Earthlink 2005 Annual Report Download - page 91

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EARTHLINK, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Employee Stock Purchase Plan
In January 2005, the Company terminated its employee stock purchase plan (“ESPP”). Under the terms of the ESPP, eligible employees
were able to have up to 15% of eligible compensation deducted from their pay to purchase EarthLink common stock. Under the ESPP,
withholdings were used to purchase shares at the beginning of each quarter at a per share purchase price equal to 85% of the lesser of the
closing price on the first trading day of the just completed quarter or the closing price on the last trading day of the just completed quarter.
During the years ended December 31, 2003, 2004 and 2005, employees purchased approximately 221,000, 223,000 and 47,000 shares,
respectively, pursuant to the ESPP at weighted average per share purchase prices of $5.13, $7.58 and $9.14, respectively.
12. Income Taxes
The current and deferred income tax provisions were as follows for the years ended December 31, 2004 and 2005:
During the years ended December 31, 2004 and 2005, the Company utilized approximately $94.1 million and $123.8 million, respectively,
of federal net operating loss carryforwards (“NOLs”)
and $88.6 million and $67.9 million, respectively, of state NOLs to offset taxable income;
however, EarthLink owed state income and federal and state alternative minimum tax (“AMT”) aggregating $2.5 million and $5.3 million for
the years ended December 31, 2004 and 2005, respectively, and the AMT was payable primarily due to limitations associated with the
utilization of NOLs in calculating AMT due. A valuation allowance of $1.8 million and $2.6 million has been provided for the years ended
December 31, 2004 and 2005 for AMT amounts due, respectively, that may be used to offset tax due in future years.
Of the federal NOLs utilized during the years ended December 31, 2004 and 2005, $5.6 million and $49.0 million were acquired in
connection with the acquisitions of OneMain.com, Inc., Cidco Incorporated and PeoplePC in 2000, 2001 and 2002, respectively. Upon
realization of these NOLs in 2004 and 2005, the associated reduction in the valuation allowance of $2.0 million and $17.1 million, respectively,
was recorded as a reduction to goodwill in accordance with SFAS No. 109, “Accounting for Income Taxes,” resulting in deferred income tax
provisions of $2.0 million and $17.1 million, respectively.
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, 2003, 2004 and 2005:
90
Year Ended December 31,
2004
2005
(in thousands)
Current
Federal
$
1,608
$
2,338
State
883
2,999
Total current
2,491
5,337
Deferred
Federal
1,969
17,038
State
—
101
Total deferred
1,969
17,139
Income tax provision
$
4,460
$
22,476