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.

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.

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.

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).

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.

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.

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.