FORTIVE CORPORATION 
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. We are headquartered inEverett, Washington and employ a team of more than 18,000 research and development, manufacturing, sales, distribution, service, and administrative employees in more than 50 countries around the world. OnOctober 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. OnJanuary 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 byGoldman 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. 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 financial statements included in our 2021 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
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 theSecurities 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 ofthe 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, strategic opportunities, securities offerings, stock repurchases, dividends and executive compensation; growth, declines and other trends in markets we sell into, including the expected impact of trade and tariff policies; 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 of 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 they believe to be appropriate. Forward-looking statements are not guarantees of future performance and actual results may differ materially from 28
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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, among others, the following:
Risk Related to Our Business Operations
•If we cannot adjust our manufacturing capacity, supply chain management or the purchases required for our manufacturing activities to reflect changes in market conditions, customer demand and supply chain or transportation disruptions, 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 financial results are subject to fluctuations in the cost and availability of commodities or components that we use in our operations.
•Conditions in the global economy, the markets we serve, and the financial markets may adversely affect our business and financial statements.
•The effect of the COVID-19 pandemic, including the corresponding government-mandated mitigation efforts, on our global operations and the operations of our customers, suppliers, and vendors has had and may continue to have a material, adverse impact on our business and results of operations.
•Our growth could suffer if the markets into which we sell our products 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.
•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.
•If we are unable to recruit and retain key employees, our business may be harmed.
•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 restructuring activities could have long-term adverse effects on our business.
•Work stoppages, 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.
•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.
•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.
Risk Related to our International Operations
•International economic, political, legal, compliance, and business factors including, but not limited to, the impact of the invasion ofUkraine byRussia and the corresponding sanctions and supply chain disruptions, could negatively affect our financial statements. 29
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•Trade relations between
•Foreign currency exchange rates, including the volatility thereof, may adversely affect our financial statements.
Risk Related to Our Acquisitions, Investments, and Dispositions
•Any inability to consummate acquisitions at our anticipated rate and at appropriate prices could negatively impact our growth rate and stock price.
•Our acquisition of businesses, joint ventures, and strategic relationships could negatively impact our financial statements.
•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.
•Potential indemnification liabilities to Vontier pursuant to the separation agreement could materially and adversely affect our businesses, financial condition, results of operations, and cash flows.
Risk Related to Regulatory and Compliance Matters
•Changes in industry standards and governmental regulations may reduce demand for our products or services or increase our expenses.
•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 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.
Risk Related to Our Tax and Accounting Matters
•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 could incur significant liability if any of our separation from Danaher, our separation of our Automation and Specialty business or our separation of Vontier (collectively, the "Separation Transactions") is determined to be a taxable transaction.
•Changes in
•We may be required to recognize impairment charges for our goodwill and other intangible assets.
Risk Related to Our Financing Activities
•We have incurred a significant amount of debt, and our debt obligations, including the cost of such debt, will increase further if we incur additional debt and do not retire existing debt, or if the applicable interest rates continue to rise.
Risk Related to Shareholder Rights
•Certain provisions in our amended and restated certificate of incorporation and bylaws, and ofDelaware law, may prevent or delay an acquisition of our company, which could decrease the trading price of our common stock. •Our amended and restated certificate of incorporation designates the state courts in theState of Delaware or, if no state court located within theState of Delaware has jurisdiction, the federal court for the District ofDelaware , 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. 30
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See "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2021 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 (or such earlier date as may be specified in such statement). 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 GeneralFortive is a multinational business with global operations with approximately 49% of our sales derived from customers outside ofthe United States in 2021. As a company with global operations, our businesses are affected by worldwide, regional, and industry-specific economic and political factors. Our geographic and industry diversity, as well as the range of products, software, and services we offer, typically help limit the impact of any one industry or the economy of any single country (except forthe United States ) on our operating results. Given the broad range of products manufactured, software and services provided, and geographies served, we do not use any indices other than general economic trends to predict the overall outlook for the Company. Our individual businesses monitor key competitors and customers, including their sales, to the extent possible, to gauge relative performance and the outlook for the future. As a result of our geographic and industry diversity, we face a variety of opportunities and challenges, including technological development in most of the markets we serve, the expansion and evolution of opportunities in high-growth markets, trends and costs associated with a global labor force, and consolidation of our competitors. We define high-growth markets as developing markets of the world experiencing extended periods of accelerated growth in gross domestic product and infrastructure which includeEastern Europe , theMiddle East ,Africa ,Latin America , andAsia with the exception ofJapan andAustralia . We operate in a highly competitive business environment in most markets, and our long-term growth and profitability will depend, in particular, on our ability to expand our business across geographies and market segments, identify, consummate, and integrate appropriate acquisitions, develop innovative and differentiated new products, services, and software, expand and improve the effectiveness of our sales force, continue to reduce costs and improve operating efficiency and quality, attract relevant talent and retain, grow, and empower our talented workforce, and effectively address the demands of an increasingly regulated environment. We are making significant investments, organically and through acquisitions, to address technological change in the markets we serve, and to improve our manufacturing, research and development, and customer-facing resources in order to be responsive to our customers throughout the world.
Provation Acquisition
OnDecember 27, 2021 , we acquiredProvation Software, Inc. ("Provation"), a privately held, leading provider of clinical workflow software solutions used in hospitals and ambulatory surgery centers. The acquisition of Provation extends our digital offering and software capabilities in the healthcare space. The total consideration paid was approximately$1.4 billion , net of acquired cash and was primarily financed with proceeds from our financing activities and available cash. We preliminarily recorded$977 million of goodwill related to the acquisition, which is not tax deductible. Provation had revenue in 2020 of approximately$90 million and is an operating company within our Advanced Healthcare Solutions segment.
ServiceChannel Acquisition
OnAugust 24, 2021 , we acquiredServiceChannel Holdings, Inc. ("ServiceChannel"), a privately held, global provider of Software as a Service ("SaaS") based multi-site facilities maintenance service solutions with an integrated service-provider network. The acquisition of ServiceChannel broadens our offering of software-enabled solutions for the facility and asset lifecycle workflow. The total consideration paid was approximately$1.2 billion , net of acquired cash, and included approximately$28 million of deferred compensation consideration that is being recognized ratably over a twelve month service period. The ServiceChannel acquisition was primarily financed with available cash and proceeds from our financing activities. We preliminarily recorded approximately$868 million of goodwill related to the acquisition, which is not tax deductible. ServiceChannel had revenue in 2020 of approximately$70 million and is an operating company within our Intelligent Operating Solutions segment.
Vontier Separation
OnOctober 9, 2020 , we completed 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 31
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statements reflect the results of separation activities associated with the prior Vontier business as a discontinued operation, which was immaterial for all periods presented.
OnJanuary 19, 2021 , we completed the Debt-for-Equity Exchange of 33.5 million shares of common stock of Vontier, representing all of the Vontier common stock retained by the Company immediately following the Separation (the "Retained Vontier Shares"), for$1.1 billion in aggregate principal amount of indebtedness of the Company held byGoldman 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.
Divestiture
OnSeptember 30, 2022 , we completed the sale of our Therapy Physics product line, which was reported in our Advanced Healthcare Solutions segment, to an unrelated third party for total consideration of$9.6 million . As a result of the sale, in the three and nine month periods endedSeptember 30, 2022 , we recorded a net realized pre-tax gain totaling$2.3 million , net of transaction costs, which is recorded as "Other non-operating expense, net" in the Consolidated Condensed Statements of Earnings. The divested business accounted for less than 1.0% of total revenue and less than 1.0% of total assets for the fiscal year endedDecember 31, 2021 . The divestiture of this product line did not represent a strategic shift with a major effect on the Company's operations and financial results and therefore the divested product line is not reported as a discontinued operation. Russia Ukraine Conflict InFebruary 2022 , Russian forces invadedUkraine ("Russia Ukraine Conflict") resulting in broad economic sanctions being imposed onRussia . In the second quarter of 2022, the Company exited business operations inRussia , other than for ASP's sterilization products, which are exempt from international sanctions as humanitarian products. Our business inRussia andUkraine accounted for less than 1% of total revenue and less than 0.2% of total assets for the fiscal year endedDecember 31, 2021 . In the three and nine month periods endedSeptember 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.
Segment Presentation
We operate and report our results in three segments, Intelligent Operating Solutions, Precision Technologies, and Advanced Healthcare Solutions, each of which is further described below.
Our Intelligent Operating Solutions segment provides leading workflow solutions to accelerate industrial and facility reliability and performance, as well as compliance and safety across a range of vertical end markets, including manufacturing, process industries, healthcare, utilities and power, communications and electronics, among others. We provide differentiated instrumentation and sensors, software and services to address our customers' toughest workflow challenges. Our Precision Technologies segment supplies instrumentation and sensing technologies to a broad set of vertical end markets, enabling our customers to accelerate the development, manufacture and launch of innovative products and solutions. We provide our customers with electrical test and measurement instruments and services, energetic material devices, and a broad portfolio of sensor and control system solutions. Our Advanced Healthcare Solutions segment supplies critical workflow solutions to hospitals and other healthcare customers, enabling safer, more efficient, and higher quality healthcare. We provide hardware, consumables, software and services that optimize our customers' most critical workflows, including instrument sterilization and device reprocessing, instrument tracking, cell therapy equipment design and manufacturing, biomedical test tools, radiation safety monitoring, end-to-end clinical productivity solutions and asset management.
Non-GAAP Measures
In this report, references to sales from existing businesses refer to sales from operations calculated according to generally accepted accounting principles inthe 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 and the effect of purchase accounting adjustments, 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 32
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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 acquisition 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.
Business Performance and Outlook
Business Performance For the Period Ended
We experienced robust demand for our products and services during the three and nine month periods endedSeptember 30, 2022 ("the quarter" or the "third quarter" and "year-to-date period", respectively). During the third quarter and year-to-date period, and despite challenging macroeconomic and supply chain conditions, year-over-year sales increased 11.9% and 10.7%, respectively, with contributions from both existing and newly acquired businesses, all partially offset by unfavorable changes in foreign exchange rates. Sales from existing businesses increased 12.1% and 8.8% during the third quarter and year-to-date periods, respectively, as compared to the comparable periods in 2021, reflecting strong end-market demand for our offerings as well as focused execution on product and service delivery. Geographically, in the third quarter, year-over-year sales from existing businesses increased low double-digits, with growth driven by low double-digit growth inNorth America , mid-teens growth inWestern Europe and mid-twenties growth inChina . In the year-to-date period, year-over-year sales from existing businesses increased high single digits with high single digit growth in bothNorth America andChina , as well as low double-digit growth inWestern Europe . Year-over-year price increases contributed 6.1% and 4.8% to sales growth during the third quarter and year-to-date period, as compared to the comparable periods in 2021 and is reflected as a component of the change in sales from existing businesses. In both the third quarter and year-to-date period, price increases exceeded inflationary increases that we experienced on purchased materials. The strengthening of theU.S. dollar relative to other currencies reduced our sales by 4.0% and 2.9% in the third quarter and year-to-date periods, respectively, when compared to the comparable periods of 2021 and may continue to impact our results in future periods. Widespread supply chain challenges persisted in the third quarter, impacting the availability of key materials, resulting in higher costs in each of our three segments. We continue to apply the Fortive Business System ("FBS") to help mitigate the impact of these challenges and serve our customers. The COVID-19 pandemic, including mitigation efforts inChina , continues to impact our results and creates operating challenges with logistics, material availability and absenteeism. We anticipate that the disruption caused by the pandemic will continue to impact future periods.
Outlook
Despite uncertainty in the macro environment, we anticipate increasing demand for our offerings will continue and are projecting sales to grow on a year-over-year basis of approximately 8.5% in the fourth quarter and approximately 10.0% for the full year. We anticipate sales growth on a year-over-year basis from existing businesses will be approximately 11.0% for the fourth quarter and approximately 9.5% for the full year. We expect that foreign exchanges rates will remain unfavorable to us when compared with the rates in effect in the comparable periods of 2021 and relative to assumptions at the start of 2022. Additionally, this outlook is subject to various assumptions and risks, including but not limited to the resilience and durability of the economies ofthe United States and other critical regions, ongoing challenges with global logistics and supply chain including the availability of electronic components, the impact of the COVID-19 pandemic, the impact of theRussia Ukraine Conflict, market conditions in key end product segments, elective surgery rates, and the impact of energy disruption inEurope . We anticipate that supply chain and inflationary pressures will persist throughout 2022 and that our backlog may remain elevated compared to historical levels. We will continue to deployFBS to actively manage production challenges, collaborate with customers and suppliers to minimize disruptions and utilize price increases and other countermeasures to offset inflationary pressures. 33
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We continue to monitor the macroeconomic and geopolitical conditions which may impact our business, including the COVID-19 pandemic, monetary and fiscal policies, international trade and relations between theU.S. ,China and other nations, and investment and taxation policy initiatives being considered inthe United States and by theOrganization for Economic Co-operation and Development ("OECD"). RESULTS OF OPERATIONS
All of the financial information presented in this Item 2 has been adjusted to reflect the retroactive adjustment more fully described in Note 1 to the Consolidated Condensed Financial Statements.
Sales Growth
The following table summarizes total aggregate year-over-year sales growth and the components of aggregate year-over-year sales growth during the third quarter and year-to-date periods endedSeptember 30, 2022 as compared to the comparable periods of 2021: Components of Sales Growth % Change Three Months % Change Nine Months Ended September 30, 2022 Ended September 30, 2022 vs. Comparable 2021 vs. Comparable 2021 Period Period Total revenue growth (GAAP) 11.9 % 10.7 % Existing businesses (Non-GAAP) 12.1 % 8.8 % Acquisitions (Non-GAAP) 3.8 % 4.8 % Currency exchange rates (Non-GAAP) (4.0) % (2.9) % Operating Profit Margins Operating profit margin was 17.3% for the third quarter endedSeptember 30, 2022 , an increase of 180 basis points as compared to 15.5% in the comparable period of 2021. Year-over-year changes in operating profit margin were comprised of the following: •Year-over-year increase in price and sales volumes from existing businesses, which were partially offset by higher year-over-year employee compensation, freight, logistics and material costs and unfavorable foreign exchange rates - favorable 160 basis points
•The year-over-year effect of amortization from existing businesses - favorable 75 basis points
•The year-over-year net effect of acquisition-related transaction costs which were lower in the third quarter than those recognized during the comparable period in 2021 - favorable 65 basis points
•The year-over-year net effect of acquired businesses, including amortization, and acquisition-related fair value adjustments - unfavorable 110 basis points
•Russia exit and wind down costs that were incurred during the third quarter - unfavorable 10 basis points
Operating profit margin was 16.2% for the year-to-date period endedSeptember 30, 2022 , an increase of 40 basis points as compared to 15.8% in the comparable period of 2021. Year-over-year changes in operating profit margin were comprised of the following: •Year-over-year increase in price and sales volumes from existing businesses and gains from productivity measures, which were partially offset by higher year-over-year employee compensation, freight, logistics and material costs, unfavorable foreign exchange rates and growth investments in R&D, sales and marketing - favorable 135 basis points
•The year-over-year effect of amortization from existing businesses - favorable 65 basis points
•The year-over-year net effect of acquisition-related transaction costs which were lower during the year-to-date period than those recognized during the comparable period in 2021 - favorable 5 basis points
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•The year-over-year net effect of acquired businesses, including amortization, and acquisition-related fair value adjustments - unfavorable 125 basis points
•Russia exit and wind down costs that were incurred during the year-to-date period - unfavorable 40 basis points
Business Segments
Sales by business segment for each of the periods indicated were as follows ($
in millions):
Three Months Ended Nine Months Ended
September 30, September 30,
2022 October 1, 2021 2022 October 1, 2021
Intelligent Operating Solutions $ 613.7 $ 536.9 $ 1,831.4 $ 1,589.6
Precision Technologies 523.7 455.7 1,485.2 1,375.0
Advanced Healthcare Solutions 318.6 308.4 979.2 915.3
Total $ 1,456.0 $ 1,301.0 $ 4,295.8 $ 3,879.9 INTELLIGENT OPERATING SOLUTIONS
Our Intelligent Operating Solutions segment provides leading solutions to accelerate industrial and facility reliability and performance, as well as compliance and safety across a range of vertical end markets, including manufacturing, process industries, healthcare, utilities and power, communications and electronics, among others. We provide a broad and differentiated offering of instrumentation, sensors, software, and services to address these critical workflows for our customers.
Intelligent Operating Solutions Selected Financial Data
Three Months Ended Nine Months Ended
September 30,
($ in millions) September 30, 2022 October 1, 2021 2022 October 1, 2021
Sales $ 613.7 $ 536.9 $ 1,831.4 $ 1,589.6
Operating profit 132.1 91.5 369.0 314.9
Depreciation 7.8 6.1 26.4 18.3
Amortization 45.6 40.9 137.9 116.8
Operating profit as a % of sales 21.5 % 17.0 % 20.1 % 19.8 %
Depreciation as a % of sales 1.3 % 1.1 % 1.4 % 1.2 %
Amortization as a % of sales 7.4 % 7.6 % 7.5 % 7.3 %
Components of Sales Growth
% Change Three Months % Change Nine Months
Ended September 30, 2022 Ended
vs. Comparable 2021 September 30, 2022 vs.
Period Comparable 2021 Period
Total revenue growth (GAAP) 14.3 % 15.2 %
Existing businesses (Non-GAAP) 13.8 % 11.7 %
Acquisitions (Non-GAAP) 4.2 % 6.3 %
Currency exchange rates (Non-GAAP) (3.7) % (2.7) %
Year-over-year sales from existing businesses increased 13.8% and 11.7% during
the third quarter and year-to-date period, respectively, as compared to the
comparable periods of 2021. The year-over-year results for both respective
periods were driven by price increases and continued strong demand for test and
measurement instrumentation, gas detection offerings and software and related
services.
Geographically, sales from existing businesses in developed markets increased in
the third quarter by mid-teens, driven by low double digit growth in North
America and mid-teens growth in Western Europe . Sales in high growth markets
increased by mid-teens, driven by low-twenties growth in China , as well as low
double-digits growth in Latin America , and low twenties growth in Other Asia. On
a year-to-date basis, sales from existing businesses in developed markets
increased by low double-digits and high growth markets increased by high-single
digits.
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Year-over-year price increases in our Intelligent Operating Solutions segment contributed 6.8% and 5.3% to sales growth during the third quarter and year-to-date period, as compared to the comparable periods of 2021, and is reflected as a component of the change in sales from existing businesses.
Operating profit margin increased 450 basis points during the third quarter as compared to the comparable period of 2021. Year-over-year changes in operating profit margin were comprised of the following: •Year-over-year increase in price and sales volume from existing businesses and gains from productivity measures were partially offset by higher year-over-year employee compensation costs, freight, logistics and material costs, unfavorable foreign exchange rates and growth investments in R&D, sales and marketing- favorable 345 basis points
•The year-over-year effect of amortization from existing businesses - favorable 100 basis points
•The year-over-year net effect of acquisition-related transaction costs, which were lower than those recognized during the comparable period in 2021 - favorable 165 basis points
•The year-over-year effect of acquisitions, including amortization - unfavorable 160 basis points
Operating profit margin increased 30 basis points during the year-to-date period, as compared to the comparable period of 2021. Year-over-year operating profit margin comparisons were impacted by:
•Year-over-year increase in price and sales volume from existing businesses and gains from productivity measures, partially offset by higher year- over-year freight, logistics and material costs and employee compensation costs, and growth investments in R&D, sales and marketing - favorable 185 basis points
•The year-over-year effect of amortization from existing businesses - favorable 100 basis points
•The year-over-year effect of acquired businesses, including amortization - unfavorable 255 basis points
PRECISION TECHNOLOGIES Our Precision Technologies segment supplies technologies to a broad set of vertical end markets, enabling our customers to accelerate the development of innovative products and solutions. We provide our customers with electrical test and measurement instruments and services, energetic material devices, and a broad portfolio of sensor and control system solutions.
Precision Technologies Selected Financial Data
Three Months Ended Nine Months Ended
September 30,
($ in millions) September 30, 2022 October 1, 2021 2022 October 1, 2021
Sales $ 523.7 $ 455.7 $ 1,485.2 $ 1,375.0
Operating profit 131.8 101.1 348.5 301.1
Depreciation 5.9 6.3 18.1 18.9
Amortization 3.6 4.2 10.8 12.7
Operating profit as a % of sales 25.2 % 22.2 % 23.5 % 21.9 %
Depreciation as a % of sales 1.1 % 1.4 % 1.2 % 1.4 %
Amortization as a % of sales 0.7 % 0.9 % 0.7 % 0.9 %
Components of Sales Growth
% Change Three Months % Change Nine Months
Ended September, 2022 Ended
vs. Comparable 2021 September 30, 2022 vs.
Period Comparable 2021 Period
Total revenue growth (GAAP) 14.9 % 8.0 %
Existing businesses (Non-GAAP) 19.0 % 10.7 %
Acquisitions (Non-GAAP) - % - %
Currency exchange rates (Non-GAAP) (4.0) % (2.7) %
Year-over-year sales from existing businesses increased 19.0% and 10.7% during
the third quarter and the year-to-date period compared to the comparable periods
of 2021. The year-over-year results for both respective periods were driven by
price
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increases, market growth and share gains in key verticals and improved production execution with our energetic materials products.
Geographically, sales from existing businesses in developed markets increased by mid-teens in the third quarter driven by mid-teens growth inNorth America and high teens growth inWestern Europe . Sales in high growth markets increased by low-thirties in the third quarter driven byChina . On a year-to-date basis, sales from existing businesses in developed markets increased by high-single digits and high growth markets increased by mid-teens, respectively. Year-over-year price increases in our Precision Technologies segment contributed 8.1% and 6.3% to sales growth for the third quarter and year-to-date period, respectively, as compared to the comparable periods of 2021, and is reflected as a component of the change in sales from existing businesses.
Operating profit margin increased 300 basis points for the third quarter as compared to the comparable period of 2021. Year-over-year changes in operating profit margin were comprised of the following:
•Higher year-over-year increases in price and volume, partially offset by higher material, freight and employee compensation costs and unfavorable exchange rates - favorable 280 basis points
•The year-over-year effect of amortization from existing businesses - favorable 20 basis points
Operating profit margin increased 160 basis points during the year-to-date period as compared to the comparable period of 2021. Year over year operating profit margins were comprised of the following
•Higher year-over-year increases in price and volume, partially offset by higher material, freight and employee compensation costs and unfavorable exchange rates - favorable 140 basis points
•The year-over-year effect of amortization from existing businesses - favorable 20 basis points
ADVANCED HEALTHCARE SOLUTIONS Our Advanced Healthcare Solutions segment serves healthcare customers with enabling products and services for critical activities that help ensure safe, efficient, and timely healthcare. We provide broad hardware and software portfolio offerings optimized around our end-users' most critical workflows, including instrument and device reprocessing, instrument tracking, cell therapy equipment design and manufacturing, biomedical test tools, radiation safety monitoring, and asset management.
Advanced Healthcare Solutions Financial Data
Three Months Ended Nine Months Ended
($ in millions) September 30, 2022 October 1, 2021 September 30, 2022 October 1, 2021
Sales $ 318.6 $ 308.4 $ 979.2 $ 915.3
Operating profit 17.3 34.4 73.4 75.8
Depreciation 4.9 4.9 14.3 15.6
Amortization 46.1 35.3 138.7 105.9
Operating profit as a % of sales 5.4 % 11.2 % 7.5 % 8.3 %
Depreciation as a % of sales 1.5 % 1.6 % 1.5 % 1.7 %
Amortization as a % of sales 14.5 % 11.4 % 14.2 % 11.6 %
Components of Sales Growth
% Change Three Months % Change Nine Months
Ended Ended
September 30, 2022 vs. September 30, 2022 vs.
Comparable 2021 Period Comparable 2021 Period
Total revenue growth (GAAP) 3.3 % 7.0 %
Existing businesses (Non-GAAP) (0.8) % 1.0 %
Acquisitions (Non-GAAP) 8.6 % 9.3 %
Currency exchange rates (Non-GAAP) (4.4) % (3.3) %
Year-over-year sales from existing businesses decreased 0.8% in the third
quarter and grew 1.0% in the year-to-date period, as compared to the comparable
periods of 2021. The year-over-year results in the third quarter were driven by
price increases,
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partially offset by volume declines. The overall decline in volume included increased demand for sterilization products, software offerings and radiation monitoring with declines in design services and hardware offerings, which were impacted by supply chain challenges. The year-over-year results for the year-to-date period were driven by price increases partially offset by volume changes consistent with those in the third quarter. Geographically in the third quarter, sales from existing businesses were up slightly in developed markets driven mid-single digit growth inWestern Europe , which was partially offset by a low-single digit decline inNorth America . In high growth markets, sales from existing businesses declined by mid-single digits mainly inChina and otherAsia . On a year-to-date basis, sales from existing businesses in developed markets increased by low-single digits and high growth markets declined by low-single digits.
Year-over-year price increases in our Advanced Healthcare Solutions segment contributed 2.1% and 1.6% to sales growth during the third quarter and year-to-date periods, as compared to the comparable periods of 2021, and is reflected as a component of the change in sales from existing businesses.
Operating profit margin decreased 580 basis points during the third quarter as compared to the comparable period of 2021. Year-over-year changes in operating profit margin were comprised of the following:
•Year-over-year sales increase in price from existing businesses were more than offset by a decline in volume from existing businesses, increased freight, logistics and employee compensation costs, reserves for uncollectible receivables and unfavorable foreign exchange rates - unfavorable 395 basis points
•The year-over-year effect of amortization from existing businesses - favorable 35 basis points
•The year-over-year net effect of acquisition-related transaction costs which were higher in the third quarter than those recognized in the comparable period in 2021 - unfavorable 30 basis points •The year-over-year effect of acquired businesses, including amortization, and acquisition-related fair value adjustments to inventory - unfavorable 190 basis points
Operating profit margin decreased 80 basis points during the year-to-date period as compared to the comparable period of 2021. Year-over-year changes in operating profit margin were comprised of the following:
•Year-over-year sales increases in price from existing businesses were more than offset by increasing freight, logistics and employee compensation costs, reserves for uncollectible receivables and unfavorable foreign exchange rates, as well as a slight decrease in volume - unfavorable 90 basis points
•The year-over-year effect of amortization from existing businesses - favorable 75 basis points
•The year-over-year net effect of acquisition-related transaction costs which were less than those recognized in the comparable period in 2021 - favorable 40 basis points •The year-over-year effect of acquired businesses, including amortization, and acquisition-related fair value adjustments to inventory - unfavorable 105 basis points
COST OF SALES AND GROSS PROFIT
Three Months Ended Nine Months Ended
September 30, September 30,
($ in millions) 2022 October 1, 2021 2022 October 1, 2021
Sales $ 1,456.0 $ 1,301.0 $ 4,295.8 $ 3,879.9
Cost of sales (610.6) (555.3) (1,824.9) (1,666.8)
Gross profit $ 845.4 $ 745.7 $ 2,470.9 $ 2,213.1
Gross profit margin 58.1 % 57.3 % 57.5 % 57.0 %
The year-over-year increase in gross profit during the third quarter and the
year-to-date period as compared to the comparable periods of 2021, is due
primarily to year-over-year increases in sales volumes and price increases from
existing and newly acquired businesses, which were partially offset by higher
material, freight and employee compensation costs and the unfavorable impact of
foreign currency exchange rates.
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OPERATING EXPENSES
Three Months Ended Nine Months Ended
September 30, September 30,
($ in millions) 2022 October 1, 2021 2022 October 1, 2021
Sales $ 1,456.0 $
1,301.0
455.6 1,456.8 1,340.1
Research and development ("R&D") 101.1 87.8 300.3 261.8
Russia exit and wind down costs 1.1 - 17.3 -
SG&A as a % of sales 33.7 % 35.0 % 33.9 % 34.5 %
R&D as a % of sales 6.9 % 6.7 % 7.0 % 6.7 %
SG&A increased during the third quarter and year-to-date period, respectively as
compared to the comparable periods of 2021 due to higher intangible amortization
and incremental expenses from our recent acquisitions and increased employee
compensation expenses, customer acquisition and marketing costs.
On a year-over-year basis, SG&A represented as a percentage of sales, decreased
130 basis points and 60 basis points during the third quarter and year-to-date
period, respectively, with higher amortization expenses from our recent
acquisitions more than offset by leverage on SG&A costs, which grew at a slower
rate than did our sales.
R&D, consisting principally of internal and contract engineering personnel
costs, increased during the third quarter and year-to-date period compared to
the comparable periods of 2021 due to incremental costs from our recent
acquisitions, investments in innovation and key initiatives and higher employee
compensation costs. On a year-over-year basis, R&D expenses represented as a
percentage of sales increased by 20 basis points in the third quarter and 30
basis points in the year-to-date period mainly on our recent acquisitions, where
R&D spending is higher as a percentage of sales than in existing businesses.
We incurred pre-tax costs totaling$17.3 million in the year-to-date period, primarily in the second quarter, for the write-off of net assets, the cumulative translation adjustment in earnings for legal entities deemed substantially liquidated, and to record provisions for employee severance and legal contingencies. Of the$17.3 million incurred, approximately$9.2 million represents non-cash charges and is reflected as such in the Consolidated Condensed Statement of Cash Flows. The costs were primarily related to our segments, as follows: Intelligent Operating Solutions$13.8 million , Precision Technologies$2.2 million and Advanced Healthcare Solutions$1.3 million .
INTEREST COSTS
For a discussion of our outstanding indebtedness, refer to Note 5 to the consolidated condensed financial statements.
Net interest expense for the third quarter and year-to-date period was$26 million and$66 million as compared to$25 million and$78 million in the comparable periods in 2021. The increase in interest expense in the third quarter as compared to the comparable period of 2021 was due to higher outstanding debt balances. The decrease in interest expense in the year-to-date period as compared to the comparable period was due to lower year-over-year effective interest rates on debt instruments, despite overall higher debt balances. This decrease was partially driven by lower non-cash interest expense on the Convertible Senior Notes in the year-to-date period as compared to the comparable period in 2021 as the notes were settled in the first quarter of 2022. 39
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INCOME TAXES
Our effective tax rates for the three and nine month periods endedSeptember 30, 2022 were 12.7% and 14.4%, respectively, as compared to 13.1% and 11.1%, respectively, for the three and nine month periods endedOctober 1, 2021 . The year-over-year decrease in the effective tax rate for the three month period endedSeptember 30, 2022 was relatively consistent as compared to the three month period endedOctober 1, 2021 . The year-over-year increase in the effective tax rate for the nine month period endedSeptember 30, 2022 as compared to the nine month period endedOctober 1, 2021 was primarily due to a non-recurring permanent difference on the Q1 2021 gain on our Retained Vontier Shares as a result of the tax-free treatment of our disposition of the shares through the Debt-for-Equity Exchange and the effect ofRussia exit including wind down costs for which no tax benefit was recognized. Our effective tax rate for the three and nine month periods endedSeptember 30, 2022 differs from theU.S. federal statutory rate of 21% due primarily to the positive and negative effects of the Tax Cuts and Jobs Act,U.S. federal permanent differences, the impacts of credits and deductions provided by law, an increase to in our uncertain tax positions relating to higher interest rates, and the effect ofRussia exit and wind down costs for which no tax benefit was recognized. OnAugust 16, 2022 , theU.S. enacted the Inflation Reduction Act of 2022, which, among other provisions, implements a 15% corporate alternative minimum tax on book income on corporations whose average annual adjusted financial statement income during the most recently-completed three-year period exceeds$1.0 billion , a 1% excise tax on net stock repurchases, and several tax incentives to promote clean energy. This provision is effective for tax years beginning afterDecember 31, 2022 . Based on our current analysis of the provisions, we do not believe this legislation will have a material impact on our consolidated financial statements.
COMPREHENSIVE INCOME
Comprehensive income decreased by$39 million during the third quarter as compared to the comparable period in 2021 due primarily to unfavorable changes in foreign currency translation adjustments of$77 million , partially offset by an increase in net income. Comprehensive income decreased by$133 million during the year-to-date period as compared to the comparable period in 2021 due primarily to unfavorable changes in foreign currency translation adjustments of$217 million , partially offset by an increase in net income.
LIQUIDITY AND CAPITAL RESOURCES
We assess our liquidity in terms of our ability to generate cash to fund our operating, investing, and financing activities. We generate substantial cash from operating activities and believe that our operating cash flow and other sources of liquidity, which consist of access to bank loans, commercial paper, capital markets, and our revolving credit facility will be sufficient to allow us to continue funding and investing in our existing businesses, consummate strategic acquisitions, make interest and principal payments on our outstanding indebtedness, fulfill our contractual obligations, and manage our capital structure on a short and long-term basis.
We have generally satisfied any short-term liquidity needs that are not met
through operating cash flows and available cash through issuances of commercial
paper under our
Credit support for the Commercial Paper Programs is provided by a five-year$2.0 billion senior unsecured revolving credit facility that expires onNovember 30, 2023 (the "Revolving Credit Facility") which, to the extent not otherwise providing credit support for the commercial paper programs, can also be used for working capital and other general corporate purposes. As ofSeptember 30, 2022 , no borrowings were outstanding under the Revolving Credit Facility.
Subsequent Events
OnOctober 18, 2022 , we entered into a second amended and restated credit agreement (the "Amended and Restated Credit Agreement") extending the availability period of the Revolving Credit Facility toOctober 18, 2027 with an additional two one year extension options at our request and with the consent of the lenders. The Amended and Restated Credit Agreement also contains an option permitting us to request an increase in the amounts available under the Revolving Credit Facility of up to an aggregate additional$1.0 billion . 40
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We are obligated to pay an annual facility fee for the Revolving Credit Facility of between 6.5 and 15 basis points varying according to our long-term debt credit rating. Borrowings under the new Revolving Credit Facility inU.S Dollars bear interest at a rate equal, at our option, to either (1) Term Secured Overnight Financing Rate ("Term SOFR"), plus a 10 basis points Credit Spread Adjustment ("CSA") plus a margin of between 68.5 and 110.0 basis points, depending on our long-term debt credit rating or (2) the highest of (a) the Federal funds rate plus 50 basis points, (b) the prime rate, (c) Term SOFR plus 100 basis points and (d) 1.0%, plus in each case a margin between zero and 10 basis points depending on our long-term debt credit rating. In addition, beginning with our 2023 performance relative to our annual greenhouse gas reduction targets, the interest rate on any borrowings can increase or decrease by 4.0 basis points and the facility fee can increase or decrease by 1.0 basis points, for a maximum impact of an increase or decrease of 5.0 basis points. The Amended and Restated Credit Agreement requires us to maintain a consolidated net leverage ratio of debt to consolidated EBITDA (as defined in the Credit Agreement) of less than 3.5 to 1.0. The maximum consolidated net leverage ratio will be increased to 4.0 to 1.0 for the four consecutive full fiscal quarters immediately following the consummation of any acquisition by us in which the purchase price exceeds$250 million . The Amended and Restated Credit Agreement also contains customary representations, warranties, conditions precedent, events of default, indemnities, and affirmative and negative covenants. OnOctober 18, 2022 , we entered into a$1.0 billion delayed-draw senior unsecured term facility ("Delayed-Draw Term Loan Due 2023"). We intend to use proceeds of the Delayed-Draw Term Loan Due 2023 to repay the outstanding principal balance of the Delayed-Draw Term Loan Due 2022, which matures inDecember 2022 . The Delayed-Draw Term Loan Due 2023 bears interest at a variable rate equal to Term SOFR plus a CSA of 10 basis points plus a spread of 82.5 basis points at our current credit rating. Borrowing under the Term Loan Due 2023 are prepayable at our option in whole or in part without premium or penalty and amounts borrowed may not be reborrowed once repaid. The availability of the Revolving Credit Facility as a standby liquidity facility to repay maturing commercial paper is an important factor in maintaining the existing credit ratings of the Commercial Paper Programs when we have outstanding borrowings. We expect to limit any future borrowings under the Revolving Credit Facility to amounts that would leave sufficient credit available under the facility to allow us to borrow, if needed, and repay any outstanding commercial paper as it matures. We continue to monitor the financial markets and general global economic conditions. If changes in financial markets or other areas of the economy adversely affect our access to the capital markets, we would expect to rely on a combination of available cash and existing available capacity under our credit facilities to provide short-term funding. 41
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Overview of Cash Flows and Liquidity
Following is an overview of our cash flows and liquidity ($ in millions):
Nine Months Ended
September 30,
($ in millions) 2022 October 1, 2021
Total operating cash provided by continuing operations $ 839.0 $ 705.9
Cash paid for acquisitions, net of cash received$ (15.2) $ (1,156.7) Payments for additions to property, plant and equipment (59.7) (28.0) Proceeds from sale of business 6.6 - All other investing activities - 1.1 Total investing cash used in continuing operations $
(68.3)
Proceeds from borrowings (maturities greater than 90 days), net of $
396.9 $ - issuance costs Net proceeds from commercial paper borrowings 381.3 215.0 Payment of 0.875% convertible senior notes due 2022 (1,156.5) - Repurchase of common shares (376.1) - Payment of common stock cash dividend to shareholders (74.8) (72.6) Repayment of borrowings (maturities greater than 90 days) - (611.1)
Payment of mandatory convertible preferred stock cash dividend to
- (34.5)
shareholders
All other financing activities (9.2) 18.1 Total financing cash used in continuing operations$ (838.4) $ (485.1) Operating Activities Operating cash flows from continuing operations can fluctuate significantly from period-to-period as working capital needs and the timing of payments for income taxes, interest, pension funding, and other items impact reported cash flows. Operating cash flows from continuing operations were$839 million during the year-to-date period yielding an increase of$133 million , or 19%, as compared to the comparable period of 2021. The year-over-year change in operating cash flows from continuing operations was primarily attributable to the following factors: •Year-over-year increases of$140 million in Operating cash flows from net earnings from continuing operations, net of non-cash items (Amortization, Depreciation, Stock-based compensation, Loss on extinguishment of debt, Gain on investment in Vontier Corporation, Gain on litigation resolution andRussia exit and wind down costs). •The aggregate changes in trade accounts receivable, inventories, and trade accounts payable used$48 million of cash during the year-to-date period as compared to using$52 million in the comparable period of 2021. The amount of cash flow generated from or used by the aggregate of trade accounts receivable, inventories, and trade accounts payable depends upon how effectively we manage the cash conversion cycle, which generally 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 changes in prepaid expenses, other assets, accrued expenses and other liabilities used$67 million of cash in the year-to-date period as compared to using$57 million of cash in the comparable period of 2021. The year-over-year changes were driven by timing differences in tax payments and employee compensation and benefits.
Investing Activities
Investing cash flows from continuing operations, consisting primarily of cash paid for acquisitions and capital expenditures, decreased$1.1 billion during the year-to-date period as a result of our acquisition of ServiceChannel in 2021, which was partially offset by increased capital expenditures of approximately$32 million in 2022.
Capital expenditures are made primarily for increasing production capacity, replacing aged equipment, supporting product development initiatives for hardware and software offerings, improving information technology systems, and purchasing
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equipment that is used in revenue arrangements with customers. For the current year, we expect capital spending to be approximately$80-100 million , although actual expenditures will ultimately depend on business conditions.
Financing Activities and Indebtedness
Financing cash flows from continuing operations consist primarily of cash flows associated with the issuance of equity, the issuance and repayment of debt and commercial paper, payments of cash dividends to shareholders and share repurchases.
Financing activities from continuing operations used cash of
•On
•On
•On
•During 2022, we incurred
•During 2022, we repurchased 6,000,000 shares for approximately
•During 2022, we made dividend payments to common shareholders totaling
In the comparable 2021 period, financing activities from continuing operations
used cash of
OnJanuary 19, 2021 , we completed the non-cash 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 byGoldman Sachs & Co. We recorded a loss on extinguishment of the debt included in the Debt-for-Equity Exchange of$94.4 million in the nine month period endedOctober 1, 2021 .
Refer to Note 5 of the consolidated condensed financial statements for additional information regarding our financing activities and indebtedness.
Cash and Cash Requirements
As ofSeptember 30, 2022 , we held approximately$705 million of cash and equivalents that were invested in highly liquid investment-grade instruments with a maturity of 90 days or less and yielded insignificant interest income during the year-to-date period. Approximately 89% of the$705 million in cash and equivalents was held outside ofthe 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 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 and repayment of maturing debt, we may also borrow under our commercial paper programs or credit facilities or enter into new credit facilities and either borrow directly thereunder or use such credit facilities to backstop additional borrowing capacity under our commercial paper programs. We also may from time to time access the capital markets, including to take advantage of favorable interest rate environments or other market conditions. Foreign cumulative earnings remain subject to foreign remittance taxes. We have made an election regarding the amount of 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. No provisions for foreign remittance taxes have been made with respect to earnings that are planned to be reinvested indefinitely. The amount of foreign remittance taxes that may be applicable to such earnings is not readily determinable given local law restrictions that may apply to a portion of such earnings, unknown changes in foreign tax law that may occur during the applicable restriction periods caused by applicable local corporate law for cash repatriation, and the various tax planning alternatives we could employ if we repatriated these earnings. 43
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As of
CRITICAL ACCOUNTING ESTIMATES
There were no material changes during the three and nine month periods endedSeptember 30, 2022 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 2021 Annual Report on Form 10-K.
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