Earthlink 2008 Annual Report Download - page 89

Table of Contents
EARTHLINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Share Repurchases
Since the inception of the Company's share repurchase program, the Board of Directors has authorized a total of $750.0 million for the
repurchase of EarthLink's common stock. As of December 31, 2008, the Company had $169.1 million available under the current authorizations.
The Company may repurchase its common stock from time to time in compliance with the SEC regulations and other legal requirements,
including through the use of derivative transactions, and subject to market conditions and other factors. The share repurchase program does not
require the Company to acquire any specific number of shares and may be terminated by the Board of Directors at any time.
The following table summarizes share repurchases during the years ended December 31, 2006, 2007 and 2008 pursuant to the share
repurchase program, which have been recorded as treasury stock:
Call Spread Transactions
In connection with the issuance of the Notes (see Note 10, "Long-
Term Debt"), the Company entered into separate convertible note hedge
transactions and separate warrant transactions with respect to the Company's common stock to minimize the impact of the potential dilution upon
conversion of the Notes. The Company purchased call options in private transactions to cover approximately 28.4 million shares of the
Company's common stock at a strike price of $9.12 per share, subject to adjustment in certain circumstances, for $47.2 million. The Company
also sold warrants permitting the purchasers to acquire up to approximately 28.4 million shares of the Company's common stock at an exercise
price of $11.20 per share, subject to adjustments in certain circumstances, in private transactions for total proceeds of approximately
$32.1 million. As of December 31, 2007, the estimated fair value of the call options was $43.8 million and the estimated fair value of the
warrants was $28.0 million.
The Company analyzed the Call Spread Transactions under EITF Issue No. 00-
19, "Accounting for Derivative Financial Instruments
Indexed to, and Potentially Settled In, a Company's Own Stock," and other relevant literature, and determined that they met the criteria for
classification as equity transactions. As a result, the Company recorded the purchase of the call options as a reduction in additional paid-
in
capital and the proceeds of the warrants as an increase to additional paid-
in capital, and the Company did not recognize subsequent changes in
fair value of the agreements in its financial statements.
In September 2008, the Company terminated its convertible note hedge and warrant agreements. The Company received an aggregate
payment from the counterparties to the agreements, which was recorded as additional paid-
in capital. Upon termination of the agreements, the
Company purchased approximately 2.5 million shares of common stock the counterparties held in hedge positions for approximately
$22.7 million, based on the closing price of the EarthLink common stock on the purchase date.
12. Stock-Based Compensation
Stock-
based compensation expense under SFAS No. 123(R) was $14.2 million, $19.6 million and $20.1 million during the years ended
December 31, 2006, 2007 and 2008, respectively. In accordance with SAB No. 107, "Share-Based Payment," the Company has classified stock-
based compensation expense within the same operating expense line items as cash compensation paid to employees.
85
Year Ended December 31,
2006 2007 2008
(in thousands)
Number of shares repurchased
11,339
14,032
3,805
Aggregate purchase price
$
85,613
$
94,332
$
31,856