Income Taxes (Tables)

12 Months Ended

Dec. 31, 2014

Components of Income Tax Expense Benefit

Income from continuing operations before income taxes and equity in net income of unconsolidated investments, and current and deferred income tax expense (benefit) are composed of the following (in thousands):



	Year Ended December 31,
	2014			2013			2012
Income from continuing operations before income taxes and equity in net income of unconsolidated investments:
Domestic	$	45,689		$	351,731		$	311,195
Foreign	167,490			186,711			57,017
Total	$	213,179		$	538,442		$	368,212

Current income tax expense:
Federal	$	36,708		$	53,953		$	67,022
State	3,209			2,195			6,107
Foreign	25,700			18,414			19,672
Total	$	65,617		$	74,562		$	92,801

Deferred income tax expense (benefit):
Federal	$	(32,890	)	$	69,817		$	928
State	(1,139		)	2,416			648
Foreign	(13,104		)	(12,350		)	(13,944		)
Total	$	(47,133	)	$	59,883		$	(12,368	)

Total income tax expense	$	18,484		$	134,445		$	80,433

Significant Differences Between United States Federal Statutory Rate and Effective Income Tax Rate

The reconciliation of the U.S. federal statutory rate to the effective income tax rate is as follows:



	% of Income Before Income Taxes
	2014		2013		2012
Federal statutory rate	35.0	%	35.0	%	35.0	%
State taxes, net of federal tax benefit	0.2		0.7		1.4
Change in valuation allowance^(a)	1.0		(2.2	)	3.4
Impact of foreign earnings, net^(b)	(23.6	)	(10.3	)	(6.3	)
Depletion	(2.4	)	(0.9	)	(1.3	)
Revaluation of unrecognized tax benefits/reserve requirements^(c)	(0.6	)	(0.1	)	(1.7	)
Domestic Manufacturing tax deduction^(d)	(2.2	)	(0.9	)	(3.8	)
Undistributed earnings of foreign subsidiaries^(b)	(0.3	)	2.9		(4.9	)
Other items, net	1.6		0.8		—
Effective income tax rate	8.7	%	25.0	%	21.8	%

(a)

During 2013, the Avonmouth, United Kingdom legal entity was dissolved, therefore the corresponding valuation allowance and deferred tax assets were written off. During 2012, a valuation allowance was established for $15.9 million as a result of the planned shut-down of our Avonmouth, United Kingdom legal entity in connection with our exit of the phosphorus flame retardants business. See Note 20, “Restructuring and Other.”

(b)

In prior years, we designated the undistributed earnings of substantially all of our foreign subsidiaries as indefinitely invested. The benefit of the lower tax rates in the jurisdictions for which we made this designation are reflected in our effective income tax rate. During 2014, 2013 and 2012, we received distributions of $12.6 million, $12.3 million and $56.9 million, respectively, from various foreign subsidiaries and joint ventures, and realized an expense (benefit), net of foreign tax credits, of $2.8 million, $2.4 million and $(1.8) million, respectively, related to the repatriation of these high taxed earnings. We have asserted, for all periods being reported, indefinite investment of our share of the income of JBC, a Free Zones company under the laws of the Hashemite Kingdom of Jordan. The applicable provisions of the Jordanian law, and applicable regulations thereunder, do not have a termination provision and the exemption is indefinite. As a Free Zones company, JBC is not subject to income taxes on the profits of products exported from Jordan, and currently, substantially all of the profits are from exports. This gave us a rate benefit of 12.4%, 4.5%, and 5.8% for 2014, 2013, and 2012, respectively. The rate has also benefited from rate differences in various countries including Belgium, and the Netherlands. In 2012, undistributed foreign subsidiary earnings were primarily impacted by a $17.4 million change related to the closure of our Avonmouth, United Kingdom site in connection with our exit of the phosphorus flame retardants business.

(c)

During 2014, we released various tax reserves primarily related to the expiration of the applicable U.S. federal statute of limitations for 2009 through 2010 which provided a net benefit of approximately $2.5 million. During 2012, we released various tax reserves primarily related to the expiration of the applicable U.S. federal statute of limitations for 2008 which provided a net benefit of $5.2 million.


(d)	During 2012, we amended the calculation of the domestic manufacturing tax deduction for the year 2010 and filed the 2011 tax return. As a result, in 2012 we recognized tax benefits of $1.5 million and $3.0 million related to the 2010 and 2011 tax years, respectively.

Deferred Income Tax Assets and Liabilities Recorded on Consolidated Balance Sheets

The deferred income tax assets and liabilities recorded on the consolidated balance sheets as of December 31, 2014 and 2013 consist of the following (in thousands):



	December 31,
	2014			2013
Deferred tax assets:
Postretirement benefits other than pensions	$	221		$	300
Accrued employee benefits	20,834			31,089
Operating loss carryovers	82,017			88,614
Pensions	79,113			37,172
Tax credit carryovers	34,469			35,170
Undistributed earnings of foreign subsidiaries	540			—
Other	21,845			15,447
Gross deferred tax assets	239,039			207,792
Valuation allowance	(30,768		)	(33,757		)
Deferred tax assets	208,271			174,035

Deferred tax liabilities:
Depreciation	(184,548		)	(213,575		)
Foreign currency translation adjustments	(4,752		)	(3,104		)
Undistributed earnings of foreign subsidiaries	—			(71		)
Other	(18,420		)	(19,747		)
Deferred tax liabilities	(207,720		)	(236,497		)

Net deferred tax assets (liabilities)	$	551		$	(62,462	)
Classification in the consolidated balance sheets:
Current deferred tax assets	$	1,801		$	3,912
Current deferred tax liabilities	(6,806		)	(2,853		)
Noncurrent deferred tax assets	62,440			65,667
Noncurrent deferred tax liabilities	(56,884		)	(129,188		)
Net deferred tax assets (liabilities)	$	551		$	(62,462	)

Changes in Balance of Deferred Tax Asset Valuation Allowance

Changes in the balance of our deferred tax asset valuation allowance are as follows (in thousands):



	Year Ended December 31,
	2014			2013			2012
Balance at January 1	$	(33,757	)	$	(49,562	)	$	(36,419	)
Additions	(1,895		)	(4,359		)	(20,182		)
Deductions	4,884			20,164			7,039
Balance at December 31	$	(30,768	)	$	(33,757	)	$	(49,562	)

Reconciliation of Total Gross Liability Related to Uncertain Tax Positions

The following is a reconciliation of our total gross liability related to uncertain tax positions for 2014, 2013 and 2012 (in thousands):



	Year Ended December 31,
	2014			2013			2012
Balance at January 1	$	29,143		$	28,398		$	29,789
Additions for tax positions related to prior years	—			—			4,242
Reductions for tax positions related to prior years	(214		)	(348		)	—
Additions for tax positions related to current year	2,232			2,061			3,639
Lapses in statutes of limitations	(5,057		)	(473		)	(10,057		)
Foreign currency translation adjustment	(1,135		)	(495		)	785
Balance at December 31	$	24,969		$	29,143		$	28,398

- Definition

Tabular disclosure of tax positions taken in the tax returns filed or to be filed for which it is more likely than not that the tax position will not be sustained upon examination by taxing authorities (i.e., uncertain tax positions) and other types of income tax contingencies, including: (1) the policy on classification of interest and penalties; (2) a tabular reconciliation of the total amounts of unrecognized tax benefits at the beginning and end of the period; the total amount(s) of: (3) unrecognized tax benefits that, if recognized, would affect the effective tax rate, and (4) interest and penalties recognized in each of the income statement and balance sheet; (5) for positions for which it is reasonably possible that the total amounts unrecognized will significantly change within 12 months of the reporting date the: (i) nature of the uncertainty, (ii) nature of the event that could occur that would cause the change, and (iii) an estimate of the range of the reasonably possible change or a statement that an estimate of the range cannot be made; and (6) a description of tax years that remain subject to examination by major tax jurisdictions.

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