Earthlink 2005 Annual Report Download - page 49

2003 to $507.4 million during the year ended December 31, 2004. Our cash and investment balances increased as a result of cash provided by
operations, partially offset by the repurchase of 12.7 million shares of our common stock for $125.7 million, capital expenditures and the
purchases of subscriber bases from several companies. Our weighted average investment yields remained consistent at approximately 1.6%
during the years ended December 31, 2003 and 2004.
Interest income and other, net, increased from $6.1 million during the year ended December 31, 2004 to $13.5 million during the year
ended December 31, 2005 primarily due to an increase in investment yields, partially offset by a decrease in our average cash and marketable
securities balances. Our weighted average investment yields increased from approximately 1.6% during year ended December 31, 2004 to
approximately 3.1% during the year ended December 31, 2005, as the U.S. Federal Reserve Bank has increased interest rates. Our average cash
and marketable securities balance decreased from $507.4 million during the year ended December 31, 2004 to $446.5 million during the year
ended December 31, 2005. Our cash and investment balances decreased as a result of the repurchase of 20.5 million shares of our common
stock for $192.6 million, investments in the HELIO joint venture, capital expenditures and the purchases of businesses and subscriber bases,
partially offset by cash provided by operations.
Provision for income taxes
The provision for income taxes was $4.5 million and $22.5 million during the years ended December 31, 2004 and 2005, respectively.
Although we utilized net operating loss carryforwards (“NOLs”) to offset taxable income in those years, state income and federal and state
alternative minimum tax (“AMT”) amounts aggregating $5.4 million were payable in 2005, and the AMT was payable primarily due to the
NOL limitations associated with the AMT calculation. Although certain of the AMT amounts can be used in future periods to offset taxable
income, we established a valuation allowance for the AMT amounts payable due to uncertainty regarding their realizability, which resulted in
an income tax provision of $2.6 million in 2005. The provision for income taxes in 2005 also includes a non-cash deferred tax provision of
$17.1 million associated with the utilization of NOLs which were acquired in connection with the acquisitions of OneMain, PeoplePC and
Cidco. The increase in the provision for income taxes during the year ended December 31, 2005 compared to the prior year was primarily due
to the realization of NOLs of acquired companies and the mix of organic and acquired NOLs realized, because the realization of NOLs of
acquired companies results in non-cash, deferred income tax expense. No income tax provision was recognized during the year ended
December 31, 2003 due to our net loss.
We continue to maintain a valuation allowance against our deferred tax assets, consisting primarily of NOLs, and we may recognize
deferred tax assets in future periods when they are determined to be realizable.
Facility Exit and Restructuring Costs
During the years ended December 31, 2003, 2004 and 2005, we executed plans to streamline our contact center facilities and operations.
Under the 2003 Plan, we closed contact centers in Dallas, Texas; Sacramento, California; Pasadena, California; and Seattle, Washington. The
closure of the four contact centers resulted in the termination of 1,220 employees and a net reduction of 920 employees, primarily customer
support personnel. Under the 2004 Plan, EarthLink closed contact center operations in Harrisburg, Pennsylvania; Roseville, California; San
Jose, California; and Pasadena, California; and reduced contact center operations in Atlanta, Georgia. Approximately 1,140 employees were
directly impacted, primarily customer support personnel. Under the 2005 Plans, we outsourced certain contact center and credit and collections
activities. Approximately 227 employees were directly impacted.
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