UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

________________________________________________



(Mark One)
ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF ~~1934.~~1934

For the quarterly period ended:March 29, 2019


~~For the quarterly period ended: March 30, 2018~~
Or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-37654

________________________________________________

Fortive Corporation

(Exact name of registrant as specified in its charter)

________________________________________________



Delaware		47-5654583
(State or other jurisdiction of incorporation or organization)		(I.R.S. employer identification number)

6920 Seaway Blvd Everett, WA		98203
(Address of principal executive offices)		(Zip code)

Registrant’s telephone number, including area code: (425) 446-5000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes ý No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. ~~(Check one):~~



Large accelerated filer x		Accelerated filer ¨

Non-accelerated filer ¨	~~(Do not check if a smaller reporting company)~~	Smaller reporting company ¨

		Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes o No ý

The number of shares of common stock outstanding at April ~~19, 2018~~18, 2019 was ~~348,560,770.~~335,099,399.

FORTIVE CORPORATION

INDEX

FORM 10-Q



PART I -	FINANCIAL INFORMATION	Page
Item 1.	Financial Statements
	Consolidated Condensed Balance Sheets	3
	Consolidated Condensed Statements of Earnings	4
	Consolidated Condensed Statements of Comprehensive Income	5
	Consolidated Condensed Statement of Changes in Equity	6
	Consolidated Condensed Statements of Cash Flows	7
	Notes to Consolidated Condensed Financial Statements	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	1923
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3035
Item 4.	Controls and Procedures	3135
PART II -	OTHER INFORMATION
Item 1A.	Risk Factors	3236
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3336
Item 6.	Exhibits	3437
	Signatures	3639

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

FORTIVE CORPORATION AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEETS

($ in millions, except per share amounts)



	As of
	March 29, 2019			December 31, 2018
	(unaudited)
ASSETS
Current assets:
Cash and equivalents	$	3,728.9		$	1,178.4
Accounts receivable, net	1,146.6			1,195.1
Inventories:
Finished goods	244.1			219.5
Work in process	98.3			103.1
Raw materials	265.9			251.9
Total inventories	608.3			574.5
Prepaid expenses and other current assets	286.2			193.2
Current assets, discontinued operations	26.3			30.0
Total current assets	5,796.3			3,171.2
Property, plant and equipment, net of accumulated depreciation of $797.7 and $889.8 at March 29, 2019 and December 31, 2018, respectively	468.3			576.1
Operating lease right-of-use assets	166.4			—
Other assets	620.7			548.9
Goodwill	6,169.0			6,133.1
Other intangible assets, net	2,435.5			2,476.3
Total assets	$	15,656.2		$	12,905.6
LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt	$	1,055.4		$	455.6
Trade accounts payable	667.8			706.5
Current operating lease liabilities	55.9			—
Accrued expenses and other current liabilities	837.8			999.3
Current liabilities, discontinued operations	22.7			30.7
Total current liabilities	2,639.6			2,192.1
Operating lease liabilities	112.5			—
Other long-term liabilities	1,313.1			1,125.9
Long-term debt	4,728.3			2,974.7
Equity:
5.0% Mandatory convertible preferred stock, series A: $0.01 par value, 15.0 million shares authorized; 1.4 million shares issued and outstanding at March 29, 2019 and December 31, 2018	—			—
Common stock: $0.01 par value, 2.0 billion shares authorized; 335.8 and 335.1 million issued; 335.0 and 334.5 million outstanding at March 29, 2019 and December 31, 2018, respectively	3.4			3.4
Additional paid-in capital	3,240.3			3,126.0
Retained earnings	3,676.4			3,552.7
Accumulated other comprehensive income (loss)	(69.4		)	(86.6		)
Total Fortive stockholders’ equity	6,850.7			6,595.5
Noncontrolling interests	12.0			17.4
Total stockholders’ equity	6,862.7			6,612.9
Total liabilities and equity	$	15,656.2		$	12,905.6

As of
March 30, 2018 December 31, 2017
(unaudited)
ASSETS
Current assets:
Cash and equivalents $ 1,015.7
$ 962.1
Accounts receivable, net 1,172.1
1,143.6
Inventories:
Finished goods 216.6
217.2
Work in process 96.7
78.9
Raw materials 302.6
284.5
Total inventories 615.9
580.6
Prepaid expenses and other current assets 276.0
250.5
Total current assets 3,079.7
2,936.8
Property, plant and equipment, net of accumulated depreciation of $1,117.3 and $1,086.8 at March 30, 2018 and December 31, 2017, respectively 709.8
712.5
Other assets 480.5
476.8
Goodwill 5,126.2
5,098.5
Other intangible assets, net 1,259.2
1,276.0
Total assets $ 10,655.4
$ 10,500.6
LIABILITIES AND EQUITY
Current liabilities:
Trade accounts payable $ 711.7
$ 727.5
Accrued expenses and other current liabilities 749.7
874.8
Total current liabilities 1,461.4
1,602.3
Other long-term liabilities 1,087.4
1,033.9
Long-term debt 3,996.9
4,056.2
Equity:
Preferred stock: $0.01 par value, 15 million shares authorized; no shares issued or outstanding —
—
Common stock: $0.01 par value, 2.0 billion shares authorized; 349.0 and 348.2 million issued; 348.5 and 347.8 million outstanding at March 30, 2018 and December 31, 2017, respectively 3.5
3.5
Additional paid-in capital 2,476.1
2,444.1
Retained earnings 1,583.3
1,350.3
Accumulated other comprehensive income (loss) 29.5
(7.6 )
Total Fortive stockholders’ equity 4,092.4
3,790.3
Noncontrolling interests 17.3
17.9
Total stockholders’ equity 4,109.7
3,808.2
Total liabilities and equity $ 10,655.4
$ 10,500.6

See the accompanying Notes to the Consolidated Condensed Financial Statements.

FORTIVE CORPORATION AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS

($ and shares in millions, except per share amounts)

(unaudited)


	Three Months Ended						Three Months Ended
	March 30, 2018			March 31, 2017			March 29, 2019			March 30, 2018
Sales	$	1,740.7		$	1,535.2
Cost of sales	(869.9		)	(791.2		)
Sales of products							$	1,405.1		$	1,332.4
Sales of services							187.8			159.8
Total sales							1,592.9			1,492.2
Cost of product sales							(647.9		)	(614.8		)
Cost of service sales							(132.3		)	(111.1		)
Total cost of sales							(780.2		)	(725.9		)
Gross profit	870.8			744.0			812.7			766.3
Operating costs:
Selling, general and administrative expenses	(423.7		)	(352.2		)	(486.4		)	(388.5		)
Research and development expenses	(108.9		)	(96.2		)	(109.0		)	(99.9		)
Operating profit	338.2			295.6			217.3			277.9
Non-operating expenses:
Non-operating expenses, net:
Interest expense, net	(24.6		)	(22.6		)	(25.3		)	(23.3		)
Other non-operating expenses	(0.7		)	(0.7		)
Earnings before income taxes	312.9			272.3
Other non-operating income (expenses), net							0.4			(0.7		)
Earnings from continuing operations before income taxes							192.4			253.9
Income taxes	(51.7		)	(72.6		)	(28.4		)	(39.9		)
Net earnings from continuing operations							164.0			214.0
Earnings from discontinued operations, net of income taxes							0.4			47.2
Net earnings	$	261.2		$	199.7		164.4			261.2
Mandatory convertible preferred dividends							(17.3		)	—
Net earnings attributable to common stockholders							$	147.1		$	261.2

Net earnings per common share from continuing operations:
Basic							$	0.44		$	0.61
Diluted							$	0.43		$	0.61
Net earnings per share from discontinued operations:
Basic							$	—		$	0.14
Diluted							$	—		$	0.13
Net earnings per share:
Basic	$	0.75		$	0.58		$	0.44		$	0.75
Diluted	$	0.74		$	0.57		$	0.43		$	0.74
Average common stock and common equivalent shares outstanding:
Basic	348.6			347.0			335.1			348.6
Diluted	354.4			351.5			339.5			354.4
The sum of net earnings per share may not add due to rounding

See the accompanying Notes to the Consolidated Condensed Financial Statements.

FORTIVE CORPORATION AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME

($ in millions)

(unaudited)


	Three Months Ended				Three Months Ended
	March 30, 2018		March 31, 2017		March 29, 2019		March 30, 2018
Net earnings	$	261.2	$	199.7	$	164.4	$	261.2
Other comprehensive income, net of income taxes:
Foreign currency translation adjustments	36.4		43.6		16.7		36.4
Pension adjustments	0.7		0.8		0.5		0.7
Total other comprehensive income, net of income taxes	37.1		44.4		17.2		37.1
Comprehensive income	$	298.3	$	244.1	$	181.6	$	298.3

See the accompanying Notes to the Consolidated Condensed Financial Statements.

FORTIVE CORPORATION AND SUBSIDIARIES

CONSOLIDATED CONDENSED ~~STATEMENT~~STATEMENTS OF CHANGES IN EQUITY

($ and shares in millions)

(unaudited)

Common Stock Additional Paid-In Capital Retained Earnings
Accumulated
Other
Comprehensive
Income (Loss)

Noncontrolling
Interests
Shares Amount
Balance, December 31, 2017 347.8
$ 3.5
$ 2,444.1
$ 1,350.3
$ (7.6 ) $ 17.9
Adoption of accounting standards —
—
—
(3.9 ) —
—
Balance, January 1, 2018 347.8
3.5
2,444.1
1,346.4
(7.6 ) 17.9
Net earnings for the period —
—
—
261.2
—
—
Dividends to shareholders —
—
—
(24.3 ) —
—
Separation related adjustments —
—
13.3
—
—
—
Other comprehensive income —
—
—
—
37.1
—
Common stock-based award activity 0.7
—
18.7
—
—
—
Change in noncontrolling interests —
—
—
—
—
(0.6 )
Balance, March 30, 2018 348.5
$ 3.5
$ 2,476.1
$ 1,583.3
$ 29.5
$ 17.3



	Common Stock			Preferred Stock		Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Noncontrolling Interests
	Shares	Amount		Shares	Amount	Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Noncontrolling Interests
Balance, December 31, 2018	334.5	$	3.4	1.4	—	$	3,126.0	$	3,552.7		$	(86.6	)	$	17.4
Net earnings for the period	—	—		—	—	—		164.4			—			—
Dividends to common shareholders	—	—		—	—	—		(23.4		)	—			—
Mandatory convertible preferred stock cumulative dividends	—	—		—	—	—		(17.3		)	—			—
Other comprehensive income	—	—		—	—	—		—			17.2			—
Common stock-based award activity	0.5	—		—	—	13.9		—			—			—
Issuance of 0.875% senior convertible notes due 2022	—	—		—	—	100.4		—			—			—
Change in noncontrolling interests	—	—		—	—	—		—			—			(5.4		)
Balance, March 29, 2019	335.0	$	3.4	1.4	—	$	3,240.3	$	3,676.4		$	(69.4	)	$	12.0



	Common Stock			Preferred Stock			Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Noncontrolling Interests
	Shares	Amount		Shares	Amount		Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Noncontrolling Interests
Balance, December 31, 2017	347.8	$	3.5	—	$	—	$	2,444.1	$	1,350.3		$	(7.6	)	$	17.9
Adoption of accounting standards	—	—		—	—		—		(3.9		)	—			—
Balance, January 1, 2018	347.8	$	3.5	—	—		$	2,444.1	$	1,346.4		$	(7.6	)	$	17.9
Net earnings for the period	—	—		—	—		—		261.2			—			—
Dividends to common shareholders	—	—		—	—		—		(24.3		)	—			—
Separation related adjustments	—	—		—	—		13.3		—			—			—
Other comprehensive income	—	—		—	—		—		—			37.1			—
Common stock-based award activity	0.7	—		—	—		18.7		—			—			—
Change in noncontrolling interests	—	—		—	—		—		—			—			(0.6		)
Balance, March 30, 2018	348.5	$	3.5	—	—		$	2,476.1	$	1,583.3		$	29.5		$	17.3

See the accompanying Notes to the Consolidated Condensed Financial Statements.

FORTIVE CORPORATION AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

($ in millions)

(unaudited)


	Three Months Ended						Three Months Ended
	March 30, 2018			March 31, 2017			March 29, 2019			March 30, 2018
Cash flows from operating activities:
Net earnings	$	261.2		$	199.7
Net earnings from continuing operations							$	164.0		$	214.0
Noncash items:
Depreciation	35.0			23.4			29.7			31.0
Amortization	25.0			13.3			52.2			24.9
Stock-based compensation expense	11.9			12.0			12.9			11.0
Change in accounts receivable, net	(20.1		)	10.0
Change in trade accounts receivable, net							49.9			(3.8		)
Change in inventories	(31.9		)	(24.2		)	(33.3		)	(29.8		)
Change in trade accounts payable	(22.2		)	(47.5		)	(40.6		)	(28.6		)
Change in prepaid expenses and other assets	(5.9		)	(0.6		)	(60.4		)	(5.3		)
Change in accrued expenses and other liabilities	(82.0		)	(37.8		)	(13.2		)	(82.6		)
Total operating cash provided by continuing operations							161.2			130.8
Total operating cash provided by (used in) discontinued operations							(5.0		)	40.2
Net cash provided by operating activities	171.0			148.3			156.2			171.0
Cash flows from investing activities:
Cash paid for acquisitions	(7.7		)	—
Cash paid for acquisitions, net of cash received							—			(7.7		)
Payments for additions to property, plant and equipment	(31.4		)	(26.8		)	(24.0		)	(25.9		)
All other investing activities	0.1			(0.6		)	—			0.1
Total investing cash used in continuing operations							(24.0		)	(33.5		)
Total investing cash used in discontinued operations							—			(5.5		)
Net cash used in investing activities	(39.0		)	(27.4		)	(24.0		)	(39.0		)
Cash flows from financing activities:
Net repayments of borrowings (maturities of 90 days or less)	(74.3		)	(95.5		)
Payment of dividends	(24.3		)	(24.2		)
Net proceeds from (repayments of) commercial paper borrowings							443.8			(74.2		)
Proceeds from borrowings (maturities greater than 90 days), net of $24.3 million of issuance costs							2,417.8			—
Repayment of borrowings (maturities greater than 90 days)							(402.9		)	—
Payment of common stock cash dividend to shareholders							(23.4		)	(24.3		)
Payment of mandatory convertible preferred stock cash dividend to shareholders							(17.3		)	—
All other financing activities	4.4			0.3			(6.8		)	4.4
Net cash used by financing activities	(94.2		)	(119.4		)
Total financing cash provided by (used in) continuing operations							2,411.2			(94.1		)
Total financing cash provided by (used in) discontinued operations							—			(0.1		)
Net cash provided by (used in) financing activities							2,411.2			(94.2		)
Effect of exchange rate changes on cash and equivalents	15.8			12.9			7.1			15.8
Net change in cash and equivalents	53.6			14.4			2,550.5			53.6
Beginning balance of cash and equivalents	962.1			803.2			1,178.4			962.1
Ending balance of cash and equivalents	$	1,015.7		$	817.6		$	3,728.9		$	1,015.7

See the accompanying Notes to the Consolidated Condensed Financial Statements.

FORTIVE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

NOTE 1. BUSINESS OVERVIEW

Fortive Corporation (“Fortive”, the “Company,” “we,” “us,” or “our”) is a diversified industrial technology growth company encompassing businesses that are recognized leaders in attractive markets. Our well-known brands hold leading positions in advanced instrumentation and solutions, sensing, transportation technology, ~~sensing, automation and specialty,~~ and franchise distribution markets. 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.

We prepared the unaudited consolidated condensed financial statements included herein in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) applicable for interim periods. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations; however, we believe the disclosures are adequate to make the information presented not misleading. The consolidated condensed financial statements included herein should be read in conjunction with the audited annual consolidated ~~and combined~~ financial statements as of and for the year ended December 31, ~~2017~~2018 and the footnotes (“Notes”) thereto included within our ~~2017~~2018 Annual Report on Form 10-K.

In our opinion, the accompanying financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to fairly present our financial position as of March ~~30, 2018~~29, 2019 and December 31, ~~2017,~~2018, and our results of operations and cash flows for the three months ended March ~~30, 2018~~29, 2019 and March ~~31, 2017.~~30, 2018. Reclassification of certain prior year amounts have been made to conform to current year presentation.

On October 1, 2018, we completed the split-off of businesses in our automation and specialty platform (excluding our Hengstler and Dynapar businesses) (the “A&S Business”) and have reported the A&S Business as discontinued operations in our Consolidated Condensed Statements of Income, Consolidated Condensed Balance Sheets, and Consolidated Condensed Statements of Cash Flows for all periods presented. Unless otherwise noted discussion within these notes to the consolidated condensed financial statements relates to continuing operations. Refer to Note 3 for additional information on discontinued operations.

Accumulated Other Comprehensive Income (Loss)—Foreign currency translation adjustments are generally not adjusted for income taxes as they relate to indefinite investments in non-U.S. subsidiaries. We have designated our Euro-denominated commercial paper and ¥13.8 billion senior unsecured term facility loan as net investment hedges of our investment in certain foreign operations. Accordingly, foreign currency transaction gains or losses on the debt are deferred in the foreign currency translation component of accumulated other comprehensive income (loss) (“accumulated OCI”) as an offset to the foreign currency translation adjustments on our investments in foreign subsidiaries. We recognized gains of $7.2 million for the three months ended March 29, 2019 and losses of $14.8 million for the three months ended March 30, 2018 in other comprehensive income related to the net investment hedge. Any amounts deferred in accumulated OCI will remain until the hedged investment is sold or substantially liquidated. We recorded no ineffectiveness from our net investment hedges during the three months ended March 29, 2019 and March 30, 2018, respectively.

The changes in accumulated other comprehensive income (loss) by component are summarized below ($ in millions):


											Foreign currency translation adjustments			Pension adjustments ^(b)				Total
For the Three Months Ended March 29, 2019:
Balance, December 31, 2018											$	(29.3	)	$	(57.3	)		$	(86.6	)
Other comprehensive income (loss) before reclassifications, net of income taxes											16.7			—				16.7
Amounts reclassified from accumulated other comprehensive income (loss):
Increase (decrease)											—			0.7			^(a)	0.7
Income tax impact											—			(0.2		)	^(c)	(0.2		)
Amounts reclassified from accumulated other comprehensive income (loss), net of income taxes											—			0.5				0.5
Net current period other comprehensive income (loss), net of income taxes											16.7			0.5				17.2
Balance, March 29, 2019											$	(12.6	)	$	(56.8	)		$	(69.4	)
	Foreign currency translation adjustments			Pension adjustments				Total
For the Three Months Ended March 30, 2018:
Balance, December 31, 2017	$	64.0		$	(71.6	)		$	(7.6	)	$	64.0		$	(71.6	)		$	(7.6	)
Other comprehensive income (loss) before reclassifications, net of income taxes	36.4			—				36.4			36.4			—				36.4
Amounts reclassified from accumulated other comprehensive income (loss):
Increase (decrease)	—			0.9			^(a)	0.9			—			0.9			^(a)	0.9
Income tax impact	—			(0.2		)		(0.2		)	—			(0.2		)	^(c)	(0.2		)
Amounts reclassified from accumulated other comprehensive income (loss), net of income taxes	—			0.7				0.7			—			0.7				0.7
Net current period other comprehensive income (loss), net of income taxes	36.4			0.7				37.1			36.4			0.7				37.1
Balance, March 30, 2018	$	100.4		$	(70.9	)		$	29.5		$	100.4		$	(70.9	)		$	29.5

For the Three Months Ended March 31, 2017:
Balance, December 31, 2016	$	(72.6	)	$	(73.2	)		$	(145.8	)
Other comprehensive income (loss) before reclassifications, net of income taxes	43.6			—				43.6
Amounts reclassified from accumulated other comprehensive income (loss):
Increase (decrease)	—			1.1			^(a)	1.1
Income tax impact	—			(0.3		)		(0.3		)
Amounts reclassified from accumulated other comprehensive income (loss), net of income taxes	—			0.8				0.8
Net current period other comprehensive income (loss), net of income taxes	43.6			0.8				44.4
Balance, March 31, 2017	$	(29.0	)	$	(72.4	)		$	(101.4	)
^(a) This accumulated other comprehensive income (loss) component is included in the computation of net periodic pension cost (refer to Note 7 for additional details).
^(a) This accumulated other comprehensive income (loss) component is included in the computation of net periodic pension cost (refer to Note 9 for additional details).											^(a) This accumulated other comprehensive income (loss) component is included in the computation of net periodic pension cost (refer to Note 9 for additional details).
^(b) Includes balances relating to defined benefit plans, supplemental executive retirement plans and other postretirement employee benefit plans.											^(b) Includes balances relating to defined benefit plans, supplemental executive retirement plans and other postretirement employee benefit plans.
^(c) We did not elect to reclassify the income tax effects of the Tax Cuts and Jobs Act from accumulated other comprehensive income to retained earnings.											^(c) We did not elect to reclassify the income tax effects of the Tax Cuts and Jobs Act from accumulated other comprehensive income to retained earnings.

Recently Issued Accounting Standards—In June 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which amends the impairment model by requiring entities to use a forward-looking approach, based on expected losses, to estimate credit losses on certain types of financial instruments, including trade receivables. This standard is effective for us beginning January 1, 2020, with early adoption permitted. We are currently evaluating the impact of this standard on our financial statements.

~~In February 2016, the FASB issued ASU No. 2016-02,~~ ~~Leases (Topic 842)~~, which will require, among other items, lessees to recognize a right-of-use asset and a lease liability for most leases. The standard also requires lessees and lessors to disclose the amount, timing and uncertainty of cash flows arising from leases. The accounting applied by a lessor is largely unchanged from the current standard. This standard is effective for us beginning January 1, 2019 (with early adoption permitted) using a modified retrospective transition approach and provides for certain practical expedients. In September 2017, the FASB issued ASU No. 2017-13, ~~Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842), which provided additional implementation guidance on the previously issued ASU. We are currently evaluating the impact of this standard on our financial statements.~~

NOTE 2. ACQUISITIONS ~~AND DIVESTITURES~~

For a description of our material acquisition activity refer to Note 3 of our ~~2017~~2018 Annual Report on Form 10-K.

We continually evaluate potential mergers, acquisitions and divestitures that align with our ~~portfolio~~ strategy and expedite the evolution of our portfolio of businesses into new and attractive ~~business~~ areas. We have completed a number of acquisitions that have been accounted for as purchases and ~~have~~ resulted in the recognition of goodwill in our financial statements. This goodwill arises because the purchase price for each acquired business reflects a number of factors including the complimentary fit, acceleration of our strategy and synergies the business brings with respect to our existing operations, the future earnings and cash flow potential of the business, the ~~multiple~~potential to ~~earnings, cash flow and~~add other ~~factors at which similar businesses have been purchased by other acquirers,~~strategically complimentary acquisitions to the ~~competitive~~acquired business, the scarce or unique nature of the ~~processes by which we acquired~~business in its markets, competition to acquire the business, the valuation of similar businesses in the marketplace (as reflected in a multiple of revenues, earnings or cash flows) and the avoidance of the time and costs which would be required ~~(and~~

(and the associated risks that would be encountered) to enhance our existing offerings to key target markets and develop new and profitable ~~businesses, and the complementary strategic fit and resulting synergies the business brings to existing operations.~~businesses.

We make an initial allocation of the purchase price at the date of acquisition based on our understanding of the fair value of the acquired assets and assumed liabilities. We obtain this information during due diligence and through other sources. In the months after closing, as we obtain additional information about these assets and liabilities, including through tangible and intangible asset appraisals, and learn more about the newly acquired business, we are able to refine the estimates of fair value and more accurately allocate the purchase price. Only items identified as of the acquisition date are considered for subsequent adjustment. We are in the process of obtaining valuations of certain acquired assets and evaluating the tax impact ~~in connection with~~of certain acquisitions. We make appropriate adjustments to purchase price allocations prior to completion of the applicable measurement period, as required.

~~Planned~~ During the three months ended March 29, 2019, we recorded certain adjustments to the preliminary purchase price allocation of acquisitions that closed during 2018 which resulted in a net increase of $31.8 million to goodwill.

Advanced Sterilization Products

We entered into a purchase agreement, effective June 6, 2018, with Ethicon, Inc., a subsidiary of Johnson & Johnson, to purchase its Advanced Sterilization Products (“ASP”) business for approximately $2.7 billion in cash. The transaction was completed in accordance with the terms of the purchase agreement, and on April 1, 2019, we paid $2.7 billion in cash to acquire the ASP business. ASP is a leading global provider of innovative sterilization and disinfection solutions and pioneered low-temperature hydrogen peroxide sterilization technology. ASP’s products, which are sold globally, include the STERRAD system for sterilizing instruments and the EVOTECH and ENDOCLENS systems for endoscope reprocessing and cleaning.

We are in the process of transitioning ownership of certain non-principal countries, which are subject to various statutory closing requirements. During this transition, we will be operating under a transition services agreement with Johnson & Johnson.

NOTE 3. DISCONTINUED OPERATIONS

Divestiture of A&S Business

On ~~March 7,~~October 1, 2018, we ~~entered into a definitive agreement to combine~~completed the split-off of four of our operating companies from ~~our~~the Automation & Specialty platform (the “A&S Business”) in a tax efficient Reverse Morris Trust transaction with Altra Industrial Motion ~~Corp~~Corp. (“Altra”). The total consideration received was $2.7 billion and consisted of (i) $1.3 billion through a fully-subscribed exchange offer, in ~~a tax-efficient Reverse Morris Trust transaction. In~~which we accepted and subsequently retired 15,824,931 shares of our own common stock from our stockholders in exchange for the ~~transaction, we will receive approximately $1.4~~35,000,000 shares of common stock of Stevens Holding Company, Inc., an entity created to hold the A&S Business; (ii) $1.0 billion in cash paid to us for the direct sales of certain assets and ~~debt retirement, and our shareholders will receive in~~liabilities of the ~~aggregate 35 million shares of Altra, representing approximately 54% of outstanding shares of Altra common stock immediately following the transaction. The~~ A&S ~~Business includes the market-leading brands~~Business; (iii) $250 million as part of ~~Kollmorgen, Thomson, Portescap~~a debt-for-debt exchange that reduced outstanding indebtedness of Fortive; and ~~Jacobs Vehicle Systems, and generated approximately $907~~(iv) $150 million in ~~revenue for the year ended December 31, 2017. The transaction is expected~~cash paid to ~~close~~us by the end of 2018, subject to customary closing conditions, including receipt of certain regulatory approvals, Altra shareholder approval, and our receipt of confirmation of the tax treatment of certain matters. Upon closing ofSteven’s Holding Company, Inc. as a dividend. We recognized an after-tax gain on the transaction ~~we will classify~~of $1.9 billion.

The accounting requirements for reporting the ~~historical results~~disposition of the A&S Business as a discontinued operation were met when the separation and merger were completed in the fourth quarter of 2018. Accordingly, the accompanying consolidated financial statements reflect this business as discontinued operations infor all periods presented.

We are providing certain support services to Altra under transition services agreements. The impact of these services on our consolidated condensed financial ~~statements.~~statements was immaterial.

The key components of income from discontinued operations for the three month periods ended March 29, 2019 and March 30, 2018 were as follows ($ in millions):



	March 29, 2019			March 30, 2018
Sales	$	5.7		$	248.5
Cost of sales	(5.8		)	(144.0		)
Selling, general and administrative expenses	—			(35.2		)
Research and development expenses	—			(9.0		)
Gain on disposition of discontinued operations before income taxes	0.5			—
Interest expense and other	—			(1.3		)
Earnings before income taxes	0.4			59.0
Income taxes	—			(11.8		)
Net earnings	$	0.4		$	47.2

Interest expense related to the debt retired as part of the debt-for-debt exchange was allocated to discontinued operations for all periods prior to the disposition.

The following table summarizes the major classes of assets and liabilities of discontinued operations that were included in our accompanying Consolidated Condensed Balance Sheets as of March 29, 2019 and December 31, 2018 ($ in millions):



	March 29, 2019		December 31, 2018
ASSETS
Trade accounts receivable, net	$	5.1	$	4.2
Inventories	—		4.4
Other current assets	21.2		21.4
Total current assets, discontinued operations	$	26.3	$	30.0
LIABILITIES
Current liabilities:
Trade accounts payable	$	5.4	$	9.2
Accrued expenses and other current liabilities	17.3		21.5
Total current liabilities, discontinued operations	$	22.7	$	30.7

NOTE 3.4. GOODWILL

The following is a rollforward of our goodwill ($ in millions):

Balance, December 31, 2017 $ 5,098.5
Attributable to 2018 acquisitions 1.8
Foreign currency translation & other 25.9
Balance, March 30, 2018 $ 5,126.2



Balance, December 31, 2018	$	6,133.1
Foreign currency translation & other	35.9
Balance, March 29, 2019	$	6,169.0

The carrying value of goodwill by segment is summarized as follows ($ in millions):



	March 29, 2019		December 31, 2018
Professional Instrumentation	$	4,927.3	$	4,894.6
Industrial Technologies	1,241.7		1,238.5
Total goodwill	$	6,169.0	$	6,133.1

March 30, 2018 December 31, 2017
Professional Instrumentation $ 3,349.1
$ 3,331.0
Industrial Technologies 1,777.1
1,767.5
Total goodwill $ 5,126.2
$ 5,098.5

We have not identified any ~~“triggering”~~triggering events which would have indicated a potential impairment of goodwill in the three months ended March ~~30, 2018.~~29, 2019.

NOTE 4.5. FAIR VALUE MEASUREMENTS

Accounting standards define fair value based on an exit price model, establish a framework for measuring fair value where our assets and liabilities are required to be carried at fair value and provide for certain disclosures related to the valuation methods used within a valuation hierarchy as established within the accounting standards. This hierarchy prioritizes the inputs into three broad levels as follows:

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 inputs are quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets in markets that are not active, or other observable characteristics for the asset or liability, including interest rates, yield curves and credit risks, or inputs that are derived principally from, or corroborated by, observable market data through correlation.

Level 3 inputs are unobservable inputs based on our assumptions. The classification of a financial asset or liability within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement in its entirety.

Below is a summary of financial liabilities that are measured at fair value on a recurring basis ($ in millions):



	Quoted Prices in Active Market (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
March 29, 2019
Deferred compensation liabilities	$	—	$	25.9	$	—	$	25.9
December 31, 2018
Deferred compensation liabilities	$	—	$	20.8	$	—	$	20.8

Quoted Prices
in Active
Market
(Level 1)

Significant Other
Observable Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)
Total
March 30, 2018
Deferred compensation liabilities $ —
$ 20.3
$ —
$ 20.3
December 31, 2017
Deferred compensation liabilities $ —
$ 20.9
$ —
$ 20.9

Certain management employees participate in our nonqualified deferred compensation programs that permit such employees to defer a portion of their compensation, on a pretax basis, until after their termination of employment. All amounts deferred under such plans are unfunded, unsecured obligations and are presented as a component of our compensation and benefits accrual included in other long-term liabilities in the accompanying Consolidated Condensed Balance Sheets. Participants may choose among alternative earning rates for the amounts they defer, which are primarily based on investment options within our defined contribution plans for the benefit of U.S. employees (except that the earnings rates for amounts contributed unilaterally by the Company are entirely based on changes in the value of Fortive common stock). Changes in the deferred compensation liability under these programs are recognized based on changes in the fair value of the participants’ accounts, which are based on the applicable earnings rates.

Fair Value of Financial Instruments

The carrying amount and fair value of financial instruments are as follows ($ in millions):



	March 29, 2019				December 31, 2018
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Current portion of long-term debt	$	1,055.4	$	1,055.2	$	455.6	$	454.9
Long-term debt, net of current maturities	$	4,728.3	$	4,889.9	$	2,974.7	$	2,867.5

March 30, 2018 December 31, 2017
Carrying Amount Fair Value Carrying Amount Fair Value
Long-term borrowings $ 3,996.9
$ 3,932.9
$ 4,056.2
$ 4,051.8

As of March ~~30, 2018~~29, 2019 and December 31, ~~2017,~~2018, the current portion of long-term ~~borrowings~~debt and long-term debt, net of current maturities were categorized as Level 1.

The fair ~~value~~values of the current portion of long-term ~~borrowings was~~debt and long-term debt were based on quoted market prices. The difference between the fair value and the carrying amounts of long-term borrowings may be attributable to changes in market interest rates and/or our credit ratings subsequent to the incurrence of the borrowing. The fair value of cash and cash equivalents, accounts receivable, net and trade accounts payable approximates their carrying amount due to the short-term maturities of these instruments.

NOTE 5.6. FINANCING AND CAPITAL

The carrying value of the components of our long-term debt were as follows ($ in millions):



	March 29, 2019		December 31, 2018
U.S. dollar-denominated commercial paper	$	834.0	$	390.1
Euro-denominated commercial paper	264.2		270.1
Delayed-draw term loan due 2019	—		400.0
Delayed-draw term loan due 2020	1,000.0		—
Yen variable interest rate term loan due 2022	124.4		125.7
1.80% senior unsecured notes due 2019	55.4		55.6
2.35% senior unsecured notes due 2021	747.3		747.0
3.15% senior unsecured notes due 2026	892.2		891.9
4.30% senior unsecured notes due 2046	546.9		546.9
0.875% senior convertible notes due 2022	1,316.9		—
Other	2.4		3.0
Long-term debt	5,783.7		3,430.3
Less: current portion of long-term debt	1,055.4		455.6
Long-term debt, net of current maturities	$	4,728.3	$	2,974.7

March 30, 2018 December 31, 2017
U.S. dollar-denominated commercial paper $ 590.3
$ 665.1
Euro-denominated commercial paper 290.3
282.7
U.S. dollar variable interest rate term loan due 2019 500.0
500.0
Yen variable interest rate term loan due 2022 129.7
122.4
1.80% senior unsecured notes due 2019 299.1
298.9
2.35% senior unsecured notes due 2021 746.2
745.9
3.15% senior unsecured notes due 2026 891.2
891.0
4.30% senior unsecured notes due 2046 546.8
546.8
Other 3.3
3.4
Long-term debt $ 3,996.9
$ 4,056.2

Unamortized debt discounts, premiums and issuance costs of ~~$18.0~~$137.7 million and ~~$18.2~~$17.0 million as of March ~~30, 2018~~29, 2019 and December 31, ~~2017,~~2018, respectively, ~~and have been~~are netted against the aggregate principal amounts of the components of debt in the table above. Refer to Note 910 of our ~~2017~~2018 Annual Report on Form 10-K for further details of our debt financing.

We generally satisfy any short-term liquidity needs that are not met through operating cash flows and available cash primarily through issuances of commercial paper under our U.S. dollar and Euro-denominated commercial paper programs (“Commercial Paper Programs”). Credit support for the Commercial Paper Programs is provided by a five-year ~~$1.5~~$2.0 billion senior unsecured revolving credit facility that expires on ~~June 16, 2021~~November 30, 2023 (the “Revolving Credit Facility”) which can also be used for working capital and other general corporate purposes. As of March ~~30, 2018,~~29, 2019, no borrowings were outstanding under the Revolving Credit Facility.

Convertible Senior Notes

On February 22, 2019, we issued $1.4 billion in aggregate principal amount of our 0.875% Convertible Senior Notes due 2022 (the “Convertible Notes”), including $187.5 million in aggregate principal amount resulting from an exercise in full of an over-allotment option. The Convertible Notes were sold in a private placement to certain initial purchasers for resale to qualified institutional buyers pursuant to Rule 144A under the Securities Act.

The Convertible Notes are fully and unconditionally guaranteed, jointly and severally, on an unsecured basis, by four of our wholly-owned domestic subsidiaries (the “Guarantees”). Under the Indenture, the Convertible Notes are our senior unsecured obligations, and the Convertible Notes and the Guarantees rank equally in right of payment with all of our and the guarantors’ existing and future liabilities that are not subordinated, but effectively rank junior to any of our and the guarantors secured indebtedness to the extent of the value of the assets securing such indebtedness. In addition, the Convertible Notes are structurally subordinated to all of the existing and future obligations, including trade payables, of our subsidiaries that do not guarantee the Convertible Notes.

The Convertible Notes bear interest at a rate of 0.875% per year, payable semiannually in arrears on February 15 and August 15 of each year, beginning on August 15, 2019. The Convertible Notes mature on February 15, 2022, unless earlier repurchased or converted in accordance with their terms prior to such date.

The Convertible Notes are convertible into shares of our common stock at an initial conversion rate of 9.3777 shares per $1,000 principal amount of Convertible Notes (which is equivalent to an initial conversion price of $106.64 per share), subject to adjustment upon the occurrence of certain events. The initial conversion price represents a premium of approximately 32.5% to the $80.48 per share closing price of our common stock on February 19, 2019. Upon conversion of the Convertible Notes, holders will receive cash, shares of our common stock, or a combination thereof, at Fortive’s election. Our current intention is to settle such conversions through cash up to the principal amount of the converted Convertible Notes and, if applicable,

through shares of our common stock for conversion value, if any, in excess of the principal amount of the converted Convertible Notes.

Of the $1.4 billion in proceeds received from the issuance of the Convertible Notes, $1.3 billion was classified as debt and $102.2 million was classified as equity, using an assumed effective interest rate of 3.38%. Debt issuance costs of $24.3 million were proportionately allocated to debt and equity. We recognized $5.5 million in interest expense during the three months ended March 29, 2019, of which $1.3 million related to the contractual coupon rate of 0.875% and $0.9 million was attributable to the amortization of debt issuance costs. The discount at issuance was $102.2 million and is being amortized over a three-year period. The unamortized discount at March 29, 2019 was $99.0 million.

Prior to November 15, 2021, the Convertible Notes will be convertible only upon the occurrence of certain events and will be convertible thereafter at any time until the close of business on the business day immediately preceding the maturity date of the Convertible Notes.

The conversion rate is subject to customary anti-dilution adjustments. If certain corporate events described in the Indenture occur prior to the maturity date, the conversion rate will be increased for a holder that elects to convert its Convertible Notes in connection with such corporate event in certain circumstances.

The Convertible Notes are not redeemable prior to maturity, and no sinking fund is provided for the Convertible Notes. If we undergo a “fundamental change,” as defined in the Indenture, subject to certain conditions, holders may require us to repurchase for cash all or any portion of their Convertible Notes. The fundamental change purchase price will be 100% of the principal amount of the Convertible Notes to be repurchased plus any accrued and unpaid additional interest up to but excluding the fundamental change repurchase date.

The Indenture contains customary terms and covenants, including that upon certain events of default occurring and continuing, either the Trustee or the holders of at least 25% in aggregate principal amount of the outstanding Convertible Notes may declare 100% of the principal of, and accrued and unpaid interest, if any, on all the Convertible Notes to be due and payable.

We used the net proceeds from the offering to fund a portion of the cash consideration payable for, and certain costs associated with, our acquisition of ASP.

In connection with this offering of the Convertible Notes, on February 21, 2019, we entered into amendments to the credit facility agreement associated with our delayed-draw term loan due 2019 dated as of August 22, 2018, and our Credit Agreement, dated as of November 30, 2018, to exclude the Guarantees from the limitations on subsidiary indebtedness under the Agreements.

Delayed-Draw Term Loan Due 2020

On March 1, 2019, we entered into a credit facility agreement that provides for a 364-day delayed-draw term loan facility (“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 the London inter-bank offered rate plus a ratings based margin currently at 75 basis points. As of March 29, 2019, borrowings under this facility bore an interest rate of 3.24% 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 the Revolving Credit Facility.

Commercial Paper

The details of our Commercial Paper Programs as of March ~~30, 2018~~29, 2019 are as follows ($ in millions):



	Carrying value		Annual effective rate		Weighted average remaining maturity (in days)
U.S. dollar-denominated commercial paper	$	834.0	2.82	%	16
Euro-denominated commercial paper	$	264.2	(0.10	)%	78

Carrying Value Annual effective rate Weighted average remaining maturity (in days)
U.S. dollar-denominated commercial paper $ 590.3
2.48 % 34
Euro-denominated commercial paper $ 290.3
(0.11 )% 58

We classified our borrowings outstanding under the Commercial Paper Programs as long-term debt in the accompanying Consolidated Condensed Balance Sheets as we had the intent and ability, as supported by availability under the Revolving Credit Facility referenced above, to refinance these borrowings for at least one year from the balance sheet date.

As of March ~~30, 2018,~~29, 2019, we were in compliance with all of our covenants.

Repayments

On February 28, 2019, we prepaid the remaining $400.0 million outstanding principal and accrued interest under the delayed-draw term loan due 2019. The prepayment penalties associated with this payment were immaterial.

NOTE ~~6. REVENUE~~7. LEASES

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842), which requires lessees to recognize a right-of-use (“ROU”) asset and a lease liability for all leases with terms greater than 12 months and also requires disclosures by lessees and lessors about the amount, timing and uncertainty of cash flows arising from leases. Subsequent to the issuance of Topic 842, the FASB clarified the guidance through several ASUs; hereinafter the collection of lease guidance is referred to as “ASC 842”.

On January 1, ~~2018,~~2019, we adopted ~~ASU 2014-09~~ ~~Revenue from Contracts with Customers~~ ~~(“Topic 606”)~~ASC 842 using the modified retrospective transition method ~~applied to those contracts which were not completed as~~for all lease arrangements at the beginning of ~~January 1, 2018.~~the period of adoption. Results for reporting periods beginning ~~after~~ January 1, ~~2018~~2019 are presented under ~~Topic 606,~~ASC 842, while prior period amounts ~~are~~were not adjusted and continue to be reported in accordance with our historic accounting ~~policy~~ under ~~ASC~~ Topic ~~605~~ ~~Revenue Recognition~~840, Leases. ~~We recorded an immaterial transition adjustment to opening retained~~The standard had a material impact on our Consolidated Condensed Balance Sheet but had no impact on our consolidated net earnings ~~as of January 1, 2018 due to the cumulative~~and cash flows. The most significant impact of adopting ~~Topic 606. The impact~~ASC 842 was the recognition of the ROU asset and lease liabilities for operating leases, which are presented in the following three line items on the Consolidated Condensed Balance Sheet: (i) operating lease right-of-use asset; (ii) current operating lease liabilities; and (iii) operating lease liabilities.

We elected the package of practical expedients for leases that commenced before the effective date of ASC 842 whereby we elected to ~~revenues~~not reassess the following: (i) whether any expired or existing contracts contain leases; (ii) the lease classification for any expired or existing leases; and (iii) initial direct costs for any existing leases. In addition, we have lease agreements with lease and non-lease components and we have elected the practical expedient for all underlying asset classes and account for them as a ~~result~~single lease component. Our finance lease and lessor arrangements are immaterial.

We determine if an arrangement is a lease at inception. We have operating leases for office space, warehouses, distribution centers, research and development facilities, manufacturing locations, and certain equipment, primarily automobiles. Many leases include one or more options to renew, some of ~~applying Topic 606~~which include options to extend the leases for up to 15 years, and some of which include options to terminate the leases in less than one year. We considered options to renew in our lease terms and measurement of right-of-use assets and lease liabilities if we determined they were reasonably certain to be exercised.

For the three months ended March 29, 2019, operating lease cost was $17.8 million. Short-term and variable lease cost, and cost for finance leases were immaterial for the ~~quarter~~three months ended March ~~30, 2018~~29, 2019. During the three-month period ended March 29, 2019, cash paid for operating leases included in operating cash flows was ~~immaterial.~~$15.8 million. ROU assets obtained in exchange for operating lease obligations were immaterial for the three months ended March 29, 2019.

~~Our significant accounting policies are detailed in Note 2~~The following table presents the maturity of our ~~2017~~operating lease liabilities as of March 29, 2019 ($ in millions):



Remainder of 2019	$	41.8
2020	41.1
2021	31.7
2022	21.9
2023	11.7
Thereafter	40.7
Total lease payments	188.9
Less: imputed interest	(20.5		)
Total lease liabilities	$	168.4

As previously disclosed in our 2018 Annual Report on Form ~~10-K. Significant changes~~10-K and under Topic 840, future minimum lease payments for operating leases having initial or remaining noncancelable lease terms in excess of one year would have been as follows:



2019	$	54.2
2020	41.2
2021	32.4
2022	24.0
2023	13.5
Thereafter	16.1
Total lease payments	$	181.4

As of March 29, 2019, the weighted average lease term of our operating leases was 6.3 years and the weighted average discount rate of our operating leases was 3.4%. We primarily use our incremental borrowing rate as the discount rate for our operating leases, as we are generally unable to ~~our accounting policies as a result~~determine the interest rate implicit in the lease.

As of ~~adopting Topic 606 are discussed below:~~March 29, 2019, we entered into operating leases for which the lease term had not yet commenced. These operating leases will commence in 2019 with lease terms between 1 and 10 years with fixed payments over the non-cancelable lease terms of $3.7 million.

~~Revenue Recognition~~—

NOTE 8. SALES

We derive revenues primarily from the sale of Professional Instrumentation and Industrial Technologies products and services. Revenue is recognized when control of promised products or services is transferred to customers in an amount that reflects the consideration we expect to be entitled to in exchange for those products or services.

~~For revenue~~Product Sales include revenues from the sale of products and equipment, which includes our software as a service product offerings and equipment rentals.

Service Sales includes revenues from extended warranties, post-contract customer support (“PCS”), maintenance contracts or services, contract labor to perform ongoing service at a customer location, and services related to a product or service to qualify for recognition, we must have an enforceable contract with a customer that defines the goods or services to be transferred and the payment terms related to those goods or services. Further, collection of substantially all consideration for the goods or services transferred must be probable based on the customer’s intent and ability to pay the promised consideration. We apply judgment in determining the customer’s ability and intention to pay, which is based on a combination of financial and qualitative factors, including the customers’ financial condition, collateral, debt-servicing ability, past payment experience and credit bureau information.previously sold products.

Customer allowances and rebates, consisting primarily of volume discounts and other short-term incentive programs, are considered in determining the transaction price for the contract; these allowances and rebates are reflected as a reduction in the contract transaction price. Significant judgment is exercised in determining product returns, customer allowances and rebates, and are estimated based on historical experience and known trends.

Most of our sales contracts contain standard terms and conditions. We evaluate contracts to identify distinct goods and services promised in the contract (performance obligations). Sometimes this evaluation involves judgment to determine whether the goods or services are highly dependent on or highly interrelated with one another, or whether such goods or services significantly modify or customize one another. Certain customer arrangements include multiple performance obligations, typically hardware, installation, training, consulting, services and/or post contract support (“PCS”). Generally, these elements are delivered within the same reporting period, except PCS or other services. We allocate the contract transaction price to each performance obligation using the observable price that the good or service sells for separately in similar circumstances and to similar customers, and/or a residual approach when the observable selling price of a good or service is not known and is either highly variable or uncertain. Allocating the transaction price to each performance obligation sometimes requires significant judgment.

Our principal terms of sale are FOB Shipping Point, or equivalent, and, as such, we primarily record revenue upon shipment as we have transferred control to the customer at that point and our performance obligations are satisfied. We evaluate contracts with delivery terms other than FOB Shipping Point and recognize revenue when we have transfered control and satisfied our performance obligations. If any significant obligation to the customer with respect to a sales transaction remains to be fulfilled following shipment (typically installation, other services noted above or acceptance by the customer), revenue recognition is deferred until such obligations have been fulfilled. Further, revenue related to separately priced extended warranty and product maintenance agreements is deferred when appropriate and recognized as revenue over the term of the agreement.

Contract Assets — In certain circumstances, we record contract assets which include unbilled amounts typically resulting from sales under contracts when revenue recognized exceeds the amount billed to the customer, and right to payment is not only subject to the passage of time. Contract assets were immaterial as of March ~~30,~~29, 2019 and December 31, 2018.

Contract Costs — We incur direct incremental costs to obtain certain contracts, typically sales-related ~~commissions.~~commissions and costs associated with assets used by our customers in certain service arrangements. Deferred sales-related commissions are generally not capitalized as the amortization period is ~~one~~1 year or less, and we elected to use the practical expedient to expense these sales commissions as incurred. As of March 29, 2019, we had $139.2 million in net revenue-related contract assets related to certain service arrangements. Our revenue-related contract assets at December 31, 2018 were $144.4 million, the majority of which were recorded in property, plant and equipment on the Consolidated Condensed Balance Sheet. These assets have estimated useful lives between 3 and 5 years.

Impairment losses recognized on our ~~contract-related~~revenue-related contract assets were immaterial in the ~~first~~ three months ~~of 2018.~~ended March 29, 2019.

Contract Liabilities — Our contract liabilities consist of deferred revenue generally related to PCS and extended warranty sales, where in most cases we receive up-front payment and recognize revenue over the support term. We classify deferred revenue as current or noncurrent based on the timing of when we expect to recognize revenue. The noncurrent portion of deferred revenue is included in other long-term liabilities in the accompanying Consolidated Condensed Balance Sheets.

Our contract liabilities consisted of the ~~following:~~following ($ in millions):



	March 29, 2019		December 31, 2018
Deferred revenue - current	$	306.2	$	288.1
Deferred revenue - noncurrent	97.3		92.6
Total contract liabilities	$	403.5	$	380.7

March 30, 2018 December 31, 2017
Deferred revenue - current $ 210.3
$ 213.4
Deferred revenue - noncurrent 88.6
86.9
Total contract liabilities $ 298.9
$ 300.3

In the ~~first~~ three months ~~of 2018,~~ended March 29, 2019, we recognized ~~$43~~$114.3 million of revenue related to our contract liabilities at ~~January 1,~~December 31, 2018. The ~~decrease~~change in our contract liabilities from December 31, ~~2017~~2018 to March ~~30, 2018~~29, 2019 was primarily due to the timing of cash receipts and sales of ~~PCS~~post-contract support and extended warranty services.

Remaining Performance Obligations — Our remaining performance obligations represent the transaction price of firm, noncancelable orders, with expected delivery dates to customers greater than one year from March ~~30, 2018,~~29, 2019, for which work has not been performed. We have excluded performance obligations with an original expected duration of one year or less from the amounts below.

The aggregate performance obligations attributable to each of our segments is as follows ($ in millions):



	March 29, 2019
Professional Instrumentation	$	147.2
Industrial Technologies	408.9
Total remaining performance obligations	$	556.1

March 30, 2018
Professional Instrumentation $ 115
Industrial Technologies 543
Total $ 658

The majority of remaining performance obligations are related to service and support contracts, which we expect to fulfill approximately 40 percent within the next two years, approximately 7075 percent within the next three years and substantially all within four years.

Disaggregation of Revenue

We disaggregate revenue from contracts with customers by sales of products and services, geographic location, major product group and end market for each of our segments, as we believe it best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors. Disaggregation of revenue for the three months ended March ~~30, 2018~~29, 2019 is presented as follows ($ in millions):



	Total		Professional Instrumentation		Industrial Technologies
Sales:
Sales of products	$	1,405.1	$	825.8	$	579.3
Sales of services	187.8		121.5		66.3
Total	$	1,592.9	$	947.3	$	645.6

Geographic:
United States	$	887.6	$	486.0	$	401.6
China	150.0		128.4		21.6
Germany	57.6		32.4		25.2
All other (each country individually less than 5% of total sales)	497.7		300.5		197.2
Total	$	1,592.9	$	947.3	$	645.6

Major Products Group:
Professional tools and equipment	$	1,226.9	$	780.3	$	446.6
Industrial automation, controls and sensors	130.0		100.0		30.0
Franchise distribution	169.0		—		169.0
All other	67.0		67.0		—
Total	$	1,592.9	$	947.3	$	645.6

End markets:
Direct sales:
Retail fueling^(a)	$	388.2	$	—	$	388.2
Industrial & Manufacturing	109.6		96.8		12.8
Vehicle repair^(a)	153.8		—		153.8
Utilities & Power	49.6		49.6		—
Other	463.0		391.1		71.9
Total direct sales	1,164.2		537.5		626.7
Distributors^(a)	428.7		409.8		18.9
Total	$	1,592.9	$	947.3	$	645.6

(a) Retail fueling and vehicle repair include sales to these end markets made through third-party distributors. Total distributor sales for the three months ended March 29, 2019 was $745.2 million.

Total Professional Instrumentation Industrial Technologies
Geographic:
United States $ 916.9
$ 408.4
$ 508.5
China 156.4
108.3
48.1
Germany 86.5
35.9
50.6
All other (each country individually less than 5% of total sales) 580.9
319.1
261.8
Total $ 1,740.7
$ 871.7
$ 869.0

Major Products Group:
Professional tools and equipment $ 1,120.1
$ 706.5
$ 413.6
Industrial automation, controls and sensors 327.8
104.6
223.2
Franchise distribution 172.9
—
172.9
All other 119.9
60.6
59.3
Total $ 1,740.7
$ 871.7
$ 869.0

End markets:
Direct sales
  Retail fueling^(a)
$ 348.3
$ —
$ 348.3
  Industrial & Manufacturing 156.1
90.4
65.7
  Vehicle repair^(a)
158.8
—
158.8
  Utilities & Power 56.0
55.4
0.6
  Other 518.5
301.2
217.3
     Total direct sales 1,237.7
447.0
790.7
Distributors^(a)
503.0
424.7
78.3
Total $ 1,740.7
$ 871.7
$ 869.0

(a) Retail fueling and vehicle repair includes sales to these end markets made through third party distributors. Total distributor sales for the three months ended March 30, 2018 was $789.7 million.

Disaggregation of revenue for the three months ended March ~~31, 2017~~30, 2018 is presented as follows ($ in millions):



	Total		Professional Instrumentation		Industrial Technologies
Sales:
Sales of products	$	1,332.4	$	776.6	$	555.8
Sales of services	159.8		95.1		64.7
Total	$	1,492.2	$	871.7	$	620.5

Geographic:
United States	$	788.7	$	406.4	$	382.3
China	143.6		125.1		18.5
Germany	58.3		35.9		22.4
All other (each country individually less than 5% of total sales)	501.6		304.3		197.3
Total	$	1,492.2	$	871.7	$	620.5

Major Products Group:
Professional tools and equipment	$	1,119.2	$	704.7	$	414.5
Industrial automation, controls and sensors	138.0		105.0		33.0
Franchise distribution	173.0		—		173.0
All other	62.0		62.0		—
Total	$	1,492.2	$	871.7	$	620.5

End markets:
Direct sales:
Retail fueling^(a)	$	348.3	$	—	$	348.3
Industrial & Manufacturing	105.5		90.4		15.1
Vehicle repair^(a)	158.8		—		158.8
Utilities & Power	55.4		55.4		—
Other	381.9		301.2		80.7
Total direct sales	1,049.9		447.0		602.9
Distributors^(a)	442.3		424.7		17.6
Total	$	1,492.2	$	871.7	$	620.5

(a) Retail fueling and vehicle repair include sales to these end markets made through third-party distributors. Total distributor sales for the three months ended March 30, 2018 was $728.1 million.

Total Professional Instrumentation Industrial Technologies
Geographic:
United States $ 846.8
$ 330.4
$ 516.4
China 129.9
90.5
39.4
Germany 69.6
28.7
40.9
All other (each country individually less than 5% of total sales) 488.9
266.5
222.4
Total $ 1,535.2
$ 716.1
$ 819.1

Major Products Group:
Professional tools and equipment $ 961.6
$ 558.6
$ 403.0
Industrial automation, controls and sensors 290.7
96.1
194.6
Franchise distribution 171.7
—
171.7
All other 111.2
61.4
49.8
Total $ 1,535.2
$ 716.1
$ 819.1

End markets:
Direct sales
  Retail fueling^(a)
$ 346.5
$ —
$ 346.5
  Industrial & Manufacturing 109.9
65.1
44.8
  Vehicle repair^(a)
157.9
—
157.9
  Utilities & Power 52.6
51.7
0.9
  Other 460.5
261.7
198.8
     Total direct sales 1,127.4
378.5
748.9
Distributors^(a)
407.8
337.6
70.2
Total $ 1,535.2
$ 716.1
$ 819.1

(a) Retail fueling and vehicle repair includes sales to these end markets made through third party distributors. Total distributor sales for the three months ended March 31, 2017 was $746.9 million.

NOTE 7.9. PENSION PLANS

For a full description of our noncontributory defined benefit pension plans ~~including the U.S. plan acquired in 2017,~~ refer to Note 1011 of our ~~2017~~2018 Annual Report on Form 10-K.

The following sets forth the components of our net periodic pension costs associated with our noncontributory defined benefit pension plans ($ in millions):



	Three Months Ended
	March 29, 2019			March 30, 2018
U.S. Pension Benefits:
Interest cost	$	0.4		$	0.3
Expected return on plan assets	(0.3		)	(0.4		)
Net periodic pension cost	$	0.1		$	(0.1	)

Non-U.S. Pension Benefits:
Service cost	$	0.3		$	0.3
Interest cost	1.4			1.4
Expected return on plan assets	(1.4		)	(1.5		)
Amortization of net loss	0.7			0.7
Net curtailment and settlement loss recognized	—			0.2
Net periodic pension cost	$	1.0		$	1.1

Three Months Ended
March 30, 2018 March 31, 2017
U.S. Pension Benefits:
Interest cost $ 0.3
$ —
Expected return on plan assets (0.4 ) —
Net periodic pension cost $ (0.1 ) $ —

Non-U.S. Pension Benefits:
Service cost $ 0.5
$ 1.0
Interest cost 1.5
1.4
Expected return on plan assets (1.9 ) (1.8 )
Amortization of net loss 0.9
1.1
Net periodic pension cost $ 1.0
$ 1.7

~~On January 1, 2018, we retrospectively adopted ASU No. 2017-07,~~ ~~Compensation–Retirement Benefits (Topic 715).~~ ~~Accordingly, we have included~~We report all components of net periodic pension costs, with the exception of service costs, in other non-operating expenses as a component of non-operating income in the accompanying Consolidated Condensed Statements of Earnings. Service costs ~~continue to be included~~are reported in cost of sales and selling, general and administrative expenses in the accompanying Consolidated Condensed Statements of Earnings according to the classification of the participant’s compensation. ~~This reclassification of prior year pension cost increased operating income by $0.7 million for the three months ended March 31, 2017.~~

Employer Contributions

During ~~2018,~~2019, our cash contribution requirements for our non-U.S. defined benefit pension plans are expected to be approximately ~~$10~~$9.6 million. We do not expect to make contributions to the U.S. plan during ~~2018.~~2019. The actual amounts to be contributed depend upon, among other things, legal requirements, underlying asset returns, the plan’s funded status, the anticipated tax deductibility of the contribution, local practices, market conditions, interest rates and other factors.

NOTE 8.10. INCOME TAXES

Our effective tax rate for the three months ended March ~~30, 2018,~~29, 2019 was ~~16.5%~~14.8% as compared to ~~26.7%~~15.7% for the three months ended March ~~31, 2017.~~30, 2018. The year-over-year decrease was due primarily to favorable impacts ~~in 2018 resulting from a lower statutory~~of certain federal and international tax benefits.

Our effective tax rate infor 2019 and 2018 differs from the ~~United States as a result~~U.S. federal statutory rate of 21% due primarily to the effect of the Tax Cuts and Jobs Act (“TCJA”) ~~as well as other federal and international tax benefits.~~

~~Our effective tax rates for 2018 and 2017 differ from the~~ U.S. federal ~~statutory rate~~permanent differences, the impact of ~~21%~~credits and ~~35%, respectively, due primarily to our~~deductions provided by law, and earnings outside the United States that are indefinitely reinvested and taxed at rates lower than the U.S. federal statutory rate, the impact of credits and deductions provided by law, and the effect of favorable adjustments to the provisional estimates recorded in 2017 related to the TCJA as permitted under SEC Staff Accounting Bulletin No. 118 (“SAB 118”). The adjustments recorded to our provisional estimates decreased income tax expense by $4.2 million during the three months ended March 30, 2018. We will continue to evaluate the effects of the TCJA on the 2017 provisional estimates through the end of the SAB 118 allowable measurement period. Refer to Note 11 of our 2017 Annual Report on Form 10-K for further details including disclosures pursuant to SAB 118 interpretive guidance, including provisional estimates for all TCJA effects.

~~On January 1, 2018, we adopted ASU No. 2016-16, Income Taxes~~ ~~(Topic 715): Intra-entity Transfers of Assets Other Than Inventory~~ ~~using the modified retrospective method~~, ~~and recorded an immaterial adjustment to opening retained earnings as of January 1, 2018.~~rate.

NOTE 9.11. STOCK-BASED COMPENSATION

Our stock-based compensation program (the “Stock Plan”) provides for the grant of stock appreciation rights, performance stock units, restricted stock units, restricted stock awards and performance stock awards (collectively, “Stock Awards”), stock options or any other stock-based award. As of March ~~30, 2018,~~29, 2019, approximately 620 million shares of our common stock were available for subsequent issuance under the Stock Plan. For a full description of our stock-based compensation program refer to Note 1517 of our ~~2017~~2018 Annual Report on Form 10-K.

Stock-based Compensation Expense

Stock-based compensation has been recognized as a component of selling, general & administrative expenses in the accompanying Consolidated Condensed Statements of Earnings based on the portion of the awards that are ultimately expected to vest.

The following summarizes the components of our stock-based compensation expense under the Stock Plan ($ in millions):



	Three Months Ended
	March 29, 2019			March 30, 2018
Stock Awards:
Pretax compensation expense	$	7.8		$	6.5
Income tax benefit	(1.7		)	(1.4		)
Stock Award expense, net of income taxes	6.1			5.1
Stock options:
Pretax compensation expense	5.1			4.5
Income tax benefit	(1.1		)	(0.9		)
Stock option expense, net of income taxes	4.0			3.6
Total stock-based compensation:
Pretax compensation expense	12.9			11.0
Income tax benefit	(2.8		)	(2.3		)
Total stock-based compensation expense, net of income taxes	$	10.1		$	8.7

Three Months Ended
March 30, 2018 March 31, 2017
Stock Awards:
Pretax compensation expense $ 7.1
$ 7.4
Income tax benefit (1.5 ) (2.5 )
Stock Award expense, net of income taxes 5.6
4.9
Stock options:
Pretax compensation expense 4.8
4.6
Income tax benefit (1.0 ) (1.6 )
Stock option expense, net of income taxes 3.8
3.0
Total stock-based compensation:
Pretax compensation expense 11.9
12.0
Income tax benefit (2.5 ) (4.1 )
Total stock-based compensation expense, net of income taxes $ 9.4
$ 7.9
On February 22, 2019, the Board of Directors granted 1.7 million stock options and 550 thousand stock awards at market value to employees.

The following summarizes the unrecognized compensation cost for the Stock Plan awards as of March ~~30, 2018.~~29, 2019. This compensation cost is expected to be recognized over a weighted average period of approximately two years, representing the remaining service period related to the awards. Future compensation amounts will be adjusted for any changes in estimated forfeitures ($ in millions):



Stock Awards	$	77.2
Stock options	70.4
Total unrecognized compensation cost	$	147.6

Stock Awards $ 66.8
Stock options 61.6
Total unrecognized compensation cost $ 128.4

NOTE ~~10.~~12. COMMITMENTS AND CONTINGENCIES

For a description of our litigation and contingencies, refer to Notes 1315 and 1416 of our ~~2017~~2018 Annual Report on Form 10-K.

Our operating leases extend for varying periods of time up to twenty years and, in some cases, contain renewal options that would extend existing terms beyond twenty years. Minimum rental payments for all operating leases having initial or remaining noncancelable lease terms in excess of one year for 2018 through 2022 and thereafter are: $48 million in 2018, $42 million in 2019, $31 million in 2020, $20 million in 2021, $16 million in 2022 and $20 million thereafter.

We generally accrue estimated warranty costs at the time of sale. In general, manufactured products are warranted against defects in material and workmanship when properly used for their intended purpose, installed correctly, and appropriately maintained. Warranty period terms depend on the nature of the product and range from 90 days up to the life of the product. The amount of the accrued warranty liability is determined based on historical information such as past experience, product

failure rates or number of units repaired, estimated cost of material and labor, and in certain instances estimated property damage. The accrued warranty liability is reviewed on a quarterly basis and may be adjusted as additional information regarding expected warranty costs becomes known.

The following is a rollforward of our accrued warranty liability ($ in millions):



Balance, December 31, 2018	$	72.1
Accruals for warranties issued during the period	17.9
Settlements made	(23.0		)
Effect of foreign currency translation	0.2
Balance, March 29, 2019	$	67.2

Balance, December 31, 2017 $ 69.4
Accruals for warranties issued during the period 15.1
Settlements made (19.1 )
Effect of foreign currency translation 0.3
Balance, March 30, 2018 $ 65.7

NOTE ~~11.~~13. NET EARNINGS PER SHARE

Basic net earnings per share (“EPS”) is calculated by dividing net earnings attributable to common stockholders by the weighted average number of shares of common stock outstanding for the applicable period. Diluted EPS is similarly calculated, except that the calculation includes the dilutive effect of the assumed issuance of shares under stock-based compensation plans under the treasury stock method, except where the inclusion of such shares would have an anti-dilutive impact. There were ~~1.5~~1.7 million and ~~1.8~~1.5 million anti-dilutive options ~~to purchase shares~~ excluded from the diluted EPS calculation for the three months ended March 29, 2019 and March 30, 2018, respectively.

As described in Note 6, upon conversion of the Convertible Notes, holders will receive cash, shares of our common stock, or a combination thereof, at our election. Our intention is to settle such conversions through cash up to the principal amount of the Convertible Notes and, if applicable, through shares of our common stock for conversion value, if any, in excess of the principal amount of the Convertible Notes. We believe we have the ability to settle these obligations as intended, and therefore we have accounted for the conversion features under the treasury stock method in our calculation of EPS. Given the price of our common stock is below the conversion price, the Convertible Notes had no impact on our earnings per share for the three months ended March ~~31, 2017, respectively.~~29, 2019.

The impact of our MCPS calculated under the if-converted method were anti-dilutive, and as such 16.7 million shares were excluded from the diluted EPS calculation for the three months ended March 29, 2019.

Information related to the calculation of net earnings per share of common stock is summarized as follows ($ and shares in millions, except per share amounts):



	Three Months Ended
	March 29, 2019			March 30, 2018
Numerator
Net earnings from continuing operations	$	164.0		$	214.0
Mandatory convertible preferred stock cumulative dividends	(17.3		)	—
Net earnings attributable to common stockholders from continuing operations	$	146.7		$	214.0

Denominator
Weighted average common shares outstanding used in basic earnings per share	335.1			348.6
Incremental common shares from:
Assumed exercise of dilutive options and vesting of dilutive Stock Awards	4.4			5.8
Weighted average common shares outstanding used in diluted earnings per share	339.5			354.4

Net earnings from continuing operations per common share - Basic	$	0.44		$	0.61
Net earnings from continuing operations per common share - Diluted	$	0.43		$	0.61

Net Earnings (Numerator) Shares (Denominator) Per Share Amount
For the Three Months Ended March 30, 2018:
Basic EPS $ 261.2
348.6
$ 0.75
Incremental shares from assumed exercise of dilutive options and vesting of dilutive Stock Awards —
5.8

Diluted EPS $ 261.2
354.4
$ 0.74

For the Three Months Ended March 31, 2017:
Basic EPS $ 199.7
347.0
$ 0.58
Incremental shares from assumed issuance of shares under stock-based compensation plans —
4.5

Diluted EPS $ 199.7
351.5
$ 0.57
We declared and paid cash dividends per common share and per MCPS during the periods presented as follows:



	Dividend Per Common Share		Amount ($ in millions)		Dividend per MCPS		Amount ($ in millions)
2019:
First quarter	$	0.07	$	23.4	$	12.50	$	17.3

2018:
First quarter	$	0.07	$	24.3	$	—	$	—

On ~~January 23, 2018,~~April 11, 2019, we declared a regular quarterly dividend of $0.07 per share paid on March 29, 2018 to holders of record on February 23, 2018. On January 24, 2017, we declared a regular quarterly dividend of $0.07 per share paid on March 31, 2017 to holders of record on February 24, 2017.

~~For the three months ended March 30, 2018,~~ cash ~~dividend payments of $24.3 million were recorded as dividends to shareholders in the accompanying Consolidated Condensed Statement of Changes in Equity.~~

~~On April 12, 2018, we declared a regular quarterly~~ dividend of $0.07 per share payable on June ~~29, 2018~~28, 2019, to ~~holders~~common stockholders of record on May ~~25, 2018.~~31, 2019 and a regular quarterly cash dividend of $12.50 per share on our MCPS payable on July 1, 2019 to preferred stockholders of record on June 15, 2019.

NOTE ~~12.~~14. SEGMENT INFORMATION

We report our results in two separate business segments consisting of Professional Instrumentation and Industrial Technologies. When determining the reportable segments, we aggregated operating segments based on their similar economic and operating characteristics. Operating profit amounts in the Other category consist of unallocated corporate costs and other costs not considered part of our evaluation of reportable segment operating performance. ~~As of March 30, 2018, there have been no material changes in total assets or liabilities by~~Our segment ~~since December 31, 2017. Segment~~ results are ~~shown below~~as follows ($ in millions):



	Three Months Ended
	March 29, 2019			March 30, 2018
Sales:
Professional Instrumentation	$	947.3		$	871.7
Industrial Technologies	645.6			620.5
Total	$	1,592.9		$	1,492.2
Operating Profit:
Professional Instrumentation	$	136.2		$	206.4
Industrial Technologies	105.3			94.2
Other	(24.2		)	(22.7		)
Total Operating Profit	217.3			277.9
Interest expense, net	(25.3		)	(23.3		)
Other non-operating income (expenses), net	0.4			(0.7		)
Earnings from continuing operations before income taxes	$	192.4		$	253.9

Three Months Ended
March 30, 2018 March 31, 2017
Sales:
Professional Instrumentation $ 871.7
$ 716.1
Industrial Technologies 869.0
819.1
Total $ 1,740.7
$ 1,535.2
Operating Profit:
Professional Instrumentation $ 206.4
$ 158.5
Industrial Technologies 158.3
152.8
Other (26.5 ) (15.7 )
Total $ 338.2
$ 295.6

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 advanced instrumentation and solutions, sensing, transportation technology, ~~sensing, automation and specialty,~~ and franchise distribution markets. 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 ~~2017~~2018 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 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, 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:

Conditions in the global economy, the markets we serve and the financial markets may adversely affect our business and financial statements. Furthermore, significant uncertainties related to changes in governmental policies toward international trade currently exist, and depending on how such uncertainties are resolved, could have a material adverse effect on our financial results.

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 ~~software~~ and services.

Changes in industry standards and governmental regulations ~~and applicable laws~~ may reduce demand for our products ~~software~~ 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 ~~historical~~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 ~~software~~ 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.

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.

~~transaction. The proposed transaction may not be completed on the currently contemplated timeline or at all and may not achieve the intended benefits.~~

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 ~~business~~ and financial statements.

Our businesses are subject to extensive regulation; failure to comply with those regulations could adversely affect our ~~business,~~ financial statements and reputation.

International economic, ~~trade,~~ political, legal, compliance and business factors could negatively affect our business and 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.

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 ~~software~~ 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 ~~software~~(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.

~~A significant disruption in, or breach in security of, information technology systems we use could adversely affect our business.~~

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.

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.

~~As an independent, publicly traded company, we~~Certain of our executive officers and directors may ~~not enjoy the same benefits that we did as a part~~have actual or potential conflicts of ~~Danaher Corporation (“Danaher” or “Former Parent”).~~interest because of their equity interest in Danaher.

Potential ~~indemnification~~ liabilities may arise due to ~~Danaher pursuant to our separation agreement with Danaher could materially and~~fraudulent transfer considerations, which would adversely affect our ~~businesses,~~ financial condition and our results of ~~operations and cash flows.~~

In connection with our separation from Danaher, Danaher has indemnified us for certain liabilities. However, there can be no assurance that the indemnity will be sufficient to insure us against the full amount of such liabilities, or that Danaher’s ability to satisfy its indemnification obligation will not be impaired in the future.

~~There could be significant liability if the separation from Danaher fails to qualify as a tax-free transaction for U.S. federal income tax purposes.~~

~~We may not be able to engage in certain corporate transactions for a two-year period after the separation from Danaher on July 2, 2016.~~operations.

See “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2017 and “Part II – Item 1A. Risk Factors” in this Form 10-Q~~2018 for a 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.

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

While differences exist among our businesses, on an overall basis, demand for our products, software and services increased during the three months ended March ~~30, 2018~~29, 2019 as compared to the comparable period of ~~2017~~2018 resulting in aggregate year-over-year total sales growth of ~~13.4%~~6.7% and sales growth from existing businesses of ~~2.6%~~3.7%. Our continued application and deployment of the Fortive Business System including investments in sales growth initiatives and new product introductions, as well as increased demand in both high-growth and developed markets and other business-specific factors discussed below, contributed to overall sales growth from existing businesses across the majority of our businesses in the period.

On a year-over-year basis, both segments experienced sales growth from existing businesses ~~in the~~with Professional Instrumentation ~~segment was broad based, driven by strong demand across the segment. On a year-over-year basis, sales from existing businesses were flat in~~growing 1.8% and Industrial Technologies growing 6.4%. In our Industrial Technologies segment. Strong growth in sales from existing businesses in the Automation & Specialty Components platform was offset by decreased demand in the Transportation Technologies businesses due to the extension ofsegment, the liability shift related to ~~the~~ enhanced credit card security requirements in the ~~United~~Unites States based on the Europay, Mastercard and Visa (“EMV”) global ~~standards.~~standards is continuing to drive demand within our transportation technologies platform.

Geographically, sales from existing businesses grew at a mid-single digit rate in high-growth markets and at a low-single digit rate in developed ~~markets and at a mid-single digit rate in high-growth~~ markets during the three months ended March ~~30, 2018~~29, 2019 as compared to the comparable ~~2017~~2018 period. Year-over-year sales from existing businesses grew at a ~~high single-digit~~high-single digit rate in China and Japan and at a ~~low-single~~mid-single digit rate in ~~Western Europe~~North America and ~~North~~Latin America during the three months ended March ~~30,~~29, 2019. Sales in Europe during the three months ended March 29, 2019 were relatively consistent with the comparable period in 2018.

We expect overall sales from existing businesses to continue to grow on a year-over-year basis during the remainder of ~~2018;~~2019; however, we continue to monitor developments from macro-economic and geopolitical uncertainties, including Brexit and global uncertainties related to governmental policies toward international trade, monetary and fiscal policies; including the current uncertainty about the future relationship between the United States and China with respect to trade policies, ~~as well as~~treaties, government regulations, and tariffs. We are also monitoring other factors identified above in “—Information Relating to Forward-Looking Statements.”

~~Planned Divestiture of A&S Business~~Completed Acquisitions

~~On March 7, 2018, we~~We entered into a ~~definitive~~purchase agreement, effective June 6, 2018, with Ethicon, Inc., a subsidiary of Johnson & Johnson, to ~~combine four~~purchase its Advanced Sterilization Products (“ASP”) business for approximately $2.7 billion in cash. The transaction was completed in accordance with the terms of ~~our operating companies from our Automation & Specialty platform (the “A&S Business”) with Altra Industrial Motion Corp (“Altra”) in a tax-efficient Reverse Morris Trust transaction. In~~ the ~~transaction,~~purchase agreement, and on April 1, 2019, we ~~will receive approximately $1.4~~paid $2.7 billion in cash to acquire the ASP business. ASP is a leading global provider of innovative sterilization and ~~debt retirement,~~disinfection solutions and ~~our shareholders will receive~~pioneered low-temperature hydrogen peroxide sterilization technology. ASP’s products, which are sold globally, include the STERRAD system for sterilizing instruments and the EVOTECH and ENDOCLENS systems for endoscope reprocessing and cleaning.

We are in the ~~aggregate 35 million shares~~process of ~~Altra, representing approximately 54%~~transitioning ownership of outstanding shares of Altra common stock immediately following the transaction. The A&S Business includes the market-leading brands of Kollmorgen, Thomson, Portescap and Jacobs Vehicle Systems, and generated approximately $907 million in revenue for the year ended December 31, 2017. The transaction is expected to close by the end of 2018,certain non-principal countries, which are subject to ~~customary~~various statutory closing ~~conditions, including receipt of certain regulatory approvals, Altra shareholder approval and our receipt of confirmation of the tax treatment of certain matters. Upon closing of the transaction,~~requirements. During this transition, we will ~~classify the A&S Business as discontinued operations in our financial statements.~~be operating under a transition services agreement with Johnson & Johnson.

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 months ended March ~~30, 2018~~29, 2019 as compared to the comparable period of ~~2017:~~2018:

Components of Sales Growth



	% Change Three Months Ended March ~~30,~~29, 2019 vs. Comparable 2018 ~~vs.~~ ~~Comparable 2017~~ Period
Total revenue growth (GAAP)	~~13.4~~6.7	%
Existing businesses (Non-GAAP)	~~2.6~~3.7	%
Acquisitions(Non-GAAP)	~~7.3~~5.8	%
Currency exchange rates (Non-GAAP)	~~3.5~~(2.8	)%

Operating Profit Margins

Operating profit margin was ~~19.4%~~13.6% for the three months ended March ~~30, 2018, an increase~~29, 2019, a decrease of 10500 basis points as compared to ~~19.3%~~18.6% in the comparable period of ~~2017.~~2018. Year-over-year operating profit margin comparisons were ~~favorably~~unfavorably impacted by:

Higher ~~2018~~2019 sales volumes from existing businesses, price increases, incremental year-over-year cost savings associated with restructuring and productivity improvement initiatives which were more than offset by unfavorable sales mix, increased material costs associated primarily with inflationary pressures and recently enacted tariffs, and changes in foreign currency exchange rates ~~net of the incremental year-over-year costs associated with various product development and sales and marketing growth investments~~ — ~~100~~70 basis points

~~Year-over-year operating profit margin comparisons were unfavorably impacted by:~~

The incremental year-over-year net dilutive effect of acquired businesses — 90240 basis points

The incremental year-over-year net dilutive effect of acquisition and divestiture-related transaction costs — 190 basis points

Business Segments

Sales by business segment for each of the periods indicated were as follows ($ in millions):


	Three Months Ended				Three Months Ended
	March 30, 2018		March 31, 2017		March 29, 2019		March 30, 2018
Professional Instrumentation	$	871.7	$	716.1	$	947.3	$	871.7
Industrial Technologies	869.0		819.1		645.6		620.5
Total	$	1,740.7	$	1,535.2	$	1,592.9	$	1,492.2

PROFESSIONAL INSTRUMENTATION

The Professional Instrumentation segment consists of our Advanced Instrumentation & Solutions and Sensing Technologies businesses. The Advanced Instrumentation & Solutions businesses provide product realization and field solutions services and products. 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, and compliance monitoring; subscription-based technical, analytical, and compliance services to determine occupational and environmental radiation exposure; and ~~computerized maintenance management~~ software data analytics and services for critical infrastructure in utility, industrial, energy, construction, facilities management, public safety, mining, and healthcare applications. Product realization services and products help developers and engineers across the end-to-end product creation cycle from concepts to finished products and also include highly-engineered energetic materials components in specialized vertical applications. Our Sensing Technologies business offers devices that sense, monitor and control operational or manufacturing variables, such as temperature, pressure, level, flow, turbidity and conductivity.

Professional Instrumentation Selected Financial Data


	Three Months Ended						Three Months Ended
($ in millions)	March 30, 2018			March 31, 2017			March 29, 2019			March 30, 2018
Sales	$	871.7		$	716.1		$	947.3		$	871.7
Operating profit	206.4			158.5			136.2			206.4
Depreciation	17.0			8.8			16.2			17.0
Amortization	17.2			7.8			44.1			17.2
Operating profit as a % of sales	23.7		%	22.1		%	14.4		%	23.7		%
Depreciation as a % of sales	2.0		%	1.2		%	1.7		%	2.0		%
Amortization as a % of sales	2.0		%	1.1		%	4.7		%	2.0		%

Components of Sales Growth



	% Change Three Months Ended March ~~30,~~29, 2019 vs. Comparable 2018 ~~vs.~~ ~~Comparable 2017~~ Period
Total revenue growth (GAAP)	~~21.7~~8.7	%
Existing businesses (Non-GAAP)	~~5.5~~1.8	%
Acquisitions (Non-GAAP)	~~12.2~~9.5	%
Currency exchange rates (Non-GAAP)	~~4.0~~(2.6	)%

Sales from existing businesses in the segment’s Advanced Instrumentation & Solutions businesses grew at a ~~mid-single~~low-single digit rate during the three months ended March ~~30, 2018~~29, 2019 as compared to the comparable period of ~~2017.~~2018. Year-over-year sales from existing businesses of field solutions products and services grew at a ~~high-single~~low-single digit rate during the three months ended March ~~30, 2018~~29, 2019 due to ~~continued~~ strong demand for portable gas detection and industrial test equipment, ~~network~~SaaS offerings and calibration tools, ~~and SaaS offerings.~~ offset somewhat by declines in demand for electrical grid condition-based monitoring equipment.

Year-over-year sales from existing businesses of product realization solutions ~~grew~~increased at a ~~mid-single~~low-single digit rate during the three months ended March ~~30, 2018~~29, 2019 as compared to the comparable period of 2018. The results were driven ~~primarily~~ by ~~continued~~strong growth in ~~the consumer electronics~~our energetic materials business, industrial and manufacturing and government end ~~market as well as~~markets, and increased demand for oscilloscopes, ~~and~~driven by new product ~~introductions. These increases~~introductions, that were ~~partly~~ offset somewhat by ~~decline~~declines in demand for ~~design, engineering and manufacturing services as well as~~our products in the ~~segment’s energetic materials business during the three months ended March 30, 2018.~~ 3D sensing market.

Geographically, demand from existing businesses increased on a year-over-year basis ~~in Asia, Western Europe and North America~~ during the three months ended March ~~30, 2018.~~29, 2019 in North America and China.

Sales from existing businesses in the segment’s Sensing Technologies businesses ~~grew~~declined at a ~~high-single~~low-single digit rate during the three months ended March ~~30, 2018~~29, 2019 as compared to the comparable period of ~~2017. Increased year-over-year demand~~2018 largely due to a decline in the industrial end ~~market was partly offset by lower demand in the food and beverage end~~ market. Geographically, ~~increases in sales~~increased demand from existing businesses in China on a year-over-year basis was more than offset by declines in North America.

Year-over-year price increases in the Professional Instrumentation segment contributed 0.8% during the three months ended March ~~30, 2018 were driven by strong growth in Asia as well as growth in Western Europe.~~

~~Year-over-year price increases in the segment contributed 0.9% during the three months ended March 30, 2018~~29, 2019 as compared to the comparable ~~periods~~period of ~~2017~~2018, and are reflected as a component of the change in sales from existing businesses.

Operating profit margin ~~increased 160~~decreased 930 basis points during the three months ended March ~~30, 2018~~29, 2019 as compared to the comparable period of ~~2017.~~2018. Year-over-year operating profit margin comparisons were ~~favorably~~unfavorably impacted by:

Higher ~~2018~~2019 sales volumes from existing businesses, price increases and incremental year-over-year cost savings associated with restructuring and productivity improvement initiatives ~~and changes in currency exchange rates net of~~that were more than offset by incremental year-over-year costs associated with various product development investments, unfavorable sales mix, increased material costs associated primarily with inflationary pressures and ~~sales~~recently enacted tariffs, and ~~marketing growth investments~~changes in currency exchange rates — ~~310~~190 basis points

~~Year-over-year operating profit margin comparisons were unfavorably impacted by:~~

The incremental year-over-year net dilutive effect of acquired businesses, including amortization and acquisition-related fair value adjustments to deferred revenue — ~~150~~410 basis points

Acquisition-related transaction costs, including costs related to our acquisition of ASP, and acquisition-related restructuring — 330 basis points

INDUSTRIAL TECHNOLOGIES

The Industrial Technologies segment consists of our Transportation Technologies ~~Automation & Specialty Components~~ 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. The Automation & Specialty Components business provides a wide range of electromechanical and electronic motion control products and mechanical components, as well as supplemental braking systems for commercial vehicles. 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						Three Months Ended
($ in millions)	March 30, 2018			March 31, 2017			March 29, 2019			March 30, 2018
Sales	$	869.0		$	819.1		$	645.6		$	620.5
Operating profit	158.3			152.8			105.3			94.2
Depreciation	16.4			14.1			13.1			12.4
Amortization	7.8			5.5			8.1			7.7
Operating profit as a % of sales	18.2		%	18.7		%	16.3		%	15.2		%
Depreciation as a % of sales	1.9		%	1.7		%	2.0		%	2.0		%
Amortization as a % of sales	0.9		%	0.7		%	1.3		%	1.2		%

Components of Sales Growth



	% Change Three Months Ended March ~~30,~~29, 2019 vs. Comparable 2018 ~~vs.~~ ~~Comparable 2017~~ Period
Total revenue growth (GAAP)	~~6.1~~4.0	%
Existing businesses (Non-GAAP)	—6.4	%
Acquisitions(Non-GAAP)	~~3.0~~0.8	%
Currency exchange rates (Non-GAAP)	~~3.1~~(3.2	)%

~~Sales~~During the three months ended March 29, 2019, sales from existing businesses in the segment’s Transportation Technologies businesses ~~declined~~grew at a ~~high-single~~low-double digit rate ~~during the three months ended March 30, 2018~~and in all geographies as compared to the comparable period of ~~2017, due primarily~~2018. The results were largely attributable to broad based demand for fuel management systems, specifically in North America, China and India, as well as demand for payment solutions. Results in North America were favorably impacted by the ~~extension~~approaching deadline of the liability shift related to ~~the enhanced credit card security requirements in the United States based on the~~ EMV global standards. ~~Geographically, sales from existing businesses decreased on a year-over-year basis in the United States, partially offset by strong demand in China.~~

Sales from existing businesses in the segment’s Automation & Specialty Components businesses grew at a low double-digit rate during the three months ended March 30, 2018 as compared to the comparable period of 2017, due primarily to increased year-over-year demand in industrial and robotics end markets in Western Europe, United States and China, and strong demand for engine retarder products in the United States from improved heavy-duty truck production.

Sales from existing businesses in the segment’s Franchise Distribution businesses ~~were up slightly~~declined at a low-single digit rate during the three months ended March ~~30, 2018~~29, 2019 compared to the comparable period of 2018. Year-over-year increases in demand for specialty tools and shop equipment were more than offset by declines in wheel service equipment.

Year-over-year price increases in the Industrial Technologies segment contributed 2.7% during the three months ended March 29, 2019 as compared to the comparable period of ~~2017. Increased year-over-year demand for hardline and diagnostic tools was partially offset by a decline in demand for powered and tool storage products.~~

~~Year-over-year price increases in the segment contributed 0.4% during the three months ended March 30,~~ 2018, ~~as compared to the comparable period of 2017~~ and are reflected as a component of the change in sales from existing businesses.

Operating profit margin ~~decreased 50~~increased 110 basis points during the three months ended March ~~30, 2018~~29, 2019 as compared to the comparable period of ~~2017.~~ 2018. Year-over-year operating profit margin comparisons were favorably impacted by:

Higher 2019 sales volumes from existing businesses, price increases and incremental year-over-year cost savings associated with restructuring and productivity improvement initiatives that were partially offset by changes in foreign currency exchange rates — 130 basis points

Year-over-year operating profit margin comparisons were unfavorably impacted by:

The incremental year-over-year net dilutive effect of acquired businesses — 7020 basis points

~~Year-over-year operating profit margin comparisons were favorably impacted by:~~

Higher 2018 sales volumes, incremental year-over-year cost savings associated with restructuring and productivity improvement initiatives and changes in currency exchange rates, partially offset by incremental year-over-year costs associated with various product development and sales and marketing growth investments — 20 basis points

COST OF SALES AND GROSS PROFIT


	Three Months Ended						Three Months Ended
($ in millions)	March 30, 2018			March 31, 2017			March 29, 2019			March 30, 2018
Sales	$	1,740.7		$	1,535.2		$	1,592.9		$	1,492.2
Cost of sales	(869.9		)	(791.2		)	(780.2		)	(725.9		)
Gross profit	$	870.8		$	744.0		$	812.7		$	766.3
Gross profit margin	50.0		%	48.5		%	51.0		%	51.4		%

The year-over-year increase in cost of sales during the three months ended March ~~30, 2018~~29, 2019 as compared to the comparable period in ~~2017~~2018 is due primarily to the impact of higher year-over-year sales volumes from existing businesses, incremental ~~year-over-year~~ cost of sales from our recently acquired businesses, increased material costs associated primarily with inflationary pressures and ~~changes~~recently enacted tariffs, partly offset by incremental cost savings associated with restructuring and productivity improvement initiatives and material cost and supply chain improvement actions. Changes in currency exchange rates ~~partly offset by~~decreased cost of sales in the three months ended March 29, 2019.

The year-over-year increase in gross profit for the three months ended March 29, 2019, is due primarily to the favorable impact of pricing improvements and higher year-over-year sales volumes from existing businesses, incremental year-over-year cost savings associated with restructuring and productivity improvement initiatives and material cost and supply chain improvement ~~actions.~~

actions and the impact of recently acquired businesses and changes in foreign currency exchange rates. These factors were partially offset by increased material costs associated primarily with inflationary pressures and recently enacted tariffs and changes in currency exchange rates. The ~~year-over-year increase~~40 basis point decrease in gross profit ~~(and the related 150 basis point increase in gross profit margin) during~~margin for the three months ended March ~~30, 2018~~29, 2019 as compared to the comparable period in ~~2017~~2018 is due primarily to unfavorable sales mix and increased material costs associated primarily with inflationary pressures and recently enacted tariffs.

OPERATING EXPENSES



	Three Months Ended
($ in millions)	March 29, 2019			March 30, 2018
Sales	$	1,592.9		$	1,492.2
Selling, general and administrative (“SG&A”) expenses	486.4			388.5
Research and development (“R&D”) expenses	109.0			99.9
SG&A as a % of sales	30.5		%	26.0		%
R&D as a % of sales	6.8		%	6.7		%

SG&A expenses increased during the ~~favorable impact~~three months ended March 29, 2019 as compared to the comparable period of ~~pricing improvements~~2018 due primarily to costs associated with the preparation for integration and execution of the ASP acquisition, higher ~~year-over-year~~amortization expense due primarily to our recently acquired businesses, continued investments in our sales ~~volumes,~~and marketing growth initiatives, and incremental expenses from our recently acquired businesses. These increases were partly offsetby incremental year-over-year cost savings associated with restructuring and productivity improvement initiatives ~~material cost and supply chain improvement actions~~ and changes in currency exchange rates.

~~OPERATING EXPENSES~~

Three Months Ended
($ in millions) March 30, 2018 March 31, 2017
Sales $ 1,740.7
$ 1,535.2
Selling, general and administrative (“SG&A”) expenses 423.7
352.2
Research and development (“R&D”) expenses 108.9
96.2
SG&A as a % of sales 24.3 % 22.9 %
R&D as a % of sales 6.3 % 6.3 %

SG&A expenses increased during the three months ended March 30, 2018 as compared to the comparable period of 2017 due primarily to continued investments in our sales and marketing growth initiatives, incremental year-over-year general and administrative expenses and increased depreciation and amortization expense due primarily to our recently acquired businesses. These increases were partly offset~~by incremental year-over-year cost savings associated with restructuring and productivity improvement initiatives.~~ On a year-over-year basis, SG&A expenses as a percentage of sales increased ~~140~~450 basis points in the three months ended March ~~30, 2018~~29, 2019 due primarily to ~~continued investments in~~costs associated with the preparation for integration and execution of the ASP acquisition, higher amortization from our ~~sales and marketing growth initiatives which outpaced our sales growth during the three months ended March 30, 2018,~~recently acquired businesses and higher relative spending levels at our recently acquired businesses.

R&D expenses (consisting principally of internal and contract engineering personnel costs) increased during the three months ended March ~~30, 2018~~29, 2019 as compared to the comparable period of ~~2017~~2018 due to incremental year-over-year investments in our product development initiatives. On a year-over-year basis, R&D expenses as a percentage of sales ~~was~~were relatively flat induring the three months ended March ~~30, 2018.~~29, 2019.

INTEREST COSTS

For a discussion of our outstanding indebtedness, refer to Note 56 to the accompanying Consolidated Condensed Financial Statements.

Net interest expense of $25 million was recorded for the three months ended March ~~30, 2018~~29, 2019 compared to $23 millionfor the three months ended March ~~31, 2017.~~30, 2018. The increase in interest expense was attributable to an increase in the average debt balance as compared to the comparable periods of 2018.

INCOME TAXES

COMPREHENSIVE INCOME

Comprehensive income decreased by law, and the effect of favorable adjustments to the provisional estimates recorded in 2017 related to the TCJA as permitted under SEC Staff Accounting Bulletin No. 118 (“SAB 118”). The adjustments recorded to our provisional estimates decreased income tax expense by $4.2$117 million during the three months ended March ~~30, 2018. We will continue to evaluate the effects of the TCJA on the 2017 provisional estimates through the end of the SAB 118 allowable measurement period.~~

~~COMPREHENSIVE INCOME~~

~~Comprehensive income increased by $54 million in 2018~~29, 2019 as compared to ~~2017,~~the comparable period in 2018 due primarily to net earnings that were ~~higher~~lower by ~~$61~~$97 million ~~partially offset by~~and unfavorable changes in foreign currency translation adjustments of $7$20 million.

INFLATION

The effect of inflation on our sales and net earnings was not significant in the three month period ended March ~~30, 2018.~~29, 2019.

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.

Overview of Cash Flows and Liquidity

Following is an overview of our cash flows and liquidity for the three months ended March ~~30, 2018:~~29, 2019:

Three Months Ended
($ in millions) March 30, 2018 March 31, 2017
Net cash provided by operating activities $ 171.0
$ 148.3

Cash paid for acquisitions $ (7.7 ) $ —
Payments for additions to property, plant and equipment (31.4 ) (26.8 )
All other investing activities 0.1
(0.6 )
Net cash used in investing activities $ (39.0 ) $ (27.4 )

Net repayments of borrowings (maturities of 90 days or less) $ (74.3 ) $ (95.5 )
Payment of dividends (24.3 ) (24.2 )
All other financing activities 4.4
0.3
Net cash used by financing activities $ (94.2 ) $ (119.4 )



	Three Months Ended
($ in millions)	March 29, 2019			March 30, 2018
Total operating cash provided by continuing operations	$	161.2		$	130.8

Cash paid for acquisitions, net of cash received	$	—		$	(7.7	)
Payments for additions to property, plant and equipment	(24.0		)	(25.9		)
All other investing activities	—			0.1
Total investing cash used in continuing operations	$	(24.0	)	$	(33.5	)

Net proceeds from (repayments of) commercial paper borrowings	$	443.8		$	(74.2	)
Proceeds from borrowings (maturities greater than 90 days), net of $24.3 million of issuance costs	2,417.8			—
Repayment of borrowings (greater than 90 days)	(402.9		)	—
Payment of common stock cash dividend to shareholders	(23.4		)	(24.3		)
Payment of mandatory convertible preferred stock cash dividend to shareholders	(17.3		)	—
All other financing activities	(6.8		)	4.4
Total financing cash provided by (used in) financing activities from continuing operations	$	2,411.2		$	(94.1	)

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.

~~Operating cash~~Cash flows from operating activities were approximately ~~$171~~$161 million for the first three months of ~~2018,~~2019, an increase of ~~$23~~$30 million, or approximately ~~15%~~23%, as compared to the comparable period of ~~2017.~~2018. The year-over-year change in operating cash flows was primarily attributable to the following factors:

~~2018~~

2019 operating cash flows ~~benefited from higher~~were impacted by lower net earnings for the first three months of ~~2018~~2019 as compared to the comparable period in ~~2017.~~2018. Net earnings for the three months ended March ~~30, 2018 benefited from~~29, 2019 were impacted by a year-over-year ~~increase~~decrease in operating profits of ~~$43~~$60.6 million ~~partially offset by a year-over-year~~and an increase in net interest expense of $2$2.0 million associated with our ~~Commercial Paper Programs.~~financing activities. The year-over-year ~~increase~~decrease in operating profit ~~also~~ includes costs associated with the stand-up of the ASP acquisition and a net year-over-year increase in depreciation and amortization expenses of ~~$23 million.~~$26.0 million largely attributable to recently acquired businesses. Depreciation and amortization are noncash expenses that decrease earnings without a corresponding impact to operating cash flows.

The aggregate of accounts receivable, inventories and trade accounts payable used ~~$74~~$24.0 million of cash during the first three months of ~~2018~~2019 compared to using ~~$62~~$62.2 million of cash in the comparable period of ~~2017.~~2018. 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 ~~$88~~$73.6 million of cash during the first three months of ~~2018~~2019 as compared to using ~~$38~~$87.9 million of cash in the comparable period of ~~2017.~~2018. The timing of various employee ~~related liabilities and the impact of recently acquired businesses~~benefit accruals drove the majority of this change.

Investing Activities

Cash flows relating to investing activities consist primarily of cash used for acquisitions and capital expenditures. Net cash used in investing activities ~~increased $12~~decreased $9.5 million during the three months ended March ~~30, 2018~~29, 2019 as compared to the comparable period of ~~2017,~~2018, due primarily to a business ~~acquisition~~acquisitions completed ~~during the three months ended March 30,~~in 2018.

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 operating-type lease arrangements with customers. For the full year ~~2018,~~2019, we expect capital spending to be between approximately ~~$125~~$150 million and ~~$135~~$160 million, ~~though actual~~which includes approximately $35 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 and issuance and repayments of debt and commercial paper, ~~and other debt~~ and payments of quarterly cash dividends to shareholders. Financing activities ~~used~~generated cash of ~~$94 million~~$2.4 billion during the three months ended March ~~30, 2018 as compared~~29, 2019, of which $1.4 billion was due to ~~using approximately $119~~the issuance of our 0.875% senior convertible notes and $1.0 billion was related to the issuance of our 364-day delayed-draw term loan facility due in 2020 (“2020 Delayed-Draw Term Loan”), which was partially offset by the repayment of $400.0 million of ~~cash in~~our 2019 delayed draw term loan. In the comparable 2018 period, ~~in 2017.~~financing activities used cash of approximately $94.1 million. In the three months ended March ~~30, 2018,~~29, 2019, we made net repayments of commercial paper under the U.S. and Euro commercial paper programs (“Commercial Paper Programs”) of ~~$74~~$443.8 million and paid ~~$24~~$40.7 million of cash dividends to ~~shareholders.~~shareholders of our common stock and MCPS.

Convertible Senior Notes

On February 22, 2019, we issued $1.4 billion in aggregate principal amount of our 0.875% Convertible Senior Notes due 2022 (the “Convertible Notes”), including $187.5 million in aggregate principal amount resulting from an exercise in full of an over-allotment option, to fund, in part, the ASP acquisition. The Convertible Notes bear interest at a rate of 0.875% per year, payable semiannually in arrears on February 15 and August 15 of each year, beginning on August 15, 2019. The Convertible Notes mature on February 15, 2022, unless earlier repurchased or converted in accordance with their terms prior to such date.

The Convertible Notes are convertible into shares of our common stock at an initial conversion rate of 9.3777 shares per $1,000 principal amount of Convertible Notes (which is equivalent to an initial conversion price of $106.64 per share), subject to adjustment upon the occurrence of certain events. The initial conversion price represents a premium of approximately 32.5% to the $80.48 per share closing price of our common stock on February 19, 2019. Upon conversion of the Convertible Notes, holders will receive cash, shares of our common stock, or a combination thereof, at our election. Our current intention is to settle such conversions through cash up to the principal amount of the converted Convertible Notes and, if applicable, through shares of our common stock for conversion value, if any, in excess of the principal amount of the converted Convertible Notes.

2020 Delayed-Draw Term Loan Due 2020

On March 1, 2019, we entered into the credit facility agreement that provides for a 364-day delayed-draw term loan facility 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 the London inter-bank offered rate plus a ratings based margin currently at 75 basis points. As of March 29, 2019, borrowings under this facility bore an interest rate of 3.24% 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 Delayed-Draw Term Loan are substantially similar to those applicable to the Revolving Credit Facility.

We generally expect to satisfy any short-term liquidity needs that are not met through operating cash flows and available cash primarily through issuances of commercial paper under the Commercial Paper Programs. Credit support for the Commercial Paper Programs is provided by our five-year, ~~$1.5~~$2.0 billion senior unsecured revolving credit facility that expires on ~~June 16, 2021~~November 30, 2023 (“Revolving Credit Facility”). We classified our borrowings outstanding under the Commercial Paper Programs as long-term debt in the accompanying Consolidated Condensed Balance Sheet as of March ~~30, 2018,~~29, 2019, as we have the intent and ability, as supported by availability under the Revolving Credit Facility, to refinance these borrowings for at least one year from the balance sheet date. As commercial paper obligations mature, we may issue additional short-term commercial paper obligations to refinance all or part of these borrowings.

We had ~~$1.5~~$2.0 billion available under the Revolving Credit Facility as of March ~~30, 2018.~~29, 2019. Of this amount, approximately ~~$881 million~~$1.1 billion was being used to backstop outstanding U.S. and Euro commercial paper balances. Accordingly, we had the ability to incur an additional ~~$0.6 billion~~$902 million of indebtedness under the Revolving Credit Facility as of March ~~30, 2018.~~29, 2019. Refer to Note 56 of the ~~Consolidated Condensed Financial Statements~~consolidated condensed financial statements for information regarding our financing activities and indebtedness.

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, to repay all of the outstanding commercial paper as it matures.

As of March ~~30, 2018,~~29, 2019, commercial paper outstanding under the U.S. dollar-denominated commercial paper program had an annual effective rate of ~~2.48%~~2.82% and a weighted average remaining maturity of approximately 3416 days. As of March ~~30, 2018,~~29, 2019, commercial paper outstanding under the Euro-denominated commercial paper program had an annual effective rate of ~~(0.11)~~(0.10)% and a weighted average remaining maturity of approximately 5878 days.

Pursuant to our senior note and term loan agreements, $1.1 billion of our long-term debt is scheduled for maturity and repayment within 12 months. Accordingly, we have classified these as current debt on the accompanying Consolidated Condensed Balance Sheet.

Dividends

On January ~~23, 2018,~~29, 2019, we declared a regular quarterly dividend of $0.07 per share of common stock paid on March 29, ~~2018~~2019, to holders of record on February ~~23, 2018. For~~22, 2019 and a regular quarterly cash dividend of $12.50 per share on our MCPS payable on April 1, 2019 to preferred stockholders of record on March 15, 2019.

Aggregate cash payments for the dividends paid to shareholders during the three months ended March ~~30, 2018, cash dividend payments of $24.3~~29, 2019 were $40.7 million and were recorded as dividends to shareholders in the Consolidated Condensed Statement of Changes in ~~Equity.~~

~~On April 12, 2018, we declared a regular quarterly dividend~~Equity and the Consolidated Condensed Statement of ~~$0.07 per share payable on June 29, 2018 to holders of record on May 25, 2018.~~Cash Flows.

Cash and Cash Requirements

As of March ~~30, 2018,~~29, 2019, we held approximately ~~$1,015.7 million~~$3.7 billion of cash and cash 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 1.04% during the three months ended March 29, 2019. Of the $3.7 billion of ~~less than 1.0%. Substantially~~cash and cash equivalents we held as of March 29, 2019, approximately $2.7 billion was used to fund the ASP acquisition on April 1, 2019, and substantially all of the remaining cash 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.

The TCJA ~~that was enacted~~eliminated the U.S. tax cost for qualified repatriation beginning in December 2017 is materially improving our U.S. liquidity through lower corporate tax rates and enhanced cash repatriation. During the first three months of 2018, we repatriated $75 million and expect to repatriate an additional $200 million during 2018. ~~These repatriations are~~Foreign cumulative earnings remain subject to ~~an estimated $6 million in~~ foreign remittance taxes.

~~As of March 30, 2018, we recorded a current liability for the funds we have or intend to repatriate under the TCJA final transition tax. Conversely, we~~ 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. ~~Such~~For most of our foreign operations, we make an assertion regarding the amount of earnings in excess of intended repatriation that are ~~intended~~expected to be held for indefinite reinvestment. No provisions for foreign ~~reinvestment and no provision for non-U.S. income~~remittance taxes ~~has~~have been ~~made.~~made with respect to earnings that are planned to be reinvested indefinitely. The amount of ~~income~~foreign remittance taxes that may be applicable to such earnings is not readily determinable given ~~the unknown duration of~~ local law restrictions ~~as applicable~~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. The cash that our foreign subsidiaries hold for indefinite reinvestment is generally used to finance foreign operations and investments, including acquisitions. We expect the TCJA to have a favorable impact in our future ability to engage in acquisition activities.

As of March ~~30, 2018,~~29, 2019, 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

There were no material changes during the three months ended March ~~30, 2018~~29, 2019 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 ~~2017~~2018 Annual Report on Form 10-K. ~~Changes to our accounting policy for revenue recognition as a result of adopting ASU 2014-09~~ ~~Revenue from Contracts with Customers~~ ~~(“Topic 606”)are discussed in Note 6 to the consolidated condensed financial statements.~~

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Quantitative and qualitative disclosures about market risk appear in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Financial Instruments and Risk Management,” in our ~~2017~~2018 Annual Report on Form 10-K. There were no material changes during the three months ended March ~~30, 2018~~29, 2019 to the information reported in our ~~2017~~2018 Annual Report on Form 10-K.

ITEM 4. CONTROLS AND PROCEDURES

Our management, with the participation of the President and Chief Executive Officer, and Senior Vice President and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, the President and Chief Executive Officer, and Senior Vice President and Chief Financial Officer, have concluded that, as of the end of such period, these disclosure controls and procedures were effective.

There have been no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the most recent completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1A. RISK FACTORS

Information regarding risk factors appears in “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Information Related to Forward-Looking Statements,” in Part I - Item 2 of this Form 10-Q and in the “Risk Factors” section of our ~~2017~~2018 Annual Report on Form 10-K. ~~Other than as provided below, there~~There were no material changes during the quarter ended March ~~30, 2018~~29, 2019 to the risk factors reported in the “Risk Factors” section of our ~~2017~~2018 Annual Report on Form 10-K.

We are pursuing a plan to combine four operating companies from our Automation & Specialty platform into a new company and to merge that new company into a subsidiary of Altra Industrial Motion Corp. in a tax-efficient transaction. The proposed transaction may not be completed on the currently contemplated timeline or at all and may not achieve the intended benefits.

We have announced plans to combine four operating companies from our Automation & Specialty platform (the A&S Businesses) into a new company that we will distribute to our stockholders by means of an exchange offer or a pro rata dividend, after which the A&S Businesses will merge with a subsidiary of Altra Industrial Motion Corp (Altra). Both the distribution and merger are expected to qualify as tax-efficient to our stockholders, except to the extent that cash is paid in lieu of fractional shares of Altra common stock. Our stockholders would receive shares representing approximately 54% of the issued and outstanding shares of Altra after giving effect to the transaction. The actual value of the shares of Altra to be received by our stockholders in the transaction will depend on the value of such shares at the time of closing of the transaction, and our stockholders may receive more or less than any value estimated prior to the completion of the transaction. Unanticipated developments, including delays in obtaining or satisfying (or failure to obtain or satisfy) tax rulings, regulatory approvals (including domestic and foreign anti-trust approvals), Altra stockholder approval and other conditions to closing, and challenges in establishing infrastructure or processes, could delay or prevent the proposed transaction from occurring at all, or cause the proposed transaction to occur on terms or conditions that are less favorable than expected. Even if the transaction is completed, some or all of the anticipated value and benefits may not be achieved. Expenses incurred to accomplish the proposed transaction may be significantly higher than what we currently anticipate. Executing the proposed transaction also requires significant time and attention from management, which could distract them from other tasks in operating our business. Following the proposed distribution and merger, the combined value of the common stock of Fortive and the shares of common stock of Altra issued as consideration for the A&S Businesses may not be equal to or greater than what the value of Fortive’s common stock would have been had the proposed transaction not occurred.

International economic, political, legal, compliance and business factors could negatively affect our financial statements. Furthermore, significant uncertainties related to changes in governmental policies toward international trade currently exist, and, depending on how such uncertainties are resolved, could have a material adverse effect on our financial results.

In 2017, approximately 45% of our sales were derived from customers outside the United States. Our principal markets outside the United States are in Europe and Asia. In addition, many of our manufacturing operations, suppliers and employees are located outside the United States. Since our growth strategy depends in part on our ability to further penetrate markets outside the United States and increase the localization of our products and services, we expect to continue to increase our sales and presence outside the United States, particularly in high-growth markets, such as Eastern Europe, the Middle East, Africa, Latin America and Asia.

Our international business, including our continued participation and growth in markets outside the United States, is subject to risks that are customarily encountered in non-U.S. operations, as well as increased risks due to significant uncertainties related to recent political and economic changes, including:

~~interruption in the transportation of materials to us and finished goods to our customers;~~

~~differences in terms of sale, including payment terms;~~

~~local product preferences and product requirements;~~

~~changes in a country’s or region’s political or economic conditions, including changes in relationship with the United States, particularly with regard to China;~~

~~trade protection measures, increased trade barriers, imposition of significant tariffs on imports and or exports, embargoes and import or export restrictions and requirements;~~

~~new conditions to and possible restriction of existing free trade agreements;~~

~~unexpected changes in laws or regulatory requirements, including negative changes in tax laws in the U.S. and in the countries in which we manufacture or sell our products;~~

~~limitations on ownership and on repatriation of earnings and cash;~~

~~the potential for nationalization of enterprises;~~

~~limitations on legal rights and our ability to enforce such rights;~~

~~difficulty in staffing and managing widespread operations;~~

~~negative sentiments towards the U.S. among non-U.S. customers and among non-U.S. employees or prospective employees;~~

~~differing labor regulations;~~

~~difficulties in implementing restructuring actions on a timely or comprehensive basis; and~~

~~differing protection of intellectual property.~~

~~Any of these risks could negatively affect our financial statements and growth.~~

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

During the fiscal quarter ended March ~~30, 2018,~~29, 2019, we acquired the following shares in settlement of the withholding obligations pertaining to vesting of our Performance Stock Awards:

Period
Total number
of shares
(or units)
purchased ⁽¹⁾

Average price
paid per share
(or unit)⁽¹⁾

Total number
of shares (or units)
purchased
as part of publicly
announced plans or
programs

Maximum number
(or approximate dollar
value) of shares
(or units) that may yet be
purchased under the
plans or programs
January 1-31 0 0 N/A N/A
February 1-28 14,542 $76.68 N/A N/A
March 1-30 0 0 N/A N/A
Total 14,542 $76.68 N/A N/A
⁽¹⁾In connection with our separation from Danaher Corporation ("Danaher"), Performance Stock Units issued by Danaher on February 24, 2015 to James A. Lico that remained unvested as of July 2, 2016 were cancelled and replaced with our Performance Stock Awards ("2015 PSAs"). On February 22, 2018 and in accordance with the terms of our 2016 Stock Incentive Plan, we withheld 14,542 shares of our common stock based on the corresponding closing price of $76.68 per share to offset tax withholding obligations that arose upon vesting of the 2015 PSAs.



Period	Total number of shares (or units) purchased ⁽¹⁾	Average price paid per share (or unit)⁽¹⁾		Total number of shares (or units) purchased as part of publicly announced plans or programs	Maximum number (or approximate dollar value) of shares (or units) that may yet be purchased under the plans or programs
January 1 - January 31	—	—		N/A	N/A
February 1 - February 28	25,146	$	81.54	N/A	N/A
March 1 - March 29	—	—		N/A	N/A
Total	25,146	$	81.54	N/A	N/A

⁽¹⁾In connection with the separation of the Company from Danaher Corporation (“Danaher”), Performance Stock Units issued by Danaher on February 24, 2015 to James A. Lico and Performance-Based Restricted Stock Units issued by Danaher on February 24, 2016 to Martin Gafinowitz and Barbara Hulit that remained unvested as of July 2, 2016 were canceled and replaced with Performance Stock Awards (“PSAs”) of the Company. In accordance with the terms of the Company’s 2016 Stock Incentive Plan, the Company withheld 25,146 shares of the Company’s common stock based on the corresponding closing price to offset tax withholding obligations that arose upon vesting of the PSAs.

ITEM 6. EXHIBITS




Exhibit Number		Description
~~2.1~~3.1		~~Separation~~Amended and ~~Distribution~~Restated Certificate of Incorporation of Fortive Corporation (incorporated by reference to Exhibit 3.1 to Fortive Corporation’s Current Report on Form 8-K filed on June 9, 2017, File No. 1-37654).

3.2		Amended and Restated Bylaws of Fortive Corporation (incorporated by reference to Exhibit 3.2 to Fortive Corporation’s Current Report on Form 8-K filed on June 9, 2017, File No 1-37654).

3.3		Certificate of Designations of the 5.00% Mandatory Convertible Preferred Stock, Series A (incorporated by reference to Exhibit 3.1 to Fortive Corporation’s Current Report on Form 8-K filed on June 29, 2018, File No 1-37654).

4.1		Specimen Certificate of the 5.00% Mandatory Convertible Preferred Stock, Series A (incorporated by reference to Exhibit 3.1 to Fortive Corporation’s Current Report on Form 8-K filed on June 29, 2018, File No. 1-37654).

4.2		Indenture (including form of Notes) with respect to Fortive Corporation’s 0.875% Convertible Senior Notes due 2022, dated as of February 22, 2019, among Fortive Corporation, the guarantors party thereto, and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.1 to Fortive Corporation’s Current Report on Form 8-K filed on February 22, 2019, File No. 1-37654).

10.1		Amendment No. 1 to Term Loan Credit Agreement, dated as of February 21, 2019, among Fortive Corporation, Bank of America, N.A., as Administrative Agent, and the lenders referred to therein (incorporated by reference to Exhibit 10.1 to Fortive Corporation’s Current Report on Form 8-K filed on February 22, 2019, File No. 1-37654).

10.2		Amendment No. 1 to Revolving Credit Agreement, dated as of February 21, 2019, among Fortive Corporation, Bank of America N.A., as Administrative Agent and a Swing Line Lender, and the lenders referred to therein (incorporated by reference to Exhibit 10.2 to Fortive Corporation’s Current Report on Form 8-K filed on February 22, 2019, File No. 1-37654).

10.3		Term Loan Credit Agreement, dated as of March 1, 2019, among Fortive Corporation, Bank of America, N.A., as Administrative Agent, and the lenders referred to therein (incorporated by reference to Exhibit 10.1 to Fortive Corporation’s Current Report on Form 8-K filed on March 4, 2019, File No. 1-37654).

10.4		Employee Matters Agreement, dated as of March 7, 2018, by and among Fortive Corporation, Stevens Holding Company, Inc. and Altra Industrial Motion Corp. (incorporated by reference tofrom Exhibit ~~10.1~~10.3 to Altra Industrial Motion ~~Corp.’s Current~~Corp’s Quarterly Report on Form ~~8-K filed on~~10-Q for the quarter ended March 9,31, 2018, File No. 1-33209).

~~2.2~~		Agreement and Plan of Merger and Reorganization, dated as of March 7, 2018, among Fortive Corporation, Stevens Holding Company, Inc., Altra Industrial Motion Corp. and McHale Acquisition Corp. (incorporated by reference to Exhibit 2.1 to Altra Industrial Motion Corp.’s Current Report on Form 8-K filed on March 9, 2018, File No. 1-33209).

~~10.1~~		Form of Fortive Corporation Performance Stock Unit Agreement (incorporated by reference to Exhibit 10.8 to Fortive Corporation’s Annual Report on Form 10-K for the year ended December 31, 2017, File No. 1-37654).

~~10.2~~		Form of Fortive Corporation Non-Employee Directors Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.9 to Fortive Corporation’s Annual Report on Form 10-K for the year ended December 31, 2017, File No. 1-37654).

~~10.3~~		Form of Fortive Corporation Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.11 to Fortive Corporation’s Annual Report on Form 10-K for the year ended December 31, 2017, File No. 1-37654).

~~10.4~~		Form of Fortive Corporation Non-Employee Directors Stock Option Agreement (incorporated by reference to Exhibit 10.12 to Fortive Corporation’s Annual Report on Form 10-K for the year ended December 31, 2017, File No. 1-37654).

~~10.5~~		Form of Fortive Corporation Stock Option Agreement (incorporated by reference to Exhibit 10.13 to Fortive Corporation’s Annual Report on Form 10-K for the year ended December 31, 2017, File No. 1-37654).

~~10.6~~		Aircraft Time Sharing Agreement between Fortive Corporation and James Lico (incorporated by reference to Exhibit 10.18 to Fortive Corporation’s Annual Report on Form 10-K for the year ended December 31, 2017, File No. 1-37654).

~~10.7~~		Aircraft Time Sharing Agreement, dated July 18, 2016, between Fortive Corporation and Charles McLaughlin (incorporated by reference to Exhibit 10.19 to Fortive Corporation’s Annual Report on Form 10-K for the year ended December 31, 2017, File No. 1-37654).

~~12.1~~		~~Computation of earnings to fixed charges.~~

31.1		Certification of Chief Executive Officer Pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer Pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Chief Executive Officer, Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350, ~~As Adopted Pursuant~~as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		XBRL Instance Document* - the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document.



101.SCH		XBRL Taxonomy Extension Schema Document*



101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document*

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document*

101.LAB		XBRL Taxonomy Extension Label Linkbase Document*

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document*

~~Attached as~~ Exhibit 101 to this report ~~are~~includes the following documents formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Condensed Balance Sheets as of March ~~30, 2018~~29, 2019 and December 31, ~~2017,~~2018, (ii) Consolidated Condensed Statements of Earnings for the three months ended March ~~30, 2018~~29, 2019 and March ~~31, 2017,~~30, 2018, (iii) Consolidated Condensed Statements of Comprehensive Income for the three months ended March ~~30, 2018~~29, 2019 and March ~~31, 2017,~~30, 2018, (iv) Consolidated Condensed Statement of Changes in Equity for the three months ended March 29, 2019 and March 30, 2018, (v) Consolidated Condensed Statements of Cash Flows for the three months ended March ~~30, 2018~~29, 2019 and March ~~31, 2017,~~30, 2018, and (vi) Notes to Consolidated Condensed Financial Statements.

The registrant agrees to furnish to the Commission supplementally upon request a copy of schedules or exhibits omitted pursuant to Item 601(b)(2) of Regulation S-K of any material plan or acquisition, disposition or reorganization set forth above.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



	FORTIVE CORPORATION:

Date: April ~~26, 2018~~25, 2019	By:	/s/ Charles E. McLaughlin
		Charles E. McLaughlin
		Senior Vice President and Chief Financial Officer

Date: April ~~26, 2018~~25, 2019	By:	/s/ Emily A. Weaver
		Emily A. Weaver
		Chief Accounting Officer

3639



	As of
	March 30, 2018		December 31, 2017
	(unaudited)
ASSETS
Current assets:
Cash and equivalents	$	1,015.7	$	962.1
Accounts receivable, net	1,172.1		1,143.6
Inventories:
Finished goods	216.6		217.2
Work in process	96.7		78.9
Raw materials	302.6		284.5
Total inventories	615.9		580.6
Prepaid expenses and other current assets	276.0		250.5
Total current assets	3,079.7		2,936.8
Property, plant and equipment, net of accumulated depreciation of $1,117.3 and $1,086.8 at March 30, 2018 and December 31, 2017, respectively	709.8		712.5
Other assets	480.5		476.8
Goodwill	5,126.2		5,098.5
Other intangible assets, net	1,259.2		1,276.0
Total assets	$	10,655.4	$	10,500.6
LIABILITIES AND EQUITY
Current liabilities:
Trade accounts payable	$	711.7	$	727.5
Accrued expenses and other current liabilities	749.7		874.8
Total current liabilities	1,461.4		1,602.3
Other long-term liabilities	1,087.4		1,033.9
Long-term debt	3,996.9		4,056.2
Equity:
Preferred stock: $0.01 par value, 15 million shares authorized; no shares issued or outstanding	—		—
Common stock: $0.01 par value, 2.0 billion shares authorized; 349.0 and 348.2 million issued; 348.5 and 347.8 million outstanding at March 30, 2018 and December 31, 2017, respectively	3.5		3.5
Additional paid-in capital	2,476.1		2,444.1
Retained earnings	1,583.3		1,350.3
Accumulated other comprehensive income (loss)	29.5		(7.6		)
Total Fortive stockholders’ equity	4,092.4		3,790.3
Noncontrolling interests	17.3		17.9
Total stockholders’ equity	4,109.7		3,808.2
Total liabilities and equity	$	10,655.4	$	10,500.6



Balance, December 31, 2017	$	5,098.5
Attributable to 2018 acquisitions	1.8
Foreign currency translation & other	25.9
Balance, March 30, 2018	$	5,126.2



Stock Awards	$	66.8
Stock options	61.6
Total unrecognized compensation cost	$	128.4



Balance, December 31, 2017	$	69.4
Accruals for warranties issued during the period	15.1
Settlements made	(19.1		)
Effect of foreign currency translation	0.3
Balance, March 30, 2018	$	65.7



	Net Earnings (Numerator)		Shares (Denominator)	Per Share Amount
For the Three Months Ended March 30, 2018:
Basic EPS	$	261.2	348.6	$	0.75
Incremental shares from assumed exercise of dilutive options and vesting of dilutive Stock Awards	—		5.8
Diluted EPS	$	261.2	354.4	$	0.74

For the Three Months Ended March 31, 2017:
Basic EPS	$	199.7	347.0	$	0.58
Incremental shares from assumed issuance of shares under stock-based compensation plans	—		4.5
Diluted EPS	$	199.7	351.5	$	0.57