Page 84 - 2019 Annual Report

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Using these assumptions, 2020 pension expense is expected to be approximately $31.2 million based on current
demographics and structure of the plans. Changes in the underlying assumptions would have the following estimated impact
on the 2020 expected expense:
• A 25-basis-point change in the discount rate would change the 2020 expected expense by approximately
$4.4 million.
• A 25-basis-point change in the expected long-term rate of return on assets would change the 2020 expected
expense by approximately $2.2 million.

The Company made pension plan contributions of $58.9 million in 2019 and $350.8 million during the five-year period ended
December 31, 2019. Despite these contributions, the Company’s pension plans are underfunded (projected benefit obligation
exceeds the fair value of plan assets) by $109.8 million at December 31, 2019. The Company’s projected benefit obligation
was $977.8 million at December 31, 2019, an increase of $129.9 million versus the prior year, driven by the lower discount
rate. The Company expects to make pension plan and SERP contributions of $60.2 million in 2020, of which $50.0 million
are voluntary.

Estimated Effective Income Tax Rate

The Company uses the liability method to determine its provision for income taxes. Accordingly, the annual provision for
income taxes reflects estimates of the current liability for income taxes, estimates of the tax effect of financial reporting
versus tax basis differences using statutory income tax rates and management’s judgment with respect to any valuation
allowances on deferred tax assets. The result is management’s estimate of the annual effective tax rate (the “ETR”).
Income for tax purposes is determined through the application of the rules and regulations under the United States Internal
Revenue Code and the statutes of various foreign, state and local tax jurisdictions in which the Company conducts business.
Changes in the statutory tax rates and/or tax laws in these jurisdictions can have a material effect on the ETR. The effect of
these changes, if material, is recognized when the change is enacted.
As prescribed by these tax regulations, as well as generally accepted accounting principles, the manner in which revenues and
expenses are recognized for financial reporting and income tax purposes is not always the same. Therefore, these differences
between the Company’s pretax income for financial reporting purposes and the amount of taxable income for income tax
purposes are treated as either temporary or permanent, depending on their nature.
Temporary differences reflect revenues or expenses that are recognized in financial reporting in one period and taxable
income in a different period. An example of a temporary difference is the use of the straight-line method of depreciation of
machinery and equipment for financial reporting purposes and the use of an accelerated method for income tax purposes.
Temporary differences result from differences between the financial reporting basis and tax basis of assets or liabilities and
give rise to deferred tax assets or liabilities (i.e., future tax deductions or future taxable income). Therefore, when temporary
differences occur, they are offset by a corresponding change in a deferred tax account. As such, total income tax expense as
reported in the Company’s consolidated statements of earnings is not changed by temporary differences.

The Company has deferred tax liabilities, primarily for property, plant and equipment, goodwill and other intangibles, employee
pension and postretirement benefits and partnerships and joint ventures. The deferred tax liabilities attributable to property,
plant and equipment relate to accelerated depreciation and depletion methods used for income tax purposes as compared with
the straight-line and units-of-production methods used for financial reporting purposes. These temporary differences will reverse
over the remaining useful lives of the related assets. The deferred tax liabilities attributable to goodwill arise as a result of
amortizing goodwill for income tax purposes but not for financial reporting purposes. This temporary difference reverses when
goodwill is written off for financial reporting purposes, either through divestitures or an impairment charge. The timing of such
events cannot be estimated. The deferred tax liabilities attributable to employee pension and postretirement benefits relate to
deductions as plans are funded for income tax purposes compared with deductions for financial reporting purposes based on
accounting standards. The reversal of these differences depends on the timing of the Company’s contributions to the related
benefit plans as compared to the annual expense for financial reporting purposes. The deferred tax liabilities attributable to
partnerships and joint ventures relate to the difference between the tax basis of the investments in partnerships and joint
ventures when compared to the basis for financial reporting purposes. The temporary difference reverses through differences
recognized over the life of the investment or through divestiture.

The Company has deferred tax assets, primarily for inventories, unvested stock-based compensation awards, unrecognized
losses related to the funded status of the pension and postretirement benefit plans, valuation reserves, net operating loss
carryforwards and tax credit carryforwards. The deferred tax assets attributable to inventories and valuation reserves relate

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