Income Taxes (Tables)

12 Months Ended

Dec. 31, 2012

Components of Income Tax Expense Benefit

Income 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,
	2012			2011			2010
Income before income taxes and equity in net income of unconsolidated investments:
Domestic	$	316,856		$	209,714		$	221,086
Foreign		57,737			270,863			158,112
Total	$	374,593		$	480,577		$	379,198
Current income tax expense:
Federal(a)	$	71,930		$	82,379		$	14,620
State		6,478			4,774			5,224
Foreign		18,712			28,179			25,776
Total	$	97,120		$	115,332		$	45,620
Deferred income tax expense (benefit):
Federal	$	(2,632	)	$	(23,060	)	$	52,246
State		477			(417	)		(994	)
Foreign		(12,432	)		12,279			(9,116	)
Total	$	(14,587	)	$	(11,198	)	$	42,136
Total income tax expense	$	82,533		$	104,134		$	87,756

(a) Current income tax expense—Federal for the year ended December 31, 2010 is net of a tax benefit from an NOL carryforward of $9.6 million.

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

The significant differences between the U.S. federal statutory rate and the effective income tax rate are as follows:

	% of Income Before Income Taxes
	2012			2011			2010
Federal statutory rate		35.0	%		35.0	%		35.0	%
State taxes, net of federal tax benefit		1.4			0.6			1.2
Change in valuation allowance(a)		3.4			(0.3	)		(0.4	)
Impact of foreign earnings, net(b)		(6.1	)		(10.9	)		(10.0	)
Depletion		(1.3	)		(0.9	)		(1.0	)
Revaluation of unrecognized tax benefits/reserve requirements(c)		(1.7	)		(0.1	)		0.1
Manufacturer tax deduction(d)		(3.8	)		(1.2	)		(1.6	)
Undistributed earnings of foreign subsidiaries(b)		(4.9	)		(0.4	)		0.2
Other items, net		—			(0.1	)		(0.4	)
Effective income tax rate		22.0	%		21.7	%		23.1	%

(a) During 2012, a valuation allowance was established for $15.9 million as a result of the planned shut-down of our Avonmouth, United Kingdom site in connection with our exit of the phosphorus flame retardants business. See Note 19, “Special Items.”

(b) In prior years, we designated the undistributed earnings of substantially all of our foreign subsidiaries as permanently reinvested. The benefit of the lower tax rates in the jurisdictions for which we made this designation have been reflected in our effective income tax rate. During 2012, 2011 and 2010, we received distributions of $56.9 million, $33.8 million and $68.7 million, respectively, from various foreign subsidiaries and joint ventures and realized a (benefit) expense, net of foreign tax credits, of $(1.8) million, $5.4 million and $2.7 million, respectively, related to the repatriation of these high taxed earnings. We have asserted for all periods being reported, permanent reinvestment 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 permanent. 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. Undistributed foreign subsidiary earnings were primarily impacted by a $17.4 million change related to the planned shut-down of our Avonmouth, United Kingdom site in connection with our exit of the phosphorus flame retardants business.

(c) 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 manufacturer 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, 2012 and 2011 consist of the following (in thousands):

	December 31,
	2012			2011
Deferred tax assets:
Postretirement benefits other than pensions	$	14,900		$	15,705
Accrued employee benefits		26,603			37,861
Operating loss carryovers		74,934			72,570
Pensions		74,521			45,213
Tax credit carryovers		37,684			49,999
Undistributed earnings of foreign subsidiaries		15,583			—
Other		23,280			16,097
Gross deferred tax assets		267,505			237,445
Valuation allowance		(49,562	)		(36,419	)
Deferred tax assets		217,943			201,026
Deferred tax liabilities:
Depreciation		(193,021	)		(193,814	)
Foreign currency translation adjustments		(4,933	)		(6,979	)
Undistributed earnings of foreign subsidiaries		—			(2,604	)
Other		(20,348	)		(17,197	)
Deferred tax liabilities		(218,302	)		(220,594	)
Net deferred tax liabilities	$	(359	)	$	(19,568	)
Classification in the consolidated balance sheets:
Current deferred tax assets	$	4,197		$	9,383
Current deferred tax liabilities		(5,700	)		(2,005	)
Noncurrent deferred tax assets		64,512			50,957
Noncurrent deferred tax liabilities		(63,368	)		(77,903	)
Net deferred tax liabilities	$	(359	)	$	(19,568	)

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,
	2012			2011			2010
Balance at January 1	$	(36,419	)	$	(39,802	)	$	(41,355	)
Additions		(20,182	)		(6,155	)		(3,205	)
Deductions		7,039			9,538			4,758
Balance at December 31	$	(49,562	)	$	(36,419	)	$	(39,802	)

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 2012, 2011 and 2010 (in thousands):

	Year Ended December 31,
	2012			2011			2010
Balance at January 1	$	29,789		$	20,949		$	23,416
Additions for tax positions related to prior years		4,242			—			150
Reductions for tax positions related to prior years		—			(1,639	)		—
Additions for tax positions related to current year		3,639			10,802			463
Lapses in statutes of limitations		(10,057	)		(323	)		(3,080	)
Foreign currency translation adjustment		785			—			—
Balance at December 31	$	28,398		$	29,789		$	20,949