Earthlink 2012 Annual Report Download - page 83

Table of Contents EARTHLINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Supply Risk. The Company's business depends on the capacity, affordability, reliability and security of third-
party network service
providers. Only a small number of providers offer the network services the Company requires, and the majority of its network services are
currently purchased from a limited number of network service providers. Although management believes that alternate network providers could
be found in a timely manner, any disruption of these services could have a material adverse effect on the Company's financial position, results of
operations and cash flows.
Our business and financial results depend, in part, on the availability and quality of other third-
party service providers. Specifically, the
Company relies on third parties for customer service and technical support, web hosting services, certain billing and collection services and E911
service for our VoIP services. The Company's Consumer Services segment relies primarily on one customer service and technical support
vendor. The Company's service providers may become subject to financial, economic, environmental and political risks, system failures or other
services interruptions beyond the Company's or the providers' control which could jeopardize their ability to deliver services. Although
management believes that alternate contact center service providers could be found in a timely manner, any disruption of these services could
have a material adverse effect on the Company's financial position, results of operations and cash flows.
Fair Value of Financial Instruments
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 that are carried at fair value.
3. Earnings per Share
The following table sets forth the computation for basic and diluted net income per share for the years ended
December 31, 2010, 2011
and 2012 :
During the years ended December 31, 2010, 2011 and 2012 , approximately 2.6 million , 1.9 million and 3.5 million
, respectively,
stock options and restricted stock units were excluded from the calculation of diluted earnings per share because their effect would have been
anti-dilutive. Anti-dilutive securities could be dilutive in future periods.
4. Acquisitions
ITC^DeltaCom
On December 8, 2010, EarthLink acquired ITC^DeltaCom, Inc. ("ITC^DeltaCom"), a provider of integrated communications services
to customers in the southeastern U.S., at a price of $3.00
per share. EarthLink acquired 100% of ITC^DeltaCom in a merger transaction with
ITC^DeltaCom surviving as a wholly-
owned subsidiary of EarthLink. The primary reason for the acquisition was to enable the Company to
transform its business from an Internet services provider ("ISP") to residential customers into a network and communications provider for
business customers, by combining its existing business services with ITC^DeltaCom's integrated communications business. EarthLink has
included the financial results of ITC^DeltaCom in its consolidated financial statements from the date of the acquisition.
73
Year Ended December 31,,
2010 2011 2012
(in thousands, except per share data)
Numerator
Net income
$
81,480
$
34,567
$
7,520
Denominator
Basic weighted average common shares outstanding
108,057
108,098
105,221
Dilutive effect of Common Stock Equivalents
1,411
851
762
Diluted weighted average common shares outstanding
109,468
108,949
105,983
Basic net income per share
$
0.75
$
0.32
$
0.07
Diluted net income per share
$
0.74
$
0.32
$
0.07