ITT INC

NOTE 6

INCOME TAXES

The following table displays information regarding income tax expense (benefit) from continuing operations.

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.

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.

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

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

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:

(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.

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:

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.

NOTE 7

EARNINGS PER SHARE DATA

The following table provides a reconciliation of basic to diluted common shares outstanding, used in the computation of basic and diluted earnings per share presented in our Consolidated Statements of Operations.

There were 0.1 anti-dilutive shares as of December 31, 2023, andno anti-dilutive shares as of December 31, 2022 and 2021, to exclude from the computation of diluted earnings per share.

NOTE 8

RECEIVABLES, NET

The following table summarizes our receivables and associated allowance for credit losses.

The following table displays our allowance for credit losses for receivables and contract assets.

The following table displays a rollforward of our total allowance for credit losses.

(a) During the years ended December 31, 2023 and 2022, we recognized bad debt expense of $1.2 and $1.6, respectively, relating to impacts stemming from the Russia-Ukraine war. See Note 1, Description of Business and Basis of Presentation, for further information.

NOTE 9

INVENTORIES

The following table summarizes our inventories.

(a) During the years ended December 31, 2023 and 2022, we recorded inventory write-downs of $1.1 and $5.2, respectively, related to inventories held by entities impacted by the Russia-Ukraine war. See Note 1, Description of Business and Basis of Presentation, for further information.

Government Assistance (ASU 2021-10)

Since the start of the COVID-19 pandemic, energy prices have been increasing throughout the world, particularly in Europe. These increases have prompted governments to put in place measures to shield businesses and consumers from the direct impact of rising prices. These measures include granting subsidies to help offset the high energy prices.

ASU 2021-10 requires entities to provide information about the nature of transactions, related policies and effect of government grants on an entity’s financial statements. In particular, in Italy, to qualify for an energy subsidy a company must apply for and receive a certificate attesting that the company is an "energy and gas consuming company" (high energy consumption connected to the production cycle). The amount of subsidies granted is calculated based on a percentage of actual consumption, ranging from 25% to 40%. One of our Italian subsidiaries within our MT segment obtained this certificate and was granted energy subsidies from the Italian government beginning in April 2022. This program concluded in the second quarter of 2023. For the years ended December 31, 2023 and 2022, we recognized a benefit related to energy subsidies of $6.3 and $7.3, respectively, which we recorded within Costs of revenue in our Consolidated Statements of Operations. There was no other material government assistance received by the Company or any of our subsidiaries during the year.

NOTE 10

OTHER CURRENT AND NON-CURRENT ASSETS

The following table summarizes our other current and non-current assets.