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Income Taxes | 12 Months Ended
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Dec. 31, 2013
Income Tax Disclosure [Abstract] |
Income Taxes | INCOME TAXES Income from continuing operations before income taxes and income taxes are as follows:
(In Thousands) |  | 2013 |  | 2012 |  | 2011
Income from continuing operations before income taxes: |  |  |  |  |
Domestic | $ | 37,380 |  |  | $ | 35,488 |  |  | $ | 29,491 |
Foreign | 15,552 |  |  | 26,016 |  |  | 9,298 |
Total | $ | 52,932 |  |  | $ | 61,504 |  |  | $ | 38,789 |
Current income taxes: |  |  |  |  |
Federal | $ | 15,988 |  |  | $ | 10,905 |  |  | $ | 2,958 |
State | 1,416 |  |  | 796 |  |  | 639 |
Foreign | 4,737 |  |  | 7,372 |  |  | 4,500 |
Total | 22,141 |  |  | 19,073 |  |  | 8,097 |
Deferred income taxes: |  |  |  |  |
Federal | (2,933 | ) |  | 1,212 |  |  | 3,243 |
State | (852 | ) |  | 163 |  |  | (211 | )
Foreign | (1,361 | ) |  | (2,129 | ) |  | (885 | )
Total | (5,146 | ) |  | (754 | ) |  | 2,147 |
Total income taxes | $ | 16,995 |  |  | $ | 18,319 |  |  | $ | 10,244 |
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
| 2013 |  | 2012 |  | 2011
Income tax expense at federal statutory rate | 35.0 |  |  | 35.0 |  |  | 35.0 |
Tax contingency accruals and tax settlements | 2.0 |  |  | (0.5 | ) |  | 0.3 |
Unremitted earnings from foreign operations | 0.9 |  |  | 0.6 |  |  | 1.8 |
Valuation allowance for capital loss carry-forwards | 0.8 |  |  | 1.9 |  |  | 0.9 |
Non-deductible expenses | 0.6 |  |  | 0.3 |  |  | 0.8 |
Valuation allowance for foreign operating loss carry-forwards | 0.5 |  |  | (0.1 | ) |  | 1.4 |
State taxes, net of federal income tax benefit | 0.1 |  |  | 1.1 |  |  | 1.7 |
Non-deductible acquisition expenses | — |  |  | — |  |  | 3.5 |
Deduction for divestiture of subsidiary stock | — |  |  | — |  |  | (15.3 | )
Research and development tax credit | (0.4 | ) |  | — |  |  | (1.0 | )
Changes in estimates related to prior year tax provision | (0.6 | ) |  | (0.5 | ) |  | (0.1 | )
Foreign rate differences | (0.7 | ) |  | (0.6 | ) |  | (0.7 | )
Domestic Production Activities Deduction | (1.4 | ) |  | (0.6 | ) |  | — |
Tax incentive | (4.7 | ) |  | (7.0 | ) |  | (1.8 | )
Other | — |  |  | 0.2 |  |  | (0.1 | )
Effective income tax rate | 32.1 |  |  | 29.8 |  |  | 26.4 |
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 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 was $2.5 million (8 cents per share), $4.3 million (13 cents per share) and $0.7 million (2 cent s per share) in 2013, 2012 and 2011, respectively. Deferred tax liabilities and deferred tax assets at December 31, 2013 and 2012, are as follows:
(In Thousands) | 2013 |  | 2012
Deferred tax liabilities: |  |  |
Amortization of goodwill | $ | 47,521 |  |  | $ | 47,956 |
Depreciation | 29,994 |  |  | 34,110 |
Foreign currency translation gain adjustment | 8,620 |  |  | 8,795 |
Derivative financial instruments | 432 |  |  | 568 |
Total deferred tax liabilities | 86,567 |  |  | 91,429 |
Deferred tax assets: |  |  |
Pensions | 14,813 |  |  | 30,488 |
Employee benefits | 11,124 |  |  | 10,532 |
Excess capital losses and book/tax basis differences on investments | 4,316 |  |  | 4,923 |
Asset write-offs, divestitures and environmental accruals | 3,734 |  |  | 3,234 |
Inventory | 2,292 |  |  | 2,086 |
Tax benefit on state and foreign NOL and credit carryforwards | 1,871 |  |  | 1,676 |
Allowance for doubtful accounts | 639 |  |  | 756 |
Timing adjustment for unrecognized tax benefits on uncertain tax positions, including portion relating to interest and penalties | 600 |  |  | 236 |
Other | 2,030 |  |  | 974 |
Deferred tax assets before valuation allowance | 41,419 |  |  | 54,905 |
Less: Valuation allowance | 20,019 |  |  | 18,635 |
Total deferred tax assets | 21,400 |  |  | 36,270 |
Net deferred tax liability | $ | 65,167 |  |  | $ | 55,159 |
Included in the balance sheet: |  |  |
Noncurrent deferred tax liabilities in excess of assets | $ | 70,795 |  |  | $ | 60,773 |
Current deferred tax assets in excess of liabilities | 5,628 |  |  | 5,614 |
Net deferred tax liability | $ | 65,167 |  |  | $ | 55,159 |
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 $1.7 million at December 31, 2013 and $1.3 million at December 31, 2012, respectively, is recorded 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 $15.5 million at December 31, 2012 to $16.4 million at December 31, 2013 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 was $1.9 million in 2013 and 2012. A reconciliation of our unrecognized uncertain tax positions since January 1, 2011, is shown below:
|  | Years Ended December 31,
(In Thousands) |  | 2013 |  | 2012 |  | 2011
Balance at beginning of period | $ | 910 |  |  | $ | 1,025 |  |  | $ | 1,065 |
Increase (decrease) due to tax positions taken in: |  |  |  |  |
Current period | 643 |  |  | 432 |  |  | 185 |
Prior period | 686 |  |  | (21 | ) |  | 10 |
Increase (decrease) due to settlements with taxing authorities | — |  |  | (398 | ) |  | — |
Reductions due to lapse of statute of limitations | — |  |  | (128 | ) |  | (235 | )
Balance at end of period | $ | 2,239 |  |  | $ | 910 |  |  | $ | 1,025 |
Additional information related to our unrecognized uncertain tax positions since January 1, 2011 is summarized below:
|  | Years Ended December 31,
(In Thousands) |  | 2013 |  | 2012 |  | 2011
Gross unrecognized tax benefits on uncertain tax positions (reflected in current income tax and other noncurrent liability accounts in the balance sheet) | $ | 2,239 |  |  | $ | 910 |  |  | $ | 1,025 |
Deferred income tax assets related to unrecognized tax benefits on uncertain tax positions (reflected in deferred income tax accounts in the balance sheet) | (540 | ) |  | (212 | ) |  | (219 | )
Net unrecognized tax benefits on uncertain tax positions, which would impact the effective tax rate if recognized | 1,699 |  |  | 698 |  |  | 806 |
Interest and penalties accrued on deductions taken relating to uncertain tax positions (approximately $100, $(300) and $200 reflected in income tax expense in the income statement in 2013, 2012 and 2011, respectively, with the balance shown in current income tax and other noncurrent liability accounts in the balance sheet) | 156 |  |  | 60 |  |  | 373 |
Related deferred income tax assets recognized on interest and penalties | (60 | ) |  | (23 | ) |  | (141 | )
Interest and penalties accrued on uncertain tax positions net of related deferred income tax benefits, which would impact the effective tax rate if recognized | 96 |  |  | 37 |  |  | 232 |
Total net unrecognized tax benefits on uncertain tax positions reflected in the balance sheet, which would impact the effective tax rate if recognized | $ | 1,795 |  |  | $ | 735 |  |  | $ | 1,038 |
Tredegar and its subsidiaries file income tax returns in the U.S., various states and jurisdictions outside the U.S. 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 2010. We believe that it is reasonably possible that approximately $1.0 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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