

	2018			2017			2016
Income components:
United States	$	114.4		$	89.2		$	87.5
International	276.6			220.2			170.9
Income from continuing operations before income tax	391.0			309.4			258.4
Income tax expense components:
Current income tax expense (benefit):
United States – federal	6.3			7.7			4.3
United States – state and local	7.9			1.3			(0.3		)
International	58.2			38.6			51.1
Total current income tax expense	72.4			47.6			55.1
Deferred income tax expense components:
United States – federal	7.4			105.9			26.4
United States – state and local	(0.2		)	4.4			(2.1		)
International	(21.9		)	36.7			(3.4		)
Total deferred income tax expense	(14.7		)	147.0			20.9
Income tax expense	$	57.7		$	194.6		$	76.0
Effective income tax rate	14.8		%	62.9		%	29.4		%

A reconciliation of the income tax expense 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, 2018, 2017, and 2016:



	2018		2017		2016
Tax provision at U.S. statutory rate	21.0	%	35.0	%	35.0	%
Tax exempt interest	(5.8	)%	(7.8	)%	(5.2	)%
Foreign tax rate differential	2.7	%	(8.6	)%	(3.5	)%
Valuation allowance on deferred tax assets	(2.4	)%	7.2	%	1.4	%
State and local income tax	1.5	%	0.3	%	(0.1	)%
Tax on undistributed foreign earnings	(1.2	)%	(4.8	)%	4.9	%
One-time tax on foreign earnings - Tax Act	(1.0	)%	18.8	%	—	%
Federal deferred taxes remeasurement - Tax Act	0.4	%	27.8	%	—	%
U.S. tax on foreign earnings	0.5	%	0.3	%	4.7	%
Audit settlements and unrecognized tax benefits	(0.3	)%	(0.8	)%	(5.2	)%
U.S. permanent items	(0.2	)%	(2.2	)%	(1.9	)%
Italy patent box prior year benefit	—	%	(1.1	)%	—	%
Other adjustments	(0.4	)%	(1.2	)%	(0.7	)%
Effective income tax rate	14.8	%	62.9	%	29.4	%

The lower effective tax rate in 2018 is primarily due to the reduction to the U.S. corporate tax rate from 35% to 21% in 2018, tax benefits of $22.9 from the reversal of valuation allowances mainly related to German deferred tax assets, and $4.0 from a reduction to the one-time tax charge in 2017 associated with U.S. tax reform.

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Act”) was signed into law making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017, the transition of U.S. international taxation from a worldwide tax system to a territorial system, and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017. In accordance with the Act, the Company recorded $129.2 million as additional income tax expense in the fourth quarter of 2017, the period in which the legislation was enacted. The total expense included $57.9 related to the transition tax and $86.0 related to the remeasurement of certain deferred tax assets and liabilities. The Company also recorded a tax benefit of $14.7 reversing a previously recorded

tax liability related to undistributed foreign earnings. The Company continues to provide tax for foreign withholding taxes, foreign and U.S. state income taxes on future distributions of its foreign earnings.

Additionally, Staff Accounting Bulletin No. 118 ("SAB 118") was issued to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Act. December 22, 2018 marked the end of the measurement period for purposes of SAB 118. As such, the Company has completed the analysis based on legislative updates relating to the Act currently available and recorded an additional tax benefit of $2.6 for the year ended December 31, 2018. The total tax provision benefit included $4.0 related to adjustments to the transition tax and a $1.4 expense related to the remeasurement of certain deferred tax assets and liabilities.

The Company intends to distribute all post-1986 earnings to the U.S. in future years, and therefore is no longer asserting permanent reinvestment of these earnings outside the U.S. Further, the Company will provide for any U.S. state and foreign taxes on distributions of future earnings of its foreign subsidiaries as these earnings will not be considered permanently reinvested in the foreign countries.

The Company has performed computations and has not provided deferred taxes on the $59.1 excess of financial reporting over tax basis in its foreign subsidiaries that exceeds undistributed earnings and profits, which it intends to permanently reinvest outside the U.S. The Company anticipates that foreign earnings of $1,042.7 and future earnings of its foreign subsidiaries that are considered not permanently reinvested will be sufficient to meet its U.S. cash needs. In the event additional foreign funds are needed to support U.S. operations, and if U.S. tax has not already been previously provided, we would be required to accrue and pay additional U.S. taxes.

The Tax Act subjects a U.S. shareholder to tax on Global Intangible Low Tax Income (GILTI) earned by certain foreign subsidiaries. The FASB staff Q&A Topic 740, No. 5 "Accounting for Global Intangible Low-Taxed Income," states that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or to provide for the tax expense related to GILTI in the year the tax is incurred as a period expense only. The Company has elected to account for GILTI as a current period expense when incurred.



	2018			2017
Deferred Tax Assets:
Loss carryforwards	$	157.0		$	165.5
Asbestos	108.7			118.7
Employee benefits	64.9			70.8
Accruals	47.7			51.3
Credit carryforwards	2.2			5.7
Other	22.5			23.1
Gross deferred tax assets	403.0			435.1
Less: Valuation allowance	141.0			170.0
Net deferred tax assets	$	262.0		$	265.1
Deferred Tax Liabilities:
Intangibles	$	(43.5	)	$	(45.4	)
Undistributed earnings	(28.2		)	(39.0		)
Accelerated depreciation	(27.2		)	(31.8		)
Investment	(0.2		)	(0.2		)
Total deferred tax liabilities	$	(99.1	)	$	(116.4	)
Net deferred tax assets	$	162.9		$	148.7



	Federal		State			Foreign			Total
DTA valuation allowance - December 31, 2015	$	—	$	41.5		$	94.2		$	135.7
Change in assessment	—		—			(0.3		)	(0.3		)
Current year operations	—		4.4			(26.5		)	(22.1		)
DTA valuation allowance - December 31, 2016	$	—	$	45.9		$	67.4		$	113.3
Change in assessment	—		—			—			—
Current year operations	—		26.5			30.2			56.7
DTA valuation allowance - December 31, 2017	$	—	$	72.4		$	97.6		$	170.0
Change in assessment	—		—			(22.9		)	(22.9		)
Current year operations	—		(15.1		)	9.0			(6.1		)
DTA valuation allowance - December 31, 2018	$	—	$	57.3		$	83.7		$	141.0

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 India which are not expected to be realized.



Attribute	Amount		First Year of Expiration
U.S. state net operating losses	$	1,203.6	12/31/2019
U.S. state tax credits	2.2		12/31/2020
Foreign net operating losses^(a)	369.3		12/31/2019

Excess tax benefits related to stock-based compensation of $2.2 and $2.7, for 2018 and 2017, respectively, were recorded as an income tax benefit in the statement of operations, whereas the 2016 amount of $3.2 was recorded as an adjustment to retained earnings in the balance sheet. The change in presentation is due to the January 1, 2017 adoption of ASU 2016-09 that simplified several aspects of the accounting for employee share-based payment transactions. The 2018 and 2017 income tax benefit has been reflected in the caption “U.S. permanent items” within the effective tax rate reconciliation table.

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.



	2018			2017			2016
Unrecognized tax benefits – January 1	$	51.9		$	69.5		$	87.6
Additions for:
Current year tax positions	1.5			1.1			1.2
Prior year tax positions	—			—			0.2
Assumed in acquisition	—			—			0.2
Reductions for:
Prior year tax positions	(0.2		)	(12.7		)	(3.8		)
Expiration of statute of limitations	(1.9		)	(5.8		)	(5.0		)
Settlements	(5.5		)	(0.2		)	(10.9		)
Unrecognized tax benefits – December 31	$	45.8		$	51.9		$	69.5

As of December 31, 2018, $19.9 and $1.9 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 12 months, the net amount of the tax liability for unrecognized tax benefits in foreign and domestic jurisdictions could change by approximately $9 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.

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 2018, 2017, and 2016 we recognized a net interest benefit of $0.9, $2.4, and $2.9, respectively, related to tax matters. We had $3.2, $4.1, and $6.8 of interest expense accrued from continuing and discontinued operations related to tax matters as of December 31, 2018, 2017, and 2016, respectively.