Earthlink 2008 Annual Report Download - page 82

Table of Contents
EARTHLINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
In October 2008, EarthLink entered into an agreement with the broker that sold the Company its auction rate securities that gives the
Company the right to sell its existing auction rate securities back to the broker at par plus accrued interest, beginning on June 30, 2010 until
July 2, 2012. The agreement also grants the broker the right to buy the Company's auction rate securities at par plus accrued interest, until July 2,
2012. The Company recorded an other-than-
temporary impairment of $9.9 million to record the auction rate securities at their fair value, as the
Company no longer has the intent to hold the securities until maturity. The Company also elected a one-
time transfer of its auction rate securities
from the available-for-sale category to the trading category. The Company recorded the value of the put right to long-
term investments in its
Consolidated Balance Sheet with a corresponding $9.8 million gain on investments. The Company elected the fair value option under SFAS
No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities," for the put right to offset the fair value changes of the auction
rate securities. The fair value of the put right was estimated using a discounted cash flow analysis. The other-than-
temporary impairment, net of
the gain on the put right, was $0.1 million during the year ended December 31, 2008 and is included in gain (loss) on investments, net, in the
Consolidated Statement of Operations. The Company did not realize any other significant gains or losses on its marketable securities during the
years ended December 31, 2006, 2007 or 2008.
Investments
Long-term investments consisted of the following as of December 31, 2007 and 2008:
The Company's investments as of December 31, 2007 included $5.3 million for 6.1 million shares of Covad Communications Group, LLC
("Covad") common stock and $47.5 million aggregate principal amount of 12% Senior Secured Convertible Notes due 2011 (the "Covad
Notes"), including accrued and unpaid interest. In April 2008, Platinum Equity, LLC acquired all outstanding shares of Covad. Upon closing of
the transaction, a change of control of Covad occurred, resulting in Covad's repurchase of all Covad Notes held by EarthLink at a purchase price
equal to 100% of the principal amount thereof plus accrued and unpaid interest. As a result, the Company received cash of $50.8 million for the
aggregate principal amount of the Covad Notes plus accrued interest and received cash of $6.3 million for the 6.1 million shares of common
stock. The Company recognized a gain of $2.0 million based on its cost basis of the Covad common stock, which was classified as gain (loss) on
investments, net, in the Consolidated Statement of Operations.
As of December 31, 2007, gross unrealized losses were $1.1 million and there were no gross unrealized gains. As of December 31, 2008,
gross unrealized losses were nominal and there were no gross unrealized gains.
During the year ended December 31, 2006, the Company recognized a gain on investments of $0.4 million. This consisted of $0.4 million in
cash distributions from eCompanies Venture Group, L.P. ("EVG"), a limited partnership that has invested in domestic emerging Internet-
related
companies. During the year ended December 31, 2007, the Company recognized a net loss on investments of $5.6 million. This consisted of
$7.1 million of impairment losses due to other-than-temporary declines of
78
As of December 31,
2007
2008
(in thousands)
Investments stated at fair value
$
52,923
$
11,408
Investments stated at cost
10,000
9,300
Total long
-
term investments
$
62,923
$
20,708