Income Taxes (Notes)

12 Months Ended

Dec. 31, 2022

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	2023			2022			2021
Income (loss) components:
United States	$	164.6		$	155.7		$	199.4
International	354.9			306.1			309.7
Income from continuing operations before income tax	519.5			461.8			509.1
Income tax expense (benefit) components:
Current income tax expense (benefit):
United States – federal	41.3			32.6			21.1
United States – state and local	5.5			1.2			2.6
International	85.6			54.4			50.2
Total current income tax expense	132.4			88.2			73.9
Deferred income tax expense (benefit) components:
United States – federal	(14.1)			(0.2)			96.9
United States – state and local	(2.7)			3.1			15.5
International	(10.8)			—			3.3
Total deferred income tax expense (benefit)	(27.6)			2.9			115.7
Income tax expense	$	104.8		$	91.1		$	189.6
Effective income tax rate	20.2		%	19.7		%	37.2		%

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	2023		2022		2021
Tax provision at U.S. statutory rate	21.0	%	21.0	%	21.0	%
State and local income tax	0.9	%	1.1	%	0.6	%
U.S. tax on foreign earnings	1.3	%	0.6	%	0.1	%
Italy patent box	(1.1)	%	(1.2)	%	(1.3)	%
Foreign-Derived Intangible Income ("FDII")	(1.2)	%	(1.1)	%	(0.5)	%
Excess tax benefits on stock-based compensation	(0.2)	%	(0.5)	%	(0.6)	%
Audit settlements and unrecognized tax benefits	2.7	%	(0.2)	%	(1.0)	%
Valuation allowance on deferred tax assets	(3.1)	%	(0.2)	%	(0.4)	%
Tax on undistributed foreign earnings	0.3	%	(0.1)	%	0.8	%
Asbestos divestiture	—	%	—	%	18.9	%
Foreign tax rate differential	1.6	%	—	%	(0.2)	%
Amended tax return	(1.0)	%	—	%	—	%
Other adjustments	(1.0)	%	0.3	%	(0.2)	%
Effective income tax rate	20.2	%	19.7	%	37.2	%

The higher effective tax rate in 2023 compared to 2022 resulted from the Company recording tax expense in 2023 of $14.2 relating to a tax audit in Italy covering tax years 2016-2022. The 2023 expense includes $6.8 of U.S. tax on foreign earnings. These tax expenses were offset by $16.1 from valuation allowance reversals on deferred tax assets in Germany. ITT also recognized tax benefits of $4.9 from the filing of an amended 2017 consolidated federal tax return.

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, 2023, the amount of undistributed earnings and profits of all foreign subsidiaries was $1,246.2. 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, 2023, the indefinitely reinvested excess of financial reporting over tax basis was $325.5.

The following table includes the items comprising our deferred tax assets and liabilities.

As of December 31	2023		2022
Deferred Tax Assets:
Loss carryforwards	$	97.0	$	119.1
Inventory	24.1		20.5
Accruals	27.1		26.0
Employee benefits	39.0		34.1
Research and expenditures capitalization	17.8		10.2
Credit carryforwards	11.1		2.8
Other	30.2		25.2
Gross deferred tax assets	246.3		237.9
Less: Valuation allowance	73.3		102.4
Net deferred tax assets	$	173.0	$	135.5
Deferred Tax Liabilities:
Intangibles	$	(45.3)	$	(42.2)
Undistributed earnings	(46.2)		(34.8)
Accelerated depreciation	(24.1)		(24.3)
Total deferred tax liabilities	$	(115.6)	$	(101.3)
Net deferred tax assets	$	57.4	$	34.2

Deferred taxes included in our Consolidated Balance Sheets were as follows:

As of December 31	2023		2022
Other non-current assets	$	76.0	$	54.7
Other non-current liabilities	(18.6)		(20.5)
Net deferred tax assets	$	57.4	$	34.2

The table below provides a rollforward of our valuation allowance on net deferred tax assets (DTA).

	State		Foreign		Total
DTA valuation allowance as of 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 as of December 31, 2021	$	35.7	$	73.1	$	108.8
Change in assessment	—		(1.1)		(1.1)
Current year operations	3.8		(9.1)		(5.3)
DTA valuation allowance as of December 31, 2022	$	39.5	$	62.9	$	102.4
Change in assessment	(23.1)		(16.4)		(39.5)
Current year operations	(0.8)		11.2		10.4
DTA valuation allowance as of December 31, 2023	$	15.6	$	57.7	$	73.3

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 the U.K. 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, 2023 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, 2023:

Attribute	Amount		First Year of Expiration
U.S. state net operating losses	$	312.6	12/31/2024
U.S. federal tax credits	8.4		12/31/2029
U.S. state tax credits	2.3		12/31/2027
Foreign net operating losses(a)	305.7		12/31/2024

(a)Includes approximately $223.0 of net operating loss carryforwards in Luxembourg as of December 31, 2023.

Excess tax benefits related to stock-based compensation of $0.9, $2.4 and $3.2 for 2023, 2022 and 2021, respectively, were recorded as an income tax benefit in the statement of operations and have been reflected in the caption “Excess tax benefits on stock-based compensation” 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	2023		2022		2021
Unrecognized tax benefits – January 1	$	6.7	$	7.6	$	41.5
Additions for:
Current year tax positions	1.4		1.7		0.6
Prior year tax positions	0.5		0.3		0.1
Reductions for:
Prior year tax positions	(0.6)		(0.1)		(5.5)
Expiration of statute of limitations	(2.3)		(2.8)		(19.7)
Settlements	—		—		(9.4)
Unrecognized tax benefits – December 31	$	5.7	$	6.7	$	7.6

As of December 31, 2023, $4.4 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 Czechia, 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 is not expected to change by a significant amount.

The following table summarizes the earliest open tax years by major jurisdiction as of December 31, 2023:

Jurisdiction	Earliest Open Year
China	2018
Czechia	2014
Germany	2017
Hong Kong	2020
India	2013
Italy	2016
Japan	2022
Korea	2023
Luxembourg	2017
Mexico	2016
United States	2020

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 2023, 2022, and 2021 we recognized a net interest benefit of $0.1, $0.0, and $0.7, respectively, related to tax matters.