INCOME TAXES

12 Months Ended

Dec. 31, 2019

Income Tax Disclosure [Abstract]

INCOME TAXES

 INCOME TAXES

The components of income from continuing operations before income taxes were as follows:

($ in millions)	2019		2018		2017
Income (loss) before income taxes:
U.S.	$	16.3	$	43.4	$	51.0
Non-U.S.	12.3		4.7		(12.4		)
Total income from continuing operations before income taxes	$	28.6	$	48.1	$	38.6

A reconciliation of the federal statutory corporate income tax rate to our effective income tax rate follows: 

($ in millions)	2019					2018					2017
Tax expense at statutory rate	$	6.0		21.0	%	$	10.1		21.0	%	$	13.5		35.0	%
Add (deduct):
Rates different from statutory(1)	(1.3		)	(4.5	)	(0.9		)	(1.9	)	2.3			5.9
Statutory income tax change	—			—		2.1			4.4		(7.6		)	(19.6	)
State income taxes	1.5			5.2		0.8			1.7		3.5			9.1
Nondeductible items	1.3			4.5		1.3			2.7		3.1			7.9
GILTI inclusion(2)	0.2			0.7		1.1			2.3		—			—
Unrecognized tax benefit relating to warrants(3)	—			—		—			—		0.3			0.7
Valuation allowance	5.8			20.3		4.7			9.8		(2.5		)	(6.6	)
Unrecognized tax benefit	(0.1		)	(0.4	)	(2.2		)	(4.7	)	—			—
Other	(1.1		)	(3.8	)	(0.2		)	(0.4	)	(0.2		)	(0.5	)
Income tax expense on continuing operations	$	12.3		43.0	%	$	16.8		34.9	%	$	12.4		31.9	%

(1) Includes differences between the U.S. federal tax rates and the rates in Canada and the U.S. Virgin Islands.

(2) In accordance with FASB Staff Q&A, Topic 740, No. 5, we have elected to treat the income tax impact of GILTI as a period cost.

(3) Non-cash impacts of changes in the derivative liabilities that we had from our warrants that expired in August 2017 were not recognized for purposes of calculating our tax provision; instead, they were treated as an unrecognized tax benefit.  Further, exercises of the warrants were also treated as an unrecognized tax benefit for purposes of calculating our tax provision.

We operate under a tax holiday in the U.S. Virgin Islands, which is effective through December 31, 2030, and may be extended if certain additional requirements are satisfied. The tax holiday is conditional upon our meeting certain employment and investment thresholds. The impact of these tax holidays decreased foreign taxes $1.6 million and $1.0 million for 2019 and 2018, respectively, and reduced the tax benefit of foreign losses by $2.4 million for 2017. The tax holiday benefited diluted earnings per share by $0.10 and $0.06 in 2019 and 2018, respectively, and lowered diluted earnings per share by $0.14 in 2017.

The amounts of our consolidated federal and state income tax expense (benefit) from continuing operations were as follows: 

($ in millions)	2019			2018			2017
Current:
U.S. Federal	$	(1.9	)	$	2.2		$	8.9
U.S. State	1.9			(0.2		)	7.0
Non-U.S.	0.1			0.2			(0.1		)
	0.1			2.2			15.8
Deferred:
U.S. Federal	$	9.6		$	14.2		$	(0.6	)
U.S. State	0.6			(0.2		)	(3.5		)
Non-U.S.	2.0			0.6			0.7
	12.2			14.6			(3.4		)
Income tax expense on continuing operations	$	12.3		$	16.8		$	12.4

Deferred income tax provisions result from temporary differences in the recognition of expenses for financial reporting purposes and for tax reporting purposes.  Our deferred income tax liabilities and assets were as follows: 

	December 31,
($ in millions)	2019			2018
Deferred tax assets:
Goodwill and other intangibles	$	8.3		$	8.4
Inventory	1.3			2.8
Accrued insurance	5.2			4.6
Stock compensation	3.5			2.5
Interest limitation carryover	10.4			6.6
Start-up acquisition costs	2.8			2.7
Other accrued expenses	3.4			3.4
Operating lease liabilities	18.1			—
Net operating loss ("NOL") carryforwards	11.3			8.4
Property, plant and equipment, net - Polaris	3.3			2.9
Other	1.9			3.7
Total gross deferred tax assets	69.5			46.0
Valuation allowance	(15.1		)	(9.2		)
Net deferred tax assets	54.4			36.8
Deferred income tax liabilities:
Property, plant and equipment, net - non-Polaris	(56.4		)	(46.1		)
Partnership outside basis	(28.2		)	(26.7		)
Depletion	—			(1.6		)
Operating lease assets	(17.9		)	—
Other	(2.2		)	(0.4		)
Total gross deferred tax liabilities	(104.7		)	(74.8		)
Net deferred tax liability(1)	$	(50.3	)	$	(38.0	)

(1) At December 31, 2019, our state deferred tax asset of $4.5 million was classified as a non-current asset, and our U.S. and foreign deferred tax liability of $54.8 million was classified as a non-current liability. At December 31, 2018, our state deferred tax asset of $5.1 million was classified as a non-current asset, and our U.S. and foreign deferred tax liability of $43.1 million was classified as a non-current liability.

In December 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act made broad and complex changes to the U.S. tax code, including, but not limited to, the following that impact us: (1) reduction of the U.S. federal corporate income tax rate from 35% to 21%; (2) extension and expansion of the bonus depreciation provisions; (3) creation of a new limitation on deductible interest expense; (4) enactment of a new provision designed to tax global intangible low-taxed income (“GILTI”) of foreign subsidiaries; (5) repeal of the domestic production activities deduction; (6) further limitation of the deductibility of certain executive compensation; and (7) limitation of certain other deductions.

The Company recorded provisional income tax benefits of $7.6 million in 2017 related to the impact of the Tax Act on our deferred tax balances for the change in tax rate and executive compensation payable in future years. As allowed by SEC Staff Accounting Bulletin No. 118, “Income Tax Accounting Implications of the Tax Cuts and Jobs Act,” we completed our accounting for the income tax effects of the Tax Act in 2018 and recognized a $2.1 million reduction of the provisional income tax benefit.

In accordance with U.S. GAAP, the recognized value of deferred tax assets must be reduced to the amount that is more likely than not to be realized in future periods.  The ultimate realization of the benefit of deferred tax assets from deductible temporary differences or tax carryovers depends on the generation of sufficient taxable income during the periods in which those temporary differences become deductible.  We considered the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment.  Based on these considerations, we had valuation allowances as of December 31, 2019 and 2018 in the amounts of $15.1 million and $9.2 million, respectively, for certain deferred tax assets due to the uncertainty regarding their ultimate realization.  In 2018, we established a valuation allowance of $6.6 million related to the interest expense limitation carryfoward attribute, resulting from the Tax Act, which we do not believe is more likely than not to be realized under the current interpretation of the applicable statute. As of December 31, 2019, the valuation allowance related to the interest expense limitation carryforward was $10.4 million.

As of December 31, 2019, the Company had NOL carryforwards related to tax losses in Canada and the U.S. that may be used to reduce future taxable income. The Canadian NOL carryforwards were approximately $9.9 million as of December 31, 2019, and expire at various dates from 2032 to 2039. The U.S federal NOL carryforwards were approximately $10.7 million as of December 31, 2019, and expire at various dates from 2028 to 2037. The deferred tax assets associated with state NOL carryforwards were approximately $6.4 million as of December 31, 2019, and the underlying state NOL carryforwards expire at various dates from 2020 to 2039. We maintain a valuation allowance of $4.7 million for certain NOL carryforwards because of the uncertainty of their recovery.

Under U.S. tax law, we treat our Canadian and U.S. Virgin Island subsidiaries (collectively, “foreign subsidiaries”) as controlled foreign corporations. We consider the undistributed earnings, if any, and other outside basis differences in our investments in our foreign subsidiaries to be indefinitely reinvested and, accordingly, no foreign withholding or other income taxes have been provided thereon. Due to the complexities in the tax laws, it is not practicable to estimate the amount of deferred income taxes not recorded that are associated with those earnings or other outside basis differences. We have not, nor do we currently anticipate in the foreseeable future, the need to repatriate funds to the U.S. to satisfy domestic liquidity needs arising in the ordinary course of business, including liquidity needs associated with our domestic debt service requirements.

At December 31, 2019, we had unrecognized tax benefits of $12.3 million, including accrued penalties and interest, of which, $11.5 million would impact the effective tax rate if recognized. The unrecognized tax benefits were primarily included as components of other long-term obligations and deferred credits and deferred income taxes. We recorded interest and penalties related to unrecognized tax benefits, which were included in income tax expense in our consolidated statements of operations of $0.2 million in 2019, $0.2 million in 2018 and $0.4 million in 2017.  Total accrued penalties and interest at December 31, 2019 and 2018 were approximately $1.0 million and $1.1 million, respectively, which were included in the related tax liability in our consolidated balance sheets. It is reasonably possible that our unrecognized tax benefits could significantly decrease within the next twelve months should the U.S. Department of Treasury issue final regulations, with respect to the interest expense limitation, that remove certain unfavorable interpretations of the applicable statute.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

($ in millions)	2019			2018			2017
Unrecognized tax benefits at January 1	$	4.6		$	6.2		$	43.0
Additions for tax positions related to current year	0.5			0.5			6.8
Additions for tax positions related to prior year	7.4			—			—
Reductions - current year decrease	—			—			(5.4		)
Reductions - prior year decrease	(1.2		)	—			(38.2		)
Lapse of statute of limitations	—			(2.1		)	—
Unrecognized tax benefits at December 31	$	11.3		$	4.6		$	6.2

We recorded $0.4 million of unrecognized tax benefits in 2017 related to our warrants that expired in August 2017, due to uncertainty about their deductibility for federal and state income tax purposes. Approximately $39.8 million of unrecognized tax benefits related to warrants were released in 2017 upon the expiration of the warrants, the tax effect of which was generally offset by the write-off of the related deferred tax asset.

We conduct business in the U.S., Canada and the U.S. Virgin Islands, and U.S. Concrete, Inc. or one or more of our subsidiaries file income tax returns in the U.S., Canada, U.S. Virgin Islands and various provincial, state and local jurisdictions. In the normal course of business, we are subject to examination in the U.S., Canada, U.S. Virgin Islands and the provincial, state and local jurisdictions in which we conduct business. With few exceptions, we are no longer subject to U.S. federal, state or local tax examinations or such examinations by the U.S. Virgin Islands for years before 2016. With few exceptions, we are no longer subject to Canadian federal or provincial tax examinations for years before 2015. Currently, the Canadian Revenue Agency is conducting an active examination in connection with our acquisition of Polaris in 2017. The resolution of this audit is still pending. Texas has concluded their audit of our tax years 2013 to 2015, with regards to the margin tax. Although the audit liability has been paid, we continue to contest the state's position.