Income Taxes

9 Months Ended

Sep. 30, 2011

Income Taxes [Abstract]

Income Taxes

11.          The effective tax rate for continuing operations for the first nine months of 2011 was 19.9% compared to 35.0% in first nine months of 2010.  The significant differences between the U.S. federal statutory rate and the effective income tax rate for the nine months ended September 30, 2011 and 2010 are as follows:

		Percent of Income
		Before Income Taxes
Nine Months Ended September 30		2011	2010
Income tax expense at federal statutory rate		35.0	35.0
Non-deductible acquisition-related expenses		2.4	-
State taxes, net of federal income tax benefit		2.1	0.9
Unremitted earnings from foreign operations		1.9	1.7
Non-deductible expenses		0.9	0.2
Valuation allowance for foreign operating loss carry-forwards		0.9	0.5
Income tax contingency accruals/reversals		0.4	0.1
Changes in estimates related to prior year tax provision		0.4	(5.7)
Reserve for uncollectible tax indemnification receivable		-	2.4
Domestic production activities deduction		-	(1.2)
Valuation allowance for capital loss carry-forwards		(0.1)	0.6
Research and development tax credit		(0.9)	-
Foreign rate differences		(4.5)	0.5
Deduction for divestiture of subsidiary stock		(18.8)	-
Other		0.2	-
	Effective income tax rate	19.9	35.0

The effective tax rate for the first nine months of 2011 reflects an ordinary loss on the write-off of our investment in the film products business in Italy, which was divested in the third quarter of 2011. We anticipate realizing estimated tax benefits of approximately $5 million related to the divestiture of this business.

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 Internal Revenue Service has 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.

            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 2007.