Earthlink 2006 Annual Report Download - page 101

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EARTHLINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
prevailing rate and the prevailing interest rate later rises, the fair value of its investment may decline. To minimize this risk, the Company has
historically held many investments until maturity, and as a result, the Company receives interest and principal amounts pursuant to the
underlying agreements. To further mitigate risk, the Company maintains its portfolio of investments in a variety of securities, including
government agency notes, asset-backed debt securities (including auction rate debt securities), corporate notes and commercial paper, all of
which bear a minimum short-term rating of A1/P1 or a minimum long-term rating of A/A2. As of December 31, 2005 and 2006, net unrealized
losses in these investments were not material. In general, money market funds are not subject to market risk because the interest paid on such
funds fluctuates with the prevailing interest rate. In addition, the Company invests in relatively short-term securities and, therefore, changes in
short-term interest rates impact the amount of interest income included in the statements of operations.
The Company is also exposed to interest rate risk with respect with respect to its long-term debt. A change in prevailing interest rates may
cause the fair value of its long-term debt to fluctuate. The convertible senior notes bear interest at a fixed rate of 3.25% per annum until
November 15, 2011, and 3.50% interest per annum thereafter.
16. Supplemental Disclosure of Cash Flow Information
17. Related Party Transactions
HELIO
Upon HELIO’s formation, EarthLink and HELIO entered into a services agreement for EarthLink to provide to HELIO facilities,
accounting, tax, billing, procurement, risk management, payroll, human resource, employee benefit administration and other support services in
exchange for management fees. However, as HELIO develops it business, the extent to which HELIO relies on EarthLink to provide these
services has decreased. EarthLink believes that providing these services to HELIO enabled HELIO to more quickly and cost effectively launch
its business than if it had purchased these services from third parties. The management fees were determined based on EarthLink’s costs to
provide the services, and management believes such fees are reasonable. The total amount of fees that HELIO pays to EarthLink depends on
the extent to which HELIO utilizes EarthLink’s services. Fees for services provided to HELIO are reflected as reductions to the associated
expenses incurred by EarthLink to provide such services.
100
Year Ended December 31,
2004
2005
2006
(in thousands)
Significant non
-
cash transactions
Non
-
cash working capital adjustments to reduce goodwill
$
5,300
$
129
$
1,187
Additional cash flow information
Cash paid during the year for interest
$
677
$
383
$
1,416
Cash paid during the year for income taxes
1,778
5,507
850
Purchase of businesses
Cash paid, net of cash acquired
$
—
$
9,352
$
108,663
Issuance of common stock
—
—
20,194
Net liabilities incurred and assumed
—
4,203
15,979
Intangible assets acquired
$
—
$
13,555
$
144,836