BUSINESS OVERVIEW

3 Months Ended

Mar. 31, 2023

Organization, Consolidation and Presentation of Financial Statements [Abstract]

BUSINESS OVERVIEW

NOTE 1. BUSINESS OVERVIEW

Fortive Corporation (“Fortive,” “the Company,” “we,” “us,” or “our”) is a provider of essential technologies for connected workflow solutions across a range of attractive end-markets. Our strategic segments - Intelligent Operating Solutions, Precision Technologies, and Advanced Healthcare Solutions - include well-known brands with leading positions in their markets. Our businesses design, develop, manufacture, and service professional and engineered products, software, and services, building upon leading brand names, innovative technologies, and significant market positions. Our research and development, manufacturing, sales, distribution, service, and administrative facilities are located in more than 50 countries around the world.

We prepared the unaudited consolidated 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 omitted pursuant to such rules and regulations; however, we believe the disclosures are adequate to make the information presented not misleading. The unaudited consolidated condensed financial statements included herein should be read in conjunction with the audited annual consolidated financial statements as of and for the year ended December 31, 2022 and the footnotes (“Notes”) thereto included within our 2022 Annual Report on Form 10-K.

In our opinion, the accompanying financial statements contain all adjustments, which consist of only normal, recurring accruals necessary to fairly present our financial position, results of operations, comprehensive income, stockholders’ equity, and cash flows for the periods presented. The results of operations for the three months ended March 31, 2023, are not necessarily indicative of the results for the full year.

Accumulated Other Comprehensive Loss

Foreign currency translation adjustments are generally not adjusted for income taxes as they relate to indefinite investments in non-U.S. subsidiaries. During the second quarter of 2022, our ¥14.4 billion Yen-denominated term loan and our €275 million Euro-denominated term loan were designated as net investment hedges of our investment in applicable foreign operations.

During the three month period ended March 31, 2023, we recognized after-tax foreign currency transaction losses of $1.7 million on the debt that was deferred in the foreign currency translation component of Accumulated other comprehensive income (loss) (“AOCI”) as an offset to the foreign currency translation adjustments on our investments in foreign subsidiaries. Any amounts deferred in AOCI will remain until the hedged investment is sold or substantially liquidated. We recorded no ineffectiveness from our net investment hedges during the three month period ended March 31, 2023.

The changes in AOCI by component are summarized below ($ in millions):

	Foreign currency translation adjustments		Pension & post-retirement plan benefit adjustments (a)			Total
For the Three Months Ended March 31, 2023:
Balance, December 31, 2022	$	(301.4)	$	(24.3)		$	(325.7)
Other comprehensive income (loss) before reclassifications, net of income taxes	13.4		—			13.4
Amounts reclassified from accumulated other comprehensive income (loss):
Increase (decrease)	—		0.1		(b)	0.1
Income tax impact	—		(0.1)			(0.1)
Amounts reclassified from accumulated other comprehensive income (loss), net of income taxes	—		—			—
Net current period other comprehensive income (loss), net of income taxes	13.4		—			13.4
Balance, March 31, 2023	$	(288.0)	$	(24.3)		$	(312.3)
For the Three Months Ended April 1, 2022:
Balance, December 31, 2021	$	(122.7)	$	(62.3)		$	(185.0)
Other comprehensive income (loss) before reclassifications, net of income taxes	(39.4)		—			(39.4)
Amounts reclassified from accumulated other comprehensive income (loss):
Increase (decrease)	—		0.6		(b)	0.6
Income tax impact	—		(0.1)			(0.1)
Amounts reclassified from accumulated other comprehensive income (loss), net of income taxes	—		0.5			0.5
Net current period other comprehensive income (loss), net of income taxes	(39.4)		0.5			(38.9)
Balance, April 1, 2022	$	(162.1)	$	(61.8)		$	(223.9)
(a) Includes balances relating to defined benefit plans, supplemental executive retirement plans, and other postretirement employee benefit plans.
(b) This component of AOCI is included in the computation of net periodic pension cost (refer to Note 12 in our most recently filed Form 10-K for additional details).

Allowances for Doubtful Accounts

All trade accounts and unbilled receivables are reported in the Consolidated Condensed Balance Sheet adjusted for any write-offs and net of allowances for credit losses. The allowances for credit losses represent management’s best estimate of the credit losses expected from our unbilled and trade accounts receivable portfolios over the life of the underlying assets. Additions to the allowances are charged to current period earnings, amounts determined to be uncollectible are charged directly against the allowances, while amounts recovered on previously written-off accounts increase the allowances. During the three month period ending March 31, 2023, the activity was immaterial.

Restructuring

We initiated a discrete plan in the first quarter of 2023 focused on improvements in our operational efficiency, which is expected to be completed by December 31, 2023. The nature of these activities were broadly consistent throughout our segments and consist of targeted workforce reductions and facility consolidations or closures in response to overall macroeconomic and other external conditions. We incurred these costs to position ourselves to provide superior products and services to customers in a cost-efficient manner, while taking into consideration the impact of broad economic uncertainties. The total restructuring charges we expect to recognize under this discrete plan are approximately $25 to $30 million, with charges of $17.6 million incurred in the first quarter, which primarily related to employee severance. These charges are included in Cost of Sales and Selling, general, and administrative expenses in the Consolidated Condensed Statement of

Earnings. Accrued restructuring costs were $13.4 million as of March 31, 2023 and were included within Accrued expenses and other current liabilities in the Consolidated Condensed Balance Sheets.

Convertible Senior Notes

On February 22, 2019, we issued $1.4 billion in aggregate principal amount of our 0.875% Convertible Senior Notes due 2022 (“Convertible Notes”), including $187.5 million in aggregate principal amount resulting from an exercise in full of an over-allotment option. The Convertible Notes were issued in a private placement to certain initial purchasers for resale to qualified institutional buyers pursuant to Rule 144A under the Securities Act. Upon conversion of the Convertible Notes, holders were entitled to receive cash, shares of our common stock, or a combination thereof, at our election. Upon adopting Accounting Standards Update No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), on January 1, 2022, we accounted for the Convertible Notes under the if-converted method in our calculation of diluted EPS, as required under the new guidance.

On February 15, 2022, the maturity date of the Convertible Notes, Fortive repaid, in cash, $1.2 billion in outstanding principal and accrued interest thereon.

Recently Issued Accounting Standard

The Financial Accounting Standards Board (“FASB”) establishes changes to accounting principles under GAAP in the form of accounting standards updates (“ASUs”) to the Accounting Standards Codification (“ASC”). We consider the applicability and impact of all ASUs. Any recently issued ASUs were assessed and determined to be either not applicable or are expected to have an immaterial impact on the Company’s result of operations, financials position or cash flows.