13. Income Taxes

Income Tax Expense (Benefit)

Components of income tax expense (benefit) were as follows (in thousands):

 

		Year Ended December 31,
		2011				2010				2009
Current		$	29,682			$	20,167			$	(74,111	)
Deferred			61,835				(8,266	)			—
		$	91,517			$	11,901			$	(74,111	)

 

Effective Tax Rate Reconciliation

The reconciliation of income taxes computed at the U.S. federal statutory tax rate to our income tax expense (benefit) is as follows (in thousands):

 

		Year Ended December 31,
		2011								2010								2009
Income tax expense (benefit) at the federal statutory rate		$	92,517				35.0	%		$	45,427				35.0	%		$	(91,710	)			35.0	%
Valuation allowance			—				—				(31,985	)			(24.6	)			14,594				(5.6	)
Domestic production activities deduction			(1,823	)			(0.7	)			(2,623	)			(2.0	)			3,167				(1.2	)
Share-based compensation			—				—				—				—				208				—
State income taxes			603				0.2				32				—				(73	)			—
Other			220				0.1				1,050				0.8				(297	)			0.1
		$	91,517				34.6	%		$	11,901				9.2	%		$	(74,111	)			28.3	%

Our effective tax rate for the year 2011 consists primarily of the federal statutory rate with an adjustment for the utilization of the deduction attributable to qualified domestic production activities under Section 199 of the IRC. Our effective tax rate for the year 2010 primarily reflects a reduction in our valuation allowance against our deferred tax assets and the Section 199 deduction described above. Taxable income in 2010 allowed us to reverse all of the previously recorded valuation allowance. Our effective tax rate for the year 2009 primarily reflects recapture of the Section 199 deduction related to net operating loss carrybacks for tax purposes as well as the incremental current period effect of a change in our valuation allowance for our deferred tax assets. In 2009, the Company experienced a net operating loss for tax purposes and as a result, the Section 199 deduction was not available to us. In 2009, a portion of the qualified domestic production activities deduction for 2005 and 2007 was recaptured due to carrybacks of a net operating loss from 2009 to 2005 and 2007.

Deferred Tax Assets and Liabilities

Deferred income taxes reflect the net 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. Significant components of our deferred tax assets and liabilities were as follows (in thousands):

 

		December 31,
		2011				2010
Deferred tax liabilities:
Property and equipment		$	63,328			$	2,370
Other			4,707				3,274
Total deferred tax liabilities			68,035				5,644
Deferred tax assets:
Minimum tax credit			—				3,558
State net operating losses			4,626				4,176
Derivatives			1,096				4,622
Valuation allowance			(4,626	)			(4,176	)
Accrued cash-based bonus			5,390				4,022
Stock-based compensation			3,971				1,581
Other			704				464
Total deferred tax assets			11,161				14,247
Net deferred tax (liabilities) assets		$	(56,874	)		$	8,603

 

During the year 2011, we made payments primarily for federal and state income taxes of approximately $35.7 million. We received refunds related to prior years of $0.4 million.

During the year 2010, we received refunds of federal income taxes paid in prior years totaling $99.8 million, consisting primarily of carrybacks of net operating losses generated in 2009 and 2008 and made payments of $12.0 million for federal and state income taxes. On November 6, 2009, the Worker, Homeownership and Business Assistance Act of 2009 was signed into law. A provision of this act provides an election to increase the carryback period for applicable net operating losses up to five years from two years.

Net Operating Loss and Tax Credit Carryovers

The table below presents the details of our net operating loss and tax credit carryovers as of December 31, 2011 (in thousands):

 

		Amount				Expiration Year
State net operating loss		$	88,963				2020-2025

Valuation Allowance

As of December 31, 2011 and December 31, 2010, we had a valuation allowance related to state net operating losses. The realization of these assets depends on recognition of sufficient future taxable income in specific tax jurisdictions during periods in which those temporary differences or net operating losses are deductible. In assessing the need for a valuation allowance on our deferred tax assets, we consider whether it is more likely than not that some portion or all of them will not be realized. As part of our assessment, we consider future reversals of existing taxable temporary differences.

Uncertain Tax Positions

The table below sets forth the reconciliation of the beginning and ending balances of the total amount of unrecognized tax benefits. There are no unrecognized benefits that would impact the effective tax rate if recognized. While amounts could change in the next 12 months, we do not anticipate it having a material impact on our financial statements. We recognize interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2011, we had zero accrued interest related to uncertain tax positions. During 2011, we recognized $0.3 million of income tax benefit for the reversal of accrued interest and penalties.

Balances and changes in the uncertain tax positions are as follows (in thousands):

 

		December 31,
		2011				2010
Balance at beginning of period		$	3,558			$	—
Increase related to current-year tax positions			—				3,558
(Decreases) related to prior-year tax positions			(3,558	)			—
Balance at end of period		$	—			$	3,558

Years open to examination

The tax years from 2008 through 2011 remain open to examination by the tax jurisdictions to which we are subject.