Earthlink 2006 Annual Report Download - page 51

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Interest income and other, net
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, 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 repurchases of our common stock, investments in the HELIO
joint venture, capital expenditures and the purchases of businesses and subscriber bases, offset by cash provided by operations.
Interest income and other, net, increased from $13.5 million during the year ended December 31, 2005 to $14.6 million during the year
ended December 31, 2006 primarily due to an increase in investment yields and an increase due to interest income from our investment in
Covad, substantially offset by a decrease in our average cash and marketable securities balances. Our weighted average investment yields
increased from approximately 3.1% during year ended December 31, 2005 to approximately 4.8% during the year ended December 31, 2006,
as the U.S. Federal Reserve Bank has increased interest rates. Our average cash and marketable securities balance decreased from $446.5
million during the year ended December 31, 2005 to $295.5 million during the year ended December 31, 2006. Our cash and investment
balances decreased as a result of repurchases of our common stock, investments in the HELIO joint venture, our investment in Covad to fund
line-powered voice, capital expenditures, the acquisition of New Edge and purchases of subscriber bases from other companies, offset by cash
provided by operations and cash provided by the issuance of convertible senior notes.
Provision for income taxes
The provision for income taxes was $4.5 million, $22.5 million and $0.9 million during the years ended December 31, 2004, 2005 and
2006, respectively. Although we utilized net operating loss carryforwards 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 net operating loss carryforward 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 net operating loss carryforwards 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. The
provision for income taxes during the year ended December 31, 2006 primarily consisted of state income tax amounts due in jurisdictions
where we do not have NOLs.
We continue to maintain a full valuation allowance against our deferred tax assets, consisting primarily of net operating loss
carryforwards, and we may recognize deferred tax assets in future periods when they are determined to be realizable.
Stock-Based Compensation
Prior to January 1, 2006, we accounted for stock-based compensation issued to employees using the intrinsic value method. Generally, no
stock-based employee compensation cost related to stock options
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