# Fortive Corp (FTV) FY 2024 MD&A Verbatim Item 7 Management's Discussion and Analysis from Fortive Corp's 10-K for fiscal year 2024. SEC filing source: https://www.sec.gov/Archives/edgar/data/1659166/000165916625000024/ftv-20241231.htm Accession: 0001659166-25-000024 Filing date: 2025-02-25 Report date: 2024-12-31 Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture. Confidence: high Company profile: /company/FTV/ All MD&A years: /company/FTV/mda/ Previous year: /company/FTV/mda/fy2023/ (FY 2023) Next year: /company/FTV/mda/fy2025/ (FY 2025) ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of Fortive’s financial condition and results of operations for the fiscal years ended December 31, 2024 and December 31, 2023 should be read in conjunction with our audited consolidated financial statements and accompanying notes included in Part II, Item 8 of this Form 10-K. This Item generally discusses 2024 and 2023 items and year-to-year comparisons between 2024 and 2023. Discussions of 2022 items and year-to-year comparisons between 2023 and 2022 are not included, and can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“MD&A”) in Part II, Item 7 of the Company’s Annual Report on Form 10-K filed for the fiscal year ended December 31, 2023 with the Securities and Exchange Commission on February 27, 2024. Fortive is a provider of essential technologies for connected workflow solutions across a range of attractive end-markets. Our strategic segments - Intelligent Operating Solutions (“IOS”), Precision Technologies (“PT”), and Advanced Healthcare Solutions (“AHS”) - include well-known brands with leading positions in their markets. Our businesses design, develop, 29 Table of Contents manufacture, and service professional and engineered products, software, and services, building upon leading brand names, innovative technologies, and significant market positions. We are headquartered in Everett, Washington and have a workforce of more than 18,000 research and development, manufacturing, sales, distribution, service, and administrative professionals in more than 50 countries around the world. This MD&A is designed to provide a reader of our financial statements with a narrative from the perspective of management. Our MD&A is divided into seven sections: •Basis of Presentation •Overview •Results of Operations •Financial Instruments and Risk Management •Liquidity and Capital Resources •Critical Accounting Estimates •New Accounting Standards OVERVIEW General Fortive is a multinational business with global operations with approximately 46% of our sales derived from customers outside the United States in 2024. As a company with global operations, our businesses are affected by worldwide, regional, and industry-specific economic, regulatory, and political factors. Our geographic and industry diversity, as well as the range of products, software, and services we offer, typically help limit the impact of any one industry or the economy of any single country (except 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 their sales, to the extent possible, to gauge relative performance and the outlook for the future. As a result of our geographic and industry diversity, we face a variety of opportunities and challenges, including technological development in most of the markets we serve, the expansion and evolution of opportunities in high-growth markets, trends and costs associated with a global labor force, and consolidation of our competitors. We define high-growth markets as developing markets of the world experiencing extended periods of accelerated growth in gross domestic product and infrastructure which 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, continue to reduce costs and improve operating efficiency and quality, attract relevant talent and retain, grow, and empower our talented workforce, and effectively address the demands of an increasingly regulated environment. We are making significant investments, organically and through acquisitions, to address technological change in the markets we serve and to improve our manufacturing, research and development, and customer-facing resources in order to be responsive to our customers throughout the world. Non-GAAP Measures In this report, references to sales from existing businesses (“core revenue”) refer to sales from operations calculated according to generally accepted accounting principles in the United States (“GAAP”) but excluding (1) the impact from acquired and divested businesses and (2) the impact of foreign 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 businesses or product lines that have been divested, or, at the time of reporting, are pending divestiture, but are not, and will not be, 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 30 Table of Contents period. Core revenue 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 core revenue provides useful information to investors by helping identify underlying growth trends in our business and facilitating comparisons of our sales performance with our performance in prior and future periods and to our peers. We exclude the effect of acquisition and divestiture related items because the nature, size, and number of such transactions can vary dramatically from period to period and between us and our peers. We exclude the effect of currency translation from core revenue 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 from existing businesses refer to the impact of both price and unit sales. Update on Pending Separation of the Precision Technologies Segment On September 4, 2024, we announced our intention to separate our PT segment business into an independent publicly-traded company (the “Separation”), which will be named Ralliant. The Separation will create (i) a technology solutions company, retaining the Fortive name, with a portfolio of the brands currently operating under Fortive’s IOS and AHS business segments, focused on resilient, high-quality recurring growth by delivering productivity and safety to customers, and (ii) a global technology company consisting of our brands currently operating under the PT segment with a focus on precision instruments and highly engineered products essential for breakthrough innovation and aligned to powerful secular trends. The Separation is intended to qualify as a tax-free spin-off for Fortive shareholders for U.S. federal income tax purposes. The Company is targeting completion of the Separation early in the third quarter of 2025, subject to the satisfaction of certain conditions, including, among others, final approval of Fortive’s Board of Directors, satisfactory completion of financing, receipt of a favorable opinion of legal counsel and/or a private letter ruling from the U.S. Internal Revenue Service with respect to the tax treatment of the transaction for U.S. federal income tax purposes, the effectiveness of a Form 10 registration statement filed with the SEC, and other regulatory approvals. All assets, liabilities, revenues and expenses of Ralliant are included in the consolidated results of the Company in the accompanying consolidated financial statements. Segment Realignment and Divestiture In January 2024, we realigned Invetech from the AHS segment to the PT segment (the “Segment Realignment”) based on our strategic decision to divest the equipment design and manufacturing businesses of Invetech, while retaining the motion solution businesses (the “Motion Solution Business”) that are more closely aligned with the PT segment than the AHS segment. In June 2024, we divested and transferred ownership of Invetech, excluding the Motion Solution Business, to its management team (the “Invetech Divestiture”). As a result of the divestiture, in the year ended December 31, 2024, we recorded a net realized loss of $25.6 million, which is identified as “Loss from divestiture” in the Consolidated Statements of Earnings. The divested businesses accounted for less than 1.0% of total revenue and less than 1.0% of total assets for the fiscal year ended December 31, 2023. The Invetech Divestiture did not represent a strategic shift with a major effect on the Company’s operations and financial results, and therefore the divested businesses are not reported as discontinued operations. Acquisitions On January 3, 2024, we acquired EA Elektro-Automatik Holding GmbH (“EA”), a leading supplier of high-power electronic test solutions for energy storage, mobility, hydrogen, and renewable energy applications. The acquisition of EA will bolster the PT segment’s innovative portfolio of products and services for engineers with complementary test and measurement solutions enabling the global energy transition. The total consideration paid was approximately $1.72 billion, net of acquired cash. We recorded approximately $1.18 billion of goodwill within our PT segment related to the EA acquisition, which is not tax deductible. We also anticipate future tax benefits as a result of the transaction. Other Matters In the fourth quarter of 2024, we initiated a discrete restructuring plan that is expected to be completed by December 31, 2025. The nature of the plan initiated in 2024 was related to the Separation and consisted primarily of targeted workforce reductions to realign the cost structures between the two companies. In the first quarter of 2023, we initiated a separate discrete restructuring plan that was completed by the end of 2023. The nature of the activities in 2023 was broadly consistent throughout our segments and consisted primarily of targeted workforce reductions in response to overall macroeconomic and other external conditions. We incurred these costs to position ourselves to provide superior products and services to customers in a cost-efficient manner, while taking into consideration the impact of broad economic uncertainties. We incurred charges of $19.7 million and $58.6 million during the years ended December 31, 2024 and 2023, respectively. 31 Table of Contents Business Performance and Outlook Business Performance During 2024, aggregate year-over-year sales increased 2.7%, driven by a 1.3% increase in our core revenue and a 2.0% increase from acquisitions, net of divestiture, partially offset by a decline of 0.6% due to unfavorable foreign currency translation. Core revenue growth included favorable pricing of 2.7%, partially offset by volume decline of 1.4%. Geographically, core revenue in developed markets increased by low single-digits during 2024, driven by low single-digit growth in North America, while Western Europe decreased slightly. Core revenue in high growth markets increased slightly, driven by low double-digit growth in Latin America, partially offset by a low single-digit decline in Asia, where China declined by high single-digits. 2025 Outlook We anticipate full year sales growth to be between approximately flat and 2.0% with year-over-year growth from existing businesses of approximately 1.5% and 3.5%. We expect foreign exchange rates to remain volatile throughout the year, which could continue to impact our financial results. Additionally, our financial outlook is subject to various assumptions and risks, including but not limited to, ongoing geopolitical developments and events, 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 other major regions with respect to trade policies, treaties, government regulations, sanctions and tariffs, macroeconomic conditions in the United States, China, and other critical regions, impact from our pending separation into two independent publicly traded companies, and the impact of inflationary dynamics on our expenses or our ability to realize price increases in our sales, interest rates, market conditions in key product segments, and elective surgery rates. We will continue to deploy FBS to actively manage these challenges and utilize pricing and other countermeasures to offset the aforementioned dynamics. We continue to monitor these conditions which may continue to impact our business, as well as potential adverse global economic trends and sentiments, monetary and fiscal policies, international trade and relations between the U.S., China and other nations, and investment and taxation policy initiatives being considered in the United States and by the Organization for Economic Co-operation and Development (“OECD”), including the potential impact of the Pillar Two initiative. RESULTS OF OPERATIONS Components of Sales Growth [[GREPCENT_TABLE]] [["","2024 vs. 2023"],["Total revenue growth (GAAP)","2.7","%"],["Impact of:"],["Acquisitions and divestitures","(2.0)","%"],["Currency exchange rates","0.6","%"],["Core revenue growth (Non-GAAP)","1.3","%"]] [[/GREPCENT_TABLE]] Operating Profit Margins 2024 vs. 2023 Operating profit margins were 19.4% in 2024, an increase of 70 basis points as compared to 18.7% in 2023. Year-over-year changes in operating profit margin were comprised of the following: •Year-over-year increase in price from existing businesses, volume growth in IOS and AHS, and benefits from productivity measures were partially offset by a volume decline in certain businesses and end markets within our PT segment, higher employee compensation and investment growth initiatives. Additionally, there were unfavorable foreign exchange rates — favorable 80 basis points •The year-over-year effect of amortization from existing businesses, and impairment of intangible assets incurred in 2023 — favorable 30 basis points •The year-over-year net effect of acquisition, divestiture and separation related transaction costs incurred in the year — unfavorable 85 basis points 32 Table of Contents •The year-over-year net effect of acquired and divested businesses, including amortization and acquisition-related fair value adjustments — unfavorable 120 basis points •The year-over-year effect of costs relating to discrete restructuring plans — favorable 65 basis points •The year-over-year effect of the gain on sale of land and certain office buildings in the PT segment during the year - favorable 100 basis points Business Segments and Geographic Area Results Sales by business segment and geographic area for the year ended December 31 are as follows ($ in millions): [[GREPCENT_TABLE]] [["","2024","","2023"],["Segments"],["Intelligent Operating Solutions","$","2,714.7","","","$","2,612.2"],["Precision Technologies","2,229.4","","","2,223.7"],["Advanced Healthcare Solutions","1,287.7","","","1,229.4"],["Total","$","6,231.8","","","$","6,065.3"],["Geographic area"],["United States","$","3,372.0","","","$","3,288.4"],["China","648.2","","","694.9"],["All other","2,211.6","","","2,082.0"],["Total","$","6,231.8","","","$","6,065.3"]] [[/GREPCENT_TABLE]] INTELLIGENT OPERATING SOLUTIONS Our IOS segment provides advanced instrumentation, software and services to tens of thousands of customers enabling their mission-critical workflows. These offerings include electrical test & measurement, facility and asset lifecycle software applications, connected worker safety and compliance solutions across a range of vertical end markets, including manufacturing, process industries, healthcare, utilities and power, communications and electronics, among others. Intelligent Operating Solutions Selected Financial Data [[GREPCENT_TABLE]] [["","For the Year Ended December 31"],["($ in millions)","2024","","2023"],["Sales","$","2,714.7","","","$","2,612.2"],["Operating profit","704.6","","","628.8"],["Depreciation","40.5","","","33.9"],["Amortization","188.3","","","185.5"],["Operating profit as a % of sales","26.0","%","","24.1","%"],["Depreciation as a % of sales","1.5","%","","1.3","%"],["Amortization as a % of sales","6.9","%","","7.1","%"]] [[/GREPCENT_TABLE]] Components of Sales Growth [[GREPCENT_TABLE]] [["","2024 vs. 2023"],["Total revenue growth (GAAP)","3.9","%"],["Impact of:"],["Acquisitions and divestitures","(0.8)","%"],["Currency exchange rates","0.3","%"],["Core revenue growth (Non-GAAP)","3.4","%"]] [[/GREPCENT_TABLE]] 2024 COMPARED TO 2023 The sales growth in 2024 was driven primarily by favorable pricing across the segment and increased volume in our gas detection products, as well as software and service offerings in facility and assets lifecycle applications, including software as a service (“SaaS”). The acquisitions in 2023 also contributed 0.8% to revenue growth during the year. 33 Table of Contents Geographically, core revenue in developed markets increased by mid-single-digits during 2024, driven by a mid-single-digit growth in North America and low single-digit growth in Western Europe. Core revenue in high growth markets increased by low single-digits during 2024, driven by a high single-digit growth in Latin America and low single-digit growth in Asia, despite a low single-digit decline in China. Year-over-year price increases in our IOS segment contributed 2.8% to sales growth in 2024, as compared to 2023, and is reflected as a component of the change in core revenue. Operating profit margin increased 190 basis points during 2024 as compared to 2023. Year-over-year changes in operating profit margin were comprised of the following: •Year-over-year increase from favorable pricing and higher sales volume from existing businesses, partially offset by higher employee compensation, customer acquisition costs and marketing costs to support growth initiatives — favorable 100 basis points •The year-over-year effect of amortization from existing businesses, and impairment of intangible assets incurred in 2023— favorable 50 basis points •The year-over-year net effect of acquired businesses, including amortization, and acquisition-related fair value adjustments — unfavorable 15 basis points •The year-over-year effect of costs relating to discrete restructuring plans — favorable 55 basis points PRECISION TECHNOLOGIES Our PT segment helps solve tough technical challenges to speed breakthroughs in a wide range of applications, from food and beverage production and manufacturing to next-generation electric vehicles and clean energy, as our customers seek new test solutions to enable the electrification and connectivity of everything. Our expertise in materials, methods and measurements are reflected in our electrical test & measurement and sensing and material technologies offered to a broad set of customers and vertical end markets, including industrial, power and energy, automotive, medical equipment, food and beverage, aerospace and defense, semiconductor, and other general industries. Precision Technologies Selected Financial Data [[GREPCENT_TABLE]] [["","For the Year Ended December 31"],["($ in millions)","2024","","2023"],["Sales","$","2,229.4","","","$","2,223.7"],["Operating profit","500.0","","","544.2"],["Depreciation","29.0","","","27.2"],["Amortization","84.0","","","3.6"],["Operating profit as a % of sales","22.4","%","","24.5","%"],["Depreciation as a % of sales","1.3","%","","1.2","%"],["Amortization as a % of sales","3.8","%","","0.2","%"]] [[/GREPCENT_TABLE]] Components of Sales Growth [[GREPCENT_TABLE]] [["","2024 vs. 2023"],["Total revenue growth (GAAP)","0.3","%"],["Impact of:"],["Acquisitions and divestitures","(4.4)","%"],["Currency exchange rates","0.4","%"],["Core revenue growth (Non-GAAP)","(3.7)","%"]] [[/GREPCENT_TABLE]] 2024 COMPARED TO 2023 The sales result for 2024 was driven by price increases across the segment and volume increases in energetic materials and utility sensing and solutions, offset by volume reductions in test and measurement and industrial sensing products. The acquisition of EA, partially offset by the Invetech Divestiture, contributed 4.4% to revenue growth during the year. 34 Table of Contents Geographically, core revenue in developed markets decreased by mid-single-digits during 2024, driven by a low single-digit decline in North America, a mid-single-digit decline in Western Europe, and a low double-digit decline in Japan. Core revenue in high growth markets decreased by mid-single-digits during 2024, driven by high-teens growth in Latin America, offset by a mid-single-digit decline in Asia, where China decreased by low double-digits. Year-over-year price increases in our PT segment contributed 2.4% to sales growth during 2024 as compared to 2023, and is reflected as a component of the change in core revenue. Operating profit margin decreased 210 basis points during 2024 as compared to 2023. Year-over-year changes in operating profit margin were comprised of the following: •Year-over-year increases in price from existing businesses and benefits from productivity measures were offset by net volume reductions in the segment, and higher employee compensation — unfavorable 80 basis points •The year-over-year net effects of acquisition and divestiture-related transaction costs incurred in the year primarily related to the EA acquisition — unfavorable 145 basis points •The year-over-year net effects of acquired and divested businesses, including amortization, and acquisition-related fair value adjustments — unfavorable 320 basis points •The year-over-year effect of costs relating to discrete restructuring plans — favorable 50 basis points •The year-over-year effect of the gain on sale of land and certain office buildings in 2024 — favorable 285 basis points ADVANCED HEALTHCARE SOLUTIONS Our AHS segment supplies critical workflow solutions enabling healthcare providers to deliver exceptional patient care more efficiently. Our offerings include instrument sterilization solutions, instrument tracking, biomedical test tools, radiation detection and safety monitoring, and end-to-end clinical productivity software and solutions. Our healthcare offerings help ensure critical safety standards are met, instruments and operating rooms are working at peak performance, and complex procedures are followed accurately in these mission-critical healthcare environments. Advanced Healthcare Solutions Selected Financial Data [[GREPCENT_TABLE]] [["","For the Year Ended December 31"],["($ in millions)","2024","","2023"],["Sales","$","1,287.7","","","$","1,229.4"],["Operating profit","155.6","","","101.6"],["Depreciation","20.2","","","21.2"],["Amortization","181.0","","","181.4"],["Operating profit as a % of sales","12.1","%","","8.3","%"],["Depreciation as a % of sales","1.6","%","","1.7","%"],["Amortization as a % of sales","14.1","%","","14.8","%"]] [[/GREPCENT_TABLE]] Components of Sales Growth [[GREPCENT_TABLE]] [["","2024 vs. 2023"],["Total revenue growth (GAAP)","4.7","%"],["Impact of:"],["Currency exchange rates","1.4","%"],["Core revenue growth (Non-GAAP)","6.1","%"]] [[/GREPCENT_TABLE]] 2024 COMPARED TO 2023 The sales results for 2024 were driven by growth in our existing businesses due to price increases across the segment and volume increases primarily in our sterilization and dosimetry products. Geographically, core revenue in developed markets increased by mid-single-digits during 2024, driven by mid-single-digit growth in North America and Western Europe, and high single-digit growth in Japan. Core revenue in high growth markets increased by high single-digits during 2024, with mid-teens growth in Latin America and low single-digit growth in Asia. 35 Table of Contents Year-over-year price increases in our Advanced Healthcare Solutions segment contributed 3.4% to sales growth during 2024, as compared to 2023, and is reflected as a component of the change in core revenue. Operating profit margin increased 380 basis points during 2024 as compared to 2023. Year-over-year changes in operating profit margin comparisons were comprised of the following: •Year-over-year sales increases due to favorable pricing and higher volume from existing businesses, and benefits from productivity measures, partially offset by higher employee compensation, and unfavorable changes in foreign currency exchange rates — favorable 200 basis points •The year-over-year effect of amortization from existing businesses — favorable 70 basis points •The year-over-year effect of costs relating to discrete restructuring plans — favorable 110 basis points COST OF SALES AND GROSS PROFIT [[GREPCENT_TABLE]] [["","For the Year Ended December 31"],["($ in millions)","2024","","2023"],["Sales","$","6,231.8","","","$","6,065.3"],["Cost of sales","(2,500.8)","","","(2,471.2)"],["Gross profit","3,731.0","","","3,594.1"],["Gross profit margin","59.9","%","","59.3","%"]] [[/GREPCENT_TABLE]] Gross profit increased during 2024 as compared to 2023, primarily due to favorable pricing from existing businesses, contributions from our acquired businesses, increased volume from the IOS and AHS segments, benefits from productivity measures and FBS initiatives, partially offset by net volume reductions in the PT segment, higher employee compensation, and unfavorable changes in foreign currency exchange rates. OPERATING EXPENSES [[GREPCENT_TABLE]] [["","For the Year Ended December 31"],["($ in millions)","2024","","2023"],["Sales","$","6,231.8","","","$","6,065.3"],["Selling, general, and administrative (\u201cSG&A\u201d) expenses","2,173.5","","","2,062.6"],["Research and development (\u201cR&D\u201d) expenses","414.0","","","397.8"],["SG&A as a % of sales","34.9","%","","34.0","%"],["R&D as a % of sales","6.6","%","","6.6","%"]] [[/GREPCENT_TABLE]] SG&A expenses increased during 2024 as compared to 2023, primarily due to higher intangible amortization and incremental operating costs from our recent acquisitions, transaction and separation costs, and employee compensation, partially offset by benefits from productivity measures and lower discrete restructuring costs. R&D expenses, consisting principally of internal and contract engineering personnel costs, increased slightly during 2024 as compared to 2023 due to the incremental costs from our recent acquisitions and ongoing investments in innovation. NON-OPERATING INCOME (EXPENSE), NET Interest costs Net interest expense was $152.8 million during 2024, compared to $123.5 million during 2023. The year-over-year interest expense increase was primarily due to higher overall debt balances. For a discussion of our outstanding indebtedness, refer to Note 9 to the accompanying consolidated financial statements. Loss from divestiture During the year-to-date period, we recognized a net realized loss of $25.6 million related to the Invetech Divestiture. For further discussion of this transaction, refer to Note 3 to the consolidated financial statements. 36 Table of Contents Other non-operating expense, net Other non-operating expense was $58.6 million during 2024, compared to $19.4 million during 2023. The year-over-year increase was primarily due to an increase in losses from equity investments of $22.1 million and a charitable contribution of $20.0 million made in the first quarter of 2024. For further discussion of these transactions, refer to Note 6 and Note 1 to the consolidated financial statements, respectively. INCOME TAXES General Income tax expense and deferred tax assets and liabilities reflect management’s assessment of future taxes expected to be paid on items reflected in our financial statements. We record the tax effect of discrete items and items that are reported net of their tax effects in the period in which they occur. Our effective tax rate can be affected by, among others, changes in the mix of earnings in countries with differing statutory tax rates (including as a result of business acquisitions and dispositions), changes in the valuation of deferred tax assets and liabilities, accruals related to contingent tax liabilities and period-to-period changes in such accruals, the results of audits and examinations of previously filed tax returns (as discussed below), the expiration of statutes of limitations, the implementation of tax planning strategies, tax rulings, court decisions, settlements with tax authorities, and changes in tax laws. We are subject to income, transaction and other taxes in the United States and in multiple foreign jurisdictions. Our future income tax rates could be volatile and difficult to predict due to changes in business profit by jurisdiction, changes in the amount and recognition of deferred tax assets and liabilities, or by changes in tax laws, regulations, or accounting principles. For example, the Organisation for Economic Co-operation and Development continues to advance proposals for modernizing international tax rules, including the introduction of global minimum tax standards. We closely monitor changes to tax laws, regulations, accounting principles, and global tax standards; and at the time of a change, the related expense or benefit recorded may be material to the quarter and year of change. Furthermore, certain tax laws are inherently ambiguous requiring subjective interpretation on the application thereof. Our interpretation and the corresponding amount of taxes we pay is, and may in the future continue to be, subject to audits by U.S. federal, state, and local tax authorities and by non-U.S. tax authorities. If these audits result in payments or assessments different from our reserves, our future results may include unfavorable adjustments to our tax liabilities and our financial statements could be adversely affected. The Company is subject to examination in the United States, various states and foreign jurisdiction for the tax years 2014 to 2024. These examinations include filings of tax returns prior to our separation from Danaher, tax returns of enterprises no longer in our portfolio, and tax returns for pre-acquisition periods of enterprises added to our portfolio. In addition, significant obligations are detailed in our tax matters agreements in connection with the separation of Fortive from Danaher on July 1, 2016, the split-off of the Automation and Specialty business on October 1, 2018, and the Vontier separation on October 9, 2020. We review our global tax positions on a quarterly basis, considering many factors including the results of discussions and resolutions of matters with certain tax authorities, tax rulings and court decisions, and the expiration of statutes of limitations reserves for contingent tax liabilities are accrued or adjusted as necessary. For a discussion of risks related to these and other tax matters, please refer to “Item 1A. Risk Factors.” Effective Tax Rate Our effective tax rate was 14.1% during 2024 and 12.6% during 2023, respectively. Our effective tax rate for 2024 differs from the U.S. federal statutory rate of 21% due primarily to the positive and negative effects of the Tax Cuts and Jobs Act (“TCJA”), U.S. federal permanent differences, the impacts of credits and deductions provided by law, including those associated with state income taxes, a decrease in our uncertain tax positions, non-deductible transaction costs related to the Separation and the effect of changes in tax rates enacted in the current period. COMPREHENSIVE INCOME Comprehensive income decreased by $172 million in 2024 as compared to 2023, primarily due to an unfavorable change in foreign currency translation adjustments of $149 million, offset by an increase in net income of $33 million and a favorable change in pension benefit adjustments of $11 million. 37 Table of Contents FINANCIAL INSTRUMENTS AND RISK MANAGEMENT We are exposed to market risk from changes in interest rates, foreign currency exchange rates, credit risk and commodity prices, each of which could impact our financial statements. We generally address our exposure to these risks through our normal operating and financing activities. In addition, our broad-based business activities help to reduce the impact that volatility in any particular area or related areas may have on our operating profit as a whole. Interest Rate Risk We manage interest cost using a mixture of fixed-rate and variable-rate debt. A change in interest rates on long-term debt impacts the fair value of our fixed-rate long-term debt but not our earnings or cash flows because the interest on such debt is fixed. Generally, the fair market value of fixed-rate debt will increase as interest rates fall and decrease as interest rates rise. As of December 31, 2024, an increase of 100 basis points in interest rates would have decreased the fair value of our fixed-rate long-term debt by approximately $101 million. As of December 31, 2024, our variable-rate debt obligations consist of U.S. dollar denominated commercial paper and senior unsecured term facilities denominated in either Euros or Japanese Yen (refer to Note 9 to the consolidated financial statements for information regarding our outstanding indebtedness as of December 31, 2024). As a result, our primary interest rate exposure results from changes in short-term interest rates. As these shorter duration obligations mature, we anticipate issuing additional short-term commercial paper obligations and/or term loans to refinance all or part of these borrowings. The annual effective rate associated with our outstanding variable-rate obligation was approximately 4.85% with interest expense of $59 million. As of December 31, 2024, on an annualized basis, a hypothetical 10 basis points increase in market interest rates on our variable-rate debt obligations would have increased our interest expense by approximately $1.0 million in 2024. Foreign Currency Exchange Rate Risk We face transactional exchange rate risk from transactions with customers in countries outside of the United States and from intercompany transactions between affiliates. Transactional exchange rate risk arises from the purchase and sale of goods and services in currencies other than our functional currency or the functional currency of an applicable subsidiary. We also face translational exchange rate risk related to the translation of financial statements of our foreign operations into U.S. dollars, our functional currency. Costs incurred and sales recorded by subsidiaries operating outside of the United States are translated into U.S. dollars using exchange rates effective during the respective period. As a result, we are exposed to movements in the exchange rates of various currencies against the U.S. dollar. The effect of a change in currency exchange rates on our net investment in international subsidiaries is reflected in the accumulated other comprehensive income (loss) (“AOCI”) component of equity. A 10% depreciation in major currencies relative to the U.S. dollar as of December 31, 2024 would have resulted in a reduction of foreign currency-denominated net assets and stockholders’ equity of approximately $326 million. As of December 31, 2024, our outstanding €500 million Euro-denominated senior unsecured notes due 2026, €700 million Euro-denominated senior unsecured notes due 2029, ¥14.4 billion Yen-denominated variable interest rate term loan, and €275 million Euro-denominated variable interest rate term loan were designated as net investment hedges of our investment in applicable foreign operations. Accordingly, foreign currency transaction gains or losses on the debt were deferred in the foreign currency translation component of AOCI as an offset to the foreign currency translation adjustments on our investments in foreign subsidiaries. For the years ended December 31, 2024, 2023, and 2022, we recognized after-tax gains of $60.4 million, losses of $1.2 million, and losses of $5.1 million within Other comprehensive income (loss) related to the net investment hedges, respectively. Currency exchange rates unfavorably impacted 2024 reported sales by 0.6% as compared to 2023, as the U.S. dollar was, on average, stronger against most major currencies during 2024 as compared to exchange rate levels during 2023. If the exchange rates in effect as of December 31, 2024 were to prevail throughout 2025, currency exchange rates would negatively impact 2025 estimated sales by approximately 1.4% relative to our performance in 2024. In general, additional strengthening of the U.S. dollar against other major currencies would further negatively impact our sales and results of operations on an overall basis. We have generally accepted the exposure to exchange rate movements without using derivative financial instruments to manage this risk. Both positive and negative movements in currency exchange rates against the U.S. dollar will therefore continue to affect the reported amount of sales, profit, and assets and liabilities in our consolidated financial statements. Credit Risk We are exposed to potential credit losses in the event of nonperformance by counterparties to our financial instruments. Financial instruments that potentially subject us to credit risk consist of cash and highly-liquid investment grade cash 38 Table of Contents equivalents and receivables from customers. We place cash and cash equivalents with various high-quality financial institutions throughout the world and exposure is limited at any one institution. Although we typically do not obtain collateral or other security to secure these obligations, we regularly monitor the third party depository institutions that hold our cash and cash equivalents. We emphasize safety and liquidity of principal over yield on those funds. In addition, concentrations of credit risk arising from receivables from customers are limited due to the diversity of our customers. Our businesses perform credit evaluations of their customers’ financial conditions as appropriate and also obtain collateral or other security when appropriate. Commodity Price Risk For a discussion of risks relating to commodity prices, refer to “Item 1A. Risk Factors.” LIQUIDITY AND CAPITAL RESOURCES We assess our liquidity in terms of our ability to generate cash to fund our operating, investing, and financing activities. We generate substantial cash from operating activities and believe that our operating cash flow and other sources of liquidity, which consist of available cash, our revolving credit facility, and access to commercial paper, bank loans, and capital markets, will be sufficient to allow us to continue funding and investing in our existing businesses, consummate strategic acquisitions, execute strategic separations, repurchase common stock on the open market or in privately negotiated transactions, make interest and principal payments on our outstanding indebtedness, fulfill our contractual obligations, and manage our capital structure on a short and long-term basis. We have generally satisfied any short-term liquidity needs that are not met through operating cash flows and available cash through issuances of commercial paper under our 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 $2.0 billion senior unsecured revolving credit facility that expires on October 18, 2027 (the “Revolving Credit Facility”) which, to the extent not otherwise providing credit support for the commercial paper programs, can also be used for working capital and other general corporate purposes. As of December 31, 2024, no borrowings were outstanding under the Revolving Credit Facility. The availability of the Revolving Credit Facility as a standby liquidity facility to repay maturing commercial paper is an important factor in maintaining the existing credit ratings of the Commercial Paper Programs when we have outstanding borrowings. We expect to limit any future borrowings under the Revolving Credit Facility to amounts that would leave sufficient credit available under the facility to allow us to borrow, if needed, and repay any outstanding commercial paper as it matures. Our ability to access the commercial paper market, and the related costs of these borrowings, is affected by the strength of our credit rating and market conditions. Any downgrade in our credit rating would increase the cost of borrowing under our commercial paper programs and the Credit Agreement, and could limit or preclude our ability to issue commercial paper. If our access to the commercial paper market is adversely affected due to a downgrade, change in market conditions, or otherwise, we would expect to rely on a combination of available cash, operating cash flow, and the Revolving Credit Facility to provide short-term funding. In such event, the cost of borrowings under the Revolving Credit Facility could be higher than the historic cost of commercial paper borrowings. On June 7, 2023, we filed with the SEC an “automatic shelf” registration statement (the “Shelf Registration Statement”). Under the Shelf Registration Statement, we may from time to time sell shares of common stock, preferred stock, debt securities, depositary shares, purchase contracts, purchase units, warrants and subscription rights in one or more offerings. For example, in February 2024, we completed our offering of €500 million aggregate principal amount of our 3.7% Euro-denominated senior unsecured notes due 2026 (the “2026 Notes”) and €700 million aggregate principal amount of our 3.7% Euro-denominated senior unsecured notes due 2029 (the “2029 Notes”) under the Shelf Registration Statement. We continue to monitor the financial markets, the stability of U.S and international banks and general global economic conditions. In addition, our access to the capital markets and other financing sources is impacted by any change in our credit rating. If changes in financial markets or other areas of the economy or downgrade in our credit rating adversely affect our access to the capital markets and other financing sources, we would expect to rely on a combination of available cash and existing available capacity under our credit facilities to provide short-term funding. 39 Table of Contents Overview of Cash Flows and Liquidity Following is an overview of our cash flows and liquidity ($ in millions): [[GREPCENT_TABLE]] [["","Year Ended December 31,"],["","2024","","2023"],["Net cash provided by operating activities","$","1,526.8","","","$","1,353.6"],["Cash paid for acquisitions, net of cash received","$","(1,721.8)","","","$","(95.8)"],["Purchases of property, plant and equipment","(120.4)","","","(107.8)"],["Proceeds from sale of property","61.2","","","7.4"],["Cash infusion into divestiture","(14.0)","","","\u2014"],["All other investing activities","(1.0)","","","0.8"],["Net cash used in investing activities","$","(1,796.0)","","","$","(195.4)"],["Net proceeds from (repayments of) commercial paper borrowings","$","(596.5)","","","$","839.9"],["Proceeds from borrowings (maturities longer than 90 days), net of issuance costs","1,733.5","","","549.3"],["Repayment of borrowings (maturities greater than 90 days)","(1,000.0)","","","(1,000.0)"],["Repurchase of common shares","(889.6)","","","(272.9)"],["Payment of dividends","(111.2)","","","(102.0)"],["All other financing activities","71.1","","","18.0"],["Net cash provided by (used in) financing activities","$","(792.7)","","","$","32.3"]] [[/GREPCENT_TABLE]] 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, interest, pension funding, and other items impact reported cash flows. Operating cash flows were $1.5 billion in 2024, representing an increase of $173 million, or 12.8%, as compared to 2023, primarily attributable to the following factors: •Year-over-year increases of $35 million in Operating cash flow from net earnings, net of non-cash items (Amortization, Depreciation, Stock-based compensation, Gain on sale of property, Loss from divestiture, and Loss from equity investments). •The aggregate changes in accounts receivable, inventories, and trade accounts payable generated $79 million of cash during 2024 compared to using $9 million of cash during 2023. 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 generally represents the number of days that elapse from the day we pay for the purchase of raw materials and components to the collection of cash from our customers, and can be significantly impacted by the timing of collections and payments in a period. •The aggregate change in prepaid expenses and other assets, accrued expenses and other liabilities, and changes in deferred income taxes used $40 million of cash in 2024 as compared to using $91 million in 2023. The year-over-year changes were driven by timing differences related to contract assets, contract liabilities, and payments of income taxes, interest, and restructuring. Investing Activities Cash outflows from investing activities increased by $1.6 billion in 2024 as compared to 2023 with the increase primarily due to a year-over year increase in cash used for acquisitions, net of cash acquired, of approximately $1.6 billion, an increase in capital expenditures of approximately $13 million, and the cash infusion into the Invetech Divestiture entity totaling $14 million, partially offset by the year-over-year increase in proceeds from sale of property and business of approximately $54 million. Capital expenditures are made primarily for increasing production capacity, replacing aged equipment, supporting product development initiatives for hardware and software offerings, improving information technology systems, and purchasing equipment that is used in revenue arrangements with customers. We expect capital spending to be between approximately $120 million and $150 million in 2025, though actual expenditures will ultimately depend on business conditions. 40 Table of Contents Financing Activities and Indebtedness Financing cash flows consist primarily of cash flows associated with the issuance and repayments of debt and commercial paper, payments of cash dividends to shareholders and share repurchases. Financing activities used cash of $793 million in 2024, and generated cash of $32 million in 2023. Financing activities during 2024 reflected the following transactions: •On January 2, 2024, we drew down an additional $450 million of the Delayed-Draw Term Loan due 2024 as part of the funding for the acquisition of EA. •On February 13, 2024, we completed the sale of our registered offering of the 2026 Notes and the 2029 Notes, yielding net proceeds of approximately $1.3 billion. •On February 13 2024, we repaid $1.0 billion in outstanding principal of the Delayed-Draw Term Loan due 2024, using net proceeds from the 2026 Notes and 2029 Notes. •We repaid $597 million in net commercial paper repayments under the U.S. dollar-denominated commercial paper program. •We repurchased 12 million shares of our common stock for approximately $890 million, including excise tax payments, under our share repurchase program. •We made dividend payments to common shareholders totaling $111 million. •All other financing activities primarily include activities related to the stock incentive plan. Financing activities during 2023 reflected the following transactions: •On December 7, 2023, we entered into a term loan credit agreement, which provides for a 364-days delayed draw term loan facility up to an aggregate principal amount of $1.3 billion. On December 14, 2023, we drew down $550 million of the $1.3 billion delayed-draw senior unsecured term facility (“Delayed-Draw Term Loan due 2024”) as a Term Secured Overnight Financing Rate (“Term SOFR”) Loan. The repayment of the principal is due on December 12, 2024. •We borrowed $840 million in net commercial paper under the U.S. dollar-denominated commercial paper program. •On August 24, 2023, we repaid $250 million in outstanding principal of the Delayed-Draw Term Loan due 2023. On December 14, 2023, we repaid the remaining $750 million in outstanding principal and accrued interest thereon using the proceeds from the Delayed-Draw Term Loan due 2024 and available cash. •We repurchased 4 million shares of our common stock for approximately $273 million under our share repurchase program. •Dividend payments to common shareholders totaling $102 million. We generally expect to satisfy any short-term liquidity needs that are not met through operating cash flows and available cash primarily through term loans or issuances of commercial paper under the Commercial Paper Programs, with credit support provided by the Revolving Credit Facility. The carrying value of total debt outstanding as of December 31, 2024 was approximately $3.7 billion. We had $2.0 billion available under the Revolving Credit Facility as of December 31, 2024. The availability of the Revolving Credit Facility as a standby liquidity facility to repay maturing commercial paper is an important factor in maintaining the existing credit ratings of the Commercial Paper Programs when we have outstanding borrowings. As of December 31, 2024 and 2023, we had $650 million and $1.3 billion borrowings outstanding under our Commercial Paper Program, respectively. We expect to limit any future borrowings under the Revolving Credit Facility to amounts that would leave sufficient credit available under the facility to allow us to borrow, if needed, to repay any outstanding commercial paper as it matures. Refer to Note 9 to the consolidated financial statements for additional information regarding the Company’s financing activities and indebtedness, including the Company’s outstanding debt as of December 31, 2024, the Company’s commercial paper program, and the Revolving Credit Facility. Refer to Note 15 to the consolidated financial statements for a description of the Company’s share repurchase program. Dividends On November 6, 2024, we declared a regular quarterly dividend of $0.08 per common share paid on December 27, 2024 to holders of record on November 29, 2024. 41 Table of Contents Cash and Cash Requirements Cash As of December 31, 2024, we held approximately $813 million of cash and cash equivalents, of which approximately 88% was held outside of the United States. Our cash and cash equivalents were invested in highly liquid investment-grade instruments with a maturity of 90 days or less. We have cash requirements to support working capital needs, capital expenditures and acquisitions, pay interest and service debt, pay taxes and any related interest or penalties, fund our pension plans as required, pay dividends to shareholders, and support other business needs or objectives. With respect to our cash requirements, we generally intend to use available cash and internally generated funds to meet these cash requirements, but in the event that additional liquidity is required, particularly in connection with acquisitions and repayment of maturing debt, we may also borrow under our commercial paper programs or credit facilities or enter into new credit facilities and either borrow directly thereunder or use such credit facilities to backstop additional borrowing capacity under our commercial paper programs. We also may from time to time access the capital markets, including to take advantage of favorable interest rate environments or other market conditions. Foreign cumulative earnings remain subject to foreign remittance taxes. We have made an election regarding the amount of earnings that we do not intend to repatriate due to local working capital needs, local law restrictions, high foreign remittance costs, previous investments in physical assets and acquisitions, or future growth needs. For most of our foreign operations, we make an assertion regarding the amount of earnings in excess of intended repatriation that are expected to be held for indefinite reinvestment. No provisions for foreign remittance taxes have been made with respect to earnings that are planned to be reinvested indefinitely. The amount of foreign remittance taxes that may be applicable to such earnings is not readily determinable given local law restrictions that may apply to a portion of such earnings, unknown changes in foreign tax law that may occur during the applicable restriction periods caused by applicable local corporate law for cash repatriation, and the various tax planning alternatives we could employ if we repatriated these earnings. 42 Table of Contents Cash Requirements The following table sets forth a summary of our short-term and long-term cash requirements as of December 31, 2024 under (1) long-term debt principal and interest obligations, (2) leases, (3) purchase obligations and (4) other long-term liabilities reflected on our balance sheet under GAAP. The table below does not reflect any such obligations, as the timing and amounts of any such payments are uncertain. [[GREPCENT_TABLE]] [["($ in millions)","Total","","Due within one year of December 31, 2024","","Due later than one year from December 31, 2024"],["Debt and leases:"],["Long-term debt principal payments (a)","$","3,718.8","","","$","376.3","","","$","3,342.5"],["Interest payments on long-term debt (b)","759.4","","","133.9","","","625.5"],["Operating lease obligations (c)","197.3","","","38.4","","","158.9"],["Other:"],["Purchase obligations (d)","445.7","","","366.2","","","79.5"],["Other liabilities reflected on the balance sheet under GAAP (e)(f)","2,266.2","","","1,148.0","","","1,118.2"],["Total","$","7,387.4","","","$","2,062.8","","","$","5,324.6"],["(a) The amount due within one year of December 31, 2024 is related to the Euro Term Loan due 2025 and Yen Term Loan due 2025. Refer to Note 9 to the consolidated financial statements for additional information regarding the Company\u2019s indebtedness as of December 31, 2024."],["(b) Interest payments on long-term debt are projected for future periods using the interest rates in effect as of December 31, 2024. Certain of these projected interest payments may differ in the future based on changes in market interest rates."],["(c) Includes future lease payments for operating leases having initial noncancelable lease terms in excess of one year."],["(d) Consist of agreements to purchase goods or services that are enforceable and legally binding on us and that specify all significant terms, including fixed or minimum quantities to be purchased, fixed, minimum or variable price provisions, and the approximate timing of the transaction."],["(e) Primarily consist of obligations under product service and warranty policies and allowances, performance and operating cost guarantees, estimated environmental remediation costs, self-insurance and litigation claims, post-retirement benefits, pension benefit obligations, net tax liabilities, and deferred compensation obligations. The timing of cash flows associated with these obligations is based upon management\u2019s estimates over the terms of these arrangements and is largely based upon historical experience."],["(f) Includes non-contractual obligations of $173 million of noncurrent gross unrecognized tax benefits. However, the timing of these liabilities is uncertain, and therefore, they have been included in the \u201cdue later than one year from December 31, 2024\u201d column. The amounts also include our obligation under the TCJA for the transition tax on cumulative foreign earnings and profits, which we expect to pay over eight years. Refer to Note 12 to the consolidated financial statements for additional information on unrecognized tax benefits."]] [[/GREPCENT_TABLE]] In addition to the obligations noted above, we have issued guarantees, consisting primarily of outstanding standby letters of credit, bank guarantees, and performance and bid bonds, in connection with certain arrangements with vendors, customers, financing counterparties, and governmental entities to secure our obligations and/or performance requirements related to specific transactions. These guarantees are not recorded on our balance sheet and $41 million in commitments expire within one year of December 31, 2024 and $20 million later than one year from December 31, 2024. During 2024, we contributed $1 million and $8 million to our U.S. and non-U.S. defined benefit pension plans, respectively. During 2025, our cash contribution requirements for our U.S. and non-U.S. defined benefit pension plans are expected to be approximately $1 million and $8 million, respectively. The ultimate amounts we will contribute 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. As of December 31, 2024 we expect to have sufficient liquidity to satisfy our cash needs for the foreseeable future. CRITICAL ACCOUNTING ESTIMATES Management’s discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We base these estimates and judgments on historical 43 Table of Contents experience, the current economic environment, and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ materially from these estimates and judgments. We believe the following accounting estimates are most critical to an understanding of our financial statements. Estimates are considered to be critical if they meet both of the following criteria: (1) the estimate requires assumptions about material matters that are uncertain at the time the estimate is made, and (2) material changes in the estimate are reasonably likely from period to period. For a detailed discussion on the application of these and other accounting estimates, refer to Note 2 to the consolidated financial statements. Acquired Intangibles and Goodwill: Our business acquisitions, including EA, typically result in the recognition of goodwill, developed technology, and other intangible assets, which affect the amount of future period amortization expense and possible impairment charges that we may incur. The fair value of acquired intangible assets are determined using information available near the acquisition date based on estimates and assumptions that are deemed reasonable by us. Significant assumptions include the discount rates and certain assumptions that form the basis of the forecasted cash flows of the acquired business including earnings before interest, taxes, depreciation and amortization (“EBITDA”), revenue, revenue growth rates, royalty rates, customer attrition rates, and technology obsolescence rates. These assumptions are forward looking and could be affected by future economic and market conditions. We engage third-party valuation specialists who review our critical assumptions and calculations of the fair value of acquired intangible assets in connection with material acquisitions. In connection with the EA acquisition in the first quarter of 2024, we recorded approximately $1.18 billion of goodwill and approximately $681 million of intangible assets. Refer to Notes 2, 3 and 5 to the consolidated financial statements for a description of our policies relating to goodwill, acquired intangibles, and acquisitions. In performing our goodwill impairment testing, we estimate the fair value of our reporting units primarily using a market based approach. We estimate fair value based on multiples of earnings before interest, taxes, depreciation, and amortization (“EBITDA”) determined by current trading market multiples of earnings for companies operating in businesses similar to each of our reporting units, in addition to recent market available sale transactions of comparable businesses. In evaluating the estimates derived by the market based approach, we make judgments about the relevance and reliability of the multiples by considering factors unique to our reporting units, including operating results, business plans, economic projections, anticipated future cash flows, and transactions and marketplace data as well as judgments about the comparability of the market proxies selected. In certain circumstances we also evaluate other factors including results of the estimated fair value utilizing a discounted cash flow analysis (i.e., an income approach), market positions of the businesses, comparability of market sales transactions, and financial and operating performance in order to validate the results of the market approach. The discounted cash flow model requires judgmental assumptions about projected revenue growth, future operating margins, discount rates, and terminal values. There are inherent uncertainties related to these assumptions and management’s judgment in applying them to the analysis of goodwill impairment. In 2024, we performed goodwill impairment testing for our reporting units. Reporting units that include recent acquisitions generally present the highest risk of impairment. We believe the impairment risk associated with these reporting units generally decreases as we integrate these businesses and better position them for potential future earnings growth. Our annual goodwill impairment analysis in 2024 indicated that, in all instances, the fair values of our reporting units exceeded their carrying values and consequently did not result in an impairment charge. The excess of the estimated fair value over carrying value (expressed as a multiple of the carrying value for the respective reporting unit) for each of our reporting units as of the annual testing date ranged from approximately 1.6x to approximately 13.1x. In order to evaluate the sensitivity of the fair value calculations used in the goodwill impairment test, we applied a hypothetical 10% decrease to the fair values of each reporting unit and compared those hypothetical values to the reporting unit carrying values. Based on this hypothetical 10% decrease, the excess of the estimated fair value over carrying value (expressed as a multiple of the carrying value for the respective reporting unit) for each of our reporting units ranged from approximately 1.5x to approximately 11.8x. We evaluated other factors relating to the fair value of the reporting units, including, as applicable, results of the estimated fair value using an income approach, market positions of the businesses, comparability of market sales transactions and financial and operating performance, and concluded no impairment charges were required. We review identified intangible assets for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Determining whether an impairment loss occurred for intangible assets with definite lives requires a comparison of the carrying amount to the sum of undiscounted cash flows expected to be generated by the asset. We also test intangible assets with indefinite lives at least annually for impairment. These analyses require management to make judgments and estimates about future revenues, expenses, market conditions, and discount rates related to these assets. We evaluated events or circumstances that may indicate the carrying value of our intangible assets may not be fully recoverable during the year ended December 31, 2024, and recorded no impairments. 44 Table of Contents If actual results are not consistent with management’s estimates and assumptions, goodwill and other intangible assets may be overstated and a charge would need to be taken against net earnings which would adversely affect our financial statements. Revenue Recognition: We derive revenue from the sale of products and services. Revenue is recognized when control over the promised products or services is transferred to the customer in an amount that reflects the consideration that we expect to receive in exchange for those goods or services. In determining if control has transferred, we consider whether certain indicators of the transfer of control are present, such as the transfer of title, present right to payment, significant risks and rewards of ownership, and customer acceptance when acceptance is not a formality. To determine the consideration that the customer owes us, we make judgments regarding the amount of customer allowances and rebates, consisting primarily of volume discounts and other short-term incentive programs. Refer to Note 2 to the consolidated financial statements for a description of our revenue recognition policies. If our judgments regarding revenue recognition prove incorrect, our reported revenues in particular periods may be adversely affected. Historically, our estimates of revenue have been materially correct. Income Taxes: For a description of our income tax accounting policies, refer to Note 2 and Note 12 to the consolidated financial statements. In accordance with GAAP, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted rates expected to be in effect during the year in which the differences reverse. Deferred tax assets generally represent items that can be used as a tax deduction or credit in our tax return in future years for which the tax benefit has already been reflected in our Consolidated Statements of Earnings. Deferred tax liabilities generally represent items that have already been taken as a deduction on our tax return but have not yet been recognized as an expense in our Consolidated Statements of Earnings. The effect on deferred tax assets and liabilities due to a change in tax rates is recognized in income tax expense in the period that includes the enactment date. Our deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not (a likelihood of more than 50 percent) that some portion or all of the deferred tax assets will not be realized. We evaluate the realizability of deferred income tax assets for each of the jurisdictions in which we operate. If we experience cumulative pretax income in a particular jurisdiction in the three-year period including the current and prior two years, we normally conclude that the deferred income tax assets will more likely than not be realizable and no valuation allowance is recognized, unless known or planned operating developments would lead management to conclude otherwise. However, if we experience cumulative pretax losses in a particular jurisdiction in the three-year period including the current and prior two years, we then consider a series of factors in the determination of whether the deferred income tax assets can be realized. These factors include historical operating results, known or planned operating developments, the period of time over which certain temporary differences will reverse, consideration of the utilization of certain deferred income tax liabilities, tax law carryback capability in the particular country, and prudent and feasible tax planning strategies. After evaluation of these factors, if the deferred income tax assets are expected to be realized within the tax carryforward period allowed for that specific country, we would conclude that no valuation allowance would be required. To the extent that the deferred income tax assets exceed the amount that is expected to be realized within the tax carryforward period for a particular jurisdiction, we establish a valuation allowance. We recognize tax benefits from uncertain tax positions only if, in our assessment, it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Judgment is required in evaluating tax positions and determining income tax provisions. We re-evaluate the technical merits of our tax positions and may recognize an uncertain tax benefit in certain circumstances, including when: (i) a tax audit is completed; (ii) applicable tax laws change, including a tax case ruling or legislative guidance; or (iii) the applicable statute of limitations expires. We recognize potential accrued interest and penalties with unrecognized tax positions in income tax expense. In addition, we are routinely examined by various domestic and international taxing authorities. The amount of income taxes we pay is subject to audit by federal, state, and foreign tax authorities, which may result in proposed assessments (see “-Results of Operations - Income Taxes” and Note 12 to the consolidated financial statements). We review our global tax positions on a quarterly basis. Based on these reviews, the results of discussions and resolutions of matters with certain tax authorities, tax rulings, and court decisions and the expiration of statutes of limitations reserves for contingent tax liabilities are accrued or adjusted as necessary. An increase in our 2024 effective tax rate of 1.0% would have resulted in an additional income tax provision for the year ended December 31, 2024 of approximately $10 million. 45 Table of Contents NEW ACCOUNTING STANDARDS For a discussion of new accounting standards relevant to our businesses, refer to Note 2 to the consolidated financial statements.