Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Fortive Corporation (the “Company,” “we,” “our,” and “us”) is a provider of essential technologies for connected workflow solutions across a range of attractive end-markets. Our well-known brands hold leading positions in intelligent operating solutions, precision technologies, and advanced healthcare solutions. 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 technologies, and significant market positions. Our research and development, manufacturing, sales, distribution, service, and administrative facilities are located in more than 50 countries across North America, Asia Pacific, Europe, and Latin America.

This MD&A is designed to provide a reader of our financial statements with a narrative from the perspective of management. Our MD&A is divided into seven sections:

Basis of Presentation
Overview
Results of Operations
Financial Instruments and Risk Management
Liquidity and Capital Resources
Critical Accounting Estimates
New Accounting Standards

BASIS OF PRESENTATION

On October 9, 2020, we completed the separation of our former Industrial Technologies segment (the “Separation”) by distributing 80.1% of the outstanding shares of Vontier Corporation (“Vontier”), the entity we created to hold the corresponding businesses, to Fortive stockholders on a pro rata basis. To effect the Separation, the Company distributed to its stockholders two shares of Vontier common stock for every five shares of the Company’s common stock outstanding held on September 25, 2020, the record date for the distribution, with the Company retaining 19.9% of the shares of Vontier common stock immediately following the Separation (the “Retained Vontier Shares”). On January 19, 2021, we completed an exchange of all of the Retained Vontier Shares as part of a non-cash debt-for-equity exchange that reduced outstanding indebtedness of Fortive by $1.1 billion.

The accounting requirements for reporting the Separation of Vontier as a discontinued operation were met when the Separation was completed. Accordingly, the accompanying consolidated financial statements for all periods presented reflect the results of the Vontier business as a discontinued operation. Fortive did not retain a controlling interest in Vontier and therefore the fair value of the Retained Vontier Shares and subsequent fair value changes are included in our assets of and results from continuing operations, respectively. The subsequent change in the fair value of the Retained Vontier Shares and the resulting gain will be recorded in the first quarter of 2021.

Unless otherwise noted, amounts, percentages, and discussion for all periods included in Management’s Discussion and Analysis reflect the results of operations and financial condition from our continuing operations. Refer to Note 4 to our consolidated financial statements for additional information on discontinued operations.

In light of the Vontier Separation, we changed our internal reporting structure on the first day of the fourth quarter, September 26, 2020, to reflect organizational and leadership changes that allow us to better assess the operational performance of and allocate resources to our businesses. Our chief operating decision maker assesses performance and allocates resources based on our new operating segments, which are also our new reportable segments. Our new reportable segments are comprised of Intelligent Operating Solutions, Precision Technologies, and Advanced Healthcare Solutions. Refer to Note 19 to our consolidated financial statements for additional information about our reportable segments.

The discussion of historical information in Management’s Discussion and Analysis has been recast to reflect the new reportable segments of our continuing operations.

OVERVIEW

General

Fortive is a multinational business with global operations with approximately 47% of our sales derived from customers outside the United States in 2020. As a company with global operations, our businesses are affected by worldwide, regional, and industry-specific economic and political factors. Our geographic and industry diversity, as well as the range of products, software, and services we offer, typically help limit the impact of any one industry or the economy of any single country (except for the United States) on our operating results. Given the broad range of products manufactured, software and services provided, and geographies served, we do not use any indices other than general economic trends to predict the overall outlook for the Company. Our individual businesses monitor key competitors and customers, including their sales, to the extent possible, to gauge relative performance and the outlook for the future.

As a result of our geographic and industry diversity, we face a variety of opportunities and challenges, including technological development in most of the markets we serve, the expansion and evolution of opportunities in high-growth markets, trends and costs associated with a global labor force, and consolidation of our competitors. We define 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. We operate in a highly competitive business environment in most markets, and our long-term growth and profitability will depend, in particular, on our ability to expand our 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 our sales force, continue to reduce costs and improve operating efficiency and quality, attract relevant talent and retain, grow, and empower our talented workforce, and effectively address the demands of an increasingly regulated environment. We are making significant investments, organically and through acquisitions, to address technological change in the markets we serve and to improve our manufacturing, research and development, and customer-facing resources in order to be responsive to our customers throughout the world.

In this report, references to sales from existing businesses refers to sales from operations calculated according to generally accepted accounting principles in the United States (“GAAP”) but excluding (1) the impact from acquired businesses and purchase accounting adjustments (2) the impact of currency translation. References to sales attributable to acquisitions or acquired businesses refer to GAAP sales from acquired businesses recorded prior to the first anniversary of the acquisition less the amount of sales attributable to certain divested businesses or product lines not considered discontinued operations prior to the first anniversary of the divestiture. The portion of sales attributable to the impact of currency translation is calculated as the difference between (a) the period-to-period change in sales (excluding sales impact from acquired businesses) and (b) the

period-to-period change in sales (excluding sales impact from acquired businesses) after applying the 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 comparisons of our sales performance with our performance in prior and future periods and to our peers. We exclude the effect of acquisitions and divestiture related items because the nature, size, and number of such transactions can vary dramatically from period to period and between us and our peers. We exclude the effect of currency translation from sales from existing businesses because the impact of currency translation is not under management’s control and is subject to volatility. Management believes the exclusion of the effect of acquisitions and divestitures and currency translation may facilitate the assessment of underlying business trends and may assist in comparisons of long-term performance. References to sales volume refer to the impact of both price and unit sales.

Business Performance and Outlook

Business Performance

A novel strain of coronavirus was first identified in December 2019, and subsequently declared a pandemic by the World Health Organization in March 2020 (“COVID-19”). This outbreak has surfaced in nearly all regions around the world, resulting in governments implementing strict measures to help contain or mitigate the spread of the virus, including quarantines, “shelter in place,” and “stay at home” orders, travel restrictions, school and commercial facility closures, re-opening restrictions, among others (collectively “virus control measures”). These virus control measures have led to slowdowns or shutdowns for businesses deemed both “essential” and “non-essential” in affected areas, causing significant disruption in the financial markets both globally and in the United States, most notably during the first half of 2020. The majority of our essential production facilities around the world were open during 2020, and as of the date of this Report, all of our locations are open and operating.

Given our businesses operate globally, have diverse customers, and serve multiple end-markets, COVID-19 impacted our businesses and operating results during 2020 directly with reduced year-over-year demand from customers operating in non-essential end-markets and indirectly with reduced demand created by macroeconomic disruption or disruption in adjacent end-markets. These disruptions impacted our operating results most severely during the second quarter of 2020 and we have realized sequential improvement in demand across all of our businesses and geographies since.

For the year-ended December 31, 2020, aggregate year-over-year sales increased 1.5% as our continued application and deployment of the Fortive Business System and incremental sales from our recently acquired companies more than off-set declines in demand from our existing businesses. Sales from existing businesses decreased 5.9% during the year ended December 31, 2020 as compared to the comparable period of 2019 reflecting the broad impacts of the COVID-19 pandemic, as virus control measures were deployed in most regions and particularly impacted our results in the second quarter of 2020, with sequential improvement each quarter thereafter, including a slight year-over-year increase in demand from existing businesses during the fourth quarter.

Sales that management considers recurring revenue represented approximately 40% of our total sales during the year-ended December 31, 2020 and increased approximately 11% year-over-year, including sales from our existing software as a service (“SAAS”) businesses that increased at a rate in the mid-teens year-over-year.

Geographically, year-over-year sales from existing businesses during the year ended December 31, 2020 declined at a mid-single digit rate in both developed markets and high-growth markets, respectively, which was driven by a high-single digit rate decline in North America and Latin America, a mid-single digit rate decline in Asia, and a low-single digit rate decline in Western Europe. Year-over-year sales from existing businesses grew slightly in China during the year ended December 31, 2020.

2021 Outlook

As a result of the COVID-19 pandemic, overall global conditions have been volatile and uncertain. While our results in the fourth quarter of 2020 indicate positive, broad-based momentum across our portfolio, economic uncertainties continue to exist. The impact of the COVID-19 pandemic on our future results will depend on the length, severity, and recurrence of virus control measures and the availability of antiviral medications and distribution and administration of vaccinations, both of which are uncertain. We plan to continue deploying the Fortive Business System to help drive near-term performance and maximize cash flow generation amidst this uncertainty.

Given the diverse nature of our businesses and the end-markets they serve, we believe certain of our businesses will continue being resilient against the broad COVID-19 impacts in the first quarter of 2021, while we believe others will continue being

relatively more sensitive, with varied rates of continued recovery as virus control measures remain in place. The businesses we believe will continue being relatively more resilient include our businesses with a greater proportion of recurring revenue, including our SAAS businesses that provide critical workflow solutions to their customers, certain healthcare businesses, and those with longer business cycles with strong backlogs. We believe our businesses that are more dependent on short-cycle industrial demand and production dynamics will continue to sequentially improve but continue experiencing a somewhat challenging environment. As such, we expect year-over-year global demand for our products and services in both the first quarter of 2021 and year ended December 31, 2021 to grow at a mid-single digit rate.

Despite the virus control measures in place in geographies critical to our supply chain, we have successfully implemented solutions to support our operations and have not experienced significant production material shortages, supply chain constraints, or distribution limitations impacting our operations as of the date of this Report; however, in light of the uncertainty of the COVID-19 pandemic severity and duration, we are continuing to evaluate and monitor the condition of our supply chain, including the financial health of our suppliers and their ability to access raw materials and other key inputs and may experience shortages, constraints, or disruptions during the first quarter of 2021 or in future periods.

We are closely monitoring the health of our employees, and continue to implement safety protocols at our facilities to help ensure their health and safety. In addition, we continue to monitor our suppliers and customers and their ability to maintain production capacity to meet our operational requirements. Individuals contracting or being exposed to COVID-19, or who are unable to report to work due to virus control measures, may significantly disrupt production throughout our supply chain and negatively impact our sales channels. Further, our customers may be directly impacted by business curtailments or weak market conditions, and may not be willing or able to accept shipments of products, may cancel orders, and may not be able to pay us on a timely basis.

To mitigate the impact of the economic conditions from the COVID-19 pandemic as well as any escalation of geopolitical uncertainties related to governmental policies toward international trade, monetary and fiscal policies, and relations between the U.S. and China, we will continue applying and deploying the Fortive Business System to actively manage our supply chain, drive operating efficiencies, and continue to collaborate with our customers and suppliers to minimize disruption to their businesses. Additionally, we will continue actively managing our working capital to maximize cash flows and cost efficiency and assess market conditions, taking actions as we deem necessary to appropriately position our businesses in light of the economic environment and geopolitical uncertainties.

While COVID-19 has created volatility and uncertainty in the financial markets, we have not experienced a significant impact on our financial position, liquidity, and ability to meet our debt covenants as of the filing date of this Report; however, we continue to monitor the financial markets and general global economic conditions. If further changes in financial markets or other areas of the economy adversely affect our access to the capital markets, we would expect to rely on a combination of available cash and existing available capacity under our credit facilities to provide short-term funding. Refer to the “Liquidity and Capital Resources” section for additional discussion.

Completed Divestitures, Acquisitions, and Business Combinations

2020

On October 9, 2020, we completed the Separation by distributing 80.1% of the outstanding shares of Vontier to our stockholders on a pro rata basis. To effect the Separation, we distributed to our stockholders two shares of Vontier common stock for every five shares of Fortive common stock outstanding held on September 25, 2020, the record date for the distribution, and retained 19.9% of the shares of Vontier common stock immediately following the Separation. The accounting requirements for reporting the Separation of Vontier as a discontinued operation were met when the Separation was completed.

On September 29, 2020, Vontier entered into a credit agreement (the “Credit Agreement”) with a syndicate of banks, consisting of a three-year, $800 million senior unsecured delayed draw term loan facility (the “Three-Year Term Loans”), a two-year, $1 billion senior unsecured delayed draw term loan facility (the “Two-Year Term Loans” and together with the Three-Year Term Loans, the “Term Loans”) and a three-year, $750 million senior unsecured multi-currency revolving credit facility (the “Revolving Credit Facility” and, together with the Term Loans, the “Credit Facilities”). On the Distribution Date, Vontier drew down the full $1.8 billion available under the Term Loans. Vontier used the proceeds from the Term Loans to make payments to the Company, with $1.6 billion used as part of the consideration for the contribution of certain assets and liabilities to Vontier by the Company in connection with the Separation and $202 million used as an adjustment for excess cash balances remaining with Vontier (collectively, the “Cash Consideration”). The Company will apply the Cash Consideration to repay certain outstanding indebtedness, interest on certain debt instruments, and to pay certain of the Company’s regular, quarterly cash dividends. Refer to Note 11 to the consolidated financial statements for the description of the debt repayments made.

In preparation for and executing the Separation, the Company incurred $84 million and $35 million in Vontier stand-up and separation-related transaction costs during the years ended December 31, 2020 and 2019, respectively, which have been reclassified to discontinued operations in the accompanying consolidated financial statements. These stand-up and separation-related costs primarily relate to professional and advisory fees associated with preparation of regulatory filings and separation activities within finance, tax, legal, and information system functions.

In connection with the Separation, Fortive and Vontier entered into various agreements to effect the Separation and provide a framework for Vontier’s relationship with Fortive after the Separation, including a transition services agreement, an employee matters agreement, a tax matters agreement, an intellectual property matters agreement, a Fortive Business System (“FBS”) license agreement, and a stockholder’s and registration rights agreement. These agreements govern the separation between Fortive and Vontier of the assets, employees, liabilities, and obligations (including its investments, property, and employee benefits and tax-related assets and liabilities) of Fortive and its subsidiaries attributable to periods prior to, at, and after Vontier’s separation, and also govern certain relationships between Fortive and Vontier after the Separation.

2019

Advanced Sterilization Products Acquisition

On April 1, 2019 (the “Principal Closing Date”), we acquired the Advanced Sterilization Products business (“ASP”) of Johnson & Johnson, a New Jersey corporation (“Johnson & Johnson”) for an aggregate purchase price of $2.7 billion (the “Transaction”), subject to certain post-closing adjustments set forth in a Stock and Asset Purchase Agreement, dated effective as of June 6, 2018, between the Company and Ethicon, Inc., a New Jersey corporation (“Ethicon”) and a wholly owned subsidiary of Johnson & Johnson. ASP engages in the research, development, manufacture, marketing, distribution, and sale of low-temperature terminal sterilization and high-level disinfection products.

On the Principal Closing Date, we paid $2.7 billion in cash and obtained the transferred assets and assumed liabilities in 20 countries (“Principal Countries”), general patent and trademark assignments, and all transferred equity interests in ASP. ASP has operations in an additional 39 countries (“Non-Principal Countries”). The transferred assets and liabilities associated with these operations close when requirements of country-specific agreements or regulatory approvals are satisfied.

The $2.7 billion purchase price was paid in exchange for ASP’s businesses in both Principal and Non-Principal Countries. As of December 31, 2020 we have closed 20 Principal Countries and 34 Non-Principal Countries that, in aggregate, accounted for more than 99% of the preliminary valuation of ASP. The remaining five Non-Principal Countries represent less than 1% of the preliminary valuation of ASP, or $10.1 million, which is included as a prepaid asset in Other assets in the Consolidated Balance Sheet. As each Non-Principal Country closes, we reduce the prepaid asset and record the fair value of the assets acquired and liabilities assumed. All of the provisional goodwill associated with the Transaction is included in goodwill in our Advanced Healthcare Solutions segment at December 31, 2020, and the majority of the provisional goodwill is tax deductible.

In addition, the Company entered into a transition services agreement with Johnson & Johnson for certain administrative and operational services (“TSA”) with Principal Countries and distribution agreements in the Non-Principal Countries. Under the distribution agreements, ASP sells finished goods to Ethicon at prices agreed by the parties. ASP recognizes these sales as revenue when the conditions for revenue recognition are met. Following the sale of finished goods by ASP, Ethicon obtains title of the finished goods, has full authority to sell and market the finished goods to end customers as it sees fit, and retains any revenue and profit from sale. As of December 31, 2020, ASP had exited the TSAs and substantially all of the distribution agreements. ASP expects to close the remaining Non-Principal countries in early 2021.

Other Acquisitions and Investments

In addition to the acquisition of ASP, during 2019, we acquired four businesses including Intelex Technologies and Pruftechnik, both of which complement existing businesses in our Intelligent Operation Solutions segment, and Censis Technologies within our Advanced Healthcare Solutions segment, for total consideration of $1.2 billion in cash, net of cash acquired. We recorded an aggregate of $781 million of goodwill related to these acquisitions.

Combination of the Tektronix Video Business with Telestream

On July 20, 2019, we completed the combination of the Tektronix Video test and monitoring equipment business (“Tektronix Video Business”) with Telestream, LLC (the “Combined Business”), a portfolio company of Genstar Capital LLC. We recognized a pretax gain of $41 million upon the combination, and hold a 33% equity stake in the Combined Business. This transaction did not meet the criteria for discontinued operations reporting, and therefore the operating results of the Tektronix Video Business prior to the combination with Telestream are included in continuing operations for all periods presented. Additionally, the loss from our equity investment in the Combined Business is included in Other non-operating expenses, net in

the accompanying Consolidated Statement of Earnings. Refer to Note 4 to our consolidated financial statements for additional information.

2018

Gordian Acquisition

On July 27, 2018, we acquired TGG Ultimate Holdings, Inc. and its subsidiaries, including The Gordian Group, Inc. (“Gordian”), a privately-held, leading provider of construction cost data, software, and service, for a total purchase price of $778 million net of cash acquired (the “Gordian Acquisition”). Gordian’s comprehensive offerings serve the entire building lifecycle and provide workflow solutions designed to optimize every stage of an asset owner’s construction and maintenance needs, including connecting the owner and contractors in the same exchange and providing access to cost and facility metrics databases via a subscription-based model. We recorded $435 million of goodwill related to the Gordian Acquisition.

Accruent Acquisition

On September 6, 2018, we acquired Athena SuperHoldCo, Inc., including Accruent, LLC (“Accruent”), a privately-held, leading provider of facilities asset management software, for a total purchase price of approximately $2.0 billion net of acquired cash (the “Accruent Acquisition”). Accruent is a recognized leader in the facilities asset management industry, combining deep domain and industry capabilities with an integrated, cloud-based framework that provides insights spanning the full lifecycle of real estate, facilities, and asset management. Accruent serves over 10,000 global customers, and helps assure clients fulfill the mission of their organization by extending the lifecycle of assets, monitoring full compliance, and reducing safety risks. We recorded $1.2 billion of goodwill related to the Accruent Acquisition.

Divestiture of A&S Business

On March 7, 2018, we entered into a definitive agreement to combine four of our operating companies from our Automation & Specialty platform (the “A&S Business”) with Altra Industrial Motion Corp. (“Altra”) in a tax-efficient Reverse Morris Trust transaction. The A&S Business includes the market-leading brands of Kollmorgen, Thomson, Portescap and Jacobs Vehicle Systems, and generated approximately $900 million in revenue for the year ended December 31, 2017. On October 1, 2018, we completed the split-off of the A&S Business. The total consideration received was $2.7 billion and consisted of (i) $1.3 billion through a fully-subscribed exchange offer, in which we accepted and subsequently retired 15,824,931 shares of our own common stock from our stockholders in exchange for 35,000,000 shares of common stock of Stevens Holding Company, Inc.; (ii) $1.0 billion in cash paid to us for the direct sales of certain assets and liabilities of the A&S Business; (iii) $250 million as part of a non-cash debt-for-debt exchange that reduced outstanding indebtedness of Fortive, which is inclusive of accrued interest and fees; and (iv) $150 million in cash paid to us by Stevens Holding Company, Inc. as a dividend. The results of the A&S Business are reported as discontinued operations for all periods presented, which includes the after-tax gain on the transaction of $1.9 billion.

RESULTS OF OPERATIONS

Components of Sales Growth


	2020 vs. 2019		2019 vs. 2018
Total revenue growth (GAAP)	1.5	%	20.1	%
Existing businesses (Non-GAAP)	(5.9)	%	(0.5)	%
Acquisitions (Non-GAAP)	7.3	%	22.2	%
Currency exchange rates (Non-GAAP)	0.1	%	(1.6)	%

Refer to Intelligent Operating Solutions, Precision Technologies and Advanced Healthcare Solutions sections below for further discussion of year-over-year sales growth.

Operating Profit Margins

Operating profit margins were 11.6% for the year ended December 31, 2020, an increase of 190 basis points as compared to 9.7% in 2019. Year-over-year operating profit margin comparisons were favorably impacted by:

Operating expense savings from broad cost reduction efforts and price increases, and to a lesser extent, lower year-over-year material costs and incremental year-over-year cost savings associated with productivity improvement initiatives, which were partially offset by lower year-over-year sales volumes from existing businesses — favorable 50 basis points
The year-over-year effect of acquired businesses, including amortization, and acquisition-related fair value adjustments to deferred revenue and inventory which were less in 2020 than the fair value adjustments recognized in 2019 — favorable 30 basis points
The year-over-year effect of acquisition-related transaction costs, as the costs related to our acquisition and integration of ASP in 2019 were greater than the costs recognized in the comparable period in 2020 — favorable 90 basis points
The year-over-year effect of amortization from existing businesses — favorable 10 basis points
The incremental year-over-year net effect of restructuring actions — favorable 10 basis points

Operating profit margins were 9.7% for the year ended December 31, 2019, a decrease of 730 basis points as compared to 17.0% in 2018. Year-over-year operating profit margin comparisons were favorably impacted by:

The year-over-year effect of amortization from existing businesses — favorable 50 basis points

Year-over-year operating profit margin comparisons were unfavorably impacted by:

Lower sales volumes from existing businesses, increased material costs associated primarily with inflationary pressures and recently enacted tariffs, and changes in currency exchange rates, which were partially offset by price increases and incremental year-over-year cost savings associated with productivity improvement initiatives — unfavorable 90 basis points
The incremental year-over-year net dilutive effect of acquired businesses, including amortization and acquisition-related fair value adjustments to deferred revenue and inventory — unfavorable 560 basis points
The incremental year-over-year net dilutive effect of restructuring actions — unfavorable 70 basis points
Acquisition-related transaction costs, as the costs related to our acquisition and integration of ASP in 2019 were greater than the costs associated with the ASP, Gordian, and Accruent acquisitions in 2018 — unfavorable 60 basis points

Business Segments and Geographic Area Results

Sales by business segment and geographic area for the year ended December 31 are as follows ($ in millions):


	2020		2019		2018
Segments
Intelligent Operating Solutions	$	1,883.7	$	1,898.9	$	1,576.3
Precision Technologies	1,651.3		1,808.4		1,901.4
Advanced Healthcare Solutions	1,099.4		856.6		322.7
Total	$	4,634.4	$	4,563.9	$	3,800.4

Geographic area
United States	$	2,436.6	$	2,394.2	$	1,875.8
China	534.1		501.2		476.8
All other (each country individually less than 5% of total sales)	1,663.7		1,668.5		1,447.8
Total	$	4,634.4	$	4,563.9	$	3,800.4

INTELLIGENT OPERATING SOLUTIONS

Our Intelligent Operating Solutions segment provides leading solutions to accelerate industrial and facility reliability and performance, as well as compliance and safety across a range of vertical end markets, including manufacturing, process industries, healthcare, utilities and power, communications and electronics, among others. The businesses in our Intelligent Operating Solutions segment provide a broad and differentiated offering of instrumentation, sensors, software, and services to address these critical workflows for our customers.

Intelligent Operating Solutions Selected Financial Data


	For the Year Ended December 31
($ in millions)	2020			2019			2018
Sales	$	1,883.7		$	1,898.9		$	1,576.3
Operating profit	317.8			289.0			350.3
Depreciation	28.0			40.8			38.9
Amortization	151.1			141.7			58.8
Operating profit as a % of sales	16.9		%	15.2		%	22.2		%
Depreciation as a % of sales	1.5		%	2.1		%	2.5		%
Amortization as a % of sales	8.0		%	7.5		%	3.7		%

Components of Sales Growth


	2020 vs. 2019		2019 vs. 2018
Total revenue growth (GAAP)	(0.8)	%	20.5	%
Existing businesses (Non-GAAP)	(7.2)	%	1.1	%
Acquisitions (Non-GAAP)	6.4	%	21.2	%
Currency exchange rates (Non-GAAP)	—	%	(1.8)	%

2020 COMPARED TO 2019

Year-over-year sales of products and services from existing businesses of Intelligent Operating Solutions declined 7.2% during the year ended December 31, 2020. The results were driven by declines in demand for portable gas detection instruments, on-premise software license and professional service offerings, and demand from our industrial channel partners, all of which were impacted by COVID-19 in both direct and adjacent end markets. Partially offsetting these declines was increased demand for our industrial imaging products and certain of our critical workflow, safety, and maintenance SAAS product offerings. Despite the year-over-year declines in demand from our industrial channel partners, we realized sequential improvement in both the third and fourth quarters of 2020 from the low point in the second quarter of 2020, and expect to return to year-over-year growth in the first quarter of 2021.

Geographically, demand from existing businesses in Intelligent Operating Solutions decreased on a year-over-year basis in both developed and high-growth markets as growth in Asia, led by Japan and China, was more than offset by declines in North America, Western Europe, and Latin America.

Price increases are reflected as a component of the change in sales from existing businesses, and year-over-year price increases in the segment contributed 1.1% to sales growth during 2020 as compared to 2019.

Operating profit margin increased 170 basis points during 2020 as compared to 2019. Year-over-year operating profit margin comparisons were favorably impacted by:

Operating expense savings from broad cost reduction efforts, price increases, lower year-over-year material costs and incremental year-over-year cost savings associated with productivity improvement initiatives, which were partially offset by lower year-over-year sales volumes from existing businesses — favorable 40 basis points
The year-over-year effect of acquired businesses, including amortization, and acquisition-related fair value adjustments to deferred revenue and inventory which were less in 2020 than the fair value adjustments recognized in 2019 — favorable 80 basis points
The year-over-year effect of acquisition-related transaction costs, as the costs related to our acquisitions in 2020 were less than the costs recognized in the comparable period in 2019 — favorable 60 basis points

Year-over-year operating profit margin comparisons were unfavorably impacted by:

The year-over-year dilutive effect of amortization from existing businesses — unfavorable 10 basis points

2019 COMPARED TO 2018

Year-over-year sales of products and services from existing businesses of Intelligent Operating Solutions grew 1.1% during 2019 as compared to 2018 as growth in demand for portable gas detection and facilities maintenance offerings was mostly offset by slowing demand from our industrial end markets in North America.

Geographically, demand from existing businesses in Intelligent Operating Solutions increased on a year-over-year basis in both developed and high-growth markets, as year-over-year growth in North America and Asia more than offset declines in Europe.

Price increases are reflected as a component of the change in sales from existing businesses, and year-over-year price increases contributed 1.9% to sales growth during 2019 as compared to 2018.

Operating profit margin decreased 700 basis points during 2019 as compared to 2018. Year-over-year operating profit margin comparisons were favorably impacted by:

Acquisition-related transaction costs, as the costs related to our acquisition of Gordian and Accruent in 2019 were less than the costs recognized in the comparable period in 2018 — favorable 90 basis points
The year-over-year effect of amortization from existing businesses — favorable 60 basis points

Year-over-year operating profit margin comparisons were unfavorably impacted by:

An unfavorable sales mix and lower sales volumes from existing businesses, increased material costs associated primarily with inflationary pressures and recently enacted tariffs, and changes in currency exchange rates, which were partially offset by price increases and incremental year-over-year cost savings associated with productivity improvement initiatives — unfavorable 80 basis points
The incremental year-over-year net dilutive effect of acquired businesses, including amortization and acquisition-related fair value adjustments to deferred revenue and inventory — unfavorable 700 basis points
The incremental year-over-year net dilutive net effect of restructuring actions — unfavorable 70 basis points

PRECISION TECHNOLOGIES

Our Precision Technologies segment supplies technologies to a broad set of vertical end markets, enabling our customers to accelerate the development of innovative products and solutions. We provide our customers with electrical test and measurement instruments and services, energetic material devices, and a broad portfolio of sensor and control system solutions.

Precision Technologies Selected Financial Data


	For the Year Ended December 31
($ in millions)	2020			2019			2018
Sales	$	1,651.3		$	1,808.4		$	1,901.4
Operating profit	321.7			324.6			381.5
Depreciation	25.8			26.7			27.2
Amortization	17.2			20.4			22.4
Operating profit as a % of sales	19.5		%	17.9		%	20.1		%
Depreciation as a % of sales	1.6		%	1.5		%	1.4		%
Amortization as a % of sales	1.0		%	1.1		%	1.2		%

Components of Sales Growth


	2020 vs. 2019		2019 vs. 2018
Total revenue growth (GAAP)	(8.7)	%	(4.9)	%
Existing businesses (Non-GAAP)	(7.7)	%	(2.2)	%
Acquisitions (Non-GAAP)	(1.3)	%	(1.5)	%
Currency exchange rates (Non-GAAP)	0.3	%	(1.2)	%

2020 COMPARED TO 2019

Year-over-year sales of products and services from existing businesses of Precision Technologies declined 7.7% during 2020. The year-over-year decline in demand was largely driven by the impacts of COVID-19 in both direct and adjacent end markets, specifically for test and measurement instruments, declines in demand for sensors in the industrial end market, and a decline in shipments of our energetic materials, which was partially offset by increased demand in the medical end market for ventilator components and for critical environments supporting COVID-19 patient treatment efforts. We have realized sequential improvement in demand from the low point in the second quarter of 2020, and returned to sales growth from existing businesses in the fourth quarter of 2020. We expect to continue experiencing year-over-year growth in the first quarter of 2021.

Geographically, demand from existing businesses in Precision Technologies decreased on a year-over-year basis in both developed and high-growth markets, as growth in Latin America was more than offset by declines in North America, Asia, and Western Europe.

Price increases are reflected as a component of the change in sales from existing businesses, and year-over-year price increases contributed 1.8% to sales growth in the segment during 2020 as compared to 2019.

Operating profit margin increased 160 basis points during 2020 as compared to 2019. Year-over-year operating profit margin comparisons were favorably impacted by:

Operating expense savings from broad cost reduction efforts and price increases, and to a lesser extent lower year-over-year material costs, incremental year-over-year cost savings associated with productivity improvement initiatives, and foreign currency exchange rates, which were partially offset by lower year-over-year sales volumes from existing businesses — favorable 120 basis points
The incremental year-over-year net effect of restructuring actions — favorable 50 basis points
The year-over-year effect of amortization from existing businesses — favorable 10 basis points

Year-over-year operating profit margin comparisons were unfavorably impacted by:

The year-over-year net dilutive effect of the combination of the Tektronix video business with Telestream — unfavorable 20 basis points

2019 COMPARED TO 2018

Year-over-year sales of products and services from existing businesses of Precision Technologies declined 2.2% during 2019, as increased demand in our energetic materials business and for sensors in the medical end market was more than offset by declines in demand for high-performance oscilloscopes, Keithley products, electrical grid condition-based monitoring equipment, and sensing products in the industrial end market.

Geographically, demand from existing businesses in Precision Technologies decreased on a year-over-year basis in both developed and high-growth markets, as year-over-year growth in Japan was more than offset by declines in all other significant geographies.

Price increases are reflected as a component of the change in sales from existing businesses, and year-over-year price increases contributed 1.2% to sales growth during 2019 as compared to 2018.

Operating profit margin decreased 220 basis points during 2019 as compared to 2018. Year-over-year operating profit margin comparisons were unfavorably impacted by:

Lower sales volumes from existing businesses and changes in currency exchange rates, which were partially offset by price increases, a favorable sales mix, lower material costs, and incremental year-over-year cost savings associated with productivity improvement initiatives — unfavorable 70 basis points
The year-over-year net dilutive effect of the combination of the Tektronix video business with Telestream — unfavorable 40 basis points
The incremental year-over-year net dilutive effect of restructuring actions — unfavorable 110 basis points

Advanced Healthcare Solutions Selected Financial Data

Our Advanced Healthcare Solutions segment serves healthcare customers with enabling products and services for critical activities that help ensure safe, efficient, and timely healthcare. Through the Advanced Healthcare Solutions segment, we provide broad hardware and software portfolio offerings optimized around our end-users’ most critical workflows, including instrument and device reprocessing, instrument tracking, cell therapy equipment design and manufacturing, biomedical test tools, radiation safety monitoring, and asset management.


	For the Year Ended December 31
($ in millions)	2020			2019			2018
Sales	$	1,099.4		$	856.6		$	322.7
Operating profit	2.1			(72.0)			5.3
Depreciation	18.1			11.4			0.5
Amortization	141.6			98.9			23.3
Operating profit as a % of sales	0.2		%	(8.4)		%	1.6		%
Depreciation as a % of sales	1.6		%	1.3		%	0.2		%
Amortization as a % of sales	12.9		%	11.5		%	7.2		%

Components of Sales Growth


	2020 vs. 2019		2019 vs. 2018
Total revenue growth (GAAP)	28.3	%	165.4	%
Existing businesses (Non-GAAP)	0.6	%	1.5	%
Acquisitions (Non-GAAP)	27.8	%	166.2	%
Currency exchange rates (Non-GAAP)	(0.1)	%	(2.3)	%

2020 COMPARED TO 2019

Year-over-year sales of products and services from existing businesses of Advanced Healthcare Solutions increased 0.6% during 2020 as increased demand for cell therapy equipment design and manufacturing, radiation safety monitoring, and surgical instrument tracking SAAS products was mostly offset by a decrease in demand for consumables from our ASP business driven by a decline in elective surgical procedure volumes. Year-over-year demand for sterilization capital equipment increased slightly during 2020 as compared to 2019. Several of our Advanced Healthcare Solutions businesses are impacted by elective surgical procedure volumes, and year-over-year, elective surgical procedure volumes declined at a high-single digit rate across most major geographic markets, at rates that varied throughout the year based on COVID-19 patient hospitalizations and virus control measures in place. We expect surgical procedure volumes to improve when COVID-19 patient hospitalizations are lower and virus control measures ease.

Geographically, demand from existing businesses in Advanced Healthcare Solutions increased in developed markets and decreased in high-growth markets, as growth in Western Europe and China was more than offset by declines in North America, the Middle East, and Japan.

Price increases are reflected as a component of the change in sales from existing businesses, and year-over-year price increases contributed 0.8% to sales growth during 2020 as compared to 2019.

Operating profit margin increased 860 basis points during 2020 as compared to 2019. Year-over-year operating profit margin comparisons were favorably impacted by:

Operating expense savings from broad cost reduction efforts and price increases, and to a lesser extent, lower year-over-year material costs, incremental year-over-year cost savings associated with productivity improvement initiatives, and foreign currency exchange rates, that more than offset lower year-over-year sales volumes from existing businesses and an unfavorable sales mix — favorable 40 basis points
The year-over-year effect of amortization from existing businesses – favorable 250 basis points
The incremental year-over-year effect of acquired businesses, including amortization and acquisition-related fair value adjustments to deferred revenue and inventory which were less in 2020 than in 2019 — favorable 160 basis points
Acquisition-related transaction costs, as the costs related to our acquisition and integration of ASP and Censis in 2020 were less than the costs recognized in the comparable period in 2019 — favorable 450 basis points

Year-over-year operating profit margin comparisons were unfavorably impacted by:

The incremental year-over-year net dilutive effect of restructuring actions — unfavorable 40 basis points

2019 COMPARED TO 2018

Year-over-year sales of products and services from existing businesses of Advanced Healthcare Solutions increased 1.5% during 2019 as compared to 2018, as increased demand for radiation safety monitoring was partially offset by declines in cell therapy equipment design and manufacturing.

Geographically, demand from existing businesses in Advanced Health Solutions increased on a year-over-year basis in both developed and high-growth markets, as year-over-year growth in North America and Asia was partially offset declines in Europe.

Sales of products and services from recently acquired businesses of Advanced Health Solutions, contributed 166.2% to overall sales growth in 2019 and were driven by ASP. ASP sales for the year, as compared to the comparable period prior to Fortive ownership, increased low-single digits which was attributable to growth in China and Japan.

Price increases are reflected as a component of the change in sales from existing businesses, and year-over-year price increases contributed 0.1% to sales growth during 2019 as compared to 2018.

Operating profit margin decreased 1,000 basis points during 2019 as compared to 2018. Year-over-year operating profit margin comparisons were favorably impacted by:

The year-over-year effect of amortization from existing businesses – favorable 460 basis points
Acquisition-related transaction costs, as the costs related to our acquisition and integration of ASP in 2018 were greater than the costs in 2019 — favorable 200 basis points

Year-over-year operating profit margin comparisons were unfavorably impacted by:

An unfavorable sales mix, which was partially offset by higher year-over-year sales volumes, price increases, and incremental year-over-year cost savings associated with productivity improvement initiatives — unfavorable 40 basis points
The incremental year-over-year net dilutive effect of acquired businesses, including amortization and acquisition-related fair value adjustments to deferred revenue and inventory — unfavorable 1,620 basis points

COST OF SALES AND GROSS PROFIT


	For the Year Ended December 31
($ in millions)	2020			2019			2018
Sales	$	4,634.4		$	4,563.9		$	3,800.4
Cost of sales	(2,025.9)			(2,080.7)			(1,614.2)
Gross profit	2,608.5			2,483.2			2,186.2
Gross profit margin	56.3		%	54.4		%	57.5		%

The year-over-year decrease in cost of sales during 2020 as compared to 2019 is due primarily to lower year-over-year sales volumes from existing businesses, lower year-over-year material costs, year-over-year net cost savings associated with restructuring and productivity improvement initiatives, and changes in currency exchange rates, which were partially offset by incremental cost of sales from our recently acquired businesses.

The year-over-year increase in gross profit and 190 basis point increase in gross profit margin during 2020 as compared to 2019 is due primarily to the favorable impacts of pricing improvements from existing businesses, incremental year-over-year net cost savings associated with restructuring and productivity improvement initiatives, material cost and supply chain improvement actions, and changes in currency exchange rates, which were partially offset by lower year-over-year sales volumes.

The year-over-year increase in cost of sales during 2019 as compared to 2018 is due primarily to the incremental cost of sales from our recently acquired businesses, increased material costs associated primarily with inflationary pressures and tariffs

enacted during the year, and restructuring charges, which were partially offset by lower year-over-year sales volumes from existing businesses, incremental year-over-year cost savings associated with productivity improvement initiatives and material cost and supply chain improvement actions. Changes in currency exchange rates decreased costs of sales in 2019.

The year-over-year increase in gross profit during 2019 as compared to 2018 is due primarily to the favorable impact of pricing improvements from existing businesses, sales volumes from our recently acquired businesses, year-over-year cost savings associated with productivity improvement initiatives, and material cost and supply chain improvement actions.

The 310 basis point year-over-year decrease in gross profit margin during 2019 as compared to 2018 is due primarily to acquisition-related fair value adjustments to deferred revenue and inventory, and increased material costs associated primarily with inflationary pressures and recently enacted tariffs which more than offset the favorable impact of pricing improvements from existing businesses and year-over-year cost savings associated with productivity improvement initiatives.

OPERATING EXPENSES


	For the Year Ended December 31
($ in millions)	2020			2019			2018
Sales	$	4,634.4		$	4,563.9		$	3,800.4
Selling, general, and administrative (“SG&A”) expenses	1,748.4			1,719.0			1,262.8
Research and development (“R&D”) expenses	320.7			320.3			278.1
SG&A as a % of sales	37.7		%	37.7		%	33.2		%
R&D as a % of sales	6.9		%	7.0		%	7.3		%

SG&A expenses increased during 2020 as compared to 2019 due primarily to higher amortization and incremental expenses from our recently acquired businesses that were mostly offset by broad cost reduction efforts that reduced labor expenses to better align with reductions in demand during the second and third quarter of 2020, primarily through the use of furloughs and reductions in salaried compensation costs, as well as other reductions in discretionary spending. To a lesser extent, year-over-year SG&A expenses were reduced by changes in foreign currency exchange rates and year-over-year net cost savings associated with restructuring and productivity improvement initiatives. SG&A expenses as a percentage of sales were relatively consistent year-over-year.

SG&A expenses increased during 2019 as compared to 2018 and SG&A expenses as a percentage of sales increased 450 basis points in 2019 as compared to 2018 due primarily to higher amortization and incremental expenses from our recently acquired businesses, costs associated with the acquisition and integration of ASP, restructuring actions, and sales and marketing growth initiatives, partially offset by cost savings associated with productivity improvement initiatives.

R&D expenses (consisting principally of internal and contract engineering personnel costs) increased slightly during 2020 as compared to 2019 due to incremental expenses from recently acquired businesses. On a year-over-year basis, R&D expenses as a percentage of sales decreased 10 basis points in 2020 as compared to 2019 as investments in our product development initiatives grew at rate largely consistent with sales.

R&D expenses (consisting principally of internal and contract engineering personnel costs) increased during 2019 as compared to 2018 due to investments in our product development initiatives and incremental expenses from recently acquired businesses. On a year-over-year basis, R&D expenses as a percentage of sales decreased 30 basis points in 2019 as compared to 2018 as incremental sales from our recently acquired businesses increased at a faster rate than R&D investments.

INTEREST COSTS

For a discussion of our outstanding indebtedness, refer to Note 11 to the accompanying consolidated financial statements.

Interest expense, net of $149 million was recorded during 2020 compared to $143 million during 2019 and $77 million during 2018. Year-over-year interest expense increased in 2020 and 2019 due to higher average debt balances during the year. In the event that additional liquidity is required, particularly in connection with acquisitions, we may enter into additional borrowings under our commercial paper programs or credit facilities, and/or access the capital markets. If we enter into such additional financing transactions, the amount of annual interest expense will increase.

UNREALIZED GAIN ON INVESTMENT IN VONTIER CORPORATION

On October 9, 2020, we completed the Vontier separation and retained 19.9% of the shares of Vontier common stock immediately following the Separation. We did not retain a controlling interest in Vontier and therefore the subsequent fair value changes of the Retained Vontier Shares are included in our results from continuing operations. At December 31, 2020, the

Retained Vontier Shares were remeasured at fair value based on Vontier’s closing stock price, with unrealized gains of $1.1 billion recorded in the Consolidated Statement of Earnings.

On January 19, 2021, we completed an exchange of all of the Retained Vontier Shares as part of a non-cash debt-for-equity exchange that reduced outstanding indebtedness of Fortive by $1.1 billion.

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 our financial statements. We record the tax effect of discrete items and items that are reported net of their tax effects in the period in which they occur.

On December 22, 2017, the U.S. enacted comprehensive tax reform commonly referred to as the Tax Cuts and Jobs Act (the “TCJA”). The U.S. Government continues to issue significant amounts of TCJA guidance and we expect that to continue for the foreseeable future. The Company is actively monitoring the impact of new Treasury Regulations. Any future adjustments resulting from retrospective guidance issued will be considered as discrete income tax expense or benefit in the interim period the guidance is issued.

Our effective tax rate can be affected by, among others, 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.

Further changes in the tax laws of foreign jurisdictions could arise as a result of the base erosion and profit shifting project undertaken by the Organisation for Economic Co-operation and Development (“OECD”), which represents a coalition of member countries. The OECD has issued significant global tax policy changes that include both expanded reporting as well as technical global tax policy changes. Many countries in which we operate have implemented tax law and administrative changes that align with many aspects of the OECD policy guidelines. The breadth of this project may impact all multinational businesses by potentially redefining jurisdictional taxation rights, and could materially impact the law for transfer pricing and permanent establishment taxation. We have taken measures to address the requirements of these changes in global tax policy. The Company will continue to monitor and evaluate the impact of these new OECD developments.

We conduct business globally, and, as part of our global business, we file numerous income tax returns in the U.S. federal, state, and foreign jurisdictions. After the TCJA, our ability to obtain a tax benefit in certain countries that continue to have lower statutory tax rates than the United States is dependent on our levels of taxable income in such foreign countries. We believe that a change in the statutory tax rate of any individual foreign country would not have a material effect on our financial statements given the geographic dispersion of our taxable income.

The amount of income taxes we pay is subject to audit by federal, state, and foreign tax authorities, which may result in proposed assessments. The Company is subject to examination in the United States, various states and foreign jurisdiction for the tax years 2010 to 2020. We review our 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 “Item 1A. Risk Factors.”

We are routinely examined by various domestic and international taxing authorities. In connection with the Separation of Fortive from Danaher on July 1, 2016 (the “Separation”), we entered into the Agreements with Danaher, including a tax matters agreement. The tax matters agreement distinguishes between the treatment of tax matters for “Joint” filings compared to “separate” filings prior to the Separation. “Joint” filings involve legal entities, such as those in the United States, that include operations from both Danaher and the Company. By contrast, “separate” filings involve certain entities (primarily outside of the United States), that exclusively include either Danaher’s or the Company’s operations, respectively. In accordance with the tax matters agreement, the Company is liable for and has indemnified Danaher against all income tax liabilities involving “separate” filings for the periods prior to the Separation.

During 2018, the Company entered into a Tax Matters Agreement in connection with the split-off of the A&S Business. The Company remains liable for pre-disposition income tax liabilities related to the A&S Business.

In connection with the separation of Vontier, we entered into a tax matters agreement with Vontier. The tax matters agreement distinguishes between the treatment of tax matters for “joint” filings compared to “separate” filings prior to the Separation. “Joint” filings involve legal entities, such as those in the United States, that include operations from both Vontier and the Company. By contrast, “separate” filings involve certain entities (primarily outside of the United States), that exclusively include either Vontier’s or the Company’s operations, respectively. In accordance with the tax matters agreement, the Company remains liable for all income tax liabilities involving “joint” filings and Vontier has agreed to indemnify the Company against all income tax liabilities involving “separate” filings for periods prior to the Separation.

Comparison of the Years Ended December 31, 2020, 2019, and 2018

Our effective tax rate for the years ended December 31, 2020, 2019, and 2018 was 3.7%, 20.4% and 13.4%, respectively.

Our effective tax rate for 2020 differs from the U.S. federal statutory rate of 21% due primarily to the effect of the TCJA U.S. federal permanent differences, the impact of credits and deductions provided by law, earnings outside the United States that are indefinitely reinvested and taxed at rates lower than the U.S. federal statutory rate, offset by tax costs associated with repatriating a portion of our previously reinvested earnings outside of the United States, and a permanent difference on the unrealized gain on our Retained Vontier Shares due to the tax-free treatment of our disposition of the shares through the Debt-for-Equity Exchange that was completed on January 19, 2021. The Debt-for-Equity Exchange included an exchange of all of our Vontier common stock owned as of December 31, 2020.

Our effective tax rate for 2019 differs from the U.S. federal statutory rate of 21% due primarily to the effect of the TCJA U.S. federal permanent differences, the impact of credits and deductions provided by law, and earnings outside the United States that are indefinitely reinvested and taxed at rates lower than the U.S. federal statutory rate.

Our effective tax rate for 2018 differs from the U.S. federal statutory rate of 21% due primarily to the effect of the TCJA U.S. federal permanent differences, the impact of credits and deductions provided by law, earnings outside the United States that are taxed at rates lower than the U.S. federal statutory rate, and the effect of adjustments to the provision estimates recorded in 2017 related to the TCJA as permitted under the SEC Staff Accounting Bulletin No. 118 (“SAB 118”) issued on December 22, 2017.

COMPREHENSIVE INCOME

Comprehensive income increased by $895 million in 2020 as compared to 2019, due to an increase in net earnings of $874 million, including both continuing and discontinued operations, favorable changes in foreign currency translation adjustments of $13 million, and favorable changes in pension benefit adjustments of $8 million. The increase in net earnings from 2019 to 2020 was due to the recognition of a $1.1 billion unrealized gain on the Retained Vontier Shares.

Comprehensive income decreased by $2.0 billion in 2019 as compared to 2018, due to a decrease in net earnings of $2.2 billion, including both continuing and discontinued operations, which were partially offset by favorable changes in foreign currency translation adjustments of $178 million and unfavorable changes in pension benefit adjustments of $24 million. The decrease in net earnings from 2018 to 2019 was due to the recognition of a $1.9 billion gain in 2018 related to the divestiture of the A&S Business.

FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

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

Interest Rate Risk

We manage interest cost using a mixture of fixed-rate and variable-rate debt. A change in interest rates on long-term debt impacts the fair value of our fixed-rate long-term debt but not our earnings or cash flows because the interest on such debt is fixed. Generally, the fair market value of fixed-rate debt will increase as interest rates fall and decrease as interest rates rise. As of December 31, 2020, an increase of 100 basis points in interest rates would have decreased the fair value of our fixed-rate long-term debt by approximately $166 million.

As of December 31, 2020, our variable-rate debt obligations consisted primarily of term loan borrowings (refer to Note 11 to the consolidated financial statements for information regarding our outstanding indebtedness as of December 31, 2020). As a result, our primary interest rate exposure results from changes in short-term interest rates. The annual effective rate associated

with our outstanding 2020 Delayed-Draw Term Loan and 2021 Term Loan for the year ended December 31, 2020 was 1.89% and 1.88%, respectively, and we recorded interest expense of $28.3 million on these variable-rate obligations. A hypothetical 10 basis points increase in market interest rates as of December 31, 2020 on our variable-rate debt obligations as of December 31, 2020 would have increased our interest expense by $1.4 million in 2020. The 2021 Term Loan was extinguished as part of the debt-for-equity exchange on January 19, 2021 and the 2020 Delayed-Draw Term Loan was repaid on January 21, 2021.

Foreign Currency Exchange Rate Risk

We face transactional exchange rate risk from transactions with customers in countries outside of 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 our functional currency or the functional currency of an applicable subsidiary. We also face translational exchange rate risk related to the translation of financial statements of our foreign operations into U.S. dollars, our 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, we are 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 our net investment in international subsidiaries is reflected in the accumulated other comprehensive income (loss) component of equity. A 10% depreciation in major currencies relative to the U.S. dollar as of December 31, 2020 would have resulted in a reduction of foreign currency-denominated net assets and stockholders’ equity of approximately $185 million.

Currency exchange rates favorably impacted 2020 reported sales by 0.1% as compared to 2019, as the U.S. dollar was, on average, weaker against most major currencies during 2020 as compared to exchange rate levels during 2019. If the exchange rates in effect as of December 31, 2020 were to prevail throughout 2021, currency exchange rates would positively impact 2021 estimated sales by approximately 2.0% relative to our performance in 2020. In general, additional weakening of the U.S. dollar against other major currencies would further positively impact our sales and results of operations on an overall basis and any strengthening of the U.S. dollar against other major currencies would adversely impact our sales and results of operations.

We have 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 our consolidated financial statements.

Credit Risk

We are exposed to potential credit losses in the event of nonperformance by counterparties to our financial instruments. Financial instruments that potentially subject us to credit risk consist of cash and highly-liquid investment grade cash equivalents and receivables from customers. We place cash and cash equivalents with various high-quality financial institutions throughout the world and exposure is limited at any one institution. Although we typically do not obtain collateral or other security to secure these obligations, we regularly monitor the third party depository institutions that hold our cash and cash equivalents. We emphasize safety and liquidity of principal over yield on those funds. In addition, concentrations of credit risk arising from receivables from customers are limited due to the diversity of our customers. Our 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 “Item 1A. Risk Factors.”

LIQUIDITY AND CAPITAL RESOURCES

We assess our liquidity in terms of our ability to generate cash to fund our operating, investing, and financing activities. We generate substantial cash from operating activities and believe that our operating cash flow and other sources of liquidity, which consist of access to short-term loans, commercial paper, and our revolving credit facility, in addition to short-term liquidity benefits provided by cash repatriation will be sufficient to allow us to continue funding and investing in our existing businesses, consummate strategic acquisitions, make interest and principal payments on our outstanding indebtedness, fulfill our contractual obligations, and manage our capital structure on a short and long-term basis.

On March 27, 2020, the U.S. federal government enacted the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), an emergency economic stimulus package in response to the COVID-19 outbreak which, among other things, contains numerous income tax provisions. Some of these tax provisions are expected to be effective retroactively for years ending before the date of enactment. We anticipate the provisions of the CARES Act will impact income tax in 2020; however, we have not identified material impacts to the tax provision as of December 31, 2020. Additionally, the CARES Act will continue providing us with short-term liquidity and other potential tax impacts that we are continuing to evaluate. During 2020,

we deferred remittance of approximately $35 million in payroll tax payments, half of which will be due on December 31, 2021 and the remaining portion on December 31, 2022.

While COVID-19 created volatility and uncertainty in the financial markets during 2020, we have not realized a significant impact on our financial position, liquidity, and ability to meet our debt covenants as of the filing date of this Report; however, we continue to monitor the capital markets and general global economic conditions. The financial markets worldwide, including the United States, have been impacted by COVID-19 and this volatility and disruption during the first half of 2020 impacted broad access to the capital markets and pricing on new indebtedness. Our credit facilities, including our revolving credit facility, are predominately with institutions that, to date, have been relatively unaffected by the disruption. However, the distress in the

financial markets during the first half of 2020 resulted in volatility and disruption in the commercial paper market, and as a result of the volatility and disruption, we refinanced all of our outstanding commercial paper with borrowings under our $750 million, 364-day delayed-draw term loan (the “2021 Term Loan”) as detailed below. We may utilize our commercial paper programs as a source of liquidity if and when the commercial paper markets are reliable and attractive in the future.

2020 Financing and Capital Transactions

In prior periods, we generally satisfied any short-term liquidity needs that are not met through operating cash flows and available cash through issuances of commercial paper under our U.S. dollar and Euro-denominated commercial paper programs (“Commercial Paper Programs”). Due to the volatility and disruption in the commercial paper markets during the first six months of 2020, we temporarily reduced our reliance on this source of funding, and consequently paid down and refinanced our outstanding commercial paper with the 2021 Term Loan. Credit support for the Commercial Paper Programs is provided by a five-year $2.0 billion senior unsecured revolving credit facility that expires on November 30, 2023 (the “Revolving Credit Facility”) which, to the extent not otherwise providing credit support for the commercial paper programs, can also be used for working capital and other general corporate purposes. As of December 31, 2020, no borrowings were outstanding under the Revolving Credit Facility.

On April 24, 2020, we amended (the “Amendments”) the credit agreement for each of our (i) $500 million delayed draw term loan facility, which has been repaid as of December 31, 2020 (“2020 Term Loan”), (ii) $1.0 billion delayed draw term loan facility, with $1.0 billion in principal amount outstanding as of December 31, 2020 (the “2020 Delayed-Draw Term Loan”), (iii) $750 million delayed draw term loan facility, with $400 million in principal amount outstanding as of December 31, 2020 (“2021 Term Loan”), and (iv) $2.0 billion Revolving Credit Facility, with no borrowings thereunder as of December 31, 2020 as follows:

For any four fiscal quarters ending in the periods noted below (each an “Adjusted Four Quarters”) that end prior to the maturity date of the applicable facility, the maximum permitted consolidated net leverage ratio of consolidated net funded indebtedness to consolidated EBITDA was increased from 3.50 to 1.00 to, (i) with respect to the four fiscal quarters ending June 26, 2020, September 25, 2020, December 31, 2020, or April 2, 2021, 4.75 to 1.00, (ii) with respect to the four fiscal quarters ending July 2, 2021, 4.5 to 1.0, (iii) with respect to the four fiscal quarters ending October 1, 2021, 4.25 to 1.0 and (iv) with respect to the four fiscal quarters ending December 31, 2021, 3.75 to 1.0; provided however, that for any four fiscal quarters that are not an Adjusted Four Quarters, the maximum permitted consolidated net leverage ratio remains at 3.5 to 1.0, as may be increased to 4.0 to 1.0 following a material acquisition (the “Unadjusted Maximum Ratio”).
The maturity date for the 2020 Delayed-Draw Term Loan was extended from August 28, 2020 to May 30, 2021.
From April 24, 2020 to December 31, 2021, the minimum London inter-bank offered rate (“LIBOR”) for each of the facilities will increase from 0% to 0.25%, and the minimum base rate for each of the facilities will increase from 1.00% to 1.25%. In addition, with respect to the Revolving Credit Facility and for any Adjusted Four Quarters in which the consolidated net leverage ratio is greater than the Unadjusted Maximum Ratio, the applicable margin (as determined based on our long-term debt credit rating) for any LIBOR rate loans will increase from a range of 80.5 and 117.5 basis points to a range of 118.0 and 155.0 basis points and for any base rate loans from a range of 0.0 and 17.5 basis points to a range of 18.0 and 55.0 basis points. Furthermore, with respect to the 2020 Delayed-Draw Term Loan, the applicable margin (as determined based on our long-term debt credit rating) for any LIBOR rate loans will increase from a range of 75.0 and 97.5 basis points to a range of 155.0 and 180.0 basis points and for any base rate loans from 0.0 to a range of 55.0 and 80.0 basis points.
From April 24, 2020 to December 31, 2021, the maximum principal amount of secured indebtedness, other than certain types of secured indebtedness expressly permitted under each credit agreement, is decreased from 15% of our consolidated net assets (when added together with indebtedness incurred or guaranteed by any of our subsidiaries) to 11.25% of our consolidated net assets (when added together with indebtedness incurred or guaranteed by any of our subsidiaries).

In connection with the Amendments, we incurred approximately $6.5 million of fees. Our credit facility agreements require, among others, that we maintain certain financial covenants and we were in compliance with all of our financial covenants on December 31, 2020.

During 2020, we completed the following financing and capital transactions:

On February 25, 2020, we extended the maturity of the 2020 Delayed-Draw Term Loan to August 28, 2020. Additionally, on April 24, 2020 we further extended the maturity to May 30, 2021. We were in compliance with our covenants both before and after the extension. The 2020 Delayed-Draw Term Loan was not callable and remained prepayable at our option.
On February 26, 2020, we prepaid $250 million and on October 9, 2020, we repaid the remaining $250 million of the 2020 Term Loan. The fees associated with both prepayments were immaterial.
On March 23, 2020, we entered into a credit facility agreement that provided for the 2021 Term Loan in an aggregate principal amount of $425 million. On the same day, we drew down $375 million available under the 2021 Term Loan. We subsequently increased the size of this facility by $325 million on April 3, 2020, and drew the additional $375 million in April 2020, resulting in an outstanding amount of $750 million. We paid approximately $2 million in debt issuance costs associated with the 2021 Term Loan. The borrowings from this credit facility were used for settlement of outstanding commercial paper. The 2021 Term Loan bore interest at a variable rate equal to LIBOR plus a ratings-based margin currently at 155 basis points. As of December 31, 2020 borrowings under this facility bore an interest rate of 1.80% per annum. The 2021 Term Loan was due on March 19, 2021 and prepayable at our option. We are not permitted to re-borrow once the term loan is repaid. The terms and conditions, including covenants, applicable to the 2021 Term Loan, are substantially similar to those applicable to our Revolving Credit Facility.
On October 9, 2020, we repaid $350 million of the outstanding $750 million of the 2021 Term Loan. The fees associated with the prepayment were immaterial.
On October 15, 2020, we repaid the outstanding ¥13.8 billion balance of the Yen variable interest rate term loan due 2022 which approximated $131 million.
On November 13, 2020, we redeemed for cash all $750 million aggregate principal of our outstanding 2.35% Senior Notes due 2021 (the “Notes”) in accordance with the terms of the indenture governing the Notes. In connection with the transaction, we wrote-off the remaining unamortized deferred financing costs of $0.7 million and recorded a loss on extinguishment of $8 million.

Subsequent Events

On January 19, 2021, we completed a non-cash exchange (the “Debt-for-Equity Exchange”) of 33,507,410 shares of common stock of Vontier, representing all of the Retained Vontier Shares, for $1.1 billion in aggregate principal amount of indebtedness of the Company held by Goldman Sachs & Co., including (i) all $400 million in term loan outstanding under the 2021 Term Loan and (ii) $683.2 million of the $1.0 billion in term loan outstanding under the 2020 Delayed-Draw Term Loan.

On January 21, 2021, we repaid the remaining $316.8 million outstanding of the 2020 Delayed-Draw Term Loan using the cash proceeds received from Vontier in the Separation. The fees associated with the prepayment were immaterial.

On February 9, 2021, we repurchased $281 million of the 0.875% Convertible Senior Notes due 2022 (the “Convertible Notes”) using the remaining cash proceeds received from Vontier in the Separation and other cash on hand. In connection with the repurchase, we will record a loss on extinguishment in the first quarter of 2021.

2019 Financing and Capital Transactions

During 2019, we completed the following financing and capital transactions:

On February 22, 2019, we issued $1.4 billion in aggregate principal amount of our 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 sold in a private placement to certain initial purchasers for resale to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933.

The Convertible Notes bear interest at a rate of 0.875% per year, payable semiannually in arrears on February 15 and August 15 of each year, beginning on August 15, 2019. The Convertible Notes mature on February 15, 2022, unless earlier repurchased or converted in accordance with their terms prior to such date. As a result of the Separation and in accordance with the anti-dilution provisions of the Convertible Notes, effective October 9, 2020, the Convertible Notes are convertible into shares of our common stock at an adjusted conversion rate of 10.9568 shares per $1,000 principal amount of Convertible Notes (which is equivalent to an initial conversion price of $91.27 per share), subject to future adjustment upon the occurrence of certain events. Upon conversion of the Convertible Notes, holders will receive cash,

shares of our common stock, or a combination thereof, at Fortive’s election. Our current intention is to settle such conversions through cash up to the principal amount of the converted Convertible Notes and, if applicable, through shares of our common stock for conversion value, if any, in excess of the principal amount of the converted Convertible Notes.

Of the $1.4 billion in proceeds received from the issuance of the Convertible Notes, $1.3 billion was classified as debt and $102.2 million was classified as equity, using an assumed effective interest rate of 3.38%. Debt issuance costs of $24.3 million were proportionately allocated to debt and equity. The discount at issuance was $102.2 million and is being amortized over a three-year period.

On February 28, 2019, we prepaid the remaining $400.0 million outstanding principal and accrued interest under the Delayed-Draw Term Loan due 2019. The prepayment fees associated with this payment were immaterial.
On March 1, 2019, we entered into a credit facility agreement that provides for a 364-day delayed-draw term loan facility (“2020 Delayed-Draw Term Loan”) in an aggregate principal amount of $1.0 billion. On March 20, 2019, we drew down the full $1.0 billion available under the 2020 Delayed-Draw Term Loan in order to fund, in part, the ASP acquisition. The original maturity date of the 2020 Delayed-Draw Term Loan was February 28, 2020; however on February 25, 2020, we extended the maturity date to August 28, 2020. The 2020 Delayed-Draw Term Loan was prepayable at our option. We are not permitted to re-borrow once the term loan is repaid. The terms and conditions, including covenants, applicable to the 2020 Delayed-Draw Term Loan are substantially similar to those applicable to the Revolving Credit Facility.
On June 15, 2019 we repaid the remaining outstanding principal of $55.3 million of our 1.80% senior unsecured notes.
On October 25, 2019, we entered into a credit facility agreement that provides for a 364-day term loan facility (“2020 Term Loan”) in an aggregate principal amount of $300 million. On October 25, 2019, we drew down the full $300 million available under the 2020 Term Loan in order to fund, in part, the Censis acquisition. We subsequently increased the size of this facility by $200 million on November 8, 2019 and drew the additional amount on the same day resulting in an outstanding amount of $500 million. The 2020 Term Loan was due on October 23, 2020 and prepayable at our option. On February 26, 2020, we prepaid $250 million of the 2020 Term Loan and on October 9, 2020, we repaid the remaining $250 million of the 2020 Term Loan. The fees associated with both prepayments were immaterial. We are not permitted to re-borrow once the term loan is repaid. The terms and conditions, including covenants, applicable to the 2020 Term Loan are substantially similar to those applicable to the Revolving Credit Facility.

2018 Financing and Capital Transactions

During 2018, we completed the following financing and capital transactions:

On June 29, 2018, we issued 1,380,000 shares of 5.0% Mandatory Convertible Preferred Stock, Series A (“MCPS”) with a par value of $0.01 per share and liquidation preference of $1,000 per share, which included the exercise of an over-allotment option in full to purchase 180,000 shares. We received net $1.34 billion in proceeds from the issuance of the MCPS, excluding $43 million of issuance costs. We used the net proceeds from the issuance of MCPS to fund our acquisition activities and for general corporate purposes, including repayment of debt, working capital and capital expenditures. Each then outstanding share of MCPS will convert automatically on July 1, 2021 into between 10.9041 and 13.3575 common shares, subject to further anti-dilution adjustments.
On July 20, 2018, we prepaid $325 million of our outstanding U.S dollar variable interest rate term loan due in 2019, and on October 5, 2018, we prepaid the remaining $175 million of the outstanding balance. The prepayment fees associated with these payments were immaterial.
On August 22, 2018, we entered into a credit facility agreement that provides for a 364-day delayed-draw term loan facility (“Delayed-Draw Term Loan due 2019”) with an aggregate principal amount of $1.75 billion. On September 5, 2018, we drew down the full $1.75 billion available under the Delayed-Draw Term Loan due 2019 in order to fund, in part, the Accruent Acquisition. The Delayed-Draw Term Loan bears interest at a variable rate equal to the LIBOR plus a ratings-based margin currently at 75 basis points. The Delayed-Draw Term Loan due 2019 was prepayable at our option, and we are not permitted to re-borrow once the term loan is repaid. On September 26, 2018 and November 21, 2018, we repaid $400 million of and $950 million of this loan, respectively.
On October 1, 2018, in connection with the debt-for-debt exchange in the split-off of the A&S Business, we retired $244.7 million of our 1.80% senior unsecured notes due in 2019.
On November 30, 2018 we entered into an amended and restated agreement (“the Credit Agreement”) extending the availability period of the Revolving Credit Facility to November 30, 2023 and increased the facility to $2.0 billion.

The Revolving Credit Facility is subject to a one year extension option at our request and with the consent of the lenders. The Credit Agreement also contains an option permitting us to request an increase in the amounts available under the Credit Agreement of up to an aggregate additional $1.0 billion.

Overview of Cash Flows and Liquidity

Following is an overview of our cash flows and liquidity:


	Year Ended December 31,
($ in millions)	2020		2019		2018
Total operating cash provided by continuing operations	$	977.7	$	702.0	$	684.1

Cash paid for acquisitions, net of cash received	$	(40.4)	$	(3,939.8)	$	(2,778.6)
Payments for additions to property, plant and equipment	(75.7)		(74.5)		(69.9)
Proceeds from sale of property	5.3		—		—
All other investing activities	—		—		2.2
Total investing cash used in continuing operations	$	(110.8)	$	(4,014.3)	$	(2,846.3)

Net proceeds from (repayments of) commercial paper borrowings	$	(1,141.9)	$	494.8	$	(266.1)
Proceeds from borrowings (maturities greater than 90 days), net of $8 million and $24 million of issuance costs in 2020 and 2019, respectively	741.7		2,913.2		1,741.3
Repayment of borrowings (maturities greater than 90 days)	(1,730.8)		(455.3)		(1,850.0)
Proceeds from issuance of mandatory convertible preferred stock, net of $43 million of issuance costs	—		—		1,337.4
Payment of common stock cash dividend to shareholders	(94.4)		(93.8)		(96.6)
Payment of mandatory convertible preferred stock cash dividend to shareholders	(69.0)		(69.0)		(34.9)
Net cash consideration received from Vontier Separation	1,598.0		—		—
All other financing activities	20.7		23.2		42.1
Total financing cash (used in) provided by continuing operations	$	(675.7)	$	2,813.1	$	873.2

Operating Activities

Operating cash flows from continuing operations can fluctuate significantly from period-to-period as working capital needs and the timing of payments for income taxes, pension funding, and other items impact reported cash flows.

Operating cash flows from continuing operations were approximately $978 million in 2020, an increase of $276 million, or approximately 39%, as compared to 2019. This year-over-year change in operating cash flows from continuing operations was primarily attributable to the following factors:

2020 operating cash flows were impacted by higher net earnings from continuing operations as compared to 2019, which were driven by a year-over-year increase in operating profits of $96 million and a year-over-year increase in interest expense of $6 million primarily associated with our financing activities. The year-over-year increase in operating profit was partially offset by an increase in depreciation and amortization expenses of $43 million largely attributable to our recently acquired businesses. Further, the year-over-year increase in net earnings for 2020 was impacted by the recognition of a $1.1 billion unrealized gain on the Retained Vontier Shares. Depreciation, amortization, and the unrealized gain are non-cash expenses that impact earnings without a corresponding impact to operating cash flows.
The aggregate of accounts receivable, inventories, and trade accounts payable provided $93 million of operating cash flows during 2020 compared to using $59 million of cash during 2019. The amount of cash flow generated from or used by the aggregate of accounts receivable, inventories, and trade accounts payable depends upon how effectively we manage the cash conversion cycle, which effectively represents the number of days that elapse from the day we pay for the purchase of raw materials and components to the collection of cash from our customers, and can be significantly impacted by the timing of collections and payments in a period.
The aggregate of prepaid expenses and other assets and accrued expenses and other liabilities provided $208 million of cash in 2020 as compared to providing $148 million in 2019. The year over year change was largely driven by the timing of tax payments and various employee benefit accruals.

Operating cash flows from continuing operations were approximately $702 million in 2019, an increase of $18 million, or approximately 3%, as compared to 2018. This year-over-year change in operating cash flows from continuing operations was primarily attributable to the following factors:

2019 operating cash flows were impacted by lower net earnings from continuing operations as compared to 2018. Net earnings for 2019 were impacted by a year-over-year decrease in operating profits of $201 million and a year-over-year increase in interest expense of $65 million primarily associated with our financing activities, which was partially offset by a $41 million non-cash gain on the combination of the Tektronix Video Business with Telestream. The year-over-year decrease in operating profit was attributable to an increase in depreciation and amortization expenses of $167 million largely attributable to our recently acquired businesses. Depreciation and amortization are non-cash expenses that decrease earnings without a corresponding impact to operating cash flows.
The aggregate of accounts receivable, inventories, and trade accounts payable used $59 million of operating cash flows during 2019 compared to using $10 million of cash during 2018. The amount of cash flow generated from or used by the aggregate of accounts receivable, inventories, and trade accounts payable depends upon how effectively we manage the cash conversion cycle, which effectively represents the number of days that elapse from the day we pay for the purchase of raw materials and components to the collection of cash from our customers, and can be significantly impacted by the timing of collections and payments in a period.
The aggregate of prepaid expenses and other assets and accrued expenses and other liabilities provided $148 million of cash in 2019 as compared to providing $15 million in 2018. The year over year change was largely driven by the timing of tax payments and various employee benefit accruals.

Investing Activities

Investing cash flows from continuing operations consist primarily of cash paid for acquisitions and capital expenditures. Net cash used in investing activities from continuing operations was approximately $111 million during 2020 compared to approximately $4.0 billion and $2.8 billion of net cash used in 2019 and 2018, respectively. For a discussion of our acquisitions refer to “—Overview.”

Capital expenditures are made primarily for increasing capacity, replacing equipment, supporting product development initiatives, improving information technology systems, and purchase of equipment that is used in revenue arrangements with customers. Capital expenditures totaled $76 million in 2020, $75 million in 2019, and $70 million in 2018. We expect capital spending to be between approximately $75 million and $85 million in 2021, though actual expenditures will ultimately depend on business conditions.

Financing Activities and Indebtedness

Financing cash flows from continuing operations consist primarily of cash flows associated with the issuance of equity, the issuance and repayments of debt and commercial paper, payments of quarterly cash dividends to shareholders, and cash consideration received from the Vontier Separation. Financing activities from continuing operations used cash of $676 million in 2020 compared to generating $2.8 billion and $873 million of cash in 2019 and 2018, respectively. In 2020, we made net repayments of $1.1 billion of commercial paper borrowings, $500 million of our 2020 Term Loan, $750 million of our 2.35% Senior Notes due 2021, and ¥13.8 billion of our Yen variable interest rate term loan due 2022 which approximated $131 million, which were partially offset by $1.6 billion in net cash consideration received from the Separation and the net proceeds we received from the issuance of our 2021 Term Loan of $350 million. During the year ended December 31, 2020, we paid $163 million of cash dividends to common shareholders and holders of our MCPS.

Refer to “—Liquidity and Capital Resources” section above for a description of our financing activities in 2020, 2019, and 2018.

We generally expect to satisfy any short-term liquidity needs that are not met through operating cash flows and available cash primarily through issuances of commercial paper under the Commercial Paper Programs and term loans. While COVID-19 created volatility and uncertainty in the commercial paper market, we may utilize our commercial paper programs as a source of liquidity if and when the commercial paper markets are reliable and attractive in the future. Credit support for the Commercial Paper Programs is provided by the Revolving Credit Facility.

The carrying value of total debt outstanding as of December 31, 2020 was approximately $4.2 billion. We had $2.0 billion available under the Revolving Credit Facility as of December 31, 2020. Refer to Note 11 to the consolidated financial statements for information regarding our financing activities and indebtedness.

The availability of the Revolving Credit Facility as a standby liquidity facility to repay maturing commercial paper is an important factor in maintaining the existing credit ratings of the Commercial Paper Programs when we have outstanding

borrowings. As of December 31, 2020, we had no borrowings outstanding under our commercial paper program. We expect to limit any future borrowings under the Revolving Credit Facility to amounts that would leave sufficient credit available under the facility to allow us to borrow, if needed, to repay any outstanding commercial paper as it matures.

In 2019, we received net proceeds from the issuance of commercial paper under the Commercial Paper Programs of $495 million, received proceeds from borrowings of $2.9 billion, repaid $455 million of borrowings, and paid $163 million of cash dividends to shareholders.

Dividends

On November 5, 2020, we declared a regular quarterly dividend of $0.07 per common share paid on December 28, 2020 to holders of record on November 27, 2020. In addition, we declared a regular quarterly cash dividend of $12.50 per share of our 5.00% Mandatory Convertible Preferred Stock, Series A, payable to preferred stockholders of record on December 15, 2020. The dividend to preferred shareholders was paid on December 31, 2020.

Aggregate cash payments for the dividends paid to shareholders during the year ended December 31, 2020 were $163 million and were recorded as dividends to shareholders in the Consolidated Statement of Changes in Equity and the Consolidated Statement of Cash Flows.

On January 26, 2021, we declared a regular quarterly cash dividend of $0.07 per share payable on March 26, 2021 to common stockholders of record on February 26, 2021 and a regular quarterly cash dividend of $12.50 per share on our MCPS payable on April 1, 2021 to preferred stockholders of record on March 15, 2021.

Cash and Cash Requirements

Cash

As of December 31, 2020, we held approximately $1.8 billion of cash and cash equivalents that were invested in highly liquid investment-grade instruments with a maturity of 90 days or less with an annual effective rate of approximately 0.30%. Approximately 60% of our cash at December 31, 2020 was held in the U.S.

We have cash requirements to support working capital needs, capital expenditures and acquisitions, pay interest and service debt, pay taxes and any related interest or penalties, fund our pension plans as required, pay dividends to shareholders, and support other business needs or objectives. With respect to our cash requirements, we generally intend to use available cash and internally generated funds to meet these cash requirements, but in the event that additional liquidity is required, particularly in connection with acquisitions, we may also borrow under our commercial paper programs or credit facilities or enter into new credit facilities and either borrow directly thereunder or use such credit facilities to backstop additional borrowing capacity under our commercial paper programs. We also may from time to time access the capital markets, including to take advantage of favorable interest rate environments or other market conditions.

Given the impact of the COVID-19 pandemic and resulting market conditions in the U.S., we have updated our assertion for previously unremitted earnings from 2019 and prior periods due to new facts and circumstances that we did not face in prior periods. The TCJA eliminated the U.S. tax cost for qualified repatriation beginning in 2018 but foreign cumulative earnings remain subject to foreign remittance taxes. During the year ended December 31, 2020, we provided foreign remittance taxes of $13 million on the repatriation of $310 million of previously unremitted earnings from 2019 and prior periods.

We have made an assertion regarding the amount of current earnings that we do not intend to repatriate due to local working capital needs, local law restrictions, high foreign remittance costs, previous investments in physical assets and acquisitions, or future growth needs. For most of our foreign operations, we make an assertion regarding the amount of earnings in excess of intended repatriation that are expected to be held for indefinite reinvestment. The amount of foreign remittance taxes that may be applicable to such earnings is not readily determinable given local law restrictions that may apply to a portion of such earnings, unknown changes in foreign tax law that may occur during the applicable restriction periods caused by applicable local corporate law for cash repatriation, and the various tax planning alternatives we could employ if we repatriated these earnings.

Cash Requirements

The following table sets forth a summary of our short-term and long-term cash requirements as of December 31, 2020 under (1) long-term debt principal and interest obligations, (2) leases, (3) purchase obligations and (4) other long-term liabilities reflected

on our balance sheet under GAAP. Certain of our acquisitions may 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.


($ in millions)	Total		Due within one year of December 31, 2020		Due later than one year from December 31, 2020
Debt and leases:


Long-term debt principal payments	$	4,287.5	$	1,400.0	$	2,887.5
Interest payments on long-term debt (a)	778.3		72.0		706.3
Operating lease obligations (b)	221.7		49.9		171.8
Other:
Purchase obligations (c)	359.0		245.7		113.3
Other liabilities reflected on the balance sheet under GAAP (d)(e)	2,133.3		899.9		1,233.4
Total	$	7,779.8	$	2,667.5	$	5,112.3

(a) Interest payments on long-term debt are projected for future periods using the interest rates in effect as of December 31, 2020. Certain of these projected interest payments may differ in the future based on changes in market interest rates.
(b) Includes future lease payments for operating leases having initial noncancelable lease terms in excess of one year.
(c) Consist of agreements to purchase goods or services that are enforceable and legally binding on us 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, net 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.
(e) Includes non-contractual obligations of $228 million of noncurrent gross unrecognized tax benefits. However, the timing of these liabilities is uncertain, and therefore, they have been included in the “due later than one year from December 31, 2020” column. The amounts also includes our obligation under the TCJA for the transition tax on cumulative foreign earnings and profits, which we expect to pay over eight years. Refer to Note 14 to the consolidated financial statements for additional information on unrecognized tax benefits.

In addition to the obligations noted above, we have issued guarantees, consisting primarily of outstanding standby letters of credit, bank guarantees, and performance and bid bonds, in connection with certain arrangements with vendors, customers, financing counterparties, and governmental entities to secure our obligations and/or performance requirements related to specific transactions. These guarantees are not recorded on our balance sheet and $61 million in commitments expire within one year of December 31, 2020 and $26 million later than one year from December 31, 2020.

During 2020, we contributed $1 million and $11 million to our U.S. and non-U.S. defined benefit pension plans, respectively. During 2021, our cash contribution requirements for our U.S. and non-U.S. defined benefit pension plans are expected to be approximately $1 million and $12 million, respectively. The ultimate amounts we will contribute depend upon, among other things, legal requirements, underlying asset returns, the plan’s funded status, the anticipated tax deductibility of the contribution, local practices, market conditions, interest rates, and other factors.

As of December 31, 2020 we expect to have sufficient liquidity to satisfy our cash needs for the foreseeable future, including our cash needs in the United States.

Legal Proceedings

Please refer to Note 16 to the consolidated financial statements for information regarding legal proceedings and contingencies, and for a discussion of risks related to legal proceedings and contingencies, refer to “Item 1A. Risk Factors.”

CRITICAL ACCOUNTING ESTIMATES

Management’s discussion and analysis of our financial condition and results of operations is based upon our consolidated 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. We base 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.

We believe the following accounting estimates are most critical to an understanding of our 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 to the consolidated financial statements.

Accounts Receivable: In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which amended 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 accounts and unbilled receivables.

On January 1, 2020, we adopted ASU 2016-13 and recognized in our Consolidated Balance Sheet as of January 1, 2020 an increase in the allowance for trade accounts, financing, and unbilled receivables of $40.0 million, of which $11.5 million related to our continuing operations, with a corresponding net of tax adjustment to beginning retained earnings of $31.3 million.

Results for reporting periods beginning January 1, 2020 reflect the adoption of ASU 2016-13, while prior period amounts were not adjusted and continue to be reported in accordance with our historical accounting practices.

Prior to the adoption of ASU 2016-13 on January 1, 2020, we recognized an allowance for incurred losses when they were probable based on many quantitative and qualitative factors, including delinquency. After the adoption of ASU 2016-13, we measure our allowance to reflect expected credit losses over the remaining contractual life of the asset. We pool assets with similar risk characteristics for this measurement based on attributes that may include asset type, duration, and/or credit risk rating. The future expected losses of each pool are estimated based on numerous quantitative and qualitative factors reflecting management’s estimate of collectibility over the remaining contractual life of the pooled assets, including:

duration;
historical, current, and forecasted future loss experience by asset type;
historical, current, and forecasted delinquency and write-off trends;
historical, current, and forecasted economic conditions; and
historical, current, and forecasted credit risk.

We regularly perform detailed reviews of our trade accounts and unbilled receivable portfolios to determine if changes in the aforementioned qualitative and quantitative factors have impacted the adequacy of the allowances.

Volatility and uncertainty in overall global economic conditions and worldwide capital markets as a result of the COVID-19 pandemic may negatively impact our customers’ ability to pay and, as a result, may increase the difficulty in collecting trade accounts and unbilled receivables. We did not realize notable increases in loss rates and delinquencies during the year ended December 31, 2020, and given the nature of our portfolio of receivables, our historical experience during times of challenging economic conditions, and our forecasted future impact of COVID-19 on our customer’s ability to pay, we did not record material provisions for credit losses as a result of the COVID-19 pandemic during the year ended December 31, 2020. If the financial condition of our customers were to deteriorate beyond our current estimates, resulting in an impairment of their ability to make payments, we would be required to write-off additional receivable balances, which would adversely impact our net earnings and financial condition. In order to evaluate the sensitivity of the estimates used in the calculation of our allowance, we applied a hypothetical 10% decrease in anticipated collectibility, noting that our allowance would increase by $4 million with a corresponding charge to SG&A.

Expected credit losses of the assets originated during the year ended December 31, 2020, as well as changes to expected losses during the same periods, are recognized in earnings for the year ended December 31, 2020.

Inventories: We record inventory at the lower of cost or net realizable value, which is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. We estimate the net realizable value of our inventory based on assumptions of future demand and related pricing. Estimating the net realizable value of inventory is inherently uncertain because levels of demand, technological advances, and pricing competition in many of our markets can fluctuate significantly from period to period due to circumstances beyond our control. If actual market conditions are less favorable than those we projected, we could be required to reduce the value of our inventory, which would adversely impact our financial statements. In order to evaluate the sensitivity of the estimates used in the calculation of the net realizable value of our inventory, we applied a hypothetical 10% decrease to the anticipated realization, noting that our inventory would

decrease by $8 million with a corresponding charge to Cost of goods sold. Refer to Note 5 to the consolidated financial statements for detailed information regarding our inventory balances as of December 31, 2020.

Acquired Intangibles and Goodwill: Our business acquisitions typically result in the recognition of goodwill, in-process R&D, and other intangible assets, which affect the amount of future period amortization expense and possible impairment charges that we may incur. Refer to Notes 2, 3 and 7 to the consolidated financial statements for a description of our policies relating to goodwill, acquired intangibles, and acquisitions.

In performing our goodwill impairment testing, we estimate the fair value of our reporting units primarily using a market based approach. We estimate 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 our reporting units, in addition to recent market available sale transactions of comparable businesses. In evaluating the estimates derived by the market based approach, we make judgments about the relevance and reliability of the multiples by considering factors unique to our 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 we also evaluate other factors including results of the estimated fair value utilizing a discounted cash flow analysis (i.e., an income approach), market positions of the businesses, comparability of market sales transactions, and financial and operating performance 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.

In 2020, we had five reporting units for goodwill impairment testing in continuing operations. Reporting units resulting from recent acquisitions generally present the highest risk of impairment. We believe the impairment risk associated with these reporting units generally decreases as we integrate these businesses and better position them for potential future earnings growth. As of the date of the 2020 annual impairment test, the carrying value of goodwill in each reporting unit ranged from $171 million to $3.2 billion. Our annual goodwill impairment analysis in 2020 indicated that, in all instances, the fair values of our 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 our reporting units as of the annual testing date ranged from approximately 50% to approximately 675%. In order to evaluate the sensitivity of the fair value calculations used in the goodwill impairment test, we 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% 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 our reporting units ranged from approximately 30% to approximately 600%. We evaluated other factors relating to the fair value of the reporting units, including, as applicable, results of the estimated fair value using an income approach, market positions of the businesses, comparability of market sales transactions and financial and operating performance, and concluded no impairment charges were required.

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

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 our financial statements.

Contingent Liabilities: As discussed in Note 16 to the consolidated financial statements, we are, from time to time, subject to a variety of litigation and similar contingent liabilities incidental to our business (or the business operations of previously owned entities). We recognize 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 16 to the consolidated financial statements. If the reserves we established with respect to these contingent liabilities are inadequate, we would be required to incur an expense equal to the amount of the loss incurred in excess of the reserves, which would adversely affect our financial statements.

Revenue Recognition: We derive revenues from the sale of products and services. Revenue is recognized when control over the promised products or services is transferred to the customer in an amount that reflects the consideration that we expect to receive in exchange for those goods or services. In determining if control has transferred, we consider whether certain

indicators of the transfer of control are present, such as the transfer of title, present right to payment, significant risks and rewards of ownership, and customer acceptance when acceptance is not a formality. To determine the consideration that the customer owes us, we make judgments regarding the amount of customer allowances and rebates, consisting primarily of volume discounts and other short-term incentive programs. Refer to Note 2 to the consolidated financial statements for a description of our revenue recognition policies.

If our judgments regarding revenue recognition prove incorrect, our reported revenues in particular periods may be adversely affected. Historically, our estimates of revenue have been materially correct.

Stock-Based Compensation: For a description of our stock-based compensation accounting practices, refer to Note 17 to the consolidated financial statements. Determining the appropriate fair value model and calculating the fair value of certain stock-based payment awards require subjective assumptions, including the expected life of the awards, stock price volatility, and expected forfeiture rate. Given our limited trading history following the separation from Danaher, stock price volatility used to calculate the fair value of stock options in the post-separation period was estimated based on an average historical stock price volatility of a group of peer companies. Beginning August 2018, expected volatility was based on a weighted average blend of our historical stock price volatility from July 2, 2016 (the date of the Danaher separation) through the stock option grant date and the average historical stock price volatility of a group of peer companies for the expected term of the options. The assumptions used in calculating the fair value of stock-based payment awards represent our best estimates, but these estimates involve inherent uncertainties and the application of judgment. If actual results are not consistent with our assumptions and estimates, our equity-based compensation expense could be materially different in the future.

Pension and Other Post Employment Benefits: For a description of our pension accounting practices, refer to Note 12 to the consolidated financial statements. Certain of our U.S. and non-U.S. employees participate in noncontributory defined benefit pension plans. 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), our financial statements could be materially affected. A 50 basis point reduction in the discount rates used for the plans during 2020 would have increased the net obligation by $30 million from the amounts recorded in the financial statements as of December 31, 2020.

Our 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 1.25% to 4.86%. If the expected long-term rate of return on plan assets during 2020 was reduced by 50 basis points, pension expense in 2020 would have increased by $1 million ($1 million on an after-tax basis).

Income Taxes: For a description of our income tax accounting policies, refer to Note 2 and Note 14 to the consolidated financial statements.

In accordance with GAAP, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted rates expected to be in effect during the year in which the differences reverse. Deferred tax assets generally represent items that can be used as a tax deduction or credit in our tax return in future years for which the tax benefit has already been reflected in our Consolidated Statements of Earnings. Deferred tax liabilities generally represent items that have already been taken as a deduction on our tax return but have not yet been recognized as an expense in our Consolidated Statements of Earnings. The effect on deferred tax assets and liabilities due to a change in tax rates is recognized in income tax expense in the period that includes the enactment date.

Our deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not (a likelihood of more than 50 percent) that some portion or all of the deferred tax assets will not be realized. We evaluate the realizability of deferred income tax assets for each of the jurisdictions in which we operate. If we experience cumulative pretax income in a particular jurisdiction in the three-year period including the current and prior two years, we normally conclude that the deferred income tax assets will more likely than not be realizable and no valuation allowance is recognized, unless known or planned operating developments would lead management to conclude otherwise. However, if we experience cumulative pretax losses in a particular jurisdiction in the three-year period including the current and prior two years, we then consider a series of factors in the determination of whether the deferred income tax assets can be realized. These factors include historical operating results, known or planned operating developments, the period of time over which certain temporary differences will reverse, consideration of the utilization of certain deferred income tax liabilities, tax law carryback capability in the particular country, and prudent and feasible tax planning strategies. After evaluation of these factors, if the deferred income tax assets are expected to be realized within the tax carryforward period allowed for that specific country, we would conclude that no valuation allowance would be required. To the extent that the deferred income tax assets exceed the amount that is expected to be realized within the tax carryforward period for a particular jurisdiction, we establish a valuation allowance.

We recognize tax benefits from uncertain tax positions only if, in our assessment, it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Judgment is required in evaluating tax positions and determining income tax provisions. We re-evaluate the technical merits of our 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. We recognize potential accrued interest and penalties with unrecognized tax positions in income tax expense.

In addition, we are routinely examined by various domestic and international taxing authorities. The amount of income taxes we pay is subject to audit by federal, state, and foreign tax authorities, which may result in proposed assessments (see “-Results of Operations - Income Taxes” and Note 14 to the consolidated financial statements). We review our 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.

An increase in our 2020 effective tax rate of 1.0% would have resulted in an additional income tax provision for the fiscal year ended December 31, 2020 of $15 million.

NEW ACCOUNTING STANDARDS

For a discussion of new accounting standards relevant to our businesses, refer to Note 2 to the consolidated financial statements.

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