Earthlink 2007 Annual Report Download - page 101

EARTHLINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED—(Continued)
The Company has provided a valuation allowance for its deferred tax assets, including NOLs, because of uncertainty regarding their
realization.
Currently, tax net operating losses can accumulate and be used to offset any of our future taxable income. However, an "ownership change"
that occurs during a "testing period" (as such terms are defined in Section 382 of the Internal Revenue Code of 1986, as amended) could place
significant limitations, on an annual basis, on the use of such net operating losses to offset future taxable income the Company may generate.
In general, future stock transactions and the timing of such transactions could cause an "ownership change" for income tax purposes. Such
transactions may include our purchases under the Company's share repurchase program, additional issuances of common stock by the Company
(including but not limited to issuances upon future conversion of the Company's outstanding convertible senior notes), and acquisitions or sales
of shares by certain holders of the Company's shares, including persons who have held, currently hold, or may accumulate in the future five
percent or more of the Company's outstanding stock. Many of these transactions are beyond the Company's control.
On January 1, 2007, EarthLink adopted FIN No. 48. The Company has identified its federal tax return and its state tax returns in California,
Florida, Georgia and Illinois as "major" tax jurisdictions, as defined in FIN 48. Periods extending back to 1994 are still subject to examination
for all "major" jurisdictions. The adoption of FIN 48 on January 1, 2007 did not result in a material cumulative-effect adjustment. The Company
believes that its income tax filing positions and deductions through year ended December 31, 2007, will be sustained on audit and does not
anticipate any adjustments that will result in material adverse effect on the Company's financial condition, results of operations or cash flow. The
Company's policy for recording interest and penalties associated with audits is to record such items as a component of income taxes.
15. Commitments and Contingencies
Leases
The Company leases certain of its facilities and equipment under various non-cancelable operating leases. The facility leases generally
require the Company to pay operating costs, including property taxes, insurance and maintenance, and generally contain annual escalation
provisions as well as renewal options. Total rent expense during the years ended December 31, 2005, 2006 and 2007 for all operating leases,
including operating expenses, was $13.1 million, $14.5 million and $13.6 million, respectively.
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