Income Taxes

12 Months Ended

Dec. 31, 2011

Income Taxes [Abstract]

Income Taxes

Note 13. Income Taxes

The components of the provision for income taxes from continuing operations are as follows:

	Year Ended December 31,
	2011			2010			2009
	(in millions)
Current:
Federal	$	20.0		$	(22.2	)	$	5.8
State		5.5			(2.0	)		0.7
Foreign		5.4			5.0			7.9
Total current		30.9			(19.2	)		14.4
Deferred:
Federal		62.7			57.0			(27.1	)
State		1.2			3.4			(3.5	)
Foreign		(3.0	)		(0.3	)		6.8
Total deferred		60.9			60.1			(23.8	)
Provision	$	91.8		$	40.9		$	(9.4	)

Deferred income taxes represent the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The components of deferred tax liabilities and assets are as follows:

	December 31,
	2011			2010
	(in millions)
Deferred tax liabilities:
Depreciation, depletion, and amortization	$	740.8		$	667.3
Derivatives		14.5			—
Convertible debt		88.4			80.9
Total deferred tax liabilities		843.7			748.2
Deferred tax assets:
Workers compensation, pensions, and other benefits		47.8			44.7
Warranties and reserves		14.4			17.5
Equity items		72.8			56.4
Tax loss carryforwards and credits		234.9			224.3
Inventory		11.1			7.6
Accrued liabilities and other		4.7			1.6
Total deferred tax assets		385.7			352.1
Net deferred tax liabilities before valuation allowance		458.0			396.1
Valuation allowance		19.3			19.9
Net deferred tax liabilities before reserve for uncertain tax positions		477.3			416.0
Deferred tax assets included in reserve for uncertain tax positions		(42.6	)		(25.0	)
Adjusted net deferred tax liabilities	$	434.7		$	391.0

At December 31, 2011, the Company, excluding TRIP Holdings, had $124.2 million of Federal consolidated net operating loss carryforwards, after the estimated current year utilization of $42.9 million, and tax-effected $5.6 million of state loss carryforwards. TRIP Holdings had $383.3 million in Federal tax loss carryforwards at December 31, 2011. Because TRIP Holdings files a separate tax return from the Company, its tax loss carryforwards can only be used by TRIP Holdings and cannot be used to offset future taxable income of the Company. The Federal tax loss carryforwards are due to expire between 2024 and 2031. We expect TRIP Holdings to begin utilizing their tax loss carryforwards beginning in 2020. Our ability to utilize the tax loss carryforwards that were acquired as part of the Quixote acquisition against future taxable income is subject to restrictions under the Internal Revenue Code. We have established a valuation allowance for Federal, state, and foreign tax operating losses which may not be realizable.

Realization of deferred tax assets is dependent on generating sufficient taxable income in future periods. We have established valuation allowances against tax losses and credits that we will most likely be unable to utilize. We believe that it is more likely than not that we will be able to generate sufficient future taxable income to utilize the remaining deferred tax assets.

We are currently under two separate Internal Revenue Service (“IRS”) examination cycles for the years ended 2004 through 2005 and 2006 through 2008. Our statute of limitations therefore 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. We expect this cycle to be effectively settled during the first or second quarter of 2012. Additionally, the 2006-2008 cycle is still in the examination level and thus, we are unable to determine how long these periods will remain open.

The 2003 tax year of one of our Mexican subsidiaries is still under review and thus its statute of limitations remains open. In addition, another Mexican subsidiary filed an amended return and thus, its 2005 statute remains open through July 2013. Statute of limitations of all of Mexican subsidiaries for 2006 and forward years remain open.

During the third quarter ended September 30, 2011, we effectively settled an audit of one of our Swiss subsidiaries which covered the years 2006 through 2009. There was no impact to the income statement as a result of the settlement.

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 2002 forward due to the use of tax loss carryforwards in certain jurisdictions.

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:

	Year Ended December 31,
	2011			2010			2009
Statutory rate		35.0	%		35.0	%		35.0	%
State taxes		2.1			3.3			1.9
Impairment of goodwill		—			—			(23.7	)
Changes in valuation allowances		—			—			(6.5	)
Tax settlements		—			4.4			—
Changes in tax reserves		—			(9.6	)		—
Other, net		1.6			2.0			(0.3	)
Effective rate		38.7	%		35.1	%		6.4	%

Income (loss) from continuing operations before income taxes for the year ended December 31, 2011, 2010, and 2009 was $224.4 million, $113.7 million, and $(158.4) million, respectively, for United States operations, and $13.1 million, $2.9 million, and $11.5 million, respectively, for foreign operations. The Company has provided United States deferred income taxes on the un-repatriated earnings of its foreign operations. The Company has $37.8 million of foreign tax credit carryforwards which will expire between 2014 and 2021.

The change in unrecognized tax benefits for the years ended December 31, 2011 and 2010 were as follows:

	Year Ended December 31,
	2011			2010			2009
	(in millions)
Beginning balance	$	36.8		$	40.1		$	32.9
Additions for tax positions related to the current year		3.8			3.3			5.8
Additions for tax positions of prior years		16.4			9.3			7.5
Reductions for tax positions of prior years		(0.1	)		(5.6	)		(4.5	)
Settlements		(3.5	)		(9.5	)		(1.5	)
Expirations of statute of limitations		(0.9	)		(0.8	)		(0.1	)
Ending balance	$	52.5		$	36.8		$	40.1

The additions for tax positions related to the current year in the amounts of $3.8 million and $3.3 million for the years ended December 31, 2011 and December 31, 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 year ended December 31, 2011 and December 31, 2010 of $16.4 million and $9.3 million, respectively, 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 reduction in tax positions of prior years of $0.1 million and $5.6 million for the years ended December 31, 2011 and December 31, 2010, respectively, was primarily related to state taxes.

Settlements during the year ended December 31, 2011 primarily relate to the audit of a Swiss subsidiary that resulted in the payment of $2.8 million of taxes and interest. Subsequent to the payment of the taxes, we applied for and received treaty relief from the Swiss tax authorities and received $1.8 million in tax refunds. The tax that was not refunded is creditable against future US income tax and thus is being carried as a deferred tax asset.

Settlements during the year ended December 31, 2010 related to a first quarter tax settlement of a 2002 Mexico tax issue of one of our subsidiaries and a third quarter settlement of the 1998-2002 IRS audit.

The total amount of unrecognized tax benefits including interest and penalties at December 31, 2011 and 2010, that would affect the Company’s effective tax rate if recognized was $19.4 million and $14.9 million, respectively. There is a reasonable possibility that unrecognized Federal and state tax benefits will decrease by December 31, 2012 due to a lapse in the statute of limitations for assessing tax. Amounts subject to a lapse in statute by December 31, 2012 total $2.5 million. Further, there is a reasonable possibility that the unrecognized Federal tax benefits will decrease by December 31, 2012 due to settlements with taxing authorities. Amounts expected to settle by December 31, 2012 total $3.3 million.

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 December 31, 2011 and 2010 was $13.3 million and $11.2 million, respectively. Income tax expense for the years ended December 31, 2011 and 2010 included an increase to income tax expense of $2.1 million and reduction in income tax expense of $4.8 million, respectively, in interest expense and penalties related to uncertain tax positions.