Earthlink 2010 Annual Report Download - page 69

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Table of Contents
December 31, 2009, we sold 2.2 million of the Sprint Nextel shares for net proceeds of $8.2 million. We recorded a $7.6 million gain resulting
from the receipt of Sprint Nextel shares and the subsequent sale. During the year ended December 31, 2010, we sold 0.2 million of the Sprint
Nextel shares for net proceeds of $1.6 million and recognized a gain of $0.1 million.
During the years ended December 31, 2008 and 2009, we held investments in auction rate securities. These securities were variable-
rate
debt instruments whose underlying agreements had contractual maturities of up to 40 years, but had interest rate reset periods at pre-
determined
intervals, usually every 28 days. These securities were predominantly secured by student loans guaranteed by state related higher education
agencies and reinsured by the U.S. Department of Education. Beginning in February 2008, auctions for these securities failed to attract sufficient
buyers, resulting in us continuing to hold such securities. In October 2008, we entered into an agreement with the broker that sold us our auction
rate securities that gave us the right to sell our existing auction rate securities back to the broker at par plus accrued interest, beginning on
June 30, 2010 until July 2, 2012 (herein referred to as "put right"). During 2008, we recorded an other-than-
temporary impairment of
$9.9 million to reflect the auction rate securities at their fair value, as we no longer had the intent to hold the securities until maturity. We also
elected a one-time transfer of our auction rate securities from the available-for-
sale category to the trading category. We recorded the value of
the put right in our Consolidated Balance Sheet with a corresponding $9.8 million gain on investments in the Consolidated Statement of
Operations. We elected the fair value option for the put right to offset the fair value changes of the auction rate securities. The other-than-
temporary impairment, net of the gain on the put right, was $0.1 million during the year ended December 31, 2008. During the years ended
December 31, 2009 and 2010, we recorded gains of $4.7 million and $5.3 million, respectively, related to the auction rate securities and recorded
losses of $4.6 million and $5.3 million, respectively, related to the put right. The net gains during the years ended December 31, 2009 and 2010
are included in gain (loss) on investments, net, in the Consolidated Statements of Operations. During the years ended December 31, 2009 and
2010, we redeemed $9.6 million and $48.2 million, respectively, of our auction rate securities at par, plus accrued interest. As a result, we no
longer held investments in auction rate securities as of December 31, 2010.
Interest expense and other, net
Interest expense and other, net, is primarily comprised of interest expense incurred on our Convertible Senior Notes due November 15,
2026 (the "EarthLink Notes") and on ITC^DeltaCom's 10.5% senior secured notes due 2016 (the "ITC^DeltaCom Notes"); interest earned on our
cash, cash equivalents and marketable securities; and other miscellaneous income and expense items.
Interest expense and other, net, increased $7.4 million, from $12.4 million during the year ended December 31, 2008 to $19.8 million
during the year ended December 31, 2009. The increase was primarily due to a decrease in interest earned on our cash, cash equivalents and
marketable securities, despite an increase in our average cash and marketable securities balance, due to lower investment yields from
deteriorating financial and credit markets. Also contributing to the increase was an increase in interest expense resulting from an increase in
accretion of the debt discount relating to the EarthLink Notes.
Interest expense and other, net, increased $4.2 million, from $19.8 million during the year ended December 31, 2009 to $24.0 million
during the year ended December 31, 2010. The increase was primarily due to the inclusion of ITC^DeltaCom interest expense. In connection
with the ITC^DeltaCom acquisition, we assumed $325.0 million aggregate principal amount of the ITC^DeltaCom Notes. Also contributing to
the increase was an increase in interest expense resulting from an increase in accretion of the debt discount relating to the EarthLink Notes and a
decrease in interest earned on our cash, cash equivalents and marketable securities, despite an increase in our average cash and marketable
securities balance, due to lower investment yields.
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