Income Taxes

9 Months Ended

Sep. 30, 2012

Income Taxes

Income Taxes

14.  Income Taxes

The Company accounts for income taxes in accordance with the provisions of ASC 740, “Income Taxes” (“ASC 740”), on a tax jurisdictional basis. The Company recorded a $2.6 million deferred tax benefit for the quarter ended September 30, 2012, and a $5.6 million deferred tax benefit for the nine months ended September 30, 2012, both related primarily to Mexico net operating losses. The goodwill impairment of $57.2 million recorded as of September 30, 2012, as described in Note 9, is not deductable for income tax purposes, and the tax effect of this impairment is the principal reconciling difference between the provision for income taxes computed at the US statutory rate of 34% and the provision for income taxes as shown in the consolidated statements of operations and comprehensive income (loss). For the nine months ended September 30, 2011, the Company recorded a deferred tax benefit of $1.1 million related primarily to Mexico net operating losses. Based on the limited history that the Company has with its Velardeña Operations, an estimated effective tax rate is not used to report the year-to-date results.

In accordance with ASC 740, the Company presents deferred tax assets net of its deferred tax liabilities on a tax jurisdictional basis on its Consolidated Balance Sheets. The net deferred tax liability of $49.2 million and $55.6 million as of September 30, 2012 and December 31, 2011, respectively, consists primarily of a $64.0 million and $65.5 million deferred tax liability related to the basis differences of the properties, plant and equipment of our Velardeña Operations, and a $14.9 million and $10.1 million deferred tax asset related to Mexico net operating losses, respectively.

The Company, a Delaware corporation, and its subsidiaries file tax returns in the United States and in various foreign jurisdictions. The tax rules and regulations in these countries are highly complex and subject to interpretation. The Company’s income tax returns are subject to examination by the relevant taxing authorities and in connection with such examinations, disputes can arise with the taxing authorities over the interpretation or application of certain tax rules within the country involved. In accordance with ASC 740, the Company identifies and evaluates uncertain tax positions, and recognizes the impact of uncertain tax positions for which there is less than a more-likely-than-not probability of the position being upheld upon review by the relevant taxing authority. Such positions are deemed to be “unrecognized tax benefits” which require additional disclosure and recognition of a liability within the financial statements. The Company had unrecognized tax benefits of $2.6 million as of September 30, 2012 and $2.7 million as of December 31, 2011.