Income Taxes

12 Months Ended

Dec. 31, 2019

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes:

Income before income taxes and equity in net income of unconsolidated investments, and current and deferred income tax expense (benefit) are composed of the following (in thousands):

	Year Ended December 31,
	2019			2018			2017
Income before income taxes and equity in net income of unconsolidated investments:
Domestic	$	190,195		$	223,702		$	(8,293	)
Foreign	372,755			570,999			455,091
Total	$	562,950		$	794,701		$	446,798
Current income tax expense (benefit):
Federal	$	21,258		$	(2,712	)	$	394,747
State	5,453			6,793			323
Foreign	47,056			91,581			78,688
Total	$	73,767		$	95,662		$	473,758
Deferred income tax (benefit) expense:
Federal	$	13,255		$	15,573		$	(58,640	)
State	(7,369		)	1,614			(2,288		)
Foreign	8,508			31,977			18,987
Total	$	14,394		$	49,164		$	(41,941	)
Total income tax expense	$	88,161		$	144,826		$	431,817

The TCJA was signed into law in the U.S. in December 2017, after which the SEC staff issued SAB 118, which provided a measurement period of up to one year from the TCJA’s enactment date for companies to complete their accounting under ASC 740, Income Taxes. In connection with the enactment of the TCJA, the Company recorded a net tax expense of $366.9 million during 2017 and additional net benefits of $29.3 million in 2018 including measurement period adjustments, primarily related to the one-time transition tax, the remeasurement of deferred tax assets and liabilities and other TCJA impacts.

The current and deferred income tax expense for 2019 decreased as a result of our geographic mix of earnings. The decrease in the current income tax expense from 2017 to 2018 is primarily related to the tax impact of the one-time transition

tax imposed by the TCJA recorded in 2017. The increase in the deferred tax expense from 2017 to 2018 is primarily related to the tax impact associated with the remeasurement of deferred tax assets and liabilities under the TCJA from a statutory rate of 35% to 21% recorded in 2017.

As of January 1, 2018, the Company recorded a cumulative adjustment to decrease Retained earnings by $18.1 million as a result of the adoption of income tax standard updates.

The reconciliation of the U.S. federal statutory rate to the effective income tax rate is as follows:

	% of Income Before Income Taxes
	2019		2018		2017
Federal statutory rate	21.0	%	21.0	%	35.0	%
State taxes, net of federal tax benefit	(0.5	)	0.9		(0.5	)
Change in valuation allowance (a)	1.9		0.7		(1.4	)
Impact of foreign earnings, net(b)	(3.7	)	(0.3	)	(13.5	)
Global intangible low tax inclusion	1.8		0.8		—
Change in U.S. federal statutory rate(c)	—		0.1		(14.0	)
Transition tax on deferred foreign earnings(d)	—		(5.3	)	96.1
Subpart F income	0.6		0.9		2.0
Undistributed earnings of foreign subsidiaries	—		—		(2.2	)
Stock-based compensation	(0.6	)	(0.7	)	(1.9	)
Depletion	(0.7	)	(0.6	)	(1.4	)
Revaluation of unrecognized tax benefits/reserve requirements	(2.7	)	—		(0.7	)
Other items, net	(1.4	)	0.7		(0.9	)
Effective income tax rate	15.7	%	18.2	%	96.6	%

(a) The year ended December 31, 2019 includes a $2.1 million benefit due to the release of a foreign valuation allowance due to changes in expected profitability. 2018 includes an $8.2 million expense due to the establishment of a valuation allowance due to a foreign restructuring plan and a $1.5 million benefit due to the release of a foreign valuation allowance due to changes in expected profitability. 2017 includes a $10.9 million benefit from the release of valuation allowances due to a foreign restructuring plan.

(b) Our statutory rate is decreased by of our share of the income of JBC, a Free Zones company under the laws of the Hashemite Kingdom of Jordan. The applicable provisions of the Jordanian law, and applicable regulations thereunder, do not have a termination provision and the exemption is indefinite. As a Free Zones company, JBC is not subject to income taxes on the profits of products exported from Jordan, and currently, substantially all of the profits are from exports. This resulted in a rate benefit of 8.0%, 3.3%, and 8.9% for 2019, 2018, and 2017, respectively.

(c) At December 31, 2017 we made a reasonable estimate of the tax impact of the U.S. enacted tax law on our business and our consolidated financial statements and recorded a provisional tax benefit of $62.3 million related to the remeasurement of our deferred tax assets and liabilities for the reduction in the Federal statutory tax rate from 35% to 21%. In 2018, the updates to our calculation of the remeasurement of deferred tax assets and liabilities resulted in income tax expense of $0.4 million.

(d) At December 31, 2017 we made a reasonable estimate of the tax impact of the U.S. enacted tax law on our business and our consolidated financial statements and recognized a provisional tax expense of $429.2 million for the one-time transition tax. During 2018, the impact of the refined one-time transition tax calculation was an income tax benefit of $42.3 million.

Deferred income tax assets and liabilities recorded on the consolidated balance sheets as of December 31, 2019 and 2018 consist of the following (in thousands):

	December 31,
	2019			2018
Deferred tax assets:
Accrued employee benefits	$	17,462		$	18,462
Operating loss carryovers	1,134,410			1,210,377
Pensions	64,230			61,308
Tax credit carryovers	1,497			1,270
Other	64,955			35,895
Gross deferred tax assets	1,282,554			1,327,312
Valuation allowance	(1,148,268		)	(1,213,750		)
Deferred tax assets	134,286			113,562
Deferred tax liabilities:
Depreciation	(349,264		)	(337,503		)
Intangibles	(88,934		)	(88,871		)
Hedge of net investment of foreign subsidiary	(23,498		)	(21,854		)
Other	(55,173		)	(31,287		)
Deferred tax liabilities	(516,869		)	(479,515		)
Net deferred tax liabilities	$	(382,583	)	$	(365,953	)
Classification in the consolidated balance sheets:
Noncurrent deferred tax assets	$	15,275		$	17,029
Noncurrent deferred tax liabilities	(397,858		)	(382,982		)
Net deferred tax liabilities	$	(382,583	)	$	(365,953	)

Changes in the balance of our deferred tax asset valuation allowance are as follows (in thousands):

	Year Ended December 31,
	2019			2018			2017
Balance at January 1	$	(1,213,750	)	$	(458,288	)	$	(69,900	)
Additions(a)	(24,986		)	(766,012		)	(408,252		)
Deductions	90,468			10,550			19,864
Balance at December 31	$	(1,148,268	)	$	(1,213,750	)	$	(458,288	)

(a) During 2018, the Company recognized intercompany losses at a foreign entity related to international restructuring resulting in an increase to the deferred tax asset for net operating losses and an associated and equal valuation allowance of $749.8 million.

At December 31, 2019, we had approximately $1.5 million of domestic credits available to offset future payments of income taxes, expiring in varying amounts between 2020 and 2038. We have established valuation allowances for $0.2 million of those domestic credits since we believe that it is more likely than not that the related deferred tax assets will not be realized. We believe that sufficient taxable income will be generated during the carryover period in order to utilize the other remaining credit carryovers.

At December 31, 2019, we have on a pre-tax basis, domestic state net operating losses of $200.3 million, expiring between 2020 and 2039, which have pre-tax valuation allowances of $63.6 million established. In addition, we have on a pre-tax basis $4.52 billion of foreign net operating losses, which have pre-tax valuation allowances for $4.49 billion established. $2.76 billion of these foreign net operating losses expire in 2035 and $1.75 billion have an indefinite life. We have established valuation allowances for these deferred tax assets since we believe that it is more likely than not that the related deferred tax assets will not be realized. For the same reason, we established pre-tax valuation allowances of $56.7 million and $77.7 million for other state and foreign deferred tax assets, respectively, unrelated to net operating losses. The realization of the deferred tax assets is dependent on the generation of sufficient taxable income in the appropriate tax jurisdictions. Although realization is not assured, we believe it is more likely than not that the remaining deferred tax assets will be realized. However, the amount considered realizable could be reduced if estimates of future taxable income change.

As of December 31, 2019, we have not recorded taxes on approximately $4.2 billion of cumulative undistributed earnings of our non-U.S.subsidiaries and joint ventures. The TCJA imposed a mandatory transition tax on accumulated foreign earnings and generally eliminated U.S. taxes on foreign subsidiary distribution with the exception of foreign withholding taxes and other foreign local tax. We generally do not provide for taxes related to our undistributed earnings because such earnings either would not be taxable when remitted or they are considered to be indefinitely reinvested. If in the foreseeable future, we can no longer demonstrate that these earnings are indefinitely reinvested, a deferred tax liability will be recognized. A determination of the amount of the unrecognized deferred tax liability related to these undistributed earnings is not practicable due to the complexity and variety of assumptions necessary based on the manner in which the undistributed earnings would be repatriated.

Liabilities related to uncertain tax positions were $21.2 million and $22.9 million at December 31, 2019 and 2018, respectively, inclusive of interest and penalties of $3.7 million and $3.2 million at December 31, 2019 and 2018, respectively, and are reported in Other noncurrent liabilities as provided in Note 16, “Other Noncurrent Liabilities.” These liabilities at December 31, 2019 and 2018 were reduced by $26.1 million and $13.0 million, respectively, for offsetting benefits from the corresponding effects of potential transfer pricing adjustments, state income taxes and rate arbitrage related to foreign structure. These offsetting benefits are recorded in Other assets as provided in Note 11, “Other Assets.” The resulting net asset of $8.6 million as of December 31, 2019 would unfavorably affect earnings if recognized and released, while the net liability of $6.7 million at December 31, 2018 would favorably affect earnings if recognized and released.

The liabilities related to uncertain tax positions, exclusive of interest, were $17.5 million and $19.7 million at December 31, 2019 and 2018, respectively. The following is a reconciliation of our total gross liability related to uncertain tax positions for 2019, 2018 and 2017 (in thousands):

	Year Ended December 31,
	2019			2018			2017
Balance at January 1	$	19,742		$	21,438		$	25,384
Additions for tax positions related to prior years	2,235			874			—
Reductions for tax positions related to prior years	—			—			(1,933		)
Additions for tax positions related to current year	—			1,091			1,132
Lapses in statutes of limitations/settlements	(4,494		)	(3,578		)	(4,198		)
Foreign currency translation adjustment	65			(83		)	1,053
Balance at December 31	$	17,548		$	19,742		$	21,438

We are subject to income taxes in the U.S. and numerous foreign jurisdictions. Due to the statute of limitations, we are no longer subject to U.S. federal income tax audits by the Internal Revenue Service (“IRS”) for years prior to 2011. Due to the statute of limitations, we also are no longer subject to U.S. state income tax audits prior to 2011.

With respect to jurisdictions outside the U.S., several audits are in process. We have audits ongoing for the years 2011 through 2018 related to Germany, Italy, India, Belgium, and Chile, some of which are for entities that have since been divested.

While we believe we have adequately provided for all tax positions, amounts asserted by taxing authorities could be greater than our accrued position. Accordingly, additional provisions on federal and foreign tax-related matters could be recorded in the future as revised estimates are made or the underlying matters are settled or otherwise resolved.

Since the timing of resolutions and/or closure of tax audits is uncertain, it is difficult to predict with certainty the range of reasonably possible significant increases or decreases in the liability related to uncertain tax positions that may occur within the next twelve months. Our current view is that it is reasonably possible that we could record a decrease in the liability related to uncertain tax positions, relating to a number of issues, up to approximately $9.6 million as a result of closure of tax statutes.