INCOME TAXES

9 Months Ended

Sep. 30, 2016

Income Tax Disclosure [Abstract]

INCOME TAXES

NOTE 7. INCOME TAXES

The Company’s effective tax rates for the three and nine months ended September 30, 2016, were 24.3% and 26.6% respectively, as compared to 34.9% and 32.6% for the three and nine months ended October 2, 2015. The difference in effective tax rates between the periods primarily involved a higher mix of income in jurisdictions with lower tax rates and higher federal tax benefits. The Company’s effective tax rates for 2016 and 2015 differ from the U.S. federal statutory rate of 35% due principally to the Company’s 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.

In connection with the Separation, Danaher and the Company entered into the Agreements, including a tax matters agreement. The tax matters agreement distinguishes between the treatment of tax matters for pre-Separation “Joint” filings compared to pre-Separation “Separate” filings. 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.

Under the tax matters agreement, for pre-Separation Joint filings, Danaher remains liable for and has contractually assumed all income tax liabilities including applicable interest and penalties. Danaher has also indemnified the Company for all tax liabilities for Joint returns related to pre-Separation periods. For the U.S. federal portion of Joint tax liabilities, U.S. Treasury Regulations make each member of prior period U.S. consolidated tax filings severally liable to the U.S. government for any U.S. federal income tax liability incurred by the U.S. consolidated group. As of the Separation date, the amount of uncertain tax positions associated with Fortive Businesses that Danaher has recorded and contractually assumed related to pre-Separation periods is approximately $135 million. Danaher is the primary obligor for such pre-Separation liabilities. The Company believes it is remote that it will have any liability for pre-Separation income tax Joint filings, principally in view of Danaher’s strong financial position. Therefore, the Company has removed the liability from its balance sheet as of the Separation date by adjusting Former Parent’s Investment.  This is a non-cash financing activity for purposes of the Consolidated and Combined Condensed Statements of Cash Flows and was offset by other changes in tax attributes associated with the Separation.

For the Company’s pre-Separation Separate filings, the Company is fully liable for all income tax liabilities including interest and penalties. As of the Separation date, the Company had approximately $33 million of uncertain tax positions reflected in other long-term liabilities.

Following the Separation, the Company will file tax returns on its own behalf. The Company’s income tax expense and deferred income tax balances have been recorded in accordance with the Company’s stand-alone income tax positions. The Company may periodically be audited by the tax authorities. Resolution of such audits or expiration of the statute of limitations may impact the Company’s unrecognized tax benefits in future periods.