Income Taxes

9 Months Ended

Sep. 30, 2011

Income Taxes [Abstract]

INCOME TAXES

6. INCOME TAXES

Income taxes are recognized for the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in our consolidated financial statements or tax returns. The effects of income taxes are measured based on enacted tax laws and rates.

As of September 30, 2011 and December 31, 2010, we had $33.7 million and $38.7 million, respectively, of gross unrecognized tax benefits. If such benefits were to be recognized as of September 30, 2011, approximately $33.7 million would be recorded as a component of income tax expense, thereby affecting our effective tax rate. The majority of the reduction in unrecognized tax benefits is due to benefits recorded in connection with the favorable resolution of a German tax audit.

We, or one of our subsidiaries, file income tax returns with the United States Internal Revenue Service, as well as various state and foreign authorities. The following table summarizes, by major jurisdiction, tax years that remain subject to examination:

	Open Tax Years
Jurisdiction	Examinations not yet initiated	Examination in progress
United States
Federal	2008 - 2010	N/A
State	2005 - 2010	2004 & 2006-2008
Canada (1)	2006 - 2010	2006 - 2009
Germany (1)	2007 - 2010	2004 - 2009
France	2007 - 2010	N/A
United Kingdom	2007 - 2010	N/A
Philippines	2010	2009

(1) – includes provincial or similar local jurisdictions, as applicable

The amount of income taxes we pay is subject to ongoing audits by federal, state and foreign tax authorities, which often result in proposed assessments. Management performs a comprehensive review of its global tax positions on a quarterly basis and accrues amounts for uncertain tax positions. Based on these reviews and the result of discussions and resolutions of matters with certain tax authorities and the closure of tax years subject to tax audit, reserves are adjusted as necessary. However, future results may include favorable or unfavorable adjustments to our estimated tax liabilities in the period the assessments are determined or resolved or as such statutes are closed. Due to potential for resolution of federal, state and foreign examinations, and the expiration of various statutes of limitation, it is reasonably possible our gross unrecognized tax benefits balance may decrease within the next twelve months by a range of zero to $3.2 million. Substantially all of this range relates to tax positions taken in the U.S. and in the United Kingdom.

We recognize interest and penalties related to uncertain tax positions as income tax expense. During the first nine months of 2011, we recognized a net reduction of interest expense of $1.8 million, the majority of which was in connection with the favorable settlement of a German tax audit. Interest expense recognized in both the third quarter of 2011 and 2010 was $0.2 million. As of September 30, 2011, accrued interest payable was $2.0 million, and as of December 31, 2010, accrued interest payable was $3.8 million. We did not record any penalties associated with uncertain tax positions during the third quarters of 2011 or 2010.

Cellulosic Biofuel Production Credit In March 2010, our application to be registered as a cellulosic biofuel producer was approved by the Internal Revenue Service. The U.S. Internal Revenue Code provided a non refundable tax credit equal to $1.01 per gallon for taxpayers that produced cellulosic biofuel. In a memorandum dated June 28, 2010, the Internal Revenue Service issued guidance concluding that black liquor sold or used before January 1, 2010, qualified for the cellulosic biofuel producer credit (“CBPC”) and no further certification of eligibility was needed.

In connection with the filing of our 2009 income tax return, we claimed $23.1 million, net of taxes, of CBPC which was recognized in the third quarter of 2010. The CBPC claimed was attributable to black liquor produced and burned from January 1, 2009 through February 20, 2009, the date we began mixing black liquor and diesel fuel to qualify for alternative fuel mixture credits.