Earthlink 2013 Annual Report Download - page 107

Table of Contents EARTHLINK HOLDINGS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The Company periodically disputes network access charges that it is assessed by other companies with which the Company interconnects.
The Company maintains adequate reserves for anticipated exposure associated with these billing disputes. The reserves are subject to changes in
estimates and management judgment as new information becomes available. In view of the length of time historically required to resolve these
disputes, they may be resolved or require adjustment in future periods and relate to costs invoiced, accrued or paid in prior periods. While the
Company believes its reserves for billing disputes are adequate, it is reasonably possible that the Company could record additional expense of up
to $3.5 million for unrecorded disputed amounts.
Regulation
The Company's services are subject to varying degrees of federal, state and local regulation. These regulations are subject to ongoing
proceedings at federal and state administrative agencies or within state and federal judicial systems. Results of these proceedings could change,
in varying degrees, the manner in which the Company operates. The Company cannot predict the outcome of these proceedings or their effect on
the Company's industry generally or upon the Company specifically.
17. Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date (an exit price). A three-
tier fair value hierarchy is used to prioritize the inputs used in measuring fair
value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as observable inputs
other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs for which
little or no market data exists, therefore requiring an entity to develop its own assumptions.
Assets measured at fair value on a recurring basis
As of December 31, 2012, the Company held certain assets that are required to be measured at fair value on a recurring basis. These
included the Company’s cash equivalents and marketable securities. The following table presents the Company’
s assets that are measured at fair
value on a recurring basis as of December 31, 2012:
As of December 31, 2012, the Company classified its cash equivalents within Level 1 because these securities were valued based on
quoted market prices in active markets. The Company classified its government and agency securities, corporate debt securities, commercial
paper and certificates of deposit within Level 2 because these securities were valued based on quoted prices in markets that are less active,
broker or dealer quotations or alternative pricing sources with reasonable levels of price transparency. The Company utilized an independent
pricing service to assist in obtaining fair-
value pricing for its Level 2 securities. Where observable market data was available, the pricing service
used a weighted average price from a variety of data providers. Where observable market data was not readily available, the pricing service used
a pricing model appropriate to the type and structure of the security. The Company periodically evaluated the reasonableness of these models.
Assets and liabilities measured at fair value on a nonrecurring basis
Disclosures are required for certain assets and liabilities that are measured at fair value on a nonrecurring basis in periods subsequent to
initial recognition. Such measurements of fair value relate primarily to long-lived asset impairments. During the
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Fair Value Measurements as of December 31, 2012 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
$
27,854
$
27,854
$
27,854
$
—
$
—
Government and agency securities
30,181
30,181
—
30,181
—
Corporate debt securities
5,314
5,314
—
5,314
—
Commercial paper
9,293
9,293
—
9,293
—
Certificates of deposit
1,552
1,552
—
1,552
—
Municipal bonds
511
511
—
511
—
Total
$
74,705
$
74,705
$
27,854
$
46,851
$
—