Income Taxes

9 Months Ended

Sep. 30, 2017

Income Tax Disclosure [Abstract]

Income Taxes

5. Income Taxes

The Company calculates its provision for income taxes during interim reporting periods by applying the estimated annual effective tax rate for the full fiscal year to pre-tax income or loss, excluding discrete items, for the reporting period. The Company’s effective tax rate increased in the nine months ended September 30, 2017, compared to the nine months ended September 30, 2016, primarily due to changes in the estimated annual earnings for 2017 and a valuation allowance on deferred tax assets not expected to be realized. In the nine months ended September 30, 2017, the effect of discrete period tax items was $2.1 million which were primarily related to the valuation allowance on deferred tax assets not expected to be realized. 

A valuation allowance for deferred tax assets is recognized when it is more likely than not, that some or all of the benefit from the deferred tax assets will not be realized. To assess that likelihood, the Company uses its current financial position, results of operations, both actual and forecasted, the reversal of deferred tax liabilities, and tax planning strategies, as well as the current and forecasted business economics to determine whether a valuation allowance is required. 

The Company has assessed both positive and negative evidence to estimate whether sufficient future taxable income will be generated and concluded that it is more likely than not that the deferred tax assets will not be realized and, as such, has recorded a valuation allowance of $2.4 million as of September 30, 2017. Going forward, management will continue to assess the available evidence to determine whether it is more likely than not that sufficient future taxable income will be generated to realize the deferred tax assets.