Earthlink 2014 Annual Report Download - page 96

Table of Contents EARTHLINK HOLDINGS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Purchase commitments
The Company has entered into agreements with vendors to purchase certain telecommunications services and equipment under non-
cancelable
agreements. The Company also has minimum commitments under network access agreements with several carriers and obligations for certain
advertising spending under non-
cancelable agreements. The following table summarizes commitments under these agreements as of
December 31, 2014 :
Legal proceedings and other disputes
General
. The Company is party to various legal proceedings and other disputes arising in the normal course of business, including, but not
limited to, regulatory audits, trademark and patent infringement, billing disputes, rights of access, tax, consumer protection, employment and
tort. The Company accrues for such matters when it is both probable that a liability has been incurred and the amount of the loss can be
reasonably estimated. Where it is probable that a liability has been incurred and there is a range of expected loss for which no amount in the
range is more likely than any other amount, the Company accrues at the low end of the range. The Company reviews its accruals each reporting
period. The Company recorded a $2.2 million liability during the year ended December 31, 2014
for a loss contingency that became probable
and estimable during the year.
The Company's management believes that there are no disputes, litigation or other legal proceedings, audits or disputes asserted or pending
against the Company that could have, individually or in the aggregate, a material adverse effect on its financial position, results of operations or
cash flows, and believes that adequate provision for any probable and estimable losses has been made in the Company's consolidated financial
statements. However, the ultimate result of any current or future litigation or other legal proceedings, audits or disputes is inherently
unpredictable and could result in liabilities that are higher than currently predicted.
Regulatory audits
. The Company is subject to regulatory audits in the ordinary course of business with respect to various matters, including
audits by the Universal Service Administrative Company on universal service fund assessments and payments. These audits can cover periods
for several years prior to the date the audit is undertaken and could result in the imposition of liabilities, interest and penalties if the Company's
positions are not accepted by the auditing entity. The Company's financial statements contain reserves for certain of such potential liabilities.
During 2012, the Company recorded an $8.3 million
charge as cost of revenue to increase its reserves for regulatory audits, primarily an audit
that was conducted by the Universal Service Administrative Company on previous ITC^DeltaCom Universal Service Fund assessments and
payments, because the amount became probable and estimable during the period. During 2013, the Company recorded a $7.2 million
favorable
adjustment to its reserves for regulatory audits due to final interpretation and resolution of certain regulatory audits, primarily the audit that was
conducted by the Universal Service Administrative Company.
Patents
. From time to time, the Company receives notices of infringement of patent rights from parties claiming to own patents related to certain
of the Company's services and products. Certain of these claims are made by patent holding companies that are not operating companies. The
alleging parties generally seek royalty payments for prior use as well as future royalty streams. Most of these matters are in preliminary stages.
The Company intends to vigorously defend its position with respect to these matters.
Billing disputes
. The Company is periodically involved in disputes related to its billings to other carriers for access to its network. The Company
does not recognize revenue related to such matters until the period that revenues are determinable and it is reasonably assured of the collection of
these claims. In the event that a claim is made related to revenues previously recognized, the Company assesses the validity of the claim and
adjusts the amount of revenue being recognized to the extent that the claim adjustment is considered probable and estimable. The Company
recognized $7.9 million of net favorable disputes related to its billings to other carriers during the year ended December 31, 2014
, which is
included in Business Services revenues in the Consolidated Statement of Comprehensive Loss.
Year Ending December 31, (in thousands)
2015
$
49,891
2016
35,246
2017
17,400
2018
9,128
2019
2,475
Thereafter
14,644
Total
$
128,784