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Income Taxes
 12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
Income Taxes
13. Income Taxes

The components of earnings before income taxes and discontinued operations were:
 Years Ended December 31,
(in millions)202120202019
Domestic$15.5 $(26.2)$(48.3)
Foreign89.1 37.5 114.6 
Total earnings before income taxes and discontinued operations$104.6 $11.3 $66.3 

Income tax (benefit) expense for the years ended December 31, 2021, 2020, and 2019 is comprised of the following:
 Years Ended December 31,
(in millions)202120202019
Current:
U.S. Federal$0.4 $0.7 $0.7 
State and local0.3 0.2 0.2 
Foreign14.8 10.3 15.9 
Total current tax expense$15.5 $11.2 $16.8 
Deferred:
U.S. Federal$(57.1)$(0.4)$0.1 
State and local(2.6)0.2 (0.1)
Foreign(1.4)(2.6)(0.2)
Total deferred tax benefit(61.1)(2.8)(0.2)
Total income tax (benefit) expense$(45.6)$8.4 $16.6 
The reconciliation of the U.S. Federal income tax rate to the Company’s effective income tax rate was as follows:
 Years Ended December 31,
 202120202019
U.S. Federal income tax rate21.0 %21.0 %21.0 %
State and local taxes, net of Federal income tax benefit0.3 %4.2 %0.2 %
Foreign operations tax effect3.3 %17.3 %5.0 %
Research and experimentation tax credits(3.8)%(29.5)%(5.0)%
Valuation allowance(57.1)%85.4 %15.0 %
Tax contingencies0.6 %0.3 %1.3 %
Tax holiday(10.1)%(37.8)%(24.6)%
Foreign taxes1.0 %2.8 %2.1 %
Non-deductible and non-taxable interest(0.2)%1.0 %(2.9)%
Stock-based compensation4.8 %11.3 %3.0 %
Other, principally non-tax deductible items0.1 %1.1 %0.3 %
Global low tax and foreign derived intangible income(2.3)%12.1 %10.6 %
Foreign currency adjustments(0.7)%(6.1)%— %
Prior period items(0.5)%(8.8)%(1.0)%
Effective income tax rate(43.6)%74.3 %25.0 %

The Company’s effective tax rate is favorably impacted by two tax holidays granted to us by Malaysia, one of which is effective through December 31, 2026 and the other of which expired on July 31, 2021. These tax holidays are subject to the Company’s annual satisfaction of certain conditions, including investment and sales thresholds, which the Company expects to maintain. The remaining Malaysian tax holiday, which was extended during the fourth quarter of 2021, reduces the anticipated effective rate on qualified income to approximately 7.2% versus the statutory rate of 24.0%, through 2026. If the Company fails to satisfy such conditions, the Company’s effective tax rate may be significantly adversely impacted. The continuing operations benefit of these incentives for the years ending December 31, 2021, 2020, and 2019 is estimated to be $10.7 million, $3.8 million, and $14.6 million, respectively. The continuing operations benefit of the tax holidays on a basic per share basis for the years ending December 31, 2021, 2020, and 2019 was $0.12, $0.04, and $0.16, respectively.
The components of the Company’s deferred tax assets and liabilities included the following:
(in millions)December 31, 2021December 31, 2020
Deferred tax assets:
Accrued compensation, principally post-retirement, and other employee benefits$10.4 $14.1 
Accrued expenses, principally for state income taxes and warranty6.1 8.6 
Accrued interest5.9 7.7 
Net operating loss and other carryforwards70.9 71.6 
Inventories, principally due to reserves for financial reporting purposes and capitalization for tax purposes7.7 6.5 
Convertible note hedges— 1.8 
Unremitted earnings of non-U.S. subsidiaries1.6 — 
Intangible assets, principally due to different tax and financial reporting bases0.6 — 
Plant and equipment, principally due to differences in depreciation17.0 13.0 
Total gross deferred tax assets120.2 123.3 
Valuation allowance(39.1)(98.0)
Total deferred tax assets$81.1 $25.3 
Deferred tax liabilities:
Intangible assets, principally due to different tax and financial reporting bases$— $(4.3)
Debt discount on convertible notes— (1.4)
Unremitted earnings of non-U.S. subsidiaries— (0.9)
Other liabilities(3.0)(0.8)
Total gross deferred tax liabilities(3.0)(7.4)
Net deferred tax asset$78.1 $17.9 
Classified as follows in the Consolidated Balance Sheets:
Other assets and deferred charges (non-current deferred tax assets)$78.7 $19.9 
Deferred income taxes (non-current deferred tax liabilities)(0.6)(2.0)
Net deferred tax asset$78.1 $17.9 

A reduction of the carrying amounts of deferred tax assets by a valuation allowance is required if, based on all available evidence, it is more likely than not that such assets will not be realized. The need to establish valuation allowances for deferred tax assets is assessed at each reporting period. In assessing the requirement for, and amount of, a valuation allowance in accordance with the more-likely-than-not standard, the Company gives appropriate consideration to all positive and negative evidence related to the realization of the deferred tax assets. This assessment considers, among other matters, the nature, frequency, and severity of current and cumulative losses, forecasts of future profitability, the duration of statutory carryforward periods, the Company's experience with operating loss and tax credit carryforwards not expiring unused, and tax planning strategies.

In determining the need for the valuation allowance, the Company considered all positive and negative evidence. The Company gives more weight to evidence that is objective in nature as compared to subjective evidence. Significant weight is given to evidence that directly relates to current financial performance. During the year ended December 31, 2021, the Company emerged from a three-year U.S. cumulative loss position. Recent domestic pre-tax operating earnings is a significant, principal piece of positive evidence. Other positive evidence included strategic actions taken by the Company to lower costs specific to U.S. operations. As a result, the Company determined that a significant portion of the U.S. valuation allowance should be reversed.

During the year ended December 31, 2021, the Company recorded a decrease in the U.S. valuation allowance of $59.1 million. As of December 31, 2021, the Company's net deferred tax assets of $78.1 million included a valuation allowance of $39.1 million against certain state, federal, and foreign deferred tax assets.
At December 31, 2021, the Company had $20.6 million of U.S. federal net operating losses that are available, of which $7.3 million will expire in the next 5 to 10 years, and of which $13.3 million will expire in the next 11 to 20 years. There are $49.5 million of domestic State net operating losses that are available between 2027 and 2040. There are $14.3 million of non-U.S. net operating loss carryforwards, of which $0.1 million will expire in the next 5 years; $1.4 million will expire in the next 5 to 10 years; $9.4 million will expire in the next 10 to 20 years; $2.8 million can be carried forward indefinitely; and $0.6 million is capital loss carried forward indefinitely.

The Company has $26.8 million of U.S. federal research and development credits that begin to expire in 2022 and $16.4 million of foreign tax credits that begin to expire in 2027. In addition, the Company has $20.4 million of state credits, of which $2.9 million will expire between 2022 and 2036 if unused, and $17.5 million can be carried forward indefinitely.

The Company has not provided for U.S. federal income taxes on the historical undistributed earnings of its international subsidiaries because such earnings are currently reinvested in foreign jurisdictions and will continue to be reinvested indefinitely, with the exception of its Malaysian and Luxembourg subsidiaries. Our Malaysian principal subsidiary is our primary source of foreign earnings and cash. Any future decision to distribute cash from this subsidiary to the U.S. should not result in a material amount of U.S. or foreign taxes as the majority of the Company's $1.1 billion historical undistributed earnings have been previously taxed in the U.S. under the Tax Cuts and Jobs Act of 2017.

Unrecognized Tax Benefits

The Company records interest and penalties associated with unrecognized tax benefits as a component of income tax expense. During the years ended December 31, 2021, 2020, and 2019, the Company recorded no potential interest benefit or expense. There was no accrued interest at December 31, 2021, 2020 and 2019. There was no recorded potential penalty expense during the years ended December 31, 2021, 2020, and 2019. Total accrued penalties at December 31, 2021, 2020, and 2019 of $0.3 million were included in Other liabilities on the Consolidated Balance Sheets.

The Company's tax returns are routinely audited by the tax authorities in the relevant jurisdictions. For tax years before 2017, the Company is no longer subject to U.S. federal income tax examination. For tax years before 2015, the Company’s Malaysian principal subsidiary is no longer subject to examination. Included in the balance of total unrecognized tax benefits at December 31, 2021 are potential benefits of $2.0 million, which if recognized, would affect the effective rate on earnings from continuing operations. Given the Company's current valuation allowance position, no benefit is expected to result from the reversal of any uncertain tax position associated with the acquired attributes.
Unrecognized tax benefits at January 1, 2019$10.1 
Additions for tax positions of prior years2.8 
Reductions for tax positions of prior years(0.1)
Settlements(0.1)
Unrecognized tax benefits at December 31, 2019$12.7 
Settlements(2.6)
Foreign exchange fluctuations0.1 
Unrecognized tax benefits at December 31, 2020$10.2 
Reductions for tax positions of prior years(0.3)
Settlements(0.4)
Unrecognized tax benefits at December 31, 2021$9.5