INCOME TAXES

9 Months Ended

Sep. 30, 2018

INCOME TAXES

INCOME TAXES

10. INCOME TAXES

The Company determines its periodic income tax expense or benefit based upon the current period income or loss and the annual estimated tax rate for the Company adjusted for discrete items including changes to prior period estimates. The estimated tax rate is revised, if necessary, as of the end of each successive interim period during the fiscal year to the Company's current annual estimated tax rate.

For the three months ended September 30, 2018, the income tax provision reflects an effective tax rate of 9.9 percent compared to 41.7 percent for the comparable period in the prior year. For the nine months ended September 30, 2018, the income tax provision reflects an effective tax rate of 19.6 percent compared to 38.1 percent for the comparable period in the prior year. The 2018 effective tax rate reflects the lower corporate income tax rate from the recently enacted Tax Cuts and Jobs Act (the “Act”) in addition to $7.5 million recorded as a discrete tax benefit. The discrete benefit resulted from tax provision to return adjustments that included release of a valuation allowance on foreign tax credits, state income tax decreases created by the federal tax changes, and an exclusion to compensation limitations of an officer that retired in 2017.

As part of the implementation of the provisions of the Act, the Company recorded adjustments relating to changes in tax rates on deferred tax assets and liabilities during the fourth quarter of 2017. The Company filed its 2017 Federal income tax return in the third quarter of 2018; accordingly, all items related to 2017 are substantially complete.

The Act imposes a new tax on foreign earnings and profits in excess of a deemed return on tangible assets of foreign subsidiaries referred to as GILTI (“Global Low Taxed Intangible Income”). The Act also imposes a new tax on certain payments between a U.S. corporation and its foreign subsidiaries referred to as BEAT (“Base Erosion and Anti-Abuse Minimum Tax”). Additionally, the Act provides for a deduction on certain qualifying income related to export sales of property or services referred to as FDII (“Foreign Derived Intangible Income”). Due to the complexity of BEAT, GILTI, and FDII, the Company is continuing to evaluate these provisions. At this time, in our analysis of GILTI, the Company anticipates making an accounting policy election to treat GILTI taxes as a current period expense in lieu of factoring such amounts into the measurement of our deferred taxes.

The Company continues to evaluate information related to its accounting for the income tax effects of the Act as it pertains to the 2018 deduction for executive compensation, including the impact for compensation that is paid pursuant to a binding contract that would have been deductible under the prior tax regulations. Based on our current interpretation of the transition rules, we believe the Company will be able to deduct executive compensation related to these plans.

As additional guidance and clarifications are provided under the transition rules, we will make appropriate changes in our analysis within the measurement period as provided in SEC Staff Accounting Bulletin No. 118.