INCOME TAXES

12 Months Ended

Dec. 31, 2019

INCOME TAXES

The components of income (loss) before income taxes were as follows:



For the years ended December 31,	2019		2018		2017
Domestic	$	1,211,051	$	1,195,645	$	1,187,825
Foreign	169,733		214,416		(77,157		)
Income before income taxes	$	1,380,784	$	1,410,061	$	1,110,668

The components of our provision for income taxes were as follows:



For the years ended December 31,	2019			2018			2017
Current:
Federal	$	179,358		$	151,107		$	314,277
State	38,232			38,243			37,628
Foreign	31,514			13,405			(16,356		)
	249,104			202,755			335,549
Deferred:
Federal	14,958			35,035			19,204
State	1,865			7,572			7,573
Foreign	(31,895		)	(6,352		)	(8,195		)
	(15,072		)	36,255			18,582
Total provision for income taxes	$	234,032		$	239,010		$	354,131

U.S. Tax Cuts and Jobs Act of 2017

The U.S. Tax Cuts and Jobs Act, enacted in December 2017 (“U.S. tax reform”), significantly changed U.S. corporate income tax laws by, among other things, reducing the U.S. corporate income tax rate to 21% starting in 2018 and creating a territorial tax system with a one-time mandatory tax on previously deferred foreign earnings of U.S. subsidiaries. Under GAAP (specifically, ASC Topic 740), the effects of changes in tax rates and laws on deferred tax balances are recognized in the period in which the new legislation is enacted.

During the fourth quarter of 2017, we recorded a net provisional charge of $32.5 million, which included the estimated impact of the one-time mandatory tax on previously deferred earnings of non-U.S. subsidiaries offset in part by the benefit from revaluation of net deferred tax liabilities based on the new lower corporate income tax rate. During 2018, we recorded net benefits totaling $19.5 million as measurement period adjustments to the net provisional charge. The accounting for income tax effects of U.S. tax reform is complete based on additional tax regulations available as of December 31, 2018. Amounts recorded during 2018 and 2017 are reflected within the respective provision for income taxes in the Consolidated Statements of Income.

Additionally, U.S. tax reform subjects a U.S. shareholder to current tax on global intangible low-taxed income ("GILTI") earned by certain foreign subsidiaries. We have elected to not recognize deferred taxes for temporary differences until such differences reverse as GILTI in future years.

Deferred taxes reflect temporary differences between the tax basis and financial statement carrying value of assets and liabilities. The significant temporary differences that comprised the deferred tax assets and liabilities are as follows:



December 31,	2019			2018
Deferred tax assets:
Post-retirement benefit obligations	$	56,384		$	52,915
Accrued expenses and other reserves	88,590			85,180
Stock-based compensation	19,304			30,448
Derivative instruments	16,864			17,423
Pension	3,952			8,921
Lease liabilities	64,988			12,284
Accrued trade promotion reserves	21,709			13,670
Net operating loss carryforwards	160,584			161,242
Capital loss carryforwards	26,022			26,670
Other	9,685			9,969
Gross deferred tax assets	468,082			418,722
Valuation allowance	(206,743		)	(239,959		)
Total deferred tax assets	261,339			178,763
Deferred tax liabilities:
Property, plant and equipment, net	161,449			144,044
Acquired intangibles	144,314			161,003
Lease ROU assets	48,419			—
Inventories	29,158			21,366
Other	46,984			28,044
Total deferred tax liabilities	430,324			354,457
Net deferred tax (liabilities) assets	$	(168,985	)	$	(175,694	)
Included in:
Non-current deferred tax assets, net	31,033			1,166
Non-current deferred tax liabilities, net	(200,018		)	(176,860		)
Net deferred tax (liabilities) assets	$	(168,985	)	$	(175,694	)

Changes in deferred taxes was primarily due to the adoption of ASU 2016-02, Leases (Topic 842) and the recognition of lease liabilities and lease ROU assets. Changes in the valuation allowance resulted primarily from the release of valuation allowances in Mexico and Brazil.

The valuation allowances as of December 31, 2019 and 2018 were primarily related to U.S. capital loss carryforwards and various foreign jurisdictions' net operating loss carryforwards and other deferred tax assets that we do not expect to realize.

The following table reconciles the federal statutory income tax rate with our effective income tax rate:



For the years ended December 31,	2019		2018		2017
Federal statutory income tax rate	21.0	%	21.0	%	35.0	%
Increase (reduction) resulting from:
State income taxes, net of Federal income tax benefits	1.8		2.7		2.6
Qualified production income deduction	—		—		(2.9	)
Business realignment and impairment charges	—		0.6		4.3
Foreign rate differences	(1.5	)	(2.0	)	(4.3	)
Historic and solar tax credits	(3.4	)	(3.5	)	(4.8	)
U.S. tax reform	—		(1.4	)	2.9
Tax contingencies	0.9		0.5		0.5
Stock compensation	(1.3	)	(0.3	)	(1.1	)
Valuation allowance release	(1.5	)	—		—
Other, net	0.9		(0.6	)	(0.3	)
Effective income tax rate	16.9	%	17.0	%	31.9	%

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



December 31,	2019			2018
Balance at beginning of year	$	97,530		$	42,082
Additions for tax positions taken during prior years	9,327			1,174
Reductions for tax positions taken during prior years	(2,080		)	(2,581		)
Additions for tax positions taken during the current year	10,472			61,627
Settlements	(1,151		)	—
Expiration of statutes of limitations	(5,715		)	(4,772		)
Balance at end of year	$	108,383		$	97,530

The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $102,671 as of December 31, 2019 and $93,507 as of December 31, 2018.

We report accrued interest and penalties related to unrecognized tax benefits in income tax expense. We recognized a net tax expense of $3,824 in 2019, a net tax expense of $1,785 in 2018 and a net tax expense of $795 in 2017 for interest and penalties. Accrued net interest and penalties were $9,978 as of December 31, 2019 and $6,154 as of December 31, 2018.

We file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. A number of years may elapse before an uncertain tax position, for which we have unrecognized tax benefits, is audited and finally resolved. While it is often difficult to predict the final outcome or the timing of resolution of any particular uncertain tax position, we believe that our unrecognized tax benefits reflect the most likely outcome. We adjust these unrecognized tax benefits, as well as the related interest, in light of changing facts and circumstances. Settlement of any particular position could require the use of cash. Favorable resolution would be recognized as a reduction to our effective income tax rate in the period of resolution.

The Company’s major taxing jurisdictions currently include the United States (federal and state), as well as various foreign jurisdictions such as Canada, China, Mexico, Brazil, India, Malaysia and Switzerland. The number of years with open tax audits varies depending on the tax jurisdiction, with 2010 representing the earliest tax year that remains open for examination by certain taxing authorities. The U.S. Internal Revenue Service is examining our U.S. federal income tax returns for 2013, 2014 and 2016.

We reasonably expect reductions in the liability for unrecognized tax benefits of approximately $13,534 within the next 12 months because of the expiration of statutes of limitations and settlements of tax audits.

As of December 31, 2019, we had approximately $726,024 of undistributed earnings of our international subsidiaries. We intend to continue to reinvest earnings outside of the United States for the foreseeable future and, therefore, have not recognized additional tax expense (e.g., foreign withholding taxes due upon repatriation) on these earnings beyond the one-time U.S. repatriation tax due under the 2017 Tax Cuts and Jobs Act.

Investments in Partnerships Qualifying for Tax Credits

We invest in partnerships which make equity investments in projects eligible to receive federal historic and energy tax credits. The investments are accounted for under the equity method and reported within other assets in our Consolidated Balance Sheets. The tax credits, when realized, are recognized as a reduction of tax expense under the flow-through method, at which time the corresponding equity investment is written-down to reflect the remaining value of the future benefits to be realized. For the years ended December 31, 2019, 2018 and 2017 we recognized investment tax credits and related outside basis difference benefits totaling $58,798, $60,111 and $74,600, respectively, and we wrote-down the equity investment by $50,457, $50,329 and $66,209, respectively, to reflect the realization of these benefits. The equity investment write-down is reflected within other (income) expense, net in the Consolidated Statements of Income.