Earthlink 2007 Annual Report Download - page 24

net operating losses for federal income tax purposes begin to expire in 2020. Due to uncertainties in projected future taxable income, valuation
allowances have been established against deferred tax assets for book accounting purposes.
Currently, these 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 we 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 our share repurchase program, additional issuances of common stock by us (including but not
limited to issuances upon future conversion of our outstanding convertible senior notes), and acquisitions or sales of shares by certain holders of
our shares, including persons who have held, currently hold, or may accumulate in the future five percent or more of our outstanding stock.
Many of these transactions are beyond our control.
Calculations of an "ownership change" under Section 382 are complex and to some extent are dependent on information that is not publicly
available. However, we believe that as a result of recent transactions in our common stock, the risk of an "ownership change" occurring could
increase if additional shares are repurchased, if additional persons acquire five percent or more of our outstanding common stock in the near
future and/or current five percent stockholders increase their interest. (In analyzing this risk, we do not think that holdings of independently
managed mutual funds would be combined for purposes of calculating who is a five percent stockholder under Section 382.) Due to this risk, we
will monitor our purchases of additional shares of our common stock.
Our stock price has been volatile historically and may continue to be volatile.
The trading price of our common stock has been and may continue to be subject to fluctuations. Our stock price may fluctuate in response
to a number of events and factors, such as quarterly variations in results of operations; announcements of new products, services or pricing by us
or our competitors; the emergence of new competing technologies; developments in our business strategy; changes in financial estimates and
recommendations by securities analysts; the operating and stock price performance of other companies that investors may deem comparable to
us; and news reports relating to trends in the markets in which we operate or general economic conditions.
In addition, the stock market in general and the market prices for Internet-related companies in particular, have experienced volatility that
often has been unrelated to the operating performance of such companies. These broad market and industry fluctuations may adversely affect the
price of our stock, regardless of our operating performance. Additionally, volatility or a lack of positive performance in our stock price may
adversely affect our ability to retain key employees, many of whom have been granted stock incentive awards.
Our indebtedness could adversely affect our financial health and limit our ability to react to changes in our industry.
As of December 31, 2007, we had $258.8 million of indebtedness outstanding due to the issuance of our 3.25% Convertible Senior Notes
Due 2026 (the "Notes") in November 2006. Our indebtedness could have important consequences to us. For example, it could:
•
require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing
the availability of our cash flow to fund our business activities;
• limit our ability to secure additional financing, if necessary;
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