Income Taxes (Tables)

12 Months Ended

Dec. 31, 2018

Earnings (loss) from continuing operations before income taxes

Following is a summary of earnings before income taxes for United States and foreign operations:



	2018		2017	2016
United States	$	387,564	754,562	627,567
Foreign	661,637		563,295	613,558
Earnings before income taxes	$	1,049,201	1,317,857	1,241,125

Income tax expense (benefit)

Income tax expense (benefit) for the years ended December 31, 2018, 2017 and 2016 consists of the following:



	2018		2017		2016
Current income taxes:
U.S. federal	$	22,700	327,697		247,917
State and local	14,521		17,811		31,939
Foreign	58,669		73,248		61,712
Total current	95,890		418,756		341,568
Deferred income taxes:
U.S. federal	54,983		(17,419	)	(16,167	)
State and local	19,076		(3,046	)	(22,115	)
Foreign	14,397		(55,126	)	4,273
Total deferred	88,456		(75,591	)	(34,009	)
Total	$	184,346	343,165		307,559

Reconciliation of income tax expense (benefit)

Income tax expense (benefit) attributable to earnings before income taxes differs from the amounts computed by applying the U.S. statutory federal income tax rate to earnings before income taxes as follows:



	2018			2017		2016
Income taxes at statutory rate	$	220,332		461,250		434,394
State and local income taxes, net of federal income tax benefit	22,315			10,133		6,298
Foreign income taxes^(a)	(39,915		)	(113,520	)	(111,217	)
Change in valuation allowance	2,472			10,008		(21,106	)
Manufacturing deduction	—			(11,911	)	(15,186	)
2017 revaluation of deferred tax assets and liabilities ^(b)	—			(150,546	)	—
Transition Tax	28,201			105,165		—
Transition tax planning initiatives	(18,706		)	14,825		3,881
Tax contingencies and audit settlements, net	(31,874		)	23,097		2,496
Other, net	1,521			(5,336	)	7,999
	$	184,346		343,165		307,559

(a) Foreign income taxes includes statutory rate differences, financing arrangements, withholding taxes, local income taxes, notional deductions, and other miscellaneous items. The significant decrease in foreign income taxes for 2018 is primarily due to the impact of the U.S. statutory rate reduction from 35% to 21% as a result of the Tax Cuts and Jobs Act (“TCJA”) discussed below.

(b) 2017 revaluation of deferred tax assets and liabilities includes $106,107 related to the TCJA and $44,439 related to Belgium tax reform.

Deferred tax assets and deferred tax liabilities

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities as of December 31, 2018 and 2017 are presented below:



	2018			2017
Deferred tax assets:
Accounts receivable	$	8,312		18,481
Inventories	47,212			41,169
Employee benefits	37,335			42,191
Accrued expenses and other	71,621			52,635
Deductible state tax and interest benefit	2,904			2,087
Intangibles	16,134			22,119
Federal, foreign and state net operating losses and credits	575,625			530,978
Gross deferred tax assets	759,143			709,660
Valuation allowance	(347,786		)	(362,963	)
Net deferred tax assets	411,357			346,697
Deferred tax liabilities:
Inventories	(18,332		)	(14,423	)
Plant and equipment	(477,734		)	(397,668	)
Intangibles	(181,436		)	(170,817	)
Other liabilities	(96,134		)	(31,702	)
Gross deferred tax liabilities	(773,636		)	(614,610	)
Net deferred tax liability	$	(362,279	)	(267,913	)

Reconciliation of unrecognized tax benefits

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



	2018			2017
Balance as of January 1	$	65,631		46,434
Additions based on tax positions related to the current year ^(a)	1,304,447			28,663
Additions for tax positions of acquired companies	1,413			1,776
Additions for tax positions of prior years	5,098			876
Transition tax planning initiatives	(27,470		)	—
Reductions resulting from the lapse of the statute of limitations	(8,110		)	(14,502	)
Settlements with taxing authorities	(9,773		)	(655	)
Effects of foreign currency translation	(523		)	3,039
Balance as of December 31	$	1,330,713		65,631

(a) Includes tax effected loss of $1,298,737 on Luxembourg hybrid instruments redemptions. This $1,298,737 of unrecognized benefit is presented as a reduction to the related deferred tax asset in the balance sheet.