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Table of Contents
EARTHLINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following tables present the Company's assets that are measured at fair value on a recurring basis as of December 31, 2009 and 2010:
Cash equivalents, marketable securities and equity investments in other companies were valued using quoted market prices and are
classified within Level 1. Investments in auction rate securities and the Company's put right were classified within Level 3 as of December 31,
2009 because they were valued using a discounted cash flow model. Some of the inputs to this model were unobservable in the market and were
significant. During the year ended December 31, 2010, the Company sold $48.2 million of its auction rate securities to the selling broker at par,
plus accrued interest. As a result, the Company no longer holds investments in auction rate securities and the put right was zero as of
December 31, 2010.
The Company had invested in auction rate securities, which are more fully described in Note 6, "Investments." Beginning in February 2008,
these instruments held by the Company failed to attract sufficient buyers. As a result, these securities did not have a readily determinable market
value and were not liquid. In October 2008, EarthLink entered into an agreement with the broker that sold the Company its auction rate securities
that gave 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. As a result, the Company classified its auction rate securities as trading, with changes in fair value included in gain on
investments, net, in the Condensed Consolidated Statement of Operations. The Company elected the fair value option for the put right to offset
the fair value changes of the auction rate securities. The fair values of the Company's auction rate securities and put right as of December 31,
2009 were estimated utilizing a
123
Fair Value Measurements as of
December 31, 2009 Using
Description
Carrying
Value
Fair
Value
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
(in thousands)
Cash equivalents
$
588,666
$
588,666
$
588,666
$
—
$
—
Government and agency
securities
42,060
42,060
42,060
—
—
Auction rate securities
42,906
42,906
—
—
42,906
Equity investments in
other companies
1,529
1,529
1,529
—
—
Put right
5,239
5,239
—
—
5,239
Total
$
680,400
$
680,400
$
632,255
$
—
$
48,145
Fair Value Measurements as of
December 31, 2010 Using
Description
Carrying
Value
Fair
Value
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
(in thousands)
Cash equivalents
$
184,054
$
184,054
$
184,054
$
—
$
—
Government and agency
securities
284,441
284,441
284,441
—
—
Commercial paper
14,666
14,666
14,666
—
—
Corporate debt securities
21,011
21,011
21,011
—
—
Total
$
504,172
$
504,172
$
504,172
$
—
$
—