Income Taxes

6 Months Ended

Jun. 30, 2011

Note 13. Income Taxes

The provision for income taxes results in effective tax rates different from the statutory rates. The following is a reconciliation between the statutory United States Federal income tax rate and the Company’s effective income tax rate:


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2011			2010			2011			2010
Statutory rate		35.0	%		35.0	%		35.0	%		35.0	%
State taxes		2.6			3.3			2.5			3.1
Tax settlements		0.0			(5.3	)		0.0			0.6
Changes in tax reserves		0.8			2.1			1.0			(7.7	)
Foreign tax adjustments		(0.6	)		2.1			(0.6	)		2.4
Other, net		2.1			2.2			1.5			2.6

Effective rate		39.9	%		39.4	%		39.4	%		36.0	%

During the first six months ended June 30, 2010, we closed an audit of one of our Mexican subsidiaries’ 2002 tax year. The 2003 tax year of our Mexican subsidiaries is still under review and thus the statute of limitations remains open from 2003 forward.

We are currently under two separate Internal Revenue Service (“IRS”) examination cycles for the years ended 2004 through 2005 and 2006 through 2008. Therefore, our statute of limitations remains open from the year ended December 31, 2004 and forward. Our 2004-2005 exam cycle is currently under administrative appeal for certain unresolved issues. Due to the uncertainty of the length of the appeals process and possible post-appeals litigation on any issues, the statute of limitations related to the 2004-2005 exam cycle will remain open for an indeterminable period of time. Likewise, as the 2006-2008 cycle is still in the examination level, we are unable to determine how long these periods will remain open.

Our various other European subsidiaries, including subsidiaries that were sold in 2006, are impacted by various statutes of limitations which are generally open from 2003 forward. An exception to this is our discontinued operations in Romania, which have been audited through 2004.

Generally, states’ statutes of limitations in the United States are open from 1998 forward because we filed amended tax returns to reflect previous IRS adjustments. We expect the 1998-2001 state statutes of limitations to close by the end of 2011.

The change in unrecognized tax benefits for the six months ended June 30, 2011 and 2010 was as follows:


	Six Months Ended
	June 30,
	2011			2010
	(in millions)
Beginning balance	$	36.8		$	40.1
Additions for tax positions related to the current year		1.8			1.7
Additions for tax positions of prior years		14.5			5.8
Reductions for tax positions of prior years		—			(5.2	)
Settlements		(0.7	)		(1.1	)
Expiration of statute of limitations		(0.1	)		(0.4	)

Ending balance	$	52.3		$	40.9

Additions for tax positions related to the current year in the amounts of $1.8 million and $1.7 million recorded in the six months ended June 30, 2011 and 2010, respectively, were amounts provided for tax positions previously taken in foreign jurisdictions and tax positions taken for Federal and state income tax purposes as well as deferred tax liabilities that have been reclassified to uncertain tax positions.

Additions for tax positions of prior years for the six months ended June 30, 2011 of $14.5 million are primarily due to Federal tax positions taken on prior year returns that have been proposed by the IRS but not previously reserved. These items are primarily timing differences and thus we would be allowed a future tax deduction. We have recorded a corresponding deferred tax asset for the future reduction of taxes related to these adjustments. The $5.8 million increase for the six months ended June 30, 2010 was due to Federal tax positions that were submitted to the IRS. We anticipate making a payment related to these positions once the proposed adjustment amounts have been finalized and the current examination cycle closes.

Reductions for tax positions of prior years were primarily related to state taxes for the six months ended June 30, 2010. There were no reductions for the six months ended June 30, 2011. During the six months ended June 30, 2010, we received additional facts on certain state tax positions that led us to revise our measurement of certain state tax benefits previously recorded. This reduction in state positions was accompanied by a reduction in related deferred tax assets. Additionally, we completed several state audits for which the Company’s tax position was not challenged by the state and for which the positions are now effectively settled as well as a Federal tax position that we believed would be sustained upon audit and therefore was no longer at risk.

Settlements during the six months ended June 30, 2011 related to an audit of a separate tax return of a subsidiary. Settlements during the six months ended June 30, 2010 related to a tax settlement of the 2002 Mexico tax return of one of our subsidiaries resulting in a payment of $2.1 million in taxes, penalties, and interest. The excess of the amount reserved over the settlement amount was $1.8 million, which was recorded as a benefit to income taxes during the six months ended June 30, 2010.

The total amount of unrecognized tax benefits including interest and penalties at June 30, 2011 and 2010, that would affect the Company’s effective tax rate if recognized was $20.2 million and $17.7 million, respectively.

Trinity accounts for interest expense and penalties related to income tax issues as income tax expense. Accordingly, interest expense and penalties associated with an uncertain tax position are included in the income tax provision. The total amount of accrued interest and penalties as of June 30, 2011 and December 31, 2010 was $13.0 million and $11.2 million, respectively. Income tax expense for the three and six months ended June 30, 2011, included an increase in income tax expense of $0.9 million and $1.8 million, respectively, in interest expense and penalties related to uncertain tax positions. Income tax expense for the three and six months ended June 30, 2010, included an increase in income tax expense of $1.2 million and a reduction in income tax expense $2.3 million, respectively, in interest expense and penalties related to uncertain tax positions.