FORTIVE : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

Fortive Corporation ("Fortive," the "Company," "we," "us," or "our") is a
diversified industrial technology growth company comprised of Professional
Instrumentation and Industrial Technologies segments and encompassing businesses
that are recognized leaders in attractive markets. Our well-known brands hold
leading positions in field solutions, product realization, sensing technologies,
health, transportation technologies, and franchise distribution. Our businesses
design, develop, service, manufacture, and market professional and engineered
products, software, and services for a variety of end markets, building upon
leading brand names, innovative technology, and significant market positions.
This Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") is designed to provide a reader of our financial statements
with a narrative from the perspective of management. The following discussion
should be read in conjunction with the MD&A and consolidated and combined
financial statements included in our 2019 Annual Report on Form 10-K. Our MD&A
is divided into five sections:
•Information Relating to Forward-Looking Statements
•Overview
•Results of Operations
•Liquidity and Capital Resources
•Critical Accounting Estimates
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INFORMATION RELATING TO FORWARD-LOOKING STATEMENTS
Certain statements included or incorporated by reference in this quarterly
report, in other documents we file with or furnish to the Securities and
Exchange Commission ("SEC"), in our press releases, webcasts, conference calls,
materials delivered to shareholders and other communications, are
"forward-looking statements" within the meaning of the United States federal
securities laws. All statements other than historical factual information are
forward-looking statements, including without limitation statements regarding:
projections of revenue, expenses, profit, profit margins, tax rates, tax
provisions, cash flows, pension and benefit obligations and funding
requirements, our liquidity position or other financial measures; management's
plans and strategies for future operations, including statements relating to
anticipated operating performance, cost reductions, restructuring activities,
new product and service developments, competitive strengths or market position,
acquisitions, divestitures, separation into two independent, publicly traded
companies, strategic opportunities, securities offerings, stock repurchases,
dividends and executive compensation; growth, declines and other trends in
markets we sell into; new or modified laws, regulations and accounting
pronouncements; outstanding claims, legal proceedings, tax audits and
assessments and other contingent liabilities; foreign currency exchange rates
and fluctuations in those rates; impact on changes to tax laws; general economic
and capital markets conditions; the timing of any of the foregoing; assumptions
underlying any of the foregoing; and any other statements that address events or
developments that we intend or believe will or may occur in the future.
Terminology such as "believe," "anticipate," "should," "could," "intend,"
"will," "plan," "expect," "estimate," "project," "target," "may," "possible,"
"potential," "forecast" and "positioned" and similar references to future
periods are intended to identify forward-looking statements, although not all
forward-looking statements are accompanied by such words.
Forward-looking statements are based on assumptions and assessments made by our
management in light of their experience and perceptions of historical trends,
current conditions, expected future developments and other factors.
Forward-looking statements are not guarantees of future performance and actual
results may differ materially from the results, developments and business
decisions contemplated by our forward-looking statements. Accordingly, you
should not place undue reliance on any such forward-looking statements.
Important factors that could cause actual results to differ materially from
those envisaged in the forward-looking statements include the following:
•The duration and severity of the COVID-19 pandemic and its effect on our global
operations and the operations of our customers, suppliers, and vendors.
•Conditions in the global economy, the markets we serve and the financial
markets may adversely affect our business and financial statements.
•Our plans to separate into two independent, publicly traded companies may not
be completed on the currently contemplated timeline or at all and may not
achieve the intended benefits.
•Our growth could suffer if the markets into which we sell our products,
software and services decline, do not grow as anticipated or experience
cyclicality.
•We face intense competition and if we are unable to compete effectively, we may
experience decreased demand and decreased market share. Even if we compete
effectively, we may be required to reduce prices for our products and services.
•Changes in industry standards and governmental regulations may reduce demand
for our products or services or increase our expenses.
•Trade relations between China and the United States could have a material
adverse effect on our business and financial statements.
•Any inability to consummate acquisitions at our anticipated rate and at
appropriate prices could negatively impact our growth rate and stock price.
•Our growth depends in part on the timely development and commercialization, and
customer acceptance, of new and enhanced products and services based on
technological innovation.
•Our reputation, ability to do business and financial statements may be impaired
by improper conduct by any of our employees, agents or business partners.
•Our acquisition of businesses, joint ventures and strategic relationships could
negatively impact our financial statements.
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•The indemnification provisions of acquisition agreements by which we have
acquired companies may not fully protect us and as a result we may face
unexpected liabilities.
•Divestitures or other dispositions could negatively impact our business, and
contingent liabilities from businesses that we have sold could adversely affect
our financial statements.
•Our operations, products and services expose us to the risk of environmental,
health and safety liabilities, costs and violations that could adversely affect
our reputation and financial statements.
•Our businesses are subject to extensive regulation; failure to comply with
those regulations could adversely affect our financial statements and
reputation.
•International economic, political, legal, compliance and business factors could
negatively affect our financial statements.
•We may be required to recognize impairment charges for our goodwill and other
intangible assets.
•Foreign currency exchange rates may adversely affect our financial statements.
•The interest rates on our credit facilities may be impacted by the phase out of
the London Interbank Offered Rate ("LIBOR").
•Changes in our effective tax rates or exposure to additional income tax
liabilities or assessments could affect our profitability. In addition, audits
by tax authorities could result in additional tax payments for prior periods.
•We have incurred a significant amount of debt, and our debt will increase
further if we incur additional debt and do not retire existing debt.
•We are subject to a variety of litigation and other legal and regulatory
proceedings in the course of our business that could adversely affect our
financial statements.
•If we do not or cannot adequately protect our intellectual property, or if
third parties infringe our intellectual property rights, we may suffer
competitive injury or expend significant resources enforcing our rights.
•Third parties may claim that we are infringing or misappropriating their
intellectual property rights and we could suffer significant litigation
expenses, losses or licensing expenses or be prevented from selling products or
services.
•A significant disruption in, or breach in security of, our information
technology systems could adversely affect our business.
•Defects and unanticipated use or inadequate disclosure with respect to our
products (including software) or services could adversely affect our business,
reputation and financial statements.
•Adverse changes in our relationships with, or the financial condition,
performance, purchasing patterns or inventory levels of, key distributors and
other channel partners could adversely affect our financial statements.
•Our financial results are subject to fluctuations in the cost and availability
of commodities that we use in our operations.
•If we cannot adjust our manufacturing capacity or the purchases required for
our manufacturing activities to reflect changes in market conditions and
customer demand, our profitability may suffer. In addition, our reliance upon
sole or limited sources of supply for certain materials, components and services
could cause production interruptions, delays and inefficiencies.
•Our restructuring actions could have long-term adverse effects on our business.
•Work stoppages, union and works council campaigns and other labor disputes
could adversely impact our productivity and results of operations.
•If we suffer loss to our facilities, supply chains, distribution systems or
information technology systems due to catastrophe or other events, our
operations could be seriously harmed.
•Certain provisions in our amended and restated certificate of incorporation and
bylaws, and of Delaware law, may prevent or delay an acquisition of our company,
which could decrease the trading price of our common stock.
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•Changes in U.S. GAAP could adversely affect our reported financial results and
may require significant changes to our internal accounting systems and
processes.
•Our amended and restated certificate of incorporation designates the state
courts in the State of Delaware or, if no state court located within the State
of Delaware has jurisdiction, the federal court for the District of Delaware, as
the sole and exclusive forum for certain types of actions and proceedings that
may be initiated by our shareholders, which could discourage lawsuits against us
and our directors and officers.
See "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the fiscal
year ended December 31, 2019 and Item 1.A. Risk Factors" in this Report for
further discussion regarding reasons that actual results may differ materially
from the results, developments and business decisions contemplated by our
forward-looking statements. Forward-looking statements speak only as of the date
of the report, document, press release, webcast, call, materials or other
communication in which they are made. We do not assume any obligation to update
or revise any forward-looking statement, whether as a result of new information,
future events and developments or otherwise.
OVERVIEW
General
Fortive is a diversified, multinational industrial technology growth company
with global operations and our businesses are affected by worldwide, regional,
and industry-specific economic and political factors. Our geographic and
industry diversity, as well as the range of our products, software, and
services, typically help limit the impact of any one industry or the economy of
any single country (except for the United States) on our operating results.
Given the broad range of products manufactured, software and services provided,
and geographies served, we do not use any indices other than general economic
trends to predict the overall outlook for the Company. Our individual businesses
monitor key competitors and customers, including to the extent possible their
sales, to gauge relative performance and the outlook for the future.
As a result of our geographic and industry diversity, we face a variety of
opportunities and challenges, including technological development in most of the
markets we serve, the expansion and evolution of opportunities in high-growth
markets, trends and costs associated with a global labor force, and
consolidation of our competitors. We define high-growth markets as developing
markets of the world experiencing extended periods of accelerated growth in
gross domestic product and infrastructure which include Eastern Europe, the
Middle East, Africa, Latin America, and Asia with the exception of Japan and
Australia. We operate in a highly competitive business environment in most
markets, and our long-term growth and profitability will depend in particular on
our ability to expand our business across geographies and market segments,
identify, consummate, and integrate appropriate acquisitions, develop innovative
and differentiated new products, services, and software, expand and improve the
effectiveness of our sales force and continue to reduce costs and improve
operating efficiency and quality, and effectively address the demands of an
increasingly regulated environment. We are making significant investments,
organically and through acquisitions, to address technological change in the
markets we serve and to improve our manufacturing, research and development, and
customer-facing resources in order to be responsive to our customers throughout
the world.
Beginning January 1, 2020, our Hengstler and Dynapar businesses are reported
within our Professional Instrumentation segment. Previously, these businesses
were reported within our Industrial Technologies segment. Reclassification of
certain prior year amounts have been made to conform to current year
presentation.
On September 4, 2019, we announced our intention to separate into two
independent, publicly traded companies, subject to the satisfaction of certain
conditions. The separation will create (i) an industrial technology company,
retaining the Fortive name, with a differentiated portfolio of growth-oriented
businesses focused on connected workflow solutions that incorporate advanced
sensors, instrumentation, software, data, and analytics, and (ii) a global
industrial company ("Vontier") consisting of our Transportation Technologies and
Franchise Distribution platforms with a focus on growth opportunities in the
rapidly evolving transportation and mobility markets. The proposed separation is
expected to be structured in a tax-efficient manner. The timing and structure of
the separation will depend, in part, on the state of the capital market
environment over time as affected by the future evolution of the COVID-19
pandemic and its impact on the global economy. All assets, liabilities,
revenues, and expenses of the businesses comprising Vontier are included in
continuing operations in the accompanying consolidated condensed financial
statements.
On April 1, 2019, we acquired the advanced sterilization products business
("ASP") of Johnson & Johnson, a New Jersey corporation ("Johnson & Johnson") for
an aggregate purchase price of $2.7 billion (the "Transaction"), subject to
certain post-closing adjustments set forth in a Stock and Asset Purchase
Agreement, dated effective as of June 6, 2018 (the "Purchase Agreement"),
between the Company and Ethicon, Inc., a New Jersey corporation ("Ethicon") and
a wholly owned subsidiary of Johnson & Johnson. ASP engages in the research,
development, manufacture, marketing, distribution, and sale of low-
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temperature terminal sterilization and high-level disinfection products. Refer
to Note 2 to the accompanying consolidated condensed financial statements for
additional information regarding the Transaction.
On October 1, 2018, we completed the split-off of four of our operating
companies (the "A&S Business"), and have reported the A&S Business as
discontinued operations in our Consolidated Condensed Statements of Earnings,
Consolidated Condensed Balance Sheets, and Consolidated Condensed Statements of
Cash Flows for all periods presented. Discussion within this MD&A relates to
continuing operations.
In this report, references to sales from existing businesses refers to sales
from operations calculated according to generally accepted accounting principles
in the United States ("GAAP") but excluding (1) the impact from acquired
businesses and (2) the impact of currency translation. References to sales
attributable to acquisitions or acquired businesses refer to GAAP sales from
acquired businesses recorded prior to the first anniversary of the acquisition
less the amount of sales attributable to certain divested businesses or product
lines not considered discontinued operations prior to the first anniversary of
the divestiture. The portion of sales attributable to the impact of currency
translation is calculated as the difference between (a) the period-to-period
change in sales (excluding sales impact from acquired businesses) and (b) the
period-to-period change in sales (excluding sales impact from acquired
businesses) after applying the current period foreign exchange rates to the
prior year period. Sales from existing businesses should be considered in
addition to, and not as a replacement for or superior to, sales, and may not be
comparable to similarly titled measures reported by other companies.
Management believes that reporting the non-GAAP financial measure of sales from
existing businesses provides useful information to investors by helping identify
underlying growth trends in our business and facilitating comparisons of our
sales performance with our performance in prior and future periods and to our
peers. We exclude the effect of acquisitions and divestiture related items
because the nature, size, and number of such transactions can vary dramatically
from period to period and between us and our peers. We exclude the effect of
currency translation from sales from existing businesses because the impact of
currency translation is not under management's control and is subject to
volatility. Management believes the exclusion of the effect of acquisitions and
divestitures and currency translation may facilitate the assessment of
underlying business trends and may assist in comparisons of long-term
performance. References to sales volume refer to the impact of both price and
unit sales.
Business Performance and Outlook
Business Performance
A novel strain of coronavirus was first identified in Wuhan, China in December
2019, and subsequently declared a pandemic by the World Health Organization in
March 2020 ("COVID-19"). This outbreak has surfaced in nearly all regions around
the world, resulting in governments implementing increasingly strict measures to
help contain or mitigate the spread of the virus, including quarantines,
"shelter in place," and "stay at home" orders, travel restrictions, school and
commercial facility closures, re-opening restrictions, among others
(collectively "virus control measures"). Further, the U.S. Department of
Homeland Security's Cybersecurity and Infrastructure Security Agency has issued
Guidance documents for use by businesses and states defining
"critical-infrastructure" industries that may continue to operate despite the
virus control measures implemented. These virus control measures have led to
slowdowns or shutdowns for businesses deemed both "essential" and
"non-essential" in affected areas, causing significant disruption in the
financial markets both globally and in the United States. All of our essential
production facilities around the world were open during the second quarter, and
as of the date of this Report, all of our locations are open and operating.
Given our businesses operate globally, have diverse customers, and serve
multiple end-markets, COVID-19 impacted our businesses and operating results
during the three and six month periods ended June 26, 2020 directly with reduced
demand from customers operating in non-essential end-markets and indirectly with
reduced demand created by macroeconomic disruption or disruption in adjacent
end-markets. Partially offsetting the reduction in demand from non-essential
end-markets and other adjacent market declines was an increase in demand for
industrial imaging products, critical environment products and ventilator
components used in COVID-19 patient treatment, and personal protective equipment
reprocessing. COVID-19 impacted our businesses and operating results broadly
across all geographies, as virus control measures were deployed in most regions
during the three and six month periods ended June 26, 2020.
For the three and six month periods ended June 26, 2020, aggregate
year-over-year total sales declined 15.7% and 5.0% respectively, which was
driven by reduced demand for our products as a result of the COVID-19 pandemic.
Sales from existing businesses decreased 16.8% and 10.8% during the three and
six month periods ended June 26, 2020 as compared to the comparable periods of
2019, with the direct and indirect impacts of COVID-19 contributing to the
majority of the decline.
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Geographically, year-over-year sales from existing businesses for the three
month period ended June 26, 2020 decreased at a rate in the high-teens in
developed markets and declined at a rate in the mid-teens in high-growth
markets, as North America declined at a rate in the high-teens, Europe declined
at a rate in the mid-teens, and Asia declined at a low-double digit rate, which
was driven by sequential improvement in China. Year-over-year sales from
existing businesses in China declined at a mid-single digit rate for the three
month period ended June 26, 2020.
Year-over-year sales from existing businesses for the six month period ended
June 26, 2020 decreased at a high-single digit rate in developed markets and
declined at a rate in the mid-teens in high-growth markets, as North America
declined at a high-single digit rate, Europe declined at a low-double digit
rate, and Asia declined at a rate in the high-teens.
On a year-over-year basis, our Professional Instrumentation segment reported a
decline in sales from existing businesses of 14.4%, while sales from existing
businesses in our Industrial Technologies segment declined 20.8% for the three
month period ended June 26, 2020. For the six month period ended June 26, 2020,
sales from existing businesses in our Professional Instrumentation segment
reported a decline of 11.2%, while sales from existing businesses in our
Industrial Technologies segment declined 10.3% for the same respective period.
The decline in both segments for the three and six month periods ended June 26,
2020 reflects both direct and indirect declines in demand resulting from the
COVID-19 pandemic.

Outlook

During the first half of 2020, the worldwide capital markets were volatile and
overall global economic conditions deteriorated significantly as a result of
COVID-19. In addition, the economic uncertainties that continue to exist as a
result of COVID-19 suggest that year-over-year global demand for our products
and services will likely continue to contract through the remainder of 2020.
Despite our critical infrastructure businesses continuing to operate, in the
third quarter of 2020 we expect a year-over-year decline in sales between 5% and
8% and operating profit decrementals of approximately 35% due largely to the
virus control measures and weak market conditions reducing customer demand. In
the third quarter of 2020, we anticipate a sequential improvement in sales for
each significant geography from the sales results in the second quarter of 2020,
with North America and Asia improving at a faster rate than Europe.

Given the diverse nature of our businesses and the end-markets they serve, we
believe certain of our businesses will continue being resilient against the
broad COVID-19 impacts in the third quarter of 2020, while we believe others
will continue being relatively more sensitive, with varied rates of recovery as
the easing of virus control measures continue. The businesses we believe will be
relatively more resilient include our businesses with a greater proportion of
recurring revenue, including our software as a service businesses that provide
critical workflow solutions to their customers, our healthcare businesses, and
those with longer business cycles with strong backlogs. We believe that our
businesses that are more dependent on short-cycle industrial demand and
production dynamics will continue experiencing a challenging environment in the
third quarter of 2020 and will take longer to recover as virus control measures
become less restrictive.

We plan to continue executing broad cost reduction efforts in the third quarter
while emphasizing cash flow generation. These cost reduction efforts include
reducing year-over-year labor expenses to better align with reductions in
demand, primarily through the use of furloughs and reductions in salaried
compensation costs, as well as other reductions in discretionary spending. We
are also continuing to pursue cost reductions throughout our supply chain by
targeting reductions in both direct and indirect spending and reducing our
facility expenses. In order to target operating profit decrementals of
approximately 35%, we will continue evaluating the need for and extent of these
cost actions based on sales. We recognized over $100 million of savings from
these actions in the three month period ended June 26, 2020.

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

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Despite the virus control measures in place in geographies critical to our
supply chain, we have successfully implemented solutions to support our
operations and have not experienced significant production material shortages,
supply chain constraints, or distribution limitations impacting our operations
as of the date of this Report; however, in light of the uncertainty of the
COVID-19 pandemic severity and duration, we are continuing to evaluate and
monitor the condition of our supply chain, including the financial health of our
suppliers and their ability to access raw materials and other key inputs and may
experience shortages, constraints, or disruptions during the remainder of 2020.

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

Although recent distress in the financial markets has not had a significant
impact on our financial position, liquidity, and ability to meet our debt
covenants as of the filing date of this Report, we continue to monitor the
financial markets and general global economic conditions. Further, we utilized
certain provisions of The Coronavirus Aid, Relief, and Economic Security Act
("CARES Act") enacted by the U.S. Government to provide additional short-term
liquidity, including deferral of estimated Federal income tax payments into the
third quarter and relief from employer payroll tax remittance, and expect to
continue utilizing these benefits throughout 2020. We are also evaluating other
potential income tax impacts of the CARES Act. If further changes in financial
markets or other areas of the economy adversely affect our access to the capital
markets, we would expect to rely on a combination of available cash and existing
available capacity under our credit facilities to provide short-term funding.
Refer to the "Liquidity and Capital Resources" section for additional
discussion.

RESULTS OF OPERATIONS
Sales Growth
The following tables summarize total aggregate year-over-year sales growth and
the components of aggregate year-over-year sales growth during the three and six
month periods ended June 26, 2020 as compared to the comparable periods of 2019:
Components of Sales Growth
                                                                 % Change Three Months           % Change Six Months
                                                                         Ended                          Ended
                                                                   June 26, 2020 vs.              June 26, 2020 vs.
                                                                 Comparable 2019 Period         Comparable 2019 Period
Total revenue growth (GAAP)                                                     (15.7) %                        (5.0) %
Existing businesses (Non-GAAP)                                                  (16.8) %                       (10.8) %
Acquisitions (Non-GAAP)                                                           2.7  %                         7.4  %
Currency exchange rates (Non-GAAP)                                               (1.6) %                        (1.6) %


Operating Profit Margins
Operating profit margin was 12.2% for the three month period ended June 26,
2020, a decrease of 120 basis points as compared to 13.4% in the comparable
period of 2019. Year-over-year operating profit margin comparisons were
favorably impacted by:
•The year-over-year effect of acquired businesses, including amortization, and
acquisition-related fair value adjustments to deferred revenue and inventory
which were less in 2020 than the fair value adjustments recognized in the
comparable period in 2019 - favorable 240 basis points
Year-over-year operating profit margin comparisons were unfavorably impacted by:
•Lower year-over-year sales volumes from existing businesses and an unfavorable
sales mix, which were partially offset by operating expense savings from broad
cost reduction efforts, and to a lesser extent, price increases, lower
year-over-year material costs, and incremental year-over-year cost savings
associated with restructuring and productivity improvement initiatives -
unfavorable 220 basis points
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•The incremental year-over-year net dilutive effect of acquisition-related
transaction costs and transaction and stand-up costs related to the proposed
Vontier separation - unfavorable 70 basis points
•The year-over-year dilutive effect of amortization from existing businesses -
unfavorable 70 basis points
Operating profit margin was 9.5% for the six month period ended June 26, 2020, a
decrease of 400 basis points as compared to 13.5% in the comparable period of
2019. Year-over-year operating profit margin comparisons were favorably impacted
by:
•The year-over-year effect of acquired businesses, including amortization, and
acquisition-related fair value adjustments to deferred revenue and inventory
which were less in 2020 than the fair value adjustments recognized in the
comparable period in 2019 - favorable 10 basis points
Year-over-year operating profit margin comparisons were unfavorably impacted by:
•Lower year-over-year sales volumes from existing businesses which were
partially offset by operating expense savings from broad cost reduction efforts,
and to a lesser extent, price increases, lower year-over-year material costs,
and incremental year-over-year cost savings associated with restructuring and
productivity improvement initiatives - unfavorable 40 basis points
•The incremental year-over-year net dilutive effect of acquisition-related
transaction costs and transaction and stand-up costs related to the proposed
Vontier separation - unfavorable 80 basis points
•The impact of the goodwill impairment of our Telematics business - unfavorable
250 basis points
•The year-over-year dilutive effect of amortization from existing businesses -
unfavorable 40 basis points
Business Segments
Sales by business segment for each of the periods indicated were as follows ($
in millions):
                                                       Three Months Ended                                             Six Months Ended
                                              June 26, 2020          June 28, 2019          June 26, 2020           June 28, 2019
Professional Instrumentation                 $     1,037.5          $     

1,165.6 $ 2,141.9 $ 2,143.3 Industrial Technologies

                              533.7                  699.1                1,142.8                  1,314.3
Total                                        $     1,571.2          $     1,864.7          $     3,284.7          $       3,457.6



PROFESSIONAL INSTRUMENTATION
Our Professional Instrumentation segment consists of our Advanced
Instrumentation & Solutions, Sensing Technologies, and Advanced Sterilization
Products and Censis businesses.

Our Advanced Instrumentation & Solutions businesses provide product realization
and field solutions services and products. Our field solutions products include
a variety of compact professional test tools, thermal imaging and calibration
equipment for electrical, industrial, electronic and calibration applications,
online condition-based monitoring equipment; portable gas detection equipment,
consumables, and software as a service (SaaS) offerings including safety/user
behavior, asset management, environmental, health and safety (EHS) quality
management and compliance monitoring; subscription-based technical, analytical,
and compliance services to determine occupational and environmental radiation
exposure; and software, data analytics and services for critical infrastructure
in utility, industrial, energy, construction, facilities management, public
safety, mining, EHS, and healthcare applications. Our product realization
services and products help developers and engineers across the end-to-end
product creation cycle from concepts to finished products. Our test, measurement
and monitoring products are used in the design, manufacturing and development of
electronics, industrial, and other advanced technologies.
Our Sensing Technologies business offers devices that sense, monitor and control
operational or manufacturing variables, such as temperature, pressure, level,
flow, turbidity, and conductivity. Users of these products span a wide variety
of industrial and manufacturing markets, including medical equipment, food and
beverage, marine, industrial, off-highway vehicles, building automation, and
semiconductors.

Our Advanced Sterilization Products ("ASP") business provides critical
sterilization and disinfection solutions, including low-temperature hydrogen
peroxide sterilization solutions for temperature-sensitive equipment, to advance
infection prevention and
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Table of Contents patient safety in healthcare facilities. Our Censis business provides subscription-based surgical inventory management systems to healthcare facilities to facilitate inventory management and regulatory compliance. Professional Instrumentation Selected Financial Data

                                                    Three Months Ended                                             Six Months Ended
($ in millions)                            June 26, 2020          June 28, 2019          June 26, 2020           June 28, 2019
Sales                                     $     1,037.5          $     1,165.6          $     2,141.9          $       2,143.3
Operating profit                                  135.6                  129.9                  280.1                    272.6
Depreciation                                       21.6                   20.6                   41.1                     37.4
Amortization                                       77.4                   69.3                  155.6                    113.4
Operating profit as a % of sales                   13.1  %                11.1  %                13.1  %                  12.7  %
Depreciation as a % of sales                        2.1  %                 1.8  %                 1.9  %                   1.7  %
Amortization as a % of sales                        7.5  %                 5.9  %                 7.3  %                   5.3  %


Components of Sales Growth
                                                                 % Change Three Months           % Change Six Months
                                                                         Ended                          Ended
                                                                   June 26, 2020 vs.              June 26, 2020 vs.
                                                                 Comparable 2019 Period         Comparable 2019 Period
Total revenue growth (GAAP)                                                     (11.0) %                        (0.1) %
Existing businesses (Non-GAAP)                                                  (14.4) %                       (11.2) %
Acquisitions (Non-GAAP)                                                           4.5  %                        12.2  %
Currency exchange rates (Non-GAAP)                                               (1.1) %                        (1.1) %


Sales from existing businesses in our Professional Instrumentation segment's
Advanced Instrumentation & Solutions businesses decreased at a rate in the
mid-teens during the three month period ended June 26, 2020 and decreased at a
low-double digit rate during the six month period ended June 26, 2020 as
compared to the comparable periods of 2019.
Year-over-year sales from existing businesses of field solutions products and
services declined at a rate in the mid-teens and declined at a low-double digit
rate during the three and six month periods ended June 26, 2020, respectively.
The results in both periods were driven by increased demand for our industrial
imaging products in response to COVID-19 monitoring, which was more than offset
by declines in demand for electrical grid condition-based monitoring equipment,
portable gas detection instruments, software license and professional service
offerings, and demand from our industrial channel partners, all of which were
impacted by COVID-19 in both direct and adjacent end markets. During the three
month period ended June 26, 2020, demand for certain of our critical workflow,
health, safety, and maintenance software as a service product offerings was
resilient against the broad COVID-19 challenges, and combined sales of these
offerings increased low-single digits year-over-year.
Year-over-year sales from existing businesses of product realization products
and services declined at a rate in the high-teens and at a rate in the mid-teens
during the three and six month periods ended June 26, 2020, as compared to the
comparable periods of 2019. The results were driven by decreased demand for test
and measurement equipment largely driven by the impacts of COVID-19 in both
direct and adjacent end markets and a decline in shipments of our energetic
materials.
Geographically, demand from existing businesses in Advanced Instrumentation &
Solutions decreased in most of our significant regions on a year-over-year basis
during the three and six month periods ended June 26, 2020, with more
significant declines in North America, Europe, and Asia in both respective
periods.
Sales from existing businesses in our segment's Sensing Technologies businesses
declined at a high-single digit rate during both the three and six month periods
ended June 26, 2020 as compared to the comparable periods of 2019. Sales from
existing businesses in both periods were driven by increased demand in the
medical end market for ventilator components and critical environment products
supporting COVID-19 patient treatment efforts, which was more than offset by
declines in industrial end markets. Industrial end markets were impacted both
directly and indirectly by COVID-19 for both periods. Geographically, demand
from existing businesses decreased in North America and Europe due to COVID-19
during both the three and six month periods ended June 26, 2020. Demand from
existing businesses in Asia increased during the three month period ended June
26, 2020, and decreased during the six month period ended June 26, 2020.
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Sales from our existing ASP business decreased at a high-single digit rate
during the three and six month periods ended June 26, 2020, as compared to the
comparable periods of Fortive ownership in 2019, as growth in Europe, Canada,
and China was more than offset by declines in demand in North America. ASP's
results reflect declines in elective surgical procedure volumes which were
impacted by COVID-19 in both periods, but were partially offset by increased
demand for COVID-19 personal protective equipment reprocessing in the second
quarter.
Year-over-year price increases in our Professional Instrumentation segment
contributed 1.1% to sales growth during both the three and six month periods
ended June 26, 2020 as compared to the comparable periods of 2019, and are
reflected as a component of the change in sales from existing businesses.
Operating profit margin increased 200 basis points during the three month period
ended June 26, 2020 as compared to the comparable period of 2019. Year-over-year
operating profit margin comparisons were favorably impacted by:
•The year-over-year effect of acquired businesses, including amortization, and
acquisition-related fair value adjustments to deferred revenue and inventory
which were less in 2020 than the fair value adjustments recognized in the
comparable period in 2019 - favorable 380 basis points
•Acquisition-related transaction costs, as the costs related to our acquisition
and integration of ASP in 2020 were less than the costs associated in 2019 -
favorable 50 basis points
Year-over-year operating profit margin comparisons were unfavorably impacted by:
•Lower year-over-year sales volumes from existing businesses, which were
partially offset by operating expense savings from broad cost reduction efforts,
and to a lesser extent, price increases, a favorable sales mix, lower
year-over-year material costs, and incremental year-over-year cost savings
associated with restructuring and productivity improvement initiatives -
unfavorable 140 basis points
•The year-over-year dilutive effect of amortization from existing businesses -
unfavorable 90 basis points
Operating profit margin increased 40 basis points during the six month period
ended June 26, 2020 as compared to the comparable period of 2019. Year-over-year
operating profit margin comparisons were favorably impacted by:
•The year-over-year effect of acquired businesses, including amortization, and
acquisition-related fair value adjustments to deferred revenue and inventory
which were less in 2020 than the fair value adjustments recognized in the
comparable period in 2019 - favorable 10 basis points
•Acquisition-related transaction costs, as the costs related to our acquisition
and integration of ASP in 2020 were less than the costs associated in 2019 -
favorable 85 basis points
Year-over-year operating profit margin comparisons were unfavorably impacted by:
•The year-over-year dilutive effect of amortization from existing businesses -
unfavorable 55 basis points
Lower year-over-year sales volumes from existing businesses were equally offset
by operating expense savings from broad cost reduction efforts, and to a lesser
extent, price increases, a favorable sales mix, lower year-over-year material
costs, and incremental year-over-year cost savings associated with restructuring
and productivity improvement initiatives.
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INDUSTRIAL TECHNOLOGIES
Our Industrial Technologies segment consists of our Transportation Technologies
and Franchise Distribution businesses. Our Transportation Technologies business
is a leading worldwide provider of solutions and services focused on fuel
dispensing, remote fuel management, point-of-sale and payment systems,
environmental compliance, vehicle tracking and fleet management, and traffic
management. Our Franchise Distribution business manufactures and distributes
professional tools and a full-line of wheel service equipment.
Industrial Technologies Selected Financial Data
                                                    Three Months Ended                                            Six Months Ended
($ in millions)                            June 26, 2020          June 28, 2019         June 26, 2020           June 28, 2019
Sales                                     $       533.7          $      699.1          $     1,142.8          $       1,314.3
Operating profit                                   82.6                 145.0                   81.1                    243.8
Depreciation                                       12.4                  12.1                   24.4                     24.6
Amortization                                        7.2                   8.1                   14.5                     16.2
Goodwill impairment charge                            -                     -                   85.3                        -
Operating profit as a % of sales                   15.5  %               20.7  %                 7.1  %                  18.5  %
Depreciation as a % of sales                        2.3  %                1.7  %                 2.1  %                   1.9  %
Amortization as a % of sales                        1.3  %                1.2  %                 1.3  %                   1.2  %


Components of Sales Growth
                                                                 % Change Three Months           % Change Six Months
                                                                         Ended                          Ended
                                                                   June 26, 2020 vs.              June 26, 2020 vs.
                                                                 Comparable 2019 Period         Comparable 2019 Period
Total revenue growth (GAAP)                                                     (23.7) %                       (13.0) %
Existing businesses (Non-GAAP)                                                  (20.8) %                       (10.3) %
Acquisitions (Non-GAAP)                                                          (0.4) %                        (0.3) %
Currency exchange rates (Non-GAAP)                                               (2.5) %                        (2.4) %


Sales from existing businesses in our Transportation Technologies businesses
declined greater than 20% and declined low-double digits during the three and
six month periods ended June 26, 2020, respectively, as compared to the
comparable periods of 2019. The year-over-year results for both periods were
driven by broad-based declines across all product categories and significant
geographies, which was driven by COVID-19 virus control measures. Despite the
push-out to April 2021 of the liability shift related to the enhanced credit
card security requirements for outdoor payment systems based on the Europay,
Mastercard, and Visa global standards, demand for fuel management systems
increased in North America during both periods. However, the COVID-19 pandemic
somewhat impacted our ability to convert orders for fuel management systems to
shipments during the three month period ended June 26, 2020, and therefore we
experienced an increase in backlog that we anticipate will normalize in the
second half of 2020.

Sales from existing businesses in our Franchise Distribution businesses declined
at a rate in the high-teens and at a low-double digit rate during the three and
six month periods ended June 26, 2020 as compared to the comparable periods of
2019 due to decreased demand across most product categories, which was driven by
COVID-19 virus control measures. The results reflect sharp declines in demand
due to COVID-19 virus control measures early in the second quarter, which were
partially offset by improvements in demand as the quarter progressed, as virus
control measures began to lift in certain jurisdictions.

Year-over-year changes in price had an insignificant impact on sales growth in
our Industrial Technologies segment during the three and six month periods ended
June 26, 2020 as compared to the comparable periods of 2019.
Operating profit margin decreased 520 basis points during the three month period
ended June 26, 2020 as compared to the comparable period of 2019. Year-over-year
operating profit margin comparisons were favorably impacted by:
•The year-over-year effect of businesses disposed of and acquired - favorable 20
basis points
Year-over-year operating profit margin comparisons were unfavorably impacted by:
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•Lower year-over-year sales volumes from existing businesses and an unfavorable
sales mix which were partially offset by operating expense savings from broad
cost reduction efforts, and to a lesser extent, lower material costs and
incremental year-over-year cost savings associated with restructuring and
productivity improvement initiatives - unfavorable 250 basis points
•Transaction and stand-up costs related to the proposed Vontier separation -
unfavorable 270 basis points
•The year-over-year dilutive effect of amortization from existing businesses -
unfavorable 20 basis points
Operating profit margin decreased 1,140 basis points during the six month period
ended June 26, 2020 as compared to the comparable period of 2019. Year-over-year
operating profit margin comparisons were favorably impacted by:
•The year-over-year effect of businesses disposed of and acquired - favorable 15
basis points
Year-over-year operating profit margin comparisons were unfavorably impacted by:
•Lower year-over-year sales volumes from existing businesses and an unfavorable
sales mix which were partially offset by operating expense savings from broad
cost reduction efforts, and to a lesser extent, lower material costs and
incremental year-over-year cost savings associated with restructuring and
productivity improvement initiatives - unfavorable 50 basis points
•Transaction and stand-up costs related to the proposed Vontier separation -
unfavorable 360 basis points
•The impact of the goodwill impairment of our Telematics business - unfavorable
745 basis points
COST OF SALES AND GROSS PROFIT
                               Three Months Ended                                     Six Months Ended
($ in millions)        June 26, 2020       June 28, 2019       June 26, 2020        June 28, 2019
Sales                 $     1,571.2       $     1,864.7       $     3,284.7       $       3,457.6
Cost of sales                (756.9)             (960.7)           (1,594.6)             (1,740.9)
Gross profit          $       814.3       $       904.0       $     1,690.1       $       1,716.7
Gross profit margin            51.8  %             48.5  %             51.5  %               49.7  %


The year-over-year decrease in cost of sales during the three and six month
periods ended June 26, 2020, as compared to the comparable periods in 2019, is
due primarily to lower year-over-year sales volumes from existing businesses,
lower year-over-year material costs, cost savings associated with restructuring
and productivity improvement initiatives, and changes in currency exchange
rates. These factors were partially offset by the impact of incremental cost of
sales from our recently acquired businesses.
The year-over-year decrease in gross profit for the three and six month periods
ended June 26, 2020, as compared to the comparable periods in 2019, is due
primarily to lower year-over-year sales volumes and changes in currency exchange
rates during both periods and an unfavorable sales mix during the second
quarter, partially offset by the gross profit from recently acquired businesses,
favorable impacts of pricing improvements from existing businesses, incremental
year-over-year cost savings associated with restructuring and productivity
improvement initiatives, and material cost and supply chain improvement actions
in both periods. The respective 330 basis point and 180 basis point increase in
gross profit margins for the three and six month periods ended June 26, 2020 as
compared to the comparable periods in 2019 is due primarily to the favorable
year-over-year impact our recently acquired businesses, partially offset by
lower year-over-year sales volumes from existing businesses.
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OPERATING EXPENSES
                                                      Three Months Ended                                             Six Months Ended
($ in millions)                              June 26, 2020          June 28, 2019          June 26, 2020           June 28, 2019
Sales                                       $     1,571.2          $     

1,864.7 $ 3,284.7 $ 3,457.6 Selling, general and administrative ("SG&A") expenses

                                   516.6                  537.1                1,073.8                  1,023.5
Research and development ("R&D") expenses           106.6                  117.4                  220.3                    226.4
Impairment of goodwill                                  -                      -                   85.3                        -
SG&A as a % of sales                                 32.9  %                28.8  %                32.7  %                  29.6  %
R&D as a % of sales                                   6.8  %                 6.3  %                 6.7  %                   6.5  %
Impairment of goodwill as a % of sales                  -  %                   -                    2.6  %                     -  %


SG&A expenses decreased during the three month period ended June 26, 2020 as
compared to the comparable period of 2019, primarily due to broad cost reduction
efforts that reduced labor expenses to better align with reductions in demand,
primarily through the use of furloughs and reductions in salaried compensation
costs, as well as other reductions in discretionary spending, and to a lesser
extent, year-over-year cost savings associated with restructuring and
productivity improvement initiatives and changes in foreign currency exchange
rates. These factors were partially offset by amortization and incremental
expenses from our recently acquired businesses and costs associated with the
proposed Vontier separation.
SG&A expenses increased during the six month period ended June 26, 2020 as
compared to the comparable period of 2019, primarily due to amortization and
incremental expenses from our recently acquired businesses and costs associated
with the proposed Vontier separation that were partially offset by broad cost
reduction efforts that reduced labor expenses to better align with reductions in
demand, primarily through the use of furloughs and reductions in salaried
compensation costs, as well as other reductions in discretionary spending, and
to a lesser extent, year-over-year cost savings associated with restructuring
and productivity improvement initiatives and changes in foreign currency
exchange rates.
On a year-over-year basis, SG&A expenses as a percentage of sales increased 410
basis points and 310 basis points during the three and six month periods ended
June 26, 2020, respectively, due to year-over-year sales volume declines, higher
amortization and relative spending levels at our recently acquired businesses,
and costs associated with the proposed Vontier separation, partially offset by
lower spending on sales and marketing growth initiatives.
R&D expenses (consisting principally of internal and contract engineering
personnel costs) decreased during the three and six month periods ended June 26,
2020 as compared to the comparable periods of 2019 primarily due to broad cost
reduction efforts, partially offset by targeted investments in key growth
initiatives and innovation and incremental expenses from our recently acquired
businesses. On a year-over-year basis, R&D expenses as a percentage of sales
increased during the three and six month periods ended June 26, 2020 due to
year-over-year sales volume declines.
In connection with our updated forecast for our Telematics business that
indicated a decline in sales and operating profit to levels lower than
previously forecasted, due in large part to the impacts of the COVID-19
pandemic, management determined the change in forecast indicated the related
carrying value of goodwill may not be recoverable and performed a quantitative
impairment assessment over the Telematics reporting unit on March 27, 2020. This
analysis resulted in an impairment of $85.3 million recorded in the first
quarter of 2020.
INTEREST COSTS
For a discussion of our outstanding indebtedness, refer to Note 5 to the
accompanying consolidated condensed financial statements.
Net interest expense for the three and six month periods ended June 26, 2020 was
$43 million and $87 million, respectively. Net interest expense for the three
and six month periods ended June 28, 2019 was $44 million and $70 million,
respectively. The year-over-year decrease in interest expense in the three month
period ended June 26, 2020 was due to lower year-over-year average debt
balances. The year-over-year increase in interest expense for the six month
period ended June 26, 2020 was due to higher year-over-year average debt
balances used to fund the ASP, Intelex, and Censis acquisitions.
INCOME TAXES

Our effective tax rates for the three and six month periods ended June 26, 2020
were 14.9% and 23.2%, respectively, as compared to 14.2% and 14.5% for the three
and six month periods ended June 28, 2019, respectively. There were no
significant differences in the year-over-year effective tax rate for the three
month period ended June 26, 2020 compared to the three month
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period ended June 28, 2019. The year-over-year increase in the effective tax
rate for the six month period ended June 26, 2020 compared to the six month
period ended June 28, 2019 was due primarily to a non-deductible goodwill
impairment and tax costs associated with repatriating a portion of our
previously reinvested earnings outside of the United States. For the six month
period ended June 26, 2020, these factors were partially offset by favorable
impacts of a higher mix of income in jurisdictions with lower tax rates than the
U.S. federal statutory rate of 21% and increases in favorable impacts of certain
federal and international tax benefits.

Our effective tax rate for both periods in 2020 and 2019 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 ("TCJA"), U.S. federal permanent differences, the
impact of credits and deductions provided by law, and current year earnings
outside the United States that are indefinitely reinvested and taxed at rates
lower than the U.S. federal statutory rate. Specific to 2020, our effective tax
rate also differs from the U.S. federal statutory rate of 21% due to a
non-deductible goodwill impairment and the tax costs associated with
repatriating a portion of our previously reinvested earnings outside of the
United States.

On March 27, 2020, the U.S. federal government enacted the Coronavirus Aid,
Relief, and Economic Security Act (the "CARES Act"). The CARES Act is an
emergency economic stimulus package in response to the COVID-19 outbreak which,
among other things, contains numerous income tax provisions. Some of these tax
provisions are expected to be effective retroactively for years ending before
the date of enactment. We anticipate the provisions of the CARES Act will impact
income tax in 2020; however, we have not identified material impacts to the tax
provision as of June 26, 2020. We will continue to evaluate the impact of the
CARES Act as new clarifying guidance is issued throughout 2020.
COMPREHENSIVE INCOME
Comprehensive income decreased by $9 million during the three month period ended
June 26, 2020 as compared to the comparable period in 2019 due primarily to net
earnings that were lower by $45 million, partially offset by favorable changes
in foreign currency translation adjustments of $35 million.
Comprehensive income decreased by $286 million during the six month period ended
June 26, 2020 as compared to the comparable period in 2019 due primarily to net
earnings that were lower by $167 million and unfavorable changes in foreign
currency translation adjustments of $118 million.
INFLATION
The effect of inflation on our sales and net earnings was not significant during
the three and six month periods ended June 26, 2020.
LIQUIDITY AND CAPITAL RESOURCES
We assess our liquidity in terms of our ability to generate cash to fund our
operating, investing, and financing activities. We generate substantial cash
from operating activities and expect that our operating cash flow and other
sources of liquidity will be sufficient to allow us to continue to invest in
existing businesses, consummate strategic acquisitions, make interest payments
on our outstanding indebtedness, and manage our capital structure on a short and
long-term basis.

Although recent distress in the financial markets has not had a significant
impact on our financial position, liquidity, and ability to meet our debt
covenants as of the filing date of this Report, we continue to monitor the
capital markets and general global economic conditions. The financial markets
worldwide, including the United States, have been impacted by COVID-19 and this
volatility and disruption has impacted broad access to the capital markets and
pricing on new indebtedness. Our credit facilities, including our revolving
credit facility, are predominately with institutions that, to date, appear to be
relatively unaffected by the disruption. However, the distress in the financial
markets has resulted in volatility and disruption in the commercial paper
market. As a result of the volatility and disruption in the commercial paper
market, we refinanced all of our outstanding commercial paper with borrowings
under our $750 million delayed-draw term loan facility, as detailed in the 2021
Term Loan section below.

On April 24, 2020, we amended (the "Amendments") the credit agreement for each
of our (i) $500 million delayed draw term loan facility, with $250 million in
principal amount outstanding as of June 26, 2020 ("2020 Term Loan"), (ii)
$1.0 billion delayed draw term loan facility, with $1.0 billion in principal
amount outstanding as of June 26, 2020 (the "2020 Delayed-Draw Term Loan"),
(iii) $750 million delayed draw term loan facility, with $750 million in
principal amount outstanding as of June 26, 2020 ("2021 Term Loan"), and (iv)
$2.0 billion Revolving Credit Facility, with no borrowings thereunder as of June
26, 2020 as follows:

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•For any four fiscal quarters ending in the periods noted below (each an
"Adjusted Four Quarters") that end prior to the maturity date of the applicable
facility, the maximum permitted consolidated net leverage ratio of consolidated
net funded indebtedness to consolidated EBITDA was increased from 3.50 to 1.00
to, (i) with respect to the four fiscal quarters ending June 26, 2020, September
25, 2020, December 31, 2020, or April 2, 2021, 4.75 to 1.00, (ii) with respect
to the four fiscal quarters ending July 2, 2021, 4.5 to 1.0, (iii) with respect
to the four fiscal quarters ending October 1, 2021, 4.25 to 1.0 and (iv) with
respect to the four fiscal quarters ending December 31, 2021, 3.75 to 1.0;
provided however, that for any four fiscal quarters that is not an Adjusted Four
Quarters, the maximum permitted consolidated net leverage ratio remains at 3.5
to 1.0, as may be increased to 4.0 to 1.0 following a material acquisition (the
"Unadjusted Maximum Ratio").

•The maturity date for the 2020 Delayed-Draw Term Loan was extended from August 28, 2020 to May 30, 2021.

•From April 24, 2020 to December 31, 2021, the minimum London inter-bank offered
rate ("LIBOR") for each of the facilities will increase from 0% to 0.25%, and
the minimum base rate for each of the facilities will increase from 1.00% to
1.25%. In addition, with respect to the Revolving Credit Facility and for any
Adjusted Four Quarters in which the consolidated net leverage ratio is greater
the Unadjusted Maximum Ratio, the applicable margin (as determined based on our
long-term debt credit rating) for any LIBOR rate loans will increase from a
range of 80.5 and 117.5 basis points to a range of 118.0 and 155.0 basis points
and for any base rate loans from a range of 0.0 and 17.5 basis points to a range
of 18.0 and 55.0 basis points. Furthermore, with respect to the 2020
Delayed-Draw Term Loan, the applicable margin (as determined based on our
long-term debt credit rating) for any LIBOR rate loans will increase from a
range of 75.0 and 97.5 basis points to a range of 155.0 and 180.0 basis points
and for any base rate loans from 0.0 to a range of 55.0 and 80.0 basis points.

•From April 24, 2020 to December 31, 2021, the maximum principal amount of
secured indebtedness, other than certain types of secured indebtedness expressly
permitted under each credit agreement, is decreased from 15% of our consolidated
net assets (when added together with indebtedness incurred or guaranteed by any
of our subsidiaries) to 11.25% of our consolidated net assets (when added
together with indebtedness incurred or guaranteed by any of our subsidiaries).
In connection with the Amendments, we incurred approximately $6.5 million of
fees. Our credit facility agreements require, among others, that we maintain
certain financial covenants, and we were in compliance with all of our financial
covenants on June 26, 2020.
We continue to generate cash from operating activities and believe our cash flow
and other sources of liquidity, which consists of access to short-term loans and
our revolving credit facility currently, in addition to short-term liquidity
benefits provided by cash repatriation and certain provisions of the CARES Act,
including relief from employer payroll tax remittance and other tax impacts we
are evaluating, will be sufficient to allow us to continue investing in existing
businesses and maintain our capital structure on both a short and long-term
basis. Further, while the recent distress in the financial markets has resulted
in volatility and disruption in the commercial paper market, we may utilize our
commercial paper programs as a source of liquidity if and when the commercial
paper markets are attractive.
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Overview of Cash Flows and Liquidity
Following is an overview of our cash flows and liquidity for the six month
period ended June 26, 2020:
                                                                                 Six Months Ended
($ in millions)                                                        June 26, 2020          June 28, 2019
Total operating cash provided by continuing operations                $     

671.0 $ 421.4

Payments for additions to property, plant and equipment               $       (59.5)         $       (48.5)
Cash paid for acquisitions, net of cash received                              (11.4)              (3,237.1)
Proceeds from sale of assets                                                    5.3                      -
All other investing activities                                                  0.4                      -
Total investing cash used in continuing operations                    $     

(65.2) $ (3,285.6)

Net proceeds from (repayments of) commercial paper borrowings $ (1,141.9) $ 892.3 Proceeds from borrowings (maturities longer than 90 days), net of issuance costs of $8 million and $24 million in 2020 and 2019,

                741.7                2,413.2

respectively

Repayment of borrowings (maturities greater than 90 days)                    (250.0)                (455.3)

Payment of common stock cash dividend to shareholders                         (47.1)                 (46.8)

Payment of mandatory convertible preferred stock cash dividend to

   (17.3)                 (34.5)

shareholders

All other financing activities                                                (13.8)                   7.5

Total financing cash (used in) provided by continuing operations $

(728.4) $ 2,776.4

Operating Activities
Cash flows from operating activities can fluctuate significantly from
period-to-period as working capital needs and the timing of payments for income
taxes, various employee liabilities, restructuring activities, and other items
impact reported cash flows.
Cash flows from operating activities were approximately $671 million during the
first six months of 2020, an increase of $250 million, as compared to the
comparable period of 2019. The year-over-year change in operating cash flows was
primarily attributable to the following factors:
•2020 operating cash flows were impacted by lower net earnings for the
first six months of 2020 as compared to the comparable period in 2019. Net
earnings for the six month period ended June 26, 2020 were impacted by a
year-over-year decrease in operating profits of $58 million, a gain on the sale
property of $5 million, and a decrease in net interest expense of $1 million
associated with our financing activities related to recent acquisitions. The
year-over-year decrease in operating profit was impacted by the non-cash
goodwill impairment charge of $85 million, costs associated with the proposed
Vontier separation, and a net year-over-year increase in depreciation and
amortization expenses of $44 million largely attributable to recently acquired
businesses. Depreciation, amortization, and goodwill impairment charges are
noncash expenses that decrease earnings without a corresponding impact to
operating cash flows.
•The aggregate of accounts receivable, inventories, and trade accounts payable
provided $163 million of cash during the first six months of 2020 as compared to
using $68 million in the comparable period of 2019. The amount of cash flow
generated from or used by the aggregate of accounts receivable, inventories, and
trade accounts payable depends upon how effectively we manage the cash
conversion cycle, which effectively represents the number of days that elapse
from the day we pay for the purchase of raw materials and components to the
collection of cash from our customers, and can be significantly impacted by the
timing of collections and payments in a period.
•The aggregate of prepaid expenses and other assets and accrued expenses and
other liabilities used $20 million of cash during the first six months of 2020
as compared to using $71 million of cash in the comparable period of 2019. The
year over year change was largely driven by the timing of tax payments and
various employee benefit accruals.
Investing Activities
Net cash used in investing activities decreased $3.2 billion during the six
month period ended June 26, 2020 as compared to the comparable period of 2019,
largely due to cash paid for the acquisitions of ASP and Intelex during the six
month period ended June 28, 2019 and the proceeds from the disposition of assets
during the six month period ended June 26, 2020, which was minimally offset by a
year-over-year increase in capital expenditures.
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Capital expenditures are made primarily for increasing capacity, replacing
equipment, supporting product development initiatives, improving information
technology systems, and purchasing equipment that is used in revenue
arrangements with customers. For the year ended December 31, 2020, we expect
capital spending to be between approximately $80 million and $100 million, which
includes approximately $20 million of one-time capital expenditures related to
the integration of the ASP acquisition. Actual expenditures will ultimately
depend on business conditions.
Financing Activities and Indebtedness
Cash flows from financing activities consist primarily of cash flows associated
with the issuance of equity, the issuance and repayments of debt and commercial
paper, and payments of quarterly cash dividends to shareholders. Financing
activities used cash of $728 million during the six month period ended June 26,
2020, reflecting $750 million of borrowings from our 2021 Term Loan, which was
more than offset by repayments of $1.1 billion of commercial paper and $250.0
million of our 2020 Term Loan. In the comparable 2019 period, financing
activities generated cash of approximately $2.8 billion, largely due to the
issuance of our Convertible Senior Notes and borrowings under our 2020
Delayed-Draw Term Loan. During the six month period ended June 26, 2020, we paid
$64 million of cash dividends to shareholders of our common stock and MCPS.

2021 Term Loan
On March 23, 2020, we entered into a credit facility agreement that provides for
the 2021 Term Loan in an aggregate principal amount of $425 million. On the same
day, we drew down $375 million available under the 2021 Term Loan. We
subsequently increased the size of this facility by $325 million on April 3,
2020, and drew the additional $375 million in April 2020, resulting in an
outstanding amount of $750 million. We paid approximately $2.0 million in debt
issuance costs associated with the 2021 Term Loan. The borrowings from this
credit facility were used for settlement of outstanding commercial paper. The
2021 Term Loan bears interest at a variable rate equal to LIBOR plus a
ratings-based margin currently at 155 basis points. As of June 26, 2020,
borrowings under this facility bore an interest rate of 1.80% per annum. The
2021 Term Loan is due on March 19, 2021 and prepayable at our option. We are not
permitted to re-borrow once the term loan is repaid. The terms and conditions,
including covenants, applicable to the 2021 Term Loan, are substantially similar
to those applicable to our Revolving Credit Facility.

2020 Delayed-Draw Term Loan
On March 1, 2019, we entered into a credit facility agreement that provides for
the 2020 Delayed-Draw Term Loan in an aggregate principal amount of $1.0
billion. On March 20, 2019, we drew down the full $1.0 billion available under
the 2020 Delayed-Draw Term Loan in order to fund, in part, the ASP acquisition.
The 2020 Delayed-Draw Term Loan bears interest at a variable rate equal to LIBOR
plus a ratings based margin, prior to the Amendments, at 75 basis points and,
following the Amendments, at 155 basis points. As of June 26, 2020 borrowings
under this facility bore an interest rate of 1.80% per annum. The 2020
Delayed-Draw Term Loan is prepayable at our option, and we are not permitted to
re-borrow once the term loan is repaid. The terms and conditions, including
covenants, applicable to the 2020 Delayed-Draw Term Loan are substantially
similar to those applicable to our Revolving Credit Facility.

On February 25, 2020, we extended the maturity of the 2020 Delayed-Draw Term
Loan to August 28, 2020. Additionally, on April 24, 2020 we further extended the
maturity to May 30, 2021. We were in compliance with our covenants both before
and after the extension. The 2020 Delayed-Draw Term Loan is not callable and
remains prepayable at our option.

2020 Term Loan
On October 25, 2019, we entered into a credit facility agreement that provides
for the 2020 Term Loan in an aggregate principal amount of $300 million. On
October 25, 2019, we drew down the full $300 million available under the 2020
Term Loan in order to fund, in part, the Censis acquisition. We subsequently
increased the size of this facility by $200 million on November 8, 2019 and drew
the additional amount on the same day resulting in an outstanding amount of
$500 million. The 2020 Term Loan bears interest at a variable rate equal to
LIBOR plus a ratings-based margin currently at 75 basis points. As of June 26,
2020, borrowings under this facility bore an interest rate of 1.00% per annum.
The 2020 Term Loan is due on October 23, 2020 and prepayable at our option. We
are not permitted to re-borrow once the term loan is repaid. The terms and
conditions, including covenants, applicable to the 2020 Term Loan are
substantially similar to those applicable to our Revolving Credit Facility.
On February 26, 2020, we prepaid $250 million of the 2020 Term Loan. The
prepayment fees associated with this payment were immaterial.
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When market conditions allow, we also have the ability to satisfy any short-term
liquidity needs that are not met through operating cash flows and available cash
through issuances of commercial paper under the Commercial Paper Programs.
Credit support for the Commercial Paper Programs is provided by our five-year,
$2.0 billion senior unsecured revolving credit facility that expires on November
30, 2023 ("Revolving Credit Facility"). The availability of the Revolving Credit
Facility as a standby liquidity facility to repay maturing commercial paper is
an important factor in maintaining the existing credit ratings of the Commercial
Paper Programs. We expect to limit any borrowings under the Revolving Credit
Facility to amounts that would leave sufficient credit available under the
facility to allow us to borrow, if needed, and to repay any outstanding
commercial paper as it matures.
We had $2.0 billion available under the Revolving Credit Facility as of June 26,
2020, and did not hold commercial paper as of June 26, 2020, and accordingly, we
had the ability to incur an additional $2.0 billion of indebtedness under the
Revolving Credit Facility as of June 26, 2020. Refer to Note 5 of the
consolidated condensed financial statements for information regarding our
financing activities and indebtedness.
We have $2.7 billion in debt with maturities within one year of June 26, 2020.
Based on our intent and ability to refinance our borrowings outstanding under
the 2020 Delayed-Draw Term Loan of $1.0 billion and the 2021 Term Loan of $748.7
million for at least one year from the balance sheet date, as supported by
availability under the Revolving Credit Facility, we have classified these loans
as long-term debt in the accompanying Consolidated Condensed Balance Sheet as
of June 26, 2020. Our intent with respect to the refinancing of these
outstanding borrowings may change once the proposed separation of Vontier is
effectuated, in which case these loans may be repaid using the cash flows
received from the separation. Borrowings under the 2020 Term Loan of $250
million and 2.35% Senior unsecured notes due 2021 of $748.8 million are recorded
in the Current portion of long-term debt line item in our Consolidated Condensed
Balance Sheet as of June 26, 2020.
Dividends
Aggregate cash payments for preferred and common stock dividends paid to
shareholders during the six month period ended June 26, 2020 were $64 million
and are recorded as dividends to shareholders in the Consolidated Condensed
Statement of Changes in Equity and the Consolidated Condensed Statement of Cash
Flows. On April 9, 2020, dividends of $17.2 million were declared on our
preferred shares and paid on July 1, 2020. As such, our preferred dividends were
accrued and recorded as Mandatory convertible preferred stock cumulative
dividends in the Consolidated Condensed Statement of Changes in Equity and in
Accrued expenses and other current liabilities in the Consolidated Condensed
Balance Sheet as of June 26, 2020.
Cash and Cash Requirements
As of June 26, 2020, we held approximately $1.1 billion of cash and equivalents
that were invested in highly liquid investment-grade instruments with a maturity
of 90 days or less with an annual effective interest rate that approximated 0.5%
during the three month period ended June 26, 2020. Approximately 75% of the $1.1
billion of cash and equivalents we held as of June 26, 2020 was held outside of
the United States.
We have cash requirements to support working capital needs, capital expenditures
and acquisitions, pay interest and service debt, pay taxes, and any related
interest or penalties, fund our restructuring activities and pension plans as
required, pay dividends to shareholders, and support other business needs or
objectives. With respect to our cash requirements, we generally intend to use
available cash and internally generated funds to meet these cash requirements,
but in the event that additional liquidity is required, particularly in
connection with acquisitions, we may also borrow under our commercial paper
programs or credit facilities, enter into new credit facilities and either
borrow directly thereunder or use such credit facilities to backstop additional
borrowing capacity under our commercial paper programs, and/or access the
capital markets. We also may, from time to time, access the capital markets,
including to take advantage of favorable interest rate environments or other
market conditions.
Additionally, we anticipate the provisions of the CARES Act will continue
providing us with short-term liquidity benefits, specifically the deferral of
employer payroll tax payments until December 31, 2021 and December 31, 2022 of
approximately $40 million to $50 million, in addition to other potential income
tax impacts that we are continuing to evaluate. During the three month period
ended June 26, 2020, we deferred remittance of approximately $15 million in
payroll tax payments into 2021 and approximately $10 million of estimated
Federal income tax payments into the third quarter of 2020.

Given the impact of the COVID-19 pandemic and current market conditions in the
U.S., we have updated our assertion for previously unremitted earnings from 2019
and prior periods due to new facts and circumstances that we did not face in
prior periods. The TCJA eliminated the U.S. tax cost for qualified repatriation
beginning in 2018 but foreign cumulative earnings remain subject to foreign
remittance taxes. During the six month period ended June 26, 2020, we provided
foreign remittance taxes of $13 million on the repatriation of $310 million of
previously unremitted earnings from 2019 and prior periods.

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We have made an election regarding the amount of current earnings that we do not
intend to repatriate due to local working capital needs, local law restrictions,
high foreign remittance costs, previous investments in physical assets and
acquisitions, or future growth needs. For most of our foreign operations, we
make an assertion regarding the amount of earnings in excess of intended
repatriation that are expected to be held for indefinite reinvestment. The
amount of foreign remittance taxes that may be applicable to our permanently
reinvested earnings is not readily determinable given local law restrictions
that may apply to a portion of such earnings, unknown changes in foreign tax law
that may occur during the applicable restriction periods caused by applicable
local corporate law for cash repatriation, and the various tax planning
alternatives we could employ if we repatriated these earnings.
As of June 26, 2020, we expect to have sufficient liquidity to satisfy our cash
needs for the foreseeable future, including our cash needs in the United States.
CRITICAL ACCOUNTING ESTIMATES
Other than noted below, there were no material changes during the three and six
month periods ended June 26, 2020 to the items we disclosed as our critical
accounting estimates in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in our 2019 Annual Report on Form 10-K.
On January 1, 2020, we adopted ASU No. 2016-13, Financial Instruments-Credit
Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU
2016-13"). Concurrent with our adoption of ASU 2016-13, we updated our
methodology for estimating the allowance for credit losses as provided below:
Trade Accounts, Financing, and Unbilled Receivables: We maintain allowances for
credit losses to reflect expected credit losses inherent in our portfolio of
receivables. Determination of the allowances requires us to exercise judgment
about the timing, frequency, and severity of credit losses that could materially
affect the allowances and, therefore, net earnings. The allowances for credit
losses represent management's best estimate of the credit losses expected from
our trade accounts, financing, and unbilled receivable portfolios over the
remaining contractual life. We pool assets with similar risk characteristics for
this measurement based on attributes that may include asset type, duration,
and/or credit risk rating. The future expected losses of each pool are estimated
based on numerous quantitative and qualitative factors reflecting management's
estimate of collectibility over the remaining contractual life of the pooled
assets, including:
•duration;
•historical, current, and forecasted future loss experience by asset type;
•historical, current, and forecasted delinquency and write-off trends;
•historical, current, and forecasted economic conditions; and
•historical, current, and forecasted credit risk.

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

Recent deterioration in overall global economic conditions and worldwide capital
markets as a result of the COVID-19 pandemic may negatively impact our
customers' ability to pay and, as a result, may increase the difficulty in
collecting trade accounts, financing, and unbilled receivables. We did not
realize notable increases in loss rates and delinquencies during the three and
six month periods ended June 26, 2020, and given the nature of our portfolio of
receivables, our historical experience during times of challenging economic
conditions, and our forecasted future impact of COVID-19 on our customer's
ability to pay, we did not record material provisions for credit losses as a
result of the COVID-19 pandemic during the three and six month periods ended
June 26, 2020. If the financial condition of our customers were to deteriorate
beyond our current estimates, resulting in an impairment of their ability to
make payments, we would be required to write-off additional receivable balances,
which would adversely impact our net earnings and financial condition.

Acquired Intangibles: Our business acquisitions typically result in the
recognition of goodwill, in-process R&D and other intangible assets, which
affect the amount of future period amortization expense and possible impairment
charges that we may incur. We review identified intangible assets for impairment
whenever events or changes in circumstances indicate that the related carrying
amounts may not be recoverable.

In connection with management's updated forecast for the Telematics business
that indicated a decline in sales and operating profit to levels lower than
previously forecasted, due in large part to the impacts of the COVID-19
pandemic, management determined the change in forecast indicated the related
carrying value of goodwill may not be recoverable and performed a quantitative
impairment assessment over the Telematics reporting unit on March 27, 2020. This
analysis resulted in an impairment of $85.3 million. Refer to Note 3 for
information regarding management's assumptions used in determining the fair
value of the reporting unit.
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