On December 22, 2017, the Tax Cuts and Jobs Act “(TCJA”) was signed into federal law. The TCJA significantly revised the U.S. corporate income tax system by lowering the U.S. corporate income tax rate from 35% to 21% effective January 1, 2018. In addition, the TCJA added several new provisions including changes to bonus depreciation, the deduction for executive compensation, a tax on global intangible low-taxed income (“GILTI”), the base erosion anti-abuse tax (“BEAT”) and a deduction for foreign-derived intangible income (“FDII”). Many of these provisions, including the tax on GILTI, the BEAT and the deduction for FDII, did not apply to the Company until June 1, 2018. The Company has elected to account for the tax on GILTI as a period cost and thus has not adjusted any of the deferred tax assets and liabilities of its foreign subsidiaries for the new tax. The two material items that impacted the Company for fiscal 2018 were the reduction in the tax rate and a one-time mandatory deemed repatriation tax imposed on the Company’s unremitted foreign earnings. Due to the Company’s fiscal year, the Company’s fiscal 2018 U.S. federal blended statutory income tax rate was 29.2%. The Company’s U.S. federal statutory income tax rate is 21.0% starting June 1, 2018.

Consistent with applicable Securities and Exchange Commission guidance in Staff Accounting Bulletin 118 (“SAB118”), the Company recognized a provisional income tax benefit of $38,200,000 related to the re-measurement of deferred tax assets and liabilities and a provisional income tax expense of $6,900,000 for the one-time mandatory deemed repatriation tax during fiscal 2018. During fiscal 2019, the Company finalized the accounting for the TCJA and made no material adjustments to these provisional amounts.

Earnings before income taxes for the three fiscal years ended May 31 include the following components:

(in thousands)	2019		2018		2017
United States based operations	$	173,200	$	177,088	$	266,222
Non – United States based operations		33,256		31,982		30,905
Earnings before income taxes		206,456		209,070		297,127
Less: Net earnings attributable to noncontrolling interests*		9,818		6,056		13,422
Earnings before income taxes attributable to controlling interest	$	196,638	$	203,014	$	283,705

Net earnings attributable to noncontrolling interests are not taxable to Worthington.

Significant components of income tax expense (benefit) for the fiscal years ended May 31 were as follows:

(in thousands)	2019			2018			2017
Current
Federal	$	15,454		$	33,261		$	50,200
State and local		2,309			3,292			2,954
Foreign		7,985			9,904			7,593
		25,748			46,457			60,747
Deferred
Federal		18,195			(34,442	)		18,177
State and local		1,621			388			476
Foreign		(2,381	)		(4,183	)		(210	)
		17,435			(38,237	)		18,443
	$	43,183		$	8,220		$	79,190

The tax benefit related to the purchase of the noncontrolling interest in dHybrid Systems, LLC credited to additional paid-in capital was $539,000 for fiscal 2017. Tax benefits (expenses) related to defined benefit pension liability that were credited to (deducted from) OCI were $418,000, $(309,000), and $(1,158,000) for fiscal 2019, fiscal 2018 and fiscal 2017, respectively. Tax benefits (expenses) related to cash flow hedges that were credited to (deducted from) OCI were $3,780,000, $(392,000), and $1,700,000 for fiscal 2019, fiscal 2018 and fiscal 2017, respectively.

A reconciliation of the federal statutory corporate income tax rate to total tax provision follows:

	2019			2018			2017
Federal statutory corporate income tax rate		21.0	%		29.2	%		35.0	%
State and local income taxes, net of federal tax benefit		2.1			2.3			1.5
Non-U.S. income taxes at other than federal statutory rate		0.2			(1.4	)		(1.4	)
Qualified production activities deduction		-			(2.3	)		(1.9	)
Impact of tax reform (1)		-			(15.4	)		-
Worthington Aritas write down		-			(4.8	)		-
Excess benefit related to share-based payment awards		(1.4	)		(2.0	)		(5.7	)
AMTROL acquisition		-			(1.9	)		-
Other		0.1			0.3			0.4
Effective tax rate attributable to controlling interest		22.0	%		4.0	%		27.9	%

(1)

Amount reflects the impact of the re-measurement of the Company’s deferred tax balances at the lower federal statutory corporate income tax rate, net of the mandatory deemed repatriation tax on unremitted foreign earnings.

The above effective tax rate attributable to controlling interest excludes any impact from the inclusion of net earnings attributable to noncontrolling interests in our consolidated statements of earnings. The effective tax rates upon inclusion of net earnings attributable to noncontrolling interests were 20.9%, 3.9% and 26.7% for fiscal 2019, fiscal 2018 and fiscal 2017, respectively. Net earnings attributable to noncontrolling interests are primarily a result of our WSP, Spartan, and TWB consolidated joint ventures and Worthington Aritas through May 23, 2018, which is the date we purchased the remaining 25% ownership interest. The earnings attributable to the noncontrolling interests in WSP, Spartan and TWB’s U.S. operations do not generate tax expense to Worthington since the investors in WSP, Spartan and TWB’s U.S. operations are taxed directly based on the earnings attributable to them. The tax expense of Worthington Aritas (a foreign corporation), and TWB’s wholly-owned foreign corporations, is reported in our consolidated tax expense.

Under applicable accounting guidance, a tax benefit may be recognized from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Any tax benefits recognized in our financial statements from such a position were measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement.

The total amount of unrecognized tax benefits were $1,621,000, $2,638,000, and $2,975,000 as of May 31, 2019, 2018 and 2017, respectively. The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate attributable to controlling interest was $1,257,000 as of May 31, 2019. Unrecognized tax benefits are the differences between a tax position taken, or expected to be taken in a tax return, and the benefit recognized for accounting purposes. Accrued amounts of interest and penalties related to unrecognized tax benefits are recognized as part of income tax expense within our consolidated statements of earnings. As of May 31, 2019, 2018 and 2017, we had accrued liabilities of $287,000, $271,000 and $307,000, respectively, for interest and penalties related to unrecognized tax benefits.

(In thousands)
Balance at May 31, 2018	$	2,638
Decreases - tax positions taken in prior years		(96	)
Increases - tax positions taken in prior years		41
Increases - current tax positions		43
Settlements		(831	)
Lapse of statutes of limitations		(174	)
Balance at May 31, 2019	$	1,621

Approximately $1,000,000 of the liability for unrecognized tax benefits is expected to be settled in the next twelve months due to the expiration of statutes of limitations in various tax jurisdictions and as a result of expected settlements with various tax jurisdictions. While it is expected that the amount of unrecognized tax benefits will change in the next twelve months, any change is not expected to have a material impact on our consolidated financial position, results of operations or cash flows.

The following is a summary of the tax years open to examination by major tax jurisdiction:

The components of our deferred tax assets and liabilities as of May 31 were as follows:

(in thousands)	2019			2018
Deferred tax assets
Accounts receivable	$	1,516		$	1,455
Inventories		5,649			5,004
Accrued expenses		21,195			23,219
Net operating loss carry forwards		16,433			14,201
Stock-based compensation		10,989			10,588
Derivative contracts		2,054			-
Other		316			1,313
Total deferred tax assets		58,152			55,780
Valuation allowance for deferred tax assets		(14,619	)		(14,006	)
Net deferred tax assets		43,533			41,774
Deferred tax liabilities
Property, plant and equipment		(91,732	)		(74,512	)
Investment in affiliated companies, principally due to undistributed earnings		(23,035	)		(22,918	)
Derivative contracts		-			(2,653	)
Other		(2,868	)		(1,879	)
Total deferred tax liability		(117,635	)		(101,962	)
Net deferred tax liability	$	(74,102	)	$	(60,188	)

At May 31, 2019, we had tax benefits for state net operating loss carry forwards of $10,745,000 that expire from fiscal 2021 to the fiscal year ending May 31, 2039, and tax benefits for foreign net operating loss carry forwards of $5,688,000 that expire from fiscal 2020 to the fiscal year ending May 31, 2025.

The valuation allowance for deferred tax assets of $14,619,000 at May 31, 2019 is associated primarily with the net operating loss carry forwards. The valuation allowance includes $9,341,000 for state and $5,278,000 for foreign deferred tax assets. The majority of the state valuation allowance relates to our facility in Decatur, Alabama. The foreign valuation allowance relates to the Company’s operations in Turkey. Based on our history of profitability, the scheduled reversal of deferred tax liabilities, and taxable income projections, we have determined that it is more likely than not that the remaining deferred tax assets are otherwise realizable.