NOTE 9: INCOME TAXES

The components of earnings from continuing operations before income taxes are as follows:



in thousands	2016	2015	2014
Earnings from Continuing Operations
before Income Taxes
Domestic	$ 513,721	$ 293,547	$ 264,473
Foreign	33,536	34,310	34,365
Total	$ 547,257	$ 327,857	$ 298,838

Income tax expense from continuing operations consists of the following:



in thousands	2016	2015	2014
Income Tax Expense from
Continuing Operations
Current
Federal	$ 72,506	$ 67,521	$ 47,882
State and local	14,774	14,035	18,983
Foreign	6,974	7,784	7,174
Total	$ 94,254	$ 89,340	$ 74,039
Deferred
Federal	$ 37,246	$ 11,192	$ 13,556
State and local	(6,647)	(4,888)	4,120
Foreign	(2)	(701)	(23)
Total	$ 30,597	$ 5,603	$ 17,653
Total expense	$ 124,851	$ 94,943	$ 91,692

Income tax expense differs from the amount computed by applying the federal statutory income tax rate to earnings from continuing operations before income taxes. The sources and tax effects of the differences are as follows:



dollars in thousands		2016		2015		2014
Income tax expense at the federal
statutory tax rate of 35%	$ 191,540	35.0%	$ 114,750	35.0%	$ 104,594	35.0%
Expense (Benefit) from
Income Tax Differences
Statutory depletion	(32,230)	-5.9%	(27,702)	-8.4%	(25,774)	-8.6%
State and local income taxes, net of federal
income tax benefit 1	5,283	1.0%	5,945	1.8%	15,017	5.0%
U.S. production deduction	(8,790)	-1.6%	(5,099)	-1.6%	0	0.0%
Foreign tax credit carryforward	(6,513)	-1.2%	6,486	2.0%	0	0.0%
Permanently reinvested foreign earnings	(4,578)	-0.8%	(6,396)	-2.0%	0	0.0%
Share-based compensation 2	(22,443)	-4.1%	0	0.0%	0	0.0%
Other, net	2,582	0.4%	6,959	2.2%	(2,145)	-0.7%
Total income tax expense/
Effective tax rate	$ 124,851	22.8%	$ 94,943	29.0%	$ 91,692	30.7%


1	The 2016 amount includes $2,404 thousand of benefit related to the early adoption of ASU 2016-09.
2	As discussed in Note 1, we early adopted ASU 2016-09 as of December 31, 2016.

Deferred taxes on the balance sheet result from temporary differences between the amount of assets and liabilities recognized for financial reporting and tax purposes. The components of the net deferred income tax liability at December 31 are as follows:



in thousands	2016	2015
Deferred Tax Assets Related to
Employee benefits	$ 85,123	$ 78,999
Asset retirement obligations & other reserves	63,617	59,507
Deferred compensation	103,947	117,298
State net operating losses	54,498	61,658
Federal credit carryforwards	18,139	34,340
Other	44,843	48,856
Total gross deferred tax assets	370,167	400,658
Valuation allowance	(44,237)	(59,323)
Total net deferred tax assets	$ 325,930	$ 341,335
Deferred Tax Liabilities Related to
Property, plant & equipment	$ 664,763	$ 665,057
Goodwill/other intangible assets	327,666	324,910
Other	36,355	32,464
Total deferred tax liabilities	$ 1,028,784	$ 1,022,431
Net deferred tax liability	$ 702,854	$ 681,096

The above net deferred tax liabilities are reflected in the accompanying Consolidated Balance Sheets as noncurrent liabilities.

Each quarter we analyze the likelihood that our deferred tax assets will be realized. A valuation allowance is recorded if, based on the weight of all available positive and negative evidence, it is more likely than not (a likelihood of more than 50%) that some portion, or all, of a deferred tax asset will not be realized.

As noted above, we have state net operating loss carryforward deferred tax assets of $54,498,000 of which $53,220,000 relates to Alabama. The Alabama net operating loss carryforward, if not used, would expire in years 2023 – 2029. Before 2015, this Alabama deferred tax asset carried a full valuation allowance. During 2015, we restructured our legal entities which resulted in a partial release of the valuation allowance in the amount of $4,655,000. During the fourth quarter of 2016, based on our continued positive performance, we recorded an additional partial release of the valuation allowance in the amount of $4,791,000.

As of December 31, 2016, income tax receivables of $10,201,000 are included in accounts and notes receivable in the accompanying Consolidated Balance Sheet. These are federal and state amended return receivables and overpayments that we have requested to be refunded. There were similar receivables of $4,138,000 as of December 31, 2015.

Our liability for unrecognized tax benefits is discussed in our accounting policy for income taxes (see Note 1, caption Income Taxes). Changes in our liability for unrecognized tax benefits for the years ended December 31 are as follows:



in thousands	2016	2015	2014
Unrecognized tax benefits as of January 1	$ 8,447	$ 7,057	$ 12,155
Increases for tax positions related to
Prior years	1,368	491	229
Current year	1,040	942	528
Decreases for tax positions related to
Prior years	0	0	(53)
Settlements with taxing authorities	0	0	0
Expiration of applicable statute of limitations	(27)	(43)	(5,802)
Unrecognized tax benefits as of December 31	$ 10,828	$ 8,447	$ 7,057

We classify interest and penalties recognized on the liability for unrecognized tax benefits as income tax expense. Interest and penalties recognized as income tax expense (benefit) were $266,000 in 2016, $138,000 in 2015 and $(1,067,000) in 2014. The balance of accrued interest and penalties included in our liability for unrecognized tax benefits as of December 31 was $1,369,000 in 2016, $1,103,000 in 2015 and $965,000 in 2014.

Our liability for unrecognized tax benefits at December 31 in the table above include $9,884,000 in 2016, $7,614,000 in 2015 and $6,282,000 in 2014 that would affect the effective tax rate if recognized.

We are routinely examined by various taxing authorities. We anticipate no single tax position generating a significant increase or decrease in our liability for unrecognized tax benefits within 12 months of this reporting date.

We file income tax returns in U.S. federal, various state and foreign jurisdictions. Generally, we are not subject to significant changes in income taxes by any taxing jurisdiction for the years before 2013.

As of December 31, 2016, we have $154,874,000 of accumulated undistributed earnings from our foreign subsidiaries. We consider these earnings to be indefinitely reinvested and, therefore, have not recorded income taxes on these earnings. If we were to distribute these earnings in the form of dividends, the distribution would result in U.S. income taxes of $32,860,000.