Annual report pursuant to Section 13 and 15(d)

Income Taxes

v2.4.0.6
Income Taxes
 12 Months Ended
Dec. 31, 2011
Income Tax Disclosure [Abstract]  
Income Taxes
Income Taxes
 
The following table presents Callon’s net tax benefits relating to its reported net losses and other temporary differences from operations:
 
For the year ended December 31
 
2011
 
2010
Deferred tax asset:
 
 
Restated
   Federal net operating loss carryforward
$
86,551

 
$
79,680

   Statutory depletion carryforward
7,032

 
6,140

   Alternative minimum tax credit carryforward
208

 
208

   Asset retirement obligations
3,552

 
4,018

   Other
6,935

 
11,796

      Deferred tax asset before valuation allowance
104,278

 
101,842

   Less: Valuation allowance
—

 
(80,211
)
Total deferred tax asset
104,278

 
21,631

Deferred tax liability:
 
 
 
   Oil and gas properties
40,782

 
21,631

   Other
—

 
—

Total deferred tax liability
40,782

 
21,631

Net deferred tax asset
$
63,496

 
$
—


As of December 31, 2010, the Company continued to carry a full valuation allowance against its net deferred tax assets. The Company considered both the positive and negative evidence in determining whether it is more likely than not that its deferred tax assets are recoverable. The Company incurred a loss in 2008, primarily as a result of a writedown of its oil and gas properties following the ceiling test, which created a loss on an aggregate basis for the three-year period ended December 31, 2008. Primarily as a result of recent cumulative losses, the Company established a full valuation allowance as of December 31, 2008, and has continued to carry the full valuation allowance each reporting period since December 31, 2008.

The Company reported profitable operations from 2009 to 2011, and has income on an aggregate basis for the three-year period ended December 31, 2011. After considering all available positive and negative evidence, the Company expects that it is more likely than not that it will fully utilize its deferred tax assets recorded at December 31, 2011. Among other factors, the Company believes its recent cumulative income, together with its future operating results using current proved reserves, provide sufficient positive evidence to reach this conclusion. Consequently, the Company reversed the related valuation allowance at December 31, 2011.

If not utilized, the Company’s federal operating loss ("NOL") carryforwards will expire as follows:
 
 
 
 
Expiring
 
 
Total
 
2012
 
2013
 
2014
 
2015
 
2016
 
2017 - 2031
Federal NOL carryforwards
 
247,929

 
—

 
—

 
—

 
—

 
—

 
247,929


The Company has limited state taxable income, and is not subject to state income taxes. Accordingly, the Company has established a full valuation allowance on the tax benefit of approximately $7,880 associated with the state net operating loss carryforwards of approximately $172,643 which expire in years through 2031, as the Company does not anticipate generating taxable state income in the states in which these carryforwards apply. These amounts are not included in the deferred tax summary table above.

The Company had no significant unrecognized tax benefits at December 31, 2011.  Accordingly, the Company does not have any interest or penalties related to uncertain tax positions.  However, if interest or penalties were to be incurred related to uncertain tax positions, such amounts would be recognized in income tax expense.  Tax periods for years 2000 through 2011 remain open to examination by the federal and state taxing jurisdictions to which the Company is subject.

In addition, the NOL carryback provision of the Internal Revenue Code was amended on November 6, 2009, as part of The Worker, Homeownership and Business Assistance Act of 2009 (the “WHB Act”). The WHB Act allows businesses with NOLs for 2008 and 2009 to carry back losses for up to five years and suspends the 90% limitation on the use of any alternative minimum tax NOL deduction attributable to carrybacks of the applicable NOL. There would be no limit on the NOL carrybacks for the first four preceding years of the carryback period, but for the fifth preceding year, the NOL carryback would be limited to fifty percent of a company’s taxable income in that year.  In applying the new five-year NOL carryback rule, the Company was able to file during 2010 for a refund claim to recover approximately $174.

Below is a reconciliation of the reported amount of income tax expense attributable to continuing operations for the year to the amount of income tax expense that would result from applying domestic federal statutory tax rates to pretax income from continuing operations.
 
 
For the years ended December 31,
Component of Income Tax Rate Reconciliation
 
2011
 
2010
 
2009
 
 
 
 
 
 
Restated
Income tax expense computed at the statutory federal income tax rate
 
35
 %
 
35
 %
 
35
 %
Change in valuation allowance
 
(216
)%
 
(18
)%
 
(20
)%
Percentage depletion carryforward
 
(3
)%
 
(15
)%
 
0 %

Other
 
3
 %
 
—
 %
 
(1
)%
Effective income tax rate
 
(181
)%
 
2
 %
 
14
 %
 
 
 
 
 
 
 
 
 
For the years ended December 31,
Components of Income Tax Expense
 
2011
 
2010
 
2009
 
 
 
 
 
 
Restated
Current income tax benefit
 
$
—

 
$
(174
)
 
$
—

Deferred income tax expense
 
13,175

 
1,503

 
18,816

Valuation allowance
 
(80,211
)
 
(1,503
)
 
(11,193
)
Total income tax (benefit) expense
 
$
(67,036
)
 
$
(174
)
 
$
7,623


* See Note 1 for additional information related to the restated 2009 amounts.