Lumber Liquidators 2007 Annual Report Download - page 67

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The Variable Right fully vested and became exercisable in connection with the IPO, and all cash settlement
provisions via put-call rights terminated. In accordance with the terms of the Variable Plan, the Company
calculated that 853,853 shares of Common Stock had vested and were exercisable under the Variable Right (the
“Vested Shares”). Cumulative stock-based compensation expense related to the Variable Plan was determined
utilizing the Vested Shares and the $11 per share IPO price to adjust the Stock Compensation Liability to $9,392,
representing $260 of 2007 stock-based compensation expense. The Stock Compensation Liability was
reclassified to Additional Capital in accordance with the provisions of SFAS 123(R).
As described in Note 11, Kevin filed for arbitration on December 7, 2007 disputing the Company’s share
count calculation. The Company increased stock-based compensation expense related to the Variable Plan by
$2,960 to $3,220 for the year ended December 31, 2007, representing the Company’s best estimate of the
ultimate value of incremental shares (above the Vested Shares) that may be delivered to Kevin via settlement or
arbitration. As the ultimate value that may be delivered to Kevin is not certain, the Company may be required to
adjust stock-based compensation expense in 2008.
Stock Warrants
The Company had a stock warrant plan (the “Warrant Plan”), established in 2004, with a senior executive
who separated from the Company in May 2006. As a result of the separation during the second quarter of 2006,
the Company reversed the $259 of compensation expense that had been previously recognized.
NOTE 7. INCOME TAXES
The provision for income taxes consists of the following:
Year Ended December 31,
2007 2006 2005
Current
Federal .......................................................... $5,577 $7,433 $ 7,242
State ............................................................ 1,217 1,425 1,438
Total Current ......................................................... 6,794 8,858 8,680
Deferred
Federal .......................................................... 310 (627) (1,444)
State ............................................................ 67 (70) (288)
Total Deferred ........................................................ 377 (697) (1,732)
Total Provision for Income Taxes ........................................ $7,171 $8,161 $ 6,948
The reconciliation of significant differences between income tax expense (benefit) applying the federal
statutory rate of 35% and the actual income tax expense (benefit) at the effective rate are as follows:
Year Ended December 31,
2007 2006 2005
Income Tax Expense at Federal Statutory Rate ............................... $6,474 $7,299 $6,203
Increases (Decreases):
State Income Taxes, Net of Federal Income Tax Benefit ................... 838 855 745
Other ............................................................ (141) 7 —
Total ................................................................ $7,171 $8,161 $6,948
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