Earthlink 2013 Annual Report Download - page 103

Table of Contents EARTHLINK HOLDINGS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Deferred tax assets and liabilities include the following as of December 31, 2012 and 2013 :
Effective Tax Rate. The effective rate of -65% differs from the federal statutory rate of 35%
primarily due to the recording of a
valuation allowance (as further described below), the impairment of non-
deductible goodwill and state taxes. The valuation allowance recorded
for the year ended December 31, 2013 decreased the effective tax rate by approximately 82% . The impairment of non-
deductible goodwill
decreased the effective tax rate by approximately 22% . The state items increased the effective tax rate by approximately 4%
and primarily relate
to changes to the Company's state deferred income tax rates and the resulting impact on the re-
measurement of deferred tax assets and liabilities;
and the reversal of state related uncertain tax positions in the current year due to statute expirations. The current tax benefit for the year ended
December 31, 2013 was primarily related to expense for Canadian tax amounts payable, prior year state tax items and penalties and interest
related to uncertain tax positions, which is offset with benefit from the current release of uncertain tax positions related to prior years. The non-
cash deferred tax expense was due primarily to the recording of the valuation allowance and the impairment of tax deductible goodwill.
Valuation allowance.
A deferred tax asset is reduced by a valuation allowance if based on the weight of all available evidence, it is
more likely than not (a likelihood of more than 50%) that the value of such assets will not be realized. The valuation allowance should be
sufficient to reduce the deferred tax asset to the amount that is more likely than not to be realized. The determination of whether a deferred tax
asset is realizable is based on weighting all available evidence, including both positive and negative evidence. The realization of deferred tax
assets, including carryforwards and deductible temporary differences, depends upon the existence of sufficient taxable income of the same
character during the carryback or carryforward period. All sources of taxable income available to realize the deferred tax asset, including the
future reversal of existing temporary differences, future taxable income exclusive of reversing temporary differences and carryforwards, taxable
income in carryback years and tax-planning strategies, should be considered.
91
As of December 31,
2012 2013
(in thousands)
Current deferred tax assets:
Accrued liabilities and reserves
$
10,834
$
7,054
Net operating loss carryforwards
902
—
Other
9,873
10,278
Valuation allowance
(2,605
)
(14,832
)
Current deferred tax liabilities:
Accrued liabilities and reserves
(751
)
(1,661
)
Other
(2,299
)
(290
)
Total net current deferred tax assets
15,954
549
Non-current deferred tax assets:
Net operating loss carryforwards
$
195,440
$
249,908
Capital loss carryforward —
1,909
Alternative minimum tax carryforward
14,988
14,973
Accrued liabilities and reserves
7,602
3,978
Subscriber base and other intangible assets
36,586
54,860
Other
22,919
13,978
Valuation allowance
(35,990
)
(290,604
)
Non-current deferred tax liabilities:
Subscriber base and other intangible assets
(41,544
)
(38,024
)
Accrued liabilities and reserves
(316
)
(3,094
)
Indefinite lived intangible assets
(1,925
)
(2,522
)
Other
(2,748
)
(7,583
)
Total net non-current deferred tax asset (liability)
195,012
(2,221
)
Net deferred tax asset (liability)
$
210,966
$
(1,672
)