Income Taxes (Tables)

12 Months Ended

Dec. 31, 2017

Income Tax Disclosure [Abstract]

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,
	2017			2016			2015
Income from continuing operations before income taxes and equity in net income of unconsolidated investments:
Domestic	$	(8,293	)	$	49,630		$	(15,861	)
Foreign	455,091			465,634			326,605
Total	$	446,798		$	515,264		$	310,744
Current income tax expense (benefit):
Federal	$	394,747		$	7,717		$	76,778
State	323			1,407			(983		)
Foreign	78,688			63,957			58,710
Total	$	473,758		$	73,081		$	134,505
Deferred income tax (benefit) expense:
Federal	$	(58,640	)	$	12,230		$	(127,212	)
State	(2,288		)	(1,715		)	(1,267		)
Foreign	18,987			12,667			5,108
Total	$	(41,941	)	$	23,182		$	(123,371	)
Total income tax expense	$	431,817		$	96,263		$	11,134

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
	2017		2016		2015
Federal statutory rate	35.0	%	35.0	%	35.0	%
State taxes, net of federal tax benefit	(0.5	)	(0.1	)	1.4
Change in valuation allowance	(1.4	)	3.7		5.7
Impact of foreign earnings, net(a)	(13.5	)	(19.3	)	(22.0	)
Change in U.S. federal statutory rate(b)	(14.0	)	—		—
Transition tax on deferred foreign earnings(b)	96.1		—		—
Subpart F income	2.0		0.2		7.8
Deemed repatriation of foreign income(c)	—		—		105.5
Undistributed earnings of foreign subsidiaries(a)(c)	(2.2	)	0.1		(114.8	)
Stock-based compensation	(1.9	)	—		—
Nondeductible transaction costs	—		—		2.0
Depletion	(1.4	)	(1.0	)	(1.8	)
Revaluation of unrecognized tax benefits/reserve requirements(d)	(0.7	)	(0.4	)	(14.4	)
Domestic manufacturing tax deduction	—		(0.9	)	(0.5	)
Other items, net	(0.9	)	1.4		(0.3	)
Effective income tax rate	96.6	%	18.7	%	3.6	%

(a) During 2017, 2016 and 2015, we received actual and deemed distributions of $42.5 million, $308.4 million and $1.4 billion, respectively, from various foreign subsidiaries and joint ventures, and realized income tax expense, net of foreign tax credits, of $9.1 million, $67.5 million and $350.2 million, respectively, related to the repatriation of these earnings, which impacted our effective tax rate. Our statutory rate is decreased by 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 resulted in a rate benefit of 8.9%, 7.3%, and 8.2% for 2017, 2016, and 2015, respectively.

(b) We have made a reasonable estimate of the tax impact of the U.S. enacted tax law on our business and our consolidated financial statements and have recorded a provisional tax benefit of $62.3 million related to the remeasurement of our deferred tax assets and liabilities for the reduction in the Federal statutory tax rate from 35% to 21%. We have also recognized a provisional tax expense of $429.2 million for the one-time transition tax.

(c) In prior years, we designated the undistributed earnings of substantially all of our foreign subsidiaries as indefinitely reinvested. In 2015, we were not indefinitely reinvested in a portion of earnings from legacy Rockwood entities that were part of the repatriation planning, for which a deferred tax liability of $387.0 million was established in the opening balance sheet. This liability reversed upon the completion of the repatriation with $356.2 million impacting earnings and $30.8 million from foreign exchange differences. The reversal of this liability offsets the tax amount of $327.9 million from legacy Rockwood entities included in the deemed repatriation of foreign income.

(d) In 2015, the main impact is from the release of reserves on the close of a U.S. federal audit, and lapse of statute of limitations. These releases provided a net benefit of approximately $42.7 million.

Deferred Income Tax Assets and Liabilities Recorded on Consolidated Balance Sheets

Deferred income tax assets and liabilities recorded on the consolidated balance sheets as of December 31, 2017 and 2016 consist of the following (in thousands):

	December 31,
	2017			2016
Deferred tax assets:
Accrued employee benefits	$	21,463		$	32,622
Accrued expenses	—			10,065
Operating loss carryovers(a)	459,644			91,934
Pensions	64,799			96,635
Tax credit carryovers	11,634			1,029
Other	44,714			34,866
Gross deferred tax assets	602,254			267,151
Valuation allowance(a)	(458,288		)	(69,900		)
Deferred tax assets	143,966			197,251
Deferred tax liabilities:
Depreciation	(334,162		)	(379,161		)
Intangibles	(113,792		)	(99,969		)
Hedge of Net Investment of Foreign Subsidiary	(17,028		)	(51,192		)
Other	(24,265		)	(18,536		)
Deferred tax liabilities	(489,247		)	(548,858		)
Net deferred tax liabilities	$	(345,281	)	$	(351,607	)
Classification in the consolidated balance sheets:
Noncurrent deferred tax assets	$	25,108		$	61,132
Noncurrent deferred tax liabilities	(370,389		)	(412,739		)
Net deferred tax liabilities	$	(345,281	)	$	(351,607	)

(a) During 2017, the Company recorded a change in estimate related to a foreign entity that resulted in an increase to the deferred tax asset for net operating losses and an associated and equal valuation allowance of approximately $400.6 million.

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,
	2017			2016			2015
Balance at January 1	$	(69,900	)	$	(84,137	)	$	(30,768	)
Additions	(408,252		)	(20,568		)	(59,889		)
Deductions	19,864			34,805			6,520
Balance at December 31	$	(458,288	)	$	(69,900	)	$	(84,137	)

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 2017, 2016 and 2015 (in thousands):

	Year Ended December 31,
	2017			2016			2015
Balance at January 1	$	25,384		$	95,715		$	24,969
Acquisition of Rockwood	—			—			124,758
Divestitures(a)	—			(55,881		)	—
Additions for tax positions related to prior years	—			548			4,329
Reductions for tax positions related to prior years	(1,933		)	(1,253		)	(46,211		)
Additions for tax positions related to current year	1,132			1,271			202
Lapses in statutes of limitations/settlements	(4,198		)	(12,591		)	(6,736		)
Foreign currency translation adjustment	1,053			(2,425		)	(5,596		)
Balance at December 31	$	21,438		$	25,384		$	95,715

(a) Reclassified to Other noncurrent liabilities as a result of the indemnification of certain income tax liabilities associated with the Chemetall Surface Treatment entities sold. See Note 16, “Other Noncurrent Liabilities.”