Earthlink 2003 Annual Report Download - page 60

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per share and $5.13 per share, respectively.
F-26
13. Income Taxes
The following table summarizes the significant differences between the U.S. federal statutory tax rate and the Company's effective tax rate
for financial statement purposes for the years ended December 31, 2001, 2002 and 2003:
The Company acquired $49.4 million and $35.8 million of deferred tax assets, primarily related to net operating loss carryforwards, in
conjunction with the acquisitions of Cidco in December 2001 and PeoplePC in July 2002, respectively. These additional deferred tax assets and
liabilities impact the net change to the valuation allowance.
Deferred tax assets and liabilities include the following as of December 31, 2002 and 2003:
At December 31, 2002 and 2003, the Company had net operating loss carryforwards for federal income tax purposes totaling
approximately $671.9 million and $639.5 million, respectively, which begin to expire in 2010. At December 31, 2002 and 2003, the Company
had net operating loss carryforwards for state income tax purposes totaling approximately $523.5 million and $404.7 million, respectively,
which started to expire in 2002. The Company also had $35.5 million and $35.6 million of foreign net operating loss carryforwards at
December 31, 2002 and 2003, respectively. Under the Tax Reform Act of 1986, the Company's ability to use its federal, state and foreign net
operating loss carryforwards and federal and state tax credit carryforwards to reduce future taxable income and future taxes, respectively, is
subject to restrictions attributable to equity transactions that have resulted in a change of ownership as defined in Internal Revenue Code
Section 382. During the year ended December 31, 2003, the Company reduced the net operating loss carryforward deferred tax asset and the
associated valuation allowance by $28.8 million
F-27
Year Ended December 31,
2001
2002
2003
(in thousands)
Federal income tax benefit at statutory rate
$
(119,372
)
$
(51,812
)
$
(21,768
)
State income taxes, net of federal benefit
(12,633
)
(6,699
)
(2,830
)
Nondeductible goodwill, acquisition costs and other permanent
items
13,389
—
(
266
)
Net change to valuation allowance
121,633
58,225
25,446
Other
(3,017
)
286
(582
)
$
—
$
—
$
—
As of December 31,
2002
2003
(in thousands)
Deferred tax assets:
Net operating loss carryforwards
$
283,253
$
263,607
Accrued liabilities and reserves
21,729
24,728
Subscriber base and other intangible assets
95,373
117,625
Depreciation and other
30,312
21,335
Total deferred tax assets
430,667
427,295
Valuation allowance
(430,667
)
(427,295
)
Net deferred taxes
$
—
$
—