NOTE 1. BUSINESS OVERVIEW AND BASIS OF PRESENTATION

Fortive Corporation (“Fortive” or the “Company”) is a diversified industrial growth company encompassing businesses that are recognized leaders in attractive markets. Our well-known brands hold leading positions in advanced instrumentation and solutions, transportation technology, sensing, automation and specialty, and franchise distribution markets. Our businesses design, develop, service, manufacture and market professional and engineered products, software and services for a variety of end markets, building upon leading brand names, innovative technology and significant market positions.

Basis of Presentation—We prepared the unaudited consolidated and combined condensed financial statements included herein in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) applicable for interim periods. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations; however, we believe the disclosures are adequate to make the information presented not misleading. The consolidated and combined condensed financial statements included herein should be read in conjunction with the audited annual consolidated and combined financial statements as of and for the year ended December 31, 2016 and the Notes thereto included within our 2016 Annual Report on Form 10-K.

In our opinion, the accompanying financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to fairly present our financial position as of September 29, 2017 and December 31, 2016, and our results of operations and cash flows for the three and nine months ended September 29, 2017 and September 30, 2016.

Prior to our separation from Danaher Corporation (“Danaher” or “Former Parent”) on July 2, 2016 (the “Separation”), our businesses were comprised of certain Danaher operating units (the “Fortive Businesses”). The combined condensed financial statements for periods prior to the Separation were derived from Danaher’s consolidated financial statements and accounting records and prepared in accordance with GAAP for the preparation of carved-out combined financial statements. Prior to the Separation, all revenues and costs as well as assets and liabilities directly associated with Fortive have been included in the combined condensed financial statements. Additionally, the combined condensed financial statements for periods prior to the Separation included allocations of certain general, administrative, sales and marketing expenses and cost of sales from Danaher’s corporate office and from other Danaher businesses to Fortive, and allocations of related assets, and liabilities, as applicable. The allocations were 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 we been operating independently of Danaher during the applicable periods. Accordingly, our combined condensed financial statements may not be indicative of our results had we been a separate, stand-alone entity throughout the periods presented. For further discussion of related party allocations prior to the Separation, including the method for such allocation, refer to Note 19 of our 2016 Annual Report on Form 10-K.

Following the Separation, the consolidated financial statements include the accounts of Fortive and those of our wholly-owned subsidiaries and no longer include any allocations from Danaher. Accordingly:


•	The Consolidated Condensed Balance Sheets at September 29, 2017 and December 31, 2016 consist of our consolidated balances.


•	The Consolidated Condensed Statements of Earnings and Statements of Comprehensive Income for the three and nine months ended September 29, 2017 and the three months ended September 30, 2016 consist of our consolidated results.


•	The Consolidated Condensed Statement of Changes in Equity and Statement of Cash Flows for the nine months ended September 29, 2017 consist of our consolidated results.


•	The Consolidated and Combined Condensed Statement of Earnings, Statement of Comprehensive Income and Statement of Cash Flows for the nine months ended September 30, 2016 consist of our consolidated activity for the three months ended September 30, 2016 and the combined results of the Fortive Businesses for the six months ended July 1, 2016.

Accumulated Other Comprehensive Income (Loss)—The changes in accumulated other comprehensive income (loss) by component are summarized below ($ in millions). Foreign currency translation adjustments are generally not adjusted for income taxes as they relate to indefinite investments in non-U.S. subsidiaries.



	Foreign currency translation adjustments			Pension & post- retirement plan benefit adjustments ^(b)				Total
For the Three Months Ended September 29, 2017:
Balance, June 30, 2017	$	16.2		$	(71.5	)		$	(55.3	)
Other comprehensive income (loss) before reclassifications, net of income taxes	38.1			—				38.1
Amounts reclassified from accumulated other comprehensive income (loss):
Increase (decrease)	—			1.2			^(a)	1.2
Income tax impact	—			(0.3		)		(0.3		)
Amounts reclassified from accumulated other comprehensive income (loss), net of income taxes	—			0.9				0.9
Net current period other comprehensive income (loss), net of income taxes	38.1			0.9				39.0
Balance, September 29, 2017	$	54.3		$	(70.6	)		$	(16.3	)

For the Three Months Ended September 30, 2016:
Balance, July 1, 2016	$	62.7		$	(63.5	)		$	(0.8	)
Other comprehensive income (loss) before reclassifications, net of income taxes	(25.7		)	—				(25.7		)
Amounts reclassified from accumulated other comprehensive income (loss):
Increase (decrease)	—			1.3			^(a)	1.3
Income tax impact	—			(0.3		)		(0.3		)
Amounts reclassified from accumulated other comprehensive income (loss), net of income taxes	—			1.0				1.0
Net current period other comprehensive income (loss), net of income taxes	(25.7		)	1.0				(24.7		)
Balance, September 30, 2016	$	37.0		$	(62.5	)		$	(25.5	)

For the Nine Months Ended September 29, 2017:
Balance, December 31, 2016	$	(72.6	)	$	(73.2	)		$	(145.8	)
Other comprehensive income (loss) before reclassifications, net of income taxes	126.9			—				126.9
Amounts reclassified from accumulated other comprehensive income (loss):
Increase (decrease)	—			3.4			^(a)	3.4
Income tax impact	—			(0.8		)		(0.8		)
Amounts reclassified from accumulated other comprehensive income (loss), net of income taxes	—			2.6				2.6
Net current period other comprehensive income (loss)	126.9			2.6				129.5
Balance, September 29, 2017	$	54.3		$	(70.6	)		$	(16.3	)



	Foreign currency translation adjustments			Pension & post- retirement plan benefit adjustments ^(b)				Total
For the Nine Months Ended September 30, 2016:
Balance, December 31, 2015	$	51.2		$	(65.6	)		$	(14.4	)
Other comprehensive income (loss) before reclassifications, net of income taxes	(14.2		)	—				(14.2		)
Amounts reclassified from accumulated other comprehensive income (loss):
Increase	—			4.1			^(a)	4.1
Income tax impact	—			(1.0		)		(1.0		)
Amounts reclassified from accumulated other comprehensive income (loss), net of income taxes	—			3.1				3.1
Net current period other comprehensive income (loss)	(14.2		)	3.1				(11.1		)
Balance, September 30, 2016	$	37.0		$	(62.5	)		$	(25.5	)

^(a) This accumulated other comprehensive income (loss) component is included in the computation of net periodic pension cost (refer to Note 6 for additional details).
^(b) Includes balances relating to non-U.S. employee defined benefit plans, supplemental executive retirement plans and other postretirement employee benefit plans.

New Accounting Standards—In May 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting, which provided clarity on which changes to the terms or conditions of share-based payment awards require an entity to apply the modification accounting provisions required in Topic 718. This standard is effective for us beginning January 1, 2018 (with early adoption permitted, including adoption in any interim period for which financial statements have not yet been issued). We do not expect the adoption of this standard will have a material impact on our financial statements.

In March 2017, the FASB issued ASU No. 2017-07, Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which aims to improve the presentation of net periodic pension cost. Under current accounting standards, all components of net periodic pension costs are aggregated and reported in cost of sales or selling, general and administrative expenses in the financial statements. Under the new standard we will be required to report only the service cost component in cost of sales or selling, general and administrative expenses; and the other components of net periodic pension costs (which include interest costs, expected return on plan assets and amortization of net loss) will be required to be presented in non-operating expenses. The presentation requirement of this standard is effective for us beginning January 1, 2018 (with early adoption permitted) using a retrospective transition approach and provides for certain practical expedients. We do not expect the adoption of this standard will have a material impact to our financial statements.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which amends the impairment model by requiring entities to use a forward-looking approach, based on expected losses, to estimate credit losses on certain types of financial instruments, including trade receivables. This standard is effective for us beginning January 1, 2020, with early adoption permitted. We are currently evaluating the impact of this standard on our 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. The standard also requires disclosures by lessees and lessors about the amount, timing and uncertainty of cash flows arising from leases. The accounting applied by a lessor is largely unchanged from that applied under the current standard. This standard is effective for us beginning January 1, 2019 (with early adoption permitted) using a modified retrospective transition approach and provides for certain practical expedients. In September 2017, the FASB issued ASU No. 2017-13, Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842), which provided additional implementation guidance on the previously issued ASU. We are currently evaluating the impact of this standard on our 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. During 2016 and 2017, the FASB issued several amendments to the standard, including clarification to the guidance on reporting revenues as a principal versus an agent, identifying performance obligations, accounting for intellectual property licenses, assessing collectability, presentation of sales taxes, impairment testing for contract costs, disclosure of performance obligations and provided additional implementation guidance. The new standard will also require additional disclosures intended to provide users of financial statements comprehensive information about the nature, amount, timing and uncertainty of revenue and cash flows from customer contracts. The two permitted transition methods under the new standard are the full retrospective method, in which case the standard would be applied to each prior reporting period presented and the cumulative effect of applying the standard would be recognized at the earliest period shown, or the modified retrospective method, in which case the cumulative effect of applying the standard would be recognized at the date of initial application. We currently anticipate adopting this standard beginning January 1, 2018 using the modified retrospective method.

We are currently completing our assessment and quantifying the impact of the new revenue standard on our financial statements and related disclosures. We expect recognition of revenue for a majority of customer contracts to remain substantially unchanged. However, we are continuing to assess all potential impacts of the standard and we currently believe the more significant impacts relate to certain customer contracts that will be recognized over time, accounting for any required deferral of commissions and changes to the timing of recognition of revenue and costs related to certain warranty arrangements. We have identified, and are in the process of implementing, appropriate changes to our processes, systems and controls to support recognition and disclosure under the new standard. Furthermore, we anticipate that our disclosures will be expanded to meet the new standard’s disclosure objectives.

Separation from Danaher Corporation—The Separation from Danaher, effectuated on July 2, 2016, was completed in the form of a pro rata distribution to Danaher stockholders of record on June 15, 2016 of 100 percent of the outstanding shares of Fortive Corporation held by Danaher.