Redbox 2007 Annual Report Download - page 53

The following table illustrates the effect on net income and net income per share had we applied the fair value
recognition provision of SFAS 123 to the stock option awards. Disclosures for the years ended December 31, 2007
and 2006 are not presented because the amounts are recognized in the Consolidated Financial Statements.
Year Ended
December 31, 2005
(In thousands, except
per share data)
Net income (as reported): ......................................... $22,272
Add:
Total stock-based employee compensation included in the determination of
net income as reported, net of tax effect of $133..................... 207
Deduct:
Total stock-based employee compensation determined under fair value based
method for all awards, net of tax effect of $2,259 .................... (4,588)
Pro forma net income: ............................................ $17,891
Net income per share:
Basic:
As reported:................................................ $ 0.86
Pro forma: ................................................. $ 0.69
Diluted:
As reported:................................................ $ 0.86
Pro forma: ................................................. $ 0.69
Prior to the adoption of SFAS 123R we presented all tax benefits resulting from the exercise of stock options as
operating cash inflows in the consolidated statements of cash flows, in accordance with the provisions of the
Emerging Issues Task Force (“EITF”) Issue No. 00-15, Classification in the Statement of Cash Flows of the Income
Tax Benefit Received by a Company upon Exercise of a Nonqualified Employee Stock Option. SFAS 123R requires
the benefits of tax deductions in excess of the compensation cost recognized for those options to be classified as
financing cash inflows when they are realized rather than operating cash inflows, on a prospective basis. Excess tax
benefits generated during the year ended December 31, 2007 and 2006, were approximately $3.8 million and
$1.0 million, respectively.
Income taxes: Deferred income taxes are provided for the temporary differences between the financial
reporting basis and the tax basis of our assets and liabilities and operating loss and tax credit carryforwards. A
valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be
realized. Deferred tax assets and liabilities and operating loss and tax credit carryforwards are measured using
enacted tax rates expected to apply to taxable income in the years in which those temporary differences and
operating loss and tax credit carryforwards are expected to be recovered or settled.
Effective January 1, 2007, we adopted the provisions of FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes (“FIN 48”). FIN 48 is an interpretation of FASB Statement No. 109, Accounting
for Income Taxes (“SFAS 109”) which provides comprehensive guidance on the recognition and measurement of
tax positions in previously filed tax returns or positions expected to be taken in future tax returns. The tax benefit
from an uncertain tax position must meet a “more-likely-than-not” recognition threshold and is measured at the
largest amount of benefit greater than 50% determined by cumulative probability of being realized upon ultimate
settlement with the taxing authority. The interpretation provides guidance on derecognition, classification, interest
and penalties, as well as disclosure requirements in the financial statements of uncertain tax positions.
As of the adoption date and as of December 31, 2007 we identified $1.2 million of unrecognized tax benefits
which would affect our effective tax rate if recognized.
In accordance with our accounting policy, we recognize interest and penalties associated with uncertain tax
positions in income tax expense. As of the adoption date and December 31, 2007, it was not necessary to accrue
interest and penalties associated with the uncertain tax positions identified.
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