Earthlink 2008 Annual Report Download - page 47

Table of Contents
when they are determined to be more likely than not realizable. To the extent we report income in future periods, we intend to use our net
operating loss carryforwards to the extent available to offset taxable income and reduce cash outflows for income taxes. Our ability to use our
federal and state net operating loss carryforwards and federal and state tax credit carryforwards may be subject to restrictions attributable to
equity transactions in the future resulting from changes in ownership as defined under the Internal Revenue Code.
Loss from discontinued operations, net of tax
Loss from discontinued operations, net of tax, for the years ended December 31, 2006, 2007 and 2008 reflects our municipal wireless
broadband operations. In November 2007, management concluded that our municipal wireless broadband operations were no longer consistent
with our strategic direction and our Board of Directors authorized management to pursue the divestiture of our municipal wireless broadband
assets. The municipal wireless results of operations were previously included in our Consumer Services segment.
During the year ended December 31, 2008, we transferred our municipal wireless broadband networks to Corpus Christi, TX and Milpitas,
CA in exchange for releasing us from our existing network agreements. We also transferred our municipal wireless broadband networks in the
city of Philadelphia, PA to a local Philadelphia company. Additionally, we terminated our municipal wireless broadband service in New Orleans,
LA and Anaheim, CA and removed our network equipment from those cities. As of December 31, 2008, the divestiture of our municipal
wireless broadband assets was complete.
The following table presents summarized results of operations related to our discontinued operations for the years ended December 31,
2006, 2007 and 2008:
Loss from discontinued operations, net of tax, increased $60.3 million from the year ended December 31, 2006 to the year ended
December 31, 2007. This was primarily due to a $27.6 million charge recorded during the year ended December 31, 2007 in accordance with
SFAS No. 144 to reduce the carrying value of the long-
lived assets to their fair value less estimated costs to sell. In addition, as a result of the
2007 Plan, we recorded restructuring costs of $20.9 million during the year ended December 31, 2007 related to our municipal wireless
broadband operations. Loss from discontinued operations, net of tax, decreased $71.8 million from the year ended December 31, 2007 to the
year ended December 31, 2008. This was primarily due to a decrease in impairment and facility exit and restructuring costs, as well as a decrease
in operating costs and expenses as we discontinued our municipal wireless broadband operations during 2008.
Stock-Based Compensation
We account for stock-based compensation in accordance with SFAS No. 123(R), "Stock-
Based Compensation," which requires
measurement of compensation cost for all stock awards at fair value on the date of grant and recognition of compensation over the requisite
service period for awards expected to vest. The fair value of our stock options is estimated using the Black-
Scholes valuation model, and the fair
value of restricted stock units is determined based on the number of shares granted and the quoted price of
43
Year Ended December 31,
2006
2007
2008
(in thousands)
Revenues
$
195
$
2,097
$
1,305
Operating costs and expenses
(20,194
)
(33,871
)
(4,569
)
Impairment, facility exit and restructuring costs
—
(
48,528
)
(6,326
)
Income tax benefit
—
—
1,084
Loss from discontinued operations, net of tax
$
(19,999
)
$
(80,302
)
$
(8,506
)