Income taxes



The components of pre-tax book income (loss) consist of the following:
	Year Ended December 31,
	2013			2012			2011
U.S.	$	(47,080	)	$	(38,762	)	$	(22,865	)
Foreign	7,236			9,439			45,104
Total	$	(39,844	)	$	(29,323	)	$	22,239



Significant components of the income tax expense consist of the following:
	Year Ended December 31,
	2013			2012			2011
Current:
U.S. federal current expense (benefit)	$	532		$	(161	)	$	(22	)
State current expense (benefit)	(445		)	(669		)	1,395
Foreign current expense	6,198			9,808			13,467
Total current expense	6,285			8,978			14,840
Deferred:
U.S. federal deferred benefit	(3,905		)	(1,564		)	(5,772		)
State deferred benefit	(207		)	—			—
Foreign deferred tax expense	958			1,496			5,291
Total deferred benefit	(3,154		)	(68		)	(481		)
Total income tax expense	$	3,131		$	8,910		$	14,359



A reconciliation of the statutory U.S. Federal income tax rate to the effective income tax rate on income (loss) is as follows:
	2013		2012		2011
Federal Statutory Rate	35.0	%	35.0	%	35.0	%
Permanent differences	54.5		12.6		63.2
State taxes, net of Federal benefit	97.2		0.1		6.3
Foreign earnings taxed at different rates than U.S.	17.4		(369.5	)	(60.3	)
Valuation allowance	(265.9	)	297.6		40.8
Changes in uncertain tax reserves	40.5		(6.7	)	5.6
Other	13.4		0.5		(26.0	)
Effective tax rate	(7.9	)%	(30.4	)%	64.6	%

The effect of earnings of foreign subsidiaries includes the difference between the U.S. statutory rate and local jurisdiction tax rates, as well as the provision (benefit) for incremental U.S. taxes on unremitted earnings of foreign subsidiaries due to the removal of the election to permanently reinvest the related earnings during 2012.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets and liabilities as of December 31 are as follows:



	2013			2012
Deferred tax assets:
Accrued postretirement benefit cost	$	12,851		$	9,184
Accrued liabilities	2,355			8,289
Share-based compensation	5,327			2,941
Derivative and hedging contracts	116,550			180,121
Goodwill	12,421			14,654
Equity contra - other comprehensive loss	61,216			81,039
Capital losses	14,512			9,056
Net operating losses and tax credits	637,721			509,618
Other	1,533			138
Total deferred tax assets	864,486			815,040
Valuation allowance	(765,023		)	(656,352		)
Net deferred tax assets	$	99,463		$	158,688
Deferred tax liabilities:
Tax over financial statement depreciation	$	(145,945	)	$	(145,213	)
Pension	(11,543		)	(8,905		)
Income from domestic partnership	—			4
Unremitted foreign earnings	(35,344		)	(93,824		)
Foreign basis differences	(790		)	(3,204		)
Total deferred tax liabilities	(193,622		)	(251,142		)
Net deferred tax liability	$	(94,159	)	$	(92,454	)

Under ASC 740 “Accounting for Income Taxes”, a valuation allowance must be established when it is more likely than not that all or a portion of a deferred tax asset will not be realized. The amount of valuation allowance is based upon our best estimate of our ability to realize the net deferred tax assets. A valuation allowance can subsequently be reversed when we believe that the assets are realizable on a more likely than not basis.

The changes in the valuation allowance are as follows:



	2013		2012
Beginning balance, valuation allowance	$	656,352	$	773,714
Change in valuation allowance	108,671		(117,362		)
Ending balance, valuation allowance	$	765,023	$	656,352

As a result of certain realization requirements of ASC Topic 718 “Compensation - Stock Compensation”, the table of deferred tax assets and liabilities shown above does not include net operating loss deferred tax assets at December 31, 2013 and 2012 that arose directly from tax deductions related to equity compensation in excess of compensation recognized for financial reporting. Net operating losses of $4,793 will increase equity if and when such deferred tax assets are ultimately realized.

The significant components of our NOL carryforwards are as follows:



	2013		2012
Federal (1)	$	1,287,118	$	1,176,802
State (2)	2,077,890		1,106,961
Foreign (3)	459,457		341,290


(1)	The federal NOL begins to expire in 2028.


(2)	The state NOLs begin to expire in 2027.


(3)	The Icelandic NOL begins to expire in 2017; Dutch NOL begins to expire in 2022.

A reconciliation of the beginning and ending amounts of gross unrecognized tax benefits (excluding interest) is as follows:



	2013			2012			2011
Balance as of January 1,	$	17,600		$	15,900		$	16,600
Additions based on tax positions related to the current year	700			2,700			2,500
Decreases due to lapse of applicable statute of limitations	(2,800		)	(800		)	(3,200		)
Settlements	(14,300		)	(200		)	—
Balance as of December 31,	$	1,200		$	17,600		$	15,900

Included in the above balances are tax positions whose tax characterization is highly certain but for which there is uncertainty about the timing of tax return inclusion. Because of the impact of deferred tax accounting, other than interest and penalties, the timing would not impact the annual effective tax rate but could accelerate the payment of cash to the taxing authority to an earlier period. The remaining amounts of unrecognized tax benefits would affect our effective tax rate if recognized. It is our policy to recognize potential accrued interest and penalties related to unrecognized tax benefits in income tax expense.

The components of our unrecognized tax positions are as follows:



	2013		2012		2011
Highly certain tax positions	$	1,100	$	16,900	$	15,100
Other unrecognized tax benefits	100		700		800
Gross unrecognized tax benefits	$	1,200	$	17,600	$	15,900
Accrued interest and penalties related to unrecognized tax benefits	$	100	$	100	$	100

Century and its subsidiaries file income tax returns in the U.S. federal jurisdiction, various state and local jurisdictions, and several foreign jurisdictions.

In April 2013, we received notice from the Internal Revenue Service (“IRS”) that the Congressional Joint Committee on Taxation finalized their review of the US Federal examinations for the income tax years 2008, 2009, and 2010 and refund years of 2004, 2005, 2006, and 2007 without exception to the conclusions reached by the IRS. This Joint Committee is a special nonpartisan Congressional committee involved with the analysis and drafting of federal tax legislation and, as part of its mandate, reviews all federal tax refund claims over a certain amount. As a result of this determination, we have reduced the reserve for the unrecognized tax benefits related to prior years by approximately $14,300. The reduction did not result in an impact to the effective tax rate since the reduction was offset by an increase in our valuation allowance. During the second quarter of 2013, we received refunds from the IRS of $5,009 following the Joint Committee review.

Our federal income tax returns have been reviewed by the IRS through 2010. However, we have NOL's beginning in 2008 that are available for carryforward to future years. Under US tax law, NOL's may be adjusted by the IRS until the statute of limitations expires for the year in which the NOL is used. Accordingly, our 2008 and later NOL's may be reviewed until they are used or expire. We received notice from the IRS of their intent to review the 2011 return of NSA General Partnership, a US partnership owned by Century Aluminum Company subsidiaries. Material state and local income tax matters have been concluded for years through 2006. The majority of our state returns beginning in 2008 are subject to examination.

As of December 31, 2013, we had federal net operating loss carryforwards of $1,287,118, after adjusting for losses carried back to previous tax years, which could offset future taxable income. Our ability to utilize our deferred tax assets to offset future federal taxable income may be significantly limited if we experience an “ownership change” as defined in Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”). In general, an ownership change would occur if our “five-percent shareholders,” as defined under the Code, collectively increase their ownership in us by more than 50 percentage points over a rolling three-year period. Future transactions in our stock that may not be in our control may cause us to experience such an ownership change and thus limit our ability to utilize net operating losses, tax credits and other tax assets to offset future taxable income.

Our Icelandic tax returns are subject to examination beginning with the 2008 tax year. During 2013, we received notice from the Directorate of Internal Revenue of Iceland of their intent to conduct a periodic review regarding certain of our Icelandic subsidiaries for the years 2010-2012.

We do not expect a significant change in the balance of unrecognized tax benefits within the next twelve months.