Prior to the Split-Off, the Company’s operating results were included in Danaher’s various consolidated U.S. federal and certain state income tax returns, as well as certain non-U.S. returns. For periods prior to the Split-Off, the Company’s Consolidated and Combined Financial Statements reflect income tax expense and deferred tax balances as if the Company had filed tax returns on a standalone basis separate from Danaher. The separate return method applies the accounting guidance for income taxes to the standalone financial statements as if the Company was a separate taxpayer and a standalone enterprise for periods prior to the Split-Off.



	2019			2018			2017
Current:
Federal U.S.	$	20.0		$	34.9		$	102.7
Non-U.S.	41.3			26.0			28.7
State and local	5.5			7.8			12.4
Deferred:
Federal U.S.	0.2			4.9			(70.9		)
Non-U.S.	(9.2		)	(4.3		)	12.5
State and local	0.1			1.1			0.2
Income tax provision	$	57.9		$	70.4		$	85.6

Deferred tax assets and deferred tax liabilities are classified as long-term and are included in other long-term assets and other long-term liabilities, respectively, in the accompanying Consolidated and Combined Balance Sheets. Significant components of deferred tax assets and liabilities as of December 31 were as follows ($ in millions):



	2019			2018
Deferred tax assets:
Inventories	$	17.9		$	15.2
Pension benefits	19.2			15.5
Other accruals and prepayments	46.0			44.6
Lease liabilities	51.1			—
Stock-based compensation expense	3.0			5.4
Tax credit and loss carryforwards	152.0			141.3
Valuation allowances	(119.1		)	(91.2		)
Total deferred tax asset	170.1			130.8
Deferred tax liabilities:
Property, plant and equipment	(8.3		)	(6.3		)
Right-of-use assets	(48.2		)	—
Goodwill and other intangible assets	(339.0		)	(326.2		)
Total deferred tax liability	(395.5		)	(332.5		)
Net deferred tax liability	$	(225.4	)	$	(201.7	)

Deferred taxes associated with U.S. entities consist of net deferred tax liabilities of $148 million and $149 million as of December 31, 2019 and 2018, respectively. Deferred taxes associated with non-U.S. entities consist of net deferred tax liabilities of $77 million and $53 million as of December 31, 2019 and 2018, respectively. As of December 31, 2019, the total amount of the basis difference in investments outside the United States for which deferred taxes have not been provided is $220 million. As of December 31, 2019, the Company had no plans which would subject these basis differences to income taxes in the United States or elsewhere.

The TCJA enacted on December 22, 2017 introduced significant changes to U.S. income tax law. Effective 2018, the TCJA reduced the U.S. statutory tax rate from 35% to 21% and created new taxes on certain foreign-sourced earnings and certain related-party payments.

Due to the timing of the enactment and the complexity involved in applying the provisions of the TCJA, the Company made reasonable estimates of the effects and recorded provisional amounts in its Consolidated and Combined Financial Statements as of December 31, 2017. As the Company collected and prepared necessary data, and interpreted the additional guidance issued by the U.S. Treasury Department, the IRS, and other standard-setting bodies, the Company made adjustments, over the course of 2018, to the provisional amounts including refinements to deferred taxes. The accounting for the tax effects of the TCJA was completed as of December 31, 2018.

The TCJA required the Company to pay U.S. income taxes on accumulated foreign subsidiary earnings not previously subject to U.S. income tax at a rate of 15.5% to the extent of foreign cash and certain other net current assets and 8% on the remaining earnings. The Company recorded a provisional amount for its transitional tax liability and income tax expense of $36 million as of December 31, 2017. Subsequent adjustments in 2018 and 2019 were not material.

Due to the change in the statutory tax rate from the TCJA, the Company remeasured its deferred taxes as of December 31, 2017 to reflect the reduced rate that will apply in future periods when these deferred taxes are settled or realized. The Company recognized a deferred tax benefit of $73 million to reflect the reduced U.S. tax rate and other effects of the TCJA as of December 31, 2017.

The TCJA imposes tax on U.S. stockholders for global intangible low-taxed income (“GILTI”) earned by certain foreign subsidiaries. The Company is required to make an accounting policy election of either: (1) treating taxes due on future amounts included in U.S. taxable income related to GILTI as a current period tax expense when incurred (the “period cost method”); or (2) factoring such amounts into the Company’s measurement of its deferred tax expense (the “deferred method”). In 2018, the Company elected the period cost method for its accounting for GILTI.



	Percentage of Pretax Income
	2019		2018		2017
Statutory federal income tax rate	21.0	%	21.0	%	35.0	%
Increase (decrease) in tax rate resulting from:
State income taxes (net of federal income tax benefit)	1.4		2.5		2.0
Impact of foreign operations	(0.1	)	1.7		(3.1	)
Foreign-Derived Intangible Income (“FDII”)	(1.1	)	(0.9	)	—
Subpart F and GILTI, net of foreign tax credits	2.0		0.1		0.2
Change in uncertain tax positions	0.6		(0.9	)	(1.3	)
Research and experimentation credits and other	(0.5	)	1.0		0.3
Excess tax benefit from stock-based compensation	(2.3	)	(1.1	)	(1.3	)
TCJA – revaluation of U.S. deferred income taxes	—		—		(19.0	)
TCJA – Transition Tax	—		—		9.3
Effective income tax rate	21.0	%	23.4	%	22.1	%

The Company’s effective tax rate for each of 2019, 2018 and 2017 differs from the U.S. federal statutory rates of 21.0% for 2019 and 2018 and 35.0% for 2017, due principally to its earnings outside the United States that are indefinitely reinvested and taxed at rates different than the U.S. federal statutory rate. In addition:

The Company realized tax benefits of $8 million, $5 million, and $8 million in 2019, 2018 and 2017 respectively, for tax deductions attributable to stock-based compensation, of which, the excess tax benefit over the amount recorded for financial reporting purposes was $6 million, $3 million and $5 million in 2019, 2018 and 2017, respectively. As required by ASU 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”), the excess tax benefits for the years ended December 31, 2019, 2018 and 2017 have been included in the provision for income taxes and decreased the effective tax rate for the year by 230, 110 and 130 basis points, respectively.

The Company evaluates the future realizability of tax credits and loss carryforwards considering the anticipated future earnings of the Company’s subsidiaries as well as tax planning strategies in the associated jurisdictions. Included in deferred income taxes as of December 31, 2019 are tax benefits for U.S. and non-U.S. net operating loss carryforwards totaling $152 million ($119 million of which the Company does not expect to realize and has corresponding valuation allowances). Certain of the losses can be carried forward indefinitely and others can be carried forward to various dates from 2020 through 2039.

As of December 31, 2019, gross unrecognized tax benefits totaled $9 million ($11 million, including $2 million associated with potential interest and penalties). As of December 31, 2018, gross unrecognized tax benefits totaled $27 million ($26 million, net of the impact of $6 million of indirect tax benefits offset by $5 million associated with potential interest and penalties). The Company recognized $1 million, $1 million and $3 million in potential interest and penalties associated with uncertain tax positions during 2019, 2018 and 2017, respectively. To the extent unrecognized tax benefits (including interest and penalties) are recognized with respect to uncertain tax positions, the tax expense in future periods would be reduced by $11 million based upon the tax positions as of December 31, 2019. The Company recognized interest and penalties related to unrecognized tax benefits within income taxes in the accompanying Consolidated and Combined Statements of Income. Unrecognized tax benefits and associated accrued interest and penalties are included in taxes, income and other accrued expenses as detailed in Note 7.



	2019			2018			2017
Unrecognized tax benefits, beginning of year	$	27.2		$	37.4		$	49.2
Additions based on tax positions related to the current year	0.5			0.7			0.6
Additions for tax positions of prior years	3.1			1.7			4.3
Reductions for tax positions of prior years	(1.5		)	—			—
Split-Off related adjustments ^a	(18.1		)	—			—
Lapse of statute of limitations	(1.8		)	(5.6		)	(9.0		)
Settlements	(0.4		)	(5.9		)	(11.5		)
Effect of foreign currency translation	0.1			(1.1		)	3.8
Unrecognized tax benefits, end of year	$	9.1		$	27.2		$	37.4
^a Unrecognized tax benefits were reduced by $18 million in 2019 related to positions taken prior to the Split-Off for which Danaher, as the Company’s Former Parent, is the primary obligor and is responsible for settlement and payment of any resulting tax obligation.

The Company conducts business globally and files numerous income tax returns in U.S. federal, state and foreign jurisdictions. The non-U.S. countries in which the Company has a material presence include Canada, China, Finland, Germany and Switzerland. The Company believes that a change in the statutory tax rate of any individual foreign country would not have a material effect on the Consolidated and Combined Financial Statements given the geographic dispersion of the Company’s taxable income.

The Company is routinely examined by various domestic and international taxing authorities. In connection with the Separation, the Company entered into 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, Danaher is liable for and has indemnified the Company against all income tax liabilities involving “Joint” filings for periods prior to the Separation. The Company remains liable for certain pre-Separation income tax liabilities including those related to the Company’s “Separate” filings.

Pursuant to U.S. tax law, the Company expects to file its initial U.S. federal income tax return for the 2019 short tax year with the IRS during 2020. Therefore, the IRS has not yet begun an examination of the Company’s initial U.S. federal income tax return. The Company’s operations in certain U.S. states and foreign jurisdictions remain subject to routine examination for tax years beginning with 2009.

The Company estimates that it is reasonably possible that the amount of unrecognized tax benefits may be reduced by approximately $2 million within twelve months as a result of resolution of worldwide tax matters, payments of tax audit settlements and/or statute of limitations expirations.