Related Party Transactions

9 Months Ended

Sep. 25, 2020

NOTE 11. RELATED PARTY TRANSACTIONS

Allocations of Expenses Prior to the Separation

The Company has historically operated as part of Fortive and not as a stand-alone company. Accordingly, certain shared costs have been allocated to the Company by Fortive, and are reflected as expenses in these 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 the accompanying Combined Condensed 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 and the expenses that will be incurred in the future by the Company.

Corporate Expenses

Certain corporate overhead and other shared expenses incurred by Fortive and its subsidiaries have been allocated to the Company and are reflected in the accompanying Combined Condensed Statements of Earnings. These amounts include, but are not limited to, items such as general management and executive oversight, costs to support Fortive information technology infrastructure, facilities, compliance, human resources, and marketing, as well as legal functions and financial management and transaction processing, including public company reporting, consolidated tax filings, and tax planning, Fortive benefit plan administration, risk management and consolidated treasury services, certain employee benefits and incentives, and stock-based compensation administration. These costs are allocated using a methodology that management believes is reasonable for the item being allocated. Allocation methodologies include the Company’s relative share of revenues, headcount, or functional spend as a percentage of the total.

Insurance Programs Administered by Fortive

In addition to the corporate allocations noted above, the Company was allocated expenses related to certain insurance programs Fortive administers on behalf of the Company, including automobile liability, workers’ compensation, general liability, product liability, director’s and officer’s liability, cargo, and property insurance. These amounts are allocated using various methodologies, as described below.

Included within the insurance cost allocation are amounts related to programs for which Fortive is self-insured up to a certain amount. For the self-insured component, costs are allocated to the Company based on its incurred claims. Fortive has premium-based policies that cover amounts in excess of the self-insured retentions. The Company is allocated a portion of the total insurance cost incurred by Fortive based on its pro-rata portion of Fortive’s total underlying exposure base. An estimated liability relating to the Company’s known and incurred but not reported claims has been allocated to the Company and reflected in the accompanying Combined Condensed Balance Sheets.

Medical Insurance Programs Administered by Fortive

In addition to the corporate allocations noted above, the Company was allocated expenses related to the medical insurance programs administered on behalf of the Company. These amounts were allocated using actual medical claims incurred during the period for the employees attributable to the Company.

Deferred Compensation Program Administered by Fortive

Certain employees of the Company participate in Fortive’s nonqualified deferred compensation programs, which permit officers, directors and certain management employees to defer a portion of their compensation, on a pretax basis, until their termination of employment. Participants may choose among alternative earnings rates for the amounts they defer, which are primarily based on investment options within Fortive’s 401(k) program (except that the earnings rates for amounts contributed unilaterally by the Company are entirely based on changes in the value of Fortive’s common stock). All amounts deferred under this plan are unfunded, unsecured obligations of the Company.

The amount of related party expenses allocated to the Company from Fortive and its subsidiaries for the three and nine months ended September 25, 2020 and September 27, 2019, were as follows:


	Three Months Ended				Nine Months Ended
($ in millions)	September 25, 2020		September 27, 2019		September 25, 2020		September 27, 2019
Allocated corporate expenses	$	9.5	$	6.7	$	28.0	$	20.2
Directly attributable expenses
Insurance programs expenses	0.9		0.6		2.2		1.8
Medical insurance programs expenses	9.1		10.6		31.4		31.8
Deferred compensation program expenses	0.3		0.2		0.9		0.7
Total related party expenses	$	19.8	$	18.1	$	62.5	$	54.5

Revenue and Other Transactions Entered into in the Ordinary Course of Business

Certain of the Company’s revenue arrangements related to contracts entered into in the ordinary course of business with Fortive and its affiliates. The Company’s revenue from sales to Fortive and Fortive’s subsidiaries was insignificant during the three and nine months ended September 25, 2020 and September 27, 2019.

The Company recorded purchases of approximately $4.0 million and $11.9 million from Fortive and Fortive’s subsidiaries during the three and nine months ended September 25, 2020, respectively, and $5.1 million and $11.5 million during the three and nine months ended September 27, 2019, respectively.

Debt Financing

As part of Fortive, the Company engaged in Related-Party Borrowings. Transactions between Fortive and the Company have been included in the accompanying Combined Condensed Financial Statements for all years presented.

There were non-cash settlements of the related-party loan receivables balances that existed as of December 31, 2019 during the nine months ended September 25, 2020.

Loans from Fortive to the Company have been recorded as Long-term debt in the accompanying Combined Condensed Balance Sheets. Related-party loans to Fortive entities were $24.6 million at December 31, 2019. These transactions were settled during the nine months ended September 25, 2020.

Interest income (expense), net on related-party transactions was insignificant for the three and nine months ended September 25, 2020 and $3.1 million and $6.5 million for the three and nine months ended September 27, 2019, respectively.