Earthlink 2007 Annual Report Download - page 99

EARTHLINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED—(Continued)
The following table summarizes the significant differences between the U.S. federal statutory tax rate and the Company's effective tax rate
for continuing operations for financial statement purposes for the years ended December 31, 2005, 2006 and 2007:
The Company acquired $49.5 million of deferred tax assets, primarily related to NOLs, in conjunction with the acquisition of New Edge in
April 2006. These additional deferred tax assets and liabilities impact the net change to the valuation allowance.
During the year ended December 31, 2007, the Company lowered its effective state tax rate, net of federal taxes, from 4.5% to 3.5%
primarily due to changes in state tax laws for apportionment.
92
Year Ended December 31,
2005 2006 2007
(in thousands)
Federal income tax provision at statutory rate
$
57,840
$
9,055
$
(19,607
)
State income taxes, net of federal benefit
6,688
1,827
(1,382
)
Nondeductible expenses
1,087
5,001
4,152
Net change to valuation allowance
—
(
15,001
)
9,233
Change in valuation allowance associated with realized deferred tax assets
(62,938
)
—
—
Change in valuation allowance for realized deferred tax assets acquired in business
combinations
17,139
—
—
Increase in valuation allowance for AMT due
2,582
—
—
Change in state effective tax rate
5,321
Other
78
4
1,056
$
22,476
$
886
$
(1,227
)