Income Taxes

Our tax provision or benefit from income taxes for interim periods is determined using an estimate of our annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter we update our estimate of the annual effective tax rate, and if our estimated tax rate changes, we make a cumulative adjustment. Our quarterly tax provision and our quarterly estimate of our annual effective tax rate are subject to variation due to several factors, including variability in accurately predicting our pre-tax and taxable income and loss and the mix of jurisdictions to which they relate. Additionally, our effective tax rate can be more or less volatile based on the amount of pre-tax income or loss. For example, the impact of discrete items and non-deductible expenses on our effective tax rate is greater when our pre-tax income is lower.

On December 22, 2017, the U.S. government enacted tax legislation referred to as the Tax Act. The Tax Act makes broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 35 percent to 21 percent; (2) requiring companies to pay a one-time Deemed Repatriation Transition Tax (“Transition Tax”) on certain unrepatriated earnings of foreign subsidiaries that can be paid over eight years; (3) a new provision designed to tax global intangible low-taxed income (GILTI), which allows for the possibility of using foreign tax credits (FTCs) and a deduction of up to 50 percent to offset the income tax liability (subject to some limitations); (4) the repeal of the domestic production activity deduction beginning January 1, 2018; (5) limitations on the deductibility of certain executive compensation; and (6) a new limitation on deductible interest expense beginning January 1, 2018.

The Company has not completed its accounting for the tax effects of enactment of the Tax Act. However, the Company has made a reasonable estimate of the effects on its existing deferred tax balances and the one-time Transition Tax. During the three month period ended September 30, 2018, the Company recognized adjustments totaling $22.7 million to the provisional amounts recorded at December 31, 2017 and included these adjustments as a component of income tax expense from continuing operations.

The Company will continue to make and refine its calculations as additional analysis is completed. The Company is continuing to gather additional information, including, but not limited to, finalizing the calculation of post-1986 prescribed foreign E&P, finalizing foreign tax pools for foreign tax credit purposes, and finalizing the amounts held in cash or other specified assets, to complete the Company's accounting for these items and expect to complete its accounting within the measurement period.

The SEC staff issued Staff Accounting Bulletin No. 118, "Income Tax Accounting Implications of the Tax Cuts and Jobs Act" ("SAB 118"), which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.

For those items for which it was able to determine a reasonable estimate, the Company recognized a provisional net tax benefit of $128.2 million during 2017. This net benefit primarily consists of a net benefit for the corporate rate reduction on the deferred tax assets and liabilities of $210 million and a net expense for the Transition Tax of $81.8 million. After the adjustments recognized during the three months ended September 30, 2018, the provisional net tax benefit was adjusted to $105.5 million. This net benefit primarily consists of a net benefit on deferred tax assets and liabilities of $202.9 million and a net expense for the Transition Tax of $97.4 million.

Previously, the Company was not able to make a reasonable estimate of the impact of state taxes on adjustments made to federal temporary differences as a result of the Tax Act, or the impact of the new limitations on the deductibility of certain executive compensation. Included in the adjustments recognized during the three months ended September 30, 2018 in the amount of $22.7 million is an adjustment in the amount of $9.3 million. The adjustment is to recognize the impact of state taxes on adjustments made to federal temporary differences as a result of the Tax Act.

The provision for income taxes differs from amounts computed by applying the U.S. federal tax rate of 21% for 2018 and 35% for 2017 to income before income taxes for the three months ended September 30, 2018 and 2017 due to the following (in thousands):



	2018					2017
Computed tax expense at the U.S. federal tax rate	$	49,889		21.0	%	$	114,626		35.0	%
Changes resulting from:
Foreign income tax differential	2,359			1.0	%	(9,247		)	(2.8	)%
Excess tax benefits related to stock-based compensation	(7,562		)	(3.2	)%	(4,360		)	(1.3	)%
State taxes net of federal benefits	3,119			1.3	%	5,926			1.8	%
Foreign-sourced nontaxable income	(5,620		)	(2.4	)%	1,558			0.5	%
Foreign withholding taxes¹	4,578			1.9	%	3,065			0.9	%
GILTI tax, net of foreign tax credits	5,576			2.4	%	—			—	%
Valuation allowance on investment loss	—			—	%	16,718			5.1	%
Transition tax, net of foreign tax credits	22,731			9.6	%	—			—	%
Other¹	4,804			2.0	%	(3,607		)	(1.1	)%
Provision for income taxes	$	79,874		33.6	%	$	124,679		38.1	%

¹Certain amounts have been reclassified within the schedule above for comparative purposes.