9. Income Taxes

“Income (loss) from continuing operations before income taxes” in the Consolidated Statements of Operations included the following components for the periods presented (in thousands):

“Income tax expense (benefit)” in the Consolidated Statements of Operations consisted of the following for the periods presented (in thousands):

We recorded an income tax benefit of $0.2 million during the year ended December 31, 2015 related to our discontinued operations.

The provision for income taxes differed from the amount computed by applying the U.S. federal statutory rate to “Income (loss) from continuing operations before income taxes” due to the effects of the following (dollars in thousands):

The significant components of deferred tax assets and liabilities were as follows (in thousands):

Valuation allowances are provided when it is considered more likely than not that deferred tax assets will not be realized. The valuation allowance relates to certain foreign and state net operating loss carryforwards and other foreign and state deferred tax assets generated by subsidiaries in a cumulative loss position. The valuation allowance increased by $1.6 million during the year ended December 31, 2017 primarily due to foreign and state net operating losses and revaluing of state deferred tax assets.

At December 31, 2017, we had state net operating loss carryforwards of $29.4 million, of which $0.4 million expire between 2018 and 2020, and the remainder expire between 2021 and 2038. Included in these amounts are $0.5 million of state net operating loss carryforwards which relate to an acquired subsidiary and are subject to annual limitations as to their use under IRC Section 382. As such, the extent to which these losses may offset future taxable income may be limited. At December 31, 2017, we also had foreign net operating loss carryforwards of $7.2 million, the majority of which have no expiration date.

At December 31, 2017, we had state research tax credits of $0.7 million, which have no expiration date.

On December 22, 2017, U.S. tax legislation was enacted containing a broad range of tax reform provisions, including a corporate tax rate reduction from 35% to 21% and changes in the U.S. taxation of non-U.S. earnings. The provisions included a one-time transition tax, payable over eight years, resulting from the mandatory deemed repatriation of previously-untaxed foreign earnings. Also on December 22, 2017, the SEC issued Staff Accounting Bulletin No. 118, which provides additional guidance on how to account for the financial statement effects of U.S. tax reform and establishes a measurement period for recording such effects. We have not completed our accounting for the income tax effects of U.S. tax reform; however, we have made a reasonable estimate of the impact on our deferred tax balances and the additional tax resulting from the mandatory deemed repatriation of foreign earnings. Accordingly, we have recognized a provisional net tax benefit of $1.2 million related to these items. We expect to finalize provisional estimates before the end of 2018 as additional data is prepared and analyzed, interpretations and assumptions are refined, and any additional guidance is issued.

U.S. tax reform introduced a provision, effective for years beginning on or after January 1, 2018, which taxes global intangible low-taxed income (GILTI) in excess of a deemed return on the tangible assets of foreign corporations. We are continuing to evaluate the GILTI provisions and have not yet made a policy election to account for GILTI as a period expense if or when incurred, or to recognize the impact of GILTI in our deferred taxes.

At December 31, 2017, estimated foreign earnings of $9.7 million were taxed at a reduced rate due to the deemed repatriation of previously-untaxed foreign earnings required by U.S. tax reform. We continue to assert indefinite reinvestment of past and future foreign earnings, and accordingly have not accrued any additional withholding taxes on the potential repatriation of these earnings. At the present time, given the various complexities involved in repatriating earnings, it is not practicable to estimate the amount of tax that may be payable if these earnings were not reinvested indefinitely.

Unrecognized Tax Benefits

ASC 740 clarifies the accounting for uncertainty in tax positions by subscribing the recognition threshold a tax position is required to meet before being measured and then recognized in the financial statements. It also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. We elected to classify interest and penalties related to income tax liabilities, when applicable, as part of our “Interest expense, net” rather than as a component of income tax expense in our Consolidated Statements of Operations.

Activity relating to our unrecognized tax benefits were as follows (in thousands):

Although it is reasonably possible that certain unrecognized tax benefits may increase or decrease within the next twelve months due to tax examination changes, settlement activities, expirations of statute of limitations, or the impact on recognition and measurement considerations related to the results of published tax cases or other similar activities, we do not anticipate any significant changes to unrecognized tax benefits over the next 12 months. During the years ended December 31, 2017 and 2016, no interest or penalties were required to be recognized relating to unrecognized tax benefits.

We are subject to U.S. and foreign income tax examinations for years subsequent to 2013, and state income tax examinations for years following 2012. However, to the extent allowable by law, the tax authorities may have a right to examine prior periods when net operating losses or tax credits were generated and carried forward for subsequent utilization, and make adjustments up to the amount of the net operating losses or credit carryforwards.