayed-Draw Term Loan in order to fund, in part, the ASP Acquisition.acquisition. The 2020 Delayed-Draw Term Loan bears interest at a variable rate equal to the London inter-bank offered rateLIBOR plus a ratings based margin, currentlyprior to the Amendments, at 75 basis points and, following the Amendments, at 155 basis points. As of SeptemberMarch 27, 2019,2020 and prior to the Amendments noted above, borrowings under this facility bore an interest rate of 2.78%1.52% per annum. The 2020 Delayed-Draw Term Loan is prepayable at our option, and we are not permitted to re-borrow once the term loan is repaid. The terms and conditions, including covenants, applicable to the 2020 Delayed-Draw Term Loan are substantially similar to those applicable to theour Revolving Credit Facility.
On February 25, 2020, we extended the maturity of the 2020 Delayed-Draw Term Loan to August 28, 2020. Additionally, on April 24, 2020 we further extended the maturity to May 30, 2021 and therefore, have classified the outstanding amount as long-term debt in our Consolidated Condensed Balance Sheet as of March 27, 2020. We generally expectwere in compliance with our covenants both before and after the extension. The 2020 Delayed-Draw Term Loan is not callable and remains prepayable at our option.
2020 Term Loan
On October 25, 2019, we entered into a credit facility agreement that provides for the 2020 Term Loan in an aggregate principal amount of $300 million. On October 25, 2019, we drew down the full $300 million available under the 2020 Term Loan in order to fund, in part, the Censis acquisition. We subsequently increased the size of this facility by $200 million on November 8, 2019 and drew the additional amount on the same day resulting in an outstanding amount of $500 million. The 2020 Term Loan bears interest at a variable rate equal to LIBOR plus a ratings-based margin currently at 75 basis points. As of March 27, 2020, borrowings under this facility bore an interest rate of 1.55% per annum. The 2020 Term Loan is due on October 23, 2020 and prepayable at our option. We are not permitted to re-borrow once the term loan is repaid. The terms and conditions, including covenants, applicable to the 2020 Term Loan are substantially similar to those applicable to our Revolving Credit Facility.
On February 26, 2020, we prepaid $250 million of the 2020 Term Loan. The prepayment fees associated with this payment were immaterial.
When market conditions allow, we also have the ability to satisfy any short-term liquidity needs that are not met through operating cash flows and available cash primarily through issuances of commercial paper under the Commercial Paper Programs. Credit support for the Commercial Paper Programs is provided by our five-year, $2.0 billion senior unsecured revolving credit facility that expires on November 30, 2023 (“Revolving Credit Facility”). We classified our borrowings outstanding under the Commercial Paper Programs as long-term debt in the accompanying Consolidated Condensed Balance Sheet as of SeptemberMarch 27, 2019,2020, as we have 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. As commercial paper obligations mature, we may issue additional short-term commercial paper obligations or utilize term loans to refinance all or part of these borrowings.
We had $2.0 billion available under the Revolving Credit Facility as of SeptemberMarch 27, 2019.2020. Of this amount, approximately $1.3 billion$764 million was being used to backstop outstanding U.S. and Euro commercial paper balances. Accordingly, we had the ability to incur an additional $656 million$1.2 billion of indebtedness under the Revolving Credit Facility as of SeptemberMarch 27, 2019.2020. Refer to Note 65 of the consolidated condensed financial statements for information regarding our financing activities and indebtedness.
The availability of the Revolving Credit Facility as a standby liquidity facility to repay maturing commercial paper is an important factor in maintaining the existing credit ratings of the Commercial Paper Programs. We expect to limit any borrowings under the Revolving Credit Facility to amounts that would leave sufficient credit available under the facility to allow us to borrow, if needed, to repay all of the outstanding commercial paper as it matures.
As of SeptemberMarch 27, 2019,2020, commercial paper outstanding under the U.S. dollar-denominated commercial paper program had an annual effective rate of 2.34%2.67% and a weighted average remaining maturity of approximately 1537 days. As of SeptemberMarch 27, 2019,2020, commercial paper outstanding under the Euro-denominated commercial paper program had an annual effective rate of (0.10)(0.11)% and a weighted average remaining maturity of approximately 3934 days.
Pursuant to our term loan agreement, $1.0 billion$250 million of our long-term debt2020 Term Loan is scheduled for maturity and repayment within 12 months. Accordingly, we have classifiedrecorded this as currentin the Current portion of long-term debt online item in the accompanying Consolidated Condensed Balance Sheet.
Dividends
Aggregate cashCash payments for preferred and common stock dividends paid to shareholders during the ninethree months ended SeptemberMarch 27, 20192020 were $10524 million and wereare recorded as dividends to common shareholders in the Consolidated Condensed Statement of Changes in Equity and the Consolidated Condensed Statement of Cash Flows. On January 28, 2020, dividends of $17.3 million were declared on our preferred shares and paid on April 1, 2020. As such, our preferred dividends were accrued and recorded as Mandatory convertible preferred stock cumulative dividends in the Consolidated Condensed Statement of Changes in Equity and in Accrued expenses and other current liabilities in the Consolidated Condensed Balance Sheet as of March 27, 2020.
Cash and Cash Requirements
As of SeptemberMarch 27, 2019,2020, we held approximately $1.1$1.0 billion of cash and cash equivalents that were invested in highly liquid investment-grade instruments with a maturity of 90 days or less with an annual effective interest rate that approximated 0.6%1.0% during the three months ended SeptemberMarch 27, 2019.2020. Approximately 90% of the $1.1$1.0 billion of cash and cash equivalents we held as of SeptemberMarch 27, 20192020 was held outside of the United States.
We have cash requirements to support working capital needs, capital expenditures and acquisitions, pay interest and service debt, pay taxes, and any related interest or penalties, fund our restructuring activities and pension plans as required, pay dividends to shareholders, and support other business needs or objectives. With respect to our cash requirements, we generally intend to use available cash and internally generated funds to meet these cash requirements, but in the event that additional liquidity is required, particularly in connection with acquisitions, we may also borrow under our commercial paper programs or credit facilities, enter into new credit facilities and either borrow directly thereunder or use such credit facilities to backstop additional borrowing capacity under our commercial paper programs, and/or access the capital markets. We also may, from time to time, access the capital markets, including to take advantage of favorable interest rate environments or other market conditions.
Additionally, we anticipate the provisions of the CARES Act will provide us short-term liquidity benefits, specifically the deferral of employer payroll tax payments until December 31, 2021 and December 31, 2022 of approximately $40 million to $50 million, in addition to other potential income tax impacts that we are continuing to evaluate.
Given the impact of the COVID-19 pandemic and current market conditions in the U.S., we have updated our assertion for previously unremitted earnings from 2019 and prior periods due to new facts and circumstances that we did not face in prior periods. The TCJA eliminated the U.S. tax cost for qualified repatriation beginning in 2018. Foreign2018 but foreign cumulative earnings
remain subject to foreign remittance taxes. During the three months ended March 27, 2020, we have provided foreign remittance taxes of $13 million on the planned repatriation of $300 million of previously unremitted earnings from 2019 and prior periods.
We have made an election regarding the amount of current earnings that we do not intend to repatriate due to local working capital needs, local law restrictions, high foreign remittance costs, previous investments in physical assets and acquisitions, or future growth needs. For most of our foreign operations, we make an assertion regarding the amount of earnings in excess of intended repatriation that are expected to be held for indefinite reinvestment. No provisions for foreign remittance taxes have been made with respect to earnings that are planned to be reinvested indefinitely. The amount of foreign remittance taxes that may be applicable to suchour permanently reinvested earnings is not readily determinable given local law restrictions that may apply to a portion of such earnings, unknown changes in foreign tax law that may occur during the applicable restriction periods caused by applicable local corporate law for cash repatriation, and the various tax planning alternatives we could employ if we repatriated these earnings.
As of SeptemberMarch 27, 2019,2020, we expect to have sufficient liquidity to satisfy our cash needs for the foreseeable future, including our cash needs in the United States.
CRITICAL ACCOUNTING ESTIMATES
ThereOther than noted below, there were no material changes during the three and nine month periods ended SeptemberMarch 27, 20192020 to the items we disclosed as our critical accounting estimates in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 20182019 Annual Report on Form 10-K.
On January 1, 2020, we adopted ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). Concurrent with our adoption of ASU 2016-13, we updated our methodology for estimating the allowance for credit losses as provided below:
Trade Accounts, Financing, and Unbilled Receivables: We maintain allowances for credit losses to reflect expected credit losses inherent in our portfolio of receivables. Determination of the allowances requires us to exercise judgment about the timing, frequency, and severity of credit losses that could materially affect the allowances and, therefore, net earnings. The allowances for credit losses represent management’s best estimate of the credit losses expected from our trade accounts, financing, and unbilled receivable portfolios over the remaining contractual life. We pool assets with similar risk characteristics for this measurement based on attributes that may include asset type, duration, and/or credit risk rating. The future expected losses of each pool are estimated based on numerous quantitative and qualitative factors reflecting management’s estimate of collectibility over the remaining contractual life of the pooled assets, including:
•duration;
•historical, current, and forecasted future loss experience by asset type;
•historical, current, and forecasted delinquency and write-off trends;
•historical, current, and forecasted economic conditions; and
•historical, current, and forecasted credit risk.
We regularly perform detailed reviews of our trade accounts, financing, and unbilled receivable portfolios to determine if changes in the aforementioned qualitative and quantitative factors have impacted the adequacy of the allowances.
Recent deterioration in overall global economic conditions and worldwide capital markets as a result of the COVID-19 pandemic may negatively impact our customers’ ability to pay and, as a result, may increase the difficulty in collecting trade accounts, financing, and unbilled receivables. We did not realize notable increases in loss rates and delinquencies during the first quarter ended March 27, 2020, and given the nature of our portfolio of receivables, our historical experience during times of challenging economic conditions, and our forecasted future impact of COVID-19 on our customer’s ability to pay, we did not record material provisions for credit losses as a result of the COVID-19 pandemic during the first quarter ended March 27, 2020. If the financial condition of our customers were to deteriorate beyond our current estimates, resulting in an impairment of their ability to make payments, we would be required to write-off additional receivable balances, which would adversely impact our net earnings and financial condition.
Acquired Intangibles: Our business acquisitions typically result in the recognition of goodwill, in-process R&D and other intangible assets, which affect the amount of future period amortization expense and possible impairment charges that we may incur. We review identified intangible assets for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable.
In connection with management’s updated forecast for the Telematics business that indicated a decline in sales and operating profit to levels lower than previously forecasted, due in large part to the impacts of the COVID-19 pandemic, management
determined the change in forecast indicated the related carrying value of goodwill may not be recoverable and performed a quantitative impairment assessment over the Telematics reporting unit on March 27, 2020. This analysis resulted in an impairment of $85.3 million. Refer to Note 3 for information regarding management’s assumptions used in determining the fair value of the reporting unit.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our concentrations of credit risk arising from receivables from customers are limited due to the diversity of our customers. Our businesses perform credit evaluations of their customers’ financial conditions as appropriate and also obtain collateral or other security when appropriate. Notwithstanding these efforts, the current distress in the global economy resulting from COVID-19 may increase the difficulty in collecting receivables.
Additional Quantitative and qualitative disclosures about market risk appear in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Financial Instruments and Risk Management,” in our 20182019 Annual Report on Form 10-K. There were no material changes during the three months ended SeptemberMarch 27, 20192020 to the information reported in our 20182019 Annual Report on Form 10-K.10-K relating to our evaluation of interest rate, foreign currency exchange, and commodity price risk.
ITEM 4. CONTROLS AND PROCEDURES
Our management, with the participation of the President and Chief Executive Officer, and Senior Vice President and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, the President and Chief Executive Officer, and Senior Vice President and Chief Financial Officer, have concluded that, as of the end of such period, these disclosure controls and procedures were effective.
There have been no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the most recent completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1A. RISK FACTORS
Information regarding risk factors appears in “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Information Relating to Forward-Looking Statements,” in Part I - Item 2 of this Form 10-Q and in the “Risk Factors” section of our 20182019 Annual Report on Form 10-K and such information should be read in conjunction with the new risk factor relating to COVID-19 that is presented below. The developments described in this additional risk factor have heightened, or in some cases manifested, certain of the risks disclosed in the other risk factor identified in the “Risk Factors” section of our Quarterly2019 Annual Report on Form 10-Q for10-K, and such risk factors are further qualified by the quarter ended June 28, 2019 (the “Prior 10-Q”). Other than as provided below, thereinformation relating to COVID-19 that is described in this Report. There were no other material changes during the quarter ended SeptemberMarch 27, 20192020 to the risk factors reported in the “Risk Factors” section of our 20182019 Annual Report on Form 10-K10-K.
The effect of the COVID-19 pandemic on our global operations and the Prior 10-Q.operations of our customers, suppliers, and vendors is having a material, adverse impact on our financial condition and results of operations.
Our plansglobal operations expose us broadly to separate into two independent, publicly traded companies may not be completedthe COVID-19 pandemic, which has spread worldwide. In particular, continued efforts to mitigate the spread of the virus have caused us, our suppliers, and customers to reduce commercial activities and utilization of facilities and manufacturing sites, resulting in reduction in demand for our products and services, our ability to source required materials and components, and our ability to manufacture, sell, and service our products. In addition, implementation of measures to help control the spread of the virus, including internal work-from-home policies to protect the health of our employees and community, “shelter in place” and “stay at home” orders, travel restrictions, and school closures have negatively impacted our collaboration efforts with our global colleagues, customers, vendors, and service providers, and our ability to retain our workforce without implementing targeted furloughs. Furthermore, the volatility and disruption in the capital markets from the COVID-19 pandemic and its impact on the currently contemplated timelineglobal economy has adversely effected the cost of, and access to capital, including financing from commercial paper markets, and the timing of the proposed separation of Vontier. While we have implemented global and local response teams, implemented incremental cost reduction efforts, and implemented
business continuity efforts internally and with our customers, suppliers, and vendors, the duration and extent of the operational and financial impact of the COVID-19 pandemic remains highly uncertain.
The degree to which COVID-19 impacts us going forward will depend on future developments that are highly uncertain and therefore cannot be predicted, including, but not limited to, the duration and spread of the pandemic, its severity, or at allthe actions taken to contain the spread and impact of COVID-19, and how quickly and to what extent normal economic, market, and operating conditions resume. Even after the COVID-19 pandemic has subsided as a public health matter, we may not achieve the intended benefits.
On September 4, 2019, we announcedexperience material adverse impacts to our intention to separate into two independent, publicly traded companies. The separation, if effectuated, will create, (i) an industrial technology company, retaining the Fortive name, withbusiness as a differentiated portfolioresult of growth-oriented businesses and (ii) a global industrial company (“NewCo”) focusedits adverse impact on the growth opportunities in the rapidly evolving transportationglobal economy and mobility markets.consumer confidence.
Our ability to effectuate the separation, the structure of the separation and the anticipated benefits of the separation may be adversely and materially impacted by adverse market conditions, possible delays in obtaining various tax rulings, regulatory approvals or clearances, uncertainty of the financial markets, our business performance and unanticipated delays in establishing infrastructure or processes for NewCo. In addition, the cost and resources required to effectuate the separation may be significantly higher than what we currently anticipate.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the fiscal quarter ended SeptemberMarch 27, 2019,2020, we issued an aggregate of 39,611 shares of the Company’s common stock to certain employees of a recently acquired operating company in a private placement pursuant to Rule 506 of Regulation D promulgated under the Securities Act of 1933, as amended, for total consideration of $2.9 million.
During the fiscal quarter ended March 27, 2020, we acquired the following shares of the Company’s common stock in settlement of the withholding obligations pertaining to vesting of our Performance Stock Awards and Performance-Based Restricted Stock Awards:
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| Period | Total number of shares (or units) purchased (1) | | Average price paid per share (or unit) (1) | | Total number
of shares (or units)
purchased
as part of publicly
announced plans or
programs | | Maximum number
(or approximate dollar
value) of shares
(or units) that may yet be
purchased under the
plans or programs |
| January 1 - January 31 | — | | | $ | — | | | N/A | | N/A |
| February 1 - February 29 | 34,242 | | | 75.07 | | | N/A | | N/A |
| March 1 - March 27 | — | | | — | | | N/A | | N/A |
| Total | 34,242 | | | $ | 75.07 | | | N/A | | N/A |
| | | | | | | |
(1) In connection with the vesting of the Company’s Performance Stock Awards (“PSAs”) and Performance-Based Restricted Stock Awards (“RSAs”) previously granted to the respective executive officers of the Company and in accordance with the terms of the Company’s 2016 Stock Incentive Plan, the Company withheld 34,242 shares of the Company’s common stock based on the corresponding closing price to offset tax withholding obligations that arose upon vesting of the PSAs and RSAs as applicable. | | | | | | | |
|
| | | | | | | | | | |
| Period | Total number of shares (or units) purchased (1) | | Average price paid per share (or unit) (1) | | Total number of shares (or units) purchased as part of publicly announced plans or programs | | Maximum number (or approximate dollar value) of shares (or units) that may yet be purchased under the plans or programs |
| June 29 - July 31 | 5,081 |
| | $ | 76.05 |
| | N/A | | N/A |
| August 1 - August 31 | — |
| | — |
| | N/A | | N/A |
| September 1 - September 27 | — |
| | — |
| | N/A | | N/A |
| Total | 5,081 |
| | $ | 76.05 |
| | N/A | | N/A |
| | | | | | | | |
(1) In connection with the vesting on July 31, 2019 of Performance Stock Awards (“PSAs”) of the Company granted to James A. Lico on July 4, 2016 and in accordance with the terms of the Company’s 2016 Stock Incentive Plan, the Company withheld 5,081 shares of the Company’s common stock based on the corresponding closing price to offset tax withholding obligations that arose upon vesting of the PSAs. |
ITEM 6. EXHIBITS
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Exhibit
Number | | Description |
Exhibit
Number
3.1 | | Description |
3.1 | | |
| | |
| 3.2 | | | |
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| 3.3 | | | |
| | |
31.110.1 | | | |
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| 10.2 | | | |
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| 31.1 | | | |
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| 31.2 | | | |
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| 32.1 | | | |
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| 32.2 | | | |
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| 101.INS | | XBRL Instance Document (1) - the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. |
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| 101.SCH | | Inline XBRL Taxonomy Extension Schema Document (1) |
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| 101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document (1) |
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| 101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document (1) |
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| 101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document (1) |
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| 101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document (1) |
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| 104 | | | The cover page from this Quarterly Report on Form 10-Q for the quarter ended SeptemberMarch 27, 2019,2020, formatted in Inline XBRL and contained in Exhibit 101 |
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(1) | Exhibit 101 to this report includes the following documents formatted in Inline XBRL (Extensible Business Reporting Language): (i) Consolidated Condensed Balance Sheets as of September 27, 2019 and December 31, 2018, (ii) Consolidated Condensed Statements of Earnings for the three and nine months ended September 27, 2019 and September 28, 2018, (iii) Consolidated Condensed Statements of Comprehensive Income for the three and nine months ended September 27, 2019 and September 28, 2018, (iv) Consolidated Condensed Statement of Changes in Equity for the three months ended September 27, 2019 and September 28, 2018, (v) Consolidated Condensed Statements of Cash Flows for the nine months ended September 27, 2019 and September 28, 2018, and (vi) Notes to Consolidated Condensed Financial Statements. |
(1) Exhibit 101 to this report includes the following documents formatted in Inline XBRL (Extensible Business Reporting Language): (i) Consolidated Condensed Balance Sheets as of March 27, 2020 and December 31, 2019, (ii) Consolidated Condensed Statements of Earnings for the three months ended March 27, 2020 and March 29, 2019, (iii) Consolidated Condensed Statements of Comprehensive Income for the three months ended March 27, 2020 and March 29, 2019, (iv) Consolidated Condensed Statement of Changes in Equity for the three months ended March 27, 2020 and March 29, 2019,
(v) Consolidated Condensed Statements of Cash Flows for the three months ended March 27, 2020 and March 29, 2019, and (vi) Notes to Consolidated Condensed Financial Statements.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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| FORTIVE CORPORATION: | |
| | |
| Date: April 30, 2020 | FORTIVE CORPORATION: |
| By: | | |
Date: October 24, 2019 | By: | /s/ Charles E. McLaughlin |
| | Charles E. McLaughlin |
| | Senior Vice President and Chief Financial Officer |
| | |
Date: October 24, 2019April 30, 2020 | By: | /s/ Emily A. WeaverChristopher M. Mulhall |
| | Emily A. WeaverChristopher M. Mulhall |
| | Chief Accounting Officer |
| | |