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INCOME TAXES | 12 Months Ended
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Dec. 31, 2019
Income Tax Disclosure [Abstract] |
Income Taxes | NOTE 10 - INCOME TAXES Income from continuing operations before income taxes includes the following components:
|  | (In Millions)
|  | 2019 |  | 2018 |  | 2017
United States |  | $ | 311.9 |  |  | $ | 565.0 |  |  | $ | 90.7 |
Foreign |  | 0.2 |  |  | (0.3 | ) |  | 17.5 |
|  | $ | 312.1 |  |  | $ | 564.7 |  |  | $ | 108.2 |
The components of the income tax provision (benefit) on continuing operations consist of the following:
|  | (In Millions)
|  | 2019 |  | 2018 |  | 2017
Current provision (benefit): |  |  |  |  |  |
United States federal |  | $ | (0.7 | ) |  | $ | (0.5 | ) |  | $ | (252.6 | )
United States state & local |  | 0.1 |  |  | — |  |  | (0.1 | )
Foreign |  | 0.2 |  |  | 0.7 |  |  | 0.3 |
|  | (0.4 | ) |  | 0.2 |  |  | (252.4 | )
Deferred provision (benefit): |  |  |  |  |  |
United States federal |  | 18.0 |  |  | (475.4 | ) |  | — |
Total income tax provision (benefit) from continuing operations |  | $ | 17.6 |  |  | $ | (475.2 | ) |  | $ | (252.4 | )
Reconciliation of our income tax attributable to continuing operations computed at the U.S. federal statutory rate is as follows:
|  | (In Millions)
|  | 2019 |  | 2018 |  | 2017
Tax at U.S. statutory rate |  | $ | 65.5 |  |  | 21.0 | % |  | $ | 118.6 |  |  | 21.0 | % |  | $ | 37.9 |  |  | 35.0 | %
Increase (decrease) due to: |  |  |  |  |  |  |  |  |  |  |  |
Percentage depletion in excess of cost depletion |  | (49.3 | ) |  | (15.8 | ) |  | (54.6 | ) |  | (9.7 | ) |  | (61.6 | ) |  | (56.9 | )
Impact of tax law change - remeasurement of deferred taxes |  | — |  |  | — |  |  | — |  |  | — |  |  | 407.5 |  |  | 376.6 |
Luxembourg legal entity reduction |  | 846.0 |  |  | 271.1 |  |  | 161.7 |  |  | 28.6 |  |  | — |  |  | — |
Valuation allowance release: |  |  |  |  |  |  |  |  |  |  |  |
Tax law change - remeasurement of deferred taxes |  | — |  |  | — |  |  | — |  |  | — |  |  | (407.5 | ) |  | (376.6 | )
Current year activity |  | — |  |  | — |  |  | (79.6 | ) |  | (14.1 | ) |  | (469.8 | ) |  | (434.2 | )
Release of U.S. valuation allowance |  | — |  |  | — |  |  | (460.5 | ) |  | (81.5 | ) |  | — |  |  | — |
Repeal of AMT |  | — |  |  | — |  |  | — |  |  | — |  |  | (235.3 | ) |  | (217.5 | )
Luxembourg legal entity reduction |  | (846.0 | ) |  | (271.1 | ) |  | (161.7 | ) |  | (28.6 | ) |  | — |  |  | — |
Impact of foreign operations |  | 0.2 |  |  | 0.1 |  |  | 0.1 |  |  | — |  |  | 477.9 |  |  | 441.7 |
Other items, net |  | 1.2 |  |  | 0.4 |  |  | 0.8 |  |  | 0.2 |  |  | (1.5 | ) |  | (1.4 | )
Provision for income tax expense (benefit) and effective income tax rate including discrete items |  | $ | 17.6 |  |  | 5.7 | % |  | $ | (475.2 | ) |  | (84.1 | )% |  | $ | (252.4 | ) |  | (233.3 | )%
The increase in income tax expense from 2018 to 2019 is primarily due to release of the valuation allowance in the U.S. of $460.5 million in 2018. The Luxembourg legal entity reduction relates to initiatives resulting in the dissolution of certain entities and settlement of related financial instruments in the years ended December 31, 2019 and 2018. These 2019 and 2018 net operating loss deferred tax asset reductions resulted in tax expense of $846.0 million and $161.7 million, respectively, which were fully offset by decreases in the respective valuation allowance. In December 2017, a benefit of $235.3 million was recorded as a result of the repeal of AMT in the 2017 U.S. Tax Cuts and Jobs Act. Additionally, the impact of tax law change - remeasurement of deferred taxes for the year ended December 31, 2017 primarily relates to the statutory rate reduction in the U.S. that decreased the deferred tax assets by $334.1 million, which was fully offset by a decrease in the valuation allowance. Also on December 31, 2017, there was a Luxembourg rate reduction that decreased the deferred tax assets by $73.4 million, which was fully offset by a decrease in valuation allowance. The impact of foreign operations relates to income and losses in foreign jurisdictions where the statutory rates, ranging from 0% to 24.94%, differ from the U.S. statutory rate of 21% for the years ended December 31, 2019 and 2018 and 35.0% for the year ended December 31, 2017. The components of income taxes for other than continuing operations consisted of the following:
|  | (In Millions)
|  | 2019 |  | 2018 |  | 2017
Other comprehensive income: |  |  |  |  |  |
Postretirement benefit liability |  | $ | 11.4 |  |  | $ | 3.6 |  |  | $ | — |
Unrealized net loss on derivative financial instruments |  | 0.1 |  |  | 0.7 |  |  | — |
Total |  | $ | 11.5 |  |  | $ | 4.3 |  |  | $ | — |
Significant components of our deferred tax assets and liabilities are as follows:
|  | (In Millions)
|  | 2019 |  | 2018
Deferred tax assets: |  |  |  |
Operating loss & other carryforwards |  | $ | 794.9 |  |  | $ | 2,118.8 |
Pension and OPEB liabilities |  | 113.7 |  |  | 102.8 |
Deferred income |  | 25.2 |  |  | 23.3 |
Property, plant and equipment and mineral rights |  | 1.4 |  |  | 13.3 |
State and local |  | 71.0 |  |  | 68.2 |
Other liabilities |  | 45.1 |  |  | 48.4 |
Total deferred tax assets before valuation allowance |  | 1,051.3 |  |  | 2,374.8 |
Deferred tax asset valuation allowance |  | (441.3 | ) |  | (1,287.3 | )
Net deferred tax assets |  | 610.0 |  |  | 1,087.5 |
Deferred tax liabilities: |  |  |  |
Investment in partnerships |  | (136.8 | ) |  | (141.2 | )
Intercompany notes |  | — |  |  | (465.7 | )
Other assets |  | (13.7 | ) |  | (15.8 | )
Total deferred tax liabilities |  | (150.5 | ) |  | (622.7 | )
Net deferred tax assets |  | $ | 459.5 |  |  | $ | 464.8 |
We had gross domestic (including states) and foreign net operating loss carryforwards of $3.5 billion and $1.6 billion, respectively, at December 31, 2019. We had gross domestic and foreign net operating loss carryforwards of $3.6 billion and $6.6 billion, respectively, at December 31, 2018. The U.S. federal net operating losses will begin to expire in 2034 and state net operating losses will begin to expire in 2020. The foreign net operating losses can be carried forward indefinitely. We had foreign tax credit carryforwards of $5.8 million at December 31, 2019 and 2018. The foreign tax credit carryforwards will begin to expire in 2020. We had gross interest expense limitation carryforwards of $55.3 million for the year ended December 31, 2019. This interest expense can be carried forward indefinitely. The changes in the valuation allowance are presented below:
|  | (In Millions)
|  | 2019 |  | 2018 |  | 2017
Balance at beginning of year |  | $ | 1,287.3 |  |  | $ | 1,983.1 |  |  | $ | 3,095.1 |
Change in valuation allowance: |  |  |  |  |  |
Included in income tax expense (benefit) |  | (846.0 | ) |  | (691.3 | ) |  | (1,120.0 | )
Change in deferred assets in other comprehensive income |  | — |  |  | (4.5 | ) |  | (9.8 | )
Acquisition of noncontrolling interest |  | — |  |  | — |  |  | 17.8 |
Balance at end of year |  | $ | 441.3 |  |  | $ | 1,287.3 |  |  | $ | 1,983.1 |
During 2019, a legal entity reduction initiative was completed in Luxembourg resulting in the dissolution of certain entities and settlement of related financial instruments, triggering the utilization of $1.3 billion of net operating loss deferred tax asset and reversal of the intercompany notes deferred tax liability of $446.5 million. In addition, prior year adjustments in Luxembourg and a statutory rate reduction from 26.01% to 24.94% resulted in a net increase to the operating loss carryforward deferred tax asset of $46.2 million. The total net deferred tax reduction resulted in an expense of $846.0 million which was fully offset by a decrease in the valuation allowance. During 2018, a similar legal entity reduction initiative was completed resulting in the dissolution of certain Luxembourg entities which resulted in a decrease in the net operating loss deferred tax asset of $161.7 million which was fully offset by a decrease in valuation allowance. We continue to maintain a full valuation allowance against the remaining Luxembourg net deferred tax assets of $397.1 million at December 31, 2019. Our losses in Luxembourg in recent periods represent sufficient negative evidence to require a full valuation allowance against the deferred tax assets in that jurisdiction. We intend to maintain a valuation allowance against the deferred tax assets related to these operating losses, until sufficient positive evidence exists to support the realization of such assets. We recorded a $695.8 million net decrease in the valuation allowance in the year ended December 31, 2018. As of December 31, 2018, our U.S. operations emerged from a three-year cumulative loss position. As the significant negative evidence of cumulative losses has been eliminated, we undertook an evaluation of the continuing need for a valuation allowance on the U.S. deferred tax assets, the majority of which relate to the U.S. tax net operating losses. In completing our evaluation of whether a valuation allowance was still needed, we considered all available positive and negative evidence. Positive evidence considered included the emergence from the three-year cumulative loss position, our long-term customer contracts with minimum tonnage requirements, the global scarcity of iron ore pellets, near term forecasts of strong profitability and the recently revised IRC Section 163(j) interest deduction limitation. Negative evidence included the overall size of the deferred tax asset with limited carryforward and no carryback opportunity, the finite nature of the iron ore resources we mine, the uncertainty of steel tariffs that positively impacted our revenue rates in 2018 and the various market signs that the U.S. economy may be nearing the end of the current expansion. We also considered that future realization of the deferred tax assets depends on the existence of sufficient taxable income of the appropriate character during the carryforward period. In considering sources of taxable income, we identified that a portion of the deferred tax assets would be utilized by existing taxable temporary differences reversing in the same periods as existing deductible temporary differences. In addition, we determined that carryback opportunities and tax planning strategies do not exist as potential sources of future taxable income. Lastly, forecasting future taxable income was considered, but is challenging in a cyclical industry such as ours as it relies heavily on the accuracy of key assumptions, particularly about key pricing benchmarks. Because historical information is verifiable and more objective than forecast information and due to the cyclicality of the industry, we developed an estimate of future income based on our historical earnings through the most recent industry cycle. We adjusted historical earnings for certain non-recurring items as well as to reflect the current corporate structure by eliminating the impact of discontinued operations and extinguished debt (“core earnings”). Additionally, we adjusted core earnings to reflect the impact of the recently revised IRC Section 163(j) interest expense deduction limitation as well as permanent tax adjustments. The IRC Section 163(j) limitation will limit our interest expense deduction, particularly in down years in the industry cycle, resulting in higher taxable income. Based on the core earnings analysis, the Company’s average annual book taxable income through the business cycle is in excess of the estimated $109.0 million taxable income that would be required annually to fully utilize the deferred tax assets within the 19 year carryforward period. We ascribed significant weight in our assessment to the core earnings analysis and the resulting projection of taxable income through the industry cycle. Based on the weight of this positive evidence, and after considering the other available positive and negative evidence, we determined that it was appropriate to release all of the valuation allowance related to U.S. federal deferred tax assets at December 31, 2018 as it is more likely than not that the entire amount of the U.S. deferred tax asset will be realized before the end of the carryforward period. The income tax benefit recorded for the reversal of the valuation allowance against the U.S. deferred tax assets was $460.5 million. We also have a valuation allowance recorded against certain state net operating losses and foreign tax credits, which are expected to expire before utilization. At December 31, 2019 and 2018, we had a valuation allowance recorded against certain state net operating losses of $38.4 million and $38.3 million, respectively. At December 31, 2019 and 2018, we had a valuation allowance recorded against certain foreign tax credits of approximately $5.8 million. At December 31, 2019 and 2018, we had no cumulative undistributed earnings of foreign subsidiaries included in consolidated retained earnings. Accordingly, no provision has been made for U.S. deferred taxes related to future repatriation of earnings. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
|  | (In Millions)
|  | 2019 |  | 2018 |  | 2017
Unrecognized tax benefits balance as of January 1 |  | $ | 29.0 |  |  | $ | 33.5 |  |  | $ | 30.7 |
Increase (decrease) for tax positions in prior years |  | 0.2 |  |  | 0.1 |  |  | (2.8 | )
Increase for tax positions in current year |  | — |  |  | 3.6 |  |  | 4.5 |
Settlements |  | — |  |  | — |  |  | 1.0 |
Lapses in statutes of limitations |  | — |  |  | (8.2 | ) |  | — |
Other |  | — |  |  | — |  |  | 0.1 |
Unrecognized tax benefits balance as of December 31 |  | $ | 29.2 |  |  | $ | 29.0 |  |  | $ | 33.5 |
At December 31, 2019 and 2018, we had $29.2 million and $29.0 million, respectively, of unrecognized tax benefits recorded. Of this amount, $4.4 million and $4.2 million, were recorded in Other non-current liabilities for the years ended December 31, 2019 and 2018, respectively, and $24.8 million was recorded in Other non-current assets for both years in the Statements of Consolidated Financial Position. If the unrecognized tax benefits were recognized, the entire $29.2 million would impact the effective tax rate. We do not expect that the amount of unrecognized benefits will change significantly within the next 12 months. At December 31, 2019 and 2018, we had $3.7 million and $2.7 million, respectively, of accrued interest and penalties related to the unrecognized tax benefits recorded in Other non-current liabilities in the Statements of Consolidated Financial Position. Tax years 2016 and forward remain subject to examination for the U.S. and tax years 2008 and forward remain subject to examination for Canada.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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