Income Taxes

3 Months Ended

Mar. 31, 2020

Effective Tax Rate

The following table shows our effective tax rate for the three months ended March 31, 2020 and March 31, 2019:



	Three months ended March 31,
(in millions)	2020			2019
Income before income taxes and equity in net loss of unconsolidated entities	$	33.2		$	46.2
Equity in net loss of unconsolidated entities	(0.8		)	(1.5		)
Total	$	32.4		$	44.7
Income tax expense	$	8.5		$	11.5
Effective tax rate	26.2		%	25.7		%

Our effective tax rate in the first quarter of 2020 was 26.2%, an increase of 0.5 percentage points, compared with the same period in the prior year.

Unrecognized Tax Benefits

The table below provides information concerning our gross unrecognized tax benefits as of March 31, 2020 and December 31, 2019, as well as the effect these gross unrecognized tax benefits would have on our income tax expense, if they were recognized.



(in millions)	As of March 31, 2020		As of December 31, 2019
Gross unrecognized tax benefits	$	12.9	$	12.6
Gross unrecognized tax benefits that would affect income tax expense	$	12.9	$	12.6
Decrease in income tax expense upon recognition of gross unrecognized tax benefits	$	12.7	$	12.4

Our Unaudited Condensed Consolidated Balance Sheets include the following liabilities for unrecognized tax benefits. These amounts include interest and penalties, less any associated tax benefits.



Liabilities for Unrecognized Tax Benefits (in millions)	As of March 31, 2020		As of December 31, 2019
Current liability	$	11.0	$	10.8
Non-current liability	3.2		3.0
Total liability for unrecognized tax benefits	$	14.2	$	13.8

Because we conduct business globally, we file income tax returns in U.S. federal, state, local, and foreign jurisdictions. We are currently under audit by federal, state, and local tax authorities in the U.S. as well as tax authorities in certain non-U.S. jurisdictions. It is likely that the examination phase of some of these federal, state, local, and non-U.S. audits will conclude in 2020. It is not possible to estimate the effect of current audits on previously recorded unrecognized tax benefits.

Approximately 70% of our cash, cash equivalents, and investments balance as of March 31, 2020 was held by our operations outside of the United States. We generally consider our U.S. directly owned foreign subsidiary earnings to be permanently reinvested. We believe that our cash balances and investments in the United States, along with cash generated from our U.S. operations, will be sufficient to meet our U.S. operating and cash needs for the foreseeable future, without requiring us to repatriate earnings from these foreign subsidiaries.

Certain of our non-U.S. operations have incurred net operating losses (NOLs), which may become deductible to the extent these operations become profitable. For each of our operations, we evaluate whether it is more likely than not that the tax benefits related to NOLs will be realized. As part of this evaluation, we consider evidence such as tax planning strategies, historical operating results, forecasted taxable income, and recent financial performance. In the year that certain non-U.S. operations record a loss, we do not recognize a corresponding tax benefit, which increases our effective tax rate. Upon determining that it is more likely than not that the NOLs will be realized, we reduce the tax valuation allowances related to these NOLs, which results in a reduction to our income tax expense and our effective tax rate in the period.