Income Taxes

9 Months Ended

Sep. 30, 2020

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

For the three and nine months ended September 30, 2020, income tax expense was $52.2 million and $95.5 million, respectively, representing an effective tax rate of 43% and 38%, respectively, as compared to the federal statutory rate of 21%. For the three and nine months ended September 30, 2020, the effective tax rate differs from the federal statutory rate due primarily to tax expense of $20.0 million and $25.6 million resulting from an increase in valuation allowances for foreign taxes and U.S. foreign tax credits, tax expense from foreign operations of $0.4 million and $9.8 million, state and local income tax expense of $3.5 million and $9.1 million, tax expense of $1.7 million and $4.7 million related to non-deductible compensation and tax expense of $2.7 million and tax benefit of $6.0 million relating to uncertain tax positions (including accrued interest), respectively. The tax benefit relating to uncertain tax positions for the nine months ended September 30, 2020 is primarily due to audit settlements and the filing of state income tax returns under voluntary disclosure agreements. The increase in valuation allowance is primarily due to a change in judgement about the realizability of foreign net operating losses and other deferred tax assets. Management considers the scheduled reversal of deferred tax liabilities (including the effect in available carryback and carryforward periods), projected taxable income, and tax-planning strategies in making this assessment.

For the three and nine months ended September 30, 2019, income tax expense was $8.7 million and $53.8 million, respectively, representing an effective tax rate of 7% and 12%, respectively, as compared to the federal statutory rate of 21%. For the three months ended September 30, 2019, the effective tax rate differs from the federal statutory rate due primarily to a tax benefit of $13.6 million from foreign operations and a tax benefit of $11.5 million from a deferred tax adjustment to record the impact of an investment tax credit under the deferral method of accounting, partially offset by state and local income tax expense of $4.3 million and tax expense of $2.0 million resulting from a net increase in valuation allowances for foreign tax assets. For the nine months ended September 30, 2019, the effective tax rate differs from the federal statutory rate primarily due to a tax benefit of $21.5 million resulting from a net decrease in valuation allowances for foreign tax assets, a tax benefit of

$15.6 million from foreign operations, a tax benefit of $11.5 million from a deferred tax adjustment to record the impact of an investment tax credit under the deferral method of accounting, and a tax benefit of $5.6 million relating to uncertain tax positions (including accrued interest), partially offset by state and local income tax expense of $11.6 million. The decrease in the valuation allowance is primarily due to the expected utilization of foreign net operating loss carryforwards and the benefit of foreign operations is due to a deferred tax benefit resulting from the reorganization of intellectual property amongst the Company's international subsidiaries in the nine months ended September 30, 2019. The tax benefit relating to uncertain tax positions is primarily due to an audit settlement and the filing of state income tax returns under a voluntary disclosure agreement.

At September 30, 2020, the Company had foreign tax credit carry forwards of approximately $33.2 million, expiring on various dates from 2022 through 2030. These carryforwards have been reduced by a valuation allowance of $31.8 million as it is more likely than not that these carry forwards will not be realized. For the nine months ended September 30, 2020, $1.0 million relating to amortization of tax deductible second component goodwill was realized as a reduction in tax liability (as determined on a 'with-and-without' approach).