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Income Taxes | 12 Months Ended
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Dec. 31, 2015
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes: 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,
| 2015 |  | 2014 |  | 2013
Income from continuing operations before income taxes and equity in net income of unconsolidated investments: |  |  |  |  |
Domestic | $ | 8,594 |  |  | $ | 45,689 |  |  | $ | 351,731 |
Foreign | 349,593 |  |  | 167,490 |  |  | 186,711 |
Total | $ | 358,187 |  |  | $ | 213,179 |  |  | $ | 538,442 |
Current income tax expense: |  |  |  |  |
Federal | $ | 85,245 |  |  | $ | 36,708 |  |  | $ | 53,953 |
State | 71 |  |  | 3,209 |  |  | 2,195 |
Foreign | 80,104 |  |  | 25,700 |  |  | 18,414 |
Total | $ | 165,420 |  |  | $ | 65,617 |  |  | $ | 74,562 |
Deferred income tax (benefit) expense: |  |  |  |  |
Federal | $ | (129,433 | ) |  | $ | (32,890 | ) |  | $ | 69,817 |
State | (1,170 | ) |  | (1,139 | ) |  | 2,416 |
Foreign | (5,695 | ) |  | (13,104 | ) |  | (12,350 | )
Total | $ | (136,298 | ) |  | $ | (47,133 | ) |  | $ | 59,883 |
Total income tax expense | $ | 29,122 |  |  | $ | 18,484 |  |  | $ | 134,445 |
The reconciliation of the U.S. federal statutory rate to the effective income tax rate is as follows:
| % of Income Before Income Taxes
| 2015 |  | 2014 |  | 2013
Federal statutory rate | 35.0 | % |  | 35.0 | % |  | 35.0 | %
State taxes, net of federal tax benefit | 1.7 |  |  | 0.2 |  |  | 0.7 |
Change in valuation allowance(a) | 4.7 |  |  | 1.0 |  |  | (2.2 | )
Impact of foreign earnings, net(b) | (19.6 | ) |  | (24.8 | ) |  | (10.7 | )
Subpart F income | 6.8 |  |  | 1.2 |  |  | 0.4 |
Deemed repatriation of foreign income(d) | 91.6 |  |  | — |  |  | — |
Undistributed earnings of foreign subsidiaries(b)(d) | (99.6 | ) |  | (0.3 | ) |  | 2.9 |
Nondeductible transaction costs | 1.8 |  |  | — |  |  | — |
Depletion | (1.6 | ) |  | (2.4 | ) |  | (0.9 | )
Revaluation of unrecognized tax benefits/reserve requirements(c) | (11.3 | ) |  | (0.6 | ) |  | (0.1 | )
Domestic manufacturing tax deduction | (0.9 | ) |  | (2.2 | ) |  | (0.9 | )
Other items, net | (0.5 | ) |  | 1.6 |  |  | 0.8 |
Effective income tax rate | 8.1 | % |  | 8.7 | % |  | 25.0 | %
(a) | During 2013, our Avonmouth, U.K. legal entity was dissolved, therefore the corresponding valuation allowance and deferred tax assets were written off.
(b) | During 2015, 2014 and 2013, we received actual and deemed distributions of $1.4 billion, $12.6 million and $12.3 million, respectively, from various foreign subsidiaries and joint ventures, and realized an expense, net of foreign tax credits, of $350.2 million, $2.8 million and $2.4 million, respectively, related to the repatriation of these earnings, which impacted our effective tax rate. 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 7.1%, 12.4%, and 4.5% for 2015, 2014, and 2013, respectively.
(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. 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 $41 million.
(d) | In prior years, we designated the undistributed earnings of substantially all of our foreign subsidiaries as indefinitely invested. In 2015, we were not indefinitely invested 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.
As described in Note 1, “Summary of Significant Accounting Policies,” in the fourth quarter of 2015 we early adopted on a prospective basis new accounting guidance that requires deferred tax assets and liabilities to be classified as noncurrent on the consolidated balance sheet. Deferred income tax assets and liabilities recorded on the consolidated balance sheets as of December 31, 2015 and 2014 consist of the following (in thousands):
| December 31,
| 2015 |  | 2014
Deferred tax assets: |  |  |
Accrued employee benefits | $ | 28,167 |  |  | $ | 20,834 |
Accrued expenses | 33,048 |  |  | 2,379 |
Operating loss carryovers | 131,985 |  |  | 82,017 |
Pensions | 111,059 |  |  | 79,113 |
Intangibles | — |  |  | 5,732 |
Tax credit carryovers | 2,555 |  |  | 34,469 |
Other | 32,725 |  |  | 20,227 |
Gross deferred tax assets | 339,539 |  |  | 244,771 |
Valuation allowance | (85,370 | ) |  | (30,768 | )
Deferred tax assets | 254,169 |  |  | 214,003 |
Deferred tax liabilities: |  |  |
Depreciation | (378,669 | ) |  | (190,280 | )
Intangibles | (488,855 | ) |  | — |
Foreign currency translation adjustments | — |  |  | (4,752 | )
Other | (46,937 | ) |  | (18,420 | )
Deferred tax liabilities | (914,461 | ) |  | (213,452 | )
Net deferred tax (liabilities) assets | $ | (660,292 | ) |  | $ | 551 |
Classification in the consolidated balance sheets: |  |  |
Current deferred tax assets | $ | — |  |  | $ | 1,801 |
Current deferred tax liabilities | — |  |  | (6,806 | )
Noncurrent deferred tax assets | 76,025 |  |  | 62,440 |
Noncurrent deferred tax liabilities | (736,317 | ) |  | (56,884 | )
Net deferred tax (liabilities) assets | $ | (660,292 | ) |  | $ | 551 |
Changes in the balance of our deferred tax asset valuation allowance are as follows (in thousands):
| Year Ended December 31,
| 2015 |  | 2014 |  | 2013
Balance at January 1 | $ | (30,768 | ) |  | $ | (33,757 | ) |  | $ | (49,562 | )
Additions(a) | (61,122 | ) |  | (1,895 | ) |  | (4,359 | )
Deductions | 6,520 |  |  | 4,884 |  |  | 20,164 |
Balance at December 31 | $ | (85,370 | ) |  | $ | (30,768 | ) |  | $ | (33,757 | )
(a) | Additions for the year ended December 31, 2015 includes $42.0 million related to the acquisition of Rockwood.
At December 31, 2015, we had approximately $3.0 million of domestic credits available to offset future payments of income taxes, expiring in varying amounts between 2021 and 2035. We have established valuation allowances for $0.3 million of those domestic credits since we believe that it is more likely than not that the related deferred tax assets will not be realized. We believe that sufficient taxable income will be generated during the carryover period in order to utilize the other remaining credit carryovers. At December 31, 2015, we have on a pre-tax basis, domestic state net operating losses of $529.9 million, expiring between 2019 and 2036, which have pre-tax valuation allowances of $507.9 million established, and domestic capital losses comprised of federal amounts of $16.9 million and state amounts of $55.6 million expiring between 2017 and 2020, which have pre-tax valuation allowances of $15.8 million and $55.6 million established, respectively. In addition, we have on a pre-tax basis $393.6 million of foreign net operating losses of which a majority have an indefinite life, which have pre-tax valuation allowances for $177.5 million established. We have established valuation allowances for these deferred tax assets since we believe that it is more likely than not that the related deferred tax assets will not be realized. For the same reason, we established pre-tax valuation allowances for $0.9 million related to foreign deferred tax assets not related to net operating losses. The realization of the deferred tax assets is dependent on the generation of sufficient taxable income in the appropriate tax jurisdictions. Although realization is not assured, we believe it is more likely than not that the remaining deferred tax assets will be realized. However, the amount considered realizable could be reduced if estimates of future taxable income change. We believe that it is more likely than not that the Company will generate sufficient taxable income in the future to fully utilize all other deferred tax assets. As of December 31, 2015, we have not recorded U.S. income taxes on approximately $1.1 billion of cumulative undistributed earnings of our non-U.S. subsidiaries and joint ventures, as these earnings are intended to be either indefinitely invested or subject to a tax-free liquidation and do not give rise to significant incremental U.S. taxes. If it is determined that cash can be repatriated with little to no tax consequences, we may choose to repatriate cash at that time. If in the foreseeable future we can no longer demonstrate that these earnings are indefinitely invested, a deferred tax liability will be recognized. A determination of the amount of the unrecognized deferred tax liability related to these undistributed earnings is not practicable. Liabilities related to uncertain tax positions were $101.7 million and $25.3 million at December 31, 2015 and 2014, respectively, inclusive of interest and penalties of $6.5 million and $0.3 million at December 31, 2015 and 2014, respectively, and are reported in Other noncurrent liabilities as provided in Note 16. These liabilities at December 31, 2015 and 2014 were reduced by $50.9 million and $22.1 million, respectively, for offsetting benefits from the corresponding effects of potential transfer pricing adjustments, state income taxes and rate arbitrage related to foreign structure. These offsetting benefits are recorded in Other assets as provided in Note 11. The resulting net liabilities of $44.0 million and $2.9 million at December 31, 2015 and 2014, respectively, if recognized and released, would favorably affect earnings. The liabilities related to uncertain tax positions, exclusive of interest, were $95.7 million and $25.0 million at December 31, 2015 and 2014, respectively. The following is a reconciliation of our total gross liability related to uncertain tax positions for 2015, 2014 and 2013 (in thousands):
| Year Ended December 31,
| 2015 |  | 2014 |  | 2013
Balance at January 1 | $ | 24,969 |  |  | $ | 29,143 |  |  | $ | 28,398 |
Acquisition of Rockwood | 124,758 |  |  | — |  |  | — |
Additions for tax positions related to prior years | 4,329 |  |  | — |  |  | — |
Reductions for tax positions related to prior years | (46,211 | ) |  | (214 | ) |  | (348 | )
Additions for tax positions related to current year | 202 |  |  | 2,232 |  |  | 2,061 |
Lapses in statutes of limitations/settlements | (6,736 | ) |  | (5,057 | ) |  | (473 | )
Foreign currency translation adjustment | (5,596 | ) |  | (1,135 | ) |  | (495 | )
Balance at December 31 | $ | 95,715 |  |  | $ | 24,969 |  |  | $ | 29,143 |
We are subject to income taxes in the U.S. and numerous foreign jurisdictions. Due to the statute of limitations, we are no longer subject to U.S. federal income tax audits by the Internal Revenue Service (“IRS”) for years prior to 2011. In 2015, the IRS continued its audit of legacy Albemarle’s U.S. consolidated group for 2011 and 2012. Additionally, in 2015 the IRS finalized its audit of legacy Rockwood’s U.S. consolidated group for 2010 and 2011. Due to the statute of limitations, we also are no longer subject to U.S. state income tax audits prior to 2010. With respect to jurisdictions outside the U.S., several audits are in process. During 2015, the German tax authorities continued and announced audits on multiple German subsidiaries for various years from 2006 through 2013, the Belgium tax authorities continued the audit of our Belgium subsidiary for 2012 and 2013, and audits of two of our Korean entities for 2011 through 2013 were closed. We also have various audits ongoing for the years 2007 through 2014 related to Russia, the Philippines, India, Italy, and France. While we believe we have adequately provided for all tax positions, amounts asserted by taxing authorities could be greater than our accrued position. Accordingly, additional provisions on federal and foreign tax-related matters could be recorded in the future as revised estimates are made or the underlying matters are settled or otherwise resolved. Since the timing of resolutions and/or closure of tax audits is uncertain, it is difficult to predict with certainty the range of reasonably possible significant increases or decreases in the liability related to uncertain tax positions that may occur within the next twelve months. Our current view is that it is reasonably possible that we could record a decrease in the liability related to uncertain tax positions, relating to a number of issues, up to approximately $3.3 million as a result of closure of tax statutes.

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