INCOME TAXES

Deferred Income Taxes

Deferred income taxes reflect the impact of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and such amounts for tax purposes.

Deferred tax (assets) and liabilities comprise the following at December 31 (in millions):



	2011			2010
Excess of tax over book depreciation	$	795.2		$	660.0
Fuel hedge contracts	—			8.7
Other—net	16.9			16.9
Gross deferred tax liabilities	812.1			685.6

Mileage Plan	(241.9		)	(237.2		)
AMT and other tax credits	(53.1		)	(57.5		)
Inventory obsolescence	(13.4		)	(16.5		)
Deferred gains	(14.1		)	(15.9		)
Employee benefits	(217.6		)	(179.1		)
Loss carryforwards^(a)	(13.0		)	(4.1		)
Fuel hedge contracts	(2.8		)	—
Other—net	(27.5		)	(15.9		)
Gross deferred tax assets	(583.4		)	(526.2		)
Net deferred tax liabilities	$	228.7		$	159.4

Current deferred tax asset	$	(134.2	)	$	(120.5	)
Noncurrent deferred tax liability	362.9			279.9
Net deferred tax liability	$	228.7		$	159.4


^(a)	The Federal loss carryforward of $27.7 million ($9.7 million tax effected) expires in 2031; State loss carryforwards of $59.0 million ($3.3 million tax effected) expire beginning in 2014 and ending in 2031.

As a result of certain realization requirements of ASC 718, Compensation - Stock Compensation, the table of deferred assets and liabilities shown above does not include certain deferred tax assets at December 31, 2011, that arose directly from the tax deductions related to equity compensation in excess of compensation recognized for financial reporting. Those deferred tax assets include $10.3 million of loss carryforwards, in which additional-paid-in-capital will be increased if and when such deferred tax assets are ultimately realized. The Company uses ASC 740 ordering for purposes of determining when excess tax benefits have been realized.

The Company has concluded that it is more likely than not that its deferred tax assets will be realizable and thus no valuation allowance has been recorded as of December 31, 2011. This conclusion is based on the expected future reversals of existing taxable temporary differences, anticipated future taxable income, and the potential for future tax planning strategies to generate taxable income, if needed. The Company will continue to reassess the need for a valuation allowance during each future reporting period.

Components of Income Tax Expense

The components of income tax expense were as follows (in millions):



	2011		2010		2009
Current tax expense (benefit):
Federal	$	—	$	7.4	$	(3.4	)
State	3.5		2.7		(1.3		)
Total current	3.5		10.1		(4.7		)

Deferred tax expense:
Federal	134.9		131.5		76.7
State	10.8		13.2		9.3
Total deferred	145.7		144.7		86.0
Total tax expense related to income	$	149.2	$	154.8	$	81.3

Income Tax Rate Reconciliation

Income tax expense reconciles to the amount computed by applying the U.S. federal rate of 35% to income before income tax and accounting change as follows (in millions):



	2011			2010			2009
Income before income tax	$	393.7		$	405.9		$	202.9

Expected tax expense	137.8			142.1			71.0
Nondeductible expenses	1.4			1.8			3.1
State income taxes	10.2			10.7			5.5
Other—net	(0.2		)	0.2			1.7
Actual tax expense	$	149.2		$	154.8		$	81.3

Effective tax rate	37.9		%	38.1		%	40.1		%

Uncertain Tax Positions

The Company has identified its federal tax return and its state tax returns in Alaska, Oregon, and California as “major” tax jurisdictions. A summary of the Company's jurisdictions and the periods that are subject to examination are as follows:



Jurisdiction	Period
Federal	2009 to 2010
Alaska	2008 to 2010
California	2007 to 2010
Oregon	2002 to 2010

The 2002 to 2007 Oregon tax returns are subject to examination only to the extent of net operating loss carryforwards from those years that were utilized in 2010 and later years.

Changes in the liability for unrecognized tax benefits during 2009, 2010 and 2011 are as follows (in millions):



	2011			2010		2009
Balance at January 1,	$	1.5		$	1.3	$	23.7

Additions based on tax positions and settlements related to the prior year	—			—		—
Additions based on tax positions and settlements related to the current year	0.2			0.2		0.1
Reductions for tax positions of prior years	—			—		(22.5		)
Lapse of statute of limitations	(1.1		)	—		—
Balance at December 31,	$	0.6		$	1.5	$	1.3

At December 31, 2011, the total amount of unrecognized tax benefits is recorded as a liability, all of which would impact the effective tax rate. No interest or penalties related to these tax positions were accrued as of December 31, 2011.