ARD » Topics » NOTE 11 - INCOME TAXES

This excerpt taken from the ARD 10-K filed Apr 2, 2007.

NOTE 11 – INCOME TAXES

At December 31, 2006, the Company had alternative minimum income tax of $304,000, but had made sufficient estimated tax payments as to not have a year end taxes payable. The provision for income taxes consisted of the following:

Provision for income taxes 2006 2005 2004

Current 304,000 365,606 -
Deferred 13,673,000 5,262,520 1,397,074

13,977,000 5,628,126 1,397,074


73

ARENA RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following is a reconciliation of income taxes computed using the U.S. federal statutory rate to the provision for income taxes:

Rate Reconciliation 2006 2005 2004

Tax at federal statutory rate (34%) 12,663,000 5,130,195 1,308,567
Non-deductible expenses (non-taxable income) 27,000 - (24,493)
State tax, net of federal benefit 1,229,000 497,931 127,008
Other 58,000 - (14,008)

13,977,000 5,628,126 1,397,074

As of December 31, 2006, the Company had net operating loss and IDC carry forwards for federal income tax reporting purposes of $46,342,000 which, if unused, will expire in 2022, 2025 and 2026. The Company is subject to Alternative Minimum Tax (“AMT”) as a result of the deferred income that results from the regular tax treatment of intangible drilling costs. The AMT liability creates a deferred tax asset that can be used to offset any future tax liability from regular Federal income tax. The $346,744 minimum tax credit has an unlimited carryover period.

The net deferred tax liability consisted of the following:

Deferred taxes: 2006 2005 2004

Deferred tax liabilities
     Property and equipment 37,448,700 11,102,307 2,163,239

     Total deferred tax liabilities 37,448,700 11,102,307 2,163,239
 
Deferred tax assets
     Stock-based compensation 493,775 203,078 158,003
     Minimum tax credit 346,744 401,109 -
     Operating loss and IDC carryforwards 17,285,457 3,310,511 33,246

     Total deferred tax assets 18,125,976 3,914,698 191,249

Net deferred income taxes 19,322,724 7,187,609 1,971,990

This excerpt taken from the ARD 10-K filed Mar 16, 2006.

NOTE 10 – INCOME TAXES

At December 31, 2005, the Company had alternative minimum income tax payable of $329,986. The provision for income taxes consisted of the following:

70

ARENA RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS

For the Years Ended December 31, 2005 2004 2003

Current - federal 365,606 - -
Deferred - state 753,842 265,828 52,772
Deferred - federal 4,508,678 1,131,246 349,683

Provision for income taxes 5,628,126 1,397,074 402,455

The following is a reconciliation of income taxes computed using the U.S. federal statutory rate to the provision for income taxes:

For the Years Ended December 31, 2005 2004 2003

Tax at federal statutory rate (34%) $ 5,130,195 $ 1,308,567 $ 368,700
Income not subject to tax - (24,493) (17,365)
State tax, net of federal benefit 497,931 127,008 51,120
Effect of lower effective tax rates - (14,008) -

Provision for income taxes $ 5,628,126 $ 1,397,074 $ 402,455

As of December 31, 2005, the Company had net operating loss and IDC carry forwards for federal income tax reporting purposes of $8,770,000 which, if unused, will expire in 2022 and 2025. The Company is subject to Alternative Minimum Tax ("AMT") as a result of the deferred income that results from the regular tax treatment of intangible drilling costs. The AMT liability creates a deferred tax asset that can be used to offset any future tax liability from regular Federal income tax. The $401,109 minimum tax credit has an unlimited carryover period.

The net deferred tax liability consisted of the following:

December 31, 2005 2004

Deferred tax liabilities
     Property and equipment 11,102,307 2,163,239

     Total deferred tax liabilities 11,102,307 2,163,239

Deferred tax assets
     Stock-based compensation 203,078 158,003
     Minimum tax credit 401,109 -
     Operating loss and IDC carryforwards 3,310,511 33,246

     Total deferred tax assets 3,914,698 191,249

Net deferred income taxes 7,187,609 1,971,990

EXCERPTS ON THIS PAGE:

10-K
Apr 2, 2007
10-K
Mar 16, 2006
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