Fortive(US:FTV)2022-02-28 16:00Acquisitions and Divestitures - The company faces risks related to acquisitions, including potential underperformance of acquired businesses and significant debt incurred, which could adversely affect financial results [96]. - Indemnification provisions in acquisition agreements may not fully protect the company, leading to unexpected liabilities that could impact financial statements [97]. - Divestitures may dilute earnings per share and have adverse financial impacts, with the company retaining responsibility for certain contingent liabilities from sold businesses [99]. - Potential indemnification liabilities to Vontier could materially affect the company's financial condition and results of operations [100]. - The acquisitions of ServiceChannel and Provation were completed on August 24, 2021, and December 27, 2021, respectively, constituting 1% of the company's total assets and revenues for the year ended December 31, 2021 [311]. - The total net cash consideration for the acquisitions of Provation and ServiceChannel was approximately $2.57 billion [398]. - The total consideration for the acquisition of Provation Software, Inc. was approximately $1.4 billion, with $970 million recorded as goodwill [395]. - The acquisition of ServiceChannel Holdings, Inc. was completed for approximately $1.2 billion, resulting in $873 million of goodwill [396]. - The operating loss from these acquisitions for the year ended December 31, 2021, was $60.9 million, which included $12.0 million of intangible asset amortization [397]. - The acquisition of Advanced Sterilization Products (ASP) was completed for $2.7 billion, with ASP generating annual revenues of approximately $800 million in 2018 [399]. - The company has been actively evaluating potential mergers and acquisitions to align with its strategic goals and enhance its portfolio [392]. Financial Performance - Total sales for the year ended December 31, 2021, reached $5,254.7 million, a 13.4% increase from $4,634.4 million in 2020 [333]. - Gross profit for 2021 was $3,007.1 million, up from $2,608.5 million in 2020, reflecting a gross margin improvement [333]. - Operating profit increased to $812.8 million in 2021, compared to $539.4 million in 2020, marking a 50.6% growth [333]. - Net earnings attributable to common stockholders for 2021 were $573.9 million, a significant decrease from $1,544.3 million in 2020 [333]. - Basic net earnings per common share from continuing operations were $1.66 in 2021, down from $4.10 in 2020 [333]. - The company reported a comprehensive income of $564.5 million for 2021, compared to $1,664.1 million in 2020, indicating a decline in overall profitability [335]. - Research and development expenses increased to $354.8 million in 2021, up from $320.7 million in 2020, highlighting a focus on innovation [333]. - The total cost of sales for 2021 was $2,247.6 million, an increase from $2,025.9 million in 2020, reflecting rising operational costs [333]. - Interest expense decreased to $103.2 million in 2021 from $148.5 million in 2020, indicating improved financial management [333]. - The company experienced a foreign currency translation loss of $68.7 million in 2021, contrasting with a gain of $63.5 million in 2020, impacting overall financial results [335]. Assets and Liabilities - The net carrying value of goodwill and other intangible assets totaled approximately $13.0 billion as of December 31, 2021 [116]. - The company had approximately $4.0 billion of long-term debt as of December 31, 2021, which may increase if additional debt is incurred [117]. - Total current assets decreased to $2.5 billion in 2021 from $4.4 billion in 2020, primarily due to a reduction in cash and equivalents [331]. - The company's total assets increased to $16.5 billion in 2021 from $16.1 billion in 2020, driven by growth in goodwill and intangible assets [331]. - Current liabilities rose to $3.7 billion in 2021 from $2.9 billion in 2020, largely due to an increase in the current portion of long-term debt [331]. - Retained earnings increased to $6.0 billion in 2021 from $5.5 billion in 2020, indicating improved profitability [331]. - The company's total stockholders' equity increased to $9.5 billion in 2021 from $9.0 billion in 2020, reflecting strong performance and capital management [331]. - The company's goodwill balance is $9.2 billion as of December 31, 2021, an increase from $7.4 billion in 2020, reflecting a significant investment in acquisitions [327]. - The current portion of long-term debt as of December 31, 2021, was $2,151.7 million, with a fair value of $2,158.3 million [431]. - Total accrued expenses and other liabilities as of December 31, 2021, amounted to $2,247.1 million, compared to $2,133.3 million in 2020 [434]. Regulatory and Taxation Risks - Changes in industry regulations may reduce demand for products or increase expenses, impacting financial performance [101]. - The company is subject to extensive regulations, and failure to comply could result in significant penalties and damage to reputation [106]. - Changes in effective tax rates or audits by tax authorities could lead to unfavorable adjustments in tax liabilities, adversely affecting financial statements [109]. - Foreign remittance taxes on undistributed earnings of non-U.S. subsidiaries could increase if intentions regarding reinvestment change [110]. - The Tax Cuts and Jobs Act of 2017 may impact the company's future income tax provision and effective tax rate due to ongoing regulatory changes [111]. - The OECD announced a global minimum corporate tax rate of 15% in December 2021, which could significantly increase tax uncertainty for the company [113]. - The company may incur significant tax liabilities if any of its separation transactions are determined to be taxable [114]. Internal Controls and Compliance - The company's internal control over financial reporting was assessed as effective as of December 31, 2021 [310]. - The company reported an unqualified opinion on its financial statements, affirming compliance with U.S. generally accepted accounting principles [322]. - The company's internal control over financial reporting was evaluated as effective as of December 31, 2021, based on established criteria [323]. - The company is required to comply with ever-changing labor and employment laws and regulations in multiple jurisdictions, which could negatively impact its business [112]. - Changes in U.S. GAAP could adversely affect the company's reported financial results and may require significant changes to internal accounting systems [115]. Cash Flow and Financing Activities - Total operating cash provided by continuing operations was $992.9 million, slightly up from $977.7 million in 2020 [340]. - Net cash provided by operating activities decreased to $961.1 million from $1,436.7 million in 2020, reflecting a decline of 33.1% [340]. - Cash paid for acquisitions, net of cash received, amounted to $2,570.1 million, significantly higher than $40.4 million in 2020 [340]. - Total investing cash used in continuing operations was $2,615.6 million, compared to $110.8 million in 2020, indicating a substantial increase in investment activities [340]. - Net cash (used in) provided by financing activities was $652.0 million, a recovery from a cash outflow of $696.1 million in 2020 [340]. - The ending balance of cash and equivalents decreased to $819.3 million from $1,824.8 million in 2020, a decline of 55.1% [340]. - The company entered into a $1.0 billion Delayed-Draw Term Loan facility on December 16, 2021, and drew down the full amount as a daily floating LIBOR rate loan [443][444]. - A Debt-for-Equity Exchange was completed on January 19, 2021, involving 33.5 million shares of common stock for $1.1 billion in debt, resulting in a loss of $94.4 million [445]. - The company repaid $316.8 million of the Term Loan due May 2021 using cash proceeds from Vontier, maintaining compliance with all financial covenants [446]. - The company issued $1.4 billion in 0.875% Convertible Senior Notes due 2022, with $1.3 billion classified as debt and $102.2 million as equity [447][448]. Pension and Employee Benefits - U.S. Pension Benefits obligation decreased from $47.2 million in 2020 to $46.4 million in 2021, while Non-U.S. Pension Benefits obligation decreased from $371.8 million in 2020 to $340.8 million in 2021 [466]. - The fair value of U.S. Pension plan assets increased from $29.3 million in 2020 to $31.9 million in 2021, while Non-U.S. Pension plan assets decreased slightly from $224.4 million in 2020 to $223.1 million in 2021 [466]. - The funded status of U.S. Pension Benefits improved from $(17.9) million in 2020 to $(14.5) million in 2021, and Non-U.S. Pension Benefits improved from $(147.4) million in 2020 to $(117.7) million in 2021 [467]. - The net periodic pension cost for U.S. Pension Benefits was $0.0 million in 2021, compared to $(0.1) million in 2020, while Non-U.S. Pension Benefits cost was $6.3 million in 2021, down from $6.9 million in 2020 [469]. - The discount rate for U.S. Pension Plans increased from 2.40% in 2020 to 2.82% in 2021, and for Non-U.S. Pension Plans increased from 0.99% in 2020 to 1.31% in 2021 [468].