INCOME TAXES (restated)

Our consolidated federal and state income tax returns include the results of operations of acquired businesses from their dates of acquisition.

A reconciliation of our effective income tax rate to the amounts calculated by applying the federal statutory corporate tax rate of 35% is as follows (in thousands):



	Years Ended December 31,
	2015					2014					2013
	(Restated)					(Restated)					(Restated)
Tax (benefit) expense at statutory rate	$	(1,510	)	35.0	%	$	8,306		35.0	%	$	(5,987	)	35.0	%
Add (deduct):
Rates different than statutory	(165		)	3.8		—			—		—			—
State income taxes	(2,322		)	53.8		2,792			11.8		1,693			(9.9	)
Nondeductible items	511			(11.8	)	1,304			5.5		970			(5.7	)
Unrecognized tax benefit relating to Warrants	21,006			(486.8	)	1,245			5.2		5,892			(34.4	)
Valuation allowance	(21,057		)	487.9		(10,992		)	(46.3	)	(6,053		)	35.4
Unrecognized tax benefit	390			(9.0	)	369			1.5		(3,732		)	21.8
Derivatives and note discount	—			—		(911		)	(3.8	)	8,369			(48.9	)
Capital loss carryforward expiration	3,485			(80.8	)	—			—		—			—
Depletion	(47		)	1.1		—			—		—			—
Other	488			(11.3	)	43			0.2		16			(0.1	)
Income tax expense from continuing operations	$	779		(18.1	)%	$	2,156		9.1	%	$	1,168		(6.8	)%

The amounts of our consolidated federal and state income tax expense (benefit) from continuing operations were as follows (in thousands):



	Years Ended December 31,
	2015			2014			2013
	(Restated)
Current:
Federal	$	10,685		$	487		$	130
State	2,716			1,674			1,144
Foreign	(43		)	—			—
	13,358			2,161			1,274
Deferred:
Federal	$	(8,031	)	$	(5	)	$	—
State	(4,611		)	—			(106		)
Foreign	63			—			—
	(12,579		)	(5		)	(106		)
Income tax expense from continuing operations	$	779		$	2,156		$	1,168

Income tax expense (benefit) was allocated between continuing operations and discontinued operations as follows:



	Years Ended December 31,
	2015			2014		2013
	(Restated)
Continuing operations	$	779		$	2,156	$	1,168
Discontinued operations	(180		)	172		(45		)
Income tax expense	$	599		$	2,328	$	1,123

Deferred income tax provisions result from temporary differences in the recognition of expenses for financial reporting purposes and for tax reporting purposes. We present the effects of those differences as deferred income tax liabilities and assets, as follows (in thousands):



	December 31,
	2015			2014
	(Restated)			(Restated)
Deferred tax assets:
Goodwill and other intangibles	$	4,165		$	6,747
Receivables	1,705			988
Inventory	4,114			4,264
Accrued insurance	5,170			4,021
Depletion	366			490
Deferred revenue	358			332
Stock compensation	769			986
Charitable contribution carryover	—			166
Other accrued expenses	7,465			5,224
Capital loss carryforward expiration	—			3,736
Net operating loss carryforwards	5,699			10,039
Other	2,024			1,507
Total gross deferred tax assets	31,835			38,500
Valuation allowance	(4,131		)	(26,474		)
Net deferred tax assets	27,704			12,026
Deferred income tax liabilities:
Property, plant and equipment, net	21,678			16,566
Total gross deferred tax liabilities	21,678			16,566
Net deferred tax asset (liability)	$	6,026		$	(4,540	)

The allocation of deferred taxes between current and long-term as of December 31, 2015 and 2014 was as follows (in thousands):



	December 31,
	2015		2014
	(Restated)
Current deferred tax asset, net	$	—	$	1,887
Long-term deferred tax asset, net	6,026		—
Long-term deferred tax liability, net	—		6,427
Net deferred tax asset (liability)	$	6,026	$	(4,540	)

In accordance with U.S. GAAP, the recognized value of deferred tax assets must be reduced to the amount that is more likely than not to be realized in future periods. The ultimate realization of the benefit of deferred tax assets from deductible temporary differences or tax carryovers depends on the generation of sufficient taxable income during the periods in which those temporary differences become deductible. We considered the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based on these considerations, we relied upon the reversal of certain deferred tax liabilities to realize a portion of our deferred tax assets and established valuation allowances as of December 31, 2015 and 2014 in the amount of $4.1 million and $26.5 million, respectively, for other deferred tax assets because of uncertainty regarding their ultimate realization. Our total net deferred tax asset as of December 31, 2015 was $6.0 million and our total net deferred tax liability as of December 31, 2014 was $4.5 million, respectively.

We record changes in the fair value of our Warrant derivative each quarterly period in accordance with U.S. GAAP, which results in non-cash income or loss each period. We do not recognize this income or loss for purposes of calculating our tax provision; instead it is treated as an unrecognized tax benefit. Further, exercises of the Warrants are treated as an unrecognized tax benefit for purposes of calculating our tax provision. For 2015, our tax provision excluded $22.5 million related to this unrecognized tax benefit for federal and state tax purposes. There was no tax effect to our tax provision in 2014 related to the Warrants due to a full valuation allowance on our deferred tax assets through the third quarter of 2015.

As of each reporting date, management considers all new evidence, both positive and negative, that could impact management's view with regard to future realization of deferred tax assets. As of December 31, 2015, we achieved a history of positive pre-tax income and anticipate significant additional future pre-tax income to be generated, in part from our recently acquired businesses, which will result in higher U.S. Federal taxable income. For these reasons, management determined that sufficient positive evidence existed as of December 31, 2015 to conclude that it is more likely than not that additional deferred taxes of $21.1 million are realizable, and therefore, reversed a majority of the valuation allowance accordingly.

Under U.S. tax law, we have elected to treat our U.S. Virgin Island subsidiaries as controlled foreign corporations. As such, we consider the undistributed earnings of our U.S. Virgin Island subsidiaries as of December 31, 2015 to be indefinitely reinvested and, accordingly, no U.S. income taxes have been provided thereon. As of December 31, 2015, the amount of cash associated with indefinitely reinvested foreign earnings was approximately $0.1 million. We have not, nor do we anticipate the need to, repatriate funds to the United States to satisfy domestic liquidity needs arising in the ordinary course of business, including liquidity needs associated with our domestic debt service requirements.

We reorganized pursuant to Chapter 11 of the bankruptcy code under the terms of our plan of reorganization (the "Plan"), with an effective date of August 31, 2010. Under our Plan, our previously outstanding 8.375% Senior Subordinated Notes due 2014 were cancelled, giving rise to cancellation of indebtedness income ("CODI"). The Internal Revenue Code ("IRC"), provides that CODI arising under a plan of bankruptcy reorganization is excludable from taxable income, but the debtor must reduce certain of its tax attributes by the amount of CODI realized under the Plan. Based on the estimate of CODI and required tax attribute reduction, the effects of the Plan did not cause a significant change in our recorded net deferred tax liability. Our required reduction in tax attributes, or deferred tax assets, was accompanied by a corresponding release of valuation allowance in prior years.

We underwent a change in ownership for purposes of Section 382 of the IRC as a result of our Plan and emergence from Chapter 11 on August 31, 2010. As a result, the amount of our pre-change net operating losses ("NOL's"), and other tax attributes that are available to offset future taxable income are subject to an annual limitation. The annual limitation is based on the value of the corporation as of the effective date of the Plan. As of December 31, 2015, approximately $5.6 million of our federal NOL's are subject to annual Section 382 limitations. The ownership change and the resulting annual limitation on use of NOL's are not expected to result in the expiration of our NOL carryforwards if we are able to generate sufficient future taxable income within the carryforward periods. However, the limitation on the amount of NOL's available to offset taxable income in a specific year may result in the payment of income taxes before all NOL's have been utilized.

At December 31, 2015, we had unrecognized tax benefits of $35.0 million which, if recognized, would impact the effective tax rate. It is unlikely a reduction of unrecognized tax benefits will occur within the next 12 months. The unrecognized tax benefits relating to amounts taken or expected to be taken in 2015 and prior tax returns are included as a component of other long-term obligations. During the years ended December 31, 2015, 2014 and 2013, we recorded interest and penalties related to unrecognized tax benefits of $0.1 million, less than $0.1 million and $0.1 million, respectively, which are included in income tax expense in our consolidated statement of operations. Total accrued penalties and interest at December 31, 2015 and 2014 was approximately $0.3 million and $0.2 million, respectively.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):



	Years Ended December 31,
	2015		2014			2013
	(Restated)		(Restated)			(Restated)
Unrecognized tax benefits at January 1	$	12,098	$	10,711		$	7,273
Additions for tax positions related to current year	22,916		1,715			6,858
Additions for tax positions related to prior years	—		100			393
Reductions due to lapse of statute of limitations	—		(63		)	(3,813		)
Settlements	—		(365		)	—
Unrecognized tax benefits at December 31	$	35,014	$	12,098		$	10,711

We recorded an unrecognized tax position in 2015 of $22.5 million related to the Warrants, due to uncertainty about their deductibility for federal and state income tax purposes. Approximately $30.9 million of our unrecognized tax benefits as of December 31, 2015 relate to the Warrants.

We recognize interest and penalties related to uncertain tax positions in income tax expense.

We conduct business domestically and, as a result, U.S. Concrete, Inc. or one or more of our subsidiaries file income tax returns in the U.S. federal jurisdiction and various state and local jurisdictions. In the normal course of business, we are subject to examination in the U.S. federal jurisdiction, and generally in state jurisdictions. With few exceptions, we are no longer subject to U.S. federal, state and local tax examinations for years before 2012.