Earthlink 2010 Annual Report Download - page 70

Table of Contents
Income tax benefit (provision)
We recognized an income tax benefit of $32.2 million during year ended December 31, 2008. This consisted primarily of a benefit of
$56.1 million resulting from the release of a portion of our valuation allowance against our deferred tax assets, primarily related to net operating
loss carryforwards. Offsetting this benefit was an income tax provision of $23.9 million recorded during the year ended December 31, 2008. The
tax provision consisted of $7.0 million state income and federal and state alternative minimum tax ("AMT") amounts payable due to the net
operating loss carryforward limitations associated with the AMT calculation and $16.9 million for non-
cash deferred tax provisions associated
with the utilization of net operating loss carryforwards which were acquired in connection with acquisitions. We recognized an income tax
benefit of $126.1 million during year ended December 31, 2009. This benefit consisted primarily of a benefit of $198.8 million resulting from
the release of a portion of our valuation allowance against our deferred tax assets, primarily related to net operating loss carryforwards. During
the year ended December 31, 2009, we determined we will more likely than not be able to utilize these deferred tax assets due to the generation
of sufficient taxable income in the future. Offsetting this benefit was an income tax provision of $72.6 million, consisting of $9.3 million state
income and federal and state AMT amounts payable and $63.3 million for non-
cash deferred tax provisions associated with the utilization of net
operating loss carryforwards. We recognized an income tax provision of $56.8 million during the year ended December 31, 2010, which
consisted of $7.3 million state income and federal and state AMT amounts payable due to the net operating loss carryforward limitations
associated with the AMT calculation and $49.5 million for non-
cash deferred tax provisions associated with the utilization of net operating loss
carryforwards.
As of December 31, 2010, we maintained a valuation allowance of $39.2 million against certain deferred tax assets. Of this amount,
$31.6 million relates to net operating losses generated by the tax benefits of stock-
based compensation. The valuation allowance will be removed
upon utilization of these net operating losses as an adjustment to additional paid-in-
capital. A valuation allowance of $7.2 million relates to net
operating losses in certain jurisdictions where we believe it is "not more likely than not" to be realized in future periods. In addition, a valuation
allowance of $0.4 million was established in 2010 relating to stock compensation deferred tax assets.
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 certain transactions such as equity transactions in the future
resulting from changes in ownership as defined under the Internal Revenue Code.
As a result of our acquisition of ITC^DeltaCom in December 2010, we increased our net deferred tax assets by $70.7 million. Included in
this amount is $123.3 of deferred tax assets relating to federal and state net operating losses. These amounts also include a valuation allowance
of $5.6 million for certain jurisdictions.
Loss from discontinued operations, net of tax
Loss from discontinued operations, net of tax, during the year ended December 31, 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. As of December 31, 2008, the divestiture
of our municipal wireless broadband assets was complete.
64