|
3. Provision for Income Taxes
Income from continuing operations before taxes is as
follows (in thousands):
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
From Continuing Operations Before Income Taxes
|
|
$ |
244,556 |
|
|
$ |
248,308 |
|
|
$ |
156,129 |
|
The following is an analysis of the consolidated income
tax provision (in thousands):
|
|
|
Year
Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$ |
6,902 |
|
|
$ |
2,860 |
|
|
$ |
644 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
85,066 |
|
|
|
94,374 |
|
|
|
57,605 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
91,968 |
|
|
$ |
97,234 |
|
|
$ |
58,249 |
|
Current taxes are primarily U.S. Federal income
taxes. The Company has no continuing operations in foreign
jurisdictions.
Reconciliations of income taxes computed using the U.S. Federal statutory
rate to the effective income tax rates are as follows (in thousands):
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes computed at U.S. statutory rate (35%)
|
|
$ |
85,595 |
|
|
$ |
86,908 |
|
|
$ |
54,645 |
|
|
State
tax provisions, net of federal benefits
|
|
|
3,396 |
|
|
|
3,921 |
|
|
|
2,145 |
|
|
Cumulative
impact of adjustments to net state income tax rate
|
|
|
--- |
|
|
|
1,547 |
|
|
|
1,008 |
|
|
Write-offs
and valuation allowance of carryover tax assets
|
|
|
2,585 |
|
|
|
3,200 |
|
|
|
--- |
|
|
Other,
net
|
|
|
392 |
|
|
|
1,658 |
|
|
|
451 |
|
|
Provision
for income taxes
|
|
$ |
91,968 |
|
|
$ |
97,234 |
|
|
$ |
58,249 |
|
|
Effective
rate
|
|
|
37.6 |
% |
|
|
39.2 |
% |
|
|
37.3 |
% |
The primary upward adjustment in the effective
tax rate above the U.S. statutory rate is the provision for state
income taxes (computed net of the offsetting federal benefit), which
were $3.4 million, $3.9 million and $2.1 million for 2007, 2006, and
2005, respectively. In 2007, the company recorded write-offs and
valuation allowances totaling $2.6 million as discussed further
below. In 2006 the Company recorded a valuation allowance of $3.2
million due to changes in the Company’s tax planning strategies.
Additionally, the Company recorded adjustments to the cumulative
state deferred tax liability in the amounts of $1.5 million and $1.0
million for 2006 and 2005, respectively.
The tax effects of temporary differences
representing the net deferred tax liability (asset) at December 31,
2007 and 2006 were as follows (in thousands):
|
|
|
2007
|
|
|
2006
|
|
|
Current
deferred tax assets:
|
|
|
|
|
|
|
|
Alternative
minimum tax credits
|
|
$ |
5,094 |
|
|
$ |
--- |
|
|
Unrealized
stock compensation
|
|
|
2,403 |
|
|
|
--- |
|
|
Other
|
|
|
558 |
|
|
|
2,383 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
current deferred tax assets
|
|
$ |
8,055 |
|
|
$ |
2,383 |
|
|
|
|
|
|
|
|
|
|
|
|
Non-Current
deferred tax assets:
|
|
|
|
|
|
|
|
|
|
Carryover
items, net of valuation allowance
|
|
$ |
4,334 |
|
|
$ |
2,648 |
|
|
Unrealized
stock compensation
|
|
|
1,294 |
|
|
|
2,680 |
|
|
Other
|
|
|
749 |
|
|
|
2,527 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
non-current deferred tax assets
|
|
$ |
6,377 |
|
|
$ |
7,855 |
|
|
|
|
|
|
|
|
|
|
|
|
Non-Current
deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
Oil
and gas exploration and development costs
|
|
$ |
307,083 |
|
|
$ |
218,924 |
|
|
Other
|
|
|
1,597 |
|
|
|
1,389 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
deferred tax liabilities
|
|
$ |
308,680 |
|
|
$ |
220,313 |
|
|
|
|
|
|
|
|
|
|
|
|
Net
Non-Current deferred tax liabilities
|
|
$ |
302,303 |
|
|
$ |
212,458 |
|
The total change in the net non-current deferred
liability from 2006 to 2007 was $89.8 million. This increase is
primarily attributable to an $88.2 million increase in the deferred
liability for accelerated tax deductions for oil and natural gas
exploration and development costs.
Current deferred tax assets increased by $5.7 million,
primarily due to alternative minimum tax credits of $5.1 million that are
expected to be utilized during 2008. Changes in market prices for oil and
natural gas along with other economic and operational factors could result
in the current deferred tax assets not being fully utilized to reduce 2008
income taxes.
The primary non-current deferred tax assets are $4.3
million for State of Louisiana net operating loss carryovers. These loss
carryforwards are scheduled to expire between 2013 and 2020.
Unrealized stock compensation accounts for $2.4 million
in current deferred tax assets and $1.3 million in non-current deferred tax
assets. These amounts are attributable to stock compensation expenses
accrued for employee stock options and restricted stock that are not
realized for income tax purposes until exercised (for stock options) or
vested (for restricted stock). The actual tax deductions realized may be
significantly different than the accrued amounts depending on the market
value of the stock on the date of exercise or vesting.
There is also a deferred tax asset of $1.1 million for a
capital loss carryforward which is fully offset by a valuation allowance.
This carryover is scheduled to expire in 2010. At the end of 2006 the
Company had total capital loss carryforward assets of $6.1 million which
included $5.0 million that expired at the end of 2007. At the end of 2006,
the tax asset net of valuation allowances was $2.4 million. During 2007, the
Company elected not to pursue previously planned property dispositions that
would have utilized these loss carryforwards. Accordingly, tax expense was
increased in 2007 to adjust for the carryovers that expired and to reserve a
full valuation allowance against the unexpired portion.
On January 1, 2007, we adopted the recognition and
disclosure provisions of FASB Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109"
("FIN 48"). Under FIN 48, tax positions are evaluated for recognition using
a more-likely-than-not threshold, and those tax positions requiring
recognition are measured as the largest amount of tax benefit that is
greater than fifty percent likely of being realized upon ultimate settlement
with a taxing authority that has full knowledge of all relevant information.
As a result of adopting FIN 48, we reported a $1.0 million decrease to our
January 1, 2007 retained earnings balance and a corresponding increase to
our other long-term liabilities.
The $1.0 million decrease is also the total balance of
our unrecognized tax benefits, which would impact our effective tax rate if
recognized. We do not anticipate any significant increases or decreases in
unrecognized tax benefits during 2008. Our policy is to record interest and
penalties relating to income taxes in income tax expense. As of December 31,
2007, no interest or penalties relating to income taxes have been incurred
or recognized. Our cumulative interest exposure on unrecognized tax benefits
is not material.
There were no changes to unrecognized tax benefits
recorded during 2007.
Our U.S. Federal and State of Louisiana income tax
returns from 1998 forward, our New Zealand income tax returns after 2001,
and our Texas franchise tax returns after 2005 remain subject to examination
by the taxing authorities. There are no unresolved items related to periods
previously audited by these taxing authorities. No other state returns are
significant to our financial position.
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