Earthlink 2007 Annual Report Download - page 103

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EARTHLINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED—(Continued)
The carrying amounts of the Company's 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. The Company's equity investments in publicly-held
companies are stated at fair value, which is based on quoted market prices. The Company's investments in privately-held companies are stated at
cost, net of other-than-temporary impairments, because it is impracticable to estimate fair value. The estimated fair value of the Company's long-
term debt is based on quoted market prices. The Company's purchased call options are stated at cost and the estimated fair value is based on the
Black-Scholes valuation model.
The following table presents the carrying value and fair value of the Company's financial instruments as of December 31, 2006 and 2007:
Concentrations of Credit Risk
By their nature, all financial instruments involve risk, including credit risk for non-performance by counterparties. Financial instruments
that potentially subject the Company to credit risk consist principally of cash, cash equivalents, investments in marketable securities, trade
receivables and investments in other companies. The Company's cash investment policy limits investments to investment grade instruments.
Accounts receivable are typically unsecured and are derived from revenues earned from customers primarily located in the U.S. Credit risk with
respect to trade receivables is limited due to the large number of customers comprising the Company's customer base. Additionally, the
Company performs ongoing credit evaluations of its customers and maintains allowances for potential credit losses.
The Company is exposed to risk with respect to its auction rate securities. These securities are variable-rate debt instruments whose
underlying agreements have contractual maturities of up to 40 years. These securities are issued by various municipalities and state regulated
higher education agencies. The higher education securities are secured by pools of student loans guaranteed by the agencies and reinsured by the
United States Department of Education. Liquidity for these auction rate securities is typically provided by an auction process that resets the
applicable interest rate at pre-determined intervals, usually every 28 days. However, if auctions for the securities fail to settle, the Company may
not be able to access these funds until a successful auction occurs or until the underlying notes mature.
96
As of December 31, 2006
As of December 31, 2007
Carrying
Amount
Estimated
Fair
Value
Carrying
Amount
Estimated
Fair
Value
(dollars in thousands)
Cash and cash equivalents
$
158,369
$
158,369
$
173,827
$
173,827
Investments in marketable securities
-
short
-
term
214,947
214,947
93,204
93,204
Investments in marketable securities
-
long
-
term
21,460
21,460
21,564
21,564
Investments in other companies for which it is:
Practicable to estimate fair value
48,325
48,325
52,923
52,923
Not practicable to estimate fair value
11,000
N/A
10,000
N/A
Long
-
term debt
258,750
277,253
258,750
261,984
Call options
47,162
58,361
47,162
43,837