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INCOME TAXES | 12 Months Ended
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Dec. 31, 2023
Income Tax Disclosure [Abstract] |
INCOME TAXES | NOTE 13. INCOME TAXES Earnings and Income Taxes Earnings from continuing operations before income taxes for the years ended December 31 were as follows ($ in millions):
| 2023 |  | 2022 |  | 2021
United States | $ | 698.2 |  |  | $ | 587.7 |  |  | $ | 367.4 |
International | 292.6 |  |  | 285.8 |  |  | 310.1 |
Total | $ | 990.8 |  |  | $ | 873.5 |  |  | $ | 677.5 |
The continuing operations provision for income taxes for the years ended December 31 were as follows ($ in millions):
| 2023 |  | 2022 |  | 2021
Current: |  |  |  |  |
Federal U.S. | $ | 108.8 |  |  | $ | 75.4 |  |  | $ | 21.5 |
Non-U.S. | 97.3 |  |  | 85.3 |  |  | 75.0 |
State and local | 23.0 |  |  | 19.7 |  |  | 7.8 |
Deferred: |  |  |  |  |
Federal U.S. | (72.0) |  |  | (32.8) |  |  | (21.9) |
Non-U.S. | (23.3) |  |  | 8.6 |  |  | (16.9) |
State and local | (8.8) |  |  | (37.9) |  |  | (2.2) |
Income tax provision | $ | 125.0 |  |  | $ | 118.3 |  |  | $ | 63.3 |
Effective Income Tax Rate The continuing operations effective income tax rate for the years ended December 31 varies from the U.S. statutory federal income tax rate as follows:
| Percentage of Pretax Earnings
| 2023 |  | 2022 |  | 2021
Statutory federal income tax rate | 21.0 | % |  | 21.0 | % |  | 21.0 | %
Increase (decrease) in tax rate resulting from: |  |  |  |  |
State income taxes (net of federal income tax benefit) | 0.9 | % |  | (1.8) | % |  | 0.9 | %
Foreign income taxed at different rates than U.S. statutory rate | (0.1) | % |  | 0.1 | % |  | (4.4) | %
U.S. federal permanent differences related to the TCJA | (7.7) | % |  | (7.0) | % |  | (5.6) | %
Effect of change in tax rates enacted in the current period | (2.6) | % |  | 0.3 | % |  | (0.1) | %
Changes in valuation allowances | 1.7 | % |  | 1.8 | % |  | — | %
Other | (0.6) | % |  | (0.9) | % |  | (0.5) | %
Effective income tax rate before adjustments related to the unrealized gain on the Retained Vontier Shares | 12.6 | % |  | 13.5 | % |  | 11.3 | %
Adjustment for the unrealized gain on the Retained Vontier Shares | — | % |  | — | % |  | (2.0) | %
Effective income tax rate after adjustments related to the unrealized gain on the Retained Vontier Shares | 12.6 | % |  | 13.5 | % |  | 9.3 | %
Our effective tax rate for 2023 differs from the U.S. federal statutory rate of 21% due primarily to the positive and negative effects of the Tax Cuts and Jobs Act (“TCJA”), U.S. federal permanent differences, the impacts of credits and deductions provided by law, including those associated with state income taxes, a decrease in our uncertain tax positions, and the effect of changes in tax rates enacted in the current period. 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. 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 jurisdictions for the tax years 2015 to 2023. These examinations include filings of tax returns prior to our separation from Danaher, tax returns of enterprises no longer in our portfolio, and tax returns for pre-acquisition periods of enterprises added to our portfolio. Significant obligations are detailed in the tax matters agreements in connection with the separation of Fortive from Danaher on July 1, 2016, the split-off of the A&S business on October 1, 2018, and the Vontier separation on October 9, 2020. We review our global tax positions on a quarterly basis. Based on these reviews, the results of discussions and resolutions of matters with certain tax authorities, tax rulings and court decisions, and the expiration of statutes of limitations reserves for contingent tax liabilities are accrued or adjusted as necessary. We made income tax payments related to continuing operations of $225 million, $148 million, and $103 million during the years ended December 31, 2023, 2022 and 2021, respectively. Deferred Tax Assets and Liabilities All deferred tax assets and liabilities have been classified as noncurrent and are included in Other assets and Other long-term liabilities in the Consolidated Balance Sheets. Deferred income tax assets and liabilities from continuing operations as of December 31 were as follows ($ in millions):
| 2023 |  | 2022
Deferred Tax Assets: |  |  |
Operating lease liabilities | $ | 38.7 |  |  | $ | 39.1 |
Inventories | 14.8 |  |  | 10.4 |
Pension benefits | 27.2 |  |  | 24.4 |
Stock-based compensation expense | 36.2 |  |  | 34.2 |
Capitalized expenses | 233.3 |  |  | 190.7 |
Tax credit and loss carryforwards | 377.7 |  |  | 168.5 |
Accruals, prepayments, and other | 79.1 |  |  | 39.4 |
Valuation allowances | (282.4) |  |  | (74.6) |
Total deferred tax assets | $ | 524.6 |  |  | $ | 432.1 |
Deferred Tax Liabilities: |  |  |
Property, plant and equipment | $ | (36.8) |  |  | $ | (42.9) |
Operating lease right-of-use assets | (36.0) |  |  | (36.8) |
Insurance, including self-insurance | (211.9) |  |  | (205.0) |
Goodwill, other intangibles, and other | (748.7) |  |  | (779.7) |
Total deferred tax liabilities | (1,033.4) |  |  | (1,064.4) |
Net deferred tax liability | $ | (508.8) |  |  | $ | (632.3) |
In accordance with GAAP, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted rates expected to be in effect during the year in which the differences reverse. Deferred tax assets generally represent items that can be used as a tax deduction or credit in our tax return in future years for which the tax benefit has already been reflected in our Consolidated Statements of Earnings. Deferred tax liabilities generally represent items that have already been taken as a deduction on our tax return but have not yet been recognized as an expense in our Consolidated Statements of Earnings. The effect on deferred tax assets and liabilities due to a change in tax rates is recognized in income tax expense in the period that includes the enactment date. 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. Applying the above methodology, valuation allowances have been established for certain deferred income tax assets to the extent they are not expected to be realized within the particular tax carryforward period. Deferred taxes associated with U.S. entities from continuing operations consist of net deferred tax liabilities of approximately $519 million and $615 million inclusive of valuation allowances of $38 million and $39 million as of December 31, 2023 and 2022, respectively. Deferred taxes associated with non-U.S. entities from continuing operations consist of net deferred tax assets of $10 million and net deferred tax liabilities of $17 million, inclusive of valuation allowances of $245 million and $35 million, as of December 31, 2023 and 2022, respectively. Our valuation allowance increased by $208 million and by $1 million during the years ended December 31, 2023 and 2022, respectively, due primarily to foreign credits and net operating losses in both years. As of December 31, 2023, our U.S. and non-U.S. net operating loss carryforwards totaled $1.6 billion, of which $90 million is related to federal net operating loss carryforwards, $805 million is related to state net operating loss carryforwards, and $709 million is related to non-U.S. net operating loss carryforwards. Included in deferred tax assets as of December 31, 2023 are tax benefits for U.S. and non-U.S. net operating loss carryforwards totaling $179 million, before applicable valuation allowances of $76 million. Certain of these losses can be carried forward indefinitely and others can be carried forward to various dates from 2024 through 2042. 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, 2023, our U.S. and non-U.S. tax credit carryforwards totaled $199 million, which is primarily related to non-U.S. tax credit carryforwards. Certain of these credits can be carried forward indefinitely and other can be carried forward to various dates from 2024 through 2042. As of December 31, 2023, we maintain a $188 million valuation allowance related to certain tax credit carryforwards. Unrecognized Tax Benefits We recognize tax benefits from uncertain tax positions only if, in our assessment, it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Judgment is required in evaluating tax positions and determining income tax provisions. We re-evaluate the technical merits of our tax positions and may recognize an uncertain tax benefit in certain circumstances, including when: (i) a tax audit is completed; (ii) applicable tax laws change, including a tax case ruling or legislative guidance; or (iii) the applicable statute of limitations expires. We recognize potential accrued interest and penalties associated with unrecognized tax positions in income tax expense. As of December 31, 2023, gross unrecognized tax benefits for continuing and discontinued operations were $176 million ($189 million total, including $31 million associated with interest and penalties, and net of the impact of $18 million of indirect tax benefits). As of December 31, 2022, gross unrecognized tax benefits for continuing and discontinued operations were $178 million ($202 million total, including $26 million associated with interest and penalties, and net of the impact of $3 million of indirect tax benefits). We recognized approximately $11 million, $10 million and $6 million in potential interest and penalties associated with uncertain tax positions during 2023, 2022, and 2021, respectively. To the extent taxes are not assessed with respect to uncertain tax positions, substantially all amounts accrued (including interest and penalties and net of indirect offsets) will be reduced and reflected as a reduction of the overall income tax provision. Unrecognized tax benefits and associated accrued interest and penalties are included in our income tax provision. The Company is subject to examination in the United States, various states, and foreign jurisdictions for the tax years 2015 to 2023. These examinations include filings of tax returns prior to our separation from Danaher, tax returns of enterprises no longer in our portfolio, and tax returns for pre-acquisition periods of enterprises added to our portfolio. Significant obligations are detailed in the tax matters agreements in connection with the separation of Fortive from Danaher on July 1, 2016, the split-off of the A&S business on October 1, 2018, and the Vontier separation on October 9, 2020. Some examinations may conclude in the next twelve months and the unrecognized tax benefits recorded in relation to the audits may differ from actual settlement amounts. It is not practical to estimate the effect, if any, of any amount of such change during the next twelve months to previously recorded uncertain tax positions in connection with the audits. The Company does not anticipate that there will be a material increase or decrease in the total amount of unrecognized tax benefits in the next twelve months. A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding amounts accrued for potential interest and penalties, is as follows ($ in millions):
| 2023 |  | 2022 |  | 2021
Unrecognized tax benefits, beginning of year | $ | 178.2 |  |  | $ | 193.0 |  |  | $ | 200.1 |
Additions based on tax positions related to the current year | 21.6 |  |  | 6.2 |  |  | 7.9 |
Additions for tax positions of prior years | 13.5 |  |  | 11.2 |  |  | 3.4 |
Reductions for tax positions of prior years | (3.0) |  |  | (6.3) |  |  | (1.4) |
Lapse of statute of limitations | (33.0) |  |  | (24.4) |  |  | (15.6) |
Settlements | (2.2) |  |  | — |  |  | (0.2) |
Effect of foreign currency translation | — |  |  | (1.5) |  |  | (1.2) |
Acquisition related adjustments | 1.0 |  |  | — |  |  | — |
Unrecognized tax benefits, end of year | $ | 176.1 |  |  | $ | 178.2 |  |  | $ | 193.0 |
Repatriation and Unremitted Earnings As of December 31, 2023, we recorded estimated incremental foreign remittance taxes of $10 million on the planned 2024 repatriation of $179 million of previously unremitted earnings from 2023 and prior periods. As of December 31, 2023, the earnings we plan to reinvest indefinitely outside of the United States for which foreign deferred taxes have not been provided was estimated at $1.8 billion. 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.

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