Document/ExhibitDescriptionPagesSize 1: 10-Q Quarterly Report HTML 1.80M
2: EX-31.1 Certification -- §302 - SOA'02 HTML 25K
3: EX-31.2 Certification -- §302 - SOA'02 HTML 25K
4: EX-32.1 Certification -- §906 - SOA'02 HTML 22K
5: EX-32.2 Certification -- §906 - SOA'02 HTML 22K
11: R1 Cover Page HTML 74K
12: R2 Consolidated Condensed Balance Sheets HTML 153K
13: R3 Consolidated Condensed Balance Sheets HTML 48K
(Parenthetical)
14: R4 Consolidated Condensed Statements of Earnings and HTML 123K
Comprehensive Income
15: R5 Consolidated Condensed Statements of Changes in HTML 121K
Stockholders' Equity
16: R6 Consolidated Condensed Statements of Changes in HTML 23K
Stockholders' Equity (Parenthetical)
17: R7 Consolidated and Combined Condensed Statements of HTML 117K
Cash Flows
18: R8 Business Overview and Basis of Presentation HTML 30K
19: R9 Acquisitions HTML 66K
20: R10 Financing and Trade Receivables HTML 145K
21: R11 Goodwill HTML 27K
22: R12 Financing HTML 54K
23: R13 Accumulated Other Comprehensive Income (Loss) HTML 80K
24: R14 Sales HTML 92K
25: R15 Income Taxes HTML 26K
26: R16 Leases HTML 22K
27: R17 Litigation and Contingencies HTML 37K
28: R18 Fair Value Measurements HTML 43K
29: R19 Related Party Transactions HTML 29K
30: R20 Capitalization and Earnings Per Share HTML 46K
31: R21 Assets and Liabilities Held for Sale HTML 38K
32: R22 Subsequent Event HTML 23K
33: R23 Business Overview and Basis of Presentation HTML 37K
(Policies)
34: R24 Acquisitions (Tables) HTML 54K
35: R25 Financing and Trade Receivables (Tables) HTML 145K
36: R26 Goodwill (Tables) HTML 30K
37: R27 Financing (Tables) HTML 42K
38: R28 Accumulated Other Comprehensive Income (Loss) HTML 80K
(Tables)
39: R29 Sales (Tables) HTML 85K
40: R30 Litigation and Contingencies (Tables) HTML 28K
41: R31 Fair Value Measurements (Tables) HTML 35K
42: R32 Capitalization and Earnings Per Share (Tables) HTML 43K
43: R33 Assets and Liabilities Held for Sale (Tables) HTML 39K
44: R34 Business Overview and Basis of Presentation HTML 25K
(Details)
45: R35 Acquisitions - Narrative (Details) HTML 87K
46: R36 Acquisitions - Schedule of Business Acquisitions HTML 104K
(Details)
47: R37 Financing and Trade Receivables - Narrative HTML 49K
(Details)
48: R38 Financing and Trade Receivables - Schedule of HTML 50K
Accounts, Notes, Loans and Financing Receivable
(Details)
49: R39 Financing and Trade Receivables - Financing HTML 70K
Receivable Credit Quality Indicators (Details)
50: R40 Financing and Trade Receivables - Financing HTML 40K
Receivable, Past Due (Details)
51: R41 Financing and Trade Receivables - Financing HTML 40K
Receivable, Allowance for Credit Loss (Details)
52: R42 Financing and Trade Receivables - Accounts HTML 38K
Receivable, Allowance for Credit Loss (Details)
53: R43 Goodwill - Schedule of Goodwill (Details) HTML 33K
54: R44 Goodwill - Narrative (Details) HTML 26K
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56: R46 Financing - Schedule of Debt - Footnotes (Details) HTML 28K
57: R47 Financing - Narrative (Details) HTML 99K
58: R48 Accumulated Other Comprehensive Income (Loss) HTML 73K
(Details)
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63: R53 Income Taxes (Details) HTML 22K
64: R54 Leases - Narrative (Details) HTML 28K
65: R55 Litigation and Contingencies - Narrative (Details) HTML 41K
66: R56 Litigation and Contingencies - Rollforward of HTML 34K
Accrued Warranty Liability (Details)
67: R57 Fair Value Measurements (Details) HTML 46K
68: R58 Related Party Transactions - Narrative (Details) HTML 27K
69: R59 Capitalization and Earnings Per Share - Narrative HTML 49K
(Details)
70: R60 Capitalization and Earnings Per Share - Schedule HTML 60K
pf Earnings per Share (Details)
71: R61 Assets and Liabilities Held for Sale - Schedule of HTML 68K
Key Components of Discontinued Operations
(Details)
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Registrant’s
telephone number, including area code: (i984) i275-6000
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 $0.0001 per share
iVNT
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☐
1
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 October 28, 2022 was i157,993,435.
Accounts
receivable, less allowance for credit losses of $i34.3 million and $i38.9 million as of September 30, 2022 and December
31, 2021, respectively
i511.2
i481.3
Inventories:
Finished
goods
i146.3
i104.7
Work
in process
i43.6
i34.4
Raw
materials
i187.6
i147.9
Total
inventories
i377.5
i287.0
Prepaid expenses and other current assets
i123.8
i137.3
Equity
securities measured at fair value
i67.1
i—
Current
assets held for sale
i138.7
i—
Total
current assets
i1,340.0
i1,478.2
Property,
plant and equipment, net of accumulated depreciation of $i236.8 million and $i256.3
million as of September 30, 2022 and December 31, 2021, respectively
i92.6
i100.6
Operating
lease right-of-use assets
i42.1
i45.4
Long-term
financing receivables, less allowance for credit losses of $i37.3 million and $i42.5 million as of September
30, 2022 and December 31, 2021, respectively
i249.2
i241.7
Other
intangible assets, net
i670.8
i615.9
Goodwill
i1,712.4
i1,667.2
Other
assets
i156.6
i200.8
Total assets
$
i4,263.7
$
i4,349.8
LIABILITIES
AND EQUITY
Current liabilities:
Short-term borrowings
$
i7.7
$
i3.7
Trade
accounts payable
i413.5
i424.9
Current
operating lease liabilities
i12.3
i12.8
Accrued
expenses and other current liabilities
i402.4
i492.0
Current
liabilities held for sale
i39.4
i—
Total
current liabilities
i875.3
i933.4
Long-term operating lease
liabilities
i32.7
i35.6
Long-term
debt
i2,635.9
i2,583.8
Other
long-term liabilities
i219.8
i223.3
Commitments
and Contingencies
i
i
Equity:
Preferred
stock -- ii15,000,000/ authorized
shares; iino/ par value and iiiinone///
issued and outstanding
i—
i—
Common
stock, $ii0.0001/ par value -- ii1,985,000,000/
shares authorized; i169,598,805 and i169,168,285 shares issued; and i157,993,435
and i169,168,285 shares outstanding as of September 30, 2022 and December 31, 2021, respectively
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
NOTE 1. iBUSINESS
OVERVIEW AND BASIS OF PRESENTATION
Nature of Business
Vontier Corporation (“Vontier,” the “Company,”“we,”“us,” or “our”) is a global industrial technology company that focuses on critical technical equipment, components, software and services for manufacturing, repair, and servicing in the mobility infrastructure industry worldwide. The Company supplies a wide range of mobility technologies and diagnostics and repair technologies solutions spanning advanced environmental sensors; fueling equipment; field payment hardware; point-of sale, workflow and monitoring software; vehicle tracking and fleet management; software solutions for traffic light control; and vehicle mechanics’ and technicians’ equipment. The
Company markets its products and services to retail and commercial fueling operators, convenience store and in-bay car wash operators, tunnel car wash businesses, commercial vehicle repair businesses, municipal governments and public safety entities and fleet owners/operators on a global basis.
Vontier operates through ione reportable segment comprised of itwo
operating segments: (i) mobility technologies, which is a leading worldwide provider of solutions and services focused on fuel dispensing, remote fuel management, point-of-sale and payment systems, environmental compliance, workflow software and control solutions, vehicle tracking and fleet management (“telematics”) and traffic management (“smart city solutions”), and (ii) diagnostics and repair technologies, which manufactures and distributes vehicle repair tools, toolboxes and automotive diagnostic equipment and software and a full line of wheel-service equipment. Given the interrelationships of the products, technologies and customers and the resulting similar long-term economic characteristics, we meet the aggregation criteria and have combined our itwo
operating segments into a single reportable segment.
i
Basis of Presentation and Unaudited Interim Financial Information
The accompanying Consolidated Condensed Financial Statements present our historical financial position, results of operations, changes in equity and cash flows in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and are unaudited.
The
interim Consolidated Condensed Financial Statements include the accounts of the Company and its subsidiaries and affiliates in which the Company has a controlling financial interest or is the primary beneficiary. All intercompany accounts and transactions have been eliminated upon consolidation.
In the opinion of the Company’s management, all adjustments of a normal recurring nature necessary for a fair presentation have been reflected. Certain financial information that is normally included in annual financial statements prepared in accordance with GAAP, but that is not required
for interim reporting purposes, has been omitted. The accompanying interim Consolidated Condensed Financial Statements and the related notes should be read in conjunction with the Company’s Consolidated and Combined Financial Statements and related notes included in the Company’s 2021 Annual Report on Form 10-K.
The Consolidated Condensed Financial Statements also reflect the impact of noncontrolling interests. Noncontrolling interests do not have a significant impact on our consolidated results of operations, therefore net earnings and net earnings per share attributable to noncontrolling interests are not presented separately in our Consolidated Condensed Statements of Earnings and Comprehensive Income. Net earnings attributable to noncontrolling
interests have been reflected in selling, general and administrative expenses (“SG&A”) and were insignificant in all periods presented.
i
Recently Issued Accounting Standards
In March 2020, the FASB issued Accounting Standards Update (“ASU”) No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting and in January 2021 issued ASU No. 2021-01, Reference
Rate Reform (Topic 848): Scope. These ASUs provide temporary optional expedients and exceptions to existing guidance on contract modifications and hedge accounting to facilitate the market transition from existing reference rates, such as the London Interbank Offered Rate (“LIBOR”) which is being phased out beginning at the end of 2021, to alternate reference rates, such as the Secured Overnight Financing Rate. These standards were effective upon issuance and allowed application to contract changes as early as January 1, 2020. These provisions may impact the Company as contract
modifications and other changes occur during the LIBOR transition period. The Company continues to evaluate the optional relief guidance provided
11
within these ASUs, has reviewed its debt securities and continues to evaluate commercial contracts that may utilize LIBOR as the reference rate. We will continue the assessment and monitor regulatory developments during the LIBOR transition period.
In March 2022, the FASB issued ASU No. 2022-02, Financial
Instruments – Credit Losses (Topic 326) – Troubled Debt Restructurings and Vintage Disclosures, which requires enhanced disclosure of certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty while eliminating certain current recognition and measurement accounting guidance. This ASU also requires the disclosure of current-period gross write-offs by year of origination for financing receivables and net investments in leases. ASU No. 2022-02 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years; this ASU allows for early adoption in any interim period after issuance of the update. The Company is currently assessing the impact this ASU will have on its consolidated financial statements.
NOTE
2. iACQUISITIONS
2021 Acquisitions
DRB Systems, LLC
On September 13, 2021, the Company acquired all of the outstanding equity interests of DRB Systems, LLC (“DRB”), a leading provider of point of sale, workflow software and control solutions
to the car wash industry, for $i955.8 million in cash. This acquisition aligns with the Company’s portfolio diversification strategy and enables opportunities in new end markets. With this acquisition, the Company expects to grow its retail solutions portfolio.
The
acquisition of DRB was accounted for as a business combination and, accordingly, the assets acquired and the liabilities assumed have been recorded at their respective fair values as of the acquisition date. The goodwill is attributable to the workforce of the acquired business, future market opportunities and the expected synergies with the Company’s existing operations. The majority of goodwill derived from this acquisition is deductible for tax purposes.
i
The
Company’s final purchase price allocation is as follows:
($ in millions)
Preliminary Purchase Price Allocation
Measurement Period Adjustments
Final Purchase Price Allocation
Weighted
Average Amortization Period
Accounts receivable
$
i17.3
$
(i3.3)
$
i14.0
Inventories
i21.0
(i0.1)
i20.9
Prepaid
and other current assets
i3.8
(i0.1)
i3.7
Technology
i142.1
i0.5
i142.6
i9.0
Customer
relationships
i227.0
i—
i227.0
i11.0
Trade
names
i36.0
i—
i36.0
i14.0
Goodwill
i587.4
(i15.6)
i571.8
Other
assets
i14.9
i0.1
i15.0
Trade
accounts payable
(i5.8)
i—
(i5.8)
Accrued
expenses and other current liabilities
(i44.6)
i2.5
(i42.1)
Other
long-term liabilities
(i43.6)
i16.3
(i27.3)
Purchase
price, net of cash acquired
$
i955.5
$
i0.3
$
i955.8
/
To
determine the fair value of the acquired intangible assets included above, management utilized significant unobservable inputs (Level 3 in the fair value hierarchy) and was required to make judgements and estimates about future results such as revenues, margin, net working capital and other valuation assumptions such as useful lives, royalty rates, attrition rates and discount rates. These assumptions are forward looking and could be affected by future economic and market conditions.
12
2022 Acquisitions
Driivz
On February
7, 2022, the Company acquired the remaining i81% of the outstanding shares of Driivz Ltd. (“Driivz”) for $i152.6 million,
net of cash received. Driivz, which is based in Israel, is a cloud-based subscription software platform supporting electric vehicle charging infrastructure (“EVCI”) providers with operations management, energy optimization, billing and roaming capabilities, as well as driver self-service apps. The acquisition of Driivz accelerates the Company’s portfolio diversification and e-mobility strategies and positions the Company to capitalize on the global EVCI market opportunities.
The acquisition of Driivz was accounted for as a business combination and, accordingly, the assets acquired and the liabilities assumed have been recorded at their respective fair values as of the acquisition date. The goodwill is attributable to the workforce
of the acquired business, future market opportunities and the expected synergies with the Company’s existing operations. The majority of the goodwill derived from this acquisition is not expected to be deductible for tax purposes.
The Company’s estimate of the purchase price allocation is as follows:
($ in millions)
Driivz
Weighted
Average Amortization Period
Accounts receivable
$
i1.0
Technology
i56.3
i8.0
Customer
relationships
i28.1
i13.0
Trade
names
i9.2
i16.0
Goodwill
i127.4
Other
assets
i2.9
Trade accounts payable
(i0.1)
Accrued
expenses and other current liabilities
(i12.4)
Other long-term liabilities
(i16.8)
Purchase
price, net of cash received
$
i195.6
We recorded certain adjustments to the preliminary purchase price allocation during the nine months ended September 30, 2022 resulting in a net decrease of $i3.5 million
to goodwill. Revenue and operating profit attributable to the acquisitions was insignificant for the nine months ended September 30, 2022.
The carrying value of the Company’s approximately i19% interest in Driivz prior to the acquisition was $i10.3 million,
which historically was carried at cost. In connection with the acquisition, this investment was remeasured to a fair value of $i43.0 million resulting in the recognition of an aggregate noncash gain of $i32.7 million
during the first quarter of 2022, which was included in Gain on previously held equity interests from combination of business in the Consolidated Condensed Statements of Earnings and Comprehensive Income. To determine the fair value of the acquired intangible assets and previously held equity interests, management utilized significant unobservable inputs (Level 3 in the fair value hierarchy) and was required to make judgements and estimates about future results such as revenues, margin, net working capital and other valuation assumptions such as useful lives, royalty rates, attrition rates and discount rates. These assumptions are forward looking and could be affected by future economic and market conditions.
Acquisition-related costs related to Driivz are included in Selling, general and administrative expenses in the Consolidated Condensed Statement of Earnings and were $i1.2 million.
The Company has not disclosed post-acquisition or pro-forma revenue and earnings attributable to Driivz as it did not have a material effect on the Company’s results.
The purchase price allocation has not been finalized for Driivz as the analysis of the assets acquired and liabilities assumed has not been completed. The procedures to finalize may result in further adjustments to our purchase accounting that could result in additional measurement period adjustments, which could have a material effect on the consolidated financial statements. The accounting for the acquisition will be completed no later than one year from the acquisition date, in accordance with GAAP.
13
Invenco
On
August 31, 2022, the Company acquired all of the outstanding equity interests of Invenco Group Ltd. (“Invenco”) for $i85.7 million, net of cash received. The initial purchase price includes contingent consideration initially measured at $i9.2 million,
which can reach up to $i100 million based on achieving certain revenue targets. Invenco, which is based in New Zealand, is a global provider of self service payment solutions with a range of products including outdoor payment terminals, electronic payment servers, payment switches, and cloud services. The acquisition of Invenco further advances the Company’s portfolio diversification and accelerates our digital strategy.
The
acquisition of Invenco was accounted for as a business combination and, accordingly, the assets acquired and the liabilities assumed have been recorded at their respective fair values as of the acquisition date. The consideration paid was allocated as follows: (i) $i38.4 million to definite-lived intangible assets consisting of developed technology, customer relationships and a trade name with a weighted average amortization period of approximately
ieight years, (ii) $i27.3 million to goodwill and (iii) $i20.0 million
to other net assets. The goodwill is attributable to the workforce of the acquired business, future market opportunities and the expected synergies with the Company’s existing operations. The majority of the goodwill derived from this acquisition is not expected to be deductible for tax purposes.
Acquisition-related costs related to Invenco are included in Selling, general and administrative expenses in the Consolidated Condensed Statement of Earnings and were $i1.1 million.
The Company has not disclosed post-acquisition or pro-forma revenue and earnings attributable to Invenco as it did not have a material effect on the Company’s results.
The purchase price allocation has not been finalized for Invenco as the analysis of the assets acquired and liabilities assumed has not been completed. The procedures to finalize may result in further adjustments to our purchase accounting that could result in additional measurement period adjustments, which could have a material effect on the consolidated financial statements. The accounting for the acquisition will be completed no later than one year from the acquisition date, in accordance with GAAP.
To
determine the preliminary fair value of the acquired intangible assets included above for Invenco, management utilized significant unobservable inputs (Level 3 in the fair value hierarchy). The assumptions used are forward looking and could be affected by future economic and market conditions.
Other Acquisitions
In addition to the acquisitions noted above, in 2022 we acquired all of the outstanding equity interests in itwo other businesses for $i45.5 million,
net of cash received. The initial purchase price includes $i4.5 million of contingent consideration, which is based on future revenues of the acquired business and is unlimited. Both of these acquisitions align with the Company’s portfolio diversification strategy and enable opportunities in new end markets.
These purchase price allocations have not been finalized as the analysis
of the assets and liabilities acquired has not been completed. The procedures to finalize may result in further adjustments to our purchase accounting that could result in additional measurement period adjustments, which could have a material effect on the consolidated financial statements. The accounting for the acquisition will be completed no later than one year from the acquisition date, in accordance with GAAP.
The Company has not disclosed post-acquisition or pro-forma revenue and earnings attributable to these acquisitions as it did not have a material effect on the Company’s results.
Acquisition-related costs related to other acquisitions are included in Selling, general
and administrative expenses in the Consolidated Condensed Statement of Earnings and were $i1.3 million.
14
NOTE
3. iFINANCING AND TRADE RECEIVABLES
The Company’s financing receivables are comprised of commercial purchase security agreements with the Company’s end customers (“PSAs”) and commercial loans to the Company’s franchisees (“Franchisee Notes”). Financing
receivables are generally secured by the underlying tools and equipment financed.
PSAs are installment sales contracts originated between the franchisee and technicians or independent shop owners which enable these customers to purchase tools and equipment on an extended-term payment plan. PSA payment terms are generally up to ifive years. Upon origination, the Company assumes the PSA by crediting
the franchisee’s trade accounts receivable. As a result, originations of PSAs are non-cash transactions. The Company records PSAs at amortized cost.
Franchisee Notes have payment terms of up to i10 years and include financing to fund business startup costs including: (i) installment loans to franchisees used generally to finance inventory, equipment, and franchise fees; and (ii) lines of credit to finance working capital, including additional purchases of inventory.
Revenues
associated with the Company’s interest income related to financing receivables are recognized to approximate a constant effective yield over the contract term. Accrued interest is included in Accounts receivable less allowance for credit losses and is insignificant as of September 30, 2022 and December 31, 2021.
Product sales to franchisees and the related financing income is included in Cash flows from operating activities in the accompanying Consolidated Condensed Statements of Cash Flows.
i
The
components of financing receivables with payments due in less than twelve months that are recorded in Accounts receivable less allowance for credit losses on the Consolidated Condensed Balance Sheets were as follows:
It
is the Company’s general practice to not engage in contract or loan modifications of existing arrangements for troubled debt restructurings. In limited instances, the Company may modify certain impaired receivables with customers in bankruptcy or other legal proceedings, or in the event of significant natural disasters. Restructured financing receivables as of September 30, 2022 and December 31, 2021 were insignificant.
Credit score and distributor tenure are the primary indicators of credit quality for the
Company’s financing receivables. Depending on the contract, payments for financing receivables are due on a monthly or weekly basis. Weekly payments are converted into a monthly equivalent for purposes of calculating delinquency. Delinquencies are assessed at the end of each month following the monthly equivalent due date and are considered delinquent once past due.
i
The amortized cost basis of PSAs and Franchisee Notes by origination
year as of September 30, 2022, is as follows:
($
in millions)
2022
2021
2020
2019
2018
Prior
Total
PSAs
Credit
Score:
Less than 400
$
i12.7
$
i9.8
$
i4.9
$
i2.7
$
i0.8
$
i0.2
$
i31.1
400-599
i20.0
i14.6
i8.4
i4.1
i1.5
i0.6
i49.2
600-799
i41.1
i30.4
i16.0
i7.7
i2.7
i0.9
i98.8
800+
i65.6
i40.5
i20.8
i9.4
i3.0
i0.7
i140.0
Total
PSAs
$
i139.4
$
i95.3
$
i50.1
$
i23.9
$
i8.0
$
i2.4
$
i319.1
Franchisee
Notes
Active distributors
$
i18.7
$
i23.8
$
i9.1
$
i8.4
$
i4.5
$
i4.5
$
i69.0
Separated
distributors
i0.1
i0.6
i1.6
i2.6
i1.3
i4.1
i10.3
Total
Franchisee Notes
$
i18.8
$
i24.4
$
i10.7
$
i11.0
$
i5.8
$
i8.6
$
i79.3
/
16
Past
Due
iPSAs are considered past due when a contractual payment has not been made. If a customer is making payments on its account, interest will continue to accrue. The table below sets forth the aging of the Company’s PSA balances as of:
($
in millions)
30-59 days past due
60-90 days past due
Greater than 90 days past due
Total past due
Total not considered past due
Total
Greater than 90 days past due and accruing interest
Franchisee
Notes are considered past due when payments have not been made for i21 days after the due date. Past due Franchisee Notes (where the franchisee had not yet separated) were insignificant as of September 30, 2022 and December 31, 2021.
Uncollectable Status
PSAs are deemed uncollectable and written off when they are both contractually delinquent and no payment has been received for i180
days.
Franchisee Notes are deemed uncollectable and written off after a distributor separates and no payments have been received for ione year.
The Company stops accruing interest and other fees associated with financing receivables when (i) a customer is placed in uncollectable status and repossession efforts have begun; (ii) upon receipt of notification of bankruptcy; (iii) upon notification of the death of a customer;
or (iv) other instances in which management concludes collectability is not reasonably assured.
Allowance for Credit Losses Related to Financing Receivables
The Company calculates the allowance for credit losses considering several factors, including the aging of its financing receivables, historical credit loss and portfolio delinquency experience and current economic conditions. The Company also evaluates financing receivables with identified exposures, such as customer defaults, bankruptcy or other events that make it unlikely it will recover the amounts owed to it. In calculating such reserves, the Company evaluates expected
cash flows, including estimated proceeds from disposition of collateral, and calculates an estimate of the potential loss and the probability of loss. When a loss is considered probable on an individual financing receivable, a specific reserve is recorded.
iThe following is a rollforward of the PSAs and Franchisee Notes components of the Company’s allowance for credit losses related to financing receivables as of:
The
ending balance as of September 30, 2022 of $i57.9 million is included in the Consolidated Condensed Balance Sheets in Accounts receivable, less allowance for credit losses and Long-term financing receivables less allowance for credit losses in the amounts of $i20.6
million and $i37.3 million, respectively. The ending balance as of December 31, 2021 of $i65.9
million is included in the Consolidated Condensed Balance Sheets in Accounts receivable less allowance for credit losses and Long-term financing receivables less allowance for credit losses in the amounts of $i23.4 million and $i42.5
million, respectively.
17
Allowance for Credit Losses Related to Trade Accounts Receivables
i
The following is a rollforward of the allowance for credit losses related to the Company’s
trade accounts receivables (excluding financing receivables) and the Company’s trade accounts receivable cost basis as of:
Debt
issuance costs that have been netted against the aggregate principal amounts of the components of debt in the short-term borrowings section above are immaterial. Given the nature of the short-term borrowings, the carrying value approximates fair value at both September 30, 2022 and December 31, 2021.
Credit Facilities
Revolving Credit Facility
On April 28, 2021, the Company refinanced its existing credit agreement. The amended and restated credit agreement (the “A&R Credit Agreement”) extended the term of the $i750.0 million
senior unsecured multi-currency revolving credit facility (the “Revolving Credit Facility”) from September 29, 2023 to April 28, 2026 and reduced the interest rate.
The Revolving Credit Facility bears interest at a variable rate equal to LIBOR plus a ratings-based margin which was i117.5 basis points as of September 30, 2022.
As
of September 30, 2022, $i50.0 million was outstanding under the Revolving Credit Facility.
There was no material difference between the carrying value and the estimated fair value of the debt outstanding.
iThree-Year
Term Loans Due 2024
The A&R Credit Agreement also extended the term of the $i400.0 million iThree-Year Term Loans Due 2024 from October 6, 2023
to October 28, 2024 and reduced the interest rate. The iThree-Year Term Loans bear interest at a variable rate equal to LIBOR plus a ratings-based margin which was i112.5 basis points as of September
30, 2022. The interest rate was i4.24% per annum as of September 30, 2022. We are not obligated to make repayments prior to the maturity date. There was no material difference between the carrying value and the estimated fair value of the debt outstanding.
iTwo-Year
Term Loans Due 2023
The iTwo-Year Term Loans Due 2023 bear interest at a variable rate equal to LIBOR plus a ratings-based margin which was i75.0 basis points as of September
30, 2022. The interest rate was i3.87% per annum as of September 30, 2022. The iTwo-Year Term Loans Due 2023 mature on September 13, 2023. We are not obligated
to make repayments prior to the maturity date. There was no material difference between the carrying value and the estimated fair value of the debt outstanding.
The A&R Credit Agreement requires, among others, that we maintain certain financial covenants, and we were in compliance with all of these covenants as of September 30, 2022.
19
On October 28, 2022, the Company entered into an agreement to refinance the iTwo-Year
Term Loans Due 2023 into a new $i600 million iThree-year delayed draw term loan. The Company plans to draw on this loan in full on
or before December 30, 2022 and use the proceeds to pay off the existing iTwo-Year Term Loans Due 2023. Accordingly, the iTwo-Year Term Loans Due 2023 remain classified as long-term as of September 30, 2022.
Senior
Unsecured Notes
On March 10, 2021, we completed the private placement of each of the following series of senior unsecured notes (collectively, the “Notes”) to qualified institutional buyers under rule 144A of the Securities Act of 1933, as amended (the “Securities Act”) and outside the United States to non-U.S. persons in compliance with Regulation S under the Securities Act:
•$i500.0 million aggregate principal
amount of senior notes due April 1, 2026 (the “2026 Notes”) issued at i99.855% of their principal amount and bearing interest at the rate of i1.800%
per year;
•$i500.0 million aggregate principal amount of senior notes due April 1, 2028 (the “2028 Notes”) issued at i99.703%
of their principal amount and bearing interest at the rate of i2.400% per year; and
•$i600.0 million aggregate principal
amount of senior notes due April 1, 2031 the (the “2031 Notes”) issued at i99.791% of their principal amount and bearing interest at the rate of i2.950%
per year.
In connection with the issuance of the Notes, we entered into a registration rights agreement, pursuant to which we are obligated to use commercially reasonable efforts to file with the U.S. Securities and Exchange Commission, and cause to be declared effective within 365 days, a registration statement with respect to an offer to exchange (the “Registered Exchange Offer”) each series of Notes for registered notes with terms that are substantially identical to the Notes of each series. We completed the Registered Exchange Offer on January 18, 2022. Substantially all of the Notes were tendered and exchanged for the corresponding Registered Notes in the Registered Exchange Offer.
The Registered Notes are fully and unconditionally
guaranteed (the “Guarantees”), on a joint and several basis, by Gilbarco Inc. and Matco Tools Corporation, two of our wholly-owned subsidiaries (the “Guarantors”). Interest on the Registered Notes is payable semi-annually in arrears on April 1 and October 1 of each year, and commenced on October 1, 2021. The Registered Notes and the Guarantees are the Company’s and the Guarantors’ general senior unsecured obligations.
The Registered Notes contain customary covenants, including limits on the incurrence of certain secured debt and sale-leaseback transactions. None of these covenants are considered restrictive to our operations and as of September
30, 2022 we were in compliance with all of the covenants under the Registered Notes.
The estimated fair value of the Registered Notes was $i1.2 billion as of September 30, 2022. The fair value of the Registered Notes was determined based upon Level 2 inputs including indicative prices based upon observable market data. The difference between the fair value and the carrying amounts of the Notes may be attributable to changes in market interest rates and/or our credit ratings subsequent
to the incurrence of the borrowing.
Short-term Borrowings
India Credit Facility
The Company has a credit facility with Citibank, N.A. with borrowing capacity of up to i850.0 million Indian Rupees (or $i10.4 million
as of September 30, 2022) to facilitate working capital needs for certain businesses in India. As of September 30, 2022, the Company had $i8.7 million borrowing capacity remaining. The effective interest rate associated with outstanding borrowings was i7.00%
as of September 30, 2022.
Other
As of September 30, 2022, certain of our businesses were in a cash overdraft position, and such overdrafts are included in Short-term borrowings on the Consolidated Condensed Balance Sheet. Additionally, the Company has other short-term borrowing arrangements with various banks to facilitate short-term cash flow requirements in certain countries also included in Short-term borrowings on the Consolidated Condensed Balance Sheet.
Interest payments associated with the above short-term borrowings were not significant for the nine months ended September 30, 2022
and October 1, 2021.
20
NOTE 6. iACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Foreign
currency translation adjustments are generally not adjusted for income taxes as they relate to indefinite investments in non-U.S. subsidiaries.
iThe changes in Accumulated other comprehensive income/(loss) by component are summarized below:
(a)
Includes balances relating to defined benefit plans and supplemental executive retirement plans.
(b) This accumulated other comprehensive income component is included in the computation of net periodic pension cost.
NOTE 7. iSALES
i
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 or services.
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 subject to contractual performance obligations and not only subject to the passage of time. Contract assets were $i12.6 million and $i10.4 million
as of September 30, 2022 and December 31, 2021, respectively, and are included in Prepaid expenses and other current assets in the accompanying Consolidated Condensed Balance Sheets.
We incur direct incremental costs to obtain certain contracts, typically sales-related commissions and costs associated with assets used by our customers in certain service arrangements. As of September 30, 2022 and December 31, 2021, we had $i75.7
million and $i78.4 million, respectively, in net revenue-related capitalized contract costs primarily related to assets used by our customers in certain software contracts, which are recorded in Prepaid expenses and other current assets, for the current portion, and Other assets, for the noncurrent portion, in the accompanying Consolidated Condensed Balance Sheets. These assets have estimated
useful lives between i3 and i5 years and are amortized on a straight-line basis.
Impairment losses recognized on our revenue-related contract
assets were insignificant during the three and nine months ended September 30, 2022 and October 1, 2021.
The Company’s contract
liabilities consist of deferred revenue generally related to customer deposits, post contract support (“PCS”) and extended warranty sales. In these arrangements, the Company generally receives up-front payment and recognizes revenue over the support term of the contracts where applicable. Deferred revenue is classified as current or noncurrent based on the timing of when revenue is expected to be recognized and is included in Accrued expenses and other current liabilities and Other long-term liabilities, respectively, in the accompanying Consolidated Condensed Balance Sheets.
During
the three and nine months ended September 30, 2022, we recognized $i22.8 million and $i102.1 million,
respectively, of revenue related to the Company’s contract liabilities at December 31, 2021. The change in contract liabilities from December 31, 2021 to September 30, 2022 was primarily due to the timing of cash receipts and sales of PCS and extended warranty services as well as the impact of current year acquisitions.
Remaining Performance Obligations
Remaining performance obligations represent the transaction price of firm, noncancelable orders and the annual contract
value for software-as-a-service contracts with expected customer delivery dates beyond one year from September 30, 2022 for which work has not been performed. The Company has excluded performance obligations with an original expected duration of one year or less. Performance obligations as of September 30, 2022 are $i348.7
million, the majority of which are related to the annual contract value for software-as-a-service contracts. The Company expects approximately i35 percent of the remaining performance obligations will be fulfilled within the next itwo
years, i65 percent within the next ithree years, and substantially all within ifour
years.
23
Disaggregation of Revenue
The Company disaggregates revenue from contracts with customers by sales of products and services, geographic location, solution and major product group, as it best depicts how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors.
(a)
Includes sales in the United States of $i567.4 million and $i526.7 million
for the three months ended September 30, 2022 and October 1, 2021, respectively, and sales in the United States of $i1,672.4 million and $i1,513.3 million
for the nine months ended September 30, 2022 and October 1, 2021, respectively.
(b) Certain prior year amounts were reclassified from “Other” and “E-mobility” to “Alternative energy” to conform with current year presentation.
/
NOTE 8. iINCOME
TAXES
Our effective tax rate for the three and nine months ended September 30, 2022 was i26.2% and i21.8%,
respectively, as compared to i19.6% and i22.2% for the three and nine months ended October 1, 2021. The year-over-year
increase in the effective tax rate for the three months ended September 30, 2022 as compared to the comparable period in the prior year was primarily due to the recording of our investment in Tritium at fair value. The year-over-year decrease in the effective tax rate for the nine months ended September 30, 2022 as compared to the comparable period in the prior year was primarily due to an increase in non-taxable income related to our previously held equity interest in Driivz and a decrease in state taxes.
24
Our effective tax rate for both periods in 2022 and 2021
differs from the U.S. federal statutory rate of 21% due primarily to the effect of state taxes and foreign taxable earnings at a rate different from the U.S. federal statutory rate, which for the nine months ended September 30, 2022, was offset by the increase in non-taxable income related to our previously held equity interest in Driivz.
NOTE 9. iLEASES
Operating
lease cost was $i5.2 million and $i5.3 million for the three months ended September 30, 2022 and October
1, 2021, respectively. For the nine months ended September 30, 2022 and October 1, 2021, operating lease cost was $i16.4 million and $i15.8 million, respectively. During the
nine months ended September 30, 2022 and October 1, 2021, cash paid for operating leases included in operating cash flows was $i14.7 million and $i14.1 million,
respectively. Right-of-use assets obtained in exchange for operating lease obligations were $i7.7 million and $i15.7
million for the nine months ended September 30, 2022 and October 1, 2021, respectively.
25
NOTE 10. iLITIGATION
AND CONTINGENCIES
Warranty
We generally accrue estimated warranty costs at the time of sale. In general, manufactured products are warrantied 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 ininety 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 the Company’s accrued warranty liability:
The Company is involved in legal proceedings from time
to time in the ordinary course of its business. Although the outcome of such matters is uncertain, management believes that these legal proceedings will not have a material adverse effect on the financial condition or results of future operations of the Company.
In accordance with accounting guidance, the Company records a liability in the Consolidated Condensed Financial Statements for loss contingencies when a loss is known or considered probable and the amount can be reasonably estimated. If the reasonable estimate of a known or probable loss is a range, and no amount within the range is a better estimate than any other, the minimum amount of the range is accrued. If a loss does not meet the known or probable level but is reasonably
possible and a loss or range of loss can be reasonably estimated, the estimated loss or range of loss is disclosed.
Our reserves consist of specific reserves for individual claims and additional amounts for anticipated developments of these claims as well as for incurred but not yet reported claims. The specific reserves for individual known claims are quantified with the assistance of legal counsel and outside risk insurance professionals where appropriate. In addition, outside risk insurance professionals may assist in the determination of reserves for incurred but not yet reported claims through evaluation of our specific loss history, actual claims reported, and industry trends among statistical and other factors. Reserve estimates are adjusted as additional information regarding a claim becomes known. While we actively pursue financial recoveries from insurance providers, the
Company does not recognize any recoveries until realized or until such time as a sustained pattern of collections is established related to historical matters of a similar nature and magnitude. If the risk insurance reserves the Company has established are inadequate, we would be required to incur an expense equal to the amount of the loss incurred in excess of the reserves, which would adversely affect our net earnings.
In connection with the recognition of liabilities for asbestos related matters, the Company records insurance recoveries that are deemed probable and estimable. In assessing the probability of insurance recovery, we make judgments concerning insurance coverage that we believe are reasonable and consistent with our historical dealings,
our knowledge of any pertinent solvency issues surrounding insurers, and litigation and court rulings potentially impacting coverage. While the substantial majority of our insurance carriers are solvent, some of our individual carriers are insolvent, which has been considered in the analysis of probable recoveries. Projecting future events is subject to various uncertainties, including litigation and court rulings potentially impacting coverage, that could cause insurance recoveries on asbestos related liabilities to be higher or lower than those projected and recorded. Given the inherent uncertainty in making future projections, the Company reevaluates projections concerning the Company’s probable insurance recoveries considering any changes to the projected liabilities, the
Company’s recovery experience or other relevant factors that may impact future insurance recoveries.
We recorded gross liabilities associated with known and future expected asbestos claims of $i73.8 million and $i79.0
million as of September 30, 2022 and December 31, 2021, respectively. Known and future expected asbestos claims of $i14.2 million and $i21.5
million are included in Accrued expenses and other current liabilities on the Consolidated Condensed Balance Sheets as
We recorded the related projected insurance recoveries of $i37.8
million and $i45.0 million as of September 30, 2022 and December 31, 2021, respectively. Projected insurance recoveries in the accompanying Consolidated Condensed Balance Sheets as of September 30, 2022 include $i7.5 million
in Prepaid expenses and other current assets and $i30.3 million in Other assets. Projected insurance recoveries in the accompanying Consolidated Condensed Balance Sheets as of December 31, 2021 include $i14.8
million in Prepaid expenses and other current assets and $i30.2 million in Other assets.
Guarantees
As of September 30, 2022 and December 31, 2021, we had guarantees consisting primarily of outstanding standby letters of credit, bank guarantees, and performance and bid bonds of approximately $i86.7 million
and $i92.6 million, respectively. These guarantees have been provided in connection with certain arrangements with vendors, customers, financing counterparties, and governmental entities to secure our obligations and/or performance requirements related to specific transactions. In general, we would only be liable for the amount of these guarantees in the event of default in the performance of our obligations.
Refer to Note 5. Financing for information regarding guarantees of the Notes
by certain of our wholly-owned subsidiaries.
NOTE 11. iFAIR VALUE MEASUREMENTS
Accounting standards define fair value based on an exit price model, establish a framework for measuring fair value where our assets and liabilities are required to be carried at fair value and provide for certain
disclosures related to the valuation methods used within a valuation hierarchy as established within the accounting standards. This hierarchy prioritizes the inputs into three broad levels as follows:
•Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.
•Level 2 inputs are quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets in markets that are not active, or other observable characteristics for the asset or liability, including interest rates, yield curves and credit risks, or inputs that are derived principally from, or corroborated by, observable market data through correlation.
•Level 3 inputs are unobservable inputs based
on our assumptions.
A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement in its entirety.
iBelow is a summary of financial assets and liabilities that are measured at fair value on a recurring basis as of:
Certain
management employees participate in our nonqualified deferred compensation programs that permit such employees to defer a portion of their compensation, on a pretax basis, until after their termination of employment. All amounts deferred under such plans are unfunded, unsecured obligations and are presented as a component of our compensation and benefits accrual included in Other long-term liabilities in the accompanying Consolidated Condensed Balance Sheets. Participants may choose among alternative earning 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 (“401(k) Programs”) (except that the earnings rates for amounts contributed unilaterally by the Company are entirely based on changes in the value of our common stock). Changes in the
27
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.
Refer to Note 2. Acquisitions for information regarding earn-out liabilities.
Other Investments
The Company holds a minority interest in Tritium Holdings Pty, Ltd (“Tritium”) which historically was recorded at cost in Other assets on the Consolidated Condensed Balance Sheets. On January 13, 2022, Tritium announced that it completed a business combination with Decarbonization Plus Acquisition Corporation II to make Tritium a publicly listed company on NASDAQ under the symbol “DCFC”.
As Tritium is now publicly traded, the Company records its investment at fair value in Equity securities measured at fair value on the Consolidated Condensed Balance Sheets with changes in the value recorded in Unrealized (loss)/gain on equity securities measured at fair value on the Consolidated Condensed Statements of Earnings and Comprehensive Income and the Consolidated Condensed Statements of Cash Flows.
During the nine months ended September 30, 2022, the Company sold shares of Tritium stock and recognized a gain of $i2.7 million
which is recorded in Other non-operating income (expense), net on the Consolidated Condensed Statements of Earnings and Comprehensive Income and Gain on equity investments in the Consolidated Condensed Statements of Cash Flows.
Nonrecurring Fair Value Measurements
Certain assets and liabilities are carried on the accompanying Consolidated Condensed Balance Sheets at cost and are not remeasured to fair value on a recurring basis. These assets include finite-lived intangible assets, which are tested when a triggering event occurs, and goodwill and identifiable indefinite-lived intangible assets, which are tested for impairment at least annually as of the first day of the fourth quarter or more frequently if events and circumstances indicate that the asset may not be recoverable.
As of September
30, 2022, assets carried on the balance sheet and not remeasured to fair value on a recurring basis were $i1.7 billion of goodwill and $i670.8 million of identifiable intangible assets, net.
Refer
to Note 5. Financing for information related to the fair value of the Company’s borrowings.
NOTE 12. iRELATED-PARTY TRANSACTIONS
In connection with the Separation, we entered into the Agreements with Fortive which govern the Separation and provide a framework for the
relationship between the parties going forward, including an employee matters agreement, a tax matters agreement, an intellectual property matters agreement, an FBS license agreement and a transition services agreement.
Employee Matters Agreement
The employee matters agreement sets forth, among other things, the allocation of assets, liabilities and responsibilities relating to employee compensation and benefit plans and programs and other related matters in connection with the Separation, including the treatment of outstanding equity and other incentive awards and certain retirement and welfare benefit obligations.
Tax Matters Agreement
The tax matters agreement governs the respective rights, responsibilities and obligations of both Fortive and Vontier after the Separation
with respect to tax liabilities and benefits, tax attributes, the preparation and filing of tax returns, the control of audits and other tax proceedings and other matters regarding taxes.
Intellectual Property Matters Agreement
The intellectual property matters agreement sets forth the terms and conditions pursuant to which Fortive and Vontier have mutually granted certain personal, generally irrevocable, non-exclusive, worldwide, and royalty-free rights to use certain intellectual property. Both parties are able to sublicense their rights in connection with activities relating to their businesses, but not for independent use by third parties.
28
FBS
License Agreement
The FBS license agreement sets forth the terms and conditions pursuant to which Fortive has granted a non-exclusive, worldwide, non-transferable, perpetual license to us to use FBS solely in support of our businesses. We are able to sublicense such license solely to direct and indirect wholly-owned subsidiaries.
Transition Services Agreement (“TSA”)
The TSA sets forth the terms and conditions pursuant to which Vontier and our subsidiaries and Fortive and its subsidiaries will provide to
each other various services after the Separation. The services to be provided include information technology, facilities, certain accounting and other financial functions, and administrative services. The charges for the transition services generally are expected to allow the providing company to fully recover all out-of-pocket costs and expenses it actually incurs in connection with providing the service, plus, in some cases, the allocated indirect costs of providing the services, generally without profit.
TSA Payments
In accordance with the TSA, receipts from Fortive were immaterial during the three and nine months ended October 1, 2021. During the nine months ended October 1, 2021, we made net payments to Fortive of $i48.5 million.
Net payments during the nine months ended October 1, 2021 included approximately $i30 million of our share of the transaction taxes related to the Separation. Net payments made during the three months ended October 1, 2021 were not significant.
Net payments made during the three and nine months ended September
30, 2022 were not significant.
NOTE 13. iCAPITALIZATION AND EARNINGS PER SHARE
Capital Stock
The Company’s authorized capital stock consists of i1,985,000,000
shares of common stock, par value $i0.0001 per share, and i15,000,000 shares of preferred stock with ino
par value, all of which shares of preferred stock are undesignated.
Earnings Per Share
Basic earnings per share is calculated by dividing net earnings by the weighted average number of shares of common stock outstanding. Diluted earnings per share is similarly calculated, except that the calculation includes the dilutive effect of the assumed issuance of shares under stock-based compensation plans except where the inclusion of such shares would have an anti-dilutive impact.
iInformation
related to the calculation of net earnings per share of common stock is summarized as follows:
29
Three Months Ended
Nine
Months Ended
($ and shares in millions, except per share amounts)
Diluted
weighted average common shares outstanding
i158.7
i170.3
i162.2
i170.0
Earnings
per share:
Basic
$
i0.32
$
i0.75
$
i2.07
$
i1.78
Diluted
$
i0.32
$
i0.75
$
i2.06
$
i1.77
Anti-dilutive
shares
i3.4
i1.6
i3.3
i2.5
Share
Repurchase Program
On May 24, 2022, the Company’s Board of Directors approved a replenishment of the Company’s previously approved share repurchase program announced in May 2021, bringing the total amount authorized for future share repurchases back up to $i500 million. Under the share repurchase program,
the Company will purchase shares of common stock from time to time on the open market or in privately negotiated transactions. The timing and amount of shares repurchased will be determined by the Company’s management based on market conditions, share price, applicable legal requirements and other factors. The Company may enter into Rule 10b5-1 plans to facilitate purchases under the share repurchase program. The share repurchase program may be suspended or discontinued at any time and has no expiration date.
In February 2022, the Company entered into an accelerated
share repurchase agreement (“ASR”) with a third-party financial institution whereupon we provided them with a prepayment of $i250.0 million and received an initial delivery of i8.2 million
shares of our common stock. We received an additional i1.8 million shares of our common stock as final settlement of the ASR during Q2. In total, the Company repurchased i10.0 million
shares under the ASR at an average price of $i25.11 per share.
During the nine months ended September 30, 2022, the Company repurchased an additional i1.6
million of the Company’s shares for $i38.0 million through open market transactions at an average price per share of $i23.02.
As of September 30, 2022, the Company has remaining authorization to repurchase $i469 million of its common stock under the share repurchase program.
NOTE
14. iASSETS AND LIABILITIES HELD FOR SALE
Hennessy
During the three months ended July 1, 2022, the Company reached the strategic decision to exit our Hennessy business. The
Company determined that the associated assets and liabilities met the held for sale accounting criteria and they were classified as Current assets held for sale and Current liabilities held for sale in the Consolidated Condensed Balance Sheet as of September 30, 2022.
Global Traffic Technologies
During the three months ended July 1, 2022, the Company reached the strategic decision to exit our Global Traffic Technologies business (collectively with Hennessy, the “Disposal Groups”). The Company determined that the associated assets and liabilities met the held for sale
accounting criteria and they were classified as Current assets held for sale and Current liabilities held for sale in the Consolidated Condensed Balance Sheet as of September 30, 2022.
30
The assets and liabilities were measured at the lower of fair value less costs to sell or the carrying value.
i
The
following table summarizes the carrying amounts of major classes of assets and liabilities of the Disposal Groups as of:
($ in millions)
ASSETS
Accounts
receivable, net
$
i21.3
Inventories
i16.4
Other
current assets
i1.7
Property, plant and equipment, net
i9.1
Operating
lease right-of-use assets
i0.4
Other intangible assets, net
i28.7
Goodwill
i56.0
Other
assets
i5.1
Total assets held for sale
$
i138.7
LIABILITIES
Trade
accounts payable
$
i14.4
Current operating lease liabilities
i0.4
Accrued
expenses and other current liabilities
i14.6
Other long-term liabilities
i10.0
Total
liabilities held for sale
$
i39.4
/
The
operations of Hennessy and Global Traffic Technologies did not meet the criteria individually or in the aggregate to be presented as discontinued operations.
NOTE 15. iSUBSEQUENT EVENT
On October 28, 2022, the Company entered into an agreement to refinance
the iTwo-Year Term Loans Due 2023 into a new $i600 million ithree-year
delayed draw term loan. The Company plans to draw on this loan in full on or before December 30, 2022 and use the proceeds to pay off the existing iTwo-Year Term Loans Due 2023. Accordingly, the iTwo-Year
Term Loans Due 2023 remain classified as long-term as of September 30, 2022.
31
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF 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 and is intended
to help the reader understand the results and operations and financial condition of the Company. Our MD&A should be read in conjunction with the MD&A and Consolidated and Combined Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (the “2021 Annual Report on Form 10-K”).
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.
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. 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. Important factors that could cause actual results to differ
materially from those envisaged in the forward-looking statements include the following:
•The ongoing effects of the COVID-19 pandemic on our global operations and the operations of our customers, suppliers, and vendors is having, and is expected to continue to have, a significant impact on our business and results of operations.
•Changes in, or status of implementation of, industry standards and governmental regulations, including interpretation or enforcement thereof, may reduce demand for our products or services, increase our expenses or otherwise adversely impact our business model.
•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.
•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.
•Our businesses are subject to extensive regulation; failure to comply with those regulations could adversely affect our financial statements and our business, including our reputation.
•International economic, political, war or hostility, legal, compliance, supply chain, epidemic and business factors could negatively affect our financial statements.
•We may be required to recognize impairment charges for our goodwill and other intangible assets.
•We
are party to asbestos-related product litigation that could adversely affect our financial condition, results of operations and cash flows.
•Our restructuring actions could have long-term adverse effects on our business.
•As of the date of this quarterly report, we have outstanding indebtedness of approximately $2.6 billion and the ability to incur an additional $736.0 million of indebtedness under the Revolving Credit Facility, as defined above, and in the future we may incur additional indebtedness. This indebtedness could adversely affect our businesses and our ability to meet our obligations and pay dividends.
•We may not be able to generate sufficient cash to service all of our indebtedness and may be forced to take other actions to satisfy our obligations
under our indebtedness, which may not be successful.
•Any inability to consummate acquisitions at our historical rates and at appropriate prices, and to make appropriate investments that support our long-term strategy, could negatively impact our growth rate and stock price.
•Our acquisition of businesses, investments, joint ventures and other strategic relationships could negatively impact our financial statements.
•Changes in our 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.
32
•Adverse
changes in our relationships with, or the financial condition, performance, purchasing patterns or inventory levels of, key distributors and other channel partners could adversely affect our financial statements.
•Our financial results are subject to fluctuations in the cost and availability of commodities that we use in our operations.
•If we cannot adjust our manufacturing capacity or the purchases required for our manufacturing activities to reflect changes in market conditions and customer demand, our profitability may suffer. In addition, our reliance upon sole or limited sources of supply for certain materials, components and services could cause production interruptions, delays and inefficiencies.
•Potential indemnification liabilities to Fortive pursuant
to the separation agreement could materially and adversely affect our businesses, financial condition, results of operations and cash flows. In addition, there can be no assurance that Fortive’s performance of its indemnity obligations to us under the separation agreement regarding certain liabilities will be sufficient.
•If there is a determination that the distribution, together with certain related transactions, is taxable for U.S. federal income tax purposes because the facts, assumptions, representations or undertakings underlying Fortive’s private letter ruling from the IRS or tax opinion are incorrect or for any other reason, then Fortive and its stockholders could incur significant U.S. federal income tax liabilities, and we could also incur significant liabilities.
•We may be affected by significant restrictions, including
on our ability to engage in certain corporate transactions for a two-year period after the distribution in order to avoid triggering significant tax-related liabilities.
•Fortive may compete with us.
•We may not achieve some or all of the expected benefits of the separation, and the separation may adversely affect our businesses.
See “Item 1.A. Risk Factors” in our 2021 Annual Report on Form 10-K and Part II - Item 1A. Risk Factors” in this Form 10-Q for a further discussion regarding reasons that actual results may differ materially from the results, developments and business decisions contemplated by our forward-looking statements. Forward-looking statements speak only as of the date of the report, document, press
release, webcast, call, materials or other communication in which they are made. We do not assume any obligation to update or revise any forward-looking statement, whether as a result of new information, future events and developments or otherwise.
OVERVIEW
General
Vontier Corporation (“Vontier,” the “Company,”“we,”“us,” or “our”) is a global industrial technology company that focuses on critical technical equipment, components, and software and services for manufacturing, repair and servicing in the mobility infrastructure industry worldwide. We supply a wide range of solutions spanning advanced environmental sensors; fueling equipment; field payment
hardware; point-of-sale; workflow and monitoring software; vehicle tracking and fleet management; software solutions for traffic light control; and vehicle mechanics’ and technicians’ equipment. We market our products and services to retail and commercial fueling operators, convenience store and in-bay car wash operators, tunnel car wash businesses, commercial vehicle repair businesses, municipal governments and public safety entities and fleet owners/operators on a global basis.
Our research and development, manufacturing, sales, distribution, service and administrative operations are located in more than 30 countries across North America, Asia Pacific, Europe and Latin America. In addition, we sell our products in these countries and multiple other markets in these regions. 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.
33
BUSINESS PERFORMANCE AND OUTLOOK
Business Performance
On an overall basis, sales of our hardware and software products and services increased during the three and nine months ended September 30, 2022. As compared to the comparable periods of 2021, aggregate year-over-year total sales increased 2.5% and 5.1% for the three and nine months ended September
30, 2022, respectively. Sales from existing businesses decreased 1.9% and 0.2% during the three and nine months ended September 30, 2022, respectively, as compared to the comparable periods in 2021.
The increase in total sales during the three months ended September 30, 2022 was primarily driven by our acquisition of DRB Systems, LLC (“DRB”), which is part of our mobility technologies platform, as well as our diagnostics and repair portfolio, which experienced strong demand across most product categories. The Company saw strong demand for our compressed natural gas technology within our alternative energy solutions and aftermarket within our mobility technologies platform, but was impacted by the lower rate of demand related to
the enhanced credit card security requirements for outdoor payment systems based on the Europay, Mastercard and Visa (“EMV”) global standards. Changes in foreign currency exchange rates negatively impacted our sales growth by 3.3% during the three months ended September 30, 2022 compared to the comparable period in 2021.
The increase in total sales during the nine months ended September 30, 2022 was primarily driven by our acquisition of DRB. Our mobility technologies platform had strong demand for alternative energy but was impacted by the lower rate of demand related to the enhanced credit card security requirements for outdoor payment systems based on the Europay, Mastercard and Visa (“EMV”) global standards as well as the end of Mexico fiscal regulation upgrades. Additionally, total sales increased due to
our diagnostics and repair technologies platform, which experienced strong demand across most product categories, most notably specialty tools and diagnostics as well as the impact of price increases by the Company across its portfolio. Changes in foreign currency exchange rates negatively impacted our sales growth by 2.5% during the nine months ended September 30, 2022 compared to the comparable period in 2021.
In developed markets, year-over-year total sales increased at a rate in the mid single digits and sales from existing businesses declined at rate in the low single digits for the three months ended September 30, 2022. The increase in total sales was primarily due to an increase in North America related to the impact
of our acquisition of DRB and strong demand for our compressed natural gas technology within our alternative energy solutions which was partially offset by declines in Western Europe. In high growth markets, total sales and sales from existing businesses for the three months ended September 30, 2022 declined at a rate in the low double digits and low single digits, respectively. The decline in total sales was primarily due to timing for dispenser and environmental deliveries in India and the negative impact of foreign exchange rates.
In developed markets, year-over-year total sales increased at a rate in the high single digits for the nine months ended September 30, 2022. Sales from existing businesses for the nine months ended September 30, 2022 were up slightly.
The increase in total sales was primarily due to an increase in North America related to the impact of our acquisition of DRB and strong demand for our compressed natural gas technology within our alternative energy solutions which was partially offset by declines in Western Europe. In high growth markets total sales and sales from existing businesses decreased at a rate in the low double digits and mid single digits, respectively, driven by declines in Latin America due to the end of Mexico fiscal regulation upgrades and the Middle East and Africa.
Outlook
We expect overall sales and sales from existing businesses to grow on a year-over-year basis in 2022. Additionally, this outlook is subject to various assumptions and risks, including but not limited to the resilience and durability of the economies of the United States and other critical regions, ongoing challenges
with global logistics and supply chain including the availability of electronic components, the impact of the COVID-19 pandemic, the impact of the Russia Ukraine Conflict, market conditions in key end product segments, and the impact of energy disruption in Europe.
Our outlook is subject to the below factors as well as additional uncertainties as identified in “Information Relating to Forward-Looking Statements” above.
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. At the end of August, one of our key electronic suppliers for multiple boards that are part of every dispenser shipped in the United States, suffered a cyberattack that brought down all their manufacturing capability for approximately
three weeks, which impacted our Greensboro factory while we mitigated the issue. We will continue to deploy the Vontier Business System to actively manage production challenges,
34
collaborate with customers and suppliers to minimize disruptions and utilize price increases and other countermeasures to offset inflationary pressures.
We continue to monitor the macroeconomic and geopolitical conditions which may impact our business, including the COVID-19 pandemic, monetary and fiscal policies, international trade and relations between the U.S., China and other nations, and investment and taxation policy initiatives being considered
in the United States and by the Organization for Economic Co-operation and Development. We also continue to monitor the Russia Ukraine Conflict and the impact on our business and operations. As of the filing date of this report, we do not believe they are material.
Selling, general and administrative expenses ("SG&A")
(174.7)
(147.8)
(517.4)
(458.1)
Research and development expenses ("R&D")
(35.0)
(31.2)
(104.4)
(97.3)
Operating
profit
$
150.2
$
167.4
$
421.5
$
421.3
Gross profit as a % of sales
45.7
%
45.1
%
45.1
%
44.4
%
SG&A
as a % of sales
22.2
%
19.2
%
22.4
%
20.8
%
R&D as a % of sales
4.4
%
4.1
%
4.5
%
4.4
%
Operating
profit as a % of sales
19.1
%
21.8
%
18.2
%
19.1
%
Components of Sales Growth
%
Change Three Months Ended September 30, 2022 vs. Comparable 2021 Period
% Change Nine Months Ended September 30, 2022 vs. Comparable 2021 Period
Total revenue growth (GAAP)
2.5
%
5.1
%
Existing businesses (Non-GAAP)
(1.9)
%
(0.2)
%
Acquisitions
(Non-GAAP)
7.7
%
7.8
%
Currency exchange rates (Non-GAAP)
(3.3)
%
(2.5)
%
Total sales within our mobility technologies platform increased low single digits during the three months ended September 30, 2022 as compared
to the comparable period of 2021 which was primarily attributable to our acquisition of DRB. Our sales from existing businesses in our mobility technologies platform decreased low single digits primarily due to the lower rate of demand related to the enhanced credit card security requirements for outdoor payment systems based on the EMV global standards which were partially offset by strong demand for our compressed natural gas technology within our alternative energy solutions.
Total sales within our mobility technologies platform increased mid single digits during the nine months ended September 30, 2022 as compared to the comparable period of 2021 which was primarily attributable to our acquisition of DRB. Our sales from existing businesses in our mobility technologies platform were down slightly primarily due to the lower rate of demand related to the
enhanced credit card security requirements for outdoor payment systems based on the EMV global standards as well as
35
the end of Mexico fiscal regulation upgrades which were partially offset by strong demand for our compressed natural gas technology within our alternative energy solutions.
Total sales and sales from existing businesses within our diagnostics and repair technologies platform increased low single digits during the three months ended September 30, 2022 as compared to the comparable period in 2021 driven primarily by continued strong demand across most product categories,
most notably hardline and powered tools.
Total sales and sales from existing businesses within our diagnostics and repair technologies platform increased low single digits during the nine months ended September 30, 2022 as compared to the comparable period in 2021. The results of our diagnostics and repair technologies platform were driven primarily by continued strong demand across most product categories, most notably specialty and hardline tools.
The impact on the Company of price increases are reflected as a component of the change in sales from existing businesses, and year-over-year price increases contributed 5.9% and 5.3% to sales growth during the three and nine months ended September
30, 2022 versus the comparable periods in 2021.
The impact of currency translation decreased reported sales 3.3% and 2.5% on a year-over-year basis during the three and nine month periods ended September 30, 2022, respectively, primarily due to the unfavorable impact of the strengthening of the U.S. dollar against most other major currencies in 2022 compared to the comparable periods of 2021.
Cost of Sales
Cost of sales increased $6.0 million for the three months ended September 30, 2022, as compared to the comparable period in 2021, which was due primarily to the impact of acquisitions as well as increased costs due to inflationary pressures.
The
year-over-year increase of $45.4 million in cost of sales for the nine months ended September 30, 2022 as compared to the comparable period in 2021 was primarily due to the impact of DRB as well as increased costs due to inflationary pressures.
Gross Profit
Gross profit increased during the three months ended September 30, 2022, as compared to the comparable period in 2021, which was primarily due to the impact of the Company’s price increases and the impact of the acquisition of DRB and was partially offset by the increased costs due to inflationary pressures.
The year-over-year increase in gross
profit for the nine months ended September 30, 2022 as compared to the comparable period in 2021 is primarily due to the impact of the Company’s price increases and the impact of the acquisition of DRB and was partially offset by the increased costs due to inflationary pressures.
The 60 and 70 basis point increases in gross profit margin during the three and nine months ended September 30, 2022, respectively, as compared to the comparable periods in 2021 is primarily due to price increases and the impact of the DRB acquisition which were partially offset by increased costs due to inflationary pressures.
Operating Costs and Other Expenses
SG&A
expenses increased by $26.9 million, or 300 basis points as a percentage of sales, during the three months ended September 30, 2022, as compared to the comparable period in 2021, primarily due to the impact of the acquisition of DRB.
SG&A expenses increased by $59.3 million, or 160 basis points as a percentage of sales, during the nine months ended September 30, 2022, as compared to the comparable period in 2021, primarily due to the impact of the acquisition of DRB.
R&D expenses (consisting principally of internal and contract engineering personnel costs) increased $3.8 million and $7.1 million during the three and nine months ended September
30, 2022, respectively, as compared to the comparable periods in 2021, primarily due to the impact of our acquisitions of DRB and Driivz. R&D expense as a percentage of sales was relatively flat during the three and nine months ended September 30, 2022.
36
Operating Profit
Operating profit margin decreased 270 basis points during the three months ended September 30, 2022 as compared to the comparable period in 2021.
Year-over-year operating
profit margin comparisons were favorably impacted by:
•The year-over-year impacts of sales volumes, price, sales mix, other operating impacts and changes in foreign currency exchange rates — favorable 20 basis points
Year-over-year operating profit margin comparisons were primarily impacted by the following unfavorable factors:
•Increased costs due to inflationary pressures — unfavorable 340 basis points
NON-GAAP
FINANCIAL MEASURES
Sales from Existing Businesses
We define sales from existing businesses as total sales excluding (i) sales from acquired and divested businesses; (ii) the impact of currency translation; and (iii) certain other items.
•References to sales attributable to acquisitions or acquired businesses refer to GAAP sales from acquired businesses recorded prior to the first anniversary of the acquisition less the amount of sales attributable to certain divested businesses or product lines not considered discontinued operations.
•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 from acquired businesses) and (b) the period-to-period change in sales, including foreign operations, (excluding sales from acquired businesses) after applying the current period foreign exchange rates to the prior year period.
•The portion of sales attributable to other items is calculated as the impact of those items which are not directly correlated to sales from existing businesses which do not have an impact on the current or comparable period.
Sales from existing businesses should be considered in addition to, and not as a replacement for or superior to, total 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 easier comparisons of our sales performance with our performance in prior and future periods and to our peers. We exclude the effect of acquisitions and divestiture-related items because the nature, size and number of such transactions can vary dramatically from period to period and between us and our peers. We exclude the effect of currency translation and certain other items from sales from existing businesses because these items are either not under management’s control or relate to items not directly correlated to sales from existing businesses. Management believes the exclusion of these items from sales from existing businesses may facilitate assessment of underlying business trends and may assist in comparisons of long-term performance. References to sales volume refer to the impact of both price and unit sales.
37
INCOME
TAXES
General
Income tax expense and deferred tax assets and liabilities reflect management’s assessment of future taxes expected to be paid on items reflected in our financial statements. Our effective tax rate can be affected by, among other items, changes in the mix of earnings in countries with differing statutory tax rates (including as a result of business acquisitions and dispositions), changes in the valuation of deferred tax assets and liabilities, the implementation of tax planning strategies, tax rulings, court decisions, settlements with tax authorities and changes in tax laws.
Our
effective tax rate for the three and nine months ended September 30, 2022 was 26.2% and 21.8%, respectively, as compared to 19.6% and 22.2% for the three and nine months ended October 1, 2021. The year-over-year increase in the effective tax rate for the three months ended September 30, 2022 as compared to the comparable period in the prior year was primarily due to the recording of our investment in Tritium at fair value. The year-over-year decrease in the effective tax rate for the nine months ended September 30, 2022 as compared to the comparable period in the prior year was primarily due to an increase in non-taxable income related to our previously held equity interest in Driivz and a decrease in state taxes.
Our
effective tax rate for both periods in 2022 and 2021 differs from the U.S. federal statutory rate of 21% due primarily to the effect of state taxes and foreign taxable earnings at a rate different from the U.S. federal statutory rate, which for the nine months ended September 30, 2022, was offset by the increase in non-taxable income related to our previously held equity interest in Driivz.
COMPREHENSIVE INCOME
Comprehensive income decreased by $115.1 million during the three months ended September 30, 2022 as compared to the comparable period in 2021 primarily due to unfavorable changes in foreign currency adjustments of $37.7
million and net earnings that were lower by $77.2 million.
Comprehensive income decreased by $65.3 million during the nine months ended September 30, 2022 as compared to the comparable period in 2021 primarily due to net earnings that were higher by $33.0 million and unfavorable changes in foreign currency adjustments of $98.2 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 will be sufficient
to allow us to continue to invest in existing businesses, consummate strategic acquisitions, make interest payments on our outstanding indebtedness, and manage our capital structure on a short and long-term basis.
2022 Financing and Capital Transactions
During the nine months ended September 30, 2022, we completed the following financing and capital transactions:
•Entered and settled a $250.0 million accelerated share repurchase program under which we received 10.0 million shares which are held as Treasury stock;
•Repurchased 1.6 million shares in the open market which are held as Treasury stock.
Our long-term debt requires, among others, that we maintain
certain financial covenants, and we were in compliance with all of these covenants as of September 30, 2022.
Refer also to Note 5. Financing to the Consolidated Condensed Financial Statements for additional information.
38
Overview of Cash Flows and Liquidity
Following is an overview of our cash flows and liquidity:
Payments
for additions to property, plant and equipment
(43.0)
(32.9)
Proceeds from sale of asset
0.2
—
Cash paid for equity investments
(11.3)
(7.6)
Proceeds from sale of equity securities
5.1
—
Cash
received for settlement of investment
—
7.0
Net cash used in investing activities
$
(326.1)
$
(989.0)
Proceeds from issuance of long-term debt
$
235.0
$
2,186.5
Repayment
of long-term debt
(185.0)
(1,400.0)
Payment for debt issuance costs
—
(5.1)
Payment of common stock cash dividend
(12.0)
(8.4)
Purchase of treasury stock
(288.0)
—
Net
borrowings (repayments) of short-term debt
3.6
(6.2)
Net transfers to Former Parent
—
(35.6)
Proceeds from stock option exercises
1.3
6.8
Acquisition of noncontrolling interest
—
(1.9)
Other
financing activities
(3.8)
(4.8)
Net cash (used in) provided by financing activities
$
(248.9)
$
731.3
Operating Activities
Cash flows from operating activities can fluctuate significantly from period-to-period as working capital needs and the timing of payments for income taxes, various employee liabilities, restructuring activities, and other items impact reported
cash flows.
Cash flows from operating activities were $139.8 million during the nine months ended September 30, 2022, a decrease of $202.1 million, as compared to the comparable period in 2021. The year-over-year change in operating cash flows was primarily attributable to the following factors:
•The aggregate of accounts receivable and long-term financing receivables used $76.1 million of operating cash flows during the nine months ended September 30, 2022 compared to using $25.0 million in the comparable period of 2021. The amount of cash flow generated from or used by accounts receivable depends upon how effectively we manage the cash conversion cycle and can be significantly impacted by the timing of collections in a period. Additionally,
when we originate certain financing receivables, we assume the financing receivable by decreasing the franchisee’s trade accounts receivable. As a result, originations of certain financing receivables are non-cash transactions.
•The aggregate of other operating assets and liabilities used $158.4 million during the nine months ended September 30, 2022 compared to providing $11.0 million in the comparable period of 2021. This change is due primarily to the timing of accruals and payments as well as inventory and other working capital needs.
Investing Activities
Net cash used in investing activities decreased by $662.9 million during the nine months ended September 30, 2022 as compared to the comparable
period in 2021 primarily due to the cash paid for the acquisition of DRB in the nine months ended October 1, 2022.
39
Financing Activities and Indebtedness
Cash flows from financing activities used $248.9 million during the nine months ended September 30, 2022 compared to $731.3 of cash provided in the comparable period in 2021. The decrease in cash provided was primarily due to lower proceeds from long-term debt of $2.0 billion, an increase in purchase of treasury stock of $288.0 million, and a decrease in repayments of
long-term debt of $1.2 billion.
Contractual Obligations
There have been no material changes to the contractual obligations as disclosed in our 2021 Annual Report on Form 10-K.
Supplemental Guarantor Financial Information
As of September 30, 2022, we had $1.6 billion in aggregate principal amount of the Notes and $1.0 billion in aggregate principal amount outstanding of the Term Loans. Our obligations to pay principal and interest on the Notes and Term Loans are fully and unconditionally guaranteed on a joint and several basis on an unsecured, unsubordinated basis by the
Guarantors. Our other subsidiaries do not guarantee any such indebtedness (collectively, “Non-Guarantor Subsidiaries”). Refer to Note 5. Financing to the Consolidated Condensed Financial Statements for additional information regarding the terms of our Notes and the Term Loans.
The Notes and the guarantees thereof are the Company’s and the guarantors’ senior unsecured obligations and:
•rank without preference or priority among themselves and equally in right of payment with our existing and any future unsecured and unsubordinated indebtedness,
including, without limitation, indebtedness under our credit agreement;
•are senior in right of payment to any of our existing and future indebtedness that is subordinated to the notes;
•are effectively subordinated to any of our existing and future secured indebtedness to the extent of the assets securing such indebtedness; and
•are structurally subordinated to all existing and any future indebtedness and any other liabilities of our non-Guarantor Subsidiaries.
The following tables present summarized financial information for Vontier Corporation and the Guarantor Subsidiaries
on a combined basis and after the elimination of (a) intercompany transactions and balances between Vontier Corporation and the Guarantor Subsidiaries and (b) equity in earnings from and investments in the Non-Guarantor Subsidiaries.
Summarized Results of Operations Data ($ in millions)
There were no material changes to the Company’s critical accounting estimates described in the Company’s 2021 Annual Report on Form 10-K.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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 the Company’s 2021 Annual Report on Form 10-K. There were no material changes to this information during the quarter ended September 30, 2022.
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.
41
PART
II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Vontier is party in the ordinary course of business, and may in the future be involved in, legal proceedings, litigation, claims, and government investigations. Although the results of the legal proceedings, claims, and government investigations in which we are involved cannot be predicted with certainty, we do not believe that the final outcome of these matters is reasonably likely to have a material adverse effect on our business, financial condition, or operating results.
Refer to “Note 10. Litigation And Contingencies – Litigation and Other Contingencies” of the Consolidated Condensed Financial
Statements in this Form 10-Q for more information on certain legal proceedings.
ITEM 1A. RISK FACTORS
Information regarding risk factors appears in “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Information Related to Forward-Looking Statements,” in Part I - Item 2 of this Form 10-Q and in “Risk Factors” in Part I - Item 1A of our 2021 Annual Report on Form 10-K. There were no material changes during the three months ended September 30, 2022 to the risk factors reported in our 2021 Annual Report on Form 10-K.
ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a) Not applicable.
(b) Not applicable.
(c) Purchases of Equity Securities by the Issuer
Stock repurchases may be made from time to time in open market transactions, privately negotiated transactions, accelerated share repurchase programs, or by combinations of such methods, any of which may use pre-arranged trading plans that are designed to meet the requirements of Rule 10b5-1(c) of the Securities Exchange Act of 1934. The timing of any repurchases and the actual number of shares repurchased will depend on a variety of factors, including the Company’s stock price, corporate and regulatory requirements, restrictions under the
Company’s debt obligations and other market and economic conditions.
In February 2022, the Company entered into an accelerated share repurchase agreement (“ASR”) with a third-party financial institution whereupon we provided them with a prepayment of $250.0 million and received an initial delivery of 8.2 million shares of our common stock. We received an additional 1.8 million shares of our common stock as final settlement of the ASR during Q2. In total, the Company repurchased 10.0 million shares under the ASR at an average price per share of $25.11.
The following table sets forth our share repurchase activity for the three months ended September
30, 2022.
Period
Total Number of Shares Purchased(1)
Average Price Paid per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
Approximate
Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs ($ in millions)
(1) All shares are covered by our $500 million share repurchase
program. The program was approved on May 19, 2021 and has no expiration date. On May 24, 2022, the Company’s Board of Directors approved a replenishment of the Company’s share repurchase program, bringing the total amount authorized for future share repurchases back up to $500 million.
Inline
XBRL Instance Document - the Instance Document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document
*
Indicates management contract or compensatory plan, contract or arrangement
43
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
