Interactive 2009 Annual Report (PDF 7.56 MB) - Denbury Resources ...

Denbury Resources Inc. 2009 Annual Report 79The following is a reconciliation of the weighted average shares used in the basic and diluted net income percommon share computations:Year Ended December 31,In thousands 2009 2008 2007Weighted average common shares – basic 246,917 243,935 240,065Potentially dilutive securities:Stock options and SARs — 7,102 10,485Restricted stock — 1,493 1,551Weighted average common shares – diluted 246,917 252,530 252,101The weighted average common shares – basic amount in 2009, 2008 and 2007 excludes 2.5 million, 2.2 million and2.7 million shares of non-vested restricted stock, respectively, that is subject to future vesting over time. As theserestricted shares vest, they will be included in the shares outstanding used to calculate basic net income per commonshare (although all restricted stock is issued and outstanding upon grant). For purposes of calculating weighted averagecommon shares – diluted, the non-vested restricted stock is included in the computation using the treasury stockmethod, with the proceeds equal to the average unrecognized compensation during the period, adjusted for anyestimated future tax consequences recognized directly in equity.The following securities could potentially dilute earnings per share in the future, but were not included in thecomputation of diluted net earnings per share as their effect would have been anti-dilutive:Year Ended December 31,In thousands 2009 2008 2007Stock options and SARs 10,764 1,098 130Performance equity awards 523 — —Restricted stock 2,507 — —Total 13,794 1,098 130Income TaxesIncome taxes are accounted for using the liability method under which deferred income taxes are recognized for thefuture tax effects of temporary differences between the financial statement carrying amounts and the tax basis of existingassets and liabilities using the enacted statutory tax rates in effect at year-end. The effect on deferred taxes for a changein tax rates is recognized in income in the period that includes the enactment date. A valuation allowance for deferred taxassets is recorded when it is more likely than not that the benefit from the deferred tax asset will not be realized.Effective January 1, 2007, we adopted new accounting guidelines codified in the “Income Taxes” topic of the FASCthat address how tax benefits claimed or expected to be claimed on a tax return should be recorded in the financialstatements. Under the revised guidance, the Company may recognize the tax benefit from an uncertain tax positiononly if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based onthe technical merits of the position. The tax benefits recognized in the financial statements from such a position shouldbe measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimatesettlement. See Note 7, “Income Taxes,” for further information regarding our income taxes.Use of EstimatesThe preparation of financial statements in conformity with GAAP requires management to make estimates andassumptions that affect the reported amount of certain assets and liabilities and disclosure of contingent assets andliabilities at the date of the financial statements and the reported amounts of revenues and expenses during eachreporting period. Management believes its estimates and assumptions are reasonable; however, such estimates andassumptions are subject to a number of risks and uncertainties that may cause actual results to differ materially fromsuch estimates. Significant estimates underlying these financial statements include (i) the fair value of financial derivativeinstruments, (ii) the estimated quantities of proved oil and natural gas reserves used to compute depletion of oiland natural gas properties, the related present value of estimated future net cash flows therefrom and ceiling test,Notes to Consolidated Financial StatementsForm 10-K Part II