Vontier Corp [VNT] Filings

10-Q 1 vnt-20220701.htm 10-Q vnt-20220701

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________________________________________

FORM 10-Q

________________________________________________


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

For the quarterly period ended: July 1, 2022


Or
☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

Commission file number 001-39483

________________________________________________

Vontier Corporation

(Exact name of registrant as specified in its charter)

________________________________________________


Delaware						84-2783455
(State or other jurisdiction of incorporation or organization)						(I.R.S. employer identification number)

5438 Wade Park Boulevard, Suite 600

Raleigh, NC 27607

(Address of principal executive offices)

Registrant’s telephone number, including area code: (984) 275-6000

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading symbol	Name of each exchange on which registered
Common stock, par value $0.0001 per share	VNT	New York Stock Exchange

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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

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

The number of shares of common stock outstanding at July 29, 2022 was 157,943,495.

VONTIER CORPORATION

INDEX

FORM 10-Q


		Page
PART I	FINANCIAL INFORMATION	4
Item 1.	Financial Statements (unaudited)	5
	Consolidated Condensed Balance Sheets as of July 1, 2022 and December 31, 2021	5
	Consolidated Condensed Statements of Earnings and Comprehensive Income (Loss) for the Three and Six Months Ended July 1, 2022 and July 2, 2021	6
	Consolidated Condensed Statements of Changes in Stockholders' Equity for the Three and Six Months Ended July 1, 2022 and July 2, 2021	7
	Consolidated Condensed Statements of Cash Flows for the Six Months Ended July 1, 2022 and July 2, 2021	9
	Notes to Consolidated Condensed Financial Statements	10
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	38
Item 4.	Controls and Procedures	38

PART II	OTHER INFORMATION	39
Item 1.	Legal Proceedings	39
Item 1A.	Risk Factors	39
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39
Item 6.	Exhibits	40
Signatures		41

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

VONTIER CORPORATION AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEETS

(in millions, except share and per share amounts)


	July 1, 2022		December 31, 2021
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	127.4	$	572.6
Accounts receivable, less allowance for credit losses of $34.2 million and $38.9 million as of July 1, 2022 and December 31, 2021, respectively	482.4		481.3
Inventories:
Finished goods	112.9		104.7
Work in process	39.7		34.4
Raw materials	173.8		147.9
Total inventories	326.4		287.0
Prepaid expenses and other current assets	124.3		137.3
Equity securities measured at fair value	135.1		—
Current assets held for sale	150.3		—
Total current assets	1,345.9		1,478.2
Property, plant and equipment, net of accumulated depreciation of $221.7 million and $256.3 million as of July 1, 2022 and December 31, 2021, respectively	84.9		100.6
Operating lease right-of-use assets	42.8		45.4
Long-term financing receivables, less allowance for credit losses of $41.2 million and $42.5 million as of July 1, 2022 and December 31, 2021, respectively	244.8		241.7
Other intangible assets, net	642.7		615.9
Goodwill	1,707.8		1,667.2
Other assets	150.3		200.8
Total assets	$	4,219.2	$	4,349.8
LIABILITIES AND EQUITY
Current liabilities:
Short-term borrowings	$	9.1	$	3.7
Trade accounts payable	387.7		424.9
Current operating lease liabilities	12.7		12.8
Accrued expenses and other current liabilities	390.3		492.0
Current liabilities held for sale	50.3		—
Total current liabilities	850.1		933.4
Long-term operating lease liabilities	33.4		35.6
Long-term debt	2,599.2		2,583.8
Other long-term liabilities	233.8		223.3
Commitments and Contingencies
Equity:
Preferred stock -- 15,000,000 authorized shares; no par value and none issued and outstanding	—		—
Common stock, $0.0001 par value -- 1,985,000,000 shares authorized; 169,519,031 and 169,168,285 shares issued; and 158,673,975 and 169,168,285 shares outstanding as of July 1, 2022 and December 31, 2021, respectively	—		—
Treasury stock, at cost — 10,845,056 and no shares at July 1, 2022 and December 31, 2021, respectively	(278.0)		—
Additional paid-in capital	12.8		1.5
Retained earnings	660.8		386.7
Accumulated other comprehensive income	103.7		181.7
Total Vontier stockholders’ equity	499.3		569.9
Noncontrolling interests	3.4		3.8
Total stockholders’ equity	502.7		573.7
Total liabilities and equity	$	4,219.2	$	4,349.8
See the accompanying Notes to the Consolidated Condensed Financial Statements.

VONTIER CORPORATION AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME (LOSS)

(in millions, except per share amounts)

(unaudited)


	Three Months Ended				Six Months Ended
	July 1, 2022		July 2, 2021		July 1, 2022		July 2, 2021
Sales of products	$	702.5	$	660.8	$	1,376.4	$	1,305.4
Sales of services	73.9		63.8		148.1		126.6
Total sales	776.4		724.6		1,524.5		1,432.0
Cost of product sales	(377.4)		(350.0)		(738.7)		(695.5)
Cost of service sales	(50.9)		(56.1)		(102.4)		(106.2)
Total cost of sales	(428.3)		(406.1)		(841.1)		(801.7)
Gross profit	348.1		318.5		683.4		630.3
Operating costs:
Selling, general and administrative expenses	(176.7)		(164.6)		(342.7)		(310.3)
Research and development expenses	(34.9)		(32.9)		(69.4)		(66.1)

Operating profit	136.5		121.0		271.3		253.9
Non-operating income (expense), net:
Interest expense, net	(15.3)		(12.0)		(28.2)		(22.4)
Write-off of deferred financing costs	—		(0.2)		—		(3.4)

Gain on previously held equity interests from combination of business	—		—		32.7		—
Unrealized (loss)/gain on equity securities measured at fair value	(80.0)		—		83.0		—
Other non-operating (expense)/income, net	—		0.1		(0.1)		(0.1)
Earnings before income taxes	41.2		108.9		358.7		228.0
Provision for income taxes	(7.9)		(26.6)		(75.2)		(54.7)
Net earnings	$	33.3	$	82.3	$	283.5	$	173.3

Net earnings per share:
Basic	$	0.21	$	0.49	$	1.74	$	1.03
Diluted	$	0.21	$	0.48	$	1.73	$	1.02
Average common stock and common equivalent shares outstanding:
Basic	160.5		169.0		163.2		168.8
Diluted	161.2		170.1		163.9		169.8

Net earnings	$	33.3	$	82.3	$	283.5	$	173.3
Other comprehensive income (loss), net of income taxes:
Foreign currency translation adjustments	(63.1)		(2.0)		(78.2)		(17.7)
Other adjustments	0.1		—		0.2		0.1
Total other comprehensive loss, net of income taxes	(63.0)		(2.0)		(78.0)		(17.6)
Comprehensive income (loss)	$	(29.7)	$	80.3	$	205.5	$	155.7

See the accompanying Notes to the Consolidated Condensed Financial Statements.

VONTIER CORPORATION AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

($ and shares in millions)

(unaudited)


	Common Stock			Treasury Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income/(loss)		Noncontrolling Interests		Total
	Shares	Amount		Shares	Amount
Balance, December 31, 2021	169.2	$	—	—	$	—	$	1.5	$	386.7	$	181.7	$	3.8	$	573.7
Net earnings	—	—		—	—		—		250.2		—		—		250.2
Dividends on common stock ($0.025 per share)	—	—		—	—		—		(4.0)		—		—		(4.0)
Other comprehensive loss, net of income taxes	—	—		—	—		—		—		(15.0)		—		(15.0)
Stock-based compensation expense	—	—		—	—		6.1		—		—		—		6.1
Exercise of common stock options and stock award distributions, net of shares for tax withholding	0.3	—		—	—		(2.0)		—		—		—		(2.0)
Purchase of treasury stock	—	—		(8.5)	(207.0)		—		(50.0)		—		—		(257.0)

Change in noncontrolling interests	—	—		—	—		—		—		—		(0.1)		(0.1)
Balance, April 1, 2022	169.5	$	—	(8.5)	$	(207.0)	$	5.6	$	582.9	$	166.7	$	3.7	$	551.9
Net earnings	—	—		—	—		—		33.3		—		—		33.3
Dividends on common stock ($0.025 per share)	—	—		—	—		—		(4.0)		—		—		(4.0)
Other comprehensive loss, net of income taxes	—	—		—	—		—		—		(63.0)		—		(63.0)
Stock-based compensation expense	—	—		—	—		7.0		—		—		—		7.0
Exercise of common stock options and stock award distributions, net of shares for tax withholding	—	—		—	—		0.2		—		—		—		0.2
Purchase of treasury stock				(2.3)	(71.0)				50.0						(21.0)

Change in noncontrolling interests and other	—	—		—	—		—		(1.4)		—		(0.3)		(1.7)

Balance, July 1, 2022	169.5	$	—	(10.8)	$	(278.0)	$	12.8	$	660.8	$	103.7	$	3.4	$	502.7

See the accompanying Notes to the Consolidated Condensed Financial Statements.

VONTIER CORPORATION AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

($ and shares in millions)

(unaudited)


	Common Stock			Additional Paid-In Capital		Retained Earnings (Accumulated Deficit)		Accumulated Other Comprehensive Income/(loss)		Noncontrolling Interests		Total
	Shares	Amount
Balance, December 31, 2020	168.5	$	—	$	7.6	$	(13.6)	$	193.8	$	3.9	$	191.7
Net earnings	—	—		—		91.0		—		—		91.0
Other comprehensive loss, net of income taxes	—	—		—		—		(15.6)		—		(15.6)
Stock-based compensation expense	—	—		6.6		—		—		—		6.6
Exercise of common stock options and stock award distributions, net of shares for tax withholding	0.3	—		(1.4)		—		—		—		(1.4)
Acquisition of noncontrolling interest	—	—		(2.0)		—		—		0.1		(1.9)
Non-cash separation-related adjustments and other	—	—		(2.1)		—		—		—		(2.1)
Change in noncontrolling interests	—	—		—		—		—		(0.3)		(0.3)
Balance, April 2, 2021	168.8	$	—	$	8.7	$	77.4	$	178.2	$	3.7	$	268.0
Net earnings	—	—		—		82.3		—		—		82.3
Dividends on common stock ($0.025 per share)	—	—		—		(4.2)		—		—		(4.2)
Other comprehensive loss, net of income taxes	—	—		—		—		(2.0)		—		(2.0)
Stock-based compensation expense	—	—		6.4		—		—		—		6.4
Exercise of common stock options and stock award distributions, net of shares for tax withholding	0.1	—		2.5		—		—		—		2.5

Non-cash separation-related adjustments and other	—	—		(3.8)		—		—		—		(3.8)
Change in noncontrolling interests	—	—		—		—		—		0.1		0.1
Balance, July 2, 2021	168.9	$	—	$	13.8	$	155.5	$	176.2	$	3.8	$	349.3

See the accompanying Notes to the Consolidated Condensed Financial Statements.

VONTIER CORPORATION AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

($ in millions)

(unaudited)


	Six Months Ended
	July 1, 2022		July 2, 2021
Cash flows from operating activities:
Net earnings	$	283.5	$	173.3
Non-cash items:
Depreciation and amortization expense	58.1		39.0
Stock-based compensation expense	13.1		13.0
Write-off of deferred financing costs	—		3.4
Amortization of debt issuance costs	1.7		1.7
Gain on previously held equity interests from combination of business	(32.7)		—
Unrealized gain on equity securities measured at fair value	(83.0)		—

Change in deferred income taxes	5.0		(12.4)
Change in accounts receivable and long-term financing receivables, net	(31.8)		47.3
Change in other operating assets and liabilities	(165.4)		(48.8)
Net cash provided by operating activities	48.5		216.5
Cash flows from investing activities:
Cash paid for acquisitions, net of cash received	(186.6)		—
Payments for additions to property, plant and equipment	(26.5)		(21.7)
Proceeds from sale of asset	0.2		—
Cash paid for equity investments	(7.3)		(7.6)
Net cash used in investing activities	(220.2)		(29.3)
Cash flows from financing activities:
Proceeds from issuance of long-term debt	144.0		1,586.5
Repayment of long-term debt	(130.0)		(1,400.0)
Payment for debt issuance costs	—		(5.0)
Payment of common stock cash dividend	(8.0)		(4.2)
Purchase of treasury stock	(271.1)		—
Net borrowings (repayments) of short-term debt	5.0		(5.5)
Net transfers to Former Parent	—		(31.8)
Proceeds from stock option exercises	0.6		4.2
Acquisition of noncontrolling interest	—		(1.9)
Other financing activities	(3.3)		(4.1)
Net cash (used in) provided by financing activities	(262.8)		138.2
Effect of exchange rate changes on cash and cash equivalents	(10.7)		(2.5)
Net change in cash and cash equivalents	(445.2)		322.9
Beginning balance of cash and cash equivalents	572.6		380.5
Ending balance of cash and cash equivalents	$	127.4	$	703.4

See the accompanying Notes to the Consolidated Condensed Financial Statements.

VONTIER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(unaudited)

NOTE 1. BUSINESS OVERVIEW AND BASIS OF PRESENTATION

Nature of Business

Vontier Corporation (“Vontier,” the “Company,” “we,” “us,” or “our”) is a global industrial technology company that focuses on critical technical equipment, components, software and services for manufacturing, repair, and servicing in the mobility infrastructure industry worldwide. The Company supplies a wide range of mobility technologies and diagnostics and repair technologies solutions spanning advanced environmental sensors; fueling equipment; field payment hardware; point-of sale, workflow and monitoring software; vehicle tracking and fleet management; software solutions for traffic light control; and vehicle mechanics’ and technicians’ equipment. The Company markets its products and services to retail and commercial fueling operators, convenience store and in-bay car wash operators, tunnel car wash businesses, commercial vehicle repair businesses, municipal governments and public safety entities and fleet owners/operators on a global basis.

Vontier operates through one reportable segment comprised of two operating segments: (i) mobility technologies, which is a leading worldwide provider of solutions and services focused on fuel dispensing, remote fuel management, point-of-sale and payment systems, environmental compliance, workflow software and control solutions, vehicle tracking and fleet management (“telematics”) and traffic management (“smart city solutions”), and (ii) diagnostics and repair technologies, which manufactures and distributes vehicle repair tools, toolboxes and automotive diagnostic equipment and software and a full line of wheel-service equipment. Given the interrelationships of the products, technologies and customers and the resulting similar long-term economic characteristics, we meet the aggregation criteria and have combined our two operating segments into a single reportable segment.

Basis of Presentation and Unaudited Interim Financial Information

The accompanying Consolidated Condensed Financial Statements present our 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 the Company and its subsidiaries and affiliates in which the Company has a controlling financial interest or is the primary beneficiary. All intercompany accounts and transactions have been eliminated upon consolidation.

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 and Combined Financial Statements and related notes included in the Company’s 2021 Annual Report on Form 10-K.

The Consolidated Condensed Financial Statements also reflect the impact of noncontrolling interests. Noncontrolling interests do not have a significant impact on our consolidated results of operations, therefore net earnings and net earnings per share attributable to noncontrolling interests are not presented separately in our Consolidated Condensed Statements of Earnings and Comprehensive Income (Loss). Net earnings attributable to noncontrolling interests have been reflected in selling, general and administrative expenses (“SG&A”) and were insignificant in all periods presented.

Recently Issued Accounting Standards

In March 2020, the FASB issued Accounting Standards Update (“ASU”) No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting and in January 2021 issued ASU No. 2021-01, Reference Rate Reform (Topic 848): Scope. These ASUs provide temporary optional expedients and exceptions to existing guidance on contract modifications and hedge accounting to facilitate the market transition from existing reference rates, such as the London Interbank Offered Rate (“LIBOR”) which is being phased out beginning at the end of 2021, to alternate reference rates, such as the Secured Overnight Financing Rate. These standards were effective upon issuance and allowed application to contract changes as early as January 1, 2020. These provisions may impact the Company as contract modifications and other changes occur during the LIBOR transition period. The Company continues to evaluate the optional relief guidance provided

within these ASUs, has reviewed its debt securities and continues to evaluate commercial contracts that may utilize LIBOR as the reference rate. We will continue the assessment and monitor regulatory developments during the LIBOR transition period.

In March 2022, the FASB issued ASU No. 2022-02, Financial Instruments – Credit Losses (Topic 326) – Troubled Debt Restructurings and Vintage Disclosures, which requires enhanced disclosure of certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty while eliminating certain current recognition and measurement accounting guidance. This ASU also requires the disclosure of current-period gross write-offs by year of origination for financing receivables and net investments in leases. ASU No. 2022-02 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years; this ASU allows for early adoption in any interim period after issuance of the update. The Company is currently assessing the impact this ASU will have on its consolidated financial statements.

NOTE 2. ACQUISITIONS

DRB Systems, LLC

On September 13, 2021, the Company acquired all of the outstanding equity interests of DRB Systems, LLC (“DRB”), a leading provider of point of sale, workflow software and control solutions to the car wash industry, for $955.8 million in cash. This acquisition aligns with the Company’s portfolio diversification strategy and enables opportunities in new end markets. With this acquisition, the Company expects to grow its retail solutions portfolio.

The acquisition of DRB was accounted for as a business combination and, accordingly, the assets acquired and the liabilities assumed have been recorded at their respective fair values as of the acquisition date. The goodwill is attributable to the workforce of the acquired business, future market opportunities and the expected synergies with the Company’s existing operations. The majority of goodwill derived from this acquisition is expected to be deductible for tax purposes.

The purchase price allocation has not been finalized as the analysis of the assets and liabilities acquired has not been completed. The procedures to finalize may result in further adjustments to our purchase accounting that could result in additional measurement period adjustments, which could have a material effect on the consolidated financial statements. The accounting for the acquisition will be completed no later than one year from the acquisition date, in accordance with GAAP.

The Company’s estimate of the purchase price allocation is as follows:


($ in millions)	Preliminary Purchase Price Allocation		Measurement Period Adjustments		Adjusted Preliminary Purchase Price Allocation		Weighted Average Amortization Period
Accounts receivable	$	17.3	$	(3.1)	$	14.2
Inventories	21.0		—		21.0
Prepaid and other current assets	3.8		(0.1)		3.7
Technology	142.1		0.5		142.6		9.0
Customer relationships	227.0		—		227.0		11.0
Trade names	36.0		—		36.0		14.0
Goodwill	587.4		(8.6)		578.8
Other assets	14.9		0.1		15.0
Trade accounts payable	(5.8)		—		(5.8)
Accrued expenses and other current liabilities	(44.6)		2.0		(42.6)
Other long-term liabilities	(43.6)		9.5		(34.1)
Purchase price, net of cash acquired	$	955.5	$	0.3	$	955.8

To determine the fair value of the acquired intangible assets included above, management utilized significant unobservable inputs (Level 3 in the fair value hierarchy) and was required to make judgements and estimates about future results such as revenues, margin, net working capital and other valuation assumptions such as useful lives, royalty rates, attrition rates and discount rates. These assumptions are forward looking and could be affected by future economic and market conditions.

Driivz

On February 7, 2022, the Company acquired the remaining 81% of the outstanding shares of Driivz Ltd. (“Driivz”) for $152.6 million, net of cash received. Driivz, which is based in Israel, is a cloud-based subscription software platform supporting electric vehicle charging infrastructure (“EVCI”) providers with operations management, energy optimization, billing and roaming capabilities, as well as driver self-service apps. The acquisition of Driivz accelerates the Company’s portfolio diversification and e-mobility strategies and positions the Company to capitalize on the global EVCI market opportunities.

The acquisition of Driivz was accounted for as a business combination and, accordingly, the assets acquired and the liabilities assumed have been recorded at their respective fair values as of the acquisition date. The consideration paid was allocated as follows: (i) $90.0 million to definite-lived intangible assets consisting of developed technology, customer relationships and a trade name with a weighted average amortization period of approximately 9 years, (ii) $128.2 million to goodwill and (iii) $22.6 million to other net liabilities. The goodwill is attributable to the workforce of the acquired business, future market opportunities and the expected synergies with the Company’s existing operations. The majority of the goodwill derived from this acquisition is not expected to be deductible for tax purposes.

The carrying value of the Company’s approximately 19% interest in Driivz prior to the acquisition was $10.3 million, which historically was carried at cost. In connection with the acquisition, this investment was remeasured to a fair value of $43.0 million resulting in the recognition of an aggregate noncash gain of $32.7 million during the first quarter of 2022, which was included in Gain on previously held equity interests from combination of business in the Company’s Consolidated Condensed Statements of Earnings and Comprehensive Income (Loss). The preliminary fair value of the historical cost method investment was determined using a market approach. The key assumptions and estimates utilized in this approach included market data and market multiples as well as future levels of revenue growth and operating margins.

Acquisition-related costs related to Driivz are included in Selling, general and administrative expenses in the Consolidated Condensed Statement of Earnings and were $1.1 million.

The Company has not disclosed post-acquisition or pro-forma revenue and earnings attributable to Driivz as it did not have a material effect on the Company’s results.

The purchase price allocation has not been finalized for Driivz as the analysis of the assets acquired and liabilities assumed has not been completed. The procedures to finalize may result in further adjustments to our purchase accounting that could result in additional measurement period adjustments, which could have a material effect on the consolidated financial statements. The accounting for the acquisition will be completed no later than one year from the acquisition date, in accordance with GAAP.

To determine the preliminary fair value of the acquired intangible assets included above for Driivz, management utilized significant unobservable inputs (Level 3 in the fair value hierarchy). The assumptions used are forward looking and could be affected by future economic and market conditions.

NOTE 3. FINANCING AND TRADE RECEIVABLES

The Company’s financing receivables are comprised of commercial purchase security agreements with the Company’s end customers (“PSAs”) and commercial loans to the Company’s franchisees (“Franchisee Notes”). 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 to five 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 and is insignificant as of July 1, 2022 and December 31, 2021.

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 recorded in Accounts receivable less allowance for credit losses on the Consolidated Condensed Balance Sheets were as follows:


($ in millions)	July 1, 2022		December 31, 2021
Gross current financing receivables:
PSAs	$	96.2	$	98.4
Franchisee Notes	15.1		15.5
Current financing receivables, gross	$	111.3	$	113.9

Allowance for credit losses:
PSAs	$	15.2	$	16.9
Franchisee Notes	5.7		6.5
Total allowance for credit losses	20.9		23.4
Total current financing receivables, net	$	90.4	$	90.5

Net current financing receivables:
PSAs, net	$	81.0	$	81.5
Franchisee Notes, net	9.4		9.0
Total current financing receivables, net	$	90.4	$	90.5

The components of financing receivables with payments due beyond one year were as follows:


($ in millions)	July 1, 2022		December 31, 2021
Gross long-term financing receivables:
PSAs	$	222.5	$	219.7
Franchisee Notes	63.5		64.5
Long-term financing receivables, gross	$	286.0	$	284.2

Allowance for credit losses:
PSAs	$	35.7	$	37.2
Franchisee Notes	5.5		5.3
Total allowance for credit losses	41.2		42.5
Total long-term financing receivables, net	$	244.8	$	241.7

Net long-term financing receivables:
PSAs, net	$	186.8	$	182.5
Franchisee Notes, net	58.0		59.2
Total long-term financing receivables, net	$	244.8	$	241.7

Net deferred origination costs were insignificant as of July 1, 2022 and December 31, 2021. As of July 1, 2022 and December 31, 2021, we had a net unamortized discount on our financing receivables of $16.8 million and $16.7 million, respectively.

It is the Company’s general practice to not engage in contract or loan modifications of existing arrangements for troubled debt restructurings. In limited instances, the Company may modify certain impaired receivables with customers in bankruptcy or other legal proceedings, or in the event of significant natural disasters. Restructured financing receivables as of July 1, 2022 and December 31, 2021 were insignificant.

Credit score and distributor tenure are the primary indicators of credit quality for the Company’s financing receivables. Depending on the contract, payments for financing receivables are due on a monthly or weekly basis. Weekly payments are converted into a monthly equivalent for purposes of calculating delinquency. Delinquencies are assessed at the end of each month following the monthly equivalent due date and are considered delinquent once past due.

The amortized cost basis of PSAs and Franchisee Notes by origination year as of July 1, 2022, is as follows:


($ in millions)	2022		2021		2020		2019		2018		Prior		Total
PSAs
Credit Score:
Less than 400	$	9.6	$	11.9	$	5.8	$	3.3	$	1.1	$	0.4	$	32.1
400-599	14.7		16.9		9.9		4.9		2.0		0.8		49.2
600-799	30.5		35.4		18.7		9.4		3.7		1.2		98.9
800+	48.9		48.3		24.6		11.6		4.3		0.8		138.5
Total PSAs	$	103.7	$	112.5	$	59.0	$	29.2	$	11.1	$	3.2	$	318.7

Franchisee Notes
Active distributors	$	13.8	$	24.9	$	10.3	$	9.3	$	5.1	$	5.3	$	68.7
Separated distributors	—		0.7		0.8		2.8		1.3		4.3		9.9
Total Franchisee Notes	$	13.8	$	25.6	$	11.1	$	12.1	$	6.4	$	9.6	$	78.6

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:


($ in millions)	30-59 days past due		60-90 days past due		Greater than 90 days past due		Total past due		Total not considered past due		Total		Greater than 90 days past due and accruing interest
July 1, 2022	$	3.2	$	1.6	$	6.1	$	10.9	$	307.8	$	318.7	$	6.1
December 31, 2021	3.3		1.7		6.5		11.5		306.6		318.1		6.5

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 July 1, 2022 and December 31, 2021.

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 for one 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:


	July 1, 2022						December 31, 2021
($ in millions)	PSAs		Franchisee Notes		Total		PSAs		Franchisee Notes		Total
Allowance for credit losses, beginning of year	$	54.1	$	11.8	$	65.9	$	54.3	$	12.5	$	66.8
Provision for credit losses	12.3		2.3		14.6		24.9		4.2		29.1
Write-offs	(16.5)		(2.9)		(19.4)		(27.5)		(5.6)		(33.1)
Recoveries of amounts previously charged off	1.0		—		1.0		2.4		0.7		3.1
Allowance for credit losses, end of period	$	50.9	$	11.2	$	62.1	$	54.1	$	11.8	$	65.9

The ending balance as of July 1, 2022 of $62.1 million is included in the Consolidated Condensed Balance Sheets in Accounts receivable less allowance for credit losses and Long-term financing receivables less allowance for credit losses in the amounts of $20.9 million and $41.2 million, respectively. The ending balance as of December 31, 2021 of $65.9 million is included in the Consolidated Condensed Balance Sheets in Accounts receivable less allowance for credit losses and Long-term financing receivables less allowance for credit losses in the amounts of $23.4 million and $42.5 million, respectively.

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:


($ in millions)	July 1, 2022		December 31, 2021
Cost basis of trade accounts receivable	$	405.3	$	406.3

Allowance for credit losses balance, beginning of year	15.5		18.1
Provision for credit losses	1.9		7.7
Write-offs	(3.0)		(10.2)
Reclassification to held for sale	(0.3)		—
Foreign currency and other	(0.8)		(0.1)
Allowance for credit losses balance, end of period	13.3		15.5
Net trade accounts receivable balance	$	392.0	$	390.8

NOTE 4. GOODWILL

The following is a rollforward of our carrying value of goodwill:


($ in millions)
Balance, December 31, 2021	$	1,667.2
Measurement period adjustments for prior period acquisition	(5.8)
Addition to goodwill for current year acquisitions	150.2

Reclassification to held for sale	(56.0)
FX translation	(47.8)
Balance, July 1, 2022	$	1,707.8

Accumulated impairment charges were $85.3 million as of July 1, 2022 and December 31, 2021. No impairment charges were recorded during the six months ended July 1, 2022.

NOTE 5.

Vontier Corp [VNT] Filings
10-Q	[2022-08-05]
10-Q	[2022-05-06]
10-K	[2022-02-24]
10-Q	[2021-11-05]
10-Q	[2021-08-06]
10-Q	[2021-05-07]
10-K	[2021-02-25]
S-1	[2020-12-28]
10-Q	[2020-10-30]
S-1	[2020-02-14]