Income Taxes |
11. INCOME TAXES The components of (Loss) income before income taxes are as follows: | | | | | | | | | | | | | | | | | | | Year Ended December 31, | | 2021 | | 2020 | | 2019 | | (In millions) | Domestic | $ | (46.0) | | | $ | 9.8 | | | $ | (154.4) | | Foreign | 14.5 | | | 7.3 | | | (1.4) | | (Loss) income before income taxes | $ | (31.5) | | | $ | 17.1 | | | $ | (155.8) | |
The following table presents the components of the 2021, 2020, and 2019 provision for income taxes: | | | | | | | | | | | | | | | | | | | Year Ended December 31, | | 2021 | | 2020 | | 2019 | | (In millions) | Current: | | | | | | Federal | $ | (6.0) | | | $ | (95.7) | | | $ | 13.2 | | State | (0.5) | | | 1.6 | | | 2.9 | | Foreign | (2.3) | | | (1.4) | | | 1.7 | | Total current | (8.8) | | | (95.5) | | | 17.8 | | Deferred: | | | | | | Federal | (3.7) | | | 69.8 | | | (48.4) | | State | 3.1 | | | (2.9) | | | (11.8) | | Foreign | 5.0 | | | (3.5) | | | (3.1) | | Total deferred | 4.4 | | | 63.4 | | | (63.3) | | Total income tax benefit | $ | (4.4) | | | $ | (32.1) | | | $ | (45.5) | |
The following is a reconciliation of income tax benefit computed at the U.S. federal statutory tax rate to the income tax benefit reported in the Consolidated Statements of Operations: | | | | | | | | | | | | | | | | | | | Year Ended December 31, | | 2021 | | 2020 | | 2019 | | (In millions) | Tax at statutory rate | $ | (6.6) | | | $ | 3.6 | | | $ | (32.7) | | State income taxes (1) | 2.1 | | | (1.0) | | | (7.1) | | | | | | | | Tax benefit of cross-border intercompany financing structure | — | | | (1.4) | | | (2.1) | | Repatriation of intangibles | — | | | — | | | (4.6) | | CARES Act | 1.9 | | | (30.3) | | | — | | Disallowed officers' compensation | 1.5 | | | 2.6 | | | 1.6 | | Excess tax benefits related to stock-based compensation | 0.4 | | | 1.7 | | | (0.1) | | Transition tax | — | | | — | | | (1.9) | | Other tax credits | (0.8) | | | (0.9) | | | (0.9) | | Valuation allowance | — | | | (6.2) | | | 3.4 | | Uncertain tax positions | (4.4) | | | (2.5) | | | (2.5) | | | | | | | | | | | | | | | | | | | | Indemnification | 0.6 | | | 1.1 | | | 0.3 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Other, net | 0.9 | | | 1.2 | | | 1.1 | | Total provision for income taxes | $ | (4.4) | | | $ | (32.1) | | | $ | (45.5) | |
(1) 2021 State income taxes are inclusive of a valuation allowance of $2.4 million recorded against certain deferred tax assets. The tax effects of temporary differences giving rise to deferred income tax assets and liabilities were: | | | | | | | | | | | | | December 31, | | 2021 | | 2020 | | (In millions) | Deferred tax assets: | | | | Pension and postretirement benefits | $ | 7.7 | | | $ | 13.6 | | Accrued liabilities | 16.0 | | | 23.5 | | Stock compensation | 9.0 | | | 11.8 | | Lease liabilities | 46.4 | | | 46.2 | | Interest limitation carryover | 10.3 | | | 3.9 | | Loss and credit carryovers | 198.1 | | | 213.6 | | Unrealized foreign exchange loss | 11.8 | | | 21.3 | | Other | 17.9 | | | 12.6 | | Total deferred tax assets | 317.2 | | | 346.5 | | Valuation allowance | (162.5) | | | (161.0) | | Total deferred tax assets, net of valuation allowance | 154.7 | | | 185.5 | | | | | | Deferred tax liabilities: | | | | Fixed assets and intangible assets | (264.7) | | | (291.3) | | Lease assets | (45.3) | | | (45.1) | | | | | | Total deferred tax liabilities | (310.0) | | | (336.4) | | Net deferred income tax liability | $ | (155.3) | | | $ | (150.9) | |
The following table details the Company's tax attributes primarily related to net operating losses, tax credits, and capital losses for which it has recorded deferred tax assets: | | | | | | | | | | | | | | | | | | | | | Tax Attributes | | Gross Attribute Amount | | Net Attribute Amount | | Expiration Years | | | (In millions) | | | | | | | | | | Foreign net operating losses | | $ | 4.2 | | | $ | 1.1 | | | 2022 – 2033 | State net operating losses | | 232.1 | | | 11.0 | | | 2022 – 2041 | Federal credits | | — | | | 15.8 | | | 2027 – 2040 | State credits | | — | | | 16.9 | | | 2022 – 2035 | Federal capital loss | | 586.2 | | | 123.1 | | | 2024 | State capital loss | | 586.2 | | | 26.0 | | | 2024 | Other | | | | 4.2 | | | 2024 – 2037 | Total | | | | $ | 198.1 | | | | | | | | | | |
The Company assessed the realizability of its deferred tax assets and has recorded valuation allowances for certain foreign non-capital loss carryforwards, state net operating loss carryforwards, and state tax credit carryforwards that will more likely than not expire unused. In addition, as described in Note 7, the Company has recorded a full valuation allowance against the deferred tax asset of $149.1 million it established for its capital loss resulting from the sale of the Snacks division. The Company or one of its subsidiaries files income tax returns in the U.S., Canada, Italy, the Netherlands, and various U.S. states. In the U.S. federal jurisdiction, the Company is open to examination for the tax years ended December 31, 2014 through December 31, 2016 and December 31, 2018 and forward; for Canadian purposes, the Company is open to examination for the tax year ended December 31, 2012 and forward; for Italian purposes, the Company is open to examination for the tax years ended December 31, 2016 and forward; and for the various U.S. states the Company is generally open to examination for the tax year ended December 31, 2017 and forward. The Internal Revenue Service ("IRS") is currently examining the TreeHouse Foods, Inc. & Subsidiaries’ 2019 and 2020 tax years. Our Canadian operations are under exam by the Canadian Revenue Agency ("CRA") for tax years 2012 through 2018. These examinations are expected to be completed in 2022. The Company has examinations in process with various state taxing authorities, which are expected to be completed in 2022. During the year, the Company recorded adjustments to its unrecognized tax benefits. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows: | | | | | | | | | | | | | | | | | | | Year Ended December 31, | | 2021 | | 2020 | | 2019 | | (In millions) | Unrecognized tax benefits beginning balance | $ | 10.7 | | | $ | 12.3 | | | $ | 17.3 | | | | | | | | Additions (reductions) based on tax positions of prior years | 0.5 | | | 2.4 | | | (1.1) | | Reductions resulting from dispositions | — | | | — | | | (1.1) | | Reductions due to statute lapses | (4.1) | | | (3.4) | | | (2.8) | | Reductions related to settlements with taxing authorities | — | | | (0.7) | | | (0.1) | | Foreign currency translation | — | | | 0.1 | | | 0.1 | | Unrecognized tax benefits ending balance | $ | 7.1 | | | $ | 10.7 | | | $ | 12.3 | |
Unrecognized tax benefits are included in Other long-term liabilities of the Consolidated Balance Sheets. Of the amount accrued at December 31, 2021 and 2020, $4.4 million and $5.5 million, respectively, would impact Net (loss) income from continuing operations when settled. Of the amounts accrued at December 31, 2021 and 2020, $1.8 million and $4.8 million, respectively, relates to unrecognized tax benefits assumed in prior acquisitions, which have been indemnified by the previous owners.
Management estimates that it is reasonably possible that the total amount of unrecognized tax benefits could decrease by as much as $1.0 million within the next 12 months, primarily as a result of the resolution of audits currently in progress and the lapsing of statutes of limitations. Approximately $0.9 million of the $1.0 million would affect net income when settled. The timing of cash settlement, if any, cannot be reasonably estimated for uncertain tax benefits.
The Company recognizes interest expense (income) and penalties related to unrecognized tax benefits in income tax expense. During the years ended December 31, 2021, 2020, and 2019, the Company recognized $(1.3) million, $(1.4) million, and $(0.2) million of interest and penalties in income tax expense from continuing operations, respectively. The Company has accrued approximately $1.1 million and $2.4 million for the payment of interest and penalties at December 31, 2021 and 2020, respectively, of which $0.6 million and $1.7 million is indemnified.
On March 27, 2020, the CARES Act was signed into law, which features several tax provisions and other measures that assist businesses impacted by the economic effects of the COVID-19 pandemic. The significant tax provisions include an increase in the limitation of the tax deduction for interest expense from 30% to 50% of adjusted earnings in 2019 and 2020, a five-year carryback allowance for net operating losses ("NOLs") generated in tax years 2018-2020, increased charitable contribution limitations to 25% of taxable income in 2020, and a retroactive technical correction to the 2017 Tax Cuts and Jobs Act that makes qualified improvement property placed in service after December 31, 2017 eligible for bonus depreciation. The Company has recorded a $1.9 million income tax expense and a $29.3 million income tax benefit related to the NOL carryback provisions of the CARES Act for the years ended December 31, 2021 and 2020, respectively.
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