On December 22, 2017, the U.S. enacted comprehensive tax reform commonly referred to as the Tax Cuts and Jobs Act (the “TCJA”). The TCJA represents a significant overhaul to the U.S. federal tax code. The TCJA impacts, among other things, U.S. corporate tax rates, business-related exclusions, deductions, and credits. During 2018, the U.S. Treasury Department issued significant initial guidance. We have completed the accounting for all of the impacts of the TCJA based upon the proposed regulations and guidance already provided by federal authorities as of December 31, 2018.

The U.S. Government is still issuing significant amounts of TCJA guidance that we expect to continue into the foreseeable future. On January 15, 2019, Treasury and the Internal Revenue Service issued final Treasury Regulations under Section 965 of the Internal Revenue Code involving the one-time transition tax on international earnings. These final Treasury Regulations are retroactive to the enactment of Section 965 of the TCJA on December 22, 2017. Any future adjustments resulting from guidance issued after December 31, 2018 will be considered as discrete income tax expense or benefit in the interim period the guidance is issued.

In connection with the Separation, we entered into the Agreements with Danaher, including a tax matters agreement. The tax matters agreement distinguishes between the treatment of tax matters for “joint” filings compared to “separate” filings prior to the separation. “joint” filings involve legal entities, such as those in the United States, that include operations from both Danaher and the Company. By contrast, “separate” filings involve certain entities (primarily outside of the United States), that exclusively include either Danaher’s or the Company’s operations, respectively. In accordance with the tax matters agreement, the Company is liable for and has indemnified Danaher against all income tax liabilities involving “separate” filings for periods prior to the separation.



	Percentage of Pretax Earnings
	2018		2017		2016
Statutory federal income tax rate	21.0	%	35.0	%	35.0	%
Increase (decrease) in tax rate resulting from:
State income taxes (net of federal income tax benefit)	1.0	%	0.7	%	1.7	%
Foreign income taxed at different rates than U.S. statutory rate	0.8	%	(5.3	)%	(5.4	)%
Separation related adjustments for final resolution of uncertain tax positions	—	%	—	%	(2.3	)%
U.S. federal permanent differences related to the TCJA	(4.8	)%	(2.9	)%	(2.6	)%
Compensation related	(1.5	)%	(1.7	)%	—	%
Other	(0.5	)%	(1.6	)%	0.3	%
Effective income tax rate before adjustments related to the 2017 TCJA provisional estimates	16.0	%	24.2	%	26.7	%

Deferred tax revaluation	(1.3	)%	(19.2	)%	—	%
Transition tax	0.1	%	12.6	%	—	%
Total adjustments related to the 2017 TCJA provisional estimates	(1.2	)%	(6.6	)%	—	%

Effective income tax rate after adjustments related to the 2017 TCJA provisional estimates	14.8	%	17.6	%	26.7	%

Pursuant to SAB 118, the Company recorded cumulatively $83 million of net favorable adjustments, which is made up of net favorable adjustments of $13 million and $70 million recorded during the years ended December 31, 2018 and 2017, respectively. The 2018 effective tax rate included the true-up to the 2017 provisional estimates as a discrete adjustment. The 2017 provisional estimates for the one-time TCJA Transition Tax resulted in additional tax expense of $1 million and $135 million during the years ended December 31, 2018 and 2017, respectively. The provisional estimated tax benefit for the deferred tax revaluation resulted in additional tax benefit of $14 million and $205 million during the years ended December 31, 2018 and 2017, respectively.

Our effective tax rate for 2018 differs from the U.S. federal statutory rate of 21% due primarily to the effect of the TCJA U.S. federal permanent differences, the impact of credits and deductions provided by law, earnings outside the United States that are indefinitely reinvested and taxed at rates lower than the U.S. federal statutory rate, and the effect of adjustments to the provisional estimates recorded in 2017 related to the TCJA as permitted under SAB 118.

Our estimated effective tax rate for 2017, including provisional estimates of the TCJA, differs from the U.S. federal statutory rate of 35.0% due primarily to net favorable impacts associated with the TCJA, our earnings outside the United States that are indefinitely reinvested and taxed at rates lower than the U.S. federal statutory rate, the impact of credits and deductions provided by law, state tax impacts, and favorable adjustments related to differences between estimates included in the 2016 provision and amounts calculated on the 2016 U.S. income tax return filed in October 2017.

Our effective tax rate for 2016 differs from the U.S. federal statutory rate of 35.0% due primarily to our earnings outside the United States that are indefinitely reinvested and taxed at rates lower than the U.S. federal statutory rate, and the impact of credits and deductions provided by law. The effective tax rate for 2016 includes benefits from the release of reserves resulting from expirations of statutes of limitations, primarily from periods prior to the Separation.

We conduct business globally, and, as part of our global business, we file numerous income tax returns in the U.S. federal, state and foreign jurisdictions. After the TCJA, our ability to obtain a tax benefit in certain countries that continue to have lower statutory tax rates than the United States is dependent on our levels of taxable income in such foreign countries. We believe that a change in the statutory tax rate of any individual foreign country would not have a material effect on our financial statements given the geographic dispersion of our taxable income.

We are routinely examined by various domestic and international taxing authorities. The amount of income taxes we pay is subject to audit by federal, state and foreign tax authorities, which may result in proposed assessments. The Company is subject to examination in the United States, various states and foreign jurisdiction for the tax years 2010 to 2018. We review our global



	2018			2017
Deferred Tax Assets:
Allowance for doubtful accounts	$	17.4		$	22.0
Inventories	17.9			25.7
Pension benefits	27.3			37.1
Environmental and regulatory compliance	10.1			16.6
Other accruals and prepayments	50.5			31.2
Deferred service income	7.1			14.5
Warranty services	19.7			27.5
Stock compensation expense	14.2			20.9
Tax credit and loss carryforwards	131.4			67.8
Valuation allowances	(40.3		)	(26.2		)
Total deferred tax assets	255.3			237.1
Deferred Tax Liabilities:
Property, plant and equipment	(11.7		)	(73.2		)
Insurance, including self-insurance	(155.2		)	(140.0		)
Goodwill and other intangibles	(597.1		)	(526.4		)
Other	(14.7		)	(11.2		)
Total deferred tax liabilities	(778.7		)	(750.8		)
Provisional estimate of the deferred tax asset revaluation	—			(51.4		)
Provisional estimate of the deferred tax liability revaluation	—			247.6
Net deferred tax liability	$	(523.4	)	$	(317.5	)

Our deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not (a likelihood of more than 50 percent) that some portion or all of the deferred tax assets will not be realized. We evaluate the realizability of deferred income tax assets for each of the jurisdictions in which we operate. If we experience cumulative pretax income in a particular jurisdiction in the three-year period including the current and prior two years, we normally conclude that the deferred income tax assets will more likely than not be realizable and no valuation allowance is recognized, unless known or planned operating developments would lead management to conclude otherwise. However, if we experience cumulative pretax losses in a particular jurisdiction in the three-year period including the current and prior two years, we then consider a series of factors in the determination of whether the deferred income tax assets can be realized. These factors include historical operating results, known or planned operating developments, the period of time over which certain temporary differences will reverse, consideration of the utilization of certain deferred income tax liabilities, tax law carryback capability in the particular country, and prudent and feasible tax planning strategies. After evaluation of these factors, if the deferred income tax assets are expected to be realized within the tax carryforward period allowed for that specific country, we would conclude that no valuation allowance would be required. To the extent that the deferred income tax assets exceed the amount that is expected to be realized within the tax carryforward period for a particular jurisdiction, we establish a valuation allowance.

Deferred taxes associated with U.S. entities consist of net deferred tax liabilities of approximately $559 million and $340 million inclusive of valuation allowances of $13 million and $12 million as of December 31, 2018 and December 31, 2017, respectively. Deferred taxes associated with non-U.S. entities consist of net deferred tax assets of $36 million and $22 million inclusive of valuation allowances of $27 million and $14 million as of December 31, 2018 and December 31, 2017, respectively. Our valuation allowance increased by $14 million and by $1 million during the year ended December 31, 2018 and 2017, respectively, due primarily to foreign net operating losses.

As of December 31, 2018, our U.S. and non-U.S. net operating loss carryforwards totaled $668 million, of which $281 million is related to federal net operating loss carryforwards, $203 million is related to state net operating loss carryforwards, and $184 million is related to non-U.S. net operating loss carryforwards. Included in deferred tax assets as of December 31, 2018 are tax benefits for U.S. and non-U.S. net operating loss carryforwards totaling $112 million, before applicable valuation allowances of $26 million. Certain of these losses can be carried forward indefinitely and others can be carried forward to various dates from 2019 through 2037. Recognition of some of these loss carryforwards is subject to an annual limit, which may cause them to expire before they are used.

As of December 31, 2018, our U.S. and non-U.S. tax credit carryforwards totaled $19 million, which is primarily related to U.S. tax credit carryforwards. Certain of these credits can be carried forward indefinitely and other can be carried forward to various dates from 2019 through 2037. As of December 31, 2018, we maintain a $12 million valuation allowance related to certain tax credit carryforwards from the Separation.

As of December 31, 2018, gross unrecognized tax benefits for continuing and discontinued operations were $133 million ($144 million total, including $16 million associated with interest and penalties, and net of the impact of $5 million of indirect tax benefits). As of December 31, 2017, gross unrecognized tax benefits for continuing and discontinued operations were $59 million ($69 million total, including $14 million associated with interest and penalties, and net of the impact of $4 million of indirect tax benefits). We recognized approximately $4 million in potential interest and penalties associated with uncertain tax positions during 2018, and this amount was not significant during 2017 and 2016. To the extent taxes are not assessed with respect to uncertain tax positions, substantially all amounts accrued (including interest and penalties and net of indirect offsets) will be reduced and reflected as a reduction of the overall income tax provision. Unrecognized tax benefits and associated accrued interest and penalties are included in our income tax provision.



	2018			2017			2016
Unrecognized tax benefits, beginning of year	$	59.0		$	28.6		$	169.9
Additions based on tax positions related to the current year	40.8			25.3			6.0
Additions for tax positions of prior years	39.0			7.8			0.4
Reductions for tax positions of prior years	(3.8		)	(1.9		)	(1.2		)
Lapse of statute of limitations	(3.5		)	(3.3		)	(1.3		)
Settlements	(6.4		)	(0.6		)	(0.6		)
Effect of foreign currency translation	(0.9		)	1.9			(0.4		)
Separation related adjustments ^(a)	9.2			1.2			(144.2		)
Unrecognized tax benefits, end of year	$	133.4		$	59.0		$	28.6

^(a) Unrecognized tax benefits were reduced by $144 million in 2016 related to positions taken prior to the Separation for which Danaher, as the Former Parent, is the primary obligor and is responsible for settlement and payment of the tax expenses. In 2018 and 2017, reserves increased by an additional $9 million and $1 million, respectively, due primarily to unrecognized tax benefits from pre-spin periods.

The TCJA eliminated the U.S. tax cost for qualified repatriation beginning in 2018. Foreign cumulative earnings remain subject to foreign remittance taxes. As a result of the TCJA, during 2018, we repatriated an estimated $275 million subject to no foreign remittance taxes. This excludes foreign earnings: 1) required as working capital for local operating needs, 2) subject to local law restrictions, 3) subject to high foreign remittance tax costs, 4) previously invested in physical assets or acquisitions, or 5) intended for future acquisitions/growth. For most of our foreign operations, we make an assertion regarding the amount of earnings in excess of intended repatriation that are expected to be held for indefinite reinvestment. No provisions for foreign

remittance taxes have been made with respect to earnings that are planned to be reinvested indefinitely. The amount of foreign remittance taxes that may be applicable to such earnings is not readily determinable given local law restrictions that may apply to a portion of such earnings, unknown changes in foreign tax law that may occur during the applicable restriction periods caused by applicable local corporate law for cash repatriation, and the various tax planning alternatives we could employ if we repatriated these earnings.