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v2.4.0.6
Income Taxes
12 Months Ended
Dec. 31, 2010
Income Taxes  
Income Taxes

NOTE 6—Income Taxes

 

Income tax (expense) benefit consisted of the following (in thousands):

 

     Year Ended December 31,  
     2010      2009      2008  

Current:

        

Federal

   $ 85       $ 5,382       $ (5,331

State

             10,070         (10,813
                          
     85         15,452         (16,144
                          

Deferred:

        

Federal

             48,121         (37,192

State

             3,725         (866
                          
             51,846         (38,058
                          

Total

   $ 85       $ 67,298       $ (54,202
                          

 

The following is a reconciliation of the U.S. statutory income tax rate at 35% to our income (loss) before income taxes (in thousands):

 

     Year Ended December 31,  
     2010     2009     2008  

Income tax (expense) benefit

      

Tax at U.S. statutory income tax

   $ 91,772      $ 111,412      $ (61,861

Valuation allowance

     (93,497     (54,256     15,268   

State income taxes-net of federal benefit

     1,860        10,271        (7,895

Nondeductible expenses and other

     (50     (129     286   
                        

Total tax (expense) benefit

   $ 85      $ 67,298      $ (54,202
                        

 

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below (in thousands):

 

     December 31,  
     2010     2009  

Current deferred tax assets:

    

Accrued liabilities

   $ 531      $ 980   

Contingent liabilities and other

     1,502          

Less valuation allowance

     (1,629     (650
                

Total current deferred tax assets

     404        330   

Current deferred tax liabilities:

    

Derivative financial instruments

     (8,564     (1,511

Bond discount

     (7,123       

Debt discount and financing costs

     (2,921       

Accrued liabilities

     (1,491     (3,519
                

Total current deferred tax liabilities

     (20,099     (5,030
                

Net current deferred tax liability

   $ (19,695   $ (4,700
                

Noncurrent deferred tax assets:

    

Operating loss carryforwards

   $ 105,105      $ 47,902   

Texas Margin Credit

     607        607   

Louisiana NOL

     877          

Statutory depletion carryforward

     7,034        7,034   

AMT tax credit carryforward

     1,246        1,409   

Derivative financial instruments

            97   

Compensation

     3,842        3,042   

Contingent liabilities and other

     557        538   

Property and equipment

     70,619        31,572   
                

Total gross noncurrent deferred tax assets

     189,887        92,201   

Less valuation allowance

     (152,831     (61,091
                

Net noncurrent deferred tax assets

     37,056        31,110   
                

Noncurrent deferred tax liabilities:

    

Derivative financial instruments

     (3,978       

Bond discount

            (4,872

Debt discount

     (13,383     (21,538
                

Total non-current deferred tax liabilities

     (17,361     (26,410
                

Net non-current deferred tax asset

   $ 19,695      $ 4,700   
                

 

The valuation allowance for deferred tax assets increased by $92.7 million in 2010. In determining the carrying value of a deferred tax asset, accounting standards provide for the weighing of evidence in estimating whether and how much of a deferred tax asset may be recoverable. As we have incurred net operating losses in 2010 and prior years, relevant accounting guidance suggests that cumulative losses in recent years constitute significant negative evidence, and that future expectations about income are insufficient to overcome a history of such losses. Therefore, with the before-mentioned adjustment of $92.7 million, we have reduced the carrying value of our net deferred tax asset to zero. The valuation allowance has no impact on our net operating loss ("NOL") position for tax purposes, and if we generate taxable income in future periods, we will be able to use our NOLs to offset taxes due at that time. The Company will continue to assess the valuation allowance against deferred tax assets considering all available evidence obtained in future reporting periods.

 

As of December 31, 2010, we have NOL carryforwards of approximately $302.6 million for tax purposes which begin to expire in 2026. The Company also has a minimum tax credit carryforward not subject to expiration of $1.2 million which will not begin to be used until after the available NOLs have been used or expired and when regular tax exceeds the current year alternative minimum tax.

 

Our share based deferred compensation plans have generated $11.5 million of additional tax deductions through 2010. The Company realized $9.2 million ($6.0 million, net of tax) of these deductions in 2008 and the associated $3.2 million tax benefit was recorded as additional paid in capital. The remaining tax deductions are not currently recognized as a component of our deferred tax asset. They will be recognized when the net operating loss carryforward is utilized to offset future taxable income.

 

In July 2005, we received a Notice of Proposed Tax Due from the State of Louisiana asserting that we underpaid our Louisiana franchise taxes for the years 1998 through 2004 in the amount of $0.6 million. The Notice of Proposed Tax Due included additional assessments of penalties and interest in the amount of $0.4 million for a total asserted liability of $1.0 million. In order to avoid future penalties and interest, the Company paid, under protest, $1.0 million to the State of Louisiana in April 2007 which payment was expensed in general and administrative expense in first quarter 2007. We are waiting on a response from the Louisiana Department of Revenue on our settlement offer for the refund of 75% of the amount we paid under protest. Should our offer be accepted, the refund would be booked as a credit to general and administrative expense.

 

As of December 31, 2010, we have recorded an income tax receivable of $4.3 million of which $4.2 million is a refund due from the State of Louisiana for 2008 taxes and $0.1 million is a refund due on federal income taxes as a result of an alternative minimum tax credit refund on our 2009 income tax return.

 

The amount of unrecognized tax benefits did not materially change as of December 31, 2010. The amount of unrecognized tax benefits may change in the next twelve months; however we do not expect the change to have a significant impact on our results of operations or our financial position. We file a consolidated federal income tax return in the United States and various combined and separate filings in several state and local jurisdictions. With limited exceptions, we are no longer subject to U.S. Federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 1992.

 

Our continuing practice is to recognize estimated interest and penalties related to potential underpayment on any unrecognized tax benefits as a component of income tax expense in the Consolidated Statement of Operations. We do not anticipate that total unrecognized tax benefits will significantly change due to the settlement of audits and the expiration of statute of limitations before December 31, 2011.