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2: EX-10.1 Material Contract HTML 87K
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6: EX-32.2 Certification -- §906 - SOA'02 HTML 21K
12: R1 Cover Page HTML 73K
13: R2 Consolidated Condensed Balance Sheets HTML 137K
14: R3 Consolidated Condensed Balance Sheets HTML 40K
(Parenthetical)
15: R4 Consolidated Condensed Statements of Earnings HTML 145K
16: R5 Consolidated Condensed Statements of Comprehensive HTML 47K
Income
17: R6 Consolidated Condensed Statements of Changes in HTML 120K
Equity
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Equity (Parenthetical)
19: R8 Consolidated Condensed Statements of Cash Flows HTML 97K
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23: R12 Goodwill HTML 35K
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27: R16 Income Taxes HTML 25K
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29: R18 Commitments and Contingencies HTML 28K
30: R19 Net Earnings Per Share HTML 62K
31: R20 Segment Information HTML 48K
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Comprehensive Income (Details)
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Rollforward (Details)
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Measured on Recurring Basis (Details)
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Fair Values of Financial Instruments (Details)
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Registrant’s telephone number, including area code: (i425) i446-5000
Securities registered pursuant to Section 12(b) of the Act:
Title
of each class
Trading symbol
Name of each exchange on which registered
iCommon stock, par value $0.01 per share
iFTV
iNew
York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. iYes☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). iYes☒ No ☐
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,”“accelerated filer,”“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
iLarge
accelerated filer
☒
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
i☐
Emerging growth company
i☐
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes i☐No ☒
The number of shares of common stock outstanding at April 25, 2022 was i358,447,899.
Property,
plant and equipment, net of accumulated depreciation of $i723.2 and $i679.0
at April 1, 2022 and December 31, 2021, respectively
i412.6
i395.5
Other
assets
i484.3
i512.9
Goodwill
i9,132.9
i9,152.0
Other
intangible assets, net
i3,788.9
i3,890.2
Total
assets
$
i16,266.4
$
i16,465.5
LIABILITIES
AND EQUITY
Current liabilities:
Current portion of long-term debt
i999.8
i2,151.7
Trade
accounts payable
i576.1
i557.9
Accrued
expenses and other current liabilities
i985.7
i1,005.3
Total
current liabilities
i2,561.6
i3,714.9
Other
long-term liabilities
i1,399.2
i1,426.3
Long-term
debt
i2,738.9
i1,807.3
Commitments
and Contingencies
i
i
Equity:
Preferred
stock: $ii0.01/ par value, ii15.0/
million shares authorized and iiiino///
shares issued or outstanding at April 1, 2022 and December 31, 2021
i—
i—
Common
stock: $ii0.01/ par value, ii2.0/
billion shares authorized; i360.9 and i360.4 million issued; i358.4
and i359.1 million outstanding at April 1, 2022 and December 31, 2021, respectively
i3.6
i3.6
Additional
paid-in capital
i3,619.1
i3,670.0
Treasury
shares, at cost:
(i63.8)
i—
Retained
earnings
i6,226.4
i6,023.6
Accumulated
other comprehensive loss
(i223.9)
(i185.0)
Total
Fortive stockholders’ equity
i9,561.4
i9,512.2
Noncontrolling
interests
i5.3
i4.8
Total stockholders’ equity
i9,566.7
i9,517.0
Total
liabilities and equity
$
i16,266.4
$
i16,465.5
See
the accompanying Notes to Consolidated Condensed Financial Statements.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
i
NOTE
1. BUSINESS OVERVIEW
Fortive Corporation (“Fortive,”“the Company,”“we,”“us,” or “our”) is a provider of essential technologies for connected workflow solutions across a range of attractive end-markets. Our strategic segments - Intelligent Operating Solutions, Precision Technologies, and Advanced Healthcare Solutions - include well-known brands with leading positions in their markets. Our businesses design, develop, manufacture, and service professional and engineered products, software, and services, building upon leading brand names, innovative technologies, and significant market positions. Our research and development, manufacturing, sales, distribution, service, and administrative facilities are located in more than i50
countries around the world.
We prepared the unaudited consolidated condensed financial statements included herein in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) applicable for interim periods. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted pursuant to such rules and regulations; however, we believe the disclosures are adequate to make the information presented not misleading. The 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, 2021 and the footnotes (“Notes”) thereto included within
our 2021 Annual Report on Form 10-K.
In our opinion, the accompanying financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to fairly present our financial position as of April 1, 2022 and December 31, 2021, our results of operations and cash flows for the three month periods ended April 1, 2022 and April 2, 2021. Reclassification of certain prior year amounts have been made to conform to current year presentation.
Vontier Separation and Discontinued Operations
On October 9, 2020, we completed the separation of Vontier Corporation (“Vontier”),
the entity we created to hold our former Industrial Technologies segment (the “Separation”). The accounting requirements for reporting the Vontier business as a discontinued operation were met when the Separation was completed. Accordingly, the consolidated condensed financial statements reflect the results of separation activities associated with the prior Vontier business as a discontinued operation, which was immaterial for all periods presented.
On January 19, 2021, we completed an exchange (the “Debt-for-Equity Exchange”) of i33.5 million
shares of common stock of Vontier, representing all of the Retained Vontier Shares, for $i1.1 billion in aggregate principal amount of indebtedness of the Company held by Goldman Sachs & Co. Interest expense and extinguishment costs related to the Debt-for-Equity Exchange during the first quarter of 2021 are included in continuing operations.
Segment Presentation
We operate and report our results in
ithree segments, Intelligent Operating Solutions, Precision Technologies, and Advanced Healthcare Solutions, each of which is further described below.
Our Intelligent Operating Solutions segment provides leading workflow solutions to accelerate industrial and facility reliability and performance, as well as compliance and safety across a range of vertical end markets, including manufacturing, process industries, healthcare, utilities and power, communications and electronics, among others. We provide differentiated
instrumentation and sensors, software and services to address our customers’ toughest workflow challenges.
Our Precision Technologies segment supplies instrumentation and sensing technologies to a broad set of vertical end markets, enabling our customers to accelerate the development, manufacture and launch of innovative products and solutions. We provide our customers with electrical test and measurement instruments and services, energetic material devices, and a broad portfolio of sensor and control system solutions.
Our Advanced Healthcare Solutions segment supplies critical workflow solutions to hospitals and other healthcare customers, enabling safer, more efficient, and higher quality healthcare. We provide hardware, consumables, software and services that optimize our customers’ most critical workflows, including instrument sterilization and device
reprocessing, instrument tracking, cell therapy equipment design and manufacturing, biomedical test tools, radiation safety monitoring, end-to-end clinical productivity solutions and asset management.
Foreign currency translation adjustments are generally not adjusted for income taxes as they relate to indefinite investments in non-U.S. subsidiaries.
iThe changes in Accumulated Other Comprehensive Income (“AOCI”) by component are summarized below ($ in millions):
(a)
Includes balances relating to defined benefit plans, supplemental executive retirement plans, and other postretirement employee benefit plans.
(b) This component of AOCI is included in the computation of net periodic pension cost (refer to Note 12 in our most recently filed Form 10-K for additional details).
/
i
Allowances
for Doubtful Accounts
All trade accounts and unbilled receivables are reported in the Consolidated Condensed Balance Sheet adjusted for any write-offs and net of allowances for credit losses. The allowances for credit losses represent management’s best estimate of the credit losses expected from our unbilled and trade accounts receivable portfolios over the life of the underlying assets. Additions to the allowances are charged to current period earnings, amounts determined to be uncollectible are charged directly against the allowances, while amounts recovered on previously written-off accounts increase the allowances.
The
following is a rollforward of the aggregated allowance for credit losses related to our trade accounts receivables as of April 1, 2022 ($ in millions):
The
allowance for unbilled receivables was immaterial for all periods presented.
i
Recently Issued Accounting Standard
In August 2020, the Financial Accounting Standards Board issued Accounting Standards Update No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible
Instruments and Contracts in an Entity’s Own Equity, which amends the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity. On January 1, 2022, we adopted ASU 2020-06 using a modified retrospective approach and recognized in our balance sheet, as of January 1, 2022, a net of tax adjustment to reduce Additional Paid-in Capital by $i65.7 million
and increase debt by $i3.7 million, with a corresponding net of tax adjustment to beginning retained earnings of $i62.8 million.
These adjustments are related to our i0.875% Convertible Senior Notes (the “Convertible Notes”), which were the only outstanding instruments impacted by the new standard at the time of adoption.
Results for reporting periods beginning January 1, 2022 reflect the adoption of ASU 2020-06, while prior period amounts were not adjusted and continue to be reported in accordance with our historical accounting practices.
Prior
to our adoption of ASU 2020-06 on January 1, 2022, we recognized the fair value of the nonconvertible debt component of our Convertible Notes subject to the cash conversion guidance as debt and attributed the residual value to the conversion feature which was recognized in APIC. Subsequent to the issuance of our Convertible Notes in February 2019, we accreted the debt discount as non-cash interest expense in our Statements of Earnings. Further, we applied the treasury stock method to our Convertible Notes when calculating earnings per share (“EPS”) in all periods prior to our adoption of ASU 2020-06. After our adoption of ASU 2020-06, we account for convertible debt instruments wholly as debt, unless a convertible instrument contains features that require bifurcation as a derivative under ASC 815 or a convertible debt instrument is issued at a substantial premium.
On
January 1, 2022, we reclassified the unamortized cost basis of our outstanding Convertible Notes wholly as debt, which subsequently matured and was settled on February 15, 2022. We applied the if-converted method to all convertible instruments when calculating EPS for the three months ended April 1, 2022. As of April 1, 2022, we had no convertible instruments outstanding subject to the guidance in ASU 2020-06.
/i
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 of businesses and resulted in the recognition of goodwill in our financial statements. This goodwill arises because the purchase price for each acquired business reflects a number of factors, including the complementary fit, acceleration of our strategy and synergies the business brings with respect to our existing operations, the future earnings and cash flow potential of the business, the potential to add other strategically complementary acquisitions to the acquired business, the scarce or unique nature of the business in its markets, competition to acquire the business, the valuation of similar businesses in the marketplace (as reflected
in a multiple of revenues, earnings, or cash flows), and the avoidance of the time and costs which would be required (and the associated risks that would be encountered) to enhance our existing offerings to key target markets and develop new and profitable businesses.
During the three month period ended April 1, 2022, adjustments were made to the preliminary purchase price allocation of prior year acquisitions as described below.
On December 27, 2021,
we acquired Provation Software, Inc. (“Provation”), a leading provider of clinical workflow software solutions used in hospitals and ambulatory surgery centers. The acquisition of Provation extends our digital offering and software capabilities in the healthcare space. The total consideration paid was approximately $i1.4 billion, net of acquired cash and was primarily financed with proceeds from our financing activities and available cash. We preliminarily recorded $i978
million of goodwill related to the acquisition, which is not tax deductible. During the three month period ended April 1, 2022, provisional goodwill increased by $i8.1 million for measurement period adjustments. Provation had revenue in 2020 of approximately $i90
million and is an operating company within our Advanced Healthcare Solutions segment.
ServiceChannel
On August 24, 2021, we acquired ServiceChannel Holdings, Inc. (“ServiceChannel”), a privately held, global provider of Software as a Service (“SaaS”) based multi-site facilities maintenance service solutions with an integrated service-provider network. The acquisition of ServiceChannel broadens our offering of software-enabled solutions for the facility and asset lifecycle workflow. The total consideration paid was approximately $i1.2
billion, net of acquired cash, and included approximately $i28 million of deferred compensation consideration that is being recognized ratably over a twelve month service period. The ServiceChannel acquisition was primarily financed with available cash and proceeds from our financing activities. We preliminarily recorded approximately $i873
million of goodwill related to the acquisition, which is not tax deductible. ServiceChannel had revenue in 2020 of approximately $i70 million and is an operating company within our Intelligent Operating Solutions segment.
Revenue and operating loss attributable to the Provation and ServiceChannel acquisitions were $i67.3
million and $i23.4 million for the three months ended April 1, 2022. The operating loss includes $i19.5
million of intangible asset amortization and $i20.4 million of transaction and integration costs, primary comprised of compensation cost for employee retention and amounts paid to third party advisors, which are recorded in Selling, general and administration expenses.
iThe
following table summarizes the preliminary estimated fair value of the assets acquired and liabilities assumed from ServiceChannel and Provation as of April 1, 2022 ($ in millions):
Provation
ServiceChannel
Total
Accounts
receivable
$
i41.6
$
i10.1
$
i51.7
Goodwill
i977.6
i872.9
i1,850.5
Other
intangible assets, primarily customer relationships, technology, database, and trade names
i586.5
i342.9
i929.4
Deferred
revenue, current
(i50.2)
(i1.7)
(i51.9)
Deferred
tax liabilities
(i119.4)
(i50.8)
(i170.2)
Other
assets and liabilities, net
(i30.5)
(i7.5)
(i38.0)
Net
cash consideration
$
i1,405.6
$
i1,165.9
$
i2,571.5
/
i
NOTE
3. GOODWILL
i
The following is a rollforward of our carrying value of goodwill by segment ($ in millions):
Accounting standards define fair value based on an exit price model, establish a framework for measuring fair value where our assets and liabilities are required to be carried at fair value, and provide for certain disclosures related to the valuation methods used within a valuation hierarchy as established within the accounting standards. This hierarchy prioritizes the inputs into three broad levels as follows:
•Level 1 inputs are quoted prices (unadjusted) for identical assets
or liabilities in active markets.
•Level 2 inputs are quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets in markets that are not active, or other observable characteristics for the asset or liability, including interest rates, yield curves and credit risks, or inputs that are derived principally from, or corroborated by, observable market data through correlation.
•Level 3 inputs are unobservable inputs based on our assumptions. The classification of a financial asset or liability within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement in its entirety.
i
Below
is a summary of financial liabilities that are measured at fair value on a recurring basis ($ in millions):
Certain
management employees participate in our nonqualified deferred compensation programs that permit such employees to defer a portion of their compensation, on a pretax basis, until after their termination of employment. All amounts deferred under such plans are unfunded, unsecured obligations and are presented as a component of our compensation and benefits accrual included in Other long-term liabilities in the Consolidated Condensed Balance Sheets. Participants may choose among alternative earnings rates for the amounts they defer, which are primarily based on investment options within our defined contribution plans for the benefit of U.S. employees (except that the earnings rates for amounts contributed unilaterally by the Company are entirely based on changes in the value of Fortive common stock). Changes in the deferred compensation liability under these programs are recognized based
on changes in the fair value of the participants’ accounts, which are based on the applicable earnings rates.
Nonrecurring Fair Value Measurements
Certain non-financial assets, primarily property, plant, and equipment, goodwill, and intangible assets, are not required to be measured at fair value on a recurring basis and are reported at their carrying value. However, these assets are required to be assessed for impairment whenever events or circumstances indicate that their carrying value may not be fully recoverable, and at least annually for goodwill and indefinite-lived intangible assets.
We evaluated events or circumstances that may indicate the carrying value of our non-financial assets may not be fully recoverable during the three month period ended April 1, 2022, and recorded no
impairments.
Fair Value of Financial Instruments
iThe carrying amount and fair value of financial instruments are as follows ($ in millions):
As
of April 1, 2022 and December 31, 2021, 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, and commercial paper approximates their carrying amount due to the short-term maturities of these instruments.
i
NOTE 5. FINANCING AND CAPITAL
iThe
carrying value of the components of our long-term debt were as follows ($ in millions):
Aggregate
unamortized debt discounts, premiums, and issuance costs of $i8 million and $i13 million
as of April 1, 2022 and December 31, 2021, respectively, are netted against the principal amounts of the components of debt in the table above. Refer to Note 11 of our 2021 Annual Report on Form 10-K for further details of our debt financing.
Convertible Senior Notes
On February 22, 2019, we issued $i1.4 billion in aggregate principal
amount of our i0.875% Convertible Senior Notes due 2022, including $i187.5 million in aggregate principal amount resulting from an exercise in full of an over-allotment option. The
Convertible Notes were issued in a private placement to certain initial purchasers for resale to qualified institutional buyers pursuant to Rule 144A under the Securities Act.
Of the $i1.4 billion in principal amount from the issuance of the Convertible Notes, $i1.3
billion was classified as debt and $i102.2 million was classified as equity, using an assumed effective interest rate of i3.38%.
Debt issuance costs of $i24.3 million were proportionately allocated to debt and equity.
On February 9, 2021, we repurchased $i281 million
of the Convertible Notes at fair value using the remaining cash proceeds received from Vontier in the Vontier Separation and other cash on hand. In connection with the repurchase, we recorded a loss on debt extinguishment during the three month period ended April 2, 2021 of $i10.5 million. In addition, upon repurchase we recorded $i11.6 million
as a reduction to additional paid-in capital related to the equity component of the repurchased Convertible Notes.
On January 1, 2022, we adopted ASU 2020-06, as further detailed in Note 1. We reclassified the carrying value of the instrument wholly to debt, eliminating the value formerly attributable to the conversion feature and the associated debt issuance costs that were previously classified as equity.
On February 15, 2022, the maturity date of the Convertible Notes, Fortive repaid, in cash, $i1.2 billion
in outstanding principal and accrued interest thereon.
We recognized $i2.1 million in interest expense during the three month period ended April 1, 2022, of which $i1.3
million was related to the contractual coupon rate of i0.875% and $i0.8 million was attributable to the amortization of debt issuance costs. We recognized $i12.2 million
in interest expense during the three month period ended April 2, 2021, of which $i2.8 million related to the contractual coupon rate of i0.875%,
$i1.7 million was attributable to the amortization of debt issuance costs, and $i7.7 million was attributable to the amortization of the discount.
Other
Liquidity Sources
We generally satisfy any short-term liquidity needs that are not met through operating cash flows and available cash primarily through issuances of commercial paper under our U.S. dollar and Euro-denominated commercial paper programs (“Commercial
Paper Programs”). Under these programs, we may issue unsecured promissory notes with maturities not exceeding 397 and 183 days, respectively.
Interest expense on commercial
paper is paid at maturity and is generally based on our credit ratings at the time of issuance and prevailing short-term interest rates.
i
The details of our outstanding Commercial Paper Programs as of April 1, 2022 were as follows ($ in millions):
Carrying
value
Annual effective rate
Weighted average remaining maturity (in days)
U.S. dollar-denominated commercial paper
$
i1,296.2
i0.91
%
i39
/
Credit
support for the Commercial Paper Programs is provided by a ifive-year $i2.0 billion senior unsecured revolving credit facility that expires on November 30, 2023 (the “Revolving
Credit Facility”) which, to the extent not otherwise providing credit support for our commercial paper programs, can also be used for working capital and other general corporate purposes. As of April 1, 2022, ino borrowings were outstanding under the Revolving Credit Facility.
Debt-for-Equity Exchange
On January 19, 2021, we completed the Debt-for-Equity Exchange of i33.5 million
shares of common stock of Vontier, representing all of the Retained Vontier Shares, for $i1.1 billion in aggregate principal amount of indebtedness of the Company. During the first quarter of 2021 we recognized a gain of $i57.0 million
related to the subsequent change in the fair value of the Retained Vontier Shares. We recorded a loss on extinguishment of the debt included in the Debt-for-Equity Exchange of $i94.4 million in the three month period ended April 2, 2021.
i
NOTE
6. SALES
i
We derive revenue primarily from the sale of products and software, and services. Revenue is recognized when control of promised products or services is transferred to customers in an amount that reflects the consideration we expect to be entitled to in exchange for those products, software, or services.
Product sales include revenue from the sale of products and equipment, which includes our software
and SaaS product offerings and equipment rentals.
Service sales include revenues from extended warranties, post-contract customer support (“PCS”), maintenance contracts or services, contract labor to perform ongoing service at a customer location, 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 $i72 million as of April 1, 2022 and $i71
million as of December 31, 2021.
Contract Costs — We incur and capitalize direct incremental costs to obtain certain contracts, typically sales-related commissions and costs associated with assets used by our customers in certain software arrangements. Deferred sales-related commissions are not capitalized when the amortization period is ione
year or less, as we elected to use the practical expedient to expense these sales commissions as incurred. As of April 1, 2022 and December 31, 2021, we had $i30 million and $i27
million, respectively, in net revenue-related contract assets primarily related to certain software contracts. Revenue-related contract assets are recorded in the Prepaid expenses and other current assets and Other assets line items in our Consolidated Condensed Balance Sheets. These assets have estimated useful lives between i3 and i8
years.
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. The noncurrent portion of deferred revenue is included in Other long-term liabilities in the Consolidated Condensed Balance Sheets.
During
the three month period ended April 1, 2022, we recognized revenue related to our contract liabilities at December 31, 2021 of $i154 million. The change in our contract liabilities from December 31,
2021 to April 1, 2022 was primarily due to the timing of billings and recognition as revenue of PCS and extended warranty services.
Remaining Performance Obligations — Our remaining performance obligations represent the transaction price of firm, noncancelable orders and the average contract value for software contracts, for which work has not been performed. We have excluded performance obligations with an original expected duration of one year or less from the amounts below.
iThe
aggregate performance obligations attributable to each of our segments is as follows ($ in millions):
The majority of remaining performance obligations are related to service and support contracts, which we expect to fulfill approximately i80
percent within the next itwo years, approximately i90 percent within the next ithree
years, and substantially all within ifour years.
We disaggregate revenue from contracts
with customers by sales of products and software and services, geographic location, and end market for each of our segments, as we believe it best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors.
i
Disaggregation of revenue for the three month period ended April 1, 2022 is presented as follows ($ in millions):
Total
Intelligent
Operating Solutions
Precision Technologies
Advanced Healthcare Solutions
Sales:
Sales of products and software
$
i1,152.7
$
i500.5
$
i410.6
$
i241.6
Sales
of services
i223.8
i87.1
i51.8
i84.9
Total
$
i1,376.5
$
i587.6
$
i462.4
$
i326.5
Geographic:
United
States
$
i739.9
$
i321.9
$
i234.0
$
i184.0
China
i145.4
i47.9
i69.3
i28.2
All
other (each country individually less than 5% of total sales)
i491.2
i217.8
i159.1
i114.3
Total
$
i1,376.5
$
i587.6
$
i462.4
$
i326.5
End
markets:(a)
Direct sales:
Medical
$
i353.3
$
i10.3
$
i37.1
$
i305.9
Industrial
& Manufacturing
i321.9
i211.1
i103.7
i7.1
Utilities
& Power
i86.3
i43.0
i43.3
i—
Government
i105.7
i51.6
i44.7
i9.4
Communication,
Electronics & Semiconductor
i87.8
i23.8
i63.4
i0.6
Aerospace
& Defense
i55.4
i0.1
i55.3
i—
Oil
& Gas
i64.8
i62.3
i2.5
i—
Retail
& Consumer
i81.2
i63.7
i17.5
i—
Other
i153.9
i87.5
i66.3
i0.1
Total
direct sales
i1,310.3
i553.4
i433.8
i323.1
Distributors
i66.2
i34.2
i28.6
i3.4
Total
$
i1,376.5
$
i587.6
$
i462.4
$
i326.5
(a)
Direct sales by end market include sales made through third-party distributors where we have visibility into the end customer.
Disaggregation of revenue for the three month period ended April 2, 2021 is presented as follows ($ in millions):
Total
Intelligent
Operating Solutions
Precision Technologies
Advanced Healthcare Solutions
Sales:
Sales of products and software
$
i1,077.2
$
i453.0
$
i393.1
$
i231.1
Sales
of services
i182
i57.9
i54.3
i69.8
Total
$
i1,259.2
$
i510.9
$
i447.4
$
i300.9
Geographic:
United
States
$
i620.8
$
i248.2
$
i219.1
$
i153.5
China
i164.3
i59.5
i76.8
i28.0
All
other (each country individually less than 5% of total sales)
i474.1
i203.2
i151.5
i119.4
Total
$
i1,259.2
$
i510.9
$
i447.4
$
i300.9
End
markets:(a)
Direct sales:
Medical
$
i326.8
$
i9.4
$
i35.0
$
i282.4
Industrial
& Manufacturing
i302.3
i196.5
i100.0
i5.8
Utilities
& Power
i94.9
i54.3
i40.6
i—
Government
i87.9
i44.8
i34.4
i8.7
Communications,
Electronics & Semiconductor
i87.8
i27.5
i59.6
i0.7
Aerospace
& Defense
i55.4
i—
i55.4
i—
Oil
& Gas
i63.3
i60.5
i2.8
i—
Retail
& Consumer
i45.5
i23.5
i22.0
i—
Other
i124.9
i56.1
i68.8
i—
Total
direct sales
i1,188.8
i472.6
i418.6
i297.6
Distributors
i70.4
i38.3
i28.8
i3.3
Total
$
i1,259.2
$
i510.9
$
i447.4
$
i300.9
(a)
Direct sales by end market include sales made through third-party distributors where we have visibility into the end customer.
i
NOTE 7. INCOME TAXES
Our effective tax rate for the three month period ended April 1, 2022 was i13.5% as
compared to i5.9% for the three month period ended April 2, 2021. The year-over-year increase in the effective tax rate for the three month period ended April 1, 2022 as compared to the three month period ended April 2, 2021 was primarily due to a non-recurring permanent difference on the Q1 2021 gain on our Retained Vontier Shares due to the tax-free treatment of our disposition of the shares through the Debt-for-Equity
Exchange and increases in certain federal tax benefits during the three months ended April 1, 2022.
/
Our effective tax rates for the three month periods ended April 1, 2022 and April 2, 2021, differ from the U.S. federal statutory rate of 21% due primarily to the positive net effects of the Tax Cuts and Jobs Act, U.S. federal permanent differences, the impact of credits and deductions provided by law, and a reduction in our uncertain tax positions. Specific to the three month period ended April 1, 2021, our effective tax rate also differs from the U.S. federal statutory rate of 21% due to a permanent
difference on the gain on our Retained Vontier Shares as a result of the tax-free treatment of our disposition of the shares through the Debt-for-Equity Exchange.
i
NOTE 8. 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 April 1, 2022, approximately i17
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 2021 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 Consolidated Condensed Statements of Earnings based on the portion of the awards that are ultimately expected to vest.
i
The
following summarizes the components of our stock-based compensation expense under the Stock Plan ($ in millions):
Total
stock-based compensation expense, net of income taxes
$
i17.2
$
i13.5
/
The
following summarizes the unrecognized compensation cost for the Stock Plan awards as of April 1, 2022. This compensation cost is expected to be recognized over a weighted average period of approximately itwo years, representing the remaining service period related to the awards. iFuture
compensation amounts will be adjusted for any changes in estimated forfeitures ($ in millions):
For a description of our litigation and contingencies and additional information about our leases, refer to Note 16 and Note 10, respectively, in our 2021 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 i90 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.
iThe following is a rollforward of our accrued warranty liability ($ in millions):
Operating lease cost for both
three month periods ended April 1, 2022 and April 2, 2021 was $i15 million. During the three month periods ended April 1, 2022 and April 2, 2021, cash paid for operating leases included in operating cash flows was $i14
million and $i16 million, respectively. Right-of-use assets obtained in exchange for operating lease obligations were $i2
million and $i9 million during the three month periods ended April 1, 2022 and April 2, 2021, respectively. Operating lease right-of-use assets and operating lease liabilities are reported on the Consolidated Condensed Balance Sheets within Other assets, Accrued expenses and other current liabilities and Other long-term liabilities, respectively.
i
NOTE
10. NET EARNINGS PER SHARE
Basic net 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 conversion of Convertible Notes and associated issuance of shares under the if-converted method and 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. Anti-dilutive options excluded from the diluted EPS calculation for the three month periods ended April 1, 2022 and April 2, 2021 were i3.1
million and i0.1 million, respectively.
As described in Note 5, upon conversion of the Convertible Notes, holders were entitled to receive cash, shares of our common stock, or a combination thereof, at our election. As described in Note 1, prior to our adoption of ASU 2020-06 on January 1, 2022, we accounted for the conversion feature under the treasury stock method in our
calculation of EPS since we intended and had the ability 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. Because the fair value of our common stock was below the conversion price, the Convertible Notes had no impact on our earnings per share for the three month period ended April 2, 2021. Upon adopting ASU 2020-06 on January 1, 2022, we accounted for the Convertible Notes under the if-converted method in our calculation of diluted EPS, as required under the new guidance.
On July 1, 2021, all outstanding shares of our i5.0%
Mandatory Convertible Preferred Stock (“MCPS”) converted at a rate of i14.0978 common shares per share of preferred stock into an aggregate of approximately i19.4 million
shares (net of fractional shares) of the Company’s common stock, pursuant to the terms of the Certificate of Designation governing the Series A Preferred Stock. Fortive issued cash in lieu of fractional shares of common stock in the conversion. These payments were recorded as a reduction to additional paid-in capital. The impact of the MCPS calculated under the if-converted method was anti-dilutive for the three months ended April 2, 2021.
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):
Weighted
average common shares outstanding used in basic earnings per share
i359.3
i338.6
Incremental
common shares from:
Assumed exercise of dilutive options and vesting of dilutive Stock Awards
i2.7
i3.1
Conversion
of convertible notes (if converted method)
i6.4
i—
Weighted
average common shares outstanding used in diluted earnings per share
i368.4
i341.7
Net
earnings from continuing operations per common share - Basic
$
i0.46
$
i0.28
Net
earnings from continuing operations per common share - Diluted
$
i0.45
$
i0.28
/i
We
declared and paid cash dividends per common share for the periods as presented below. We declared and paid the MCPS dividend in the first quarter of 2021.
Dividend Per Common Share
Amount ($ in millions)
Dividend
per MCPS
Amount ($ in millions)
2022:
First quarter
$
i0.07
$
i25.1
$
i—
$
i—
Total
$
i0.07
$
i25.1
$
i—
$
i—
2021:
First
quarter
$
i0.07
$
i23.7
$
i12.5
$
i17.3
Total
$
i0.07
$
i23.7
$
i12.5
$
i17.3
*
The sum of the components of total dividends paid may not equal the total amount due to rounding.
/
On April 7, 2022, we declared a regular quarterly cash dividend of $i0.07 per share payable on June 24, 2022 to common stockholders of record on May
27, 2022.
Share Repurchase Program
On February 17, 2022, the Company's Board of Directors approved a share repurchase program authorizing the Company to repurchase up to i20 million
shares of the Company's outstanding common stock from time to time on the open market or in privately negotiated transactions. There is no expiration date for the repurchase program, and the timing and amount of repurchases under the program are determined by the Company's management based on market conditions and other factors. The repurchase program may be suspended or discontinued at any time by the Board of Directors. As of April 1, 2022, there were i19.0 million
shares remaining for repurchase under the program.
We report our results in ithree
separate business segments consisting of Intelligent Operating Solutions, Precision Technologies, and Advanced Healthcare Solutions. Our chief operating decision maker assesses performance and allocates resources based on our operating segments, which are also our reportable segments. Operating profit amounts in the Other category consist of unallocated corporate costs and other costs not considered part of our evaluation of reportable segment operating performance. iOur segment results are as follows ($ in millions):
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 provider of essential technologies for connected workflow solutions across a range of attractive end-markets. Our strategic segments - Intelligent Operating Solutions, Precision Technologies, and Advanced Healthcare Solutions - include well-known brands with leading positions in their markets. Our businesses design, develop, manufacture, and service professional and engineered products, software, and services, building upon leading brand names, innovative technologies, and significant market positions. We
are headquartered in Everett, Washington and employ a team of more than 18,000 research and development, manufacturing, sales, distribution, service, and administrative employees in more than 50 countries around the world.
On October 9, 2020, we completed the separation of Vontier Corporation (“Vontier”), the entity we created to hold our former Industrial Technologies segment (the “Separation”). The accounting requirements for reporting the Vontier business as a discontinued operation were met when the Separation was completed. Accordingly, the consolidated condensed financial statements reflect the results of separation activities associated with the prior Vontier business as a discontinued operation, which was immaterial for all periods presented.
On January 19, 2021,
we completed an exchange (the “Debt-for-Equity Exchange”) of 33.5 million shares of common stock of Vontier, representing all of the Retained Vontier Shares, for $1.1 billion in aggregate principal amount of indebtedness of the Company held by Goldman Sachs & Co. Interest expense and extinguishment costs related to the Debt-for-Equity Exchange during the first quarter of 2021 are included in continuing operations.
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 financial statements included in our 2021 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, strategic opportunities, securities offerings, stock repurchases, dividends and executive compensation; growth, declines and other trends in markets
we sell into, including the expected impact of trade and tariff policies; 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 of 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 they believe to be appropriate. 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, among others, the following:
Risk Related to Our Business Operations
•The effect of the COVID-19 pandemic, including the corresponding government-mandated mitigation efforts, on our global operations and the operations of our customers, suppliers, and vendors is continuing to have a material, adverse impact on our business and results of operations.
•If we cannot adjust our manufacturing capacity, supply chain management or the purchases required for our manufacturing activities to reflect changes in market conditions, customer demand and supply chain or transportation disruptions, 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 financial results are subject to fluctuations in the cost and availability of commodities or components that we use in our operations.
•Conditions in the global economy, the markets we serve and the financial markets may adversely affect our business and financial statements.
•Our growth could suffer if the markets into which we sell our products 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.
•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.
•If we are unable to recruit and retain key employees, our business may be harmed.
•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 restructuring activities could have long-term adverse effects on our business.
•Work stoppages, 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.
•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.
•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.
Risk Related to our International Operations
•International economic, political, legal, compliance, and business factors including, but not limited to, the impact of the invasion of Ukraine by
Russia and the corresponding sanctions and supply chain disruptions, could negatively affect our financial statements.
•Trade relations between China and the United States could have a material adverse effect on our business and financial statements.
•Foreign currency exchange rates may adversely affect our financial statements.
Risk Related to Our Acquisitions, Investments, and Dispositions
•Any inability to consummate acquisitions at our anticipated
rate and at appropriate prices could negatively impact our growth rate and stock price.
•Our acquisition of businesses, joint ventures, and strategic relationships could negatively impact our financial statements.
•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.
•Potential indemnification liabilities to Vontier pursuant to the separation agreement could materially and adversely affect our businesses,
financial condition, results of operations, and cash flows.
Risk Related to Regulatory and Compliance Matters
•Changes in industry standards and governmental regulations may reduce demand for our products or services or increase our expenses.
•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 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.
Risk Related to Our Tax and Accounting Matters
•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 could incur significant liability if any of our separation from Danaher, our separation of our Automation and Specialty business or our separation of Vontier (collectively, the “Separation Transactions”) is determined to be a taxable transaction.
•Changes in U.S. GAAP could
adversely affect our reported financial results and may require significant changes to our internal accounting systems and processes.
•We may be required to recognize impairment charges for our goodwill and other intangible assets.
Risk Related to Our Financing Activities
•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.
Risk Related to Shareholder Rights
•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.
•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.
See “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 for 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 (or such earlier date as may be specified in such statement). 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 multinational business with global operations with approximately 49% of our sales derived from customers outside of the United States in 2021. As a company with global operations, 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 products, software, and services we offer, 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 their sales, to the extent possible, 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, continue to reduce costs and improve operating efficiency and quality, attract relevant talent and retain, grow, and empower our talented workforce, 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.
Provation Acquisition
On December 27, 2021, we acquired Provation Software, Inc. (“Provation”), a leading provider of clinical workflow software solutions used in hospitals and ambulatory
surgery centers. The acquisition of Provation extends our digital offering and software capabilities in the healthcare space. The total consideration paid was approximately $1.4 billion, net of acquired cash and was primarily financed with proceeds from our financing activities and available cash. We preliminarily recorded $978 million of goodwill related to the acquisition, which is not tax deductible. During the three month period ended April 1, 2022, provisional goodwill increased by $8.1 million for measurement period adjustments. Provation had revenue in 2020 of approximately $90 million and is an operating company within our Advanced Healthcare Solutions segment.
ServiceChannel Acquisition
On August 24, 2021, we acquired ServiceChannel Holdings, Inc. (“ServiceChannel”),
a privately held, global provider of Software as a Service (“SaaS”) based multi-site facilities maintenance service solutions with an integrated service-provider network. The acquisition of ServiceChannel broadens our offering of software-enabled solutions for the facility and asset lifecycle workflow. The total consideration paid was approximately $1.2 billion, net of acquired cash, and included approximately $28 million of deferred compensation consideration that is being recognized ratably over a twelve month service period. The ServiceChannel acquisition was primarily financed with available cash and proceeds from our financing activities. We preliminarily recorded approximately $873 million of goodwill related to the acquisition, which is not tax deductible. ServiceChannel had revenue in 2020 of approximately $70 million and is an operating company within our Intelligent Operating Solutions segment.
Vontier Separation
On
October 9, 2020, we completed the Separation. The accounting requirements for reporting the Vontier business as a discontinued operation were met when the Separation was completed. Accordingly, the consolidated condensed financial
statements reflect the results of separation activities associated with the prior Vontier business as a discontinued operation, which was immaterial for all periods presented.
On January 19, 2021, we completed the Debt-for-Equity Exchange of 33.5 million shares of common stock of Vontier,
representing all of the Vontier common stock retained by the Company immediately following the Separation (the “Retained Vontier Shares”), for $1.1 billion in aggregate principal amount of indebtedness of the Company held by Goldman Sachs & Co. Interest expense and extinguishment costs related to the Debt-for-Equity Exchange during the first quarter of 2021 are included in continuing operations.
Segment Presentation
We operate and report our results in three segments, Intelligent Operating Solutions, Precision Technologies, and Advanced Healthcare Solutions, each of which is further described below.
Our Intelligent Operating Solutions segment provides
leading workflow solutions to accelerate industrial and facility reliability and performance, as well as compliance and safety across a range of vertical end markets, including manufacturing, process industries, healthcare, utilities and power, communications and electronics, among others. We provide differentiated instrumentation and sensors, software and services to address our customers’ toughest workflow challenges.
Our Precision Technologies segment supplies instrumentation and sensing technologies to a broad set of vertical end markets, enabling our customers to accelerate the development, manufacture and launch of innovative products and solutions. We provide our customers with electrical test and measurement instruments and services, energetic material devices, and a broad portfolio of sensor and control system solutions.
Our Advanced Healthcare
Solutions segment supplies critical workflow solutions to hospitals and other healthcare customers, enabling safer, more efficient, and higher quality healthcare. We provide hardware, consumables, software and services that optimize our customers’ most critical workflows, including instrument sterilization and device reprocessing, instrument tracking, cell therapy equipment design and manufacturing, biomedical test tools, radiation safety monitoring, end-to-end clinical productivity solutions and asset management.
Non-GAAP Measures
In this report, references to sales from existing businesses refer 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 and the effect of purchase accounting adjustments, 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 acquisition 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.
Business Performance
and Outlook
Business Performance For the Period Ended April 1, 2022
We experienced robust demand for our products and services during the three month period ended April 1, 2022 (“the quarter” or the “first quarter”). Despite ongoing COVID-19 and supply chain challenges, year-over-year sales increased 9.3% with contributions from both existing and newly acquired businesses. Sales from existing businesses increased 5.3% during the quarter, as compared to the comparable period in 2021 reflecting broad-based momentum and focused execution across our portfolio, most notably within our short-cycle industrial and SaaS businesses.
Geographically, in the first quarter, year-over-year sales from existing businesses increased in developed markets at a high single-digit rate, driven by high single-digit growth in North America and low single-digit growth in Europe. In our high growth markets, year-over-year sales from existing businesses decreased at a low single-digit rate, driven by a low double-digit decline in China where business activity was constrained by government mandated COVID-19 containment measures, partially offset by high-teens growth in Latin America.
Year-over-year price increases contributed 3.2% to sales growth during the quarter, as compared to the comparable period in 2021 and is reflected as a component of the change in sales from existing businesses. In the first quarter, the price increases that we deployed exceeded inflationary increases that we experienced on purchased
materials.
Widespread supply chain and logistics challenges persisted in the quarter, impacting the availability of key materials, including electronic components, and resulting in higher production and logistics costs. We continue to apply the Fortive Business System (“FBS”) to help mitigate the impact of these challenges but demand for our products outpaced our shipments in the quarter and our backlog increased from December 31, 2021.
COVID-19 continues to impact our results, creating operating challenges with logistics, material availability and absenteeism. The government mandated COVID-19 containment measures in China directly reduced our production levels and shipments in the quarter and creates ongoing risk and uncertainty. We anticipate that the uncertainty and disruption of the pandemic on global commerce will continue
into future periods.
In February 2022, Russian forces invaded Ukraine (“Russia Ukraine Conflict”) resulting in broad economic sanctions being imposed on Russia that has further increased existing global supply chain, logistic, and inflationary challenges. As of the filing date of this report, we have temporarily suspended commercial operations in Russia, other than for sales of ASP’s sterilization products, which are exempted from international sanctions and deemed to be humanitarian products. Our business in Russia and Ukraine were not material to our results and accounted for less than 1% of total revenue for the fiscal year ended December 31, 2021. As of April 1, 2022, our net assets in Russia totaled approximately $15 million, including those net assets associated with ASP.
Outlook
We
anticipate that the strong demand for our offerings experienced in the first quarter will persist throughout 2022 driven by innovation, share gains and robust end markets. Revenue growth is projected to be between 5.0% and 8.0% for the second quarter of 2022, and 9.5% and 12.0% for the full year. We anticipate growth from existing businesses will be between 2.0% and 5.0% for the second quarter of 2022 and 6.0% and 8.5% for the full year. This outlook is subject to various assumptions and risks, including but not limited to, the global supply chain and logistic challenges, magnitude of the impact of the COVID-19 pandemic on macroeconomic conditions, the Russia Ukraine Conflict, continued strength of key end markets, elective surgery rates, the availability of electronic components, our ability to convert backlog and maintain manufacturing capacity.
We anticipate that supply chain and inflationary pressures will persist throughout
2022 and that although our backlog may decline compared to 2021, it may remain elevated compared to historical levels. We will continue to deploy FBS to actively manage production challenges, collaborate with customers and suppliers to minimize disruptions and utilize price increases and other countermeasures to offset inflationary pressures.
We are monitoring the ongoing impact of COVID-19 on the global economy and our business, including government mandated containment measures, such as the lockdown implemented recently in Shanghai, China. Continued implementation or expansion of government mandated containment measures, including shutdowns in countries such as China, could have a material adverse impact on our future results.
We are also monitoring developments in international trade, monetary and fiscal policies and relations between the U.S. and China, as well as evaluating
proposed investment and taxation policy initiatives being debated in the United States and by the Organization for Economic Co-operation and Development (“OECD”). We continue to monitor the Russia Ukraine Conflict and the impact on our business and operations. As of the filing date of this report, we are unable to quantify the impact of these matters on our financial results.
The following table summarizes
total aggregate year-over-year sales growth and the components of aggregate year-over-year sales growth during the three month periods ended April 1, 2022 as compared to the comparable periods of 2021:
Components of Sales Growth
% Change Three Months Ended April 1, 2022 vs. Comparable 2021 Period
Total revenue growth (GAAP)
9.3
%
Existing
businesses (Non-GAAP)
5.3
%
Acquisitions(Non-GAAP)
5.5
%
Currency exchange rates (Non-GAAP)
(1.5)
%
Operating Profit Margins
Operating profit margin was 15.4% for the first quarter, a decrease of 30 basis points as compared to 15.7% in
the comparable period of 2021. Year-over-year operating profit margin comparisons were impacted by:
•Year-over-year price increases and sales volumes from existing businesses, which were partially offset by higher year-over-year freight, logistics and material costs, employee compensation, and investments in R&D, sales and marketing. — favorable 30 basis points
•The year-over-year effect of amortization from existing businesses — favorable 50 basis points
•The year-over-year net effect of acquisition-related transaction costs which were higher during the first quarter than those recognized during the comparable period in 2021 — unfavorable 10 basis points
•The year-over-year net effect of acquired
businesses, including amortization, and acquisition-related fair value adjustments — unfavorable 100 basis points
Business Segments
Sales by business segment for each of the periods indicated were as follows ($ in millions):
Our
Intelligent Operating Solutions segment provides leading solutions to accelerate industrial and facility reliability and performance, as well as compliance and safety across a range of vertical end markets, including manufacturing, process industries, healthcare, utilities and power, communications and electronics, among others. We provide a broad and differentiated offering of instrumentation, sensors, software, and services to address these critical workflows for our customers.
% Change Three Months Ended April 1, 2022 vs. Comparable 2021 Period
Total revenue growth (GAAP)
15.0
%
Existing businesses (Non-GAAP)
8.7
%
Acquisitions
(Non-GAAP)
7.7
%
Currency exchange rates (Non-GAAP)
(1.4)
%
Year-over-year sales of products and services from existing businesses of Intelligent Operating Solutions increased 8.7% during the first quarter, as compared to the comparable period of 2021. The year-over-year results were driven by higher pricing, continued strong demand for SaaS products and related services, gas detection instruments, and test & measurement products, as well as improved factory throughput on gains from supply chain and logistics countermeasures.
Geographically,
during the first quarter, sales from existing businesses in Intelligent Operating Solutions increased in developed markets by low double digits on North America and Western Europe. Sales in high growth markets declined by low single digits on declines in China which were impacted by government mandated COVID-19 containment measures, partially offset by growth in Latin America and the Middle East.
Year-over-year price increases in our Intelligent Operating Solutions segment contributed 3.0% to sales growth during the first quarter, as compared to the comparable period of 2021, and is reflected as a component of the change in sales from existing businesses.
Operating profit margin decreased 300 basis points during the first quarter as compared to the comparable period of 2021. Year-over-year operating profit margin comparisons were impacted by:
•The
year-over-year effect of amortization from existing businesses — favorable 90 basis points
•The year-over-year net effect of acquisition-related transaction costs, which were higher during first quarter than those recognized during the comparable period in 2021 — unfavorable 110 basis points
•Year-over-year increase in price and volumes from existing businesses were offset by higher year- over-year freight, logistics and material costs and employee compensation costs — flat
•The year-over-year effect of acquired businesses, including amortization — unfavorable 280 basis points
Our Precision Technologies segment supplies technologies to a broad set of vertical end markets, enabling our customers to accelerate the development of innovative products and solutions. We provide our customers with electrical test and measurement instruments and services, energetic material devices, and a broad portfolio of sensor and control system solutions.
% Change Three Months Ended April 1, 2022 vs. Comparable 2021 Period
Total revenue growth (GAAP)
3.4
%
Existing businesses (Non-GAAP)
4.6
%
Acquisitions(Non-GAAP)
—
%
Currency exchange rates (Non-GAAP)
(1.2)
%
Year-over-year sales of products and services from existing businesses in Precision Technologies increased 4.6% during the first quarter as compared to the comparable period of 2021. The year-over-year results were driven by price increases, market growth and share gains in key verticals and increased shipments of energetic materials, all partially offset by reductions in sales in China as a result of the government mandated COVID-19 containment measures.
Geographically,
sales from existing businesses in our Precision Technologies segment increased during the first quarter in developed markets, driven by growth in North America and Europe, and slightly declined in high growth markets where, despite growth in Latin America, the Middle East and Africa, we experienced a large decrease in China, which was a result of government mandated COVID-10 containment measures.
Year-over-year price increases in our Precision Technologies segment contributed 4.6% to sales growth for the first quarter, as compared to the comparable period of 2021, and is reflected as a component of the change in sales from existing businesses.
Operating profit margin increased 50 basis points for the first quarter as compared to the comparable period of 2021. Year-over-year operating profit margin comparisons were impacted by:
•Higher
year-over-year price increases which were partially offset by higher material, freight and employee compensation costs — favorable 30 basis points
•The year-over-year effect of amortization from existing businesses — favorable 20 basis points
ADVANCED HEALTHCARE SOLUTIONS
Our Advanced Healthcare Solutions segment serves healthcare customers with enabling products and services for critical activities that help ensure safe, efficient, and timely healthcare. We provide broad hardware and software portfolio offerings optimized around our end-users’ most critical workflows, including instrument and device reprocessing, instrument tracking, cell therapy equipment design and manufacturing, biomedical
test tools, radiation safety monitoring, and asset management.
% Change Three Months Ended April 1, 2022 vs. Comparable 2021 Period
Total revenue growth (GAAP)
8.5
%
Existing businesses (Non-GAAP)
0.6
%
Acquisitions(Non-GAAP)
10.0
%
Currency exchange rates (Non-GAAP)
(2.1)
%
Year-over-year sales of products and services from existing businesses of Advanced Healthcare Solutions increased 0.6% during the first quarter, as compared to the comparable period of 2021. The year-over-year results were driven by higher pricing and increased demand for radiation management and surgical instrument tracking offerings partially offset by reductions in cell therapy equipment design and sterilization products, primarily in China and impacted by
the government mandated COVID-19 containment measures.
Sales from existing businesses in our Advanced Healthcare Solutions segment increased low single digits during the first quarter in developed markets, driven by a mid single digit increase in North America, which was partially offset by a low single digit decrease in Europe. High growth markets declined by low single digits on government mandated COVID-19 containment measures in China and declines in the Middle East and Africa.
Year-over-year price increases in our Advanced Healthcare Solutions segment contributed 1.3% to sales growth during the first quarter, as compared to the comparable period of 2021, and is reflected as a component of the change in sales from existing businesses.
Operating profit margin increased 230 basis points during the three month period ended April
1, 2022 as compared to the comparable period of 2021. Year-over-year operating profit margin comparisons were impacted by:
•The year-over-year net effect of acquisition-related transaction costs which were less in the first quarter than those recognized in the comparable period in 2021 — favorable 150 basis points
•The year-over-year effect of amortization from existing businesses — favorable 90 basis points
•The year-over-year effect of acquired businesses, including amortization, and acquisition-related fair value adjustments to inventory — favorable 30 basis points
•Lower year-over-year sales volumes from existing businesses and higher employee compensation costs, which were partially offset
by higher year-over-year price increases — unfavorable 40 basis points
The
year-over-year increase in cost of sales during the first quarter, as compared to the comparable period in 2021, is due primarily to year-over-year increases in sales volumes from existing and newly acquired businesses, and higher material, freight and employee compensation costs. Year-over-year changes in currency exchange rates decreased cost of sales during the first quarter.
The year-over-year increase in gross profit and gross profit margin for the first quarter, as compared to the comparable period in 2021, is due primarily to higher year-over-year sales volumes and price increases, which were partially offset by higher material, freight and employee compensation costs.
Selling,
general and administrative (“SG&A”) expenses
480.6
428.1
Research and development (“R&D”) expenses
99.1
86.2
SG&A as a % of sales
34.9
%
34.0
%
R&D
as a % of sales
7.2
%
6.8
%
SG&A expenses increased during the first quarter as compared to the comparable period of 2021 due to higher intangible amortization and incremental expenses from our recent acquisitions, increased employee compensation expenses and customer acquisition and marketing costs.
On a year-over-year basis, SG&A expenses as a percentage of sales increased 90 basis points in the first quarter as a result of higher amortization expenses from our recent acquisitions, partially offset by leverage on SG&A
costs, which grew at a slower rate than our sales growth.
R&D expenses (consisting principally of internal and contract engineering personnel costs) increased during the first quarter as compared to the comparable period of 2021 due to incremental costs from our recent acquisitions, investments in innovation and key initiatives and higher employee compensation costs. On a year-over-year basis, R&D expenses increased as a percentage of sales by 40 basis points in the first quarter mainly driven by our recent acquisitions, where R&D spending is higher as a percentage of sales than in existing businesses.
INTEREST COSTS
For
a discussion of our outstanding indebtedness, refer to Note 5 to the consolidated condensed financial statements.
Net interest expense for the three month period ended April 1, 2022 was $19 million compared to $28 million for the three month period ended April 2, 2021. The year-over-year decrease in interest expense was due to lower year-over-year effective interest rates on debt instruments.
INCOME TAXES
Our effective tax rate for the quarter was 13.5% as compared to 5.9% in the comparable period in 2021 and the year-over year increase was primarily due to a non-recurring permanent difference on the Q1 2021 gain on our
Retained Vontier Shares due to the tax-free treatment of our disposition of the shares through the Debt-for-Equity Exchange and increases in certain federal tax benefits during the first quarter.
Our effective tax rate for the first quarter and the comparable period in 2021, differ from the U.S. federal statutory rate of 21% due primarily to the positive and negative effects of the Tax Cuts and Jobs Act, U.S. federal permanent differences, the impact of credits and deductions provided by law, and a reduction in our uncertain tax positions. Specific to the three month period
ended April
1, 2021, our effective tax rate also differs from the U.S. federal statutory rate of 21% due to a permanent difference on the gain on our Retained Vontier Shares due to the tax-free treatment of our disposition of the shares through the Debt-for-Equity Exchange.
COMPREHENSIVE INCOME
Comprehensive income increased by $50 million during the first quarter as compared to the comparable period in 2021 due primarily to net earnings that were higher by $55 million, partially offset by unfavorable changes in foreign currency translation adjustments of $4 million.
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 believe that our operating cash flow and other sources of liquidity, which consist of access to bank loans, commercial paper, capital markets, and our revolving credit facility will be sufficient to allow us to continue funding and investing in our existing businesses, consummate strategic acquisitions, make interest and principal payments on our outstanding indebtedness, fulfill our contractual obligations, and manage our capital structure on a short and long-term basis.
We have generally satisfied any short-term liquidity needs that are not met through operating cash flows and available cash through issuances of commercial paper under our U.S. dollar and Euro-denominated commercial paper programs (“Commercial Paper Programs”).
Credit
support for the Commercial Paper Programs is provided by a five-year $2.0 billion senior unsecured revolving credit facility that expires on November 30, 2023 (the “Revolving Credit Facility”) which, to the extent not otherwise providing credit support for the commercial paper programs, can also be used for working capital and other general corporate purposes. As of April 1, 2022, no borrowings were outstanding under the Revolving Credit Facility.
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 when we have outstanding borrowings. We expect to limit any future borrowings under the Revolving Credit Facility to amounts that would leave sufficient credit available
under the facility to allow us to borrow, if needed, and repay any outstanding commercial paper as it matures.
We continue to monitor the financial markets and general global economic conditions. If 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 credit facilities to provide short-term funding.
Total
operating cash provided by continuing operations
$
214.8
$
152.0
Cash paid for acquisitions, net of cash received
$
0.9
$
(0.2)
Payments for additions to property, plant and equipment
(18.8)
(8.4)
All
other investing activities
—
—
Total investing cash used in continuing operations
$
(17.9)
$
(8.6)
Payment of 0.875% convertible senior notes due 2022
$
(1,156.5)
$
—
Net
proceeds from commercial paper borrowings
930.7
—
Repayment of borrowings (maturities greater than 90 days)
—
(611.1)
Payment of common stock cash dividend to shareholders
(25.1)
—
Payment of mandatory convertible preferred stock cash dividend to shareholders
—
(23.7)
Repurchase
of common shares
(63.8)
(17.3)
All other financing activities
(17.9)
(2.8)
Total financing cash used in continuing operations
$
(332.6)
$
(654.9)
Operating
Activities
Operating cash flows from continuing operations can fluctuate significantly from period-to-period as working capital needs and the timing of payments for income taxes, pension funding, and other items impact reported cash flows.
Operating cash flows from continuing operations were $215 million during the first quarter, an increase of $63 million, or 41%, as compared to the comparable period of 2021. The year-over-year change in operating cash flows from continuing operations was primarily attributable to the following factors:
•Year-over-year increases of $31.9 million in Operating cash flows from net earnings from continuing operations, net of non-cash expenses (Depreciation, Amortization, Stock-based compensation, Loss on extinguishment of debt and Gain on investment in Vontier Corporation)
•The
aggregate of accounts receivable, inventories, and trade accounts payable used $25 million of cash during the first quarter of 2022 as compared to using $44 million in the comparable period of 2021. 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 generally 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 aggregate of prepaid expenses and other assets and accrued expenses and other liabilities used $63 million of cash during the first quarter of 2022 as compared to using $77 million of cash in the comparable period of 2021. The year-over-year changes were
driven by reduced tax cash payments, timing on deferred revenue, partially offset by higher payments for employee compensation and benefits.
Investing Activities
Investing cash flows from continuing operations consist primarily of cash paid for acquisitions and capital expenditures, and increased $9.3 million during the first quarter as compared to the comparable period of 2021. The increase in investing cash flows was primarily due to a year-over-year increase in capital expenditures of approximately $10 million.
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 year ending December
31, 2022, we expect capital spending to be approximately $80-100 million, although actual expenditures will ultimately depend on business conditions.
Financing cash flows from continuing operations 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 from continuing operations used cash of $333 million during the three month period ended April
1, 2022, reflecting the following transactions:
•On February 15, 2022, the maturity date of the Convertible Notes, Fortive repaid, in cash, $1.2 billion in outstanding principal and accrued interest thereon.
•During the first quarter, we incurred $931 million in net commercial paper borrowings under the U.S. dollar-denominated commercial paper program, which had a weighted annual effective rate of 0.91% and a weighted average remaining maturity of approximately 39 days.
•During the first quarter we repurchased 1,000,000 shares for approximately $64 million under our share repurchase program.
In the comparable 2021 period, financing activities from continuing operations
used $655 million of cash, reflecting payment of the remaining $317 million outstanding of the Delayed-Draw Term loan due April 2020, and repurchase of $281 million of the Convertible Notes.
On January 19, 2021, we completed the non-cash Debt-for-Equity Exchange of 33.5 million shares of common stock of Vontier, representing all of the Retained Vontier Shares, for $1.1 billion in aggregate principal amount of indebtedness of the Company held by Goldman Sachs & Co. We recorded a loss on extinguishment of the debt included in the Debt-for-Equity Exchange of $94.4 million in the three month period ended April 1, 2021.
Refer to Note 5 to the consolidated condensed financial statements for information
regarding our financing activities and indebtedness.
Aggregate cash payments for common stock dividends paid to shareholders during the first quarter were $25 million and are recorded as dividends to shareholders in the Consolidated Condensed Statement of Changes in Equity and the Consolidated Condensed Statement of Cash Flows.
On April 7, 2022, we declared a regular quarterly cash dividend of $0.07 per share payable on June 24, 2022 to common stockholders of record on May 27, 2022.
Cash and Cash Requirements
As of April
1, 2022, we held approximately $684 million of cash and equivalents that were invested in highly liquid investment-grade instruments with a maturity of 90 days or less that yielded insignificant interest income during the three period ended April 1, 2022. Approximately 90% of the $684 million of cash and equivalents we held as of April 1, 2022 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 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 and repayment of maturing debt, we may also borrow under our commercial paper programs or credit facilities or 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. We also may from time to time access the capital markets, including to take advantage of favorable interest rate environments or other market conditions.
Foreign cumulative earnings remain subject to foreign remittance taxes. We have made an election regarding the amount of 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 such 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 April 1, 2022, we expect to have sufficient liquidity to satisfy our cash needs for the foreseeable future.
There were no material changes during the three month period ended April 1, 2022 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 2021 Annual Report on Form 10-K.
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.
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 2021 Annual Report on Form 10-K. There were no material changes during the three month periods ended April 1, 2022 to the information reported in our 2021 Annual Report on Form 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 the 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 the 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 2021 Annual Report on Form 10-K. There were no material changes during the quarter ended April 1, 2022 to the risk factors reported in the “Risk Factors” section of our 2021 Annual Report on Form 10-K.
ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On February 17, 2022, the Company's Board of Directors approved a share repurchase program authorizing the Company to repurchase up to 20 million shares of the Company's outstanding common stock from time to time on the open market or in privately negotiated transactions. There is no expiration date for the repurchase program, and the timing and amount of repurchases under the program are determined by the Company's management based on market conditions and other factors.
The repurchase program may be suspended or discontinued at any time by the Board of Directors. During the quarter ended April 1, 2022, the Company purchased 1,000,000 shares of its common stock at an average price of $63.74 per share, with 19 million shares remaining authorized under the share repurchase program at the end of the quarter ended April 1, 2022.
In addition, in connection with the vesting of Restricted Stock Awards ("RSAs") of the Company granted to certain employees and in accordance with the terms of the Company's 2016 Stock Incentive
Plan, the Company withheld 14,033 shares of its common stock under the RSAs based on the closing price of $62.56 per share to offset tax withholding that arose upon vesting of such RSAs. There were no RSAs that remained outstanding at the end of the quarter ended April 1, 2022.
The following table provides details about our share repurchases during the fiscal quarter ended April 1, 2022.
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
Jan 1 - Jan 31
—
$
—
N/A
N/A
Feb 1 - Feb 28
1,014,033
63.62
1,000,000
19,000,000
Mar
1 - Apr 1
—
—
N/A
N/A
Total
1,014,033
$
63.62
1,000,000
19,000,000
(1)
The total number of shares of common stock purchased during the quarter ended April 1, 2022 includes (i) 1,000,000 shares purchased at an average price of $63.74 per share in February 2022 and (iii) 14,033 shares of common stock under the RSAs based on the closing price of $62.56 per share in February 2022 to offset tax withholding obligations that arose upon vesting of the RSAs.
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.
The cover page from this Quarterly Report on Form 10-Q for the quarter ended April 1, 2022, formatted in Inline XBRL and contained in Exhibit 101
*Indicates management contract or compensatory plan, contract or arrangement
(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 April 1, 2022 and December 31, 2021, (ii) Consolidated Condensed Statements of Earnings for the three month periods ended April 1, 2022 and April 2, 2021, (iii) Consolidated Condensed Statements of Comprehensive Income for the three month periods ended April 1, 2022 and April 2, 2021, (iv) Consolidated Condensed Statement of Changes in Equity for the three month periods ended April 1, 2022 and April 2, 2021, (v) Consolidated Condensed Statements of Cash Flows for the three month periods ended April
1, 2022 and April 2, 2021, and (vi) Notes to Consolidated Condensed Financial Statements.
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.
