Vontier Corp [VNT] Filings

10-Q 1 vnt-20211001.htm 10-Q vnt-20211001

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: October 1, 2021


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 October 29, 2021 was 169,059,607.

VONTIER CORPORATION

INDEX

FORM 10-Q


		Page
PART I	FINANCIAL INFORMATION	4
Item 1.	Financial Statements (unaudited)	4
	Consolidated Condensed Balance Sheets as of October 1, 2021 and December 31, 2020	4
	Consolidated and Combined Condensed Statements of Earnings and Comprehensive Income for the Three and Nine Months Ended October 1, 2021 and September 25, 2020	5
	Consolidated and Combined Condensed Statements of Changes in Stockholders' Equity for the Three and Nine Months Ended October 1, 2021 and September 25, 2020	6
	Consolidated and Combined Condensed Statements of Cash Flows for the Nine Months Ended October 1, 2021 and September 25, 2020	8
	Notes to Consolidated and Combined Condensed Financial Statements	9
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	30
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	39
Item 4.	Controls and Procedures	39

PART II	OTHER INFORMATION	40
Item 1.	Legal Proceedings	40
Item 1A.	Risk Factors	40
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)


	October 1, 2021		December 31, 2020
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	458.9	$	380.5
Accounts receivable, less allowance for credit losses of $41.2 million and $40.5 million as of October 1, 2021 and December 31, 2020, respectively	473.8		447.1
Inventories:
Finished goods	101.7		90.3
Work in process	24.2		19.9
Raw materials	137.9		123.5
Total inventories	263.8		233.7
Prepaid expenses and other current assets	124.6		120.8
Total current assets	1,321.1		1,182.1
Property, plant and equipment, net of accumulated depreciation of $251.0 million and $240.4 million as of October 1, 2021 and December 31, 2020, respectively	100.0		96.8
Operating lease right-of-use assets	46.0		40.1
Long-term financing receivables, less allowance for credit losses of $42.3 million and $44.4 million as of October 1, 2021 and December 31, 2020, respectively	242.7		233.5
Other intangible assets, net	631.5		250.5
Goodwill	1,664.8		1,092.1
Other assets	165.5		177.9
Total assets	$	4,171.6	$	3,073.0
LIABILITIES AND EQUITY
Current liabilities:
Short-term borrowings	$	4.5	$	10.9
Trade accounts payable	390.5		367.4
Current operating lease liabilities	12.8		11.9
Accrued expenses and other current liabilities	464.5		448.1
Total current liabilities	872.3		838.3
Long-term operating lease liabilities	36.2		30.5
Long-term debt	2,583.1		1,795.3
Other long-term liabilities	205.4		217.2
Commitments and Contingencies
Equity:
Preferred stock, no par value -- 15,000,000 authorized shares; and none issued and outstanding	—		—
Common stock, $0.0001 par value -- 1,985,000,000 shares authorized at October 1, 2021 and December 31, 2020; 169,046,880 and 168,497,098 shares issued and outstanding at October 1, 2021 and December 31, 2020, respectively	—		—
Additional paid-in capital	22.6		7.6
Retained earnings (Accumulated deficit)	278.6		(13.6)
Accumulated other comprehensive income	169.4		193.8
Total Vontier stockholders’ equity	470.6		187.8
Noncontrolling interests	4.0		3.9
Total stockholders’ equity	474.6		191.7
Total liabilities and equity	$	4,171.6	$	3,073.0

See the accompanying Notes to the Consolidated and Combined Condensed Financial Statements.

VONTIER CORPORATION AND SUBSIDIARIES

CONSOLIDATED AND COMBINED CONDENSED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME

(in millions, except per share amounts)

(unaudited)


	Three Months Ended				Nine Months Ended
	October 1, 2021		September 25, 2020		October 1, 2021		September 25, 2020
Sales of products	$	699.7	$	686.0	$	2,005.1	$	1,713.9
Sales of services	68.8		60.7		195.4		175.7
Total sales	768.5		746.7		2,200.5		1,889.6
Cost of product sales	(371.8)		(367.0)		(1,067.3)		(926.0)
Cost of service sales	(50.3)		(48.4)		(156.5)		(138.2)
Total cost of sales	(422.1)		(415.4)		(1,223.8)		(1,064.2)
Gross profit	346.4		331.3		976.7		825.4
Operating costs:
Selling, general and administrative expenses	(147.8)		(121.1)		(458.1)		(356.0)
Research and development expenses	(31.2)		(31.6)		(97.3)		(93.7)
Impairment of goodwill	—		—		—		(85.3)
Operating profit	167.4		178.6		421.3		290.4
Non-operating expense, net:
Interest expense, net	(12.0)		(0.2)		(34.4)		(0.8)
Write-off of deferred financing costs	—		—		(3.4)		—
Gain on settlement of investment	3.2		—		3.2		—
Other non-operating expense, net	(0.2)		(0.1)		(0.3)		(0.4)
Earnings before income taxes	158.4		178.3		386.4		289.2
Provision for income taxes	(31.1)		(37.3)		(85.8)		(84.0)
Net earnings	$	127.3	$	141.0	$	300.6	$	205.2

Net earnings per share:
Basic	$	0.75	$	0.84	$	1.78	$	1.22
Diluted	$	0.75	$	0.84	$	1.77	$	1.22
Average common stock and common equivalent shares outstanding:
Basic	169.1		168.4		168.9		168.4
Diluted	170.3		168.4		170.0		168.4

Other comprehensive income (loss), net of income taxes:
Net earnings	$	127.3	$	141.0	$	300.6	$	205.2
Foreign currency translation adjustments	(7.0)		14.3		(24.7)		(13.3)
Other adjustments	0.2		0.1		0.3		1.9
Total other comprehensive income (loss), net of income taxes	(6.8)		14.4		(24.4)		(11.4)
Comprehensive income	$	120.5	$	155.4	$	276.2	$	193.8

See the accompanying Notes to the Consolidated and Combined Condensed Financial Statements.

VONTIER CORPORATION AND SUBSIDIARIES

CONSOLIDATED AND COMBINED 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		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
Net earnings	—	—		—		127.3		—		—		127.3
Dividends on common stock ($0.025 per share)	—	—		—		(4.2)		—		—		(4.2)
Other comprehensive loss, net of income taxes	—	—		—		—		(6.8)		—		(6.8)
Stock-based compensation expense	—	—		6.3		—		—		—		6.3
Exercise of common stock options and stock award distributions, net of shares for tax withholding	0.1	—		2.5		—		—		—		2.5

Change in noncontrolling interests	—	—		—		—		—		0.2		0.2
Balance, October 1, 2021	169.0	$	—	$	22.6	$	278.6	$	169.4	$	4.0	$	474.6

See the accompanying Notes to the Consolidated and Combined Condensed Financial Statements.

VONTIER CORPORATION AND SUBSIDIARIES

CONSOLIDATED AND COMBINED CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

($ and shares in millions)

(unaudited)


	Common Stock			Additional Paid-In Capital		Retained Earnings (Accumulated Deficit)		Former Parent’s Investment		Accumulated Other Comprehensive Income		Noncontrolling Interests		Total
	Shares	Amount
Balance, December 31, 2019	—	$	—	$	—	$	—	$	1,662.5	$	148.7	$	4.9	$	1,816.1
Adoption of accounting standard	—	—		—		—		(16.9)		—		—		(16.9)
Balance, January 1, 2020	—	$	—	$	—	$	—	$	1,645.6	$	148.7	$	4.9	$	1,799.2
Net loss	—	—		—		—		(4.2)		—		—		(4.2)
Other comprehensive loss, net of income taxes	—	—		—		—		—		(44.5)		—		(44.5)
Stock-based compensation expense	—	—		—		—		3.6		—		—		3.6
Net transfers to Former Parent	—	—		—		—		(13.1)		—		—		(13.1)
Non-cash settlement of net related-party borrowings	—	—		—		—		(1.0)		—		—		(1.0)
Change in noncontrolling interests	—	—		—		—		—		—		(1.1)		(1.1)
Balance, March 27, 2020	—	$	—	$	—	$	—	$	1,630.9	$	104.2	$	3.8	$	1,738.9
Net earnings	—	—		—		—		68.4		—		—		68.4
Other comprehensive income, net of income taxes	—	—		—		—		—		18.7		—		18.7
Stock-based compensation expense	—	—		—		—		6.0		—		—		6.0
Net transfers to Former Parent	—	—		—		—		(170.1)		—		—		(170.1)
Non-cash settlement of net related-party borrowings	—	—		—		—		0.2		—		—		0.2
Change in noncontrolling interests	—	—		—		—		—		—		0.5		0.5
Balance, June 26, 2020	—	$	—	$	—	$	—	$	1,535.4	$	122.9	$	4.3	$	1,662.6
Net earnings	—	—		—		—		141.0		—		—		141.0
Net transfers to Former Parent	—	—		—		—		(236.7)		—		—		(236.7)
Other comprehensive income, net of income taxes	—	—		—		—		—		14.4		—		14.4
Stock-based compensation expense	—	—		—		—		6.1		—		—		6.1

Balance, September 25, 2020	—	$	—	$	—	$	—	$	1,445.8	$	137.3	$	4.3	$	1,587.4

See the accompanying Notes to the Consolidated and Combined Condensed Financial Statements.

VONTIER CORPORATION AND SUBSIDIARIES

CONSOLIDATED AND COMBINED CONDENSED STATEMENTS OF CASH FLOWS

($ in millions)

(unaudited)


	Nine Months Ended
	October 1, 2021		September 25, 2020
Cash flows from operating activities:
Net earnings	$	300.6	$	205.2
Non-cash items:
Depreciation and amortization expense	59.0		59.6
Stock-based compensation expense	19.3		15.7
Impairment of goodwill	—		85.3
Write-off of deferred financing costs	3.4		—
Amortization of debt issuance costs	2.6		—
Gain on settlement of investment	(3.2)		—
Amortization of acquisition-related inventory fair value step-up	1.6		—
Change in deferred income taxes	(27.4)		(8.6)
Change in accounts receivable and long-term financing receivables, net	(25.0)		53.2
Change in other operating assets and liabilities	11.0		70.2
Net cash provided by operating activities	341.9		480.6
Cash flows from investing activities:
Cash paid for acquisitions, net of cash received	(955.5)		—
Payments for additions to property, plant and equipment	(32.9)		(27.3)
Proceeds from sale of property	—		0.5
Cash paid for equity investments	(7.6)		(9.5)
Cash received for settlement of investment	7.0		—
Net cash used in investing activities	(989.0)		(36.3)
Cash flows from financing activities:
Proceeds from issuance of long-term debt	2,186.5		—
Repayment of long-term debt	(1,400.0)		—
Payment for debt issuance costs	(5.1)		—
Payment of common stock cash dividend	(8.4)		—
Net repayments of related-party borrowings	—		(23.4)
Net repayments of short-term borrowings	(6.2)		(3.5)
Net transfers to Former Parent	(35.6)		(419.9)
Proceeds from stock option exercises	6.8		—
Acquisition of noncontrolling interest	(1.9)		—
Other financing activities	(4.8)		(0.7)
Net cash provided by (used in) financing activities	731.3		(447.5)
Effect of exchange rate changes on cash and cash equivalents	(5.8)		3.2
Net change in cash and cash equivalents	78.4		—
Beginning balance of cash and cash equivalents	380.5		—
Ending balance of cash and cash equivalents	$	458.9	$	—

See the accompanying Notes to the Consolidated and Combined Condensed Financial Statements.

VONTIER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED AND COMBINED 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. Historically, these businesses had operated as part of Fortive Corporation’s Industrial Technologies reportable segment (the “Vontier Businesses”).

Separation from Fortive Corporation

On October 9, 2020, Fortive Corporation (“Fortive” or “Former Parent”) completed the separation of Fortive’s Industrial Technologies businesses through a pro rata distribution of 80.1% of the outstanding common stock of Vontier to Fortive’s stockholders (the “Separation”). In January 2021, Fortive sold a total of 33.5 million shares of the Company’s common stock as part of a secondary offering. After the secondary offering, Fortive no longer owned any of the Company’s outstanding common stock.

Basis of Presentation

The accompanying Consolidated and Combined 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”). The combined financial statements for periods prior to the Separation were derived from Fortive’s consolidated financial statements and accounting records and prepared in accordance with GAAP for the preparation of carved-out combined financial statements. Through the date of the Separation, all revenues and costs as well as assets and liabilities directly associated with Vontier have been included in the combined condensed financial statements. Prior to the Separation, the combined condensed financial statements also included allocations of certain general, administrative, sales and marketing expenses from Fortive’s corporate office and from other Fortive businesses to the Company and allocations of related assets, liabilities, and the Former Parent’s investment, as applicable. The allocations were determined on a reasonable basis; however, the amounts are not necessarily representative of the amounts that would have been reflected in the financial statements had the Company been an entity that operated independently of Fortive during the applicable periods. Related-party allocations prior to the Separation, including the method for such allocation, are discussed further in Note 12. Related-Party Transactions.

Following the Separation, the consolidated condensed financial statements include the accounts of Vontier and those of our wholly-owned subsidiaries and no longer include any allocations from Fortive. Accordingly:

•The Consolidated Condensed Balance Sheets as of October 1, 2021 and December 31, 2020 consist of our balances.

•The Consolidated Condensed Statement of Earnings and Comprehensive Income and Consolidated Condensed Statement of Changes in Equity for the three and nine months ended October 1, 2021 as well as the Consolidated Condensed Statement of Cash Flows for the nine months ended October 1, 2021 consist of our consolidated results. The Combined Condensed Statement of Earnings and Comprehensive Income and Combined Condensed Statement of Changes in Equity for the three and nine months ended September 25, 2020 as well as the Combined Condensed

Statement of Cash Flows for the nine months ended September 25, 2020 consist of the combined results of the Vontier Businesses.

Our Consolidated and Combined Condensed Financial Statements may not be indicative of our results had we been a separate stand-alone entity throughout the periods presented, nor are the results stated herein indicative of what our financial position, results of operations and cash flows may be in the future.

All significant transactions between the Company and Fortive have been included in the accompanying Consolidated and Combined Condensed Financial Statements for all periods presented. Cash transactions with Fortive prior to the Separation are reflected in the accompanying Consolidated and Combined Condensed Statements of Changes in Stockholders’ Equity as “Net transfers to Former Parent.” Former Parent’s investment, which included Retained earnings (Accumulated deficit) prior to the Separation, represents Fortive’s interest in our recorded net assets prior to the Separation. In addition, the accumulated net effect of intercompany transactions between us and Fortive or Fortive affiliates for periods prior to the Separation are included in Former Parent’s investment.

The Consolidated and Combined Condensed Financial Statements include our accounts and the accounts of our subsidiaries. All intercompany balances and transactions have been eliminated upon consolidation. The Consolidated and Combined Condensed Financial Statements also reflect the impact of noncontrolling interests. Noncontrolling interests do not have a significant impact on our consolidated and combined results of operations, therefore net earnings and net earnings per share attributable to noncontrolling interests are not presented separately in our Consolidated and Combined 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.

Unaudited Interim Financial Information

The interim Consolidated and Combined Condensed Financial Statements include the accounts of the Company. These Consolidated and Combined Condensed Financial Statements are prepared in conformity with GAAP, and are unaudited. 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 and Combined 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 2020 Annual Report on Form 10-K.

Recently Issued Accounting Standards

In March 2020, the FASB issued 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 LIBOR which is being phased out beginning at the end of 2021, to alternate reference rates, such as the Secured Overnight Financing Rate (“SOFR”). 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.

Recently Adopted Accounting Standards

In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This ASU provides a single comprehensive accounting model on revenue recognition for contracts with customers and requires that the acquirer in a business combination recognize and measure contract assets and liabilities acquired in a business combination in accordance with Topic 606 (Revenue from Contracts with Customers). The amendments in this ASU are effective for fiscal years beginning after December 15, 2022. Early adoption is permitted, including adoption in an interim period. With early adoption, the amendments are applied retrospectively to all business combinations for which the acquisition date occurs on of after the beginning of the fiscal year that includes the interim period of adoption and prospectively to all business combinations that occur on or after the date of initial application. The Company adopted the ASU for the current interim period and its adoption impacted the accounting and recognition of the contract liabilities associated with the Company’s acquisition of DRB Systems, LLC.

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 $955.5 million in cash, which is subject to post-closing working capital and other adjustments. 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 Company incurred $3.1 million in acquisition related costs which are included in Selling, general and administrative expenses in the Consolidated Condensed Statement of Earnings. The majority of goodwill derived from this acquisition is expected to be deductible for tax purposes.

Due to the timing of the acquisition, the valuation of the net assets acquired has not been finalized and is expected to be completed no later than one year from the acquisition date in accordance with GAAP and as a result, adjustments could have a material effect on the consolidated financial statements.

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


($ in millions)	Preliminary Purchase Price Allocation		Weighted Average Amortization Period
Accounts receivable	$	17.3
Inventories	21.0
Prepaid and other current assets	3.8
Technology	142.1		9.0
Customer relationships	227.0		11.0
Trade names	36.0		14.0
Goodwill	587.4
Other assets	14.9
Trade accounts payable	(5.8)
Accrued expenses and other current liabilities	(44.6)
Other long-term liabilities	(43.6)
Purchase price, net of cash acquired	$	955.5

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 revenues, expenses and other valuation assumptions such as royalty, attrition and discount rates. These assumptions are forward looking and could be affected by future economic and market conditions.

The results of DRB are included in the consolidated condensed financial statements of the Company from the date of the acquisition and during this period DRB’s revenues and loss before income taxes was $10.9 million and $0.5 million, respectively. The loss before income taxes includes the amortization of intangible assets and acquisition-related fair value adjustments.

Pro Forma Financial Information

The following unaudited pro forma presents consolidated information of Vontier as if the acquisition of DRB had occurred on January 1, 2020.


	Three Months Ended				Nine Months Ended
($ in millions)	October 1, 2021		September 25, 2020		October 1, 2021		September 25, 2020
Sales	$	804.9	$	779.4	$	2,318.5	$	1,974.1
Net earnings	129.1		138.8		300.4		188.4

These pro forma amounts have been calculated after applying the Company’s accounting policies and adjusting the results of the Company and DRB to reflect the amortization and interest expense that would have been charged assuming the fair value adjustments to inventory and intangible assets and the financing of the acquisition, respectively, had been applied at the beginning of the 2020 fiscal year, together with the tax effects. The pro forma financial information is presented for information purposes only and is not indicative of the results of the operations that actually would have been achieved had the acquisition been consummated as of that time.

NOTE 3. FINANCING 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 October 1, 2021 and December 31, 2020.

Product sales to franchisees and the related financing income is included in Cash flows from operating activities in the accompanying Consolidated and Combined 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)	October 1, 2021		December 31, 2020
Gross current financing receivables:
PSAs	$	98.0	$	98.9
Franchisee Notes	15.1		15.5
Current financing receivables, gross	$	113.1	$	114.4

Allowance for credit losses:
PSAs	$	18.5	$	15.8
Franchisee Notes	6.3		6.6
Total allowance for credit losses	24.8		22.4
Total current financing receivables, net	$	88.3	$	92.0

Net current financing receivables:
PSAs, net	$	79.5	$	83.1
Franchisee Notes, net	8.8		8.9
Total current financing receivables, net	$	88.3	$	92.0

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


($ in millions)	October 1, 2021		December 31, 2020
Gross long-term financing receivables:
PSAs	$	221.6	$	219.3
Franchisee Notes	63.4		58.6
Long-term financing receivables, gross	$	285.0	$	277.9

Allowance for credit losses:
PSAs	$	37.0	$	38.5
Franchisee Notes	5.3		5.9
Total allowance for credit losses	42.3		44.4
Total long-term financing receivables, net	$	242.7	$	233.5

Net long-term financing receivables:
PSAs, net	$	184.6	$	180.8
Franchisee Notes, net	58.1		52.7
Total long-term financing receivables, net	$	242.7	$	233.5

Net deferred origination costs were insignificant as of October 1, 2021 and December 31, 2020. As of October 1, 2021 and December 31, 2020, we had a net unamortized discount on our financing receivables of $17.2 million and $18.4 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 October 1, 2021 and December 31, 2020 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 October 1, 2021, is as follows:


($ in millions)	2021		2020		2019		2018		2017		Prior		Total
PSAs
Credit Score:
Less than 400	$	15.3	$	10.0	$	5.8	$	2.6	$	0.9	$	0.2	$	34.8
400-599	19.8		15.6		8.4		4.2		1.3		0.5		49.8
600-799	41.9		29.8		16.2		7.9		2.5		0.9		99.2
800+	61.7		40.4		20.7		9.8		2.6		0.6		135.8
Total PSAs	$	138.7	$	95.8	$	51.1	$	24.5	$	7.3	$	2.2	$	319.6

Franchisee Notes
Active distributors	$	22.5	$	17.8	$	13.4	$	6.8	$	3.8	$	3.9	$	68.2
Separated distributors	0.2		1.0		1.7		1.7		1.7		4.0		10.3
Total Franchisee Notes	$	22.7	$	18.8	$	15.1	$	8.5	$	5.5	$	7.9	$	78.5

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
October 1, 2021	$	3.1	$	1.5	$	6.2	$	10.8	$	308.8	$	319.6	$	6.2
December 31, 2020	3.5		1.8		7.2		12.5		305.7		318.2		7.2

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 October 1, 2021 and December 31, 2020.

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:


	October 1, 2021						December 31, 2020
($ in millions)	PSAs		Franchisee Notes		Total		PSAs		Franchisee Notes		Total
Allowance for credit losses, beginning of year	$	54.3	$	12.5	$	66.8	$	29.4	$	11.9	$	41.3
Transition adjustment	—		—		—		17.5		1.0		18.5
Provision for credit losses	20.4		2.9		23.3		29.3		5.9		35.2
Write-offs	(21.1)		(4.4)		(25.5)		(32.5)		(6.5)		(39.0)
Recoveries of amounts previously charged off	1.9		0.6		2.5		2.7

Vontier Corp [VNT] Filings
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]