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

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92 Denbury Resources Inc. 2009 Annual ReportDeferred income taxes relate to temporary differences based on tax laws and statutory rates in effect at theDecember 31, 2009 and 2008 balance sheet dates. We believe that we will be able to realize all of our deferred taxassets at December 31, 2009, and therefore have provided no valuation allowance against our deferred tax assets.At December 31, 2009 and 2008, our deferred tax assets and liabilities were as follows:December 31,In thousands 2009 2008Deferred tax assets:Loss carryforwards – state $ 4,394 $ 152Tax credit carryover 32,156 32,156Derivative contracts 47,056 —Enhanced oil recovery credit carryforwards 38,929 43,772Stock based compensation 23,840 16,216Other 6,150 —Total deferred tax assets 152,525 92,296Deferred tax liabilities:Property and equipment (619,621) (520,455)Derivative contracts — (91,080)Other (2,099) (2,995)Total deferred tax liabilities (621,720) (614,530)Total net deferred tax liability $ (469,195) $ (522,234)Our income tax provision varies from the amount that would result from applying the federal statutory income tax rateto income before income taxes as follows:Year Ended December 31,In thousands 2009 2008 2007Income tax provision (benefit) calculated using the federal statutory income tax rate $ (42,765) $ 218,479 $ 137,695State income taxes (3,666) 18,865 11,536Estimated statutory rate change — — (7,351)Other (602) (1,512) (1,613)Total income tax expense (benefit) $ (47,033) $ 235,832 $ 140,267Uncertain Tax PositionsWe adopted the new accounting guidance within the “Income Taxes” topic of the FASC as of January 1, 2007. As aresult of the implementation, we determined that approximately $4.0 million of tax benefits previously recognized wereconsidered uncertain tax positions, as the timing of these deductions may not be sustained upon examination bytaxing authorities. As such, upon adoption, we recorded income taxes payable of $4.3 million (including $0.3 million inestimated interest) which was offset by a corresponding reduction of the deferred tax liability of $4.1 million for the taxposition that we believe will ultimately be sustained. At December 31, 2009, the total amount of unrecognized taxbenefits was $1.0 million, exclusive of interest.There was no cumulative adjustment made to the opening balance of retained earnings at January 1, 2007. Ouruncertain tax positions relate primarily to timing differences, and we do not believe any of such uncertain tax positionswill materially impact our effective tax rate in future periods. The amount of unrecognized tax benefits is expected tochange over the next 12 months, however, such change is not expected to have a material impact on our results ofoperations or financial position.We file consolidated and separate income tax returns in the U.S. federal jurisdiction and in many state jurisdictions.We are currently under examination by the IRS for the 2006, 2007 and 2008 tax years. The IRS concluded itsexamination of our 2004 tax year during the third quarter of 2007 and concluded its examination of our 2005 tax yearduring the second quarter of 2008. The state of Mississippi concluded its audit of tax years 1998 through 2000 duringthe third quarter of 2007 and is currently examining years 2001 through 2004. None of the concluded examinationsby the Internal Revenue Service or the state of Mississippi resulted in any material assessments. As a result of theForm 10-K Part IINotes to Consolidated Financial Statements
Denbury Resources Inc. 2009 Annual Report 93examinations concluded during 2007 and 2008, we decreased our total amount of unrecognized tax benefits from$4.5 million at January 1, 2007, to $3.5 million at December 31, 2007, and to $1.0 million at December 31, 2008. Theseadjustments are all related to temporary timing differences and did not have any impact on our effective tax rate. Wehave not paid any significant interest or penalties associated with our income taxes, but classify both interest expenseand penalties as part of our income tax expense.Note 8. Stockholders’ EquityAuthorizedWe are authorized to issue 600 million shares of common stock, par value $.001 per share, and 25 million sharesof preferred stock, par value $.001 per share. The preferred shares may be issued in one or more series with rights andconditions determined by the Board of Directors.Stock SplitOn November 19, 2007, stockholders of Denbury Resources Inc. approved an amendment to our RestatedCertificate of Incorporation to increase the number of shares of our authorized common stock from 250,000,000 sharesto 600,000,000 shares and to split our common stock on a 2-for-1 basis. Stockholders of record on December 5, 2007,received one additional share of Denbury common stock for each share of common stock held at that time.Information pertaining to shares and earnings per share has been retroactively adjusted in the accompanyingfinancial statements and related notes thereto to reflect the stock splits, except for the share amounts included on ourConsolidated Balance Sheets and Consolidated Statements of Changes in Stockholders’ Equity, which reflect theactual shares outstanding at each period end.Stock IssuanceIn December 2009, the Company issued 11,620,000 shares of common stock to Wapiti in conjunction with ourpurchase of oil and gas assets in the Conroe Field (see Note 2, “Acquisitions and Divestitures”).Stock RepurchasesIn 2007, 2008 and 2009, all of our share repurchases were from employees of Denbury that delivered shares to theCompany to satisfy their minimum tax withholding requirements as provided for under Denbury’s stock compensationplans and were not part of a formal stock repurchase plan.Employee Stock Purchase PlanWe have an Employee Stock Purchase Plan that is authorized to issue up to 8,900,000 shares of common stock. Asof December 31, 2009, there were 1,447,342 authorized shares remaining to be issued under the plan. In accordancewith the plan, eligible employees may contribute up to 10% of their base salary and Denbury matches 75% of theircontribution. The combined funds are used to purchase previously unissued Denbury common stock or treasury stockpurchased by the Company in the open market for that purpose, in either case, based on the market value ofDenbury’s common stock at the end of each quarter. We recognize compensation expense for the 75% companymatch portion, which totaled $3.1 million, $2.7 million and $2.2 million for the years ended December 31, 2009, 2008and 2007, respectively. This plan is administered by the Compensation Committee of Denbury’s Board of Directors.401(k) PlanDenbury offers a 401(k) plan to which employees may contribute tax deferred earnings subject to Internal RevenueService limitations. Effective January 1, 2008, Denbury increased its match to 100% of an employee’s contribution, upto 6% of compensation, as defined by the plan. Previously, up to 3% of an employee’s compensation was matchedby Denbury at 100%, and an employee’s contribution between 3% and 6% of compensation was matched by Denburyat 50%. Denbury’s match is vested immediately. During 2009, 2008 and 2007, Denbury’s matching contributions wereapproximately $4.0 million, $3.3 million and $2.2 million, respectively, to the 401(k) Plan.Notes to Consolidated Financial StatementsForm 10-K Part II
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