Comcast 2006 Annual Report Download - page 63

61 Comcast 2006 Annual Report Notes to Consolidated Financial Statements
Prior to January 1, 2006, we accounted for our share-based com-
pensation plans in accordance with the provisions of APB No. 25,
as permitted by SFAS No. 123, and accordingly did not recog-
nize compensation expense for stock options with an exercise
price equal to or greater than the market price of the underlying
stock at the date of grant. Had the fair-value-based method as
prescribed by SFAS No. 123 been applied, additional pretax com-
pensation expense of $166 million and $283 million would have
been recognized for the years ended December 31, 2005 and
2004, respectively. The pretax compensation expense includes the
expense related to discontinued operations, which for each of the
years ended December 31, 2005 and 2004, was $4 million. Had
the fair-value-based method as prescribed by SFAS No. 123 been
applied, the effect on net income and earnings per share would
have been as follows (adjusted to reflect the Stock Split):
(in millions, except per share data) 2005 2004
Net income, as reported $ 928 $ 970
Add: Share-based compensation
expense included in net income,
as reported above, net of related
tax effects 42 27
Less: Share-based compensation
expense determined under fair
value-based method for all awards,
net of related tax effects (150) (206)
Pro forma, net income $ 820 $ 791
Basic earnings for common
stockholders per common share:
As reported $ 0.28 $ 0.29
Pro forma $ 0.25 $ 0.24
Diluted earnings for common
stockholders per common share:
As reported $ 0.28 $ 0.29
Pro forma $ 0.25 $ 0.23
On December 23, 2004, the Compensation Committee of our
Board of Directors approved the acceleration of vesting of all
unvested options granted prior to January 1, 2003, to purchase
shares of our Class A Special common stock having an exercise
price of $22.67 (adjusted to reflect the Stock Split) or greater and
held by current employees. Options with respect to approximately
23.3 million shares (adjusted to reflect the Stock Split) of our Class
A Special common stock were subject to this acceleration. This
acceleration was effective as of December 31, 2004, except for
those holders of incentive stock options (“ISOs”), who were given
the opportunity to decline the acceleration of an option if such
acceleration would have the effect of changing the status of the
option for federal income tax purposes from an ISO to a nonquali-
fied stock option. Because these options had exercise prices in
excess of current market values (were “underwater”) and were
not fully achieving their original objectives of incentive compen-
sation and employee retention, the acceleration may have had a
positive effect on employee morale, retention and perception of
option value. The acceleration also took into account the fact that
in December 2004, we completed the repurchase of stock options
held by certain nonemployees for cash (including underwater
options) under a stock option liquidity program (see above), and
that no such offer (nor any other “solution” for underwater options)
was made to current employees. The acceleration had no effect
on reported net income, an immaterial impact on pro forma net
income in 2005 and an approximate $39 million, net of tax, impact
on pro forma net income in 2004. The impacts of the acceleration
are reflected in the pro forma amounts above. This acceleration
eliminated the future compensation expense we would have oth-
erwise recognized in our statement of operations with respect to
these options subsequent to the adoption of SFAS No. 123R.
Note 11: Income Taxes
We join with our 80% or more owned subsidiaries in filing consoli-
dated federal income tax returns. E! Entertainment filed separate
consolidated federal income tax returns for periods prior to our
obtaining 100% ownership, which occurred in November 2006
(see Note 5). Income tax (expense) benefit consists of the following
components:
Year Ended December 31 (in millions) 2006 2005 2004
Current (expense) benefit
Federal $ (887) $ (590) $ (120)
State (77) (123) (208)
(964) (713) (328)
Deferred (expense) benefit
Federal (301) (66) (536)
State (82) (94) 63
(383) (160) (473)
Income tax (expense) benefit $ (1,347) $ (873) $ (801)