Redbox 2006 Annual Report Download - page 67

COINSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
YEARS ENDED DECEMBER 31, 2006, 2005, AND 2004
The income tax expense differs from the amount that would result by applying the U.S. statutory rate to
income before income taxes. A reconciliation of the difference follows:
December 31,
2006 2005 2004
U.S. federal tax expense (benefit) at the statutory rate ........................... 35.0% 35.0% 35.0%
State income taxes, net of federal benefit ..................................... 4.8% 3.7% 3.4%
Incentive stock options ................................................... 2.1% — —
Impact of adopting the indefinite reversal criteria for unremitted foreign earnings ..... (4.8)% — —
Correction to the deferred tax asset for state net operating loss carryforwards ........ 3.7% — —
Impact of R&D credit study ............................................... (3.4)%
Change in valuation allowance for deferred tax asset ............................ 1.2% — (1.9)%
Recognition of deferred tax assets at an increased rate ........................... — — (3.4)%
Other ................................................................. 0.7% 0.3% 0.2%
39.3% 39.0% 33.3%
Deferred income tax assets and liabilities reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and the carrying amounts used for
income tax purposes. Future tax benefits for net operating loss and tax credit carryforwards are also recognized to
the extent that realization of such benefits is more likely than not.
In determining our fiscal 2006, 2005 and 2004 tax provisions under FASB Statement No. 109, Accounting
for Income Taxes (“SFAS 109”), management determined the deferred tax assets and liabilities for each separate
tax entity. Management then considered a number of factors including the positive and negative evidence
regarding the realization of our deferred tax assets to determine whether a valuation allowance should be
recognized with respect to our deferred tax assets. Our consolidated tax valuation allowance was $881,000 at
December 31, 2006. We established a valuation allowance against certain foreign NOLs and a portion of the
research and development credit carryforwards as the negative evidence outweighs the positive evidence that
those deferred tax assets will more likely than not be realized. The net change in the valuation allowance during
the years ended December 31, 2006 and 2004 was $0.9 million and $(0.6) million, respectively. During the year
ended December 31, 2005, there was a zero net change in the valuation allowance.
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