Earthlink 2007 Annual Report Download - page 98

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EARTHLINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED—(Continued)
The current and deferred income tax provisions from continuing operations were as follows for the years ended December 31, 2005, 2006
and 2007:
During the year ended December 31, 2005, the Company utilized approximately $123.8 million, of federal net operating loss carryforwards
("NOLs") and $67.9 million, of state NOLs to offset taxable income; however, EarthLink owed state income and federal and state alternative
minimum tax ("AMT") aggregating $5.3 million for the year ended December 31, 2005, and the AMT was payable primarily due to limitations
associated with the utilization of NOLs in calculating AMT due. A valuation allowance of $2.6 million has been provided for the year ended
December 31, 2005 for AMT amount due that may be used to offset tax due in future years.
Of the federal NOLs utilized during the year ended December 31, 2005, $49.0 million were acquired in connection with the acquisitions of
OneMain.com, Inc., Cidco Incorporated and PeoplePC Inc. in 2000, 2001 and 2002, respectively. Upon realization of these NOLs in 2005, the
associated reduction in the valuation allowance of $17.1 million, was recorded as a reduction to goodwill in accordance with SFAS No. 109,
"Accounting for Income Taxes," resulting in deferred income tax provision of $17.1 million.
The Company generated federal NOLs of $34.5 million and $89.6 million during the year ended December 31, 2006, and 2007,
respectively. The Company's state NOLs decreased by $124.2 million, either through utilization to offset taxable income or expiration during the
year ended December 31, 2006. The Company generated $93.2 million of state NOLs during the year ended December 31, 2007. A valuation
allowance of $12.1 million and $31.4 million has been provided for the years ended December 31, 2006, and 2007, respectively, for the federal
NOLs created, and a valuation allowance of $3.2 million has been provided for the year ended December 31, 2007 for the state NOLs generated,
that may be used to offset tax due in future years. For the year ended December 31, 2007, the Company recognized a change in the value of long
lived intangible assets, corresponding to a decrease in the deferred tax liability which resulted in recognizing a tax benefit of $1.4 million.
91
Year Ended December 31,
2005
2006
2007
(in thousands)
Current
Federal
$
2,338
$
(328
)
$
—
State
2,999
626
220
Total current
5,337
298
220
Deferred
Federal
17,038
325
(1,244
)
State
101
263
(203
)
Total deferred
17,139
588
(1,447
)
Income tax provision (benefit)
$
22,476
$
886
$
(1,227
)