Vontier Corp

NOTE 1. BUSINESS OVERVIEW AND BASIS OF PRESENTATION

Nature of Business

Vontier Corporation (“Vontier” or the “Company”) is a global industrial technology company uniting productivity, automation and multi-energy technologies to meet the needs of a rapidly evolving, more connected mobility ecosystem. The Company operates through three reportable segments which align to the Company’sthree operating segments: (i) Mobility Technologies, which provides digitally enabled equipment and solutions to support efficient operations across the mobility ecosystem, including point-of-sale and payment systems, workflow automation solutions, telematics, data analytics, software platform for electric vehicle charging networks, and integrated solutions for alternative fuel dispensing; (ii) Repair Solutions, which manufactures and distributes aftermarket vehicle repair tools, toolboxes, automotive diagnostic equipment and software through a network of mobile franchisees; and (iii) Environmental & Fueling Solutions, which provides environmental and fueling hardware and software, and aftermarket solutions for global fueling infrastructure. The Company’s Global Traffic Technologies and Coats businesses, which were divested during April 2023 and January 2024, respectively, are presented in Other for periods prior to the divestitures.

Basis of Presentation and Unaudited Interim Financial Information

The accompanying Consolidated Condensed Financial Statements present the Company’s historical financial position, results of operations, changes in equity and cash flows in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and are unaudited.

The interim Consolidated Condensed Financial Statements include the accounts of Vontier and its subsidiaries. All intercompany balances and transactions have been eliminated upon consolidation. The Consolidated Condensed Financial Statements also reflect the impact of noncontrolling interests. Noncontrolling interests do not have a significant impact on the Company’s consolidated results of operations, therefore, net earnings and net earnings per share attributable to noncontrolling interests are not presented separately in the Company’s Consolidated Condensed Statements of Earnings and Comprehensive Income. Net earnings attributable to noncontrolling interests have been reflected in selling, general and administrative expenses (“SG&A”) and were insignificant in all periods presented.

In the opinion of the Company’s management, all adjustments of a normal recurring nature necessary for a fair presentation have been reflected. Certain financial information that is normally included in annual financial statements prepared in accordance with GAAP, but that is not required for interim reporting purposes, has been omitted. The accompanying interim Consolidated Condensed Financial Statements and the related notes should be read in conjunction with the Company’s Consolidated Financial Statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Annual Report on Form 10-K”).

Foreign Currency Translation and Transactions

Exchange rate adjustments resulting from foreign currency transactions are recognized in Net earnings, whereas effects resulting from the translation of financial statements are reflected as a component of Accumulated other comprehensive income within equity. Assets and liabilities of subsidiaries operating outside the United States with a functional currency other than U.S. dollars are translated into U.S. dollars using period-end exchange rates and income statement accounts are translated at weighted average exchange rates. Net foreign currency transaction gains or losses were not material in any of the periods presented.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year presentation.

Recently Issued Accounting Standards Not Yet Adopted

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”), which requires consistent categories and greater disaggregation of information in the rate reconciliation and disaggregation of income taxes paid by jurisdiction. ASU 2023-09 is effective for the Company’s annual financial statements for the year ended December 31, 2025, with early adoption permitted. Prospective application is required, with retrospective application permitted. The Company is currently assessing the impact ASU 2023-09 will have on its consolidated financial statements.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which enhances segment disclosures primarily by requiring disclosure of significant segment expenses. ASU 2023-07 is effective for the Company’s annual financial statements for the year ended December 31, 2024, and for its interim financial statements beginning with the first fiscal quarter of the year ended December 31, 2025, with early adoption permitted. Retrospective application is required. Adoption of the ASU will expand the Company’s segment disclosures, and will have no impact on its results of operations, cash flows or financial condition.

NOTE 2. FINANCING AND TRADE RECEIVABLES

The Company’s financing receivables are comprised of commercial purchase security agreements originated between the Company’s franchisees and technicians or independent shop owners that are assumed by the Company (“PSAs”) and commercial loans to the Company’s franchisees (“Franchisee Notes”) in the Repair Solutions segment. Financing receivables are generally secured by the underlying tools and equipment financed.

PSAs are installment sales contracts originated between the franchisee and technicians or independent shop owners which enable these customers to purchase tools and equipment on an extended-term payment plan. PSA payment terms are generally up tofive years. Upon origination, the Company assumes the PSA by crediting the franchisee’s trade accounts receivable. As a result, originations of PSAs are non-cash transactions. The Company records PSAs at amortized cost.

Franchisee Notes have payment terms of up to 10 years and include financing to fund business startup costs including: (i) installment loans to franchisees used generally to finance inventory, equipment, and franchise fees; and (ii) lines of credit to finance working capital, including additional purchases of inventory.

Revenues associated with the Company’s interest income related to financing receivables are recognized to approximate a constant effective yield over the contract term. Accrued interest is included in Accounts receivable, less allowance for credit losses on the Consolidated Condensed Balance Sheets and was insignificant as of September 27, 2024 and December 31, 2023.

Product sales to franchisees and the related financing income is included in Cash flows from operating activities in the accompanying Consolidated Condensed Statements of Cash Flows.

The components of financing receivables with payments due in less than twelve months that are presented in Accounts receivable, less allowance for credit losses on the Consolidated Condensed Balance Sheets were as follows:

The components of Long-term financing receivables, less allowance for credit losses, which consists of financing receivables with payments due beyond one year, were as follows:

As of September 27, 2024 and December 31, 2023, the net unamortized discount on our financing receivables was $18.6 million and $17.6 million, respectively.

Credit score and distributor tenure are the primary indicators of credit quality for the Company’s financing receivables. The amortized cost basis and current period gross write-offs of PSAs and Franchisee Notes by origination year as of and for the nine months ended September 27, 2024, is as follows:

Past Due

PSAs are considered past due when a contractual payment has not been made. If a customer is making payments on its account, interest will continue to accrue. The table below sets forth the aging of the Company’s PSA balances as of:

Franchisee Notes are considered past due when payments have not been made for 21 days after the due date. Past due Franchisee Notes (where the franchisee had not yet separated) were insignificant as of September 27, 2024 and December 31, 2023.

Uncollectable Status

PSAs are deemed uncollectable and written off when they are both contractually delinquent and no payment has been received for 180 days.

Franchisee Notes are deemed uncollectable and written off after a distributor separates and no payments have been received forone year.

The Company stops accruing interest and other fees associated with financing receivables when (i) a customer is placed in uncollectable status and repossession efforts have begun; (ii) upon receipt of notification of bankruptcy; (iii) upon notification of the death of a customer; or (iv) other instances in which management concludes collectability is not reasonably assured.

Allowance for Credit Losses Related to Financing Receivables

The Company calculates the allowance for credit losses considering several factors, including the aging of its financing receivables, historical credit loss and portfolio delinquency experience and current economic conditions. The Company also evaluates financing receivables with identified exposures, such as customer defaults, bankruptcy or other events that make it unlikely it will recover the amounts owed to it. In calculating such reserves, the Company evaluates expected cash flows, including estimated proceeds from disposition of collateral, and calculates an estimate of the potential loss and the probability of loss. When a loss is considered probable on an individual financing receivable, a specific reserve is recorded.

The following is a rollforward of the PSAs and Franchisee Notes components of the Company’s allowance for credit losses related to financing receivables as of:

Allowance for Credit Losses Related to Trade Accounts Receivables

The following is a rollforward of the allowance for credit losses related to the Company’s trade accounts receivables, excluding financing receivables, and the Company’s trade accounts receivable cost basis as of:

NOTE 3. INVENTORIES

The classes of inventory as of September 27, 2024 and December 31, 2023 are summarized as follows:

NOTE 4. FINANCING

The Company had the following debt outstanding as of:

The Company’s long-term debt requires, among others, that the Company maintains certain financial covenants, and the Company was in compliance with all of these covenants as of September 27, 2024.

Credit Facilities

Revolving Credit Facility

The Revolving Credit Facility bears interest at a variable rate equal to SOFR plus an 11.4 basis points SOFR adjustment, plus a ratings-based margin which was 117.5 basis points as of September 27, 2024. As of September 27, 2024, there wereno borrowings outstanding and $750.0 million of available borrowing capacity under the Revolving Credit Facility.

Three-Year Term Loans Due 2024

The Three-Year Term Loans Due 2024 were to mature on October 28, 2024. The Company was not obligated to make repayments prior to the maturity date but did voluntarily repay the remaining $100.0 million outstanding as of December 31, 2023 during the nine months ended September 27, 2024.

Three-Year Term Loans Due 2025

The Three-Year Term Loans Due 2025 (“Term Loans”), which mature on December 30, 2025, bear interest at a variable rate equal to SOFR plus a 10.0 basis points credit spread adjustment, plus a ratings-based margin which was 125.0 basis points as of September 27, 2024. The interest rate was 6.60% per annum as of September 27, 2024. There was no material difference between the carrying value and the estimated fair value of the debt outstanding as of September 27, 2024.

Senior Unsecured Notes

The Company’s senior unsecured notes (collectively, the “Registered Notes”) consist of the following:

•$500.0 million aggregate principal amount of senior notes due April 1, 2026 bearing interest at the rate of 1.800% per year;

•$500.0 million aggregate principal amount of senior notes due April 1, 2028 bearing interest at the rate of 2.400% per year; and

•$600.0 million aggregate principal amount of senior notes due April 1, 2031 bearing interest at the rate of 2.950% per year.

The estimated fair value of the Registered Notes was $1.5 billion as of September 27, 2024. The fair value of the Registered Notes was determined based upon Level 2 inputs including indicative prices based upon observable market data. The difference between the fair value and the carrying amounts of the Registered Notes may be attributable to changes in market interest rates and/or the Company’s credit ratings subsequent to the incurrence of the borrowing.

Short-term Borrowings

As of September 27, 2024, certain of the Company’s businesses were in a cash overdraft position, and such overdrafts are included in Short-term borrowings and current portion of long-term debt on the Consolidated Condensed Balance Sheets. Additionally, the Company has other short-term borrowing arrangements with various banks to facilitate short-term cash flow requirements in certain countries also included in Short-term borrowings and current portion of long-term debt on the Consolidated Condensed Balance Sheets. Given the nature of the short-term borrowings, the carrying value approximates fair value as of September 27, 2024.

NOTE 5. ACCUMULATED OTHER COMPREHENSIVE INCOME

Foreign currency translation adjustments are generally not adjusted for income taxes as they relate to indefinite investments in non-U.S. subsidiaries.

The changes in Accumulated other comprehensive income by component are summarized below:

NOTE 6. SALES

Contract Assets

In certain circumstances, contract assets are recorded 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 subject to contractual performance obligations rather than subject only to the passage of time. Contract assets were $8.4 million and $6.8 million as of September 27, 2024 and December 31, 2023, respectively, and are included in Prepaid expenses and other current assets in the accompanying Consolidated Condensed Balance Sheets.

Contract Costs

The Company incurs direct incremental costs to obtain and fulfill certain contracts, typically costs associated with assets used by our customers in certain sales arrangements and sales-related commissions. As of September 27, 2024 and December 31, 2023, the Company had $105.9 million and $90.9 million, respectively, in revenue-related capitalized contract costs primarily related to assets used by the Company’s customers in certain software contracts, which are recorded in Prepaid expenses and other current assets, for the current portion, and Other assets, for the noncurrent portion, in the accompanying Consolidated Condensed Balance Sheets.

Contract Liabilities

The Company’s contract liabilities consist of deferred revenue generally related to customer deposits, post contract support (“PCS”) and extended warranty sales. In these arrangements, the Company generally receives up-front payment and recognizes revenue over the support term of the contracts where applicable. Deferred revenue is classified as current or noncurrent based on the timing of when revenue is expected to be recognized and is included in Accrued expenses and other current liabilities and Other long-term liabilities, respectively, in the accompanying Consolidated Condensed Balance Sheets.

The Company’s contract liabilities consisted of the following:

During the three and nine months ended September 27, 2024, the Company recognized $15.6 million and $92.1 million of revenue related to the Company’s contract liabilities at December 31, 2023, respectively. The change in contract liabilities from December 31, 2023 to September 27, 2024 was primarily due to the timing of cash receipts and sales of PCS and extended warranty services.

Remaining Performance Obligations

Remaining performance obligations represent the transaction price allocated to performance obligations which are unsatisfied as of the end of the period. The Company has excluded performance obligations with an original expected duration of one year or less and amounts for variable consideration allocated to wholly-unsatisfied performance obligations. Remaining performance obligations as of September 27, 2024 were $480.6 million, the majority of which are related to software-as-a-service and extended warranty and service contracts. The Company expects approximately 65 percent of the remaining performance obligations will be fulfilled within the nexttwo years,80 percent within the next three years, and 90 percent within four years.

Disaggregation of Revenue

Revenue from contracts with customers is disaggregated by sales of products and services and geographic location for each of our reportable segments, as it best depicts how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors.

Disaggregation of revenue was as follows for the three months ended September 27, 2024:

(a)Includes total sales in the United States of $510.0 million.

Disaggregation of revenue was as follows for the three months ended September 29, 2023:

(a)Includes total sales in the United States of $543.1 million.

Disaggregation of revenue was as follows for the nine months ended September 27, 2024:

(a)Includes total sales in the United States of $1,525.4 million.

Disaggregation of revenue was as follows for the nine months ended September 29, 2023:

(a)Includes total sales in the United States of $1,613.4 million.

NOTE 7. INCOME TAXES

The Company’s effective tax rate for the three and nine months ended September 27, 2024 was 18.3% and 18.6%, respectively, as compared to 24.4% and 24.6% for the three and nine months ended September 29, 2023, respectively. The decrease in the effective tax rate for the three months ended September 27, 2024 as compared to the comparable period in the prior year was primarily due to a favorable change in uncertain tax position reserves during the three months ended September 27, 2024. The decrease in the effective tax rate for the nine months ended September 27, 2024 as compared to the comparable period in the prior year was primarily due to the favorable tax impacts of the divestiture of the Coats business and a favorable change in uncertain tax position reserves during the nine months ended September 27, 2024 and the unfavorable tax impacts of the divestiture of the Global Traffic Technologies business during the nine months ended September 29, 2023.

The Company’s effective tax rate for the three and nine months ended September 27, 2024 differs from the U.S. federal statutory rate of 21% primarily due to the effect of state taxes, tax credits, changes in uncertain tax position reserves and the impact of the divestiture of the Coats business. The Company’s effective tax rate for the three and nine months ended September 29, 2023 differs from the U.S. federal statutory rate of 21% primarily due to the effect of state taxes and foreign taxable earnings at a rate different from the U.S. federal statutory rate.

NOTE 8. SEGMENT INFORMATION

Segment operating profit is used as a performance metric by the chief operating decision maker (“CODM”) in determining how to allocate resources and assess performance. Segment operating profit represents total segment sales less operating costs attributable to the segment, which does not include unallocated corporate costs and other operating costs not allocated to the reportable segments as part of the CODM’s assessment of reportable segment operating performance, including stock-based compensation expense, amortization of acquisition-related intangible assets, restructuring costs, transaction- and deal-related costs, and other costs not indicative of the segment’s core operating performance. As part of the CODM’s assessment of the Repair Solutions segment, a capital charge based on the segment’s financing receivables portfolio is assessed by Corporate (the “Repair Solutions Capital Charge”). The unallocated corporate and other operating costs are presented in Corporate & other unallocated costs in the reconciliation to earnings before income taxes below.

Intersegment sales primarily result from solutions developed by the Mobility Technologies segment that are integrated into products sold by the Environmental & Fueling Solutions segment. Intersegment sales are recorded at cost plus a margin which is intended to reflect the contribution made by the Mobility Technologies segment. Segment operating profit includes the operating profit from intersegment sales. Intersegment sales for the three and nine months ended September 29, 2023 are not significant and have been eliminated in the segments’ results.

The Company’s CODM does not review any information regarding total assets on a segment basis.

Segment results for the periods indicated were as follows:

(a) Includes intersegment sales of $9.4 million and $14.2 million for the three and nine months ended September 27, 2024, respectively.

(b) Includes interest income related to financing receivables of $19.2 million, $19.7 million, $57.7 million and $58.5 million for the three and nine months ended September 27, 2024 and September 29, 2023, respectively.

(c)Includes the Repair Solutions Capital Charge of $11.1 million, $10.5 million, $32.9 million and $31.0 million for the three and nine months ended September 27, 2024 and September 29, 2023, respectively.

(d) Includes amortization of acquisition-related intangible assets.

NOTE 9. LITIGATION AND CONTINGENCIES

Warranty

Estimated warranty costs are generally accrued at the time of sale. In general, manufactured products are warrantied 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 the accrued warranty liability:

Litigation and Other Contingencies

The Company is involved in legal proceedings from time to time in the ordinary course of its business. Although the outcome of such matters is uncertain, management believes that these legal proceedings will not have a material adverse effect on the financial condition or results of future operations of the Company.

In accordance with accounting guidance, the Company records a liability in the Consolidated Condensed Financial Statements for loss contingencies when a loss is known or considered probable and the amount can be reasonably estimated. If the reasonable estimate of a known or probable loss is a range, and no amount within the range is a better estimate than any other, the minimum amount of the range is accrued. If a loss does not meet the known or probable level but is reasonably possible and a loss or range of loss can be reasonably estimated, the estimated loss or range of loss is disclosed.

Gross liabilities associated with known and future expected asbestos claims and projected insurance recoveries were as follows as of:

Guarantees

As of September 27, 2024 and December 31, 2023, the Company had guarantees consisting primarily of outstanding standby letters of credit, bank guarantees, and performance and bid bonds of approximately $80.8 million and $79.2 million, respectively. These guarantees have been provided in connection with certain arrangements with vendors, customers, financing counterparties, and governmental entities to secure the Company’s obligations and/or performance requirements related to specific transactions.

NOTE 10. FAIR VALUE MEASUREMENTS

Below is a summary of financial assets and liabilities that are measured at fair value on a recurring basis as of:

Contingent Consideration

The fair value of the contingent consideration liabilities relates to payments to previous owners of acquired companies contingent on the achievement of certain revenue targets. The Company records a liability for contingent consideration in the purchase price for acquisitions at fair value on the acquisition date, and remeasures the liability at each reporting date, based on the Company’s estimate of the expected probability of achievement of the contingency targets. This estimate is based on significant unobservable inputs and represents a Level 3 measurement within the fair value hierarchy.

Nonrecurring Fair Value Measurements

Certain assets and liabilities are carried on the accompanying Consolidated Condensed Balance Sheets at cost and are not remeasured to fair value on a recurring basis. These assets include finite-lived intangible assets, which are tested for impairment when a triggering event occurs, and goodwill and identifiable indefinite-lived intangible assets, which are tested for impairment at least annually as of the first day of the fourth quarter or more frequently if events and circumstances indicate that the asset may not be recoverable.

As of September 27, 2024, assets carried on the balance sheet and not remeasured to fair value on a recurring basis included $1.7 billion of goodwill and $508.6 million of identifiable intangible assets, net.

NOTE 11. CAPITAL STOCK AND EARNINGS PER SHARE

Earnings Per Share

Basic earnings per share is calculated by dividing net earnings by the weighted average number of shares of common stock outstanding. Diluted earnings per share is calculated by adjusting weighted average common shares outstanding for the dilutive effect of the assumed issuance of shares under stock-based compensation plans, determined using the treasury-stock method, except where the inclusion of such shares would have an anti-dilutive impact.

Information related to the calculation of net earnings per share of common stock is summarized as follows:

Share Repurchase Program

On May 24, 2022, the Company’s Board of Directors approved a replenishment of the Company’s previously approved share repurchase program announced in May 2021, bringing the total amount authorized for future share repurchases to $500.0 million. Under the share repurchase program, the Company may purchase shares of common stock from time to time in open market transactions, privately negotiated transactions, accelerated share repurchase programs, or by combinations of such methods, any of which may use prearranged trading plans that are designed to meet the requirements of Rule 10b5-1(c) of the Securities Exchange Act of 1934. The timing of any repurchases and the actual number of shares repurchased will depend on a variety of factors, including the Company’s stock price, corporate and regulatory requirements, restrictions under the Company’s debt obligations and other market and economic conditions. The share repurchase program may be suspended or discontinued at any time and has no expiration date.

During the three months ended September 27, 2024, the Company entered into an accelerated share repurchase (“ASR”) agreement with a third-party institution, whereupon the Company made a prepayment of $100.0 million. The ASR agreement settled during the three months ended September 27, 2024. The Company received 3.0 million of the Company’s shares at an average price per share of $33.84 under the ASR.

During the three months ended September 27, 2024, the Company also repurchased 0.1 million of the Company’s shares through open market transactions for $4.8 million, at an average price per share of $36.22. During the nine months ended September 27, 2024, the Company repurchased 1.6 million of the Company’s shares through open market transactions for $64.6 million, at an average price per share of $38.07.

As of September 27, 2024, the Company has remaining authorization to repurchase $189.8 million of its common stock under the share repurchase program.

NOTE 12. DIVESTITURES

On January 8, 2024, the Company completed the sale of Coats for $72.4 million. As a result of the transaction, the Company recognized a gain of $37.2 million during the nine months ended September 27, 2024, which is presented in Gain on sale of business in the Consolidated Condensed Statements of Earnings and Comprehensive Income. There is a transition services agreement (the “TSA”) in place between the Company and Coats which sets forth the terms and conditions pursuant to which the Company will provide certain services to Coats. Receipts related to the TSA were insignificant for the three and nine months ended September 27, 2024. The operations of Coats did not meet the criteria to be presented as discontinued operations.

NOTE 13. SUBSEQUENT EVENTS

In October 2024, the Company repurchased 0.7 million of the Company’s shares through open market transactions for $23.6 million.