Income Taxes

Income (loss) from continuing operations before income taxes and equity income (loss) as reported in the Consolidated Statements of Operations consists of the following:



(In thousands)	2015		2014			2013
U.S.	$	16,169	$	22,951		$	(30,422	)
International	18,646		(8,813		)	(160,754		)
Total income (loss) before income taxes and equity income (loss)	$	34,815	$	14,138		$	(191,176	)

Income tax expense as reported in the Consolidated Statements of Operations consists of the following:



(In thousands)	2015		2014		2013
Income tax expense (benefit):
Currently payable:
U.S. federal	$	408	$	5,622	$	9,822
U.S. state	546		557		1,375
International	23,095		14,569		41,015
Total income taxes currently payable	24,049		20,748		52,212
Deferred U.S. federal	2,651		3,447		(18,615		)
Deferred U.S. state	812		893		473
Deferred international	166		5,278		(2,095		)
Total income tax expense	$	27,678	$	30,366	$	31,975

Cash payments for income taxes, including taxes on the gain or loss from discontinued business, were $18.9 million, $36.0 million and $44.4 million for 2015, 2014 and 2013, respectively.

The following is a reconciliation of the normal expected statutory U.S. federal income tax expense (benefit) to the actual income tax expense as reported in the Consolidated Statements of Operations:



(In thousands)	2015			2014			2013
U.S. federal income tax	$	12,185		$	4,949		$	(66,912	)
U.S. state income taxes, net of federal income tax benefit	496			713			(917		)
U.S. domestic manufacturing deductions and credits	(2,504		)	(1,882		)	(4,700		)
Tax costs of repatriation from the Infrastructure Transaction	—			—			13,181
Difference in effective tax rates on international earnings and remittances	5,095			4,397			581
Uncertain tax position contingencies and settlements	1,416			(5,298		)	(5,548		)
Changes in realization on beginning of the year deferred tax assets	923			2,283			20,125
Restructuring and impairment charges with no realizable tax benefits	8,508			21,969			—
U.S. nondeductible items	874			1,216			2,953
Loss from disposal from the Infrastructure Transaction	580			2,592			73,819
Cumulative effect of change in statutory tax rates/laws	340			246			(370		)
Income (loss) from unconsolidated entities	62			(587		)	—
Other, net	(297		)	(232		)	(237		)
Total income tax expense	$	27,678		$	30,366		$	31,975

At December 31, 2015, 2014 and 2013, the Company's annual effective income tax rate on income from continuing operations was 79.5%, 214.8% and (16.7)%, respectively.

The income tax expense for 2015 compared with 2014 decreased primarily due to a reduction in restructuring and asset impairment charges in the Harsco Metals & Minerals Segment for which no tax benefit was recorded.

Total income tax expense changed between 2013 and 2014 primarily due to the jurisdictional mix of the $272.3 million loss on disposal of the Harsco Infrastructure Segment and for the tax costs of repatriation from the Infrastructure Transaction recorded in 2013 compared with the restructuring and asset impairment charges recorded in the Harsco Metals & Minerals Segment for which no tax benefit was recorded in 2014.

The tax effects of the temporary differences giving rise to the Company's deferred tax assets and liabilities at December 31, 2015 and 2014 are as follows:



	2015					2014
(In thousands)	Asset			Liability		Asset			Liability
Depreciation and amortization	$	—		$	11,474	$	—		$	16,026
Expense accruals	24,538			—		27,737			—
Inventories	5,588			—		4,396			—
Provision for receivables	1,049			—		798			—
Deferred revenue	—			1,904		—			1,708
Operating loss carryforwards	77,151			—		75,635			—
Foreign tax credit carryforwards	19,199			—		16,476			—
Capital loss carryforwards	2,102			—		2,102			—
Pensions	66,675			—		91,377			—
Currency adjustments	28,589			—		35,386			—
Equity investment in Infrastructure strategic venture	—			10,688		—			23,885
Unit adjustment liability	29,491			—		34,675			—
Post-retirement benefits	869			—		905			—
Other	8,446			—		9,079			—
Subtotal	263,697			24,066		298,566			41,619
Valuation allowance	(110,680		)	—		(131,422		)	—
Total deferred income taxes	$	153,017		$	24,066	$	167,144		$	41,619

The deferred tax asset and liability balances recognized on the Consolidated Balance Sheets at December 31, 2015 and 2014 are as follows:



(In thousands)	2015		2014
Other current assets	$	38,899	$	39,003
Other assets	102,914		94,021
Other current liabilities	767		1,120
Deferred income taxes	12,095		6,379

At December 31, 2015, the tax-effected amount of net operating loss carryforwards ("NOLs") totaled $77.2 million. Tax-effected NOLs from international operations are $67.2 million. Of that amount, $46.8 million can be carried forward indefinitely, and $20.4 million will expire at various times between 2016 and 2031. Tax-effected U.S. state NOLs are $10.0 million. Of that amount, $0.4 million expire at various times between 2016 and 2019, $4.3 million expire at various times between 2020 and 2024, $1.5 million expire at various times between 2025 and 2029, and $3.8 million expire at various times between 2030 and 2035. At December 31, 2015, the tax-effected amount of capital loss carryforwards totaled $2.1 million which expire in 2018.

The valuation allowances of $110.7 million and $131.4 million at December 31, 2015 and 2014, respectively, related principally to deferred tax assets for pension liabilities, NOLs, capital losses, foreign currency translation and foreign investment tax credits that are uncertain as to realizability. In 2015, the Company recorded a net decrease in the valuation allowance of $16.1 million related to current year pension adjustments recorded through Accumulated other comprehensive loss, the current year decrease from foreign currency translation in the amount of $11.5 million and a $6.3 million decrease related to a U.K. tax rate change. This was partially offset by a net increase of $13.2 million related to losses in certain jurisdictions where the Company determined that it is more likely than not that these assets will not be realized. Additionally, in 2014, the Company recorded a net increase in the valuation allowance of $8.0 million related to pension adjustments recorded through Accumulated other comprehensive loss and a net increase of $6.6 million related to losses in certain jurisdictions where the Company determined that it is more likely than not that these assets will not be realized. This was partially offset by a $9.3 million reduction in valuation allowance from the effects of foreign currency translation and a reduction of $1.1 million related to usage of a capital loss carryforward.

The Company has not provided U.S. income taxes on certain non-U.S. subsidiaries' undistributed earnings as such amounts are indefinitely reinvested outside the U.S. At December 31, 2015 and 2014, such earnings were approximately $547 million and $705 million, respectively. It is not practical to determine the deferred income tax liability on these earnings if, in the future, they are remitted to the U.S. because the income tax liability to be incurred, if any, is dependent on circumstances existing when remittance occurs.

The Company recognizes accrued interest and penalty expense related to unrecognized income tax benefits in income tax expense. The Company did not recognize any income tax benefit for interest and penalties during 2015. During 2014 and 2013, the Company recognized an income tax benefit of $2.1 million and $3.1 million, respectively, for interest and penalties primarily due to the expiration of statutes of limitation and resolution of examinations. The Company has accrued $2.8 million, $2.8 million and $4.9 million for the payment of interest and penalties at December 31, 2015, 2014 and 2013 respectively.

A reconciliation of the change in the unrecognized income tax benefits balance from January 1, 2013 to December 31, 2015 is as follows:



(In thousands)	Unrecognized Income Tax Benefits			Deferred Income Tax Benefits			Unrecognized Income Tax Benefits, Net of Deferred Income Tax Benefits
Balances, January 1, 2013	$	24,918		$	(369	)	$	24,549
Additions for tax positions related to the current year (includes currency translation adjustment)	500			(5		)	495
Additions for tax positions related to prior years (includes currency translation adjustment)	145			(4		)	141
Other reductions for tax positions related to prior years	(3,050		)	—			(3,050		)
Statutes of limitation expirations	(3,348		)	180			(3,168		)
Settlements	(1,616		)	—			(1,616		)
Balance at December 31, 2013	17,549			(198		)	17,351
Additions for tax positions related to the current year (includes currency translation adjustment)	288			(2		)	286
Additions for tax positions related to prior years (includes currency translation adjustment)	156			(55		)	101
Other reductions for tax positions related to prior years	(3,056		)	—			(3,056		)
Statutes of limitation expirations	(2,481		)	143			(2,338		)
Settlements	—			—			—
Balance at December 31, 2014	12,456			(112		)	12,344
Additions for tax positions related to the current year (includes currency translation adjustment)	(483		)	(2		)	(485		)
Additions for tax positions related to prior years (includes currency translation adjustment)	1,249			(4		)	1,245
Other reductions for tax positions related to prior years	(7,846		)	—			(7,846		)
Statutes of limitation expirations	(173		)	59			(114		)
Settlements	(42		)	15			(27		)
Total unrecognized income tax benefits that, if recognized, would impact the effective income tax rate at December 31, 2015	$	5,161		$	(44	)	$	5,117

Included in the other reductions for tax positions related to prior years for 2015 is $7.8 million resulting from the adjustment by a foreign tax authority as a result of tax audit. The unrecognized tax benefit was related to a net operating loss carryforward that carried a full valuation allowance. As a result, the related deferred tax asset was decreased by the same amount.

Within the next twelve months, it is reasonably possible that up to $2.3 million of unrecognized income tax benefits will be recognized upon settlement of tax examinations and the expiration of various statutes of limitations.

The Company files income tax returns as prescribed by the tax laws of the jurisdictions in which it operates. With few exceptions, the Company is no longer subject to U.S and international income tax examinations by tax authorities through 2009.