COCO » Topics » Employment Taxes

This excerpt taken from the COCO 10-K filed Nov 28, 2006.

Employment Taxes

As a result of the measurement date issues discussed above, certain of the Company’s option grants, which were previously characterized as Incentive Stock Options in accordance with Internal Revenue Code Section 422 (“ISOs”), are now considered to be non-qualified stock options. While the Company does not have payroll or income tax withholding obligations on gains resulting from the exercise of ISOs, gains resulting from the exercise of non-qualified stock options are considered ordinary income to the employee and the Company has corresponding withholding and payroll tax obligations (collectively “Employment Taxes”). Accordingly, the Company has an unrecorded liability for Employment Taxes resulting from gains on the exercise of such options. However, since the Company reported ordinary income from the sale of stock acquired on the exercise of options on employees’ Forms W-2 regardless of whether the options were considered ISOs or non-qualified stock options, the Company’s liability related to withholdings is limited to those income taxes not actually paid by the employees. The aggregate amount of the Employment Tax obligation is estimated to be $1.1 million (net of tax), of which $0.8 million relates to fiscal years 2005 and prior, and $0.3 million of which has been recorded in the fourth quarter of fiscal 2006.

This excerpt taken from the COCO 10-K filed Nov 22, 2006.

Employment Taxes

As a result of the measurement date issues discussed above, certain of the Company’s option grants, which were previously characterized as Incentive Stock Options in accordance with Internal Revenue Code Section 422 (“ISOs”), are now considered to be non-qualified stock options. While the Company does not have payroll or income tax withholding obligations on gains resulting from the exercise of ISOs, gains resulting from the exercise of non-qualified stock options are considered ordinary income to the employee and the Company has corresponding withholding and payroll tax obligations (collectively “Employment Taxes”). Accordingly, the Company has an unrecorded liability for Employment Taxes resulting from gains on the exercise of such options. However, since the Company reported ordinary income from the sale of stock acquired on the exercise of options on employees’ Forms W-2 regardless of whether the options were considered ISOs or non-qualified stock options, the Company’s liability related to withholdings is limited to those income taxes not actually paid by the employees. The aggregate amount of the Employment Tax obligation is estimated to be $1.1 million (net of tax), of which $0.8 million relates to fiscal years 2005 and prior, and $0.3 million of which has been recorded in the fourth quarter of fiscal 2006.

EXCERPTS ON THIS PAGE:

10-K
Nov 28, 2006
10-K
Nov 22, 2006
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