Income taxes



The components of pre-tax book income (loss) consist of the following:
	Year Ended December 31,
	2014		2013			2012
U.S.	$	77,046	$	(47,080	)	$	(38,762	)
Foreign	52,451		7,236			9,439
Total	$	129,497	$	(39,844	)	$	(29,323	)



Significant components of the income tax expense consist of the following:
	Year Ended December 31,
	2014			2013			2012
Current:
U.S. federal current expense (benefit)	$	(112	)	$	532		$	(161	)
State current expense (benefit)	2,252			(445		)	(669		)
Foreign current expense	15,098			6,198			9,808
Total current expense	17,238			6,285			8,978
Deferred:
U.S. federal deferred benefit	(1,696		)	(3,905		)	(1,564		)
State deferred benefit	(12		)	(207		)	—
Foreign deferred tax expense	2,778			958			1,496
Total deferred benefit	1,070			(3,154		)	(68		)
Total income tax expense	$	18,308		$	3,131		$	8,910



A reconciliation of the statutory U.S. Federal income tax rate to the effective income tax rate on income (loss) is as follows:
	2014		2013		2012
Federal Statutory Rate	35.0	%	35.0	%	35.0	%
Permanent differences	4.3		54.5		12.6
State taxes, net of Federal benefit	(6.3	)	97.2		0.1
Foreign earnings taxed at different rates than U.S.	(0.5	)	17.4		(369.5	)
Valuation allowance	(25.4	)	(265.9	)	297.6
Changes in uncertain tax reserves	0.6		40.5		(6.7	)
Other	6.4		13.4		0.5
Effective tax rate	14.1	%	(7.9	)%	(30.4	)%

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:



	2014			2013
Deferred tax assets:
Accrued postretirement benefit cost	$	15,683		$	12,851
Accrued liabilities	4,494			2,355
Share-based compensation	7,350			5,327
Derivative and hedging contracts	58,687			116,550
Goodwill	10,521			12,421
Equity contra - other comprehensive loss	81,567			61,216
Dual consolidated losses and capital losses	7,509			14,512
Net operating losses and tax credits	646,158			637,721
Foreign basis differences	668			—
Other	1,239			1,533
Total deferred tax assets	833,876			864,486
Valuation allowance	(748,283		)	(765,023		)
Net deferred tax assets	$	85,593		$	99,463
Deferred tax liabilities:
Tax over financial statement depreciation	$	(142,627	)	$	(145,945	)
Pension	(14,222		)	(11,543		)
Unremitted foreign earnings	(30,308		)	(35,344		)
Foreign basis differences	—			(790		)
Total deferred tax liabilities	(187,157		)	(193,622		)
Net deferred tax liability	$	(101,564	)	$	(94,159	)

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:



	2014			2013
Beginning balance, valuation allowance	$	765,023		$	656,352
Change in valuation allowance	(16,740		)	108,671
Ending balance, valuation allowance	$	748,283		$	765,023

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, 2014 and 2013 that arose directly from tax deductions related to equity compensation in excess of compensation recognized for financial reporting. Net operating losses of $7,499 will increase equity if and when such deferred tax assets are ultimately realized.

The significant components of our NOL carryforwards are as follows:



	2014		2013
Federal (1)	$	1,306,482	$	1,287,118
State (2)	2,078,105		2,077,890
Foreign (3)	446,234		459,457


(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:



	2014			2013			2012
Balance as of January 1,	$	1,200		$	17,600		$	15,900
Additions based on tax positions related to the current year	1,100			700			2,700
Decreases due to lapse of applicable statute of limitations	(300		)	(2,800		)	(800		)
Settlements	—			(14,300		)	(200		)
Balance as of December 31,	$	2,000		$	1,200		$	17,600

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:



	2014		2013		2012
Highly certain tax positions	$	1,900	$	1,100	$	16,900
Other unrecognized tax benefits	100		100		700
Gross unrecognized tax benefits	$	2,000	$	1,200	$	17,600
Accrued interest and penalties related to unrecognized tax benefits	$	—	$	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. Material state and local income tax matters have been concluded for years through 2007. The majority of our state returns beginning in 2008 are subject to examination.

As of December 31, 2014, we had federal net operating loss carryforwards of $1,306,482, 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 2009 tax year. A review of our 2010 through 2012 tax years was recently completed by the Directorate of Internal Revenue of Iceland and no further action is expected for this matter.

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