Page 33 - 2019 Annual Report

NOTES TO FINANCIAL STATEMENTS (continued)

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

years ended December 31 2019 2018 2017
Statutory income tax rate 21.0 % 21.0 % 35.0 %
(Reduction) increase resulting from:
Effect of statutory depletion (3.4 ) (3.4 ) (5.6 )
State income taxes, net of federal tax benefit 2.0 2.8 1.5
Change in tax status of subsidiary (1.7 ) — —
Stock based compensation (0.5 ) (0.5 ) (1.0 )
Impact from 2017 Tax Act — (3.3 ) (41.7 )
Domestic production deduction — — (2.2 )
Other items 0.8 1.7 (1.3 )
Effective income tax rate 18.2 % 18.3 % (15.3 %)

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.

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, or $0.24 per diluted share.
The Company was entitled to receive a 9% tax deduction related to income from domestic (i.e., United States) production
activities in 2017. The deduction reduced income tax expense and increased consolidated net earnings by $15.5 million, or
$0.25 per diluted share, in 2017. The domestic production deduction was eliminated by the 2017 Tax Act.

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

December 31 Deferred Assets (Liabilities)
(in millions) 2019 2018
Deferred tax assets related to:
Inventories $ 62.6 $ 52.6
Valuation and other reserves 22.3 22.4
Net operating loss carryforwards 10.5 11.0
Accumulated other comprehensive loss 85.2 84.2
Lease liability 114.7 —
Other items, net 2.9 3.0
Gross deferred tax assets 298.2 173.2
Valuation allowance on deferred tax assets (9.0 ) (8.6 )
Total net deferred tax assets 289.2 164.6
Deferred tax liabilities related to:
Property, plant and equipment (700.8 ) (478.3 )
Goodwill and other intangibles (151.7 ) (170.6 )
Right‐of‐use assets (112.1 ) —
Partnerships and joint ventures (27.4 ) (204.3 )
Employee benefits (30.2 ) (17.0 )
Total deferred tax liabilities (1,022.2 ) (870.2 )
Deferred income taxes, net $ (733.0 ) $ (705.6 )

The Company had $4.1 million and $3.2 million of domestic federal NOL carryforwards at December 31, 2019 and 2018,
respectively. The Company had domestic state NOL carryforwards of $161.0 million and $168.1 million at December 31, 2019
and 2018, respectively. These carryforwards have various expiration dates through 2039. At December 31, 2019 and 2018,
deferred tax assets associated with these carryforwards were $10.5 million and $11.0 million, respectively, net of the federal
benefit of the state deduction, for which valuation allowances of $9.0 million and $8.6 million, respectively, were recorded.
The Company also had domestic state tax credit carryforwards of $1.1 million and $1.0 million at December 31, 2019 and 2018,

Celebrating 25 Years as a Public Company Annual Report ♦ Page 31