Earthlink 2007 Annual Report Download - page 196

HELIO, INC. and HELIO LLC
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
12. Warrants (Continued)
The weighted average exercise prices and the weighted average remaining contractual life for warrants issued as of December 31, 2007
were as follows (in thousands):
13. Income Taxes
HELIO LLC is not a taxable entity for federal income tax purposes. The allocable share of HELIO LLC's taxable income or loss is included
in its members federal and state income tax returns based upon their respective ownership interests. The Company's information below is
prepared based on HELIO, Inc.'s effective ownership interest in HELIO LLC and to the extent that certain states impose income taxes upon non-
corporate legal entities these taxes are also reflected below.
The Company records a provision (benefit) for federal and state income taxes and generally recognizes deferred tax assets and liabilities
based on differences between the financial reporting and tax bases of assets and liabilities, applying enacted statutory rates. Pursuant to the
provisions of Statement of Financial Accounting Standards No. 109, Accounting For Income Taxes ("SFAS 109"), the Company provides
valuation allowances for deferred tax assets for which it does not consider realization of such assets to be more likely than not.
Pursuant to the HELIO LLC Membership Agreement (the "Membership Agreement"), losses generated by HELIO LLC are generally
allocated in the following order: (i) to holders of HELIO LLC Convertible Common Membership units up to member(s) capital account balance
(s), without creating a deficit in the member(s) capital account; and, (ii) to holders of HELIO LLC convertible preferred membership units up to
member(s) capital account balance(s) and in proportion to their respective interest, without creating a deficit in the members' capital account.
Under the Membership Agreement, profits generated by HELIO LLC are generally allocated first to the holders of Preferred Membership Units
to the extent of prior losses, and second to the holders of Convertible Common Membership units to the extent of prior losses. As a result of the
Membership Agreement, HELIO, Inc. was allocated losses from HELIO LLC up to its investment in HELIO LLC. For the periods ended
December 31, 2005, 2006 and 2007, the Company was allocated approximately $0.0 million, $9.1 million and $0.4 million of the income tax
losses generated by HELIO LLC, respectively. The Company has not recorded any portion of the deferred taxes attributable to HELIO LLC as it
is not presently expected that any portion of such amounts will be allocated to the Company pursuant to the terms of the Membership
Agreement.
32
Warrants Outstanding
Warrants Exercisable
Exercise Price
Number
Outstanding
Weighted
Average
Remaining
Contractual
Life
Weighted
Average
Exercise
Price
Number
Exercisable
Weighted
Average
Exercise
Price
$1.71
-
$10.00
6,721
8.46
$
4.62
3,363
$
7.50