Earthlink 2005 Annual Report Download - page 94

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EARTHLINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Significant Agreements
Access to the Internet for customers outside of the Company’s base of owned POPs is provided through capacity leased from a number of
third-party providers such as Level 3 Communications, Inc. EarthLink is, in effect, buying this capacity in bulk at a discount, and providing
access to EarthLink’s customer base. Certain amounts payable as of December 31, 2004 and 2005 under such agreements are included in
accrued communications costs in Note 8. Minimum commitments under non-cancelable network service agreements and other purchase
commitments are as follows as of December 31, 2005:
Cost of revenues from these non-cancelable network service agreements totaled $212.0 million, $132.6 million and $54.8 million for the
years ended December 31, 2003, 2004 and 2005, respectively.
HELIO
As of December 31, 2005, the Company had committed to contribute $98.0 million of cash to HELIO at various dates through
August 2007, including $39.5 million that was contributed in February 2006 pursuant to the commitment.
14. Profit Sharing Plans
The Company sponsors the EarthLink, Inc. 401(k) Plan (“Plan”),
which qualifies as a deferred salary arrangement under Section 401(k) of
the Internal Revenue Code. Under the Plan, participating employees may defer a portion of their pretax earnings up to the Internal Revenue
Service annual contribution limit. During the year ended December 31, 2003, the Company made a discretionary matching contribution of 50%
of the first 2% of base compensation and 33% of the next 4% of base compensation that a participant contributed to the Plan. In January 2004,
the Company increased its matching contribution to 50% of the first 6% of base compensation that a participant contributes to the Plan. The
Company’s matching contributions vest over four years from the participant’
s date of hire. The Company contributed $2.3 million, $3.0 million
and $2.8 million, during the years ended December 31, 2003, 2004 and 2005, respectively.
15. Fair Value of Financial Instruments
The Company has estimated the fair value of its financial instruments as of December 31, 2004 and 2005 using available market
information or other appropriate valuation methodologies. Considerable judgment, however, is required in interpreting market data to develop
the estimates of fair value. Accordingly, the estimates are not necessarily indicative of the amounts that the Company would realize in a current
market exchange.
The carrying values for cash, cash equivalents, trade receivables and trade payables approximate their fair values because of their nature
and respective durations. The Company’s short- and long-term investments in marketable securities consist of available-for-sale securities and
are carried at market value, which is based on quoted market prices, with unrealized gains and losses included in stockholders’ equity. The
Company’s investments in publicly-held companies are stated at fair value, which is estimated and recorded based on quoted market prices.
The Company’s investments in privately-held companies are
93
Year Ending December 31,
2006
$
54,002
2007
43,630
2008
30,070
Total
$
127,702