E S S E N T I A L T E C H N O L O G Y F O R T H E P E O P L E W H O A C C E L E R A T E P R O G R E S S
“ Our sustained focus on essential
technologies, driven by strong
market positions and advanced by
software and data analytics, will
continue to power our customers’
mission-critical workflows.”
J A M E S A . L I C O
President and Chief Executive Officer
R e s t o f World
5 %
Other
5%
i o n
c h i s e
n
t r i b u t
1 %
2
F
a
r
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d
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N
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a 61%
Product Realizatio
%
s 74
gie
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TOTAL SALES
a
l
I
n
s
t
ru
$7.3
BILLION
mentation 60%
n 26%
12%
ASP & Censis
9%
Technologies
Sensing
wth Markets 2 1 %
h Gro
Hig
%
3
1
e
p
o
r
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r
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t
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W
F I N A N C I A L H I G H L I G H T S
FOR FISCAL YEAR ENDED DECEMBER 31, 2019
R e s t
o f Wo rld
6 %
O t h e r 5%
5 %
Industrial & M
PROFESSIONAL
INSTRUMENTATION
REVENUE
$4.4
BILLION
a
n
u
f
a
c
t
u
r
i
n
g
2
5
%
ADJUSTED OPERATING
PROFIT MARGIN
23.9%
Medical 20%
U
t
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s & Power 15%
%
5 %
arkets 2 4
th M
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5
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m
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a 5
7%
R e s t o f World
5 %
5 %
8 %
%
1 0
INDUSTRIAL
TECHNOLOGIES
REVENUE
$2.9
BILLION
e
l
c
i
h
e
V
ADJUSTED OPERATING
PROFIT MARGIN
21.7%
h Growth M ark e ts 1
%
0
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r
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ig
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W
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il F
u
N
o
r
t
h A
m
eling 65%
erica 66%
ABOUT FORTIVE
PROFESSIONAL INSTRUMENTATION
INDUSTRIAL TECHNOLOGIES
Fortive is a diversified industrial technology
growth company comprised of well-known
brands that hold leading market positions in
field solutions, product realization, health,
sensing, transportation technology, and
franchise distribution. Fortive is headquartered
in Everett, Washington and employs over 25,000
employees in more than 50 countries. With a
culture rooted in continuous improvement, the
core of our company’s operating model is the
Fortive Business System.
Our sensors, workflow software, proprietary data,
and cloud-based analytical tools enable advanced
measurement, monitoring and management
to maximize our customers’ safety, reliability,
and efficiency. Our essential technologies
create actionable intelligence by detecting and
tracking a wide range of physical parameters and
seamlessly integrating them into our bundled
workflow software to help our customers
understand problems, generate solutions, and
manage corrective/preventative actions.
Our technical equipment, remote management
and workflow software, and advanced sensors
serve retail and commercial fueling operators,
commercial vehicle repair businesses, fleet
owners/operators, and public safety organizations
worldwide. Our essential technologies for the
mobility infrastructure industry help make fueling
convenient for consumers and retailers, track the
efficiency of global fleets, enhance environmental
compliance, improve emergency response times,
and keep vehicles operating safely on the road.
• Oil & Gas • Communications & Electronics • Semiconductor • Facilities Maintenance • Government • Consumer Goods • Logistics & Supply Chain • Industrial/Manufacturing
ADJUSTED OPERATING PROFIT MARGIN
ADJUSTED NET EARNINGS
21.7%
$1,248.4 MILLION
ADJUSTED DILUTED NET EARNINGS
PER SHARE
$3.48
CASH DIVIDEND RATE PER SHARE
FREE CASH FLOW
SHARE PRICE AS OF 12/31/2019
$0.28
$1,172.4 MILLION
$76.39
All financial metrics are presented on a continuing operations basis.
F E LL O W
S H A R E H O LD E R S ,
In 2019, we drew upon our strengths — our extraordinary
team and the power of the Fortive Business System
(FBS) — to continue the transformation of our company.
We turned deeper customer insights into breakthrough
innovations inspired by our shared purpose: Essential
technology for the people who accelerate progress.
Our team made significant contributions to our future
by harnessing the power of continuous improvement
in all that we do. I am incredibly proud to tell the
story of the many ways our teams around the world
continued to live our core values every day, to do
more for each other, our customers, our shareholders,
and our communities.
2 0 1 9 R E S U LT S
Our 2019 performance demonstrated the power of FBS
and the resilience of our portfolio. In the face of
headwinds from tariffs and a macro-economic slowdown,
our team achieved strong results across our key metrics:
• Core revenue growth of 2%
• Adjusted diluted net earnings per share of $3.48,
a year-over-year increase of 14%
• Core operating margin expansion of 30 basis points
• Free cash flow of $1.2 billion, a year-over-year
increase of 8%
James A. Lico
President and Chief Executive Officer
• Nearly $4 billion deployed towards high-growth,
high recurring revenue acquisitions to accelerate
our growth strategies
• Preparation of Vontier to separate from Fortive
as an independent, publicly-traded company
W E B U I L D E X T R AO R D I N A RY T E A M S
F O R E X T R AO R D I N A RY R E S U LT S
These results would not have been possible without
our more than 25,000 employees around the world
performing at their best, so we invested boldly in our
leaders and teams.
We took significant steps to advance our Inclusion and
Diversity (I&D) strategy around the powerful vision:
We are more together. Driven by the conviction that
diverse teams are stronger and more innovative, our
operating companies are implementing more inclusive
hiring practices, working to eliminate biases, and
deeply embedding the principles of I&D at all levels.
Our employee resource groups (ERGs) — created
by employees to connect and support groups, such
as women, veterans, and the LGBTQ community —
demonstrate I&D in daily practice at Fortive.
We turned deeper customer
insights into breakthrough
innovations inspired by our
shared purpose: Essential
technology for the people
who accelerate progress.
We continued to leverage our Fortive9 leadership model,
which articulates the qualities most fundamental to our
future success, from the obsessive focus on customer
needs that drives our innovation, to the adaptability
required to learn with agility and iterate quickly in
pursuit of new market opportunities. We integrated
these behaviors into our performance management
process and introduced new ways to recognize the team
members who embody them. Our annual employee
experience survey revealed the benefits of this focus,
with best-in-class ratings for leadership effectiveness.
Across our operating companies, we supported our
leaders’ continued development through new talent
acquisition and management strategies and learning
experiences, including our Accelerated Leadership
Experience (ALE), an immersive, 3-month development
program targeting high potential leaders.
C U S TO M E R S U C C E S S
I N S P I R E S O U R I N N OVAT I O N
Since the inception of Fortive, we have made accelerating
innovation a priority for all our operating companies. Our
Growth Accelerator program has identified over $1 billion
in new addressable market opportunities and helped
fund promising innovations. These Growth Accelerator
teams harness disruptive technologies and the power of
our Fortive Business System (FBS) innovation processes
to bring breakthrough solutions to our customers. The
process starts with ideation, then moves to fast cycle
experimentation, and finally, to scaling our ideas to
accelerate growth in our core markets. We enhanced
these efforts through our partnership with Eric Reis and
the application of his Lean Startup methodology.
Continued investment in The Fort, our innovation
hub, enables us to nurture creative ideas for new
technologies in brand new markets through direct
partnership with operating companies. To celebrate
these groundbreaking, industry-transforming
innovations, Fortive recognizes winners in our annual
Innovation Awards. This year, we recognized what
we call Disruptors — the key innovators whose ideas
challenged us to think differently and sparked ingenuity
throughout our organization.
K A I Z E N I S O U R WAY O F L I F E
As we embrace these new technologies and enter
new markets, our continuous improvement engine
also continues to evolve. FBS remains an essential
part of how we deliver value, even as we adapt its
tools and methods to changing market conditions
and new opportunities.
We have strengthened our ability to compete in our
software companies through a set of Growth Tools we
call the Fortive Software System (FSS). Our software
teams are now deploying these principles to increase
the pace of product development, facilitate customer
experimentation, and deliver higher quality software.
We’ll continue to develop these tools and expand
their adoption as we broaden our offering of
software-enabled workflow solutions.
Through FBS Ignite, we’re building deep FBS knowledge
throughout our organization at both the individual and
team levels. This program is instrumental in developing
our future leaders and strengthening the application
of FBS in new, deeper contexts. We also celebrate FBS
fundamentals through our annual FBS Cup. This year’s
winners include the Fluke Shifu factory team, which
has improved productivity 10% each year for a decade
alongside an outstanding 96% employee engagement
score, and the Tektronix team, who achieved standout
supply chain savings.
As part of the ALE experience,
leaders spent time working in action
learning teams that tackled important
business challenges. One team
uncovered insights about our product
development process that ultimately
resulted in a complete redesign of the
process to create improved outcomes
for our customers.
As our operating companies embrace the
capability of The Fort, we are starting to
see the companywide impact of building
machine learning and data analytics.
Over the next decade and beyond,
The Fort will help us serve our customers
better through advanced data collection
and analysis techniques and exciting new
applications of emerging technologies.
At Fortive’s 2019 Annual Innovation
Awards, Fluke’s ii900 industrial sonic
imager won the top prize. The ii900
enables maintenance teams to
quickly and accurately locate air, gas,
and vacuum leaks in compressed air
systems and has delivered more than
$20 million in revenue in 2019.
W E C O M P E T E F O R S H A R E H O L D E R S
In 2019 we closed nearly $4 billion worth of
high-quality acquisitions to accelerate our strategy
around software-enabled workflow solutions.
In April, we welcomed the Advanced Sterilization
Products (ASP) team to our Fortive family, and in
October, we added Censis, a leading provider of
instrument tracking software. Together, ASP and
Censis advance our effort to reduce hospital-acquired
infections and give us a strong position in the attractive
medical sterilization and disinfection market. We also
completed two acquisitions within Field Solutions —
Intelex and Prüftechnik — to further empower our
customers through connected workflows for a range
of environmental, health, and safety (EH&S) and
condition monitoring applications.
We continue to make significant progress with our
portfolio transformation. In September, we announced
the separation of our transportation and mobility
businesses into a new global industrial company called
Vontier. The separation will allow both Fortive and Vontier
to better leverage leading market positions and continue
to improve growth and profitability for all stakeholders.
AC C E L E R AT I N G P R O G R E S S
TOWA R D A S U S TA I N A B L E F U T U R E
Our values, shared purpose, and the Fortive Business
System (FBS) all spring from the same spirit of
generosity and optimism that shapes our commitment
to corporate social responsibility (CSR). In 2019, we
deepened this commitment through bold goals and
actions. We reported our emissions data for the first
time to the Carbon Disclosure Project (CDP) and
made a commitment to reduce Scope 1 and Scope 2
greenhouse gas emissions by 40 percent on a revenue
intensity basis over the next ten years. Every one of our
operating companies also celebrated our annual
Day of Caring, which is designed to enable our global
team to serve their local communities.
Our CSR work was recognized in several ways.
We received a perfect score of 100 from the Human
Rights Campaign for the second year in a row and
were named one of America’s Most Responsible
Companies by Newsweek, in recognition of our
environmental and social programs and our strong
governance. While I am honored to receive these
awards, the vision for our sustainable future goes
far beyond what we have achieved so far.
L O O K I N G A H E A D
I am energized by our progress and the opportunities
ahead as we welcome a new decade. Our sustained
focus on essential technologies, driven by strong market
positions and advanced by software and data analytics,
will continue to power our customers’ mission-critical
workflows. We will continue to be bold in strengthening
our portfolio as we build a better Fortive through the power
of our great teams and supported by the foundation of FBS.
I am confident that these steps will continue to deepen
our competitive advantage and build a better company,
creating value for the long term. And as we take them,
our extraordinary team will build stronger communities
and a better world.
Thank you for joining us on this bold journey and for
putting your trust in us.
James A. Lico
President and Chief Executive Officer
The new company formed by the
separation of our transportation and
mobility businesses, Vontier (from
via and frontier), will lead the way to
smarter transportation for a growing,
connected world. The separation will
unlock Vontier’s incredible potential and
position the Vontier team to focus on its
ambitious goal: to mobilize the future.
In our third annual Fortive Day of
Caring, 300 of our teams around the
world came together to give back
to causes they care deeply about in
the communities where they live and
work. We collectively contributed more
than 64,000 hours of service in more
than 250 communities in 30 countries
around the world.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________________________
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from to
Commission File Number 1-37654
____________
FORTIVE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
47-5654583
(I.R.S. employer
identification number)
6920 Seaway Blvd
Everett, WA
(Address of principal executive offices)
98203
(Zip code)
Registrant’s telephone number, including area code: (425) 446 - 5000
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class
Trading symbols
Name of each exchange on which registered
Common stock, par value $0.01 per share
FTV
New York Stock Exchange
5% Mandatory convertible preferred stock,
Series A, par value $0.01 per share
FTV. PRA
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
NONE
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act.
Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes
No
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 during the preceding 12 months (or for such shorter period that the Registrant was required to
file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes
No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was
required to submit such files). Yes
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller
reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
(Do not check if a smaller reporting company)
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
No
As of February 21, 2020 there were 336,415,264 shares of Registrant’s common stock outstanding. The aggregate market value
of common stock held by non-affiliates of the Registrant as of June 28, 2019 was $24.1 billion, based upon the closing price of
the Registrant’s common stock on the New York Stock Exchange.
____________________________________
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates certain information by reference from the Registrant’s proxy statement for its 2020 annual meeting of
stockholders to be filed pursuant to Regulation 14A within 120 days after Registrant’s fiscal year-end. With the exception of
the sections of the 2020 Proxy Statement specifically incorporated herein by reference, the 2020 Proxy Statement is not deemed
to be filed as part of this Form 10-K.
TABLE OF CONTENTS
Information Relating to Forward-looking Statements
Part 1.
Part 2.
Part 3.
Part 4.
Item 1.
Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Properties
Item 3.
Legal Proceedings
Item 4. Mine Safety Disclosures
Information about our Executive Officers
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Item 6.
Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Financial Statements and Supplementary Data
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accountant Fees and Services
Item 15. Exhibits and Financial Schedules
Item 16. Form 10-K Summary
Page
2
2
8
20
20
20
20
21
22
22
22
43
44
98
98
98
98
99
99
99
99
100
100
1
INFORMATION RELATING TO FORWARD-LOOKING STATEMENTS
Certain statements included or incorporated by reference in this Annual Report, in other documents we file with or furnish to
the Securities and Exchange Commission (“SEC”), in our press releases, webcasts, conference calls, materials delivered to
shareholders and other communications, are “forward-looking statements” within the meaning of the United States federal
securities laws. All statements other than historical factual information are forward-looking statements, including without
limitation statements regarding: projections of revenue, expenses, profit, profit margins, tax rates, tax provisions, cash flows,
pension and benefit obligations and funding requirements, our liquidity position or other financial measures; management’s
plans and strategies for future operations, including statements relating to anticipated operating performance, cost reductions,
restructuring activities, new product and service developments, competitive strengths or market position, acquisitions,
divestitures, separation into two independent, publicly traded companies, strategic opportunities, securities offerings, stock
repurchases, dividends and executive compensation; growth, declines and other trends in markets we sell into, including the
expected impact of trade and tariff policies; new or modified laws, regulations and accounting pronouncements; outstanding
claims, legal proceedings, tax audits and assessments and other contingent liabilities; foreign currency exchange rates and
fluctuations in those rates; impact of changes to tax laws; general economic and capital markets conditions; the timing of any of
the foregoing; assumptions underlying any of the foregoing; and any other statements that address events or developments that
we intend or believe will or may occur in the future. Terminology such as “believe,” “anticipate,” “should,” “could,” “intend,”
“will,” “plan,” “expect,” “estimate,” “project,” “target,” “may,” “possible,” “potential,” “forecast” and “positioned” and similar
references to future periods are intended to identify forward-looking statements, although not all forward-looking statements
are accompanied by such words. Forward-looking statements are based on assumptions and assessments made by our
management in light of their experience and perceptions of historical trends, current conditions, expected future developments
and other factors they believe to be appropriate. These forward-looking statements are subject to a number of risks and
uncertainties, including but not limited to the risks and uncertainties set forth under “Item 1A. Risk Factors” in this Annual
Report.
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 (or such earlier date as may
be specified in such statement). We do not assume any obligation to update or revise any forward-looking statement, whether as
a result of new information, future events and developments or otherwise.
PART I
ITEM 1. BUSINESS
General
Fortive Corporation is a diversified industrial technology growth company encompassing businesses that are recognized leaders
in attractive markets. Our well-known brands hold leading positions in field solutions, product realization, sensing
technologies, health, transportation technologies, and franchise distribution. Our businesses design, develop, service,
manufacture and market professional and engineered products, software and services for a variety of end markets, building
upon leading brand names, innovative technology and significant market positions. Our research and development,
manufacturing, sales, distribution, service and administrative facilities are located in more than 50 countries across North
America, Asia Pacific, Europe and Latin America.
We are guided by our shared purpose to deliver essential technology for the people who accelerate progress, and we are united
by our culture of continuous improvement and bias for action that embody the Fortive Business System (“FBS”). Through
rigorous application of our proprietary FBS set of growth, lean, and leadership tools and processes, we continuously improve
business performance in the critical areas of innovation, product development and commercialization, global supply chain,
sales and marketing and leadership development. Our commitment to FBS has enabled us to drive customer satisfaction and
profitability, generate significant improvements in innovation, growth, and core operating margins. Additionally, FBS has
enabled us to execute a disciplined acquisition strategy and expand our portfolio into new and attractive markets furthering our
goal of creating long-term shareholder value.
On September 4, 2019, we announced our intention to separate into two independent, publicly traded companies subject to the
satisfaction of certain conditions, including obtaining final approval from our Board of Directors. The separation would create
(i) an industrial technology company, retaining the Fortive name, with a differentiated portfolio of growth-oriented businesses
focused on connected workflow solutions that incorporate advanced sensors, instrumentation, software, data and analytics, and
(ii) a global industrial company (“Vontier”) consisting of our Transportation Technologies and Franchise Distribution platforms
2
with a focus on growth opportunities in the rapidly evolving transportation and mobility markets. The separation is expected to
be structured in a tax-efficient manner and completed in the second half of 2020.
On October 1, 2018, we completed the split-off of businesses in our automation and specialty platform (excluding our
Hengstler and Dynapar businesses) (the “A&S Business”) to our shareholders who elected to exchange shares of our common
stock for all issued and outstanding shares of Stevens Holding Company, Inc. (“Stevens”), the entity we incorporated to hold
the A&S Business. The split-off was immediately followed by the merger of Stevens with a subsidiary of Altra Industrial
Motion Corp. (“Altra”). Concurrently with the split-off, we sold directly to Altra the remainder of the assets and liabilities of
the A&S Business that were not otherwise contributed to Stevens.
Fortive Corporation is a Delaware corporation and was incorporated in 2015 in connection with the separation of Fortive from
Danaher Corporation (“Danaher” or “Former Parent”) on July 2, 2016 as an independent, publicly-traded company, listed on
the New York Stock Exchange (the “Danaher Separation”).
In this Annual Report, the terms “Fortive” or the “Company” refer to either Fortive Corporation or to Fortive Corporation and
its consolidated subsidiaries, as the context requires. Unless otherwise indicated, all amounts in this Annual Report refer to
continuing operations.
Reportable Segments
Fortive is comprised of two reportable segments, Professional Instrumentation and Industrial Technologies, each of which is
further described below.
Professional Instrumentation
Our Professional Instrumentation segment offers essential products, software and services used to create actionable intelligence
by measuring and monitoring a wide range of physical parameters in industrial applications, including electrical current, radio
frequency signals, distance, pressure, temperature, turbidity, radiation, and hazardous gases. Furthermore, we offer products,
software and services used to provide critical sterilization and disinfection solutions to advance health, safety and compliance.
We also offer products that are used in the design, development, manufacturing, testing and advanced calibration of products
for electronics and industrial markets. Product offerings include advanced sensors and instrumentation, cloud-based IoT
solutions, temperature-sensitive sterilization and disinfection systems, vertical application workflow software, data and
analytics to efficiently manage the full lifecycle of assets used in industrial, medical, educational, governmental, and
commercial facilities. Customers for these products and services include industrial service, installation and maintenance
professionals, designers and manufacturers of electronic devices and instruments, medical technicians and health professionals,
safety professionals, commercial property owners, contractors, facility managers and other customers for whom precision,
reliability, safety, compliance, integrated workflows and data analytics are critical in their specific applications.
Our Professional Instrumentation segment consists of our Advanced Instrumentation & Solutions, Sensing Technologies, and
Advanced Sterilization Products and Censis businesses. Our Advanced Instrumentation & Solutions business was primarily
established through the acquisitions of Qualitrol in the 1980s, Fluke Corporation and Pacific Scientific Company in 1998,
Tektronix and Invetech in 2007, Keithley Instruments in 2010, eMaint in 2016, Industrial Scientific and Landauer in 2017,
Gordian and Accruent in 2018, Intelex and Pruftechnik in 2019 and numerous bolt-on acquisitions. In addition, both Advanced
Sterilization Products and Censis were acquired in 2019.
Advanced Instrumentation & Solutions
Our Advanced Instrumentation & Solutions business consists of:
Field Solutions Our field solutions products include a variety of compact professional test tools, thermal imaging and
calibration equipment for electrical, industrial, electronic and calibration applications, online condition-based monitoring
equipment; portable gas detection equipment, consumables, and software as a service (SaaS) offerings including safety/user
behavior, asset management, environmental, health and safety (EHS) quality management and compliance monitoring;
subscription-based technical, analytical, and compliance services to determine occupational and environmental radiation
exposure; and software, data analytics and services for critical infrastructure in utility, industrial, energy, construction, facilities
management, public safety, mining, EHS, and healthcare applications. The instrumentation and sensing products and associated
software solutions measure voltage, current, resistance, power quality, frequency, pressure, temperature, radiation, hazardous
gas and air quality, among other parameters. Typical users of these products and software include electrical engineers,
electricians, electronic technicians, safety professionals, medical technicians, network technicians, first-responders, and
industrial service, installation and maintenance professionals. The business also makes and sells instruments, controls and
monitoring and maintenance systems used by maintenance departments in utilities and industrial facilities to monitor assets,
3
including transformers, generators, motors and switchgear. The business also provides physical resource management software
with an integrated cloud-based framework for management of commercial property and facilities to extend the lifecycle of
assets, facilitate regulatory compliance and reduce safety risks. In addition, the business provides subscription-based
construction cost data, software and services for real estate construction and maintenance applications. Products are marketed
under a variety of brands, including ACCRUENT, FLUKE, FLUKE BIOMEDICAL, FLUKE NETWORKS, GORDIAN,
INDUSTRIAL SCIENTIFIC, INTELEX, LANDAUER, PRUFTECHNIK and QUALITROL.
Product Realization Our product realization services and products help developers and engineers across the end-to-end product
creation cycle from concepts to finished products. Our test, measurement and monitoring products are used in the design,
manufacturing and development of electronics, industrial, and other advanced technologies. Typical users of these products and
services include research and development engineers who design, de-bug, monitor and validate the function and performance
of electronic components, subassemblies and end-products. The business also provides a full range of design, engineering and
manufacturing services and highly-engineered, modular components to enable conceptualization, development and launch of
products in the medical diagnostics, cell therapy and consumer markets. Finally, the business designs, develops, manufactures
and markets critical, highly-engineered energetic materials components in specialized vertical applications. Products and
services are marketed under a variety of brands, including INVETECH, KEITHLEY, PACIFIC SCIENTIFIC, SONIX and
TEKTRONIX.
Competition in the Advanced Instrumentation & Solutions business is based on a number of factors, including the reliability,
performance, ruggedness, ease of use, ergonomics and aesthetics of the product, the service provider’s relevant expertise with
particular technologies and applications, as well as the other factors described under “-Competition.” Sales in the business are
generally made through independent distributors and direct sales personnel.
Sensing Technologies
Our Sensing Technologies business offers devices that sense, monitor and control operational or manufacturing variables, such
as temperature, pressure, level, flow, turbidity, and conductivity. Users of these products span a wide variety of industrial and
manufacturing markets, including medical equipment, food and beverage, marine, industrial, off-highway vehicles, building
automation, and semiconductors. Our competitive advantage in these markets is based on our ability to apply advanced sensing
technologies to a variety of customer needs, many of which are in demanding operating environments. Our modular products
and agile supply chain enable rapid customization of solutions for unique operational requirements and which meet the lead-
time needs of our customers. Competition in the business is based on a number of factors, including technology, application
design expertise, lead time, channels of distribution, brand awareness, as well as the other factors described under “-
Competition.” Products in this business are marketed under a variety of brands, including ANDERSON-NEGELE, GEMS and
SETRA. Sales in the business are generally made through direct sales personnel and independent distributors.
Advanced Sterilization Products and Censis
Our Advanced Sterilization Products (“ASP”) business provides critical sterilization and disinfection solutions, including low-
temperature hydrogen peroxide sterilization solutions for temperature-sensitive equipment, to advance infection prevention and
patient safety in healthcare facilities. Our Censis business provides subscription-based surgical inventory management systems
to healthcare facilities to facilitate inventory management and regulatory compliance. Competition in these businesses is based
on a number of factors, including technology, scope of integrated functionality and solutions to address a broader range of
hospital workflows, reliability, installed base of customers, and brand awareness, as well as the other factors described under “-
Competition.” Products in this business are marketed under a variety of brands, including ASP, CENSIS, CENSITRAC,
EVOTECH, STERRAD, and ENDOCLENS. Sales in these businesses are generally made through direct sales personnel and
independent distributors.
Manufacturing facilities of our Professional Instrumentation segment are located in North America, Europe and Asia.
Industrial Technologies
Our Industrial Technologies segment offers critical technical equipment, components, software and services for manufacturing,
repair and transportation markets worldwide. We offer a wide range of products spanning advanced environmental sensors,
fueling equipment, field payment, hardware, remote management and workflow software, vehicle tracking and fleet
management software, signaling solutions for traffic light control and a range of tools for professional auto technicians and tire
and wheel repair workshops. Products and services offered serve retail fueling operators, commercial auto-repair businesses,
municipal governments and public safety entities and fleet owners/operators, globally.
Our Industrial Technologies segment consists of our Transportation Technologies and Franchise Distribution businesses. Our
Transportation Technologies business originated with the acquisition of Veeder-Root in the 1980s and subsequently expanded
4
through additional acquisitions, including the acquisitions of Gilbarco in 2002, Navman Wireless in 2012, Teletrac in 2013,
ANGI Energy Systems in 2014, Global Traffic Technologies in 2016, Orpak Systems in 2017 and numerous bolt-on
acquisitions. Our Franchise Distribution business was established through the acquisitions of Matco Tools and Hennessy
Industries in 1986.
Manufacturing facilities of our Industrial Technologies businesses are located in North America, Latin America, Europe and
Asia.
Transportation Technologies
Our Transportation Technologies business is a leading worldwide provider of solutions and services focused on fuel dispensing,
remote fuel management, point-of-sale and payment systems, environmental compliance, vehicle tracking and fleet
management, and traffic management. This business consists of:
Retail/Commercial Fueling Our retail/commercial petroleum products include environmental monitoring and leak detection
systems; vapor recovery equipment; fuel dispenser systems for petroleum and compressed natural gas; point-of-sale and secure
and automated electronic payment technologies for retail petroleum stations; submersible turbine pumps; and remote
monitoring and outsourced fuel management software as a service (“SaaS”) offerings, including compliance services, fuel
system maintenance, fleet management software solutions, and inventory planning and supply chain support. Typical users of
these products include independent and company-owned retail petroleum stations, high-volume retailers, convenience stores,
and commercial vehicle fleets. Our retail/commercial petroleum products are marketed under a variety of brands, including
ANGI, GASBOY, GILBARCO, GILBARCO AUTOTANK, ORPAK and VEEDER-ROOT.
Telematics Our telematics products include vehicle tracking and fleet management hardware and SaaS solutions that fleet
managers use to position and dispatch vehicles, manage fuel consumption and promote vehicle safety, compliance, operating
efficiency and productivity. Typical users of these solutions span a variety of industries and include businesses and other
organizations that manage vehicle fleets. Our telematics products are marketed under a variety of brands, including
TELETRAC NAVMAN.
Customers in this line of business choose suppliers based on a number of factors, including product features, performance and
functionality, the supplier’s geographic coverage and the other factors described under “-Competition.” Sales are generally
made through independent distributors and our direct sales personnel.
Franchise Distribution
Our Franchise Distribution business consists of:
Professional Tools We manufacture and distribute professional tools, toolboxes and automotive diagnostic equipment and
software through our network of franchised mobile distributors, who sell primarily to professional mechanics under the
MATCO brand. Professional mechanics typically select tools based on relevant innovative features and the other factors
described under “-Competition.”
Wheel Service Equipment We produce a full-line of wheel service equipment including brake lathes, tire changers, wheel
balancers, and wheel weights under various brands including the COATS brands. Typical users of these products are
automotive tire and repair shops. Sales are generally made through direct sales personnel and independent distributors.
Competition in the wheel service equipment business is based on the factors described under “-Competition.”
The following discussion includes information common to both of our segments.
************************************
Materials
Our manufacturing operations employ a wide variety of raw materials, including electronic components, steel, plastics and
other petroleum-based products, cast iron, aluminum and copper. Prices of oil and gas affect our costs for freight and utilities.
We purchase raw materials from a large number of independent sources around the world. Tariffs affect our costs for impacted
materials or components we import into the United States. No single supplier is material, although for some components that
require particular specifications or qualifications there may be a single supplier or a limited number of suppliers that can readily
provide such components. We utilize a number of techniques to address potential disruption in and other risks relating to our
supply chain, including in certain cases the use of safety stock, alternative materials and qualification of multiple supply
sources. During 2019 we had no raw material shortages that had a material effect on our business. For a further discussion of
risks related to the materials and components required for our operations, please refer to “Item 1A. Risk Factors.”
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Intellectual Property
We own numerous patents, trademarks, copyrights and trade secrets and licenses to intellectual property owned by others.
Although in aggregate our intellectual property is important to our operations, we do not consider any single patent, trademark,
copyright, trade secret or license to be of material importance to any segment or to the business as a whole. From time to time
we engage in litigation to protect our intellectual property rights. For a discussion of risks related to our intellectual property,
please refer to “Item 1A. Risk Factors.” All capitalized brands and product names throughout this document are trademarks
owned by, or licensed to, Fortive.
Competition
We believe that we are a leader in many of our served markets. Although our businesses generally operate in highly competitive
markets, our competitive position cannot be determined accurately in the aggregate or by segment, since none of our
competitors offer all of the same product and service lines or serve all of the same markets as we do. Because of the range of
the products and services we sell and the variety of markets we serve, we encounter a wide variety of competitors, including
well-established regional competitors, competitors who are more specialized than we are in particular markets, as well as larger
companies or divisions of larger companies with substantial sales, marketing, research, and financial capabilities. We face
increased competition in a number of our served markets as a result of the entry of competitors based in low-cost
manufacturing locations, and increasing consolidation in particular markets. The number of competitors varies by product and
service line. Our management believes that we have a market leadership position in most of the markets we serve. Key
competitive factors vary among our businesses and product and service lines, but include the specific factors noted above with
respect to each particular business and typically also include price, quality, performance, delivery speed, applications expertise,
distribution channel access, service and support, technology and innovation, breadth of product, service and software offerings
and brand name recognition. For a discussion of risks related to competition, please refer to “Item 1A. Risk Factors.”
Seasonal Nature of Business
General economic conditions impact our business and financial results, and certain of our businesses experience seasonal and
other trends related to the industries and end markets that they serve. For example, capital equipment sales are often stronger in
the fourth calendar quarter and sales to OEMs are often stronger immediately preceding and following the launch of new
products. However, as a whole, we are not subject to material seasonality.
Working Capital
We maintain an adequate level of working capital to support our business needs. There are no unusual industry practices or
requirements relating to working capital items in either of our reportable segments. In addition, our sales and payment terms are
generally similar to those of our competitors.
Backlog
The following sets forth the unfulfilled orders and annual average contract value of signed contracts for our software as a
service product offering attributable to each of our segments as of December 31 ($ in millions):
Professional Instrumentation
Industrial Technologies
Total
2019
2018
$
$
780
434
1,214
$
$
747
477
1,224
We expect that a majority of the unfilled orders as of December 31, 2019 will be delivered to customers within two to three
months of such date. Given the relatively short delivery periods and rapid inventory turnover that are characteristic of most of
our products and the shortening of product life cycles, we believe that backlog in 2019 is indicative of short-term revenue
performance but not necessarily a reliable indicator of medium or long-term revenue performance.
Employee Relations
As of December 31, 2019, we employed approximately 25,000 persons, of whom approximately 13,000 were employed in the
United States and approximately 12,000 were employed outside of the United States. Of our United States employees,
approximately 900 were hourly-rated, unionized employees. Outside the United States, we have government-mandated
collective bargaining arrangements and union contracts in certain countries, particularly in Europe where certain of our
employees are represented by unions and/or works councils. The Company believes that its relationship with employees is
good.
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Government Contracts
Although the substantial majority of our revenue in 2019 was from customers other than governmental entities, each of our
segments has agreements relating to the sale of products to government entities. As a result, we are subject to various statutes
and regulations that apply to companies doing business with governments and government-owned entities. For a discussion of
risks related to government contracting requirements, please refer to “Item 1A. Risk Factors.”
Regulatory Matters
We face extensive government regulation both within and outside the United States relating to the development, manufacture,
marketing, sale and distribution of our products, software and services. The following sections describe certain significant
regulations that we are subject to. These are not the only regulations that our businesses must comply with. For a description of
the risks related to the regulations that our businesses are subject to, please refer to “Item 1A. Risk Factors.”
Environmental Laws and Regulations
Our operations and properties are subject to laws and regulations relating to environmental protection, including those
governing air emissions, water discharges and waste management, and workplace health and safety. For a discussion of the
environmental laws and regulations that our operations, products and services are subject to and other environmental
contingencies, please refer to Note 16 to the consolidated financial statements included in this Annual Report. For a discussion
of risks related to compliance with environmental and health and safety laws and risks related to past or future releases of, or
exposures to, hazardous substances, please refer to “Item 1A. Risk Factors.”
Export/Import Compliance
We are required to comply with various U.S. export/import control and economic sanctions laws, such as:
•
•
•
•
the International Traffic in Arms Regulations administered by the U.S. Department of State, Directorate of Defense
Trade Controls, which, among other things, impose license requirements on the export from the United States of
defense articles and defense services listed on the United States Munitions List;
the Export Administration Regulations administered by the U.S. Department of Commerce, Bureau of Industry and
Security, which, among other things, impose licensing requirements on the export, in-country transfer and re-export of
certain dual-use goods, technology and software (which are items that have both commercial and military or
proliferation applications);
the regulations administered by the U.S. Department of Treasury, Office of Foreign Assets Control, which implement
economic sanctions imposed against designated countries, governments and persons based on United States foreign
policy and national security considerations; and
the import regulations administered by U.S. Customs and Border Protection.
Other nations’ governments have implemented similar export/import control and economic sanction regulations, which may
affect our operations or transactions subject to their jurisdictions. For a discussion of risks related to export/import control and
economic sanctions laws, please refer to “Item 1A. Risk Factors.”
International Operations
Our products and services are available in markets worldwide, and our principal markets outside the United States are in
Europe and Asia. We also have operations around the world, and this geographic diversity allows us to draw on the skills of a
worldwide workforce, provides greater stability to our operations, allows us to drive economies of scale, provides revenue
streams that may help offset economic trends that are specific to individual economies and offers us an opportunity to access
new markets for products. In addition, we believe that our future growth depends in part on our ability to continue developing
products and sales models that successfully target high-growth markets.
The manner in which our products and services are sold outside the United States differs by business and by region. Most of
our sales in non-U.S. markets are made by our subsidiaries located outside the United States, though we also sell directly from
the United States into non-U.S. markets through various representatives and distributors and, in some cases, directly. In
countries with low sales volumes, we generally sell through representatives and distributors.
Major Customers
No customer accounted for more than 10% of consolidated sales in 2019, 2018, or 2017.
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Available Information
We maintain an internet website at www.fortive.com where we make available free of charge our annual reports on Form 10-K,
quarterly reports on Form 10-Q and current reports on Form 8-K and amendments to those reports, filed or furnished pursuant
to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after filing such material with, or furnishing
such material to, the SEC. Our internet website and the information contained on, or linked from, that website are not
incorporated by reference into this Form 10-K.
ITEM 1A. RISK FACTORS
You should carefully consider the risks and uncertainties described below, together with the information included elsewhere in
this Annual Report on Form 10-K and other documents we file with the SEC. The risks and uncertainties described below are
those that we have identified as material, but are not the only risks and uncertainties facing us. Our business is also subject to
general risks and uncertainties that affect many other companies, such as market conditions, economic conditions, geopolitical
events, changes in laws, regulations or accounting rules, fluctuations in interest rates, terrorism, wars or conflicts, major
health concerns, natural disasters or other disruptions of expected business conditions. Additional risks and uncertainties not
currently known to us or that we currently believe are immaterial also may impair our business, including our results of
operations, liquidity and financial condition.
Risks Related to Our Business
Conditions in the global economy, the markets we serve and the financial markets may adversely affect our business and
financial statements.
Our business is sensitive to general economic conditions. Slower global economic growth, actual or anticipated default on
sovereign debt, changes in global trade policies, volatility in the currency and credit markets, high levels of unemployment and
underemployment, reduced levels of capital expenditures, changes in government fiscal and monetary policies, government
deficit reduction and budget negotiation dynamics, sequestration, other austerity measures, political and social instability,
natural disasters, terrorist attacks, and other challenges that affect the global economy adversely affect us and our distributors,
customers and suppliers, including having the effect of:
•
•
•
•
•
•
reducing demand for our products, software and services, limiting the financing available to our customers and suppliers,
increasing order cancellations and resulting in longer sales cycles and slower adoption of new technologies;
increasing the difficulty in collecting accounts receivable and the risk of excess and obsolete inventories;
increasing price competition in our served markets;
supply interruptions, which could disrupt our ability to produce our products;
increasing the risk of impairment of goodwill and other long-lived assets, and the risk that we may not be able to fully
recover the value of other assets such as real estate and tax assets; and
increasing the risk that counterparties to our contractual arrangements will become insolvent or otherwise unable to fulfill
their contractual obligations which, in addition to increasing the risks identified above, could result in preference actions
against us.
In addition, adverse general economic conditions may lead to instability in U.S. and global capital and credit markets, including
market disruptions, limited liquidity and interest rate volatility. If we are unable to access capital and credit markets on terms
that are acceptable to us or our lenders are unable to provide financing in accordance with their contractual obligations, we may
not be able to make certain investments or acquisitions or fully execute our business plans and strategies. Furthermore, our
suppliers and customers are also dependent upon the capital and credit markets. Limitations on the ability of customers,
suppliers or financial counterparties to access credit at interest rates and on terms that are acceptable to them could lead to
insolvencies of key suppliers and customers, limit or prevent customers from obtaining credit to finance purchases of our
products and services and cause delays in the delivery of key products from suppliers.
If growth in the global economy or in any of the markets we serve slows for a significant period, if there is significant
deterioration in the global economy or such markets, if there is instability in global capital and credit markets, or if
improvements in the global economy do not benefit the markets we serve, our business and financial statements could be
adversely affected.
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Our plans to separate into two independent, publicly traded companies may not be completed on the currently contemplated
timeline or at all and may not achieve the intended benefits.
On September 4, 2019, we announced our intention to separate into two independent, publicly traded companies. The
separation, if effectuated, will create, (i) an industrial technology company, retaining the Fortive name, with a differentiated
portfolio of growth-oriented businesses focused on connected workflow solutions that incorporate advanced sensors,
instrumentation, software, data and analytics and (ii) a global industrial company (“Vontier”) consisting of our Transportation
Technologies and Franchise Distribution platforms with a focus on growth opportunities in the rapidly evolving transportation
and mobility markets.
Our ability to effectuate the separation, the structure of the separation and the anticipated benefits of the separation may be
adversely and materially impacted by adverse market conditions, possible delays in obtaining various tax rulings, regulatory
approvals or clearances, uncertainty of the financial markets, our business performance and unanticipated delays in establishing
infrastructure or processes for Vontier. In addition, the cost and resources required to effectuate the separation may be
significantly higher than what we currently anticipate.
Our growth could suffer if the markets into which we sell our products and services decline, do not grow as anticipated or
experience cyclicality.
Our growth depends in part on the growth of the markets which we serve, and visibility into our markets is limited (particularly
for markets into which we sell through distribution). Our quarterly sales and profits depend substantially on the volume and
timing of orders received during the fiscal quarter, which are difficult to forecast. Any decline or lower than expected growth in
our served markets could diminish demand for our products and services, which could adversely affect our financial statements.
Certain of our businesses operate in industries that may experience periodic, cyclical downturns. In addition, in certain of our
businesses, demand depends on customers’ capital spending budgets, and product and economic cycles can affect the spending
decisions of these entities. Demand for our products and services is also sensitive to changes in customer order patterns, which
may be affected by announced price changes, changes in incentive programs, new product introductions and customer
inventory levels. Any of these factors could adversely affect our growth and results of operations in any given period.
We face intense competition and if we are unable to compete effectively, we may experience decreased demand and
decreased market share. Even if we compete effectively, we may be required to reduce prices for our products and services.
Many of our businesses operate in industries that are intensely competitive and have been subject to consolidation. Because of
the range of the products and services we sell and the variety of markets we serve, we encounter a wide variety of competitors;
please see the section entitled “Business-Competition” for additional details. In order to compete effectively, we must retain
longstanding relationships with major customers and continue to grow our business by establishing relationships with new
customers, continually developing new or enhanced products and services to maintain and expand our brand recognition and
leadership position in various product and service categories and penetrating new markets, including high-growth markets. Our
failure to compete effectively and/or pricing pressures resulting from competition may adversely impact our financial
statements, and our expansion into new markets may result in greater-than-expected risks, liabilities and expenses.
Changes in industry standards and governmental regulations may reduce demand for our products or services or increase
our expenses.
We compete in markets in which we and our customers must comply with supranational, federal, state, local and other
jurisdictional regulations, such as regulations governing health and safety, the environment and electronic communications, and
market standardizations, such as the Europay, MasterCard and Visa (“EMV”) global standard. We develop, configure and
market our products and services to meet customer needs created by these regulations and standards. These regulations and
standards are complex, change frequently, have tended to become more stringent over time and may be inconsistent across
jurisdictions. Any significant change or delay in implementation in any of these regulations or standards (or in the
interpretation, application or enforcement thereof) could reduce or delay demand for our products and services, increase our
costs of producing or delay the introduction of new or modified products and services, or could restrict our existing activities,
products and services. In addition, in certain of our markets our growth depends in part upon the introduction of new
regulations or implementation of industry standards on the timeline we expect. In these markets, the delay or failure of
governmental and other entities to adopt or enforce new regulations or industry standards, or the adoption of new regulations or
industry standards which our products and services are not positioned to address, could adversely affect demand. In addition,
regulatory deadlines or industry standard implementation timelines may result in substantially different levels of demand for
our products and services from period to period.
9
Trade relations between China and the United States could have a material adverse effect on our business and financial
statements.
We have experienced growth in various end markets in China. During 2019, year-over-year sales from existing businesses grew
slightly in China, and sales in China accounted for approximately 8% of our total sales for the year. In addition, we have
numerous facilities in China, many of which serve multiple businesses and are used for multiple purposes.
There continues to be significant uncertainty about the future relationship between the United States and China, including with
respect to trade policies, treaties, government regulations and tariffs. In particular, there continues to be uncertainty about U.S.
foreign trade policy with respect to China. There is a risk of escalation and retaliatory actions between the two countries. In
addition, the current administration, certain members of Congress and federal officials have stated that United States may seek
to implement more protective trade measures, not just with respect to China but with respect to other countries in the Asia
Pacific region as well. Any increased trade barriers or restrictions on global trade, especially trade with China, could adversely
impact our business and financial statements.
Any inability to consummate acquisitions at our anticipated rate and at appropriate prices could negatively impact our
growth rate and stock price.
Our ability to grow revenues, earnings and cash flow at or above our anticipated rates depends in part upon our ability to
identify and successfully acquire and integrate businesses at appropriate prices and realize anticipated synergies. We may not be
able to consummate acquisitions at rates anticipated, which could adversely impact our growth rate and our stock price.
Promising acquisitions are difficult to identify and complete for a number of reasons, including high valuations, competition
among prospective buyers, the availability of affordable funding in the capital markets and the need to satisfy applicable
closing conditions and obtain antitrust and other regulatory approvals on acceptable terms. In addition, competition for
acquisitions may result in higher purchase prices. Changes in accounting or regulatory requirements or instability in the credit
markets could also adversely impact our ability to consummate acquisitions.
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.
We generally sell our products and services in industries that are characterized by rapid technological changes, frequent new
product introductions and changing industry standards. If we do not develop innovative new and enhanced products and
services on a timely basis, our offerings will become obsolete over time and our competitive position and financial statements
will suffer. Our success will depend on several factors, including our ability to:
•
•
•
•
•
•
•
correctly identify customer needs and preferences and predict future needs and preferences;
allocate our research and development funding to products and services with higher growth prospects;
anticipate and respond to our competitors’ development of new products and services and technological innovations;
differentiate our offerings from our competitors’ offerings and avoid commoditization;
innovate and develop new technologies and applications, and acquire or obtain rights to third-party technologies that may
have valuable applications in our served markets;
obtain adequate intellectual property rights with respect to key technologies before our competitors do;
successfully commercialize new technologies in a timely manner, price them competitively and cost-effectively
manufacture and deliver sufficient volumes of new products of appropriate quality on time; and
•
stimulate customer demand for and convince customers to adopt new technologies.
In addition, if we fail to accurately predict future customer needs and preferences or fail to produce viable technologies, we
may invest heavily in research and development of products and services that do not lead to significant revenue, which would
adversely affect our profitability. Even if we successfully innovate and develop new and enhanced products and services, we
may incur substantial costs in doing so, and our profitability may suffer.
Our reputation, ability to do business and financial statements may be impaired by improper conduct by any of our
employees, agents or business partners.
We cannot provide assurance that our internal controls and compliance systems will always protect us from acts committed by
employees, agents or business partners of ours (or of businesses we acquire or partner with) that would violate U.S. and/or non-
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U.S. laws, including the laws governing payments to government officials, bribery, fraud, kickbacks and false claims, sales and
marketing practices, conflicts of interest, competition, export and import compliance, money laundering and data privacy. In
particular, the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act and similar anti-bribery laws in other jurisdictions
generally prohibit companies and their intermediaries from making improper payments to government officials for the purpose
of obtaining or retaining business, and we operate in many parts of the world that have experienced governmental corruption to
some degree. Any such improper actions or allegations of such acts could damage our reputation and subject us to civil or
criminal investigations in the United States and in other jurisdictions and related shareholder lawsuits, could lead to substantial
civil and criminal, monetary and non-monetary penalties and could cause us to incur significant legal and investigatory fees. In
addition, though we rely on our suppliers to adhere to our supplier standards of conduct, material violations of such standards
of conduct could occur that could have a material effect on our financial statements.
Our acquisition of businesses, joint ventures and strategic relationships could negatively impact our financial statements.
As part of our business strategy we acquire businesses and enter other strategic relationships in the ordinary course, some of
which may be material; please see “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” (“MD&A”) for additional details. These acquisitions and strategic relationships involve a number of financial,
accounting, managerial, operational, legal, compliance and other risks and challenges, including the following, any of which
could adversely affect our financial statements:
•
any acquired business, technology, service or product could under-perform relative to our expectations and the price that
we paid for it, or not perform in accordance with our anticipated timetable;
• we may incur or assume significant debt in connection with our acquisitions or strategic relationships;
•
•
•
acquisitions or strategic relationships could cause our financial results to differ from our own or the investment
community’s expectations in any given period, or over the long-term;
pre-closing and post-closing earnings charges could adversely impact operating results in any given period, and the impact
may be substantially different from period to period;
acquisitions or strategic relationships could create demands on our management, operational resources and financial and
internal control systems that we are unable to effectively address;
• we could experience difficulty in integrating personnel, operations and financial and other controls and systems and
retaining key employees and customers;
• we may be unable to achieve cost savings or other synergies anticipated in connection with an acquisition or strategic
relationship;
• we may assume by acquisition or strategic relationship unknown liabilities, known contingent liabilities that become
realized, known liabilities that prove greater than anticipated, internal control deficiencies or exposure to regulatory
sanctions resulting from the acquired company’s activities and the realization of any of these liabilities or deficiencies may
increase our expenses, adversely affect our financial position or cause us to fail to meet our public financial reporting
obligations;
•
•
in connection with acquisitions, we may enter into post-closing financial arrangements such as purchase price adjustments,
earn-out obligations and indemnification obligations, which may have unpredictable financial results;
in connection with acquisitions, we have recorded significant goodwill and other intangible assets on our balance sheet and
if we are not able to realize the value of these assets, we may be required to incur charges relating to the impairment of
these assets; and
• we may have interests that diverge from those of strategic partners and we may not be able to direct the management and
operations of the strategic relationship in the manner we believe is most appropriate, exposing us to additional risk.
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.
Certain of the acquisition agreements by which we have acquired companies require the former owners to indemnify us against
certain liabilities related to the operation of the company before we acquired it. In most of these agreements, however, the
liability of the former owners is limited and certain former owners may be unable to meet their indemnification responsibilities.
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We cannot assure you that these indemnification provisions will protect us fully or at all, and as a result we may face
unexpected liabilities that adversely affect our financial statements.
Divestitures or other dispositions could negatively impact our business, and contingent liabilities from businesses that we
have sold could adversely affect our financial statements.
We continually assess the strategic fit of our existing businesses and may divest or otherwise dispose of businesses that are
deemed not to fit with our strategic plan or are not achieving the desired return on investment. These transactions pose risks and
challenges that could negatively impact our business. For example, when we decide to sell or otherwise dispose of a business
or assets, we may be unable to do so on satisfactory terms within our anticipated timeframe or at all, and even after reaching a
definitive agreement to sell or dispose a business the sale is typically subject to satisfaction of pre-closing conditions which
may not become satisfied. In addition, divestitures or other dispositions may dilute our earnings per share, have other adverse
financial and accounting impacts and distract management, and disputes may arise with buyers. In addition, we have retained
responsibility for and/or have agreed to indemnify buyers against some known and unknown contingent liabilities related to a
number of businesses we have sold or disposed. The resolution of these contingencies has not had a material effect on our
financial statements but we cannot be certain that this favorable pattern will continue.
Our operations, products and services expose us to the risk of environmental, health and safety liabilities, costs and
violations that could adversely affect our reputation and financial statements.
Our operations, products and services are subject to environmental laws and regulations, which impose limitations on the
discharge of pollutants into the environment and establish standards for the use, generation, treatment, storage and disposal of
hazardous and non-hazardous wastes. We must also comply with various health and safety regulations in the United States and
abroad in connection with our operations. In addition, some of our operations require the controlled use of hazardous or
energetic materials in the development, manufacturing or servicing of our products. We cannot assure you that our
environmental, health and safety compliance program has been or will at all times be effective. Failure to comply with any of
these laws could result in civil and criminal, monetary and non-monetary penalties and damage to our reputation. In addition,
we cannot provide assurance that our costs of complying with current or future environmental protection and health and safety
laws will not exceed our estimates or adversely affect our financial statements. Moreover, any accident that results in
significant personal injury or property damage, whether occurring during development, manufacturing, servicing, use, or
storage of our products, may result in significant production interruption, delays or claims for substantial damages caused by
personal injuries or property damage, harm to our reputation, and reduction in morale among our employees, any of which may
adversely and materially affect our results of operations.
In addition, we may incur costs related to remedial efforts or alleged environmental damage associated with past or current
waste disposal practices or other hazardous materials handling practices. We are also from time to time party to personal injury
or other claims brought by private parties alleging injury due to the presence of or exposure to hazardous substances. We may
also become subject to additional remedial, compliance or personal injury costs due to future events such as changes in existing
laws or regulations, changes in agency direction or enforcement policies, developments in remediation technologies, changes in
the conduct of our operations and changes in accounting rules. For additional information regarding these risks, please refer to
Note 16 to the consolidated financial statements. We cannot assure you that our liabilities arising from past or future releases
of, or exposures to, hazardous substances will not exceed our estimates or adversely affect our reputation and financial
statements or that we will not be subject to additional claims for personal injury or remediation in the future based on our past,
present or future business activities.
Our businesses are subject to extensive regulation; failure to comply with those regulations could adversely affect our
financial statements and reputation.
In addition to the environmental, health, safety, anticorruption and other regulations noted above, our businesses are subject to
extensive regulation by U.S. and non-U.S. governmental and self-regulatory entities at the supranational, federal, state, local
and other jurisdictional levels, including the following:
• we are required to comply with various import laws and export control and economic sanctions laws, which may affect our
transactions with certain customers, business partners and other persons and dealings between our employees and
subsidiaries. In certain circumstances, export control and economic sanctions regulations may prohibit the export of certain
products, services and technologies. In other circumstances, we may be required to obtain an export license before
exporting the controlled item. Compliance with the various import laws that apply to our businesses can restrict our access
to, and increase the cost of obtaining, certain products and at times can interrupt our supply of imported inventory;
• we also have agreements to sell products and services to government entities and are subject to various statutes and
regulations that apply to companies doing business with government entities. The laws governing government contracts
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differ from the laws governing private contracts. For example, many government contracts contain pricing and other terms
and conditions that are not applicable to private contracts. Our agreements with government entities may be subject to
termination, reduction or modification at the convenience of the government or in the event of changes in government
requirements, reductions in federal spending and other factors, and we may underestimate our costs of performing under
the contract. Government contracts that have been awarded to us following a bid process could become the subject of a bid
protest by a losing bidder, which could result in loss of the contract. We are also subject to investigation and audit for
compliance with the requirements governing government contracts;
• we are also required to comply with increasingly complex and changing data privacy regulations in multiple jurisdictions
that regulate the collection, use, protection and transfer of personal data, including the transfer of personal data between or
among countries. In particular, the General Data Protection Regulation became effective in the European Union in May
2018 and the California Consumer Privacy Act became effective in January 2020. We may also face audits or
investigations by one or more domestic or foreign government agencies relating to our compliance with these regulations.
An adverse outcome under any such investigation or audit could subject us to fines or other penalties. That or other
circumstances related to our collection, use and transfer of personal data could cause a loss of reputation in the market and/
or adversely affect our business and financial position;
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certain of our products are medical devices that are subject to regulation by the U.S. FDA, by other federal and state
governmental agencies, by comparable agencies of other countries and regions, and by certain accrediting bodies. To
varying degrees, these regulators require us to comply with laws and regulations governing the development, testing,
manufacturing, labeling, marketing, distribution and post-marketing surveillance of our products; and
• we are also required to comply with ever changing labor and employment laws and regulations in multiple jurisdictions.
These changes, including the California legislature’s recent passage of Assembly Bill 5 codifying a new independent
contractor test, could negatively impact our business or financial position.
These are not the only regulations that our businesses must comply with. The regulations we are subject to have tended to
become more stringent over time and may be inconsistent across jurisdictions. We, our representatives and the industries in
which we operate may at times be under review and/or investigation by regulatory authorities. Failure to comply (or any
alleged or perceived failure to comply) with the regulations referenced above or any other regulations could result in civil and
criminal, monetary and non-monetary penalties, and any such failure or alleged failure (or becoming subject to a regulatory
enforcement investigation) could also damage our reputation, disrupt our business, limit our ability to manufacture, import,
export and sell products and services, result in loss of customers and disbarment from selling to certain federal agencies and
cause us to incur significant legal and investigatory fees. Compliance with these and other regulations may also affect our
returns on investment, require us to incur significant expenses or modify our business model or impair our flexibility in
modifying product, marketing, pricing or other strategies for growing our business. Our products and operations are also often
subject to the rules of industrial standards bodies such as the International Standards Organization, and failure to comply with
these rules could result in withdrawal of certifications needed to sell our products and services and otherwise adversely impact
our financial statements. For additional information regarding these risks, please refer to the section entitled “Business-
Regulatory Matters.”
International economic, political, legal, compliance, and business factors could negatively affect our financial statements.
In 2019, approximately 43% of our sales were derived from customers outside the United States. Our principal markets outside
the United States are in Europe and Asia. In addition, many of our manufacturing operations, suppliers and employees are
located outside the United States. Since our growth strategy depends in part on our ability to further penetrate markets outside
the United States and increase the localization of our products and services, we expect to continue to increase our sales and
presence outside the United States, particularly in high-growth markets, such as Eastern Europe, the Middle East, Africa, Latin
America, and Asia. Our international business, including our business in high-growth markets outside the United States, is
subject to risks that are customarily encountered in non-U.S. operations, as well as increased risks due to significant
uncertainties related to political and economic changes, including:
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interruption in the transportation of materials to us and finished goods to our customers;
differences in terms of sale, including payment terms;
local product preferences and product requirements;
changes in a country’s or region’s political or economic conditions, including changes in relationship with the United
States, particularly with respect to China;
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trade protection measures, increased trade barriers, imposition of significant tariffs on imports or exports, embargoes and
import or export restrictions and requirements;
new conditions to, and possible restrictions of, existing free trade agreements;
epidemics, such as the coronavirus outbreak, that adversely impact travel, production or demand;
unexpected changes in laws or regulatory requirements, including negative changes in tax laws in the U.S. and in the
countries in which we manufacture or sell our products;
the impact of the U.K.’s exit from the E.U. (Brexit) on the Company’s business operations in the U.K. and Europe, which
will vary depending on the final terms of the transition;
limitations on ownership and on repatriation of earnings and cash;
the potential for nationalization of enterprises;
limitations on legal rights and our ability to enforce such rights;
difficulty in staffing and managing widespread operations;
differing labor regulations;
difficulties in implementing restructuring actions on a timely or comprehensive basis; and
differing protection of intellectual property.
Any of these risks could negatively affect our financial statements and growth.
We may be required to recognize impairment charges for our goodwill and other intangible assets.
As of December 31, 2019, the net carrying value of our goodwill and other intangible assets totaled approximately $12.2
billion. In accordance with generally accepted accounting principles in the United States of America (“GAAP”), we
periodically assess these assets to determine if they are impaired. Significant negative industry or economic trends, disruptions
to our business, inability to effectively integrate acquired businesses, unexpected significant changes or planned changes in use
of our assets, changes in the structure of our business, divestitures, market capitalization declines, or increases in associated
discount rates may impair our goodwill and other intangible assets. Any charges relating to such impairments would adversely
affect our results of operations in the periods recognized. Refer to Notes 2 and 7 to the consolidated financial statements for a
description of our policies relating to goodwill and acquired intangibles.
Foreign currency exchange rates may adversely affect our financial statements.
Sales and purchases in currencies other than the U.S. dollar expose us to fluctuations in foreign currencies relative to the U.S.
dollar and may adversely affect our financial statements. Increased strength of the U.S. dollar increases the effective price of
our products sold in U.S. dollars into other countries, which may require us to lower our prices or adversely affect sales to the
extent we do not increase local currency prices. Decreased strength of the U.S. dollar could adversely affect the cost of
materials, products and services we purchase overseas. Sales and expenses of our non-U.S. businesses are also translated into
U.S. dollars for reporting purposes and the strengthening or weakening of the U.S. dollar could result in unfavorable translation
effects. In addition, certain of our businesses transact in a currency other than the business’ functional currency, and movements
in the transaction currency relative to the functional currency could also result in unfavorable exchange rate effects. We also
face exchange rate risk from our investments in subsidiaries owned and operated in foreign countries.
The interest rates on our credit facilities may be impacted by the phase out of the London Interbank Offered Rate
(“LIBOR”).
Pursuant to the terms of our credit facilities, the interest rate on our credit facilities may be based on LIBOR, which is in the
process of being phased-out. The FCA, which regulates LIBOR, has announced that it has commitments from panel banks to
continue to contribute to LIBOR through the end of 2021, but that the FCA will not use its powers to compel contributions
beyond such date. Accordingly, there is considerable uncertainty regarding the publication of LIBOR beyond 2021 and it is not
currently possible to determine precisely whether, or to what extent, the withdrawal and replacement of LIBOR would affect
the Company; however, the implementation of alternative benchmark rates to LIBOR may have an adverse impact on the cost
of our borrowings under our credit facilities.
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Changes in our effective tax rates or exposure to additional income tax liabilities or assessments could affect our
profitability. In addition, audits by tax authorities could result in additional tax payments for prior periods.
We are subject to income and transaction taxes in the United States and in multiple foreign jurisdictions. We believe that a
change in the statutory tax rate of any individual foreign country would not have a material effect on our financial statements
given the geographic dispersion of our taxable income.
Furthermore, a change in the tax laws of the jurisdictions where we operate could result in a material increase in our tax
expense. In addition, foreign remittance taxes have not been provided for on undistributed earnings of certain of our non-U.S.
subsidiaries to the extent such earnings are considered to be indefinitely reinvested in the operations of those subsidiaries. If
our intentions regarding reinvestment of such earnings change, then our income tax expense could increase. On December 22,
2017, the U.S. enacted comprehensive tax reform commonly referred to as the Tax Cut and Jobs Act (“TCJA”). The TCJA
represents one of the most significant overhauls to the U.S. federal tax code since 1986 according to the SEC. The TCJA
includes numerous provisions that affect businesses and introduces changes that impact U.S. corporate tax rates, business-
related exclusions, deductions, and credits. Further guidance, regulations, and technical corrections pertaining to TCJA
continue to be issued by the tax authorities, some of which may have retroactive application. We will continue to assess such
new guidance, regulations and corrections as they are issued. However, there can be no assurance that the retroactive
applications of such new guidance, regulations or corrections issued by the tax authorities will not result in revisions to our
prior interpretation of the corresponding provisions of TCJA that may have a material adverse effect on our financial
statements.
Further changes in the tax laws of foreign jurisdictions could arise as a result of the base erosion and profit shifting project
undertaken by the Organisation for Economic Co-operation and Development (“OECD”), which represents a coalition of
member countries. The OECD has issued significant global tax policy changes that include both expanded reporting as well as
technical global tax policy changes. Many countries in which we operate have implemented tax law and administrative changes
that align with many aspects of the OECD policy guidelines. We have taken comprehensive measures to address the
requirements of these changes in global tax policy. In addition, the OECD has announced additional guidance that will be
forthcoming in 2020 that could materially impact the law for transfer pricing and permanent establishment taxation. The
Company will continue to monitor and evaluate the impact of these new OECD developments.
Changes in relation to international tax reform could increase uncertainty in the corporate tax area and may adversely affect our
provision for income taxes. In addition, the amount of income taxes we pay is subject to ongoing audits by U.S. federal, state
and local tax authorities and by non-U.S. tax authorities. Due to the potential for changes to tax laws (or changes to the
interpretation thereof) and the ambiguity of tax laws, the subjectivity of factual interpretations, the complexity of our
intercompany arrangements and other factors, our estimates of income tax liabilities may differ from actual payments or
assessments. If these audits result in payments or assessments different from our reserves, our future results may include
unfavorable adjustments to our tax liabilities and our financial statements could be adversely affected. If we determine to
repatriate earnings from foreign jurisdictions that have been considered permanently reinvested under existing accounting
standards, it could also increase our effective tax rate.
We have incurred a significant amount of debt, and our debt will increase further if we incur additional debt and do not
retire existing debt.
As of December 31, 2019, we had approximately $6.3 billion of long-term debt, including the current portion of long-term
debt, on a consolidated basis. We may also obtain additional long-term debt and lines of credit to meet future financing needs.
Our debt level and related debt service obligations could have negative consequences, including:
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requiring us to dedicate significant cash flow from operations to the payment of principal and interest on our debt, which
would reduce the funds we have available for other purposes, such as acquisitions;
• making it more difficult for us to satisfy our obligations with respect to our debt;
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placing us at a competitive disadvantage compared to our competitors that are not as highly leveraged;
limiting our ability to borrow additional funds;
reducing our flexibility in planning for or reacting to changes in our business and market conditions;
exposing us to interest rate risk since a portion of our debt obligations are at variable rates; and
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resulting in an event of default if we fail to satisfy our obligations under our debt or fail to comply with the financial or
restrictive covenants contained in our debt instruments, which event of default could result in all of our debt becoming
immediately due and payable and could permit certain of our lenders to foreclose on our assets securing such debt.
Our ability to satisfy our obligations depends on our future operating performance and on economic, financial, competitive and
other factors beyond our control. Our business may not generate sufficient cash flow to meet these obligations. If we are unable
to service our debt or obtain additional financing, we may be forced to delay strategic acquisitions, capital expenditures or
research and development expenditures. We may not be able to obtain additional financing on terms acceptable to us or at all.
Additionally, the agreements governing our debt require that we maintain certain financial ratios, and contain affirmative and
negative covenants that restrict our activities by, among other limitations, limiting our ability to incur additional indebtedness,
make investments, create liens, sell assets and enter into transactions with affiliates. The covenants in our credit agreement
include a debt-to-EBITDA ratio. Specifically, the credit agreement requires us to maintain as of the end of any fiscal quarter a
consolidated net leverage ratio of debt to consolidated EBITDA (as defined in the credit agreement) of less than 3.50 to 1.00 or,
for four consecutive quarters immediately following the consummation of any qualified acquisition, less than 4.00 to 1.00. In
addition, the credit agreement requires us to maintain a consolidated interest coverage ratio of consolidated EBITDA to interest
expense of greater than 3.50 to 1.00 as of the end of any fiscal quarter.
Our ability to comply with these restrictions and covenants may be affected by events beyond our control. Our failure to
comply with any of these restrictions or covenants may result in an event of default under the applicable debt instrument, which
could permit acceleration of the debt under that instrument and require us to prepay that debt before its scheduled due date.
Also, an acceleration of the debt under one of our debt instruments would trigger an event of default under other of our debt
instruments.
We are subject to a variety of litigation and other legal and regulatory proceedings in the course of our business that could
adversely affect our financial statements.
We are subject to a variety of litigation and other legal and regulatory proceedings incidental to our business (or the business
operations of previously owned entities), including claims for damages arising out of the use of products or services and claims
relating to intellectual property matters, employment matters, appropriate classification of franchisee relationship, tax matters,
commercial disputes, disputes with our supplier or vendors, competition and sales and trading practices, environmental matters,
personal injury, insurance coverage and acquisition or divestiture-related matters, as well as regulatory investigations or
enforcement. We may also become subject to lawsuits as a result of past or future acquisitions or as a result of liabilities
retained from, or representations, warranties or indemnities provided in connection with, divested businesses. These lawsuits
may include claims for compensatory damages, punitive and consequential damages and/or injunctive relief. The defense of
these lawsuits may divert our management’s attention, we may incur significant expenses in defending these lawsuits, we may
experience disruption in supply or sales, and we may be required to pay damage awards or settlements or become subject to
equitable remedies that could adversely affect our operations and financial statements. Moreover, any insurance or
indemnification rights that we may have may be insufficient or unavailable to protect us against such losses. In addition,
developments in proceedings in any given period may require us to adjust the loss contingency estimates that we have recorded
in our financial statements, record estimates for liabilities or assets that we were previously unable to estimate or pay cash
settlements or judgments. Any of these developments could adversely affect our financial statements in any particular period.
We cannot assure you that our liabilities in connection with litigation and other legal and regulatory proceedings will not
exceed our estimates or adversely affect our financial statements and reputation.
If we do not or cannot adequately protect our intellectual property, or if third parties infringe our intellectual property
rights, we may suffer competitive injury or expend significant resources enforcing our rights.
We own numerous patents, trademarks, copyrights, trade secrets and other intellectual property and licenses to intellectual
property owned by others, which in aggregate are important to our business. The intellectual property rights that we obtain,
however, may not be sufficiently broad or otherwise may not provide us a significant competitive advantage, and patents may
not be issued for pending or future patent applications owned by or licensed to us. In addition, the steps that we and our
licensors have taken to maintain and protect our intellectual property may not prevent it from being challenged, invalidated,
circumvented, designed-around or becoming subject to compulsory licensing, particularly in countries where intellectual
property rights are not highly developed or protected. In some circumstances, enforcement may not be available to us because
an infringer has a dominant intellectual property position or for other business reasons, or countries may require compulsory
licensing of our intellectual property. We also rely on nondisclosure and noncompetition agreements with employees,
consultants and other parties to protect, in part, trade secrets and other proprietary rights. There can be no assurance that these
agreements will adequately protect our trade secrets and other proprietary rights and will not be breached, that we will have
adequate remedies for any breach, that others will not independently develop substantially equivalent proprietary information
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or that third parties will not otherwise gain access to our trade secrets or other proprietary rights. Our failure to obtain or
maintain intellectual property rights that convey competitive advantage, adequately protect our intellectual property or detect or
prevent circumvention or unauthorized use of such property and the cost of enforcing our intellectual property rights could
adversely impact our competitive position and financial statements.
Third parties may claim that we are infringing or misappropriating their intellectual property rights and we could suffer
significant litigation expenses, losses or licensing expenses or be prevented from selling products or services.
From time to time, we receive notices from third parties alleging intellectual property infringement or misappropriation. Any
dispute or litigation regarding intellectual property could be costly and time-consuming due to the complexity of many of our
technologies and the uncertainty of intellectual property litigation. Our intellectual property portfolio may not be useful in
asserting a counterclaim, or negotiating a license, in response to a claim of infringement or misappropriation. In addition, as a
result of such claims of infringement or misappropriation, we could lose our rights to critical technology, be unable to license
critical technology or sell critical products and services, be required to pay substantial damages or license fees with respect to
the infringed rights or be required to redesign our products at substantial cost, any of which could adversely impact our
competitive position and financial statements. Even if we successfully defend against claims of infringement or
misappropriation, we may incur significant costs and diversion of management attention and resources, which could adversely
affect our financial statements.
A significant disruption in, or breach in security of, our information technology systems could adversely affect our business.
We rely on information technology systems, some of which are managed by third parties and some of which are managed on a
decentralized, independent basis by our operating companies, to process, transmit and store electronic information (including
sensitive data such as confidential business information and personally identifiable data relating to employees, customers and
other business partners), and to manage or support a variety of critical business processes and activities. These systems may be
damaged, disrupted or shut down due to attacks by computer hackers, nation states, cyber-criminals, computer viruses,
employee error or malfeasance, power outages, hardware failures, telecommunication or utility failures, catastrophes or other
unforeseen events, and in any such circumstances our system redundancy and other disaster recovery planning may be
ineffective or inadequate. In addition, security breaches of our systems (or the systems of our customers, suppliers or other
business partners) could result in the misappropriation, destruction or unauthorized disclosure of confidential information or
personal data belonging to us or to our employees, partners, customers or suppliers. Like many multinational corporations, our
information technology systems have been subject to computer viruses, malicious codes, unauthorized access and other cyber-
attacks and we expect to be subject to similar incidents in the future as such attacks become more sophisticated and frequent.
Any of the attacks, breaches or other disruptions or damage described above could interrupt our operations, delay production
and shipments, result in theft of our and our customers’ intellectual property and trade secrets, damage customer and business
partner relationships and our reputation or result in defective products or services, legal claims and proceedings, liability and
penalties under privacy laws and increased costs for security and remediation, each of which could adversely affect our
business and financial statements.
Defects and unanticipated use or inadequate disclosure with respect to our products (including software) or services could
adversely affect our business, reputation and financial statements.
Manufacturing or design defects impacting safety, cybersecurity or quality issues (or the perception of such issues) for our
products and services can lead to personal injury, death, property damage, data loss or other damages. These events could lead
to recalls or safety or other public alerts, result in product or service downtime or the temporary or permanent removal of a
product or service from the market and result in product liability or similar claims being brought against us. Recalls, downtime,
removals and product liability and similar claims (regardless of their validity or ultimate outcome) can result in significant
costs, as well as negative publicity and damage to our reputation that could reduce demand for our products and services.
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.
Certain of our businesses sell a significant amount of their products to key distributors and other channel partners that have
valuable relationships with customers and end-users. Some of these distributors and other partners also sell our competitors’
products or compete with us directly, and if they favor competing products for any reason they may fail to market our products
effectively. Adverse changes in our relationships with these distributors and other partners, or adverse developments in their
financial condition, performance or purchasing patterns, could adversely affect our financial statements. The levels of inventory
maintained by our distributors and other channel partners, and changes in those levels, can also significantly impact our results
of operations in any given period. In addition, the consolidation of distributors and customers in certain of our served industries
could adversely impact our profitability.
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Our financial results are subject to fluctuations in the cost and availability of commodities or components that we use in our
operations.
As discussed in the section entitled “Business-Materials,” our manufacturing and other operations employ a wide variety of
components, raw materials and other commodities. Prices for and availability of these components, raw materials and other
commodities have fluctuated significantly in the past. Any sustained interruption in the supply of these items, including as a
result of contractual disputes with suppliers or vendors, could adversely affect our business. In addition, due to the highly
competitive nature of the industries that we serve, the cost-containment efforts of our customers and the terms of certain
contracts we are party to, if commodity or component prices rise we may be unable to pass along cost increases through higher
prices. If we are unable to fully recover higher commodity or component costs through price increases or offset these increases
through cost reductions, or if there is a time delay between the increase in costs and our ability to recover or offset these costs,
we could experience lower margins and profitability and our financial statements could be adversely affected.
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.
We purchase materials, components and equipment from third parties for use in our manufacturing operations. Our income
could be adversely impacted if we are unable to adjust our purchases to reflect changes in customer demand and market
fluctuations, including those caused by seasonality or cyclicality. During a market upturn, suppliers may extend lead times,
limit supplies or increase prices. If we cannot purchase sufficient products at competitive prices and quality and on a timely
enough basis to meet increasing demand, we may not be able to satisfy market demand, product shipments may be delayed, our
costs may increase or we may breach our contractual commitments and incur liabilities. Conversely, in order to secure supplies
for the production of products, we sometimes enter into noncancelable purchase commitments with vendors, which could
impact our ability to adjust our inventory to reflect declining market demands. If demand for our products is less than we
expect, we may experience additional excess and obsolete inventories and be forced to incur additional charges and our
profitability may suffer.
In addition, some of our businesses purchase certain requirements from sole or limited source suppliers for reasons of quality
assurance, cost effectiveness, availability, contractual obligations or uniqueness of design. If these or other suppliers encounter
financial, operating, quality or other difficulties or if our relationship with them changes, including as a result of contractual
disputes, we might not be able to quickly establish or qualify replacement sources of supply. The supply chains for our
businesses could also be disrupted by supplier capacity constraints, operational or quality issues, bankruptcy or exiting of the
business for other reasons, decreased availability of key raw materials or commodities and external events such as natural
disasters, pandemic health issues, war, terrorist actions, governmental actions and legislative or regulatory changes. Any of
these factors could result in production interruptions, delays, extended lead times and inefficiencies.
Because we cannot always immediately adapt our production capacity and related cost structures to changing market
conditions, our manufacturing capacity may at times exceed or fall short of our production requirements. Any or all of these
problems could result in the loss of customers, provide an opportunity for competing products to gain market acceptance and
otherwise adversely affect our profitability.
Our restructuring actions could have long-term adverse effects on our business.
In recent years, we have implemented multiple, significant restructuring activities across our businesses to adjust our cost
structure, and we may engage in similar restructuring activities in the future. These restructuring activities and our regular
ongoing cost reduction activities (including in connection with the integration of acquired businesses) reduce our available
talent, assets and other resources and could slow improvements in our products and services, adversely affect our ability to
respond to customers and limit our ability to increase production quickly if demand for our products increases. In addition,
delays in implementing planned restructuring activities or other productivity improvements, unexpected costs or failure to meet
targeted improvements may diminish the operational or financial benefits we realize from such actions. Any of the
circumstances described above could adversely impact our business and financial statements.
Work stoppages, union and works council campaigns and other labor disputes could adversely impact our productivity and
results of operations.
We have certain U.S. collective bargaining units and various non-U.S. collective labor arrangements. We are subject to
potential work stoppages, union and works council campaigns and other labor disputes, any of which could adversely impact
our productivity, results of operations and reputation.
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If we suffer loss to our facilities, supply chains, distribution systems or information technology systems due to catastrophe
or other events, our operations could be seriously harmed.
Our facilities, supply chains, distribution systems and information technology systems are subject to catastrophic loss due to
fire, flood, earthquake, hurricane, public health crisis, war, terrorism or other natural or man-made disasters. If any of these
facilities, supply chains or systems were to experience a catastrophic loss, it could disrupt our operations, delay production and
shipments, result in defective products or services, damage customer relationships and our reputation and result in legal
exposure and large repair or replacement expenses. The third-party insurance coverage that we maintain will vary from time to
time in both type and amount depending on cost, availability and our decisions regarding risk retention, and may be unavailable
or insufficient to protect us against losses.
Certain provisions in our amended and restated certificate of incorporation and bylaws, and of Delaware law, may prevent
or delay an acquisition of our company, which could decrease the trading price of our common stock.
Our amended and restated certificate of incorporation (“Restated Certificate of Incorporation”) and amended and restated
bylaws (“Amended and Restated Bylaws”) contain, and Delaware law contains, provisions that are intended to deter coercive
takeover practices and inadequate takeover bids and to encourage prospective acquirers to negotiate with the Board of Directors
(the “Board”) rather than to attempt an unsolicited takeover not approved by the Board. These provisions include, among
others:
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the inability of our shareholders to call a special meeting;
the inability of our shareholders to act by written consent;
rules regarding how shareholders may present proposals or nominate directors for election at shareholder meetings;
the right of the Board to issue preferred stock without shareholder approval;
the ability of our directors, and not shareholders, to fill vacancies (including those resulting from an enlargement of the Board)
on the Board; and
the requirement that the affirmative vote of shareholders holding at least 80% of our voting stock is required to amend our
amended and restated bylaws and certain provisions in our amended and restated certificate of incorporation.
In addition, because we have not chosen to be exempt from Section 203 of the Delaware General Corporation Law (the
“DGCL”), this provision could also delay or prevent a change of control that you may favor. Section 203 provides that, subject
to limited exceptions, persons that acquire, or are affiliated with a person that acquires, more than 15% of the outstanding
voting stock of a Delaware corporation (an “interested stockholder”) shall not engage in any business combination with that
corporation, including by merger, consolidation or acquisitions of additional shares, for a three-year period following the date
on which the person became an interested stockholder, unless (i) prior to such time, the board of directors of such corporation
approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder;
(ii) upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of such corporation at the time the transaction commenced (excluding for
purposes of determining the voting stock outstanding (but not the outstanding voting stock owned by the interested
stockholder) the voting stock owned by directors who are also officers or held in employee benefit plans in which the
employees do not have a confidential right to tender or vote stock held by the plan); or (iii) on or subsequent to such time the
business combination is approved by the board of directors of such corporation and authorized at a meeting of shareholders by
the affirmative vote of at least two-thirds of the outstanding voting stock of such corporation not owned by the interested
stockholder.
We believe these provisions will protect our shareholders from coercive or otherwise unfair takeover tactics by requiring
potential acquirers to negotiate with the Board and by providing the Board with more time to assess any acquisition proposal.
These provisions are not intended to make our company immune from takeovers.
However, these provisions will apply even if the offer may be considered beneficial by some shareholders and could delay or
prevent an acquisition that the Board determines is not in the best interests of our company and our shareholders. These
provisions may also prevent or discourage attempts to remove and replace incumbent directors.
Changes in U.S. GAAP could adversely affect our reported financial results and may require significant changes to our
internal accounting systems and processes.
19
We prepare our consolidated financial statements in conformity with U.S. GAAP. These principles are subject to interpretation
by the Financial Accounting Standards Board (“FASB”), the SEC and various bodies formed to interpret and create appropriate
accounting principles and guidance. The FASB issued new accounting standards for revenue recognition and accounting for
leases. These and other such standards may result in different accounting principles, which may significantly impact our
reported results or could result in volatility of our financial results.
Our amended and restated certificate of incorporation designates the state courts in the State of Delaware or, if no state
court located within the State of Delaware has jurisdiction, the federal court for the District of Delaware, as the sole and
exclusive forum for certain types of actions and proceedings that may be initiated by our shareholders, which could
discourage lawsuits against us and our directors and officers.
Our amended and restated certificate of incorporation provides that unless the Board otherwise determines, the state courts in
the State of Delaware or, if no state court located within the State of Delaware has jurisdiction, the federal court for the District
of Delaware, will be the sole and exclusive forum for any derivative action or proceeding brought on behalf of our company,
any action asserting a claim of breach of a fiduciary duty owed by any of our directors or officers to our company or our
shareholders, any action asserting a claim against our company or any of our directors or officers arising pursuant to any
provision of the DGCL or our amended and restated certificate of incorporation or bylaws, or any action asserting a claim
against our company or any of our directors or officers governed by the internal affairs doctrine. This exclusive forum
provision may limit the ability of our shareholders to bring a claim in a judicial forum that such shareholders find favorable for
disputes with our company or our directors or officers, which may discourage such lawsuits against our company and our
directors and officers. This exclusive forum provision would not apply to claims brought to enforce a duty or liability created
by the Securities Act, the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2. PROPERTIES
Our corporate headquarters is located in Everett, Washington in a facility that we own. As of December 31, 2019, our facilities
included approximately 80 significant facilities, which are used for manufacturing, distribution, warehousing, research and
development, general administrative and/or sales functions. Approximately 40 of these facilities are located in the United States
in over 20 states and approximately 40 are located outside the United States in over 20 countries, including Canada and
countries in Asia Pacific, Europe, and Latin America. These facilities cover approximately 8 million square feet, of which
approximately 5 million square feet are owned and approximately 3 million square feet are leased. Particularly outside the
United States, facilities may serve more than one business segment and may be used for multiple purposes, such as
administration, sales, manufacturing, warehousing, and/or distribution. The approximate number of significant facilities by
business segment is: Professional Instrumentation, 45; and Industrial Technologies, 35.
We consider our facilities suitable and adequate for the purposes for which they are used and do not anticipate difficulty in
renewing existing leases as they expire or in finding alternative facilities. We believe our properties and equipment have been
well-maintained. Please refer to Note 10 to the consolidated financial statements for additional information with respect to our
lease commitments.
ITEM 3. LEGAL PROCEEDINGS
We are, from time to time, subject to a variety of litigation and other legal and regulatory proceedings and claims incidental to
our business. Based upon our experience, current information and applicable law, we do not believe that these proceedings and
claims will have a material effect on our financial position, results of operations or cash flows.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
20
INFORMATION ABOUT OUR EXECUTIVE OFFICERS
Set forth below are the names, ages, positions and experience of our executive officers as of February 27, 2020. All of our
executive officers hold office at the pleasure of our Board.
Name
James A. Lico
Martin Gafinowitz
Barbara B. Hulit
Charles E. McLaughlin
Patrick K. Murphy
William W. Pringle
Jonathan L. Schwarz
Peter C. Underwood
Stacey A. Walker
Age
54
61
53
58
58
52
48
50
49
Position
President and Chief Executive Officer
Senior Vice President
Senior Vice President
Senior Vice President – Chief Financial Officer
Senior Vice President
Senior Vice President
Vice President – Strategy and Corporate Development
Senior Vice President – General Counsel and Secretary
Senior Vice President – Human Resources
Officer Since
2016
2016
2016
2016
2016
2016
2016
2016
2016
James A. Lico has served as Chief Executive Officer and President, as well as a member of the Board since July 2016. Prior to
July 2016, Mr. Lico served in leadership positions in a variety of different functions and businesses at Danaher after joining
Danaher in 1996, including as Executive Vice President from 2005 to 2016.
Martin Gafinowitz has served as a Senior Vice President of Fortive since July 2016. Prior to July 2016, Mr. Gafinowitz served
as Senior Vice President-Group Executive of Danaher from March 2014 to July 2016 after serving as Vice President-Group
Executive of Danaher from 2005 to March 2014.
Barbara B. Hulit has served as a Senior Vice President since July 2016. Prior to July 2016, Ms. Hulit served as Senior Vice
President-Danaher Business System Office for Danaher from January 2013 to July 2016 and as President and Group Executive
of Fluke Corporation from May 2005 to January 2013. Prior to joining Danaher, Ms. Hulit was a partner at The Boston
Consulting Group, a global management consulting firm.
Charles E. McLaughlin has served as Senior Vice President, Chief Financial Officer since July 2016. Prior to July 2016, Mr.
McLaughlin served as Senior Vice President-Diagnostics Group CFO for Danaher’s Diagnostics business from May 2012 to
July 2016, and as Senior Vice President-Chief Financial Officer of Danaher’s Beckman Coulter business from July 2011 to July
2016.
Patrick K. Murphy has served as a Senior Vice President of Fortive since July 2016. Prior to July 2016, Mr. Murphy served as a
Group President of Danaher after joining Danaher in March 2014 until July 2016. Prior to joining Danaher, he served as CEO
of Nidec Motor Corporation and President of the ACIM (Appliance, Commercial and Industrial Motor) Business Unit of Nidec
Corporation, a manufacturer of commercial, industrial, and appliance motors and controls, from 2010 until October 2013.
William W. Pringle has served as a Senior Vice President of Fortive since July 2016. Prior to July 2016, Mr. Pringle served as
Senior Vice President-Fluke and Qualitrol for Danaher from October 2015 to July 2016 and as President of Danaher’s Fluke
business from July 2013 to July 2016, after serving as President-Fluke Industrial Group from May 2012 to July 2013. Prior to
joining Danaher, Mr. Pringle served in a series of progressively more responsible roles with Whirlpool Corporation, a
manufacturer of home appliances, from 2008 until May 2012, including most recently as Senior Vice President-Integrated
Business Units.
Jonathan L. Schwarz has served as Vice President, Strategy and Corporate Development of Fortive since April 2019 and as
Vice-President, Corporate Development from July 2016 to April 2019. Prior to July 2016, Mr. Schwarz served as Vice
President-Corporate Development of Danaher from 2010 to July 2016.
Peter C. Underwood has served as Senior Vice President, General Counsel and Secretary of Fortive since May 2016. Prior to
joining Fortive, Mr. Underwood served as Vice President, General Counsel and Secretary of Regal Beloit Corporation, a
manufacturer of electric motors, from 2010 through May 2016.
Stacey A. Walker has served as a Senior Vice President, Human Resources of Fortive since July 2016. Prior to July 2016, Ms.
Walker served as Vice President-Talent Management of Danaher from January 2014 to July 2016 after serving as Vice
President-Talent Planning from December 2012 to December 2013 and as Vice President-Human Resources for Danaher’s
Chemtreat business from 2008 to November 2012.
21
PART II
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock has been traded on the New York Stock Exchange under the symbol FTV since July 2, 2016. As of
February 21, 2020, there were approximately 2,300 holders of record of our common stock.
Issuer Purchases of Equity Securities
None.
Recent Issuances of Unregistered Securities
None.
ITEM 6. SELECTED FINANCIAL DATA
($ in millions, except per share information)
The following table sets forth the selected consolidated financial data for the five-years ended December 31, 2019. Unless
otherwise indicated, the following disclosures reflect our continuing operations. Refer to Note 4 to the consolidated financial
statements included in this report for additional information regarding discontinued operations.
This selected financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” and our consolidated financial statements and accompanying notes included in this report.
Historical results presented herein may not be indicative of future results.
Summary of Operations
Sales
Operating profit
Net earnings from continuing operations
Net earnings per share from continuing operations:
Basic
Diluted
Common stock dividends declared and paid per share
Preferred stock dividends declared and paid per share
Financial Position
Assets of continuing operations
Assets of discontinued operations
Total assets
Current portion of long-term debt
Long-term debt, net of current maturities
Long-term debt
As of and for the Year Ended December 31
2019
2018
2017
2016
2015
$ 7,320.0
$
6,452.7
$
5,756.1
$ 5,378.2
$
5,311.8
1,004.1
725.4
1,178.4
918.3
1,143.0
884.3
1,061.7
740.2
1,081.5
737.6
1.95
1.93
0.28
50.00
2.56
2.52
0.28
25.28
2.54
2.51
0.28
—
2.14
2.13
0.14
—
2.14
2.14
—
—
$ 17,435.8
$ 12,875.6
$
9,629.6
$ 7,353.1
$
6,377.9
3.2
30.0
871.0
17,439.0
12,905.6
10,500.6
1,500.0
4,828.4
6,328.4
455.6
2,974.7
3,430.3
—
4,056.2
4,056.2
836.7
8,189.8
—
3,358.0
3,358.0
832.7
7,210.6
—
—
—
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis of Fortive’s (the “Company,” “we,” “our,” and “us”) financial condition and results of
operations for the fiscal years ended December 31, 2019 and December 31, 2018 should be read in conjunction with Selected
Consolidated Financial Data and our audited consolidated financial statements and the notes to those statements. Discussion
and analysis of our financial condition and results of operations for the year ended December 31, 2018 compared to December
31, 2017 is included under the heading “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations” in our Annual Report on Form 10-K filed for the fiscal year ended December 31, 2018 with the Securities and
Exchange Commission on February 28, 2019.
22
Fortive is a diversified industrial technology growth company comprised of Professional Instrumentation and Industrial
Technologies segments and encompassing businesses that are recognized leaders in attractive markets. Our well-known brands
hold leading positions in field solutions, product realization, sensing technologies, health, transportation technologies, and
franchise distribution. Our businesses design, develop, service, manufacture and market professional and engineered products,
software and services for a variety of end markets, building upon leading brand names, innovative technology and significant
market positions. Our research and development, manufacturing, sales, distribution, service and administrative facilities are
located in more than 50 countries across North America, Asia Pacific, Europe and Latin America.
This MD&A is designed to provide a reader of our financial statements with a narrative from the perspective of management.
Our MD&A is divided into seven sections:
• Basis of Presentation
• Overview
• Results of Operations
•
Financial Instruments and Risk Management
• Liquidity and Capital Resources
• Critical Accounting Estimates
• New Accounting Standards
BASIS OF PRESENTATION
On September 4, 2019, we announced our intention to separate into two independent, publicly traded companies subject to the
satisfaction of certain conditions, including obtaining final approval from our Board of Directors. The separation will create (i)
an industrial technology company, retaining the Fortive name, with a differentiated portfolio of growth-oriented businesses
focused on connected workflow solutions that incorporate advanced sensors, instrumentation, software, data, and analytics and
(ii) a global industrial company (“Vontier”) consisting of our Transportation Technologies and Franchise Distribution platforms
with a focus on growth opportunities in the rapidly evolving transportation and mobility markets. The separation is expected to
be structured in a tax-efficient manner and completed in the second half of 2020. All assets, liabilities, revenues and expenses
of the businesses comprising Vontier are included in continuing operations in the accompanying consolidated financial
statements.
On March 7, 2018, we entered into a definitive agreement to combine four of our operating companies from our Automation &
Specialty platform (the “A&S Business”) with Altra Industrial Motion Corp. (“Altra”) in a tax-efficient Reverse Morris
Trust transaction. On October 1, 2018, we completed the split-off of the A&S Business and have presented the results of
operations of the A&S Business in our Consolidated Statements of Earnings, and the related assets and liabilities in the
Consolidated Balance Sheets as discontinued operations. These changes have been applied to all periods presented. Unless
otherwise noted, amounts, percentages and discussion for all periods included in Management’s Discussion and Analysis reflect
the results of operations and financial condition from our continuing operations. Refer to Note 4 to our consolidated financial
statements for additional information on discontinued operations.
OVERVIEW
General
Fortive is a multinational business with global operations. Please see “Item 1. Business – General” included in this Annual
Report for a discussion of the Company’s strategies for delivering long-term shareholder value. During 2019, approximately
43% of our sales were derived from customers outside the United States. As a diversified industrial technology growth
company with global operations, our businesses are affected by worldwide, regional and industry-specific economic and
political factors. Our geographic and industry diversity, as well as the range of our products, software, and services, typically
help limit the impact of any one industry or the economy of any single country (except for the United States) on our operating
results. Given the broad range of products manufactured, software and services provided, and geographies served, we do not
use any indices other than general economic trends to predict the overall outlook for the Company. Our individual businesses
monitor key competitors and customers, including their sales, to the extent possible, to gauge relative performance and the
outlook for the future.
23
As a result of our geographic and industry diversity, we face a variety of opportunities and challenges, including technological
development in most of the markets we serve, the expansion and evolution of opportunities in high-growth markets, trends and
costs associated with a global labor force, and consolidation of our competitors. We define high-growth markets as developing
markets of the world experiencing extended periods of accelerated growth in gross domestic product and infrastructure which
include Eastern Europe, the Middle East, Africa, Latin America, and Asia with the exception of Japan and Australia. We operate
in a highly competitive business environment in most markets, and our long-term growth and profitability will depend in
particular on our ability to expand our business across geographies and market segments, identify, consummate, and integrate
appropriate acquisitions, develop innovative and differentiated new products, services, and software, expand and improve the
effectiveness of our sales force, continue to reduce costs and improve operating efficiency and quality, and effectively address
the demands of an increasingly regulated environment. We are making significant investments, organically and through
acquisitions, to address technological change in the markets we serve and to improve our manufacturing, research and
development and customer-facing resources in order to be responsive to our customers throughout the world.
In this report, references to sales from existing businesses refers to sales from operations calculated according to generally
accepted accounting principles in the United States (“GAAP”) but excluding (1) the impact from acquired businesses and
(2) the impact of currency translation. References to sales attributable to acquisitions or acquired businesses refer to GAAP
sales from acquired businesses recorded prior to the first anniversary of the acquisition less the amount of sales attributable to
certain divested businesses or product lines not considered discontinued operations prior to the first anniversary of the
divestiture. The portion of sales attributable to the impact of currency translation is calculated as the difference between (a) the
period-to-period change in sales (excluding sales impact from acquired businesses) and (b) the period-to-period change in sales
(excluding sales impact from acquired businesses) after applying the current period foreign exchange rates to the prior year
period. Sales from existing businesses should be considered in addition to, and not as a replacement for or superior to, sales,
and may not be comparable to similarly titled measures reported by other companies.
Management believes that reporting the non-GAAP financial measure of sales from existing businesses provides useful
information to investors by helping identify underlying growth trends in our business and facilitating comparisons of our sales
performance with our performance in prior and future periods and to our peers. We exclude the effect of acquisitions and
divestiture related items because the nature, size, and number of such transactions can vary dramatically from period to period
and between us and our peers. We exclude the effect of currency translation from sales from existing businesses because the
impact of currency translation is not under management’s control and is subject to volatility. Management believes the
exclusion of the effect of acquisitions and divestitures and currency translation may facilitate the assessment of underlying
business trends and may assist in comparisons of long-term performance. References to sales volume refer to the impact of
both price and unit sales.
Business Performance and Outlook
While differences exist among our businesses, on an overall basis, demand for our hardware and software products, and
services increased during 2019 as compared to 2018 resulting in aggregate year-over-year sales growth of 13.4% and sales
growth from existing businesses of 2.0%. Our continued application and deployment of the Fortive Business System including
investments in sales growth initiatives and new product introductions, as well as increased demand in developed markets and
other business-specific factors discussed below contributed to overall sales growth from existing businesses.
On a year-over-year basis, our Industrial Technologies segment reported sales growth from existing businesses of 5.2%, while
sales from existing businesses in our Professional Instrumentation segment declined slightly. In our Industrial Technologies
segment, the liability shift related to enhanced credit card security requirements for outdoor payment systems that is expected
to occur in October 2020 in the United States based on the Europay, Mastercard, and Visa (“EMV”) global standards is
continuing to drive demand within our transportation technologies platform. The decline in our Professional Instrumentation
segment reflects slowing macroeconomic conditions across most major markets in 2019.
Geographically, sales from existing businesses grew at a low-single digit rate in developed markets and were relatively flat in
high growth markets during 2019 as compared to 2018. Year-over-year sales from existing businesses grew at a high-single
digit rate in Latin America and grew at mid-single digit rate in North America, while sales from existing businesses declined at
a low-double digit rate in India and at a low-single digit rate in Western Europe. Sales from existing businesses in China
increased slightly year-over-year.
We expect overall sales from existing businesses to continue to grow on a year-over-year basis during 2020; however, we
continue to monitor developments from macro-economic and geopolitical uncertainties, including global uncertainties related
to governmental policies toward international trade, monetary and fiscal policies, including the current uncertainty about the
future trade relationship between the United States and China, and the impacts of the coronavirus, as well as other factors
identified in “Item 1A. Risk Factors.”
24
Completed Acquisitions and Business Combinations
2019
Advanced Sterilization Products
On April 1, 2019 (the “Principal Closing Date”), we acquired the Advanced Sterilization Products business (“ASP”) of Johnson
& Johnson, a New Jersey corporation (“Johnson & Johnson”) for an aggregate purchase price of $2.7 billion (the
“Transaction”), subject to certain post-closing adjustments set forth in a Stock and Asset Purchase Agreement, dated effective
as of June 6, 2018, between the Company and Ethicon, Inc., a New Jersey corporation (“Ethicon”) and a wholly owned
subsidiary of Johnson & Johnson. ASP engages in the research, development, manufacture, marketing, distribution and sale of
low-temperature terminal sterilization and high-level disinfection products.
On the Principal Closing Date, we paid $2.7 billion in cash and obtained the transferred assets and assumed liabilities in 20
countries (“Principal Countries”), general patent and trademark assignments, and all transferred equity interests in ASP. ASP
has operations in an additional 39 countries (“Non-Principal Countries”). The transferred assets and liabilities associated with
these operations close when requirements of country-specific agreements or regulatory approvals are satisfied.
The $2.7 billion purchase price was paid in exchange for ASP’s businesses in both Principal and Non-Principal Countries. As of
December 31, 2019, we have closed 20 Principal Countries and four Non-Principal Countries that, in aggregate, accounted for
approximately 98% of the preliminary valuation of ASP. The remaining Non-Principal Countries represent approximately 2%
of the preliminary valuation of ASP, or $50 million, which is included as a prepaid asset in Other assets in the Consolidated
Balance Sheet. As each Non-Principal Country closes, we will reduce the prepaid asset and record the fair value of the assets
acquired and liabilities assumed.
In addition, the Company entered into a transition services agreement with Johnson & Johnson for certain administrative and
operational services, and distribution agreements in the Non-Principal Countries that have not been closed. Under the
distribution agreements, ASP will sell finished goods to Ethicon at prices agreed by the parties. ASP will recognize these sales
as revenue when the conditions for revenue recognition are met. Following the sale of finished goods by ASP, Ethicon obtains
title of the finished goods, has full authority to sell and market the finished goods to end customers as it sees fit, and retains any
revenue and profit from sale.
Other Acquisitions and Investments
In addition to the acquisition of ASP, during 2019, we acquired four businesses including Intelex Technologies, Pruftechnik,
and Censis Technologies for total consideration of $1.2 billion in cash, net of cash acquired. Additionally, we made an
additional equity investment of $4 million. The businesses acquired complement existing units of our Professional
Instrumentation segment. We preliminarily recorded an aggregate of $773 million of goodwill related to these acquisitions.
Combination of the Tektronix Video Business with Telestream
On July 20, 2019, we completed the combination of the Tektronix Video test and monitoring equipment business (“Tektronix
Video Business”) with Telestream, LLC (the “Combined Business”), a portfolio company of Genstar Capital LLC. We
recognized a pretax gain of $41 million upon the combination, and hold a 33% equity stake in the Combined Business. This
transaction did not meet the criteria for discontinued operations reporting, and therefore the operating results of the Tektronix
Video Business prior to the combination with Telestream are included in continuing operations for all periods presented.
Additionally, the loss from our equity investment in the Combined Business is included in Other non-operating expenses, net in
the accompanying Consolidated Statement of Earnings. Refer to Note 4 to our consolidated financial statements for additional
information.
2018
Gordian
On July 27, 2018, we acquired TGG Ultimate Holdings, Inc. and its subsidiaries, including The Gordian Group, Inc.
(“Gordian”), a privately-held, leading provider of construction cost data, software and service, for a total purchase price of
$778 million net of cash acquired (the “Gordian Acquisition”). Gordian’s comprehensive offerings serve the entire building
lifecycle and provide workflow solutions designed to optimize every stage of an asset owner’s construction and maintenance
needs, including connecting the owner and contractors in the same exchange and providing access to cost and facility metrics
databases via a subscription-based model. We recorded $435 million of goodwill related to the Gordian Acquisition.
25
Accruent
On September 6, 2018, we acquired Athena SuperHoldCo, Inc., including Accruent, LLC (“Accruent”), a privately-held,
leading provider of facilities asset management software, for a total purchase price of approximately $2.0 billion net of
acquired cash (the “Accruent Acquisition”). Accruent is a recognized leader in the facilities asset management industry,
combining deep domain and industry capabilities with an integrated, cloud-based framework that provides insights spanning
the full lifecycle of real estate, facilities and asset management. Accruent serves over 10,000 global customers, and helps assure
clients fulfill the mission of their organization by extending the lifecycle of assets, monitoring full compliance and reducing
safety risks. We recorded $1.2 billion of goodwill related to the Accruent Acquisition.
Other Acquisitions
In addition to the acquisitions of Accruent and Gordian, during 2018, we acquired two businesses for total consideration of $44
million in cash, net of cash acquired. The businesses acquired complement existing units of both our segments. We recorded
$31 million of goodwill related to these acquisitions.
Divestiture of A&S Business
On March 7, 2018, we entered into a definitive agreement to combine four of our operating companies from our Automation &
Specialty platform (the “A&S Business”) with Altra Industrial Motion Corp. (“Altra”) in a tax-efficient Reverse Morris
Trust transaction. The A&S Business includes the market-leading brands of Kollmorgen, Thomson, Portescap and Jacobs
Vehicle Systems, and generated approximately $900 million in revenue for the year ended December 31, 2017. On October 1,
2018, we completed the split-off of the A&S Business. The total consideration received was $2.7 billion and consisted of (i)
$1.3 billion through a fully-subscribed exchange offer, in which we accepted and subsequently retired 15,824,931 shares of our
own common stock from our stockholders in exchange for 35,000,000 shares of common stock of Stevens Holding Company,
Inc.; (ii) $1.0 billion in cash paid to us for the direct sales of certain assets and liabilities of the A&S Business; (iii) $250
million as part of a non-cash debt-for-debt exchange that reduced outstanding indebtedness of Fortive, which is inclusive of
accrued interest and fees; and (iv) $150 million in cash paid to us by Stevens Holding Company, Inc. as a dividend. The results
of the A&S Business are reported as discontinued operations for all periods presented, which includes the after-tax gain on the
transaction of $1.9 billion.
RESULTS OF OPERATIONS
Components of Sales Growth
Total revenue growth (GAAP)
Existing businesses (Non-GAAP)
Acquisitions (Non-GAAP)
Currency exchange rates (Non-GAAP)
2019 vs. 2018
13.4 %
2.0 %
13.2 %
(1.8)%
Refer to Professional Instrumentation and Industrial Technologies sections below for further discussion of year-over-year sales
growth.
Operating Profit Margins
Operating profit margins were 13.7% for the year ended December 31, 2019, a decrease of 460 basis points as compared to
18.3% in 2018.
Year-over-year operating profit margin comparisons were favorably impacted by:
• Higher 2019 sales volumes from existing businesses, price increases, and incremental year-over-year cost savings
associated with productivity improvement initiatives, which were partially offset by an unfavorable sales mix,
increased material costs associated primarily with inflationary pressures and recently enacted tariffs, and changes in
currency exchange rates — favorable 30 basis points
Year-over-year operating profit margin comparisons were unfavorably impacted by:
• The incremental year-over-year net dilutive effect of acquired businesses, including amortization and acquisition-
related fair value adjustments to deferred revenue and inventory — unfavorable 310 basis points
26
• The incremental year-over-year net dilutive effect of restructuring actions — unfavorable 60 basis points
• The incremental year-over-year net dilutive effect of acquisition-related transaction costs and transaction costs related
to the planned separation of Fortive into two independent, publicly traded companies — unfavorable 120 basis points
Business Segments and Geographic Area Results
Sales by business segment and geographic area for the year ended December 31 are as follows ($ in millions):
Segments
Professional Instrumentation
Industrial Technologies
Total
Geographic area
United States
China
All other (each country individually less than 5% of total sales)
Total
PROFESSIONAL INSTRUMENTATION
2019
2018
4,427.8
2,892.2
7,320.0
4,206.5
592.0
2,521.5
7,320.0
$
$
$
$
3,655.1
2,797.6
6,452.7
3,539.6
569.0
2,344.1
6,452.7
$
$
$
$
Our Professional Instrumentation segment consists of our Advanced Instrumentation & Solutions, Sensing Technologies, and
Advanced Sterilization Products and Censis businesses.
Our Advanced Instrumentation & Solutions businesses provide product realization and field solutions services and products.
Our field solutions products include a variety of compact professional test tools, thermal imaging and calibration equipment for
electrical, industrial, electronic and calibration applications, online condition-based monitoring equipment; portable gas
detection equipment, consumables, and software as a service (SaaS) offerings including safety/user behavior, asset
management, environmental, health and safety (EHS) quality management and compliance monitoring; subscription-based
technical, analytical, and compliance services to determine occupational and environmental radiation exposure; and software,
data analytics and services for critical infrastructure in utility, industrial, energy, construction, facilities management, public
safety, mining, EHS, and healthcare applications. Our product realization services and products help developers and engineers
across the end-to-end product creation cycle from concepts to finished products. Our test, measurement and monitoring
products are used in the design, manufacturing and development of electronics, industrial, and other advanced technologies.
Our Sensing Technologies business offers devices that sense, monitor and control operational or manufacturing variables, such
as temperature, pressure, level, flow, turbidity, and conductivity. Users of these products span a wide variety of industrial and
manufacturing markets, including medical equipment, food and beverage, marine, industrial, off-highway vehicles, building
automation, and semiconductors.
Our Advanced Sterilization Products (“ASP”) business provides critical sterilization and disinfection solutions, including low-
temperature hydrogen peroxide sterilization solutions for temperature-sensitive equipment, to advance infection prevention and
patient safety in healthcare facilities. Our Censis business provides subscription-based surgical inventory management systems
to healthcare facilities to facilitate inventory management and regulatory compliance.
27
Professional Instrumentation Selected Financial Data
($ in millions)
Sales
Operating profit
Depreciation
Amortization
Operating profit as a % of sales
Depreciation as a % of sales
Amortization as a % of sales
Components of Sales Growth
Total revenue growth (GAAP)
Existing businesses (Non-GAAP)
Acquisitions (Non-GAAP)
Currency exchange rates (Non-GAAP)
2019 COMPARED TO 2018
$
For the Year Ended December 31
2019
2018
$
4,427.8
547.9
76.5
261.0
12.4%
1.7%
5.9%
3,655.1
744.6
64.4
104.3
20.4%
1.8%
2.9%
2019 vs. 2018
21.1 %
(0.4)%
23.0 %
(1.5)%
Sales from existing businesses in the segment’s Advanced Instrumentation & Solutions businesses declined slightly during
2019 as compared to 2018. Year-over-year sales from existing businesses of field solutions products and services were
relatively flat during 2019 as compared to 2018, as growth in demand for portable gas detection and facilities maintenance
offerings was mostly offset by declines in demand for electrical grid condition-based monitoring equipment and slowing
demand from our industrial end markets in North America.
Year-over-year sales from existing businesses of product realization solutions declined at a low-single digit rate during 2019, as
increased demand in our energetic materials business was more than offset by declines in demand for high-performance
oscilloscopes and Keithley products.
Geographically, demand from existing businesses in Advanced Instrumentation & Solutions increased in North America and
Japan, which was more than offset by declines in Europe.
Sales from existing businesses in the segment’s Sensing Technologies businesses declined at a low-single digit rate during 2019
as compared to 2018, as increased year-over-year demand in the medical end market was more than offset by declines in the
industrial end market. Geographically, increased year-over-year demand from existing businesses in China was more than
offset by declines in Western Europe, Japan, and North America.
Sales from recently acquired businesses in our Professional Instrumentation segment, including ASP, contributed 23.0% to
overall sales growth in 2019. ASP sales for the year, as compared to the comparable period prior to Fortive ownership,
increased low-single digits which was attributable to growth in China and Japan.
Price increases are reflected as a component of the change in sales from existing businesses, and year-over-year price increases
in the segment contributed 1.3% to sales growth during 2019 as compared to 2018.
Operating profit margin decreased 800 basis points during 2019 as compared to 2018. Year-over-year operating profit margin
comparisons were unfavorably impacted by:
•
Price increases and incremental year-over-year cost savings associated with productivity improvement initiatives,
which were more than offset by an unfavorable sales mix and lower sales volumes from existing businesses, increased
material costs associated primarily with inflationary pressures and recently enacted tariffs, and changes in currency
exchange rates — unfavorable 85 basis points
• The incremental year-over-year net dilutive effect of acquired businesses, including amortization and acquisition-
related fair value adjustments to deferred revenue and inventory — unfavorable 505 basis points
• The incremental year-over-year net dilutive effect of restructuring actions — unfavorable 85 basis points
28
• Acquisition-related transaction costs, as the costs related to our acquisition and integration of ASP in 2019 were
greater than the costs associated with the ASP, Gordian, and Accruent acquisitions in 2018 — unfavorable 125 basis
points
INDUSTRIAL TECHNOLOGIES
Our Industrial Technologies segment consists of our Transportation Technologies and Franchise Distribution businesses. Our
Transportation Technologies business is a leading worldwide provider of solutions and services focused on fuel dispensing,
remote fuel management, point-of-sale and payment systems, environmental compliance, vehicle tracking and fleet
management, and traffic management. Our Franchise Distribution business manufactures and distributes professional tools and
a full-line of wheel service equipment.
Industrial Technologies Selected Financial Data
($ in millions)
Sales
Operating profit
Depreciation
Amortization
Operating profit as a % of sales
Depreciation as a % of sales
Amortization as a % of sales
Components of Sales Growth
Total revenue growth (GAAP)
Existing businesses (Non-GAAP)
Acquisitions (Non-GAAP)
Currency exchange rates (Non-GAAP)
2019 COMPARED TO 2018
$
For the Year Ended December 31
2019
2018
$
2,892.2
553.9
55.1
31.9
19.2%
1.9%
1.1%
2,797.6
525.6
57.9
30.8
18.8%
2.1%
1.1%
2019 vs. 2018
3.4 %
5.2 %
0.3 %
(2.1)%
Sales from existing businesses in the segment’s Transportation Technologies businesses grew at a high-single digit rate during
2019 as compared to 2018, due primarily to broad-based demand for fuel management systems, specifically in North America
and Western Europe, as well as increased demand for payment solutions. Results in North America were favorably impacted by
the approaching deadline for the liability shift related to outdoor EMV global standards that is expected to occur in October
2020. Geographically, sales from existing businesses increased on a year-over-year basis in North America, Europe, and Latin
America, which were partially offset by declines in India.
Sales from existing businesses in the segment’s Franchise Distribution businesses grew at a low-single digit rate during 2019 as
compared to 2018, largely driven by increased year-over-year demand for hardline and diagnostic tools and shop equipment,
which was partially offset by a decline in demand for wheel service equipment.
Price increases are reflected as a component of the change in sales from existing businesses, and year-over-year price increases
contributed 1.6% to sales growth in the segment during 2019 as compared to 2018.
Operating profit margin increased 40 basis points during 2019 as compared to 2018. Year-over-year operating profit margin
comparisons were favorably impacted by:
• Higher 2019 sales volumes from existing businesses, price increases, and incremental year-over-year cost savings
associated with productivity improvement initiatives, which were partially offset by increased material costs
associated primarily with inflationary pressures and recently enacted tariffs and changes in currency exchange rates —
favorable 195 basis points
Year-over-year operating profit margin comparisons were unfavorably impacted by:
29
• Transaction costs related to the planned separation of Fortive into two independent, publicly traded companies —
unfavorable 120 basis points
• The incremental year-over-year net dilutive effect of restructuring actions — unfavorable 30 basis points
• The incremental year-over-year net dilutive effect of acquired businesses — unfavorable 5 basis points
COST OF SALES AND GROSS PROFIT
($ in millions)
Sales
Cost of sales
Gross profit
Gross profit margin
$
For the Year Ended December 31
2019
2018
$
7,320.0
(3,639.7)
3,680.3
50.3%
6,452.7
(3,131.4)
3,321.3
51.5%
The year-over-year increase in cost of sales during 2019 as compared to 2018 is due primarily to the incremental cost of sales
from our recently acquired businesses, higher year-over-year sales volumes from existing businesses, increased material costs
associated primarily with inflationary pressures and recently enacted tariffs, and restructuring charges, which were partially
offset by incremental year-over-year cost savings associated with productivity improvement initiatives and material cost and
supply chain improvement actions. Changes in currency exchange rates decreased costs of sales in 2019.
The year-over-year increase in gross profit during 2019 as compared to 2018 is due primarily to the favorable impact of pricing
improvements from existing businesses, higher year-over-year sales volumes, including sales volumes from our recently
acquired businesses, year-over-year cost savings associated with productivity improvement initiatives, and material cost and
supply chain improvement actions.
The 120 basis point decrease in gross profit margin year-over-year is due primarily to unfavorable sales mix, acquisition-related
fair value adjustments to deferred revenue and inventory, and increased material costs associated primarily with inflationary
pressures and recently enacted tariffs, which more than offset the favorable impact of pricing improvements from existing businesses
and year-over-year cost savings associated with productivity improvement initiatives and material cost and supply chain
improvement actions.
OPERATING EXPENSES
($ in millions)
Sales
Sales, general, and administrative (“SG&A”) expenses
Research and development (“R&D”) expenses
SG&A as a % of sales
R&D as a % of sales
$
For the Year Ended December 31
2019
2018
$
7,320.0
2,219.5
456.7
30.3%
6.2%
6,452.7
1,728.6
414.3
26.8%
6.4%
SG&A expenses increased during 2019 as compared to 2018 due primarily to higher amortization and incremental expenses
from our recently acquired businesses, costs associated with the ASP acquisition and the planned separation of Fortive into two
independent, publicly traded companies, restructuring actions, and sales and marketing growth initiatives, partially offset by
cost savings associated with productivity improvement initiatives and changes in foreign currency exchange rates. SG&A
expenses as a percentage of sales increased 350 basis points in 2019 as compared to 2018.
R&D expenses (consisting principally of internal and contract engineering personnel costs) increased during 2019 as compared
to 2018 due to incremental year-over-year investments in our product development initiatives and incremental expenses from
recently acquired businesses. On a year-over-year basis, R&D expenses as a percentage of sales were relatively flat as the
investments in our product development initiatives grew at rate largely consistent with sales.
INTEREST COSTS
For a discussion of our outstanding indebtedness, refer to Note 11 to the consolidated financial statements.
30
Interest expense, net of $164 million was recorded during 2019 compared to $97 million during 2018. Interest expense
increased in 2019 due to higher average debt balances during the year. In the event that additional liquidity is required,
particularly in connection with acquisitions, we may enter into additional borrowings under our commercial paper programs or
credit facilities, and/or access the capital markets. If we enter into such additional financing transactions, the amount of annual
interest expense will increase.
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. We record the tax effect of discrete items and items that are reported net of their
tax effects in the period in which they occur.
On December 22, 2017, the U.S. enacted comprehensive tax reform commonly referred to as the Tax Cuts and Jobs Act (the
“TCJA”). The U.S. Government continues to issue significant amounts of TCJA guidance and we expect that to continue for
the foreseeable future. The Company is actively monitoring the impact of new Treasury Regulations. Any future adjustments
resulting from retrospective guidance issued after December 31, 2019 will be considered as discrete income tax expense or
benefit in the interim period the guidance is issued.
Our effective tax rate can be affected by, among others, 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, accruals related to contingent tax liabilities and period-to-period changes in such accruals, the results of audits and
examinations of previously filed tax returns (as discussed below), the expiration of statutes of limitations, the implementation
of tax planning strategies, tax rulings, court decisions, settlements with tax authorities and changes in tax laws, including
legislative policy changes that may result from the Organization for Economic Co-operation and Development’s (“OECD”)
initiative on Base Erosion and Profit Shifting.
In 2019, the OECD issued significant global tax policy changes that include both expanded reporting as well as technical global
tax policy changes. Many countries in which we operate have implemented tax law and administrative changes that align with
many aspects of the OECD policy guidelines. We have taken comprehensive measures to address the requirements of these
changes in global tax policy. In addition, the OECD has announced additional guidance that will be forthcoming in 2020 that
could materially impact the law for transfer pricing and permanent establishment taxation. The Company will continue to
monitor and evaluate the impact of these new OECD developments.
We conduct business globally, and, as part of our global business, we file numerous income tax returns in the U.S. federal, state
and foreign jurisdictions. After the TCJA, our ability to obtain a tax benefit in certain countries that continue to have lower
statutory tax rates than the United States is dependent on our levels of taxable income in such foreign countries. We believe that
a change in the statutory tax rate of any individual foreign country would not have a material effect on our financial statements
given the geographic dispersion of our taxable income.
The amount of income taxes we pay is subject to audit by federal, state and foreign tax authorities, which may result in
proposed assessments. The Company is subject to examination in the United States, various states and foreign jurisdiction for
the tax years 2010 to 2019. We review our global tax positions on a quarterly basis. Based on these reviews, the results of
discussions and resolutions of matters with certain tax authorities, tax rulings and court decisions and the expiration of statutes
of limitations reserves for contingent tax liabilities are accrued or adjusted as necessary. For a discussion of risks related to
these and other tax matters, please refer to “Item 1A. Risk Factors.”
We are routinely examined by various domestic and international taxing authorities. In connection with the Separation of
Fortive from Danaher on July 1, 2016 (the “Separation”), we entered into the Agreements with Danaher, including a tax matters
agreement. The tax matters agreement distinguishes between the treatment of tax matters for “Joint” filings compared to
“separate” filings prior to the Separation. “Joint” filings involve legal entities, such as those in the United States, that include
operations from both Danaher and the Company. By contrast, “separate” filings involve certain entities (primarily outside of the
United States), that exclusively include either Danaher’s or the Company’s operations, respectively. In accordance with the tax
matters agreement, the Company is liable for and has indemnified Danaher against all income tax liabilities involving
“separate” filings for the periods prior to the Separation.
During 2018, the Company entered into a Tax Matters Agreement in connection with the split-off of the A&S Business. The
Company remains liable for pre-disposition income tax liabilities related to the A&S Business.
31
Comparison of the Years Ended December 31, 2019 and 2018
Our effective tax rate for the years ended December 31, 2019 and 2018 was 17.0% and 14.8%, respectively.
Our effective tax rate for 2019 differs from the U.S. federal statutory rate of 21% due primarily to the effect of the TCJA U.S.
federal permanent differences, the impact of credits and deductions provided by law, and earnings outside the United States that
are indefinitely reinvested and taxed at rates lower than the U.S. federal statutory rate, offset by tax costs related to transactions
completed in 2019 in anticipation of the separation into two independent, publicly traded companies.
Our effective tax rate for 2018 differs from the U.S. federal statutory rate of 21% due primarily to the effect of the TCJA U.S.
federal permanent differences, the impact of credits and deductions provided by law, earnings outside the United States that are
taxed at rates lower than the U.S. federal statutory rate, and the effect of adjustments to the provision estimates recorded in
2017 related to the TCJA as permitted under SAB 118.
COMPREHENSIVE INCOME
Comprehensive income decreased by $2.0 billion in 2019 as compared to 2018, due to net earnings, including both continuing
and discontinued operations, that were lower by $2.2 billion which were partially offset by favorable changes in foreign
currency translation adjustments of $178 million. The decrease in net earnings from 2018 to 2019 was due to the recognition of
a $1.9 billion gain in 2018 related to the divestiture of the A&S Business. Unfavorable pension benefit adjustments in 2019
were $20 million compared to favorable adjustments of $4 million in 2018.
INFLATION
The effect of inflation on our revenues and net earnings was not significant in the years ended December 31, 2019 or 2018.
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
We are exposed to market risk from changes in interest rates, foreign currency exchange rates, credit risk and commodity
prices, each of which could impact our financial statements. We generally address our exposure to these risks through our
normal operating and financing activities. In addition, our broad-based business activities help to reduce the impact that
volatility in any particular area or related areas may have on our operating profit as a whole.
Interest Rate Risk
We manage interest cost using a mixture of fixed-rate and variable-rate debt. A change in interest rates on long-term debt
impacts the fair value of our fixed-rate long-term debt but not our earnings or cash flows because the interest on such debt is
fixed. Generally, the fair market value of fixed-rate debt will increase as interest rates fall and decrease as interest rates rise. As
of December 31, 2019, an increase of 100 basis points in interest rates would have decreased the fair value of our fixed-rate
long-term debt by approximately $146 million.
As of December 31, 2019, our variable-rate debt obligations consisted primarily of U.S. dollar and Euro-denominated
commercial paper and term loan borrowings (refer to Note 11 to the accompanying consolidated financial statements for
information regarding our outstanding indebtedness as of December 31, 2019). As a result, our primary interest rate exposure
results from changes in short-term interest rates. As these shorter duration obligations mature, we anticipate issuing additional
short-term commercial paper obligations and term loans to refinance all or part of these borrowings. The annual effective rate
associated with our outstanding U.S. dollar and Euro-denominated commercial paper, 2020 Term Loan, Delayed-draw Term
Loan due 2020, and Yen term loan for the year ended December 31, 2019 was approximately 2.47%, (0.10)%, 2.51%, 2.95%,
and 0.50%, respectively, and we recorded interest expense of $48 million on these variable-rate obligations. A hypothetical 10
basis points increase in market interest rates as of December 31, 2019 on our variable-rate debt obligations as of December 31,
2019 would have increased our interest expense by $3 million in 2019.
32
Foreign Currency Exchange Rate Risk
We face transactional exchange rate risk from transactions with customers in countries outside of the United States and from
intercompany transactions between affiliates. Transactional exchange rate risk arises from the purchase and sale of goods and
services in currencies other than our functional currency or the functional currency of an applicable subsidiary. We also face
translational exchange rate risk related to the translation of financial statements of our foreign operations into U.S. dollars, our
functional currency. Costs incurred and sales recorded by subsidiaries operating outside of the United States are translated into
U.S. dollars using exchange rates effective during the respective period. As a result, we are exposed to movements in the
exchange rates of various currencies against the U.S. dollar. The effect of a change in currency exchange rates on our net
investment in international subsidiaries is reflected in the accumulated other comprehensive income (loss) component of equity.
A 10% depreciation in major currencies relative to the U.S. dollar as of December 31, 2019 would have resulted in a reduction
of stockholders’ equity of approximately $300 million.
Currency exchange rates negatively impacted 2019 reported sales by 1.8% as compared to 2018, as the U.S. dollar was, on
average, stronger against most major currencies during 2019 as compared to exchange rate levels during 2018. If the exchange
rates in effect as of December 31, 2019 were to prevail throughout 2020, currency exchange rates would positively impact 2020
estimated sales by approximately 0.2% relative to our performance in 2019. In general, additional weakening of the U.S. dollar
against other major currencies would further positively impact our sales and results of operations on an overall basis and any
strengthening of the U.S. dollar against other major currencies would adversely impact our sales and results of operations.
We have generally accepted the exposure to exchange rate movements without using derivative financial instruments to manage
this risk. Both positive and negative movements in currency exchange rates against the U.S. dollar will therefore continue to
affect the reported amount of sales, profit, and assets and liabilities in our consolidated financial statements.
Credit Risk
We are exposed to potential credit losses in the event of nonperformance by counterparties to our financial instruments.
Financial instruments that potentially subject us to credit risk consist of cash and highly-liquid investment grade cash
equivalents, and receivables from customers. We place cash and cash equivalents with various high-quality financial
institutions throughout the world and exposure is limited at any one institution. Although we typically do not obtain collateral
or other security to secure these obligations, we regularly monitor the third party depository institutions that hold our cash and
cash equivalents. We emphasize safety and liquidity of principal over yield on those funds. In addition, concentrations of credit
risk arising from receivables from customers are limited due to the diversity of our customers. Our businesses perform credit
evaluations of their customers’ financial conditions as appropriate and also obtain collateral or other security when appropriate.
Commodity Price Risk
For a discussion of risks relating to commodity prices, refer to “Item 1A. Risk Factors.”
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. Refer also to Note 11 to our
consolidated financial statements for additional information.
2019 Financing and Capital Transactions
During 2019, we completed the following financing and capital transactions:
• On February 22, 2019, we issued $1.4 billion in aggregate principal amount of our 0.875% Convertible Senior Notes
due 2022 (the “Convertible Notes”), including $187.5 million in aggregate principal amount resulting from an exercise
in full of an over-allotment option. The Convertible Notes were sold in a private placement to certain initial purchasers
for resale to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933.
The Convertible Notes bear interest at a rate of 0.875% per year, payable semiannually in arrears on February 15 and
August 15 of each year, beginning on August 15, 2019. The Convertible Notes mature on February 15, 2022, unless
earlier repurchased or converted in accordance with their terms prior to such date. The Convertible Notes are
convertible into shares of our common stock at an initial conversion rate of 9.3777 shares per $1,000 principal amount
of Convertible Notes (which is equivalent to an initial conversion price of $106.64 per share), subject to adjustment
upon the occurrence of certain events. The initial conversion price represents a premium of approximately 32.5% to
33
the $80.48 per share closing price of our common stock on February 19, 2019. Upon conversion of the Convertible
Notes, holders will receive cash, shares of our common stock, or a combination thereof, at Fortive’s election. Our
current intention is to settle such conversions through cash up to the principal amount of the converted Convertible
Notes and, if applicable, through shares of our common stock for conversion value, if any, in excess of the principal
amount of the converted Convertible Notes.
Of the $1.4 billion in proceeds received from the issuance of the Convertible Notes, $1.3 billion was classified as debt
and $102.2 million was classified as equity, using an assumed effective interest rate of 3.38%. Debt issuance costs of
$24.3 million were proportionately allocated to debt and equity. We recognized $45.4 million in interest expense
during the year ended December 31, 2019, of which $10.8 million related to the contractual coupon rate of 0.875%
and $6.6 million was attributable to the amortization of debt issuance costs. The discount at issuance was $102.2
million and is being amortized over a three-year period. The unamortized discount at December 31, 2019 was $74.2
million.
• On February 28, 2019, we prepaid the remaining $400.0 million outstanding principal and accrued interest under the
Delayed-Draw Term Loan due 2019. The prepayment fees associated with this payment were immaterial.
• On March 1, 2019, we entered into a credit facility agreement that provides for a 364-day delayed-draw term loan
facility (“2020 Delayed-Draw Term Loan”) in an aggregate principal amount of $1.0 billion. On March 20, 2019, we
drew down the full $1.0 billion available under the 2020 Delayed-Draw Term Loan in order to fund, in part, the ASP
acquisition. The 2020 Delayed-Draw Term Loan bears interest at a variable rate equal to the London inter-bank
offered rate (“LIBOR”) plus a ratings-based margin currently at 75 basis points. As of December 31, 2019, borrowings
under this facility bore an interest rate of 2.49% per annum. The original maturity date of the 2020 Delayed-Draw
Term Loan was February 28, 2020; however on February 25, 2020, we extended the maturity date to August 28, 2020.
The 2020 Delayed-Draw Term Loan remains prepayable at our option. We are not permitted to re-borrow once the
term loan is repaid. The terms and conditions, including covenants, applicable to the 2020 Delayed-Draw Term Loan
are substantially similar to those applicable to the Revolving Credit Facility.
• On June 15, 2019 we repaid the remaining outstanding principal of $55.3 million of our 1.80% senior unsecured notes.
• On October 25, 2019, we entered into a credit facility agreement that provides for a 364-day term loan facility (“2020
Term Loan”) in an aggregate principal amount of $300 million. On October 25, 2019, we drew down the full $300
million available under the 2020 Term Loan in order to fund, in part, the Censis acquisition. We subsequently
increased the size of this facility by $200 million on November 8, 2019 and drew the additional amount on the same
day resulting in an outstanding amount of $500 million. The 2020 Term Loan bears interest at a variable rate equal to
the LIBOR plus a ratings-based margin currently at 75 basis points. As of December 31, 2019, borrowings under this
facility bore an interest rate of 2.49% per annum. The 2020 Term Loan is due on October 23, 2020 and prepayable at
our option. We are not permitted to re-borrow once the term loan is repaid. The terms and conditions, including
covenants, applicable to the 2020 Term Loan are substantially similar to those applicable to the Revolving Credit
Facility. On February 26, 2020, we prepaid $250 million of the 2020 Term Loan. The prepayment fees associated with
this payment are expected to be immaterial.
34
2018 Financing and Capital Transactions
During 2018, we completed the following financing and capital transactions:
• On June 29, 2018, we issued 1,380,000 shares of 5.0% Mandatory Convertible Preferred Stock, Series A (“MCPS”)
with a par value of $0.01 per share and liquidation preference of $1,000 per share, which included the exercise of an
over-allotment option in full to purchase 180,000 shares. We received net $1.34 billion in proceeds from the issuance
of the MCPS, excluding $43 million of issuance costs. We used the net proceeds from the issuance of MCPS to fund
our acquisition activities and for general corporate purposes, including repayment of debt, working capital and capital
expenditures. Each then outstanding share of MCPS will convert automatically on July 1, 2021 into between 10.9041
and 13.3575 common shares, subject to further anti-dilution adjustments.
• On July 20, 2018, we prepaid $325 million of our outstanding U.S dollar variable interest rate term loan due in 2019,
and on October 5, 2018, we prepaid the remaining $175 million of the outstanding balance. The prepayment fees
associated with these payments were immaterial.
• On August 22, 2018, we entered into a credit facility agreement that provides for a 364-day delayed-draw term loan
facility (“Delayed-Draw Term Loan”) with an aggregate principal amount of $1.75 billion. On September 5, 2018, we
drew down the full $1.75 billion available under the Delayed-Draw Term Loan in order to fund, in part, the Accruent
Acquisition. The Delayed-Draw Term Loan bears interest at a variable rate equal to the LIBOR plus a ratings-based
margin currently at 75 basis points. During 2019, the annual effective rate was approximately 3.24% per annum. The
Delayed-Draw Term Loan is prepayable at our option, and we are not permitted to re-borrow once the term loan is
repaid. On September 26, 2018 and November 21, 2018, we repaid $400 million of and $950 million of this loan,
respectively.
• On October 1, 2018, in connection with the debt exchange in the split-off of the A&S Business, we retired $244.7
million of our 1.80% senior unsecured notes due in 2019.
• On November 30, 2018 we entered into an amended and restated agreement (“the Credit Agreement”) extending the
availability period of the Revolving Credit Facility to November 30, 2023 and increased the facility to $2.0 billion.
The Revolving Credit Facility is subject to a one year extension option at our request and with the consent of the
lenders. The Credit Agreement also contains an option permitting us to request an increase in the amounts available
under the Credit Agreement of up to an aggregate additional $1.0 billion.
35
Overview of Cash Flows and Liquidity
Following is an overview of our cash flows and liquidity:
($ in millions)
Total operating cash provided by continuing operations
Cash paid for acquisitions, net of cash received
Payments for additions to property, plant and equipment
All other investing activities
Total investing cash used in continuing operations
Net proceeds from (repayments of) commercial paper borrowings
Proceeds from borrowings (maturities greater than 90 days), net of $24.3
million of issuance costs in 2019
Repayment of borrowings (maturities greater than 90 days)
Proceeds from issuance of mandatory convertible preferred stock, net of $43.0
million of issuance costs
Payment of common stock cash dividend to shareholders
Payment of mandatory convertible preferred stock cash dividend to
shareholders
All other financing activities
Year Ended December 31,
2019
2018
1,284.9
$
1,201.3
(3,943.9) $
(112.5)
1.8
(4,054.6) $
(2,815.1)
(112.3)
(42.1)
(2,969.5)
494.8
$
(266.1)
$
$
$
$
2,913.2
(455.3)
—
(93.8)
(69.0)
13.0
1,750.0
(1,850.0)
1,337.4
(96.6)
(34.9)
39.3
879.1
Total financing cash provided by continuing operations
$
2,802.9
$
Operating Activities
Continuing operations cash flows from operating activities can fluctuate significantly from period-to-period as working capital
needs and the timing of payments for income taxes, restructuring activities, pension funding and other items impact reported
cash flows.
Operating cash flows from continuing operations were approximately $1.3 billion in 2019, an increase of $84 million, or
approximately 7%, as compared to 2018. This year-over-year change in operating cash flows from continuing operations was
primarily attributable to the following factors:
•
2019 operating cash flows were impacted by lower net earnings from continuing operations as compared to 2018. Net
earnings for 2019 were impacted by a year-over-year decrease in operating profits of $174 million and a year-over-
year increase in interest expense of $67 million primarily associated with our financing activities, which was partially
offset by a $41 million non-cash gain on the combination of the Tektronix Video Business with Telestream. The year-
over-year decrease in operating profit was attributable to an increase in depreciation and amortization expenses of
$165 million largely attributable to our recently acquired businesses. Depreciation and amortization are noncash
expenses that decrease earnings without a corresponding impact to operating cash flows.
• The aggregate of accounts receivable, inventories, and trade accounts payable provided $6 million of operating cash
flows during 2019 compared to using $103 million of cash during 2018. The amount of cash flow generated from or
used by the aggregate of accounts receivable, inventories, and trade accounts payable depends upon how effectively
we manage the cash conversion cycle, which effectively represents the number of days that elapse from the day we
pay for the purchase of raw materials and components to the collection of cash from our customers and can be
significantly impacted by the timing of collections and payments in a period.
• The aggregate of prepaid expenses and other assets and accrued expenses and other liabilities provided $93 million of
cash in 2019 as compared to providing $66 million in 2018. The timing of cash tax payments and refunds drove the
majority of this change.
36
Investing Activities
Cash flows relating to investing activities consist primarily of cash used for acquisitions and capital expenditures. Net cash
used in investing activities from continuing operations was approximately $4.1 billion during 2019 compared to approximately
$3.0 billion of net cash used in 2018. For a discussion of our acquisitions refer to “—Overview.”
Capital expenditures are made primarily for increasing capacity, replacing equipment, supporting product development
initiatives, improving information technology systems, and purchase of equipment that is used in revenue arrangements with
customers. Capital expenditures totaled $113 million in 2019 and $112 million in 2018. Excluding the impact of our pending
disposition, we expect capital spending to be between approximately $160 million and $170 million in 2020, though actual
expenditures will ultimately depend on business conditions.
Financing Activities and Indebtedness
Cash flows from financing activities consist primarily of cash flows associated with the issuance of equity, the issuance and
repayments of debt and commercial paper, and payments of quarterly cash dividends to shareholders. Financing activities from
continuing operations generated cash of $2.8 billion in 2019 compared to generating $879 million of cash in 2018. In 2019, we
received proceeds from the issuance of our Convertible Notes of $1.4 billion and received proceeds from the issuance of our
2020 Delayed-Draw Term Loan of $1.0 billion, and our 2020 Term Loan of $500 million, which was partially offset by the
repayment of $400 million of our 2019 Delayed-Draw Term Loan and $55 million of our 1.80% senior unsecured notes. During
the year ended December 31, 2019, we paid $163 million of cash dividends to common shareholders and holders of our MCPS.
Refer to “—Liquidity and Capital Resources” section above for a description of our financing activities in 2019 and 2018.
We generally expect to satisfy any short-term liquidity needs that are not met through operating cash flows and available cash
primarily through issuances of commercial paper under the Commercial Paper Programs. Credit support for the Commercial
Paper Programs is provided by the Revolving Credit Facility. We classified our borrowings outstanding under the Commercial
Paper Programs as long-term debt in the accompanying Consolidated Balance Sheet as of December 31, 2019, as we have the
intent and ability, as supported by availability under the Revolving Credit Facility, to refinance these borrowings for at least one
year from the balance sheet date. As commercial paper obligations mature, we may issue additional short-term commercial
paper obligations to refinance all or part of these borrowings.
The carrying value of total debt outstanding as of December 31, 2019 was approximately $6.3 billion. We had $2.0 billion
available under the Revolving Credit Facility as of December 31, 2019. Of this amount, approximately $1.1 billion was being
used to backstop outstanding U.S. and Euro commercial paper balances. Accordingly, we had the ability to incur an additional
$851 million of indebtedness under the Revolving Credit Facility as of December 31, 2019. Refer to Note 11 to the
consolidated financial statements for information regarding our financing activities and indebtedness.
The availability of the Revolving Credit Facility as a standby liquidity facility to repay maturing commercial paper is an
important factor in maintaining the existing credit ratings of the Commercial Paper Programs. We expect to limit any
borrowings under the Revolving Credit Facility to amounts that would leave sufficient credit available under the facility to
allow us to borrow, if needed, to repay all of the outstanding commercial paper as it matures.
As of December 31, 2019, commercial paper outstanding under the U.S. dollar-denominated commercial paper program had an
annual effective rate of 2.14% and a weighted average remaining maturity of approximately 13 days. As of December 31, 2019,
commercial paper outstanding under the Euro-denominated commercial paper program had an annual effective rate of (0.10)%
and a weighted average remaining maturity of approximately 33 days.
In 2018, we received net proceeds from the issuance of commercial paper under the Commercial Paper Programs of $266
million, received proceeds from borrowings of $1.75 billion, repaid $1.85 billion of borrowings, received proceeds from the
issuance of convertible equity of $1.3 billion, and paid $132 million of cash dividends to shareholders.
Dividends
On November 7, 2019, we declared a regular quarterly dividend of $0.07 per common share paid on December 27, 2019 to
holders of record on November 29, 2019. In addition, Fortive announced that its Board of Directors declared a regular quarterly
cash dividend of $12.50 per share of its 5.00% Mandatory Convertible Preferred Stock, Series A, payable on January 2, 2020 to
preferred stockholders of record on December 15, 2019. The dividend to preferred shareholders was paid on December 31,
2019.
37
Aggregate cash payments for the dividends paid to shareholders during the year ended December 31, 2019 were $163 million
and were recorded as dividends to shareholders in the Consolidated Statements of Changes in Equity and the Consolidated
Statements of Cash Flows.
On January 28, 2020 we declared a regular quarterly cash dividend of $0.07 per share payable on March 27, 2020 to common
stockholders of record on February 28, 2020 and a regular quarterly cash dividend of $12.50 per share on our MCPS payable
on April 1, 2020 to preferred stockholders of record on March 15, 2020.
Cash and Cash Requirements
As of December 31, 2019, we held approximately $1.2 billion of cash and cash equivalents that were invested in highly liquid
investment-grade instruments with a maturity of 90 days or less with an annual effective rate of approximately 1.0%.
Substantially all of the cash was held outside of the U.S.
We have cash requirements to support working capital needs, capital expenditures and acquisitions, pay interest and service
debt, pay taxes and any related interest or penalties, fund our restructuring activities and pension plans as required, pay
dividends to shareholders and support other business needs or objectives. With respect to our cash requirements, we generally
intend to use available cash and internally generated funds to meet these cash requirements, but in the event that additional
liquidity is required, particularly in connection with acquisitions, we may also borrow under our commercial paper programs or
credit facilities or enter into new credit facilities and either borrow directly thereunder or use such credit facilities to backstop
additional borrowing capacity under our commercial paper programs. We also may from time to time access the capital
markets, including to take advantage of favorable interest rate environments or other market conditions.
Conversely, we have made an assertion regarding the amount of earnings that we do not intend to repatriate due to local
working capital needs, local law restrictions, high foreign remittance costs, previous investments in physical assets and
acquisitions, or future growth needs. The TCJA eliminated the U.S. tax cost for qualified repatriation beginning in 2018.
Foreign cumulative earnings remain subject to foreign remittance taxes. As a result of the TCJA, during 2018, we repatriated an
estimated $275 million subject to no foreign remittance taxes. This excludes foreign earnings: 1) required as working capital
for local operating needs, 2) subject to local law restrictions, 3) subject to high foreign remittance tax costs, 4) previously
invested in physical assets or acquisitions, or 5) intended for future acquisitions/growth. For most of our foreign operations, we
make an assertion regarding the amount of earnings in excess of intended repatriation that are expected to be held for indefinite
reinvestment. No provisions for foreign remittance taxes have been made with respect to earnings that are planned to be
reinvested indefinitely. The amount of foreign remittance taxes that may be applicable to such earnings is not readily
determinable given local law restrictions that may apply to a portion of such earnings, unknown changes in foreign tax law that
may occur during the applicable restriction periods caused by applicable local corporate law for cash repatriation, and the
various tax planning alternatives we could employ if we repatriated these earnings.
As of December 31, 2019, we believe that we have sufficient liquidity to satisfy our cash needs, including our cash needs in the
United States.
During 2019, we contributed $11 million to our non-U.S. defined benefit pension plans. During 2020, our cash contribution
requirements for our U.S. and non-U.S. defined benefit pension plans are expected to be approximately $1 million and $10
million, respectively. The ultimate amounts to be contributed depend upon, among other things, legal requirements, underlying
asset returns, the plan’s funded status, the anticipated tax deductibility of the contribution, local practices, market conditions,
interest rates and other factors.
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Contractual Obligations
The following table sets forth, by period due or year of expected expiration, as applicable, a summary of our contractual
obligations as of December 31, 2019 under (1) long-term debt obligations, (2) leases, (3) purchase obligations and (4) other
long-term liabilities reflected on our balance sheet under GAAP. Certain of our acquisitions may involve the potential payment
of contingent consideration. The table below does not reflect any such obligations, as the timing and amounts of any such
payments are uncertain. Refer to “—Off-Balance Sheet Arrangements” for a discussion of other contractual obligations that are
not reflected in the table below.
($ in millions)
Debt and leases:
Long-term debt (a)
Interest payments on long-term debt (b)
Operating lease obligations (c)
Other:
Purchase obligations (d)
Other long-term liabilities reflected on
the balance sheet under GAAP (e)(f)
Total
Total
Less than
one year
1-3 years
3-5 years
More than
5 years
$
6,413.6
$
1,500.0
$
3,463.6
$
— $
1,450.0
890.9
239.5
410.9
82.2
57.4
355.0
127.5
79.9
54.7
104.0
39.0
1.2
577.2
63.2
—
1,584.2
9,539.1
$
—
1,994.6
$
131.0
3,856.7
$
$
117.9
262.1
$
1,335.3
3,425.7
(a) As described in Note 11 to the consolidated financial statements. Amounts do not include interest payments. Interest on
long-term debt is reflected in a separate line in the table.
(b) Interest payments on long-term debt are projected for future periods using the interest rates in effect as of December 31,
2019. Certain of these projected interest payments may differ in the future based on changes in market interest rates.
(c) Includes future lease payments for operating leases having initial noncancelable lease terms in excess of one year.
(d) Consist of agreements to purchase goods or services that are enforceable and legally binding on us and that specify all
significant terms, including fixed or minimum quantities to be purchased, fixed, minimum or variable price provisions, and
the approximate timing of the transaction.
(e) Primarily consist of obligations under product service and warranty policies and allowances, performance and operating
cost guarantees, estimated environmental remediation costs, self-insurance and litigation claims, post-retirement benefits,
pension benefit obligations, net tax liabilities, and deferred compensation obligations. The timing of cash flows associated
with these obligations is based upon management’s estimates over the terms of these arrangements and is largely based
upon historical experience.
(f) Includes non-contractual obligations of $238 million of noncurrent gross unrecognized tax benefits. However, the timing of
these liabilities is uncertain, and therefore, they have been included in the “more than 5 years” column. Also includes our
obligation under the TCJA for the transition tax on cumulative foreign earnings and profits, which we expect to pay over
eight years. Refer to Note 14 to the consolidated financial statements for additional information on unrecognized tax
benefits.
Off-Balance Sheet Arrangements
The following table sets forth, by period due or year of expected expiration, as applicable, a summary of our off-balance sheet
commitments as of December 31, 2019:
($ in millions)
Guarantees
Amount of Commitment Expiration per Period
Total
Less Than
One Year
1-3 Years
4-5 Years
More Than
5 Years
$
121.1
$
70.5
$
16.2
$
16.4
$
18.0
Guarantees consist primarily of outstanding standby letters of credit, bank guarantees and performance and bid bonds. 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.
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Other Off-Balance Sheet Arrangements
We have, from time to time, divested certain of our businesses and assets. In connection with these divestitures, we often
provide representations, warranties and/or indemnities to cover various risks and unknown liabilities, such as claims for
damages arising out of the use of products or relating to intellectual property matters, commercial disputes, environmental
matters or tax matters. We have not included any such items in the contractual obligations table above because they relate to
unknown conditions and we cannot reasonably estimate the potential liabilities from such matters, but we do not believe it is
reasonably possible that any such liability will have a material effect on our financial statements. In addition, as a result of
these divestitures, as well as restructuring activities, certain properties leased by us have been sublet to third parties. In the
event any of these third parties vacate any of these premises, we would be legally obligated under master lease arrangements.
We believe the financial risk of default by such sub-lessors is individually and in the aggregate not material to our financial
statements.
In the normal course of business, we periodically enter into agreements that require us to indemnify customers, suppliers or
other business partners for specific risks, such as claims for injury or property damage arising out of our products or services or
claims alleging that our products, services or software infringe third party intellectual property. We have not included any such
indemnification provisions in the contractual obligations table above. Historically, we have not experienced significant losses
on these types of indemnification obligations.
Our Restated Certificate of Incorporation requires us to indemnify to the full extent authorized or permitted by law any person
made, or threatened to be made a party to any action or proceeding by reason of his or her service as a director or officer of the
Company, or by reason of serving at the request of the Company as a director or officer of any other entity, subject to limited
exceptions. Our Amended and Restated Bylaws provide for similar indemnification rights. In addition, we have executed with
each of our directors and executive officers an indemnification agreement which provides for substantially similar
indemnification rights and under which we have agreed to pay expenses in advance of the final disposition of any such
indemnifiable proceeding. While we maintain insurance for this type of liability, a significant deductible applies to this
coverage and any such liability could exceed the amount of the insurance coverage.
Legal Proceedings
Please refer to Note 16 to the consolidated financial statements for information regarding legal proceedings and contingencies,
and for a discussion of risks related to legal proceedings and contingencies, refer to “Item 1A. Risk Factors.”
CRITICAL ACCOUNTING ESTIMATES
Management’s discussion and analysis of our financial condition and results of operations is based upon our consolidated
financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements
requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and liabilities. We base these estimates and judgments on historical
experience, the current economic environment and on various other assumptions that are believed to be reasonable under the
circumstances. Actual results may differ materially from these estimates and judgments.
We believe the following accounting estimates are most critical to an understanding of our financial statements. Estimates are
considered to be critical if they meet both of the following criteria: (1) the estimate requires assumptions about material matters
that are uncertain at the time the estimate is made, and (2) material changes in the estimate are reasonably likely from period to
period. For a detailed discussion on the application of these and other accounting estimates, refer to Note 2 to the consolidated
financial statements.
Accounts Receivable: We maintain allowances for doubtful accounts to reflect probable credit losses inherent in our portfolio
of receivables. Determination of the allowances requires us to exercise judgment about the timing, frequency and severity of
credit losses that could materially affect the allowances for doubtful accounts and, therefore, net earnings. The allowances for
doubtful accounts represent management’s best estimate of the credit losses expected from our trade accounts, contract and
financing receivable portfolios. The level of the allowances is based on many quantitative and qualitative factors including
historical loss experience by receivable type, portfolio duration, delinquency trends, economic conditions and credit risk
quality. We regularly perform detailed reviews of our accounts receivable portfolio to determine if an impairment has occurred
and to assess the adequacy of the allowances. If the financial condition of our customers were to deteriorate with a severity,
frequency and/or timing different from our assumptions, additional allowances would be required and our financial statements
would be adversely impacted.
Inventories: We record inventory at the lower of cost or net realizable value, which is the estimated selling price in the ordinary
course of business, less reasonably predictable costs of completion, disposal and transportation. We estimate the net realizable
40
value of our inventory based on assumptions of future demand and related pricing. Estimating the net realizable value of
inventory is inherently uncertain because levels of demand, technological advances and pricing competition in many of our
markets can fluctuate significantly from period to period due to circumstances beyond our control. If actual market conditions
are less favorable than those we projected, we could be required to reduce the value of our inventory, which would adversely
impact our financial statements. Refer to Note 5 to the consolidated financial statements.
Acquired Intangibles: Our business acquisitions typically result in the recognition of goodwill, in-process R&D and other
intangible assets, which affect the amount of future period amortization expense and possible impairment charges that we may
incur. Refer to Notes 2, 3 and 7 to the consolidated financial statements for a description of our policies relating to goodwill,
acquired intangibles and acquisitions.
In performing our goodwill impairment testing, we estimate the fair value of our reporting units primarily using a market based
approach. We estimate fair value based on multiples of earnings before interest, taxes, depreciation and amortization
(“EBITDA”) determined by current trading market multiples of earnings for companies operating in businesses similar to each
of our reporting units, in addition to recent market available sale transactions of comparable businesses. In evaluating the
estimates derived by the market based approach, we make judgments about the relevance and reliability of the multiples by
considering factors unique to our reporting units, including operating results, business plans, economic projections, anticipated
future cash flows, and transactions and marketplace data as well as judgments about the comparability of the market proxies
selected. In certain circumstances we also evaluate other factors including results of the estimated fair value utilizing a
discounted cash flow analysis (i.e., an income approach), market positions of the businesses, comparability of market sales
transactions, and financial and operating performance in order to validate the results of the market approach. The discounted
cash flow model requires judgmental assumptions about projected revenue growth, future operating margins, discount rates and
terminal values. There are inherent uncertainties related to these assumptions and management’s judgment in applying them to
the analysis of goodwill impairment.
In 2019, we had twelve reporting units for goodwill impairment testing. Reporting units resulting from recent acquisitions
generally present the highest risk of impairment. We believe the impairment risk associated with these reporting units generally
decreases as we integrate these businesses and better position them for potential future earnings growth. The carrying value of
the goodwill included in each individual reporting unit ranged from $15 million to $3.8 billion. Our annual goodwill
impairment analysis in 2019 indicated that in all instances, the fair values of our reporting units exceeded their carrying values
and consequently did not result in an impairment charge.
The excess of the estimated fair value over carrying value (expressed as a percentage of carrying value for the respective
reporting unit) for each of our reporting units as of the annual testing date ranged from approximately 5% to approximately
1,300%. In order to evaluate the sensitivity of the fair value calculations used in the goodwill impairment test, we applied a
hypothetical 10% decrease to the fair values of each reporting unit and compared those hypothetical values to the reporting unit
carrying values. Based on this hypothetical 10% decrease, the excess of the estimated fair value over carrying value (expressed
as a percentage of carrying value for the respective reporting unit) for each of our reporting units ranged from approximately
-5% to approximately 1,200%. We evaluated other factors relating to the fair value of the reporting units, including, as
applicable, results of the estimated fair value using an income approach, market positions of the businesses, comparability of
market sales transactions and financial and operating performance, and concluded no impairment charges were required.
We review identified intangible assets for impairment whenever events or changes in circumstances indicate that the related
carrying amounts may not be recoverable. Determining whether an impairment loss occurred requires a comparison of the
carrying amount to the sum of undiscounted cash flows expected to be generated by the asset. We also test intangible assets
with indefinite lives at least annually for impairment. These analyses require management to make judgments and estimates
about future revenues, expenses, market conditions and discount rates related to these assets.
If actual results are not consistent with management’s estimates and assumptions, goodwill and other intangible assets may be
overstated and a charge would need to be taken against net earnings which would adversely affect our financial statements.
Contingent Liabilities: As discussed in Note 16 to the accompanying consolidated financial statements, we are, from time to
time, subject to a variety of litigation and similar contingent liabilities incidental to our business (or the business operations of
previously owned entities). We recognize a liability for any contingency that is known or probable of occurrence and
reasonably estimable. These assessments require judgments concerning matters such as litigation developments and outcomes,
the anticipated outcome of negotiations, the number of future claims and the cost of both pending and future claims. In
addition, because most contingencies are resolved over long periods of time, liabilities may change in the future due to various
factors, including those discussed in Note 16 to the accompanying consolidated financial statements. If the reserves we
established with respect to these contingent liabilities 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 financial statements.
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Revenue Recognition: We derive revenues from the sale of products and services. On January 1, 2018, we adopted Accounting
Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which superseded nearly all
existing revenue recognition guidance. Refer to Note 13 to the consolidated financial statements for additional information on
our adoption of this ASU.
If our judgments regarding revenue recognition prove incorrect, our reported revenues in particular periods may be adversely
affected. Historically, our estimates of revenue have been materially correct.
Stock-Based Compensation: For a description of our stock-based compensation accounting practices, refer to Note 17 to our
consolidated financial statements. Determining the appropriate fair value model and calculating the fair value of certain stock-
based payment awards require subjective assumptions, including the expected life of the awards, stock price volatility and
expected forfeiture rate. Given our limited trading history following the Separation, stock price volatility used to calculate the
fair value of stock options in the post-Separation period was estimated based on an average historical stock price volatility of a
group of peer companies. The assumptions used in calculating the fair value of stock-based payment awards represent our best
estimates, but these estimates involve inherent uncertainties and the application of judgment. If actual results are not consistent
with our assumptions and estimates, our equity-based compensation expense could be materially different in the future.
Pension and Other Post Employment Benefits: For a description of our pension accounting practices, refer to Note 12 to the
accompanying consolidated financial statements. Certain of our U.S. and non-U.S. employees participate in noncontributory
defined benefit pension plans. Calculations of the amount of pension costs and obligations depend on the assumptions used in
the actuarial valuations, including assumptions regarding discount rates, expected return on plan assets, rates of salary
increases, health care cost trend rates, mortality rates, and other factors. If the assumptions used in calculating pension and
other post-retirement benefits costs and obligations are incorrect or if the factors underlying the assumptions change (as a result
of differences in actual experience, changes in key economic indicators or other factors), our financial statements could be
materially affected. A 50 basis point reduction in the discount rates used for the plans during 2019 would have increased the net
obligation by $30 million ($25 million on an after-tax basis) from the amounts recorded in the financial statements as of
December 31, 2019.
Our plan assets consist of various insurance contracts, equity and debt securities as determined by the administrator of each
plan. The estimated long-term rate of return for the plans was determined on a plan by plan basis based on the nature of the
plan assets and ranged from 1.50% to 6.0%. If the expected long-term rate of return on plan assets during 2019 was reduced by
50 basis points, pension expense in 2019 would have increased by $1 million ($1 million on an after-tax basis).
Income Taxes: For a description of our income tax accounting policies, refer to Note 2 and Note 14 to the consolidated
financial statements.
In accordance with GAAP, deferred tax assets and liabilities are determined based on the difference between the financial
statement and tax basis of assets and liabilities using enacted rates expected to be in effect during the year in which the
differences reverse. Deferred tax assets generally represent items that can be used as a tax deduction or credit in our tax return
in future years for which the tax benefit has already been reflected on our Consolidated Statements of Earnings. Deferred tax
liabilities generally represent items that have already been taken as a deduction on our tax return but have not yet been
recognized as an expense in our Consolidated Statements of Earnings. The effect on deferred tax assets and liabilities due to a
change in tax rates is recognized in income tax expense in the period that includes the enactment date.
Our deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than
not (a likelihood of more than 50 percent) that some portion or all of the deferred tax assets will not be realized. We evaluate
the realizability of deferred income tax assets for each of the jurisdictions in which we operate. If we experience cumulative
pretax income in a particular jurisdiction in the three-year period including the current and prior two years, we normally
conclude that the deferred income tax assets will more likely than not be realizable and no valuation allowance is recognized,
unless known or planned operating developments would lead management to conclude otherwise. However, if we experience
cumulative pretax losses in a particular jurisdiction in the three-year period including the current and prior two years, we then
consider a series of factors in the determination of whether the deferred income tax assets can be realized. These factors include
historical operating results, known or planned operating developments, the period of time over which certain temporary
differences will reverse, consideration of the utilization of certain deferred income tax liabilities, tax law carryback capability
in the particular country, and prudent and feasible tax planning strategies. After evaluation of these factors, if the deferred
income tax assets are expected to be realized within the tax carryforward period allowed for that specific country, we would
conclude that no valuation allowance would be required. To the extent that the deferred income tax assets exceed the amount
that is expected to be realized within the tax carryforward period for a particular jurisdiction, we establish a valuation
allowance.
42
We recognize tax benefits from uncertain tax positions only if, in our assessment, it is more likely than not that the tax position
will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits
recognized in the financial statements from such positions are measured based on the largest benefit that has a greater than 50%
likelihood of being realized upon ultimate settlement. Judgment is required in evaluating tax positions and determining income
tax provisions. We re-evaluate the technical merits of our tax positions and may recognize an uncertain tax benefit in certain
circumstances, including when: (i) a tax audit is completed; (ii) applicable tax laws change, including a tax case ruling or
legislative guidance; or (iii) the applicable statute of limitations expires. We recognize potential accrued interest and penalties
with unrecognized tax positions in income tax expense.
In addition, we are routinely examined by various domestic and international taxing authorities. The amount of income taxes
we pay is subject to audit by federal, state and foreign tax authorities, which may result in proposed assessments (see “-Results
of Operations - Income Taxes” and Note 14 to the accompanying consolidated financial statements). We review our global tax
positions on a quarterly basis. Based on these reviews, the results of discussions and resolutions of matters with certain tax
authorities, tax rulings and court decisions and the expiration of statutes of limitations reserves for contingent tax liabilities are
accrued or adjusted as necessary.
An increase in our 2019 effective tax rate of 1.0% would have resulted in an additional income tax provision for the fiscal year
ended December 31, 2019 of $9 million.
NEW ACCOUNTING STANDARDS
For a discussion of new accounting standards relevant to our businesses, refer to Note 2 to the accompanying consolidated
financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this item is included under “Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations.”
43
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Management on Fortive Corporation’s Internal Control Over Financial Reporting
The management of the Company is responsible for establishing and maintaining adequate internal control over financial
reporting for the Company. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) promulgated
under the Securities Exchange Act of 1934.
The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of
December 31, 2019. In making this assessment, the Company’s management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (“COSO”) in “Internal Control-Integrated Framework” (2013
framework). Based on this assessment, management concluded that, as of December 31, 2019, the Company’s internal control
over financial reporting is effective.
The Company completed the acquisitions of the Advanced Sterilization Products business (“ASP”) on April 1, 2019, Intelex
Technologies on June 27, 2019, Pruftechnik on July 5, 2019, and Censis Technologies on October 31, 2019, collectively the
“Acquired Businesses.” The Company has not yet fully incorporated the internal controls and procedures of the Acquired
Businesses into the Company’s internal control over financial reporting, and as such, management excluded the Acquired
Businesses from its assessment of the effectiveness of the Company’s internal control over financial reporting as of and for the
year ended December 31, 2019. The Acquired Businesses constituted less than 25% of the Company’s total assets as of
December 31, 2019 and less than 10% of the Company’s total revenues for the year ended December 31, 2019.
The Company’s independent registered public accounting firm has issued an audit report on the effectiveness of the Company’s
internal control over financial reporting. This report dated February 27, 2020 appears on page 46 of this Form 10-K.
44
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Fortive Corporation
Opinion on Internal Control over Financial Reporting
We have audited Fortive Corporation and subsidiaries’ internal control over financial reporting as of December 31, 2019, based
on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (2013 framework), (the COSO criteria). In our opinion, Fortive Corporation and subsidiaries (the
Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019,
based on the COSO criteria.
As indicated in the accompanying Report of Management on Fortive Corporation’s Internal Control Over Financial Reporting,
management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the
internal controls of the Advanced Sterilization Products business (“ASP”), Intelex Technologies (“Intelex”), Pruftechnik, and
Censis Technologies (“Censis”) which are included in the 2019 consolidated financial statements of the Company. Collectively,
ASP, Intelex, Pruftechnik and Censis constituted less than 25% of the Company’s total assets as of December 31, 2019 and less
than 10% of the Company’s total revenues for the year then ended. Our audit of internal control over financial reporting of the
Company also did not include an evaluation of the internal control over financial reporting of ASP, Intelex, Pruftechnik and
Censis.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of Fortive Corporation and subsidiaries as of December 31, 2019 and 2018, the
related consolidated statements of earnings, comprehensive income, changes in equity and cash flows for each of the three
years in the period ended December 31, 2019, and the related notes and financial statement schedule listed in the Index at Item
15(a)(2) and our report dated February 27, 2020 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying Report of
Management on Fortive Corporation’s Internal Control Over Financial Reporting. Our responsibility is to express an opinion on
the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the
PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws
and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Seattle, Washington
February 27, 2020
45
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Fortive Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Fortive Corporation and subsidiaries (the Company) as of
December 31, 2019 and 2018, the related consolidated statements of earnings, comprehensive income, changes in equity and
cash flows for each of the three years in the period ended December 31, 2019, and the related notes and financial statement
schedule listed in the Index at Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). In our opinion,
the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December
31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December
31, 2019, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 framework) and our report dated February 27, 2020 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to
error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that
were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that
are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The
communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as
a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit
matters or on the accounts or disclosures to which they relate.
46
Description of the Matter
How We Addressed the Matter in Our
Audit
Description of the Matter
Valuation of acquired intangible assets
As more fully described in Note 3 to the consolidated financial statements, the
Company completed several acquisitions during 2019 for net consideration of
$3.9 billion.
Auditing the accounting for the Company's 2019 acquisitions was complex and
highly judgmental due to the significant estimation required in determining the
fair value of customer relationships, trade names and technology acquired
(collectively, “intangible assets”), which totaled $1.7 billion in aggregate. In
particular, the estimated fair values were sensitive to significant assumptions such
as the projected financial information and discount rate used in the valuation
models, which are affected by expectations about future market and economic
conditions.
We tested controls over the measurement of the intangible assets acquired,
including management’s review of the significant assumptions mentioned above
and the completeness and accuracy of the data used in the measurements.
To test the measurement of the intangible assets, we read the related purchase
agreements, evaluated, among other things, whether (1) the valuation
methodologies used were appropriate, (2) the significant assumptions, including
discount rates, revenue growth rates, and projected free cash flow, used in valuing
these intangibles were reasonable, and (3) the underlying data used by the
Company in its analyses was appropriate. Specifically, when evaluating the
assumptions related to the projected free cash flow, we compared the assumptions
to the past performance of the acquired entities, the Company's history related to
similar acquisitions, and the Company’s future plans for the acquired entities. We
involved an internal specialist to assist in our completion of our audit procedures.
Accounting for unrecognized tax benefits
The Company operates in a complex, multinational tax environment, and its
effective tax rate is affected by implementation of global tax planning strategies,
including those related to business acquisition structuring. The Company’s
uncertain tax positions are subject to audit by taxing authorities in various
jurisdictions, and the resolution of such audits may span multiple years. The
Company uses significant judgment to (1) determine whether, based on the
technical merits, a tax position is more likely than not to be sustained and (2)
measure the amount of tax benefit that qualifies for recognition. As more fully
described in Note 14 - Income Taxes, as of December 31, 2019, the Company’s
gross unrecognized tax benefits were $214.9 million.
Auditing the recognition and measurement of tax positions, including those
related to business acquisitions and restructuring, was challenging because the
measurement of the tax position is complex, highly judgmental and based on
interpretations of tax laws and legal rulings.
How We Addressed the Matter in Our
Audit
We tested controls over the Company’s process to assess the technical merits of
tax positions, including management’s process to measure the benefits of those
tax positions.
In testing the measurement criteria, we involved our tax professionals to assess
the technical merits of the Company’s tax positions. This included assessing the
Company’s correspondence with relevant tax authorities as well as evaluating
their third-party income tax opinions or memorandums and application of case
law, rulings or other relevant tax authority obtained or considered by the
Company. To support our evaluation, among other things, we separately
interviewed certain key external tax advisers of the Company. We analyzed the
Company’s assumptions and data used to determine the amount of tax benefit to
recognize and tested the accuracy of the calculations. We also evaluated the
Company’s income tax disclosures included in Note 14 to the consolidated
financial statements in relation to these matters.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2015.
Seattle, Washington
February 27, 2020
47
FORTIVE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
($ and shares in millions, except per share amounts)
ASSETS
Current assets:
Cash and equivalents
Accounts receivable less allowance for doubtful accounts of $59.8 million and $54.9
million at December 31, 2019 and December 31, 2018, respectively
Inventories
Prepaid expenses and other current assets
Current assets, discontinued operations
Total current assets
Property, plant and equipment, net
Operating lease right-of-use assets
Other assets
Goodwill
Other intangible assets, net
Total assets
LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt
Trade accounts payable
Current operating lease liabilities
Accrued expenses and other current liabilities
Current liabilities, discontinued operations
Total current liabilities
Operating lease liabilities
Other long-term liabilities
Long-term debt
Commitments and Contingencies
Equity:
Preferred stock: $0.01 par value, 15.0 million shares authorized; 5.0% Mandatory
convertible preferred stock, series A, 1.4 million shares designated, issued and
outstanding at December 31, 2019 and December 31, 2018
Common stock: $0.01 par value, 2.0 billion shares authorized; 336.9 and 335.1 million
issued; 336.0 and 334.5 million outstanding at December 31, 2019 and December 31,
2018, respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income (loss)
Total Fortive stockholders’ equity
Noncontrolling interests
Total stockholders’ equity
Total liabilities and equity
As of December 31
2019
2018
$
1,205.2
$
1,178.4
$
$
1,384.5
1,195.1
640.3
455.6
3.2
574.5
193.2
30.0
3,688.8
3,171.2
519.5
206.8
779.6
8,399.3
3,845.0
576.1
—
548.9
6,133.1
2,476.3
17,439.0
$
12,905.6
$
1,500.0
765.5
54.9
1,146.8
—
3,467.2
159.0
1,584.2
4,828.4
—
3.4
3,311.1
4,128.8
(56.3)
7,387.0
13.2
7,400.2
455.6
706.5
—
999.3
30.7
2,192.1
—
1,125.9
2,974.7
—
3.4
3,126.0
3,552.7
(86.6)
6,595.5
17.4
6,612.9
$
17,439.0
$
12,905.6
See the accompanying Notes to the Consolidated Financial Statements.
48
FORTIVE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
($ and shares in millions, except per share amounts)
Sales of products
Sales of services
Total sales
Cost of product sales
Cost of service sales
Total cost of sales
Gross profit
Operating costs:
Selling, general, and administrative expenses
Research and development expenses
Operating profit
Non-operating expenses, net:
Gains from acquisition and combination of business
Interest expense, net
Other non-operating expenses, net
Earnings from continuing operations before income taxes
Income taxes
Net earnings from continuing operations
Earnings from discontinued operations, net of income taxes
Net earnings
Mandatory convertible preferred dividends
Net earnings attributable to common stockholders
Net earnings per common share from continuing operations:
Basic
Diluted
Net earnings per common share from discontinued operations:
Basic
Diluted
Net earnings per common share:
Basic
Diluted
Average common stock and common equivalent shares outstanding:
Basic
Diluted
The sum of net earnings per share amount may not add due to rounding.
Year Ended December 31
2019
2018
2017
$
6,396.9
$
5,755.0
$
923.1
7,320.0
(3,050.8)
(588.9)
(3,639.7)
3,680.3
(2,219.5)
(456.7)
1,004.1
40.8
(164.2)
(6.2)
874.5
(149.1)
725.4
13.5
738.9
(69.0)
669.9
1.95
1.93
0.04
0.04
1.99
1.97
335.8
340.0
$
$
$
$
$
$
$
697.7
6,452.7
(2,657.2)
(474.2)
(3,131.4)
3,321.3
(1,728.6)
(414.3)
1,178.4
—
(97.0)
(3.0)
1,078.4
(160.1)
918.3
1,995.5
2,913.8
(34.9)
2,878.9
2.56
2.52
5.78
5.69
8.33
8.21
345.5
350.7
$
$
$
$
$
$
$
$
$
$
$
$
$
$
5,173.3
582.8
5,756.1
(2,440.3)
(394.4)
(2,834.7)
2,921.4
(1,409.1)
(369.3)
1,143.0
15.3
(88.7)
4.0
1,073.6
(189.3)
884.3
160.2
1,044.5
—
1,044.5
2.54
2.51
0.46
0.45
3.01
2.96
347.5
352.6
See the accompanying Notes to the Consolidated Financial Statements.
49
FORTIVE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
($ in millions)
Net earnings
Other comprehensive income (loss), net of income taxes:
Foreign currency translation adjustments
Pension adjustments
Total other comprehensive income (loss), net of income taxes
Comprehensive income
Year Ended December 31
2019
2018
2017
738.9
$
2,913.8
$
1,044.5
50.5
(20.2)
30.3
769.2
$
(127.3)
3.6
(123.7)
2,790.1
$
136.6
1.6
138.2
1,182.7
$
$
See the accompanying Notes to the Consolidated Financial Statements.
50
FORTIVE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
($ and shares in millions)
Common Stock
Preferred Stock
Shares Amount
Shares Amount
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Noncontrolling
Interests
Balance, January 1, 2017
Net earnings for the period
Dividends to common
shareholders
Non-cash adjustment to Net
Former Parent investment
Other comprehensive income
Common stock-based award
activity
Changes in noncontrolling
interests
345.9
$
—
—
—
—
1.9
—
Balance, December 31, 2017
Adoption of accounting standards
Balance, January 1, 2018
347.8
—
347.8
Net earnings for the period
Dividends to common
shareholders
Mandatory convertible preferred
dividends
Non-cash adjustment to Net
Former Parent investment
Other comprehensive loss
Common stock-based award
activity
Issuance of mandatory convertible
preferred stock
Split-off of A&S Business
Change in noncontrolling interests
Balance, December 31, 2018
Net earnings for the period
Dividends to common
shareholders
Mandatory convertible preferred
dividends
Other comprehensive income
Common stock-based award
activity
Issuance of 0.875% senior
convertible notes due 2022
Change in noncontrolling interests
Net transfers to Former Parent
—
—
—
—
—
2.5
—
(15.8)
—
334.5
—
—
—
—
1.5
—
—
—
3.5
—
—
—
—
—
—
3.5
—
3.5
—
—
—
—
—
0.1
—
(0.2)
—
3.4
—
—
—
—
—
—
—
—
Balance, December 31, 2019
336.0
$
3.4
— $ — $ 2,427.2
$
403.0
$
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1.4
—
—
1.4
—
—
—
—
—
—
—
1.4
—
—
—
—
—
—
— 1,044.5
(97.2)
(50.2)
—
67.1
—
—
—
—
—
— 2,444.1
—
—
— 2,444.1
1,350.3
(3.9)
1,346.4
— 2,913.8
—
—
—
—
—
—
—
—
9.1
—
95.7
— 1,337.0
(759.9)
—
—
—
— 3,126.0
—
—
—
—
—
—
—
—
—
—
88.8
100.4
—
—
(4.1)
$ — $ 3,311.1
—
(96.6)
(34.9)
—
—
—
—
(576.0)
—
3,552.7
738.9
(93.8)
(69.0)
—
—
—
—
—
$ 4,128.8
$
See the accompanying Notes to the Consolidated Financial Statements.
51
(145.8) $
—
—
—
138.2
—
—
(7.6)
—
(7.6)
—
—
—
—
(123.7)
—
—
44.7
—
(86.6)
—
—
—
30.3
—
—
—
—
(56.3) $
3.1
—
—
—
—
—
14.8
17.9
—
17.9
—
—
—
—
—
—
—
—
(0.5)
17.4
—
—
—
—
—
—
(4.2)
—
13.2
FORTIVE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in millions)
Cash flows from operating activities:
Net earnings from continuing operations
Noncash items:
Depreciation
Amortization
Stock-based compensation expense
Gains from acquisition and combination of business
Impairment charges on intangible assets
Gain on sale of property
Change in deferred income taxes
Change in accounts receivable, net
Change in inventories
Change in trade accounts payable
Change in prepaid expenses and other assets
Change in accrued expenses and other liabilities
Total operating cash provided by continuing operations
Total operating cash provided by (used in) discontinued operations
Net cash provided by operating activities
Cash flows from investing activities:
Cash paid for acquisitions, net of cash received
Payments for additions to property, plant and equipment
Proceeds from sale of property
All other investing activities
Total investing cash used in continuing operations
Total investing cash provided by (used in) discontinued operations
Net cash used in investing activities
Cash flows from financing activities:
Net proceeds from (repayments of) commercial paper borrowings
Proceeds from borrowings (maturities greater than 90 days), net of $24.3
million of issuance costs in 2019
Repayment of borrowings (maturities greater than 90 days)
Proceeds from issuance of mandatory convertible preferred stock, net of
$43.0 million of issuance costs
Payment of common stock cash dividend to shareholders
Payment of mandatory convertible preferred stock cash dividend to
shareholders
All other financing activities
Total financing cash provided by continuing operations
Total financing cash provided by discontinued operations
Net cash provided by financing activities
Effect of exchange rate changes on cash and equivalents
Net change in cash and equivalents
Beginning balance of cash and equivalents
Ending balance of cash and equivalents
Year Ended December 31
2019
2018
2017
$
725.4
$
918.3
$
884.3
133.3
292.9
61.4
(40.8)
—
—
13.9
(166.9)
118.8
53.7
(163.7)
256.9
1,284.9
(13.5)
1,271.4
(3,943.9)
(112.5)
—
1.8
(4,054.6)
—
(4,054.6)
125.7
135.1
50.8
—
1.1
—
7.7
(105.9)
(73.4)
76.2
63.3
2.4
1,201.3
143.1
1,344.4
(2,815.1)
(112.3)
—
(42.1)
(2,969.5)
1,002.9
(1,966.6)
494.8
(266.1)
2,913.2
(455.3)
—
(93.8)
(69.0)
13.0
2,802.9
—
2,802.9
7.1
26.8
1,178.4
1,205.2
$
$
1,750.0
(1,850.0)
1,337.4
(96.6)
(34.9)
39.3
879.1
—
879.1
(40.6)
216.3
962.1
1,178.4
$
$
$
$
93.3
65.0
44.2
(15.3)
2.3
(8.0)
(61.0)
(55.4)
17.5
17.7
(100.5)
136.0
1,020.1
156.3
1,176.4
(1,556.6)
(111.1)
21.5
1.5
(1,644.7)
(25.0)
(1,669.7)
556.2
125.9
—
—
(97.2)
—
13.4
598.3
1.4
599.7
52.5
158.9
803.2
962.1
See the accompanying Notes to the Consolidated Financial Statements.
52
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BUSINESS OVERVIEW AND BASIS FOR PRESENTATION
Fortive Corporation (“Fortive” or “the Company”) is a diversified industrial technology growth company encompassing
businesses that are recognized leaders in attractive markets. Our well-known brands hold leading positions in field solutions,
product realization, sensing technologies, health, transportation technologies, and franchise distribution. Our businesses design,
develop, service, manufacture and market professional and engineered products, software and services for a variety of end
markets, building upon leading brand names, innovative technology and significant market positions. Fortive separated from
Danaher Corporation (“Danaher”) on July 2, 2016 (the “Separation”).
Our research and development, manufacturing, sales, distribution, service and administrative facilities are located in 50
countries.
We report our results in two separate business segments consisting of Professional Instrumentation and Industrial Technologies.
Our Professional Instrumentation segment consists of our Advanced Instrumentation & Solutions, Sensing Technologies, and
Advanced Sterilization Products and Censis businesses.
The Advanced Instrumentation & Solutions businesses provide product realization and field solutions services and products.
Our field solutions products include a variety of compact professional test tools, thermal imaging and calibration equipment for
electrical, industrial, electronic and calibration applications, online condition-based monitoring equipment; portable gas
detection equipment, consumables, and software as a service (SaaS) offerings including safety/user behavior, asset
management, environmental, health and safety (EHS) quality management and compliance monitoring; subscription-based
technical, analytical, and compliance services to determine occupational and environmental radiation exposure; and software,
data analytics and services for critical infrastructure in utility, industrial, energy, construction, facilities management, public
safety, mining, EHS, and healthcare applications. Our product realization services and products help developers and engineers
across the end-to-end product creation cycle from concepts to finished products. Our test, measurement and monitoring
products are used in the design, manufacturing and development of electronics, industrial, and other advanced technologies.
Our Sensing Technologies business offers devices that sense, monitor and control operational or manufacturing variables, such
as temperature, pressure, level, flow, turbidity, and conductivity. Users of these products span a wide variety of industrial and
manufacturing markets, including medical equipment, food and beverage, marine, industrial, off-highway vehicles, building
automation, and semiconductors.
Our Advanced Sterilization Products (“ASP”) business provides critical sterilization and disinfection solutions, including low-
temperature hydrogen peroxide sterilization solutions for temperature-sensitive equipment, to advance infection prevention and
patient safety in healthcare facilities. Our Censis business provides subscription-based surgical inventory management systems
to healthcare facilities to facilitate inventory management and regulatory compliance.
Our Industrial Technologies segment consists of our Transportation Technologies and Franchise Distribution businesses. Our
Transportation Technologies business is a leading worldwide provider of solutions and services focused on fuel dispensing,
remote fuel management, point-of-sale and payment systems, environmental compliance, vehicle tracking and fleet
management, and traffic management. Our Franchise Distribution business manufactures and distributes professional tools and
a full-line of wheel service equipment.
On September 4, 2019, we announced our intention to separate into two independent, publicly traded companies subject to the
satisfaction of certain conditions, including obtaining final approval from our Board of Directors. The separation will create (i)
an industrial technology company, retaining the Fortive name, with a differentiated portfolio of growth-oriented businesses
focused on connected workflow solutions that incorporate advanced sensors, instrumentation, software, data and analytics, and
(ii) a global industrial company (“Vontier”) consisting of our Transportation Technologies and Franchise Distribution platforms
with a focus on growth opportunities in the rapidly evolving transportation and mobility markets. The separation is expected to
be structured in a tax-efficient manner and completed in the second half of 2020. All assets, liabilities, revenues and expenses
of the businesses comprising Vontier are included in continuing operations in the accompanying consolidated financial
statements.
On October 1, 2018, we completed the split-off of businesses in our automation and specialty platform (excluding our
Hengstler and Dynapar businesses) (the “A&S Business”) to our shareholders who elected to exchange shares of our common
stock for all issued and outstanding shares of Stevens Holding Company, Inc. (“Stevens”), the entity we incorporated to hold
the A&S Business. The split-off was immediately followed by the merger of Stevens with a subsidiary of Altra Industrial
Motion Corp. (“Altra”). Our shareholders who participated in the exchange offer tendered approximately 15.8 million shares
of our common stock in exchange for 35.0 million shares of Altra. Concurrently with such split-off, we sold directly to Altra the
53
remainder of the assets and liabilities of A&S Business that were not otherwise contributed to Stevens. Accordingly, the A&S
Business has been reported as discontinued operations in our Consolidated Statements of Earnings, and the related assets and
liabilities have been presented as assets and liabilities of discontinued operations in the Consolidated Balance Sheets for all
periods presented. Unless otherwise noted, discussion within these notes to the consolidated financial statements relates to
continuing operations. Refer to Note 4 for additional information on discontinued operations.
The accompanying consolidated financial statements present our historical financial position, results of operations, changes in
equity and cash flows in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
Certain reclassifications have been made to prior year financial information to conform to the current period presentation.
Unless otherwise indicated, all amounts in the notes to the consolidated financial statements refer to continuing operations.
The financial statements include our accounts and the accounts of our subsidiaries. All intercompany balances and transactions
have been eliminated upon consolidation. The consolidated 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
Statements of Earnings. Net earnings attributable to noncontrolling interests have been reflected in Selling, general, and
administrative expenses and were insignificant in all periods presented.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates—The preparation of financial statements in conformity with GAAP requires management to make estimates
and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent
assets and liabilities. We base these estimates on historical experience, the current economic environment and on various other
assumptions that are believed to be reasonable under the circumstances. However, uncertainties associated with these estimates
exist and actual results may differ from these estimates.
Cash and Equivalents—We consider all highly liquid investments with a maturity of three months or less at the date of
purchase to be cash equivalents.
Accounts Receivable and Allowances for Doubtful Accounts—Accounts receivable is reported in the accompanying
Consolidated Balance Sheets adjusted for any write-offs and net of allowances for doubtful accounts. The allowances for
doubtful accounts represent management’s best estimate of the credit losses expected from our trade accounts, contract and
financing receivable portfolios. Determination of the allowances requires management to exercise judgment about the timing,
frequency and severity of credit losses that could materially affect the provision for credit losses and, therefore, net earnings.
We regularly perform detailed reviews of our portfolios to determine if an impairment has occurred and evaluate the
collectability of receivables based on a combination of financial and qualitative factors that may affect customers’ ability to
pay, including customers’ financial condition, collateral, debt-servicing ability, past payment experience and credit bureau
information. In circumstances where we are aware of a specific customer’s inability to meet its financial obligations, a specific
reserve is recorded against amounts due to reduce the recognized receivable to the amount reasonably expected to be collected.
Additions to the allowances for doubtful accounts are charged to current period earnings, amounts determined to be
uncollectible are charged directly against the allowances, while amounts recovered on previously written-off accounts increase
the allowances. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to
make payments, additional reserves would be required. We do not believe that accounts receivable represent significant
concentrations of credit risk because of the diversified portfolio of individual customers and geographical areas. We recorded
$64 million, $49 million and $38 million of expense associated with doubtful accounts for the years ended December 31, 2019,
2018, and 2017, respectively.
Included in other assets on the Consolidated Balance Sheets as of December 31, 2019 and 2018 are $278 million and $263
million of net aggregate financing receivables, respectively. Financing receivables are evaluated for impairment collectively in
broad groupings that represent homogeneous portfolios based on the underlying nature and risks.
Inventory Valuation—Inventories include the costs of material, labor and overhead. Domestic inventories are stated at the lower
of cost or net realizable value primarily using the first-in, first-out (“FIFO”) method with certain businesses applying the last-
in, first-out method (“LIFO”) to value inventory. Inventories held outside the United States are stated at the lower of cost or net
realizable value primarily using the FIFO method.
Property, Plant and Equipment—Property, plant and equipment are carried at cost. The provision for depreciation has been
computed principally by the straight-line method based on the estimated useful lives of the depreciable assets as follows:
54
Category
Buildings
Leased assets and leasehold improvements
Machinery and equipment
Useful Life
30 years
Amortized over the lesser of the economic life of the
asset or the term of the lease
3 – 10 years
Estimated useful lives are periodically reviewed and, when appropriate, changes to estimates are made prospectively.
Amortization of capital lease assets is included in depreciation expense as a component of Selling, general, and administrative
expenses in the Consolidated Statements of Earnings.
Equity Method Investments—Investments and ownership interests are accounted for under equity method accounting if we
have the ability to exercise significant influence, but don’t have a controlling financial interest. We record our interest in the net
earnings of our equity method investees within Other non-operating expenses, net in the Consolidated Statements of Earnings.
We record our interest in the net earnings of our equity method investments based on the most recently available financial
statements of the investees.
The carrying amount of the investment in equity interests is adjusted to reflect our interest in net earnings and dividends received.
We review the investments for impairment whenever factors indicate that the carrying amount of the investment might not be
recoverable. In such a case, the decrease in value is recognized in the period the impairment occurs in the Consolidated Statement
of Earnings.
Other Assets—Other assets principally include noncurrent financing receivables, contract assets, deferred tax assets, and other
investments.
Fair Value of Financial Instruments—Our financial instruments consist primarily of accounts receivable and obligations under
trade accounts payable and short and long-term debt. Due to their short-term nature, the carrying values for accounts
receivable, trade accounts payable, and short-term debt approximate fair value. Refer to Note 8 for the fair values of our other
obligations.
Goodwill and Other Intangible Assets—Goodwill and other intangible assets result from our acquisition of existing businesses.
In accordance with accounting standards related to business combinations, goodwill and indefinite-lived intangible assets are
not amortized; however, certain definite-lived identifiable intangible assets, primarily customer relationships and acquired
technology, are amortized over their estimated useful lives. In-process research and development (“IPR&D”) is initially
capitalized at fair value and when the IPR&D project is complete, the asset is considered a finite-lived intangible asset and
amortized over its estimated useful life. If an IPR&D project is abandoned, an impairment loss equal to the value of the
intangible asset is recorded in the period of abandonment. We review identified intangible assets for impairment whenever
events or changes in circumstances indicate that the related carrying amounts may not be recoverable. We also test intangible
assets with indefinite lives and goodwill at least annually for impairment. Refer to Note 3 and Note 7 for additional information
about our goodwill and other intangible assets.
Revenue Recognition—As described above, we derive revenues primarily from the sale of Professional Instrumentation and
Industrial Technologies products and services. Revenue is recognized when control of promised products or services is
transferred to customers in an amount that reflects the consideration we expect to be entitled to in exchange for those products
or services.
Product Sales include revenues from the sale of products and equipment, which includes our software as a service product
offerings and equipment rentals.
Service Sales include revenues from extended warranties, post-contract customer support, maintenance contracts or services,
contract labor to perform ongoing service at a customer location, and services related to previously sold products.
For revenue related to a product or service to qualify for recognition, we must have an enforceable contract with a customer
that defines the goods or services to be transferred and the payment terms related to those goods or services. Further, collection
of substantially all consideration for the goods or services transferred must be probable based on the customer’s intent and
ability to pay the promised consideration. We apply judgment in determining the customer’s ability and intention to pay, which
is based on a combination of financial and qualitative factors, including the customer’s financial condition, collateral, debt-
servicing ability, past payment experience, and credit bureau information.
Customer allowances and rebates, consisting primarily of volume discounts and other short-term incentive programs, are
considered in determining the transaction price for the contract; these allowances and rebates are reflected as a reduction in the
55
contract transaction price. Significant judgment is exercised in determining product returns, customer allowances, and rebates,
and are estimated based on historical experience and known trends.
Most of our sales contracts contain standard terms and conditions. We evaluate contracts to identify distinct goods and services
promised in the contract (performance obligations). Sometimes this evaluation involves judgment to determine whether the
goods or services are highly dependent on or highly interrelated with one another, or whether such goods or services
significantly modify or customize one another. Certain customer arrangements include multiple performance obligations,
typically hardware, installation, training, consulting, services and/or post contract support (“PCS”). Generally, these elements
are delivered within the same reporting period, except PCS or other services. We allocate the contract transaction price to each
performance obligation using the observable price that the good or service sells for separately in similar circumstances and to
similar customers, and/or a residual approach when the observable selling price of a good or service is not known and is either
highly variable or uncertain. Allocating the transaction price to each performance obligation sometimes requires significant
judgment.
Our principal terms of sale are FOB Shipping Point, or equivalent, and, as such, we primarily record revenue upon shipment as
we have transferred control to the customer at that point and our performance obligations are satisfied. We evaluate contracts
with delivery terms other than FOB Shipping Point and recognize revenue when we have transferred control and satisfied our
performance obligations. If any significant obligation to the customer with respect to a sales transaction remains to be fulfilled
following shipment (typically installation, other services noted above, or acceptance by the customer), revenue recognition is
deferred until such obligations have been fulfilled. Further, revenue related to separately priced extended warranty and product
maintenance agreements is deferred when appropriate and recognized as revenue over the term of the agreement.
Shipping and Handling—Shipping and handling costs are included as a component of Cost of sales in the Consolidated
Statements of Earnings. Revenue derived from shipping and handling costs billed to customers is included in Sales in the
Consolidated Statements of Earnings.
Advertising—Advertising costs are expensed as incurred.
Research and Development—We conduct research and development activities for the purpose of developing new products,
enhancing the functionality, effectiveness, ease of use, and reliability of our existing products and expanding the applications
for which uses of our products are appropriate. Research and development costs are expensed as incurred.
Restructuring—We periodically initiate restructuring activities to appropriately position our cost base relative to prevailing
economic conditions and associated customer demand, as well as in connection with certain acquisitions. Costs associated with
restructuring actions can include one-time termination benefits and related charges in addition to facility closure, contract
termination and other related activities. We record the cost of the restructuring activities when the associated liability is
incurred. Refer to Note 15 for additional information.
Foreign Currency Translation and Transactions—Exchange rate adjustments resulting from foreign currency transactions are
recognized in Net earnings, whereas effects resulting from the translation of financial statements are reflected as a component
of Accumulated other comprehensive income (loss) within Stockholders’ equity. Assets and liabilities of subsidiaries operating
outside the United States with a functional currency other than U.S. dollars are translated into U.S. dollars using year end
exchange rates and income statement accounts are translated at weighted average exchange rates. Net foreign currency
transaction gains or losses were not material in any of the years presented.
Accounting for Stock-Based Compensation—We account for stock-based compensation by measuring the cost of employee
services received in exchange for all equity awards granted, including stock options, restricted stock units (“RSUs”), and
performance stock units (“PSUs”), based on the fair value of the award as of the grant date. Equity-based compensation
expense is recognized net of an estimated forfeiture rate on a straight-line basis over the requisite service period of the award,
except that in the case of RSUs, compensation expense is recognized using an accelerated attribution method. Refer to Note 17
for additional information on the stock-based compensation plans.
Income Taxes—In accordance with GAAP, deferred tax assets and liabilities are determined based on the difference between
the financial statement and tax basis of assets and liabilities using enacted rates expected to be in effect during the year in
which the differences reverse. Deferred tax assets generally represent items that can be used as a tax deduction or credit in our
tax return in future years for which the tax benefit has already been reflected on our Consolidated Statements of Earnings.
Deferred tax liabilities generally represent items that have already been taken as a deduction on our tax return but have not yet
been recognized as an expense in our Consolidated Statements of Earnings. The effect on deferred tax assets and liabilities due
to a change in tax rates is recognized in income tax expense in the period that includes the enactment date.
56
Our deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than
not (a likelihood of more than 50 percent) that some portion or all of the deferred tax assets will not be realized. We evaluate
the realizability of deferred income tax assets for each of the jurisdictions in which we operate. If we experience cumulative
pretax income in a particular jurisdiction in the three-year period including the current and prior two years, we normally
conclude that the deferred income tax assets will more likely than not be realizable and no valuation allowance is recognized,
unless known or planned operating developments would lead management to conclude otherwise. However, if we experience
cumulative pretax losses in a particular jurisdiction in the three-year period including the current and prior two years, we then
consider a series of factors in the determination of whether the deferred income tax assets can be realized. These factors include
historical operating results, known or planned operating developments, the period of time over which certain temporary
differences will reverse, consideration of the utilization of certain deferred income tax liabilities, tax law carryback capability
in the particular country, and prudent and feasible tax planning strategies. After evaluation of these factors, if the deferred
income tax assets are expected to be realized within the tax carryforward period allowed for that specific country, we would
conclude that no valuation allowance would be required. To the extent that the deferred income tax assets exceed the amount
that is expected to be realized within the tax carryforward period for a particular jurisdiction, we establish a valuation
allowance.
We recognize tax benefit from uncertain tax positions only if it is more likely than not that the tax position will be sustained on
examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the
consolidated financial statements from such positions are measured based on the largest benefit that has a greater than 50%
likelihood of being realized upon ultimate settlement. Judgment is required in evaluating tax positions and determining income
tax provisions. We reevaluate the technical merits of our tax positions and may recognize an uncertain tax benefit in certain
circumstances, including when: (1) a tax audit is completed; (2) applicable tax laws change, including a tax case ruling or
legislative guidance; or (3) the applicable statute of limitations expires. We recognize potential accrued interest and penalties
associated with unrecognized tax positions in income tax expense. Refer to Note 14 for additional information.
57
Accumulated Other Comprehensive Income (Loss)—Foreign currency translation adjustments are generally not adjusted for
income taxes as they relate to indefinite investments in non-U.S. subsidiaries. We have designated our Euro-denominated
commercial paper and ¥13.8 billion senior unsecured term facility loan as net investment hedges of our investment in certain
foreign operations. Accordingly, foreign currency transaction gains or losses on the debt are deferred in the foreign currency
translation component of Accumulated other comprehensive income (loss) (“AOCI”) as an offset to the foreign currency
translation adjustments on our investments in foreign subsidiaries. We recognized gains of $5.7 million and $9.4 million for the
years ended December 31, 2019 and December 31, 2018, respectively, and losses of $18.8 million for the year ended
December 31, 2017 in Other comprehensive income (loss) related to the net investment hedges. Any amounts deferred in AOCI
will remain until the hedged investment is sold or substantially liquidated. The Company recorded no ineffectiveness from its
net investment hedges during the years ended December 31, 2019, 2018, and 2017.
The changes in AOCI by component are summarized below ($ in millions):
Pension & post-
retirement
plan benefit
adjustments (b)
Total
(72.6) $
(73.2)
$
(145.8)
Balance, January 1, 2017
Other comprehensive income (loss) before reclassifications:
Increase (decrease)
Income tax impact
Other comprehensive income (loss) before reclassifications, net of income
taxes
Amounts reclassified from accumulated other comprehensive income (loss):
Increase
Income tax impact
Amounts reclassified from accumulated other comprehensive income (loss),
net of income taxes:
Net current period other comprehensive income (loss):
Balance, December 31, 2017
Other comprehensive income (loss) before reclassifications:
Increase (decrease)
Income tax impact
Other comprehensive income (loss) before reclassifications, net of income
taxes
Amounts reclassified from accumulated other comprehensive income (loss):
Increase
Income tax impact
Foreign
currency
translation
adjustments
$
136.6
—
136.6
—
—
—
136.6
64.0
$
$
(127.3)
—
(127.3)
—
—
Amounts reclassified from accumulated other comprehensive income (loss),
net of income taxes
Net current period other comprehensive income (loss)
Divestiture of A&S Business
Balance, December 31, 2018
Other comprehensive income (loss) before reclassifications:
—
(127.3)
34.0
(29.3) $
$
Increase (decrease)
Income tax impact
Other comprehensive income (loss) before reclassifications, net of income
taxes
Amounts reclassified from accumulated other comprehensive income (loss):
Increase
Income tax impact
50.5
—
50.5
—
—
Amounts reclassified from accumulated other comprehensive income (loss),
net of income taxes:
Net current period other comprehensive income (loss)
Balance, December 31, 2019
(a) This component of AOCI is included in the computation of net periodic pension cost (refer to Note 12 for additional
2.3
(20.2)
(77.5)
—
50.5
21.2
$
$
$
details) and also includes activity related to the divestiture of the A&S Business.
(b) Includes balances relating to employee defined benefit plans, supplemental executive retirement plans, and other
postretirement employee benefit plans.
58
(3.5)
0.9
(2.6)
5.5 (a)
(1.3)
4.2
1.6
(71.6)
0.3
(0.2)
0.1
4.3 (a)
(0.8)
3.5
3.6
10.7
(57.3)
(29.8)
7.3
(22.5)
3.1 (a)
(0.8)
$
$
133.1
0.9
134.0
5.5
(1.3)
4.2
138.2
(7.6)
(127.0)
(0.2)
(127.2)
4.3
(0.8)
3.5
(123.7)
44.7
(86.6)
20.7
7.3
28.0
3.1
(0.8)
2.3
30.3
(56.3)
Pension—We measure our pension assets and obligations to determine the funded status as of December 31st each year, and
recognize an asset for an overfunded status or a liability for an underfunded status in our Consolidated Balance Sheets.
Changes in the funded status of the pension plans are recognized in the year in which the changes occur and are reported in
Other comprehensive income (loss). Refer to Note 12 for additional information on our pension plans including a discussion of
actuarial assumptions, our policy for recognizing associated gains and losses, and the method used to estimate service and
interest cost components.
New Accounting Standards
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit
Losses on Financial Instruments, which amends the impairment model by requiring entities to use a forward-looking approach,
based on expected losses, to estimate credit losses on certain types of financial instruments, including trade receivables. This
standard was effective for us beginning January 1, 2020. Upon adoption of this standard, we expect to record an adjustment to
beginning retained earnings that largely represents expected losses on our trade accounts receivables, financing receivables, and
unbilled receivables in contract assets that have not aged to a date that could indicate an incurred loss. We do not expect this
standard to have material impacts on our future results of operations.
NOTE 3. ACQUISITIONS
We continually evaluate potential mergers, acquisitions and divestitures that align with our strategy and expedite the evolution
of our portfolio of businesses into new and attractive areas. We have completed a number of acquisitions that have been
accounted for as purchases of businesses and resulted in the recognition of goodwill in our financial statements. This goodwill
arises because the purchase price for each acquired business reflects a number of factors including the complimentary fit,
acceleration of our strategy and synergies the business brings with respect to our existing operations, the future earnings and
cash flow potential of the business, the potential to add other strategically complimentary acquisitions to the acquired business,
the scarce or unique nature of the business in its markets, competition to acquire the business, the valuation of similar
businesses in the marketplace (as reflected in a multiple of revenues, earnings, or cash flows), and the avoidance of the time
and costs which would be required (and the associated risks that would be encountered) to enhance our existing offerings to key
target markets and develop new and profitable businesses.
We make an initial allocation of the purchase price at the date of acquisition based on our understanding of the fair value of the
acquired assets and assumed liabilities. We obtain this information during due diligence and through other sources. In the
months after closing, as we obtain additional information about these assets and liabilities, including through tangible and
intangible asset appraisals, and learn more about the newly acquired business, we are able to refine the estimates of fair value
and more accurately allocate the purchase price. Only items identified as of the acquisition date are considered for subsequent
adjustment. We are in the process of obtaining valuations of certain acquired assets and evaluating the tax impact of certain
acquisitions. We make appropriate adjustments to purchase price allocations prior to completion of the applicable measurement
period, as required.
The following describes our acquisition activity for the years ended December 31, 2019, 2018, and 2017.
Completed Acquisitions in 2019
Advanced Sterilization Products
On April 1, 2019 (the “Principal Closing Date”), we acquired the Advanced Sterilization Products business (“ASP”) of Johnson
& Johnson, a New Jersey corporation (“Johnson & Johnson”) for an aggregate purchase price of $2.7 billion (the
“Transaction”), subject to certain post-closing adjustments set forth in a Stock and Asset Purchase Agreement, dated effective
as of June 6, 2018, between the Company and Ethicon, Inc., a New Jersey corporation (“Ethicon”) and a wholly-owned
subsidiary of Johnson & Johnson. ASP engages in the research, development, manufacture, marketing, distribution, and sale of
low-temperature terminal sterilization and high-level disinfection products. ASP generated annual revenues of approximately
$800 million in 2018.
On the Principal Closing Date, we paid $2.7 billion in cash and obtained the transferred assets and assumed liabilities in 20
countries (“Principal Countries”), general patent and trademark assignments, and all transferred equity interests in ASP. ASP
has operations in an additional 39 countries (“Non-Principal Countries”). The transferred assets and liabilities associated with
these operations close when requirements of country-specific agreements or regulatory approvals are satisfied.
59
The $2.7 billion purchase price was paid in exchange for ASP’s businesses in both Principal and Non-Principal Countries. As of
December 31, 2019, we have closed 20 Principal Countries and four Non-Principal Countries that, in aggregate, accounted for
approximately 98% of the preliminary valuation of ASP. The remaining Non-Principal Countries represent approximately 2%
of the preliminary valuation of ASP, or $50 million, which is included as a prepaid asset in Other assets in the Consolidated
Balance Sheet. As each Non-Principal Country closes, we will reduce the prepaid asset and record the fair value of the assets
acquired and liabilities assumed. All of the provisional goodwill associated with the Transaction is included in goodwill at
December 31, 2019; the majority of the provisional goodwill is tax deductible.
In addition, the Company entered into a transition services agreement with Johnson & Johnson for certain administrative and
operational services, and distribution agreements in the Non-Principal Countries that have not been closed. Under the
distribution agreements, ASP will sell finished goods to Ethicon at prices agreed by the parties. ASP will recognize these sales
as revenue when the conditions for revenue recognition are met. Following the sale of finished goods by ASP, Ethicon obtains
title of the finished goods, has full authority to sell and market the finished goods to end customers as it sees fit, and retains any
revenue and profit from sale.
Revenue and operating loss attributable to ASP for the year ended December 31, 2019 were $525 million and $111 million,
respectively, and are included in our Professional Instrumentation segment beginning April 1, 2019. Operating loss includes
amortization of intangible assets, acquisition-related fair value adjustments, and post-close transaction and integration costs
associated with the Transaction of $230 million during the year ended December 31, 2019. We incurred approximately $86
million of pretax transaction and integration related costs recorded in Selling, general, and administrative expenses during the
year ended December 31, 2019 which were primarily for banking fees, legal fees, and amounts paid to other third-party
advisers. During the year ended December 31, 2018, we incurred $42 million of pretax transaction and integration costs related
to the ASP Transaction.
The following table summarizes the provisional fair value estimates of the assets acquired and liabilities assumed of Principal
and Non-Principal Countries that have been transferred to ASP as of December 31, 2019; we did not acquire accounts
receivable or accounts payable from Johnson & Johnson ($ in millions):
Inventories
Property, plant and equipment
Goodwill
Other intangible assets, primarily customer relationships, trade names and technology
Other assets and liabilities, net
Total consideration allocated to closed Principal and Non-Principal Countries
Prepaid acquisition asset related to remaining Non-Principal Countries
Net cash consideration
Other Acquisitions and Investments
Advanced
Sterilization
Products
173.8
45.7
1,420.3
1,120.0
(73.4)
2,686.4
50.1
2,736.5
$
$
In addition to the acquisition of ASP, during 2019, we acquired four businesses including Intelex Technologies, Pruftechnik,
and Censis Technologies, for total consideration of $1.2 billion in cash, net of cash acquired. The businesses acquired
complement existing units of our Professional Instrumentation segment. We preliminarily recorded an aggregate of $773
million of goodwill related to these acquisitions. Approximately $21 million of goodwill associated with these acquisitions is
tax deductible. Additionally, we made an additional equity investment of $4 million during 2019.
The aggregate annual sales of these businesses in 2018 were approximately $191 million. We incurred approximately $17
million of pretax transaction-related costs recorded in Selling, general, and administrative expenses for the year ended
December 31, 2019, which were primarily for banking fees, legal fees, and amounts paid to other third-party advisers. The
revenue and operating loss from these acquisitions included in our results were approximately $76 million and $53 million,
respectively, during the year ended December 31, 2019.
The following summarizes the estimated fair values of the assets acquired and liabilities assumed as of December 31, 2019 for
ASP in 2019, and all of the other 2019 acquisitions as a group ($ in millions):
60
Accounts receivable
Inventories
Property, plant and equipment
Goodwill
Other intangible assets, primarily customer relationships, trade names and
technology
Other assets and liabilities, net
Prepaid acquisition asset related to Non-Principal Countries
ASP
Other
Total
$
— $
173.8
45.7
1,420.3
1,120.0
(73.4)
50.1
$
46.4
16.1
10.7
772.6
531.8
(170.2)
—
46.4
189.9
56.4
2,192.9
1,651.8
(243.6)
50.1
Net cash consideration
$
2,736.5
$
1,207.4
$
3,943.9
Completed Acquisitions in 2018
Accruent
On September 6, 2018, we acquired Athena SuperHoldCo, Inc., including Accruent, LLC (“Accruent”), a privately-held,
leading provider of facilities asset management software, for a total purchase price of approximately $2.0 billion net of
acquired cash (the “Accruent Acquisition”). Accruent is a recognized leader in the facilities asset management industry,
combining deep domain and industry capabilities with an integrated, cloud-based framework that provides insights spanning
the full lifecycle of real estate, facilities and asset management. Accruent serves over 10,000 global customers, and helps assure
clients fulfill the mission of their organization by extending the lifecycle of assets, monitoring full compliance, and reducing
safety risks. Accruent is headquartered in Austin, Texas, and is included in our Professional Instrumentation Segment.
Accruent generated annual revenues of approximately $200 million in 2017. We financed the Accruent Acquisition with
available cash and proceeds from our financing activities. We recorded $1.2 billion of goodwill related to the Accruent
Acquisition which is not tax deductible.
Gordian
On July 27, 2018, we acquired TGG Ultimate Holdings, Inc. and its subsidiaries, including The Gordian Group, Inc.
(“Gordian”), a privately-held, leading provider of construction cost data, software, and service, for a total purchase price of
$778 million net of cash acquired (the “Gordian Acquisition”). Gordian’s comprehensive offerings serve the entire building
lifecycle and provide workflow solutions designed to optimize every stage of an asset owner’s construction and maintenance
needs, including connecting the owner and contractors in the same exchange and providing access to cost and facility metrics
databases via a subscription-based model. Gordian is headquartered in Greenville, South Carolina, and is included in our
Professional Instrumentation segment. Gordian generated annual revenues of approximately $110 million in 2017. We financed
the Gordian Acquisition with available cash. We recorded $435 million of goodwill related to the Gordian Acquisition which is
not tax deductible.
Revenue and operating losses attributable to these acquisitions were $115 million and $51 million for the year ended
December 31, 2018, respectively.
Other Acquisitions
In addition to the acquisitions of Accruent and Gordian, during 2018, we acquired two businesses for total consideration of $44
million in cash, net of cash acquired. The businesses acquired complement existing units of both our segments. The aggregate
annual sales of these businesses at the time of their respective acquisitions, in each case based on the acquired company’s
revenues for its last completed fiscal year prior to the acquisition, were approximately $35 million. We recorded $31 million of
goodwill related to these acquisitions.
We recorded certain adjustments during 2019 to the preliminary purchase price allocation of acquisitions that closed during
2018 that resulted in a net increase of $75 million to goodwill.
Completed Acquisitions in 2017
During 2017, we acquired three businesses for total consideration of $1.6 billion in cash, net of cash acquired. The businesses
acquired complement existing units of both our segments. The aggregate annual sales of these businesses at the time of their
respective acquisitions, in each case based on the acquired company’s revenues for its last completed fiscal year prior to the
acquisition, were approximately $389 million. We recorded $1.0 billion of goodwill related to these acquisitions.
61
Acquisitions Summary
The following summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition for
all acquisitions consummated during the years ended December 31 ($ in millions):
2019
2018
2017
Accounts receivable
Inventories
Property, plant and equipment
Goodwill
Other intangible assets, primarily customer relationships, trade names and
technology
Trade accounts payable
Other assets and liabilities, net
Previously held investment
Prepaid acquisition asset related to Non-Principal Countries
$
46.4
$
86.7
$
189.9
56.4
2,192.9
1,651.8
—
(243.6)
—
50.1
3.9
7.1
103.7
37.3
137.1
1,601.2
1,035.2
1,345.8
(9.9)
(219.7)
—
—
587.8
(18.7)
(289.0)
(36.8)
—
Net cash consideration
$
3,943.9
$
2,815.1
$
1,556.6
We incurred approximately $102 million of pretax transaction-related costs related to the five acquisitions in 2019,
approximately $25 million of pretax transaction-related costs related to the four acquisitions in 2018, and approximately $19
million of pretax transaction-related costs in 2017, which were primarily for banking fees, legal fees, amounts paid to other
third-party advisers, and other change in control costs. Transaction-related costs are recorded in Selling, general, and
administrative expenses in the Consolidated Statements of Earnings.
Pro Forma Financial Information (Unaudited)
The unaudited pro forma information for the periods set forth below gives effect to the 2019 and 2018 acquisitions as if they
had occurred as of January 1, 2018. The pro forma information is presented for informational purposes only and is not
necessarily indicative of the results of operations that actually would have been achieved had the acquisitions been
consummated as of that time ($ in millions except per share amounts):
Sales
Net earnings from continuing operations
Diluted net earnings per share from continuing operations
2019
2018
$
$
$
7,659.9
805.0
2.37
$
$
$
7,625.3
898.7
2.56
NOTE 4. DISCONTINUED OPERATIONS AND DISPOSITIONS
Divestiture of A&S Business
On March 7, 2018, we entered into a definitive agreement to combine four of our operating companies from our Automation &
Specialty platform (the “A&S Business”) with Altra Industrial Motion Corp. (“Altra”) in a tax-efficient Reverse Morris
Trust transaction. The A&S Business includes the market-leading brands of Kollmorgen, Thomson, Portescap and Jacobs
Vehicle Systems that were previously reported within our Industrial Technologies segment. On October 1, 2018, we completed
the split-off of the A&S Business. The total consideration received was $2.7 billion and consisted of (i) $1.3 billion through a
fully-subscribed exchange offer, in which we accepted and subsequently retired 15,824,931 shares of our own common stock
from our stockholders in exchange for the 35,000,000 shares of common stock of Stevens Holding Company, Inc.; (ii) $1.0
billion in cash paid to us for the direct sales of certain assets and liabilities of the A&S Business; (iii) $250 million as part of a
non-cash debt-for-debt exchange that reduced outstanding indebtedness of Fortive, which was inclusive of accrued interest and
related fees; and (iv) $150 million in cash paid to us by Stevens Holding Company, Inc. as a dividend. We recognized an after-
tax gain on the transaction of $1.9 billion.
The accounting requirements for reporting the disposition of the A&S Business as a discontinued operation were met when the
separation and merger were completed. Accordingly, the accompanying consolidated financial statements for all periods
presented reflect this business as discontinued operations.
62
We incurred approximately $77 million of pretax transaction-related costs associated with the divestiture during the year ended
December 31, 2018, which was primarily for professional fees. These amounts are recorded in the Gain (loss) on disposition of
discontinued operations before income taxes component of Earnings from discontinued operations, net of income taxes.
We are providing certain support services under transition services agreements, and the impact of these services on our
consolidated financial statements was immaterial.
The key components of income from discontinued operations for the years ended December 31 were as follows ($ in millions):
2019
2018
2017
Sales
Cost of sales
Selling, general, and administrative expenses
Research and development expenses
Gain (loss) on disposition of discontinued operations before income taxes
Interest expense and other
Earnings (loss) before income taxes
Income taxes
$
$
6.1
(6.2)
—
—
(2.1)
—
(2.2)
15.7
Earnings from discontinued operations, net of income taxes
$
13.5
$
750.5
(438.9)
(92.3)
(26.9)
1,909.9
(4.6)
2,097.7
(102.2)
1,995.5
$
$
900.0
(522.9)
(124.5)
(36.7)
—
(5.3)
210.6
(50.4)
160.2
Interest expense related to the debt retired as part of the debt-for-debt exchange was allocated to discontinued operations for all
periods presented.
The following table summarizes the major classes of assets and liabilities of discontinued operations that were included in the
Company’s accompanying Consolidated Balance Sheets as of December 31 ($ in millions):
ASSETS
Accounts receivable, net
Inventories
Other current assets
Total current assets, discontinued operations
Total assets, discontinued operations
LIABILITIES
Current liabilities:
Trade accounts payable
Accrued expenses and other current liabilities
Total current liabilities, discontinued operations
Total liabilities, discontinued operations
2019
2018
— $
—
3.2
3.2
3.2
$
— $
—
—
— $
4.2
4.4
21.4
30.0
30.0
9.2
21.5
30.7
30.7
$
$
$
$
Combination of the Tektronix Video Business with Telestream
On July 20, 2019, we completed the combination of the Tektronix Video test and monitoring equipment business (“Tektronix
Video Business”) with Telestream, LLC (the “Combined Business”), a portfolio company of Genstar Capital LLC. We
recognized a pretax gain of $41 million upon the combination, and hold a 33% equity stake in the Combined Business. This
transaction did not meet the criteria for discontinued operations reporting, and therefore the operating results of the Tektronix
Video Business prior to the combination with Telestream are included in continuing operations for all periods presented. At
December 31, 2019, the carrying amount of the investment in the Combined Business, included in other assets in the
accompanying Consolidated Balance Sheet, was $82 million. For the year ended December 31, 2019, the loss from our equity
investment in the Combined Business recorded in Other non-operating expenses, net in the accompanying Consolidated
Statements of Earnings was $4 million.
63
NOTE 5. INVENTORIES
The classes of inventory as of December 31 are summarized as follows ($ in millions):
Finished goods
Work in process
Raw materials
Total
2019
2018
285.6
100.4
254.3
640.3
$
$
219.5
103.1
251.9
574.5
$
$
As of December 31, 2019 and 2018, the difference between inventories valued at LIFO and the value of that same inventory if
the FIFO method had been used was not significant. The liquidation of LIFO inventory did not have a significant impact on our
results of operations in any period presented.
NOTE 6. PROPERTY, PLANT AND EQUIPMENT
The classes of property, plant and equipment as of December 31 are summarized as follows ($ in millions):
Land and improvements
Buildings and leasehold improvements
Machinery and equipment
Gross property, plant and equipment
Less: accumulated depreciation
Property, plant and equipment, net
2019
2018
63.4
363.8
931.0
1,358.2
(838.7)
519.5
$
$
63.1
343.6
1,059.2
1,465.9
(889.8)
576.1
$
$
No interest was capitalized related to capitalized expenditures in any period.
NOTE 7. GOODWILL AND OTHER INTANGIBLE ASSETS
As discussed in Note 3, goodwill arises from the purchase price for acquired businesses exceeding the fair value of tangible and
intangible assets acquired less assumed liabilities. We assess the goodwill of each of our reporting units for impairment at least
annually as of the first day of the fourth quarter and as “triggering” events occur that indicate that it is more likely than not that
an impairment exists. We elected to bypass the optional qualitative goodwill assessment allowed by applicable accounting
standards and performed a quantitative impairment test for all reporting units as this was determined to be the most effective
method to assess impairment across a large spectrum of reporting units.
We estimate the fair value of our reporting units primarily using a market approach, based on multiples of earnings before
interest, taxes, depreciation and amortization (“EBITDA”) determined by current trading market multiples of earnings for
companies operating in businesses similar to each of our reporting units, in addition to recent market available sale transactions
of comparable businesses. In certain circumstances we also evaluate other factors including results of the estimated fair value
utilizing a discounted cash flow analysis (i.e., an income approach), market positions of the businesses, comparability of
market sales transactions, and financial and operating performance in order to validate the results of the market approach. If the
estimated fair value of the reporting unit is less than its carrying value, we will impair the goodwill for the amount of the
carrying value in excess of the fair value.
In 2019, we had twelve reporting units for goodwill impairment testing. The carrying value of the goodwill included in each
individual reporting unit ranges from $15 million to approximately $3.8 billion. No goodwill impairment charges were
recorded for the years ended December 31, 2019, 2018, and 2017, and no “triggering” events have occurred subsequent to the
performance of the 2019 annual impairment test. The factors used by management in its impairment analysis are inherently
subject to uncertainty. If actual results are not consistent with management’s estimates and assumptions, goodwill and other
intangible assets may be overstated and a charge would need to be taken against net earnings.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for
Goodwill Impairment, which aims to simplify the subsequent measurement of goodwill by removing Step 2 of the current
goodwill impairment test, which requires a hypothetical purchase price allocation. Under the new standard, an impairment loss
will be recognized in the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying
amount of goodwill. We adopted this standard on September 28, 2019 (the date of our annual goodwill impairment testing)
64
with no impact to our financial statements for the year ended December 31, 2019. The adoption of this standard will only
impact future goodwill impairment calculations, as applicable.
The following is a rollforward of our goodwill by segment ($ in millions):
Balance, January 1, 2018
Attributable to 2018 acquisitions
Foreign currency translation & other
Balance, December 31, 2018
Attributable to adjustments to preliminary purchase price
allocations for acquisitions completed in 2018
Attributable to 2019 acquisitions
Attributable to the Tektronix Video Business Combination
Foreign currency translation & other
Balance, December 31, 2019
Professional
Instrumentation
Industrial
Technologies
Total
$
$
3,331.0
1,571.8
(8.2)
4,894.6
75.9
2,192.9
(40.2)
3.1
7,126.3
$
$
$
1,229.3
29.4
(20.2)
1,238.5
(1.2)
—
—
35.7
1,273.0
$
4,560.3
1,601.2
(28.4)
6,133.1
74.7
2,192.9
(40.2)
38.8
8,399.3
Finite-lived intangible assets are amortized over the shorter of their legal or estimated useful lives. The following summarizes
the gross carrying value and accumulated amortization for each major category of intangible asset as of December 31 ($ in
millions):
Finite-lived intangibles:
Patents and technology
Customer relationships and other intangibles
Trademarks and trade names
Total finite-lived intangibles
Indefinite-lived intangibles:
Trademarks and trade names
Total intangibles
2019
2018
Gross Carrying
Amount
Accumulated
Amortization
Gross Carrying
Amount
Accumulated
Amortization
$
$
$
1,041.4
3,206.8
18.0
4,266.2
(357.0) $
(792.5)
(0.2)
(1,149.7)
$
614.0
2,204.2
—
2,818.2
728.5
4,994.7
$
—
(1,149.7) $
528.8
3,347.0
$
(280.8)
(589.9)
—
(870.7)
—
(870.7)
During 2019 we acquired finite-lived intangible assets, consisting primarily of customer relationships and developed
technology, with a weighted average life of 11 years. During 2018, we acquired finite-lived intangible assets, consisting
primarily of customer relationships and developed technology, with a weighted average life of 12 years. Refer to Note 3 for
additional information on the intangible assets acquired.
Total intangible amortization expense in 2019, 2018, and 2017 was $293 million, $135 million and $65 million, respectively.
Based on the intangible assets recorded as of December 31, 2019, amortization expense is estimated to be $336 million during
2020, $330 million during 2021, $315 million during 2022, $308 million during 2023, and $306 million during 2024.
NOTE 8. FAIR VALUE MEASUREMENTS
Accounting standards define fair value based on an exit price model, establish a framework for measuring fair value for assets
and liabilities required to be carried at fair value, and provide for certain disclosures related to the valuation methods used
within the valuation hierarchy as established within the accounting standards. This hierarchy prioritizes the inputs into three
broad levels as follows:
• Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.
• Level 2 inputs are quoted prices for similar assets and liabilities in active markets, quoted prices for identical or
similar assets in markets that are not active, or other observable characteristics for the asset or liability, including
interest rates, yield curves and credit risks, or inputs that are derived principally from, or corroborated by, observable
market data through correlation.
65
• Level 3 inputs are unobservable inputs based on our assumptions. A financial asset or liability’s classification within
the hierarchy is determined based on the lowest level input that is significant to the fair value measurement in its
entirety.
Financial liabilities that are measured at fair value on a recurring basis were as follows ($ in millions):
December 31, 2019
Deferred compensation liabilities
December 31, 2018
Deferred compensation liabilities
Quoted Prices
in Active
Market
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
$
$
— $
— $
29.6
20.8
$
$
— $
— $
29.6
20.8
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 other post-
retirement benefits accruals included in Other long-term liabilities in the accompanying Consolidated 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 Fortive common
stock). Changes in the deferred compensation liability under these programs are recognized based on changes in the fair value
of the participants’ accounts, which are based on the applicable earnings rates.
Fair Value of Financial Instruments
The carrying amounts and fair values of financial instruments as of December 31 were as follows ($ in millions):
2019
2018
Carrying Amount
Fair
Value
Carrying Amount
Fair
Value
Current portion of long-term debt
Long-term debt, net of current maturities
$
$
1,500.0
4,828.4
$
$
1,500.0
4,992.3
$
$
455.6
2,974.7
$
$
454.9
2,867.5
As of December 31, 2019 and December 31, 2018, long-term borrowings were categorized as Level 1.
The fair value of the current portion of long-term debt and long-term debt were based on quoted market prices. The difference
between the fair value and the carrying amounts of long-term borrowings may be attributable to changes in market interest rates
and/or our credit ratings subsequent to the incurrence of the borrowing. The fair value of cash and equivalents, accounts
receivable, net and trade accounts payable approximates their carrying amount due to the short-term maturities of these
instruments.
Refer to Note 12 for information related to the fair value of the Company-sponsored defined benefit pension plan assets.
66
NOTE 9. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities as of December 31 were as follows ($ in millions):
2019
2018
Current
Long-term
Current
Long-term
Compensation and other post-retirement benefits
$
264.5
$
Claims, including self-insurance and litigation
Pension obligations
Taxes, income and other
Deferred revenue
Sales and product allowances
Warranty
Other
Total
Warranty
15.2
4.0
99.0
410.1
52.2
77.1
224.7
68.0
75.3
146.6
1,124.7
99.2
—
1.9
68.5
$
244.5
$
10.9
7.8
174.7
288.1
49.8
71.0
152.5
60.2
74.4
117.6
728.3
92.6
—
1.1
51.7
$
1,146.8
$
1,584.2
$
999.3
$
1,125.9
We generally accrue estimated warranty costs at the time of sale. In general, manufactured products are warranted against
defects in material and workmanship when properly used for their intended purpose, installed correctly, and appropriately
maintained. Warranty period terms depend on the nature of the product and range from 90 days up to the life of the product.
The amount of the accrued warranty liability is determined based on historical information such as past experience, product
failure rates or number of units repaired, estimated cost of material and labor, and in certain instances estimated property
damage. The accrued warranty liability is reviewed on a quarterly basis and may be adjusted as additional information
regarding expected warranty costs becomes known.
The following is a rollforward of our accrued warranty liability ($ in millions):
Balance, January 1, 2018
Accruals for warranties issued during the year
Settlements made
Additions due to acquisitions
Effect of foreign currency translation
Balance, December 31, 2018
Accruals for warranties issued during the year
Settlements made
Additions due to acquisitions
Effect of foreign currency translation
Balance, December 31, 2019
NOTE 10. LEASES
$
$
$
65.3
81.7
(77.2)
2.6
(0.3)
72.1
80.3
(75.9)
2.0
0.5
79.0
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires lessees to recognize a right-of-use
(“ROU”) asset and a lease liability for all leases with terms greater than 12 months and also requires disclosures by lessees and
lessors about the amount, timing, and uncertainty of cash flows arising from leases. Subsequent to the issuance of Topic 842,
the FASB clarified the guidance through several ASUs; hereinafter the collection of lease guidance is referred to as “ASC 842.”
On January 1, 2019, we adopted ASC 842 using the modified retrospective transition method for all lease arrangements at the
beginning of the period of adoption. Results for reporting periods beginning January 1, 2019 are presented under ASC 842,
while prior period amounts were not adjusted and continue to be reported in accordance with our historic accounting under
Topic 840, Leases. The adoption of ASC 842 resulted in an increase in both assets and liabilities of $175 million as of January
1, 2019. These balances are presented in the following three line items on the Consolidated Balance Sheet: (i) operating lease
right-of-use assets; (ii) current operating lease liabilities; and (iii) operating lease liabilities. The adoption of ASC 842 had no
impact on our retained earnings, consolidated net earnings, or cash flows.
67
We elected the package of practical expedients for leases that commenced before the effective date of ASC 842 whereby we
elected to not reassess the following: (i) whether any expired or existing contracts contain leases; (ii) the lease classification for
any expired or existing leases; and (iii) initial direct costs for any existing leases. In addition, we have lease agreements with
lease and non-lease components, and we have elected the practical expedient for all underlying asset classes to account for the
lease and related non-lease component(s) as a single lease component. Our finance lease and lessor arrangements are
immaterial.
We determine if an arrangement is or contains a lease at inception. We have operating leases for office space, warehouses,
distribution centers, research and development facilities, manufacturing locations, and certain equipment, primarily
automobiles. Many leases include optional terms, ranging from options to terminate the lease in less than one year to options to
extend the lease for up to 15 years. We include optional periods as part of the lease term when we determine that we are
reasonably certain to exercise the renewal option or we will not early terminate the lease. Reasonably certain is based on
economic incentives and represents a high threshold.
Operating lease cost was $80 million, $64 million, and $46 million for the years ended December 31, 2019, 2018, and 2017,
respectively.
Short-term and variable lease cost, and cost for finance leases were immaterial for the year ended December 31, 2019. During
the year ended December 31, 2019, cash paid for operating leases was $65 million and is included in operating cash flows.
ROU assets obtained in exchange for operating lease liabilities were $80 million for the year ended December 31, 2019, and of
those ROU assets exchanged for operating lease obligations, $31 million were related to operating leases acquired with ASP.
The following table presents the maturities of our operating lease liabilities as of December 31, 2019 ($ in millions):
2020
2021
2022
2023
2024
Thereafter
Total lease payments
Less: imputed interest
Total lease liabilities
$
$
57.4
45.8
34.1
22.8
16.2
63.2
239.5
(25.6)
213.9
Future minimum lease payments as of December 31, 2018 for operating leases having initial or remaining non-cancelable lease
terms in excess of one year under Topic 840 were as follows ($ in millions):
2019
2020
2021
2022
2023
Thereafter
Total lease payments
$
$
54.2
41.2
32.4
24.0
13.5
16.1
181.4
As of December 31, 2019, the weighted average lease term of our operating leases was 7.1 years and the weighted average
discount rate of our operating leases was 3.4%. We primarily use our incremental borrowing rate as the discount rate for our
operating leases, as we are generally unable to determine the interest rate implicit in the lease.
As of December 31, 2019, we entered into operating leases for which the lease term had not yet commenced. These leases will
commence in 2020 with lease terms between 1 and 15 years and fixed payments over the non-cancelable lease terms of $22
million.
68
NOTE 11. FINANCING
The carrying value of the components of our debt as of December 31 were as follows ($ in millions):
U.S. dollar-denominated commercial paper
Euro-denominated commercial paper
Delayed-draw term loan due 2019
Delayed-draw term loan due 2020
Term loan due 2020
Yen variable interest rate term loan due 2022
1.80% senior unsecured notes due 2019
2.35% senior unsecured notes due 2021
3.15% senior unsecured notes due 2026
4.30% senior unsecured notes due 2046
0.875% senior convertible notes due 2022
Other
Long-term debt
Less: Current portion of long-term debt
Long-term debt, net of current maturities
2019
2018
$
884.4
$
264.1
—
1,000.0
500.0
127.1
—
748.2
893.0
547.0
1,347.3
17.3
6,328.4
1,500.0
$
4,828.4
$
390.1
270.1
400.0
—
—
125.7
55.6
747.0
891.9
546.9
—
3.0
3,430.3
455.6
2,974.7
Unamortized debt discounts, net of premiums and issuance costs of $102 million and $17 million as of December 31, 2019 and
December 31, 2018, respectively, have been netted against the aggregate principal amounts of the components of debt table
above.
Credit Facilities
Convertible Notes
On February 22, 2019, we issued $1.4 billion in aggregate principal amount of our 0.875% Convertible Senior Notes due 2022
(the “Convertible Notes”), including $187.5 million in aggregate principal amount resulting from an exercise in full of an over-
allotment option. The Convertible Notes were sold in a private placement to certain initial purchasers for resale to qualified
institutional buyers pursuant to Rule 144A under the Securities Act of 1933.
The Convertible Notes are fully and unconditionally guaranteed, jointly and severally, on an unsecured basis, by four of our
wholly-owned domestic subsidiaries (the “Guarantees”). The Convertible Notes are our senior unsecured obligations, and the
Convertible Notes and the Guarantees rank equally in right of payment with all of our and the guarantors’ existing and future
liabilities that are not subordinated, but effectively rank junior to any of our and the guarantors secured indebtedness to the
extent of the value of the assets securing such indebtedness. In addition, the Convertible Notes are structurally subordinated to
all of the existing and future obligations, including trade payables, of our subsidiaries that do not guarantee the Convertible
Notes.
The Convertible Notes bear interest at a rate of 0.875% per year, payable semiannually in arrears on February 15 and August 15
of each year, beginning on August 15, 2019. The Convertible Notes mature on February 15, 2022, unless earlier repurchased or
converted in accordance with their terms prior to such date.
The Convertible Notes are convertible into shares of our common stock at an initial conversion rate of 9.3777 shares per $1,000
principal amount of Convertible Notes (which is equivalent to an initial conversion price of $106.64 per share), subject to
adjustment upon the occurrence of certain events. The initial conversion price represents a premium of approximately 32.5% to
the $80.48 per share closing price of our common stock on February 19, 2019. Upon conversion of the Convertible Notes,
holders will receive cash, shares of our common stock, or a combination thereof, at Fortive’s election. Our current intention is
to settle such conversions through cash up to the principal amount of the converted Convertible Notes and, if applicable,
through shares of our common stock for conversion value, if any, in excess of the principal amount of the converted
Convertible Notes.
69
Of the $1.4 billion in proceeds received from the issuance of the Convertible Notes, $1.3 billion was classified as debt and
$102 million was classified as equity, using an assumed effective interest rate of 3.38%. Debt issuance costs of $24 million
were proportionately allocated to debt and equity. We recognized $45 million in interest expense during the year ended
December 31, 2019, of which $11 million related to the contractual coupon rate of 0.875% and $7 million was attributable to
the amortization of debt issuance costs. The discount at issuance was $102 million and is being amortized over a three-year
period. The unamortized discount at December 31, 2019 was $74 million.
Prior to November 15, 2021, the Convertible Notes will be convertible only upon the occurrence of certain events and will be
convertible thereafter at any time until the close of business on the business day immediately preceding the maturity date of the
Convertible Notes.
The conversion rate is subject to customary anti-dilution adjustments. If certain corporate events described in the Indenture
occur prior to the maturity date, the conversion rate will be increased for a holder that elects to convert its Convertible Notes in
connection with such corporate event in certain circumstances.
The Convertible Notes are not redeemable prior to maturity, and no sinking fund is provided for the Convertible Notes. If we
undergo a “fundamental change,” as defined in the Indenture, subject to certain conditions, holders may require us to
repurchase for cash all or any portion of their Convertible Notes. The fundamental change purchase price will be 100% of the
principal amount of the Convertible Notes to be repurchased plus any accrued and unpaid additional interest up to but
excluding the fundamental change repurchase date.
The Indenture contains customary terms and covenants, including that upon certain events of default occurring and continuing,
either the Trustee or the holders of at least 25% in aggregate principal amount of the outstanding Convertible Notes may
declare 100% of the principal of, and accrued and unpaid interest, if any, on all the Convertible Notes to be due and payable.
We used the net proceeds from the offering to fund a portion of the cash consideration payable for, and certain costs associated
with, our acquisition of ASP.
In connection with this offering of the Convertible Notes, on February 21, 2019, we entered into amendments to our credit
facilities to exclude the Guarantees from the limitations on subsidiary indebtedness under our credit facilities.
Term Loan Due 2020
On October 25, 2019, we entered into a credit facility agreement that provides for a 364-day term loan facility (“2020 Term
Loan”) in an aggregate principal amount of $300 million. On October 25, 2019, we drew down the full $300 million available
under the 2020 Term Loan in order to fund, in part, the Censis acquisition. We subsequently increased the size of this facility by
$200 million on November 8, 2019 and drew the additional amount on the same day resulting in an outstanding amount of
$500 million. The 2020 Term Loan bears interest at a variable rate equal to the London inter-bank offered rate (“LIBOR”) plus
a ratings-based margin currently at 75 basis points. As of December 31, 2019, borrowings under this facility bore an interest
rate of 2.49% per annum. The 2020 Term Loan is due on October 23, 2020 and prepayable at our option. We are not permitted
to re-borrow once the term loan is repaid. The terms and conditions, including covenants, applicable to the 2020 Term Loan are
substantially similar to those applicable to the Revolving Credit Facility as defined below.
On February 26, 2020, we prepaid $250 million of the 2020 Term Loan. The prepayment fees associated with this payment are
expected to be immaterial.
Delayed-Draw Term Loan Due 2020
On March 1, 2019, we entered into a credit facility agreement that provides for a 364-day delayed-draw term loan facility
(“2020 Delayed-Draw Term Loan”) in an aggregate principal amount of $1.0 billion. On March 20, 2019, we drew down the
full $1.0 billion available under the 2020 Delayed-Draw Term Loan in order to fund, in part, the ASP acquisition. The 2020
Delayed-Draw Term Loan bears interest at a variable rate equal to the LIBOR plus a ratings-based margin currently at 75 basis
points. As of December 31, 2019, borrowings under this facility bore an interest rate of 2.49% per annum. The terms and
conditions, including covenants, applicable to the 2020 Delayed-Draw Term Loan are substantially similar to those applicable
to the Revolving Credit Facility.
The original maturity date of the 2020 Delayed-Draw Term Loan was February 28, 2020; however on February 25, 2020, we
extended the maturity date to August 28, 2020. The 2020 Delayed-Draw Term Loan remains prepayable at our option.
70
Delayed-Draw Term Loan Due 2019
On August 22, 2018, we entered into a credit facility agreement that provided for a 364-day delayed-draw term loan facility
(“Delayed-Draw Term Loan”) with an aggregate principal amount of $1.75 billion. On September 5, 2018, we drew down the
full $1.75 billion available under the Delayed-Draw Term Loan in order to fund, in part, the Accruent Acquisition. The
Delayed-Draw Term Loan bore interest at a variable rate equal to the LIBOR plus a ratings-based margin currently at 75 basis
points. During 2019, the annual effective rate was approximately 3.24% per annum. The Delayed-Draw Term Loan was
prepayable at our option, and we were not permitted to re-borrow once the term loan was repaid. The terms and conditions,
including covenants, applicable to the Delayed-Draw Term Loan were substantially similar to those applicable to the Revolving
Credit Facility. On September 26, 2018 and on November 21, 2018, we repaid $400 million and $950 million of this loan,
respectively. On February 28, 2019, we prepaid the remaining $400 million outstanding principal and accrued interest under the
delayed-draw term loan due 2019. The prepayment fees associated with this prepayment were immaterial.
Yen Variable Interest Rate Term Loan
On August 24, 2017, we entered into a term loan agreement that provides for a five-year ¥13.8 billion senior unsecured term
facility (“Yen Term Loan”) that matures on August 24, 2022. We borrowed the entire ¥13.8 billion available under this facility
on August 28, 2017, which yielded net proceeds of approximately $126 million. The Yen Term Loan bears interest at a rate
equal to LIBOR plus 50 basis points, provided however that LIBOR may not be less than zero for the purposes of the Yen Term
Loan. The annual effective interest rate was approximately 0.50% per annum as of and for the year ended December 31, 2019.
The Yen Term Loan is pre-payable at our option, and re-borrowing is not permitted once the term loan is repaid.
The terms and conditions, including covenants, applicable to the Yen Term Loan are substantially similar to those applicable to
the senior unsecured revolving credit facility established in 2016 (the “Revolving Credit Facility”) as described below.
Revolving Credit Facility
On June 16, 2016, we entered into a five-year $1.5 billion Revolving Credit Facility that expires on June 16, 2021. On
November 30, 2018 we entered into an amended and restated agreement (the “Credit Agreement”) extending the availability
period of the Revolving Credit Facility to November 30, 2023 and increased the facility to $2.0 billion. The Revolving Credit
Facility is subject to a one year extension option at our request and with the consent of the lenders. The Credit Agreement also
contains an option permitting us to request an increase in the amounts available under the Credit Agreement of up to an
aggregate additional $1.0 billion.
Borrowings under the Revolving Credit Facility bear interest at a rate equal (at our option) to either (1) a LIBOR-based rate
(the “LIBOR-Based Rate”) plus a margin of between 80.5 and 117.5 basis points, depending on our long-term debt credit
rating, or (2) the highest of (a) the Federal funds rate plus 1/2 of 1%, (b) the prime rate, and (c) the LIBOR-Based Rate plus
17.5 basis points, plus in each case a margin that varies according to our long-term debt credit rating. We are obligated to pay
an annual facility fee for the Revolving Credit Facility of between 7.0 and 20.0 basis points varying according to our long-term
debt credit rating.
The Credit Agreement requires us to maintain a consolidated net leverage ratio of debt to consolidated EBITDA (as defined in
the Credit Agreement) of less than 3.50 to 1.00; provided that the maximum consolidated net leverage ratio will be increased to
4.00 to 1.00 for the four consecutive full fiscal quarters immediately following the consummation of any acquisition by us in
which the purchase price exceeds $250 million. The Credit Agreement also requires us to maintain a consolidated interest
coverage ratio (as defined in the Credit Agreement) of at least 3.50 to 1.00 as of the end of any fiscal quarter. The Credit
Agreement also contains customary representations, warranties, conditions precedent, events of default, indemnities, and
affirmative and negative covenants. As of December 31, 2019 and December 31, 2018, we were in compliance with all
covenants under the Credit Agreement and had no borrowings outstanding under the Revolving Credit Facility.
Commercial Paper Programs
We generally satisfy any short-term liquidity needs that are not met through operating cash flows and available cash primarily
through issuances of commercial paper under our U.S. dollar and Euro-denominated commercial paper programs
(“Commercial Paper Programs”). Under these programs, we may issue unsecured promissory notes with maturities not
exceeding 397 and 183 days, respectively. Interest expense on the notes is paid at maturity and is generally based on our credit
ratings at the time of issuance and prevailing short-term interest rates.
The details of our Commercial Paper Programs as of December 31, 2019 were as follows ($ in millions):
71
U.S. dollar-denominated
Euro-denominated
Carrying Value
Annual effective rate
$
$
884.4
264.1
2.14 %
(0.10)%
Weighted average
remaining maturity
(in days)
13
33
Credit support for the Commercial Paper Programs is provided by the Revolving Credit Facility. The availability of the
Revolving Credit Facility as a standby liquidity facility to repay maturing commercial paper is an important factor in
maintaining the Commercial Paper Programs’ existing credit ratings. We expect to limit any borrowings under the Revolving
Credit Facility to amounts that would leave sufficient credit available under the facility to allow us to borrow, if needed, to
repay all of the outstanding commercial paper as it matures.
Our ability to access the commercial paper market, and the related costs of these borrowings, is affected by the strength of our
credit rating and market conditions. Any downgrade in our credit rating would increase the cost of borrowing under our
commercial paper programs and the Credit Agreement, and could limit or preclude our ability to issue commercial paper. If our
access to the commercial paper market is adversely affected due to a downgrade, change in market conditions or otherwise, we
would expect to rely on a combination of available cash, operating cash flow, and the Revolving Credit Facility to provide
short-term funding. In such event, the cost of borrowings under the Revolving Credit Facility could be higher than the historic
cost of commercial paper borrowings.
We classified our borrowings outstanding under the Commercial Paper Programs as of December 31, 2019 as long-term debt in
the accompanying Consolidated Balance Sheets as we have the intent and ability, as supported by availability under the
Revolving Credit Facility referenced above, to refinance these borrowings for at least one year from the balance sheet date.
Proceeds from borrowings under the commercial paper programs are typically available for general corporate purposes,
including acquisitions.
Registered Notes
As of December 31, 2019, we had outstanding the following senior notes, collectively the “Registered Notes”:
•
•
•
$750 million aggregate principal amount of senior notes due June 15, 2021 issued at 99.977% of their principal
amount and bearing interest at the rate of 2.35% per year.
$900 million aggregate principal amount of senior notes due June 15, 2026 issued at 99.644% of their principal
amount and bearing interest at the rate of 3.15% per year.
$350 million and $200 million aggregate principal amounts of senior notes due June 15, 2046 issued at 99.783% and
101.564%, respectively, of their principal amounts and bearing interest at the rate of 4.30% per year.
Interest on the Registered Notes is payable semi-annually in arrears on June 15 and December 15 of each year.
We previously had outstanding $300 million aggregate principal amount of senior notes due June 15, 2019 (the “2019 Notes”)
issued at 99.893% of their principal amount and bearing interest at the rate of 1.80% per year. In connection with the debt
exchange in the split-off of the A&S Business on October 1, 2018, we retired $244.7 million of these 2019 notes. On June 15,
2019, we repaid the remaining outstanding principal of $55.3 million of the 2019 Notes.
Covenants and Redemption Provisions Applicable to Registered Notes
We may redeem the Registered Notes of the applicable series, in whole or in part, at any time prior to the dates specified in the
Registered Notes indenture (the “Call Dates”) by paying the principal amount and the “make-whole” premium specified in the
Registered Notes indenture, plus accrued and unpaid interest. Additionally, we may redeem all or any part of the Registered
Notes of the applicable series on or after the Call Dates without paying the “make-whole” premium specified in the Registered
Notes indenture.
Registered Notes Series
2.35% senior unsecured notes due 2021
3.15% senior unsecured notes due 2026
4.30% senior unsecured notes due 2046
Call Dates
May 15, 2021
March 15, 2026
December 15, 2045
72
If a change of control triggering event occurs, we will, in certain circumstances, be required to make an offer to repurchase the
Registered Notes at a purchase price equal to 101% of the principal amount, plus accrued and unpaid interest. A change of
control triggering event is defined as the occurrence of both a change of control and a rating event, each as defined in the
Registered Notes indenture. Except in connection with a change of control triggering event, the Registered Notes do not have
any credit rating downgrade triggers that would accelerate the maturity of the Registered Notes.
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 December 31, 2019, we
were in compliance with all of our covenants.
Other
We made interest payments of $127 million during 2019, $102 million during 2018, and $87 million during 2017.
There are $1.5 billion of minimum principal payments due under our total long-term debt during 2020. The future minimum
principal payments due are presented in the following table:
2020
2021
2022
2023
2024
Thereafter
Total principal payments (a)
Term
Loans
Convertible and
Registered Notes
Total
$
1,500.0
$
— $
—
127.1
—
—
—
750.0
1,437.5
—
—
1,450.0
$
1,627.1
$
3,637.5
$
1,500.0
750.0
1,564.6
—
—
1,450.0
5,264.6
(a) Not included in the table above are discounts, net of premiums and issuance costs associated with the Registered Notes
and the Commercial Paper Programs, which totaled $102 million as of December 31, 2019, and have been recorded as an
offset to the carrying amount of the related debt in the accompanying Consolidated Balance Sheet as of December 31, 2019.
In addition, the table above does not include principal balances of $1.1 billion under the Commercial Paper Programs and
other financing balances of $17 million.
Shelf Registration Statement
On June 12, 2017, we filed a shelf registration statement on Form S-3 with the SEC (the “Shelf Registration Statement”) that
registers an indeterminate amount of debt securities, common stock, preferred stock, warrants, depositary shares, purchase
contracts, and units that may be issued in the future in one or more offerings. Unless otherwise specified in the corresponding
prospectus supplement, we expect to use net proceeds realized from future securities issuances off the Shelf Registration
Statement for general corporate purposes, including without limitation repayment or refinancing of debt or other corporate
obligations, acquisitions, capital expenditures, dividends, and working capital.
73
NOTE 12. PENSION PLANS
Certain employees participate in noncontributory defined benefit pension plans. In general, our policy is to fund these plans
based on considerations relating to legal requirements, underlying asset returns, the plan’s funded status, the anticipated
deductibility of the contribution, local practices, market conditions, interest rates, and other factors. Our U.S. pension plans are
frozen, and, as such, there are no ongoing benefit accruals associated with the U.S. pension plans.
The following sets forth the funded status of our plans as of the most recent actuarial valuations using measurement dates of
December 31 ($ in millions):
Change in pension benefit obligation:
Benefit obligation at beginning of year
$
30.9
$
33.7
$
274.3
$
300.8
U.S. Pension Benefits
Non-U.S. Pension Benefits
2019
2018
2019
2018
Service cost
Interest cost
Employee contributions
Benefits paid and other
Plan acquisitions
Actuarial loss (gain)
Amendments, settlements and curtailments
Foreign exchange rate impact
Benefit obligation at end of year
Change in plan assets:
Fair value of plan assets at beginning of year
Actual return on plan assets
Employer contributions
Employee contributions
Amendments and settlements
Benefits paid and other
Plan acquisitions
Foreign exchange rate impact
Fair value of plan assets at end of year
Funded status
—
1.3
—
(1.2)
—
4.2
—
—
35.2
23.3
3.9
0.5
—
—
(1.2)
—
—
—
1.2
—
(1.3)
—
(2.7)
—
—
30.9
25.8
(1.2)
—
—
—
(1.3)
—
—
2.3
5.7
0.9
(8.7)
25.1
39.3
(0.6)
1.2
339.5
156.5
20.5
10.9
0.9
(2.7)
(8.7)
17.8
2.4
$
26.5
(8.7) $
23.3
(7.6) $
197.6
(141.9) $
1.3
5.7
0.2
(9.5)
—
(7.0)
(3.0)
(14.2)
274.3
172.2
(3.1)
9.8
0.2
(4.4)
(9.5)
—
(8.7)
156.5
(117.8)
The difference between the accumulated benefit obligation and the projected benefit obligation as of December 31, 2019 and
2018 is immaterial.
Weighted average assumptions used to determine benefit obligations at date of measurement
Discount rate
Rate of compensation increase
U.S. Pension Plans
Non-U.S. Pension Plans
2019
2018
2019
2018
3.37%
N/A
4.40%
N/A
1.41%
2.47%
2.30%
2.63%
74
Components of net periodic pension cost
The following sets forth the components of net periodic pension cost for our plans for the years ended December 31 ($ in
millions):
Service cost
Interest cost
Expected return on plan assets
Amortization of net loss
Net curtailment and settlement loss
recognized
Net periodic pension cost
$
— $
U.S. Pension Benefits
Non-U.S. Pension Benefits
2019
2018
2017
2019
2018
2017
$
— $
— $
— $
2.3
$
1.3
$
1.3
(1.3)
—
—
1.2
(1.4)
—
0.3
(0.3)
—
5.7
(5.9)
2.9
5.7
(5.8)
2.6
—
(0.2) $
—
— $
0.2
5.2
$
1.0
4.8
$
3.5
5.8
(6.2)
3.8
0.9
7.8
Included in AOCI as of December 31, 2019 are the following amounts that have not yet been recognized in net periodic
pension cost: unrecognized prior service cost of $3 million ($3 million, net of tax) and unrecognized actuarial losses of
approximately $97 million ($74 million, net of tax). The unrecognized prior service cost included in AOCI and expected to be
recognized in net periodic pension cost during the year ending December 31, 2020 is immaterial. The actuarial losses included
in Accumulated other comprehensive income (loss) and expected to be recognized in net periodic pension cost during the year
ending December 31, 2020 is $4 million ($3 million, net of tax). The unrecognized losses are calculated as the difference
between the actuarially determined projected benefit obligation, the value of the plan assets, and the accumulated contributions
in excess of net periodic pension cost as of December 31, 2019. No plan assets are expected to be returned to us during the year
ending December 31, 2020.
Weighted average assumptions used to determine net periodic pension cost at date of measurement
Discount rate
Expected return on plan assets
Rate of compensation increase
U.S. Pension Plans
Non-U.S. Pension Plans
2019
2018
2017
2019
2018
2017
4.40%
5.75%
N/A
3.73%
5.75%
N/A
3.83%
5.75%
N/A
2.30%
3.50%
2.63%
2.16%
3.48%
2.39%
2.12%
3.54%
3.03%
The discount rates reflect the market rate on December 31 for high-quality fixed-income investments with maturities
corresponding to our benefit obligations and are subject to change each year. For non-U.S. plans, rates appropriate for each
plan are determined based on investment grade instruments with maturities approximately equal to the average expected benefit
payout under the plan.
The expected rates of return reflect the asset allocation of the plans and ranged from 1.50% to 6.00% in 2019 and 1.75% to
6.00% in both 2018 and 2017. The domestic plan rate is based primarily on broad publicly-traded-equity and fixed-income
indices and forward-looking estimates of active portfolio and investment management. The expected rates of return on asset
assumptions for the non-U.S. plans were determined on a plan-by-plan basis based on the composition of assets.
We report all components of net periodic pension costs, with the exception of service costs, in other non-operating expenses,
net as a component of Non-operating expenses, net in the accompanying Consolidated Statements of Earnings for all periods
presented. Service costs are reported in Cost of sales and Selling, general, and administrative expenses in the accompanying
Consolidated Statements of Earnings according to the classification of the participant’s compensation.
Plan Assets
Plan assets are invested in various insurance contracts and equity and debt securities as determined by the administrator of each
plan. Some of these investments, consisting of mutual funds and other private investments, are valued using the net asset value
(“NAV”) method as a practical expedient. The investments valued using the NAV method are allocated across a broad array of
funds and diversify the portfolio. The value of the plan assets directly affects the funded status of our pension plans recorded in
the financial statements.
75
The fair values of our pension plan assets as of December 31, 2019, by asset category were as follows ($ in millions):
Cash and equivalents
Equity securities:
Common stock
Preferred stock
Fixed income securities:
Corporate bonds
Government issued
Mutual funds
Insurance contracts
Total
Investments measured at NAV(a):
Mutual funds
Other private investments
Total assets at fair value
Quoted Prices in
Active Market
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
$
3.4
$
— $
— $
7.3
1.7
—
—
—
—
—
—
8.5
2.7
30.7
1.9
—
—
—
—
—
—
$
12.4
$
43.8
$
— $
$
3.4
7.3
1.7
8.5
2.7
30.7
1.9
56.2
155.9
12.0
224.1
(a) The fair value amounts presented in the table above are intended to permit reconciliation of the fair value hierarchy to the
total fair value of plan assets.
The fair values of our pension plan assets as of December 31, 2018, by asset category were as follows ($ in millions):
Cash and equivalents
Fixed income securities:
Corporate bonds
Mutual funds
Insurance contracts
Total
Investments measured at NAV(a):
Mutual funds
Other private investments
Total assets at fair value
$
$
Quoted Prices in
Active Market
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
2.7
$
— $
— $
—
—
—
0.4
8.1
1.8
—
—
—
2.7
$
10.3
$
— $
$
2.7
0.4
8.1
1.8
13.0
165.6
1.2
179.8
(a) The fair value amounts presented in the table above are intended to permit reconciliation of the fair value hierarchy to the
total fair value of plan assets.
Certain mutual funds are valued at the quoted closing price reported on the active market on which the individual securities are
traded. Common stock, corporate bonds, and mutual funds that are not traded on an active market are valued at quoted prices
reported by investment brokers and dealers based on the underlying terms of the security and comparison to similar securities
traded on an active market.
Certain mutual funds and other private investments are valued using NAV based on the information provided by the asset fund
managers, which reflects the plan’s share of the fair value of the net assets of the investment. Depending on the nature of the
assets, the underlying investments are valued using a combination of either discounted cash flows, earnings and market
multiples, third party appraisals, or through reference to the quoted market prices of the underlying investments held by the
venture, partnership or private entity where available. In addition, some of these investments have limits on their redemption to
76
monthly, quarterly, semiannually or annually and may require up to 90 days prior written notice. Valuation adjustments reflect
changes in operating results, financial condition or prospects of the applicable portfolio company.
The methods described above may produce a fair value estimate that may not be indicative of net realizable value or reflective
of future fair values. Furthermore, while we believe the valuation methods are appropriate and consistent with the methods
used by other market participants, the use of different methodologies or assumptions to determine the fair value of certain
financial instruments could result in a different fair value measurement at the reporting date.
Expected Contributions
During 2019, we contributed $11 million to our non-U.S. defined benefit pension plans. During 2020, our cash contribution
requirements for our U.S. and non-U.S. defined benefit pension plans are expected to be approximately $1 million and $10
million, respectively.
The following sets forth benefit payments to participants, which reflect expected future service, as appropriate, expected to be
paid by the plans in the periods indicated ($ in millions):
2020
2021
2022
2023
2024
2025-2029
Defined Contribution Plans
U.S. Pension Plans
Non-U.S. Pension Plans
All Pension Plans
$
$
1.5
1.5
1.6
1.7
1.8
9.5
$
11.4
11.9
13.2
12.2
12.8
66.4
12.9
13.4
14.8
13.9
14.6
75.9
We administer and maintain 401(k) programs and contributions to the 401(k) programs are determined based on a percentage of
compensation. We recognized compensation expense for our participating U.S. employees in the 401(k) programs totaling $63
million in 2019, $53 million in 2018, and $45 million in 2017.
NOTE 13. SALES
On January 1, 2018, we adopted ASU 2014-09, Revenue from Contracts with Customers (“Topic 606”), using the modified
retrospective method applied to those contracts which were not completed as of January 1, 2018. Results for reporting periods
beginning after January 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be
reported in accordance with our historic accounting policy under ASC Topic 605, Revenue Recognition. We recorded an
immaterial transition adjustment to opening retained earnings as of January 1, 2018 due to the cumulative impact of adopting
Topic 606. The impact to sales as a result of applying Topic 606 was immaterial for the year ended December 31, 2018.
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.
Contract Assets — In certain circumstances, we record contract assets which include unbilled amounts typically resulting from
sales under contracts when revenue recognized exceeds the amount billed to the customer, and right to payment is not only
subject to the passage of time. Contract assets were $79 million as of December 31, 2019 and $32 million as of December 31,
2018.
Contract Costs — We incur direct incremental costs to obtain certain contracts, typically sales-related commissions and costs
associated with assets used by our customers in certain service arrangements. Deferred sales-related commissions are generally
not capitalized as the amortization period is one year or less, and we elected to use the practical expedient to expense these
sales commissions as incurred. As of December 31, 2019, we had $147 million in net revenue-related contract assets primarily
related to certain software contracts recorded in Prepaid expenses and other current assets and Other assets in our Consolidated
Balance Sheet. Our revenue-related contract assets at December 31, 2018 were $144 million, the majority of which were
recorded in Property, plant and equipment, net in the Consolidated Balance Sheet. These assets have estimated useful lives
between 3 and 8 years.
Impairment losses recognized on our contract-related assets were immaterial during both the years ended December 31, 2019
and December 31, 2018.
77
Contract Liabilities — Our contract liabilities consist of deferred revenue generally related to post contract support (“PCS”)
and extended warranty sales, where in most cases we receive up-front payment and recognize revenue over the support term.
We classify deferred revenue as current or noncurrent based on the timing of when we expect to recognize revenue. The
noncurrent portion of deferred revenue is included in Other long-term liabilities in the Consolidated Balance Sheets.
Our contract liabilities as of December 31 consisted of the following ($ in millions):
Deferred revenue - current
Deferred revenue - noncurrent
Total contract liabilities
2019
2018
$
$
410.1
99.2
509.3
$
$
288.1
92.6
380.7
Acquisitions that closed in 2019 added $92 million of additional contract liabilities as of December 31, 2019. In the year ended
December 31, 2019, we recognized $226 million of revenue related to our contract liabilities at January 1, 2019. The change in
our contract liabilities from December 31, 2018 to December 31, 2019 was primarily due to the timing of cash receipts and
sales of PCS and extended warranty services.
Remaining Performance Obligations — Our remaining performance obligations represent the transaction price of firm,
noncancelable orders and the average contract value for software contracts, with expected delivery dates to customers greater
than one year from December 31, 2019, for which work has not been performed. We have excluded performance obligations
with an original expected duration of one year or less from the amounts below.
The aggregate performance obligations attributable to each of our segments as of December 31, 2019 is as follows ($ in
millions):
Professional Instrumentation
Industrial Technologies
Total remaining performance obligations
2019
136.1
419.1
555.2
$
$
The majority of remaining performance obligations are related to service and support contracts, which we expect to fulfill
approximately 40 percent within the next two years, approximately 70 percent within the next three years, and substantially all
within four years.
78
Disaggregation of Revenue
We disaggregate revenue from contracts with customers by sales of product and services, geographic location, major product
group, and end market for each of our segments, as we believe it best depicts how the nature, amount, timing, and uncertainty of
our revenue and cash flows are affected by economic factors.
Disaggregation of revenue for the year ended December 31, 2019 is presented as follows ($ in millions):
$
$
$
$
$
$
$
Sales:
Sales of products
Sales of services
Total
Geographic:
United States
China
All other (each country individually less than 5% of total sales)
Total
Major Products Group:
Professional tools and equipment
Industrial automation, controls and sensors
Franchise distribution
Medical technologies
All other
Total
End markets:
Direct sales:
Retail fueling (a)
Industrial & Manufacturing
Vehicle repair (a)
Utilities & Power
Medical (a)
Other
Total direct sales
Distributors(a)
Total
Total
Professional
Instrumentation
Industrial
Technologies
6,396.9
923.1
7,320.0
$
$
3,792.8
635.0
4,427.8
$
$
4,206.5
$
2,354.9
$
592.0
2,521.5
487.3
1,585.6
7,320.0
$
4,427.8
$
5,014.7
$
2,880.8
$
484.1
637.9
934.2
249.1
370.5
—
927.4
249.1
2,604.1
288.1
2,892.2
1,851.6
104.7
935.9
2,892.2
2,133.9
113.6
637.9
6.8
—
7,320.0
$
4,427.8
$
2,892.2
1,903.6
$
— $
448.1
574.7
199.6
934.2
1,586.9
5,647.1
1,672.9
390.8
—
199.6
927.4
1,312.5
2,830.3
1,597.5
$
7,320.0
$
4,427.8
$
1,903.6
57.3
574.7
—
6.8
274.4
2,816.8
75.4
2,892.2
(a) Retail fueling, Vehicle repair, and Medical include sales to these end markets made through third-party distributors. Total
distributor sales for the year ended December 31, 2019 was $3,158.4 million.
79
Disaggregation of revenue for the year ended December 31, 2018 is presented as follows ($ in millions):
$
$
$
$
$
$
$
Sales:
Sales of products
Sales of services
Total
Geographic:
United States
China
All other (each country individually less than 5% of total sales)
Total
Major Products Group:
Professional tools and equipment
Industrial automation, controls and sensors
Franchise distribution
Medical technologies (c)
All other
Total
End markets:
Direct sales:
Retail fueling (a)
Industrial & Manufacturing
Vehicle repair (a)
Utilities & Power
Medical (b)
Other
Total direct sales
Distributors(a)
Total
Total
Professional
Instrumentation
Industrial
Technologies
5,755.0
697.7
6,452.7
$
$
3,215.2
439.9
3,655.1
$
$
3,539.6
$
1,829.6
$
569.0
2,344.1
459.5
1,366.0
6,452.7
$
3,655.1
$
$
4,690.7
504.0
$
2,663.1
381.4
640.0
393.7
224.3
—
386.3
224.3
2,539.8
257.8
2,797.6
1,710.0
109.5
978.1
2,797.6
2,027.6
122.6
640.0
7.4
—
6,452.7
$
3,655.1
$
2,797.6
1,777.5
$
— $
445.1
581.5
172.3
393.7
1,379.3
4,749.4
1,703.3
384.5
—
171.0
386.3
1,074.9
2,016.7
1,638.4
$
6,452.7
$
3,655.1
$
1,777.5
60.6
581.5
1.3
7.4
304.4
2,732.7
64.9
2,797.6
(a) Retail fueling and Vehicle repair include sales to these end markets made through third-party distributors. Total distributor
sales for the year ended December 31, 2018 was $3,136.8 million.
(b) Sales were previously disclosed in Other.
(c) Sales were previously disclosed in Professional tools and equipment, Industrial automation, controls and sensors, and All
other.
80
Disaggregation of revenue for the year ended December 31, 2017 is presented as follows ($ in millions):
$
$
$
$
$
$
$
Sales:
Sales of products
Sales of services
Total
Geographic:
United States
China
All other (each country individually less than 5% of total sales)
Total
Major Products Group:
Professional tools and equipment
Industrial automation, controls and sensors
Franchise distribution
Medical technologies (c)
All other
Total
End markets:
Direct sales:
Retail fueling (a)
Industrial & Manufacturing
Vehicle repair (a)
Utilities & Power
Medical (b)
Other
Total direct sales
Distributors (a)
Total
Total
Professional
Instrumentation
Industrial
Technologies
5,173.3
582.8
5,756.1
$
$
2,813.2
325.9
3,139.1
$
$
3,148.7
$
1,486.0
$
498.4
2,109.0
416.7
1,236.4
5,756.1
$
3,139.1
$
$
4,211.3
481.5
$
2,338.7
368.3
626.2
233.9
203.2
—
228.9
203.2
2,360.1
256.9
2,617.0
1,662.7
81.7
872.6
2,617.0
1,872.6
113.2
626.2
5.0
—
5,756.1
$
3,139.1
$
2,617.0
1,637.8
$
— $
314.9
569.3
228.2
233.9
1,261.3
4,245.4
1,510.7
265.8
—
227.3
228.9
965.3
1,687.3
1,451.8
$
5,756.1
$
3,139.1
$
1,637.8
49.1
569.3
0.9
5.0
296.0
2,558.1
58.9
2,617.0
(a) Retail fueling and Vehicle repair include sales to these end markets made through third-party distributors. Total distributor
sales for the year ended December 31, 2017 was $2,877.8 million.
(b) Sales were previously disclosed in Other
(c) Sales were previously disclosed in Professional tools and equipment, Industrial automation, controls and sensors, and All
other
NOTE 14. INCOME TAXES
Tax Cuts and Jobs Act
On December 22, 2017, the U.S. enacted comprehensive tax reform commonly referred to as the Tax Cuts and Jobs Act (the
“TCJA”). The U.S. Government continues to issue significant amounts of TCJA guidance and we expect that to continue for
the foreseeable future. The Company is actively monitoring the impact of new Treasury Regulations. Any future adjustments
resulting from retrospective guidance issued after December 31, 2019 will be considered as discrete income tax expense or
benefit in the interim period the guidance is issued.
81
During 2018, the Company made the election on the 2017 Federal Income Tax Return to pay the one-time TCJA Transition Tax
liability over an eight-year period without interest, as allowed by TCJA. The IRS has issued guidance that requires offset of
2017 and 2018 tax return refunds against the long-term liability subject to the eight-year payment election.
Separation from Danaher and Disposition of the A&S Business
In connection with the Separation, we entered into the Agreements with Danaher, including a tax matters agreement. The tax
matters agreement distinguishes between the treatment of tax matters for “joint” filings compared to “separate” filings prior to
the Separation. “Joint” filings involve legal entities, such as those in the United States, that include operations from both
Danaher and the Company. By contrast, “separate” filings involve certain entities (primarily outside of the United States), that
exclusively include either Danaher’s or the Company’s operations, respectively. In accordance with the tax matters agreement,
the Company is liable for and has indemnified Danaher against all income tax liabilities involving “separate” filings for periods
prior to the Separation.
During 2018, the Company entered into a Tax Matters Agreement in connection with the split-off of the A&S Business. The
Company remains liable for pre-disposition income tax liabilities related to the A&S Business.
Earnings and Income Taxes
Earnings before income taxes for the years ended December 31 were as follows ($ in millions):
2019
2018
2017
United States
International
Total
$
$
572.4
302.1
874.5
$
$
687.7
390.7
1,078.4
The provision for income taxes for the years ended December 31 were as follows ($ in millions):
Current:
Federal U.S.
Non-U.S.
State and local
Deferred:
Federal U.S.
Non-U.S.
State and local
Income tax provision
2019
2018
$
$
38.9
84.6
11.7
43.0
(21.1)
(8.0)
149.1
$
$
48.3
96.3
7.8
27.3
(19.6)
—
160.1
$
$
$
$
679.6
394.0
1,073.6
2017
170.0
69.8
10.5
(62.0)
(1.7)
2.7
189.3
82
Effective Income Tax Rate
The effective income tax rate for the years ended December 31 varies from the U.S. statutory federal income tax rate as
follows:
Statutory federal income tax rate
Increase (decrease) in tax rate resulting from:
State income taxes (net of federal income tax benefit)
Foreign income taxed at different rates than U.S. statutory rate
U.S. federal permanent differences related to the TCJA
Compensation related
Other
Effective income tax rate before adjustments related to the 2017 TCJA
provisional estimates
Deferred tax revaluation
Transition tax
Vontier transaction tax costs
Total Vontier transaction tax costs and adjustments to 2017 TCJA provisional
estimates
Effective income tax rate after adjustments related to the Vontier
transaction tax costs and 2017 TCJA provisional estimates
Percentage of Pretax Earnings
2019
2018
2017
21.0 %
21.0 %
35.0 %
(0.3)%
(0.7)%
(6.2)%
(1.0)%
0.5 %
1.0 %
0.8 %
(4.8)%
(1.5)%
(0.5)%
0.7 %
(5.3)%
(2.9)%
(1.7)%
(1.6)%
13.3 %
16.0 %
24.2 %
— %
— %
3.7 %
(1.3)%
0.1 %
— %
(19.2)%
12.6 %
— %
3.7 %
(1.2)%
(6.6)%
17.0 %
14.8 %
17.6 %
Our effective tax rate for 2019 differs from the U.S. federal statutory rate of 21% due primarily to the effect of the TCJA U.S.
federal permanent differences, the impact of credits and deductions provided by law, and earnings outside the United States that
are indefinitely reinvested and taxed at rates lower than the U.S. federal statutory rate, offset by tax costs related to transactions
completed in 2019 in anticipation of our separation into two independent, publicly traded companies.
Our effective tax rate for 2018 differs from the U.S. federal statutory rate of 21% due primarily to the effect of the TCJA U.S.
federal permanent differences, the impact of credits and deductions provided by law, earnings outside the United States that are
taxed at rates lower than the U.S. federal statutory rate, and the effect of adjustments to the provision estimates recorded in
2017 related to the TCJA as permitted under the SEC Staff Accounting Bulletin No. 118 (“SAB 118”) issued on December 22,
2017.
Our effective tax rate for 2017, including provisional estimates of the TCJA, differs from the U.S. federal statutory rate of
35.0% due primarily to net favorable impacts associated with the TCJA, our earnings outside the United States that are
indefinitely reinvested and taxed at rates lower than the U.S. federal statutory rate, the impact of credits and deductions
provided by law, state tax impacts, and favorable adjustments related to differences between estimates included in the 2016
provision and amounts calculated on the 2016 U.S. income tax return filed in October 2017.
SAB 118 provides guidance on the financial statement implications of the TCJA. Pursuant to SAB 118, the Company recorded
cumulatively $83 million of net favorable adjustments, which is made up of net favorable adjustments of $13 million and $70
million recorded during the years ended December 31, 2018 and 2017, respectively. The 2018 effective tax rate included the
true-up to the 2017 provisional estimates as a discrete adjustment. The 2017 provisional estimates for the one-time TCJA
Transition Tax resulted in additional tax expense of $1 million and $135 million during the years ended December 31, 2018 and
2017, respectively. The provisional estimated tax benefit for the deferred tax revaluation resulted in additional tax benefit of
$14 million and $205 million during the years ended December 31, 2018 and 2017, respectively.
We conduct business globally, and, as part of our global business, we file numerous income tax returns in the U.S. federal, state
and foreign jurisdictions. After the TCJA, our ability to obtain a tax benefit in certain countries that continue to have lower
statutory tax rates than the United States is dependent on our levels of taxable income in such foreign countries. We believe that
a change in the statutory tax rate of any individual foreign country would not have a material effect on our financial statements
given the geographic dispersion of our taxable income.
We are routinely examined by various domestic and international taxing authorities. The amount of income taxes we pay is
subject to audit by federal, state, and foreign tax authorities, which may result in proposed assessments. The Company is
83
subject to examination in the United States, various states, and foreign jurisdictions for the tax years 2010 to 2019. We review
our global tax positions on a quarterly basis. Based on these reviews, the results of discussions and resolutions of matters with
certain tax authorities, tax rulings and court decisions, and the expiration of statutes of limitations reserves for contingent tax
liabilities are accrued or adjusted as necessary.
We made income tax payments of $145 million, $89 million, and $196 million during the years ended December 31, 2019,
December 31, 2018 and December 31, 2017, respectively.
Deferred Tax Assets and Liabilities
All deferred tax assets and liabilities have been classified as noncurrent and are included in Other assets and Other long-term
liabilities in the accompanying Consolidated Balance Sheets. Deferred income tax assets and liabilities as of December 31 were
as follows ($ in millions):
2019
2018
Deferred Tax Assets:
Allowance for doubtful accounts
Operating lease liabilities
Inventories
Pension benefits
Environmental and regulatory compliance
Other accruals and prepayments
Deferred service income
Warranty services
Stock-based compensation expense
Tax credit and loss carryforwards
Valuation allowances
Total deferred tax assets
Deferred Tax Liabilities:
Property, plant and equipment
Operating lease right-of-use assets
Insurance, including self-insurance
Goodwill and other intangibles
Other
Total deferred tax liabilities
Net deferred tax liability
$
$
$
$
$
16.7
44.4
16.6
30.3
10.4
35.2
15.1
16.0
27.8
171.4
(58.4)
325.5
$
(47.3) $
(43.7)
(200.5)
(722.0)
(26.7)
(1,040.2)
(714.7) $
17.4
—
17.9
27.3
10.1
50.5
7.1
19.7
14.2
131.4
(40.3)
255.3
(11.7)
—
(155.2)
(597.1)
(14.7)
(778.7)
(523.4)
In accordance with GAAP, deferred tax assets and liabilities are determined based on the difference between the financial
statement and tax basis of assets and liabilities using enacted rates expected to be in effect during the year in which the
differences reverse. Deferred tax assets generally represent items that can be used as a tax deduction or credit in our tax return
in future years for which the tax benefit has already been reflected in our Consolidated Statements of Earnings. Deferred tax
liabilities generally represent items that have already been taken as a deduction on our tax return but have not yet been
recognized as an expense in our Consolidated Statements of Earnings. The effect on deferred tax assets and liabilities due to a
change in tax rates is recognized in income tax expense in the period that includes the enactment date.
Our deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than
not (a likelihood of more than 50 percent) that some portion or all of the deferred tax assets will not be realized. We evaluate
the realizability of deferred income tax assets for each of the jurisdictions in which we operate. If we experience cumulative
pretax income in a particular jurisdiction in the three-year period including the current and prior two years, we normally
conclude that the deferred income tax assets will more likely than not be realizable and no valuation allowance is recognized,
unless known or planned operating developments would lead management to conclude otherwise. However, if we experience
cumulative pretax losses in a particular jurisdiction in the three-year period including the current and prior two years, we then
consider a series of factors in the determination of whether the deferred income tax assets can be realized. These factors include
historical operating results, known or planned operating developments, the period of time over which certain temporary
84
differences will reverse, consideration of the utilization of certain deferred income tax liabilities, tax law carryback capability
in the particular country, and prudent and feasible tax planning strategies. After evaluation of these factors, if the deferred
income tax assets are expected to be realized within the tax carryforward period allowed for that specific country, we would
conclude that no valuation allowance would be required. To the extent that the deferred income tax assets exceed the amount
that is expected to be realized within the tax carryforward period for a particular jurisdiction, we establish a valuation
allowance.
Applying the above methodology, valuation allowances have been established for certain deferred income tax assets to the
extent they are not expected to be realized within the particular tax carryforward period.
Deferred taxes associated with U.S. entities consist of net deferred tax liabilities of approximately $659 million and $559
million inclusive of valuation allowances of $22 million and $13 million as of December 31, 2019 and December 31, 2018,
respectively. Deferred taxes associated with non-U.S. entities consist of net deferred tax liabilities of $56 million and net
deferred tax assets of $36 million, inclusive of valuation allowances of $36 million and $27 million, as of December 31, 2019
and December 31, 2018, respectively. Our valuation allowance increased by $18 million and by $14 million during the years
ended December 31, 2019 and December 31, 2018, respectively, due primarily to foreign net operating losses in both years and
state operating losses in 2019.
As of December 31, 2019, our U.S. and non-U.S. net operating loss carryforwards totaled $886 million, of which $225 million
is related to federal net operating loss carryforwards, $347 million is related to state net operating loss carryforwards, and $314
million is related to non-U.S. net operating loss carryforwards. Included in deferred tax assets as of December 31, 2019 are tax
benefits for U.S. and non-U.S. net operating loss carryforwards totaling $130 million, before applicable valuation allowances of
$42 million. Certain of these losses can be carried forward indefinitely and others can be carried forward to various dates from
2020 through 2037. Recognition of some of these loss carryforwards is subject to an annual limit, which may cause them to
expire before they are used.
As of December 31, 2019, our U.S. and non-U.S. tax credit carryforwards totaled $41 million, which is primarily related to
U.S. tax credit carryforwards. Certain of these credits can be carried forward indefinitely and other can be carried forward to
various dates from 2020 through 2037. As of December 31, 2019, we maintain a $13 million valuation allowance related to
certain tax credit carryforwards from the Separation.
Unrecognized Tax Benefits
We recognize tax benefits from uncertain tax positions only if, in our assessment, it is more likely than not that the tax position
will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits
recognized in the financial statements from such positions are measured based on the largest benefit that has a greater than 50%
likelihood of being realized upon ultimate settlement. Judgment is required in evaluating tax positions and determining income
tax provisions. We re-evaluate the technical merits of our tax positions and may recognize an uncertain tax benefit in certain in
certain circumstances, including when: (i) a tax audit is completed; (ii) applicable tax laws change, including a tax case ruling
or legislative guidance; or (iii) the applicable statute of limitations expires. We recognize potential accrued interest and
penalties associated with unrecognized tax positions in income tax expense.
As of December 31, 2019, gross unrecognized tax benefits for continuing and discontinued operations were $215 million ($231
million total, including $23 million associated with interest and penalties, and net of the impact of $7 million of indirect tax
benefits). As of December 31, 2018, gross unrecognized tax benefits for continuing and discontinued operations were $133
million ($144 million total, including $16 million associated with interest and penalties, and net of the impact of $5 million of
indirect tax benefits). We recognized approximately $8 million and $4 million in potential interest and penalties associated with
uncertain tax positions during 2019 and 2018, respectively. This amount was not significant during 2017. To the extent taxes
are not assessed with respect to uncertain tax positions, substantially all amounts accrued (including interest and penalties and
net of indirect offsets) will be reduced and reflected as a reduction of the overall income tax provision. Unrecognized tax
benefits and associated accrued interest and penalties are included in our income tax provision.
85
A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding amounts accrued for potential
interest and penalties, is as follows ($ in millions):
2019
2018
2017
Unrecognized tax benefits, beginning of year
$
133.4
$
Additions based on tax positions related to the current year
Additions for tax positions of prior years
Reductions for tax positions of prior years
Lapse of statute of limitations
Settlements
Effect of foreign currency translation
Separation related adjustments (a)
Unrecognized tax benefits, end of year
17.8
79.7
(13.0)
(2.3)
(0.3)
(0.4)
—
$
59.0
40.8
39.0
(3.8)
(3.5)
(6.4)
(0.9)
9.2
28.6
25.3
7.8
(1.9)
(3.3)
(0.6)
1.9
1.2
59.0
$
214.9
$
133.4
$
(a) Unrecognized tax benefit reserves increased by $9 million and $1 million during the year ended December 31, 2018 and
December 31, 2017, respectively, due primarily to unrecognized tax benefits from pre-Separation periods.
Repatriation and Unremitted Earnings
The TCJA eliminated the U.S. tax cost for qualified repatriation beginning in 2018. Foreign cumulative earnings remain subject
to foreign remittance taxes. As a result of the TCJA, during 2018, we repatriated an estimated $275 million subject to no
foreign remittance taxes. The remittance excluded foreign earnings: 1) required as working capital for local operating needs, 2)
subject to local law restrictions, 3) subject to high foreign remittance tax costs, 4) previously invested in physical assets or
acquisitions, or 5) intended for future acquisitions/growth. For most of our foreign operations, we make an assertion regarding
the amount of earnings in excess of intended repatriation that are expected to be held for indefinite reinvestment. No
provisions for foreign remittance taxes have been made with respect to earnings that are planned to be reinvested indefinitely.
The amount of foreign remittance taxes that may be applicable to such earnings is not readily determinable given local law
restrictions that may apply to a portion of such earnings, unknown changes in foreign tax law that may occur during the
applicable restriction periods caused by applicable local corporate law for cash repatriation, and the various tax planning
alternatives we could employ if we repatriated these earnings.
The TCJA imposed a final U.S. tax on cumulative earnings from our foreign operations that we have previously made an
assertion regarding the amount of such earnings intended for indefinite reinvestment. As of December 31, 2019, the earnings
we plan to reinvest indefinitely outside of the United States for which foreign deferred taxes have not been provided was
estimated at $2.4 billion.
NOTE 15. RESTRUCTURING AND OTHER RELATED CHARGES
Restructuring and other related charges for the years ended December 31 were as follows ($ in millions):
Employee severance related
Facility exit and other related
Impairment charges
Total restructuring and other related charges
2019
2018
2017
$
$
53.0
$
3.6
—
56.6
$
5.0
0.9
1.1
7.0
$
$
13.8
2.5
2.3
18.6
Substantially all restructuring activities initiated in 2019 were completed by December 31, 2019. We expect substantially all
cash payments associated with remaining termination benefits recorded in 2019 will be paid during 2020 and all planned
restructuring activities related to the 2018 and 2017 plans have been completed. Impairment charges relate to certain intangible
assets.
The nature of our restructuring and related activities initiated in 2019, 2018, and 2017 were broadly consistent throughout our
segments and focused on improvements in operational efficiency through targeted workforce reductions and facility
consolidations and closures. We incurred these costs to position ourselves to provide superior products and services to our
customers in a cost-efficient manner, and taking into consideration broad economic uncertainties.
Restructuring and other related charges recorded for the years ended December 31 by segment were as follows ($ in millions):
86
Professional Instrumentation
Industrial Technologies
Total
2019
2018
2017
$
$
47.8
8.8
56.6
$
$
4.5
2.5
7.0
$
$
12.8
5.8
18.6
The table below summarizes the accrual balance and utilization by type of restructuring cost associated with our 2019 and 2018
restructuring actions ($ in millions):
Balance
as of
January 1,
2018
Costs
Incurred
Paid/
Settled
Balance
as of
December
31, 2018
Costs
Incurred
Paid/
Settled
Balance as
of December
31, 2019
Employee severance and related $
Facility exit and other related
9.5
0.8
Total
$
10.3
$
$
5.0
2.0
7.0
$
$
(9.6) $
(2.3)
(11.9) $
4.9
0.5
5.4
$
$
53.0
3.6
56.6
$
$
(21.0) $
(3.7)
(24.7) $
36.9
0.4
37.3
The restructuring and other related charges incurred during 2019 were substantially all cash charges. The restructuring and
other related charges incurred during 2018 included cash charges of $6 million and $1 million of noncash charges. The
restructuring and other related charges incurred during 2017 included cash charges of $16 million and $2 million of noncash
charges. These charges are reflected in the following captions in the accompanying Consolidated Statements of Earnings ($ in
millions):
Cost of sales
Selling, general, and administrative expenses
Total
NOTE 16. LITIGATION AND CONTINGENCIES
2019
2018
2017
$
$
15.8
40.8
56.6
$
$
2.0
5.0
7.0
$
$
2.0
16.6
18.6
We are, from time to time, subject to a variety of litigation and other proceedings incidental to our business, including lawsuits
involving claims for damages arising out of the use of our products, software and services, claims relating to intellectual
property matters, employment matters, commercial disputes, and personal injury as well as regulatory investigations or
enforcement. We may also become subject to lawsuits as a result of past or future acquisitions or as a result of liabilities
retained from, or representations, warranties, or indemnities provided in connection with divested businesses. Some of these
lawsuits may include claims for punitive and consequential as well as compensatory damages. Based upon our experience,
current information and applicable law, we do not believe that these proceedings and claims will have a material adverse effect
on our financial position, results of operations or cash flows.
While we maintain workers compensation, property, cargo, automobile, crime, fiduciary, product, general, and directors’ and
officers’ liability insurance (and have acquired rights under similar policies in connection with certain acquisitions) that cover a
portion of these claims, this insurance may be insufficient or unavailable to cover such losses. In addition, while we believe we
are entitled to indemnification from third parties for some of these claims, these rights may also be insufficient or unavailable
to cover such losses. We maintain third party insurance policies up to certain limits to cover certain liability costs in excess of
predetermined retained amounts. For most insured risks, we purchase outside insurance coverage only for severe losses (stop
loss insurance) and reserves must be established and maintained with respect to amounts within the self-insured retention.
In accordance with accounting guidance, we record a liability in our consolidated 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. These 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, we do not
recognize any recoveries until realized or until such time as a sustained pattern of collections is established related to historical
87
matters of a similar nature and magnitude. If risk insurance reserves we have 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. Refer to Note 9 for information about the amount of our accruals for self-insurance and litigation liability.
In addition, our operations, products, and services are subject to environmental laws and regulations in various jurisdictions,
which impose limitations on the discharge of pollutants into the environment and establish standards for the generation, use,
treatment, storage, and disposal of hazardous and non-hazardous wastes. A number of our operations involve the handling,
manufacturing, use, or sale of substances that are or could be classified as hazardous materials within the meaning of applicable
laws. We must also comply with various health and safety regulations in both the United States and abroad in connection with
our operations. Compliance with these laws and regulations has not had and, based on current information and the applicable
laws and regulations currently in effect, is not expected to have a material effect on our capital expenditures, earnings, or
competitive position, and we do not anticipate material capital expenditures for environmental control facilities.
In addition to environmental compliance costs, from time to time, we incur costs related to alleged damages associated with
past or current waste disposal practices or other hazardous materials handling practices. For example, generators of hazardous
substances found in disposal sites at which environmental problems are alleged to exist, as well as the current and former
owners of those sites and certain other classes of persons, are subject to claims brought by state and federal regulatory agencies
pursuant to statutory authority. We have received notification from the United States Environmental Protection Agency, and
from state and non-U.S. environmental agencies, that conditions at certain sites where we and others previously disposed of
hazardous wastes and/or are or were property owners require clean-up and other possible remedial action, including sites where
we have been identified as a potentially responsible party under United States federal and state environmental laws. We have
projects underway at a number of current and former facilities, in both the United States and abroad, to investigate and
remediate environmental contamination resulting from past operations. Remediation activities generally relate to soil and/or
groundwater contamination and may include pre-remedial activities such as fact-finding and investigation, risk assessment,
feasibility study and/or design, as well as remediation actions such as contaminant removal, monitoring and/or installation,
operation and maintenance of longer-term remediation systems. From time to time we are also party to personal injury or other
claims brought by private parties alleging injury due to the presence of, or exposure to, hazardous substances.
We have recorded a provision for environmental investigation and remediation and environmental-related claims with respect
to sites we and our subsidiaries owned or formerly owned and third party sites where we have been determined to be a
potentially responsible party. We generally make an assessment of the costs involved for our remediation efforts based on
environmental studies, as well as our prior experience with similar sites. The ultimate cost of site cleanup is difficult to predict
given the uncertainties of our involvement in certain sites, uncertainties regarding the extent of the required cleanup, the
availability of alternative cleanup methods, variations in the interpretation of applicable laws and regulations, the possibility of
insurance recoveries with respect to certain sites and the fact that imposition of joint and several liability with right of
contribution is possible under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 and other
environmental laws and regulations. If we determine that potential liability for a particular site or with respect to a personal
injury claim is known or considered probable and reasonably estimable, we accrue the total estimated loss, including
investigation and remediation costs, associated with the site or claim. As of December 31, 2019, we had a reserve of $13
million included in Accrued expenses and Other liabilities in the Consolidated Balance Sheets for environmental matters that
are known or considered probable and reasonably estimable, which reflects our best estimate of the costs to be incurred with
respect to such matters on an undiscounted basis.
All reserves for environmental liabilities have been recorded without giving effect to any possible future third party recoveries.
While we actively pursue insurance recoveries, as well as recoveries from other potentially responsible parties, we do not
recognize any insurance recoveries for environmental liability claims until realized or until such time as a sustained pattern of
collections is established related to historical matters of a similar nature and magnitude.
As of December 31, 2019 and 2018, we had approximately $121 million and $138 million, respectively, of guarantees
consisting primarily of outstanding standby letters of credit, bank guarantees, and performance and bid bonds. 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. We believe
that if the obligations under these instruments were triggered, they would not have a material effect on our consolidated
financial statements.
NOTE 17. STOCK BASED COMPENSATION
The 2016 Stock Incentive Plan (the “Stock Plan”) provides for the grant of stock appreciation rights, restricted stock units
(“RSUs”), performance stock units (“PSUs”), performance-based restricted stock awards (“RSAs”), and performance stock
awards (“PSAs”) (collectively, “Stock Awards”), stock options, or any other stock-based award. A total of 40 million shares of
88
our common stock have been authorized for issuance under the Stock Plan. As of December 31, 2019, approximately 20
million shares of our common stock remain available for issuance under the Stock Plan. Stock options under the Stock Plan
generally vest pro rata over a five-year period and terminate 10 years from the grant date, though the specific terms of each
grant are determined by the Compensation Committee of our Board of Directors. Our executive officers and certain other
employees may be awarded stock options with different vesting criteria and stock options granted to non-employee directors
are fully vested as of the grant date. Exercise prices for stock options granted under the Stock Plan were equal to the closing
price of Fortive’s common stock on the NYSE on the date of grant, while stock options issued as conversion awards in
connection with the Separation from Danaher were priced to maintain the economic value before and after the Separation.
RSUs and RSAs issued under the Stock Plan provide for the issuance of common stock at no cost to the holder. RSUs granted
to employees under the Stock Plan generally provide for time-based vesting over five years, although certain employees may be
awarded RSUs with different time-based vesting criteria, and RSAs granted to members of our senior management are also
subject to performance-based vesting criteria. RSUs granted to non-employee directors under the Stock Plan vest on the earlier
of the first anniversary of the grant date or the date of, and immediately prior to, the next annual meeting of our shareholders
following the grant date. However, the underlying shares are not issued until the earlier of the director’s death or the first day of
the seventh month following the director’s retirement from the Board of Directors (the “Board”). Prior to vesting, RSUs
granted under the Stock Plan do not have dividend equivalent rights, do not have voting rights, and the shares underlying the
RSUs are not considered issued or outstanding. RSAs granted under the Stock Plan have all of the same dividend, voting, and
other rights corresponding to all other common stock, provided, however, that the dividends payable on the RSAs will accrue
and be delivered at the time of delivery of the shares upon vesting of the RSA.
During 2019, 2018, and 2017 PSAs and PSUs were granted under the Stock Plan. These awards vest based on our total
shareholder return ranking relative to the S&P 500 Index.
Stock awards generally vest only if the employee is employed by us (or in the case of directors, the director continues to serve
on the Board) on the vesting date. To cover the exercise of stock options, vesting of RSUs and PSUs, and issuances of RSAs
and PSAs, we generally issue shares authorized but previously unissued, although we may instead issue treasury shares;
provided, however, that, either type of issuance would equally reduce the number of shares available under our Stock Plan.
We account for stock-based compensation by measuring the cost of employee services received in exchange for all equity
awards granted based on the fair value of the award as of the grant date. We recognize the compensation expense over the
requisite service period (which is generally the vesting period but may be shorter than the vesting period, for example, if the
employee becomes retirement eligible before the end of the vesting period).
The fair value of RSUs is calculated using the closing price of Fortive common stock on the date of grant, adjusted for the
impact of RSUs not having dividend rights prior to vesting. The fair value of RSAs is calculated using the closing price of
Fortive common stock on the date of grant. The fair value of the PSUs and PSAs is calculated using a Monte Carlo pricing
model. The fair value of the stock options granted is calculated using a Black-Scholes Merton (“Black-Scholes”) option pricing
model.
In connection with the exercise of certain stock options and the vesting of Stock Awards issued under the Stock Plan, a number
of our shares sufficient to fund statutory minimum tax withholding requirements have been withheld from the total shares
issued or released to the award holder (though under the terms of the Stock Plan, the shares are considered to have been issued
and are not added back to the pool of shares available for grant). During the year ended December 31, 2019, approximately 193
thousand shares of Fortive common stock with an aggregate value of approximately $15 million, were withheld to satisfy this
requirement. The tax withholding is treated as a reduction in Additional paid-in capital in the accompanying Consolidated
Statement of Changes in Equity.
Stock-based Compensation Expense
Stock-based compensation has been recognized as a component of Selling, general, and administrative expenses in the
accompanying Consolidated Statements of Earnings. The amount of stock-based compensation expense recognized during a
period is based on the portion of the awards that are ultimately expected to vest. We estimate pre-vesting forfeitures at the time
of grant by analyzing historical data and revise those estimates in subsequent periods if actual forfeitures differ from those
estimates. Ultimately, the total expense recognized over the vesting period will equal the fair value of awards that actually vest.
89
The following summarizes the components of our stock-based compensation expense under the Stock Plan for the years ended
December 31 ($ in millions):
Stock Awards:
Pretax compensation expense
Income tax benefit
Stock Award expense, net of income taxes
Stock options:
Pretax compensation expense
Income tax benefit
Stock option expense, net of income taxes
Total stock-based compensation:
Pretax compensation expense
Income tax benefit
Total stock-based compensation expense, net of income taxes
2019
2018
2017
$
$
$
39.5
(7.5)
32.0
21.9
(3.3)
18.6
61.4
(10.8)
50.6
$
$
30.5
(6.3)
24.2
20.3
(4.2)
16.1
50.8
(10.5)
40.3
$
26.9
(8.7)
18.2
17.3
(5.7)
11.6
44.2
(14.4)
29.8
When stock options are exercised by the employee or Stock Awards vest, we derive a tax deduction measured by the excess of
the market value on such date over the grant date price. Accordingly, we record the excess of the tax benefit related to the
exercise of stock options and vesting of Stock Awards over the expense recorded for financial statement reporting purposes (the
“Excess Tax Benefit”) as a component of Income tax expense and as an operating cash inflow in the accompanying
consolidated financial statements. During the years ended December 31, 2019, 2018, and 2017 we realized an Excess Tax
Benefit of $13 million, $17 million, and $17 million, respectively, related to stock options that were exercised and Stock
Awards that vested.
The following summarizes the unrecognized compensation cost for the Stock Plan awards as of December 31, 2019. This
compensation cost is expected to be recognized over a weighted average period of approximately three years, representing the
remaining service period related to the awards. Future compensation amounts will be adjusted for any changes in estimated
forfeitures ($ in millions):
Stock Awards
Stock options
Total unrecognized compensation cost
Stock Options
$
$
61.2
55.4
116.6
The following summarizes the assumptions used in the Black-Scholes model to value stock options granted under the Stock
Plan during the years ended December 31:
Risk-free interest rate
Volatility (a)
Dividend yield (b)
Expected years until exercise
2019
2018
2017
1.43% - 2.6%
2.71% - 2.96%
1.9% - 2.26%
19.9%
0.4%
5.5 - 8.0
18.8%
0.4%
5.5 - 8.0
20.9%
0.5%
5.5 - 8.0
13.43
Weighted average fair value at date of grant
$
19.38
$
18.67
$
(a) Beginning August 2018, expected volatility was based on a weighted average blend of the company’s historical stock price
volatility from July 2, 2016 (the date of Separation) through the stock option grant date and the average historical stock
price volatility of a group of peer companies for the expected term of the options. The weighted average volatility from July
2, 2016 to July 2018 was estimated based on an average historical stock price volatility of a group of peer companies given
our limited trading history.
(b) The dividend yield is calculated by dividing our annual dividend, based on the most recent quarterly dividend rate, by
Fortive’s closing stock price on the grant date.
90
The following summarizes option activity under the Stock Plan for the years ended December 31, 2019, 2018, and 2017 (in
millions, except price per share and numbers of years):
Outstanding as of January 1, 2017
Granted
Exercised
Canceled/forfeited
Outstanding as of December 31, 2017
Granted
Exercised
Canceled/forfeited
Outstanding as of December 31, 2018
Granted
Exercised
Canceled/forfeited
Outstanding as of December 31, 2019
Vested and expected to vest as of December 31, 2019 (a)
Vested as of December 31, 2019
Options
9.4
$
1.7
(1.0)
(0.4)
9.7
1.7
(1.4)
(0.3)
9.7
2.2
(1.2)
(0.5)
10.2
10.0
4.8
$
$
$
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term
(years)
Aggregate
Intrinsic
Value
33.23
58.07
24.77
45.12
38.09
76.67
28.99
54.13
46.25
79.61
33.84
66.16
53.64
53.12
38.14
6.2
6.1
4.2
$
$
$
242.0
240.5
184.5
(a) The “expected to vest” options are the net unvested options that remain after applying the forfeiture rate assumption to total
unvested options.
The aggregate intrinsic values in the table above represent the total pretax intrinsic value (the difference between the closing
stock price of Fortive common stock on the last trading day of 2019 and the exercise price, multiplied by the number of in-the-
money options) that would have been received by the option holders had all option holders exercised their options on
December 31, 2019. The amount of aggregate intrinsic value will change based on the price of Fortive’s common stock.
Options outstanding as of December 31, 2019 are summarized below (in millions; except price per share and number of years):
Exercise Price
$18.21 - $26.10
$26.11 - $40.12
$40.13 - $45.64
$45.65 - $54.12
$54.13 - $76.05
$76.06 - $86.03
Total shares
Outstanding
Vested
Average
Exercise
Price
Average
Remaining
Life
(in years)
Shares
Average
Exercise
Price
Shares
$
1.3
1.5
2.1
0.4
2.0
2.9
10.2
23.27
34.45
42.69
49.83
63.23
79.47
1
4
6
7
8
9
$
1.3
1.5
1.2
0.2
0.4
0.2
4.8
23.27
34.45
42.74
50.06
61.74
76.97
91
The following summarizes aggregate intrinsic value and cash receipts related to stock option exercise activity under the Stock
Plans for the years ended December 31 ($ in millions):
Aggregate intrinsic value of stock options exercised
Cash receipts from stock options exercised
Stock Awards
2019
2018
2017
$
$
52.5
40.0
$
$
68.7
39.3
$
$
42.3
26.0
The following summarizes information related to Stock Award activity under the Stock Plan for the years ended December 31,
2019, 2018, and 2017 (in millions; except price per share):
Weighted Average
Grant-Date
Fair Value
$
Granted
Vested
Forfeited
Unvested as of January 1, 2017
Unvested as of December 31, 2017
39.20
57.79
35.96
43.94
45.92
77.78
41.28
53.23
57.63
80.44
48.90
66.64
Unvested as of December 31, 2019
69.37
(a) For the year ended December 31, 2017, the table excludes the stock award activity for employees of the A&S Business
Unvested as of December 31, 2018
Number of
Stock Awards (a)
2.1
0.5
(0.6)
(0.1)
1.9
0.6
(0.6)
(0.1)
1.8
0.9
(0.5)
(0.2)
2.0
Granted
Vested
Forfeited
Granted
Vested
Forfeited
that was divested on October 1, 2018.
NOTE 18. CAPITAL STOCK AND EARNINGS PER SHARE
Common Stock
Under our amended and restated certificate of incorporation, as of July 1, 2016, our authorized capital stock consists of 2.0
billion common shares with a par value of $0.01 per share and 15 million preferred shares with a par value of $0.01 per share.
Each share of our common stock entitles the holder to one vote on all matters to be voted upon by common stockholders. Our
Board is authorized to issue shares of preferred stock in one or more series and has discretion to determine the rights,
preferences, privileges, and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges, and
liquidation preferences, of each series of preferred stock. The Board’s authority to issue preferred stock with voting rights or
conversion rights that, if exercised, could adversely affect the voting power of the holders of common stock, could potentially
discourage attempts by third parties to obtain control of the Company through certain types of takeover practices.
92
We declared and paid cash dividends per common share during the periods presented as follows:
2019:
First quarter
Second quarter
Third quarter
Fourth quarter
Total
2018:
First quarter
Second quarter
Third quarter
Fourth quarter
Total
Dividend Per
Common Share
Amount
($ in millions)
$
$
$
$
0.07
0.07
0.07
0.07
0.28
0.07
0.07
0.07
0.07
0.28
$
$
$
$
23.4
23.4
23.5
23.5
93.8
24.3
24.4
24.5
23.4
96.6
The sum of the components of total dividends paid may not equal the total amount due to rounding.
Aggregate cash payments for the dividends paid to shareholders are recorded as dividends to shareholders in our Consolidated
Statements of Changes in Equity and Consolidated Statements of Cash Flows.
On January 28, 2020 we declared a regular quarterly cash dividend of $0.07 per share payable on March 27, 2020 to common
stockholders of record on February 28, 2020.
Mandatory Convertible Preferred Stock
On June 29, 2018, we issued 1,380,000 shares of 5.0% Mandatory Convertible Preferred Stock, Series A (“MCPS”) with a par
value of $0.01 per share and liquidation preference of $1,000 per share, which included the exercise of an over-allotment option
in full to purchase 180,000 shares. We received net $1.34 billion in proceeds from the issuance of the MCPS, excluding $43
million of issuance costs. We used the net proceeds from the issuance of MCPS to fund our acquisition activities and for
general corporate purposes, including repayment of debt, working capital, and capital expenditures.
In connection with the split-off of the A&S Business, on September 26, 2018, we triggered an anti-dilution adjustment pursuant
to the terms of the MCPS, and after giving affect to this adjustment, each then outstanding share of MCPS will convert
automatically on July 1, 2021 (“Mandatory Conversion Date”) into between 10.9041 and 13.3575 common shares, subject to
further anti-dilution adjustments. The number of shares of our common stock issuable on conversion will be determined based
on the average volume weighted average price per share of our common stock over the 20 consecutive trading day period
beginning on the 22nd scheduled trading day preceding the Mandatory Conversion Date. At any time prior to July 1, 2021,
holders may elect to convert each share of the MCPS into shares of common stock at the rate of 10.9041, subject to further anti-
dilution adjustments. In the event of a fundamental change, the MCPS will convert at the fundamental change rates specified in
the certificate of designations, as adjusted, and the holders of MCPS would be entitled to a fundamental change make-whole
dividend.
We may pay declared dividends in cash or, subject to certain limitations, in shares of our common stock, or in any combination
of cash and shares of our common stock in January, April, July, and October of each year, commencing on October 1, 2018 and
ending on July 1, 2021. Dividends that are declared will be payable on the dividend payment dates to holders of record on the
immediately preceding March 15, June 15, September 15, and December 15 (each a “record date”), whether or not such holders
convert their shares, or such shares are automatically converted, after the corresponding record date.
Dividends on our MCPS are payable on a cumulative basis when, as, and if declared by our Board, at an annual rate of 5.0% of
the liquidation preference of $1,000 per share (equivalent to $50.00 annually per share).
93
We declared and paid cash dividends on our MCPS during the periods presented as follows:
2019:
First quarter
Second quarter
Third quarter
Fourth quarter
Total
2018:
Third quarter
Fourth quarter
Total
Dividend Per
Preferred Share
Amount
($ in millions)
$
$
$
$
12.50
$
12.50
12.50
12.50
50.00
$
12.78
12.50
25.28
$
$
17.3
17.2
17.3
17.2
69.0
17.6
17.3
34.9
On January 28, 2020 we declared a regular quarterly cash dividend of $12.50 per share on our MCPS payable on April 1, 2020
to preferred stockholders of record on March 15, 2020.
Net earnings per share
Basic net earnings per share (“EPS”) from continuing operations is calculated by dividing net earnings from continuing
operations by the weighted average number of shares of common stock outstanding for the applicable period. Diluted EPS from
continuing operations is similarly calculated, except that the calculation includes the dilutive effect of the assumed issuance of
shares under stock-based compensation plans except where the inclusion of such shares would have an anti-dilutive impact.
For the year ended December 31, 2019, the anti-dilutive options to purchase shares excluded from the diluted EPS calculation
were 3.0 million shares. For the years ended December 31, 2018 and 2017, the anti-dilutive options to purchase shares
excluded from the diluted EPS calculation were immaterial. The impact of our MCPS calculated under the if-converted method
were anti-dilutive, and as such, 18.3 million and 18.4 million shares were excluded from the dilutive EPS calculation for the
years ended December 31, 2019 and December 31, 2018, respectively.
Information related to the calculation of net earnings per share of common stock is summarized as follows ($ and shares in
millions, except per share amounts)
Numerator
Net earnings from continuing operations
Mandatory convertible preferred stock cumulative dividends
Net earnings attributable to common stockholders from continuing operations
Denominator
Weighted average common shares outstanding used in basic earnings per share
Incremental common shares from:
Assumed exercise of dilutive options and vesting of dilutive Stock Awards
Weighted average common shares outstanding used in diluted earnings per share
Net earnings from continuing operations per common share - Basic
Net earnings from continuing operations per common share - Diluted
Year Ended December 31,
2019
2018
2017
725.4
(69.0)
656.4
$
$
918.3
(34.9)
883.4
$
$
884.3
—
884.3
335.8
345.5
347.5
4.2
340.0
5.2
350.7
1.95
1.93
$
$
2.56
2.52
$
$
5.1
352.6
2.54
2.51
$
$
$
$
94
NOTE 19. SEGMENT INFORMATION
We report our results in two separate business segments consisting of Professional Instrumentation and Industrial Technologies.
When determining the reportable segments, we aggregated operating segments based on their similar economic and operating
characteristics. Operating profit represents total revenues less operating expenses, excluding other income/expense, interest,
and income taxes. The identifiable assets by segment are those used in each segment’s operations. Inter-segment amounts are
not significant and are eliminated in the combined totals. Operating profit amounts in the Other category consist of unallocated
corporate costs and other costs not considered part of our evaluation of reportable segment operating performance.
Segment results are shown below ($ in millions):
Sales:
Professional Instrumentation
Industrial Technologies
Total
Operating Profit:
Professional Instrumentation
Industrial Technologies
Other
Total
Segment assets:
Professional Instrumentation
Industrial Technologies
Total segment assets
Other
Assets of Discontinued Operations
Total assets
Depreciation and amortization:
Professional Instrumentation
Industrial Technologies
Other
Total
Capital expenditures, gross:
Professional Instrumentation
Industrial Technologies
Other
Total
Year Ended December 31
2019
2018
2017
4,427.8
2,892.2
7,320.0
$
$
3,655.1
2,797.6
6,452.7
$
$
3,139.1
2,617.0
5,756.1
547.9
$
744.6
$
553.9
(97.7)
1,004.1
$
525.6
(91.8)
1,178.4
$
712.9
503.6
(73.5)
1,143.0
13,005.5
$
8,592.6
$
2,950.2
15,955.7
1,480.1
3.2
3,011.2
11,603.8
1,271.8
30.0
5,588.1
2,902.7
8,490.8
1,138.8
871.0
17,439.0
$
12,905.6
$
10,500.6
337.5
$
168.7
$
87.0
1.7
88.7
3.4
82.0
70.3
6.0
426.2
$
260.8
$
158.3
$
65.0
40.7
6.8
$
58.4
44.8
9.1
37.0
71.8
2.3
112.5
$
112.3
$
111.1
$
$
$
$
$
$
$
$
$
$
95
Operations in Geographic Areas:
($ in millions)
Sales:
United States
China
All other (each country individually less than 5% of total sales)
Total
Property, plant and equipment, net
United States
All other (each country individually less than 5% of total property, plant
and equipment, net)
Total
NOTE 20. RELATED-PARTY TRANSACTIONS WITH DANAHER
Year Ended December 31
2019
2018
2017
4,206.5
$
3,539.6
$
592.0
2,521.5
569.0
2,344.1
7,320.0
$
6,452.7
$
3,148.7
498.4
2,109.0
5,756.1
414.8
$
464.9
$
483.0
104.7
111.2
519.5
$
576.1
$
127.4
610.4
$
$
$
$
Our transactions with Danaher are considered related party transactions. In connection with the Separation, we entered into the
Agreements with Danaher, which governed the Separation and provided a framework for the relationship between the parties
going forward. Refer to Note 14 for additional discussion of the tax matters agreement.
Following the Separation, we continue to enter into arms-length revenue arrangements in the ordinary course of business with
Danaher and its affiliates, although certain agreements were entered into or terminated as a result of the Separation. We
recorded sales of approximately $12 million, $16 million, and $16 million to Danaher and its subsidiaries during the years
ended December 31, 2019, 2018,and 2017, respectively. Purchases from Danaher and its subsidiaries were approximately $13
million, $14 million, and $13 million during the years ended December 31, 2019, 2018, and 2017, respectively.
96
NOTE 21. QUARTERLY DATA - UNAUDITED
($ in millions, except per share data)
2019:
Sales
Gross profit
Operating profit
Earnings from continuing operations, net of income taxes
Earnings (loss) from discontinued operations, net of income
taxes
Net earnings
Earnings per common share - basic:
Continuing operations
Discontinued operations
Total earnings per common share - basic
Earnings per common share - diluted:
Continuing operations
Discontinued operations
Total earnings per common share - diluted
2018:
Sales
Gross profit
Operating profit
Earnings from continuing operations, net of income taxes
Earnings from discontinued operations, net of income taxes
Net earnings
Earnings per common share - basic:
Continuing operations
Discontinued operations
Total earnings per common share - basic
Earnings per common share - diluted:
Continuing operations
Discontinued operations
Total earnings per common share - diluted
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
$
1,592.9
$
1,864.7
$
1,860.0
$
812.7
217.3
164.0
0.4
164.4
0.44
—
0.44
0.43
—
0.43
$
$
$
$
$
904.0
249.5
175.3
(0.7)
174.6
0.47
—
0.47
0.47
—
0.46
$
$
$
$
$
927.7
242.1
207.3
(0.2)
207.1
0.57
—
0.56
0.56
—
0.56
$
$
$
$
$
$
$
$
$
$
2,002.4
1,035.9
295.2
178.8
14.0
192.8
0.48
0.04
0.52
0.48
0.04
0.52
$
1,492.2
$
1,601.8
$
1,601.2
$
1,757.5
766.3
277.9
214.0
47.2
261.2
0.61
0.14
0.75
0.61
0.13
0.74
$
$
$
$
$
830.8
324.4
250.2
44.8
295.0
0.72
0.13
0.84
0.70
0.13
0.83
$
$
$
$
$
825.9
281.6
214.0
31.3
245.3
0.56
0.09
0.65
0.55
0.09
0.64
$
$
$
$
$
898.3
294.5
240.1
1,872.2
2,112.3
0.67
5.60
6.26
0.66
5.52
6.17
$
$
$
$
$
The sum of net earnings per share amount may not add due to rounding.
97
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES
Our management, with the participation of the President and Chief Executive Officer, and Senior Vice President and Chief
Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of
the period covered by this report. Based on such evaluation, the President and Chief Executive Officer, and Senior Vice
President and Chief Financial Officer, have concluded that, as of the end of such period, these disclosure controls and
procedures were effective.
Management’s annual report on its internal control over financial reporting (as such term is defined in Rules 13a-15(f) under
the Exchange Act) and the independent registered public accounting firm’s audit report on the effectiveness of the Company’s
internal control over financial reporting are included in the Company’s financial statements for the year ended December 31,
2019 included in Item 8 of this Annual Report on Form 10-K, under the headings “Report of Management on Fortive
Corporation’s Internal Control Over Financial Reporting” and “Report of Independent Registered Public Accounting Firm,”
respectively, and are incorporated herein by reference.
The Company completed the acquisitions of the Advanced Sterilization Products business (“ASP”) on April 1, 2019, Intelex
Technologies on June 27, 2019, Pruftechnik on July 5, 2019, and Censis Technologies on October 31, 2019, collectively the
“Acquired Businesses.” The Company has not yet fully incorporated the internal controls and procedures of the Acquired
Businesses into the Company’s internal control over financial reporting, and as such, management excluded the Acquired
Businesses from its assessment of the effectiveness of the Company’s internal control over financial reporting as of and for the
year ended December 31, 2019. The Acquired Businesses constituted less than 25% of the Company’s total assets as of
December 31, 2019 and less than 10% of the Company’s total revenues for the year ended December 31, 2019.
There have been no changes in our internal control over financial reporting 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.
ITEM 9B. OTHER INFORMATION
Not applicable.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Other than the information below, the information required by this Item is incorporated by reference from the sections entitled
Election of Directors, Corporate Governance, and Delinquent Section 16(a) Reports in the Proxy Statement for our 2020
annual meeting and to the information under the caption “Information about our Executive Officers” in Part I hereof. No
nominee for director was selected pursuant to any arrangement or understanding between the nominee and any person other
than the Company pursuant to which such person is or was to be selected as a director or nominee.
Code of Ethics
We have adopted a code of business conduct and ethics for directors, officers (including Fortive’s principal executive officer,
principal financial officer and principal accounting officer) and employees, known as the Standards of Conduct. The Standards
of Conduct are available in the “Investors - Corporate Governance” section of our website at www.fortive.com.
We intend to disclose any amendment to the Standards of Conduct that relates to any element of the code of ethics definition
enumerated in Item 406(b) of Regulation S-K, and any waiver from a provision of the Standards of Conduct granted to any
director, principal executive officer, principal financial officer, principal accounting officer, or any of our other executive
officers, in the “Investors - Corporate Governance” section of our website, at www.fortive.com, within four business days
following the date of such amendment or waiver.
98
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference from the sections entitled Compensation Discussion and
Analysis, Compensation Committee Report, Executive Compensation Tables, Pay Ratio Disclosure, and Director
Compensation in the Proxy Statement for our 2020 annual meeting (other than the Compensation Committee Report, which
shall not be deemed to be “filed”).
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The information required by this Item is incorporated by reference from the sections entitled Beneficial Ownership of Fortive
Common Stock by Directors, Officers and Principal Shareholders, and Equity Compensation Plan Information in the Proxy
Statement for our 2020 annual meeting.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this Item is incorporated by reference from the sections entitled Corporate Governance and
Certain Relationships and Related Transactions in the Proxy Statement for our 2020 annual meeting.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this Item is incorporated by reference from the section entitled Ratification of Independent
Registered Public Accounting Firm in the Proxy Statement for our 2020 annual meeting.
99
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
a) The following documents are filed as part of this report.
(1) Financial Statements. The financial statements are set forth under “Item 8. Financial Statements and Supplementary
Data” of this Annual Report on Form 10-K.
(2) Schedules. An index of Exhibits and Schedules is on page 103 of this report. Schedules other than those listed below
have been omitted from this Annual Report on Form 10-K because they are not required, are not applicable or the
required information is included in the financial statements or the notes thereto.
(3) Exhibits. The exhibits listed in the accompanying Exhibit Index are filed or incorporated by reference as part of this
Annual Report on Form 10-K.
ITEM 16. FORM 10-K SUMMARY
Not applicable.
FORTIVE CORPORATION
INDEX TO FINANCIAL STATEMENTS, SUPPLEMENTARY DATA AND FINANCIAL STATEMENT SCHEDULE
Schedule:
Valuation and Qualifying Accounts
Page Number in
Form 10-K
107
Exhibit
Number
2.1
2.2
2.3
2.4
EXHIBIT INDEX
Description
Separation and Distribution Agreement, dated as of
July 1, 2016, by and between Fortive Corporation
and Danaher Corporation
Incorporated by reference from Exhibit 2.1 to
Amendment No. 1 to Fortive Corporation’s
Registration Statement on Form 10, filed on March 3,
2016 (Commission File Number: 1-37654)
Separation and Distribution Agreement, dates as of
March 7, 2018, among Fortive Corporation, Stevens
Holding Company, Inc. and Altra Industrial Motion
Corp.
Incorporated by reference from Exhibit 10.1 to Altra
Industrial Motion Corp.’s Current Report on Form 8-K
filed on March 9, 2018 (Commission File No.
1-33209)
Agreement and Plan of Merger and Reorganization,
dated as of March 7, 2018, among Fortive
Corporation, Stevens Holding Company, Inc., Altra
Industrial Motion Corp. and McHale Acquisition
Corp.
Incorporated by reference from Exhibit 2.1 to Altra
Industrial Motion Corp.’s Current Report on Form 8-K
filed on March 9, 2018 (Commission File No.
1-33209)
Transaction Agreement, dated as of July 30, 2018,
by and among Athena SuperHoldCo, Inc., TLFN
Holding II Company, Gilbarco Catlow LLC,
Gryphon Merger Sub Inc., Genstar Capital VII, L.P.,
solely in its capacity as the Seller Representative,
and Fortive Corporation, solely in its capacity as the
Parent Guarantor
Incorporated by reference from Exhibit 2.1 to Fortive
Corporation’s Current Report on Form 8-K filed on
July 31, 2018 (Commission File Number: 1-37654)
100
2.5
3.1
3.2
3.3
4.1
4.2
4.3
Stock and Asset Purchase Agreement, dated as of
June 6, 2018 and executed on September 20, 2018,
between Ethicon and the Company
Incorporated by reference from Exhibit 2.1 to Fortive
Corporation’s Current Report on Form 8-K filed on
September 21, 2018 (Commission File Number:
1-37654)
Amended and Restated Certificate of Incorporation
of Fortive Corporation
Incorporated by reference from Exhibit 3.1 to Fortive
Corporation’s Current Report on Form 8-K filed on
June 9, 2017 (Commission File Number: 1-37654)
Certificate of Designations of the 5.00% Mandatory
Convertible Preferred Stock, Series A
Incorporated by reference from Exhibit 3.1 to Fortive
Corporation’s Current Report on Form 8-K filed on
June 29, 2018 (Commission File Number: 1-37654)
Amended and Restated Bylaws of Fortive
Corporation
Incorporated by reference from Exhibit 3.2 to Fortive
Corporation’s Current Report on Form 8-K filed on
June 9, 2017 (Commission File Number: 1-37654)
Indenture, dated as of June 20, 2016, between
Fortive Corporation, as issuer, and The Bank of New
York Mellon Trust Company, N.A., as trustee
Incorporated by reference from Exhibit 4.1 to Fortive
Corporation’s Current Report on Form 8-K filed on
June 21, 2016 (Commission File Number: 1-37654)
Specimen Certificate of the 5.00% Mandatory
Convertible Preferred Stock, Series A
Incorporated by reference from Exhibit 4.1 to Fortive
Corporation’s Current Report on Form 8-K filed on
June 29, 2018 (Commission File Number: 1-37654)
Indenture, dated as of February 22, 2019, among
Fortive Corporation, the guarantors party thereto,
and The Bank of New York Mellon Trust Company,
N.A., as trustee
Incorporated by reference to Exhibit 4.1 to Fortive
Corporation’s Current Report on Form 8-K filed on
February 22, 2019 (Commission File Number:
1-37654)
4.4
Description of Securities
10.1
10.2
10.3
10.4
10.5
Amended and Restated Credit Agreement, dated as
of November 30, 2018, among Fortive Corporation
and certain of its subsidiaries party thereto, Bank of
America, N.A., as Administrative Agent and Swing
Line Lender, and the lenders referred to therein
Incorporated by reference from Exhibit 10.1 to Fortive
Corporation’s Current Report on Form 8-K filed on
December 3, 2018 (Commission File Number
1-37654)
Credit Agreement, dated as of August 22, 2018,
among Fortive Corporation, Bank of America, N.A.,
as Administrative Agent, and the lenders referred to
therein
Incorporated by reference from Exhibit 10.1 to Fortive
Corporation’s Current Report on Form 8-K filed on
August 22, 2018 (Commission File Number: 1-37654)
Amendment No. 1 to Term Loan Credit Agreement,
dated as of February 21, 2019, among Fortive
Corporation, Bank of America, N.A., as
Administrative Agent, and the lenders referred to
therein
Incorporated by reference to Exhibit 10.1 to Fortive
Corporation’s Current Report on Form 8-K filed on
February 22, 2019 (Commission File Number:
1-37654)
Amendment No. 1 to Revolving Credit Agreement,
dated as of February 21, 2019, among Fortive
Corporation, Bank of America N.A., as
Administrative Agent and a Swing Line Lender, and
the lenders referred to therein
Incorporated by reference to Exhibit 10.2 to Fortive
Corporation’s Current Report on Form 8-K filed on
February 22, 2019 (Commission File Number:
1-37654)
Term Loan Credit Agreement, dated as of March 1,
2019, among Fortive Corporation, Bank of America,
N.A., as Administrative Agent, and the lenders
referred to therein
Incorporated by reference to Exhibit 10.1 to Fortive
Corporation’s Current Report on Form 8-K filed on
March 4, 2019 (Commission File Number: 1-37654)
101
10.6
Fortive Corporation 2016 Stock Incentive Plan, as
amended and restated*
Incorporated by reference from Appendix B to Fortive
Corporation’s Proxy Statement on Schedule 14A filed
on April 16, 2018 (Commission File Number 1-37654)
10.7
Form of Fortive Corporation Performance Stock
Unit Agreement*
10.8
Form of Fortive Corporation Non-Employee
Directors Restricted Stock Unit Agreement *
10.9
Form of Fortive Corporation Restricted Stock Grant
Agreement*
10.10
Form of Fortive Corporation Restricted Stock Unit
Agreement*
10.11
Form of Fortive Corporation Non-Employee
Directors Stock Option Agreement*
10.12
Form of Fortive Corporation Stock Option
Agreement*
10.13
Fortive Corporation Amended and Restated 2016
Executive Incentive Compensation Plan*
Incorporated by reference from Exhibit 10.8 to Fortive
Corporation’s Annual Report on Form 10-K for the
year ended December 31, 2017 (Commission File
Number: 1-37654)
Incorporated by reference from Exhibit 10.9 to Fortive
Corporation’s Annual Report on Form 10-K for the
year ended December 31, 2017 (Commission File
Number: 1-37654)
Incorporated by reference from Exhibit 10.13 to
Amendment No. 2 to Fortive Corporation’s
Registration Statement on Form 10, filed on April 7,
2016 (Commission File Number: 1-37654)
Incorporated by reference from Exhibit 10.11 to
Fortive Corporation’s Annual Report on Form 10-K for
the year ended December 31, 2017 (Commission File
Number: 1-37654)
Incorporated by reference from Exhibit 10.12 to
Fortive Corporation’s Annual Report on Form 10-K for
the year ended December 31, 2017 (Commission File
Number: 1-37654)
Incorporated by reference from Exhibit 10.13 to
Fortive Corporation’s Annual Report on Form 10-K for
the year ended December 31, 2017 (Commission File
Number: 1-37654)
Incorporated by reference from Exhibit 10.18 to
Fortive Corporation’s Annual Report on Form 10-K for
the year ended December 31, 2018 (Commission File
Number: 1-37654)
10.14
Fortive Corporation Severance and Change in
Control Plan for Officers*
Incorporated by reference from Exhibit 10.1 to Fortive
Corporation’s Current Report on Form 8-K, filed on
March 31, 2017 (Commission File Number: 1-37654)
10.15
Fortive Executive Deferred Incentive Program*
10.16
Form of D&O Indemnification Agreement*
10.17
Aircraft Time Sharing Agreement, dated July 18,
2016, between Fortive Corporation and James Lico*
102
Incorporated by reference from Exhibit 10.10 to
Fortive Corporation’s Current Report on Form 8-K
filed on June 1, 2016 (Commission File Number:
1-37654)
Incorporated by reference from Exhibit 10.10 to
Amendment No. 2 to Fortive Corporation’s
Registration Statement on Form 10, filed on April 7,
2016 (Commission File Number: 1-37654)
Incorporated by reference from Exhibit 10.18 to
Fortive Corporation’s Annual Report on Form 10-K for
the year ended December 31, 2017 (Commission File
Number: 1-37654)
10.18
Aircraft Time Sharing Agreement, dated July 18,
2016, between Fortive Corporation and Charles
McLaughlin*
Incorporated by reference from Exhibit 10.19 to
Fortive Corporation’s Annual Report on Form 10-K for
the year ended December 31, 2017 (Commission File
Number: 1-37654)
10.19
Description of compensation arrangements for non-
management directors*
10.20
Fortive Corporation Non-Employee Directors’
Deferred Compensation Plan
10.21
Fortive Corporation Non-Employee Directors’
Deferred Compensation Plan Election Form
Incorporated by reference from Exhibit 10.1 to Fortive
Corporation’s Quarterly Report on Form 10-Q for the
quarter ended June 28, 2019 (Commission File
Number: 1-37654)
Incorporated by reference from Exhibit 10.2 to Fortive
Corporation’s Quarterly Report on Form 10-Q for the
quarter ended September 29, 2017 (Commission File
Number: 1-37654)
Incorporated by reference from Exhibit 10.3 to Fortive
Corporation’s Quarterly Report on Form 10-Q for the
quarter ended September 29, 2017 (Commission File
Number: 1-37654)
10.22
Offer of Employment Letter, dated November 16,
2015, between TGA Employment Services LLC and
Chuck McLaughlin*
Incorporated by reference from Exhibit 10.6 to
Amendment No. 1 to Fortive Corporation’s
Registration Statement on Form 10, filed on March 3,
2016 (Commission File Number: 1-37654)
10.23
Offer of Employment Letter, dated February 1, 2016,
between TGA Employment Services LLC and
Barbara Hulit*
Incorporated by reference from Exhibit 10.22 to
Fortive Corporation’s Annual Report on Form 10-K for
the year ended December 31, 2016 (Commission File
Number: 1-37654)
10.24
Offer of Employment Letter, dated November 11,
2015 between TGA Employment Services LLC and
Patrick Murphy*
Incorporated by reference from Exhibit 10.8 to
Amendment No. 1 to Fortive Corporation’s
Registration Statement on Form 10, filed on March 3,
2016 (Commission File Number: 1-37654)
10.25
Offer of Employment Letter, dated November 11,
2015 between TGA Employment Services LLC and
William W. Pringle*
Incorporated by reference from Exhibit 10.25 to
Fortive Corporation’s Annual Report on Form 10-K for
the year ended December 31, 2017 (Commission File
Number: 1-37654
10.26
Form of Fortive Corporation and its Affiliated
Entities Agreement Regarding Competition and
Protection of Proprietary Interests*
Incorporated by reference from Exhibit 10.31 to
Fortive Corporation’s Annual Report on Form 10-K for
the year ended December 31, 2018 (Commission File
Number: 1-37654)
21.1
Subsidiaries of Registrant
23.1
31.1
31.2
Consent of Independent Registered Public
Accounting Firm
Certification of Chief Executive Officer Pursuant to
Item 601(b)(31) of Regulation S-K, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002
Certification of Chief Financial Officer Pursuant to
Item 601(b)(31) of Regulation S-K, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002
103
32.1
32.2
Certification of Chief Executive Officer, Pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer, Pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
101.INS
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 (1)
101.SCH Inline XBRL Taxonomy Extension Schema
Document (1)
101.CAL
Inline XBRL Taxonomy Extension Calculation
Linkbase Document (1)
101.DEF
Inline XBRL Taxonomy Extension Definition
Linkbase Document (1)
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase
Document (1)
101.PRE
Inline XBRL Taxonomy Extension Presentation
Linkbase Document (1)
104
Inline Cover page formatted as Inline XBRL and
contained in Exhibit 101
*
(1)
Indicates management contract or compensatory plan, contract or arrangement.
Exhibit 101 to this report includes the following documents formatted in XBRL (Extensible Business Reporting
Language): (i) Consolidated Balance Sheets as of December 31, 2019 and 2018, (ii) Consolidated Statements of
Earnings for the years ended December 31, 2019, 2018, and 2017, (iii) Consolidated Statements of
Comprehensive Income for the years ended December 31, 2019, 2018, and 2017, (iv) Consolidated Statements
of Changes in Equity for the years ended December 31, 2019, 2018, and 2017, (v) Consolidated Statements of
Cash Flows for the years ended December 31, 2019, 2018, and 2017 and (vi) Notes to Consolidated Financial
Statements.
The registrant agrees to furnish to the Commission supplementally upon request a copy of (i) any instrument with respect to
long-term debt not filed herewith as to which the total amount of securities authorized thereunder does not exceed 10% of the
total assets of the registrant and its subsidiaries on a consolidated basis and (ii) schedules or similar attachments omitted
pursuant to Item 601(a)(5) of Regulation S-K.
104
Pursuant to the requirements of Section 13 or 15(d) 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.
SIGNATURES
Date: February 27, 2020
FORTIVE CORPORATION
By:
/s/ JAMES A. LICO
James A. Lico
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this annual report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the date indicated:
Name, Title and Signature
Date
/s/ ALAN G. SPOON
Alan G. Spoon
Chairman of the Board
/s/ FEROZ DEWAN
Feroz Dewan
Director
/s/ JAMES A. LICO
James A. Lico
President, Chief Executive Officer and Director
/s/ KATE D. MITCHELL
Kate D. Mitchell
Director
/s/ MITCHELL P. RALES
Mitchell P. Rales
Director
/s/ STEVEN M. RALES
Steven M. Rales
Director
February 27, 2020
February 27, 2020
February 27, 2020
February 27, 2020
February 27, 2020
February 27, 2020
105
Name, Title and Signature
Date
/s/ JEANNINE P. SARGENT
Jeannine P. Sargent
Director
/s/ CHARLES E. MCLAUGHLIN
Charles E. McLaughlin
Senior Vice President and Chief Financial Officer
/s/ CHRISTOPHER M. MULHALL
Christopher M. Mulhall
Chief Accounting Officer
February 27, 2020
February 27, 2020
February 27, 2020
106
FORTIVE CORPORATION AND SUBSIDIARIES
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
($ in millions)
Classification
Year Ended December 31, 2019:
Allowances deducted from asset accounts
Allowance for doubtful accounts
Year Ended December 31, 2018:
Allowances deducted from asset accounts
Allowance for doubtful accounts
Year Ended December 31, 2017:
Allowances deducted from asset accounts
Allowance for doubtful accounts
Balance at
Beginning of
Period(a)
Charged to
Costs &
Expenses
Impact of
Currency
Charged
to Other
Accounts(b)
Write Offs,
Write Downs &
Deductions
Balance at
End
of Period(a)
$
$
$
78.5
$
63.7
$
(0.3) $
1.5
$
(61.3) $
82.1
66.5
$
48.5
$
(0.8) $
2.5
$
(38.2) $
78.5
80.7
$
37.5
$
1.0
$
2.1
$
(54.8) $
66.5
(a) Amounts include allowance for doubtful accounts classified as current and noncurrent.
(b) Amounts are related to businesses acquired.
107
Comparison of 42 Month Cumulative Total Shareholder Return
Assumes Initial Investment of $100
Fortive Corporation
S&P 500
S&P Industrials
$185
$175
$165
$155
$145
$135
$125
$115
$105
$95
8/2016
10/2016
12/2016
2/2017
4/2017
6/2017
8/2017
10/2017
12/2017
2/2018
4/2018
6/2018
8/2018
10/2018
12/2018
2/2019
4/2019
6/2019
8/2019
10/2019
12/2019
NOTE: Data complete through last fiscal year. Copyright Standard and Poor’s, Inc. Used with permission. All rights reserved.
7/5/2016
12/31/2016
12/31/2017
12/31/2018
12/31/2019
Fortive Corporation
S&P 500
S&P Industrials
100.00
100.00
100.00
110.64
108.33
105.43
149.91
131.98
129.23
142.84
121.14
113.32
159.45
165.92
152.37
Reconciliation of Non-GAAP Financial Information to Corresponding Financial
Information Presented in Accordance with GAAP on a Continuing Operations Basis
C O M P O N E N T S O F R E V E N U E G R O W T H
Change Year Ended 12/31/2019 vs. Comparable 2018 Period
Total Revenue Growth (GAAP)
Core (Non-GAAP)
Acquisitions (Non-GAAP)
Impact of currency translation (Non-GAAP)
Y E A R - O V E R -Y E A R O P E R AT I N G M A R G I N C H A N G E S
Twelve Month Period ended December 31, 2018 Operating Profit Margin (GAAP)
Twelve months ended December 31, 2019 impact from operating profit margin of
businesses that have been owned for less than one year (Non-GAAP)
Twelve months ended December 31, 2019 acquisition-related transaction costs (Non-GAAP)
Twelve months ended December 31, 2019 discrete restructuring (Non-GAAP)
Year-over-year core operating margin changes for the twelve months ended December 31, 2019 (defined as all
year-over-year operating margin changes other than the changes identified in the line items above) (Non-GAAP)
Twelve Month Period ended December 31, 2019 Operating Profit Margin (GAAP)
13.4%
2.0%
13.2%
(1.8)%
18.3%
(3.1)%
(1.2)%
(0.6)%
0.3%
13.7%
F R E E C A S H F L O W F R O M C O N T I N U I N G O P E R AT I O N S
($ in millions)6
Year Ended 12/31/2019
Year Ended 12/31/2018
Continuing Operations Free Cash Flow
Operating Cash Flows from Continuing Operations (GAAP)
Less: purchases of property, plant & equipment (capital expenditures)
from continuing operations (GAAP)
Free Cash Flow from Continuing Operations (Non-GAAP)
Continuing Operations Free Cash Flow Conversion Ratio
Net earnings from Continuing Operations (GAAP)
Tax Cuts and Jobs Act (TCJA) Adjustments (GAAP)
Net earnings from Continuing Operations excluding the TCJA
Adjustments (Non-GAAP)
Free Cash Flow Conversion Ratio (Non-GAAP)
$1,284.9
(112.5)
$1,172.4
$725.4
—
$725.4
162%
$1,201.3
(112.3)
$1,089.0
$918.3
(12.5)
$905.8
120%
A D J U S T E D N E T E A R N I N G S F R O M C O N T I N U I N G O P E R AT I O N S
($ in millions)
Year Ended 12/31/2019 Year Ended 12/31/2018
Net Earnings From Continuing Operations Attributable to
Common Stockholders (GAAP)
$656.4
Dividends on the mandatory convertible preferred stock to apply if-converted method
69.0
Net Earnings from Continuing Operations (GAAP)
Pretax amortization of acquisition-related intangible assets in the year ended
($293 million pretax, $246 million after tax) December 31, 2019, and in the year ended
($135 million pretax, $113 million after tax) December 31, 2018
Pretax acquisition and other transaction costs in the year ended
($146 million pretax, $123 million after tax) December 31, 2019, and in the year ended
($67 million pretax, $56 million after tax) December 31, 2018*
Pretax acquisition-related fair value adjustments to deferred revenue and inventory
related to significant acquisitions in the year ended ($121 million pretax,
$102 million after tax) December 31, 2019, and in the year ended ($34 million pretax,
$28 million after tax) December 31, 2018
Pretax losses from equity method investments in the year ended
($4 million pretax, $3 million after tax) December 31, 2019
Pretax gain on the disposition of the Tektronix Video Business in the year ended
($41 million pretax, $39 million after tax) December 31, 2019
Pretax non-cash interest expense associated with our 0.875% convertible notes
in the year ended ($28 million pretax, $24 million after tax) December 31, 2019
Pretax discrete restructuring charges in the year ended
($38 million pretax, $32 million after tax) December 31, 2019
Tax effect of the adjustments reflected above**
Additional income tax adjustment
TCJA adjustments
725.4
292.9
145.8
121.0
3.9
(40.8)
28.1
38.3
(98.6)
32.4
—
$883.4
34.9
918.3
135.2
67.4
34.4
—
—
—
—
(42.0)
—
(12.5)
Adjusted Net Earnings from Continuing Operations (Non-GAAP)
$1,248.4
$1,100.8
A D J U S T E D D I L U T E D N E T E A R N I N G S P E R S H A R E F R O M C O N T I N U I N G O P E R AT I O N S* * *
($ in millions)
Year Ended 12/31/2019**** Year Ended 12/31/2018****
Diluted Net Earnings Per Share from Continuing Operations
Attributable to Common Stockholders (GAAP)
Dividends on the mandatory convertible preferred stock (MCPS)
to apply if-converted method
Assumed dilutive impact on the Diluted Net Earnings Per Share Attributable
to Common Stockholders if the MCPS Converted Shares had been outstanding
Pretax amortization of acquisition-related intangible assets in the year ended
($293 million pretax, $246 million after tax) December 31, 2019, and in the year ended
($135 million pretax, $113 million after tax) December 31, 2018
Pretax acquisition and other transaction costs in the year ended
($146 million pretax, $123 million after tax) December 31, 2019, and in the year ended
($67 million pretax, $56 million after tax) December 31, 2018*
Pretax acquisition-related fair value adjustments to deferred revenue
and inventory related to significant acquisitions in the year ended
($121 million pretax, $102 million after tax) December 31, 2019, and in the year ended
($34 million pretax, $28 million after tax) December 31, 2018
Pretax losses from equity method investments in the year ended
($4 million pretax, $3 million after tax) December 31, 2019
Pretax gain on the disposition of the Tektronix Video Business in the year ended
($41 million pretax, $39 million after tax) December 31, 2019
Pretax non-cash interest expense associated with our 0.875% convertible notes
in the year ended ($28 million pretax, $24 million after tax) December 31, 2019
Pretax discrete restructuring charges in the year ended
($38 million pretax, $32 million after tax) December 31, 2019
Tax effect of the adjustments reflected above**
Additional income tax adjustment
TCJA Adjustments
$1.93
0.20
(0.11)
0.82
0.41
0.34
0.01
(0.11)
0.08
0.11
(0.28)
0.09
—
Adjusted Diluted Net Earnings Per Share from Continuing Operations (Non-GAAP) $3.48
$2.52
0.10
(0.06)
0.38
0.19
0.10
—
—
—
0
(0.12)
—
(0.03)
$3.06
A D J U S T E D D I L U T E D S H A R E S O U T S TA N D I N G
(shares in millions)
Year Ended 12/31/2019
Year Ended 12/31/2018
Average common diluted stock outstanding
Converted Shares*****
Adjusted average common stock and common equivalent shares outstanding
340.0
18.3
358.3
350.7
8.7
359.4
*
$1.3 million and $0.6 million of acquisition and other transaction costs were recorded in the three months ended March 29, 2019 and June 28, 2019, respectively, that were not
previously adjusted for but are reflected in the totals for the year ended December 31, 2019.
**
The MCPS are not tax deductible and therefore the tax effect of the adjustments includes only the amortization of acquisition-related intangible assets, acquisition and other
transaction costs, acquisition-related fair value adjustments to deferred revenue and inventory, the gain on the disposition of the Tektronix Video Business, losses from equity method
investments, the non-cash interest expense associated with the 0.875% convertible notes, and restructuring charges.
*** The sum of the components of adjusted diluted net earnings per share from continuing operations may not equal due to rounding.
****
Each of the per share adjustments below was calculated assuming the MCPS Converted Shares had been outstanding. The 0.875% convertible notes did not have an impact on the
adjusted diluted shares outstanding.
*****
The number of MCPS Converted Shares assumes the conversion of all 1.38 million shares applying the “if-converted” method and using an average 20-day VWAP of $75.19 as of
December 31, 2019. The 0.875% convertible notes did not have an impact on the adjusted diluted shares outstanding.
A D J U S T E D O P E R AT I N G P R O F I T M A R G I N
Year Ended 12/31/2019
Professional
Instrumentation
Industrial
Technologies
Operating Profit (GAAP)
Acquisition and Other Transaction Costs
Acquisition-Related Fair Value Adjustments
to Deferred Revenue and Inventory
Amortization of Acquisition-Related
Intangible Assets
Restructuring
Adjusted Operating Profit (Non-GAAP)
12.4%
2.5%
2.4%
5.9%
0.7%
23.9%
Operating Profit (GAAP)
Acquisition and Other Transaction Costs
Acquisition-Related Fair Value Adjustments
to Deferred Revenue and Inventory
Amortization of Acquisition-Related
Intangible Assets
Adjusted Operating Profit (Non-GAAP)
Year Ended 12/31/2018
20.4%
1.8%
0.7%
2.9%
25.8%
19.2%
1.1%
—
1.1%
0.3%
21.7%
18.8%
—
—
1.1%
19.9%
Total
Fortive
13.7%
2.0%
1.5%
4.0%
0.5%
21.7%
18.3%
1.0%
0.4%
2.1%
21.8%
D I R E C T O R S
FEROZ DEWAN
Chief Executive Officer
Arena Holdings Management LLC
STEVEN M. RALES
Chairman of the Board
Danaher Corporation
JAMES A. LICO
President and Chief Executive Officer
Fortive Corporation
JEANNINE P. SARGENT
Operating Partner
Katalyst Ventures
KATE D. MITCHELL
Partner and Co-Founder
Scale Venture Partners
MITCHELL P. RALES
Chairman of the Executive Committee
Danaher Corporation
ALAN G. SPOON
Chairman of the Board
Fortive Corporation
E X E C U T I V E O F F I C E R S
JAMES A. LICO
President and Chief Executive Officer
WILLIAM W. PRINGLE
Senior Vice President
CHARLES E. MCLAUGHLIN
Senior Vice President
Chief Financial Officer
MARTIN GAFINOWITZ
Senior Vice President
BARBARA B. HULIT
Senior Vice President
PATRICK K. MURPHY
Senior Vice President
PETER C. UNDERWOOD
Senior Vice President
General Counsel
STACEY A. WALKER
Senior Vice President
Human Resources
JONATHAN L. SCHWARZ
Vice President
Strategy and Corporate Development
O U R T R A N S F E R A G E N T
Computershare manages a variety of shareholder services such as: change of address, lost stock certificates,
transfer of stock to another person, and other administrative transactions. Computershare can be reached at:
P.O. Box 505000 | Louisville, KY 40233-5000
Toll-free: 800.568.3476 | Outside the U.S.: +1.781.575.3120 | www.computershare.com
I N V E S T O R R E L A T I O N S
This annual report, along with a variety of other financial materials, can be viewed at www.fortive.com.
Additional inquiries can be directed to Fortive’s Investor Relations team:
6920 Seaway Boulevard | Everett, WA 98203
Phone: 425.446.5000 | E-mail: investors@fortive.com
A N N U A L M E E T I N G
Fortive’s annual shareholder meeting will be held on June 2, 2020. For more information, contact Fortive’s
Investor Relations team by calling 425.446.500 or emailing investors@fortive.com.
A U D I T O R S
Ernst & Young, LLP | Seattle, WA
S T O C K L I S T I N G
New York Stock Exchange Symbol: FTV
fortive.com