Attention: | Tia L. Jenkins, Senior Assistant Chief Accountant |
Re: | Molycorp, Inc. Form 10-K for the Fiscal Year Ended December 31, 2013 |
1. | We note your response to comment 1 from our letter dated July 30, 2014 and understand that you recorded the correction for the fair value of the share lending arrangements (SLAs) as an out of period adjustment in the second quarter of 2014. As a result of this adjustment, we note you have increased your income tax benefit for the second quarter of 2014 by $9.6 million. Please address the following points: |
• | Provide the detail journal entries you would have recorded had you accounted for the fair value of the share lending arrangements at issuance, explaining the basis for each side of the entry. |
• | Clarify your tax treatment of the recording of the SLAs, providing details sufficient to understand the reasons why you would have record deferred tax liabilities related to the deferred financing costs. |
• | Provide further details on why the deferred tax liabilities would have been released in the second quarter of 2013. |
• | The detail journal entries we would have recorded had we accounted for the fair value of the SLAs at issuance are as follows: |
• | The recognition of the issuance cost in the financial statements creates a taxable temporary difference under ASC 740, as there is no tax basis related to the asset. This results in recognition of a deferred tax liability, measured at the enacted tax rates expected to apply when the temporary difference reverses, with an offset to additional paid-in capital. |
• | During the third and fourth quarters of 2012 and the first and second quarters of 2013, $519,833 of deferred tax liabilities would have been released as a result of amortizing the issuance cost for accounting purposes. In addition, we incurred significant losses during the second quarter of 2013 against which a valuation allowance was originally recorded. With the additional deferred tax liabilities related to the SLAs, the originally recorded valuation allowance would have been reduced by $9,109,687. The combination of the above results in a deferred tax benefit of $9,629,520. |
• | the Company is responsible for the adequacy and accuracy of the disclosure in its filings; |
• | Staff comments or changes to disclosure in response to Staff comments do not foreclose the Commission from taking any action with respect to the filings; and |
• | the Company may not assert Staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States. |
Very truly yours, | |
/s/ Michael F. Doolan | |
Michael F. Doolan Executive Vice President and Chief Financial Officer | |