Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Note J: Income Taxes

The components of the Company’s income tax expense from continuing operations are as follows:

years ended December 31 (in millions)	2021		2020		2019
Federal income taxes:
Current	$	66.3	$	91.9	$	83.9
Deferred		61.4		45.4		31.1
Total federal income taxes		127.7		137.3		115.0
State income taxes:
Current		18.7		21.0		20.5
Deferred		6.5		8.7		(1.5	)
Total state income taxes		25.2		29.7		19.0
Foreign income taxes:
Current		—		1.2		2.8
Deferred		0.3		—		(0.5	)
Total foreign income taxes		0.3		1.2		2.3
Income tax expense	$	153.2	$	168.2	$	136.3

For the years ended December 31, 2021, 2020 and 2019, foreign pretax earnings were $7.5 million, $8.9 million and $15.1 million, respectively.

The Company’s effective income tax rate on continuing operations varied from the statutory United States income tax rate because of the following tax differences:

years ended December 31	2021			2020			2019
Statutory income tax rate		21.0	%		21.0	%		21.0	%
(Reduction) increase resulting from:
Effect of statutory depletion		(3.5	)		(2.8	)		(3.4	)
State income taxes, net of federal tax benefit		2.3			2.6			2.0
Federal tax credits		(1.4	)		(1.3	)		—
Change in tax status of subsidiary		—			—			(1.7	)
Other items		(0.5	)		(0.6	)		0.3
Effective income tax rate		17.9	%		18.9	%		18.2	%

The statutory depletion deduction for all years is calculated as a percentage of sales, subject to certain limitations. Due to these limitations, the impact of changes in the sales volumes and earnings may not proportionately affect the Company’s statutory depletion deduction and the corresponding impact on the effective income tax rate.

In 2021 and 2020, the Company financed third-party railroad track maintenance. In exchange, the Company received federal income tax credits and tax deductions.

 The Company recognized a net tax benefit from the change in tax status of a subsidiary from a partnership to a corporation in 2019, which reduced income tax expense and increased consolidated net earnings by $15.2 million.

The principal components of the Company’s deferred tax assets and liabilities are as follows:

December 31	Deferred Assets (Liabilities)
(in millions)	2021			2020
Deferred tax assets related to:
Inventories	$	100.2		$	69.6
Valuation and other reserves		23.3			34.7
Net operating loss carryforwards		2.6			9.0
Accumulated other comprehensive loss		69.7			89.4
Lease liabilities		150.1			105.6
Other items, net		2.2			2.3
Gross deferred tax assets		348.1			310.6
Valuation allowance on deferred tax assets		(2.8	)		(8.1	)
Total net deferred tax assets		345.3			302.5
Deferred tax liabilities related to:
Property, plant and equipment		(840.6	)		(743.3	)
Goodwill and other intangibles		(160.2	)		(154.6	)
Right-of-use assets		(155.2	)		(111.3	)
Partnerships and joint ventures		(29.1	)		(27.4	)
Employee benefits		(55.5	)		(47.4	)
Total deferred tax liabilities		(1,240.6	)		(1,084.0	)
Deferred income taxes, net	$	(895.3	)	$	(781.5	)

The Company had $1.3 million and $3.1 million of domestic federal net operating loss (NOL) carryforwards at December 31, 2021 and 2020, respectively. The Company had domestic state NOL carryforwards of $40.7 million and $137.1 million at December 31, 2021 and 2020, respectively. These carryforwards have various expiration dates through 2041. At December 31, 2021 and 2020, deferred tax assets associated with these carryforwards were $2.6 million and $9.0 million, respectively, net of the federal benefit of the state deduction, for which valuation allowances of $2.2 million and $8.1 million, respectively, were recorded.  The reduction in state NOL carryforwards and corresponding valuation allowances in 2021 primarily resulted from the liquidation of a subsidiary and a change in North Carolina state tax law. The Company also had domestic state tax credit carryforwards of $0.9 million and $1.0 million at December 31, 2021 and 2020, respectively, which have various expiration dates through 2041. At December 31, 2021 and 2020, deferred tax assets associated with these carryforwards were $0.7 million and $0.8 million, respectively, net of the federal benefit of the state deduction.

Deferred tax liabilities for property, plant and equipment result from accelerated depreciation methods being used for income tax purposes as compared with the straight-line method for financial reporting purposes.

Deferred tax liabilities related to goodwill and other intangibles reflect the cessation of goodwill amortization for financial reporting purposes, while amortization continues for income tax purposes.

The Company expects to permanently reinvest the earnings from its wholly-owned Canadian and Bahamian subsidiaries, and accordingly, has not provided deferred taxes on the subsidiaries’ undistributed net earnings or basis differences.  The Company believes that the tax liability that would be incurred upon repatriation is immaterial at December 31, 2021.

The following table summarizes the Company’s unrecognized tax benefits, excluding interest and correlative effects of $0.2 million, $0.2 million and $1.7 million for the years ended December 31, 2021, 2020 and 2019 respectively:

years ended December 31 (in millions)	2021			2020			2019
Unrecognized tax benefits at beginning of year	$	8.2		$	25.5		$	24.1
Gross increases – tax positions in prior years		0.5			0.2			0.4
Gross decreases – tax positions in prior years		—			—			—
Gross increases – tax positions in current year		0.1			0.1			1.8
Gross decreases – tax positions in current year		—			(0.2	)		(0.8	)
Lapse of statute of limitations		(3.4	)		(17.4	)		—
Unrecognized tax benefits at end of year	$	5.4		$	8.2		$	25.5
Amount that, if recognized, would favorably impact    the effective tax rate	$	5.5		$	6.4		$	15.5

Unrecognized tax benefits are reversed as a discrete event if an examination of applicable tax returns is not initiated by a federal or state tax authority within the statute of limitations or upon effective settlement with federal or state tax authorities. For the year ended December 31, 2021, $1.6 million was reversed into income upon the statute of limitations expiration for the 2017 and all prior open tax years. For the year ended December 31, 2020, $9.7 million was reversed into income upon the statute of limitations expiration for 2016. Management believes its accrual for unrecognized tax benefits is sufficient to cover uncertain tax positions reviewed during audits by taxing authorities.

The Company anticipates that it is reasonably possible that its unrecognized tax benefits may decrease up to $3.1 million, excluding interest and correlative effects, during the twelve months ending December 31, 2022, due to the settlement of the 2017 tax year and the expiration of the statutes of limitations for the 2018 tax year.

The Company’s tax years subject to federal, state or foreign examinations are 2017 through 2021.