Quarterly report pursuant to Section 13 or 15(d)

INCOME TAXES

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INCOME TAXES
9 Months Ended
Sep. 30, 2019
INCOME TAXES  
INCOME TAXES

NOTE 8—INCOME TAXES

The effective income tax rate for continuing operations for the three and nine months ended September 30, 2019 and 2018 was as follows:

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

    

2019

 

2018

 

2019

    

2018

Effective income tax rate for continuing operations

 

(20.6)%

 

(8.2)%

 

9.7%

 

(6.9)%

 

The effective income tax rate differs from the statutory federal income tax rate of 21% primarily because of the full valuation allowances recorded on the Company’s deferred tax assets. 

For the three months ended September 30, 2019, the Company recorded income tax expense from continuing operations of less than $0.1 million compared with income tax expense from continuing operations of $0.2 million in the corresponding period in 2018. For the nine months ended September 30, 2019, the Company recorded income tax expense from continuing operations of $0.2 million compared with income tax expense from continuing operations of $0.7 million in the corresponding period in 2018. The decrease in income tax provision from continuing operations for the three and nine months ended September 30, 2019 compared with the corresponding periods in 2018 was primarily related to a $0.6 million increase in indefinite-lived deferred tax assets related to an interest expense addback under Section 163(j) of the Internal Revenue Code and the post-2017 U.S. net operating loss that can be used to offset indefinitely-lived intangible deferred tax liabilities.

As of September 30, 2019 and 2018, the Company would have needed to generate approximately $276.0 million and $273.3 million, respectively, of future financial taxable income to realize its deferred tax assets.

The Company’s foreign subsidiaries may generate earnings that are not subject to U.S. income taxes so long as they are permanently reinvested in its operations outside of the U.S. Pursuant to ASC Topic No. 740-30, undistributed earnings of foreign subsidiaries that are no longer permanently reinvested would become subject to deferred income taxes. As of September 30, 2019 and 2018, the Company did not have any undistributed earnings in its foreign subsidiaries because all of their earnings were either taxed as deemed dividends or included with the provisional estimate of one-time transition tax as of December 31, 2017.

As of September 30, 2019 and December 31, 2018, the Company provided for a total liability of $2.8 million and $3.4 million, respectively, of which $1.7 million and $2.5 million, respectively, was related to discontinued operations, for unrecognized tax benefits related to various federal, foreign and state income tax matters, which was included in other long-term assets and deferred tax liabilities. If recognized, the entire amount of the liability would affect the effective tax rate. As of September 30, 2019, the Company accrued approximately $1.2 million, of which $0.7 million was related to its discontinued operations, in other long-term liabilities for potential payment of interest and penalties related to uncertain income tax positions.