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Income Taxes | 12 Months Ended
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Dec. 31, 2015
Income Tax Disclosure [Abstract] |
Income Taxes | INCOME TAXES For each of the years ended December 31, 2015, 2014, and 2013 the tax data related to continuing operations is as follows:
| 2015 |  |  | 2014 |  |  | 2013 |
Income components: |  |  |  |  |
United States | $ | 159.3 |  |  | $ | 44.5 |  |  | $ | 28.5 |
International | 223.0 |  |  | 217.5 |  |  | 152.0 |
Income from continuing operations before income tax | 382.3 |  |  | 262.0 |  |  | 180.5 |
Income tax expense (benefit) components: |  |  |  |  |
Current income tax expense (benefit): |  |  |  |  |
United States – federal | (8.5 | ) |  | 16.2 |  |  | 10.6 |
United States – state and local | 0.1 |  |  | 0.7 |  |  | 4.2 |
International | 52.9 |  |  | 54.6 |  |  | 39.6 |
Total current income tax expense | 44.5 |  |  | 71.5 |  |  | 54.4 |
Deferred income tax expense (benefit) components: |  |  |  |  |
United States – federal | 31.9 |  |  | (0.6 | ) |  | (331.2 | )
United States – state and local | 6.0 |  |  | 5.1 |  |  | (36.7 | )
International | (12.3 | ) |  | (4.7 | ) |  | 3.9 |
Total deferred income tax (benefit) expense | 25.6 |  |  | (0.2 | ) |  | (364.0 | )
Income tax expense (benefit) | $ | 70.1 |  |  | $ | 71.3 |  |  | $ | (309.6 | )
Effective income tax rate | 18.3 | % |  | 27.2 | % |  | (171.5 | )%
A reconciliation of the income tax expense (benefit) for continuing operations from the U.S. statutory income tax rate to the effective income tax rate is as follows for each of the years ended December 31, 2015, 2014, and 2013:
| 2015 |  |  | 2014 |  |  | 2013 |
Tax provision at U.S. statutory rate | 35.0 | % |  | 35.0 | % |  | 35.0 | %
Tax exempt interest | (6.7 | )% |  | (10.3 | )% |  | (17.5 | )%
U.S. tax on foreign earnings | 3.8 | % |  | 9.3 | % |  | (0.7 | )%
Valuation allowance on deferred tax assets | 2.1 | % |  | 8.6 | % |  | (191.1 | )%
Tax on undistributed foreign earnings | (5.6 | )% |  | (8.1 | )% |  | 6.1 | %
Foreign tax rate differential | (3.6 | )% |  | (6.2 | )% |  | (4.8 | )%
State and local income tax | 1.0 | % |  | 1.6 | % |  | 0.6 | %
Other adjustments | (0.6 | )% |  | (1.3 | )% |  | (0.6 | )%
Foreign tax holiday | (1.1 | )% |  | (1.3 | )% |  | (1.0 | )%
U.S. permanent items | (1.0 | )% |  | (1.0 | )% |  | (1.3 | )%
Audit settlements & unrecognized tax benefits | (5.0 | )% |  | 0.9 | % |  | 3.8 | %
Effective income tax rate | 18.3 | % |  | 27.2 | % |  | (171.5 | )%
Our effective tax rate in 2015 includes tax benefits for previously unrecognized tax positions of approximately $13.0 due to the completion of tax examinations and lapses in the statute of limitations. During 2015, the Company settled the U.S. income tax audit for tax years 2009 to 2011. The Company recorded a tax benefit of $18.0 in continuing operations, which includes a net tax benefit of $8.0 from favorable audit adjustments and $10.0 from the recognition of previously unrecognized tax benefits. In addition, this U.S. income tax audit resulted in a tax benefit of $20.9 related to discontinued operations, which includes net tax expense of $17.4 from unfavorable audit adjustments and a tax benefit of $38.3 from the recognition of previously unrecognized tax positions. In accordance with the existing Tax Matters Agreement with Exelis and Xylem, the Company is entitled to reimbursement for a portion of the tax liability and has recorded a receivable of $1.6 and $13.2 in continuing and discontinued operations, respectively. As a result of investment opportunities and other factors, and their impact on the Company’s expected liquidity, certain earnings generated in Hong Kong, Japan, Luxembourg, and South Korea may be repatriated in the future and are therefore not considered to be indefinitely reinvested outside of the U.S. In 2015, the Company repatriated certain foreign earnings and subsequently reversed the deferred tax liability on the undistributed foreign earnings by $21.5. We have not provided for deferred taxes on the remaining excess of financial reporting over tax bases of investments in foreign subsidiaries in the amount of $809.7 because we plan to reinvest such earnings indefinitely outside of the U.S. While the amount of U.S. federal income taxes, if such earnings are distributed in the future, cannot be determined, such taxes may be reduced by tax credits and other tax deductions. As of December 31, 2015, the amount of cash, cash equivalents and marketable securities held by foreign subsidiaries was $432.7. Our intent is to permanently reinvest these funds outside of the U.S., and current plans do not anticipate that we will need funds generated from foreign operations to fund our domestic operations. In the event funds from foreign operations are needed to fund operations in the U.S. and if U.S. tax has not already been previously provided, we would be required to accrue and pay additional U.S. taxes to repatriate these funds. We operate under a tax holiday in South Korea, which is effective until December 31, 2019. The tax holiday is conditional upon our meeting certain earnings thresholds. The impact of this holiday decreased foreign taxes by $4.1, or $0.05, per diluted share in 2015. Deferred tax assets and liabilities include the following:
| 2015 |  |  | 2014 |
Deferred Tax Assets: |  |  |
Accruals | $ | 88.0 |  |  | $ | 69.0 |
Asbestos | 228.7 |  |  | 272.6 |
Employee benefits | 110.4 |  |  | 109.4 |
Credit carryforwards | 34.5 |  |  | 29.3 |
Loss carryforwards | 125.1 |  |  | 128.0 |
Other | 15.5 |  |  | 36.0 |
Gross deferred tax assets | 602.2 |  |  | 644.3 |
Less: Valuation allowance | 135.7 |  |  | 147.1 |
Net deferred tax assets | $ | 466.5 |  |  | $ | 497.2 |
Deferred Tax Liabilities: |  |  |
Undistributed earnings | $ | (39.6 | ) |  | $ | (61.2 | )
Intangibles | (70.8 | ) |  | (58.7 | )
Accelerated depreciation | (31.0 | ) |  | (26.0 | )
Investment | (0.5 | ) |  | (0.4 | )
Total deferred tax liabilities | $ | (141.9 | ) |  | $ | (146.3 | )
Net deferred tax assets | $ | 324.6 |  |  | $ | 350.9 |
Deferred taxes are presented in the Consolidated Balance Sheets as follows:
| 2015 |  |  | 2014 |
Current assets | $ | — |  |  | $ | 56.2 |
Non-current assets | 326.1 |  |  | 304.1 |
Other non-current liabilities | (1.5 | ) |  | (9.4 | )
Net deferred tax assets | $ | 324.6 |  |  | $ | 350.9 |
On December 31, 2015, we adopted new FASB guidance related to simplifying the presentation of deferred income taxes on the balance sheet. We have elected to apply the guidance prospectively, resulting in the classification of all deferred tax assets and liabilities as non-current as of December 31, 2015. Prior periods were not retrospectively adjusted. The table included below provides a rollforward of our valuation allowance on net deferred income tax assets from December 31, 2012 to December 31, 2015.
| Federal |  |  | State |  |  | Foreign |  |  | Total |
DTA valuation allowance - December 31, 2012 | $ | 352.8 |  |  | $ | 122.4 |  |  | $ | 61.5 |  |  | $ | 536.7 |
Change in assessment | (339.6 | ) |  | (35.0 | ) |  | 3.7 |  |  | (370.9 | )
Current year operations | (13.2 | ) |  | (42.7 | ) |  | 25.4 |  |  | (30.5 | )
DTA valuation allowance - December 31, 2013 | — |  |  | 44.7 |  |  | 90.6 |  |  | 135.3 |
Change in assessment | — |  |  | — |  |  | 2.5 |  |  | 2.5 |
Current year operations | — |  |  | 0.3 |  |  | 9.0 |  |  | 9.3 |
DTA valuation allowance - December 31, 2014 | — |  |  | 45.0 |  |  | 102.1 |  |  | 147.1 |
Change in assessment | — |  |  | — |  |  | (7.4 | ) |  | (7.4 | )
Current year operations | — |  |  | (3.5 | ) |  | (0.5 | ) |  | (4.0 | )
DTA valuation allowance - December 31, 2015 | $ | — |  |  | $ | 41.5 |  |  | $ | 94.2 |  |  | $ | 135.7 |
In the third quarter of 2013, the Company moved from a three-year adjusted cumulative domestic pretax loss position to a three-year adjusted cumulative domestic pretax income position. In measuring adjusted cumulative pretax income (loss), the Company adjusted pretax U.S. income (loss) for nonrecurring items and recurring permanent differences. The recurring permanent differences included excess stock option deductions which represented the amount of tax deductions in excess of book deductions, ultimately reducing book income on the tax return, and foreign earnings, the indefinite reinvestment of which was not asserted, and was not expected to be asserted in the foreseeable future, and dividends paid or expected to be paid. Each of these items was recurring in nature and representative of our book taxable income. In addition, we included adjustments for certain non-recurring costs directly attributable to the 2011 spin-off as these were not indicative of future taxable income. The three-year cumulative income position was strong positive evidence in evaluating the realizability of our deferred tax assets as of September 30, 2013. However, the Company considered all available evidence, both positive and negative, in its evaluation to reverse the valuation allowance at that time, including future earnings, industry trends, and certain contingencies, such as asbestos-related costs. Further, we considered future reversals of existing taxable temporary differences as a source of income available to recover a portion of existing deferred tax assets, future taxable income exclusive of reversing taxable temporary differences and carryforwards, and available tax-planning strategies in assessing the realizability of the deferred tax assets. Based on positive evidence, including the three-year cumulative positive income and the absence of any significant negative evidence, management determined that it was more likely than not that the Company's U.S. deferred tax assets would be realized except for certain deferred tax assets attributable to state net operating losses and tax credits. During the current year, after considering all available evidence, including cumulative income and the absence of any significant negative evidence, the Company released the valuation allowance against certain foreign net deferred tax assets in China. The Company continues to maintain a valuation allowance against certain deferred tax assets attributable to state net operating losses and tax credits and certain foreign net deferred tax assets primarily in Luxembourg, Germany and India which are not expected to be realized. Overall, the current year decrease in the valuation allowance of $11.4 is primarily attributable to the release of valuation allowance in China. We have the following tax attributes available for utilization at December 31, 2015:
Attribute | Amount |  |  | First Year of Expiration
U.S. federal net operating losses | $ | 1.4 |  |  | 12/31/2024
U.S. state net operating losses | $ | 1,313.5 |  |  | 12/31/2016
U.S. federal tax credits | $ | 28.6 |  |  | 12/31/2021
U.S. state tax credits | $ | 5.8 |  |  | 12/31/2027
Foreign net operating losses | $ | 296.2 |  |  | 12/31/2016
We have approximately $191.9 of net operating loss carryforwards in Luxembourg as of December 31, 2015 that do not expire. Shareholders’ equity at December 31, 2015 and 2014 includes excess income tax benefits related to stock-based compensation in 2015 and 2014 of approximately $3.4 and $10.4, respectively. Uncertain Tax Positions We recognize income tax benefits from uncertain tax positions only if, based on the technical merits of the position, it is more likely than not that the tax position will be sustained on examination by the taxing authorities. The tax benefits recognized in the Consolidated 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. A reconciliation of the beginning and ending amount of unrecognized tax benefits for each of the years ended December 31, 2015, 2014, and 2013 is as follows:
| 2015 |  |  | 2014 |  |  | 2013 |
Unrecognized tax benefits – January 1 | $ | 160.1 |  |  | $ | 161.2 |  |  | $ | 208.8 |
Additions for: |  |  |  |  |
Prior year tax positions | 1.8 |  |  | 2.4 |  |  | 1.6 |
Current year tax positions | 3.4 |  |  | 2.8 |  |  | 8.0 |
Assumed in Acquisition | 1.9 |  |  | — |  |  | — |
Reductions for: |  |  |  |  |
Prior year tax positions | (56.6 | ) |  | (2.8 | ) |  | (55.4 | )
Settlements | (19.0 | ) |  | (1.0 | ) |  | (1.0 | )
Expiration of Statute of Limitations | (4.0 | ) |  | (2.5 | ) |  | (0.8 | )
Unrecognized tax benefits – December 31 | $ | 87.6 |  |  | $ | 160.1 |  |  | $ | 161.2 |
As of December 31, 2015, $38.2 and $3.7 of the unrecognized tax benefits would affect the effective tax rate for continuing operations and discontinued operations respectively, if realized. The Company operates in various tax jurisdictions and is subject to examination by tax authorities in these jurisdictions. The Company is currently under examination in several jurisdictions including Canada, China, Germany, Hong Kong, Italy, Korea, Mexico, the U.S. and Venezuela. The calculation of our tax liability for unrecognized tax benefits includes dealing with uncertainties in the application of complex tax laws and regulations in various tax jurisdictions. Due to the complexity of some uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the unrecognized tax benefit. Over the next twelve months, the net amount of the tax liability for unrecognized tax benefits in foreign and domestic jurisdictions could change by approximately $16 due to changes in audit status, expiration of statutes of limitations and other events. The settlement of any future examinations could result in changes in the amounts attributable to the Company under its existing Tax Matters Agreement with Exelis and Xylem. The following table summarizes the earliest open tax years by major jurisdiction as of December 31, 2015:
Jurisdiction | Earliest Open Year
China | 2010
Czech | 2013
Germany | 2008
Italy | 2005
Korea | 2008
Luxembourg | 2011
Mexico | 2010
United States | 2012
We classify interest relating to tax matters as a component of interest expense and tax penalties as a component of income tax expense in our Consolidated Statements of Operations. During 2015 and 2014, we recognized a net interest benefit of $5.7 and net interest expense of $0.8, respectively, related to tax matters. We had $9.8 and $19.4 of interest expense accrued from continuing and discontinued operations related to tax matters as of December 31, 2015 and 2014, respectively. Tax Matters Agreement On October 25, 2011, we entered into a Tax Matters Agreement with Exelis and Xylem that governs the respective rights, responsibilities and obligations of the companies after the 2011 spin-off with respect to tax liabilities and benefits, tax attributes, tax contests and other tax sharing regarding U.S. Federal, state, local and foreign income taxes, other tax matters and related tax returns. Exelis and Xylem have liability with ITT to the U.S. Internal Revenue Service (IRS) for the consolidated U.S. Federal income taxes of the ITT consolidated group relating to the taxable periods in which Exelis and Xylem were part of that group. During 2015, the Company settled the U.S. income tax audit for tax years 2009 to 2011. Pursuant to the Tax Matters Agreement, the Company is entitled to reimbursement for a portion of the tax liability and has recorded an aggregate receivable of $14.8 from Exelis and Xylem as of December 31, 2015. The settlement of future examinations in state or foreign jurisdictions could result in changes in amounts attributable to us through the Tax Matters Agreement entered into with Exelis and Xylem. Currently we cannot reasonably estimate the amount of such changes.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 + Details
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