Income Taxes

Significant components of the provision for income taxes from continuing operations are as follows:



	For the Years Ended December 31,
	2011		2010			2009
	(in thousands)
Current:
Federal	$	1,866	$	258		$	1,100
State and local	74		68			118
Foreign	263		189			315
Total current expense	2,203		515			1,533
Deferred:
Federal	42,148		(48,934		)	—
State and local	2,032		(3,877		)	—
Total deferred expense (benefit)	44,180		(52,811		)	—
Total income tax expense (benefit)	$	46,383	$	(52,296	)	$	1,533

The reconciliation of income tax expense computed at the federal statutory tax rates to income tax expense from continuing operations is as follows:



	For the Years Ended December 31,
	2011			2010			2009
	(in thousands)
Expected provision at federal statutory tax rate	$	42,991		$	7,062		$	29,830
State and foreign tax expense, net of federal benefit	2,255			413			1,220
Interest and dividend on preferred stock	710			1,612			(5,015		)
Change in valuation allowance	—			(65,248		)	(22,814		)
Meals and entertainment	469			315			273
Fines and penalties	(36		)	9			135
Federal credits	(103		)	(156		)	—
Adjustment to deferred tax assets and liabilities	(3		)	3,486			(2,472		)
Other	100			211			376
Total income tax expense	$	46,383		$	(52,296	)	$	1,533

The Company accounts for income taxes using the asset and liability method. Deferred taxes are recorded based on differences between the financial statement basis and tax basis of assets and liabilities and available tax loss and credit carryforwards.

At December 31, 2011 and 2010, deferred taxes consisted of the following:



	December 31,
	2011			2010
	(in thousands)
Deferred tax assets:
Net operating loss	$	6,234		$	41,228
Deferred gain	1,440			4,163
Deferred revenue	5,985			6,628
Federal tax credits	3,176			1,310
Nondeductible accruals	5,452			6,682
Other	306			275
Gross deferred tax assets	22,593			60,286
Valuation allowance	—			—
Deferred tax assets, net	22,593			60,286
Deferred tax liabilities:
Capitalized interest	(2,041		)	(1,735		)
Fuel hedging	(115		)	(1,430		)
Accrued engine maintenance	(10,232		)	(1,296		)
Property, plant, and equipment	(1,575		)	(3,014		)
Gross deferred tax liabilities	(13,963		)	(7,475		)
Net deferred tax assets	$	8,630		$	52,811
Deferred taxes included within:
Assets:
Other current assets	$	20,738		$	51,492
Other long-term assets	—			1,319
Liabilities:
Other long-term liabilities	(12,108		)	—

In assessing the realizability of the deferred tax assets, management considered whether it is more likely than not that some or all of the deferred tax assets would be realized. In evaluating the Company's ability to utilize its deferred tax assets, it considered all available evidence, both positive and negative, in determining future taxable income on a jurisdiction by jurisdiction basis.

As of December 31, 2009, the Company provided a valuation allowance of $65.2 million because the Company was unable to demonstrate that its deferred tax assets would be fully utilized against future earnings. The net change in the total valuation allowance for the year ended December 31, 2009 was a decrease of $22.8 million.

As of December 31, 2010, based on the expectation of future taxable income, the availability of reversing deferred tax liabilities, combined with achieving sustained profitability, management determined that all of the Company's deferred tax assets would be realized in taxable years after 2010. Based on this determination the Company eliminated its valuation allowance, which resulted in a reduction to the valuation allowance of $65.2 million, the recognition of a deferred tax benefit of $52.8 million, and a total income tax benefit of $52.3 million for the period ending December 31, 2010.

At December 31, 2011, the Company had available for federal income tax purposes an alternative minimum tax credit carryforward of approximately $3.2 million, which is available for an indefinite period and net operating loss carryforwards for federal income tax purposes of $16.3 million, which will begin to expire in 2027. In addition, the Company had state net operating loss carryforwards of approximately $9.1 million which could be used to offset future state taxable income. State net operating losses begin to expire in 2013.

The Company's NOL carryforwards as of December 31, 2011, include approximately $3.7 million that are attributed to the exercise of nonqualified stock options and the vesting of restricted stock since ASC 718 was adopted. In accordance with ASC 718, excess tax benefits are recognized in the financial statements upon actual realization of the related tax benefit. At December 31, 2011, the Company's excess tax benefit of approximately $3.7 million was not recognized and will not be recognized until such deductions are utilized to reduce taxes payable. On February 20, 2004, the Company experienced an ownership change, as defined under Section 382 of the Internal Revenue Code, which creates an annual limitation on the Company's ability to utilize net operating losses generated prior to the ownership change. Subsequent ownership changes could create additional annual limitations on the amount of the carryforwards that can be utilized. The Company had approximately $10 million of net operating losses generated prior to the ownership change. As of December 31, 2010, the Company determined that it was appropriate to write off $3.5 million of deferred tax assets that were fully valued as of December 31, 2010 and the corresponding valuation allowance pertaining to the Section 382 limited net operating loss, since such amount will not be permissible under current law to offset future income.

In 2009, the Company adopted FASB issued Interpretation ASC 740-10, which clarifies the accounting for uncertainty in income taxes recognized in an entity's financial statements in accordance with ASC 740, and prescribes a recognition threshold and measurement attributes for financial statement disclosure of income tax positions taken or expected to be taken on a tax return. Effective January 1, 2009, the Company has adopted the provisions of this Interpretation and there was no material effect on the financial statements. The Company accrues interest related to unrecognized tax benefits in its provision for income taxes and any associated penalties are recorded in selling, general and administrative expenses.

As of December 31, 2011, there were no ongoing audits of the Company's income tax returns by any taxing authority. In general, tax years 2004 and forward are subject to an examination in the U.S. due to net operating loss carryovers generated in such years.