EX-99.1 7 d43850dex991.htm EX-99.1 EX-99.1
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Exhibit 99.1

LOGO

 

                    , 2016

Dear Danaher Corporation Shareholder:

In May 2015, we announced our intention to separate our company into two independent, publicly traded companies. Completion of the separation will create a multi-industry, science and technology growth company that will retain the Danaher name (“New Danaher”) and a diversified industrial growth company that is named Fortive Corporation (“Fortive”). The separation will occur by means of a spin-off of Fortive to Danaher shareholders. Following the separation, each company is expected to be strategically well positioned with access to capital to pursue organic and inorganic growth opportunities and to build strong, long term businesses with competitive leadership positions. The principles of Danaher Business System will remain the foundation of both companies.

Fortive will have outstanding brands and market leading positions in professional instrumentation, automation, sensing and transportation technologies. It will be comprised of Danaher’s existing Test & Measurement segment, Industrial Technologies segment (excluding the Product Identification platform) and Retail/Commercial Petroleum platform. As a smaller, standalone entity, Fortive is expected to pursue a strategy focused on organic growth and operating margin expansion, and will emphasize value creation via strategic and financially disciplined mergers and acquisitions.

New Danaher will include market-leading brands exposed to favorable secular growth trends and is expected to generate high recurring revenue and gross margins. It will include Danaher’s existing Life Sciences & Diagnostics (including Pall Corporation) and Dental segments and Water Quality and Product Identification platforms. New Danaher will be well positioned to improve profitability, grow organically and deploy capital to generate substantial earnings growth.

The separation will provide current Danaher shareholders with ownership interests in both New Danaher and Fortive. The separation will be in the form of a pro rata distribution of 100% of the outstanding shares of Fortive common stock to holders of Danaher common stock. Each Danaher shareholder will receive one share of Fortive common stock for every two shares of Danaher common stock held on June 15, 2016, the record date for the distribution. You do not need to take any action to receive shares of Fortive common stock to which you are entitled as a Danaher shareholder. You do not need to pay any consideration or surrender or exchange your shares of Danaher common stock to participate in the spin-off.

The distribution is intended to be tax-free to Danaher shareholders for U.S. Federal income tax purposes, except for any cash received by shareholders in lieu of fractional shares. You should consult your own tax advisor as to the particular consequences of the distribution to you, including the applicability and effect of any U.S. federal, state and local and non-U.S. tax laws.

I encourage you to read the attached information statement, which is being provided to all Danaher shareholders who held shares on the record date for the distribution. The information statement describes the separation in detail and contains important business and financial information about Fortive.

I believe the separation is a significant and exciting step in our company’s history. We remain committed to working on your behalf to continue to build long term shareholder value.

Sincerely,

Thomas P. Joyce, Jr.

President and Chief Executive Officer

Danaher Corporation


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LOGO

                    , 2016

Dear Future Fortive Shareholder:

We are excited to welcome you as a shareholder of Fortive Corporation (“Fortive”). We are proud of our heritage and committed to using our experienced management team, talented associates, outstanding brands, and leading market positions to establish our own independent record of strong performance.

Fortive is a diversified industrial growth company providing essential industrial technology and professional instrumentation solutions globally. In the year ended December 31, 2015, Fortive delivered revenues of $6.2 billion, with strong gross and operating profit margins and significant free cash flow.

As a standalone company, we will pursue a value-creation strategy focused on core revenue growth, operating margin expansion, and free cash flow deployment toward acquisitions. We intend to follow a strategic and financially disciplined approach to acquisitions, with the goal of building strong, long term businesses with leadership positions.

Our outstanding team has a strong Danaher legacy and seeks to make continuous improvement part of everything we do. At Fortive, we are committed to embracing and building upon the principles of the Danaher Business System to drive shareholder value over the long term.

I personally invite you to learn more about Fortive and our strategic initiatives by reading the attached information statement. With our strong foundation from Danaher, Fortive is set up well for what I believe will be our best days to come.

Sincerely,

James A. Lico

President & Chief Executive Officer

Fortive Corporation


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Information contained herein is subject to completion or amendment. A Registration Statement on Form 10 relating to these securities has been filed with the U.S. Securities and Exchange Commission under the U.S. Securities Exchange Act of 1934, as amended.

 

PRELIMINARY AND SUBJECT TO COMPLETION, DATED MAY 5, 2016

INFORMATION STATEMENT

Fortive Corporation

 

 

This information statement is being furnished in connection with the distribution by Danaher Corporation (“Danaher”) to its shareholders of all of the outstanding shares of common stock of Fortive Corporation, a wholly owned subsidiary of Danaher that will hold, directly or indirectly, the assets and liabilities associated with Danaher’s industrial growth businesses (“Fortive”). To implement the distribution, Danaher will distribute all of the shares of Fortive common stock on a pro rata basis to the Danaher shareholders.

For every two shares of Danaher common stock held of record by you as of the close of business on June 15, 2016, the record date for the distribution, you will receive one share of Fortive common stock. You will receive cash in lieu of any fractional shares of Fortive common stock that you would have received after application of the above ratio. As discussed under “The Separation and Distribution—Trading Between the Record Date and Distribution Date,” if you sell your shares of Danaher common stock “regular-way” after the record date and before the distribution, you also will be selling your right to receive shares of Fortive common stock in connection with the separation. Fortive expects the shares of Fortive common stock to be distributed by Danaher on July 2, 2016. Fortive refers to the date of the distribution of the shares of Fortive common stock as the “distribution date.” Because July 2, 2016 is a Saturday and not a business day, the shares are expected to be credited to “street name” stockholders through the Depository Trust Corporation (DTC) on the first trading day thereafter, Tuesday, July 5, 2016.

The distribution is expected to be tax-free to Danaher shareholders for United States federal income tax purposes, except for any cash received in lieu of fractional shares.

No vote of Danaher shareholders is required for the distribution. Therefore, you are not being asked for a proxy, and you are requested not to send Danaher a proxy, in connection with the distribution. You do not need to pay any consideration, exchange or surrender your existing shares of Danaher common stock or take any other action to receive your shares of Fortive common stock.

There is no current trading market for Fortive common stock, although Fortive expects that a limited market, commonly known as a “when-issued” trading market, will develop on or shortly before the record date for the distribution, and Fortive expects “regular-way” trading of Fortive common stock to begin on the first trading day following the distribution. Fortive has applied to have its common stock authorized for listing on the New York Stock Exchange (the “NYSE”) under the symbol “FTV.” Following the distribution, Danaher will continue to trade on the NYSE under the symbol “DHR.”

 

 

In reviewing this information statement, you should carefully consider the matters described under the caption “Risk Factors” beginning on page 12.

Neither the U.S. Securities and Exchange Commission nor any state securities commission has approved or disapproved these securities or determined if this information statement is truthful or complete. Any representation to the contrary is a criminal offense.

This information statement does not constitute an offer to sell or the solicitation of an offer to buy any securities.

The date of this information statement is                     , 2016.

This information statement was first mailed to Danaher shareholders on or about                     , 2016.


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TABLE OF CONTENTS

 

     Page  

QUESTIONS AND ANSWERS ABOUT THE SEPARATION AND DISTRIBUTION

     i   

INFORMATION STATEMENT SUMMARY

     1   

SUMMARY HISTORICAL AND PRO FORMA COMBINED FINANCIAL DATA

     10   

RISK FACTORS

     12   

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

     32   

DIVIDEND POLICY

     33   

CAPITALIZATION

     34   

UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

     35   

NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

     40   

SELECTED HISTORICAL COMBINED FINANCIAL DATA

     42   

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     43   

BUSINESS

     68   

MANAGEMENT

     78   

COMPENSATION DISCUSSION AND ANALYSIS

     86   

DIRECTOR COMPENSATION

     115   

TREATMENT OF OUTSTANDING EQUITY AWARDS AT THE TIME OF THE SEPARATION

     116   

CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS

     117   

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     124   

THE SEPARATION AND DISTRIBUTION

     127   

U.S. FEDERAL INCOME TAX CONSIDERATIONS

     133   

DESCRIPTION OF MATERIAL INDEBTEDNESS

     136   

DESCRIPTION OF FORTIVE’S CAPITAL STOCK

     138   

WHERE YOU CAN FIND MORE INFORMATION

     143   

INDEX TO FINANCIAL STATEMENTS

     F-1   

Presentation of Information

Except as otherwise indicated or unless the context otherwise requires, the information included in this information statement about Fortive assumes the completion of all of the transactions referred to in this information statement in connection with the separation and distribution. Unless the context otherwise requires, references in this information statement to “Fortive,” the “Company,” “we,” “us” and “our” refer to Fortive Corporation, a Delaware corporation, and its consolidated subsidiaries after giving effect to the separation. References to Fortive’s historical business and operations refer to the business and operations of Danaher’s industrial growth businesses that will be transferred to Fortive in connection with the separation and distribution. References in this information statement to “Danaher” and “Parent” refer to Danaher Corporation, a Delaware corporation, and its consolidated subsidiaries before giving effect to the separation, and references to “New Danaher” refer to Danaher Corporation and its consolidated subsidiaries after giving effect to the separation, unless the context otherwise requires.

Trademarks, Trade Names and Service Marks

Certain trademarks, service marks and trade names that Fortive uses in conjunction with the operation of its business are proprietary to Fortive. Each trademark, trade name or service mark of any other company appearing in this information statement is, to our knowledge, owned by such other company.


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QUESTIONS AND ANSWERS ABOUT THE SEPARATION AND DISTRIBUTION

 

What is Fortive and why is Danaher
separating Fortive’s businesses and
distributing Fortive stock?

Fortive, which is currently a wholly owned subsidiary of Danaher, was formed to hold Danaher’s industrial growth businesses. The separation of Fortive from Danaher and the distribution of Fortive common stock are intended to provide you with equity investments in two separate, publicly traded companies that will be able to focus on each of their respective businesses. Danaher and Fortive believe that the separation will result in enhanced long-term performance of each business for the reasons discussed in the sections entitled “The Separation and Distribution—Background” and “The Separation and Distribution—Reasons for the Separation.”

 

Why am I receiving this document?

Danaher is delivering this document to you because you are a holder of Danaher common stock. If you are a holder of Danaher common stock as of the close of business on June 15, 2016, the record date of the distribution, you will be entitled to receive one share of Fortive common stock for every two shares of Danaher common stock that you held at the close of business on such date. This document will help you understand how the separation and distribution will affect your investment in Danaher and your investment in Fortive after the separation.

 

How will the separation of Fortive from Danaher work?

To accomplish the separation, Danaher will distribute all of the outstanding shares of Fortive common stock to Danaher shareholders on a pro rata basis in a distribution intended to be tax-free for U.S. federal income tax purposes, except for cash received in lieu of fractional shares.

 

Why is the separation of Fortive structured as a distribution?

Danaher believes that a tax-free distribution for U.S. federal income tax purposes of shares of Fortive common stock to the Danaher shareholders is an efficient way to separate its industrial growth businesses in a manner that will create long-term value for Danaher, Fortive and their respective shareholders.

 

What is the record date for the distribution?

The record date for the distribution will be June 15, 2016.

 

 

When will the distribution occur?

It is expected that all of the shares of Fortive common stock will be distributed by Danaher on July 2, 2016, to holders of record of Danaher common stock at the close of business on June 15, 2016, the record date for the distribution. Because July 2, 2016 is a Saturday and not a business day, the shares are expected to be credited to “street name” stockholders through the Depository Trust Corporation (DTC) on the first trading day thereafter, Tuesday, July 5, 2016.

 

What do shareholders need to do to
participate in the distribution?

Shareholders of Danaher as of the record date for the distribution will not be required to take any action to receive Fortive common stock in the distribution, but you are urged to read this entire information statement carefully. No shareholder approval of the distribution is required. You are not being asked for a proxy. You do not need to pay any consideration, exchange or surrender your existing shares of Danaher common stock or take any other action to

 

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receive your shares of Fortive common stock. Please do not send in your Danaher stock certificates. The distribution will not affect the number of outstanding Danaher shares or any rights of Danaher shareholders, although it will affect the market value of each outstanding share of Danaher common stock.

 

How will shares of Fortive common stock be issued?

You will receive shares of Fortive common stock through the same channels that you currently use to hold or trade shares of Danaher common stock, whether through a brokerage account, 401(k) plan or other channel. Receipt of Fortive shares will be documented for you in the same manner that you typically receive shareholder updates, such as monthly broker statements and 401(k) statements.

 

  If you own shares of Danaher common stock as of the close of business on the record date for the distribution, including shares owned in certificate form, Danaher, with the assistance of Computershare Trust Company, N.A. (“Computershare”), the settlement and distribution agent, will electronically distribute shares of Fortive common stock to you or to your brokerage firm on your behalf in book-entry form. Computershare will mail you a book-entry account statement that reflects your shares of Fortive common stock, or your bank or brokerage firm will credit your account for the shares.

 

How many shares of Fortive common stock
will I receive in the distribution?

Danaher will distribute to you one share of Fortive common stock for every two shares of Danaher common stock held by you as of the record date for the distribution. Based on approximately 689 million shares of Danaher common stock outstanding as of April 15, 2016, a total of approximately 345 million shares of Fortive common stock will be distributed. For additional information on the distribution, see “The Separation and Distribution.”

 

Will Fortive issue fractional shares of its common stock in the distribution?

No. Fortive will not issue fractional shares of its common stock in the distribution. Fractional shares that Danaher shareholders would otherwise have been entitled to receive will be aggregated into whole shares and sold in the public market by the distribution agent. The aggregate net cash proceeds of these sales will be distributed pro rata (based on the fractional share such holder would otherwise be entitled to receive) to those shareholders who would otherwise have been entitled to receive fractional shares. Recipients of cash in lieu of fractional shares will not be entitled to any interest on the amounts of payment made in lieu of fractional shares. The receipt of cash in lieu of fractional shares generally will be taxable to the recipient shareholders for U.S. federal income tax purposes as described in the section entitled “U.S. Federal Income Tax Considerations.”

 

What are the conditions to the distribution?

The distribution is subject to final approval by the board of directors of Danaher, as well as to a number of conditions, including, among others:

 

    the transfer of assets and liabilities to Fortive in accordance with the separation agreement will have been completed, other than assets and liabilities intended to transfer after the distribution;

 

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    Danaher will have received both (i) a private letter ruling from the U.S. Internal Revenue Service (“IRS”) with respect to certain aspects of the anticipated non-taxable nature of the transactions (the “Ruling”) and (ii) an opinion of Skadden, Arps, Slate, Meagher & Flom LLP, tax counsel to Danaher, regarding the qualification of the distribution, together with certain related transactions, as a reorganization within the meaning of Sections 355(a) and 368(a)(1)(D) of the Internal Revenue Code of 1986, as amended (the “Code”). Danaher has received the Ruling but, as a condition to the distribution, the Ruling must remain in effect as of the distribution date;

 

    the U.S. Securities and Exchange Commission (or the “SEC”) will have declared effective the registration statement of which this information statement forms a part, no stop order suspending the effectiveness of the registration statement will be in effect, no proceedings for such purpose will be pending before or threatened by the SEC and this information statement will have been mailed to Danaher shareholders;

 

    all actions and filings necessary or appropriate under applicable U.S. federal, U.S. state or other securities laws will have been taken and, where applicable, will have become effective or been accepted by the applicable governmental authority;

 

    the transaction agreements relating to the separation will have been duly executed and delivered by the parties;

 

    no order, injunction or decree issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the separation, the distribution or any of the related transactions will be in effect;

 

    the shares of Fortive common stock to be distributed will have been accepted for listing on the NYSE, subject to official notice of distribution;

 

    the financing described under the section entitled “Description of Material Indebtedness” will have been completed; and

 

    no other event or development will have occurred or exist that, in the judgment of Danaher’s board of directors, in its sole discretion, makes it inadvisable to effect the separation, the distribution or the other related transactions.

 

  Danaher and Fortive cannot assure you that any or all of these conditions will be met. In addition, Danaher can decline at any time to go forward with the separation and distribution. For a complete discussion of all of the conditions to the distribution, see “The Separation and Distribution—Conditions to the Distribution.”

 

What is the expected date of completion of the separation?

The completion and timing of the separation and distribution are dependent upon a number of conditions. It is expected that the shares of Fortive common stock will be distributed by Danaher on July 2, 2016 to the holders of record of shares of Danaher common stock at the close of business on June 15, 2016, the record date for the

 

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distribution. Because July 2, 2016 is a Saturday and not a business day, the shares are expected to be credited to “street name” stockholders through the Depository Trust Corporation (DTC) on the first trading day thereafter, Tuesday, July 5, 2016. However, no assurance can be provided as to the timing of the separation or that all conditions to the separation will be met.

 

Can Danaher decide to cancel the distribution of Fortive common stock even if all the conditions have been met?

Yes. The distribution is subject to the satisfaction or waiver of certain conditions. See “The Separation and Distribution—Conditions to the Distribution.” Until the distribution has occurred, Danaher has the right to terminate the distribution, even if all of the conditions are satisfied.

 

What if I want to sell my Danaher common stock or my Fortive common stock?

You should consult with your financial advisors, such as your stockbroker, bank or tax advisor.

 

 

 

What is “regular-way” and “ex-distribution” trading of Danaher stock?

Beginning on or shortly before the record date for the distribution and continuing up to and through the distribution date, it is expected that there will be two markets in Danaher common stock: a “regular-way” market and an “ex-distribution” market. Shares of Danaher common stock that trade in the “regular-way” market will trade with an entitlement to shares of Fortive common stock distributed pursuant to the distribution. Shares that trade in the “ex-distribution” market will trade without an entitlement to shares of Fortive common stock distributed pursuant to the distribution.

If you decide to sell any shares of Danaher common stock before the distribution date, you should make sure your stockbroker, bank or other nominee understands whether you want to sell your Danaher common stock with or without your entitlement to Fortive common stock pursuant to the distribution.

 

Where will I be able to trade shares of Fortive common stock?

Fortive intends to apply to list its common stock on the NYSE under the symbol “FTV.” Fortive anticipates that trading in shares of its common stock will begin on a “when-issued” basis on or shortly before the record date for the distribution and will continue up to the distribution date and that “regular-way” trading in Fortive common stock will begin on the first trading day following the completion of the distribution. If trading begins on a “when-issued” basis, you may purchase or sell Fortive common stock up to the distribution date, but your transaction will not settle until after the distribution date. Fortive cannot predict the trading prices for its common stock before, on or after the distribution date.

 

What will happen to the listing of Danaher common stock?

Danaher common stock will continue to trade on the NYSE after the distribution under the symbol “DHR.”

 

Will the number of shares of Danaher common stock that I own change as a result of the distribution?

No. The number of shares of Danaher common stock that you own will not change as a result of the distribution.

 

 

 

Will the distribution affect the market
price of my Danaher shares?

Yes. As a result of the distribution, Danaher expects the trading price of shares of Danaher common stock immediately following the

 

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distribution to be lower than the “regular-way” trading price of such shares immediately prior to the distribution because the trading price will no longer reflect the value of the industrial growth businesses held by Fortive. There can be no assurance that the aggregate market value of the Danaher common stock and the Fortive common stock following the separation will be higher or lower than the market value of Danaher common stock if the separation did not occur. This means, for example, that the combined trading prices of one share of Danaher common stock and 0.5 shares of Fortive common stock after the distribution (representing the number of shares of Fortive common stock to be received per every one share of Danaher common stock in the distribution) may be equal to, greater than or less than the trading price of one share of Danaher common stock before the distribution.

 

What are the U.S. federal income tax consequences of the separation and the distribution?

Assuming that the distribution, together with certain related transactions, qualify as a transaction that is tax-free to Danaher and Danaher’s shareholders, for U.S. federal income tax purposes, under Sections 368(a)(1)(D) and 355 of the Code, Danaher shareholders will not be required, for U.S. federal income tax purposes, to recognize any gain or loss (except with respect to any cash received in lieu of fractional shares) or to include any amount in their income, upon the receipt of shares of Fortive’s common stock pursuant to the distribution.

 

  See “U.S. Federal Income Tax Considerations” for further information regarding the potential U.S. federal income tax considerations to Danaher shareholders of the distribution, together with certain related transactions. You should consult your tax advisor as to the particular tax consequences of the separation and distribution to you.

 

How will I determine my tax basis in the shares I receive in the distribution?

Assuming that the distribution is tax-free to Danaher shareholders, except for cash received in lieu of fractional shares, for U.S. federal income tax purposes, your aggregate basis in the common shares that you hold in Danaher and the new Fortive common stock received in the distribution (including any fractional share interest in Fortive common stock for which cash is received) will equal the aggregate basis in the shares of Danaher common stock held by you immediately before the distribution, allocated between your Danaher common stock and the Fortive common stock (including any fractional share interest in Fortive common stock for which cash is received) you receive in the distribution in proportion to the relative fair market value of each on the distribution date.

 

  You should consult your tax advisor about the particular consequences of the separation and distribution to you, including the application of the tax basis allocation rules and the application of state, local and foreign tax laws.

 

What will Fortive’s relationship be with New Danaher following the separation?

Fortive will enter into a separation and distribution agreement with Danaher to effect the separation and provide a framework for Fortive’s relationship with New Danaher after the separation and will

 

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enter into certain other agreements, including a transition services agreement, an employee matters agreement, a tax matters agreement, an intellectual property matters agreement and a Danaher Business System (“DBS”) license agreement. These agreements will govern the separation between Fortive and Danaher of the assets, employees, liabilities and obligations (including its investments, property and employee benefits and tax-related assets and liabilities) of Danaher and its subsidiaries attributable to periods prior to, at and after Fortive’s separation from Danaher and will govern certain relationships between Fortive and Danaher after the separation. For additional information regarding the separation agreement and other transaction agreements, see the sections entitled “Risk Factors—Risks Related to the Separation” and “Certain Relationships and Related Person Transactions.”

 

Who will manage Fortive after the separation?

Fortive benefits from having in place a management team with an extensive background in the industrial growth businesses. Led by James A. Lico, who will be Fortive’s President and Chief Executive Officer after the separation, Fortive’s management team possesses deep knowledge of, and extensive experience in, its industry. For more information regarding Fortive’s management, see “Management.”

 

Are there risks associated with owning Fortive common stock?

Yes. Ownership of Fortive common stock is subject to both general and specific risks, including those relating to Fortive’s businesses, the industries in which it operates, its ongoing contractual relationships with New Danaher and its status as a separate, publicly traded company. Ownership of Fortive common stock is also subject to risks relating to the separation. These risks are described in the “Risk Factors” section of this information statement beginning on page 11. You are encouraged to read that section carefully.

 

Does Fortive plan to pay dividends?

Fortive has not yet determined the extent to which it will pay dividends on its common stock. The declaration and payment of any dividends by Fortive will be subject to the sole discretion of its board of directors and will depend upon many factors. See “Dividend Policy.”

 

Will Fortive incur any indebtedness prior to
or at the time of the distribution?

Yes. Prior to the separation and distribution, Fortive expects it will issue senior unsecured notes in multiple tranches with terms and maturities to be determined, enter into a credit agreement with a syndicate of banks providing for a three-year $500 million senior Term Loan Facility (the Term Loan Facility) and a five-year $1.5 billion senior Revolving Credit Facility (the Revolving Credit Facility and together with the Term Loan Facility, the Senior Credit Facilities), and issue commercial paper supported by the Revolving Credit Facility. Fortive expects these financing activities to yield proceeds of approximately $3.25 billion, of which approximately $3.0 billion will be paid to Danaher as consideration for the contribution of assets to Fortive by Danaher in connection with the separation. Negotiation of the agreements underlying the notes and the facilities described hereunder is ongoing and subject to the completion of definitive documentation. See “Description of Material Indebtedness” and “Risk Factors—Risks Related to Fortive’s Businesses.”

 

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Who will be the distribution agent, transfer agent, registrar and information agent for the Fortive common stock?

The distribution agent, transfer agent and registrar for the Fortive common stock will be Computershare. For questions relating to the transfer or mechanics of the stock distribution, you should contact:

 

  Computershare Trust Company, N.A.

P.O. Box 43010

 

  Providence, RI 02940-3010

 

  United States

 

  888-909-9922

 

  If your shares are held by a bank, broker or other nominee, you may call the information agent for the distribution, Computershare, toll-free at 888-909-9922.

 

Where can I find more information about Danaher and Fortive ?

Before the distribution, if you have any questions relating to Danaher’s business performance, you should contact:

 

  Danaher Corporation

 

  2200 Pennsylvania Ave. N.W., Suite 800W

 

  Washington, D.C., 20037-1701

 

  Attention: Investor Relations

 

  After the distribution, Fortive shareholders who have any questions relating to Fortive’s business performance should contact Fortive at:

 

  Fortive Corporation

 

  6920 Seaway Blvd
  Everett, WA 98203
  Attention: Investor Relations
 

 

  Fortive’s investor website will be operational at or prior to the separation.

 

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INFORMATION STATEMENT SUMMARY

The following is a summary of material information discussed in this information statement. This summary may not contain all of the details concerning the separation or other information that may be important to you. To better understand the separation and Fortive’s businesses and financial position, you should carefully review this entire information statement.

This information statement describes the industrial growth businesses of Danaher to be transferred to Fortive by Danaher in the separation as if the transferred businesses were Fortive’s businesses for all historical periods described. References in this information statement to Fortive’s historical assets, liabilities, products, businesses or activities of Fortive’s businesses are generally intended to refer to the historical assets, liabilities, products, businesses or activities of the industrial growth businesses as part of Danaher and its subsidiaries prior to the separation.

The Company

Fortive is a diversified industrial growth company comprising businesses that are recognized leaders in attractive markets globally. We operate businesses that design, develop, manufacture, service 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 40 countries across North America, Asia Pacific, Europe and Latin America.

We strive to create shareholder value through consistent and sustainable earnings growth, driven by continuous improvement in the operating performance of our existing businesses and acquisitions of other businesses that strategically fit within our existing business portfolio or expand our portfolio into new and attractive markets.

To accomplish these goals, we use a set of growth, lean and leadership tools and processes, which today are known as the DANAHER BUSINESS SYSTEM (“DBS”), designed to continuously improve business performance in the critical areas of quality, delivery, cost, growth and innovation. Within the DBS framework, we pursue a number of ongoing strategic initiatives relating to idea generation, product development and commercialization, global sourcing of materials and services, manufacturing improvement and sales and marketing. DBS has a long and deep history within our businesses, many of which originated fundamental DBS tools and have driven results through DBS for decades. Following our separation from Danaher, our rights to the DBS tools and processes will continue pursuant to the DBS license agreement described under “Certain Relationships and Related Person Transactions—DBS License Agreement,” and we will continue using and developing these tools and processes under the name “Fortive Business System,” or “FBS.”

Our 2015 sales by geographic destination (geographic destination refers to the geographic area where the final sale to the Company’s customer is made) were: North America, 58% (including 55% in the United States); Europe, 18%; Asia Pacific, 18%, and all other regions, 6%. For additional information regarding sales by geography, please refer to Note 16 to the Combined Financial Statements included in this information statement.

Our industrial growth businesses have historically been operated as Danaher’s Test & Measurement segment, Industrial Technologies segment (other than its Product Identification platform) and Retail/Commercial Petroleum platform. Today, our businesses are organized in two segments: Professional Instrumentation and Industrial Technologies.

 

   

Professional Instrumentation. Our Professional Instrumentation segment consists of our Advanced Instrumentation & Solutions and Sensing Technologies businesses. Fortive’s Advanced Instrumentation & Solutions business was primarily established through Danaher’s acquisitions of

 



 

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Qualitrol in the 1980’s, Fluke Corporation in 1998, Tektronix in 2007, Keithley Instruments in 2010 and numerous bolt-on acquisitions. Our Sensing Technologies business originated with Danaher’s acquisition of Chicago Pneumatic in the 1980’s and Gems Sensors in 1997.

 

    Industrial Technologies. Our Industrial Technologies segment consists of our Transportation Technologies, Automation & Specialty Components and Franchise Distribution businesses. Fortive’s Transportation Technologies business originated with Danaher’s acquisitions of Veeder-Root in the 1980’s and subsequently expanded through additional acquisitions, including the acquisitions of Gilbarco in 2002, Navman Wireless in 2012, Teletrac in 2013 and numerous bolt-on acquisitions. Fortive’s Automation & Specialty Components business was primarily established through Danaher’s acquisitions of Pacific Scientific Company in 1998, Kollmorgen Corporation in 2000 and Thomson Industries in 2002, as well as numerous other acquisitions. Fortive’s Franchise Distribution business was established through Danaher’s acquisitions of Matco Tools and Hennessy Industries in the 1980’s.

Fortive’s headquarters are located at 6920 Seaway Blvd, Everett, WA 98203, and its telephone number is (425) 446-5000.

Strategy

Our strategy is to maximize shareholder value through several key initiatives:

 

    Build Sustainable Competitive Advantage Through Innovation That Our Customers Value. Our businesses typically hold leadership positions in their served markets, which are generally characterized by significant growth and profitability potential. In the markets we serve, our businesses strive to drive organic growth by prioritizing the voice of our customers in everything we do. Over time, our focus on customers’ needs has enabled us to innovate effectively in markets where competitive leadership can be attained and, over long periods, sustained. Innovation and product vitality are key factors in maintaining our market leadership positions. In many end markets, we are leading the evolution of solutions to more software-driven products and business models, where our long history of reliability and strong brands position our operating businesses at the key points of customer workflows.

 

    Leverage and Expand Our Global Business Presence. Approximately 45% of our revenues are generated outside the United States, and we have significant operations around the world in key geographic markets. This reach has facilitated our entry into new markets, as we can harness existing sales channels, familiarity with local customer needs and regulations and the experience of our locally-based management resources. We expect to continue to prioritize development of localized solutions for high-growth markets around the world, with a strong local manufacturing and product development capability. We intend to continue to pursue acquisitions of businesses that complement our strategy in specific markets or regions.

 

    Attract and Retain Talented Associates. We believe that our team of talented associates, united by a common culture employing DBS in pursuit of continuous improvement, provides us a significant competitive advantage. We seek to continue to attract, develop and retain world-class leaders and associates globally and to drive their engagement with our customer-centric approach. We will continue to closely align individual incentives to the objectives of the Company and its shareholders.

 

    Drive Continuous Improvement Through Application of DBS. All of our businesses and associates use DBS to drive continuous improvement, measured by metrics such as quality, delivery, cost, growth and innovation. Through consistent application of DBS tools and principles, we have been able to drive industry-leading customer satisfaction and profitability in businesses that have been in our portfolio for years and significant improvement in growth and operating margins in businesses that we acquire. DBS extends well beyond lean concepts, to include methods for driving growth and innovation demanded in our markets.

 



 

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    Redeploy Our Free Cash Flow to Grow and Improve Our Businesses. We intend to continue to re-invest the substantial free cash flow generated by our existing businesses to drive innovation for organic growth and to acquire businesses that fit strategically or extend our portfolio into new and attractive markets. We believe that our management team has developed considerable skill in identifying, acquiring and integrating new businesses. Our track record of disciplined success in targeting and effectively integrating acquisitions is an important aspect of our growth strategy.

Strengths

We believe the Company has significant competitive strengths, including:

 

    Leading Brands in Attractive Markets. Many of our operating companies have been leaders in their respective markets for decades and have built brand recognition and share positions that exceed that of many competitors.

 

    Global Presence and Reach. We operate globally, with diverse sales channels, manufacturing operations and product development that enable us to competitively address local requirements. We have experienced management teams based in key markets around the world and a strong local presence in high-growth markets.

 

    Best-in-Class Operating System. Our portfolio includes operating businesses that originated fundamental DBS tools and have practiced DBS for decades. We believe that our ability to continually improve quality, delivery, cost, growth and innovation improve customer satisfaction and offer significant competitive advantage.

 

    Experienced Management Team. Our management team predominantly consists of long-tenured leaders from Danaher who have a proven track record of success. The Company’s senior management has extensive industry experience and many years of service with Danaher.

Risks Associated with the Businesses and the Separation and Distribution

An investment in Fortive’s common stock is subject to a number of risks, including risks relating to the separation and distribution. The following list of risk factors is not exhaustive. Please read the information in the section entitled “Risk Factors” for a more thorough description of these and other risks.

Risks Related to Fortive’s Businesses

 

    Conditions in the global economy, the markets Fortive serves and the financial markets may adversely affect Fortive’s business and financial statements.

 

    Fortive’s growth could suffer if the markets into which Fortive sells its products and services decline, do not grow as anticipated or experience cyclicality.

 

    Fortive faces intense competition and if Fortive is unable to compete effectively, Fortive may experience decreased demand and decreased market share. Even if Fortive competes effectively, Fortive may be required to reduce prices for its products and services.

 

    Fortive’s growth depends in part on the timely development and commercialization, and customer acceptance, of new and enhanced products and services based on technological innovation.

 

    Fortive’s reputation, ability to do business and financial statements may be impaired by improper conduct by any of Fortive’s employees, agents or business partners.

 



 

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    Any inability to consummate acquisitions at Fortive’s historical rate and at appropriate prices could negatively impact Fortive’s growth rate and stock price.

 

    Fortive’s acquisition of businesses, joint ventures and strategic relationships could negatively impact Fortive’s financial statements.

 

    The indemnification provisions of acquisition agreements by which Fortive has acquired companies may not fully protect Fortive and as a result Fortive may face unexpected liabilities.

 

    Divestitures or other dispositions could negatively impact Fortive’s business, and contingent liabilities from businesses that Fortive has sold could adversely affect Fortive’s financial statements.

 

    Fortive’s operations, products and services expose Fortive to the risk of environmental, health and safety liabilities, costs and violations that could adversely affect Fortive’s reputation and financial statements.

 

    Fortive’s businesses are subject to extensive regulation; failure to comply with those regulations could adversely affect Fortive’s financial statements and reputation.

 

    Fortive may be required to recognize impairment charges for our goodwill and other intangible assets.

 

    Foreign currency exchange rates may adversely affect Fortive’s financial statements.

 

    Changes in Fortive’s tax rates or exposure to additional income tax liabilities or assessments could affect Fortive’s profitability. In addition, audits by tax authorities could result in additional tax payments for prior periods.

 

    Fortive is subject to a variety of litigation and other legal and regulatory proceedings in the course of its business that could adversely affect its financial statements.

 

    If Fortive does not or cannot adequately protect its intellectual property, or if third parties infringe its intellectual property rights, it may suffer competitive injury or expend significant resources enforcing its rights.

 

    Third parties may claim that Fortive is infringing or misappropriating their intellectual property rights and it could suffer significant litigation expenses, losses or licensing expenses or be prevented from selling products or services.

 

    Defects and unanticipated use or inadequate disclosure with respect to Fortive’s products (including software) or services could adversely affect its business, reputation and financial statements.

 

    Adverse changes in Fortive’s relationships with, or the financial condition, performance, purchasing patterns or inventory levels of, key distributors and other channel partners could adversely affect its financial statements.

 

    Fortive’s financial results are subject to fluctuations in the cost and availability of commodities that it uses in its operations.

 

    If Fortive cannot adjust Fortive’s manufacturing capacity or the purchases required for Fortive’s manufacturing activities to reflect changes in market conditions and customer demand, Fortive’s profitability may suffer. In addition, Fortive’s reliance upon sole or limited sources of supply for certain materials, components and services could cause production interruptions, delays and inefficiencies.

 

    Fortive’s restructuring actions could have long-term adverse effects on our business.

 

    Changes in governmental regulations may reduce demand for Fortive’s products or services or increase Fortive’s expenses.

 



 

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    Work stoppages, union and works council campaigns and other labor disputes could adversely impact Fortive’s productivity and results of operations.

 

    International economic, political, legal, compliance and business factors could negatively affect Fortive’s financial statements.

 

    If Fortive suffers loss to Fortive’s facilities, supply chains, distribution systems or information technology systems due to catastrophe or other events, Fortive’s operations could be seriously harmed.

 

    A significant disruption in, or breach in security of, Fortive’s information technology systems could adversely affect its business.

Risks Related to the Separation

 

    Fortive has no history operating as an independent company, and its historical and pro forma financial information is not necessarily representative of the results that it would have achieved as a separate, publicly traded company and may not be a reliable indicator of its future results.

 

    As an independent, publicly traded company, Fortive may not enjoy the same benefits that Fortive did as a part of Danaher.

 

    Fortive’s customers, prospective customers, suppliers or other companies with whom Fortive conducts business may need assurances that Fortive’s financial stability on a stand-alone basis is sufficient to satisfy their requirements for doing or continuing to do business with them.

 

    Potential indemnification liabilities to Danaher pursuant to the separation agreement (as defined below) could materially and adversely affect Fortive’s businesses, financial condition, results of operations and cash flows.

 

    In connection with Fortive’s separation from Danaher, Danaher will indemnify Fortive for certain liabilities. However, there can be no assurance that the indemnity will be sufficient to insure Fortive against the full amount of such liabilities, or that Danaher’s ability to satisfy its indemnification obligation will not be impaired in the future.

 

    There could be significant liability if the separation and distribution fail to qualify as a tax-free transaction for U.S. federal income tax purposes.

 

    Fortive may not be able to engage in certain corporate transactions for a two-year period after the separation.

 

    After the separation, certain of Fortive’s executive officers and directors may have actual or potential conflicts of interest because of their equity interest in Danaher.

 

    Until the separation occurs, Danaher has sole discretion to change the terms of the separation in ways that may be unfavorable to Fortive.

 

    Fortive may not achieve some or all of the expected benefits of the separation, and the separation may adversely affect Fortive’s businesses.

 

    Fortive may have received better terms from unaffiliated third parties than the terms it will receive in its agreements with Danaher.

 

    Fortive or Danaher may fail to perform under various transaction agreements that will be executed as part of the separation or Fortive may fail to have necessary systems and services in place when certain of the transaction agreements expire.

 

    Challenges in the commercial and credit environment may materially adversely affect Fortive’s ability to complete the separation.

 



 

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    After Fortive’s separation from Danaher, Fortive will have debt obligations that could adversely affect its businesses and its ability to meet its obligations and pay dividends.

 

    Potential liabilities may arise due to fraudulent transfer considerations, which would adversely affect Fortive’s financial condition and its results of operations.

Risks Related to Fortive’s Common Stock

 

    Fortive cannot be certain that an active trading market for its common stock will develop or be sustained after the separation and, following the separation, Fortive’s stock price may fluctuate significantly.

 

    A number of shares of Fortive common stock are or will be eligible for future sale, which may cause Fortive’s stock price to decline.

 

    Fortive cannot guarantee the payment of dividends on its common stock, or the timing or amount of any such dividends.

 

    Your percentage ownership in Fortive may be diluted in the future.

 

    Certain provisions in Fortive’s amended and restated certificate of incorporation and bylaws, and of Delaware law, may prevent or delay an acquisition of Fortive, which could decrease the trading price of Fortive’s common stock.

 

    Fortive’s amended and restated certificate of incorporation will designate 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 Fortive’s shareholders, which could discourage lawsuits against Fortive and Fortive’s directors and officers.

The Separation and Distribution

On May 13, 2015, Danaher announced its intention to separate its industrial growth businesses from the remainder of its businesses, including its Life Sciences & Diagnostics (including Pall Corporation) and Dental segments and Water Quality and Product Identification platforms.

It is expected that the Danaher board of directors will approve the distribution of all of Fortive’s issued and outstanding shares of common stock on the basis of one share of Fortive common stock for every two shares of Danaher common stock held as of the close of business on June 15, 2016, the record date for the distribution.

Fortive’s Post-Separation Relationship with Danaher

Fortive will enter into a separation and distribution agreement with Danaher, which is referred to in this information statement as the “separation agreement.” In connection with the separation, Fortive will also enter into various other agreements to effect the separation and provide a framework for its relationship with New Danaher after the separation, including a transition services agreement, an employee matters agreement, a tax matters agreement, an intellectual property matters agreement and a DBS license agreement. These agreements provide for the allocation between Fortive and Danaher of Danaher’s assets, employees, liabilities and obligations (including its investments, property and employee benefits and tax-related assets and liabilities) attributable to periods prior to, at and after Fortive’s separation from Danaher and will govern certain relationships between Fortive and New Danaher after the separation. For additional information regarding the separation agreement and other transaction agreements, see the sections entitled “Risk Factors—Risks Related to the Separation” and “Certain Relationships and Related Person Transactions.”

 



 

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Reasons for the Separation

The Danaher board of directors believes that separating its industrial growth businesses from the remainder of Danaher is in the best interests of Danaher and its shareholders for the following reasons:

 

    the separation will allow Fortive and Danaher to more effectively pursue their distinct operating priorities and strategies and enable management of both companies to focus on unique opportunities for long-term growth and profitability. For example, while Fortive’s management will be enabled to focus exclusively on its businesses, the management of Danaher will be able to grow its businesses. The separate management teams of Fortive and Danaher will also be able to focus on executing the companies’ differing strategic plans without diverting attention from the other businesses;

 

    the separation will permit each company to concentrate its financial resources solely on its own operations without having to compete with each other for investment capital. This will provide each company with greater flexibility to invest capital in its businesses in a time and manner appropriate for its distinct strategy and business needs;

 

    the separation will allow investors to separately value Danaher and Fortive based on their distinct investment identities. Fortive’s businesses differ from Danaher’s other businesses in several respects, such as the markets for products, manufacturing processes and R&D capabilities. The separation will enable investors to evaluate the merits, performance and future prospects of each company’s respective businesses and to invest in each company separately based on their distinct characteristics;

 

    the separation will create an independent equity structure that will afford Fortive direct access to the capital markets and facilitate Fortive’s ability to capitalize on its unique growth opportunities and effect future acquisitions utilizing its common stock; and

 

    the separation will facilitate incentive compensation arrangements for employees more directly tied to the performance of the relevant company’s businesses, and may enhance employee hiring and retention by, among other things, improving the alignment of management and employee incentives with performance and growth objectives.

With respect to the Danaher board of directors’ decision to pursue the separation, the then-pending acquisition of Pall Corporation, announced on May 13, 2015, provided an opportunity to drive even greater shareholder value going forward as two separate public companies and further supported the Danaher board of directors’ determination to pursue the separation. While all of the bullets above are considered to be benefits to Fortive, only the first, second, third and fifth bullets above are considered to be benefits to New Danaher.

Neither Fortive nor Danaher can assure you that, following the separation, any of the benefits described above or otherwise will be realized to the extent anticipated or at all.

The Danaher board of directors also considered the following potentially negative factors in evaluating the separation:

 

    As a current part of Danaher, the industrial growth businesses that will become part of Fortive benefit from Danaher’s size and purchasing power in procuring certain goods and services. After the separation, as a separate, independent entity, Fortive may be unable to obtain these goods, services and technologies at prices or on terms as favorable as those Danaher obtained prior to the separation. Fortive may also incur costs for certain functions previously performed by Danaher, such as accounting, tax, legal, human resources and other general administrative functions that are higher than the amounts reflected in Fortive’s historical financial statements, which could cause Fortive’s profitability to decrease.

 

    The actions required to separate Fortive’s and Danaher’s respective businesses could disrupt Fortive’s and New Danaher’s operations.

 



 

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    Certain costs and liabilities that were otherwise less significant to Danaher as a whole will be more significant for Fortive and New Danaher as stand-alone companies.

 

    Fortive will incur costs in connection with the transition to being a stand-alone public company that may include accounting, tax, legal and other professional services costs, recruiting and relocation costs associated with hiring or reassigning Fortive personnel, costs related to establishing a new brand identity in the marketplace and costs to separate information systems.

 

    Fortive may not achieve the anticipated benefits of the separation for a variety of reasons, including, among others: (i) the separation will require significant amounts of management’s time and effort, which may divert management’s attention from operating and growing Fortive’s businesses; (ii) following the separation, Fortive may be more susceptible to market fluctuations and other adverse events than if it were still a part of Danaher; and (iii) following the separation, Fortive’s businesses will be less diversified than Danaher’s businesses prior to the separation.

 

    To preserve the tax-free treatment for U.S. federal income tax purposes to Danaher of the separation and the distribution, under the tax matters agreement that Fortive will enter into with Danaher, Fortive will be restricted from taking any action that prevents the separation and distribution from being tax-free for U.S. federal income tax purposes. These restrictions may limit Fortive’s ability to pursue certain strategic transactions or engage in other transactions that might increase the value of its businesses.

While all of the bullets above are considered to be potentially negative factors to Fortive, only the second and third bullets above are considered to be potentially negative factors to Danaher.

The Danaher board of directors concluded that the potential benefits of the separation outweighed these factors. For more information, see the sections entitled “The Separation and Distribution—Reasons for the Separation” and “Risk Factors.”

Description of Indebtedness

Prior to the separation and distribution, Fortive expects it will issue senior unsecured notes in multiple tranches with terms and maturities to be determined, enter into a credit agreement with a syndicate of banks providing for a three-year $500 million senior Term Loan Facility (the Term Loan Facility) and a five-year $1.5 billion senior Revolving Credit Facility (the Revolving Credit Facility and together with the Term Loan Facility, the Senior Credit Facilities), and issue commercial paper supported by the Revolving Credit Facility. Fortive expects these financing activities to yield proceeds of approximately $3.25 billion, of which approximately $3.0 billion will be paid to Danaher as consideration for the contribution of assets to Fortive by Danaher in connection with the separation. Negotiation of the agreements underlying the notes and the facilities described hereunder is ongoing and subject to the completion of definitive documentation. Fortive cannot assure you that the terms described below will not change or be supplemented.

In connection with the incurrence of Fortive’s indebtedness, Fortive expects it will be subject to terms customary for senior unsecured notes of this type, including customary events of default and affirmative and negative covenants relating to debt incurrence, liens, and mergers or sales of all or substantially all of Fortive’s assets. Additionally, Fortive expects the Senior Credit Facilities to bear interest at a rate equal to an adjusted base rate or LIBOR, plus, in each case, an applicable margin. The applicable margin is expected to be based on Fortive’s published credit rating. Fortive expects that interest on borrowings and the commitment fee will generally be payable quarterly in arrears or at the end of the interest period if such interest period is shorter than three months. Additionally, Fortive expects to pay a quarterly commitment fee based on the unused portion of the Revolving Credit Facility which will be determined by Fortive’s credit rating. Further, Fortive expects the Revolving Credit Facility will contain a financial covenant requiring Fortive not to

 



 

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exceed a maximum total net leverage ratio and, unless certain investment grade ratings specified in the credit agreement are received, to maintain a minimum interest coverage ratio. In addition, the Senior Credit Facilities are expected to contain customary affirmative and negative covenants.

Fortive expects that the Term Loan Facility will be due at maturity. Fortive expects to be permitted to voluntarily prepay loans and/or reduce the commitment under the Senior Credit Facilities, in whole or in part, without penalty or premium subject to certain minimum amounts and increments and the payment of customary breakage costs. Fortive does not expect that mandatory prepayment will be required under the Revolving Credit Facility. See “Description of Material Indebtedness” and “Risk Factors—Risks Related to Fortive’s Businesses” for more information.

Corporate Information

Fortive was incorporated in Delaware for the purpose of holding Danaher’s industrial growth businesses in connection with the separation and distribution. Prior to the contribution of these businesses to Fortive, which is expected to occur prior to completion of the distribution, Fortive had no operations. The address of Fortive’s principal executive offices is 6920 Seaway Blvd, Everett, WA 98203. Fortive’s telephone number is (425) 446-5000.

Fortive intends to maintain an Internet site at www.fortive.com. Fortive’s website, and the information contained therein, or connected thereto, is not incorporated by reference into this information statement or the registration statement of which this information statement forms a part.

Reason for Furnishing This Information Statement

This information statement is being furnished solely to provide information to shareholders of Danaher who will receive shares of Fortive common stock in the distribution. It is not, and is not to be construed as, an inducement or encouragement to buy or sell any of Fortive’s securities. The information contained in this information statement is believed by Fortive to be accurate as of the date set forth on its cover. Changes may occur after that date and neither Danaher nor Fortive will update the information except in the normal course of their respective disclosure obligations and practices.

 



 

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SUMMARY HISTORICAL AND PRO FORMA COMBINED FINANCIAL DATA

The following summary financial data reflects the combined assets and results of operations of the Test & Measurement segment, Industrial Technologies segment (other than its Product Identification platform) and Retail/Commercial Petroleum platform of Danaher. The Company derived the summary historical combined statements of earnings data for the years ended December 31, 2015, December 31, 2014 and December 31, 2013, and the summary combined balance sheet data as of December 31, 2015 and December 31, 2014, as set forth below from its audited Annual Combined Financial statements, which are included in the “Index to Financial Statements” section of this information statement. The Company derived the summary pro forma combined statements of earnings data for the year ended December 31, 2015 and the summary pro forma combined balance sheet data as of December 31, 2015 from its Unaudited Combined Pro Forma Financial Statements included in the “Unaudited Pro Forma Combined Financial Statements” section of this information statement. The Company derived the summary historical combined condensed statements of earnings data for the three months ended April 1, 2016 and April 3, 2015 and the combined condensed balance sheet data as of April 1, 2016 from its Interim Unaudited Combined Condensed Financial Statements which are included in the “Index to Financial Statements” section of this information statement. The Company derived the summary pro forma combined condensed statement of earnings data for the three months ended April 1, 2016 and the summary pro forma combined balance sheet data as of April 1, 2016 from its Unaudited Interim Combined Condensed Pro Forma Financial Statements included in the “Unaudited Pro Forma Combined Financial Statements” section of this information statement. The Company derived the summary combined balance sheet data as of December 31, 2013, from the Company’s audited Annual Combined Financial Statements which are not included in this information statement. The historical results have been derived from Danaher’s historical accounting records and are presented on a carve-out basis and may not necessarily reflect the Company’s results of operations, financial position and cash flows for future periods or what they would have been had the Company been a separate, stand-alone company during the periods presented. To ensure a full understanding of this summary financial data, the information presented below should be reviewed in combination with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“MD&A”) and the Combined Financial Statements and accompanying notes thereto included in this information statement.

The summary unaudited pro forma combined financial data presented has been prepared to reflect the separation. The unaudited pro forma combined condensed statement of earnings data presented reflects the financial results as if the separation occurred on January 1, 2015, which was the first day of fiscal 2015. The unaudited pro forma combined balance sheet data reflects the financial position as if the separation occurred on April 1, 2016. The assumptions used and pro forma adjustments derived from such assumptions are based on currently available information.

The unaudited pro forma combined condensed financial statements are not necessarily indicative of the Company’s results of operations or financial condition had the distribution and its anticipated post-separation capital structure been completed on the dates assumed. Also, they may not reflect the results of operations or financial condition that would have resulted had the Company been operating as an independent, publicly traded company during such periods. In addition, they are not necessarily indicative of its future results of operations, financial position or cash flows.

 



 

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This summary historical and pro forma combined financial data should be reviewed in combination with “Unaudited Pro Forma Combined Financial Statements,” “Capitalization,” “Selected Historical Combined Financial Data,” MD&A and the Combined Financial Statements and accompanying notes included in this information statement ($ in millions, except per share amounts).

 

     As of and for the Three Months Ended      As of and for the Year Ended December 31  
     Pro Forma
April 1, 2016
     April 1,
2016
     April 3,
2015
     Pro Forma
2015
     2015      2014      2013  
     (unaudited)      (unaudited)      (unaudited)      (unaudited)                       

Selected Statement of Earnings Information:

                    

Sales

   $ 1,465.7       $ 1,474.7       $ 1,513.5       $ 6,143.3       $ 6,178.8       $ 6,337.2       $ 5,961.9   

Earnings before income taxes

     240.1         263.0         294.1         1,176.7         1,269.7         1,279.2         1,143.2   

Net earnings

     167.7         182.0         203.7         805.7         863.8         883.4         830.9   

Net earnings per share:

                    

Basic

   $ 0.49         N/A         N/A       $ 2.31         N/A         N/A         N/A   

Diluted

   $ 0.48         N/A         N/A       $ 2.28         N/A         N/A         N/A   

Selected Balance Sheet Information:

                    

Total assets

   $ 7,600.3       $ 7,212.6         N/A       $ 7,597.7       $ 7,210.6       $ 7,355.6       $ 7,240.1   

 



 

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RISK FACTORS

You should carefully consider the risks and uncertainties described below, together with the information included elsewhere in this information statement. 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, geopolitical events, changes in laws or accounting rules, fluctuations in interest rates, terrorism, wars or conflicts, major health concerns, natural disasters or other disruptions of expected economic or 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 Fortive’s Businesses

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, volatility in the currency and credit markets, high levels of unemployment, reduced levels of capital expenditures, changes in government fiscal and monetary policies, government deficit reduction and budget negotiation dynamics, sequestration, other austerity measures and other challenges that affect the global economy adversely affect the Company and its distributors, customers and suppliers, including having the effect of:

 

    reducing demand for our products (in this information statement, references to products also includes 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.

There can be no assurances that the capital markets will be available to us or that the lenders participating in any credit facilities we may enter into will be able to provide financing in accordance with their contractual obligations.

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 or if improvements in the global economy don’t benefit the markets we serve, our business and financial statements could be adversely affected.

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

 

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services, which would 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.

Our businesses operate in industries that are intensely competitive and have been subject to increasing 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 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.

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.

 

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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-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 U.S. 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.

Any inability to consummate acquisitions at our historical 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 historic 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 similar to the past, 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 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 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;

 

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    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. 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. 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. 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, spin-off, split-off 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 the Company’s 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. We cannot assure

 

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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.

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 14 to the Combined Financial Statements included in this information statement. 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. However, based on the information we currently have we do not believe that it is reasonably possible that any amounts we may be required to pay in connection with environmental matters in excess of our reserves as of the date of this information statement will have a material effect on our financial statements.

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; and

 

    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 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.

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

 

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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 to 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.”

We may be required to recognize impairment charges for our goodwill and other intangible assets.

As of December 31, 2015, the net carrying value of our goodwill and other intangible assets totaled approximately $4.7 billion. In accordance with generally accepted accounting principles, 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.

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 may invoice customers in a currency other than the business’ functional currency, and movements in the invoiced currency relative to the functional currency could also result in unfavorable translation effects. The Company also faces exchange rate risk from its investments in subsidiaries owned and operated in foreign countries.

Changes in our tax rates or exposure to additional income tax liabilities or assessments could affect our profitability. In addition, audits by tax authorities could result in additional tax payments for prior periods.

We are subject to income taxes in the U.S. and in various non-U.S. jurisdictions. Please see MD&A for a discussion of the factors that may adversely affect our effective tax rate and decrease our profitability in any period. The impact of these factors may be substantially different from period to period. 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 re-invested under existing accounting standards, it could also increase our effective tax rate. In addition, any significant change to the tax system in the U.S. or in other jurisdictions, including changes in the taxation of international income, could adversely affect our financial statements.

 

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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, tax matters, commercial disputes, 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, 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 previously not susceptible of reasonable estimates 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. However, based on our experience, current information and applicable law, we do not believe that any amounts we may be required to pay in connection with litigation and other legal and regulatory proceedings in excess of our reserves as of the date of this information statement will have a material effect on our financial statements.

If we do not or cannot adequately protect our intellectual property, or if third parties infringe our intellectual property rights, we may suffer competitive injury or expend significant resources enforcing our rights.

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 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

 

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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.

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 or “bugs” in, unanticipated use of, safety or quality issues (or the perception of such issues) with respect to, or inadequate disclosure of risks relating to the use of products and services that we make or sell (including items that we source from third parties) can lead to personal injury, death, property damage or other liability. These events could lead to recalls or safety alerts, result in the removal of a product or service from the market and result in product liability or similar claims being brought against us. Recalls, 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.

Our financial results are subject to fluctuations in the cost and availability of commodities 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 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 prices rise we may be unable to pass along cost increases through higher prices. If we are unable to fully recover higher commodity 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.

 

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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 or uniqueness of design. If these or other suppliers encounter financial, operating or other difficulties or if our relationship with them changes, 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, 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.

Changes in 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. We develop, configure and market our products and services to meet customer needs created by these regulations. These regulations are complex, change frequently, have tended to become more stringent over time and may be inconsistent across jurisdictions. Any significant change in any of these regulations (or in the interpretation or application thereof) could reduce demand for, 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

 

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introduction of new regulations. In these markets, the delay or failure of governmental and other entities to adopt or enforce new regulations, or the adoption of new regulations which our products and services are not positioned to address, could adversely affect demand. In addition, regulatory deadlines may result in substantially different levels of demand for our products and services from period to period.

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.

International economic, political, legal, compliance and business factors could negatively affect our financial statements.

In 2015, approximately 45% of our sales were derived from customers outside the U.S. In addition, many of our manufacturing operations, suppliers and employees are located outside the U.S. Since our growth strategy depends in part on our ability to further penetrate markets outside the U.S. and increase the localization of our products and services, we expect to continue to increase our sales and presence outside the U.S., particularly in the high-growth markets. Our international business (and particularly our business in high-growth markets) is subject to risks that are customarily encountered in non-U.S. operations, including:

 

    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;

 

    trade protection measures, embargoes and import or export restrictions and requirements;

 

    unexpected changes in laws or regulatory requirements, including negative changes in tax laws;

 

    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.

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.

 

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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, 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, 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 attacks 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.

Risks Related to the Separation

Fortive has no history of operating as an independent company, and Fortive’s historical and pro forma financial information is not necessarily representative of the results that it would have achieved as a separate, publicly traded company and may not be a reliable indicator of its future results.

The historical information about Fortive in this information statement refers to Fortive’s businesses as operated by and integrated with Danaher. Fortive’s historical and pro forma financial information included in this information statement is derived from the consolidated financial statements and accounting records of Danaher. Accordingly, the historical and pro forma financial information included in this information statement does not necessarily reflect the financial condition, results of operations or cash flows that Fortive would have achieved as a separate, publicly traded company during the periods presented or those that Fortive will achieve in the future primarily as a result of the factors described below:

 

    prior to the separation, Fortive’s businesses have been operated by Danaher as part of its broader corporate organization, rather than as an independent company. Danaher or one of its affiliates performed various corporate functions for Fortive such as legal, treasury, accounting, auditing, human resources, corporate affairs and finance. Fortive’s historical and pro forma financial results reflect allocations of corporate expenses from Danaher for such functions and are likely to be less than the expenses Fortive would have incurred had it operated as a separate publicly traded company. Following the separation, Fortive’s cost related to such functions previously performed by Danaher may therefore increase;

 

    currently, Fortive’s businesses are integrated with the other businesses of Danaher. Historically, Fortive has shared economies of scope and scale in costs, employees, vendor relationships and customer relationships. Although Fortive will enter into transition agreements with Danaher, these arrangements may not fully capture the benefits that Fortive has enjoyed as a result of being integrated with Danaher and may result in Fortive paying higher charges than in the past for these services. This could have an adverse effect on Fortive’s results of operations and financial condition following the completion of the separation;

 

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    generally, Fortive’s working capital requirements and capital for its general corporate purposes, including acquisitions and capital expenditures, have historically been satisfied as part of the corporate-wide cash management policies of Danaher. Following the completion of the separation, Fortive may need to obtain additional financing from banks, through public offerings or private placements of debt or equity securities, strategic relationships or other arrangements;

 

    after the completion of the separation, the cost of capital for Fortive’s businesses may be higher than Danaher’s cost of capital prior to the separation; and

 

    Fortive’s historical financial information does not reflect the debt or the associated interest expense that it will incur as part of the separation and distribution.

Other significant changes may occur in Fortive’s cost structure, management, financing and business operations as a result of operating as a company separate from Danaher. For additional information about the past financial performance of Fortive’s businesses and the basis of presentation of the historical combined financial statements and the unaudited pro forma combined financial statements of Fortive’s businesses, see “Unaudited Pro Forma Combined Financial Statements,” “Selected Historical Combined Financial Data,” MD&A and the historical financial statements and accompanying notes included elsewhere in this information statement.

As an independent, publicly traded company, Fortive may not enjoy the same benefits that Fortive did as a part of Danaher.

There is a risk that, by separating from Danaher, Fortive may become more susceptible to market fluctuations and other adverse events than we would have been if we were still a part of the current Danaher organizational structure. As part of Danaher, we have been able to enjoy certain benefits from Danaher’s operating diversity, purchasing power and opportunities to pursue integrated strategies with Danaher’s other businesses. As an independent, publicly traded company, Fortive will not have similar diversity or integration opportunities and may not have similar purchasing power or access to capital markets. Additionally, as part of Danaher, we have been able to leverage the Danaher historical market reputation and performance and brand identity to recruit and retain key personnel to run our business. As an independent, publicly traded company, Fortive will not have the same historical market reputation and performance or brand identity as Danaher and it may be more difficult for us to recruit or retain such key personnel.

Fortive’s customers, prospective customers, suppliers or other companies with whom Fortive conducts business may need assurances that Fortive’s financial stability on a stand-alone basis is sufficient to satisfy their requirements for doing or continuing to do business with them.

Some of Fortive’s customers, prospective customers, suppliers or other companies with whom we conduct business may need assurances that Fortive’s financial stability on a stand-alone basis is sufficient to satisfy their requirements for doing or continuing to do business with them, and may require Fortive to provide additional credit support, such as letters of credit or other financial guarantees. Any failure of parties to be satisfied with Fortive’s financial stability could have a material adverse effect on Fortive’s business, financial condition, results of operations and cash flows.

Potential indemnification liabilities to Danaher pursuant to the separation agreement could materially and adversely affect Fortive’s businesses, financial condition, results of operations and cash flows.

The separation agreement, among other things, provides for indemnification obligations (for uncapped amounts) designed to make Fortive financially responsible for substantially all liabilities that may exist relating to its business activities, whether incurred prior to or after the separation. If Fortive is required to indemnify Danaher under the circumstances set forth in the separation agreement, Fortive may be subject to substantial liabilities. See “Certain Relationships and Related Person Transactions—The Separation Agreement—Release of Claims and Indemnification.”

 

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In connection with Fortive’s separation from Danaher, Danaher will indemnify Fortive for certain liabilities. However, there can be no assurance that the indemnity will be sufficient to insure Fortive against the full amount of such liabilities, or that Danaher’s ability to satisfy its indemnification obligation will not be impaired in the future.

Pursuant to the separation agreement and certain other agreements with Danaher, Danaher will agree to indemnify Fortive for certain liabilities as discussed further in “Certain Relationships and Related Person Transactions.” However, third parties could also seek to hold Fortive responsible for any of the liabilities that Danaher has agreed to retain, and there can be no assurance that the indemnity from Danaher will be sufficient to protect Fortive against the full amount of such liabilities, or that Danaher will be able to fully satisfy its indemnification obligations. In addition, Danaher’s insurers may attempt to deny coverage to Fortive for liabilities associated with certain occurrences of indemnified liabilities prior to the separation. Moreover, even if Fortive ultimately succeeds in recovering from Danaher or such insurance providers any amounts for which Fortive is held liable, Fortive may be temporarily required to bear these losses. Each of these risks could negatively affect Fortive’s businesses, financial position, results of operations and cash flows.

There could be significant liability if the separation and distribution fail to qualify as a tax-free transaction for U.S. federal income tax purposes.

It is a condition to the distribution that Danaher receive an opinion of Skadden, Arps, Slate, Meagher & Flom LLP, tax counsel to Danaher, regarding the qualification of the distribution, together with certain related transactions, as a transaction that is tax-free to Danaher and Danaher’s shareholders, for U.S. federal income tax purposes, within the meaning of Sections 355(a) and 368(a)(1)(D) of the Code. The opinion relies on certain facts, assumptions, representations and undertakings from Danaher and Fortive, including those regarding the past and future conduct of the companies’ respective businesses and other matters. If any of these facts, assumptions, representations or undertakings are incorrect or not satisfied, Danaher may not be able to rely on the opinion, and Danaher and its shareholders could be subject to significant tax liabilities. Notwithstanding the opinion of tax counsel, the IRS could determine on audit that the distribution is taxable if it determines that any of these facts, assumptions, representations or undertakings are not correct or have been violated or if it disagrees with the conclusions in the opinion. For more information regarding the tax opinion, see “U.S. Federal Income Tax Considerations.”

If the distribution were determined to be taxable for U.S. federal income tax purposes, Danaher and its shareholders that are subject to U.S. federal income tax could incur significant U.S. federal income tax liabilities determined in the manner described in the section entitled “U.S. Federal Income Tax Considerations.” For example, if the distribution failed to qualify for tax-free treatment, Danaher would, for U.S. federal income tax purposes, be treated as if it had sold the Fortive common stock in a taxable sale for its fair market value, and Danaher’s shareholders, who are subject to U.S. federal income tax, would be treated as receiving a taxable distribution in an amount equal to the fair market value of the Fortive common stock received in the distribution.

Under the tax matters agreement between Danaher and Fortive, Fortive will generally be required to indemnify Danaher against taxes incurred by Danaher that arise as a result of Fortive taking or failing to take, as the case may be, certain actions that result in the distribution failing to meet the requirements of a tax-free distribution under Section 355 of the Code. Under the tax matters agreement between Danaher and Fortive, Fortive may also be required to indemnify Danaher for other contingent tax liabilities, which could materially adversely affect Fortive’s financial position. For a discussion of the tax matters agreement, see “Certain Relationships and Related Person Transactions—Tax Matters Agreement.”

Fortive may not be able to engage in certain corporate transactions for a two-year period after the separation.

To preserve the tax-free treatment for U.S. federal income tax purposes to Danaher of the separation and distribution, under the tax matters agreement that Fortive will enter into with Danaher, Fortive will be restricted from taking any action that prevents the separation and distribution from being tax-free for U.S. federal income

 

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tax purposes. Under the tax matters agreement, for the two-year period following the distribution, as described in the section entitled “Certain Relationships and Related Person Transactions—Tax Matters Agreement—Preservation of the Tax-Free Status of Certain Aspects of the Separation,” Fortive will be subject to specific restrictions on its ability to enter into acquisition, merger, liquidation, sale and stock redemption transactions with respect to its stock. These restrictions may limit Fortive’s ability to pursue certain strategic transactions or other transactions that it may believe to be in the best interests of its shareholders or that might increase the value of its business. These restrictions will not limit the acquisition of other businesses by Fortive for cash consideration. In addition, under the tax matters agreement, Fortive may be required to indemnify Danaher against any such tax liabilities as a result of the acquisition of Fortive’s stock or assets, even if it does not participate in or otherwise facilitate the acquisition. For more information, see “Certain Relationships and Related Person Transactions—Tax Matters Agreement.”

After the separation, certain of Fortive’s executive officers and directors may have actual or potential conflicts of interest because of their equity interest in Danaher.

Because of their current or former positions with Danaher, certain of Fortive’s expected executive officers and directors own equity interests in Danaher. In addition, certain of Fortive’s directors will continue serving on the New Danaher board of directors. Continuing ownership of shares of New Danaher common stock and equity awards, or service as a director at both companies could create, or appear to create, potential conflicts of interest if Fortive and New Danaher face decisions that could have implications for both New Danaher and Fortive.

Until the separation occurs, Danaher has sole discretion to change the terms of the separation in ways that may be unfavorable to Fortive.

Until the separation occurs, Fortive will be a wholly owned subsidiary of Danaher. Accordingly, Danaher will effectively have the sole and absolute discretion to determine and change the terms of the separation, including the establishment of the record date for the distribution and the distribution date. These changes could be unfavorable to Fortive. In addition, Danaher may decide at any time not to proceed with the separation and distribution.

Fortive may not achieve some or all of the expected benefits of the separation, and the separation may adversely affect Fortive’s businesses.

Fortive may not be able to achieve the full strategic and financial benefits expected to result from the separation, or such benefits may be delayed or not occur at all. The separation and distribution is expected to provide the following benefits, among others:

 

    the separation will allow investors to separately value Danaher and Fortive based on their distinct investment identities. Fortive’s businesses differ from Danaher’s other businesses in several respects, such as the market for products, manufacturing processes and R&D capabilities. The separation will enable investors to evaluate the merits, performance and future prospects of each company’s respective businesses and to invest in each company separately based on their distinct characteristics;

 

    the separation will allow Fortive and Danaher to more effectively pursue their distinct operating priorities and strategies and enable management of both companies to focus on unique opportunities for long-term growth and profitability. For example, while Fortive’s management will be enabled to focus exclusively on its businesses, the management of Danaher will be able to grow its businesses. The separate management teams of Fortive and Danaher will also be able to focus on executing the companies’ differing strategic plans without diverting attention from the other businesses;

 

    the separation will permit each company to concentrate its financial resources solely on its own operations without having to compete with each other for investment capital. This will provide each company with greater flexibility to invest capital in its businesses in a time and manner appropriate for its distinct strategy and business needs;

 

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    the separation will create an independent equity structure that will afford Fortive direct access to the capital markets and facilitate Fortive’s ability to capitalize on its unique growth opportunities and effect future acquisitions utilizing its common stock; and

 

    the separation will facilitate incentive compensation arrangements for employees more directly tied to the performance of the relevant company’s businesses, and may enhance employee hiring and retention by, among other things, improving the alignment of management and employee incentives with performance and growth objectives.

Fortive may not achieve these and other anticipated benefits for a variety of reasons, including, among others:

 

    as a current part of Danaher, the industrial growth businesses that will become part of Fortive benefit from Danaher’s size and purchasing power in procuring certain goods and services. After the separation, as a separate, independent entity, Fortive may be unable to obtain these goods, services and technologies at prices or on terms as favorable as those Danaher obtained prior to the separation. Fortive may also incur costs for certain functions previously performed by Danaher, such as accounting, tax, legal, human resources and other general administrative functions that are higher than the amounts reflected in Fortive’s historical financial statements, which could cause Fortive’s profitability to decrease;

 

    the actions required to separate Fortive’s and Danaher’s respective businesses could disrupt Fortive’s and New Danaher’s operations.

 

    certain costs and liabilities that were otherwise less significant to Danaher as a whole will be more significant for Fortive and New Danaher as stand-alone companies;

 

    Fortive will incur costs in connection with the transition to being a stand-alone public company that may include accounting, tax, legal and other professional services costs, recruiting and relocation costs associated with hiring or reassigning Fortive personnel, costs related to establishing a new brand identity in the marketplace and costs to separate information systems;

 

    Fortive may not achieve the anticipated benefits of the separation for a variety of reasons, including, among others: (i) the separation will require significant amounts of management’s time and effort, which may divert management’s attention from operating and growing Fortive’s businesses; (ii) following the separation, Fortive may be more susceptible to market fluctuations and other adverse events than if it were still a part of Danaher; and (iii) following the separation, Fortive’s businesses will be less diversified than Danaher’s businesses prior to the separation; and

 

    to preserve the tax-free treatment for U.S. federal income tax purposes to Danaher of the distribution, together with certain related transactions, under the tax matters agreement that Fortive will enter into with Danaher, Fortive will be restricted from taking any action that prevents such transactions from being tax-free for U.S. federal income tax purposes. These restrictions may limit Fortive’s ability to pursue certain strategic transactions or engage in other transactions that might increase the value of its businesses.

If Fortive fails to achieve some or all of the benefits expected to result from the separation, or if such benefits are delayed, the businesses, operating results and financial condition of Fortive could be adversely affected.

Fortive may have received better terms from unaffiliated third parties than the terms it will receive in its agreements with Danaher.

The agreements Fortive will enter into with Danaher in connection with the separation, including the separation agreement, transition services agreement, employee matters agreement, tax matters agreement, intellectual property matters agreement and DBS license agreement were prepared in the context of Fortive’s separation from Danaher while Fortive was still a wholly-owned subsidiary of Danaher. Accordingly, during the

 

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period in which the terms of those agreements were prepared, Fortive did not have an independent board of directors or a management team that was independent of Danaher. As a result, the terms of those agreements may not reflect terms that would have resulted from arm’s-length negotiations between unaffiliated third parties. Arm’s-length negotiations between Danaher and an unaffiliated third party in another form of transaction, such as a buyer in a sale of a business transaction, may have resulted in more favorable terms to the unaffiliated third party. For more information, see the section entitled “Certain Relationships and Related Person Transactions.”

Fortive or Danaher may fail to perform under various transaction agreements that will be executed as part of the separation or Fortive may fail to have necessary systems and services in place when certain of the transaction agreements expire.

The separation agreement and other agreements to be entered into in connection with the separation will determine the allocation of assets and liabilities between the companies following the separation for those respective areas and will include any necessary indemnifications related to liabilities and obligations. The transition services agreement will provide for the performance of certain services by each company for the benefit of the other for a period of time after the separation. Fortive will rely on New Danaher to satisfy its performance and payment obligations under these agreements. If New Danaher is unable to satisfy its obligations under these agreements, including its indemnification obligations, Fortive could incur operational difficulties or losses. If Fortive does not have in place its own systems and services, or if Fortive does not have agreements with other providers of these services once certain transaction agreements expire, Fortive may not be able to operate its businesses effectively and its profitability may decline. Fortive is in the process of creating its own, or engaging third parties to provide, systems and services to replace many of the systems and services that Danaher currently provides to Fortive. However, Fortive may not be successful in implementing these systems and services or in transitioning data from Danaher’s systems to Fortive’s.

Challenges in the commercial and credit environment may materially adversely affect Fortive’s and Danaher’s ability to complete the separation.

Fortive’s ability to issue debt or enter into other financing arrangements on acceptable terms could be materially adversely affected if there is a material decline in the demand for Fortive’s products or in the solvency of its customers or suppliers or if other significantly unfavorable changes in economic conditions occur. Volatility in the world financial markets could increase borrowing costs or affect Fortive’s ability to gain access to the capital markets, all of which could have a material adverse effect on Fortive’s or Danaher’s ability to complete the separation.

After Fortive’s separation from Danaher, Fortive will have debt obligations that could adversely affect its businesses and its ability to meet its obligations and pay dividends.

Immediately following the separation, Fortive expects to have approximately $3.25 billion of indebtedness. See “Description of Material Indebtedness.” Fortive may also incur additional indebtedness in the future. This significant amount of debt could have important, adverse consequences to Fortive and its investors, including:

 

    requiring a substantial portion of Fortive’s cash flow from operations to make interest payments;

 

    making it more difficult to satisfy other obligations;

 

    increasing the risk of a future credit ratings downgrade of Fortive’s debt, which could increase future debt costs and limit the future availability of debt financing;

 

    increasing Fortive’s vulnerability to general adverse economic and industry conditions;

 

    reducing the cash flow available to fund capital expenditures and other corporate purposes and to grow Fortive’s businesses;

 

    limiting Fortive’s flexibility in planning for, or reacting to, changes in its businesses and industries; and

 

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    limiting Fortive’s ability to borrow additional funds as needed or take advantage of business opportunities as they arise, pay cash dividends or repurchase common stock.

To the extent that Fortive incurs additional indebtedness, the risks described above could increase. In addition, Fortive’s actual cash requirements in the future may be greater than expected. Fortive’s cash flow from operations may not be sufficient to service its outstanding debt or to repay the outstanding debt as it becomes due, and Fortive may not be able to borrow money, sell assets or otherwise raise funds on acceptable terms, or at all, to service or refinance its debt.

Potential liabilities may arise due to fraudulent transfer considerations, which would adversely affect Fortive’s financial condition and its results of operations.

In connection with the separation and distribution, Danaher has undertaken and will undertake several corporate restructuring transactions which, along with the separation and distribution, may be subject to federal and state fraudulent conveyance and transfer laws. If, under these laws, a court were to determine that, at the time of the separation and distribution, any entity involved in these restructuring transactions or the separation and distribution:

 

    was insolvent;

 

    was rendered insolvent by reason of the separation and distribution;

 

    had remaining assets constituting unreasonably small capital; or

 

    intended to incur, or believed it would incur, debts beyond its ability to pay these debts as they matured,

then the court could void the separation and distribution, in whole or in part, as a fraudulent conveyance or transfer. The court could then require Fortive’s shareholders to return to Danaher some or all of the shares of Fortive common stock issued in the distribution, or require New Danaher or Fortive, as the case may be, to fund liabilities of the other company for the benefit of creditors. The measure of insolvency will vary depending upon the jurisdiction whose law is being applied. Generally, however, an entity would be considered insolvent if the fair value of its assets was less than the amount of its liabilities or if it incurred debt beyond its ability to repay the debt as it matures.

Risks Related to Fortive’s Common Stock

Fortive cannot be certain that an active trading market for its common stock will develop or be sustained after the separation, and following the separation, Fortive’s stock price may fluctuate significantly.

A public market for Fortive common stock does not currently exist. Fortive anticipates that on or prior to the record date for the distribution, trading of shares of its common stock will begin on a “when-issued” basis and will continue through the distribution date. However, Fortive cannot guarantee that an active trading market will develop or be sustained for its common stock after the separation. If an active trading market does not develop, you may have difficulty selling your shares of Fortive common stock at an attractive price, or at all. In addition, we cannot predict the prices at which shares of Fortive common stock may trade after the separation.

Similarly, Fortive cannot predict the effect of the separation on the trading prices of its common stock. After the separation, Danaher’s common stock will continue to be listed and traded on the NYSE under the symbol “DHR.” Subject to the consummation of the separation, Fortive expects the Fortive common stock to be listed and traded on the NYSE under the symbol “FTV.” The combined trading prices of Danaher’s common stock and Fortive’s common stock after the separation, as adjusted for any changes in the combined capitalization of these companies, may not be equal to or greater than the trading price of Danaher’s common stock prior to the separation. Until the market has fully evaluated the business of Danaher without the Fortive businesses, or fully evaluated Fortive, the price at which New Danaher’s or Fortive’s common stock trades may fluctuate significantly.

 

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The market price of Fortive common stock may fluctuate significantly due to a number of factors, some of which may be beyond Fortive’s control, including:

 

    Fortive’s business profile and market capitalization may not fit the investment objectives of Danaher’s current shareholders, causing a shift in Fortive’s investor base, and Fortive’s common stock may not be included in some indices in which Danaher’s common stock is included, causing certain holders to sell their shares;

 

    Fortive’s quarterly or annual earnings, or those of other companies in its industry;

 

    the failure of securities analysts to cover Fortive’s common stock after the separation;

 

    actual or anticipated fluctuations in Fortive’s operating results;

 

    changes in earnings estimated by securities analysts or Fortive’s ability to meet those estimates;

 

    the operating and stock price performance of other comparable companies;

 

    changes to the regulatory and legal environment in which Fortive operates;

 

    overall market fluctuations and domestic and worldwide economic conditions; and

 

    other factors described in these “Risk Factors” and elsewhere in this information statement.

Stock markets in general have experienced volatility that has often been unrelated to the operating performance of a particular company. These broad market fluctuations may adversely affect the trading price of Fortive’s common stock.

A number of shares of Fortive common stock are or will be eligible for future sale, which may cause Fortive’s stock price to decline.

Any sales of substantial amounts of Fortive common stock in the public market or the perception that such sales might occur, in connection with the distribution or otherwise, may cause the market price of Fortive common stock to decline. Upon completion of the distribution, Fortive expects that it will have an aggregate of approximately 345 million shares of its common stock issued and outstanding. These shares will be freely tradable without restriction or further registration under the U.S. Securities Act of 1933, as amended (“Securities Act”), unless the shares are owned by one or more of Fortive’s “affiliates,” as that term is defined in Rule 405 under the Securities Act. Fortive is unable to predict whether large amounts of its common stock will be sold in the open market following the distribution. Fortive is also unable to predict whether a sufficient number of buyers would be in the market at that time.

Fortive cannot guarantee the payment of dividends on its common stock, or the timing or amount of any such dividends.

Fortive has not yet determined the extent to which it will pay dividends on its common stock. The payment of any dividends in the future, and the timing and amount thereof, to Fortive shareholders will fall within the discretion of the Board. The Board’s decisions regarding the payment of dividends will depend on many factors, such as Fortive’s financial condition, earnings, capital requirements, debt service obligations, restrictive covenants in Fortive’s debt, industry practice, legal requirements and other factors that the Board deems relevant. For more information, see “Dividend Policy.” Fortive’s ability to pay dividends will depend on its ongoing ability to generate cash from operations and on its access to the capital markets. Fortive cannot guarantee that it will pay a dividend in the future or continue to pay any dividends if Fortive commences paying dividends.

Your percentage ownership in Fortive may be diluted in the future.

In the future, your percentage ownership in Fortive may be diluted because of equity issuances for acquisitions, capital market transactions or otherwise, including equity awards that Fortive will be granting to Fortive’s directors, officers and employees. Fortive’s employees will have rights to purchase or receive shares of

 

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Fortive common stock after the distribution as a result of the conversion of their Danaher stock options, restricted stock units and performance stock units to Fortive stock options, restricted stock units and performance stock units, respectively. The conversion of these Danaher awards into Fortive awards is described in further detail in the section entitled “Treatment of Outstanding Equity Awards at the Time of the Separation.” As of the date of this information statement, the exact number of shares of Fortive common stock that will be subject to the converted Fortive options, restricted stock units and performance stock units is not determinable, and, therefore, it is not possible to determine the extent to which your percentage ownership in Fortive could by diluted as a result of the conversion. It is anticipated that the Fortive compensation committee will grant additional equity awards to Fortive employees and directors after the distribution, from time to time, under Fortive’s employee benefits plans. These additional awards will have a dilutive effect on Fortive’s earnings per share, which could adversely affect the market price of Fortive’s common stock.

In addition, Fortive’s amended and restated certificate of incorporation will authorize Fortive to issue, without the approval of Fortive’s shareholders, one or more classes or series of preferred stock having such designation, powers, preferences and relative, participating, optional and other special rights, including preferences over Fortive’s common stock respecting dividends and distributions, as the Board generally may determine. The terms of one or more classes or series of preferred stock could dilute the voting power or reduce the value of Fortive’s common stock. For example, Fortive could grant the holders of preferred stock the right to elect some number of Fortive’s directors in all events or on the happening of specified events or the right to veto specified transactions. Similarly, the repurchase or redemption rights or liquidation preferences that Fortive could assign to holders of preferred stock could affect the residual value of the common stock. See “Description of Fortive’s Capital Stock.”

Certain provisions in Fortive’s amended and restated certificate of incorporation and bylaws, and of Delaware law, may prevent or delay an acquisition of Fortive, which could decrease the trading price of Fortive’s common stock.

Fortive’s amended and restated certificate of incorporation and amended and restated bylaws will 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 rather than to attempt an unsolicited takeover not approved by the Board. These provisions include, among others:

 

    the inability of Fortive’s shareholders to call a special meeting;

 

    the inability of Fortive’s 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 division of the Board into three classes of directors, with each class serving a staggered three-year term, and this classified board provision could have the effect of making the replacement of incumbent directors more time consuming and difficult;

 

    a provision that shareholders may only remove directors with cause;

 

    the ability of Fortive’s 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 Fortive’s voting stock is required to amend Fortive’s amended and restated bylaws and certain provisions in Fortive’s amended and restated certificate of incorporation.

In addition, because Fortive has 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

 

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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.

Fortive believes these provisions will protect its 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 Fortive 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 Fortive and Fortive’s shareholders. These provisions may also prevent or discourage attempts to remove and replace incumbent directors.

Fortive’s amended and restated certificate of incorporation will designate 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 Fortive’s shareholders, which could discourage lawsuits against Fortive and Fortive’s directors and officers.

Fortive’s amended and restated certificate of incorporation will provide that unless the board of directors 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 Fortive, any action asserting a claim of breach of a fiduciary duty owed by any director or officer of Fortive to Fortive or Fortive’s shareholders, any action asserting a claim against Fortive or any director or officer of Fortive arising pursuant to any provision of the DGCL or Fortive’s amended and restated certificate of incorporation or bylaws, or any action asserting a claim against Fortive or any director or officer of Fortive governed by the internal affairs doctrine. This exclusive forum provision may limit the ability of Fortive’s shareholders to bring a claim in a judicial forum that such shareholders find favorable for disputes with Fortive or Fortive’s directors or officers, which may discourage such lawsuits against Fortive and Fortive’s directors and officers.

 

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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

Certain statements included or incorporated by reference in this information statement, in other documents Danaher and Fortive file with or furnish to the SEC, in press releases, webcasts, conference calls, materials delivered to Danaher 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, Fortive’s liquidity position or other projected financial measures; Fortive 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, spin-offs, split-offs or other distributions, strategic opportunities, securities offerings, stock repurchases, dividends and executive compensation; growth, declines and other trends in markets Fortive sells into; new or modified laws, regulations and accounting pronouncements; outstanding claims, legal proceedings, tax audits and assessments and other contingent liabilities; foreign currency exchange rates and fluctuations in those rates; 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 Fortive intends or believes will or may occur in the future. Terminology such as “believe,” “anticipate,” “will,” “should,” “could,” “intend,” “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 Fortive’s 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 “Risk Factors.”

Forward-looking statements are not guarantees of future performance and actual results may differ materially from the results, developments and business decisions contemplated by our forward-looking statements. Accordingly, you should not place undue reliance on any such forward-looking statements. Forward-looking statements speak only as of the date of the information statement, document, press release, webcast, call, materials or other communication in which they are made. Neither Danaher nor Fortive assume any obligation to update or revise any forward-looking statement, whether as a result of new information, future events and developments or otherwise.

 

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DIVIDEND POLICY

Although Fortive anticipates that it will likely pay quarterly dividends following the distribution, Fortive has not yet determined the extent to which it will pay dividends on its common stock. The payment of any dividends in the future, and the timing and amount thereof, is within the discretion of the Board. The Board’s decisions regarding the payment of dividends will depend on many factors, such as Fortive’s financial condition, earnings, capital requirements, debt service obligations, restrictive covenants in Fortive’s debt, industry practice, legal requirements and other factors that the Board deems relevant. Fortive’s ability to pay dividends will depend on its ongoing ability to generate cash from operations and on its access to the capital markets. Fortive cannot guarantee that it will pay a dividend in the future or continue to pay any dividends if Fortive commences paying dividends.

 

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CAPITALIZATION

The following table sets forth the capitalization of Danaher’s Test & Measurement segment, Industrial Technologies segment (other than its Product Identification platform) and Retail/Commercial Petroleum platform as of April 1, 2016, on a historical basis and on a pro forma basis to give effect to the pro forma adjustments included in the Company’s unaudited pro forma combined financial statements. The information below is not necessarily indicative of what the Company’s capitalization would have been had the separation, distribution and related transactions been completed as of April 1, 2016. In addition, it is not indicative of the Company’s future capitalization. This table should be read in conjunction with “Unaudited Pro Forma Combined Financial Statements,” “Selected Historical Combined Financial Data,” MD&A, “Description of Material Indebtedness” and the Company’s Combined Financial Statements and notes thereto included in the “Index to Financial Statements” section of this information statement (amounts in millions, except per share data).

 

     As of April 1, 2016  
     Historical      Pro Forma  
     (unaudited)  

Cash and cash equivalents (1)

   $ —         $ 250.0   
  

 

 

    

 

 

 

Capitalization:

     

Total long-term debt

   $ —         $ 3,235.0   

Equity:

     

Common stock ($0.01 par value per share); 2.0 billion shares authorized, 344.3 million shares issued and outstanding, pro forma

     —           3.4   

Additional paid-in-capital

     —           2,457.6   

Net Parent investment (2)

     5,249.4         —     

Accumulated other comprehensive income (loss)

     8.7         8.7   

Noncontrolling interest

     3.2         3.2   
  

 

 

    

 

 

 

Total equity

     5,261.3         2,472.9   
  

 

 

    

 

 

 

Total capitalization

   $ 5,261.3       $ 5,707.9   
  

 

 

    

 

 

 

 

(1)  In connection with the separation, the Company expects to have $250.0 million in cash and cash equivalents as reflected on the Company’s unaudited pro forma combined balance sheet.
(2)  Reflects the impact to Net Parent investment as a result of the anticipated post-distribution capital structure.

 

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UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

The following unaudited pro forma combined financial statements consist of the unaudited pro forma combined statements of earnings for the year ended December 31, 2015 and the three months ended April 1, 2016 and an unaudited pro forma combined condensed balance sheet as of April 1, 2016. These unaudited pro forma combined statements were derived from the Company’s historical Combined Financial Statements included in this information statement. The pro forma adjustments give effect to the distribution and the related transactions, as described in the notes to the unaudited pro forma combined financial statements. The unaudited pro forma combined statements of earnings for the year ended December 31, 2015 and the three months ended April 1, 2016 give effect to the distribution as if it had occurred on January 1, 2015, the first day of fiscal 2015. The unaudited pro forma combined condensed balance sheet gives effect to the distribution as if it had occurred on April 1, 2016, the Company’s latest balance sheet date. References in this section and in the following unaudited pro forma combined financial statements and the Company’s Combined Financial Statements and notes thereto included in this information statement to the “Company” or “Danaher NewCo” shall mean Danaher’s Test & Measurement segment, Industrial Technologies segment (other than its Product Identification platform) and Retail/Commercial Petroleum platform.

The unaudited pro forma combined financial statements include certain adjustments that are necessary to present fairly the Company’s unaudited pro forma combined statements of earnings and unaudited pro forma combined balance sheet as of and for the periods indicated. The pro forma adjustments give effect to events that are (i) directly attributable to the distribution transactions, (ii) factually supportable, and (iii) with respect to the unaudited pro forma combined statements of earnings, expected to have a continuing impact on the Company and are based on assumptions that management believes are reasonable given the information currently available.

The unaudited pro forma combined financial statements give effect to the following:

 

    The transfer to the Company from Danaher and Danaher affiliates pursuant to the separation and distribution agreement of certain assets and liabilities that were not included in the historical Combined Financial Statements;

 

    The retention by Danaher pursuant to the separation and distribution agreement of certain assets and liabilities of the Company that were included in the Company’s historical Combined Financial Statements;

 

    The tax matters agreement with Danaher that provides which company is responsible for tax liabilities prior to the distribution, and the identification of net deferred tax assets between Danaher and the Company based on how the underlying assets and liabilities will be reported on each company’s respective financial statements and separate income tax returns;

 

    The long-term debt arrangements anticipated to be entered into by the Company; and

 

    The anticipated post-distribution capital structure.

The unaudited pro forma combined financial statements are subject to the assumptions and adjustments described in the accompanying notes. These unaudited pro forma combined financial statements are subject to change as Danaher and the Company finalize the terms of the separation and distribution agreement and other agreements and transactions related to the distribution.

In connection with the distribution, the Company expects to enter into a transition services agreement with Danaher, pursuant to which Danaher and the Company will provide to each other certain specified services on a temporary basis, including various information technology, financial and administrative services. The charges for the transition services generally are expected to allow the providing company to fully recover all out-of-pocket costs and expenses it actually incurs in connection with providing the service, plus, in some cases, the allocated indirect costs of providing the services, generally without profit. The adjustment for the transition services agreement is not expected to have a material impact on pro forma net earnings for either the three months ended April 1, 2016 or for the year ended December 31, 2015, since the historical combined statements of earnings for

 

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those periods already reflect allocations of costs for these services which are not expected to differ materially under the transition services agreement.

No adjustments have been included in the unaudited pro forma combined statements of earnings for additional annual operating costs. Although expenses reported in the Company’s Combined Statements of Earnings include allocations of certain Danaher costs (including corporate costs, shared services and other selling, general and administrative costs that benefit the Company), as a stand-alone public company the Company anticipates incurring additional recurring costs that could be materially different from the allocations of Danaher costs included within the historical Combined Financial Statements. These additional costs are primarily for the following:

 

    Additional personnel costs, including salaries, benefits and potential bonuses and/or share-based compensation awards for staff additions to replace support provided by Danaher that is not covered by the transition services agreement; and

 

    Corporate governance costs, including board of director compensation and expenses, audit and other professional services fees, annual report and proxy statement costs, SEC filing fees, transfer agent fees, consulting and legal fees and stock exchange listing fees.

Certain factors could impact these stand-alone public company costs, including the finalization of the Company’s staffing and infrastructure needs. The Company estimates these stand-alone public company costs to exceed the amounts of Danaher costs allocated to the Company for the year ended December 31, 2015 by approximately $10 million to $20 million.

The unaudited pro forma combined financial statements have been presented for informational purposes only. The pro forma information is not necessarily indicative of the Company’s results of operations or financial condition had the distribution and the related transactions been completed on the dates assumed and should not be relied upon as a representation of the Company’s future performance.

The following unaudited pro forma combined financial statements should be read in conjunction with the historical Combined Financial Statements, MD&A and “Description of Material Indebtedness” included in this information statement.

 

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DANAHER NEWCO

UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET

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

 

     As of April 1, 2016  
     Historical      Pro Forma
Adjustments
    Pro Forma  

ASSETS

       

Current assets:

       

Cash

   $ —         $ 250.0 (d)    $ 250.0   

Trade accounts receivable, net

     929.6         —          929.6   

Inventories:

       

Finished goods

     196.5         —          196.5   

Work in process

     80.3         —          80.3   

Raw materials

     276.8         —          276.8   
  

 

 

    

 

 

   

 

 

 

Total inventories

     553.6         —          553.6   

Prepaid expenses and other current assets

     88.4         5.0 (c)      93.4   
  

 

 

    

 

 

   

 

 

 

Total current assets

     1,571.6         255.0        1,826.6   

Property, plant and equipment, net

     519.1         7.7 (a)      526.8   

Other assets

     398.6         125.0 (c)      523.6   

Goodwill

     3,973.3         —          3,973.3   

Other intangible assets, net

     750.0         —          750.0   
  

 

 

    

 

 

   

 

 

 

Total assets

   $ 7,212.6       $ 387.7      $ 7,600.3   
  

 

 

    

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

       

Current liabilities:

       

Trade accounts payable

   $ 625.6       $ —        $ 625.6   

Accrued expenses and other liabilities

     618.8         (3.2 )(b)      615.6   
  

 

 

    

 

 

   

 

 

 

Total current liabilities

     1,244.4         (3.2     1,241.2   

Other long-term liabilities

     706.9         (55.7 )(a)(b)(c)      651.2   

Long-term debt

     —           3,235.0 (d)      3,235.0   

Stockholders’ equity:

       

Net Parent investment

     5,249.4         (5,249.4 )(a)(b)(c)(d)(e)      —     

Common stock—$0.01 par value, 2.0 billion shares authorized; 344.3 million shares issued and outstanding

     —           3.4 (e)      3.4   

Additional paid-in capital

     —           2,457.6 (e)      2,457.6   

Accumulated other comprehensive income (loss)

     8.7         —          8.7   
  

 

 

    

 

 

   

 

 

 

Total Fortive stockholders’ equity

     5,258.1         (2,788.4     2,469.7   

Noncontrolling interest

     3.2         —          3.2   
  

 

 

    

 

 

   

 

 

 

Total stockholders’ equity

     5,261.3         (2,788.4     2,472.9   
  

 

 

    

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 7,212.6       $ 387.7      $ 7,600.3   
  

 

 

    

 

 

   

 

 

 

See accompanying notes to unaudited pro forma combined financial information.

 

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DANAHER NEWCO

UNAUDITED PRO FORMA COMBINED STATEMENT OF EARNINGS

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

 

     Year Ended December 31, 2015  
     Historical     Pro Forma
Adjustments
    Pro Forma  

Sales

   $ 6,178.8      $ (35.5 )(f)    $ 6,143.3   

Cost of sales

     (3,183.5     32.0 (f)      (3,151.5
  

 

 

   

 

 

   

 

 

 

Gross profit

     2,995.3        (3.5     2,991.8   

Operating costs:

      

Selling, general and administrative expenses

     (1,347.9     0.5 (f)      (1,347.4

Research and development expenses

     (377.7     —          (377.7
  

 

 

   

 

 

   

 

 

 

Operating profit

     1,269.7        (3.0     1,266.7   

Nonoperating income (expense):

      

Interest expense

     —          (90.0 )(g)      (90.0
  

 

 

   

 

 

   

 

 

 

Earnings before income taxes

     1,269.7        (93.0     1,176.7   

Income taxes

     (405.9     34.9 (h)      (371.0
  

 

 

   

 

 

   

 

 

 

Net earnings

   $ 863.8      $ (58.1   $ 805.7   
  

 

 

   

 

 

   

 

 

 

Net earnings per share:

      

Basic

         (i)    $ 2.31   

Diluted

         (i)    $ 2.28   

Average common stock and common equivalent shares outstanding:

      

Basic

         (i)      349.1   

Diluted

         (i)      352.9   

See the accompanying notes to unaudited pro forma combined financial information.

 

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DANAHER NEWCO

UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF EARNINGS

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

 

     Three Months Ended April 1, 2016  
     Historical     Pro Forma
Adjustments
    Pro Forma  

Sales

   $ 1,474.7      $ (9.0 )(f)    $ 1,465.7   

Cost of sales

     (779.5     8.4 (f)      (771.1
  

 

 

   

 

 

   

 

 

 

Gross profit

     695.2        (0.6     694.6   

Operating costs:

      

Selling, general and administrative expenses

     (338.5     0.2 (f)      (338.3

Research and development expenses

     (93.7     —          (93.7
  

 

 

   

 

 

   

 

 

 

Operating profit

     263.0        (0.4     262.6   

Nonoperating income (expense):

      

Interest expense

     —          (22.5 )(g)      (22.5
  

 

 

   

 

 

   

 

 

 

Earnings before income taxes

     263.0        (22.9     240.1   

Income taxes

     (81.0     8.6 (h)      (72.4
  

 

 

   

 

 

   

 

 

 

Net earnings

   $ 182.0      $ (14.3   $ 167.7   
  

 

 

   

 

 

   

 

 

 

Net earnings per share:

      

Basic

         (i)    $ 0.49   

Diluted

         (i)    $ 0.48   

Average common stock and common equivalent shares outstanding:

      

Basic

         (i)      344.3   

Diluted

         (i)      347.4   

See the accompanying notes to unaudited pro forma combined financial information.

 

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NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

For further information regarding the historical Combined Financial Statements of Danaher NewCo, refer to the Combined Financial Statements and the notes thereto in this information statement. The unaudited pro forma combined condensed balance sheet as of April 1, 2016 and unaudited pro forma combined statement of earnings for the year ended December 31, 2015 and the three months ended April 1, 2016, include adjustments related to the following:

Unaudited Pro Forma Combined Balance Sheet

(a) Reflects adjustments for certain assets and related deferred tax liabilities that are to be transferred to Danaher NewCo from Parent and Parent affiliates and certain assets to be transferred to Parent and Parent affiliates from Danaher NewCo, in connection with the separation. The assets including certain property, plant and equipment to be contributed to Danaher NewCo were not included in Danaher NewCo’s historical Combined Financial Statements as these assets were not discretely identifiable to Danaher NewCo. Depreciation on the assets to be transferred to Danaher NewCo was previously charged to Danaher NewCo through allocations from Parent.

(b) Reflects adjustments of $32 million ($20 million, net of tax impact) for certain liabilities related to the Danaher NewCo deferred compensation plan which represent the value of Parent common stock interests held by Danaher NewCo participants that will be converted into interests in Fortive common stock in connection with the separation.

(c) Reflects indemnification asset of $125 million associated with Parent’s retention of certain net tax liabilities of Danaher NewCo that were subject to joint and several liabilities with Parent in accordance with the tax matters agreement. This also reflects adjustments to taxes receivable of $5 million and an increase in deferred tax assets (reflected net in other long-term liabilities) of $42 million related to differences in utilization of net operating losses and tax credit carryovers.

(d) Reflects $3.25 billion of estimated proceeds from the long-term borrowings expected to be incurred in connection with the separation, net of approximately $15 million in estimated financing costs. Proceeds from these anticipated borrowings are expected to be used to fund a dividend payment to Parent of approximately $3.0 billion in connection with the separation. Danaher NewCo has classified its anticipated commercial paper borrowings as long-term debt as it expects to have the intent and ability to refinance these anticipated borrowings for at least one year from the balance sheet date.

(e) Reflects the elimination of Parent’s net investment (including the adjustments described above) as a result of the anticipated post-distribution capital structure. As of the distribution date, the net Parent investment in Danaher NewCo after reflecting the impact of the dividend payment to Parent (note (d)) will be adjusted to reflect the distribution of Danaher NewCo common stock to Parent stockholders. Danaher NewCo’s common stock account reflects an adjustment for the par value of the anticipated 344.3 million outstanding shares of Danaher NewCo common stock, par value of $0.01 per share, expected to be issued upon separation. Danaher NewCo’s additional paid-in capital account reflects an adjustment related to the reclassification of Parent’s net investment in Danaher NewCo. Parent’s net investment in Danaher NewCo will be allocated between common stock and additional paid-in capital based on the number of shares of Danaher NewCo common stock outstanding at the distribution date.

Unaudited Pro Forma Combined Statement of Earnings

(f) Reflects the net sales adjustments from certain contract manufacturing and supply agreements that Parent and Danaher NewCo will enter into or terminate in connection with the separation. The net sales adjustments of

 

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$35.5 million for the year ended December 31, 2015 and $9.0 million for the three months ended April 1, 2016 reflect the reduction of sales caused by the termination of certain contract manufacturing arrangements between Parent and Danaher NewCo offset by additional sales for product manufactured and sold to Parent by Danaher NewCo.

(g) Reflects estimated interest expense of $90.0 million for the year ended December 31, 2015 and $22.5 million for the three months ended April 1, 2016 related to the anticipated long-term borrowings to be incurred in connection with the separation reflecting an estimated average borrowing cost of approximately 2.8% per annum.

(h) Reflects the tax effect of pro forma adjustments using the respective statutory tax rate for the year ended December 31, 2015 and the three months ended April 1, 2016.

(i) The number of Danaher NewCo shares used to compute pro forma basic and diluted earnings per share is based on the number of shares of Danaher NewCo common stock assumed to be outstanding, based on the number of Parent common shares used for determination of Parent’s basic and diluted earnings per share on April 1, 2016 and December 31, 2015, assuming a distribution ratio of one share of Danaher NewCo common stock for every two shares of Parent common stock outstanding. This calculation does not take into account the dilutive effect that will result from the issuance of Danaher NewCo stock-based compensation awards in connection with the adjustment of outstanding Parent stock-based compensation awards held by Danaher NewCo employees or the grant of new Danaher NewCo stock-based compensation awards. The number of dilutive shares of Danaher NewCo common stock underlying Danaher NewCo’s stock-based compensation awards issued in connection with the adjustment of outstanding Parent stock-based compensation awards will not be determined until after the distribution date.

 

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SELECTED HISTORICAL COMBINED FINANCIAL DATA

Set forth below are selected historical combined financial data of Danaher’s Test & Measurement segment, Industrial Technologies segment (other than its Product Identification platform) and Retail/Commercial Petroleum platform for each of the three months ended April 1, 2016 and April 3, 2015, and each of the five years ended December 31, 2015. Operating results for any prior period are not necessarily indicative of results to be expected in any future period. The Company derived the combined statement of earnings data for the years ended December 31, 2015, December 31, 2014, and December 31, 2013, and the combined balance sheet data as of December 31, 2015 and December 31, 2014 from the Company’s historical audited Combined Financial Statements covering such periods, which are included in this information statement. The Company derived the combined statement of earnings data for the three months ended April 1, 2016 and April 3, 2015 and the combined balance sheet data as of April 1, 2016 from the historical unaudited Combined Financial Statements included in this information statement. The Company derived the combined statement of earnings data for the year ended December 31, 2012 and the combined balance sheet data as of December 31, 2013, from the Company’s historical audited Combined Financial Statements covering such periods, which are not included in this information statement. The Company derived the unaudited combined statement of earnings data for the fiscal year ended December 31, 2011, and the unaudited combined balance sheet data as of December 31, 2012 and December 31, 2011 from the financial records of Danaher which are not included in this information statement.

The selected historical combined financial data set forth below should be read in conjunction with MD&A, “Unaudited Pro Forma Combined Financial Statements,” and the historical Combined Financial Statements and the notes thereto included in this information statement. The selected historical combined financial data reflects the Company’s results as historically operated as a part of Danaher, and these results may not be indicative of the Company’s future performance as a stand-alone company following the distribution. Operating expenses reflect direct expenses and allocations of certain Danaher corporate expenses that have been charged to the Company based on specific identification or allocated based on relative use or other methodologies. Management believes these allocations have been made on a reasonable and appropriate basis under the circumstances. Per share data has not been presented since the Company’s business was wholly-owned by Danaher during the periods presented ($ in millions).

 

    As of and for the
Three Months Ended
    As of and for the Year Ended December 31  
    April 1, 2016     April 3, 2015     2015     2014     2013     2012     2011  

Selected Statement of Earnings Information:

    (unaudited)        (unaudited)                (unaudited)   

Sales

  $ 1,474.7      $ 1,513.5      $ 6,178.8      $ 6,337.2      $ 5,961.9      $ 5,785.3      $ 5,930.2   

Earnings before income taxes

    263.0        294.1        1,269.7        1,279.2        1,143.2        1,127.8        1,234.0   

Net earnings

    182.0        203.7        863.8        883.4        830.9        763.7        863.8   

Selected Balance Sheet Information:

    (unaudited)                (unaudited)        (unaudited)   

Total assets

  $ 7,212.6        N/A      $ 7,210.6      $ 7,355.6      $ 7,240.1      $ 6,762.3      $ 6,401.7   

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

On May 13, 2015, Danaher announced its intention to separate into two independent publicly traded companies. The separation is expected to be completed in the third quarter of 2016. The separation will be in the form of a pro rata distribution to Danaher shareholders of 100% of the outstanding shares of an entity that will hold Danaher’s industrial growth businesses which today constitute Danaher’s Test & Measurement segment, Industrial Technologies segment (other than its Product Identification platform) and the Retail/Commercial Petroleum platform. Fortive Corporation (“Fortive”) is a newly formed Delaware corporation that has been organized specifically for the purpose of effecting the separation. Danaher’s Test & Measurement segment, Industrial Technologies segment (other than its Product Identification platform) and Retail/Commercial Petroleum platform will be transferred to Fortive prior to the separation. Unless the context otherwise requires, references in this MD&A to “Fortive” or the “Company” shall mean Danaher’s Test & Measurement segment, Industrial Technologies segment (other than its Product Identification platform) and Retail/Commercial Petroleum platform, which is referred to as “Danaher NewCo” in the “Unaudited Pro Forma Combined Financial Statements” and the Company’s Combined Financial Statements and notes thereto included in this information statement. Fortive Corporation, as a legal entity existing prior to the separation, has engaged in no business activities to date and it has no material assets or liabilities of any kind, other than those incident to its formation and those incurred in connection with the separation.

This MD&A is designed to provide a reader of the Company’s financial statements with a narrative from the perspective of Company management. You should read the following discussion in conjunction with the “Unaudited Pro Forma Combined Financial Statements,” “Selected Historical Combined Financial Data,” the Company’s Combined Financial Statements and notes thereto, and the sections entitled “Business” and “Risk Factors” included in this information statement. The Company’s MD&A is divided into five sections:

 

    Basis of Presentation and Overview

 

    Results of Operations

 

    Financial Instruments and Risk Management

 

    Liquidity and Capital Resources

 

    Critical Accounting Estimates

BASIS OF PRESENTATION

The accompanying combined financial statements present the historical financial position, results of operations, changes in Danaher’s equity and cash flows of the Test & Measurement segment, Industrial Technologies segment (other than its Product Identification platform) and Retail/Commercial Petroleum platform of Danaher in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for the preparation of carved-out combined financial statements.

The Company has historically operated as part of Danaher and not as a stand-alone company. The financial statements have been derived from Danaher’s historical accounting records and are presented on a carve-out basis. All revenues and costs as well as assets and liabilities directly associated with the business activity of the Company are included as a component of the financial statements. The financial statements also include allocations of certain general, administrative, sales and marketing expenses and cost of sales from Danaher’s corporate office and from other Danaher businesses to the Company and allocations of related assets, liabilities, and Danaher’s investment, as applicable. The allocations have been determined on a reasonable basis; however, the amounts are not necessarily representative of the amounts that would have been reflected in the financial statements had the Company been an entity that operated independently of Danaher. Related party allocations, including the method for such allocation, are discussed further in Note 17 of the Notes to the Combined Financial Statements for the year ended December 31, 2015 and Note 9 to the Combined Condensed Financial Statements for the three months ended April 1, 2016.

 

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The Company’s businesses are recognized leaders in attractive markets globally. The Company’s businesses design, develop, 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. The Company’s research and development, manufacturing, sales, distribution, service and administrative facilities are located in more than 40 countries.

The Company’s business consists of two segments: Professional Instrumentation and Industrial Technologies. For additional details regarding these businesses, please refer to the section titled “Business” included in this information statement.

As part of Danaher, the Company is dependent upon Danaher for all of its working capital and financing requirements as Danaher uses a centralized approach to cash management and financing of its operations. Financial transactions relating to the Company are accounted for through the Company’s Net Parent investment account. Accordingly, none of Danaher’s cash, cash equivalents or debt at the corporate level has been assigned to the Company in the financial statements.

OVERVIEW

General

Please see the section titled “Business” included in this information statement for a discussion of the Company’s strategies for delivering shareholder value. The Company is a multinational business with global operations. During 2015, approximately 45% of the Company’s sales were derived from customers outside the United States. As a diversified, global business, the Company’s operations are affected by worldwide, regional and industry-specific economic and political factors. The Company’s geographic and industry diversity, as well as the range of its products and services, typically help limit the impact of any one industry or the economy of any single country on the combined operating results. Given the broad range of products manufactured, software and services provided and geographies served, management does not use any indices other than general economic trends to predict the overall outlook for the Company. The Company’s individual businesses monitor key competitors and customers, including to the extent possible their sales, to gauge relative performance and the outlook for the future.

As a result of the Company’s geographic and industry diversity, the Company faces a variety of opportunities and challenges, including technological development in most of the Company’s served markets, the expansion and evolution of opportunities in high-growth markets, trends and costs associated with a global labor force and consolidation of the Company’s competitors. The Company defines 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. The Company operates in a highly competitive business environment in most markets, and the Company’s long-term growth and profitability will depend in particular on its ability to expand its 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 the Company’s sales force and continue to reduce costs and improve operating efficiency and quality and effectively address the demands of an increasingly regulated environment. The Company is making significant investments, organically and through acquisitions, to address technological change in its served markets and to globalize and improve its manufacturing, research and development and customer-facing resources in order to be responsive to the Company’s customers throughout the world.

In this report, references to sales from existing businesses refers to sales from operations calculated according to GAAP but excluding (1) sales from acquired businesses and (2) the impact of currency translation. References to sales or operating profit attributable to acquisitions or acquired businesses refer to GAAP sales or operating profit, as applicable, from acquired businesses recorded prior to the first anniversary of the acquisition

 

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less the amount of sales attributable to certain divested product lines not considered discontinued operations. The portion of revenue attributable to currency translation is calculated as the difference between (a) the period-to-period change in revenue (excluding sales from acquired businesses) and (b) the period-to-period change in revenue (excluding sales from acquired businesses) after applying 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 easier comparisons of our revenue performance with our performance in prior and future periods and to our peers. The Company excludes the effect of currency translation from sales from existing businesses because currency translation is not under management’s control, is subject to volatility and can obscure underlying business trends, and excludes the effect of acquisitions and divestiture related items because the nature, size and number of acquisitions and divestitures can vary dramatically from period to period and between the Company and its peers and can also obscure underlying business trends and make comparisons of long-term performance difficult. References to sales volume refer to the impact of both price and unit sales.

Business Performance

While differences exist among the Company’s businesses, on an overall basis, demand for the Company’s products, software and services decreased during the three months ended April 1, 2016 compared to the comparable 2015 period resulting in aggregate year-over-year decline in sales from existing businesses of 1.5%. Sales also declined due to the adverse effect of a strong U.S. dollar, which reduced reported sales by 1.5%, and was partially offset by sales growth from acquired businesses of 0.5%, resulting in a 2.5% aggregate year-over-year sales decline. The results from the Company’s continued investments in sales growth initiatives as well as sales growth in the Transportation Technologies business driven by implementation deadlines relating to the enhanced credit card security requirements based on the Europay, Mastercard and Visa (“EMV”) global standards and other new product introductions, were more than offset by the impact of broad-based market conditions and other business-specific factors discussed below resulting in the year-over-year decline in sales from existing businesses. Geographically, the year-over-year sales decline from existing businesses was led primarily by developed markets. Sales from existing businesses in developed markets declined at a low-single digit rate and high-growth markets were down slightly during the three months ended April 1, 2016 as compared to the comparable 2015 period. Sales growth from existing businesses in Europe, China and India was more than offset by declines in North America and Latin America on a year-over-year basis.

On an overall basis, demand for the Company’s products, software and services increased in 2015 as compared to 2014 resulting in aggregate year-over-year sales growth from existing businesses of 2.5%. This increase was more than offset by the adverse effect of a stronger U.S. dollar, which reduced reported sales by 5.0% and resulted in a 2.5% aggregate year-over-year sales decline. Sales of acquired businesses, net of dispositions, had a negligible impact on year-over-year revenue growth. The Company’s continued investments in sales growth initiatives and the other business-specific factors discussed below contributed to the year-over-year increase in sales from existing businesses. Geographically, year-over-year sales growth from existing businesses was led primarily by developed markets. Sales from existing businesses in developed markets grew at a low-single digit rate in 2015 as compared to 2014 led by growth in North America and Western Europe. Sales growth rates from existing businesses in high-growth markets were essentially flat in 2015 as compared to 2014.

Acquisitions and Divestitures

During the first three months of 2016, the Company acquired one business for total consideration of $13 million in cash, net of cash acquired.

During 2015, the Company acquired two businesses for total consideration of $37 million in cash, net of cash acquired. The businesses acquired complement existing units of both of the Company’s segments. The aggregate annual sales of these two 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 $18 million.

 

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During 2014, the Company acquired six businesses for total consideration of $289 million in cash, net of cash acquired. The businesses acquired complement existing businesses of both of the Company’s segments. The aggregate annual sales of these six 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 $133 million.

In August 2014, the Company completed the divestiture of its electric vehicle systems (“EVS”)/hybrid product line for a sale price of $87 million in cash. This product line, which was part of the Industrial Technologies segment, had revenues of approximately $60 million in 2014 prior to the divestiture and approximately $100 million in 2013. The Company recorded a pretax gain on the sale of the product line of $34 million ($26 million after-tax) in its 2014 results. Subsequent to the sale, the Company has no continuing involvement in the EVS/hybrid product line.

During 2013, the Company acquired five businesses for total consideration of $434 million in cash, net of cash acquired. The businesses acquired complement existing businesses of both of the Company’s segments. The aggregate annual sales of these five 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 $168 million.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED APRIL 1, 2016 AND APRIL 3, 2015

Combined sales for the three months ended April 1, 2016 decreased 2.5% compared to the three months ended April 3, 2015. Sales from existing businesses declined by 1.5%, while sales from acquired businesses contributed 0.5% to sales growth on a year-over-year basis. Currency translation decreased reported sales by 1.5% on a year-over-year basis.

Operating profit margins were 17.8% for the three months ended April 1, 2016 as compared to 19.4% in the comparable period of 2015. The year-over-year decrease in operating profit margin was due to lower 2016 sales volumes, the continued effect of a strong U.S. dollar, continued investment associated with various new product development initiatives and sales and marketing growth investments, partially offset by incremental year-over-year cost savings associated with the restructuring actions and productivity improvement initiatives taken in 2015.

Business Segments

Sales by business segment for each of the periods indicated were as follows ($ in millions):

 

     Three Months Ended  
     April 1, 2016      April 3, 2015  

Professional Instrumentation

   $ 697.4       $ 746.4   

Industrial Technologies

     777.3         767.1   
  

 

 

    

 

 

 

Total

   $ 1,474.7       $ 1,513.5   
  

 

 

    

 

 

 

PROFESSIONAL INSTRUMENTATION

The Company’s Professional Instrumentation segment consists of the Company’s Advanced Instrumentation & Solutions and Sensing Technologies businesses. The Advanced Instrumentation & Solutions business consists of field solutions products and product realization services and products. Field solutions include a variety of compact professional test tools, thermal imaging and calibration equipment for electrical, industrial, electronic and calibration applications, and online condition-based monitoring equipment for critical infrastructure in electrical utility and industrial applications. Product realization services and products help developers and engineers convert concepts into finished products and also include highly-engineered energetic materials

 

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components used in specialized vertical applications. The Sensing Technologies business offers devices that sense, monitor and control operational or manufacturing variables, such as temperature, pressure, level, flow, turbidity and conductivity.

Professional Instrumentation Selected Financial Data

 

     Three Months Ended  
($ in millions)    April 1, 2016     April 3, 2015  

Sales

   $ 697.4      $ 746.4   

Operating profit

     146.0        168.5   

Depreciation

     9.1        8.6   

Amortization

     17.0        17.1   

Operating profit as a % of sales

     20.9     22.6

Depreciation as a % of sales

     1.3     1.2

Amortization as a % of sales

     2.4     2.3

Components of Sales Growth

 

     % Change
Three Months Ended
April 1, 2016 vs.
Comparable 2015 Period
 

Existing businesses

     (5.5 )% 

Acquisitions

     0.5

Currency exchange rates

     (1.5 )% 
  

 

 

 

Total

     (6.5 )% 
  

 

 

 

Price increases in the segment contributed 1.0% to sales growth during the three months ended April 1, 2016 as compared to the comparable period of 2015 and are reflected as a component of the change in sales from existing businesses.

Sales from existing businesses in the segment’s Advanced Instrumentation & Solutions businesses declined at a mid-single digit rate during the three months ended April 1, 2016 as compared to the comparable period of 2015. Year-over-year sales in product realization services and products declined at a high-single digit rate due to declines in most major geographies and across all major product lines due to an overall market slowdown. These declines were partially offset by growth in the optical and semiconductor end-markets in China, demand for design, engineering and manufacturing services and growth in the segment’s energetic materials business. Field solutions sales declined at a mid-single digit rate as year-over-year industrial end-market sales declines were slightly offset by increased year-over-year demand for online condition-based monitoring equipment. Geographically, increased demand in China and India was more than offset by weakness in North America and Europe across the Advanced Instrumentation & Solutions businesses.

Sales from existing businesses in the segment’s Sensing Technologies business declined at a high-single digit rate during the three months ended April 1, 2016 as compared to the comparable period of 2015 due to lower overall demand primarily in North America and Western Europe, partially offset by sales growth in the medical equipment end-market and increased demand for pressure sensing products in China.

Operating profit margins decreased 170 basis points during the three months ended April 1, 2016 as compared to the comparable period of 2015 due to lower 2016 sales volumes, continued investment associated

 

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with various new product development and sales and marketing growth initiatives and the continued effect of a strong U.S. dollar, partially offset by incremental year-over-year cost savings associated with the restructuring actions and productivity improvement initiatives taken in 2015.

INDUSTRIAL TECHNOLOGIES

The Company’s Industrial Technologies segment consists of the Company’s Transportation Technologies, Automation & Specialty Components and Franchise Distribution businesses. The 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. The Automation & Specialty Components business consists of automation and engine retarder products. The Franchise Distribution business manufactures and distributes professional tools and a full-line of wheel service equipment.

Industrial Technologies Selected Financial Data

 

     Three Months Ended  
($ in millions)    April 1, 2016     April 3, 2015  

Sales

   $ 777.3      $ 767.1   

Operating profit

     130.7        136.5   

Depreciation

     12.4        12.8   

Amortization

     5.4        5.2   

Operating profit as a % of sales

     16.8     17.8

Depreciation as a % of sales

     1.6     1.7

Amortization as a % of sales

     0.7     0.7

Components of Sales Growth

 

     % Change
Three Months Ended
April 1, 2016 vs.
Comparable 2015 Period
 

Existing businesses

     2.5

Acquisitions (divestitures), net

     —  

Currency exchange rates

     (1.0 )% 
  

 

 

 

Total

     1.5
  

 

 

 

Year-over-year price increases in the segment contributed 1.0% to sales growth during the three months ended April 1, 2016 and are reflected as a component of the change in sales from existing businesses.

Sales from existing businesses in the segment’s Transportation Technologies businesses grew at a high-single digit rate during the three months ended April 1, 2016, as compared to the comparable period of 2015, due primarily to strong increase in demand for dispenser systems, environmental compliance products and point-of-sale systems primarily in North America and to a lesser extent, in Asia. Customers in the United States continue to upgrade dispensers and point-of-sale systems to comply with deadlines for enhanced credit card security requirements based on the EMV global standard and the Company expects this trend to continue to drive growth for the next several years.

 

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Sales from existing businesses in the segment’s Automation & Specialty Components business declined at a high-single digit rate during the three months ended April 1, 2016, as compared to the comparable period of 2015. Continued growth in North American defense related end-markets and increased year-over-year demand in Europe, were more than offset by lower year-over-year demand in agricultural, construction and industrial automation-related end-markets and the segment’s engine retarder business.

Sales from existing businesses in the segment’s Franchise Distribution business grew at a mid-single digit rate during the three months ended April 1, 2016, as compared to the comparable period of 2015, due primarily to continued net increases in franchisees, higher demand for tool storage solutions and professional tool products, and new product offerings primarily in the United States.

Operating profit margins decreased 100 basis points during the three months ended April 1, 2016 as compared to the comparable period of 2015. Higher 2016 sales volumes and incremental year-over-year cost savings associated with the restructuring actions and productivity improvement initiatives taken in 2015 were more than offset by incremental year-over-year costs associated with various growth investments, new product development initiatives and the continued effect of a strong U.S. dollar.

COST OF SALES AND GROSS PROFIT

 

     Three Months Ended  
($ in millions)    April 1, 2016     April 3, 2015  

Sales

   $ 1,474.7      $ 1,513.5   

Cost of sales

     (779.5     (782.8
  

 

 

   

 

 

 

Gross profit

     695.2        730.7   

Gross profit margin

     47.1     48.3

The year-over-year decrease in cost of sales during the three months ended April 1, 2016 as compared to the comparable period in 2015, is due primarily to the impact of lower year-over-year sales volumes, the strong U.S. dollar, and incremental year-over-year cost savings associated with restructuring and productivity improvement actions taken in 2015.

The year-over-year decrease in gross profit during the three months ended April 1, 2016 as compared to the comparable period in 2015, is due primarily to the unfavorable impact of lower year-over-year sales volumes, costs associated with various growth investments and the continued impact of the strong U.S. dollar, partially offset by incremental year-over-year cost savings associated with 2015 restructuring activities, continued productivity improvements and favorable year-over-year price increases.

OPERATING EXPENSES

 

     Three Months Ended  
($ in millions)    April 1, 2016     April 3, 2015  

Sales

   $ 1,474.7      $ 1,513.5   

Selling, general and administrative (“SG&A”) expenses

     338.5        341.5   

Research and development (“R&D”) expenses

     93.7        95.1   

SG&A as a % of sales

     23.0     22.6

R&D as a % of sales

     6.4     6.3

 

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SG&A expenses decreased during the three months ended April 1, 2016 as compared to the comparable period of 2015 due primarily to the impact of currency translation. SG&A expenses as a percentage of sales increased 40 basis points on a year-over-year basis for the three months ended April 1, 2016 as compared with the comparable period of 2015. The increase in SG&A expense as a percentage of sales reflects continued investments in the Company’s sales and marketing growth initiatives as well as the impact of lower sales volumes during the period.

R&D expenses decreased during the three months ended April 1, 2016 as compared to the comparable period of 2015 due primarily to the impact of currency translation. R&D expenses as a percentage of sales increased 10 basis points during the three months ended April 1, 2016 as compared to the comparable period of 2015 due to continued investment in new product development initiatives, as well as the impact of lower sales volumes during the period.

RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2015, 2014 AND 2013

Combined sales for the year ended December 31, 2015 decreased 2.5% compared to 2014. Sales from existing businesses contributed 2.5% growth on a year-over-year basis. Sales of acquired businesses, net of dispositions, had a negligible impact on year-over-year revenue growth. The impact of currency translation reduced reported sales by 5.0% as the U.S. dollar was, on average, stronger against other major currencies during 2015 as compared to 2014.

Combined sales for the year ended December 31, 2014 increased 6.5% compared to 2013. Sales from existing businesses contributed 4.0% growth and sales from acquired businesses, net of dispositions contributed 3.0% growth on a year-over-year basis. The impact of currency translation reduced reported sales by 0.5% as the U.S. dollar was, on average, stronger against other major currencies during 2014 as compared to 2013.

Operating profit margins were 20.5% for the year ended December 31, 2015 as compared to 19.7% in 2014. The following factors impacted year-over-year operating profit margin comparisons.

2015 vs. 2014 operating profit margin comparisons were favorably impacted by:

 

    Higher 2015 sales volumes, the incremental year-over-year cost savings associated with restructuring actions and continuing productivity improvement initiatives, and the impact of transition services agreements, net of incremental year-over-year costs associated with various product development, sales and marketing growth investments and the effect of a stronger U.S. dollar in 2015 - 85 basis points

 

    Lower year-over-year costs associated with restructuring actions - 25 basis points

2015 vs. 2014 operating profit margin comparisons were unfavorably impacted by:

 

    The incremental net dilutive effect of acquired businesses and the impairment of certain trade names used in the Industrial Technologies segment in 2015 - 30 basis points

Operating profit margins were 19.7% for the year ended December 31, 2014 as compared to 19.2% in 2013. The following factors impacted year-over-year operating profit margin comparisons.

2014 vs. 2013 operating profit margin comparisons were favorably impacted by:

 

    Higher 2014 sales volumes and incremental year-over-year cost savings associated with restructuring actions and continuing productivity improvement initiatives, net of incremental year-over-year costs associated with various product development, sales and marketing growth investments - 130 basis points

 

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2014 vs. 2013 operating profit margin comparisons were unfavorably impacted by:

 

    The incremental net dilutive effect in 2014 of acquired businesses and dispositions - 80 basis points

Business Segments

Sales by business segment for the years ended December 31 are as follows ($ in millions):

 

     2015      2014      2013  

Professional Instrumentation

   $ 2,974.2       $ 3,121.6       $ 2,970.7   

Industrial Technologies

     3,204.6         3,215.6         2,991.2   
  

 

 

    

 

 

    

 

 

 

Total

   $ 6,178.8       $ 6,337.2       $ 5,961.9   
  

 

 

    

 

 

    

 

 

 

PROFESSIONAL INSTRUMENTATION

Professional Instrumentation Selected Financial Data

 

     For the Year Ended December 31  
($ in millions)    2015     2014     2013  

Sales

   $ 2,974.2      $ 3,121.6      $ 2,970.7   

Operating profit

     694.8        691.6        628.2   

Depreciation

     35.2        36.5        40.5   

Amortization

     68.3        70.9        68.5   

Operating profit as a % of sales

     23.4     22.2     21.1

Depreciation as a % of sales

     1.2     1.2     1.4

Amortization as a % of sales

     2.3     2.3     2.3

Components of Sales Growth

 

     2015 vs. 2014     2014 vs. 2013  

Existing businesses

     —       3.0

Acquisitions

     —       2.5

Currency exchange rates

     (4.5 )%      (0.5 )% 
  

 

 

   

 

 

 

Total

     (4.5 )%      5.0
  

 

 

   

 

 

 

2015 COMPARED TO 2014

Price increases in the segment contributed 1.0% to year-over-year sales growth during 2015 as compared to 2014 and are reflected as a component of the change in sales from existing businesses.

Sales from existing businesses in the segment’s Advanced Instrumentation & Solutions businesses increased slightly during 2015 as compared to 2014. Field solutions products grew at a low-single digit rate driven by increased year-over-year demand for electrical, calibration, thermography, networking and biomedical products as well as online condition-based monitoring equipment. Geographically, demand for field solutions products increased in Asia, Western Europe and the Middle East. Sales of product realization services and products declined at a low-single digit rate during 2015 as compared to 2014. Increased year-over-year demand for next-generation oscilloscopes and video network monitoring products and services was more than offset by decreased demand across all other major product and service lines. Geographically, demand increased for product realization services and products in China and Western Europe, but was more than offset by softer demand in Russia, Latin America, North America and Japan.

 

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Sales from existing businesses in the segment’s Sensing Technologies business declined at a mid-single digit rate during 2015 as compared to 2014 due to lower demand in all major end-markets. Geographically, decreased year-over-year demand in North America and Western Europe was partially offset by sales growth in China and Latin America.

Operating profit margins increased 120 basis points during 2015 as compared to 2014 due primarily to incremental year-over-year cost savings associated with restructuring actions and continuing productivity improvement initiatives, and the impact of transition services agreements, net of incremental year-over-year costs associated with various new product development, sales and marketing growth investments and the effect of a stronger U.S. dollar in 2015.

2014 COMPARED TO 2013

Price increases in the segment contributed 0.5% to year-over-year sales growth during 2014 as compared with 2013 and are reflected as a component of the change in sales from existing businesses.

Sales from existing businesses in the segment’s Advanced Instrumentation & Solutions businesses grew at a low-single digit rate during 2014 as compared to 2013 primarily due to increased year-over-year sales of field solutions and product realization services and products. Field solutions products grew at a low-single digit rate year-over-year driven by electrical, networking, and calibration products and strong sales of new product offerings. Geographically, demand for field solutions products increased across all major geographies. Sales of product realization services and products grew at a low-single digit rate during 2014 as compared to 2013 primarily due to increased sales of general purpose test products driven by new product offerings and video monitoring products. Geographically, demand increased in North America, China, Western Europe and Latin America.

Sales from existing businesses in the segment’s Sensing Technologies business grew at a mid-single digit rate during 2014 as compared to 2013, primarily due to increased demand in North American distribution and technology, defense and energy related end-markets. Geographically, sales growth was led by increased demand in North America, Western Europe and China.

Operating profit margins increased 110 basis points during 2014 as compared to 2013. The following factors impacted year-over-year operating profit margin comparisons.

2014 vs. 2013 operating profit margin comparisons were favorably impacted by:

 

    Higher 2014 sales volumes and incremental year-over-year cost savings associated with restructuring actions and continuing productivity improvement initiatives, net of incremental year-over-year costs associated with various product development, sales and marketing growth investments -110 basis points

 

    Lower year-over-year costs associated with restructuring actions - 30 basis points

2014 vs. 2013 operating profit margin comparisons were unfavorably impacted by:

 

    The incremental net dilutive effect of acquisitions - 30 basis points

 

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INDUSTRIAL TECHNOLOGIES

Industrial Technologies Selected Financial Data

 

     For the Year Ended December 31  
($ in millions)    2015     2014     2013  

Sales

   $ 3,204.6      $ 3,215.6      $ 2,991.2   

Operating profit

     617.2        597.0        552.5   

Depreciation

     52.9        51.3        37.7   

Amortization

     20.5        19.3        13.0   

Operating profit as a % of sales

     19.3     18.6     18.5

Depreciation as a % of sales

     1.7     1.6     1.3

Amortization as a % of sales

     0.6     0.6     0.4

Components of Sales Growth

 

     2015 vs. 2014     2014 vs. 2013  

Existing businesses

     5.0     5.5

Acquisitions (divestitures), net

     —       3.0

Currency exchange rates

     (5.0 )%      (1.0 )% 
  

 

 

   

 

 

 

Total

     —       7.5
  

 

 

   

 

 

 

2015 COMPARED TO 2014

Price increases in the segment had a negligible impact on year-over-year sales growth during 2015 as compared to 2014 and are reflected as a component of the change in sales from existing businesses.

Sales from existing businesses in the segment’s Transportation Technologies business grew at a mid-single digit rate during 2015 as compared to 2014, as year-over-year demand for the business’ dispenser systems, service and point-of-sale systems continued to be strong in North America and India during 2015. Customers, predominantly in the United States, have begun to upgrade point-of-sale systems to comply with deadlines for enhanced credit card security requirements based on the Europay, MasterCard and Visa (“EMV”) global standard and the Company expects this trend to continue to drive growth for the next several years. This growth was partially offset by lower year-over-year sales of retail petroleum products in the Middle East, Russia and Western Europe, largely due to softness in demand from integrated oil companies.

Sales from existing businesses in the segment’s Automation & Specialty Components business increased slightly during 2015 as compared to 2014. A strong increase in year-over-year demand in technology and defense related end-markets in North America and distribution and industrial automation related end-markets in Europe, was largely offset by lower demand in North American distribution and industrial automation related end-markets as well as agricultural related end-markets in North America and Europe. Sales in the engine retarder business were essentially flat on a year-over-year basis, with stronger demand in North America and Europe offset by softer demand in China. Year-over-year sales comparisons are also adversely affected by the sale of the Company’s EVS/hybrid product line in the third quarter of 2014, which has not been treated as a discontinued operation and the impact of which is reflected in “Acquisitions (divestitures), net” in the Components of Sales Growth table above. See Note 4 to the Combined Financial Statements for the year ended December 31, 2015 for additional information related to this transaction.

 

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Sales from existing businesses in the segment’s Franchise Distribution business grew at a low-double digit rate during 2015 as compared to 2014, due to continued strong demand for tool storage solutions as well as increases in the number of franchisees, primarily in the United States.

Operating profit margins increased 70 basis points during 2015 as compared to 2014. The following factors impacted year-over-year operating profit margin comparisons.

2015 vs. 2014 operating profit margin comparisons were favorably impacted by:

 

    Higher 2015 sales volumes, incremental year-over-year cost savings associated with restructuring actions and continuing productivity improvement initiatives, net of incremental year-over-year costs associated with various new product development, sales and marketing growth investments and the effect of a stronger U.S. dollar in 2015 - 85 basis points

 

    Lower year-over-year costs associated with restructuring actions - 40 basis points

2015 vs. 2014 operating profit margin comparisons were unfavorably impacted by:

 

    The impairment of certain trade names used in the segment recorded in the third quarter of 2015 and the incremental net dilutive effect of acquisitions in 2014 - 55 basis points

2014 COMPARED TO 2013

Price increases in the segment contributed 0.5% to sales growth on a year-over-year basis during 2014 as compared to 2013 and are reflected as a component of the change in sales from existing businesses.

Sales from existing businesses in the segment’s Transportation Technologies business grew at a mid-single digit rate during 2014 as compared to 2013. Demand for the business’ dispenser systems was particularly strong in North America during 2014. Continued strong demand for point-of-sale systems, service and vapor recovery products in most major geographies also contributed to year-over-year sales growth.

Sales from existing businesses in the segment’s Automation & Specialty Components business grew at a mid-single digit rate during 2014 as compared to 2013. Improved year-over-year demand in industrial automation, North America distribution, medical related end-markets and strong demand in engine retarder products was partially offset by lower year-over-year demand in technology, agricultural and defense related end-markets and the effect of exiting certain low-margin original equipment manufacturer (“OEM”) product lines which negatively impacted the first half of 2014. Geographically, strong year-over-year demand in China and other high-growth markets as well as moderate sales growth in North America, more than offset year-over-year sales declines in Europe. Year-over-year sales comparisons are also adversely affected by the sale of the Company’s EVS/hybrid product line in the third quarter of 2014, which has not been treated as a discontinued operation and the impact of which is reflected in “Acquisitions (divestitures), net” in the Components of Sales Growth table above. See Note 4 to the Combined Financial Statements for the year ended December 31, 2015 for additional information related to this transaction.

Sales from existing businesses in the segment’s Franchise Distribution business grew at a high-single digit rate during 2014 as compared to 2013, primarily due to a strong net increase in franchisees, higher demand for hardline and powered tool products and new product offerings in North America.

Operating profit margins increased 10 basis points during 2014 as compared to 2013. The following factors impacted year-over-year operating profit margin comparisons.

2014 vs. 2013 operating profit margin comparisons were favorably impacted by:

 

    Higher 2014 sales volumes and incremental year-over-year cost savings associated with restructuring actions and continuing productivity improvement initiatives, net of incremental year-over-year costs associated with various product development, sales and marketing growth investments - 170 basis points

 

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2014 vs. 2013 operating profit margin comparisons were unfavorably impacted by:

 

    Incremental year-over-year costs associated with restructuring actions - 30 basis points

 

    The incremental net dilutive effect of acquisitions and the product line disposition in 2014 - 130 basis points

Depreciation and amortization as a percentage of sales each increased during 2014 as compared to 2013 due primarily to business acquisitions in 2013. The inclusion of a full year of these incremental depreciation and amortization expenses in 2014 drove the increase.

COST OF SALES AND GROSS PROFIT

 

     For the Year Ended December 31  
($ in millions)    2015     2014     2013  

Sales

   $ 6,178.8      $ 6,337.2      $ 5,961.9   

Cost of sales

     (3,183.5     (3,288.0     (3,097.9
  

 

 

   

 

 

   

 

 

 

Gross profit

     2,995.3        3,049.2        2,864.0   

Gross profit margin

     48.5     48.1     48.0

Cost of sales decreased on a year-over-year basis during 2015 as compared to 2014, due primarily to the effect of a stronger U.S. dollar, incremental year-over-year cost savings associated with restructuring actions and continued productivity improvement initiatives and lower year-over-year costs associated with restructuring actions, partially offset by the impact of higher year-over-year sales volumes.

Cost of sales increased on a year-over-year basis during 2014 as compared to 2013, due primarily to the impact of higher year-over-year sales volumes, acquisitions completed in 2013 and 2014 and incremental year-over-year costs associated with continuing productivity improvement initiatives. These factors were partially offset by incremental year-over-year cost savings associated with restructuring actions and continued productivity improvement initiatives.

Gross profit margins increased 40 basis points on a year-over-year basis during 2015 as compared to 2014, due primarily to the favorable impact of higher year-over-year sales volumes and incremental year-over-year cost savings associated with restructuring actions and continued productivity improvement initiatives.

Gross profit margins increased 10 basis points on a year-over-year basis during 2014 as compared to 2013, due primarily to the favorable impact of higher year-over-year sales volumes and incremental year-over-year cost savings associated with restructuring actions and continued productivity improvement initiatives.

OPERATING EXPENSES

 

     For the Year Ended December 31  
($ in millions)    2015     2014     2013  

Sales

   $ 6,178.8      $ 6,337.2      $ 5,961.9   

Sales, general and administrative (“SG&A”) expenses

     1,347.9        1,416.3        1,342.5   

Research and development (“R&D”) expenses

     377.7        387.6        378.3   

SG&A as a % of sales

     21.8     22.3     22.5

R&D as a % of sales

     6.1     6.1     6.3

The year-over-year decrease in SG&A expenses reflects incremental year-over-year investments in the Company’s sales and marketing growth initiatives which were more than offset by the effect of a stronger U.S.

 

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dollar in 2015, year-over- year cost savings associated with restructuring actions, the impact of continuing productivity improvement initiatives and the impact of transition services agreements. SG&A expense as a percentage of sales decreased 50 basis points on a year-over-year basis as compared to 2014 and benefited from the increased leverage of the Company’s general and administrative cost base resulting from higher 2015 sales volumes.

SG&A expenses as a percentage of sales decreased 20 basis points on a year-over-year basis during 2014 as compared to 2013. The year-over-year increase in SG&A expenses reflects incremental year-over-year investments in sales and marketing growth initiatives, higher corporate expenses and incremental year-over-year costs associated with restructuring actions and continuing productivity improvement initiatives, partially offset by year-over-year cost savings associated with restructuring actions and continuing productivity improvement initiatives. This negative factor was more than offset by the benefit of increased leverage of the Company’s general and administrative cost base resulting from higher 2014 sales.

R&D expenses (consisting principally of internal and contract engineering personnel costs) as a percentage of sales were flat on a year-over-year basis in 2015 as compared to 2014. R&D expenses as a percentage of sales decreased 20 basis points on a year-over-year basis in 2014 as compared to 2013 due primarily to increased leverage of the existing cost base due to higher sales.

GAIN ON SALE OF PRODUCT LINE

In August 2014, the Company completed the divestiture of its EVS/hybrid product line for a sale price of $87 million in cash. This product line, which was part of the Industrial Technologies segment, had revenues of approximately $60 million in 2014 prior to the divestiture and approximately $100 million in 2013. Operating results of the product line were not significant to segment or overall Company reported results. The Company recorded a pretax gain on the sale of the product line of $34 million ($26 million after-tax) in its 2014 results. Subsequent to the sale, the Company has no continuing involvement in the EVS/hybrid product line.

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 the Company’s financial statements. The Company records the tax effect of discrete items and items that are reported net of their tax effects in the period in which they occur.

The Company’s effective tax rate can be affected by 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 initiative on Base Erosion and Profit Shifting.

The Company conducts business globally, and, as part of its global business, Danaher files numerous income tax returns in the United States federal, state and foreign jurisdictions. The countries in which the Company has a significant presence that have lower statutory tax rates than the United States include China, Germany and the United Kingdom. The Company’s ability to obtain a tax benefit from lower statutory tax rates outside of the United States is dependent on its levels of taxable income in these foreign countries. The Company believes that a change in the statutory tax rate of any individual foreign country would not have a material effect on the Company’s financial statements given the geographic dispersion of the Company’s taxable income.

 

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The Parent and its subsidiaries (including the businesses of the Company) are routinely examined by various domestic and international taxing authorities. The Internal Revenue Service (“IRS”) has completed examinations of certain of Danaher’s federal income tax returns through 2009 and is currently examining certain of Danaher’s federal income tax returns for 2010 through 2013. In addition, Danaher has subsidiaries (including the businesses of the Company) in Belgium, Brazil, Canada, China, Denmark, Finland, France, Germany, India, Italy, Japan, Malaysia, Singapore, Sweden, the United Kingdom and various other countries, states and provinces that are currently under audit for years ranging from 2003 through 2014.

As part of Danaher, the amount of income taxes the Company pays is subject to ongoing audits by federal, state and foreign tax authorities, which often result in proposed assessments. Management performs a comprehensive review of its 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 “Risk Factors” in this information statement.

Comparison of the Three Months Ended April 1, 2016 and April 3, 2015

The Company’s effective tax rate for three months ended April 1, 2016 was 30.8%, as compared to 30.7% for the three months ended April 3, 2015. The Company’s effective tax rate for 2016 and 2015 differs from the U.S. federal statutory rate of 35.0% due principally to the Company’s earnings outside the United States that are indefinitely reinvested and taxed at rates lower than the U.S. federal statutory rate. The effective tax rate in both periods was reduced by the impact of discrete items including reductions of accruals for tax contingencies and the resolution of certain worldwide tax matters.

The effective tax rate for the balance of 2016 is forecasted to be approximately 32.0% based on the projected mix of earnings before tax by jurisdiction, excluding the impact of any matters that would be treated as “discrete.” The actual mix of earnings by jurisdiction could fluctuate from the Company’s projection which would impact the Company’s effective tax rate for the period. In addition, the tax effects of discrete items, including accruals related to tax contingencies, the resolution of certain worldwide tax matters, tax audit settlements, statute of limitations expirations and changes in tax regulations, are reflected in the period in which they occur. As a result, it is reasonably possible that the actual effective tax rate used for financial reporting purposes will change in future periods.

Comparison of the Years Ended December 31, 2015, 2014 and 2013

The Company’s effective tax rate for the years ended December 31, 2015, 2014 and 2013 was 32.0%, 30.9% and 27.3%, respectively.

The Company’s effective tax rate for each of 2015, 2014 and 2013 differs from the U.S. federal statutory rate of 35.0% due principally to the Company’s earnings outside the United States that are indefinitely reinvested and taxed at rates lower than the U.S. federal statutory rate and from the reinstatement of certain tax benefits and credits resulting from the enactment of the Protecting Americans from Tax Hikes Act of 2015, the Tax Increase Prevention Act of 2014 and the America Tax Relief Act of 2012. In addition, the effective tax rate of 27.3% in 2013 includes tax benefits from the release of reserves resulting from the expiration of statutes of limitations.

COMPREHENSIVE INCOME

Comparison of the Three Months Ended April 1, 2016 and April 3, 2015

Comprehensive income increased $96 million for the three months ended April 1, 2016 as compared to the comparable period of 2015, due primarily to favorable year-over-year changes in foreign currency translation during the first three months of 2016. For the three months ended April 1, 2016, the Company recorded a foreign

 

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currency translation gain of $22 million compared to a translation loss of $101 million for the three months ended April 3, 2015. The benefit was partially offset by lower net earnings and pension adjustments during the three months ended April 1, 2016 compared to the comparable 2015 period.

Comparison of the Years Ended December 31, 2015 and December 31, 2014

Comprehensive income increased by $40 million in 2015 as compared to 2014. Net earnings decreased by $20 million, which was more than offset by favorable year-over-year changes in foreign currency translation and pension benefit adjustments. The Company recorded a foreign currency translation loss of $132 million in 2015 compared to a translation loss of $154 million in 2014. The Company recorded a pension benefit adjustments gain of $18 million in 2015 compared to a loss of $19 million in 2014.

Comparison of the Years Ended December 31, 2014 and December 31, 2013

Comprehensive income decreased by $156 million in 2014 as compared to 2013. Higher net earnings were offset by the impact of foreign currency translation adjustments resulting from the effect of a stronger U.S. dollar compared to most major currencies during the year and pension benefit adjustments. The Company recorded a foreign currency translation loss of $154 million in 2014 compared to a translation gain of $32 million in 2013. Pension benefit adjustments resulted in a loss of $19 million in 2014 compared to a gain of $3 million in 2013.

INFLATION

The effect of inflation on the Company’s revenues and net earnings was not significant in the three months ended April 1, 2016 and April 3, 2015 or any of the years ended December 31, 2015, 2014 or 2013.

FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

The Company is exposed to market risk from changes in foreign currency exchange rates, credit risk and commodity prices, each of which could impact its financial statements. The Company generally addresses its exposure to these risks through its normal operating and financing activities. In addition, the Company’s broad-based business activities help to reduce the impact that volatility in any particular area or related areas may have on its operating profit as a whole.

Currency Exchange Rate Risk

The Company faces transactional exchange rate risk from transactions with customers in countries outside 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 the Company’s functional currency or the functional currency of an applicable subsidiary. The Company also faces translational exchange rate risk related to the translation of financial statements of our foreign operations into U.S. dollars, the Company’s 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, the Company is 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 the Company’s net investment in international subsidiaries is reflected in the accumulated other comprehensive income (loss) component of Parent’s equity. A 10% depreciation in major currencies relative to the U.S. dollar as of December 31, 2015 would have resulted in a reduction of Parent’s equity of approximately $166 million.

Currency exchange rates negatively impacted reported sales in the three months ended April 1, 2016 by 1.5% as compared to the comparable period in 2015, as the U.S. dollar was, on average, stronger against most major currencies during the first quarter of 2016 as compared to exchange rate levels during the first quarter of 2015. Currency exchange rates negatively impacted full year 2015 reported sales by 5.0% as compared to 2014, as the

 

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U.S. dollar was, on average, stronger against most major currencies during 2015 as compared to exchange rate levels during 2014. If the exchange rates in effect as of April 1, 2016 were to prevail throughout 2016, currency exchange rates would negatively impact 2016 estimated sales by approximately 0.5% relative to the Company’s performance in 2015. Additional strengthening of the U.S. dollar against other major currencies would further adversely impact the Company’s sales and results of operations on an overall basis. Any weakening of the U.S. dollar against other major currencies would positively impact the Company’s sales and results of operations.

The Company has 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 the Company’s combined financial statements.

Credit Risk

Concentrations of credit risk arising from receivables from customers are limited due to the geographic and business diversity of the Company’s customers. The Company’s 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 “Risk Factors—Risks Related to Fortive’s Businesses.”

LIQUIDITY AND CAPITAL RESOURCES

As part of Danaher, the Company is dependent upon Danaher for all of its working capital and financing requirements as Danaher uses a centralized approach to cash management and financing of its operations. Financial transactions relating to the Company are accounted for through the Net Parent investment account of the Company. Accordingly, none of Danaher’s cash, cash equivalents or debt at the corporate level has been assigned to the Company in its combined financial statements. During the years ended December 31, 2015, 2014 and 2013, and the three months ended April 1, 2016 and April 3, 2015, the Company generated sufficient cash from operating activities to fund its operating and investing activities. Management assesses the Company’s liquidity in terms of its ability to generate cash to fund its operating and investing activities. The Company continues to generate substantial cash from operating activities and believes that its operating cash flow and other sources of liquidity will be sufficient to allow it to continue investing in existing businesses, consummating strategic acquisitions and managing its capital structure on a short and long-term basis. Prior to the separation and distribution, Fortive expects it will issue senior unsecured notes in multiple tranches with terms and maturities to be determined, enter into a credit agreement with a syndicate of banks providing for a three-year $500 million senior Term Loan Facility and a five-year $1.5 billion senior Revolving Credit Facility and issue commercial paper supported by the Revolving Credit Facility. Fortive expects these financing activities to yield proceeds of approximately $3.25 billion, of which approximately $3.0 billion will be paid to Danaher as consideration for the contribution of assets to Fortive by Danaher in connection with the separation. See “Description of Material Indebtedness” and “Risk Factors—Risks Related to Fortive’s Businesses” for more information.

 

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Following is an overview of the Company’s cash flows and liquidity:

Overview of Cash Flows and Liquidity

 

     Three Months Ended     Years Ended December 31,  
($ in millions)    April 1, 2016     April 3, 2015     2015     2014     2013  

Net cash provided by operating activities

   $ 177.2      $ 94.6      $ 1,009.0      $ 946.7      $ 1,030.2   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash paid for acquisitions

   $ (12.8   $ —        $ (37.1   $ (289.0   $ (433.8

Payments for additions to property, plant and equipment

     (28.4     (24.1     (120.1     (102.6     (81.1

Proceeds from sale of a product line

     —          —          —          86.7        —     

All other investing activities

     2.0        2.6        (16.9     13.8        3.5   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

   $ (39.2   $ (21.5   $ (174.1   $ (291.1   $ (511.4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in financing activities

   $ (138.0   $ (73.1   $ (834.9   $ (655.6   $ (518.8
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comparison of the Three Months Ended April 1, 2016 and April 3, 2015

Cash flows from operations increased $83 million during the three months ended April 1, 2016 as compared to the comparable period of 2015 due primarily to cash flow increases generated from lower investments in working capital in the three months ended April 1, 2016 as compared to the comparable period of 2015 due primarily to higher collections of trade accounts receivable. Net cash used in investing activities increased $18 million during the three months ended April 1, 2016 as compared to the comparable period of 2015, principally due to the business acquisition during 2016. Cash used in financing activities increased $65 million during the three months ended April 1, 2016 as compared to the comparable period in 2015, as higher levels of available cash were returned to Danaher.

Comparison of the Years Ended December 31, 2015 and December 31, 2014

Cash flows from operations increased $62 million during 2015 as compared to 2014 due primarily to cash generated from higher operating profit in 2015 and lower investments in working capital in 2015 as compared to 2014. Net cash used in investing activities decreased $117 million during 2015 as compared to 2014, principally due to lower levels of acquisitions during 2015. Net cash used in financing activities increased $179 million during 2015 as compared to 2014, as more cash was transferred to Danaher due to increases in operating cash flows and less cash used in investing activities.

Comparison of the Years Ended December 31, 2014 and December 31, 2013

Cash flows from operations decreased $84 million during 2014 as compared to 2013. Cash flow increases generated from higher operating profit were more than offset by increased investments in working capital. Cash paid for acquisitions constituted the most significant use of cash in 2014. Net cash used in investing activities decreased $220 million during 2014 as compared to 2013, due primarily to lower levels of acquisition expenditures during 2014 and proceeds from the divestiture of the EVS/hybrid product line in 2014. Net cash used in financing activities increased $137 million during 2014 as compared to the comparable period in 2013, as more cash was transferred to Danaher due to less cash being used in investing activities.

Capital Expenditures

Capital expenditures are made primarily for increasing capacity, replacing equipment, supporting new product development, improving information technology systems and the manufacturing of equipment used in revenue generating arrangements with certain of the Company’s customers. Capital expenditures totaled $28 million for the three months ended April 1, 2016 and $120 million, $103 million and $81 million in each of the years ended December 31, 2015, 2014 and 2013.

 

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Contractual Obligations

The following table sets forth, by period due or year of expected expiration, as applicable, a summary of the Company’s contractual obligations as of December 31, 2015 under (1) capital lease obligations and other, (2) operating leases, (3) purchase obligations and (4) other long-term liabilities reflected on the Company’s balance sheet under GAAP. There were no material changes in the Company’s contractual obligations during the quarter ended April 1, 2016. The amounts presented in the table below include $191 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 in the table below. Refer to Note 11 to the Combined Financial Statements for the year ended December 31, 2015 for additional information on unrecognized tax benefits. Certain of our acquisitions also 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)    Total      Less Than
One Year
     1-3 Years      3-5 Years      More Than
5 Years
 

Capital lease obligations and other (a)

   $ 7.1       $ 2.8       $ 1.3       $ 0.5       $ 2.5   

Operating lease obligations (b)

     150.8         42.0         54.8         32.7         21.3   

Purchase obligations (c)

     333.3         321.3         11.8         0.1         0.1   

Other long-term liabilities reflected on the Company’s balance sheet under GAAP (d)

     704.6         —           103.0         81.7         519.9   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 1,195.8       $ 366.1       $ 170.9       $ 115.0       $ 543.8   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(a)  Represent capital lease and other obligations and related interest payments and are projected for future periods using the interest rates in effect as of December 31, 2015. Certain of these projected interest payments may differ in the future based on changes in market interest rates.
(b)  As described in Note 13 to the Combined Financial Statements for the year ended December 31, 2015, certain leases require the Company to pay real estate taxes, insurance, maintenance and other operating expenses associated with the leased premises. These future costs are not included in the schedule above.
(c)  Consist of agreements to purchase goods or services that are enforceable and legally binding on the Company 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.
(d)  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, deferred 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.

Off-Balance Sheet Arrangements

The following table sets forth, by period due or year of expected expiration, as applicable, a summary of off-balance sheet commitments of Parent, on behalf of the Company, as of December 31, 2015.

 

     Amount of Commitment Expiration per Period  
($ in millions)    Total      Less Than
One Year
     1-3 Years      4-5 Years      More Than
5 Years
 

Guarantees

   $ 81.8       $ 40.3       $ 15.1       $ 11.2       $ 15.2   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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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 the Company’s obligations and/or performance requirements related to specific transactions.

Other Off-Balance Sheet Arrangements

The Company has from time to time divested certain of its businesses and assets. In connection with these divestitures, the Company often provides 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. The Company has not included any such items in the contractual obligations table above because they relate to unknown conditions and the Company cannot reasonably estimate the potential liabilities from such matters, but the Company does not believe it is reasonably possible that any such liability will have a material effect on the Company’s financial statements. In addition, as a result of these divestitures, as well as restructuring activities, certain properties leased by the Company have been sublet to third parties. In the event any of these third parties vacate any of these premises, the Company would be legally obligated under master lease arrangements. The Company believes that the financial risk of default by such sub-lessors is individually and in the aggregate not material to the Company’s financial statements.

In the normal course of business, the Company periodically enters into agreements that require it to indemnify customers, suppliers or other business partners for specific risks, such as claims for injury or property damage arising out of the Company’s products or services or claims alleging that Company products, services or software infringe third party intellectual property. The Company has not included any such indemnification provisions in the contractual obligations table above. Historically, the Company has not experienced significant losses on these types of indemnification obligations.

Legal Proceedings

Please refer to Note 14 to the Combined Financial Statements for the year ended December 31, 2015 included in this information statement for information regarding legal proceedings and contingencies, and for a discussion of risks related to legal proceedings and contingencies, please refer to “Risk Factors—Risks Related to Fortive’s Businesses.”

CRITICAL ACCOUNTING ESTIMATES

Management’s discussion and analysis of the Company’s financial condition and results of operations is based upon the Company’s Combined 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. The Company bases 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.

The Company believes the following accounting estimates are most critical to an understanding of its 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 in the Company’s Combined Financial Statements for the year ended December 31, 2015.

Accounts Receivable: The Company maintains allowances for doubtful accounts to reflect probable credit losses inherent in its portfolio of receivables. Determination of the allowances requires management to exercise

 

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judgment about the timing, frequency and severity of credit losses that could materially affect the allowances for doubtful accounts and, therefore, net income. The allowances for doubtful accounts represent management’s best estimate of the credit losses expected from the Company’s trade accounts, contract and finance 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. The Company regularly performs detailed reviews of its accounts receivable portfolio to determine if an impairment has occurred and to assess the adequacy of the allowances. If the financial condition of the Company’s customers were to deteriorate with a severity, frequency and/or timing different from the Company’s assumptions, additional allowances would be required and the Company’s financial statements would be adversely impacted.

Inventories: The Company records inventory at the lower of cost or market value. The Company estimates the market value of its inventory based on assumptions of future demand and related pricing. Estimating the market value of inventory is inherently uncertain because levels of demand, technological advances and pricing competition in many of the Company’s markets can fluctuate significantly from period to period due to circumstances beyond the Company’s control. If actual market conditions are less favorable than those projected by management, the Company could be required to reduce the value of its inventory, which would adversely impact the Company’s financial statements. Refer to Note 5 in the Company’s Combined Financial Statements for the year ended December 31, 2015.

Acquired Intangibles: The Company’s business acquisitions typically result in the recognition of goodwill, in-process research and development and other intangible assets, which affect the amount of future period amortization expense and possible impairment charges that the Company may incur. Refer to Notes 2, 3 and 7 in the Company’s Combined Financial Statements for the year ended December 31, 2015 for a description of the Company’s policies relating to goodwill, acquired intangibles and acquisitions.

In performing its goodwill impairment testing, the Company estimates the fair value of its reporting units primarily using a market based approach. The Company estimates 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 the Company’s reporting units, in addition to recent market available sale transactions of comparable businesses. In evaluating the estimates derived by the market based approach, management makes judgments about the relevance and reliability of the multiples by considering factors unique to its 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 the Company also estimates fair value utilizing a discounted cash flow analysis (i.e., an income approach) 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.

As of December 31, 2015, the Company had eleven reporting units for goodwill impairment testing. Reporting units resulting from recent acquisitions generally present the highest risk of impairment. Management believes the impairment risk associated with these reporting units decreases as these businesses are integrated into the Company and better positioned for potential future earnings growth. The carrying value of the goodwill included in each individual reporting unit ranges from $7 million to $1.1 billion. The Company’s annual goodwill impairment analysis in 2015 indicated that in all instances, the fair values of the Company’s 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 the Company’s reporting units as of the annual testing date ranged from approximately 5% to approximately 900%. In order to evaluate the sensitivity of the fair value calculations used in the goodwill impairment test, the Company 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%

 

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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 the Company’s reporting units ranged from approximately -5% to approximately 800%. After applying the hypothetical 10% decrease, two reporting unit’s hypothetical fair values were approximately equal to or below their carrying value. Management evaluated other factors relating to the fair value of these reporting units, including using an income approach, market positions of the businesses, comparability of market sales transactions and financial and operating performance, and concluded no impairment charge was required.

The Company reviews identified intangible assets for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. The Company also tests intangible assets with indefinite lives at least annually for impairment. 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. These analyses require management to make judgments and estimates about future revenues, expenses, market conditions and discount rates related to these assets.

The Company has not identified any events or changes in circumstances which indicate a potential impairment of acquired intangibles during the first quarter of 2016.

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 the Company’s financial statements.

Contingent Liabilities: As discussed in Note 14 to the Combined Financial Statements, the Company, is, from time to time, subject to a variety of litigation and similar contingent liabilities incidental to its business (or the business operations of previously owned entities). The Company recognizes 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 14 to the Combined Financial Statements for the year ended December 31, 2015. If the reserves established by the Company with respect to these contingent liabilities are inadequate, the Company would be required to incur an expense equal to the amount of the loss incurred in excess of the reserves, which would adversely affect the Company’s financial statements.

Revenue Recognition: The Company derives revenues from the sale of products and services. Refer to Note 2 to the Company’s Combined Financial Statements for the year ended December 31, 2015 for a description of the Company’s revenue recognition policies.

Although most of the Company’s sales agreements contain standard terms and conditions, certain agreements contain multiple elements or non-standard terms and conditions. As a result, judgment is sometimes required to determine the appropriate accounting, including whether the deliverables specified in these agreements should be treated as separate units of accounting for revenue recognition purposes, and, if so, how the consideration should be allocated among the elements and when to recognize revenue for each element. The Company allocates revenue to each element in the contractual arrangement based on the selling price hierarchy that, in some instances, may require the Company to estimate the selling price of certain deliverables that are not sold separately or where third party evidence of pricing is not observable. The Company’s estimate of selling price impacts the amount and timing of revenue recognized in multiple element arrangements.

If the Company’s judgments regarding revenue recognition prove incorrect, the Company’s revenues in particular periods may be adversely affected.

Corporate Allocations: The Company has historically operated as part of Danaher and not as a stand-alone company. Accordingly, certain shared costs have been allocated to the Company and are reflected as expenses in

 

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the accompanying financial statements. Management considers the allocation methodologies used to be reasonable and appropriate reflections of the related expenses attributable to the Company for purposes of the carve-out financial statements; however, the expenses reflected in these financial statements may not be indicative of the actual expenses that would have been incurred during the periods presented if the Company had operated as a separate stand-alone entity. In addition, the expenses reflected in the financial statements may not be indicative of expenses that will be incurred in the future by the Company. Refer to Note 9 to the Company’s Combined Condensed Financial Statements for the three months ended April 1, 2016 and to Note 17 to the Company’s Combined Financial Statements for the year ended December 31, 2015 for a description of the Company’s corporate allocations and related-party transactions.

Stock-Based Compensation: For a description of the Company’s stock-based compensation accounting practices, refer to Note 15 to the Company’s Combined Financial Statements for the year ended December 31, 2015. Determining the appropriate fair value model and calculating the fair value of stock-based payment awards require subjective assumptions, including the expected life of the awards, stock price volatility and expected forfeiture rate. The assumptions used in calculating the fair value of stock-based payment awards represent the Company’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment. If actual results are not consistent with management’s assumptions and estimates, the Company’s equity-based compensation expense could be materially different in the future.

Pension: For a description of the Company’s pension accounting practices, refer to Note 10 in the Company’s Combined Financial Statements for the year ended December 31, 2015. 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) the Company’s financial statements could be materially affected. A 50 basis point reduction in the discount rates used for the plans for 2015 would have increased the net obligation by $27 million ($18 million on an after tax basis) from the amounts recorded in the financial statements as of December 31, 2015.

The Company’s 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 2.3% to 6.0%. If the expected long-term rate of return on plan assets for 2015 was reduced by 50 basis points, pension expense for the plans for 2015 would have increased $1.0 million ($0.7 million on an after-tax basis).

Income Taxes: For a description of the Company’s income tax accounting policies, refer to Notes 2 and 11 to the Company’s Combined Financial Statements for the year ended December 31, 2015. The Company establishes valuation allowances for its deferred tax assets if it is more likely than not that some or all of the deferred tax asset will not be realized which requires management to make judgments and estimates regarding: (1) the timing and amount of the reversal of taxable temporary differences, (2) expected future taxable income, and (3) the impact of tax planning strategies. Future changes to tax rates would also impact the amounts of deferred tax assets and liabilities and could have an adverse impact on the Company’s financial statements.

The Company provides for unrecognized tax benefits when, based upon the technical merits, it is “more-likely-than- not” that an uncertain tax position will not be sustained upon examination. Judgment is required in evaluating tax positions and determining income tax provisions. The Company re-evaluates the technical merits of its 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.

In addition, certain of Danaher’s tax returns are currently under review by tax authorities (see “—Results of Operations – Income Taxes” and Note 11 to the Combined Financial Statements for the year ended December 31,

 

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2015). Management believes the positions taken in these returns are in accordance with the relevant tax laws. However, the outcome of these audits is uncertain and could result in the Company being required to record charges for prior year tax obligations which could have a material adverse impact to the Company’s financial statements, including its effective tax rate.

An increase in the Company’s 2015 nominal tax rate of 1.0% would have resulted in an additional income tax provision for the fiscal year ended December 31, 2015 of $13 million.

NEW ACCOUNTING STANDARDS

In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-09, Compensation—Stock Compensation (Topic 718), which aims to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, classification of certain items on the statement of cash flows and accounting for forfeitures. For the Company, this standard is effective beginning January 1, 2017, with early adoption permitted. Management has not yet completed its assessment of the impact of the new standard on the Company’s financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which will require, among other items, lessees to recognize a right-of-use asset and a lease liability for most leases. Extensive quantitative and qualitative disclosures, including significant judgments made by management, will be required to provide greater insight into the extent of revenue and expense recognized and expected to be recognized from existing contracts. The accounting applied by a lessor is largely unchanged from that applied under the current standard. The standard must be adopted using a modified retrospective transition approach and provides for certain practical expedients. For the Company, this standard is effective beginning January 1, 2019, with early adoption permitted. Management has not yet completed its assessment of the impact of the new standard on the Company’s financial statements.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which impacts virtually all aspects of an entity’s revenue recognition. The core principle of the new standard is that revenue should be recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. On July 9, 2015, the FASB deferred the effective date of the standard by one year which results in the new standard being effective for the Company at the beginning of its first quarter of fiscal year 2018. In addition, during March and April 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) and ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, respectively, which clarified the guidance on reporting revenues as a principal versus an agent, identifying performance obligations and accounting for intellectual property licenses. The Company is currently assessing the impact that the adoption of the new standard will have on its financial statements and related disclosures, including possible transition alternatives.

In December 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes. ASU 2015-17 simplifies the presentation of deferred income taxes by requiring that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The standard is effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods and may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. In the fourth quarter of 2015, the Company early adopted this ASU on a prospective basis, and therefore, the December 31, 2015 Combined Balance Sheet and the April 1, 2016 Combined Condensed Balance Sheets reflect the new disclosure requirements.

In September 2015, the FASB issued ASU No. 2015-16, Simplifying the Accounting for Measurement-Period Adjustments (Topic 805), which eliminates the requirement for an acquirer in a business combination to

 

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account for measurement-period adjustments retrospectively. The new guidance requires that the cumulative impact of a measurement-period adjustment (including the impact on prior periods) be recognized in the reporting period in which the adjustment is identified-eliminating the requirement to restate prior period financial statements. The ASU requires disclosure of the nature and amount of measurement-period adjustments as well as information with respect to the portion of the adjustments recorded in current-period earnings that would have been recorded in previous reporting periods if the adjustments to provisional amounts had been recognized as of the acquisition date. During 2015, the Company chose to early adopt this ASU and therefore, disclosures included within the combined financial statements have been updated to reflect the new disclosure requirements.

In July 2015, the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory (Topic 330), which modifies existing requirements regarding measuring inventory at the lower of cost or market. Under existing standards, the market amount requires consideration of replacement cost, net realizable value (“NRV”), and NRV less an approximately normal profit margin. The new ASU replaces market with NRV, defined as estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. This eliminates the need to determine and consider replacement cost or NRV less an approximately normal profit margin when measuring inventory. For the Company, this standard is effective prospectively beginning January 1, 2017, with early adoption permitted. Management has not yet completed its assessment of the impact of the new standard on the Company’s financial statements.

In May 2015, the FASB issued ASU No. 2015-07, Disclosures for Investments in Certain Entities that Calculate Net Asset Value Per Share (or its Equivalent). ASU 2015-07 removes the requirement to categorize within the fair value hierarchy investments for which fair values are estimated using the net asset value (“NAV”) practical expedient provided by Accounting Standards Codification 820, Fair Value Measurement. Disclosures about investments in certain entities that calculate NAV per share are limited under the new standard to those investments for which the Plan has elected to estimate the fair value using the NAV practical expedient. The ASU is effective for entities (other than public business entities) for fiscal years beginning after December 15, 2016, with retrospective application to all periods presented, with early adoption permitted. During 2015, the Company chose to early adopt this ASU and therefore, disclosures included within the combined financial statements have been updated to reflect the new disclosure requirements.

 

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BUSINESS

The Company

Fortive is a diversified industrial growth company comprising businesses that are recognized leaders in attractive markets globally. We operate businesses that design, develop, manufacture, service 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 40 countries across North America, Asia Pacific, Europe and Latin America.

We strive to create shareholder value through consistent and sustainable earnings growth, driven by continuous improvement in the operating performance of our existing businesses and acquisitions of other businesses that strategically fit within our existing business portfolio or expand our portfolio into new and attractive markets.

To accomplish these goals, we use a set of growth, lean and leadership tools and processes, which today are known as DBS, designed to continuously improve business performance in the critical areas of quality, delivery, cost, growth and innovation. Within the DBS framework, we pursue a number of ongoing strategic initiatives relating to idea generation, product development and commercialization, global sourcing of materials and services, manufacturing improvement and sales and marketing. DBS has a long and deep history within our businesses, many of which originated fundamental DBS tools and have driven results through DBS for decades. Following our separation from Danaher, our rights to the DBS tools and processes will continue pursuant to the DBS license agreement described under “Certain Relationships and Related Person Transactions—DBS License Agreement,” and we will continue using and developing these tools and processes under the name “Fortive Business System,” or “FBS.”

Our 2015 sales by geographic destination (geographic destination refers to the geographic area where the final sale to the Company’s customer is made) were: North America, 58% (including 55% in the United States); Europe, 18%; Asia Pacific, 18%, and all other regions, 6%. For additional information regarding sales by geography, please refer to Note 16 in the Combined Financial Statements included in this information statement.

Our industrial growth businesses have historically been operated as Danaher’s Test & Measurement segment, Industrial Technologies segment (other than its Product Identification platform) and Retail/Commercial Petroleum platform. Today, our businesses are organized in two segments: Professional Instrumentation and Industrial Technologies.

 

    Professional Instrumentation. Our Professional Instrumentation segment consists of our Advanced Instrumentation & Solutions and Sensing Technologies businesses. Fortive’s Advanced Instrumentation & Solutions business was primarily established through Danaher’s acquisitions of Qualitrol in the 1980’s, Fluke Corporation in 1998, Tektronix in 2007, Keithley Instruments in 2010 and numerous bolt-on acquisitions. Our Sensing Technologies business originated with Danaher’s acquisition of Chicago Pneumatic in the 1980’s and Gems Sensors in 1997.

 

    Industrial Technologies. Our Industrial Technologies segment consists of our Transportation Technologies, Automation & Specialty Components and Franchise Distribution businesses. Fortive’s Transportation Technologies business originated with Danaher’s acquisition of Veeder-Root in the 1980’s and subsequently expanded through additional acquisitions, including the acquisitions of Gilbarco in 2002, Navman Wireless in 2012, Teletrac in 2013 and numerous bolt-on acquisitions. Fortive’s Automation & Specialty Components business was primarily established through Danaher’s acquisitions of Pacific Scientific Company in 1998, Kollmorgen Corporation in 2000 and Thomson Industries in 2002, as well as numerous other acquisitions. Fortive’s Franchise Distribution business was established through Danaher’s acquisitions of Matco Tools and Hennessy Industries in 1986.

 

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Fortive’s headquarters are located at 6920 Seaway Blvd, Everett, WA 98203, and its telephone number is (425) 446-5000.

Fortive intends to maintain an Internet site at www.fortive.com. Fortive’s website, and the information contained therein, or connected thereto, is not incorporated by reference into this information statement or the registration statement of which this information statement forms a part.

Strategy

Our strategy is to maximize shareholder value through several key initiatives:

 

    Build Sustainable Competitive Advantage Through Innovation That Our Customers Value. Our businesses typically hold leadership positions in their served markets, which are generally characterized by significant growth and profitability potential. In the markets we serve, our businesses strive to drive organic growth by prioritizing the voice of our customers in everything we do. Over time, our focus on customers’ needs has enabled us to innovate effectively in markets where competitive leadership can be attained and, over long periods, sustained. Innovation and product vitality are key factors in maintaining our market leadership positions. In many end markets, we are leading the evolution of solutions to more software-driven products and business models, where our long history of reliability and strong brands position our operating businesses at the key points of customer workflows.

 

    Leverage Our Global Business Presence. Approximately 45% of our revenues are generated outside the United States, and we have significant operations around the world in key geographic markets. This reach has facilitated our entry into new markets, as we can harness existing sales channels, familiarity with local customer needs and regulations and our locally-based management resources. We expect to continue to prioritize development of localized solutions for high-growth markets around the world, with a strong local manufacturing and product development capability. We intend to continue to pursue acquisitions of businesses that complement our strategy in specific markets or regions.

 

    Attract and Retain Talented Associates, We believe that our team of talented associates, united by a common culture employing DBS in pursuit of continuous improvement, provides us a significant competitive advantage. We seek to continue to attract, develop and retain world-class leaders and associates globally and to drive their engagement with our customer-centric approach. We will continue to closely align individual incentives to the objectives of the Company and its shareholders.

 

    Drive Continuous Improvement Through Application of DBS. All of our businesses and associates use DBS to drive continuous improvement, measured by metrics such as quality, delivery, cost, growth and innovation. Through consistent application of DBS tools and principles, we have been able to drive industry-leading customer satisfaction and profitability in businesses that have been in our portfolio for years and significant improvement in growth and operating margins in businesses that we acquire. DBS extends well beyond lean concepts, to include methods for driving growth and innovation demanded in our markets.

 

    Redeploy Our Free Cash Flow to Grow and Improve Our Businesses. We intend to continue to re-invest the substantial free cash flow generated by our existing businesses to drive innovation for organic growth and to acquire businesses that fit strategically or extend our portfolio into new and attractive markets. We believe that our management team has developed considerable skill in identifying, acquiring and integrating new businesses. Our track record of disciplined success in targeting and effectively integrating acquisitions is an important aspect of our growth strategy.

Strengths

We believe the Company has significant competitive strengths, including:

 

    Leading Brands in Attractive Markets. Many of our operating companies have been leaders in their respective markets for decades and have built brand recognition and share positions that exceed that of many competitors.

 

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    Global Presence and Reach. We operate globally, with diverse sales channels, manufacturing operations and product development that enable us to competitively address local requirements. We have experienced management teams based in key markets around the world and a strong local presence in high-growth markets.

 

    Best-in-Class Operating System. Our portfolio includes operating businesses that originated fundamental DBS tools and have driven results through DBS for decades. We believe that our ability to continually improve quality, delivery, cost, growth and innovation improve customer satisfaction and offer significant competitive advantage.

 

    Experienced Management Team. Our management team predominantly consists of long-tenured leaders from Danaher who have a proven track record of success. The Company’s senior management has extensive industry experience and many years of service with Danaher.

Reportable Segments

The table below describes the percentage of our total annual revenues attributable to each of our two segments over each of the last three years ended December 31, 2015. For additional information regarding sales, operating profit and identifiable assets by segment, please refer to Note 16 in the Combined Financial Statements included in this information statement.

 

     2015     2014     2013  

Professional Instrumentation

     48     49     50

Industrial Technologies

     52     51     50

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 and temperature. Customers for these products and services include industrial service, installation and maintenance professionals, designers and manufacturers of electronic devices and instruments, and other customers for whom precision and reliability are critical in their specific applications. 2015 sales for this segment by geographic destination were: North America, 51%; Europe, 18%; Asia Pacific, 24%, and all other regions, 7%. Our Professional Instrumentation segment consists of the following lines of business.

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, and online condition-based monitoring equipment for critical infrastructure in electrical utility and industrial applications. These products and associated software solutions measure voltage, current, resistance, power quality, frequency, pressure, temperature and air quality, among other parameters. Typical users of these products include electrical engineers, electricians, electronic technicians, medical technicians, and industrial service, installation and maintenance professionals. The business also makes and sells instruments, controls and monitoring systems used by maintenance departments in electric utilities and industrial facilities to monitor assets, including transformers, generators, motors and switchgear. Products are marketed under a variety of brands, including AMPROBE, FLUKE, FLUKE BIOMEDICAL, FLUKE NETWORKS and QUALITROL.

 

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    Product Realization. Our product realization services and products help developers and engineers convert concepts into finished products. Our test, measurement and monitoring products are used in the design, manufacturing and development of electronics, industrial, video 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, and video equipment manufacturers, content developers and broadcasters. 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, MAXTEK, PACIFIC SCIENTIFIC ENERGETIC MATERIALS COMPANY and TEKTRONIX.

Competition in the 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 segment 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 primarily marketed under a variety of brands, including ANDERSON-NEGELE, GEMS SENSORS and SETRA. Sales in the segment 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 fueling, field payment, vehicle tracking and fleet management solutions that are used in commercial and private fleet applications, as well as precision motion-control and other specialty products and solutions that enable manufacturing and other process industries around the world to operate more effectively and efficiently. Customers for these products and services include fleet owners, industrial machine OEMs, commercial garages and other industrial customers. 2015 sales for this segment by geographic destination were: North America, 64%; Europe, 18%; Asia Pacific, 12% and all other regions, 6%. Our Industrial Technologies segment consists of the following lines of business.

 

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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. This business consists of:

 

    Retail/Commercial Petroleum. Our retail/commercial petroleum products include environmental monitoring and leak detection systems; vapor recovery equipment; fuel dispensers for petroleum and compressed natural gas; point-of-sale and secure electronic payment technologies for retail petroleum stations; submersible turbine pumps; and remote monitoring and outsourced fuel management services, including compliance services, fuel system maintenance, 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, DOMS, GASBOY, GILBARCO, GILBARCO AUTOTANK and VEEDER-ROOT.

 

    Telematics. Our telematics products include vehicle tracking and fleet management hardware and software 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 NAVMAN WIRELESS and TELETRAC.

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.

Automation & Specialty Components

Our Automation & Specialty Components business provides a wide range of electromechanical and electronic motion control products (including standard and custom motors, drives and controls) and mechanical components (such as ball screws, linear bearings, clutches/brakes and linear actuators), as well as supplemental braking systems for commercial vehicles. The automation products are sold in various precision motion markets, such as the markets for packaging equipment, medical equipment, metal forming equipment, robotics and food and beverage processing applications. Customers are typically systems integrators who use our products in production and packaging lines and original equipment manufacturers that integrate our products into their machines and systems. Customers in this industry choose suppliers based on a number of factors, including product performance, the breadth of the supplier’s product offering, the geographic coverage offered by the supplier and the other factors described under “—Competition.” The business is also a leading worldwide supplier of supplemental braking systems for commercial vehicles, selling JAKE BRAKE brand engine retarders for class 6 through 8 vehicles and bleeder and exhaust brakes for class 3 through 7 vehicles. Customers are primarily major original equipment manufacturers of class 3 through class 8 vehicles, and typically choose suppliers based on their technical expertise and total cost of ownership. Products in this business are marketed under a variety of brands, including DYNAPAR, HENGSTLER, JAKE BRAKE, KOLLMORGEN, PORTESCAP and THOMSON. Sales are generally made through our direct sales personnel and independent distributors.

Franchise Distribution

Our Franchise Distribution business consists of:

 

    Professional Tools. We manufacture and distribute professional tools, toolboxes and automotive diagnostic equipment 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.”

 

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    Wheel Service Equipment. We produce a full-line of wheel service equipment including brake lathes, tire changers, wheel balancers, and wheel weights under the AMMCO, BADA and COATS brands. Typical users of these products are automotive tire and repair shops. Sales are generally made through our direct sales personnel and independent distributors. Competition in the wheel service equipment business is based on the factors described under “—Competition.”

Manufacturing facilities of our Industrial Technologies businesses are located in North America, South America, Europe and Asia.

************************************

The following discussion includes information common to both of our segments.

Materials

Our manufacturing operations employ a wide variety of raw materials, including steel, copper, cast iron, electronic components, aluminum, plastics and other petroleum-based products. Prices of oil and gas also affect our costs for freight and utilities. We purchase raw materials from a large number of independent sources around the world. 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 2015 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 “Risk Factors—Risks Related to Fortive’s Businesses.”

Intellectual Property

We own numerous patents, trademarks, copyrights, 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 “Risk Factors—Risks Related to Fortive’s Businesses.” All capitalized brands and product names throughout this document are trademarks owned by, or licensed to, Danaher.

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 many 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 “Risk Factors—Risks Related to Fortive’s Businesses.”

 

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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 attributable to each of our segments as of December 31 ($ in millions):

 

     2015      2014  

Professional Instrumentation

   $ 523       $ 527   

Industrial Technologies

     543         557   
  

 

 

    

 

 

 

Total

   $ 1,066       $ 1,084   
  

 

 

    

 

 

 

We expect that a large majority of the unfilled orders as of December 31, 2015 will have been delivered to customers within three to four 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 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, 2015, we employed approximately 22,000 persons, of whom approximately 12,000 were employed in the United States and approximately 10,000 were employed outside of the United States. Of our United States employees, approximately 1,200 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. For a discussion of risks related to employee relations, please refer to “Risk Factors—Risks Related to Fortive’s Businesses.”

 

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Research and Development

We believe that our competitive position is maintained and enhanced through the development and introduction of new products and services that incorporate improved features and functionality, better performance, smaller size and weight, lower cost, or some combination of these factors. We invest substantially in the development of new products. We conduct research and development activities for the purpose of designing and developing new products and applications that address customer needs and emerging trends, as well as enhancing the functionality, effectiveness, ease of use and reliability of our existing products. Our research and development efforts include internal initiatives and those that use licensed or acquired technology. We expect to continue investing in research and development at a rate consistent with our past, with the goal of maintaining or improving our competitive position, and entering new markets. The following sets forth our research and development expenditures over each of the last three years ended December 31, by segment and in the aggregate ($ in millions):

 

     2015      2014      2013  

Professional Instrumentation

   $ 232       $ 238       $ 245   

Industrial Technologies

     146         150         133   
  

 

 

    

 

 

    

 

 

 

Total

   $ 378       $ 388       $ 378   
  

 

 

    

 

 

    

 

 

 

The Company generally conducts research and development activities on a business-by-business basis, primarily in North America, Asia and Europe. We anticipate that we will continue to make significant expenditures for research and development as we seek to provide a continuing flow of innovative products to maintain and improve our competitive position. For a discussion of the risks related to the need to develop and commercialize new products and product enhancements, please refer to “Risk Factors—Risks Related to Fortive’s Businesses.” Customer-sponsored research and development was not significant in 2015, 2014 or 2013.

Government Contracts

Although the substantial majority of our revenue in 2015 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. For a discussion of risks related to government contracting requirements, please refer to “Risk Factors—Risks Related to Fortive’s Businesses.”

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 risks related to the regulations that our businesses are subject to, please refer to “Risk Factors—Risks Related to Fortive’s Businesses.”

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 14 in the Combined Financial Statements included in this information statement. 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 “Risk Factors—Risks Related to Fortive’s Businesses.”

 

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Export/Import Compliance

We are required to comply with various U.S. export/import control and economic sanctions laws, including:

 

    the International Traffic in Arms Regulations administered by the U.S. Department of State, Directorate of Defense Trade Controls, which, among other things, imposes license requirements on the export from the United States of defense articles and defense services (which are items specifically designed or adapted for a military application and/or 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 or re-export of certain dual-use goods, technology and software (which are items that potentially have both commercial and military 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 regulatory activities of the U.S. Customs and Border Protection.

Other nations’ governments have implemented similar export and import control 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 “Risk Factors—Risks Related to Fortive’s Businesses.”

International Operations

Our products and services are available 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 table below describes annual revenue derived from customers outside the United States as a percentage of total annual revenue for the year ended December 31, by segment and in the aggregate, based on geographic destination:

 

     2015     2014     2013  

Professional Instrumentation

     51     53     54

Industrial Technologies

     39     44     49

Total

     45     48     50

The table below describes long-lived assets located outside the United States as of December 31, as a percentage of total long-lived assets, by segment and in the aggregate (including assets held for sale):

 

     2015     2014     2013  

Professional Instrumentation

     21     29     29

Industrial Technologies

     25     19     24

Total

     23     25     27

 

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For additional information related to revenues and long-lived assets by country, please refer to Note 16 to the Combined Financial Statements included in this information statement and for information regarding deferred taxes by geography, please refer to Note 11 to the Combined Financial Statements included in this information statement.

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 U.S., though we also sell directly from the U.S. 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.

Financial information about our international operations is contained in Note 16 of the Combined Financial Statements and information about the effects of foreign currency fluctuations on our business is set forth in MD&A. For a discussion of risks related to our non-U.S. operations and foreign currency exchange, please refer to “Risk Factors—Risks Related to Fortive’s Businesses.”

Major Customers

No single customer accounted for more than 10% of combined sales in 2015, 2014 or 2013.

Properties

Our corporate headquarters are located in Everett, Washington in a facility that we own. As of December 31, 2015, our facilities included approximately 99 significant manufacturing and distribution facilities. 54 of these facilities are located in the United States in over 25 states and 45 are located outside the United States in over 40 other countries, including the rest of North America, Asia Pacific, Europe and Latin America. These facilities cover approximately 10 million square feet, of which approximately 3 million square feet are owned and approximately 7 million square feet are leased. Particularly outside the United States, facilities often serve more than one business segment and may be used for multiple purposes, such as administration, sales, manufacturing, warehousing and/or distribution. The number of significant facilities by business segment is: Professional Instrumentation, 47; and Industrial Technologies, 52.

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 13 in the Combined Financial Statements included in this information statement for additional information with respect to our lease commitments.

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.

 

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MANAGEMENT

Executive Officers Following the Distribution

While most of the individuals who are expected to serve as Fortive’s executive officers are currently officers and employees of Danaher, upon completion of the separation, none of these individuals will continue to be employees or officers of New Danaher. The following table sets forth information regarding individuals who are expected, as of the date of this information statement, to serve as Fortive’s executive officers, including their positions after the separation, and is followed by biographies of each such executive officer. If any additional executive officers of Fortive are identified prior to completion of the separation, their information will be provided in subsequent amendments to this information statement. The information set forth below is as of March 1, 2016.

 

Name

   Age     

Position

James A. Lico

     50       President and Chief Executive Officer

Patrick J. Byrne

     55       Senior Vice President

Martin Gafinowitz

     57       Senior Vice President

Charles E. McLaughlin

     54       Senior Vice President – Chief Financial Officer

Patrick K. Murphy

     54       Senior Vice President

William W. Pringle

     48       Senior Vice President

Raj Ratnakar

     48       Vice President – Strategic Development

Jonathan L. Schwarz

     44       Vice President – Corporate Development

Peter C. Underwood

     46       Senior Vice President – General Counsel and Secretary

Stacey A. Walker

     45       Senior Vice President – Human Resources

Emily A. Weaver

     45       Vice President – Chief Accounting Officer

James A. Lico will serve as Fortive’s President and Chief Executive Officer, as well as a member of the Board. Mr. Lico has served in leadership positions in a variety of different functions and businesses since joining Danaher in 1996, including as Executive Vice President since 2005.

Patrick J. Byrne will serve as a Senior Vice President of Fortive. Mr. Byrne has served as President of Danaher’s Tektronix business since July 2014, after serving as Chief Technology Officer and Vice President-Strategy and Business Development for Danaher’s Test and Measurement segment from November 2012 to July 2014. Prior to joining Danaher, he served as Chief Executive Officer of Intermec Technologies, a manufacturer of automated identification and data capture equipment, from 2007 until May 2012.

Martin Gafinowitz will serve as a Senior Vice President of Fortive. Mr. Gafinowtiz has served as Senior Vice President-Group Executive of Danaher since March 2014 after serving as Vice President-Group Executive of Danaher from 2005 to March 2014.

Charles E. McLaughlin will serve as Fortive’s Senior Vice President-Chief Financial Officer. Mr. McLaughlin has served as Senior Vice President-Diagnostics Group CFO for Danaher’s Diagnostics business since May 2012, and as Senior Vice President-Chief Financial Officer of Danaher’s Beckman Coulter business since July 2011. Mr. McLaughlin previously served as Vice President-Chief Financial Officer of Tektronix from Danaher’s acquisition of Tektronix in November 2007 until June 2011.

Patrick K. Murphy will serve as a Senior Vice President of Fortive. Mr. Murphy has served as a Group President of Danaher since joining Danaher in March 2014. 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 will serve as a Senior Vice President of Fortive. Mr. Pringle has served as Senior Vice President-Fluke and Qualitrol for Danaher since October 2015 and as President of Danaher’s Fluke business

 

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since July 2013, 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.

Raj Ratnakar will serve as Vice President-Strategic Development of Fortive. Mr. Ratnakar has served as a Vice President-Strategic Development of Danaher since August 2012. Prior to joining Danaher, he served as Vice President of Corporate Strategy for Tyco Electronics, a global manufacturing company, from 2009 until August 2012.

Jonathan L. Schwarz will serve as Vice President-Corporate Development of Fortive. Mr. Schwarz has served as Vice President-Corporate Development of Danaher since 2010 and has been a senior member of the Danaher corporate development team since 2005.

Peter C. Underwood will serve as Senior Vice President, General Counsel and Secretary of Fortive. Mr. Underwood will join Fortive in May 2016. He has served as Vice President, General Counsel and Secretary of Regal Beloit Corporation, a manufacturer of electric motors, since 2010.

Stacey A. Walker will serve as a Senior Vice President-Human Resources of Fortive. Ms. Walker has served as Vice President-Talent Management of Danaher since January 2014 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.

Emily A. Weaver will serve as Vice President-Chief Accounting Officer of Fortive. Ms. Weaver has served as Vice President-Finance of Danaher since April 2013. Prior to joining Danaher, she served as Deputy Controller of GE Transportation, a unit of General Electric, a global manufacturing company, from 2010 until April 2013.

Board of Directors Following the Distribution

The following table sets forth information with respect to those persons who are expected to serve on the Board following the completion of the distribution, and is followed by biographies of each such individual (except that Mr. Lico’s biographical information is set forth above under “—Executive Officers Following the Distribution”). The nominees will be presented to Fortive’s sole stockholder, Danaher, for election prior to the distribution. Mr. Ruiz’s election, however, will be effective immediately prior to the commencement of “when issued” trading of Fortive common stock on the NYSE. Upon the effectiveness of his election to the Board, Mr. Ruiz will be also appointed to the Audit Committee of the Board. The information set forth below is as of March 1, 2016.

 

Name

  

Age

    

Position

Feroz Dewan

     39       Director

James A. Lico

     50       Director

Kate D. Mitchell

     57       Director

Mitchell P. Rales

     59       Director

Steven M. Rales

     64       Director

Israel Ruiz

     44       Director

Alan G. Spoon

     64       Chairman

Feroz Dewan served in a series of positions with Tiger Global Management, an investment firm with approximately $20 billion under management across public and private equity funds, from 2003 to 2015, including most recently as Head of Public Equities. He also served as a Private Equity Associate at Silver Lake Partners, a private equity firm focused on leveraged buyout and growth capital investments in technology, technology-enabled and related industries, from 2002 to 2003. Mr. Dewan’s experience with technology and

 

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technology related companies as well as experience in the areas of financial matters, risk management and corporate governance, among other factors, qualify him to sit on the Board.

The biography of James A. Lico is set forth under “—Executive Officers Following the Distribution.” Mr. Lico’s qualifications to sit on the Board include, among other factors, his broad operating and functional experience with Danaher and in-depth knowledge of Fortive’s businesses and of the Danaher Business System.

Kate D. Mitchell has served as a partner and co-founder of Scale Venture Partners, a Silicon Valley-based firm that invests in early-in-revenue technology companies, since 1997. Prior to her current role, Ms. Mitchell served with Bank of America, a multinational banking and financial services corporation, from 1988 to 1996, most recently as Senior Vice President for Bank of America Interactive Banking. Ms. Mitchell currently serves on the boards of directors of Silicon Valley Bank, Silicon Valley Community Foundation and other private company boards on behalf of Scale Venture Partners. Ms. Mitchell’s qualifications to sit on the Board include, among other factors, extensive experience in the technology industry as well experience in the areas of business management and operations, finance and executive compensation.

Mitchell P. Rales is a co-founder of Danaher and has served on the board of directors of Danaher since 1983, serving as Chairman of the Executive Committee of Danaher since 1984. He was also President of Danaher from 1984 to 1990. In addition, for more than the past five years he has been a principal in private and public business entities in the manufacturing area. Mr. Rales is also a member of the board of directors of Colfax Corporation, and is a brother of Steven M. Rales. The strategic vision and leadership of Mr. Rales and his brother, Steven Rales, helped create the Danaher Business System and have guided Danaher down a path of consistent, profitable growth that continues today. In addition, as a result of the substantial ownership stake that Mr. Rales is expected to have in Fortive, he will be well-positioned to understand, articulate and advocate for the rights and interests of Fortive’s shareholders.

Steven M. Rales is a co-founder of Danaher and has served on the board of directors of Danaher since 1983, serving as Danaher’s Chairman of the board of directors since 1984. He was also CEO of Danaher from 1984 to 1990. In addition, for more than the past five years he has been a principal in a private business entity in the area of film production. Mr. Rales is a brother of Mitchell P. Rales. The strategic vision and leadership of Mr. Rales and his brother, Mitchell Rales, helped create the Danaher Business System and have guided Danaher down a path of consistent, profitable growth that continues today. In addition, as a result of the substantial ownership stake that Mr. Rales is expected to have in Fortive, he will be well-positioned to understand, articulate and advocate for the rights and interests of Fortive’s shareholders.

Israel Ruiz has been the Executive Vice President and Treasurer at Massachusetts Institute of Technology (MIT), a private research university of science and technology, since 2011. In this role, Mr. Ruiz oversees all principal administrative and financial functions of MIT. Prior to his current role, Mr. Ruiz served as the Vice President for Finance for MIT from 2007 to 2011 and as a principal for MIT’s Office of Budget and Financial Planning from 2001 to 2007. Mr. Ruiz’s qualifications to sit on the Board include, among other factors, his financial and accounting expertise and experience in the areas of business management and operations.

Alan G. Spoon will serve as Chairman of the Board. Mr. Spoon has served on Danaher’s Board of Directors since 1999. He has served as Partner Emeritus of Polaris Partners, a company that invests in private technology and life science firms, since January 2015. Mr. Spoon has been a partner at Polaris since May 2000, and served as Managing General Partner from 2000 to 2010. Mr. Spoon is also a member of the board of directors of each of IAC/InterActiveCorp., Match Group, Inc. and Cable One, Inc. In addition to his leadership role at Polaris Partners, Mr. Spoon previously served as president, chief operating officer and chief financial officer of one of the country’s largest, publicly-traded education and media companies, and has served on the boards of numerous public and private companies. His public company leadership experience gives him insight into business strategy, leadership and executive compensation and his public company and private equity experience give him insight into technology trends, acquisition strategy and financing, each of which represents an area of key strategic opportunity for Fortive.

 

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Upon completion of the distribution, the Board will be divided into three classes, each comprised of two to three directors. The two directors designated as Class I directors will have terms expiring at the first annual meeting of shareholders following the distribution, which Fortive expects to be held in 2017. The two directors designated as Class II directors will have terms expiring at the following year’s annual meeting of shareholders, which Fortive expects to be held in 2018, and the three directors designated as Class III directors will have terms expiring at the following year’s annual meeting of shareholders, which Fortive expects to be held in 2019. Fortive expect that Class I directors will be comprised of Kate D. Mitchell and Israel Ruiz; Class II directors will be comprised of Feroz Dewan and James A. Lico; and Class III directors will be comprised of Mitchell P. Rales, Steven M. Rales and Alan G. Spoon. Commencing with the first annual meeting of shareholders following the separation, directors for each class will be elected at the annual meeting of shareholders held in the year in which the term for that class expires and thereafter will serve for a term of three years. At any meeting of shareholders for the election of directors at which a quorum is present, the election will be determined by a majority of the votes cast by the shareholders entitled to vote in the election, with directors not receiving a majority of the votes cast required to tender their resignations for consideration by the board, except that in the case of a contested election, the election will be determined by a plurality of the votes cast by the stockholders entitled to vote in the election.

Director Independence

A majority of the Board will include directors who are “independent” as defined by the rules of the NYSE.

The Board will assess on a regular basis, and at least annually, the independence of directors and, based on the recommendation of the Nominating and Governance Committee, will make a determination as to which members are independent.

Committees of the Board of Directors

Effective immediately prior to the “when-issued” trading date of Fortive common stock on the NYSE, the Board will have a standing Audit Committee, and effective upon the completion of the separation, the Board will have a standing Compensation Committee and a Nominating and Governance Committee.

Audit Committee. Mr. Ruiz is expected to be a member of the Board’s Audit Committee effective as of immediately prior to the “when-issued” trading date of Fortive common stock on the NYSE, and Ms. Mitchell and Mr. Dewan are expected to be members of the Board’s Audit Committee effective as of the distribution date. Mr. Ruiz is expected to be the Chairman of the Audit Committee effective as of the distribution date as well as an “audit committee financial expert” for purposes of the rules of the SEC. In addition, Fortive expects that the Board will determine that each of the members of the Audit Committee is independent, as defined by the rules of the NYSE and Section 10A(m)(3) of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Audit Committee will meet at least quarterly and will assist the Board in fulfilling its oversight responsibilities by reviewing and reporting to the Board on Fortive accounting and financial reporting practices and the audit process; the quality and integrity of Fortive’s financial statements; the effectiveness of Fortive’s internal control over financial reporting; Fortive’s compliance with legal and regulatory requirements; the independent auditors’ qualifications, independence, and performance; the performance of Fortive’s internal audit function; Fortive’s risk assessment and risk management policies; and Fortive’s swaps and derivatives transactions and related policies and procedures.

Compensation Committee. Ms. Mitchell and Mr. Dewan are expected to be the members of the Board’s Compensation Committee. Ms. Mitchell is expected to be the Chairman of the Compensation Committee. The Board is expected to determine that each member of the Compensation Committee is independent, as defined by the rules of the NYSE and Section 10C(a) of the Exchange Act. In addition, Fortive expects that the members of the Compensation Committee will qualify as “non-employee directors” for purposes of Rule 16b-3 under the Exchange Act and as “outside directors” for purposes of Section 162(m) of the Code. The Compensation Committee discharges the Board’s responsibilities relating to compensation of Fortive’s executive officers,

 

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including evaluating the performance of, and approving the compensation paid to, Fortive’s executive officers. The Compensation Committee also reviews and discusses with Fortive management the Compensation Discussion & Analysis (“CD&A”) and recommends to the Board the inclusion of the CD&A in the annual meeting proxy statement; reviews and makes recommendations to the Board with respect to the adoption, amendment and termination of all executive incentive compensation plans and all equity compensation plans, and exercises all authority of the Board (and all responsibilities assigned by such plans to the Compensation Committee) with respect to the administration of such plans; monitors compliance by directors and executive officers with Fortive’s stock ownership requirements; considers the impact of Fortive’s compensation programs on Fortive’s risk profile; prepares a report as required by the SEC to be included in proxy statements; and considers factors relating to independence and conflicts of interests in connection with all compensation consultants, counsel and other outside advisors that provide advice to the Compensation Committee.

Nominating and Governance Committee. Messrs. Ruiz and Spoon are expected to be the members of the Board’s Nominating and Governance Committee. Mr. Ruiz is expected to be the Chairman of the Nominating and Governance Committee. The Board is expected to determine that each of the members of the Nominating and Governance Committee is independent, as defined by the rules of the NYSE. The Nominating and Governance Committee will assist the Board in identifying individuals qualified to become board members; propose to the Board a slate of directors for election by Fortive’s shareholders at each annual meeting; make recommendations to the Board regarding the membership of the Board’s committees; make recommendations to the Board regarding matters of corporate governance; facilitate the annual review of the performance of the Board and its committees; oversee the operation of Fortive’s Corporate Governance Guidelines; review and make recommendations to the Board regarding non-management director compensation; and administer Fortive’s Related Person Transaction Policy.

The Board is expected to adopt a written charter for each of the Audit Committee, the Compensation Committee and the Nominating and Governance Committee. These charters will be posted on Fortive’s website in connection with the separation.

Compensation Committee Interlocks and Insider Participation

During Fortive’s fiscal year ended December 31, 2015, Fortive was not an independent company and did not have a compensation committee or any other committee serving a similar function. Decisions as to the compensation of those who will serve as Fortive’s executive officers for that fiscal year were made by Danaher, as described in the section of this information statement captioned “Compensation Discussion and Analysis.”

Corporate Governance

Shareholder Recommendations for Director Nominees

Fortive’s amended and restated bylaws will contain provisions that address the process by which a shareholder may nominate an individual to stand for election to the Board. Fortive expects that the Board will adopt a policy concerning the evaluation of shareholder recommendations of board candidates by the Nominating and Governance Committee.

Corporate Governance Guidelines

The Board is expected to adopt a set of Corporate Governance Guidelines in connection with the separation to assist it in guiding Fortive’s governance practices. These practices will be regularly reevaluated by the Nominating and Governance Committee in light of changing circumstances in order to continue serving Fortive’s best interests and the best interests of its shareholders.

 

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Communicating with the Board

Shareholders and other parties interested in communicating directly with the Board or with individual directors or the non-management or independent directors as a group may do so by addressing communications to the Board, to the specified individual director or to the non-management or independent directors, as applicable, c/o Corporate Secretary, Fortive Corporation, 6920 Seaway Blvd, Everett, WA 98203.

Director Qualification Standards

Fortive’s Corporate Governance Guidelines will provide that the Nominating and Governance Committee is responsible for reviewing with the Board the appropriate skills and characteristics required of board members in the context of the makeup of the Board and developing criteria for identifying and evaluating board candidates.

The Nominating and Governance Committee will from time-to-time engage an executive search firm to help identify, evaluate and provide background information regarding director candidates, and will also consider candidates for the Board membership suggested by the Board members, management and shareholders. A shareholder who wishes to recommend a prospective nominee for the Board should notify the Nominating and Governance Committee in writing with whatever supporting material the shareholder considers appropriate. If a prospective nominee has been identified other than in connection with a director search process initiated by the Nominating and Governance Committee, the Nominating and Governance Committee makes an initial determination as to whether to conduct a full evaluation of the candidate. The Nominating and Governance Committee’s determination of whether to conduct a full evaluation is based primarily on the Nominating and Governance Committee’s view as to whether a new or additional Board member is necessary or appropriate at such time, and the likelihood that the prospective nominee can satisfy the evaluation factors described below and any such other factors as the Nominating and Governance Committee may deem appropriate. The Nominating and Governance Committee takes into account whatever information is provided to the Nominating and Governance Committee with the recommendation of the prospective candidate and any additional inquiries the Nominating and Governance Committee may in its discretion conduct or have conducted with respect to such prospective nominee. If the Nominating and Governance Committee determines that any such prospective nominee warrants additional consideration, or if the Nominating and Governance Committee has initiated a director search process and has identified one or more prospective nominees, the Nominating and Governance Committee will evaluate such prospective nominees against the standards and qualifications set out in Fortive’s Corporate Governance Guidelines, including:

 

    personal and professional integrity and character;

 

    prominence and reputation in the prospective nominee’s profession;

 

    skills, knowledge and expertise (including business or other relevant experience) useful and appropriate in overseeing and providing strategic direction with respect to Fortive’s business;

 

    the extent to which the interplay of the prospective nominee’s skills, knowledge, experience and background with that of the other Board members will help build a Board that is effective in collectively meeting Fortive’s strategic needs and serving the long-term interests of the shareholders;

 

    the capacity and desire to represent the interests of the shareholders as a whole; and

 

    availability to devote sufficient time to the affairs of Fortive.

The Nominating and Governance Committee will also consider such other factors as it may deem relevant and appropriate, including the current composition of the Board, any perceived need for one or more particular areas of expertise, the balance of management and independent directors, the need for committee-specific expertise and the evaluations of other prospective nominees. The Board will not have a formal or informal policy with respect to diversity but it is expected that the Board, taken as a whole, will embody a diverse set of skills, knowledge, experiences and backgrounds appropriate in light of Fortive’s needs, and in this regard that the Board will also subjectively take into consideration the diversity (with respect to race, gender and national origin) of the

 

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Board when considering director nominees. The Board will not make any particular weighting of diversity or any other characteristic in evaluating nominees and directors.

If the Nominating and Governance Committee determines that a prospective nominee warrants further consideration, one or more members of the Nominating and Governance Committee (and other members of the Board as appropriate) will interview the prospective nominee. After completing this evaluation and interview process, if the Nominating and Governance Committee deems it appropriate it will recommend that the Board appoint one or more candidates to the Board or nominate one or more such candidates for election to the Board.

The Nominating and Governance Committee will also review and make recommendations to the Board regarding non-management director compensation (although the Board makes the final determination regarding the amounts and type of non-management director compensation). In connection with its periodic evaluations of non-management director compensation, the Nominating and Governance Committee will review the compensation practices for non-management directors within Fortive’s peer group.

Board Leadership Structure

The Board is expected to separate the positions of Chief Executive Officer and Chairman of the Board. Mr. Spoon is expected to serve as Fortive’s Chairman of the Board. The responsibilities of the Chairman of the Board include setting the agenda for each board meeting, in consultation with the Chief Executive Officer; chairing the meetings of directors and meetings of independent directors; and facilitating and conducting, with the Nominating and Governance Committee, the annual self-assessments by the Board and each standing committee of the Board.

Separating the positions of Chief Executive Officer and Chairman of the Board allows the Chief Executive Officer to focus on Fortive’s day-to-day business, while allowing the Chairman of the Board to lead the Board in its fundamental role of providing advice to and independent oversight of management. Subject to the requirements under Fortive’s amended and restated bylaws, the Board will be free to decide how to structure its leadership.

Board’s Role in Risk Oversight

The Board will execute its risk management responsibility directly and through its committees. The Board’s role in risk oversight at Fortive is consistent with Fortive’s leadership structure, with management having day-to-day responsibility for assessing and managing Fortive’s risk exposure and the Board and its committees overseeing those efforts, with particular emphasis on the most significant risks facing Fortive. The Board oversees the Company’s risk management processes directly and through its committees. In general, the Board oversees the management of risks inherent in the operation of Fortive’s businesses, the implementation of its strategic plan, its acquisition and capital allocation program, its capital structure and liquidity and its organizational structure, and also oversees Fortive’s risk assessment and risk management policies. Each of the Board’s committees also oversees the management of Company risks that fall within the committee’s areas of responsibility. The Audit Committee oversees risks related to financial controls and legal and compliance risks and also assists the Board in overseeing Fortive’s risk assessment and risk management policies; the Nominating and Governance Committee oversees corporate governance risks; and the Compensation Committee considers the impact of Fortive’s compensation programs on Fortive’s risk profile. Each committee reports to the full Board on a regular basis, including as appropriate with respect to the committee’s risk oversight activities. In addition, since risk issues often overlap, committees from time to time request that the full Board discuss particular risks.

The Board will be kept abreast of its committees’ risk oversight and other activities via reports of the committee chairpersons to the full board during board meetings.

 

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Policies on Business Ethics

In connection with the separation, Fortive will adopt Standards of Conduct that require all its business activities to be conducted in compliance with laws, regulations and ethical principles and values. All directors, officers and employees of Fortive will be required to read, understand and abide by the requirements of the Standards of Conduct.

These documents will be accessible on Fortive’s website. Any waiver of these codes for directors or executive officers may be made only by the Audit Committee. Fortive will disclose any amendment to, or waiver from, a provision of the Standards of Conduct for the principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, on Fortive’s website within four business days following the date of the amendment or waiver. In addition, Fortive will disclose any waiver from these codes for the other executive officers and for directors on the website.

Procedures for Treatment of Complaints Regarding Accounting, Internal Accounting Controls and Auditing Matters

In accordance with the Sarbanes-Oxley Act of 2002, Fortive expects that its Audit Committee will adopt procedures for the receipt, retention and treatment of complaints regarding accounting, internal accounting controls and auditing matters and to allow for the confidential, anonymous submission by employees and others of concerns regarding questionable accounting or auditing matters.

Website Disclosure

Fortive may provide disclosure in the “Investor – Corporate Governance” section of our corporate website, http://www.fortive.com, of any of the following: (1) the identity of the presiding director at meetings of non-management or independent directors, or the method of selecting the presiding director if such director changes from meeting to meeting; (2) the method for interested parties to communicate directly with the Board or with individual directors or the non-management or independent directors as a group; (3) the identity of any member of Fortive’s Audit Committee who also serves on the audit committees of more than three public companies and a determination by the Board that such simultaneous service will not impair the ability of such member to effectively serve on Fortive’s Audit Committee; and (4) contributions by Fortive to a tax exempt organization in which any non-management or independent director serves as an executive officer if, within the preceding three years, contributions in any single fiscal year exceeded the greater or $1 million or 2% of such tax exempt organization’s consolidated gross revenues. We also 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 of our directors, principal executive officer, principal financial officer, principal accounting officer, or any other executive officer, in the “Investor – Corporate Governance” section of our corporate website, http://www.fortive.com, within four business days following the date of such amendment or waiver.

 

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COMPENSATION DISCUSSION AND ANALYSIS

The following section discusses and analyzes the compensation provided to each of the executive officers set forth in the 2015 Summary Compensation Table below, also referred to as the “Fortive Named Executive Officers.”

Introduction

Since we are a wholly-owned subsidiary of Danaher and all of the compensation paid to or earned by the Fortive Named Executive Officers in respect of 2015 was provided by Danaher, and determined in accordance with policies and practices developed by Danaher, this Compensation Discussion and Analysis describes and analyzes Danaher’s 2015 compensation programs as they relate to the Fortive Named Executive Officers.

Mr. Lico is an executive officer of Danaher and, as such, his annual compensation is determined and approved by the Danaher Compensation Committee. Each of the other Fortive Named Executive Officers is currently employed by Danaher but none are executive officers; for additional biographical information regarding each such officer, please see the “Management” section of this information statement. The compensation of each of the Fortive Named Executive Officers other than Mr. Lico is generally determined by Mr. Lico with input from Danaher’s CEO, except that their equity awards are ultimately subject to approval by the Danaher Compensation Committee.

In connection with the separation, our Board of Directors will form its own compensation committee, as described in further detail in the section entitled “Management—Board of Directors Following the Separation.” Following the separation, our compensation committee will determine the compensation programs and policies and approve the compensation levels applicable to our executive officers. These programs and policies have not yet been implemented.

Overview and Objectives of the Danaher Executive Compensation Program

The goal of Danaher’s executive compensation program is to build long-term value for Danaher’s shareholders. Toward this goal, Danaher’s executive compensation program is designed to:

 

    attract and retain executives with the leadership skills, attributes and experience necessary to succeed in an enterprise with Danaher’s size, diversity and global footprint;

 

    motivate executives to demonstrate exceptional personal performance and perform consistently over the long-term at or above the levels that Danaher expects; and

 

    link compensation to the achievement of corporate goals that Danaher believes best correlate with the creation of long-term shareholder value.

To achieve these objectives Danaher developed a compensation program that combines annual and long-term components, cash and equity, and fixed and variable payments, with a bias toward compensation that is dependent on company performance, particularly long-term, equity-based compensation. Danaher’s executive compensation program rewards its executives when they build long-term shareholder value, achieve annual business goals and maintain long-term careers with Danaher.

 

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Analysis of 2015 Executive Compensation

Danaher’s 2015 executive compensation program consisted of four elements, listed in order of significance.

 

Element   Form of Compensation   Primary Objectives

Long-Term

Incentive Compensation (1)

  Stock options with time-based vesting periods that have generally been longer than typical for Danaher’s peer group  

•       Attract, retain and motivate skilled executives and encourage loyalty to Danaher

•       Align the interests of management and shareholders by ensuring that realized compensation is commensurate with long-term changes in share price

  Restricted stock units with vesting periods that have generally been longer than typical for Danaher’s peer group  

•       Attract, retain and motivate skilled executives and encourage loyalty to Danaher

•       Align the interests of management and shareholders by tying realized compensation to (a) long-term changes in share price at all price levels, and (b) attainment of financial performance goals

  Performance stock units with three-year vesting and two-year holding period  

•       Attract, retain and motivate skilled executives and encourage loyalty to Danaher

•       Align the interests of management and shareholders by tying realized compensation to (a) long-term changes in share price at all price levels, and (b) attainment of TSR-based performance goals.

Annual Incentive

Compensation

  Cash  

•       Motivate executives to achieve near-term operational and financial goals that support Danaher’s long-term business objectives

•       Attract, retain and motivate skilled executives

•       Allow for meaningful pay differentiation tied to performance of individuals and groups

Base Salary

  Cash  

•       Attract and retain skilled executives while avoiding a high fixed cost structure

•       Provide sufficient fixed compensation to (a) allow a reasonable standard of living relative to peers, and (b) mitigate incentive to pursue inappropriate risk-taking to maximize variable pay

Other Compensation

 

Employee benefit plans;

perquisites; severance

benefits

 

•       Make Danaher’s total executive compensation plan competitive

•       Improve cost-effectiveness by delivering perceived value that is higher than Danaher’s actual costs

 

(1) Mr. Lico is the only Fortive Named Executive Officer who received performance stock units in 2015.

Long-Term Incentive Awards

In February 2015, the Danaher Compensation Committee subjectively determined the target dollar value of equity compensation to be delivered to each Fortive Named Executive Officer and granted annual equity awards to each such officer. The Danaher Compensation Committee took into account that the ultimate, realized value of

 

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each award will depend substantially on Danaher’s long-term performance as well as each of the following factors (none of which was assigned a particular weight by the Danaher Compensation Committee):

 

    the amount of equity compensation necessary to provide sufficient retention incentives in light of (1) compensation levels within Danaher’s peer group, and (2) the accumulated value of equity awards previously granted to the executive (including both outstanding and previously realized awards);

 

    the relative complexity and importance of the executive’s position, as well as the executive’s performance record and potential to contribute to future Danaher performance and assume additional leadership responsibility;

 

    the risk/reward ratio of the award amount compared to the length of the related vesting provisions; and

 

    for Messrs. McLaughlin, Byrne, Gafinowitz and Murphy, the recommendations of such person’s direct manager and of Danaher’s President and Chief Executive Officer.

The 2015 annual equity awards were split equally between stock options and RSUs, except that with respect to Mr. Lico one-half of his 2015 annual equity award was granted as stock options, one-quarter as RSUs and one-quarter as performance stock units, or PSUs. In 2015, following a comprehensive review of Danaher’s executive annual equity compensation program and with the assistance of F.W. Cook, the Danaher Compensation Committee introduced into Danaher’s executive equity compensation program PSUs that vest based on Danaher’s TSR ranking relative to the constituent companies comprising the S&P 500 Index over a three-year performance period. The Danaher Compensation Committee introduced these relative-TSR based PSUs (including the two-year holding period following vesting of the PSUs, described below) to further strengthen the alignment of Danaher’s executive long-term incentive compensation program with the long-term interests of its shareholders. Consistent with that objective, the Danaher Compensation Committee chose the constituent companies comprising the S&P 500 Index as the relative TSR comparator group because it is a broad and stable assortment of companies that represents investors’ alternative capital investment opportunities.

The Danaher Compensation Committee translated the target dollar value attributable to PSUs into a target number of PSUs, established threshold, target and maximum performance levels and established a payout percentage curve that relates each level of performance to a payout expressed as a percentage of the target PSUs. Payout at 100% of the target level requires that Danaher achieve above-median performance and rank at the 55th percentile of the constituent companies comprising the S&P 500 Index, while the PSUs pay out at 200% for performance that equals or exceeds the 75th percentile, 50% for performance at the 35th percentile and 0% for performance below the 35th percentile. The payout percentages for performance between threshold and target, or between target and maximum, respectively, are determined by linear interpolation. Notwithstanding the above, if Danaher’s absolute TSR performance for the period is negative a maximum of 100% of the target PSUs will vest (regardless of how strong Danaher’s performance is on a relative basis), and if Danaher’s absolute TSR performance for the period is positive a minimum of 25% of the target PSUs will vest.

Any PSUs that vest following the three-year performance period are subject to an additional two-year holding period and are paid out in shares of Danaher common stock following the fifth anniversary of the commencement of the performance period. Vesting is contingent on continued employment throughout the three-year performance period and until the performance criteria are satisfied as determined by the Danaher Compensation Committee, except that in the event of death during the performance period the executive receives a prorated portion of the target award based on the percentage of the performance period during which he or she was employed, and in the event of retirement during the performance period the executive receives a prorated portion of the shares actually earned based on Danaher’s performance over the performance period. Any dividends paid on Danaher’s common stock during the performance period are credited to the PSU accounts and paid in cash, but are only paid out to the extent the underlying PSUs vest based on performance and are not paid until the shares underlying the vested PSUs are issued.

 

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Treatment of Equity-Based Compensation Awards Upon Fortive Spin-Off

It is expected that Danaher equity awards outstanding at the time of the distribution will be adjusted using the following principles:

 

    For each award holder, the intent is to maintain the economic value of those awards before and after the distribution date.

 

    For Fortive employees at the time of distribution, including the Fortive Named Executive Officers, the awards will be converted into Fortive equity awards and denominated in shares of Fortive common stock; for Danaher employees at the time of distribution, the awards will remain Danaher equity awards denominated in shares of Danaher common stock.

The following table provides additional information regarding the adjustments expected to be made to each type of Danaher equity award. As a result of the adjustments to such awards in connection with the separation, the precise number of shares of Fortive common stock or Danaher common stock, as applicable, to which the adjusted awards will relate will not be known until the distribution date or shortly thereafter.

 

Type of Award   Fortive Employees   Danaher Employees

Stock Options

  Danaher stock options will be converted into options of comparable value to purchase Fortive common stock.   Continue to hold Danaher stock options, as equitably adjusted to reflect the distribution.

Time-Based RSUs

 

Danaher RSUs will be converted

into RSUs of comparable value relating to Fortive common stock.

  Continue to hold Danaher RSUs, as equitably adjusted to reflect the distribution.
Performance-Based RSUs   Danaher Performance-Based RSUs with outstanding performance goals will be replaced with performance-based Fortive restricted shares of comparable value, with performance goals relating to Fortive instead of Danaher   Continue to hold Danaher Performance-Based RSUs, as equitably adjusted to reflect the distribution.

PSUs

  Danaher PSUs will be converted into performance-based Fortive restricted shares of comparable value; performance period will be bifurcated between Danaher performance period and Fortive performance period, weighted pro rata based on duration of each period.   Continue to hold Danaher PSUs, as equitably adjusted to reflect the distribution.

Annual Incentive Awards

Mr. Lico

Mr. Lico is a participant in Danaher’s Executive Incentive Compensation Plan (the “Executive Incentive Plan”). The Executive Incentive Plan provides cash bonuses to participants based on the achievement of annual objective performance metrics relating to Danaher’s business and the participant’s personal performance.

For 2015, the Danaher Compensation Committee assigned Mr. Lico a target bonus percentage representing a percentage of his base salary as of March 31, 2015. Subject to Danaher’s achievement of positive net income for the year, Mr. Lico would be eligible for a bonus equal to the target bonus amount multiplied by the Composite Payout Percentage (which is the sum of the Company Payout Percentage (weighted 60%) and the Personal Payout Percentage (weighted 40%)), subject to the Danaher Compensation Committee’s exercise of

 

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discretion. The Danaher Compensation Committee exercised its judgment in determining each element of the 2015 formula. In determining the target bonus percentage for Mr. Lico, the Danaher Compensation Committee considered the amount of annual cash incentive compensation awarded to him in prior years, the relative complexity and importance of his position and the amount of annual cash incentive compensation that peer companies would offer him. For each Danaher performance metric, the Danaher Compensation Committee set the performance target at a level it believes is reasonably achievable while requiring what it believes would be outstanding performance to achieve the maximum payout level. In determining the target performance level and payout percentage curve for the metrics, the Danaher Compensation Committee considered historical performance data for Danaher and its peer group, analyst consensus earnings estimates for the Danaher peer group, Danaher’s annual budget and macroeconomic/end-market trends. In determining the annual personal performance objectives for Mr. Lico, the Danaher Compensation Committee did not assign a particular weighting to any of the objectives but set the quantitative objectives at levels that, while achievable, would in the Danaher Compensation Committee’s opinion require personal performance appreciably above his prior year performance level. Each element of the 2015 performance formula is further described below:

 

    Company Payout Percentage. The Company Payout Percentage is based on Danaher’s 2015 performance against the three objective metrics described in the table below (the “Metrics”). For each of the Metrics the Danaher Compensation Committee established threshold, target and maximum levels of Danaher performance, as well as a payout percentage curve that relates each level of performance to a payout percentage. The payout percentage is 0% for below-threshold performance and ranges from 50% for threshold performance to 150% (for the Free Cash Flow Ratio and ROIC metrics) or 200% (for Adjusted EPS) for performance that equals or exceeds the maximum. Under all Metrics, target performance yields a payout percentage of 100%. The payout percentages for performance between threshold and target, or between target and maximum, respectively, are determined by linear interpolation. Following the end of 2015, the Company Payout Percentage was calculated as follows:

 

2015 Performance/Payout Matrix
Metric    Target
Performance
Level
      Actual    
    Performance    
     Level    
       Payout %    
    (Before    
    Weighting)    
       Weighting    
    of Metric    
  Weighted
Payout %

Adjusted EPS

   $4.32   $4.23    93.1%    70%   65.2%

Free Cash Flow Ratio

   103%   106.1%    107.1%    20%   21.4%

ROIC

   11.8%   11.9%    104.2%    10%   10.4%

Company Payout Percentage

  97%

 

    Personal Payout Percentage. In February 2015, the Danaher Compensation Committee established for Mr. Lico annual personal performance objectives consisting of the degree of year-over-year improvement in core revenue growth, operating profit margin improvement and working capital turnover improvement for his business units or, in certain cases, Danaher’s businesses in particular geographies; return-on-invested-capital performance achieved with respect to acquisitions by his business units; quantitative goals for his business units relating to commercial objectives, human resources-related metrics, on-time delivery, manufacturing quality and return-on-invested-capital performance achieved with respect to certain acquisitions; and qualitative goals for specified business units or geographies relating to building organizational capability, retention, succession planning, capital deployment, the completion of a key disposition and the achievement of high-growth market strategic objectives. Following the end of 2015, the Danaher Compensation Committee used its judgment and determined for Mr. Lico a Personal Payout Percentage of 175%. Without assigning any particular weight to any individual factor, the Danaher Compensation Committee took into account the size of the Company Payout Percentage for the year, the amount of annual cash incentive compensation awarded to Mr. Lico in prior years, his execution against his personal performance objectives for the year, his overall performance for the year and the amount of annual cash incentive compensation that peer companies would offer him.

 

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    Composite Payout Percentage. The Company Payout Percentage and Personal Payout Percentage were calculated, weighted accordingly and added to yield Mr. Lico’s Composite Payout Percentage. The Composite Payout Percentage was multiplied by his target bonus amount to yield his award amount for the year. The 2015 annual cash incentive compensation award for Mr. Lico is set forth in the 2015 Summary Compensation Table.

Other Fortive Named Executive Officers

Each of Messrs. McLaughlin, Byrne, Gafinowitz and Murphy participates in Danaher’s incentive compensation program that covers senior leaders of Danaher operating companies (the “Senior Leader Incentive Program”). The Senior Leader Incentive Program provides cash bonuses based on the achievement of objective, annual performance metrics relating to the officer’s business as well as the officer’s personal performance, subject to any discretionary adjustments as determined by Mr. Lico with input from Danaher’s CEO. Under the performance formula effective for 2015, each officer would be eligible to receive a bonus equal to his target bonus amount, multiplied by (i) a factor determined based on the 2015 performance of the officer’s business against the objective business-level financial performance metrics described below (“Senior Leader Business Metrics”), and (ii) a factor determined by the officer’s manager based on a subjective review of the officer’s performance against the officer’s annual personal performance goals and other factors (the “Personal Performance Factor”):

 

    The 2015 Senior Leader Business Metrics were (i) operating profit, which is an important indicator of the overall health of the business and helps to contribute to returns for Danaher shareholders, (ii) core revenue growth, which is a key measure of the business’s ability to increase customer demand for services and products over time, and (iii) working capital turnover, which is a key financial indicator of how efficiently the business is managing the relationship between money used to fund operations and the sales generated from those operations.

 

    For 2015, Mr. McLaughlin’s personal performance objectives consisted of quantitative financial and operational goals relating to his business unit as well as goals relating to strengthening his organization and strengthening his business unit’s systems and controls; Mr. Byrne’s personal performance objectives consisted of quantitative financial and operational goals relating to his business unit as well as goals relating to sales and marketing effectiveness, organizational development and effectiveness, strategic development and R&D effectiveness; Mr. Gafinowitz’s personal performance objectives consisted of quantitative financial and operational goals relating to his business unit as well as goals relating to leadership, strengthening his organization and capital efficiency; and Mr. Murphy’s personal performance objectives consisted of quantitative financial and operational goals relating to his business unit as well as goals relating to organizational effectiveness, procurement optimization and facility optimization.

In determining the target bonus percentages for these officers, consideration was given as applicable to the amount of annual cash incentive compensation awarded to the officer in prior years, the relative complexity and importance of the position, the amount of annual cash incentive compensation paid with respect to similar positions at other Danaher businesses and the amount of annual cash incentive compensation that outside peer companies would offer the officer. Based on the Personal Performance Factor determined with respect to each officer and the performance level achieved by such officer’s business with respect to the Senior Leader Business Metrics, and in the case of each of Messrs. McLaughlin, Murphy and Byrne an additional discretionary amount incremental to the formula-based amount, Mr. Lico recommended, and Danaher’s CEO approved, the 2015 annual cash incentive compensation award reflected in the 2015 Summary Compensation Table.

Base Salaries

The Danaher Compensation Committee reviews base salaries for Danaher’s named executive officers, including Mr. Lico, in February of each year and in connection with promotions. In February 2015, the Danaher Compensation Committee subjectively determined Mr. Lico’s 2015 base salary, using his prior year’s base salary

 

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as the initial basis of consideration and (without giving specific weight to any particular factor) taking into account the relative complexity and importance of Mr. Lico’s role within Danaher and the market value of his role. Given that base salary is one of the elements in the formula for determining annual cash incentive compensation, the Danaher Compensation Committee also considered how changes in base salary would impact annual cash incentive compensation.

The base salary of each of the other Fortive Named Executive Officers was determined by such officer’s direct manager. In determining 2015 base salaries for these officers, the officer’s prior year’s base salary was used as the initial basis of consideration and other factors taken into account included the officer’s personal performance in the prior year and the market value of the officer’s role. Given that base salary is one of the elements in the formula for determining annual cash incentive compensation, consideration was also given to how changes in base salary would impact the officer’s annual cash incentive compensation.

Other Compensation

Severance Benefits. Danaher has entered into a Proprietary Interest Agreement with each of the Fortive Named Executive Officers that includes post-employment non-competition, non-solicitation and confidentiality obligations and in the cases of Messrs. Lico and Gafinowitz also provides for severance payments under certain circumstances. In addition, each of the Fortive Named Executive Officers participates in Danaher’s Senior Leader Severance Pay Plan, which also provides for severance payments under certain circumstances. Danaher believes that the severance payments payable upon a termination without cause are generally commensurate with the severance rights Danaher’s peers offer executives in comparable roles.

Benefits and Perquisites. All of Danaher’s executives, including each Fortive Named Executive Officer, are eligible to participate in employee benefit plans, including group medical, dental, vision, disability, accidental death and dismemberment, life insurance, flexible spending and 401(k) plans. These plans are generally available to all U.S. salaried employees and do not discriminate in favor of the Fortive Named Executive Officers. In addition, certain perquisites are made available to the Fortive Named Executive Officers (see the footnotes to the “Summary Compensation Table” for additional details). Danaher believes these limited perquisites help make its executive compensation plans competitive, are generally commensurate with the perquisites offered by its peers, and are cost-effective in that the perceived value of these items is higher than its actual cost. The Danaher Compensation Committee has also adopted a policy prohibiting any tax reimbursement or gross-up provisions in its executive compensation program (except under a policy applicable to management employees generally such as a relocation policy).

In addition, each of the Fortive Named Executive Officers participates in the Amended and Restated Danaher Corporation & Subsidiaries Executive Deferred Incentive Program, or Danaher EDIP. The Danaher EDIP is a shareholder-approved, non-qualified, unfunded deferred compensation program available to selected members of Danaher’s management. Danaher uses the Danaher EDIP to tax-effectively contribute amounts to executives’ retirement accounts and give its executives an opportunity to defer taxes on cash compensation and realize tax-deferred, market-based notional investment growth on their deferrals. The amount Danaher contributes annually to the executives’ accounts in the Danaher EDIP is set at a level that it believes is competitive with comparable plans offered by other companies in Danaher’s industry. Participants in the Danaher EDIP do not fully vest in such amounts until they have participated in the program for 15 years or have reached age 55 with at least five years of service with Danaher.

Danaher’s Peer Group Compensation Analysis

The Danaher Compensation Committee does not target a specific competitive position versus the market or peer companies in determining the compensation of Danaher’s named executive officers, including Mr. Lico, because in light of Danaher’s diverse mix of businesses, strict benchmarking against a selected group of companies would not provide a meaningful basis for establishing compensation. However, the Danaher

 

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Compensation Committee believes it is important to clearly understand the relevant market for executive talent to inform its decision-making and ensure that Danaher’s executive compensation program for its named executive officers supports its recruitment and retention needs and is fair and efficient. As a result, the Danaher Compensation Committee has worked with F.W. Cook to develop a peer group for purposes of assessing competitive compensation practices, and periodically reviews compensation data for the peer group derived from publicly filed proxy statements.

Danaher’s peer group consists of the companies set forth below (the “peer companies”):

 

3M Company   Eaton Corp.   Parker-Hannifin Corporation
Abbott Laboratories   E. I. Du Pont De Nemours and Company   Rockwell Automation Inc.
Baxter International, Inc.   Emerson Electric Co.   Stryker Corporation
Becton Dickinson & Co.   Honeywell International Inc.   Thermo Fisher Scientific Inc.
Boston Scientific Corporation   Illinois Tool Works, Inc.   United Technologies Corp.
Dover Corp.   Medtronic Inc.    

The Danaher Compensation Committee selected companies for inclusion in this peer group based on (i) the extent to which they compete with Danaher in one or more lines of business, for executive talent and for investors, and (ii) comparability of revenues, market capitalization, net income, total assets and number of employees. The table below sets forth for this peer group and Danaher information regarding revenue, net income and total assets (based on the most recently reported four quarters for each company as of April 30, 2015), market capitalization (as of April 30, 2015) and employee headcount (based on each company’s most recent fiscal year end as of April 30, 2015), in each case derived from the Standard & Poor’s Compustat database.

 

($ in millions)  
      Revenue     

Market

capitalization

   

Net income (before

extraordinary items and

discontinued operations)

    Total assets     Employees  

75th percentile

   $ 24,106       $ 70,047      $ 3,065      $ 41,857        89,800   

Median

   $ 16,905       $ 37,384      $ 1,820      $ 28,293        57,447   

25th percentile

   $ 9,749       $ 29,496      $ 1,079      $ 16,472        30,619   

DHR

   $ 20,124       $ 57,932      $ 2,588      $ 36,072        71,000   

DHR percentile rank

     60      66     68     67     65

The peer group compensation data that the Danaher Compensation Committee reviewed in 2015 in connection with its 2015 executive compensation decisions estimated the 25th, median and 75th percentile positions among our peers with respect to base salary, annual cash incentive compensation (target and actual), average actual annual cash incentive compensation from 2012-2014, total annual cash compensation (target and actual), long-term incentive compensation, total direct compensation (target and actual), all other compensation, annual change in pension value and above-market interest on non-qualified deferred compensation, and actual total compensation, in each case with respect to each respective named executive officer position.

Danaher Stock Ownership Policies

Below is a summary of Danaher policies relating to Danaher common stock ownership that apply to the Fortive Named Executive Officers. Fortive expects to adopt substantially similar policies in connection with the separation.

Stock Ownership Requirements

To further align management and shareholder interests and discourage inappropriate or excessive risk-taking, Danaher’s stock ownership policy requires each Danaher executive officer, including Mr. Lico, to obtain a substantial equity stake in Danaher within five years of their appointment to an executive position. Mr. Lico is

 

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required to own shares with a market value of at least three times his base salary. Once a Danaher executive has acquired a number of Danaher shares that satisfies the ownership multiple then applicable to him or her, such number of shares then becomes his or her minimum ownership requirement (even if the executive’s salary increases or the fair market value of such shares subsequently changes) until he or she is promoted to a higher level. Under the policy, beneficial ownership includes shares in which the executive or his or her spouse or child has a direct or indirect interest, notional shares of Danaher stock in the Danaher EDIP plan, shares held in a 401(k) plan, and unvested RSUs and PSUs (based on target number of shares until vested and then based on the actual number of vested shares), but does not include shares subject to unexercised stock options. Mr. Lico was in compliance with the stock ownership requirements as of December 31, 2015.

Pledging Policy

In addition, Danaher’s Board has adopted a policy that prohibits any Danaher director or executive officer, including Mr. Lico, from pledging as security under any obligation any shares of Danaher common stock that he or she directly or indirectly owns and controls (other than shares already pledged as of February 21, 2013), and provides that pledged shares of Danaher common stock do not count toward Danaher’s stock ownership requirements.

Hedging Policy

Danaher policy prohibits Danaher employees and directors from engaging in any transactions involving a derivative of a Danaher security, including hedging transactions.

Danaher Recoupment Policy

To further discourage inappropriate or excessive risk-taking, the Danaher Compensation Committee has adopted a recoupment policy applicable to Danaher’s executives, other individuals who serve on the Danaher Leadership Team (which consists primarily of Danaher corporate executives), and certain other employees (the “covered persons”), including Messrs. Lico and Gafinowitz. Under the policy, in the event of a material restatement of Danaher’s consolidated financial statements (other than any restatement required pursuant to a change in applicable accounting rules), Danaher’s Board may, to the extent permitted by law and to the extent it determines that it is in Danaher’s best interests to do so, in addition to all other remedies available to Danaher require reimbursement or payment to Danaher of:

 

    the portion of any annual incentive compensation payment awarded to any covered person within the three year period prior to the date such material restatement is first publicly disclosed that would not have been awarded had the consolidated financial statements that are the subject of such restatement been correctly stated (except that Danaher’s Board has the right to require reimbursement of the entire amount of any such annual incentive compensation payment from any covered person whose fraud or other intentional misconduct in the Danaher Board’s judgment alone or with others caused such restatement); and

 

    all gains from equity awards granted on or after March 15, 2009 realized by any covered person during the twelve-month period immediately following the original filing of the consolidated financial statements that are the subject of such restatement, if the covered person’s fraud or other intentional misconduct in the Board’s judgment alone or with others caused such restatement.

In connection with the separation, Fortive expects to adopt a recoupment policy covering each of the Fortive Named Executive Officers.

In addition, both of the stock plans in which Danaher executives, including the Fortive Named Executive Officers, participate contain a provision for recovering awards upon certain circumstances. Under the terms of Danaher’s 2007 Stock Incentive Plan and the 1998 Stock Option Plan, no associate can exercise any outstanding

equity award after such time he or she is terminated for gross misconduct. In addition, under the terms of the

 

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Danaher EDIP, if the Administrator determines that termination of an employee’s participation in the EDIP resulted from the employee’s gross misconduct, the Administrator may determine that the employee’s vesting percentage is zero with respect to all balances that were contributed by Danaher.

Regulatory Considerations

Section 162(m) generally disallows a tax deduction to public corporations for compensation in excess of $1 million paid for any fiscal year to its CEO or to any of its other three most highly compensated executive officers (other than the CFO). The statute generally exempts qualifying performance-based compensation from the deduction limit if certain conditions are met. Danaher reviews the tax impact of its executive compensation on Danaher as well as on its executive officers. In addition, Danaher reviews the impact of its compensation programs against other considerations, such as accounting impact, shareholder alignment, market competitiveness, effectiveness and perceived value to employees. Because many different factors influence a well-rounded, comprehensive executive compensation program, some of the compensation Danaher provides to its executive officers might not be deductible under Section 162(m).

Risk Considerations and Review of Executive Compensation Practices

Risk-taking is a necessary part of growing a business, and prudent risk management is necessary to deliver long-term, sustainable shareholder value. The Danaher Compensation Committee believes that Danaher’s executive compensation program supports the objectives described above without encouraging inappropriate or excessive risk-taking. In reaching this conclusion, the Danaher Compensation Committee considered in particular the following attributes and risk-mitigation features of Danaher’s executive compensation program.

 

    The program’s emphasis on long-term, equity-based compensation discourages risk-taking that produces short-term results at the expense of building long-term shareholder value.

 

    The stock options and RSUs vest over five years and PSUs are subject to three-year vesting and a further two-year holding period, which together with Danaher’s recoupment policy ensure its executives realize their compensation over a time horizon consistent with achieving long-term shareholder value.

 

    The annual incentive compensation program uses performance metrics based on earnings, cash flow and capital efficiency and Danaher’s long-term incentive compensation program uses performance metrics based on total shareholder return and earnings, mitigating the incentive to overperform with respect to any particular metric at the expense of other metrics.

 

    Danaher caps the payment amounts under its annual cash incentive compensation plan and the number of shares that a participant may earn under its PSU awards, and the Danaher Compensation Committee can exercise negative discretion to reduce annual cash incentive compensation payments.

 

    Danaher executives are subject to robust stock ownership guidelines.

 

    Danaher prohibits its employees from engaging in transactions in any derivative of a Danaher security.

 

    The Danaher Compensation Committee and the Danaher Nominating and Governance Committee use independent compensation consultants that perform no other services for Danaher.

 

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2015 Summary Compensation Table

The 2015 Summary Compensation Table and notes show all compensation paid to or earned by each of the Fortive Named Executive Officers for 2015 under Danaher’s compensation programs and plans. Following the separation, Fortive Named Executive Officers will receive compensation and benefits under our compensation programs and plans.

 

Name and
Principal Position
  Year    

Salary ($)

(1)

   

Stock
Awards ($)

(2)

   

Option Awards

($) (2)

    Non-Equity
Incentive Plan
Compensation
($) (1)
   

Change in
Pension Value
and

Nonqualified
Deferred
Compensation
Earnings ($)
(3)

   

All Other
Compensation

($) (4)

  Total ($)  

James A. Lico,

    2015      $ 701,200      $ 1,588,304      $ 1,393,534      $ 1,123,673      $ 2,937      $ 167,668      $ 4,977,316   

President and Chief Executive Officer

    2014      $ 661,500      $ 2,904,906      $ 2,108,025      $ 1,022,100      $ 3,212      $ 133,876      $ 6,833,619   
                 

Charles E. McLaughlin,

    2015      $ 384,831      $ 191,306      $ 146,826      $ 300,000        —        $ 123,522 (5)      $ 1,146,485   

Chief Financial Officer

    2014      $ 360,319      $ 194,768      $ 146,826      $ 203,527        —        $ 84,598      $ 814,746   

 

Patrick J. Byrne,

 

 

 

 

2015

 

  

 

 

$

 

508,654

 

  

 

 

$

 

300,427

 

  

 

 

$

 

210,034

 

  

 

 

$

 

235,000

 

  

 

 

 

 

—  

 

  

 

 

$

 

189,123

 

(6) 

 

 

$

 

1,443,238

 

  

Senior Vice President

                                                               
                 

Martin Gafinowitz,

    2015      $ 513,874      $ 450,427      $ 315,050      $ 414,623      $ 855      $ 109,776 (7)    $ 1,804,605   

Senior Vice President

                                                               

 

Patrick K. Murphy,

 

 

 

 

2015

 

  

 

 

$

 

466,442

 

  

 

 

$

 

375,213

 

  

 

 

$

 

262,542

 

  

 

 

$

 

225,000

 

  

 

 

 

 

—  

 

  

 

 

$

 

71,700

 

(8) 

 

 

$

 

1,400,897

 

  

Senior Vice President

                                                               

 

(1) The following table sets forth the amount, if any, of salary, non-equity incentive and/or bonus compensation that each Fortive Named Executive Officer deferred into the Danaher EDIP with respect to each of the years reported above:

 

Name   

Amount of Salary

Deferred into EDIP

($)

    

Amount of Non-Equity

Incentive Compensation

Deferred into EDIP ($)

 
     2015         2015   

James A. Lico

     —         $ 100,000   

Charles E. McLaughlin

     —           0   

Patrick J. Byrne

     —         $ 117,500   

Martin Gafinowitz

   $ 61,665       $ 50,000   

Patrick K. Murphy

     —         $ 112,500   

 

(2) The amounts reflected in these columns represent the aggregate grant date fair value computed in accordance with FASB ASC Topic 718 for equity grants made in the applicable year:

 

    With respect to stock options, the grant date fair value under FASB ASC Topic 718 has been calculated using the Black-Scholes option pricing model, based on the following assumptions (and assuming no forfeitures):

 

Name    Date of grant    Risk-free
interest rate
     Stock price
volatility rate
     Dividend
yield
    

Option

life

 

James A. Lico

   February 24, 2015      1.86      23.40      0.62      8.0 years   
   May 15, 2014      2.20      21.80      0.53      8.0 years   
   February 24, 2014      2.38      22.8      0.53      8.0 years   

Charles E. McLaughlin

   July 15, 2015      1.74      25.30      0.61      5.5 years   
   July 15, 2014      1.82      21.90      0.51      5.5 years   
Patrick J. Byrne, Martin Gafinowitz, Patrick K. Murphy    February 24, 2015      1.55      23.20      0.62      5.5 years   

 

   

With respect to RSUs, the grant date fair value under FASB ASC Topic 718 is calculated based on the number of shares of Danaher common stock underlying the RSU, times the closing price of Danaher common stock on the date of grant. In 2015, one-half of Mr. Lico’s annual stock award was granted in the form of RSUs and one-half was granted in the form of PSUs that vest based on

 

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Danaher’s TSR ranking relative to the constituents of the S&P 500 Index over a three-year performance period. With respect to PSUs, the 2015 grant date fair value under FASB ASC Topic 718 has been calculated based on the probable outcome of the applicable performance conditions and a Monte Carlo simulation valuation model modified to reflect an illiquidity discount (as a result of the mandatory two-year post-vesting holding period), using the following significant assumptions:

 

Assumption    Monte Carlo Simulation      Illiquidity Discount  

Average volatility of peer group

     23.46      21.55

Risk free interest rate

     0.91      0.60

Dividend yield

     —           —     

 

(3) The amount set forth in this column represents the aggregate change in the actuarial present value of the officer’s accumulated benefit under the Cash Balance Plan of the Danaher Corporation & Subsidiaries Pension Plan between the December 31, 2014 plan measurement date and the December 31, 2015 plan measurement date. The material assumptions used in quantifying the present value of the accumulated benefit at each of December 31, 2014 and December 31, 2015 are as follows: an interest crediting rate (applied from the plan measurement date until normal retirement age) of 3.0% for the plan measurement date of December 31, 2014 and 3.42% for the plan measurement date of December 31, 2015; a retirement age of 65, which is normal retirement age under the Cash Balance Plan; payment of the accrued obligations in a lump sum upon retirement; and a discount rate of 4.0% for the plan measurement date of December 31, 2014 and 4.42% for the plan measurement date of December 31, 2015. Danaher does not provide any above-market or preferential earnings on compensation that is deferred.

 

(4) The following table sets forth the Danaher 401(k) plan and Danaher EDIP contributions Danaher made to each Fortive Named Executive Officer for 2015, which amounts are included in “All Other Compensation”:

 

Name   

2015 Company 401(k)
Contributions

($)

     2015 Company EDIP
Contributions ($)
 

James A. Lico

   $ 18,760       $ 148,838   

Charles E. McLaughlin

   $ 18,760       $ 30,172   

Patrick J. Byrne

   $ 18,675       $ 45,000   

Martin Gafinowitz

   $ 18,760       $ 68,000   

Patrick K. Murphy

   $ 15,900       $ 37,800   

 

(5) Includes an aggregate of $73,233 in perquisites consisting of $34,260 in travel, lodging, meals and related expenses related to trips between Mr. McLaughlin’s home and his work location, $32,643 in relocation costs and amounts relating to a Danaher-provided automobile and tickets to an entertainment event. In connection with Mr. McLaughlin’s promotion to Chief Financial Officer of Fortive, Danaher provided him with relocation assistance under the relocation program that Danaher makes available to management employees generally, including the payment of costs related to his purchase of a new residence as well as reimbursement in the amount of $2,577 for the income taxes incurred by Mr. McLaughlin with respect to such relocation perquisites. The incremental cost to Danaher of the relocation assistance is calculated based on Danaher’s out-of-pocket costs for such relocation items. The incremental cost to Danaher of the other reported perquisites is also calculated based on Danaher’s out-of-pocket costs for such items.

 

(6) Includes an aggregate of $125,448 in perquisites consisting of $107,448 in relocation costs and a personal car allowance. The relocation assistance provided to Mr. Byrne was generally the same as the relocation assistance provided to Mr. McLaughlin described in Footnote 5 above (and the incremental cost of the perquisite is calculated in the same manner), and included reimbursement in the amount of $395 for the income taxes incurred by Mr. Byrne with respect to such relocation perquisites.

 

(7) Includes perquisites consisting of a personal car allowance and club dues.

 

(8) Includes a perquisite consisting of a personal car allowance.

 

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Grants of Plan-Based Awards for Fiscal 2015

The following table sets forth certain information regarding grants of plan-based awards to Fortive Named Executive Officers in 2015 under Danaher’s compensation programs and plans.

 

Name  

Type of

Award

  Grant Date     Committee
Approval
Date
   

Estimated Possible

Payouts Under
  Non-Equity Incentive

Plan Awards (1)  

    Estimated
Future
Payouts Under
Equity
Incentive Plan
Awards (2)
    All Other
Option
Awards:
Number of
Securities
Underlying
Options
(#)(2)
    Exercise
or Base
Price of
Option
Awards
($/
Share)
   

Grant Date

Fair Value

of Stock

and Option
Awards

($) (3)

 
                        Threshold
($)
    Target
($)
    Maximum
($)
    Threshold
(#)
    Target
(#)
    Maximum
(#)
                      

James A. Lico

  Annual cash incentive compensation     2/23/2015        2/23/2015      $ 262,950      $ 876,500      $ 10,000,000        —          —          —          —          —          —     
 

Stock

options (4)

    2/24/2015        2/23/2015        —          —          —          —          —          —          56,740      $ 87.04      $ 1,393,534   
  Restricted stock units (5)     2/24/2015        2/23/2015        —          —          —          —          9,365        —          —          —        $ 800,427   
  Performance stock units (6)     2/24/2015        2/23/2015        —          —          —          2,341        9,365        18,730        —          —        $ 787,877   

Charles E. McLaughlin

  Annual cash incentive compensation     —          —          0      $ 207,500        (7     —          —          —          —          —          —     
  Stock options (8)     7/15/2015        7/14/2015        —          —          —          —          —          —          6,680      $ 88.33      $ 146,826   
  Restricted stock units (9)     7/15/2015        7/14/2015        —          —          —          —          2,205        —          —          —        $ 191,306   

Patrick J. Byrne

  Annual cash incentive compensation     —          —          0      $ 256,250        (7     —          —          —          —          —          —     
  Stock options (8)     2/24/2015        2/23/2015        —          —          —          —          —          —          10,640      $ 87.04      $ 210,034   
  Restricted stock units (9)     2/24/2015        2/23/2015        —          —          —          —          3,515        —          —          —        $ 300,427   

Martin Gafinowitz

  Annual cash incentive compensation     —          —          0      $ 363,290        (7     —          —          —          —          —          —     
  Stock options (10)     2/24/2015        2/23/2015        —          —          —          —          —          —          15,960      $ 87.04      $ 315,050   
  Restricted stock units (11)     2/24/2015        2/23/2015        —          —          —          —          5,270        —          —          —        $ 450,427   

Patrick K. Murphy

  Annual cash incentive compensation     —          —          0      $ 259,875        (7     —          —          —          —          —          —     
  Stock options (8)     2/24/2015        2/23/2015        —          —          —          —          —          —          13,300      $ 87.04      $ 262,542   
  Restricted stock units (9)     2/24/2015        2/23/2015        —          —          —          —          4,390        —          —          —        $ 375,213   

 

(1) These columns relate to 2015 cash award opportunities under Danaher’s 2007 Executive Incentive Compensation Plan (with respect to Mr. Lico) or Danaher’s Senior Leader Incentive Plan (with respect to Messrs. McLaughlin, Byrne, Gafinowitz and Murphy).