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Income Taxes | 12 Months Ended
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Dec. 31, 2011
Income Taxes [Abstract] |
Income Taxes | 16 INCOME TAXES Income from continuing operations before income taxes and income taxes are as follows:
(In Thousands) |  | 2011 |  |  | 2010 |  |  | 2009 |
Income from continuing operations |  |  |  |  |  |  |  |  |
before income taxes: |  |  |  |  |  |  |  |  |
Domestic | $ | 30,594 |  | $ | 30,723 |  | $ | 2,098 |
Foreign |  | 9,298 |  |  | 10,060 |  |  | 15,212 |
Total | $ | 39,892 |  | $ | 40,783 |  | $ | 17,310 |
Current income taxes: |  |  |  |  |  |  |  |  |
Federal | $ | 3,344 |  | $ | 14,431 |  | $ | 7,624 |
State |  | 657 |  |  | 1,414 |  |  | (335 | )
Foreign |  | 4,500 |  |  | 4,308 |  |  | 4,399 |
Total |  | 8,501 |  |  | 20,153 |  |  | 11,688 |
Deferred income taxes: |  |  |  |  |  |  |  |  |
Federal |  | 3,243 |  |  | (6,225 | ) |  | 6,088 |
State |  | (211 | ) |  | (771 | ) |  | 831 |
Foreign |  | (885 | ) |  | 599 |  |  | 56 |
Total |  | 2,147 |  |  | (6,397 | ) |  | 6,975 |
Total income taxes | $ | 10,648 |  | $ | 13,756 |  | $ | 18,663 |
Income from continuing operations before income taxes for domestic operations in 2009 varies from that for 2011 and 2010 primarily due to the 2009 goodwill impairment charge of $30.6 million in Aluminum Extrusions. The significant differences between the U.S. federal statutory rate and the effective income tax rate for continuing operations are as follows:
| Percent of Income Before Income |  |  |
| Taxes for Continuing Operations |  |  |
| 2011 |  | 2010 |  | 2009 |
Income tax expense at federal statutory rate | 35.0 |  | 35.0 |  | 35.0 |
Non-deductible acquisition expenses | 3.4 |  | - |  | - |
Unremitted earnings from foreign operations | 1.7 |  | 1.3 |  | 8.1 |
State taxes, net of federal income tax benefit | 1.7 |  | .9 |  | 2.2 |
Valuation allowance for foreign operating |  |  |  |  |  |
loss carry-forwards | 1.4 |  | 1.3 |  | (1.0 | )
Valuation allowance for capital loss |  |  |  |  |  |
carry-forwards | .8 |  | .5 |  | 12.2 |
Non-deductible expenses | .8 |  | .3 |  | - |
Reversal of income tax contingency accruals |  |  |  |  |  |
and tax settlements | .3 |  | .6 |  | (.9 | )
Remitted earnings from foreign operations | - |  | - |  | 3.0 |
Write-off of tax receivable from indemnification | - |  | 1.8 |  | - |
Goodwill impairment charge | - |  | - |  | 61.8 |
Domestic Production Activities Deduction | - |  | (1.1 | ) | - |
Changes in estimates related to prior year tax provision | (.1 | ) | (4.1 | ) | (.6 | )
Foreign rate differences | (.7 | ) | (1.8 | ) | (6.5 | )
Research and development tax credit | (.9 | ) | (.8 | ) | (2.1 | )
Tax incentive | (1.8 | ) | - |  | - |
Deduction for divestiture of subsidiary stock | (14.9 | ) | - |  | - |
Other | - |  | (.2 | ) | (3.4 | )
Effective income tax rate | 26.7 |  | 33.7 |  | 107.8 |
The Brazilian federal statutory income tax rate is a composite of 34.0% (25.0% of income tax and 9.0% of social contribution on income). Terphane's manufacturing facility in Brazil is the beneficiary of certain income tax incentives that allow for a reduction in the statutory Brazilian federal income tax rate levied on the operating profit of its products. These incentives produce a current effective tax rate of 15.25% for Terphane Ltda. (6.25% of income tax and 9.0% social contribution on income). The current incentives will expire at the end of 2014, but we anticipate that we will qualify for additional incentives that will extend beyond 2014. The benefit from the tax incentives in 2011 was $0.7 million (2 cents per share). Deferred tax liabilities and deferred tax assets at December 31, 2011 and 2010, are as follows:
(In Thousands) |  | 2011 |  | 2010
Deferred tax liabilities: |  |  |  |
Amortization of goodwill | $ | 48,407 | $ | 26,151
Depreciation |  | 40,739 |  | 26,238
Foreign currency translation gain adjustment |  | 8,638 |  | 10,068
Derivative financial instruments |  | - |  | 174
Other |  | - |  | 362
Total deferred tax liabilities |  | 97,784 |  | 62,993
Deferred tax assets: |  |  |  |
Pensions |  | 21,169 |  | 3,014
Employee benefits |  | 9,899 |  | 10,428
Excess capital losses and book/tax basis differences |  |  |  |
on investments |  | 5,514 |  | 4,405
Asset write-offs, divestitures and environmental accruals |  | 3,177 |  | 4,512
Inventory |  | 2,439 |  | 1,973
Tax benefit on state and foreign NOL and credit |  |  |  |
carryforwards |  | 1,898 |  | 4,112
Allowance for doubtful accounts and sales returns |  | 919 |  | 1,298
Timing adjustment for unrecognized tax benefits on |  |  |  |
uncertain tax positions, including portion relating to |  |  |  |
interest and penalties |  | 360 |  | 279
Derivative financial instruments |  | 249 |  |
Other |  | 968 |  | -
Deferred tax assets before valuation allowance |  | 46,592 |  | 30,021
Less: Valuation allowance |  | 12,427 |  | 11,983
Total deferred tax assets |  | 34,165 |  | 18,038
Net deferred tax liability | $ | 63,619 | $ | 44,955
Included in the balance sheet: |  |  |  |
Noncurrent deferred tax liabilities in excess of assets | $ | 70,754 | $ | 51,879
Current deferred tax assets in excess of liabilities |  | 7,135 |  | 6,924
Net deferred tax liability | $ | 63,619 | $ | 44,955
Except as noted below, we believe that it is more likely than not that future taxable income will exceed future tax deductible amounts thereby resulting in the realization of deferred tax assets. A valuation allowance of $1.3 million and $3.0 million at December 31, 2011 and 2010, respectively, is provided against the tax benefit on state and foreign net operating loss carryforwards for possible future tax benefits on domestic state and foreign operating losses generated by certain foreign and domestic subsidiaries that may not be recoverable in the carry-forward period. In addition, the valuation allowance for excess capital losses from investments and other related items was increased from $7.4 million at December 31, 2010 to $9.3 million at December 31, 2011 due to changes in the relative amounts of capital gains and losses generated during the year. The amount of the deferred tax asset considered realizable, however, could be adjusted in the near term if estimates of the fair value of certain investments during the carryforward period change. The valuation allowance for asset impairments in foreign jurisdictions where we believe it is more likely than not that the deferred tax asset will not be realized increased from $1.6 million in 2010 to $1.8 million in 2011. A reconciliation of our unrecognized uncertain tax positions since January 1, 2009, is shown below:
|  | Years Ended December 31, |
(In Thousands) |  | 2011 |  |  | 2010 |  |  | 2009 |
Balance at beginning of period | $ | 1,065 |  | $ | 996 |  | $ | 2,553 |
Increase (decrease) due to tax |  |  |  |  |  |  |  |  |
positions taken in: |  |  |  |  |  |  |  |  |
Current period |  | 185 |  |  | 184 |  |  | 68 |
Prior period |  | 10 |  |  | 493 |  |  | 208 |
Increase (decrease) due to settlements |  |  |  |  |  |  |  |  |
with taxing authorities |  | - |  |  | (375 | ) |  | (1,543 | )
Reductions due to lapse of statute |  |  |  |  |  |  |  |  |
of limitations |  | (235 | ) |  | (233 | ) |  | (290 | )
Balance at end of period | $ | 1,025 |  | $ | 1,065 |  | $ | 996 |
Additional information related to our unrecognized uncertain tax positions since January 1, 2009 is summarized below:
|  |  |  |  | Years Ended December 31, |  |  |  |
(In Thousands) |  | 2011 |  |  | 2010 |  |  | 2009 |
Gross unrecognized tax benefits on uncertain tax |  |  |  |  |  |  |  |  |
positions (reflected in current income tax and other |  |  |  |  |  |  |  |  |
noncurrent liability accounts in the balance sheet) | $ | 1,025 |  | $ | 1,065 |  | $ | 996 |
Deferred income tax assets related to unrecognized |  |  |  |  |  |  |  |  |
tax benefits on uncertain tax positions (reflected in |  |  |  |  |  |  |  |  |
deferred income tax accounts in the balance sheet) |  | (219 | ) |  | (234 | ) |  | (348 | )
Net unrecognized tax benefits on uncertain tax |  |  |  |  |  |  |  |  |
positions, which would impact the effective tax rate if |  |  |  |  |  |  |  |  |
recognized |  | 806 |  |  | 831 |  |  | 648 |
Interest and penalties accrued on deductions taken |  |  |  |  |  |  |  |  |
relating to uncertain tax positions (approximately $200, |  |  |  |  |  |  |  |  |
$(400) and $(800)reflected in income tax expense in the |  |  |  |  |  |  |  |  |
income statement in 2011, 2010 and 2009, respectively, |  |  |  |  |  |  |  |  |
with the balance shown in current income tax and other |  |  |  |  |  |  |  |  |
noncurrent liability accounts in the balance sheet) |  | 373 |  |  | 125 |  |  | 537 |
Related deferred income tax assets recognized on |  |  |  |  |  |  |  |  |
interest and penalties |  | (141 | ) |  | (46 | ) |  | (195 | )
Interest and penalties accrued on uncertain tax |  |  |  |  |  |  |  |  |
positions net of related deferred income tax benefits, |  |  |  |  |  |  |  |  |
which would impact the effective tax rate if |  |  |  |  |  |  |  |  |
recognized |  | 232 |  |  | 79 |  |  | 342 |
Total net unrecognized tax benefits on uncertain tax |  |  |  |  |  |  |  |  |
positions reflected in the balance sheet, which would |  |  |  |  |  |  |  |  |
impact the effective tax rate if recognized | $ | 1,038 |  | $ | 910 |  | $ | 990 |
We claimed an ordinary loss on the write-off of our investment in our aluminum extrusions operations in Canada, which was sold in February 2008, on our 2008 consolidated tax return (included in discontinued operations in the consolidated statement of income in 2007). The IRS has recently challenged the ordinary nature of such deduction, asserting that the deduction should be re-characterized as capital in nature. We plan to vigorously defend our position related to this matter and believe that we will prevail but there can be no assurance of such a result. If the Company were not to prevail in final, non-appealable determinations, it is possible that the matter would result in additional tax payments of up to $12 million, plus any interest and penalties. In the second quarter of 2009, we settled several disputed issues raised by the IRS during its examination of our U.S. income tax returns for 2001-2003, the most significant of which regards the recognition of our captive insurance subsidiary as an insurance company for U.S. income tax purposes. The settlement with the IRS for the disputed issues cost us approximately $1.0 million, which is lower than the previous estimate of $1.3 million and was applied against the balance of unrecognized tax benefits. Tredegar and its subsidiaries file income tax returns in the U.S., various states and jurisdictions outside the U.S. Generally, except for refund claims and amended returns, Tredegar is no longer subject to U.S. federal income tax examinations by tax authorities for years before 2006. With few exceptions, Tredegar and its subsidiaries are no longer subject to state or non-U.S. income tax examinations by tax authorities for years before 2008. We believe that it is reasonably possible that approximately $0.1 million of the balance of unrecognized state tax positions may be recognized within the next twelve months as a result of a lapse of the statute of limitations.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 136, 172 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 43, 44, 45, 46, 47, 48, 49 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=6881521&loc=d3e23780-122690 + Details
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