INCOME TAXES

12 Months Ended

Dec. 31, 2019

Earnings (losses) before income taxes by geographical area consisted of the following (in millions of dollars):



	For the Years Ended December 31,
	2019			2018			2017
U.S.	$	1,226		$	1,163		$	971
Foreign	(17		)	(82		)	(35		)
Total	$	1,209		$	1,081		$	936

Income tax expense consisted of the following (in millions of dollars):



	For the Years Ended December 31,
	2019		2018		2017
Current income tax expense:
U.S. Federal	$	199	$	166	$	248
U.S. State	44		32		29
Foreign	58		47		22
Total current	301		245		299
Deferred income tax expense	13		13		14
Total income tax expense	$	314	$	258	$	313

The income tax effects of temporary differences that gave rise to the net deferred tax asset (liability) as of December 31, 2019 and 2018 were as follows (in millions of dollars):



	As of December 31,
	2019			2018
Deferred tax assets:
Accrued expenses	$	86		$	35
Foreign operating loss carryforwards	67			64
Accrued employment-related benefits	49			49
Tax credit carryforward	22			22
Other	12			11
Deferred tax assets	236			181
Less valuation allowance	(72		)	(72		)
Deferred tax assets, net of valuation allowance	$	164		$	109
Deferred tax liabilities:
Property, buildings and equipment	(134		)	(44		)
Intangibles	(83		)	(105		)
Prepaids	(6		)	(6		)
Other	(6		)	(8		)
Deferred tax liabilities	(229		)	(163		)
Net deferred tax liability	$	(65	)	$	(54	)

The net deferred tax asset (liability) is classified as follows:
Noncurrent assets	$	11		$	12
Noncurrent liabilities	(76		)	(66		)
Net deferred tax liability	$	(65	)	$	(54	)

At December 31, 2019 the Company had $286 million of net operating loss (NOLs) carryforwards related primarily to foreign operations. Some of the operating loss carryforwards may expire at various dates through 2039. The Company

has recorded a valuation allowance, which represents a provision for uncertainty as to the realization of the tax benefits of these carryforwards and deferred tax assets that may not be realized. The Company's valuation allowance changed as follows (in millions of dollars):



	For the Years Ended December 31,
	2019			2018
Balance at beginning of period	$	(72	)	$	(84	)
Increases primarily related to foreign NOLs	(9		)	(3		)
Releases related to foreign NOLs	10			16
Increase related to U.S. foreign tax credits	(1		)	(1		)
Balance at end of period	$	(72	)	$	(72	)

A reconciliation of income tax expense with federal income taxes at the statutory rate follows (in millions of dollars):



	For the Years Ended December 31,
	2019			2018			2017
Federal income tax	$	254		$	227		$	327
State income taxes, net of federal income tax benefit	36			32			20
Clean energy credit	—			(20		)	(38		)
Foreign rate difference	25			20			10
Goodwill impairment	—			20			—
U.S. tax legislation impact	—			—			(3		)
Excess tax benefits from stock-based compensation	(2		)	(15		)	(14		)
Other - net	1			(6		)	11
Income tax expense	$	314		$	258		$	313
Effective tax rate	26.0		%	23.9		%	33.5		%

Foreign Undistributed Earnings

Estimated gross undistributed earnings of foreign subsidiaries at December 31, 2019, amounted to $402 million. The Company considers these undistributed earnings permanently reinvested in its foreign operations and is not recording a deferred tax liability for any foreign withholding taxes on such amounts. The Company's permanent reinvestment assertion has not changed following the enactment of the 2017 Tax Cuts and Jobs Act. If at some future date the Company ceases to be permanently reinvested in its foreign subsidiaries, the Company may be subject to foreign withholding and other taxes on these undistributed earnings and may need to record a deferred tax liability for any outside basis difference in its investments in its foreign subsidiaries.

Tax Uncertainties

The Company recognizes in the financial statements a provision for tax uncertainties, resulting from application of complex tax regulations in multiple tax jurisdictions. The changes in the liability for tax uncertainties, excluding interest, are as follows (in millions of dollars):



	For the Years Ended December 31,
	2019			2018			2017
Balance at beginning of year	$	37		$	45		$	59
Additions for tax positions related to the current year	3			4			4
Additions for tax positions of prior years	1			3			5
Reductions for tax positions of prior years	(1		)	(5		)	(13		)
Reductions due to statute lapse	(10		)	(9		)	(5		)
Settlements, audit payments, refunds - net	(2		)	(1		)	(5		)
Balance at end of year	$	28		$	37		$	45

The Company classifies the liability for tax uncertainties in deferred income taxes and tax uncertainties. Included in

this amount are $8 million and $13 million at December 31, 2019 and 2018, respectively, of tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. Any

changes in the timing of deductibility of these items would not affect the annual effective tax rate but would accelerate the payment of cash to the taxing authorities to an earlier period. Excluding the timing items, the remaining amounts would affect the annual tax rate. In 2019, the changes to tax positions related generally to the impact of expiring statutes, conclusion of audits and audit settlements. Estimated interest and penalties were not material.

The Company regularly undergoes examination of its federal income tax returns by the Internal Revenue Service. The statute of limitations expired for the Company's 2015 federal tax return while tax years 2016 through 2019 are open. The Company is also subject to audit by state, local and foreign taxing authorities. Tax years 2012-2019 remain subject to state and local audits and 2007-2019 remain subject to foreign audits. The amount of liability associated with the Company's tax uncertainties may change within the next 12 months due to the pending audit activity, expiring statutes or tax payments. A reasonable estimate of such change cannot be made.