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Income Taxes | 12 Months Ended
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Dec. 31, 2021
Income Tax Disclosure [Abstract] |
Income Taxes | INCOME TAXES The following table displays information regarding income tax expense (benefit) from continuing operations.
For the Year Ended December 31 | 2021 |  | 2020 |  | 2019
Income (loss) components: |  |  |  |  |
United States | $ | 199.4 |  |  | $ | (124.3) |  |  | $ | 143.9 |
International | 309.7 |  |  | 209.5 |  |  | 270.5 |
Income from continuing operations before income tax | 509.1 |  |  | 85.2 |  |  | 414.4 |
Income tax expense (benefit) components: |  |  |  |  |
Current income tax expense (benefit): |  |  |  |  |
United States – federal | 21.1 |  |  | 9.9 |  |  | 9.4 |
United States – state and local | 2.6 |  |  | (1.5) |  |  | 0.5 |
International | 50.2 |  |  | 50.8 |  |  | 49.1 |
Total current income tax expense | 73.9 |  |  | 59.2 |  |  | 59.0 |
Deferred income tax expense (benefit) components: |  |  |  |  |
United States – federal | 96.9 |  |  | (36.6) |  |  | 10.1 |
United States – state and local | 15.5 |  |  | (4.8) |  |  | 1.5 |
International | 3.3 |  |  | (2.5) |  |  | 19.3 |
Total deferred income tax expense (benefit) | 115.7 |  |  | (43.9) |  |  | 30.9 |
Income tax expense | $ | 189.6 |  |  | $ | 15.3 |  |  | $ | 89.9 |
Effective income tax rate | 37.2 | % |  | 18.0 | % |  | 21.7 | %
The following table includes a reconciliation of the U.S. statutory tax rate to our effective income tax rate related to income from continuing operations.
For the Year Ended December 31 | 2021 |  | 2020 |  | 2019
Tax provision at U.S. statutory rate | 21.0 | % |  | 21.0 | % |  | 21.0 | %
Asbestos divestiture | 18.9 | % |  | — | % |  | — | %
Tax on undistributed foreign earnings | 0.8 | % |  | 7.4 | % |  | 1.8 | %
Pension settlement AOCI expense | — | % |  | 5.9 | % |  | — | %
Italy patent box | (1.3) | % |  | (5.6) | % |  | (1.2) | %
Audit settlements and unrecognized tax benefits | (1.0) | % |  | (5.4) | % |  | 0.1 | %
Excess tax benefits on stock-based compensation | (0.6) | % |  | (3.6) | % |  | (1.1) | %
State and local income tax | 0.6 | % |  | (2.4) | % |  | 0.7 | %
Foreign tax rate differential | (0.2) | % |  | 1.6 | % |  | 2.8 | %
Valuation allowance on deferred tax assets | (0.4) | % |  | 1.5 | % |  | (0.5) | %
U.S. tax on foreign earnings | 0.1 | % |  | (0.2) | % |  | — | %
U.S. permanent items | (0.1) | % |  | (0.1) | % |  | (1.0) | %
Other adjustments | (0.6) | % |  | (2.1) | % |  | (0.9) | %
Effective income tax rate | 37.2 | % |  | 18.0 | % |  | 21.7 | %
The higher effective tax rate in 2021 compared to 2020 resulted from the Company recording tax expense on the reversal of previously recorded deferred tax assets of $116.9 related to the Company's divestiture of the entity holding asbestos-related assets and liabilities (see Note 20, Commitments and Contingencies, for further information). The lower effective rate in 2020 was due to a benefit of $25.9 from the completion of an internal reorganization in Europe. The reorganization increased projections of future earnings, which resulted in the realization of a portion of our deferred tax assets. This benefit was partially offset by the recognition of a $21.7 valuation allowance on our Germany and UK entities. The Company provides for deferred taxes on the undistributed earnings and profits of all foreign subsidiaries, determined under U.S. tax law. At December 31, 2021, the amount of undistributed earnings and profits of all foreign subsidiaries was $1,092.5. The Company anticipates that these foreign earnings and future earnings of its foreign subsidiaries that are not indefinitely reinvested will be sufficient to meet its U.S. cash needs. The Company is indefinitely reinvested in any excess of financial reporting over tax basis in its foreign subsidiaries that exceeds undistributed earnings and profits. At December 31, 2021, the indefinitely reinvested excess of financial reporting over tax basis was $196.4. Deferred tax assets and liabilities include the following:
As of December 31 | 2021 |  | 2020
Deferred Tax Assets: |  |  |
Loss carryforwards | $ | 121.3 |  |  | $ | 128.6 |
Asbestos | — |  |  | 116.7 |
Employee benefits | 60.1 |  |  | 64.7 |
Accruals | 32.0 |  |  | 36.8 |
Inventory | 22.7 |  |  | 22.5 |
Credit carryforwards | 6.2 |  |  | 3.4 |
Investment | 1.7 |  |  | 0.5 |
Other | 20.9 |  |  | 27.0 |
Gross deferred tax assets | 264.9 |  |  | 400.2 |
Less: Valuation allowance | 108.8 |  |  | 123.0 |
Net deferred tax assets | $ | 156.1 |  |  | $ | 277.2 |
Deferred Tax Liabilities: |  |  |
Intangibles | $ | (38.0) |  |  | $ | (40.9) |
Undistributed earnings | (46.5) |  |  | (49.2) |
Accelerated depreciation | (27.3) |  |  | (30.3) |
Total deferred tax liabilities | $ | (111.8) |  |  | $ | (120.4) |
Net deferred tax assets | $ | 44.3 |  |  | $ | 156.8 |
Deferred taxes are presented in the Consolidated Balance Sheets as follows:
As of December 31 | 2021 |  | 2020
Non-current assets | $ | 63.4 |  |  | $ | 158.3 |
Other non-current liabilities | (19.1) |  |  | (1.5) |
Net deferred tax assets | $ | 44.3 |  |  | $ | 156.8 |
The table included below provides a rollforward of our valuation allowance on net deferred income tax assets.
|  |  | State |  | Foreign |  | Total
DTA valuation allowance - December 31, 2018 |  |  | $ | 57.3 |  |  | $ | 83.7 |  |  | $ | 141.0 |
Change in assessment |  |  | — |  |  | 5.6 |  |  | 5.6 |
Current year operations |  |  | (8.8) |  |  | (8.0) |  |  | (16.8) |
DTA valuation allowance - December 31, 2019 |  |  | $ | 48.5 |  |  | $ | 81.3 |  |  | $ | 129.8 |
Change in assessment |  |  | — |  |  | (6.2) |  |  | (6.2) |
Current year operations |  |  | (8.1) |  |  | 7.5 |  |  | (0.6) |
DTA valuation allowance - December 31, 2020 |  |  | $ | 40.4 |  |  | $ | 82.6 |  |  | $ | 123.0 |
Change in assessment |  |  | — |  |  | (1.9) |  |  | (1.9) |
Current year operations |  |  | (4.7) |  |  | (7.6) |  |  | (12.3) |
DTA valuation allowance - December 31, 2021 |  |  | $ | 35.7 |  |  | $ | 73.1 |  |  | $ | 108.8 |
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, China, and Germany which are not expected to be realized. Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit the use of deferred tax assets. The cumulative loss incurred over the three-year period ending December 31, 2021 constitutes significant objective negative evidence, resulting in the recognition of a valuation allowance against the net deferred tax assets for these jurisdictions. Such objective negative evidence limits our ability to consider subjective positive evidence, such as our projections of future taxable income. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income change or if objective negative evidence in the form of cumulative losses is no longer present and additional weight can be given to subjective evidence. We have the following tax attributes available for utilization at December 31, 2021:
Attribute | Amount |  | First Year of Expiration
U.S. federal net operating losses | $ | 2.3 |  |  | 12/31/2037
U.S. state net operating losses | 520.4 |  |  | 12/31/2022
U.S. federal tax credits | 5.3 |  |  | 12/31/2029
U.S. state tax credits | 0.9 |  |  | 12/31/2027
Foreign net operating losses(a) | 310.8 |  |  | 12/31/2022
(a) Includes approximately $208.8 of net operating loss carryforwards in Luxembourg as of December 31, 2021. Excess tax benefits related to stock-based compensation of $3.2, $3.0 and $4.6 for 2021, 2020 and 2019, respectively, were recorded as an income tax benefit in the statement of operations and have been reflected in the caption “U.S. permanent items” within the effective tax rate reconciliation table. 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. The following table displays a rollforward of our unrecognized tax benefits.
For the Year Ended December 31 | 2021 |  | 2020 |  | 2019
Unrecognized tax benefits – January 1 | $ | 41.5 |  |  | $ | 46.2 |  |  | $ | 45.8 |
Additions for: |  |  |  |  |
Current year tax positions | 0.6 |  |  | 0.9 |  |  | 1.5 |
Prior year tax positions | 0.1 |  |  | 0.3 |  |  | 0.3 |
Reductions for: |  |  |  |  |
Prior year tax positions | (5.5) |  |  | — |  |  | (0.1) |
Expiration of statute of limitations | (19.7) |  |  | (4.7) |  |  | (1.2) |
Settlements | (9.4) |  |  | (1.2) |  |  | (0.1) |
Unrecognized tax benefits – December 31 | $ | 7.6 |  |  | $ | 41.5 |  |  | $ | 46.2 |
In 2021, ITT closed an income tax audit in Hong Kong. The total uncertain tax position change was $14.3 and was comprised of $9.2 of audit settlements and $5.1 of a release of a prior year tax position. As of December 31, 2021, $2.8 of the unrecognized tax benefits would impact the effective tax rate for continuing operations, 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 the Czech Republic, Germany, India, Italy, and the U.S. 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 12 months, the net amount of the tax liability for unrecognized tax benefits in foreign and domestic jurisdictions could change by approximately $1 due to changes in audit status, expiration of statutes of limitations and other events. The following table summarizes the earliest open tax years by major jurisdiction as of December 31, 2021:
Jurisdiction | Earliest Open Year
China | 2016
Czech Republic | 2018
Germany | 2017
Hong Kong | 2020
India | 2013
Italy | 2014
Korea | 2016
Luxembourg | 2016
Mexico | 2016
United States | 2018
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 2021, 2020, and 2019 we recognized a net interest benefit of $0.7, $2.0, and $0.3, respectively, related to tax matters. We had $0.0, $0.9, and $2.9 of interest expense accrued from continuing and discontinued operations related to tax matters as of December 31, 2021, 2020, and 2019, respectively.

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