Earthlink 2005 Annual Report Download - page 54

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out networks. Additionally, technological advances may require us to make capital expenditures to develop or acquire new equipment or
technology in order to replace aging or technologically obsolete equipment.
In December 2005, we entered into an agreement to acquire New Edge. Under the terms of the merger agreement, we will acquire 100%
of New Edge for approximately $144.6 million, consisting of 2.6 million shares of our common stock and $114.3 million in cash, including
cash to be used to satisfy certain liabilities. The completion of the acquisition is subject to regulatory approvals and closing conditions. We may
use additional cash to acquire or invest in companies with specific products, service capabilities, marketing channels, and/or subscriber bases
that we believe compliment or allow us to execute our strategy, among other potential opportunities.
On March 15, 2006, the Company entered into an agreement with Covad Communications Group, Inc. (“Covad’’) to purchase
$10.0 million of Covad’s common stock and $40.0 million of Covad’s Senior Secured Convertible Notes to fund Covad’s network build-outs
for line-powered, IP-based voice services. Our investment is part of our overall voice strategy and is expected to finance the expansion of
markets in which we are able to offer our EarthLink DSL and Home Phone services. We may use additional cash in the future to further expand
the markets in which we are able to offer our IP-based voice services, such as our EarthLink DSL and Home Phone Services.
We will also use cash to continue to pay real estate obligations associated with facilities closed in restructuring our contact center
operations.
Due to our expected cash requirements in 2006, we suspended our 10b5-1 plan to repurchase common stock during the first quarter of
2006 so that we may utilize cash provided by operations in the sort-term to fund our growth initiatives.
Our cash requirements depend on numerous factors, including the rate of market acceptance of our and HELIO’s services, our ability to
successfully develop new revenue sources, our ability to maintain and expand our customer base, the rate of expansion of our network
infrastructure, the size and types of acquisitions in which we may engage, the level of resources required to expand our sales and marketing
programs, and general economic developments.
Our principal sources of liquidity are our cash, cash equivalents and investments in marketable securities, as well as the cash flow we
generate from operations. As of December 31, 2005, we had $173.3 million in cash and cash equivalents. In addition, we held short- and long-
term investments in marketable securities valued at $207.8 million and $41.0 million, respectively. Short-term investments in marketable
securities consist of investments that have maturity dates of and asset-backed, auction rate securities that have interest rate reset periods of up
to one year from the balance sheet date, and long-term investments in marketable securities consist of investments that have maturity dates of
more than one year from the balance sheet date.
Our available cash and marketable securities, together with our results of operations, are expected to be sufficient to meet our operating
expenses, capital requirements and investment and other obligations for the next twelve months. However, as a result of our growth initiatives
and other investment activities, we may seek additional financing in the future. We have no commitments for any additional financing and have
no lines of credit or similar sources of financing. We cannot be sure that we can obtain additional financing on favorable terms, if at all,
through the issuance of equity securities or the incurrence of debt. Additional equity financing may dilute our stockholders, and debt financing,
if available, may restrict our ability to declare and pay dividends and raise future capital. If we are unable to obtain additional needed financing,
we may be required to reduce our planned capital expenditures, suspend or reduce our investment activities and/or reduce any of our planned
growth initiatives, which could materially and adversely affect our prospects for long-term growth.
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