Income Taxes

3 Months Ended

Mar. 31, 2019

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The provision for income taxes for the three months ended March 31, 2019 was an expense of $0.3 million on pretax income of $21.1 million compared to a benefit of $23.3 million on a pretax loss of $42.9 million during the three months ended March 31, 2018. The effective income tax rate was 1.2% for the three months ended March 31, 2019 and 54.3% for the same period in 2018. The quarter-over-quarter decrease in the effective income tax rate was primarily attributable to the relative impact of tax benefits from stock-based compensation expense. The tax benefits from stock-based compensation expense during the first quarter of 2019 decreased the tax rate on pretax income while such benefits in the first quarter of 2018 increased the tax rate on the pretax loss. In addition to the impact of stock-based compensation expense, the quarter-over-quarter decrease in the effective income tax rate was also driven by 2018 tax benefits from divestitures.

The Company had gross unrecognized tax benefits of $80.2 million at March 31, 2019 and $90.3 million at December 31, 2018. It is reasonably possible that gross unrecognized tax benefits will decrease by approximately $8.0 million within the next 12 months due to the anticipated closure of audits and the expiration of certain statutes of limitation.

In connection with the Company’s adoption of ASU No. 2016-02 on January 1, 2019, operating leases were recorded on the accompanying Condensed Consolidated Balance Sheet, including the recognition of operating lease liabilities and corresponding right-of-use assets. The corresponding deferred tax assets and deferred tax liabilities were also recorded. The net deferred tax impact was zero. Note 1 — Business and Basis of Presentation provides additional information regarding our leases and the adoption of ASU No. 2016-02.

In April 2019, we completed an intercompany sale of certain intellectual property that we expect will have a material favorable tax impact on the Company's second quarter 2019 financial results. In addition, we recently received approval from the Internal Revenue Service for an accounting method change related to the taxation of certain pension plans. We are analyzing the impact of this accounting method change on the consolidated financial statements, which could result in a material favorable tax impact.