The Company had no stock-based compensation plans prior to the Separation; however certain Fortive employees participated in Danaher’s stock-based compensation plans ("Danaher Plans"), which provided for the grants of stock options, performance stock units (“PSUs”), and restricted stock units (“RSUs”) among other types of awards. The expense associated with Fortive employees who participated in the Danaher Plans was allocated to the Company in the accompanying Combined Condensed Statements of Earnings for the associated periods prior to the Separation.

In connection with the Separation and the employee matters agreement, the Company adopted the 2016 Stock Incentive Plan (the “Stock Plan”) and outstanding equity awards of Danaher held by Fortive employees (the "Converted Awards") were converted into or replaced with equity awards of Fortive (the "Conversion Awards") under the Stock Plan based on the “concentration method,” and as adjusted to maintain the economic value before and after the distribution date using the relative fair market value of the Danaher and Fortive common stock based on the closing prices as of July 1, 2016. There was no significant incremental stock-based compensation expense recorded as a result of the equity award conversion.

Outstanding performance-based RSU and PSU of Danaher held by Fortive employees with pending performance goals of Danaher at the Separation date were cancelled and replaced in connection with the Separation with performance-based restricted stock awards ("RSAs") and performance stock awards ("PSAs") of Fortive with comparable value, performance goals and vesting requirements. All other terms of the equity awards continued unchanged following the conversion or replacement.

The Stock Plan provides for the grant of stock options, stock appreciation rights, RSUs, PSUs, RSAs and PSAs (collectively, "Stock Awards") or any other stock-based award. A total of 23.0 million shares of Fortive common stock have been authorized for issuance under the Stock Plan. As of September 30, 2016, approximately 22.4 million shares of the Company's common stock remain available for issuance under the Stock Plan. Stock options under the Stock Plan generally vest pro rata over a five year period and terminate 10 years from the grant date, though the specific terms of each grant are determined by the Compensation Committee of the Company's Board of Directors (the "Compensation Committee"). The Company’s executive officers and certain other employees may be awarded options with different vesting criteria, and options granted to non-employee directors are fully vested as of the grant date. Option exercise prices for new options granted by the Company under this plan equal the closing price of the Company’s common stock on the NYSE on the date of grant, while options issued as Conversion Awards were priced to maintain the economic value before and after the Separation.

RSUs and RSAs issued under the Stock Plan provide for the issuance of a share of the Company’s common stock at no cost to the holder. RSUs granted to employees under the Stock Plan generally provide for time-based vesting over a five year period, although certain employees may be awarded RSUs with different time-based vesting criteria, and RSAs granted to members of the Company’s senior management are also subject to performance-based vesting criteria. RSUs granted to non-employee directors under the Stock Plan vest on the earlier of the first anniversary of the grant date or the date of, and immediately prior to, the next annual meeting of the Company’s shareholders following the grant date. However, the underlying shares are not issued until the earlier of the director’s death or the first day of the seventh month following the director’s retirement from the Board of Directors (the "Board"). Prior to vesting, RSUs granted under the Stock Plan do not have dividend equivalent rights, do not have voting rights and the shares underlying the RSUs are not considered issued or outstanding. RSAs granted under the Stock Plan have all of the same dividend, voting and other rights corresponding to all other common stock, provided, however, that the dividends payable on the RSAs will accrue and be delivered at the time of delivery of the shares upon vesting of the RSA .

As part of the Company's executive equity compensation program, PSUs may be granted under the Stock Plan that vest based on the Company’s total shareholder return ranking relative to the S&P 500 Index over a three year performance period. No PSUs have been issued under the Stock Plan. During the third quarter of 2016, PSAs were granted under the Stock Plan as Conversion Awards that vest based on the Company’s total shareholder return ranking relative to the S&P 500 Index over the performance period remaining on the corresponding Converted Awards.

in the case of directors, the director continues to serve on the Board) on the vesting date or in other limited circumstances. To cover the exercise of options, vesting of RSUs and PSUs and issuances of RSAs and PSAs, the Company generally issues new shares from its authorized but unissued share pool, although it may instead issue treasury shares in certain circumstances.

The Company accounts for stock-based compensation by measuring the cost of employee services received in exchange for all equity awards granted based on the fair value of the award as of the grant date. The Company recognizes the compensation expense over the requisite service period (which is generally the vesting period but may be shorter than the vesting period if the employee becomes retirement eligible before the end of the vesting period). The fair value for RSUs was calculated using the closing price of the Company’s common stock on the date of grant, adjusted for the fact that RSUs do not accrue dividends.

The fair value for RSAs was calculated using the closing price of the Company’s common stock on the date of grant. The fair value of the PSUs and PSAs was calculated using a Monte Carlo pricing model. The fair value of the options granted was calculated using a Black-Scholes Merton (“Black-Scholes”) option pricing model.

Stock-based compensation has been recognized as a component of SG&A in the accompanying Consolidated and Combined Condensed Statements of Earnings. Prior to the Separation, the Company was allocated stock-based compensation expense by Danaher. Following the Separation, stock-based compensation is recorded based on the provisions of the Stock Plan. Accordingly, the amounts presented for the nine months ended September 30, 2016 and the three and nine months ended October 2, 2015 may not be indicative of the Company's results had it been a separate stand-alone entity throughout the periods presented.

The following summarizes the components of the Company’s stock-based compensation expense under the Stock Plan and the Danaher Plans ($ in millions):



	Three Months Ended						Nine Months Ended
	September 30, 2016			October 2, 2015			September 30, 2016			October 2, 2015
RSUs/PSUs:
Pretax compensation expense	$	7.3		$	5.1		$	21.5		$	15.3
Income tax benefit	(2.3		)	(1.8		)	(7.1		)	(5.2		)
RSU/PSU expense, net of income taxes	5.0			3.3			14.4			10.1
Stock options:
Pretax compensation expense	4.7			3.4			12.9			9.0
Income tax benefit	(1.6		)	(1.1		)	(4.4		)	(3.1		)
Stock option expense, net of income taxes	3.1			2.3			8.5			5.9
Total stock-based compensation:
Pretax compensation expense	12.0			8.5			34.4			24.3
Income tax benefit	(3.9		)	(2.9		)	(11.5		)	(8.3		)
Total stock-based compensation expense, net of income taxes	$	8.1		$	5.6		$	22.9		$	16.0

The following summarizes the unrecognized compensation cost for the Stock Plan awards as of September 30, 2016 which are expected to recognized over a weighted average period of approximately three years. Future compensation amounts will be adjusted for any changes in estimated forfeitures ($ in millions):



Stock Awards	$	50.5
Stock options	46.0
Total unrecognized compensation cost	$	96.5

The following summarizes the assumptions used in the Black-Scholes model to value options granted during the three months ended September 30, 2016:



Risk-free interest rate	1.21% - 1.25%
Weighted average volatility^(a)	25.0	%
Dividend yield^(b)	0.6	%
Expected years until exercise	5.5 - 8.0

^(a) Weighted average volatility was estimated based on an average historical stock price volatility of a group of peer companies, given the Company's limited trading history.
^(b)The dividend yield is calculated by dividing Fortive's annual dividend, based on the most recent quarterly dividend rate, by the closing Fortive stock price on the grant date.



	Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)	Aggregate Intrinsic Value
Outstanding as of December 31, 2015	5.8
Granted	1.6
Exercised	(1.4	)
Canceled/forfeited	(0.7	)
Aggregate impact of conversion related to the Separation^(a)	5.5
Outstanding as of September 30, 2016	10.8		$	32.96	7	$	194.1
Vested and expected to vest as of September 30, 2016 ^(b)	10.4		$	32.12	7	$	190.3
Vested as of September 30, 2016	4.9		$	24.64	5	$	127.8

^(a) The “Aggregate impact of conversion related to the Separation” represents the number of options issued as a result of the Separation by applying the “concentration method” to convert employee options based on the ratio of the fair value of Danaher and Fortive common stock as of the date of the Separation.
^(b) The “expected to vest” options are the net unvested options that remain after applying the forfeiture rate assumption to total unvested options.

The weighted average exercise price of stock options outstanding at December 31, 2015, and for stock options granted, exercised, canceled/forfeited is not included in the table above as the nine months ended September 30, 2016 include the conversion of stock option awards under Danaher's Plans into awards under the Stock Plan. The weighted average exercise price of Fortive stock options granted, exercised and canceled/forfeited during the three months ended September 30, 2016 was $50.60, $27.67, and $40.27, respectively.

The aggregate intrinsic values in the table above represent the total pretax intrinsic value (the difference between the closing stock price of Fortive's common stock on the last trading day of the third quarter of 2016 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on September 30, 2016. The amount of aggregate intrinsic value will change based on the price of Fortive’s common stock.



	Three Months Ended				Nine Months Ended
	September 30, 2016		October 2, 2015		September 30, 2016		October 2, 2015
Aggregate intrinsic value of options exercised	$	2.8	$	18.0	$	73.7	$	50.4
Cash receipts from exercise of options	$	3.3	$	12.7	$	56.7	$	35.4
Tax benefit realized related to exercise of options	$	1.0	$	5.8	$	25.5	$	15.8

The net income tax benefit in excess of the expense recorded for financial reporting purposes (the “excess tax benefit”) for the three months ended September 30, 2016 has been recorded as an increase to additional paid-in capital and is reflected as a financing cash inflow in the accompanying Consolidated and Combined Condensed Statements of Cash Flows. The excess tax benefit prior to the Separation was recorded as an increase to Former Parent's Investment.



	Number of Stock Awards		Weighted Average Grant-Date Fair Value
Unvested as of December 31, 2015	1.1		$	72.24
Granted	0.6
Vested	(0.4	)
Forfeited	(0.2	)
Aggregate impact of conversion related to the Separation^(a)	1.2
Unvested as of September 30, 2016	2.3		$	38.84

^(a) The “Aggregate impact of conversion related to the Separation” represents the number of additional Stock Awards issued as a result of the Separation by applying the “concentration method” to convert Stock Awards based on the ratio of the fair value of Danaher and Fortive common stock as of the date of the Separation.

The weighted average grant date fair value of Stock Awards outstanding at December 31, 2015, and for Stock Awards granted, vested, canceled/forfeited is not disclosed in the table above as the nine months ended September 30, 2016 include the conversion of Stock Awards under Danaher's Plans into awards under the Stock Plan. The weighted average grant date fair value of Fortive Stock Awards granted, vested and canceled/forfeited during the three months ended September 30, 2016 was $49.39, $33.11, and $39.10, respectively.

The Company realized a tax benefit of $5 million and $10 million during the three and nine months ended September 30, 2016, respectively, related to the vesting of Stock Awards, as compared to realizing a tax benefit of $4 million and $9 million during the three and nine months ended October 2, 2015, respectively. Any excess tax benefit attributable to Stock Awards has been recorded as an increase to additional paid-in capital and is reflected as a financing cash inflow in the accompanying Consolidated and Combined Condensed Statements of Cash Flows. The excess tax benefit prior to the Separation was recorded as an increase to Former Parent's Investment.