filings.toolsItem 1. FINANCIAL STATEMENTS
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Item 1. FINANCIAL STATEMENTS
FORTIVE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
($ in millions, except per share amounts)
| As of | |||||||||||
| September 30, 2022 | December 31, 2021 | ||||||||||
| (unaudited) | |||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and equivalents | $ | 705.3 | $ | 819.3 | |||||||
| Trade accounts receivable, net | 901.0 | 930.2 | |||||||||
| Inventories: | |||||||||||
| Finished goods | 228.5 | 215.4 | |||||||||
| Work in process | 105.1 | 94.0 | |||||||||
| Raw materials | 226.9 | 203.3 | |||||||||
| Inventories | 560.5 | 512.7 | |||||||||
| Prepaid expenses and other current assets | 281.1 | 252.7 | |||||||||
| Total current assets | 2,447.9 | 2,514.9 | |||||||||
| Property, plant and equipment, net of accumulated depreciation of $740.6 and $679.0 at September 30, 2022 and December 31, 2021, respectively | 405.2 | 395.5 | |||||||||
| Other assets | 494.2 | 512.9 | |||||||||
| Goodwill | 8,977.5 | 9,152.0 | |||||||||
| Other intangible assets, net | 3,568.3 | 3,890.2 | |||||||||
| Total assets | $ | 15,893.1 | $ | 16,465.5 | |||||||
| LIABILITIES AND EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Current portion of long-term debt | $ | 999.9 | $ | 2,151.7 | |||||||
| Trade accounts payable | 572.6 | 557.9 | |||||||||
| Accrued expenses and other current liabilities | 1,019.6 | 1,005.3 | |||||||||
| Total current liabilities | 2,592.1 | 3,714.9 | |||||||||
| Other long-term liabilities | 1,346.3 | 1,426.3 | |||||||||
| Long-term debt | 2,559.0 | 1,807.3 | |||||||||
| Commitments and Contingencies | |||||||||||
| Equity: | |||||||||||
| Preferred stock: $0.01 par value, 15.0 million shares authorized and no shares issued or outstanding at September 30, 2022 and December 31, 2021 | — | — | |||||||||
| Common stock: $0.01 par value, 2.0 billion shares authorized; 361.4 and 360.4 million issued; 353.8 and 359.1 million outstanding at September 30, 2022 and December 31, 2021, respectively | 3.6 | 3.6 | |||||||||
| Additional paid-in capital | 3,677.4 | 3,670.0 | |||||||||
| Treasury shares, at cost | (376.1) | — | |||||||||
| Retained earnings | 6,539.6 | 6,023.6 | |||||||||
| Accumulated other comprehensive loss | (453.7) | (185.0) | |||||||||
| Total Fortive stockholders’ equity | 9,390.8 | 9,512.2 | |||||||||
| Noncontrolling interests | 4.9 | 4.8 | |||||||||
| Total stockholders’ equity | 9,395.7 | 9,517.0 | |||||||||
| Total liabilities and equity | $ | 15,893.1 | $ | 16,465.5 |
See the accompanying Notes to Consolidated Condensed Financial Statements.
FORTIVE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
($ and shares in millions, except per share amounts)
(unaudited)
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, 2022 | October 1, 2021 | September 30, 2022 | October 1, 2021 | ||||||||||||||||||||
| Sales of products and software | $ | 1,227.7 | $ | 1,107.1 | $ | 3,609.8 | $ | 3,320.3 | |||||||||||||||
| Sales of services | 228.3 | 193.9 | 686.0 | 559.6 | |||||||||||||||||||
| Total sales | 1,456.0 | 1,301.0 | 4,295.8 | 3,879.9 | |||||||||||||||||||
| Cost of product and software sales | (494.4) | (448.3) | (1,467.8) | (1,356.6) | |||||||||||||||||||
| Cost of service sales | (116.2) | (107.0) | (357.1) | (310.2) | |||||||||||||||||||
| Total cost of sales | (610.6) | (555.3) | (1,824.9) | (1,666.8) | |||||||||||||||||||
| Gross profit | 845.4 | 745.7 | 2,470.9 | 2,213.1 | |||||||||||||||||||
| Operating costs: | |||||||||||||||||||||||
| Selling, general and administrative expenses | (491.3) | (455.6) | (1,456.8) | (1,340.1) | |||||||||||||||||||
| Research and development expenses | (101.1) | (87.8) | (300.3) | (261.8) | |||||||||||||||||||
| Russia exit and wind down costs | (1.1) | — | (17.3) | — | |||||||||||||||||||
| Operating profit | 251.9 | 202.3 | 696.5 | 611.2 | |||||||||||||||||||
| Non-operating income (expense), net: | |||||||||||||||||||||||
| Interest expense, net | (26.4) | (25.1) | (66.2) | (78.0) | |||||||||||||||||||
| Loss on extinguishment of debt | — | — | — | (104.9) | |||||||||||||||||||
| Gain on investment in Vontier Corporation | — | — | — | 57.0 | |||||||||||||||||||
| Gain on litigation resolution | — | — | — | 26.0 | |||||||||||||||||||
| Other non-operating expense, net | (8.0) | (1.6) | (13.8) | (9.5) | |||||||||||||||||||
| Earnings from continuing operations before income taxes | 217.5 | 175.6 | 616.5 | 501.8 | |||||||||||||||||||
| Income taxes | (27.6) | (23.0) | (88.5) | (55.5) | |||||||||||||||||||
| Net earnings from continuing operations | 189.9 | 152.6 | 528.0 | 446.3 | |||||||||||||||||||
| Earnings (loss) from discontinued operations, net of income taxes | — | (0.3) | — | (2.9) | |||||||||||||||||||
| Net earnings | 189.9 | 152.3 | 528.0 | 443.4 | |||||||||||||||||||
| Mandatory convertible preferred dividends | — | — | — | (34.5) | |||||||||||||||||||
| Net earnings attributable to common stockholders | $ | 189.9 | $ | 152.3 | $ | 528.0 | $ | 408.9 | |||||||||||||||
| Net earnings per common share from continuing operations: | |||||||||||||||||||||||
| Basic | $ | 0.53 | $ | 0.42 | $ | 1.48 | $ | 1.19 | |||||||||||||||
| Diluted | $ | 0.53 | $ | 0.42 | $ | 1.46 | $ | 1.18 | |||||||||||||||
| Net earnings (loss) per share from discontinued operations: | |||||||||||||||||||||||
| Basic | $ | — | $ | — | $ | — | $ | (0.01) | |||||||||||||||
| Diluted | $ | — | $ | — | $ | — | $ | (0.01) | |||||||||||||||
| Net earnings per share: | |||||||||||||||||||||||
| Basic | $ | 0.53 | $ | 0.42 | $ | 1.48 | $ | 1.18 | |||||||||||||||
| Diluted | $ | 0.53 | $ | 0.42 | $ | 1.46 | $ | 1.17 | |||||||||||||||
| Average common stock and common equivalent shares outstanding: | |||||||||||||||||||||||
| Basic | 355.2 | 358.9 | 357.3 | 345.6 | |||||||||||||||||||
| Diluted | 357.9 | 362.2 | 362.0 | 348.8 | |||||||||||||||||||
| The sum of net earnings per share amounts may not add due to rounding. |
See the accompanying Notes to Consolidated Condensed Financial Statements.
FORTIVE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
($ in millions)
(unaudited)
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, 2022 | October 1, 2021 | September 30, 2022 | October 1, 2021 | ||||||||||||||||||||
| Net earnings | $ | 189.9 | $ | 152.3 | $ | 528.0 | $ | 443.4 | |||||||||||||||
| Other comprehensive income (loss), net of income taxes: | |||||||||||||||||||||||
| Foreign currency translation adjustments | (112.4) | (35.7) | (270.4) | (53.8) | |||||||||||||||||||
| Pension adjustments | 0.8 | 0.9 | 1.7 | 2.8 | |||||||||||||||||||
| Total other comprehensive income (loss), net of income taxes | (111.6) | (34.8) | (268.7) | (51.0) | |||||||||||||||||||
| Comprehensive income | $ | 78.3 | $ | 117.5 | $ | 259.3 | $ | 392.4 |
See the accompanying Notes to Consolidated Condensed Financial Statements.
FORTIVE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN EQUITY
($ and shares in millions)
(unaudited)
| Preferred Stock | Common Stock | Additional Paid-In Capital | Treasury Shares | Retained Earnings | Accumulated Other Comprehensive Loss | Noncontrolling Interests | |||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares Outstanding | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2021 | — | $ | — | 359.1 | $ | 3.6 | $ | 3,670.0 | $ | — | $ | 6,023.6 | $ | (185.0) | $ | 4.8 | |||||||||||||||||||||||||||||||||||||
| Adoption of ASU 2020-06 | — | — | — | — | (65.7) | — | 62.8 | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Balance, January 1, 2022 | — | — | 359.1 | 3.6 | 3,604.3 | — | 6,086.4 | (185.0) | 4.8 | ||||||||||||||||||||||||||||||||||||||||||||
| Net earnings for the period | — | — | — | — | — | — | 165.1 | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Dividends to common shareholders | — | — | — | — | — | — | (25.1) | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | — | — | — | (38.9) | — | ||||||||||||||||||||||||||||||||||||||||||||
| Common stock-based award activity | — | — | 0.5 | — | 23.8 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Common stock repurchases | — | — | (1.0) | — | — | (63.8) | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Shares withheld for taxes | — | — | (0.2) | — | (9.0) | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Change in noncontrolling interests | — | — | — | — | — | — | — | — | 0.5 | ||||||||||||||||||||||||||||||||||||||||||||
| Balance, April 1, 2022 | — | $ | — | 358.4 | $ | 3.6 | $ | 3,619.1 | $ | (63.8) | $ | 6,226.4 | $ | (223.9) | $ | 5.3 | |||||||||||||||||||||||||||||||||||||
| Net earnings for the period | — | — | — | — | — | — | 173.0 | $ | — | $ | — | ||||||||||||||||||||||||||||||||||||||||||
| Dividends to common shareholders | — | — | — | — | — | — | (24.9) | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | — | — | — | (118.2) | — | ||||||||||||||||||||||||||||||||||||||||||||
| Common stock-based award activity | — | — | 0.2 | — | 32.7 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Common stock repurchases | — | — | (3.0) | — | — | (179.1) | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Shares withheld for taxes | — | — | — | — | (0.6) | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Change in noncontrolling interests | — | — | — | — | — | — | — | — | (0.2) | ||||||||||||||||||||||||||||||||||||||||||||
| Balance, July 1, 2022 | — | $ | — | 355.6 | $ | 3.6 | $ | 3,651.2 | $ | (242.9) | $ | 6,374.5 | $ | (342.1) | $ | 5.1 | |||||||||||||||||||||||||||||||||||||
| Net earnings for the period | — | — | — | — | — | — | 189.9 | $ | — | $ | — | ||||||||||||||||||||||||||||||||||||||||||
| Dividends to common shareholders | — | — | — | — | — | — | (24.8) | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | — | — | — | (111.6) | — | ||||||||||||||||||||||||||||||||||||||||||||
| Common stock-based award activity | — | — | 0.2 | — | 28.3 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Common stock repurchases | — | — | (2.0) | — | — | (133.2) | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Shares withheld for taxes | — | — | — | — | (2.1) | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Change in noncontrolling interests | — | — | — | — | — | — | — | — | (0.2) | ||||||||||||||||||||||||||||||||||||||||||||
| Balance, September 30, 2022 | — | $ | — | 353.8 | $ | 3.6 | $ | 3,677.4 | $ | (376.1) | $ | 6,539.6 | $ | (453.7) | $ | 4.9 | |||||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Additional Paid-In Capital | Treasury Shares | Retained Earnings | Accumulated Other Comprehensive Loss | Noncontrolling Interests | |||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares Outstanding | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2020 | 1.4 | $ | — | 339.0 | $ | 3.4 | $ | 3,554.5 | $ | — | $ | 5,547.4 | $ | (141.1) | $ | 8.5 | |||||||||||||||||||||||||||||||||||||
| Net earnings for the period | — | — | — | — | — | — | 110.2 | ||||||||||||||||||||||||||||||||||||||||||||||
| Dividends to common shareholders | — | — | — | — | — | — | (23.7) | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Mandatory convertible preferred stock cumulative dividends | — | — | — | — | — | — | (17.3) | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | — | — | — | (33.7) | — | ||||||||||||||||||||||||||||||||||||||||||||
| Common stock-based award activity | — | — | (0.4) | — | 34.1 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Shares withheld for tax | — | — | (0.1) | — | (13.2) | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Early extinguishment of 0.875% convertible senior notes due 2022 | — | — | — | — | (11.6) | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Change in noncontrolling interest | — | — | — | — | — | — | — | — | (0.8) | ||||||||||||||||||||||||||||||||||||||||||||
| Balance, April 2, 2021 | 1.4 | $ | — | 338.5 | $ | 3.4 | $ | 3,563.8 | $ | — | $ | 5,616.6 | $ | (174.8) | $ | 7.7 | |||||||||||||||||||||||||||||||||||||
| Net earnings for the period | — | — | — | — | — | — | 180.9 | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Dividends to common shareholders | — | — | — | — | — | — | (23.7) | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Mandatory convertible preferred stock cumulative dividends | — | — | — | — | — | — | (17.2) | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | — | — | 17.5 | — | ||||||||||||||||||||||||||||||||||||||||||||
| Common stock-based award activity | — | — | 0.6 | — | 35.9 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Shares withheld for tax | — | — | (0.1) | — | (0.6) | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Conversion of Mandatory convertible preferred stock to common stock | (1.4) | — | 19.4 | 0.2 | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Change in noncontrolling interests | — | — | — | — | 3.0 | — | — | — | (3.0) | ||||||||||||||||||||||||||||||||||||||||||||
| Balance, July 2, 2021 | — | $ | — | 358.4 | $ | 3.6 | $ | 3,602.1 | $ | — | $ | 5,756.6 | $ | (157.3) | $ | 4.7 | |||||||||||||||||||||||||||||||||||||
| Net earnings for the period | — | — | — | — | — | — | 152.3 | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Dividends to common shareholders | — | — | — | — | — | — | (25.2) | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | — | — | — | (34.8) | — | ||||||||||||||||||||||||||||||||||||||||||||
| Common stock-based award activity | — | — | 0.2 | — | 27.6 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Shares withheld for tax | — | — | — | — | (1.6) | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Change in noncontrolling interests | — | — | — | — | (3.8) | — | — | — | 0.1 | ||||||||||||||||||||||||||||||||||||||||||||
| Balance, October 1, 2021 | — | $ | — | 358.6 | $ | 3.6 | $ | 3,624.3 | $ | — | $ | 5,883.7 | $ | (192.1) | $ | 4.8 | |||||||||||||||||||||||||||||||||||||
See the accompanying Notes to Consolidated Condensed Financial Statements.
FORTIVE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
($ in millions)
(unaudited)
| Nine Months Ended | |||||||||||
| September 30, 2022 | October 1, 2021 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net earnings from continuing operations | $ | 528.0 | $ | 446.3 | |||||||
| Noncash items: | |||||||||||
| Amortization | 287.4 | 235.4 | |||||||||
| Depreciation | 61.6 | 56.1 | |||||||||
| Stock-based compensation expense | 67.9 | 55.2 | |||||||||
| Russia exit and wind down costs | 9.2 | — | |||||||||
| Loss on extinguishment of debt | — | 104.2 | |||||||||
| Gain on investment in Vontier Corporation | — | (57.0) | |||||||||
| Gain on litigation resolution | — | (26.0) | |||||||||
| Change in trade accounts receivable, net | (21.4) | (20.4) | |||||||||
| Change in inventories | (73.2) | (46.1) | |||||||||
| Change in trade accounts payable | 46.6 | 14.8 | |||||||||
| Change in prepaid expenses and other assets | (55.4) | (61.5) | |||||||||
| Change in accrued expenses and other liabilities | (11.7) | 4.9 | |||||||||
| Total operating cash provided by continuing operations | 839.0 | 705.9 | |||||||||
| Total operating cash used in discontinued operations | — | (19.4) | |||||||||
| Net cash provided by operating activities | 839.0 | 686.5 | |||||||||
| Cash flows from investing activities: | |||||||||||
| Cash paid for acquisitions, net of cash received | (15.2) | (1,156.7) | |||||||||
| Payments for additions to property, plant and equipment | (59.7) | (28.0) | |||||||||
| Proceeds from sale of business | 6.6 | — | |||||||||
| All other investing activities | — | 1.1 | |||||||||
| Net cash used in investing activities | (68.3) | (1,183.6) | |||||||||
| Cash flows from financing activities: | |||||||||||
| Proceeds from borrowings (maturities greater than 90 days), net of issuance costs | 396.9 | — | |||||||||
| Net proceeds from commercial paper borrowings | 381.3 | 215.0 | |||||||||
| Payment of 0.875% convertible senior notes due 2022 | (1,156.5) | — | |||||||||
| Repurchase of common shares | (376.1) | — | |||||||||
| Payment of common stock cash dividend to shareholders | (74.8) | (72.6) | |||||||||
| Repayment of borrowings (maturities greater than 90 days) | — | (611.1) | |||||||||
| Payment of mandatory convertible preferred stock cash dividend to shareholders | — | (34.5) | |||||||||
| All other financing activities | (9.2) | 18.1 | |||||||||
| Net cash used in financing activities | (838.4) | (485.1) | |||||||||
| Effect of exchange rate changes on cash and equivalents | (46.3) | (4.2) | |||||||||
| Net change in cash and equivalents | (114.0) | (986.4) | |||||||||
| Beginning balance of cash and equivalents | 819.3 | 1,824.8 | |||||||||
| Ending balance of cash and equivalents | $ | 705.3 | $ | 838.4 |
See the accompanying Notes to Consolidated Condensed Financial Statements.
FORTIVE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 1. BUSINESS OVERVIEW
Fortive Corporation (“Fortive,” “the Company,” “we,” “us,” or “our”) is a provider of essential technologies for connected workflow solutions across a range of attractive end-markets. Our strategic segments - Intelligent Operating Solutions, Precision Technologies, and Advanced Healthcare Solutions - include well-known brands with leading positions in their markets. Our businesses design, develop, manufacture, and service professional and engineered products, software, and services, building upon leading brand names, innovative technologies, and significant market positions. Our research and development, manufacturing, sales, distribution, service, and administrative facilities are located in more than 50 countries around the world.
We prepared the unaudited consolidated condensed financial statements included herein in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) applicable for interim periods. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted pursuant to such rules and regulations; however, we believe the disclosures are adequate to make the information presented not misleading. The consolidated condensed financial statements included herein should be read in conjunction with the audited annual consolidated financial statements as of and for the year ended December 31, 2021 and the footnotes (“Notes”) thereto included within our 2021 Annual Report on Form 10-K.
In our opinion, the accompanying financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to fairly present our financial position as of September 30, 2022 and December 31, 2021, our results of operations, comprehensive income, and stockholders’ equity for the three and nine month periods ended September 30, 2022 and October 1, 2021, and cash flows for the nine month periods ended September 30, 2022 and October 1, 2021. Reclassification of certain prior year amounts have been made to conform to current year presentation.
Additionally, in the fourth quarter of 2021, Fortive adopted ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The amendments in this update required that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, rather than at fair value as previously required under Topic 805. The amendments have been applied to all business combinations that occurred on or after January 1, 2021. The adoption only impacted the ServiceChannel acquisition which occurred in Q3 2021. Amounts previously reported for the three and nine month periods ended October 1, 2021 were retroactively adjusted to reflect a $1.5 million increase in both revenue and earnings as a result of the adoption of this pronouncement.
Vontier Separation and Discontinued Operations
On October 9, 2020, we completed the separation of Vontier Corporation (“Vontier”), the entity we created to hold our former Industrial Technologies segment (the “Separation”). The accounting requirements for reporting the Vontier business as a discontinued operation were met when the Separation was completed. Accordingly, the consolidated condensed financial statements reflect the results of separation activities associated with the prior Vontier business as a discontinued operation, which was immaterial for all periods presented.
On January 19, 2021, we completed an exchange (the “Debt-for-Equity Exchange”) of 33.5 million 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. Interest expense and extinguishment costs related to the Debt-for-Equity Exchange during the first quarter of 2021 are included in continuing operations.
Russia Ukraine Conflict
In February 2022, Russian forces invaded Ukraine (“Russia Ukraine Conflict”) resulting in broad economic sanctions being imposed on Russia. In the second quarter of 2022, the Company exited business operations in Russia, other than for ASP’s sterilization products, which are exempt from international sanctions as humanitarian products. Our business in Russia and Ukraine accounted for less than 1% of total revenue and less than 0.2% of total assets for the fiscal year ended December 31, 2021.
In the three and nine month periods ended September 30, 2022, the Company recorded pre-tax charges of $1.1 million and $17.3 million, respectively, primarily relating to the write-off of net assets, the write-off of the cumulative translation adjustment in earnings for legal entities deemed substantially liquidated, and to record provisions for employee severance and legal contingencies. These costs are identified as the “Russia exit and wind down costs” in the Condensed Consolidated Statements of Earnings. The total costs expected to be incurred in connection with the Russia exit are $18.4 million.
Accumulated Other Comprehensive Income (Loss)
Foreign currency translation adjustments are generally not adjusted for income taxes as they relate to indefinite investments in non-U.S. subsidiaries. During the second quarter of 2022, we designated our ¥14.4 billion Yen-denominated variable interest rate term loan and our €275 million Euro-denominated variable interest rate term loan outstanding as net investment hedges of our investment in certain foreign operations.
During the three and nine month periods ended September 30, 2022, we recognized after-tax foreign currency transaction gains of $14.6 million and $18.3 million, respectively, on the debt that were deferred in the foreign currency translation component of Accumulated other comprehensive income (loss) (“AOCI”) as an offset to the foreign currency translation adjustments on our investments in foreign subsidiaries. Any amounts deferred in AOCI will remain until the hedged investment is sold or substantially liquidated. We recorded no ineffectiveness from our net investment hedges during the three and nine month periods ended September 30, 2022.
The changes in AOCI by component are summarized below ($ in millions):
| Foreign currency translation adjustments | Pension adjustments (a) | Total | |||||||||||||||
| For the Three Months Ended September 30, 2022: | |||||||||||||||||
| Balance, July 1, 2022 | $ | (280.7) | $ | (61.4) | $ | (342.1) | |||||||||||
| Other comprehensive income (loss) before reclassifications, net of income taxes | (112.4) | — | (112.4) | ||||||||||||||
| Amounts reclassified from accumulated other comprehensive income (loss): | |||||||||||||||||
| Increase (decrease) | — | 1.2 | (b) | 1.2 | |||||||||||||
| Income tax impact | — | (0.4) | (0.4) | ||||||||||||||
| Amounts reclassified from accumulated other comprehensive income (loss), net of income taxes | — | 0.8 | 0.8 | ||||||||||||||
| Net current period other comprehensive income (loss), net of income taxes | (112.4) | 0.8 | (111.6) | ||||||||||||||
| Balance, September 30, 2022 | $ | (393.1) | $ | (60.6) | $ | (453.7) | |||||||||||
| For the Three Months Ended October 1, 2021: | |||||||||||||||||
| Balance, July 2, 2021 | $ | (72.1) | $ | (85.2) | $ | (157.3) | |||||||||||
| Other comprehensive income (loss) before reclassifications, net of income taxes | (35.7) | — | (35.7) | ||||||||||||||
| Amounts reclassified from accumulated other comprehensive income (loss): | |||||||||||||||||
| Increase (decrease) | — | 1.2 | (b) | 1.2 | |||||||||||||
| Income tax impact | — | (0.3) | (0.3) | ||||||||||||||
| Amounts reclassified from accumulated other comprehensive income (loss), net of income taxes | — | 0.9 | 0.9 | ||||||||||||||
| Net current period other comprehensive income (loss), net of income taxes | (35.7) | 0.9 | (34.8) | ||||||||||||||
| Balance, October 1, 2021 | $ | (107.8) | $ | (84.3) | $ | (192.1) | |||||||||||
| Foreign currency translation adjustments | Pension adjustments (a) | Total | |||||||||||||||
| For the Nine Months Ended September 30, 2022: | |||||||||||||||||
| Balance, December 31, 2021 | $ | (122.7) | $ | (62.3) | $ | (185.0) | |||||||||||
| Other comprehensive income (loss) before reclassifications, net of income taxes | (273.1) | — | (273.1) | ||||||||||||||
| Amounts reclassified from accumulated other comprehensive income (loss): | |||||||||||||||||
| Increase (decrease) | 2.7 | 2.3 | (b) | 5.0 | |||||||||||||
| Income tax impact | — | (0.6) | (0.6) | ||||||||||||||
| Amounts reclassified from accumulated other comprehensive income (loss), net of income taxes | 2.7 | 1.7 | 4.4 | ||||||||||||||
| Net current period other comprehensive income (loss) | (270.4) | 1.7 | (268.7) | ||||||||||||||
| Balance, September 30, 2022 | $ | (393.1) | $ | (60.6) | $ | (453.7) | |||||||||||
| For the Nine Months Ended October 1, 2021: | |||||||||||||||||
| Balance, December 31, 2020 | $ | (54.0) | $ | (87.1) | $ | (141.1) | |||||||||||
| Other comprehensive income (loss) before reclassifications, net of income taxes | (53.8) | — | (53.8) | ||||||||||||||
| Amounts reclassified from accumulated other comprehensive income (loss): | |||||||||||||||||
| Increase (decrease) | — | 3.7 | (b) | 3.7 | |||||||||||||
| Income tax impact | — | (0.9) | (0.9) | ||||||||||||||
| Amounts reclassified from accumulated other comprehensive income (loss), net of income taxes | — | 2.8 | 2.8 | ||||||||||||||
| Net current period other comprehensive income (loss) | (53.8) | 2.8 | (51.0) | ||||||||||||||
| Balance, October 1, 2021 | $ | (107.8) | $ | (84.3) | $ | (192.1) | |||||||||||
| (a) Includes balances relating to defined benefit plans, supplemental executive retirement plans, and other postretirement employee benefit plans. | |||||||||||||||||
| (b) This component of AOCI is included in the computation of net periodic pension cost (refer to Note 12 in our most recently filed Form 10-K for additional details). |
Allowances for Doubtful Accounts
All trade accounts and unbilled receivables are reported in the Consolidated Condensed Balance Sheet adjusted for any write-offs and net of allowances for credit losses. The allowances for credit losses represent management’s best estimate of the credit losses expected from our unbilled and trade accounts receivable portfolios over the life of the underlying assets. Additions to the allowances are charged to current period earnings, amounts determined to be uncollectible are charged directly against the allowances, while amounts recovered on previously written-off accounts increase the allowances.
The following is a roll forward of the aggregated allowance for credit losses related to our trade accounts receivables as of September 30, 2022 ($ in millions):
| Balance, December 31, 2021 | $ | 39.7 | |||
| Provision | 10.9 | ||||
| Write-offs | (7.7) | ||||
| Foreign currency exchange and other | (1.4) | ||||
| Balance, September 30, 2022 | $ | 41.5 |
The allowance for unbilled receivables was immaterial for all periods presented.
Recently Issued Accounting Standard
In August 2020, the Financial Accounting Standards Board issued Accounting Standards Update No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic
815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which amends the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity. On January 1, 2022, we adopted ASU 2020-06 using a modified retrospective approach and recognized in our balance sheet, as of January 1, 2022, a net of tax adjustment to reduce Additional Paid-in Capital by $65.7 million and increase debt by $3.7 million, with a corresponding net of tax adjustment to beginning retained earnings of $62.8 million. These adjustments are related to our 0.875% Convertible Senior Notes (the “Convertible Notes”), which were the only outstanding instruments impacted by the new standard at the time of adoption.
Results for reporting periods beginning January 1, 2022 reflect the adoption of ASU 2020-06, while prior period amounts were not adjusted and continue to be reported in accordance with our historical accounting practices.
Prior to our adoption of ASU 2020-06 on January 1, 2022, we recognized the fair value of the nonconvertible debt component of our Convertible Notes subject to the cash conversion guidance as debt and attributed the residual value to the conversion feature which was recognized in APIC. Subsequent to the issuance of our Convertible Notes in February 2019, we accreted the debt discount as non-cash interest expense in our Statements of Earnings. Further, we applied the treasury stock method to our Convertible Notes when calculating earnings per share (“EPS”) in all periods prior to our adoption of ASU 2020-06. After our adoption of ASU 2020-06, we account for convertible debt instruments wholly as debt, unless a convertible instrument contains features that require bifurcation as a derivative under ASC 815 or a convertible debt instrument is issued at a substantial premium.
On January 1, 2022, we reclassified the unamortized cost basis of our outstanding Convertible Notes wholly as debt, which subsequently matured and was settled on February 15, 2022. We applied the if-converted method to all convertible instruments when calculating EPS for the nine months ended September 30, 2022. As of September 30, 2022, we had no convertible instruments outstanding subject to the guidance in ASU 2020-06.
NOTE 2. ACQUISITIONS AND DIVESTITURES
We continually evaluate potential mergers, acquisitions, and divestitures that align with our strategy and expedite the evolution of our portfolio of businesses into new and attractive areas. We have completed a number of acquisitions that have been accounted for as purchases of businesses and resulted in the recognition of goodwill in our financial statements. This goodwill arises because the purchase price for each acquired business reflects a number of factors, including the complementary fit, acceleration of our strategy and synergies the business brings with respect to our existing operations, the future earnings and cash flow potential of the business, the potential to add other strategically complementary acquisitions to the acquired business, the scarce or unique nature of the business in its markets, competition to acquire the business, the valuation of similar businesses in the marketplace (as reflected in a multiple of revenues, earnings, or cash flows), and the avoidance of the time and costs which would be required (and the associated risks that would be encountered) to enhance our existing offerings to key target markets and develop new and profitable businesses.
Acquisitions
During the three and nine month periods ended September 30, 2022, insignificant adjustments were made to the purchase price allocation of prior year acquisitions, which are shown in Note 3.
Provation
On December 27, 2021, we acquired Provation Software, Inc. (“Provation”), a leading provider of clinical workflow software solutions used in hospitals and ambulatory surgery centers. The acquisition of Provation extends our digital offering and software capabilities in the healthcare space. The total consideration paid was approximately $1.4 billion, net of acquired cash and was primarily financed with proceeds from our financing activities and available cash. We recorded $977 million of goodwill related to the acquisition, which is not tax deductible. Provation had revenue in 2020 of approximately $90 million and is an operating company within our Advanced Healthcare Solutions segment.
ServiceChannel
On August 24, 2021, we acquired ServiceChannel Holdings, Inc. (“ServiceChannel”), a privately held, global provider of Software as a Service (“SaaS”) based multi-site facilities maintenance service solutions with an integrated service-provider network. The acquisition of ServiceChannel broadens our offering of software-enabled solutions for the facility and asset lifecycle workflow. The total consideration paid was approximately $1.2 billion, net of acquired cash, and included approximately $28 million of deferred compensation consideration that was recognized ratably over a twelve month service period. The ServiceChannel acquisition was primarily financed with available cash and proceeds from our financing activities. We recorded approximately $868 million of goodwill related to the acquisition, which is not tax deductible. ServiceChannel
had revenue in 2020 of approximately $70 million and is an operating company within our Intelligent Operating Solutions segment.
Revenue and operating losses attributable to the Provation and ServiceChannel acquisitions were $198.0 million and $38.0 million for the nine month period ended September 30, 2022. The operating losses include $57.9 million of intangible asset amortization and $18.8 million of transaction and integration costs, which were primarily comprised of employee compensation and retention costs and amounts paid to third party advisors, and are recorded in Selling, general and administration expenses, respectively.
The following table summarizes the estimated fair value of the assets acquired and liabilities assumed from ServiceChannel and Provation as of September 30, 2022 ($ in millions):
| Provation | ServiceChannel | Total | |||||||||||||||||||||||||||
| Accounts receivable | $ | 41.6 | $ | 10.1 | $ | 51.7 | |||||||||||||||||||||||
| Goodwill | 976.7 | 867.6 | 1,844.3 | ||||||||||||||||||||||||||
| Other intangible assets, primarily customer relationships, technology, database, and trade names | 586.5 | 342.9 | 929.4 | ||||||||||||||||||||||||||
| Deferred revenue, current | (50.2) | (1.7) | (51.9) | ||||||||||||||||||||||||||
| Deferred tax liabilities | (119.4) | (41.9) | (161.3) | ||||||||||||||||||||||||||
| Other assets and liabilities, net | (30.5) | (10.7) | (41.2) | ||||||||||||||||||||||||||
| Net cash consideration | $ | 1,404.7 | $ | 1,166.3 | $ | 2,571.0 |
Divestitures
On September 30, 2022, we completed the sale of our Therapy Physics product line, which was reported in our Advanced Healthcare Solutions segment, to an unrelated third party for total consideration of $9.6 million. As a result of the sale, in the three and nine month periods ended September 30, 2022, we recorded a net realized pre-tax gain totaling $2.3 million, net of transaction costs, which is recorded as “Other non-operating expense, net” in the Consolidated Condensed Statements of Earnings. The divested business accounted for less than 1.0% of total revenue and less than 1.0% of total assets for the fiscal year ended December 31, 2021. The divestiture of this product line did not represent a strategic shift with a major effect on the Company’s operations and financial results and therefore the divested product line is not reported as a discontinued operation.
NOTE 3. GOODWILL
The following is a roll forward of our carrying value of goodwill by segment ($ in millions):
| Intelligent Operating Solutions | Precision Technologies | Advanced Healthcare Solutions | Total Goodwill | ||||||||||||||||||||
| Balance, December 31, 2021 | $ | 4,126.0 | $ | 1,840.0 | $ | 3,186.0 | $ | 9,152.0 | |||||||||||||||
| Measurement period adjustments for 2021 acquisitions | (5.9) | — | 8.4 | 2.5 | |||||||||||||||||||
| Attributable to 2022 acquisitions and divestitures | — | 0.7 | (2.6) | (1.9) | |||||||||||||||||||
| Foreign currency translation and other | (79.1) | (57.7) | (38.3) | (175.1) | |||||||||||||||||||
| Balance, September 30, 2022 | $ | 4,041.0 | $ | 1,783.0 | $ | 3,153.5 | $ | 8,977.5 |
NOTE 4. FAIR VALUE MEASUREMENTS
Accounting standards define fair value based on an exit price model, establish a framework for measuring fair value where our assets and liabilities are required to be carried at fair value, and provide for certain disclosures related to the valuation methods used within a valuation hierarchy as established within the accounting standards. This hierarchy prioritizes the inputs into three broad levels as follows:
-
Level 1 inputs are quoted prices (unadjusted) for identical assets or liabilities in active markets.
-
Level 2 inputs are quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets in markets that are not active, or other observable characteristics for the asset or liability, including interest rates, yield curves and credit risks, or inputs that are derived principally from, or corroborated by, observable market data through correlation.
-
Level 3 inputs are unobservable inputs based on our assumptions. The classification of a financial asset or liability within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement in its entirety.
Below is a summary of financial liabilities that are measured at fair value on a recurring basis ($ in millions):
| Quoted Prices in Active Market (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | ||||||||||||||||||||
| September 30, 2022 | |||||||||||||||||||||||
| Deferred compensation liabilities | $ | — | $ | 29.7 | $ | — | $ | 29.7 | |||||||||||||||
| December 31, 2021 | |||||||||||||||||||||||
| Deferred compensation liabilities | — | 36.0 | — | 36.0 |
Certain management employees participate in our nonqualified deferred compensation programs that permit such employees to defer a portion of their compensation, on a pretax basis, until after their termination of employment. All amounts deferred under such plans are unfunded, unsecured obligations and are presented as a component of our compensation and benefits accrual included in Other long-term liabilities in the Consolidated Condensed Balance Sheets. Participants may choose among alternative earnings rates for the amounts they defer, which are primarily based on investment options within our defined contribution plans for the benefit of U.S. employees (except that the earnings rates for amounts contributed unilaterally by the Company are entirely based on changes in the value of Fortive common stock). Changes in the deferred compensation liability under these programs are recognized based on changes in the fair value of the participants’ accounts, which are based on the applicable earnings rates.
Non-recurring Fair Value Measurements
Certain non-financial assets, primarily property, plant, and equipment, goodwill, and intangible assets, are not required to be measured at fair value on a recurring basis and are reported at their carrying value. However, these assets are required to be assessed for impairment whenever events or circumstances indicate that their carrying value may not be fully recoverable, and at least annually for goodwill and indefinite-lived intangible assets.
We evaluated events and circumstances that, as of September 30, 2022, indicated the carrying value of an equity investment in a third-party entity held by our Intelligent Operating Solutions segment was no longer recoverable. As a result, in the three and nine month periods ended September 30, 2022, we recorded a pre-tax impairment loss of $8.1 million to write down the investment to fair value. The loss was recorded in “Other non-operating expense, net” in our Consolidated Condensed Statement of Earnings.
Fair Value of Financial Instruments
The carrying amount and fair value of financial instruments are as follows ($ in millions):
| September 30, 2022 | December 31, 2021 | ||||||||||||||||||||||
| Carrying Amount | Fair Value | Carrying Amount | Fair Value | ||||||||||||||||||||
| Current portion of long-term debt | $ | 999.9 | $ | 1,000.0 | $ | 2,151.7 | $ | 2,158.3 | |||||||||||||||
| Long-term debt, net of current maturities | 2,559.0 | 2,381.0 | 1,807.3 | 1,978.9 |
As of September 30, 2022 and December 31, 2021, the current portion of long-term debt and long-term debt, net of current maturities were categorized as Level 1.
The fair values of long-term borrowings were based on quoted market prices. The difference between the fair value and the carrying amounts of long-term borrowings may be attributable to changes in market interest rates and/or our credit ratings subsequent to the borrowing. The fair value of cash and cash equivalents, trade accounts receivable, net, trade accounts payable, and commercial paper approximates their carrying value due to the short-term maturities of these instruments.
NOTE 5. FINANCING AND CAPITAL
The carrying value of the components of our long-term debt were as follows ($ in millions):
| September 30, 2022 | December 31, 2021 | |||||||||||||
| U.S. dollar-denominated commercial paper | $ | 747.3 | $ | 364.9 | ||||||||||
| Delayed-Draw Term Loan due 2022 | 999.9 | 999.7 | ||||||||||||
| Yen Term Loan due 2025 | 99.5 | — | ||||||||||||
| Euro Term Loan due 2025 | 269.0 | — | ||||||||||||
| 3.15% senior unsecured notes due 2026 | 895.9 | 895.1 | ||||||||||||
| 4.30% senior unsecured notes due 2046 | 547.3 | 547.3 | ||||||||||||
| 0.875% senior convertible notes due 2022 | — | 1,152.0 | ||||||||||||
| Long-term debt | 3,558.9 | 3,959.0 | ||||||||||||
| Less: current portion of long-term debt | 999.9 | 2,151.7 | ||||||||||||
| Long-term debt, net of current maturities | $ | 2,559.0 | $ | 1,807.3 | ||||||||||
Aggregate unamortized debt discounts, premiums, and issuance costs of $8.1 million and $13.0 million as of September 30, 2022 and December 31, 2021, respectively, are netted against the principal amounts of the components of debt in the table above. Refer to Note 11 of our 2021 Annual Report on Form 10-K for further details of our debt financing.
Yen Term Loan
On June 17, 2022, we entered into a three-year, ¥14.4 billion senior unsecured term facility (“Yen Term Loan”). On the same day, we drew and converted the entire available balance under the facility, which yielded net proceeds of $107 million. The Yen Term Loan is due on June 17, 2025 and is pre-payable at our option. The Yen Term Loan bears interest at a rate of Tokyo Term Risk Free Rate (“TORF”), plus 65 basis points; provided, however, that the TORF may not be less than zero for the Yen Term Loan.
Euro Term Loan
On June 21, 2022, we entered into a three-year €275 million senior unsecured term facility (“Euro Term Loan”). On June 28, 2022, we drew and converted the entire available balance under the facility, which yielded net proceeds of $290 million. The Euro Term Loan is due on June 23, 2025 and is pre-payable at our option. The Euro Term Loan bears interest at a rate of Euro Interbank Offered Rate (“Euribor”), plus 55 basis points; provided, however that the Euribor may not be less than zero for the Euro Term Loan.
Convertible Senior Notes
On February 22, 2019, we issued $1.4 billion in aggregate principal amount of our 0.875% Convertible Senior Notes due 2022, including $187.5 million in aggregate principal amount resulting from an exercise in full of an over-allotment option. The Convertible Notes were issued in a private placement to certain initial purchasers for resale to qualified institutional buyers pursuant to Rule 144A under the Securities Act.
Of the $1.4 billion in principal amount 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.
On February 9, 2021, we repurchased $281 million of the Convertible Notes at fair value using the remaining cash proceeds received from Vontier in the Vontier Separation and other cash on hand. In connection with the repurchase, we recorded a loss on debt extinguishment during the nine month period ended October 1, 2021 of $10.5 million. In addition, upon repurchase we recorded $11.6 million as a reduction to additional paid-in capital related to the equity component of the repurchased Convertible Notes.
On January 1, 2022, we adopted ASU 2020-06, as further detailed in Note 1. We reclassified the carrying value of the instrument wholly to debt, eliminating the value formerly attributable to the conversion feature and the associated debt issuance costs that were previously classified as equity.
On February 15, 2022, the maturity date of the Convertible Notes, Fortive repaid, in cash, $1.2 billion in outstanding principal and accrued interest thereon.
We recognized $2.1 million in interest expense during the nine month period ended September 30, 2022, of which $1.3 million was related to the contractual coupon rate of 0.875% and $0.8 million was attributable to the amortization of debt issuance costs for each respective period. We recognized $11.1 million and $34.5 million in interest expense during the three and nine month period ended October 1, 2021, of which $2.5 million and $7.9 million was related to the contractual coupon rate of 0.875%, $1.5 million and $4.7 million was attributable to the amortization of debt issuance costs, and $7.1 million and $21.9 million was attributable to the amortization of the discount for each respective period.
Other Liquidity Sources
We generally satisfy any short-term liquidity needs that are not met through operating cash flows and available cash primarily through issuances of commercial paper under our U.S. dollar and Euro-denominated commercial paper programs (“Commercial Paper Programs”). Under these programs, we may issue unsecured promissory notes with maturities not exceeding 397 and 183 days, respectively.
Interest expense on commercial paper is paid at maturity and is generally based on our credit ratings at the time of issuance and prevailing short-term interest rates.
The details of our outstanding Commercial Paper Programs as of September 30, 2022 were as follows ($ in millions):
| Carrying value | Annual effective rate | Weighted average remaining maturity (in days) | |||||||||||||||
| U.S. dollar-denominated commercial paper | $ | 747.3 | 3.19 | % | 29 |
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 our commercial paper programs, can also be used for working capital and other general corporate purposes. As of September 30, 2022, no borrowings were outstanding under the Revolving Credit Facility.
We classified our borrowings outstanding under the Commercial Paper Programs as Long-term debt in the accompanying Consolidated Condensed Balance Sheets as we had the intent and ability, as supported by availability under the Revolving Credit Facility, to refinance these borrowings for at least one year from the balance sheet date.
Debt-for-Equity Exchange
On January 19, 2021, we completed the Debt-for-Equity Exchange of 33.5 million 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. During the first quarter of 2021 we recognized a gain of $57.0 million related to the subsequent change in the fair value of the Retained Vontier Shares. We recorded a loss on extinguishment of the debt included in the Debt-for-Equity Exchange of $94.4 million in the nine month period ended October 1, 2021.
Subsequent Events
On October 18, 2022, we entered into a second amended and restated credit agreement (the “Amended and Restated Credit Agreement”) extending the availability period of the Revolving Credit Facility to October 18, 2027 with an additional two one year extension options at our request and with the consent of the lenders. The Amended and Restated Credit Agreement also contains an option permitting us to request an increase in the amounts available under the Revolving Credit Facility of up to an aggregate additional $1.0 billion.
We are obligated to pay an annual facility fee for the Revolving Credit Facility of between 6.5 and 15 basis points varying according to our long-term debt credit rating. Borrowings under the new Revolving Credit Facility in U.S Dollars bear interest at a rate equal, at our option, to either (1) Term Secured Overnight Financing Rate (“Term SOFR”), plus a 10 basis points Credit Spread Adjustment (“CSA”) plus a margin of between 68.5 and 110.0 basis points, depending on our long-term debt credit rating or (2) the highest of (a) the Federal funds rate plus 50 basis points, (b) the prime rate, (c) Term SOFR plus 100 basis points and (d) 1.0%, plus in each case a margin between zero and 10 basis points depending on our long-term debt credit rating.
In addition, beginning with our 2023 performance relative to our annual greenhouse gas reduction targets, the interest rate on any borrowings can increase or decrease by 4.0 basis points and the facility fee can increase or decrease by 1.0 basis points, for a maximum impact of an increase or decrease of 5.0 basis points.
The Amended and Restated Credit Agreement requires us to maintain a consolidated net leverage ratio of debt to consolidated EBITDA (as defined in the Credit Agreement) of less than 3.5 to 1.0. The maximum consolidated net leverage ratio will be increased to 4.0 to 1.0 for the four consecutive full fiscal quarters immediately following the consummation of any acquisition by us in which the purchase price exceeds $250 million. The Amended and Restated Credit Agreement also contains customary representations, warranties, conditions precedent, events of default, indemnities, and affirmative and negative covenants.
On October 18, 2022, we entered into a $1.0 billion delayed-draw senior unsecured term facility (“Delayed-Draw Term Loan Due 2023”). We intend to use proceeds of the Delayed-Draw Term Loan Due 2023 to repay the outstanding principal balance of the Delayed-Draw Term Loan Due 2022, which matures in December 2022. The Delayed-Draw Term Loan Due 2023 bears interest at a variable rate equal to Term SOFR plus a CSA of 10 basis points plus a spread of 82.5 basis points at our current credit rating. Borrowing under the Term Loan Due 2023 are prepayable at our option in whole or in part without premium or penalty and amounts borrowed may not be reborrowed once repaid.
Credit support for the Commercial Paper Program will continue to be provided by the Amended and Restated Credit Agreement.
NOTE 6. SALES
We derive revenue primarily from the sale of products and software, and services. Revenue is recognized when control of promised products or services is transferred to customers in an amount that reflects the consideration we expect to be entitled to in exchange for those products, software, or services.
Product sales include revenue from the sale of products and equipment, which includes our software and SaaS product offerings and equipment rentals.
Service sales include revenues from extended warranties, post-contract customer support (“PCS”), maintenance contracts or services, contract labor to perform ongoing service at a customer location, and services related to previously sold products.
Contract Assets — In certain circumstances, we record contract assets which include unbilled amounts typically resulting from sales under contracts when revenue recognized exceeds the amount billed to the customer, and right to payment is not only subject to the passage of time. Contract assets were $84 million as of September 30, 2022 and $71 million as of December 31, 2021.
Contract Costs — We incur and capitalize direct incremental costs to obtain certain contracts, typically sales-related commissions and costs associated with assets used by our customers in certain software arrangements. Deferred sales-related commissions are not capitalized when the amortization period is one year or less, as we elected to use the practical expedient to expense these sales commissions as incurred. As of September 30, 2022 and December 31, 2021, we had $37 million and $27 million, respectively, in net revenue-related contract costs primarily related to certain software contracts. Revenue-related contract costs are recorded in the Prepaid expenses and other current assets and Other assets line items in our Consolidated Condensed Balance Sheets. These assets have estimated useful lives between three and eight years.
Contract Liabilities — Our contract liabilities consist of deferred revenue generally related to subscription-based software contracts, PCS and extended warranty sales, where in most cases we receive up-front payment and recognize revenue over the service or support term. The noncurrent portion of deferred revenue is included in Other long-term liabilities in the Consolidated Condensed Balance Sheets.
Our contract liabilities consisted of the following ($ in millions):
| September 30, 2022 | December 31, 2021 | ||||||||||
| Deferred revenue - current | $ | 472.2 | $ | 457.6 | |||||||
| Deferred revenue - noncurrent | 35.2 | 33.8 | |||||||||
| Total contract liabilities | $ | 507.4 | $ | 491.4 |
During the three and nine month period ended September 30, 2022, we recognized revenue related to our contract liabilities at December 31, 2021 of $63 million and $319 million, respectively. The change in our contract liabilities from December 31, 2021 to September 30, 2022 was primarily due to the timing of billings and recognition as revenue of subscription-based software contracts, PCS and extended warranty services.
Remaining Performance Obligations — Our remaining performance obligations represent the transaction price of firm, non-cancelable orders and the average contract value for software contracts, for which work has not been performed. We have excluded performance obligations with an original expected duration of one year or less from the amounts below.
The aggregate remaining performance obligations attributable to each of our segments is as follows ($ in millions):
| September 30, 2022 | |||||
| Intelligent Operating Solutions | $ | 584.2 | |||
| Precision Technologies | 50.4 | ||||
| Advanced Healthcare Solutions | 68.5 | ||||
| Total remaining performance obligations | $ | 703.1 |
The majority of remaining performance obligations are related to service and support contracts, which we expect to fulfill approximately 80 percent within the next two years, approximately 90 percent within the next three years, and substantially all within four years.
Disaggregation of Revenue
We disaggregate revenue from contracts with customers by sales of products and software and services, geographic location, and end market for each of our segments, as we believe it best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors.
Disaggregation of revenue for the three month period ended September 30, 2022 is presented as follows ($ in millions):
| Total | Intelligent Operating Solutions | Precision Technologies | Advanced Healthcare Solutions | ||||||||||||||||||||
| Sales: | |||||||||||||||||||||||
| Sales of products and software | $ | 1,227.7 | $ | 519.2 | $ | 467.3 | $ | 241.2 | |||||||||||||||
| Sales of services | 228.3 | 94.5 | 56.4 | 77.4 | |||||||||||||||||||
| Total | $ | 1,456.0 | $ | 613.7 | $ | 523.7 | $ | 318.6 | |||||||||||||||
| Geographic: | |||||||||||||||||||||||
| United States | $ | 799.0 | $ | 342.0 | $ | 267.8 | $ | 189.2 | |||||||||||||||
| China | 186.0 | 56.6 | 102.6 | 26.8 | |||||||||||||||||||
| All other (each country individually less than 5% of total sales) | 471.0 | 215.1 | 153.3 | 102.6 | |||||||||||||||||||
| Total | $ | 1,456.0 | $ | 613.7 | $ | 523.7 | $ | 318.6 | |||||||||||||||
| End markets:****(a) | |||||||||||||||||||||||
| Direct sales: | |||||||||||||||||||||||
| Healthcare | $ | 354.1 | $ | 11.1 | $ | 42.1 | $ | 300.9 | |||||||||||||||
| Industrial & Manufacturing | 334.5 | 217.6 | 111.3 | 5.6 | |||||||||||||||||||
| Utilities & Power | 93.1 | 45.5 | 47.6 | — | |||||||||||||||||||
| Government | 122.7 | 65.5 | 48.7 | 8.5 | |||||||||||||||||||
| Communications, Electronics & Semiconductor | 111.3 | 24.5 | 86.4 | 0.4 | |||||||||||||||||||
| Aerospace & Defense | 66.9 | 0.1 | 66.8 | — | |||||||||||||||||||
| Oil & Gas | 66.4 | 65.3 | 1.1 | — | |||||||||||||||||||
| Retail & Consumer | 83.9 | 61.7 | 22.2 | — | |||||||||||||||||||
| Other | 166.3 | 91.2 | 75.1 | — | |||||||||||||||||||
| Total direct sales | 1,399.2 | 582.5 | 501.3 | 315.4 | |||||||||||||||||||
| Distributors | 56.8 | 31.2 | 22.4 | 3.2 | |||||||||||||||||||
| Total | $ | 1,456.0 | $ | 613.7 | $ | 523.7 | $ | 318.6 | |||||||||||||||
| (a) Direct sales by end market include sales made through third-party distributors where we have visibility into the end customer. | |||||||||||||||||||||||
Disaggregation of revenue for the three month period ended October 1, 2021 is presented as follows ($ in millions):
| Total | Intelligent Operating Solutions | Precision Technologies | Advanced Healthcare Solutions | ||||||||||||||||||||
| Sales: | |||||||||||||||||||||||
| Sales of products and software | $ | 1,107.1 | $ | 464.2 | $ | 401.0 | $ | 241.9 | |||||||||||||||
| Sales of services | 193.9 | 72.7 | 54.7 | 66.5 | |||||||||||||||||||
| Total | $ | 1,301.0 | $ | 536.9 | $ | 455.7 | $ | 308.4 | |||||||||||||||
| Geographic: | |||||||||||||||||||||||
| United States | $ | 685.2 | $ | 285.3 | $ | 234.6 | $ | 165.3 | |||||||||||||||
| China | 154.8 | 48.8 | 75.8 | 30.2 | |||||||||||||||||||
| All other (each country individually less than 5% of total sales) | 461.0 | 202.8 | 145.3 | 112.9 | |||||||||||||||||||
| Total | $ | 1,301.0 | $ | 536.9 | $ | 455.7 | $ | 308.4 | |||||||||||||||
| End markets:****(a) | |||||||||||||||||||||||
| Direct sales: | |||||||||||||||||||||||
| Healthcare | $ | 327.6 | $ | 10.5 | $ | 30.7 | $ | 286.4 | |||||||||||||||
| Industrial & Manufacturing | 313.5 | 204.4 | 103.2 | 5.9 | |||||||||||||||||||
| Utilities & Power | 97.3 | 55.3 | 42.0 | — | |||||||||||||||||||
| Government | 100.1 | 54.6 | 33.4 | 12.1 | |||||||||||||||||||
| Communications, Electronics & Semiconductor | 103.4 | 30.6 | 72.3 | 0.5 | |||||||||||||||||||
| Aerospace & Defense | 60.6 | — | 60.6 | — | |||||||||||||||||||
| Oil & Gas | 64.6 | 62.4 | 2.2 | — | |||||||||||||||||||
| Retail & Consumer | 53.6 | 33.0 | 20.6 | — | |||||||||||||||||||
| Other | 117.7 | 56.5 | 61.1 | 0.1 | |||||||||||||||||||
| Total direct sales | 1,238.4 | 507.3 | 426.1 | 305.0 | |||||||||||||||||||
| Distributors | 62.6 | 29.6 | 29.6 | 3.4 | |||||||||||||||||||
| Total | $ | 1,301.0 | $ | 536.9 | $ | 455.7 | $ | 308.4 | |||||||||||||||
| (a) Direct sales by end market include sales made through third-party distributors where we have visibility into the end customer. |
Disaggregation of revenue for the nine month period ended September 30, 2022 is presented as follows ($ in millions):
| Total | Intelligent Operating Solutions | Precision Technologies | Advanced Healthcare Solutions | ||||||||||||||||||||
| Sales: | |||||||||||||||||||||||
| Sales of products and software | $ | 3,609.8 | $ | 1,553.9 | $ | 1,322.6 | $ | 733.3 | |||||||||||||||
| Sales of services | 686.0 | 277.5 | 162.6 | 245.9 | |||||||||||||||||||
| Total | $ | 4,295.8 | $ | 1,831.4 | $ | 1,485.2 | $ | 979.2 | |||||||||||||||
| Geographic: | |||||||||||||||||||||||
| United States | $ | 2,317.9 | $ | 1,005.0 | $ | 751.4 | $ | 561.5 | |||||||||||||||
| China | 514.1 | 160.6 | 273.5 | 80.0 | |||||||||||||||||||
| All other (each country individually less than 5% of total sales) | 1,463.8 | 665.8 | 460.3 | 337.7 | |||||||||||||||||||
| Total | $ | 4,295.8 | $ | 1,831.4 | $ | 1,485.2 | $ | 979.2 | |||||||||||||||
| End markets:****(a) | |||||||||||||||||||||||
| Direct sales: | |||||||||||||||||||||||
| Healthcare | $ | 1,077.2 | $ | 34.6 | $ | 120.5 | $ | 922.1 | |||||||||||||||
| Industrial & Manufacturing | 998.3 | 656.1 | 322.7 | 19.5 | |||||||||||||||||||
| Utilities & Power | 273.4 | 136.4 | 137.0 | — | |||||||||||||||||||
| Government | 338.5 | 177.6 | 134.8 | 26.1 | |||||||||||||||||||
| Communications, Electronics & Semiconductor | 301.2 | 74.6 | 225.2 | 1.4 | |||||||||||||||||||
| Aerospace & Defense | 187.0 | 0.4 | 186.6 | — | |||||||||||||||||||
| Oil & Gas | 199.8 | 193.4 | 6.4 | — | |||||||||||||||||||
| Retail & Consumer | 249.5 | 186.0 | 63.5 | — | |||||||||||||||||||
| Other | 478.7 | 268.8 | 209.8 | 0.1 | |||||||||||||||||||
| Total direct sales | 4,103.6 | 1,727.9 | 1,406.5 | 969.2 | |||||||||||||||||||
| Distributors | 192.2 | 103.5 | 78.7 | 10.0 | |||||||||||||||||||
| Total | $ | 4,295.8 | $ | 1,831.4 | $ | 1,485.2 | $ | 979.2 | |||||||||||||||
| (a) Direct sales by end market include sales made through third-party distributors where we have visibility into the end customer. |
Disaggregation of revenue for the nine month period ended October 1, 2021 is presented as follows ($ in millions):
| Total | Intelligent Operating Solutions | Precision Technologies | Advanced Healthcare Solutions | ||||||||||||||||||||
| Sales: | |||||||||||||||||||||||
| Sales of products and software | $ | 3,320.3 | $ | 1,395.6 | $ | 1,211.6 | $ | 713.1 | |||||||||||||||
| Sales of services | 559.6 | 194.0 | 163.4 | 202.2 | |||||||||||||||||||
| Total | $ | 3,879.9 | $ | 1,589.6 | $ | 1,375 | $ | 915.3 | |||||||||||||||
| Geographic: | |||||||||||||||||||||||
| United States | $ | 1,977.6 | $ | 810.2 | $ | 690.0 | $ | 477.4 | |||||||||||||||
| China | 482.6 | 162.0 | 234.3 | 86.3 | |||||||||||||||||||
| All other (each country individually less than 5% of total sales) | 1,419.7 | 617.4 | 450.7 | 351.6 | |||||||||||||||||||
| Total | $ | 3,879.9 | $ | 1,589.6 | $ | 1,375.0 | $ | 915.3 | |||||||||||||||
| End markets:****(a) | |||||||||||||||||||||||
| Direct sales: | |||||||||||||||||||||||
| Healthcare | $ | 983.0 | $ | 28.3 | $ | 99.6 | $ | 855.1 | |||||||||||||||
| Industrial & Manufacturing | 927.9 | 601.6 | 308.6 | 17.7 | |||||||||||||||||||
| Utilities & Power | 290.0 | 166.8 | 123.2 | — | |||||||||||||||||||
| Government | 287.0 | 150.7 | 105.7 | 30.6 | |||||||||||||||||||
| Communications, Electronics & Semiconductor | 288.8 | 90.9 | 196.2 | 1.7 | |||||||||||||||||||
| Aerospace & Defense | 181.7 | — | 181.7 | — | |||||||||||||||||||
| Oil & Gas | 194.6 | 186.9 | 7.7 | — | |||||||||||||||||||
| Retail & Consumer | 143.7 | 75.2 | 68.5 | — | |||||||||||||||||||
| Other | 379.9 | 184.3 | 195.5 | 0.1 | |||||||||||||||||||
| Total direct sales | 3,676.6 | 1,484.7 | 1,286.7 | 905.2 | |||||||||||||||||||
| Distributors | 203.3 | 104.9 | 88.3 | 10.1 | |||||||||||||||||||
| Total | $ | 3,879.9 | $ | 1,589.6 | $ | 1,375.0 | $ | 915.3 | |||||||||||||||
| (a) Direct sales by end market include sales made through third-party distributors where we have visibility into the end customer. |
NOTE 7. INCOME TAXES
Our effective tax rates for the three and nine month periods ended September 30, 2022 were 12.7% and 14.4%, respectively, as compared to 13.1% and 11.1%, respectively, for the three and nine month periods ended October 1, 2021. The year-over-year decrease in the effective tax rate for the three month period ended September 30, 2022 was relatively consistent as compared to the three month period ended October 1, 2021. The year-over-year increase in the effective tax rate for the nine month period ended September 30, 2022 as compared to the nine month period ended October 1, 2021 was primarily due to a non-recurring permanent difference on the Q1 2021 gain on our Retained Vontier Shares as a result of the tax-free treatment of our disposition of the shares through the Debt-for-Equity Exchange and the effect of Russia exit including wind down costs for which no tax benefit was recognized.
Our effective tax rate for the three and nine month periods ended September 30, 2022 differs from the U.S. federal statutory rate of 21% due primarily to the positive and negative effects of the Tax Cuts and Jobs Act, U.S. federal permanent differences, the impacts of credits and deductions provided by law, an increase to in our uncertain tax positions relating to higher interest rates, and the effect of Russia exit and wind down costs for which no tax benefit was recognized.
On August 16, 2022, the U.S. enacted the Inflation Reduction Act of 2022, which, among other provisions, implements a 15% corporate alternative minimum tax on book income on corporations whose average annual adjusted financial statement income during the most recently-completed three-year period exceeds $1.0 billion, a 1% excise tax on net stock repurchases, and several tax incentives to promote clean energy. This provision is effective for tax years beginning after December 31, 2022. Based on our current analysis of the provisions, we do not believe this legislation will have a material impact on our consolidated financial statements.
NOTE 8. STOCK-BASED COMPENSATION
Our stock-based compensation program (the “Stock Plan”) provides for the grant of stock appreciation rights, performance stock units, restricted stock units, restricted stock awards, and performance stock awards (collectively, “Stock Awards”), stock options, or any other stock-based award. As of September 30, 2022, approximately 16 million shares of our common stock were available for subsequent issuance under the Stock Plan. For a full description of our stock-based compensation program refer to Note 17 of our 2021 Annual Report on Form 10-K.
Stock-based Compensation Expense
Stock-based compensation has been recognized as a component of Selling, general and administrative expenses in the Consolidated Condensed Statements of Earnings based on the portion of the awards that are ultimately expected to vest.
The following summarizes the components of our stock-based compensation expense under the Stock Plan ($ in millions):
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, 2022 | October 1, 2021 | September 30, 2022 | October 1, 2021 | ||||||||||||||||||||
| Stock Awards: | |||||||||||||||||||||||
| Pretax compensation expense | $ | 14.3 | $ | 11.3 | $ | 43.0 | $ | 34.0 | |||||||||||||||
| Income tax benefit | (2.6) | (2.1) | (7.3) | (5.9) | |||||||||||||||||||
| Stock Award expense, net of income taxes | 11.7 | 9.2 | 35.7 | 28.1 | |||||||||||||||||||
| Stock options: | |||||||||||||||||||||||
| Pretax compensation expense | 8.6 | 7.1 | 24.9 | 21.2 | |||||||||||||||||||
| Income tax benefit | (1.4) | (1.3) | (3.8) | (3.8) | |||||||||||||||||||
| Stock option expense, net of income taxes | 7.2 | 5.8 | 21.1 | 17.4 | |||||||||||||||||||
| Total stock-based compensation: | |||||||||||||||||||||||
| Pretax compensation expense | 22.9 | 18.4 | 67.9 | 55.2 | |||||||||||||||||||
| Income tax benefit | (4.0) | (3.4) | (11.1) | (9.7) | |||||||||||||||||||
| Total stock-based compensation expense, net of income taxes | $ | 18.9 | $ | 15.0 | $ | 56.8 | $ | 45.5 |
The following summarizes the unrecognized compensation cost for the Stock Plan awards as of September 30, 2022. This compensation cost is expected to be recognized over a weighted average period of approximately two years, representing the remaining service period related to the awards. Future compensation amounts will be adjusted for any changes in estimated forfeitures ($ in millions):
| Stock Awards | $ | 106.6 | |||
| Stock options | 52.7 | ||||
| Total unrecognized compensation cost | $ | 159.3 |
NOTE 9. COMMITMENTS AND CONTINGENCIES
For a description of our litigation and contingencies and additional information about our leases, refer to Note 16 and Note 10, respectively, in our 2021 Annual Report on Form 10-K.
Warranty
We generally accrue estimated warranty costs at the time of sale. In general, manufactured products are warranted against defects in material and workmanship when properly used for their intended purpose, installed correctly, and appropriately maintained. Warranty period terms depend on the nature of the product and range from 90 days up to the life of the product. The amount of the accrued warranty liability is determined based on historical information such as past experience, product failure rates or number of units repaired, estimated cost of material and labor, and, in certain instances, estimated property damage. The accrued warranty liability is reviewed on a quarterly basis and may be adjusted as additional information regarding expected warranty costs becomes known.
The following is a roll forward of our accrued warranty liability ($ in millions):
| Balance, December 31, 2021 | $ | 25.2 | |||
| Accruals for warranties issued during the period | 12.3 | ||||
| Settlements made | (14.1) | ||||
| Effect of foreign currency translation and other | (0.4) | ||||
| Balance, September 30, 2022 | $ | 23.0 |
Leases
Operating lease cost for the three month periods ended September 30, 2022 and October 1, 2021 was $13 million and $15 million, respectively. Operating lease cost for the nine month periods ended September 30, 2022 and October 1, 2021 was $42 million and $45 million, respectively. During the nine month periods ended September 30, 2022 and October 1, 2021, cash paid for operating leases included in operating cash flows was $38 million and $40 million, respectively. Right-of-use assets obtained in exchange for operating lease obligations were $18 million and $24 million during the nine month periods ended September 30, 2022 and October 1, 2021, respectively. Operating lease right-of-use assets and operating lease liabilities are reported on the Consolidated Condensed Balance Sheets within Other assets, Accrued expenses and Other current liabilities and Other long-term liabilities, respectively.
NOTE 10. NET EARNINGS PER SHARE
Basic net EPS is calculated by dividing net earnings attributable to common stockholders by the weighted average number of shares of common stock outstanding for the applicable period. Diluted EPS is similarly calculated, except that the calculation includes the dilutive effect of the assumed conversion of Convertible Notes and associated issuance of shares under the if-converted method and the assumed issuance of shares under stock-based compensation plans under the treasury stock method, except where the inclusion of such shares would have an anti-dilutive impact. Anti-dilutive options excluded from the diluted EPS calculation for the three and nine month periods ended September 30, 2022 were both 7.3 million, and were 0.2 million and 0.3 million for the three and nine month periods ended October 1, 2021, respectively.
As described in Note 5, upon conversion of the Convertible Notes, holders were entitled to receive cash, shares of our common stock, or a combination thereof, at our election. As described in Note 1, prior to our adoption of ASU 2020-06 on January 1, 2022, we accounted for the conversion feature under the treasury stock method in our calculation of EPS since we intended and had the ability to settle such conversions through cash up to the principal amount of the Convertible Notes and, if applicable, through shares of our common stock for conversion value, if any, in excess of the principal amount of the Convertible Notes. Because the fair value of our common stock was below the conversion price, the Convertible Notes had no impact on our earnings per share for the nine month period ended October 1, 2021. Upon adopting ASU 2020-06 on January 1, 2022, we accounted for the Convertible Notes under the if-converted method in our calculation of diluted EPS, as required under the new guidance.
On July 1, 2021, all outstanding shares of our 5.0% Mandatory Convertible Preferred Stock (“MCPS”) converted at a rate of 14.0978 common shares per share of preferred stock into an aggregate of approximately 19.4 million shares (net of fractional shares) of the Company’s common stock, pursuant to the terms of the Certificate of Designation governing the Series A Preferred Stock. Fortive issued cash in lieu of fractional shares of common stock in the conversion. These payments were recorded as a reduction to additional paid-in capital. The impact of the MCPS calculated under the if-converted method was anti-dilutive for the periods in 2021 prior to conversion.
Information related to the calculation of net earnings per share of common stock is summarized as follows ($ and shares in millions, except per share amounts):
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, 2022 | October 1, 2021 | September 30, 2022 | October 1, 2021 | ||||||||||||||||||||
| Numerator | |||||||||||||||||||||||
| Net earnings from continuing operations | $ | 189.9 | $ | 152.6 | $ | 528.0 | $ | 446.3 | |||||||||||||||
| Mandatory convertible preferred stock cumulative dividends | — | — | — | (34.5) | |||||||||||||||||||
| Convertible note interest add-back (if converted method) | — | — | 1.8 | — | |||||||||||||||||||
| Diluted Net Earnings from Continuing Operations | $ | 189.9 | $ | 152.6 | $ | 529.8 | $ | 411.8 | |||||||||||||||
| Denominator | |||||||||||||||||||||||
| Weighted average common shares outstanding used in basic earnings per share | 355.2 | 358.9 | 357.3 | 345.6 | |||||||||||||||||||
| Incremental common shares from: | |||||||||||||||||||||||
| Assumed exercise of dilutive options and vesting of dilutive Stock Awards | 2.7 | 3.3 | 2.6 | 3.2 | |||||||||||||||||||
| Conversion of convertible notes (if converted method) | — | — | 2.1 | — | |||||||||||||||||||
| Weighted average common shares outstanding used in diluted earnings per share | 357.9 | 362.2 | 362.0 | 348.8 | |||||||||||||||||||
| Net earnings from continuing operations per common share - Basic | $ | 0.53 | $ | 0.42 | $ | 1.48 | $ | 1.19 | |||||||||||||||
| Net earnings from continuing operations per common share - Diluted | $ | 0.53 | $ | 0.42 | $ | 1.46 | $ | 1.18 | |||||||||||||||
We declared and paid cash dividends per common share for the periods as presented below. We declared and paid the MCPS dividend in the first quarter of 2021, and declared and paid the final dividend in the second quarter of 2021.
| Dividend Per Common Share | Amount ($ in millions) | Dividend per MCPS | Amount ($ in millions) | ||||||||||||||||||||
| 2022: | |||||||||||||||||||||||
| First quarter | $ | 0.07 | $ | 25.1 | $ | — | $ | — | |||||||||||||||
| Second quarter | 0.07 | 24.9 | — | — | |||||||||||||||||||
| Third quarter | 0.07 | 24.8 | — | — | |||||||||||||||||||
| Total | $ | 0.21 | $ | 74.8 | $ | — | $ | — | |||||||||||||||
| 2021: | |||||||||||||||||||||||
| First quarter | $ | 0.07 | $ | 23.7 | $ | 12.5 | $ | 17.3 | |||||||||||||||
| Second quarter | 0.07 | 23.7 | 12.5 | 17.2 | |||||||||||||||||||
| Third quarter | 0.07 | 25.2 | — | — | |||||||||||||||||||
| Total | $ | 0.21 | $ | 72.6 | $ | 25.0 | $ | 34.5 | |||||||||||||||
| * The sum of the components of total dividends paid may not equal the total amount due to rounding. |
Share Repurchase Program
On February 17, 2022, the Company's Board of Directors approved a share repurchase program authorizing the Company to repurchase up to 20 million shares of the Company's outstanding common stock from time to time on the open market or in privately negotiated transactions. There is no expiration date for the repurchase program, and the timing and amount of repurchases under the program are determined by the Company's management based on market conditions and other factors. The repurchase program may be suspended or discontinued at any time by the Board of Directors. As of September 30, 2022, there were 14.0 million shares remaining for repurchase under the program.
NOTE 11. SEGMENT INFORMATION
We report our results in three separate business segments consisting of Intelligent Operating Solutions, Precision Technologies, and Advanced Healthcare Solutions.
Our Intelligent Operating Solutions segment provides leading workflow 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. We provide differentiated instrumentation and sensors, software and services to address our customers’ toughest workflow challenges.
Our Precision Technologies segment supplies instrumentation and sensing technologies to a broad set of vertical end markets, enabling our customers to accelerate the development, manufacture and launch 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.
Our Advanced Healthcare Solutions segment supplies critical workflow solutions to hospitals and other healthcare customers, enabling safer, more efficient, and higher quality healthcare. We provide hardware, consumables, software and services that optimize our customers’ most critical workflows, including instrument sterilization and device reprocessing, instrument tracking, cell therapy equipment design and manufacturing, biomedical test tools, radiation safety monitoring, end-to-end clinical productivity solutions and asset management.
Our chief operating decision maker (“CODM”) assesses performance and allocates resources based on our operating segments, which are also our reportable segments. Operating profit amounts in the Other category and Russia exit and wind down costs consist of unallocated corporate costs and other costs not utilized or reviewed by our CODM at a segment level in evaluating segment operating performance. Our segment results are as follows ($ in millions):
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, 2022 | October 1, 2021 | September 30, 2022 | October 1, 2021 | ||||||||||||||||||||
| Sales: | |||||||||||||||||||||||
| Intelligent Operating Solutions | $ | 613.7 | $ | 536.9 | $ | 1,831.4 | $ | 1,589.6 | |||||||||||||||
| Precision Technologies | 523.7 | 455.7 | 1,485.2 | 1,375.0 | |||||||||||||||||||
| Advanced Healthcare Solutions | 318.6 | 308.4 | 979.2 | 915.3 | |||||||||||||||||||
| Total | $ | 1,456.0 | $ | 1,301.0 | $ | 4,295.8 | $ | 3,879.9 | |||||||||||||||
| Operating Profit: | |||||||||||||||||||||||
| Intelligent Operating Solutions | $ | 132.1 | $ | 91.5 | $ | 369.0 | $ | 314.9 | |||||||||||||||
| Precision Technologies | 131.8 | 101.1 | 348.5 | 301.1 | |||||||||||||||||||
| Advanced Healthcare Solutions | 17.3 | 34.4 | 73.4 | 75.8 | |||||||||||||||||||
| Other | (28.2) | (24.7) | (77.1) | (80.6) | |||||||||||||||||||
| Russia exit and wind down costs | (1.1) | — | (17.3) | — | |||||||||||||||||||
| Total Operating Profit | 251.9 | 202.3 | 696.5 | 611.2 | |||||||||||||||||||
| Interest expense, net | (26.4) | (25.1) | (66.2) | (78.0) | |||||||||||||||||||
| Loss on extinguishment of debt | — | — | — | (104.9) | |||||||||||||||||||
| Gain on investment in Vontier Corporation | — | — | — | 57.0 | |||||||||||||||||||
| Gain on litigation resolution | — | — | — | 26.0 | |||||||||||||||||||
| Other non-operating expense, net | (8.0) | (1.6) | (13.8) | (9.5) | |||||||||||||||||||
| Earnings from continuing operations before income taxes | $ | 217.5 | $ | 175.6 | $ | 616.5 | $ | 501.8 |
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