Income Taxes

9 Months Ended

Sep. 30, 2012

Income Taxes [Abstract]

INCOME TAXES

5. 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.

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	2009 - 2011	N/A
State	2005 - 2011	2004, 2006, 2008, 2009
Canada (1)	2007 - 2011	2007 - 2010
Germany (1)	2007 - 2011	2008 - 2010
France	2009 - 2011	N/A
United Kingdom	2008 - 2011	N/A
Philippines	2010 - 2011	2009 - 2010

(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.

As of September 30, 2012 and December 31, 2011, we had $29.9 million and $29.7 million, respectively, of gross unrecognized tax benefits. As of September 30, 2012, if such benefits were to be recognized, approximately $29.9 million would be recorded as a component of income tax expense, thereby affecting our effective tax rate.

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 $15.4 million. Substantially all of this range relates to tax positions taken in the U.S. and in the U.K.

We recognize interest and penalties related to uncertain tax positions as income tax expense. During the first nine months of 2012 and the third quarter of 2012, we recognized a net reduction of interest expense of $0.3 million and $0.7 million respectively. For the first nine months of 2011, we recognized a net reduction of interest expense of $1.8 million. For the third quarter of 2011, we recognized interest expense of $0.2 million. As of September 30, 2012 and December 31, 2011, accrued interest payable was $1.4 million and $1.7 million, respectively. We did not record any penalties associated with uncertain tax positions during the third quarters of 2012 or 2011.

In March 2010, we were approved by the Internal Revenue Service to be registered as a producer of cellulosic biofuel under the Internal Revenue Code. The cellulosic biofuel credit was equal to $1.01 per gallon of black liquor produced in operations during 2009. In the second quarter of 2012, we made the decision to convert a portion of the previously utilized refundable alternative fuel mixture credit, which was equal to $0.50 per gallon, to the non-refundable cellulosic biofuel credit. The conversion to the cellulosic biofuel credit resulted in a net benefit for income taxes in the second quarter of 2012 of $4.4 million. In the third quarter of 2012, we amended our 2009 federal income tax return to claim a credit for a portion of the converted credits. This required us to return to the Internal Revenue Service $16.8 million during the third quarter of 2012, net of credits used to reduce estimated tax payments. The amount of cellulosic biofuel credits recognized is based on numerous assumptions and estimates about future taxable income. Although we believe our assumptions to be reasonable, actual results may differ from these assumptions and estimates and such differences may have a significant impact on the amount of credits recognized. In addition, while we do not intend to convert additional credits, if facts and circumstances change, we could further amend our 2009 tax return and convert additional credits.