Lumber Liquidators 2009 Annual Report Download - page 61

Lumber Liquidators Holdings, Inc.
Notes to Consolidated Financial Statements—(Continued)
(amounts in thousands, except share data and per share amounts)
The reconciliation of significant differences between income tax expense applying the federal statutory rate of 35% and
the actual income tax expense at the effective rate are as follows:
Year Ended December 31,
2009 2008 2007
Income Tax Expense at Federal Statutory Rate .................... $15,437 35.0% $13,227 35.0% $6,474 35.0%
Increases (Decreases):
State Income Taxes, Net of Federal Income Tax Benefit ........ 2,150 4.9% 1,939 5.1% 838 4.5%
Reduction of Deferred Tax Benefit Associated with the Variable
Plan ................................................ — 0.0% 678 1.7% — 0.0%
Excess Tax Benefit on Stock Option Exercises ................ — 0.0% (40) 0.0% — 0.0%
Other ................................................. (406) (0.9)% (161) (0.4)% (141) (0.7)%
Total ..................................................... $17,181 39.0% $15,643 41.4% $7,171 38.8%
Pursuant to the Variable Plan, the Variable Right fully vested in conjunction with the IPO and was exercised on
February 1, 2008. At that time, the Company had no excess tax deductions from previous stock-based awards, and therefore
recognized additional income tax expense related to the non-deductible portion of the Variable Plan’s cumulative
compensation costs. This additional income tax expense was the result of a decrease in the fair value of the Vested Shares
from the vest date to the exercise date. Subsequent stock option exercises during 2008 resulted in an excess tax benefit that
reduced income tax expense.
The tax effects of temporary differences that result in significant portions of the deferred tax accounts are as follows:
December 31,
2009 2008
Deferred Tax Liabilities:
Prepaid Expenses ......................................................... $ 209 $ 337
Depreciation and Amortization .............................................. 2,146 885
Total Deferred Tax Liabilities ................................................... 2,355 1,222
Deferred Tax Assets:
Stock-Based Compensation Expense .......................................... 3,274 2,552
Reserves ................................................................ 1,864 1,712
Employee Benefits ........................................................ 1,176 865
Inventory Capitalization .................................................... 1,402 393
Other ................................................................... 49 —
Total Deferred Tax Assets ...................................................... 7,765 5,522
Net Deferred Tax Asset ........................................................ $5,410 $4,300
The Company made income tax payments of $15,273, $15,112 and $7,383 in 2009, 2008 and 2007, respectively.
The Company files income tax returns with the U.S. federal government and various state jurisdictions. In the normal course
of business, the Company is subject to examination by federal and state taxing authorities. The Internal Revenue Service has
completed audits of the Company’s federal income tax returns for the years through 2007.
NOTE 8. PROFIT SHARING PLAN
The Company maintains a profit-sharing plan, qualified under Section 401(k) of the Internal Revenue Code, for all
eligible employees. Through 2009, employees were eligible to participate following the completion of one year of service
and attainment of age 21. As of January 1, 2010, employees are eligible to participate following the completion of three
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