The following excerpt is from Ball Corporation’s 2006 annual report.
Effective January 1, 2006, the company adopted SFAS No. 123 (revised 2004), “Share-Based Payment,” and elected to use the . . . Black–Scholes valuation model. Tax benefits associated with option exercises are reported in financing activities in the consolidated statements of cash flows beginning in 2006. Prior to January 1, 2006, expense related to stock options was calculated using the intrinsic value method under the guidelines of Accounting Principles Board (APB) Opinion No. 25, and has therefore not been included in the consolidated statements of earnings in 2005 and 2004. Ball’s earnings as reported included after-tax stock-based compensation of $6.6 million and $12.5 million for the years ended December 31, 2005 and 2004, respectively. If the fair value based method had been used, after-tax stock-based compensation would have been $8.7 million in 2005 and $9.3 million in 2004. . . . The adoption of SFAS No. 123 (revised 2004) resulted in higher stock-based compensation in 2006 of $6.3 million compared to 2005.

Required:
1. Explain why Ball recorded $6.6 million of stock-based compensation expense in 2005 although the company was using the intrinsic value method.
2. What was the approximate fair value of the 2005 and 2004 stock option awards?
3. Some firms reduced the value of their 2006 stock option awards compared to earlier years or curtailed their use of stock options entirely. What is the accounting reason for these actions?
4. Does it appear that Ball reduced the value of its 2006 stock option awards?
5. Explain where Ball reported the cash flow statement item “tax benefits associated with option exercises” prior to the beginning of 2006.