(10) Income Taxes

For the years ended December 31, 2018, 2017 and 2016, net income before income taxes and non-controlling interest consisted of the following (in thousands):



	Year Ended December 31,
	2018		2017		2016
U.S. operations	$	(5,391)	$	(2,080)	$	8,996
Foreign operations		86,874		59,279		882
	$	81,483	$	57,199	$	9,878

Income tax (benefit) expense attributable to income from operations consisted of (in thousands):



	Year Ended December 31,
	2018		2017		2016
Current
Federal	$	26	$	(531)	$	312
State		113		86		56
Foreign		282		531		2,338
		421		86		2,706
Deferred
Federal		1,415		(19,304)		3,090
State		(528)		3,172		238
Foreign		1,579		1,185		(2,190)
		2,466		(14,947)		1,138
Income tax (benefit) expense	$	2,887	$	(14,861)	$	3,844

The reconciliations between the Company’s income tax expense and the amounts computed by applying the U.S. federal income tax rate of 21.0% for the year ended December 31, 2018 and 35.0% for the years ended December 31, 2017 and 2016 are as follows (in thousands):



	Year Ended December 31,
	2018		2017		2016
Computed expected tax expense	$	17,112	$	20,020	$	3,458
Increase (decrease) in income taxes resulting from:
Foreign tax differential		(16,384)		(19,032)		(88)
State income tax expense, net of federal income tax benefit		25		191		310
Subpart F income		2,202		683		711
IRC Section 162(m) excess officer's compensation		172		-		-
Non-deductible stock-based compensation		133		218		155
Excess tax benefit related to stock-based compensation		(34)		(1,858)		-
Increase in uncertain tax positions		25		61		36
Adjustment for prior years		(431)		1,894		-
Change in Federal tax rate		-		(16,945)		-
Adjustment to contingent consideration		-		(429)		(634)
Change in valuation allowance		-		-		(15)
Other		67		336		(89)
	$	2,887	$	(14,861)	$	3,844

As of December 31, 2018, the Company had $149.9 million and $19.9 million of net operating loss (NOL) carry forwards available to offset future federal and state taxable income, respectively. The NOL carry forwards will begin to expire in 2035 and 2029 for federal and state income tax purposes, respectively.

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities as of December 31, 2018 and 2017 are presented below (in thousands):



	Year Ended December 31,
	2018		2017
Deferred tax assets:
Accounts receivable	$	144	$	68
Accrued expenses and other current liabilities		743		886
Unearned revenue		51		198
Stock-based compensation		1,060		744
Other		62		89
Net operating loss carry forwards		37,464		34,758
Gross deferred tax assets		39,524		36,743
Valuation allowance		-		-
Net deferred tax assets		39,524		36,743

Deferred tax liabilities:
Depreciation and amortization		68,859		65,609
Foreign deferred tax liabilities		1,047		943
Intangible assets		1,425		1,734
Deferred subpart F income		6,512		4,310
Gross deferred tax liabilities		77,843		72,596
Net deferred tax liability	$	38,319	$	35,853

The realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. The Company’s management considers the projected future taxable income for making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, the Company’s management believes it is more likely than not the Company will realize the benefits of the deductible differences noted above.

Deferred income taxes have not been provided on the undistributed earnings of foreign subsidiaries. As of December 31, 2018, the amount of such earnings totaled approximately $28.5 million. These earnings have been permanently reinvested and the Company does not plan to initiate any action that would precipitate the payment of income taxes thereon. The amount of income taxes that would have resulted had such earnings been repatriated is not practically determinable.

The following table summarizes the activity related to the Company’s unrecognized tax benefits (in thousands):



Balance at January 1, 2017	$	266
Increases related to current year tax positions		11
Balance at December 31, 2017		277
Increases related to current year tax positions		14
Balance at December 31, 2018	$	291

The unrecognized tax benefits of approximately $0.3 million at December 31, 2018, if recognized, would reduce the Company’s effective tax rate. The Company accrued potential interest and penalties of less than $0.1 million related to unrecognized tax benefits for each of the years ended December 31, 2018 and 2017.

The U.S. Tax Cuts and Job Act of 2017 (TCJA) was signed into law on December 22, 2017. The most significant effect of TCJA on the Company was the U.S. federal corporate tax rate reduction from 35% to 21%, which required re-measurement of the Company’s U.S. deferred income tax assets and liabilities as of December 31, 2017. As the Company was in an overall net deferred tax liability position, the corporate tax rate reduction resulted in a net tax benefit of $16.9 million in 2017.

Other significant provisions of the TCJA that became effective in 2018 that may impact the Company’s income taxes are: the limitation on the deduction of interest expense in excess of 30 percent of adjusted taxable income; limitation on the utilization of net operating losses generated after fiscal year 2017 to 80 percent of taxable income; the taxation of global intangible low-taxed income of controlled foreign corporations; and limitation on the deduction for executive compensation.

The Company’s tax returns, including the United States, California, New Jersey and South Carolina, are subject to examination by the tax authorities. The Company accrues for unrecognized tax benefits based upon its best estimate of the additional taxes, interest and penalties expected to be paid. These estimates are updated over time as more definitive information becomes available from taxing authorities, completion of tax audits, expiration of statute of limitations, or upon occurrence of other events.

The Company does not believe the total amount of unrecognized tax benefit as of December 31, 2018 will increase or decrease significantly in the next twelve months. As of December 31, 2018, the statute of limitations for tax examinations in the United States has not expired for the years ended December 31, 2015 through 2017. California, New Jersey and South Carolina have not expired for tax returns filed for the years ended December 31, 2014 through 2017. The Company was notified on May 1, 2017 that its 2015 U.S. federal income tax return was selected for examination. The examination was concluded on June 20, 2018 with no impact to tax expense.