ELNK » Topics » Liquidity and Capital Resources

These excerpts taken from the ELNK 10-K filed Feb 27, 2009.

Liquidity and Capital Resources

        The following table sets forth summarized cash flow data for the years ended December 31, 2006, 2007 and 2008:

 
  Year Ended December 31,  
 
  2006   2007   2008  
 
  (in thousands)
 

Net income (loss)

  $ 4,987   $ (135,097 ) $ 189,612  

Non-cash items

    169,207     253,716     99,794  

Changes in working capital

    (58,945 )   (29,830 )   (58,794 )
               

Net cash provided by operating activities

  $ 115,249   $ 88,789   $ 230,612  
               

Net cash (used in) provided by investing activities

  $ (283,064 ) $ 13,936   $ 107,124  
               

Net cash provided by (used in) financing activities

  $ 152,890   $ (87,267 ) $ (24,999 )
               

Operating activities

        Net cash provided by operating activities decreased $26.5 million during the year ended December 31, 2007 compared to the year ended December 31, 2006. The decrease was primarily due to a decrease in revenues. However, this was offset by a decrease in operating costs and expenses as we began to realize benefits from the 2007 Plan. In addition, cash provided by operating activities was negatively impacted during the year ended December 31, 2007 due to spending for our prior growth initiatives. Net cash provided by operating activities increased during the year ended December 31, 2008 compared to the year ended December 31, 2007. The increase was primarily due to a decrease in costs to acquire and support new customers, a decrease in operating costs resulting from our efforts to reduce our back-office cost structure, benefits realized from the 2007 Plan and a reduction in customer support costs and bad debt expense as our overall subscriber base has decreased and become more tenured.

        Non-cash items include items that are not expected to generate or require the use of cash, such as depreciation and amortization relating to our network, facilities and intangible assets, net losses of equity affiliate, deferred income taxes, stock-based compensation, non-cash disposals and impairments of fixed assets, impairments of goodwill and intangible assets and gain (loss) on investments, net. Non-cash items increased during the year ended December 31, 2007 compared to the prior year due to an increase in net losses of equity affiliate, impairments of fixed assets resulting from the 2007 Plan, an increase in gain (loss) on investments, net, an increase in depreciation and amortization expense and an increase in stock-based compensation expense. Non-cash items decreased during the year ended December 31, 2008 compared to the prior year primarily due to a decrease in net losses of equity affiliate and an increase in non-cash income tax benefits, offset by an increase in impairment of goodwill and intangible assets.

        Changes in working capital requirements include changes in accounts receivable, prepaid and other assets, accounts payable, accrued and other liabilities and deferred revenue. Cash used for working capital requirements decreased during 2007 compared to the prior year primarily due to reduced back office support and sales and marketing spending as a result of the 2007 Plan. However, cash used for working capital requirements increased during 2008 compared to the prior year primarily due to payments resulting from the 2007 Plan and from the discontinuation of our municipal wireless broadband operations.

Investing activities

        Our investing activities used cash of $283.1 million during the year ended December 31, 2006. This consisted of $108.7 million for our acquisition of New Edge; $79.0 million of cash contributions to HELIO; $50.0 million for our investment in Covad to fund the network build-out of certain VoIP services; $10.0 million for our investment in Current Communications; $38.9 million for capital expenditures,

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primarily associated with network and technology center related projects; and $8.9 million for acquiring subscriber bases from other companies. Partially offsetting these investing outlays were proceeds of $12.7 million from sales and maturities of investments in marketable securities, net of purchases.

        Our investing activities provided cash of $13.9 million during the year ended December 31, 2007. This consisted primarily of $122.0 million of sales and maturities of investments in marketable securities, net of purchases, and $1.6 million of distributions received from investments in other companies. These were partially offset by $53.5 million of capital expenditures, $30.0 million loaned to HELIO, $19.5 million of contributions to HELIO and $7.3 million to purchase subscriber bases from other ISPs.

        Our investing activities provided cash of $107.1 million during the year ended December 31, 2008. This consisted primarily of $57.1 million received for our Covad investment and $56.9 million of sales and maturities of investments in marketable securities, net of purchases. In April 2008, Platinum Equity, LLC acquired all outstanding shares of Covad. As a result, we received cash of $50.8 million for the aggregate principal amount of the 12% Senior Secured Convertible Notes due 2011 held by us plus accrued interest in April 2008 and we received cash of $6.3 million for our 6.1 million shares of Covad common stock in May 2008. The decreases were offset by $5.7 million of capital expenditures and $1.2 million used to purchase subscriber bases from other ISPs. Management continuously reviews industry and economic conditions to identify opportunities to pursue acquisitions of subscriber bases and invest in and acquire other companies.

Financing activities

        Our financing activities provided cash of $152.9 million during the year ended December 31, 2006. This consisted primarily of $251.6 million from the issuance of convertible senior notes in November 2006, net of issuance costs. We also received $4.0 million in proceeds from the exercise of stock options. Partially offsetting this cash provided was $85.6 million used to repurchase 11.3 million shares of our common stock, $15.1 million used for hedging transactions to reduce the potential dilution upon conversion of our convertible senior notes, and $2.0 million used to repay a note payable. Our financing activities used cash of $87.3 million during the year ended December 31, 2007. This consisted primarily of $94.3 million used to repurchase 14.0 million shares of our common stock and $2.0 million used to repay a note payable. Partially offsetting cash used for repurchases were proceeds from the exercise of stock options of $9.5 million. Our financing activities used cash of $25.0 million during the year ended December 31, 2008. This consisted primarily of $31.9 million used to repurchase 3.8 million shares of our common stock and $2.7 million to pay off a capital lease obligation. In September 2008, we terminated our convertible note hedge and warrant agreements and we 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 termination date. Partially offsetting cash used for repurchases were proceeds of $8.1 million from the exercise of stock options.

Liquidity and Capital Resources



        The following table sets forth summarized cash flow data for the years ended December 31, 2006, 2007 and 2008:































































































































































 
 Year Ended December 31,  
 
 2006  2007  2008  
 
 (in thousands)
 

Net income (loss)

 $4,987 $(135,097)$189,612 

Non-cash items

  169,207  253,716  99,794 

Changes in working capital

  (58,945) (29,830) (58,794)
        

Net cash provided by operating activities

 $115,249 $88,789 $230,612 
        

Net cash (used in) provided by investing activities

 $(283,064)$13,936 $107,124 
        

Net cash provided by (used in) financing activities

 $152,890 $(87,267)$(24,999)
        




Operating activities



        Net cash provided by operating activities decreased $26.5 million during the year ended December 31, 2007 compared to the
year ended December 31, 2006. The decrease was primarily due to a decrease in revenues. However, this was offset by a decrease in operating costs and expenses as we began to realize benefits
from the 2007 Plan. In addition, cash provided by operating activities was negatively impacted during the year ended December 31, 2007 due to spending for our prior growth initiatives. Net cash
provided by operating activities increased during the year ended December 31, 2008 compared to the year ended December 31, 2007. The increase was primarily due to a decrease in costs to
acquire and support new customers, a decrease in operating costs resulting from our efforts to reduce our back-office cost structure, benefits realized from the 2007 Plan and a reduction
in customer support costs and bad debt expense as our overall subscriber base has decreased and become more tenured.



        Non-cash
items include items that are not expected to generate or require the use of cash, such as depreciation and amortization relating to our network, facilities and
intangible assets, net losses of equity affiliate, deferred income taxes, stock-based compensation, non-cash disposals and impairments of fixed assets, impairments of goodwill and
intangible assets and gain (loss) on investments, net. Non-cash items increased during the year ended December 31, 2007 compared to the prior year due to an increase in net losses
of equity affiliate, impairments of fixed
assets resulting from the 2007 Plan, an increase in gain (loss) on investments, net, an increase in depreciation and amortization expense and an increase in stock-based compensation expense.
Non-cash items decreased during the year ended December 31, 2008 compared to the prior year primarily due to a decrease in net losses of equity affiliate and an increase in
non-cash income tax benefits, offset by an increase in impairment of goodwill and intangible assets.



        Changes
in working capital requirements include changes in accounts receivable, prepaid and other assets, accounts payable, accrued and other liabilities and deferred revenue. Cash used
for working capital requirements decreased during 2007 compared to the prior year primarily due to reduced back office support and sales and marketing spending as a result of the 2007 Plan. However,
cash used for working capital requirements increased during 2008 compared to the prior year primarily due to payments resulting from the 2007 Plan and from the discontinuation of our municipal
wireless broadband operations.



Investing activities



        Our investing activities used cash of $283.1 million during the year ended December 31, 2006. This consisted of
$108.7 million for our acquisition of New Edge; $79.0 million of cash contributions to HELIO; $50.0 million for our investment in Covad to fund the network build-out
of certain VoIP services; $10.0 million for our investment in Current Communications; $38.9 million for capital expenditures,



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primarily
associated with network and technology center related projects; and $8.9 million for acquiring subscriber bases from other companies. Partially offsetting these investing outlays were
proceeds of $12.7 million from sales and maturities of investments in marketable securities, net of purchases.




        Our
investing activities provided cash of $13.9 million during the year ended December 31, 2007. This consisted primarily of $122.0 million of sales and maturities
of investments in marketable securities, net of purchases, and $1.6 million of distributions received from investments in other companies. These were partially offset by $53.5 million of
capital expenditures, $30.0 million loaned to HELIO, $19.5 million of contributions to HELIO and $7.3 million to purchase subscriber bases from other ISPs.



        Our
investing activities provided cash of $107.1 million during the year ended December 31, 2008. This consisted primarily of $57.1 million received for our Covad
investment and $56.9 million of sales and maturities of investments in marketable securities, net of purchases. In April 2008, Platinum Equity, LLC acquired all outstanding shares of
Covad. As a result, we received cash of $50.8 million for the aggregate principal amount of the 12% Senior Secured Convertible Notes due 2011 held by us plus
accrued interest in April 2008 and we received cash of $6.3 million for our 6.1 million shares of Covad common stock in May 2008. The decreases were offset by $5.7 million of
capital expenditures and $1.2 million used to purchase subscriber bases from other ISPs. Management continuously reviews industry and economic conditions to identify opportunities to pursue
acquisitions of subscriber bases and invest in and acquire other companies.



Financing activities



        Our financing activities provided cash of $152.9 million during the year ended December 31, 2006. This consisted
primarily of $251.6 million from the issuance of convertible senior notes in November 2006, net of issuance costs. We also received $4.0 million in proceeds from the exercise of stock
options. Partially offsetting this cash provided was $85.6 million used to repurchase 11.3 million shares of our common stock, $15.1 million used for hedging transactions to
reduce the potential dilution upon conversion of our convertible senior notes, and $2.0 million used to repay a note payable. Our financing activities used cash of $87.3 million during
the year ended December 31, 2007. This consisted primarily of $94.3 million used to repurchase 14.0 million shares of our common stock and $2.0 million used to repay a note
payable. Partially offsetting cash used for repurchases were proceeds from the exercise of stock options of $9.5 million. Our financing activities used cash of $25.0 million during the
year ended December 31, 2008. This consisted primarily of $31.9 million used to repurchase 3.8 million shares of our common stock and $2.7 million to pay off a capital
lease obligation. In September 2008, we terminated our convertible note hedge and warrant agreements and we 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 termination date. Partially offsetting cash used for repurchases were proceeds
of $8.1 million from the exercise of stock options.



Liquidity and Capital Resources



        The following table sets forth summarized cash flow data for the years ended December 31, 2006, 2007 and 2008:































































































































































 
 Year Ended December 31,  
 
 2006  2007  2008  
 
 (in thousands)
 

Net income (loss)

 $4,987 $(135,097)$189,612 

Non-cash items

  169,207  253,716  99,794 

Changes in working capital

  (58,945) (29,830) (58,794)
        

Net cash provided by operating activities

 $115,249 $88,789 $230,612 
        

Net cash (used in) provided by investing activities

 $(283,064)$13,936 $107,124 
        

Net cash provided by (used in) financing activities

 $152,890 $(87,267)$(24,999)
        




Operating activities



        Net cash provided by operating activities decreased $26.5 million during the year ended December 31, 2007 compared to the
year ended December 31, 2006. The decrease was primarily due to a decrease in revenues. However, this was offset by a decrease in operating costs and expenses as we began to realize benefits
from the 2007 Plan. In addition, cash provided by operating activities was negatively impacted during the year ended December 31, 2007 due to spending for our prior growth initiatives. Net cash
provided by operating activities increased during the year ended December 31, 2008 compared to the year ended December 31, 2007. The increase was primarily due to a decrease in costs to
acquire and support new customers, a decrease in operating costs resulting from our efforts to reduce our back-office cost structure, benefits realized from the 2007 Plan and a reduction
in customer support costs and bad debt expense as our overall subscriber base has decreased and become more tenured.



        Non-cash
items include items that are not expected to generate or require the use of cash, such as depreciation and amortization relating to our network, facilities and
intangible assets, net losses of equity affiliate, deferred income taxes, stock-based compensation, non-cash disposals and impairments of fixed assets, impairments of goodwill and
intangible assets and gain (loss) on investments, net. Non-cash items increased during the year ended December 31, 2007 compared to the prior year due to an increase in net losses
of equity affiliate, impairments of fixed
assets resulting from the 2007 Plan, an increase in gain (loss) on investments, net, an increase in depreciation and amortization expense and an increase in stock-based compensation expense.
Non-cash items decreased during the year ended December 31, 2008 compared to the prior year primarily due to a decrease in net losses of equity affiliate and an increase in
non-cash income tax benefits, offset by an increase in impairment of goodwill and intangible assets.



        Changes
in working capital requirements include changes in accounts receivable, prepaid and other assets, accounts payable, accrued and other liabilities and deferred revenue. Cash used
for working capital requirements decreased during 2007 compared to the prior year primarily due to reduced back office support and sales and marketing spending as a result of the 2007 Plan. However,
cash used for working capital requirements increased during 2008 compared to the prior year primarily due to payments resulting from the 2007 Plan and from the discontinuation of our municipal
wireless broadband operations.



Investing activities



        Our investing activities used cash of $283.1 million during the year ended December 31, 2006. This consisted of
$108.7 million for our acquisition of New Edge; $79.0 million of cash contributions to HELIO; $50.0 million for our investment in Covad to fund the network build-out
of certain VoIP services; $10.0 million for our investment in Current Communications; $38.9 million for capital expenditures,



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primarily
associated with network and technology center related projects; and $8.9 million for acquiring subscriber bases from other companies. Partially offsetting these investing outlays were
proceeds of $12.7 million from sales and maturities of investments in marketable securities, net of purchases.




        Our
investing activities provided cash of $13.9 million during the year ended December 31, 2007. This consisted primarily of $122.0 million of sales and maturities
of investments in marketable securities, net of purchases, and $1.6 million of distributions received from investments in other companies. These were partially offset by $53.5 million of
capital expenditures, $30.0 million loaned to HELIO, $19.5 million of contributions to HELIO and $7.3 million to purchase subscriber bases from other ISPs.



        Our
investing activities provided cash of $107.1 million during the year ended December 31, 2008. This consisted primarily of $57.1 million received for our Covad
investment and $56.9 million of sales and maturities of investments in marketable securities, net of purchases. In April 2008, Platinum Equity, LLC acquired all outstanding shares of
Covad. As a result, we received cash of $50.8 million for the aggregate principal amount of the 12% Senior Secured Convertible Notes due 2011 held by us plus
accrued interest in April 2008 and we received cash of $6.3 million for our 6.1 million shares of Covad common stock in May 2008. The decreases were offset by $5.7 million of
capital expenditures and $1.2 million used to purchase subscriber bases from other ISPs. Management continuously reviews industry and economic conditions to identify opportunities to pursue
acquisitions of subscriber bases and invest in and acquire other companies.



Financing activities



        Our financing activities provided cash of $152.9 million during the year ended December 31, 2006. This consisted
primarily of $251.6 million from the issuance of convertible senior notes in November 2006, net of issuance costs. We also received $4.0 million in proceeds from the exercise of stock
options. Partially offsetting this cash provided was $85.6 million used to repurchase 11.3 million shares of our common stock, $15.1 million used for hedging transactions to
reduce the potential dilution upon conversion of our convertible senior notes, and $2.0 million used to repay a note payable. Our financing activities used cash of $87.3 million during
the year ended December 31, 2007. This consisted primarily of $94.3 million used to repurchase 14.0 million shares of our common stock and $2.0 million used to repay a note
payable. Partially offsetting cash used for repurchases were proceeds from the exercise of stock options of $9.5 million. Our financing activities used cash of $25.0 million during the
year ended December 31, 2008. This consisted primarily of $31.9 million used to repurchase 3.8 million shares of our common stock and $2.7 million to pay off a capital
lease obligation. In September 2008, we terminated our convertible note hedge and warrant agreements and we 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 termination date. Partially offsetting cash used for repurchases were proceeds
of $8.1 million from the exercise of stock options.



These excerpts taken from the ELNK 10-K filed Feb 28, 2008.

Liquidity and Capital Resources

        The following table sets forth summarized cash flow data for the years ended December 31, 2005, 2006 and 2007:

 
  Year Ended December 31,
 
 
  2005
  2006
  2007
 
 
  (in thousands)

 
Net income (loss)   $ 142,780   $ 4,987   $ (135,097 )
Non-cash items     100,844     169,207     253,716  
Changes in working capital     (54,920 )   (58,945 )   (29,830 )
   
 
 
 
Net cash provided by operating activities   $ 188,704   $ 115,249   $ 88,789  
   
 
 
 
Net cash (used in) provided by investing activities   $ (65,081 ) $ (283,064 ) $ 13,936  
   
 
 
 
Net cash (used in) provided by financing activities   $ (169,239 ) $ 152,890   $ (87,267 )
   
 
 
 

Operating activities

        Net cash provided by operating activities decreased over the past three years. The decrease from the year ended December 31, 2005 to the year ended December 31, 2006 was primarily due to an increase in costs associated with launching our municipal wireless broadband and IP-based voice services. The decrease from the year ended December 31, 2006 to the year ended December 31, 2007 was primarily due to a decrease in revenues. However, this was offset by a decrease in operating costs and expenses as we began to realize benefits from our 2007 corporate restructuring plan.

        Non-cash items include items that are not expected to generate or require the use of cash, such as depreciation and amortization relating to our network, facilities and intangible assets, net losses of equity affiliate, deferred income taxes, stock-based compensation, non-cash disposals and impairments of fixed assets and gain (loss) on investments in other companies, net. Non-cash items increased during the year ended December 31, 2006 compared to the prior year due to an increase in net losses of equity affiliate and stock-based compensation expense from the adoption of SFAS No. 123(R). Non-cash items increased during the year ended December 31, 2007 compared to the prior year due to an increase in net losses of equity affiliate, impairments of fixed assets resulting from our restructuring plan, an increase in gain (loss) on investments in other companies, net, an increase in depreciation and amortization expense and an increase in stock-based compensation expense.

        Changes in working capital requirements include changes in accounts receivable, prepaid and other assets, accounts payable, accrued and other liabilities and deferred revenue. Cash used for working capital requirements increased during the year ended December 31, 2006 primarily due to an increase spending related to our prior growth initiatives. Cash used for working capital requirements decreased during 2007 primarily due to reduced back office support and sales and marketing spending as a result of our 2007 corporate restructuring plan.

Investing activities

        Net cash used for investing activities increased during the year ended December 31, 2006 compared to the prior year, but decreased during the year ended December 31, 2007. The increase in 2006 was primarily due to cash used for investments in New Edge and in other companies, such as our Covad investment. The decrease in 2007 was primarily due to decreases in investments in other companies, investments in HELIO, cash used for our acquisition of New Edge in 2006 and sales of investments in marketable securities, offset by an increase in capital expenditures.

44


        Our investing activities used cash of $65.1 million during the year ended December 31, 2005. This consisted primarily of $82.3 million for our investment in HELIO. In addition, we used $33.9 million for capital expenditures, primarily associated with network and technology center related projects; $9.4 million to purchase the assets of Aluria Software LLC, a software developer and provider if protection and security products; and $6.7 million for acquiring subscriber bases from other companies. Partially offsetting these investing outlays were proceeds of $63.5 million from sales and maturities of investments in marketable securities, net of purchases, and $4.4 million of distributions received from our equity investments in other companies.

        Our investing activities used cash of $283.1 million during the year ended December 31, 2006. This consisted of $108.7 million for our acquisition of New Edge; $79.0 million for our investment in HELIO; $50.0 million for our investment in Covad to fund the network build-out of IP-based voice services; $10.0 million for our investment in Current Communications; $38.9 million for capital expenditures, primarily associated with network and technology center related projects; and $8.9 million for acquiring subscriber bases from other companies. Partially offsetting these investing outlays were proceeds of $12.7 million from sales and maturities of investments in marketable securities, net of purchases.

        Our investing activities provided cash of $13.9 million during the year ended December 31, 2007. This consisted primarily of $122.0 million of sales and maturities of investments in marketable securities, net of purchases, and $1.6 million of distributions received from investments in other companies. These were offset by $53.5 million of capital expenditures, $30.0 million loaned to HELIO, $19.5 million of contributions to HELIO and $7.3 million to purchase subscriber bases from other ISPs. Management continuously reviews industry and economic conditions to identify opportunities to pursue acquisitions of subscriber bases and invest in and acquire other companies.

Financing activities

        Our financing activities used cash of $169.2 million during the year ended December 31, 2005. This consisted primarily of $192.6 million used to repurchase 20.5 million shares of our common stock. Partially offsetting cash used for repurchases were proceeds from the exercise of stock options of $23.4 million. Our financing activities provided cash of $152.9 million during the year ended December 31, 2006. This consisted primarily of $251.6 million from the issuance of convertible senior notes in November 2006, net of issuance costs. We also received $4.0 million in proceeds from the exercise of stock options. Partially offsetting this cash provided was $85.6 million used to repurchase 11.3 million shares of our common stock, $15.1 million used for hedging transactions to reduce the potential dilution upon conversion of our convertible senior notes, and $2.0 million used to repay a note payable. Our financing activities used cash of $87.3 million during the year ended December 31, 2007. This consisted primarily of $94.3 million used to repurchase 14.0 million shares of our common stock and $2.0 million used to repay a note payable. Partially offsetting cash used for repurchases were proceeds from the exercise of stock options of $9.5 million.

Liquidity and Capital Resources



        The following table sets forth summarized cash flow data for the years ended December 31, 2005, 2006 and 2007:

















































































































































 
 Year Ended December 31,
 
 
 2005
 2006
 2007
 
 
 (in thousands)

 
Net income (loss) $142,780 $4,987 $(135,097)
Non-cash items  100,844  169,207  253,716 
Changes in working capital  (54,920) (58,945) (29,830)
  
 
 
 
Net cash provided by operating activities $188,704 $115,249 $88,789 
  
 
 
 
Net cash (used in) provided by investing activities $(65,081)$(283,064)$13,936 
  
 
 
 
Net cash (used in) provided by financing activities $(169,239)$152,890 $(87,267)
  
 
 
 




Operating activities



        Net cash provided by operating activities decreased over the past three years. The decrease from the year ended December 31, 2005 to the year ended
December 31, 2006 was primarily due to an increase in costs associated with launching our municipal wireless broadband and IP-based voice services. The decrease from the year ended
December 31, 2006 to the year ended December 31, 2007 was primarily due to a decrease in revenues. However, this was offset by a decrease in operating costs and expenses as we began to
realize benefits from our 2007 corporate restructuring plan.



        Non-cash
items include items that are not expected to generate or require the use of cash, such as depreciation and amortization relating to our network, facilities and
intangible assets, net losses of equity affiliate, deferred income taxes, stock-based compensation, non-cash disposals and impairments of fixed assets and gain (loss) on investments in
other companies, net. Non-cash items increased during the year ended December 31, 2006 compared to the prior year due to an increase in net losses of equity affiliate and
stock-based compensation expense from the adoption of SFAS No. 123(R). Non-cash items increased during the year ended December 31, 2007 compared to the prior year due to an
increase in net losses of equity affiliate, impairments of fixed assets resulting from our restructuring plan, an increase in gain (loss) on investments in other companies, net, an increase in
depreciation and amortization expense and an increase in stock-based compensation expense.



        Changes
in working capital requirements include changes in accounts receivable, prepaid and other assets, accounts payable, accrued and other liabilities and deferred revenue. Cash used
for working capital requirements increased during the year ended December 31, 2006 primarily due to an increase spending related to our prior growth initiatives. Cash used for working capital
requirements decreased during 2007 primarily due to reduced back office support and sales and marketing spending as a result of our 2007 corporate restructuring plan.



Investing activities



        Net cash used for investing activities increased during the year ended December 31, 2006 compared to the prior year, but decreased during the year ended
December 31, 2007. The increase in 2006 was primarily due to cash used for investments in New Edge and in other companies, such as our Covad
investment. The decrease in 2007 was primarily due to decreases in investments in other companies, investments in HELIO, cash used for our acquisition of New Edge in 2006 and sales of investments in
marketable securities, offset by an increase in capital expenditures.



44









        Our
investing activities used cash of $65.1 million during the year ended December 31, 2005. This consisted primarily of $82.3 million for our investment in HELIO.
In addition, we used $33.9 million for capital expenditures, primarily associated with network and technology center related projects; $9.4 million to purchase the assets of Aluria
Software LLC, a software developer and provider if protection and security products; and $6.7 million for acquiring subscriber bases from other companies. Partially offsetting these
investing outlays were proceeds of $63.5 million from sales and maturities of investments in marketable securities, net of purchases, and $4.4 million of distributions received from our
equity investments in other companies.



        Our
investing activities used cash of $283.1 million during the year ended December 31, 2006. This consisted of $108.7 million for our acquisition of New Edge;
$79.0 million for our investment in HELIO; $50.0 million for our investment in Covad to fund the network build-out of IP-based voice services;
$10.0 million for our investment in Current Communications; $38.9 million for capital expenditures, primarily associated with network and technology center related projects; and
$8.9 million for acquiring subscriber bases from other companies. Partially offsetting these investing outlays were proceeds of $12.7 million from sales and maturities of investments in
marketable securities, net of purchases.



        Our
investing activities provided cash of $13.9 million during the year ended December 31, 2007. This consisted primarily of $122.0 million of sales and maturities
of investments in marketable securities, net of purchases, and $1.6 million of distributions received from investments in other companies. These were offset by $53.5 million of capital
expenditures, $30.0 million loaned to HELIO, $19.5 million of contributions to HELIO and $7.3 million to purchase subscriber bases from other ISPs. Management continuously reviews
industry and economic conditions to identify opportunities to pursue acquisitions of subscriber bases and invest in and acquire other companies.



Financing activities



        Our financing activities used cash of $169.2 million during the year ended December 31, 2005. This consisted primarily of $192.6 million used
to repurchase 20.5 million shares of our common stock. Partially offsetting cash used for repurchases were proceeds from the exercise of stock options of $23.4 million. Our financing
activities provided cash of $152.9 million during the year ended December 31, 2006. This consisted primarily of $251.6 million from the issuance of convertible senior
notes in November 2006, net of issuance costs. We also received $4.0 million in proceeds from the exercise of stock options. Partially offsetting this cash provided was $85.6 million
used to repurchase 11.3 million shares of our common stock, $15.1 million used for hedging transactions to reduce the potential dilution upon conversion of our convertible senior notes,
and $2.0 million used to repay a note payable. Our financing activities used cash of $87.3 million during the year ended December 31, 2007. This consisted primarily of
$94.3 million used to repurchase 14.0 million shares of our common stock and $2.0 million used to repay a note payable. Partially offsetting cash used for repurchases were
proceeds from the exercise of stock options of $9.5 million.



This excerpt taken from the ELNK 10-Q filed Nov 9, 2005.

Liquidity and Capital Resources

 

Cash flows for the nine months ended September 30, 2005

 

Our operating activities provided cash of $160.7 million during the nine months ended September 30, 2005, which primarily consisted of net income of $113.6 million adjusted for non-cash items of $56.5 million and partially offset by cash used for working capital of $9.4 million. Non-cash items primarily included deferred income taxes, depreciation and amortization relating to our network, facilities and intangible assets, and net losses of equity affiliate. Working capital activities consisted of a $17.2 million decrease in accounts payable, accrued liabilities and deferred revenue; a $2.7 million increase in accounts receivable, net; and a $10.4 million decrease in prepaid expenses and other assets.

 

Our investing activities provided cash of $8.6 million during the nine months ended September 30, 2005.  This was primarily due to $127.9 million provided by sales and maturities of investments in marketable securities, net of purchases of investments in marketable securities.  This was partially offset by $81.7 million of investments in and net advances from Helio. Additionally, we used cash of $26.7 million for capital expenditures, primarily associated with network and technology center related projects; $9.2 million in acquiring the assets of Aluria; and $4.8 million for purchases of subscriber bases from ISPs.

 

Our financing activities used cash of $171.8 million during the nine months ended September 30, 2005, primarily due to the repurchase of 19.5 million shares of EarthLink common stock pursuant to our share repurchase program for $181.3 million.  This was partially offset by the receipt of $9.6 million in proceeds from the exercise of stock options and purchases pursuant to our employee stock purchase plan, which was terminated in January 2005.

 

Other

 

Our principal sources of liquidity are our cash, cash equivalents and investments in marketable securities, as well as the cash flow we generate from operations. As of September 30, 2005, we had approximately $216.4 million in cash and cash equivalents. In addition, we held short- and long-term investments in marketable securities valued at $141.0 million and $43.5 million, respectively.  Short-term investments in marketable securities consist of investments that have maturity dates of up to one year from the balance sheet date as well as asset-backed, auction rate securities, and long-term investments in marketable securities consist of investments that have maturity dates of more than one year from the balance sheet date.

 

In March 2005, we completed the formation of Helio, a joint venture with SKT, to market wireless voice and data services in the U.S. Pursuant to Helio’s Contribution and Formation Agreement, we invested $43.0 million of cash and contributed non-cash assets valued at $40.0 million, including customers, contractual arrangements and agreements to prospectively market Helio’s services. Pursuant to the Contribution and Formation Agreement, we invested $39.0 million of cash in August 2005, and are committed to invest an additional $98.0 million of cash in Helio at various dates through August 2007. We expect our commitment to invest additional cash in Helio will adversely affect our cash position.

 

We expect to continue to use cash to pay real estate obligations associated with facilities closed in restructuring our contact center operations. We also expect to continue to use cash to repurchase shares of our common stock.

 

We are using cash and expect to continue to use cash to invest in growth initiatives, such as wireline voice services and wireless broadband services. We may use a portion of our cash to acquire or invest in companies with specific products, service capabilities, marketing channels, and/or subscriber bases that complement ours, among other potential opportunities. We also expect to incur capital expenditures to maintain and upgrade our network and technology infrastructure.  Our cash requirements depend on numerous factors, including the rate of market acceptance of our and Helio’s services, the rate at which we invest in growth initiatives, our ability to maintain and expand our customer base, the rate of expansion of our network

 

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infrastructure, the size and types of acquisitions in which we may engage, the level of resources required to expand our sales and marketing programs, and general economic developments.

 

We believe our available cash and marketable securities, together with our results of operations, are sufficient to meet our operating expenses, capital requirements and investment obligations for the foreseeable future; however, we have no commitments for any additional financing and have no lines of credit or similar sources of financing. We cannot be sure that we can obtain additional commitments on favorable terms, if at all. Additional equity financing may dilute our stockholders, and debt financing, if available, may restrict our ability to declare and pay dividends and raise future capital. If we are unable to obtain additional needed financing, we may be required to reduce the scope of our operations or anticipated expansion, which could materially and adversely affect us.

 

Income taxes

 

We continue to maintain a valuation allowance against our deferred tax assets of approximately $317.7 million, consisting primarily of net operating loss carryforwards, and we may recognize deferred tax assets in future periods when they are determined to be realizable. To the extent we may owe income taxes in future periods, we intend to use our net operating loss carryforwards to the extent available to reduce cash outflows for income taxes.

 

Share repurchase program

 

As of October 31, 2005, we have used approximately $365.4 million pursuant to our share repurchase program and have $184.6 million available to purchase common stock.  We may repurchase our common stock from time to time in compliance with the SEC’s regulations and other legal requirements, including through the use of derivative transactions, subject to market conditions and other factors. The share repurchase program does not require us to acquire any specific number of shares and may be terminated at any time.

 

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