5. Income Taxes

The components of income tax expense from continuing operations were as follows:



	Year Ended December 31,
	2013			2012			2011
				(In thousands)
Current income tax (expense) benefit
U.S. Federal	$	411		$	(411	)	$	(404	)
State	(141		)	(403		)	(661		)
Total current income tax (expense) benefit	270			(814		)	(1,065		)
Deferred income tax expense
U.S. Federal	(12,404		)	(28,723		)	(23,254		)
State	(769		)	(1,419		)	(1,292		)
Total deferred income tax expense	(13,173		)	(30,142		)	(24,546		)
Total income tax expense from continuing operations	$	(12,903	)	$	(30,956	)	$	(25,611	)

The Company’s income tax expense from continuing operations differs from the income tax expense computed by applying the U.S. federal statutory corporate income tax rate of 35% to income from continuing operations before income taxes as follows:



	Year Ended December 31,
	2013			2012			2011
				(In thousands)
Income from continuing operations before income taxes	$	34,761		$	82,133		$	58,145
Income tax expense at the statutory rate	(12,166		)	(28,747		)	(20,350		)
State income taxes, net of U.S. federal income tax benefit	(859		)	(1,681		)	(1,722		)
Adjustment to prior period state income taxes, net of U.S. federal income tax benefit	—			—			(4,735		)
Previously unbenefitted capital loss associated with investment				—			1,171
Nondeductible expenses	—			(93		)	25
Other	122			(435		)	—
Total income tax expense from continuing operations	$	(12,903	)	$	(30,956	)	$	(25,611	)

Deferred income taxes reflect the impact of temporary differences between the amount of assets and liabilities recognized for financial reporting purposes and such amounts recognized for tax purposes. At December 31, 2013 and 2012, deferred tax assets and liabilities are comprised of the following:



	December 31,
	2013			2012
	(In thousands)
Deferred income tax assets
Net operating loss carryforward - U.S. Federal and State	$	52,499		$	53,648
Stock-based compensation	7,563			4,245
Allowance for doubtful accounts	170			476
Fair value of derivative instruments	3,222			—
Other	2,471			1,755
Deferred income tax assets	65,925			60,124
Valuation allowance	(1,084		)	(1,188		)
Net deferred income tax assets	64,841			58,936
Deferred income tax liabilities
Unamortized discount on 4.375% Convertible Senior Notes	—			(382		)
Oil and gas properties	(74,247		)	(34,985		)
Fair value of derivative instruments	(3,249		)	(10,222		)
	(77,496		)	(45,589		)
Net deferred income tax asset (liability)	$	(12,655	)	$	13,347

Deferred income tax assets and liabilities are classified as current or noncurrent based on the classification of the related asset or liability in the consolidated balance sheet except for deferred tax assets related to net operating loss carryforwards which is classified as current or noncurrent based on the on periods the carryforwards are expected to be utilized. By taxing jurisdiction, all current deferred tax assets and liabilities are offset and presented as a net current deferred tax asset or liability and all noncurrent deferred tax assets and liabilities are offset and presented as a net noncurrent deferred tax asset or liability. At December 31, 2013 and 2012, the net deferred income tax asset (liability) is classified as follows:



	December 31,
	2013			2012
	(In thousands)
Noncurrent deferred income tax asset (liability)	$	(16,856	)	$	21,272
Current deferred income tax asset (liability)	4,201			(7,925		)
Net deferred income tax asset (liability)	$	(12,655	)	$	13,347

As of December 31, 2013, the Company had U.S. federal net operating loss carryforwards of approximately $174.4 million. If not utilized in earlier periods, the U.S. federal net operating loss will expire between 2019 and 2033. The realization of the deferred tax assets related to loss carryforwards is dependent on the Company’s ability to generate sufficient future taxable income in the U.S. within the applicable carryforward periods. During 2011 and 2012, the Company determined it was more likely than not that some of its state loss carryforwards would not be realized and accordingly, established valuation allowances totaling approximately $1.1 million. The Company believes it will be able to generate sufficient future taxable income in the U.S. within the carryforward periods. As such, the Company believes that it is more likely than not that its net deferred income tax assets will be fully realized except for those state loss carryforwards for which a valuation allowance has been established.

The ability of the Company to utilize its U.S. loss carryforwards to reduce future taxable income is subject to various limitations under the Internal Revenue Code of 1986, as amended (the “Code”). The utilization of such carryforwards may be limited upon the occurrence of certain ownership changes, including the purchase or sale of stock by 5% shareholders and the offering of stock by the Company during any three-year period resulting in an aggregate change of more than 50% in the beneficial ownership of the Company. In the event of an ownership change, Section 382 of the Code imposes an annual limitation on the amount of the Company’s taxable income that can be offset by these carryforwards. The limitation is generally equal to the product of (a) the fair market value of the equity of the Company multiplied by (b) a percentage approximately equivalent to the yield on long-term tax exempt bonds during the month in which an ownership change occurs. In addition, the limitation is increased if there are recognized built-in gains during any post-change year, but only to the extent of any net unrealized built-in gains inherent in the assets sold. As of December 31, 2013, the Company believes an ownership change occurred in February 2005, which imposed an annual limitation of $12.6 million of the Company’s taxable income that can be offset by the pre-change carryforwards. Because the Company’s aggregate pre-change carryforward is $9.8 million, the Company does not believe it has a Section 382 limitation on the ability to utilize its U.S. loss carryforwards as of December 31, 2013. Future equity transactions involving the Company or 5% shareholders of the Company (including, potentially, relatively small transactions and transactions beyond the Company’s control) could cause further ownership changes and therefore a limitation on the annual utilization of the U.S. loss carryforwards.

The Company receives a tax deduction during the period stock options and SARs are exercised, generally for the excess of the exercise date stock price over the exercise price of the option or SAR. The Company also receives a tax deduction during the period restricted stock awards and units vest, generally equal to the fair value of the awards or units on the vesting date. Because these stock-based compensation tax deductions did not reduce current taxes payable as a result of U.S. loss carryforwards, the benefit of these tax deductions has not been reflected in the U.S. loss carryforward deferred tax asset. Stock-based compensation tax deductions included in the U.S. loss carryforwards of $174.4 million but not reflected in the associated deferred tax asset were $29.2 million at December 31, 2013. The Company expects to recognize the $10.2 million deferred tax asset associated with these stock-based compensation tax deductions when all other components of the U.S. loss carryforward deferred tax asset have been fully utilized. When the stock-based compensation tax deduction related U.S. loss carryforward deferred tax asset is realized, the tax benefit of reducing current taxes payable will be credited directly to additional paid-in capital.

The Company files income tax returns in the U.S. Federal jurisdiction, in various states and previously filed in one foreign jurisdiction, each with varying statues of limitations. The 1999 through 2013 tax years generally remain subject to examination by federal and state tax authorities. The foreign jurisdiction generally remains subject to examination by the relevant taxing authority for the 2012 and 2013 tax years through 2014. At December 31, 2013, 2012 and 2011, the Company had no material uncertain tax positions.