20111020Application.pdf

BINGHAM
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Bingham McCutchen LLP
2020 K Street NW
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T +1.202.373.6000
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bingham.com
REGE!r\L/
2011 OCT 20 AM 10: 03
Jean L. Kiddoo
Brett P. Ferenchak
Nguyen T. Vu
jean.kiddoo&! bingham. com
brett.ferenchak &! bingham. com
nguyen. vu &! bingham. com
October 19,2011 NEW CASE
Via Overnight Courier
Ms. Jean D. Jewell, Secretary
Idaho Public Utilities Commssion
472 West Washington Street
Boise, Idaho 83702
Nl:N ~ -\ i-O\
Re: Application of New Edge Network, Inc. d//a EarthLink Business for a
Certificate of Public Convenience and Necessity to Provide Local Exchange
Telecommunications Services
Dear Ms. Jewell:
On behalf of New Edge Network, Inc. d//a EarhLink Business ("New Edge"), enclosed
for filing are an original and seven (7) copies of the above-referenced Application. A
copy of New Edge's ilustrative local exchange tariff is attached as Exhibit 6 and is also
provided on the enclosed diskette in MS Word format.
Please date-stamp the enclosed extra copy of this fiing and return it in the envelope
provided. Should you have any questions, please do not hesitate to contact Brett
Ferenchak at 202-373-6697.
Respectfully submitted,~~~f~
Jean L. Kiddoo
Brett P. Ferenchak
Nguyen T. Vu
N73672313.1
BEFORE THE
IDAHO PUBLIC UTILITIES COMMISSION
Application of
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Docket No.NEN-T-I/-D/
New Edge Network, Inc.
d/b/a EarthLink Business
For a Certificate of Public Convenience and
Necessity to Provide Local Exchange
Telecommunications Services
APPLICATION
New Edge Network, Inc. d/b/a EarhLink Business ("New Edge" or "Applicant"), by its
undersigned counsel and pursuant to Idaho Code §§ 61-526-528, IDAPA 31.01.01.11 1, and
Procedural Order No. 26665, hereby applies to the Idaho Public Utilities Commission
("Commission") for a Certificate of Public Convenience and Necessity to provide resold and
facilities-based local exchange telecommunications service in the State of Idaho.
In support of this Application, New Edge hereby provides the following information:
i. Proposed Services
Applicant seeks authority to provide resold and facilities-based local exchange services in
Idaho.
Applicant proposes to provide wireline local telecommunications service - specifically,
local exchange service (including, among other things, access to emergency services, access to
operator services, alternative operator services, access to interexchange service, access to
directory assistance, toll limitation for qualifying low-income consumers, and any other ancilary
functionalities that New Edge must provide pursuant to applicable statutes and regulations) and
exchange access service. While Applicant wil primarily provide local exchange serice through
N74489639. i
the resale of the services of other carriers, Applicant may also provide facilities-based services.
Such facilities-based local exchange service may be provided via (1) facilities-based leased from
other carriers, (2) New Edge's own facilities, or (3) a combination thereof.
New Edge is curently in the process of developing its marketing strategy for the State of
Idaho. New Edge wil utilze a professionally trained sales force to market its services and will
comply with all Commission rules and regulations in marketing its services in the State of Idaho.
New Edge provides integrated voice, mobile and data services and related value-added
services to businesses and communications carriers. New Edge is authorized to provide
intrastate telecommunications services in: Alabama, Alaska, Arizona, Arkansas, California,
Colorado, Connecticut, Delaware, Florida, Georgia, Ilinois, Indiana, Iowa, Kansas, Kentucky,
Louisiana, Maine, Marland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri,
Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York, North
Carolina, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota,
Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin, and
Wyoming.
II. Form of Business
Applicant's legal name is New Edge Network, Inc. Applicant does not maintain a place
of business in Idaho but may be reached at its principal place of business:
1375 Peachtree Street
Atlanta, Georgia 30309
Tel: [phone]
ww.earthlinkbusiness.com
New Edge is a corporation organized under the laws of the State of Delaware. Copies of
Applicant's Amended and Restated Certificate of Incorporation, Certificate of Authority to
2
N74489639. i
transact business as a foreign corporation in Idaho, and Certificate of Assumed Name are
attached hereto as Exhibits 1, 2 and 3, respectively.
Applicant's registered agent in Idaho is:
National Registered Agents, Inc.
1423 Tyrell Lane
Boise, ID 83706
The principal offcers and directors of Applicant are as follows:
Officers
Rolla P. Huff
Joseph M. Wetzel
Bradley A. Ferguson
James P. O'Brien
Cardi M. Prinzi
Kevin F. Brand
Samuel R. DeSimone, Jr.
Stacie S. Hagan
Barbara Dondiego
Brian Fink
Robert L. Scott
Mark Droege
Richard Michael Thurston
Mike Harry
David Harwell
Sara Plunett
Don Hellwege
Geraldine Willams
Clay Robinson
Alva (Trey) Huffman
David Grady
Tom Thomas
Elizabeth Cunningham
Adam Michael
Tiffani Abbott
Mark Butterfield
Sole Director
Rolla P. Huff
N74489639.i
Chief Executive Officer
President and Chief Operating Offcer
Executive Vice President, Chief Financial Officer
Executive Vice President, Network Services and Customer
Operations
Executive Vice President, Sales and Marketing
Executive Vice President, Consumer Products and Support
Executive Vice President, General Counsel and Secretary
Executive Vice President, Chief People Officer
Senior Vice President, Chief Marketing Officer-
EarhLink Business
Senior Vice President, Strategic Planing and Program
Delivery
Chief Information Officer
Senior Vice President, Treasurer
Controller
Senior Vice President
Senior Vice President
Senior Vice President, Finance
Vice President, Assistant General Counsel and Assistant
Secretary
Vice President and Assistant Treasurer
Vice President of Tax and Assistant Treasurer
Vice President, Finance
Vice President and Assistant Treasurer
Vice President and Assistant Secretary
Assistant Treasurer
Associate General Counsel and Assistant Secretar
Senior Counsel and Assistant Secretary
Assistant Secretary
3
All Officers and the Sole Director may be contacted through the Applicant's principal offices
listed above.
New Edge is a wholly-owned indirect subsidiary of EarthLink, Inc. ("EarthLink"). A
char of Applicant's corporate ownership structure, is provided as Exhibit 4. EarthLink is a
publicly traded Delaware corporation (NASDAQ: ELNK) with a principal business office at
1375 Peachtree Street, Atlanta, Georgia 30309. EarhLink is a provider of Internet Protocol (IP)
and telecommunications infrastructure and services to businesses, enterprise organizations and
individual customers across the United States. EarthLink's Consumer Services segment is an
Internet service provider, providing nationwide Internet access and related value-added services
to individual and small business customers. EarhLink's Consumer Service offerings are
narrowband and broadband (high speed) Internet access, search, advertising and VoIP services.
EarhLink's Business Services segment provides integrated voice, mobile and data services and
related value-added services to businesses and communications carriers. EarthLink operates its
Business Services segment through its regulated operating companies, including New Edge.
Additional information regarding EarhLink, including its most recent SEC Form lO-K, as fied
with the Securities and Exchange Commission, is available at
http://ww.earthlink.net/about/investor/ .
4
N74489639. i
III. Contacts for Application
All correspondence and communications regarding this Application should be addressed
to:
Jean L. Kiddoo
Brett P. Ferenchak
Bingham McCutchen LLP
2020 K Street, N.W.
Washington, DC 20006
Tel: [phone]
Fax: [phone]
Email: jean.kiddoo~bingham.com
brett.ferenchak~bingham.com
with a copy to:
Paula Foley
Regulatory Affairs Counsel
EarthLink Business
5 Wall Street
Burlington, MA 01803
Tel: [phone]
Fax: [phone]
pfoley~corp. earhlink.com
IV. Telecommunications Services
New Edge proposes to provide resold and facilities-based local exchange
telecommunications services in Idaho upon grant of authority by the Commission. Applicant
wil begin offering local exchange service shortly after being authorized to do so by the
Commission. Applicant does not currently plan to construct facilities, but seeks facilities-based
authority so that it can provide services over its own facilities, facilities leased from other carrier
or a combination thereof in the future as market condition permit. New Edge proposes to
provide local exchange telecommunications services to business customers in the State of Idaho.
5
N74489639. i
V. Service Territory
New Edge seeks to provide local exchange services in all areas curently or that become
open to competition, including but not limited to those areas currently served by CenturyLink
and Verizon. Applicant does not seek to remove any exemption granted to a small or rural
carrier pursuant to § 251(f) of the Federal Act, and therefore, Applicant does not seek to provide
telecommunications services to customers in those areas at this time. Initially, New Edge wil
compete directly with CenturLink and Verizon for the provision of local exchange services.
Applicant does not currently own any facilties or property in Idaho.
VI. Financial Information
New Edge is also well-qualified financially to operate within the State of Idaho. As
outlined in more detail below, Applicant, through its parent company EarhLink, possesses the
requisite financial resources to provide resold local exchange telecommunications service
including the ability and wilingness to cover any customer advances and deposits; and to pay
intrastate access charges and interconnection charges on all intrastate telecommunications
services. In demonstration of its financial qualifications, Applicant attaches hereto, a copy of
EarhLink's most recent SEC Form lO-Q as Exhibit 5.
VII. "Illustrative" Tariff Filng
Applicant's proposed local exchange tariff, containing proposed rates, terms, and
conditions of services, in attached hereto as Exhibit 6. Please note that, with respect to the
proposed local exchange tariff, many details of Applicant's provision of the proposed services,
including the rates to be charged to Applicant's customers, wil be dependent upon the
negotiation of interconnection agreements with the incumbent LECs. Upon certification of
Applicant, and prior to commencing service, Applicant wil fie a local exchange tariff that
6
A/74489639. i
complies with all Commission rules and regulations and lists the rates, terms and conditions of
service.
VIII. Customer Contacts
New Edge's general email address and toll-free number for all informal customer
complaints is:
customercare~corp.earthlink.com
1-800-962-2488
Commission informal complaints may be directed to:
Offce of the Chief Executive Officer/Customer Affairs
Tel: [phone]
Fax: [phone]
OCEO~corp.earthlink.com
The individual responsible for responding to Commission inquires concerning rates and
price lists or tariffs is:
Mary Whiting
Director of Regulatory Compliance
[phone]
mwhiting~corp.earhlink.com
Upon certification, general questions from the Commission regarding Applicant should
be directed to:
Paula Foley
Regulatory Affairs Counsel
EarthLink Business
5 Wall Street
Burlington, MA 01803
Tel: [phone]
Fax: [phone]
pfoley~corp.earhlink.com
IX. Interconnection Agreements
New Edge has not yet initiated interconnection negotiations but intends to do so as
necessary and upon being granted authority by the Commission. Once New Edge has conducted
7
A/74489639. i
negotiations and reached agreements by negotiation or arbitration, New Edge wil fie copies of
them with the Commission for its approval if necessary.
X. Compliance with Commission Rules
Attached hereto is a sworn verification executed by Applicant stating that the Applicant
agrees to comply with all Idaho laws and Commission rules and regulations.
XI. Escrow Account or Security Bond
Should New Edge decide to require advance deposits from its customers, it wil enter into
an escrow agreement with a bonded escrow agent prior to offering telecommunications services
in Idaho and wil fie such agreement with the Commission upon request. New Edge wil
comply with all applicable Idaho laws and Commission rules and regulations regarding advance
customer deposits.
X. CONCLUSION
As demonstrated by this application and pursuant to Idaho Code §§61-526-528, IDAPA
31.01.01.1 i 1, and Procedural Order No. 26665, New Edge's expertise in the telecommunications
sector wil permit it to select the most economic and efficient services, thereby providing
customers with an excellent combination of price, quality, and customer service. Accordingly,
New Edge anticipates its proposed service wil increase consumer choice of innovative,
diversified, and reliable service offerings. The provision of more affordable and available local
telecommunications services wil promote the health, welfare and economic well-being of the
citizens of Idaho. New Edge respectfully submits that the public interest, convenience, and
necessity would be furthered by a grant of this Application for the authority to provide resold
and facilities-based local telecommunications services.
WHEREFORE, New Edge Network, Inc., respectfully requests that the Idaho Public
Utilities Commission issue a Certificate of Public Convenience and Necessity authorizing
8
A/74489639. i
EarthLink to provide resold and facilties-based local exchange telecommunications services
within the State of Idaho.
Respectfully submitted,
BY:~~!~
Jean L. Kiddoo
Brett P. Ferenchak
Nguyen T. Vu
Bingham McCutchen LLP
2020 K Street, N.W.
Washington, DC 20006
Tel: [phone]
Fax: [phone]
jean.kiddoo~bingham.com
brett. ferenchak~bingham.com
nguyen. vu~bingham.com
Counsel for New Edge Network, Inc.
Dated: October 19,2011
9
A/74489639. i
LIST OF ATTACHMENTS AND EXHIBITS
Exhibit 1
Exhibit 2
Exhibit 3
Exhibit 4
Exhibit 5
Exhibit 6
Verifcation
Amended and Restated Certificate of Incorporation
Certificate of Authority to Transact Business
Certificate of Assumed Name
Corporate Ownership Structure Chart
Financial Statements of EarthLink, Inc.
Proposed Local Exchange Tariff
A/74489639.1
EXHIBIT 1
Amended and Restated Certifcate of Incorporation
A/74489639. i
State of Delaware
Offce of the Secretary of State
PAGE 1
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF
DELAWARE, DO HEREBY CERTIFY THE ATTACHED is A TRUE AND CORRECT
COpy OF THE RESTATED CERTIFICATE OF "NEW EDGE NETWORK, INC.",
FILED IN THIS OFFICE ON THE FOURTEENTH DAY OF NOVEMBER, A.D.
2000, AT 9 0 i CLOCK A. M.
A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE
KENT COUNTY RECORDER OF DEEDS.
3049857 8100
t4Í~
Edward J. Freel, Secretary of State
AUTHENTICATION: 0791346
001571362 DATE: 11 - 14 - 0 0
STATe: OF De:LANAR
Se:CRJTARY OF STAre
DIVISION OF CORPRATIONSFILE 09:00 Al ii/14/2000
00i571362 - 3049857
AMENDED AN REST ATI
CERTIICATE OF INCORPORATION
OF
NEW EDGE NETWORK INC.
The undersigned, 1. Howad Clowes, hereby cerifes that:
ONE: He is the duly elected and acg Secet of New Edge Network. Inc. (fonnerly know asAccess 21 Corporation), a corpraton orgaùzed an existi under the Jaws of the State of
Delaware (the "CorpratioU").
TWO: The original Cerficate oflncorporatioIl of the Coiporaon was filed with the Secretar
of State of the State of Dclawar on June 1. 1999.
THE: All amendments Lo the Cercate oflDcoiportion oftbe Corporation reflected her
have been duly authorized and adopted by the Corporation"s Boar ofDirce and stockhlders'
in accordance with the provisions of Secons 242 and 245 of the Delaware Goneral Coiporationtaw. The text oC the Certficate of Incorporation is heieby amended and retated in its entirety t~.
read as follows:
ARTICLE 1
The name of the corporation is New Edge Network, Inc.
ARTICLEn
The addess of the registered offce of th Corpration in the State of Dc law ar is 15 Eat Nort
Stret in the City of Dover, County of Kent. The name ofits register agent at such address is
Incorporation Seices. Ltd.
ARTICLE II
The purose of the COIporation is to engage in any lawful act or actvity for which a corporaton
may be organed under Uie General CQrporaon Law of the State of Delawar.
ARTICLE IV
A. Classes of Stoc. TIie Cororation is authoried to isse one class of shes to be
designated "Common Stoc:' a par value of $66.67. The tota number of shaes of Common
Stock authoried is one thousad (1.000).
Effective upon filing this Juended and Resated Certficate oflncoi:oration, each outstanding
share of the Corporation's common stock shall automaticaly and without any action on the par
of the holder thereofbe reconstituted and reclassified as and chan.ged into one-one hundred
thousan ofa share of the Corporation's Conuon Stock.
Gr Cal)N09809.i210002-90 1
B. CommQn Stock. The rights, prefernces. pnvileges an resctions grted to and
imposed on the Common Stock are as set for below in ths Arcle NCB).
i. Diyjdend B i¡bt&. Subject to the prior ngbts ofn.ldcrs of all classes of stock at
the tie outstaning havig prior rights as to dividen, the holder of the Common Stock sh
be entitled to reeive. when and as declared by the Boar of Directors, out of any assets of theCorporation legally available therfor, such dividends as may be declar frm tùe to tùe by
the Board ofDireetors.
2. Liquidaton Right. Upon the liquidation, dissolution or windi up ofthc
Corporation, the assets of the Corporation shall be dislrbuted to the holders of Common Stock.
3. RedemptiQ,. The Common Stock is not reeemable:.
4. voting Rights. The holder of eah share of Common Stock shal have the right to
one vote for each such share, and shall be entitlod to notice of any s1ckhlder' meetig in
accordace with the Bylaws of the Corporation, and shall be entitled to vote upon such matters
and in such maner as may be providod by law or as set fonh ùi this Amende an Reated
Cerificate ofIicoiporation.
ARTICLE V
i
A. LimitatiQD QCQirectQTS' and Ofcers' Liabil~. To the :fllest extent peritted by the
Delaware Gener Corporation Law as the same exsts or may herafer be amended. a director
. of the Corporation shall not be personally liable to the Coiporation or its stockholders for
moneta damages for breach of fiduciar duty as a director. except to the extent such exception
from liabilty or litation thereof is not pertted under the Delaware Corporaton Law as the
sae exists or may hereafer be amended. Neither any amendment nor repeal of ths Arcle, nor
the adoption of any provisions of ths Amended and Restated Certficate of Incorpration
inconsistent with t1s Arcle, shall eliniinate or reduce th effect of ths Arcle in reect of any
matter occultng, or any cause of action, suit or clai tl but for ths Arcle, would accre or
arise, prior to such amendment, repeal or adoption of an inconsistent provision. To the fuest
extent pertted by applicable law, the Corporation is authorized to provide indemcaton of
(and advancement of expenes to) diectors, offcer, employees and other agents of theCorporation (and any other persons to whch Delaware law permits the Corporation to provide
indemfication), thugh Bylaw provisions, agreements with any such director, offcer,
employee or other agent or other person, vote of stockholde or disinterested direcrs, QT
otherse, in excess oltho inemfication an advancement otherse peritted by Section 145
ofthc Delaware General Corporation Law, subject only to limits crated by applicable Delawa
law (statory or nonstatutory), with respec to actions for breach of duty to a corpratioIl its .
stockholdes and others,
B. Repeal or Modification. Any repea or moditication of the foregoing provisions of1lsAricle V by the stockolders of the Corpration shall not adversely afect any right or protection
of an agent of the Corporation existing at the time of such repea or modification.
Gry CIryI'0491l09.l
2100702.90 2
IN wiTNSS WHREOF, the undersisned has executed this Amended and Restated
Certficate of Incoiporation. on ths 9th day ofNovemberl 2000 and cefies UDder penalty of
perui tht he has read the foregoing Amended ~d Restated Ceficate ofInoipration and
knows the contents thereof and tht the sttements therin ar tre.
Execute at San Francisco, Californa on November 9, 2000.
Gray ~F\0"9809.1
210002-900
EXHIBIT 2
Certificate of Authority to Transact Business
A/74489639. i
State of Idaho
I I
I, BEN YSURSA, Secretary of State of the State of Idaho, hereby certify that I
am the custodian of the corporation records of this State.
I FURTHER CERTIFY That the annexed is a full, true and complete duplicate of
application for certificate of authority filed on July 7,1999 for NEW EDGE NETWORK,
INC., a DELAWARE corporation, file number C 129592 , including all subsequent
amendments thereto, as appears of record in this office as of this date.
Dated: September 1,2011
~~
SECRETARY OF STATE
By ~~
.....---_. - _. ...~ . ..m -~-_. _..._...~~.......-....
State of Idaho
- - ~- ~ - --
: Office of the Secretary of State-----~---- ------- --- - - -- - --------- ---
CERTIFICATE OF AUTHORITY
OF
ACCESS 21 CORPORATION
File Number C 129592
I PETE T. CENARRUSA, Secretary of State of the State of Idaho. hereby certify
that an Application for Certifcate of Authori, duly executed pursuant to the provisions
of the Idaho Business Corpration Act, has ben received in this offce and is found to
conform to law.
ACCORDINGL Y and by virtue of the authori vested In me by law, I issue this
Certificate of Authori to transact business in this State and attch hereto a duplicate of
the Application for such Certifcate. .
Dated: July 7. 1999
~í7~
SECRETARY OF STATE
:J~i8t:=.~~
..... ..~..'""-. ----...._." .,..-.._-
20
APPLICATION FOR CERTIFICATE OF AUTHORIT (For Profit)
(lnctonaon Back of Apll)To the Secre of st of Ida: ..1 I 10 PH 'I
The undrsigned Corpration applies for a Certe of Autri an sts as follo:
1.The name of th corpraon is Access 21 Corpration S~îft~1F~~1~lE
2.The na whic it shal us in Idao is AcceSS 21 CqtJration
3.It is incrpora undr the laws of Delawre
4.Its dae of incrpration is Ju 1.1999 .
5.The address of it princpa of is 300 Colqnia Hoe Blvd.
Vancouer 1 WA 98661
6.The address to which cospndenc should be address, if cierent frm item 5, is
c/o cr Corpration Sytem
7.The stre addre of it reis offe in Idaho is 300 North 6th Stret, Boi!lp,Tda
83702 . and Its reistered agent in Idaho at that adre is cr Corpration System
8.The names an re busnes addresses of it dirers an offrs ar:
Nae Of Address
See atcached officers/directors rider t
Date '7"~ .11 i
,
Access 21 Corp'rtion Cu Ac.. !£aiAR If STATE ;
&:~ii..'...,'.." "1 '9~8'918ø
..líl -... (
l!-.
By J
1.1.....1...II PI · ¡ t.i' 2L."21..DJlTECI4 .~
i
I
.
It Pres ident & CE
(SØ ca of si)
.
....ã& ¥.=... m¥
Access 21 Corporation
Corprate Offcer
Daniel G. Moffat
President, Vice-President, Secretar, Treasurer
Access 21 Corporation
3000 Columbia House Blvd.
Vancouver, Washington 98661
Board of Direcors
Roger Evans - General Partner
Greylock
755 Page Mil Road
Building A, Suite 100
Palo Alto, Caifonùa 94304-1018
Jay Misra
31 River Coun # 2603
Jersey City, New Jersey 07310
Daniel G. Moffat - President & CEO
Access 21 Corpration
3000' Columbia House Blvd.
Vancouver. Washington 98661
.
Rich Shapero - General Panner
Crosspoint Venture Panners
2925 Woodside Road
Woodside, Caifornia 94062
J. Peter Wagner - General Panner
Aceel Panners
428 University Avenue
Palo Alto, Califonùa 94301
; ( ~
t...
l
State of Delaware
Offce of the Secretary of State
PAGE 1
:I, BlWA J. nuL, SECRETARY OF STATE OF THE STA'l OF
DELAWA, DO RlRBY CERT:in "ACCESS 21 CORPORATION" :is DULY
i:NCORPORA'lBl ONER TBJ LA OF TO STATE OF OEL AN i:S IN
GOD STANrNG AN BA A i.GA COiuRATE :S:IS'iCB SO FA AS THE
lUCORDS OF 'lIS OFFIci SHOW, AS OF TO THIRTIETH OAY OF JU,
A.D. 1999.
Am :i DO BJBY 1''lDl CU'l:t1' 'lBAT TB I'CB:tSB TAXS
SAVE NO BE ASSESSED TO DATE.
/":~::;')
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30419857 8300 A L'TH E/',~lK i\ i ION 9939719
D:\TE991267379 06-30-99
..::u. '"~:¡ez
State of Idaho--- - - - ~ --~ - 1
Office of the Secretary of State~----~----- - --~ ---------
AMENDED CERTIFICATE OF AUTHORITY
OF
ACCESS 21 CORPORATION
File Number C 129592
I, PETE T. CENARRUSA, Secretaiy of the State of the State of Idaho i hereby
certify that an Application for Amended Certificate of Authority to do business in this.
State, duly executed pursuant to the provisions of the Idaho Business Corporation Act,
'.
has been received in this offce and is found to conform to law.
ACCORDINGLY and by virtue of th authority veted in me by law, I issue this
Amended certifcate of Authori to reflct the name change from ACCESS 21
CORPORATION to NEW EDGE NETWRK dba NEW EDGE NETORK,. INC. and
attach hereto a duplicate of the Appliction for such Amended Certificate.
Dated: August 13, 1999
a 17 (1~. 4.'-
SECRETARY OF STATE
&¡
.......c_
214 ..
APPLICATION FOR AMENDED
CERTIFICATE OF AUTHORITY
. :ii,?clio on ba of aplicio)To the S8iy of fle of ~ate of Idaho:
Pursuant to SNÚoo 30\l. Idaho Code, the undersgne COraion hereby appies for an amended
certificae of aùloriy ~Pìnsa bunes in the State of Idaho and for that purp submits the foiiowing
sttement. ~p1et~ appicable items.
:¿.~
1. A celfdt AiMy was ised to the coraon by your ofce on June 25 1999
co
authonzing it to tl'nså business in the Ste of Idaho undrthe name Of AcceSl 21 Corporation
.
2. Its corprae name has ben chnged to New Edge Network
3. Th name whic it shall use hereafter in the State of Idaho is New Edge Network. Inc.
¡ .
4. It has changed Its junsdidion of incorpration. without a change of corae idenity to: No Change
Dated'1/¡1¡j,'I Ne~~;:~rk .~~J-.
Daniel G. MO~
By
Its President (spe ca or alne
Cusom.. Ac .:
Of _ TNW l!TARY Of STAT~¡¡ Se or Stae us onpo 88/ i 31'1999 89.88
i CK: 118848232 eTi 6_ 8tl: 24286~1. JUt = 38. øø ME CERT . i!
i 1. 21.8 = 29.88 EXPEDIT C . J
i!
..
(IDAHO -022 - 2/17/99) or..
\"._.~-.. ......
State of Delaware PAG 1
Offce of the Secretary of State
I, EDWAR J. FREL, SECRETARY OF STATE OF THE STATE OF
DElAWAR, 00 HEREBY CERTIFY THAT THE SAID "ACCESS 21
CORPORATION", FILED A CZR'ZPICA'l OF AMNDMENT, CHAGING ITS
N. TO "NEW EDCi NETWOR", THE THIRTEENTJ DAY OF JUY, A.O.
1999, AT 9 O'CLOCK A.M.
"
3049857 8320
t4~.
Edward ,. Freel, Secretary of Stllte
..
991333999
AUTENCATION:
DATE:
9916519
08-11-99
r . ::t.., ..'W
State of Idaho
- -
Office 8~ the Secretary of State-~-- ---~ ~ ~ - --~-- ~- - ---- -~ ---
AMENDED CERTIFICATE OF AUTHORITY
OF
NEW EDGE NETWORK
dba NEW EDGE NETWORK, INC.
File Number C 129592
I, PETE T. CENARRUSA. Seetary of the State of the State of Idaho, hereby
cert that an Appliction for Amended Certcate of Authonty to do business in this
-,
Stae, duly executed puant to th provisions of the Idaho Business Corporation Act,
has ben recived in this of and is found to conform to ta,
ACCORDINGLY and by virte of the aut vested in me by law, I issue this
Amnde Certcate of Authori to reflec the name change from NEW EDGÊ
NETWRK dba NEW EDG NETK, INC. to NEW EDGE NETWORK, INC. and
attch hereto a duplicate of the Appliction for such Amended Certificate.
Dated: August 13, 1999
~í7~
SECRETARY OF STATE
.-"1..--
214
(Instruions on back of applicion)
To the seary of state ofthe State of Idaho: $ECl\E"rMH tF STAie
Pursuant to seion 30-1.150, Idaho Cod, the undersgned corpraion 1'raI~in amended
ceificae of aulhor1y to trans bunes in th State of Idaho and for that purp subms the following
statement. Complete only appicae items.
APPLICATION FOR.AMENDED
CERTIFICATE OF AUTHORITY
.. \3 1\36~i.
1. A Certifcae Of Authonty was iSue to the corpraion by your ot on Jul y 7 1999
authOrizing It to transct busine In the State of Idaho under the name of New Edge Network
2. Its corpe name has been changed to New Edge Network, Inc.
3. The name which it shall use hereafer In the State of IdahO is New Edge Network, inc.
4. It has chnged its jurisdidon of incorpraion, without a change of corae ideny to: No Change
.
Dated'New E'l~g.~ IDe~Daniel G. Moff;;
By
Its President
(ii çelt of sig
IDA SECRTMY (f STATECuser Acc l:
Of tl&/13 !":!!. ø~ :ee~ ""''----,
1 l' .1." = .1. Ie AI CET I 2
J l' 28." = 28.. EXPDIT C.. 3
...
t
I..
(IDAO -022 - 2/17/99) 01_
~_.,.:: .
State of Delaware PAGE i
Ofce of the Secretary of State
I, EDWAR J. FREL, SECRETARY OF STATE OF THE STATE OF
DELAWAR, 00 HEREBY CERTIFY THAT THE SAID "NEW EDGE NETWORK",
FILED A CERTIFICATE OF AMNDNT, CHGING ITS NA TO "NEW EDGE
NETWORK, INC.", 'lE FIFTH DAY OF AUGUST, A.D. 1999, AT 9 O'CLOCK
A.M.
l
3049657 6320
~lL~.
Edward ,. Freel, Secretary Qf State
..
991333999
AUTENCATION;
DATE:
9916523
08-11-99
EXHIBIT 3
Certifcate of Assumed Name
N74489639. i
. .
CERTIFICATE OF
ASSUMED BUSINESS NAME
Pursuant to Section 53-50, Idaho Code,the undersigned
submits for filing a certificate of Assumed Business Name
Please type qr print legibly.
Instryctlgns are Inclyded on back of application.
'lED EFFECTøVF
l l HAY 20 PM I: ~ 2
~r.CRETARY OF SlAl c
STATE OF IDAHO
1. The assumed business name which the undersigned use(s) in the transaction of
business is:
EarthLink Business
2. The true name(s) and bysiness address(es) of the entiy or individual(s) doing
business under the assumed business name:~
New Edge Network,c.
( t, i?-q ~tr=
CQmplete Address
3000 Columbia House Blvd. Suite 106. Vancouver
WA 98661.2969
3. The general type of business transacted under the assumed business name is:
o Retail Trade 0 Transportation and Public Utilities
o Wholesale Trade 0 Construction
o Services 0 Agriculture
o Manufacturing 0 Mining
o Finance, Insurance. and Real Estate
Submit Certillcate of
Assumed Business
Name and $25.00 fee to:
4. The name and address to which future
correspondence should be addressed:
Pamela Deane
5 Wan Street. Burlington, MA 01603
Secretary of State
450 North 4th Street
POBOX 83720
Boise 10 83720.0080
208334.2301
5. Name and address for this acknowledgment
copy is I" olher than tJ.. above):
Bay State Corporate Services, Inc.
6 Beacon Street, Ste 510
Boston. MA 02108 Secretary 01 Stale un only
Signature:
Printed Nam
CapacitylTtle: Assistant Secretary
Signature:
Printed Name:
CapacityfTtte:
.. lQ IDAHO SEETARY OF STATEOS/20/2011 05: 00
CKi 6138 eTi 22i128 lli 1274671
1 I 25. Ø8 = 25. Be ASSU" HAE I 5
1) l~117J.
EXHIBIT 4
Corporate Structure Chart
A/74489639. i
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EXHIBIT 5
Financial Statements of EarthLink, Inc.
N74489639. i
EDCiAROnlie
EARTHLINK INC
FORM 10-Q
(Quarterly Report)
Filed 08/08/11 for the Period Ending 06/30/11
Address
Telephone
CIK
Symbol
SiC Code
Industry
Sector
Fiscal Year
1375 PEACHTREE STREET
SUITE 400
ATLANTA, GA 30309
4048150770
0001102541
ELNK
7370 - Computer Programming, Data Processing, And
Computer Services
Technology
12/31
!'OWOfO'¡ By EDGAROrline
http://www.edgar-online.com
(g Copyright 2011, EDGAR Online, Inc. All Rights Reserved.
Distribution and use of this document restricted under EDGAR Online, Inc. Terms of Use.
Tabk of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM lO-Q
l& QUARTERLY REPORT PURSUANT TO SECTION 13 OR IS(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2011
OR
o TRNSITION REPORT PURSUANT TO SECTION 13 OR IS(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-15605
EARTHLINK, INC.
(Exact name of registrant as specified in its charer)
Delaware
(State or other jurisdiction of incorporation or organization)
58-2511877
(I.R.S. Employer Identification No.)
1375 Peachtree St., Atlanta, Georgia 30309
(Address of principal executive offces) (Zip Code)
[phone]
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report date)
Indicate by check mark whether the registrant (I) has fied all reports required to be fied by Section 13 or I 5(d) of the Securities ExchangeAct of i 934 during the preceding 12 months (or for such shorter period that the registrant was required to fie such reports), and (2) has been
subject to such filing requirem ents for the past 90 days. Yes i: No 0
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, ifany, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12
months (or for such shorter period that the registrant was required to submit and post such fies). Yes i: No 0
Indicate by check mark whether the registrant is a large accelerated fier, an accelerated fier, a non-accelerated fier or a smaller reporting
company. See the definitions of "large accelerated fier," "accelerated fier" and "smaller reporting company" in Rule 12b-2 of the Exchange
Act.
Large accelerated fier i:Accelerated fier 0
Non-accelerated fier 0 Smaller reporting company 0
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 ofthe Exchange Act). Yes 0 No i:
As of July 29, 201 I, 107,777,405 shares of common stock, $0.01 par value per share, were outstanding.
Tabk of Contents
EARTHLINK, INC.
Quarterly Report on Form 10-Q
For the Quarterly Period Ended June 30, 2011
TABLE OF CONTENTS
Part I
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 33
Item 3. Quantitative and Qualitative Disclosures About Market Risk 53
Item 4. Controls and Procedures 53
Part II
Item i. Legal Proceedings 54
Item i A. Risk Factors 54
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 54
Item 5. Other lnfonnatìon 55
hem 6. Exhibits 55
Signatures 56
Tabk of Contents
PART I
Item i. Finllllçjal Statell..int~
EARTHLINK, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
ASSETS
Current assets:
Cash and cash equivalents
Marketable securities
Restricted cash
Accounts receivable, net of allowance of$1,182 and $4,109 as of December 31, 2010 and June 30,
201 1, respectively
Prepaid expenses
Deferred income taes, net
Other current assets
Total current assets
Long-term marketable securiti es
Property and equipment, net
Deferred income taxes, net
Purchased intangible assets, net
Goodwill
Other long-term assets
Total assets
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
Accrued payroll and related expenses
Accrued interest
Other accrued liabilties
Deferred revenue
Current portion of long-term debt and capital lease obligations
Total current liabilities
Long-term debt and capital lease obligations
Other long-term liabilities
Total liabilities
Stockholders' equity:
Convertible preferred stock, $0.01 par value, 100,000 shares authorized, 0 shares issued and
outstanding as of December 3 i, 2010 and June 30, 20 11
Common stock, $0.01 par value, 300,000 shares authorized, 191,825 and 195,792 shares issued as of
December 3 1,2010 and June 30, 201 I, respectively, and 108,382 and 107,73 I shares outstanding
as of Decem ber 3 I , 20 I 0 and June 30, 20 I I, respecti vely
Additional paid-in capital
Accumulated deficit
Treasury stock, at cost, 83,443 and 88,06 I shares as of December 3 I, 2010 and June 30, 20 I I,
respectively
Accumulated other comprehensive income
Total stockholders' equity
Total liabilities and stockholders' equity
The accompanying notes are an integral part of these financial statements.
December 31,June 30,
2010 2011
(unaudited)
$242,952 $490,484
307,814
2,270 1,068
60,216 105,226
12,161 16,323
45,661 63,432
14,802 19,632
685,876 696,165
12,304
241,1 i i 384,880
189,037 100,644
135,364 313,416
259,046 422,426
1,240 2p,785
$1,523,978 $1,944,316
$17,272 $
18,402
8,622
p7,007
40,921
243,069
395,293
20,800
25,139
15,312
118,040
55,831
251,986
487,108
351,251
19,566
766,110
656,009
40,313
1,183,430
1,918 1,958
2,061,555 2,077,916
(648,235)(625,324)
(p57,611)(693,664)
241
757,868 760,886
$1,523,978 $1,944,316
Table of Contents
EARTHLINK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERA nONS
Revenues
Operating costs and expenses:
Cost of revenues (exclusive of depreciation and
amortization shown separately below)
Sellng, general and administrative (exclusive of
depreciation and amortization shown separately below)
Depreciation and amortization
Restructuring and acquisition-related costs
Total operating costs and expenses
Income from operations
Gain on investments, net
Interest expense and other, net
Income before income taxes
Income tax provision
Net income
Net income per share
Basic
Diluted
Weighted average common shares outstanding
Basic
Diluted
Dividends declared per share
Three Months Ended June 30, Six Months Ended June 30,2010 2011 2010 2011
(in thousands, except per share data)
( unaudited)
$363,559 $310,265 $153,007 $606,577
$
56,129 164,357 115,009 268,080
41,839 113,795 85,621 186,959
4,577 45,093 9,325 66,769
(89)11,046 1,346 15,551
102,456 334,291 211,301 537,359
50,551 29,268 98,964 69,218
154 572
(5,483)(19,076)(10,775)(32,036)
45,222 10,192 88,761 37,182
(17,182)(3,644)(33,974)(14,271)
28,040 $6,548 $54,787 $22,911
0.26 $0.06 $0.51 $0.21
0.26 $0.06 $050 $0.21
108,053 109,593 107,840 108,990
108,888 110,490 108,685 110,051
0.16 $0.05 $0.30 $0.10
$
$
$
The accompanying notes are an integral part of these financial statements.
2
Tabk~ of Contents
EARTHLINK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Loss on disposals and impairments of fixed assets
Stock-based compensation
Non-cash income taxes
Amortization of debt discount, premium and issuance costs
Gain on investments, net
Gain on debt surrendered for conversion
Other
(Increase) decrease in accounts receivable, net
(Increase) decrease in prepaid expenses and other assets
Decrease in accounts payable and accrued and other liabilities
(Decrease) increase in deferred revenue
Net cash provided by operating activities
Six Months Ended
June 30,
2010 2011
(in thousands)
(unaudited)
$54,787 $22,911
9,325 66,769
362 831
4,374 7,085
31,375 10,833
7,160 6,157
(572)
(172)
(490)
(5,577)10,651
(1,401)(219)
(20,934)(81,883)
(1,295)2,828
77,432 45,473
(36,533)
(5,783)(40,439)
(214,179)
62,915 319,729
1,202
1,618 (3,346)
(155,429)240,613
279,212
1,901 439
(851)(36,053)
(32,714)(11,782)
(2,785)(270,392)
22
(34,449)(38,554)
(112,446)247,532
610,995 242,952
$498,549 $490,484
Cash flows from investing activities:
Purchase of business, net of cash acquired
Purchases of property and equipment
Purchases of marketable securities
Sales and maturities of marketable securities
Change in restricted cash
Other investing activities
Net cash (used in) provided by investing activities
Cash flows from financing activities:
Proceeds from issuance of debt, net of issue costs
Proceeds from exercises of stock options
Repurchases of common stock
Payment of dividends
Repayment for debt and capital lease obligations
Oter financing activities
Net cash used in financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents. end of period
The accompanying notes are an integral part of these financial statements.
3
Tab": of Contents
EARTHLINK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
i. Organization
EarthLink, Inc. ("EarthLink" or the "Company"), together with its consolidated subsidiaries, provides a comprehensive suite of
communications services to business and individual customers. The Company operates two reportable segments, Business Services and
Consumer Services. The Company's Business Services segment provides integrated communications and related value-added services to
businesses, enterprise organizations and communications carriers. These services include data services, including managed IP-based network
services and broadband Internet access services; voice services, including local exchange, long-distance and conference calling; mobile data
and voice services; and web hosting. The Company's Business Services segment also sells transmission capacity to other communications
providers on a wholesale basis. The Company's Consumer Services segment provides nationwide Internet access and related value-added
services to individual customers. These services include dial-up and high-speed Internet access services, ancillary services sold as add-on
features to our Internet access services, search and advertising. The Company provides its Business Services primarily through a nationwide
network utilizing a 27-state fiber optic network, Multi-Protocol Label Switching ("MPLS") and other technologies. The Company provides its
Consumer Services primarily through third-part telecommunications service providers. For further information concerning the Company's
business segments, see Note 14, "Segment Information."
2. Summary of Significant Accounting Policies
Basis of Presentation
The condensed consolidated financial statements of Earh Link, which include the accounts ofits wholly-owned subsidiaries, for the
three and six months ended June 30, 2010 and 201 I and the related footnote information are unaudited and have been prepared on a basis
consistent with the Company's audited consolidated financial statements as of December 3 1,2010 contained in the Company's Annual Report
on Form i O-K as fied with the Securities and Exchange Commission (the "Annual Report"). All significant intercompany transactions have
been elim inated.
These financial statements should be read in conjunction with the audited consolidated financial statements and the related notes
thereto contained in the Company's Annual Report. In the opinion of management, the accompanying unaudited financial statements contain
all adjustments (consisting of normal recurring adjustments), which management considers necessary to present fairly the Company's financial
position, resu Its of operations and cash flows for the interim periods presented. The results of operations for the three and six months ended
June 30,201 i are not necessarily indicative of the results anticipated for the entire year ending December 3 1,201 I.
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the financial statements. Actual results may differ from those estimates.
Reclas sifcations
Certain amounts in the prior year financial statements have been reclassified to conform to the current year presentation. The
Company combined sales and marketing, operations and customer support and general and administrative expenses into sellng, general and
administrative expenses. In addition, the Company reclassified depreciation expense from cost of revenues and sellng, general and
administrative expenses to depreciation and amortization. Approximately $1.9 milion of depreciation expense was reclassified from cost of
revenues and $1.4 million of depreciation expense was reclassi fied from sell ing, general and admi nistrative expenses to depreciation and
amortization during the three months ended June 30, 2010, and approximately $3.8 million of depreciation expense was reclassified from cost
of revenues and $3.0 mi Ilon of depreciation expense was reclassified from selling, general and adm inistrative expenses to depreciation and
amortization during the six months ended June 30, 2010.
4
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EARTHLINK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED - (Continued)
3. Earnings per Share
The Company presents a dual presentation of basic and diluted earnings per share. Basic earnings per share represents net income
divided by the weighted average number of common shares outstanding during the reported period. Diluted earnings per share reflects the
potential dilution that could occur if securities or other contracts to issue common stock, including stock options, restricted stock units and
convertible debt (collectively "Common Stock Equivalents"), were exercised or converted into common stock. The dilutive effect of
outstanding stock options, restricted stock units and convertible debt is reflected in diluted earnings per share by application of the treasury
stock method. In applying the treasury stock method for stock-based compensation arangements, the assumed proceeds are com puted as the
sum of the amount the employee must pay upon exercise, the amount of compensation cost attributed to future services and not yet recognized
and the amount of excess tax benefits, if any, that would be credited to additional paid-in capital assuming exercise of the awards.
The following table sets forth the computation for basic and diluted net income per share for the three and six months ended June 30,
20 I 0 and 20 I I :
2010 2011 2010 2011
(in thousands, except per share data)Numerator
Net income $28,040 $6,548 $54,787 $22,911
Denominator
Basic weighted average common shares outstanding 108,053 109,593 107,840 108,990
Dilutive effect of Common Stock Equivalents 835 897 845 1,061
Diluted weighted average common shares outstanding 108,888 110,490 108,685 l.i(),OSI
Basic net income per share $0.26 $0.06 $0.51 $0.21
Diluted net income per share $0.26 $0.06 $0.50 $0.21
Three Months Ended
June 30,
Six Months Ended
June 30,
During the three months ended June 30, 2010 and 201 I, approximately 2.7 million and 1.6 million, respectively, of stock options and
restricted stock units were excluded from the calculation of diluted earnings per share because their effect would have been anti-dilutive.
During the six months ended June 30, 20 i 0 and 20 i I, approximately 3.0 milion and 1.9 milion, respectively, of stock options and restricted
stock units were excluded from the calculation of diluted earnings per share because their effect would have been anti-dilutive. The shares that
underlie the Company's convertible senior notes were also excluded from the calculation of diluted earnings per share during the three and.six
months ended June 30, 20 I 0 and during the three months ended June 30, 20 Ii because their effect would have been anti-di lutive. Anti-dilutive
securities could be dilutive in future periods.
4. Acquisitions
ITC'DeltaCorn
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% ofITC"DeltaCom in a merger transaction with
ITC"DeltaCom surviving as a wholly-owned subsidiary of Earth Link. The primar reason for the acquisition was to enable the Company to
become
5
Table of Contents
EARTHLINK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED - (Continued)
an IP infrastructure and managed services provider by combining its existing business services with ITCI\DeltaCom's integrated
communications business. EarthLink has included the financial results ofITCI\DeltaCom in its consolidated financial statements from the date
of the acquisition.
The fair value of consideration transferred was $253.8 million, which consisted of $25 1.4 milion in cash paid to acquire the
outstanding common stock ofITCI\DeltaCom and $2.3 million for the fair value of restricted stock units assumed and converted. In allocating
the consideration transferred based on estimated fair values, EarthLink recorded $ 170.0 millon of goodwil, $13 1.2 millon of identifiable
intangible assets, $200.5 million of propert and equipment, $351.2 million of long-term debt and $103.3 milion of other net assets. The
Company allocated the consideration transferred to the tangible assets, liabilities and intangible assets acquired based on their estimated fair
values. The excess ofthe consideration transferred over those fair values was recorded as goodwilL.
During the six months ended June 30, 2011, the Company finalized certain provisional amounts recognized at the acquisition date
related to deferred taxes. The Company retrospectively adjusted the provisional amounts recorded at the acquisition date to reflect the new
information obtained. As a result, the carrying amount of deferred tax assets was increased by $ 18.8 milion as of Decem ber 31, 2010, with a
corresponding decrease to goodwilL. The Condensed Consolidated Balance Sheet as of December 31,2010 and the allocation of consideration
transferred noted above have been reflected for this adjustment. The primary areas of the purchase price allocation that are not yet finalized
relate to income and non-income based taxes and residual goodwilL.
One Communications
On April 1,2011, EarthLink completed its acquisition of One Communications Corp. ("One Communications"), a privately-held,
multi-regional integrated telecommunications solutions provider serving customers in the Northeast, Mid-Atlantic and Upper Midwest.
EarhLink acquired 100% of One Communications in a merger transaction with One Communications surviving as a wholly-owned subsidiary
ofEarthLink. One Communications stockholders had the right to elect to receive the net merger consideration in the form of cash or EarthLink
common stock. The primary reason for the acquisition was to further transform the Company into an IP infrastructure and managed services
provider by expanding its IP network footprint. EarthLink also believes the acquisition wil provide strategic benefits because One
Communications has a large established customer base that generates cash. EarthLink has included the financial results of One
Communications in its consolidated financial statements from the date of the acquisition. EarhLink's Condensed Consolidated Statement of
Operations for the three and six months ended June 30, 2011 included $121.5 million of One Communications' revenue and $6.5 million of
One Communications' net loss.
Pursuant to the terms of the merger agreement, the aggregate merger consideration for One Communications was $370.0 million,
which included repayment of debt and other liabilities and certin working capital and other adjustments. Included in the aggregate merger
consideration was $13.5 million (combination of cash and approximately 0.8 mil lion shares of common stock) deposited into an escrow
account to secure potential post-closing adjustments to the aggregate consideration relating to working capital and other similar adjustments
and indemnification obligations. In addition, EarthLink deposited $7.5 milion (combination of cash and approximately 0.5 million shares of
common stock) into an escrow account to fund certain post-closing employment-related obligations of the Company on the terms provided in
the escrow agreement. This was accounted for separately from the purchase price allocation. EarthLink issued a total of 3.0 milion shares in
connection with the One Communications acquisition, which consisted of the 1.3 million shares deposited in escrow and 1.7 milion shares
issued to One Communications shareholders. In June 2011, $1.9 millon (including 0.1 milion shares) that was used to fund certain post-
closing employment-related obligations was returned from escrow.
The resulting preliminary fair value of consideration transferred was $39.9 million, which consisted 01'$20.0 milion in cash paid to
acquire the outstanding common stock of One Communications and $19.9 milion for the issuance of EarthLink common stock. The assets
acquired and liabilities assumed of One Communications were recognized at their acquisition date fair values. The purchase price allocation is
subject
6
Tub¡i~ of Contents
EARTHLINK, INC.
NOTES TO CO NDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED - (Continued)
to change as the Company obtains additional information during the measurement period about the facts and circumstances that existed as of
the acquisition date. The primary areas of the preliminary purchase price allocation that are not yet finalized relate to working capital
adjustments, indefeasible rights-to-use agreements, income and non-income based taxes and residual goodwilL.
The following is a preliminary allocation of the consideration transferred based on currently available information (dollars in
thousands):
Acquired Assets:
Cash and cash equivalents
Property and equipment
Goodwill
Intangible assets
Other assets
Total assets
$11,304
146,495
138,129
182,800
79,528
558,:256
Assumed Liabilties:
Debt
Deferred revenue
Deferred tax liability, net
Other liabilities
Total liabilities
Total consideration
(266,275)
(11,379)
(52,840)
(187,835)
(5 i 8,329)
39,927$
Goodwill arising from the acquisition is attributable to the assembled workforce and expected synergies and economies of scale from
combining the operations of EarthLink and One Communications. All of the goodwill will be assigned to the Company's Business Services
segment. The goodwil is not expected to be deductible for income tax purposes.
Included in other assets is accounts receivable with a preliminary estimate of fair value of$54.9 million and a gross contractual value
of$64.2 million. The difference represents the Company's best estimate of the contractual cash flows that will not be collected.
The following table summarizes the preliminary components of intangible assets acquired in connection with the One
Communications acquisition (in thousands):
Customer relationships
Developed technology
Trade name
Total intangible assets
Fair Value
$ 166,900
12,000
3,900
$ 182,800
Useful Life
5 Years
3 Years
3 Years
Saturn Telecommunication Services Inc.
On March 2. 201 i, EarthLink acquired Saturn Telecommunication Services Inc. and affliates ("STS Telecom"), a privately-held
provider oflP communication and information technology services to small and medium-sized businesses primarily in Florida. STS Telecom
operates a sophisticated VolP platform.
The total consideration transferred was $22.9 million, which consisted of cash paid to acquire the outstanding equity interests of STS
Telecom. In allocating the purchase price based on estimated fair values, EarthLink recorded approximately $21.5 million of goodwill, $17.9
milion of identifiable intangible assets, $2.8 million of tangible assets and $19.3 milion of net liabilities assumed. The allocation of the
consideration
7
Table of Contcnts
EARTHLINK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED - (Continued)
transferred was based upon a preliminar valuation and the Company's estimates and assumptions are subject to change. The primar areas of
the purchase price allocation that are not yet finalized relate to income and non-income based taxes and residual goodwilL. Earh Link has
included the financial results of STS Telecom in its consolidated financial statements from the date of acquisition. Pro forma financial
information for STS Telecom has not been presented, as the effects were not material to the Company's consolidated financial statements.
Other
On May 16, 20 i I, EarthL ink acquired Logical Solutions.net, Inc. ("Logical Solutions"), a privately-held company that provides a
suite of cloud computing and hosted network and security services. The purchase price for the acquisition was $5. I million in cash and
EarthLink recorded approximately $3.9 million of goodwilL. EarthLink also repaid $0.5 million of acquired debt. The transaction was
accounted for as an acquisition using the acq uisition method of accounting. The allocation of the consideration transferred was based upon a
preliminary valuation and the Company's estimates and assumptions are subject to change. Pro forma financial information for Logical
Solutions has not been presented, as the effects were not material to the Company's consolidated financial statements.
In July 201 I, EarhLink acquired Business Vitals, LLC, a privately-held company that provides national managed IT security and
professional services.
Pro Forma Financial Information
The following unaudited pro forma revenue and earnings assumes the acquisitions ofITCI\DeltaCom and One Communications
occurred on January I, 20 10:
Three Months Ended June 30,2010 2011 Six Months Ended June 30,2010 2011
Total revenues
Net income
$409,803 $
22,697
(in thousands)
363,559 $
13,620
828,583 $
41,756
739,353
30,336
5. Restructuring and Acquisition-Related Costs
Restructuring and acquisition-related costs consisted of the following during the three and six months ende\! June 30,2010 and 201 I:
Three Months Ended
June 30,
(in thousands)
2010
Six Months Ended
June 30,
2010 2011 2011
Facility exit and restructuring costs
Acquisition-related costs
Restructuring and acquisition-related costs
$(89) $
(89) $
(547) $
11,593
11,046 $
1,346 $
1,346 $
463
15,088
15,551$
Facility Exit and Restructuring Costs
In August 2007, EarthLink adopted a restructuring plan (the "2007 Plan") to reduce costs and improve the effciency of the
Company's operations. The 2007 Plan was the result of a comprehensive review of operations within and across the Company's functions and
businesses. Under the 2007 Plan, the Company reduced its workforce by approximately 900 employees, closed offce facilities in Orlando,
Florida; Knoxvile,
8
Tabk~ of Contents
EARTH LINK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED - (Continued)
Tennessee; Harrisburg, Pennsylvania and San Francisco, California and consolidated its offce facilities in Atlanta, Georgia and Pasadena,
California. The 2007 Plan was primarily implemented during the latter half of 2007 and during the year ended Decem ber 31, 2008. However,
there have been and may continue to be changes in estimates to amounts previously recorded.
The following table summarizes facility exit and restructuring costs during the six months ended June 30, 2010 and 2011 and the
cumulative costs incurred to date as a result of the 2007 Plan. Facility exit and restructuring costs during the six months ended June 30, 2010
and 20 11 were primarily the result of changes to sublease estimates in the Company's exited facilities and additional costs for lease
terminations. Such costs have been classified as restructuring and acquisition-related costs in the Condensed Consolidated Statements of
Operations.
Severance and personnel-related costs
Lease termination and facilities-related costs
Non-cash asset impairments
Other associated costs
Cumulative
Costs
Six Months Ended June 30,Incurred
2010 2011 To Date
(in thousands)
$$$30,764
1,237 463 24,196
109 24,901
1,131
$1,346 $463 $R0,992
The following table summarizes activity for the liability balances associated with the 2007 Plan for the six months ended June 30,
20 I I, including changes during the period attributable to costs incurred and charged to expense and costs paid or otherwise settled:
Balance as of December 31,2010
Accruals
Payments
Balance as of June 30, 201 I
Facilties
(in thousands)$ 13,613
463
(4,324)$ 9,752
Facility exit and restructuring liabilities due within one year of the balance sheet date are classified as other accrued liabilties and
facility exit and restructuring liabilities due after one year are classified as other long-term liabilities in the Condensed Consolidated Balance
Sheets. Of the unpaid balance as of December 31, 2010 and June 30, 201 1, approximately $4.7 milion and $5.0 milion, respectively, was
classified as other accrued liabilities and approximately $8.9 milion and $4.8 milion, respectively, was classified as other long-term liabilities.
9
Table of Contents
EARTHLINK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED - (Continued)
Acquisition-Related Costs
Acquisition-related costs consist of external costs directly related to EarthLink's acquisitions, such as advisory, legal, accounting,
valuation and other professional fees; employee severance and retention costs; and integration-related costs, such as system conversion,
employee travel and relocation and rebranding costs. Acquisition-related costs are expensed in the period in which the costs are incurred and
the services are received and are included in restructuring and acquisition-related costs in the Condensed Consolidated Statement of
Operations. Acquisition-related costs consisted of the following during the three and six months ended June 30, 2010 and 20 i I :
2010
Three Months Ended
June 30,
(in thonsands)
2010
Six Months Ended
June 30,
2011 2011
Transaction related costs
Severance and retention costs
Integration related costs
Total acquisition-related costs
$
$
$2,802 $$4,542
8,133 9,825
658 721
$11,593 $$15,088
6. Investments
Marketable Securities
The Company's marketable securities consisted of the following as of December 3 1,2010 and June 30, 201 I:
Asof
December 31,
2010
Asof
June 30,
2011
Government and agency securities
Commercial paper
Corprate debt securities
Total marketable securities
Less: classified as currnt
Total long-term marketable securities
$
(in thousands)
284,441 $
14,666
21,01 I
320,118
(307,814)
12,304 $$
During the six months ended June 30, 201 I, the Company sold its investments in marketable securities and recognized a realized gain
of$OA millon, which was included in interest expense and other, net, in the Condensed Consolidated Statement of Operations. As a result, the
Company had no short- or long-term marketable securities as of June 30, 201 I. Marketable securities consist of investments with original
maturities greater than three months at the date of acquisition. Marketable securities with maturities less than one year from the balance sheet
date are classified as short-term marketable securities. Marketable securities with maturities greater than one year from the balance sheet date
are classified as long-term marketable securities. These investments primarily consisted of government and agency notes, which include U.S.
treasury securities and government-sponsored debt securities, commercial paper and corporate debt securities. These securities were classified
as available for sale. Available-for-sale securities are carried at fair value, with any unrealized gains and losses, net of tax, included in
accumulated other comprehensive income as a separate component of stockholders' equity and in total comprehensive income. Amounts
reclassified out of accumulated other comprehensive income into earnings are determined on a specific identification basis. Realized gains and
losses
10
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EARTHLINK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED - (Continued)
on marketable securities are determined on a specific identification basis and included in interest expense and other, net, in the Condensed
Consolidated Statement of Operations.
The following tables summarize gross unrealized gains and losses as of December 3 1,2010 on the Company's marketable securities
designated as available-for-sale:
Government and agency notes $
Commercial paper
Corprate debt securities
284,087
14,658
20,980
319,725
As of Decemher 31,2010
Gross Gross Estimated
Unrealized Unrealized Fair
Losses Gains Value
(in thousands)
$(I)$355 $284,441
8 14,666
(7)38 21,011
$(8)$401 $320,118
Amortized
Cost
$
Gain on investments, net
During the six months ended June 30, 2010, the Company sold certain of its investments in other companies that were classified as
available for sale for proceeds of $ 1.6 millon and recognized a realized gain on investments of $0.6 milion.
7. Purchased Intangible Assets and Goodwil
Goodwill
The changes in the carring amount of goodwill by operating segment during the six months ended June 30, 2011 were as follows:
Consumer Business
Services Services
Segment Segment Total
(in thousands)
Balance as of December 31,2010
Goodwill $88,920 $258,004 $346,924
Accumulated impairment loss (87,878)(87,878)
88,920 170,126 259,046
Goodwil acquired during year 163,537 163,537
Goodwill adjustments (157)(157)
Balance as ofJune 30, 2011
Goodwil 88,920 421,384 510,304
Accumulated impairment loss ($7,$78)(87,878)
$88,920 $333,506 $422,426
Goodwill acquired during the period resulted from EarthLink's acquisitions of One Communications,STS Telecom and Logical
Solutions, which are more fully described in Note 4, "Acquisitions."
i i
Table ofContcnts
EARTH LINK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED - (Continued)
Purchased Intangible Assets
The following table presents the components of the Company's acquired identifiable intangible assets included in the accompanying
Condensed Consolidated Balance Sheets as of December 3 1,2010 and June 30, 2011:
As of December 31,2010 As of June 30, 2011
Gross Net Gross Net
Carrying Accumulated Carryng Carryng Accumulated Carryng
Value Amortization Value Value Amortiztion Value
(in thousands)Subscriber bases and customer
relationships $192,414 $(71,067)$121,347 $376,449 $(91,848)$284,601
Developed technology and software 10,611 (821)9,790 24,311 (2,918)21,393
Trade names 5,221 (994)4,227 9,121 (2,089)7,032
Other 450 (60)390
$208,446 $(72,8$2)$135,364 $410,331 $(96,915)$313,416
The Company's identifiable intangible assets primarily consist of subscriber bases and customer relationships, developed technology
and software, trade names and other assets acquired in conjunction with the purchases of businesses and subscriber bases from other companies
that are not deemed to have indefinite lives. The gross carring value of identifiable intangible assets as of June 30, 2011 includes $166.9
million of customer relationships, $12.0 million of developed technology and $3.9 million of trade name assets resulting from the One
Communications acquisition and includes $15.7 milion of customer relationships, $1.7 million of developed technology and $0.5 milion of
other intangible assets resulting from the STS Telecom acquisition. Definite-lived intangible assets are amortized on a straight-line basis over
their estimated useful lives. The Company's customer relationships are being amortized using the straight-line method to match the estimated
cash flow generated by such assets, and the developed technology and trade names are being amortized using the straight-line method because
a pattern to which the expected benefits wil be consumed or otherwise used up could not be reliably determined. As of June 30,2011, the
weighted average amortization periods were 5.2 years for subscriber base assets and customer relationships, 4.2 years for developed technology
and software, 3.3 years for trade names and 2.5 years for other identifiable intangible assets.
Amortization of definite-lived intangible assets was $1.2 million and $17.3 millon for the three months ended June 30, 2010 and
2011, respectively, and $2.5 million and $24.1 milion for the six months ended June 30, 2010 and 2011, respectively, and is included in
depreciation and amortization in the Condensed Consolidated Statements of Operations. Based on the current amount of definite-lived
intangible assets, the Company expects to record amortization expense of approximately $34.0 million during the remaining six months in the
year ending December 31,201 i and $67.0 million, $66.2 millon, $60.3 million, $58.0 million, $27.5 millon and $0.4 million during the years
ending December 3 1,2012,2013,2014,2015, and 2016 and thereafter, respectively. Actual amortization expense to be reported in future
periods could differ materially from these estimates as a result of acquisitions, changes in useful lives and other relevant factors.
12
Table of Contcnts
EARTH LINK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED - (Continued)
8. Debt
The Company's debt consisted of the following as of December 31,2010 and June 30, 2011:
Asof
December 31,
2010
As of
June 30,
2011
ITC"DeltaCom senior secured notes due April 2016
Unamortized premium on ITC"DeltaCom senior secured notes due April 2016
EarthLink senior notes due May 2019
Unamortized discount on EarthLink senior notes due May 2019
EarthLink convertible senior notes due Novembet2026
Unamortized discount on EarthLink convertible senior notes due November 2026
Capital lease obligations
Carring value of debt and capital lease obligations
Less current portion of debt and capital lease obligations
Long-term debt and capital lease obligations
$
(in thousands)
325,000 $
26,251
324,800
24,189
300,000
(10,226)
255,791
(5,490)
ia,93 I
907,995
(251'986)
656,009
255,791
(12,722)
$
594,320
(243,069)
351,251 $
ITCADeltaCorn Senior Secured Notes due Apri/20/6
In connection with the acquisition oflTCADeltaCom, EarthLink assumed ITC"DeltaCom's outstanding $325.0 million aggregate
principal amount of 10.5% senior secured notes due on April I, 2016 (the "ITCADeltaCom Notes"). The ITCADeltaCom Notes were not repaid
or guaranteed by EarthLink. The ITC"DeltaCom Notes were recorded at acquisition date fair value, which was based on publicly-quoted
market prices. The resulting debt premium of$26.3 million is being amortized over the remaining life of the ITC"DeltaCom Notes. Under the
indenture for the ITCADeltaCom Notes, following the consummation of the acquisition, ITCADeltaCom was required to offer to repurchase any
or all of the ITC"DeltaCom Notes at 101 % of their principal amount. The tender window was open from December 20,2010 through January
18,2011. As a result, approximately $0.2 million outstanding principal amount of the ITCADeltaCom Notes was repurchased in January 2011.
The remaining ITC"DeltaCom Notes remain outstanding as obligations ofITCADeltaCom and its subsidiaries.
The ITCADeltaCom Notes accrue interest at a rate of 10.5% per year. Interest on the ITCADeltaCom Notes is payable semi-annually in
cash in arrears on April I and October i of each year. The ITC"DeltaCom Notes will mature on April I, 2016.
ITCADeltaCom may redeem some or all of the ITCADeltaCom Notes, at any time before April I, 2013, at a redemption price equal to
100% of their principal amount plus a "make-whole" premium. ITC"DeltaCom may redeem some or all of the ITCADeltaCom Notes at any
time on or after April I, 2013, at specified redemption prices declining from 105.250% to 100% of their principal amount. In addition, before
April 1,2013, ITC"DeltaCom may redeem up to 35% ofthe aggregate principal amount ofthe ITCADeltaCom Notes at a redemption price
equal to Ii 0.5% of their principal amount with the net proceeds of certain equity offerings. During any 12-month period before April I,
2013, ITC"DeltaCom may redeem up to 10% of the aggregate principal amount of the ITCADeltaCom Notes at a redemption price equal to
103% oftheir principal amount. If (I) ITC"DeltaCom sells certain of its assets and does not either (a) apply the net sale proceeds to repay
indebtedness under the ITC"DeltaCom Notes, or other indebtedness secured on a first-priority basis or (b) reinvest the net sale proceeds in its
business, or (2) ITC"DeltaCom experiences a change of control, ITC"DeltaCom may be required to offer to purchase ITC"DeltaCom Notes
from holders at 100% of their principal amount, in the case of a sale of assets, or 101 % of their principal amount, in the case of a change of
control. ITC"DeltaCom would be required to pay accrued and unpaid interest, if any, on the ITCADeltaCom Notes redeemed or purchased in
each of the foregoing events of redemption or purchase.
13
Tabk of Contents
EARTHLINK, INC.
NOTES TO CO NDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED - (Continued)
The ITCI\DeltaCom Notes are ITCI\DeltaCom's general senior obligations and rank equally in right of payment with any future senior
indebtedness. The ITCI\DeltaCom Notes are secured on a first-priority basis, along with any future pari passu secured obligations, subject to
specified exceptions and permitted liens, by substantially all of the assets of ITCI\DeltaCom and its subsidiaries that are deemed to be restricted
subsidiaries under the indenture governing the ITCI\DeltaCom Notes. Currently all ofITCI\DeltaCom's subsidiaries are deemed to be restricted
subsidiaries under the indenture. The ITCI\DeltaCom Notes are guaranteed on a senior secured basis by each ofITCI\DeltaCom 's restricted
subsidiaries on the initial issue date of the ITCI\DeltaCom Notes and will be guaranteed on a senior secured basis by each future domestic
restricted subsidiary, other than certain excluded subsidiaries, and by any foreign restricted subsidiary that guarantees any indebtedness of
ITCI\DeltaCom or any domestic restricted subsidiary. The guarantees are the subsidiary guarantors' general senior obligations and rank equally
in right of payment with all of the subsidiary guarantors' existing and future senior indebtedness.
The indenture governing the ITCI\DeltaCom Notes contains covenants that, among other things, limit ITCI\DeltaCom's ability, and the
ability of ITCI\DeitaCom 's restricted subsidiaries, to incur additional indebtedness, create liens, pay dividends on, redeem or repurchase
ITCI\DeltaCom 's capital stock, make investments or repay subordinated indebtedness, engage in sale-leaseback transactions, enter into
transactions with affiiates, sell assets, create restrictions on dividends and other payments to ITCI\DeltaCom from its subsidiaries, issue or sell
stock of subsidiaries, and engage in mergers and consolidations. All of the covenants are subject to a number of important qualifications and
exceptions under the indenture. As of December 3 1,2010 and June 30, 201 I, ITCI\DeltaCom was in compliance with all of its financial
covenants.
As of December 3 1,2010 and June 30,201 I, the fair value of the ITCI\DeltaCom Notes was approximately $352.6 milion and $346.1
milion, respectively, based on quoted market prices.
EarthUnk Senior Notes due May 2019
In May 2011, the Company completed a private placement of $300.0 milion aggregate principal amount of 8-7/8% Senior Notes due
20 I 9 (the "Senior Notes"). The Senior Notes were issued at 96.555% of their principal amount, resulting in gross proceeds of approximately
$289.7 million and net proceeds of$281.0 million after deducting transaction fees of$8.7 millon.
The Senior Notes and the related guarantees of certain of the Company's wholly-owned subsidiaries (the "Guarantors") are the
Company's and the Guarantors' unsecured senior obligations and rank equally with all of the Company's and the Guarantors' other senior
indebtedness. The Senior Notes accrue interest at a rate of 8-7/8% per year, payable on May 15 and November 15 of each year, commencing
on November 15,2011. The Senior Notes will mature on May 15,2019.
The Company may redeem the Senior Notes, in whole or in part, (i) from May 15, 2015 until May 15, 2016 at a price equal to
104.438% of the principal amount of the Senior Notes redeemed; (ii) from May 15,2016 until May 15,2017 at a price equal to 102.219% of
the principal amount of the Senior Notes redeemed; and (iii) from May 15, 20 I 7 at a price equal to 100% of the principal amount of the Sen ior
Notes redeemed, in each case plus accrued and unpaid interest. Prior to May 15,2015, the Company may also redeem the Senior Notes, in
whole or in part, at a price equal to 100% of the aggregate principal amount of the Senior Notes to be redeemed plus a make-whole premium
and accrued and unpaid interest. In addition, prior to May 15,2014, the Company may redeem up to 35% of the aggregate principal amount of
the Senior Notes with the net cash proceeds of certain equity offerings at a price equal to 108.875% of the principal amount of the Senior Notes
redeemed, plus accrued and unpaid interest.
The indenture governing the Senior Notes includes covenants which, subject to certain exceptions, limit the ability of the Company
and its Restricted Subsidiaries (as defin ed in the indenture) to, among other things, incur additional indebtedness, make certain types of
restricted payments, incur liens on assets of the Company or the Restricted Subsidiaries, engage in asset sales and enter into transactions with
affiiates. Upon a change of control (as defined in the indenture), the Company may be required to make an offer to
14
Tabk~ of Contents
EARTH LINK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED - (Continued)
repurchase the Notes at 10 I % of their principal amount, plus accrued and unpaid interest. The indenture governing the Senior Notes also
contains customary events of default.
In connection with the issuance of the Senior Notes, the Company and the Guarantors entered into a Registration Rights Agreement,
dated as of May 17,201 I (the "Registration Rights Agreement"). The Registration Rights Agreement requires the Company to register with the
Securities and Exchange Commission new 8-7/8% Senior Notes due 2019 (the "Exchange Notes") having substantially identical terms to the
Senior Notes and to complete an exchange of the privately placed Senior Notes for the publicly registered Exchange Notes (the "Exchange")
or, if the Exchange cannot be effected, to fie and keep effective a shelf registration statement for resale of the Senior Notes. Failure of the
Company to comply with the registration and exchange requirements set forth in the Registration Rights Agreement within the time periods
specified therein would require the Company to pay additional interest on the Senior Notes until any such failure to comply is cured.
The Company fied a Registration Statement on Form S-4 with the Securities and Exchange Commission on June 17,201 I to effect
the Exchange. The Registration Statement on Form S-4 has not yet been declared effective by the Securities and Exchange Commission.
EarthLink Convertible Senior Notes due November 2026
In November 2006, EarthLink issued $258.8 million aggregate principal amount of convertible senior notes due November 15,2026
(the "Convertible Notes") in a registered offering. The Convertible Notes bear interest at 3.25% per year on the principal amount of the
Convertible Notes until November 15,201 I, and 3.50% interest per year on the principal amount of the Convertible Notes thereafter, payable
semi-annually in May and November of each year. The Convertible Notes rank as senior unsecured obligations of the Company.
The Convertible Notes are payable with cash and, if applicable, are convertible into shares of the Company's common stock. The
initial conversion rate was 109.6491 shares per $1,000 principal amount of Convertible Notes (which represented an initial conversion price of
approximately $9. I 2 per share). As a result of the Company's cash dividend payments, the conversion rate has been adjusted and was 123.5033
shares per $ I ,000 principal am ount of Convertible Notes as of June 30, 20 I I (which represents a conversion price of approximately $8. I 0 per
share), subject to further adjustment. Upon conversion, a holder will receive cash up to the principal amount of the Convertible Notes and, at
the Company's option, cash, shares of the Company's common stock or a combination of cash and shares of common stock for the remainder,
if any, of the conversion obligation. The conversion obligation is based on the sum of the "daily settlement amounts" for the 20 consecutive
trading days that begin on, and include, the second trading day after the day the Convertible Notes are surrendered for conversion. The
Convertible Notes wil be convertible only in the following circumstances: (I) during any calendar quarter after the calendar quarter ending
December 3 1,2006 (and only during such calendar quarer), if the closing sale price of the Company's common stock for each of 20 or more
trading days in a period of30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter exceeds
130% of the conversion price in effect on the last trading day of the immediately preceding calendar quarter; (2) during the five consecutive
business days immediately after any five consecutive trading day period in which the average trading price per $1 ,000 principal amount of
Convertible Notes was equal to or less than 98% of the average conversion value of the Convertible Notes during the note measurement period;
(3) upon the occu rrence of speci fied corporate transactions, including the payment of dividends in certain circumstances; (4) if the Company
has called the Convertible Notes for redemption; and (5) at any time from, and including, October 15,201 I to, and including, November 15,
201 I and at any time on or after November 15,2024. The Company has the option to redeem the Convertible Notes, in whole or in par, for
cash, on or after November i 5, 20 I I, provided that the Company has made at least ten semi-annual interest payments. In addition, the holders
may require the Company to purchase all or a portion of their Convertible Notes on each of November 15,201 I, November 15,2016 and
Novem ber 15, 202 I .
As of December 3 1,2010 and June 30,201 I, the fair value ofthe Convertible Notes was approximately $300.3 million and $265.5million, respectively, based on quoted market prices.
15
Table of Contents
EARTHLlNK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED - (Continued)
Under the terms ofthe indenture governing the Convertible Notes, the Company's payment of cash dividends while the Convertible
Notes are outstanding requires an adjustment to the conversion rate for the Convertible Notes. In addition, as a result of the adjustment, the
Convertible Notes may be surrendered for conversion for a period of time between the declaration date and the record date, as defined in the
indenture, for the consideration provided for in the indenture. During the six months ended June 30, 2010, $3.0 milion principal amount of
Convertible Notes were surrendered for conversion for cash payment of $2.8 milion, resulting in a gain on conversion of debt of$0.2 milion.
Such gain is included in interest expense and other, net, in the Condensed Consolidated Statement of Operations.
The Company accounts for the liability and equity components of the Convertible Notes separately. The Company is accreting the
debt discount related to the equi ty component to non-cash interest expense over the estimated five-year life ofthe Convertible Notes, which
represents the first red emption date of November 2011. As of June 30, 2011, the remaining amortization period for the discount was four
months.
The principal amount, unamortized discount and net caring amount of the debt and equity components as of December 3 1,2010 and
June 30,2011 are presented below:
As of
December 31,
2010
As of
June 30,
2011
Principal amount
Unamortized discount
Net caring amount
$
(in thousands)
255,791 $
(12,722)
243,(.69 $
Carring amount of the eqliity component $61,847 $
255,791
(5,490)
250,301
61,847
$
The following table presents the associated interest cost related to the Convertible Notes during the three and six months ended
June 30, 2010 and 201 1, which consists of both the contractual interest coupon and amortization of the discount on the equity component:
Three Months Ended June 30,2010 2011
(in thousands)
Six Months Ended June 30,2010 2011
Contractual interest recognized
Discount amortization
$2,220 $
3,328
2,220 $
3,659
4,426 $
6,579
4,441
7,232
Effective interest rate 9.5%9.5%9.5%9.5%
Revolving Credit Facility
On May 20, 201 i, the Company entered into a credit agreement (the "Credit Agreement") providing for a senior secured revolving
credit facility with aggregate revolving commitments of$150.0 million. Also on May 20,201 i, EarhLink terminated its $30.0 milion
revolving credit faci Iity entered into on March 18, 20 i i. The senior secured revolving credit facilty terminates on May 20, 20 i 5, and all
amounts outstanding thereunder shall be due and payable in fulL. The Company may prepay the senior secured revolving credit facility in
whole or in part at any time without premium or penalty, subject to reimbursement of the lenders' breakage and redeployment costs in the case
of prepayment of LIB OR borrowings. The Company may irrevocably reduce or terminate the unutilzed portion of the senior secured revolving
credit facility at any time without penalty. No amounts were outstanding under the senior secured revolving credit facility as of
16
Table of Contcnts
EARTHLINK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED - (Continued)
June 30, 20 II. The Company paid $1.8 millon of transaction fees related to the new sen ior secured revolving credit facility, which are being
amortized to interest expense over the life of the credit facility.
The Credit Agreement contains representations and warranties, covenants, and events of default with respect to the Company and its
subsidiaries that are customarily applicable to senior secured credit facilities. Notwithstanding the foregoing, such covenants wil not apply to
ITCI\DeltaCom and its subsidiaries until the earlier of (i) the repayment or refinancing in full of the ITCI\DeltaCom Notes or (ii) the date
ITCI\DeitaCom and its U.S. subsidiaries become guarantors of the senior secured revolving credit facility. ITCI\DeltaCom is not currently a
guarantor under the senior secured revolving credit facility. The negative covenants contained in the Credit Agreement include restrictions on
the ability of the Company and its subsidiaries to, among other things, incur additional indebtedness, incur liens on assets, engage in certain
mergers, acquisitions or divestitures, pay dividends or make other distributions, voluntarily prepay certain other indebtedness (including certain
prepayments of the Company's existing notes and the ITCI\DeltaCom Notes), enter into transactions with affiiates, make investments, and
change the nature oftheir businesses, and amend the terms of certain other indebtedness (including the Company's existing notes and the
ITCI\DeltaCom Notes), in each case subject to certin exceptions set forth in the Credit Agreement.
Additionally, the Credit Agreement requires the Company to maintain a maximum consolidated leverage ratio and a minimum
consolidated interest coverage ratio (as defined in the Credit Agreement). The Company was in compliance with these financial covenants as of
June 30,201 i.
Classifcation
On November 15,201 i, holders of the Convertible Notes have the right under the governing indenture to require the Company to
repurchase the Convertible Notes. As a result, the Company classified the Convertible Notes as a current liability in the Consolidated Balance
Sheets as of December 3 1,2010 and June 30, 201 i.
Capital Lease Obligations
The Company maintains capital leases relating to indefeasible right-to-use agreements, vehicles and equipment. Substantially all of
these capital leases were assumed by the Company through its acquisition of One Communications. Depreciation expense related to assets
under capital leases is included in depreciation and amortization expense in the Condensed Consolidated Statements of Operations. The future
minimum payments due under the leases are as follows (in thousands):
Year Ending December 31,
2011 (remaining six months)
2012
2013
2014
2015
Thereafter
Total minimum lease payments
Less amounts representing interest
Total capital lease obligations
$1,947
3,560
3,337
3,149
3,177
17,775
32,945
(14,014)
18,931
$
$
17
Table of Contents
EARTHLINK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED - (Continued)
9. Stockholders' Equity
Comprehensive Income
Comprehensive income includes unrealized gains and losses on certain investments classified as available-for-sale, net of tax, which
are excluded from the Condensed Consolidated Statements of Operations. Comprehensive income for the three and six months ended June 30,
2010 and 2011 was as follows:
2010 20ll
Six Months Ended
June 30,
Three Months Ended
June 30,Net income $
Unrealized holding gains on certain investments, net
of taxTotal comprehensive income $
28,040 $
(in thousands)
6,548 $
2010 20ll
6,548 $
54,787 $
72
54,8S9 $
22,911
54
28,094 $22,91 i
Share Repurchases
Since the inception of the Company's share repurchase program, the Board of Directors has authorized a total of$750.0 milion for
the repurchase of Earh Link's common stock. As of June 30,2011, the Company had $1 10.8 millon available under the current authorizations.
The Company may repurchase its common stock from time to time in compliance with the Securities and Exchange Commission's regulations
and other legal requirements, including through the use of derivative transactions, and subject to market conditions and other factors. The share
repurchase program does not require the Company to acquire any specific number of shares and may be terminated by the Board of Directors at
any time.
The Company repurchased O. i milion shares of its common stock for $0.9 millon during the six months ended June 30, 2010 and
repurchased 4.5 million shares of its common stock for $35. i million during the six months ended June 30, 2011 pursuant to its share
repurchase program. In addition, 0.1 milion shares valued at $0.9 million were returned from the One Communications escrow fund and
recorded as treasury stock.
Dividends
During the three months ended June 30, 20 I 0 and 2011, cash dividends declared were $0.16 and $0.05 per common share,
respectively, and total dividend payments were $ i 7.3 millon and $5.6 millon, respectively. During the six months ended June 30, 2010 and
20 i I, cash dividends declared were $0.30 and $0. i 0 per common share, respectively, and total dividend payments were $32.7 milion and
$11.8 million, respectively. The Company currently intends to pay regular quarterly dividends on its common stock. Any decision to declare
future dividends will be made at the discretion of the Board of Directors and wil depend on, among other things, the Company's results of
operations, financial condition, cash requirements, investment opportunities and other factors the Board of Directors may deem relevant.
10. Stock-Based Compensation
The Company measures compensation cost for all stock awards at fair value on the date of grant and recognizes compensation expense
over the requisite service period for awards expected to vest. The Company estimates the fair value of stock options using the Black.Scholes
valuation model, and determines the fair value of restricted stock units based on the number of shares granted and the quoted price of
EarthLink's common stock on the date of grant. Such value is recognized as expense over the requisite service period, net of estimated
forfeitures, using the straight-line attribution method. For performance-based awards, the Company recognizes expense over the requisite
service period, net of estimated forfeitures, using the accelerated attribution method when it is probable that the performance measure will be
achieved. The estimate of awards that will ultimately vest requires significant judgment, and to the extent actual results or updated estimates
differ from the
18
Table of Contents
EARTHLINK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED - (Continued)
Company's current estimates, such amounts wil be recorded as a cumulative adjustment in the period estimates are revised. The Company
considers many factors when estimating expected forfeitures, including types of awards, employee class and historical employee attrition rates.
Actual results, and future changes in estimates, may differ substantially from the Company's current estimates.
Stock-based compensation expense was $1.7 milion and $3.5 milion during the three months ended June 30, 2010 and 2011,
respectively, and $4.4 millon and $7.1 milion during the six months ended June 30, 2010 and 20 II, respectively. The Company has classified
stock-based compensation expense within selling. general and administrative expense, the same operating expense line item as cash
compensation paid to em ployees.
Stock Incentive Plans
The Company has granted options to employees and non-employee directors to purchase the Company's common stock under various
stock incentive plans. The Company has also granted restricted stock units to employees and non-employee directors under various stock
incentive plans. Under the plans, employees and non-employee directors are eligible to receive awards of various fonns of equity-based
incentive compensation, including stock options, restricted stock, restricted stock units and perfonnance awards, among others. The plans are
administered by the Board of Directors or the Leadership and Compensation Committee of the Board of Directors, which detennine the tenns
of the awards granted. Stock options are generally granted with an exercise price equal to the market value of EarthLink common stock on the
date of grant, have a term of ten years or less, and vest over tenns of four years from the date of grant. Restricted stock units are granted with
various vesting terms that range from one to four years from the date of grant.
Options Outstanding
The following table summarizes stock option activity as of and for the six months ended June 30, 2011:
Stock Options
WeightedWeigbted Average
Average Remaining
Exercise Contractual
Price Term (Years)
(sbares and dollars in tbousands)
Aggreate
Intrinsic
Value
Outstanding as of December 31, 2010
Granted
Exercised
Forfeited and expired
Outstanding as of June 30, 201 i
Vested and expected to vest as of June 30, 201 i
Exercisable as of June 30, 201 1
2,436 $9.40
(61)
(195)
2,180
2,071 $
2,149 $
7.27
10.27
9.38
9.38
9.41
3.6 $
3.6 $
3.6 $
395
375
378
The aggregate intrinsic value am ounts in the table above represent the closing price of the Company's common stock on June 30, 2011
in excess of the exercise price, multiplied by the number of stock options outstanding or exercisable, when the closing price is greater than the
exercise price. This represents the amount that would have been received by the stock option holders if they had all exercised their stock
options on June 30, 2011. The total intrinsic value of options exercised dur ing the six months ended June 30, 20 i 0 and 201 i was $0.7 milion
and $0. i million, respectively. The intrinsic value of stock options exercised represents the difference between the market value of Company's
common stock at the time of exercise and the exercise price, multiplied by the number of stock options exercised. To the extent the forfeiture
rate is different than what the Company has anticipated, stock-based compensation related to these awards wil be different from the
Company's expectations. As of June 30, 20 11, there was $0.1 millon of total unrecognized compensation cost related to stock options. That
cost is expected to be recognized over a weighted-average period of 0.5 years.
19
Table of Contents
EARTHLINK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED - (Continued)
The following table summarizes the status of the Company's stock options as of June 30,2011:
$
Stock Options
Stock Options Outstanding Exercisable
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
(in thousands)(in thousands)
5.10 to $6.90 184 3.9 $6.41 174 $6.39
6.91 to 7.31 339 5.9 7.25 324 7.26
7.32 to 8.90 141 4.1 8.01 138 8.02
8.96 to 9.01 294 3.1 9.01 294 9.01
9.02 to 9.51 331 4.4 9.47 328 9.47
9.64 to 9.89 229 0.7 9.65 229 9.65
10.36 to 10.36 355 4.0 10.36 355 10.36
10.51 to 16.82 307 2.0 13.03 307 13.03
5.10 to $16.82 2,180 3.6 $9.38 2,149 $9.41$
Restricted Stock Units
The following table summarizes restricted stock unit activity as of and for the six months ended June 30, 201 I:
Outstanding as of December 31, 2010
Granted
Vested
Forfeited
Outstanding as of June 30, 2011
Restricted
Stock UnIts
(in thousands)
2,357 $
2,269
(1,343)
(46)
3,237 $
Weighted
Average
Grant Date
Fair Value
8.01
8.31
7.76
8.50
8.32
The fair value of restricted stock units is determined based on the closing trading price of EarhLink's common stock on the grat
date. The weighted-average grant date fair value ofrestricted stock units granted during the six months ended June 30, 2010 and 2011 was
$8.21 and $8.3 I, respectively. As of June 30, 20 I 1, there was $18.4 milion of total unrecognized compensation cost related to nonvested
restricted stock units. That cost is expected to be recognized over a weighted-average period of 2.8 years. The total fair val ue of shares vested
during the six months ended June 30, 2010 and 2011 was $8.8 milion and $1 i. million, respectively, which represents the closing price of the
Company's common stock on the vesting date multiplied by the number of restricted stock units that vested.
20
Tuble of Contents
EARTHLINK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED - (Continued)
i 1. Income Taxes
EarthLink recorded an income tax provision of$17.2 milion and $3.6 milion during the three months ended June 30, 2010 and 2011,
respectively, and $34.0 million and $14.3 millon during the six months ended June 30, 2010 and 2011, respectively. The income tax provision
for the six months ended June 30, 2011 represents an effective rate of38.35%, including a benefit for discrete items of 1.58%.
The income tax provision of$34.0 millon during the six months ended June 30, 2010 consisted of$2.6 million state income and
federal and state alternative minimum tax ("AMT") amounts payable due to the net operating loss carforward limitations associated with the
AMT calculation and $31.4 millon for non-cash deferred tax provisions associated with the utilization of net operating loss carryforwards.
The income tax provision of$14.3 million during the six months ended June 30, 2011 consisted of$3.5 million state income and federal and
state AMT amounts payable due to the net operating loss carryforward limitations associated with the AMT calculation and $10.8 millon for
non-cash deferred tax provisions due primarily to the utilization of net operating loss carry forwards.
The Company has a valuation allowance of$40.0 milion against certain deferred tax assets. Of this amount, approximately
$31.6 milion relates to net operating losses generated by the tax benefits of stock-based compensation. The valuation allowance wil i be
removed upon utilzation of these net operating losses by the Company as an adjustment to additional paid-in-capital. Approximately
$8.0 milion relates to net operating losses in certin jurisdictions where the Company believes it is not "more likely than not" to be realized in
future periods. In addition, valuation allowance of$OA milion was established in 2010 relating to stock compensation deferred tax assets.
To the extent the Company reports income in future periods, the Company intends to use its net operating loss carry forwards to the
extent available to offset taxable income and reduce cash outflows for income taxes. The Company's ability to use its federal and state net
operating loss carryforwards and federal and state tax credit caryforwards may be subject to restrictions attributable to equity transactions in
the future resulting from changes in ownership as defined under the Internal Revenue Code.
As a result of the acquisitions of One Communications, STS Telecom and Logical Solutions during the six months ended June 30,
2011, EarthLink recorded net deferred tax liabilities of$52.8 milion, $6.6 million and $0.7 million, respectively. Included in these amounts are
$16.6 milion of deferred tax assets relating to federal and state net operating losses acquired from One Communications. These amounts were
recorded under acquisition accounting.
The Company has identified its federal tax return and its state tax returns in California, Florida, Georgia, Ilinois, New York and
Pennsylvania as material tax jurisdictions, for purposes of calculating its uncertain tax positions. Periods extending back to 1994 are stil
subject to examination for all material jurisdictions. The Company believes that its income tax fiing positions and deductions through the
period ended June 30, 2011 will not result in a material adverse effect on the Company's financial condition, results of operations or cash flow.
The Company's policy for recording interest and penalties associated with audits is to record such items as a component of income tax expense.
A reconciliation of changes in the amount of unrecognized tax benefits for the six months ended June 30, 2011 is as follows:
Balance as of December 3 1,2010
Adjustment to tax positions under acquisition accounting
Decreases for ta positions of prior years
Balance as of June 30, 2011
Six Months Ended
June 30, 2011
(in thousands)$ 18,367
4,374
(23)
$ 22,718
21
Table of Contents
EARTHLINK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED - (Continued)
12. Commitments and Contingencies
Leases
The Company leases certain of its facilities under various non-cancelable operating leases. The facility leases generally require the
Company to pay operating costs, including propert taxes, insurance and maintenance, and generally contain annual escalation provisions as
well as renewal options. Minimum lease commitments (including estimated operating expenses) under non-cancelable leases, including
commitments associated with facilities exited as part of the Company's restructuring plans, as of June 30, 201 i are as follows:
Year Ending Deember 31,
Operating
Lease
(in thousands)
201 I (remaining six months)
2012
2013
2014
2015
Thereafter
Total minimum lease payments, including estimated operating expenses
Less aggregate contracted su blease income
$22,366
39,983
36,349
28,773
17,921
80,363
225,755
(5,969)
219,786$
Purchase commitments
The Company has entered into agreements with vendors to purchase certain telecommunications services and equipment under non-
cancelable agreements. The Company also has minimum commitments under network access agreements with several carriers and obligations
for certain advertising spending under non-cancelable agreements. The following table summarizes commitments under these agreements as of
June 30,201 i (in thousands):
Year Ending December 31,
201 I (remaining six months)
2012
2013
2014
2015
Thereafter
Total
$38,375
52,157
41,635
13,120
5,965
10,655
161,907$
Legal and other contingencies
The Company is periodically involved in disputes related to its bilings to other carriers for access to its network. The Company does
not recognize revenue related to such matters until the period that it is reliably assured of the collection of these claims. In the event that a
claim is made related to revenues previously recognized, the Company assesses the validity of the claim and adjusts the amount of revenue
being recognized to the extent that the claim adjustment is considered probable and estimable.
22
Table of Contents
EARTHLINK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED - (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 biling disputes. The reserves are
reviewed on a monthly basis, but are subject to changes in estimates and management judgment as new infonnation 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.
The Company is involved in other disputes, including customer billng disputes, and legal and tax proceedings arising from nonnal
business activities. The result of any current or future disputes, litigation or other legal proceedings is inherently unpredictable. The Company's
management, however, believes that there are no disputes, litigation or other legal proceedings asserted or pending against the Company that
could have, individually or in the aggregate, a material adverse effect on its financial position, results of operations or cash flows, and believes
that adequate provision for any probable and estimable losses has been made in the Company's condensed consolidated financial statements.
Regulation
The Company's services are subject to varying degrees offederal, state and local regulation. These regulations are subject to ongoing
proceedings at federal and state adm inistrative 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.
13. Fair Value Measurements
As of December 31,2010 and June 30,2011, 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.
Fair value is defined a s 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 i, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other
than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little
or no market data exists, therefore requiring an entity to develop its own assumptions.
The following tables present the Company's assets that are measured at fair value on a recurring basis as of December 31,2010 andJune 30,2011:
184,054
284,441
14,666
21,011
504,172
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
(in thousands)$ 184,054 $
284,441
14,666
21,011
$ 504,172 $
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3) Description Carryng
Value
Fair
Value
Cash equivalents
Government and agency securities
Commercial paper
Corporate debt securities
Total
$ 184,054 $
284,441
14,666
21,011
$ 504,172 $
$
$
23
Table of Contents
EARTHLINK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED - (Continued)
Carryng Fair
Decription Value Value
Cash equivalents $409,912 $409,912 $
Total $409,912 $409,912 $
Fair Value Measurements as of June 30, 2011 Using
Quoted Prices Significantin Active Other
Markets for ObservableIdentical Assets Inputs
(Level 1) (Level 2)
(in thousands)
409,912 $
409,912 $
Significant
Unobservable
Inputs
(Level 3)
$
$
Cash equivalents and marketable securities as of December 3 1,2010 and June 30, 201 1 were valued using quoted market prices and
are classified within Levell.
14. Segment Information
The Company reports segment information along the same lines that its chief executive offcer reviews its operating results in
assessing performance and allocating resources. The Company operates two reportble segments, Business Services and Consumer Services.
The Company's Business Services segment provides integrated communications services and related value-added services to businesses,
enterprise organizations and communications carriers. These services include data services, which include managed IP-based network services
and Internet access; voice services, which include local exchange, long-distance and conference callng; mobile data and voice services; and
web hosting. The results oflTC"DeltaCom, One Communications and STS Telecom are included in the Company's Business Services
segment. The Company's Consumer Services segment provides nationwide Internet access and related value-added services to individual
customers. These services include dial-up and broadband Internet access services, ancilary services sold as add-on features to the Company's
Internet access services, search and advertising.
The Company evaluates performance of its segments based on segment income from operations. Segment income from operations
includes revenues from external customers, related cost of revenues and operating expenses directly attributable to the segment, which include
costs over which segment managers have direct discretionar control, such as advertising and marketing programs, customer support expenses,
operations expenses, product development expenses, certain technology and facilities expenses, billng operations and provisions for doubtful
accounts. Segment income from operations excludes other income and expense items and certin expenses over which segment managers do
not have discretionary control. Costs excluded from segment income from operations include various corporate expenses (consisting of certain
costs such as corporate management. human resources, finance and legal), depreciation and amortization, impairment of goodwil and
intangible assets, restructuring and acquisition-related costs, and stock-based compensation expense, as they are not considered in the
measurement of segment performance.
24
Tablt~ of Contents
EARTH LINK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED - (Continued)
Information on reportable segments and a reconciliation to consolidated income from operations for the three and six months ended
June 30,2010 and 201 I is as follows:
Business Services
Revenues
Cost of revenues
Gross margin
Direct segment operating expenses
Segment operating income
$
Three Months Ended June 30,Six Months Ended June 30,
2010 2011 2010 2011
(in thousands)
32,702 $267,613 $66,396 $409,986
19,579 134,150 38.988 206.6Q7
13,123 133,463 27,408 20J,379
10,244 87,586 19,961 132,330
2,879 $45,877 $7,447 $71,049
120,305 $95,946 $243,869 $196,591
36,550 30,207 76,021 61,473
83,755 65,739 167,848 135,118
22,159 17,207 45,034 36,521
61,596 $48,532 $122,814 $98,597
153,007 $363,559 $310,265 $606,577
56,129 164,357 1 15.QQ9 268.080
96,878 199,202 195,256 338,497
32,403 104,793 64,995 1(.8.8S1
64,475 94,409 130,261 169,646
1,707 3,514 4,374 7,085
4,577 45,093 9,325 66,769
(89)1 1,046 1,346 15,551
7,729 5,488 16,252 1 1,023
50,551 $29,268 $98,964 $69,218
$
Consumer Services
Revenues
Cost of revenues
Gross margin
Direct segment operating expenses
Segment operating income
$
$
Consolidated
Revenues
Cost of revenues
Gross margin
Direct segment operating expenses
Segment operating income
Stock-based compensation expense
Depreciation and amortization
Restructuring and acquisition-related costs
Other operating expenses
Income from operations
$
$
Information on revenues by groups of sim i1ar services and by segment for the three and six months ended June 30, 2010 and 201 1 is
as follows:
Three Months Ended Six Months Ended
June 30, June 30,
2010 2011 2010 2011
(in thousands)Business Services
Retail services $16,433 $219,008 $32,758 $325,328
Wholesale services 8,080 37,585 16,815 62,380
Other 8,189 11,020 16,823 22,278
Total revenues 32,702 267,613 66.396 409,986
Coiisumer Services
Access services 105,552 83,403 213,750 170,860
Value-added services 14,753 12,543 30,119 25,731
Total revenues 120,305 95,946 243,869 196,591
Total Reven ues $153,007 $363,559 $310,265 $606,577
25
Table of Contents
EARTHLINK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED - (Continued)
The Company's Business Services segment earns revenue by providing high-speed or broadband data communications services, voice
services and mobile voice and data services to businesses and enterprise organizations. These revenues are classified as retail services revenues.
The Company's Business Services segment also earns revenue from the sale of transmission capacity to other telecommunications carriers.
These revenues are classified as wholesale services revenues. Other revenues consist of web hosting and the sale of customer premises
equipment. Revenues from the Company's Business Services generally consist of recurring monthly charges for such services; usage fees;
installation fees; equipment fees and termination fees.
The Company's Consumer Services segment earns revenue by providing narowband access services (including traditional, fully-
featured narrowband access and value-priced narrowband access) and broadband access services (including high-speed access via DSL and
cable and VoIP). Revenues from access services generally consist of recurring monthly charges for such services; usage fees; installation fees;
termination fees; and fees for equipment. The Company's Consumer Services segment also ears revenues from value-added services, which
include revenues from ancillary services sold as add-on features to EarthLink's Internet access services, such as security products, premium
email only, home networking, email storage and Internet call waiting; search revenues; and advertising revenues.
The Company manages its working capital on a consolidated basis and does not allocate long-lived assets to segments. In addition,
segment assets are not reported to, or used by, the chief operating decision maker and therefore, total segment assets have not been disclosed.
The Company has not provided information about geographic segments because substantially all of the Company's revenues, results
of operations and identifiable assets are in the United States.
15. Condensed Consolidating Financial Information
In May 201 i, the Company completed a private placement of $300.0 million aggregate principal amount of 8-7/8% Senior Notes Due
20 i 9 (the "Original Senior Notes"). The Original Senior Notes are fully and unconditionally guaranteed, jointly and severally, on a senior
unsecured basis by each of the Company's existing and future domestic subsidiaries, other than (i) ITCADeltaCom, Inc. and its subsidiaries and
(ii) certain other excluded subsidiaries (the "Guarantor Subsidiaries"). ITCADeltaCom, Inc. and its subsidiaries are not guarantors of the
Original Senior Notes (the "Non-Guarantor Subsidiaries"). All of the Guarantor Subsidiaries are 100% owned by the Company.
Pursuant to the Registration Rights Agreement, the Company is required to register an identical series of notes (the "Exchange Senior
Notes") with the Securities and Exchange Commission and to offer to exchange those registered Exchange Senior Notes for the Original Senior
Notes. The Exchange Senior Notes wil also be guaranteed by the Guarantor Subsidiaries. In connection with the registration of the Exchange
Senior Notes and related guarantees, the Company wil be required to provide the financial information set forth under Rule 3- i 0 of Regulation
SoX, "Financial Statements of Guarantors and Issuers of Guaranteed Securities Registered or Being Registered" ("Rule 3- 10"). The
accompanying condensed consolidating financial information has been prepared and presented pursuant to Rule 3-10. The column labeled
Parent Company represents EarhLink's stand-alone results and its investment in all of its subsidiaries accounted for using the equity method.
The Guarantor Subsidiaries and the Non-Guarantor Subsidiaries are presented in separate columns and represent all the applicable subsidiaries
on a combined basis. Intercompany eliminations are shown in a separate column.
The operating activities of the separate legal entities included in the Company's consolidated financial statements are interdependent.
The accompanying condensed consolidating financial information presents the results of operations, financial position and cash flows of each
legal entity and, on an aggregate basis, the other non-guarantor subsidiaries based on amounts incurred by such entities, and is not intended to
present the operating results of those legal entities on a stand-alone basis.
The condensed consolidating financial information is presented in the following tables (in thousands):
26
Tabk of Contents
EARTH LINK, INC.
NOTES TO CO NDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED - (Continued)
Condensed Consolidating Balance Sheet
As of June 30, 2011
Guarantor Non-Guarantor
Parent Subsidiaries Su bsidia ries Eliminations Consolidated
ASSETS
Current assets:
Cash and cash equivalents $432,166 $14,603 $43,715 $$490,484
Restricted cash 1,068 1,068
Accounts receivable, net 13,642 48,717 42,867 105,226
Prepaid expenses 2,501 4,458 9,364 16,323
Deferred income taxes, net 50,439 11,968 1,025 63,432
Due from affliates 179,886 44,253 437 (224,576)
Other current assets 4,180 11,3Z3 4,lZ9 19,632
Total current assets 682,814 135,322 102,605 (224,576)696,165
Property andequipment, net 19,764 157,034 208,082 384,880
Deferred income taxes, net 16,886 (3,273)87,031 100,644
Purchased intangible assets, net 571 178,173 134,672 313,416
Goodwill 88,920 142,058 191,448 422,426
Investment in subsidiaries 789,311 (789,311)Other long-term assets 10,690 15,917 178 26,785
Total assets $1,608,956 $625,231 $724,016 $(1,013,887)$1,944,316
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable $4,898 $10,272 $5,630 $$20,800
Accrued payroll and related expenses 8,242 8,254 8,643 25,139
Accrued interest 6,675 2 8,635 15,312
Other accrued liabilities 18,598 60,886 38,556 118,040
Deferred revenue 17,892 13,563 24,376 55,831
Due to affliates 44,690 179,886 (224,576)Current portion oflong-tenn debt and capital
lease obligations 250,340 1,047 599 251,986
Total current liabilties 351,335 273,910 86,439 (224,576)487,108
Long-tenn debt and capital lease obligations 289,773 16,440 349,796 656,009
Other long-tenn liabilties 6,478 26,376 7,459 40,313
Total liabilities 647,586 316,726 443,694 (224,576)i, 183,430
Stockholders' equity:
Common stock 1,958 1,958
Additional paid-in capital 2,077,916 495,676 293,635 (789,311)2,077,916
Accumulated deficit (424,840)(187,171)(13,313)(625,324)
Treasury stock, at cost (693,664)(693,664)
Total stockholders' equity 961,370 308,505 280,322 (789,311)760,886
Total liabilities and stockholders' equity $1,608,956 $625,23 i $724,016 $(1,013,887)$1,944,316
27
Table ofContcnts
EARTHLINK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED - (Continued)
Condensed Consolidating Balance Sheet
As of December 31,2010
Guarantor Non-Guarantor
Parent Subsidiaries Su bsidiaries Eliminations Consolidlted
ASSETS
Current assets:
Cash and cash equivalents $197,615 $1,752 $43,585 $$242,952
Marketable securities 307,814 307,814
Restricted cash 2,270 2,270
Accounts receivable, net 15,012 4,962 40,242 60,216
Prepaid expenses 2,341 1,326 8,494 12,161
Deferred income taxes, net 44,270 1,345 46 45,661
Due from affliates 163,036 35,754 1,292 (200,082)
Other current assets 6,610 3,962 4,230 14,802
Total current assets 736,698 49,101 100,159 (200,082)685,876
Long-term marketable securiti es 12,304 12,304
Propert and equipment, net 21,244 12,879 206,988 241,111
Deferred income taxes, net 39,425 60,152 89,460 189,037
Purchased intangible assets, net 960 4,754 129,650 135,364
Goodwil 88,920 170,126 259,046
Investment in subsidianes 391,650 (391,650)Other long-term assets 1,070 170 1,240
Total assets $1,292,271 $126,886 $696,553 $(591,732)$1,523,978
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Accounts payable $4,959 $579 $11,734 $$17,272
Accrued payroll and related expenses 13,109 1,240 4,053 18,402
Accrued interest 8,622 8,622
Other accrued liabilities 24,627 4,535 37,845 67,007
Deferred revenue 19,704 1,373 19,844 40,921
Due to affliates 37,046 163,036 (200,082)
Current portion of debt and capital lease obligations 243,069 243,069
Total current liabilities 342,514 170,763 82,098 (200,082)395,293
Long-term debt and capital lease obligations 351,251 351,251
Other long-term liabilities 10,839 793 7,934 19,566
Total liabilities 353,353 171,556 441,283 (200,082)766,110
Stockholders' equity (deficit):
Common stock 1,918 1,918
Additional paid-in capital 2,061,555 130,161 261,489 (391,650)2,061,555
Accumulated deficit (467,185)(174,831)(6,219)(648,235)Treasury stock, at cost (657,611)(657,611)Accumulated other comprehensive income 241 241
Total stockholders' equity (deficit)938,918 (44,670)255,270 (391,650)757,868
TotalliabiIities and stockholders' equity $1,294î271 $126,886 $69(j,553 $(591,732)$1,52:3,978(deficit)
28
Tabk~ of Contents
EARTHLlNK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED - (Continued)
Condensed Consolidating Statement of Operations
Three Months Ended June 30,2011
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
Revenues $102,732 $147,385 $113,779 $(337)$363,559
Operating costs and expenses:
Cost of revenues (exclusive of depreciation and
amortization shown separately below)31,719 77,429 55,546 (337)164,357
Selling, general and administrative (exclusive of
depreciation and amortization shown separately
below)25,496 50,997 37,302 113,795
Depreciation and amortization 2,692 24,171 18,230 45,093
Restructuring and acquisition-related costs 2,566 7,423 1,057 11,046
Total operating costs and expenses 62,473 160,020 112,135 (337)334,291
Income (loss) from operations 40,259 (12,635)1,644 29,268
Interest expense and other, net (8,949)(1,990)(8,137)(191076)Income (loss) before income taxes 31,310 (14,625)(6,493)10,192
Income tax (provision) benefit (20,296)6,339 10,313 (3,644)Net income (loss)$11,014 $(8,286)$3,820 $$6,548
Condensed Consolidating Statement of Operations
Three Months Ended June 30, 2010
Guarantor Non-Guarantor
Parent Subsidiaries Su bsidia ries Eliminations Consolidated
Revenues $128,780 $24,317 $$(90)$153,007
Operating costs and expenses:
Cost of revenues (exclusive of depreciation and
amortization shown separately below)38,530 17,689 (90)56,129
SeIling, gerieral and adiinistrative(exclusive of
depreciation and amortization shown separately
below)32,077 9,762 41,839
Depreciation and amortization 2,942 1,635 4,577
Restructuring and acquisition-related costs (89)(89)
Total operating costs and expenses 73,460 29,086 (90)102,456
Income (loss) from operations 55,320 (4,769)50,551
Gain on investments, net 154 154
Interest expense and other, net (4,494)(989)(5,483)Income (loss) before income taxes 50,980 (5,758)45,222
Income tax (provision) benefit (19,321)2,139 (17,182)
Net income (loss)$31,659 $(3,619)$$$28,040
29
Table of Contents
EARTHLINK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED - (Continued)
Condensed Consolidating Statement of Operations
Six Months Ended June 30, 2011
Revenues
Parent
$ 210,540
Gnarantor
Snbsidiaries
$ 172,902
Non-Gnarantor
Subsidiaries
$ 223,595
Eliminations Consolidated
$ (460) $ 606,577
Operating costs and expenses:
Cost of revenues (exclusive of depreciation and
amortization shown separately below)
Sellng, general and administrative (exclusive of
depreciation and amortization shown separately
below)
Depreciation and amortization
Restrcturing and acquisition-related costs
Total operating costs and expenses
Income (loss) from operations
Interest expense and other, net
Income (loss) before income taxes
Income tax (provision) benefit
Net income (loss)
64,403 94,213 109,924
53,257 60,696 73,006
5,333 26,540 34,896
5,467 8,202 1,882
128,460 189,651 219,708
82,080 (16,749)3,887
(13,286)(3,059)(15,691)
68,794 (19,808)(11,804)
(26,449)7,468 4,710
$42,345 $(12,340)$(7,094)$
(460)268,080
(460)
186,959
66,769
15,551
537,359
69,218
(32,036)
37,182
(14,271)
22,911$
Condensed Consolidating Statement of Operations
Six Months Ended June 30, 2010
Revenues $
Parent
261,239
Guarantor
Subsidiaries
$ 49,212
Non-Guarantor
Subsidiaries Eliminations Consolidated
$ (186) $ 310,265$
Operating costs and expenses:
Cost of revenues (exclusive of depreciation and
amortization shown separately below)
Sellng, general and administrative (exclusive of
depreciation and amortization shown separately
below)
Depreciation and amortization
Restructuring and acquisition-related costs
Total operating costs and expenses
80,130 35,065 (186)115,009
66,737 18,884 85,621
6,023 3,302 9,325
1,346 1,346
154,236 57,251 (186)211,301
107,003 (8,039)98,964
572 572
(8,857)(1,918)(10,775)
98,718 (9,957)88,761
(37,685)3,71 I (33,974)
$6J,033 $(6,Z46)$$$54,787
30
Income (loss) from operations
Gain on investments, net
Interest expense and other, net
Income (loss) before income taxes
Income tax (provision) benefit
Net income (loss)
Table of Contents
EARTHLINK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED - (Continued)
Condensed Consolidating Statement of Cash Flows
Six Months Ended June 30, 2011
Cash flows from operating activities
Cash flows from investing activities:
Purchase of business, net of cash acquired
Purchases of property and equipment
Sales and maturities of investments in marketable
securities
Payment for investment in subsidiary
Change in restricted cash
Other
Net cash (used in) provided by investing
activities
Cash flows from financing activities:
Proceeds from issuanceøfdebt,net of issuance
costs
Proceeds from exercises of stock options
Repurchases of common stock
Payment of dividends
Repayment of debt and capital lease obligations
Proceeds from parent
Change in due to/from affiliates, net
Other
Net cash provided by financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
$53,372 $(25,323)$17,424 $$45,473
(25,174)11,400 (22,759)(36,533)
(3,510)(14,472)(22,457)(40,439)
319,729 319,729
(342,341 )342,341
1,202 1,202
(3,425)79 (3,346)
(51,296)(6,497)(43,935)342,341 240,613
279,212
439
(36,053)
(11,782)
(501)(266,510)
312,341
1,160 (1,160)
232,475 44,671
234,551 12,851
197,615 1,752
$432,166 $14,603 $
31
279,212
439
(36,053)
(11,782)
(270,392)(3,381)
30,000 (342,341)
22
26,641
130
43,585
43,715 $
22
(38,554)(342,341)
$
247,532
242,952
490,484
Table of Contents
EARTHLINK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED - (Continued)
Condensed Consolidating Statement of Cash Flows
Six Months Ended June 30, 2010
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
Cash flows from operating activities $66,493 $10,939 $$$77,432
Cash flows from investing activities:
Purchases of property and equipment (2,863)(2,920)(5,783)Purchases of investments in marketable securities (214,179)(214,179)Sales and maturities of investments in marketable
securities 62,915 62,915
Other 1,618 1,618
Net cash used in investing activities (152,509)(2,920)(155,429)
Cash flows from financing activities:
Proceeds from exercises of stock options 1,901 1,901
Repurchases of common stock (851)(851)Payment of dividends (32,714)(32,714)Repayment for debt and capital lease obligations (2,785)(2,785)
Change in due to/from affliates, net 8,231 (8,231)
Net cash used in financing activities (26,218)(8,231)(34,449)
Net decrease in cash and cash equivalents (112,234)(212)(112,446)
Cash and cash equivalents, beginning of period 609,752 1,243 610,995
Cash and cash equivalents, end of period $497,518 $1,031 $$$498,549
32
Tabk of Contents
Hem 2. _M3liJlgemell'ùis_çlls_sjl)n anllAllalysisJ!fFinanciall)mdition and Results of Operations.
Certain statements in this Quarterly Report on Form IO-Q are forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. The words
"estimate," "plan," "intend," "expect," "anticipate," "believe" and similar expressions are intended to identify forward-looking statements.
These forward-looking statements are found at various places throughout this report. EarthLink disclaims any intention or obligation to update
or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Although EarthL ink believes that
its expectations are based on reasonable assumptions, it can give no assurance that its goals wil be achieved. Important factors that could cause
actual results to differ from estimates or projections contained in the forward-looking statements are described under "Safe Harbor Statement"
in this Item 2.
Thefollowing discussion should be read in conjunction with the accompanying unaudited Condensed Consolidated Financial
Statements and related Notes thereto and with "Management's Discussion and Analysis of Financial Condition and Results of Operations"
and the audited Consolidated Financial Statements and the Notes thereto contained in the Annual Report on Form 10-Kfor the year ended
December 31,2010.
Overview
EarthLink, Inc., together with its consolidated subsidiaries, provides a comprehensive suite of communications services to businesses
and individual customers. We operate two reportable segments, Business Services and Consumer Services. Our Business Services segment
provides integrated communications and related value-added services to businesses, enterprise organizations and communications carriers.
These services include data services, including managed IP-based network services and broadband Internet access services; voice services,
including local exchange, long-distance and conference callng; mobile data and voice services; and web hosting. Our Business Services
segment also sells transmission capacity to other communications providers on a wholesale basis. Our Consumer Services segment provides
nationwide Internet access and related value-added services to individual customers. These services include dial-up and high-speed Internet
access services, ancillary services sold as add-on features to our Internet access services, search and advertising. We provide our business
services primarily through a nationwide network utilizing a 27-state fiber optic network, Multi-Protocol Label Switching ("MPLS") and other
technologies. We provide our consumer services primarily through third-part telecommunications service providers.
During late 2010 and early 2011, we entered into two transactions that transformed our business from being primarily an Internet
services provider ("ISP") to an IP infrastructure and managed services provider. We now offer a robust suite of business services, and have
more scale in the markets we serve. In Decem ber 2010, we completed the acquisition ofITCI\DeltaCom, Inc. ("ITCI\DeltaCom"), a provider of
integrated communications services to customers in the southeastern U.S. In April 201 I, we completed the acquisition of One Communications
Corp. ("One Communications"), a privately-held integrated telecommunications solutions provider serving customers in the Northeast, Mid-
Atlantic and Upper Midwest. ITCI\DeltaCom and One Communications are included in our Business Services segment.
We have also entered into other strategic transactions we believe wil complement our business services. In March 201 I, we acquired
Saturn Telecommunication Services Inc. and affliates ("STS Telecom"), a privately-held company that operates a sophisticated Voice-over-
Internet Protocol ("VoIP") platform that we plan to leverage on a nationwide basis as part of our Business Services offerings. In May 20 I I, we
acquired Logical Solutions.net, Inc. ("Logical Solutions"), a privately-held com pany that provides a suite of cloud computing and hosted
network and security services. In July 20 I I, we acquired Business Vitals, LLC., a privately-held company that provides national managed IT
security and professional services. We believe these transactions will further establish EarthLink as a secure national managed services
provider.
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Table of Contents
Business Strategy
Successfully integrate acquisitons. We have recently completed several acquisitions, including ITCADeltaCom and One
Communications, which have increased the size and complexity of our business. We are focused on successfully integrating our recent
acquisitions with our existing operations in order to realize synergies, cost benefits and increase the scale and scope of our product offerings.
This includes the integration of sales forces and product offerings, as well as the integration of operating support systems. We believe that our
competitive positioning wil be strengthened by our ability to continue to successfully integrate these and other potential acquisitions.
Enhance our position as a leading I P infrastructure and managed services provider. As a resu It of our recent transactions, we now
offer a comprehensive suite of business services under a new brand, EarthLink Business. We plan to leverage our existing customer
relationships, favorable brand image and experience in providing IP communication and managed services, in order to position EarthLink as a
national Managed Service Provider. We believe that our combined sales force and service offerings wil be attractive to multi-location
business customers and helpful in promoting brand awareness and achieving operating synergies and revenue growth. We are fully integrating
and aligning our sales organization and are focused on creating a new customer-focused organization model that will create a consistent
nationwide approach to offering and supporting EarthLink products and services. We believe that to continue to enhance our ability to offer
these services supports our long-term strategic direction and wil further our objectives of strengthening our competitive position, expanding
our customer base, providing greater scale to accelerate innovation and increasing stockholder value.
Optimize our Consumer Services segment operations. We remain focused on retaining our customers and building long-term customer
relationships based on customized service offerings and superior customer service. We believe focusing on the customer relationship increases
loyalty and reduces chu m. We continue to focus on offering our services with high-quality customer service and technical support. We also
intend to continue to use cash generated from our Consumer Services segment operations to fund growth under our acquisition strategy in our
Business Services segment. We also continue to seek to add consumer customers that generate an acceptable rate of return, including through
alliances, partnerships and acquisitions from other ISPs.
Maintainfocus on operational effciency. Our operating framework includes a disciplined focus on operational effciency. In our
Business Services segment, we intend to use this disciplined focus on operational effciency to create synergies from our recent and potential
future acquisitions. In our Consumer Services segment, we intend to continue to improve the cost structure of our business, without impacting
the quality of services we provide. We also plan to continue to implement cost reduction initiatives and to manage our business more
effciently.
Selectively pursue potential strategic acquisitons. In addition to our recent acquisitions, we wil continue to selectively evaluate and
consider other potential strategic transactions that we believe wil complement and grow our business. Our acquisition strategy may include
investment in additional network depth in geographic areas that further expand our recently acquired fiber network, investment in new product
and services capabilities and the acquisition of business customers within our network to create more scale. The nationwide reach and depth of
our network will allow us to leverage any newly acquired product and service capabilties to all of our customers with lower incremental cost.
The primary challenges we face in executing our business strategy for our Business Services segment are continuing to develop
managed services offerings that wil i be attractive to multi-location customers, successfully integrating our acquisitions to achieve expected
synergies and cost savings, responding to competitive and economic pressures in the communications industry and adapting to regulatory
changes and initiatives. The primary challenges we face in executing our Consumer Services segment are managing the rate of decline in our
consumer revenues, implementing outsourcing and other cost-saving initiatives, and operating our network cost-effectively, including network
services purchased from third-part telecommunications service providers. The factors we believe are instrumental to the achievement of our
business strategy may be subject to competitive, regulatory and other events and circumstances that are beyond our control. Further, we can
provide no assurance that we will be successful in achieving any or all of the strategies identified above, that the
34
T¡¡b!l~ of Contents
achievement or existence of such strategies will favorably impact profitability, or that other factors wil not arise that would adversely affect
future profitability.
Revenue Sources
Business Services. Our Business Services segment earns revenue by providing high-speed or broadband data communications
services, which include managed lP-based networks and Internet access; voice services, which include local exchange services, long distance,
conference calling services and operator and directory assistance services; mobile voice and data services; and the sale of transmission capacity
to other telecommunications carriers. Revenues from these services generally consist of recurring monthly charges for such services; usage
fees; installation fees; fees for equipment and termination fees. Our Business Services segment also ears revenue by providing web hosting
services. Web hosting revenues consist of fees charged for leasing server space and providing web services to enable customers to build and
maintain an effective online presence. Our Business Services segment was 74% of our total revenues during the three months ended June 30,
201 I, compared to 21% during the three months ended June 30, 2010.
Consumer Services. Our Consumer Services segment ears revenue from narrowband access services (including traditional, fully-
featured narrowband access and value-priced narrowband access) and broadband access services (including high-speed access via DSL and
cable and VoIP). Our Consumer Services segment also earns revenues from value-added services, which include revenues from ancillary
services sold as add-on features to our Internet access services, such as security products, premium email only, home networking, email storage
and Internet call waiting; search revenues; and advertising revenues. Revenues from access services generally consist of recurring monthly
charges for such services; usage fees; installation fees; termination fees; and fees for equipment. Value-added services revenues consist of fees
charged for ancillary services; fees generated through revenue sharing arangements with online partners whose products and services can be
accessed through our web properties, such as the Google ™ search engine; and fees charged for advertising on our various web properties. Our
Consumer Services segment was 26% of our total revenues during the three months ended June 30, 201 I, compared to 79% during the three
months ended June 30, 20 I O.
Trends in our Business
Business Services. We operate in the communications industry. The communications industry is highly competitive, and we expect
this competition to intensi iy. These markets are rapidly changing due to industry consolidation, an evolving regulatory environment and the
emergence of new technologies. We sell our services to end user business customers and to wholesale customers. Our end users range from
large enterprises with many locations, to small and medium-sized multi-site businesses to business customers with one site. Our wholesale
customers consist primarily of telecommunications carriers and network resellers. Our business has become more focused on end users as a
result of consolidation in the telecommunications industry. In addition, merger and acquisition transactions have created more significant
competitors for us and have reduced the number of vendors from which we may purchase network elements we leverage to operate our
business.
Our business customers are particularly exposed to a weak economy. We believe that the financial and economic pressures faced by
our business customers in this environment of diminished consumer spending, corporate downsizing and tightened credit have had, and may
continue to have, an adverse effect on billable minutes of use and on customer attrition rates, and have resulted in and may continue to result in
increased customer demands for price reductions in connection with contract renewals. We have experienced pressure on revenue and
operating expenses for our business services as a result of current economic conditions, including increased subscriber acquisition and retention
costs necessary to attract and retain subscribers.
Consumer Services. We operate in the Internet access services market, which is characterized by intense competition, changing
technology. changes in customer needs and new service and product introductions. Consumers continue to migrate from dial-up to broadband
access service due to the faster connection and download speeds provided by broadband access, the ability to free up their phone lines and the
more reliable and "always on" connection. The pricing for broadband services has been declining, making it a more viable option for
consumers who continue to rely on dial-up connections for Internet access. In addition, advanced applications such as online gaming, music
downloads, videos and social networking require greater
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bandwidth for optimal performance, which adds to the demand for broadband access. Most of the largest providers of broadband services, such
as cable and telecommunications companies, control their own networks and their ability to bundle services puts us at a competitive
disadvantage. Changes in technology, such as an increasing number of computer manufacturers not pre-loading dial-up modems and cable
upgrades which allow cable and telecommunications companies to provide broadband capable of peak download speeds in excess of 50 Mbps,
also may affect our consumer access services. Our narowband subscriber base and revenues have been declining and are expected to continue
to decline due to the continued maturation of the market for narrowband access. Additional1y, our consumer access services are discretionary
and dependent upon levels of consumer spending. Unfavorable economic conditions could cause customers to slow spending in the future,
which could adversely affect our revenues and chum.
Consistent with trends in the Internet access industry, the mix of our consumer access subscriber base has been shifting from
narrowband access to broadband access customers. Consumer broadband access revenues have lower gross margins than narrowband revenues
due to the costs associated with delivering broadband services. This change in mix has negatively affected our profitability and we expect this
trend to continue as broadband subscribers continue to become a greater proportion of our consumer access subscriber base. However, we
expect to realize benefits from a subscriber base that continues to be longer tenured, such as reduced support costs and lower bad debt expense.
In light of the continued maturation of the market for Internet access, we continue to engage in limited sales and marketing efforts and
to focus instead on retention of customers and on marketing channels that we believe wil produce an acceptable rate of return. While this
strategy has resulted in a decline in our revenues, our rate of revenue decline has decreased as our subscriber base becomes more tenured and
chum rates decline. Our monthly consumer subscriber chum rate improved from 3.0% and 3. i % during the three and six months ended
June 30,2010, respectively, to 2.6% during the three and six months ended June 30, 201 i.
Second Quarter 20 II Highlights
The statement of operations data for the second quarter of201 1 is affected by our acquisition ofITC"DeltaCom on December 8, 2010
and our acquisition of One Communications on April 1, 201 1. The results of these acquisitions are included in our operating results beginning
on the respective acquisition dates. Total revenues increased $210.6 milion from the three months ended June 30, 2010 to the three months
ended June 30, 201 1. The increase was the result of the inclusion of$1 13.8 millon ofITC"DeltaCom's revenues and $121.5 million of One
Communications revenues for the quarter. This was partially offset by a $24.4 milion decrease in our Consumer Services revenues due to a
decline in our average consumer subscriber base, from approximately 1.9 mil1ion during the three months ended June 30, 2010 to
approximately 1.5 milion during the three months ended June 30, 201 I, attributable to continued competitive pressures and continued
maturation of the narrowband Internet access market. Total operating costs and expenses increased $231.8 mil1ion from the three months ended
June 30,2010 to the three months ended June 30, 201 1, as a result of the inclusion ofITC"DeltaCom's and One Communications operating
costs and expenses for the quarter. This was partial1y offset by a decrease in our Consumer Services operating costs and expenses as our overal1
consumer subscriber base has decreased and beco me longer tenured. Our longer tenured customers require less customer service and technical
support and have a lower frequency of non-payment. Net income decreased $21.5 milion from $28.0 millon during the three months ended
June 30,2010 to $6.5 million during the three months ended June 30, 201 i.
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Table of Contents
Looking Ahead
In our Business Services segment, revenues may be adversely impacted by competition in the telecommunications industry, shiftng
patterns of use and convergence of technology and general economic conditions. However, to combat competitive pressures, we continue to
emphasize our bundled products and services and we are re-aligning our sales efforts to a new customer. focused organization model that we
believe will create a consistent nationwide approach to offering and supporting Earh Link Business products and services. We expect to incur
integration costs related to our recent acquisitions. Once the businesses are integrated, we expect to realize cost synergies from the combined
businesses. However, we expect to incur upfront costs to gain these synergies. Such costs may include severance and employee benefits or the
elimination of duplicate facilities and contracts, and may result in additional restructuring activities.
In our Consumer Services segment, we expect revenues to continue to decrease as a result of limited sales and marketing efforts and
as the market for Internet access continues to mature. However, we expect the rate of revenue decline to continue to decelerate as our customer
base becomes longer tenured and churn rates go down. Consistent with trends in the Internet access industry, we expect the mix of our
consumer access subscriber base to continue to shift from narrowband access to broadband access customers, which will negatively affect our
profitability due to the higher costs associated with delivering broadband services. We wil continue to seek cost reduction initiatives, such as
consolidating data centers and proprietary platforms. However, we believe that large-scale cost reduction opportunities in our Consumer
Services segment will be more limited in the future and these initiatives may be costly to implement.
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Table of Contents
Consolidated Results of Operations
The following comparison of statement of operations data is affected by our acquisition ofITC"DeltaCom on December 8, 2010 and
our acquisition of One Communications on April i, 201 i. The results of operations of ITC"DeltaCom and One Communications are included
in our operating results beginning on the respective acquisition dates. Due to these acquisitions, direct comparisons of our results of operations
for the three and six months ended June 30, 201 1 (which includes six months of results of operations from ITC"DeltaCom and three months of
results of operations from One Communications) with the prior year periods are less meaningful than usual since most of the significant period
over period variances are caused by the acquisitions. The following table sets forth statement of operations data for the three months ended
June 30,2010 and 201 I:
Revenues
Operating costs and expenses:
Cost of revenues (exclusive of depreciation and
amortization shown separately below)
Sellng, general and administrative (exclusive of of
depreciation and amotization shown separately
below)
Depreciation and amortization
Restructuring and acquisition-related costs
Total operating costs and expenses
Income from operations
Gain on investments, net
Interest expense and other, net
Income before income taxes
Income tax provision
Net income
* Denotes percentage is not meaningfuL.
Three Months Ended June 30,2010 2011 Change Between
2010 and 2011
%of %of
Amonnt Revenue Amonnt Revenue Amount %
(dollars in thousands)
$153,007 100% $363,559 100% $210,552 138%
56,129 37%164,357 45%108,228 193%
41,839 27%113,795 31%71,956 172%
4,577 3%45,093 12%40,516 885%
(89)0%11,046 3%11,135 *
102,456 67%334,291 92%231,835 226%
50,551 33%29,268 8%(21,283)-42%
154 0%0%(154)-100%
(5,483)-4%(19,076)-5%(13,593)248%
45,222 30%10,192 3%(35,030)"77%
(17,182)-11%(3,644)-1%13,538 -79%
$28,040 18% $6,548 2% $(21,492)-77%
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The following table sets forth statement of operations data for the six months ended June 30, 20 10 and 20 Ii:
Revenues
Operating costs and expenses:
Cost of revenues (exclusive of depreciation and
amortization shown separately below)
Selling, general and administrative (exclusive of
of depreciation and amotization shown
separately below)
Depreciation and amortization
Restrcturing and acquisition-related costs
Total operating costs and expenses
Income from operations
Gain on investments, net
Interest expense and other, net
Income before income taxes
Income tax provision
Net income
* Denotes percentage is not meaningfuL.
Revenues
Six Montbs Ended June 30,2010 201 I Cbange Between
2010 and 2011
Amount
%of
Revenue
%ofAmount Revenue
(dollars in thousands)
Amount %
$ 310,265 100% $ 606,577 100% $ 296,312 96%
115,009 37%268,080 44%153,071 133%
85,621 28%186,959 31%101,338 118%
9,325 3%66,769 11%57,444 616%
1,346 0%15,551 3%14,205 *
211,301 68%537,359 89%326,058 154%
98,964 32%69,218 11%(29,746)-30%
572 0%0%(572)-100%
(10,775)-3%(32,036)-5%(21,261)197%
88,761 29%37,182 6%(51,579)-58%
(33,974)-11%(14,271)-2%19,703 -58%
$54,787 18% $22,911 4% $(31,876)-58%
The following table presents revenues by groups of similar services for the three and six months ended June 30, 2010 and 20 Ii:
Tbree Montbs Ended
June 30, 2010 2011
Business Services
Retail services
Wholesale services
Other
Total revenues
$ 16,433
8,080
8,189
32,702
$ 219,008
37,585
11,020
267,613
Consumer Services
Access services
Value-added services
Total revenues
$Cbange
Six Montbs Ended
June 30, % Cbange 2010 2011
(dollars in tbousands)
%Cbange$Cbange
202,575
29,505
2,831
234,911
1233% $
365%
35%
718%
$ 325,328
62,380
22,278
409,986
32,758
16,815
16,823
66,396
292,570
45,565
5,455
343,590
893%
271%
32%
517%
$105,552 83,403 $(22,149)-21% $ 213,750 170,860 $(42,890)-20%
14,753 12,543 (2,210)-15%30,119 25,731 (4,388)-15%
120,305 95,946 (24,359)-20%243,869 196,591 (47,278)-19%
$153,007 $ 363,559 $ 210,552 138% $ 310,265 $ 606,577 $ 296,312 96%
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Total revenues
Table of Contents
Total revenues increased $210.6 milion, or 138%, from the three months ended June 30,2010 to the three months ended June 30,
201 1. This increase was comprised of a $234.9 milion increase in Business Services revenues, partially offset by a $24.4 milion decrease in
Consumer Services revenues. Total revenues increased $296.3 milion, or 96%, from the six months ended June 30, 2010 to the six months
ended June 30, 2011. This increase was comprised of a $343.6 millon increase in Business Services revenues, partially offset by a $47.3
milion decrease in Consumer Services revenues. The increases in Business Services revenue resulted from the inclusion of One
Communications' and ITCADeltaCom's revenues during the three and six months ended June 30, 201 1. The decrease in Consumer Services
revenues resulted from a decrease in average consumer subscribers, which were approximately 1.9 milion during the three and six months
ended June 30, 2010 and approximately 1.5 million during the three and six months ended June 30, 201 1. This decrease was driven by a
decline in narrowband and broadband subscribers due to continued maturation in the market for Internet access and competitive pressures in the
industry.
Cost of revenu es
Cost of revenues includes costs directly associated with providing services to our customers. Total cost of revenues increased $108.2
milion, or 193%, from the three months ended June 30, 2010 to the three months ended June 30, 2011. This increase was comprised of a
$114.5 milion increase in business services cost of revenue, parially offset by a $6.3 milion decrease in consumer services cost of revenues.
Total cost of revenues increased $153.1 milion, or 133%, from the six months ended June 30, 2010 to the six months ended June 30, 201 1.
This increase was comprised of a $167.6 million increase in business services cost of revenue, partially offset by a $14.5 milion decrease in
consumer services cost of revenues. The increases in Business Services cost of revenues were primarily due to the inclusion of One
Communications' cost of revenues and ITCADeltaCom's cost of revenues. The decreases in Consumer Service cost of revenues were primarily
due to the decline in average consumer services subscribers. Total cost of revenues increased from 37% of revenues during the three months
ended June 30, 20 i 0 to 45% of revenues during the three months ended June 30, 201 i due to the change in mix of our subscriber base to
business customers and to broadband subscribers.
Sellng, general and administrative
Selling, general and administrative expenses consist of expenses related to sales and marketing, customer service, network operations,
information technology, regulatory, biling and collections, corporate administration, and legal and accounting. Such costs include salaries and
related employee costs (including stock-based compensation), outsourced labor, professional fees, property taxes, travel, insurance, rent,
advertising and other administrative expenses.
Selling, general and administrative expenses increased $72.0 milion, or 172%, from the three months ended June 30, 2010 to the three
months ended June 30, 2011 and increased $101. million, or i 18%, from the six months ended June 30, 2010 to the six months ended June 30,
2011. The increase was due to the inclusion oflTCADeltaCom's and One Communications' sellng, general and administrative expenses for
the three and six months ended June 30, 2011. Partially offsetting this was a decrease selling, general and administrative expenses in our
Consumer Services segment consisting of decreases in personnel-related costs, outsourced labor, advertising expense, bad debt and payment
processing fees and legal and professional fees. The decreases resulted from reduced headcount and continued cost reduction initiatives,
reduced discretionary sales and marketing spend, and continued benefits as our overall consumer subscriber base has decreased and become
longer tenured. Selling, general and administrative expenses increased from 27% and 28% of revenues during the three and six months ended
June 30, 2010, respectively, to 31 % of revenues during the three and six months ended June 30, 2011.
Depreciation and amortization
Depreciation and amortization includes depreciation of property and equipment and amortization of definite-lived intangible assets
acquired in purchases of businesses and purchases of customer bases from other companies. Property and equipment is depreciated using the
straight-line method over the estimated useful lives of the various asset classes. Definite-Ii ved intangible assets, which primarily consist of
subscriber bases and
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Table of Contents
customer relationships, acquired software and technology, trade names and other assets, are amortized on a straight-line basis over their
estimated useful lives, which range from three to six three years.
Depreciation and amortization increased $40.5 milion from the three months ended June 30, 2010 to the three months ended June 30,
2011. This consisted ofa $24.5 million increase in depreciation expense and a $16.0 milion increase in amortization expense. Depreciation and
amortization increased $57.4 milion from the six months ended June 30, 20 I 0 to the six months ended June 30, 201 I. This consisted of a $35.8
milion increase in depreciation expense and a $2 1.6 milion increase in amortization expense. The increases in depreciation and amortization
expense compared to the prior year periods were primarily attributable to expense resulting from propert and equipment and definite-lived
intangible assets obtained in the acquisitions ofITCI\DeltaCom on December 8, 2010, One Communications on April 1,201 i and STS
Telecom on March 2, 20 i I.
RestructurÎng and acquÎSÎtÎon-related costs
Restructuring and acquisition-related costs consisted of the following during the three and six months ended June 30, 2010 and 201 I:
Three Months Ended
June 30,
Six Months Ended
June 30,
Facilty exit and restructuring costs
Acquisition-related costs
Restructuring and acquisition-related costs
2010 2011 2010 2011
(in thousands)
$(89)$(547)$1,346 $463
11,593 15,088
$(89)$1l,046 $1,346 $15,55 i
2007 Restructuring Plan. In August 2007, we adopted a restructuring plan to reduce costs and improve the effciency of our operations
("the 2007 Plan"). The 2007 Plan was the result of a comprehensive review of operations within and across our functions and businesses.
Under the 2007 Plan, we reduced our workforce by approximately 900 employees, consolidated our offce facilities in Atlanta, Georgia and
Pasadena, California and closed offce facilities in Orlando, Florida; Knoxvile, Tennessee; Harrisburg, Pennsylvania and San Francisco,
California. The 2007 Plan was primarily implemented during the latter half of2007 and during 2008. However, there have been and may
continue to be changes in estimates to amounts previously recorded.
Acquisition-Related Costs. Acquisition-related costs consist of external costs directly related to our acquisitions, such as advisory,
legal, accounting, valuation and other professional fees; employee severance and retention costs; and integration-related costs, such as system
conversion and rebranding costs. Acquisition-related costs are expensed in the period in which the costs are incurred and the services are
received and are included in restructuring and acquisition-related costs in the Condensed Consolidated Statement of Operations. Acquisition-
related costs consisted of the following during the three and six months ended June 30, 2010 and 201 I:
Three Months Ended
June 30,
Six Months Ended
June 30,
Transaction related costs
Severance and retention costs
Integration related costs
Total acquisition-related costs
2010 2011 2010 2011
(in thousands)
$$2,802 $$4,542
8,133 9,825
658 721
$$11,593 $$15,088
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Gain on investments, net
During the six months ended June 30, 2010, we sold certain of our investments in other companies for proceeds of $1.6 million and
recognized a realized gain on investments of $0.6 millon. This gain was included in gain on investments, net, in the Condensed Consolidated
Statement of Operations.
Interest expense and other, net
Interest expense and other, net. is primarily comprised of interest expense incurred on our debt and capital leases, amortization of debt
issuance costs. debt premiums, and debt discounts; interest earned on our cash, cash equivalents and marketable securities; and other
miscellaneous income and expense items.
Interest expense and other, net, increased $13.6 millon, from $5.5 million during the three months ended June 30, 2010 to $19.1
million during the three months ended June 30, 2011 and increased $21.2 millon, from $10.8 millon during the six months ended June 30,
2010 to $32.0 million during the six months ended June 30,201 i. The increases were primarily due to the inclusion oflTC"UeltaCom interest
expense and the issuance of new debt in May 2011. In connection with the ITC"DeltaCom acquisition, we assumed $325.0 millon aggregate
principal amount oflTC"DeltaCom's 10.5% senior secured notes due 2016 (the "ITC"DeltaCom Notes"). In May 2011, we completed a
private placement of$300.0 milion aggregate principal amount of 8-7/8% Senior Notes due 2019 (the "Senior Notes").
Income tax provision
We recognized an income tax provision of$34.0 milion during the six months ended June 30, 2010, which consisted of$2.6 milion
state income and federal and state AMT amounts payable due to the net operating loss carryforward limitations associated with the AMT
calculation and $31.4 million for non-cash deferred tax provisions associated with the utilzation of net operating loss cary forwards. We
recognized an income tax provision of$14.3 million during the six months ended June 30,2011, which consisted of$3.5 million state income
and federal and state AMT amounts payable due to the net operating loss carryforward limitations associated with the AMT calculation and
$10.8 million for non-cash deferred tax provisions due primarily to the utilization of net operating loss carr forwards.
We continue to maintain a valuation allowance of $40.0 millon against our unrealized deferred tax assets, which include net
operating loss carryforwards. Of this amount, $31.6 million relates to net operating losses generated by the tax benefits of certain stock
compensation arrangements. Upon utilization of these net operating losses, the valuation allowance will be removed as an adjustment to
additional paid-in-capital. Approximately $8.0 mil ion relates to net operating losses in certain jurisdictions where we believe it is not "more
likely than not" to be recognized in future periods. In addition, valuation allowance of$O.4 milion was established in 2010 relating to stock
compensation deferred tax assets.
To the extent we report income in future periods, we intend to use our net operating loss carrforwards to the extent available to offset
taxable income and reduce cash outflows for income taxes. Our abilty to use our federal and state net operating loss carryforwards and federal
and state tax credit carr forwards may be subject to restrictions attributable to equity transactions in the future resulting from changes in
ownership as defined under the Internal Revenue Code.
Segment Results of Operations
We operate two reportable segments, Business Services and Consumer Services. We present our segment information along the same
lines that our chief executive reviews our operating results in assessing performance and allocating resources. Our Business Services segment
provides integrated communications services to businesses, enterprise organizations and communications carriers. These services include data
services, including managed IP-based network services and broadband Internet access services; voice services, including local exchange, long-
distance and conference calling; mobile data and voice services; and web hosting. We also sell transmission capacity in our fiber network to
other communications providers on a wholesale basis. Our Consumer Services segment provides nationwide Internet access and related value-
added
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Table of Contents
services to individual customers. These services include dial-up and high-speed Internet access services, ancilary services sold as add-on
features to our Internet access services, search and advertising.
We evaluate the performance of our operating segments based on segment income from operations. Segment income from operations
includes revenues from external customers, related cost of revenues and operating expenses directly attributable to the segment, which include
expenses over which segment managers have direct discretionary control, such as advertising and marketing programs, customer support
expenses, operations expenses, product development expenses, certain technology and facilities expenses, billing operations and provisions for
doubtful accounts. Segment income from operations excludes other income and expense items and certain expenses over which segment
managers do not have discretionary control. Costs excluded from segment income from operations include various corporate expenses
(consisting of certain costs such as corporate management, human resources, finance and legal), depreciation and amortization, impairment of
goodwill and intangible assets, restructuring and acquisition-related costs and stock-based compensation expense, as they are not considered in
the measurement of segment performance.
The following table sets forth segment data for the three months ended June 30, 2010 and 201 i:
Business Services
Revenues
Cost of revenues
Gross margin
Direct segment operating expenses
Segment operating income
$
Three Months Ended June 30,
2010 2011 $ Change % Change
(dollars in thousands)
32,702 $267,613 $234,911 718%
19,579 134,150 114,571 585%
13,123 133,463 120,340 917%
10,244 87,586 77,342 755%
2,879 $45,877 $42,998 1494%
120,305 $95,946 $(24,359).20%
36,550 30,207 (6,343)-17%
83,755 65,739 (18,016)-22%
22,159 17,207 (4,952)-22%
61,596 $48,532 $(13,0(54)-21%
153,007 $363,559 $210,552 138%
56,129 164,357 108,228 193%
96,878 199,202 102,324 106%
32,403 104,793 74,390 223%
64,475 94,409 29,934 46%
1,707 3,514 1,807 106%
4,577 45,093 40,516 885%
(89)11,046 11,135 *
7,729 5,488 (2,241).29%
50,551 $29,268 $(21,283)-42%
43
$
Consumer Services
Revenues
Cost of revenues
Gross margin
Direct segment operating expenses
Segment operating income
$
$
Consolidated
Revenues
Cost of revenues
Gross margin
Direct segment operating expenses
Segment operating income
Stock-based compensation expense
Depreciation and amortization
Restructuring and acquisition-related costs
Other operating expenses
Income from operations
$
$
Table of Contents
Business Services
Revenues
Cost of revenues
Gross margin
Direct segment operating expenses
Segment operating income
Consumer Services
Revenues
Cost of revenues
Gross margin
Direct segment operating expenses
Segment operating income
Consolidated
Revenues
Cost of revenues
Gross margin
Direct segment operating expenses
Segment operating income
Stock-based compensation expense
Depreciation and amortization
Restrcturing and acquisition-related costs
Other operating expenses
Income from operations
Business Segment Results of Operations
Business Services revenues
Six Months Ended June 30,2010 2011 $ Cbange
(dollars in tbousands)
$66,396 $
38,988
27,408
19,961
7,447 $
409,986 $
206,(:07
203,379
132,330
71,049 $
196,591 $
61,473
135,118
36,521
98,597 $
606,577 $
268,080
338,497
168,851
169,646
7,085
66,769
15,551
11,023
69,218 $
%Cbange
343,590
167,(:19
175,971
112,369
63,602
517%
430%
642%
563%
854%$
$243,869 $
76,021
167,848
45,034
122,814 $
(47,278)
(14,548)
(32,730)
(8,513)
(24,217)
-19%
-19%
-19%
-19%
-20%$
$310,265 $
115,()()9
195,256
64,995
130,261
4,374
9,325
1,346
16,252
98,964 $
296,312
153,071
143,241
103,856
39,385
2,711
57,444
14,205
(5,229)
(29,746)
96%
133%
73%
160%
30%
62%
616%
1055%
-32%
-30%$
Business Services reven ues consist primarily of recurring monthly charges; usage fees; installation fees; equipment and term ination
fees. Business Services revenues also consist of web hosting revenues from leasing server space and providing web services to enable
customers to build and maintain an effective online presence. We sell our services to end-user business customers and to wholesale customers.
Our end users range from large enterprises with many locations, to small and medium-sized multi-site businesses to business customers with
one site. Our wholesale customers consist primarily of telecommunications carriers.
Business Services revenues increased $234.9 million from the three months ended June 30, 2010 to the three months ended June 30,
2011. The increase was primarily due to the inclusion of$121.5 milion of One Communications' revenues and $1 13.8 milion of
ITC"DeltaCom revenues. This was partially offset by a $0.4 million decrease in other Business Services revenues, which was primarily due to
declining business demand and competitive pricing pressures for our web hosting services and Internet access services.
Business Services revenues increased $343.6 million from the six months ended June 30, 2010 to the six months ended June 30, 2011.
The increase was primarily due to the inclusion of$223.6 million ofITC"DeltaCom revenues and $121.5 millon of One Communications'
revenues. This was partially offset by a $1.5 million decrease in other Business Services revenues, which was primarily due to declining
business demand and competitive pricing pressures for our web hosting services and Internet access services.
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Table of Contents
Business Services cost a/revenues
Cost of revenues for our Business Services segment primarily consists of the cost of connecting customers to our networks via leased
facilities; the costs ofleasing components of our network facilities; costs paid to third-part providers for interconnect access and transport
services; and the cost of equipment sold to customers for use with our services. Business Services cost of revenues increased $1 14.5 millon
from the three months ended June 30, 2010 to the three months ended June 30, 201 I. The increase in Business Services cost of revenues was
primarily due to the inclusion of$60.7 million of One Communications' cost of revenues and $55.5 million oflTCADeltaCom's cost of
revenues. Partially offsetting this was a $ 1.7 million decrease due to other Business Services cost of revenues resulting from network cost
efficiencies and a decline in web hosting accounts and Internet access customers. Business Services cost of revenues increased $167.6 million
from the six months ended June 30, 2010 to the six months ended June 30, 201 i. The increase in Business Services cost of revenues was
primarily due to the inclusion of $ i 09.9 million oflTCADeltaCom 's cost of revenues and $60.7 million of One Communications' cost of
revenues. Partially offsetting this was a $3.0 million decrease due to other Business Services cost of revenues resulting from network cost
effciencies and a decline in web hosting accounts and Internet access customers.
Business Services operating expenses
Operating expenses for our Business Services segment increased $77.3 million from the three months ended June 30, 2010 to the three
months ended June 30, 201 I and increased $1 12.4 million from the six months ended June 30, 2010 to the six months ended June 30, 201 I.
The increase was due to the inclusion of ITCADeltaCom's and One Communications' operating expenses for the three and six months ended
June 30, 2011.
Consumer Segment Results of Operations
Operating Metrics
We utilize certain non-financial and operating measures to assess our financial performance. Terms such as churn and average revenue
per user ("ARPU") are terms commonly used in our industry. The following table sets forth subscriber and operating data for the periods
indicated:
Consumer Subscriber Detail (a)
Narrowband access subscribers
Broadband access subscribers
Subscribers at end of period
June 30.
2010
June 30,
2011
1,060,000
748,000
1,808,000
826,000
652,000
1,478,000
Consumer Subscriber Activity
Subscribers at beginning of year
Gross organic subscriber additions
Churn
Subscribers at end of period
2010
Three Months Ended
June 30,
2011 2010
Six Months Ended
June 30,
2011
1,915,000
61,000
(168,000)
1,808,OPO
1,557,000
38,000
(117,000)
1,47'$,000
2,029,000
134,000
(355,000)
1,808,000
1,636,000
87,000
(245,000)
1,47'8,00
Consumer Metrics
A verage subscribers (b)
ARPU (c)
Churn rate (d)
$
1,859,000
21.57 $
3.0%
1,518,000
21.07 $
2.6%
1,915,000
21.23 $
3.1%
1,557,000
21.05
2.6%
45
Table of Contents
(a) Subscriber counts do not include new nonpaying customers. Customers receiving service under promotional programs that include periods
of free service at inception are not included in subscriber counts until they become paying customers.
(b) Average subscribers for the three month periods is calculated by averaging the ending monthly subscribers or accounts for the four months
preceding and includi ng the end of the period. Average subscribers for the six month periods is calculated by averaging the ending monthly
subscribers or accounts for the seven months preceding and including the end of the period.
(c) ARPU represents the average monthly revenue per user (subscriber). ARPU is computed by dividing average monthly revenue for the
period by the average number of subscribers for the year. Average monthly revenue used to calculate ARPU includes recurring service revenue
as well as nonrecurring revenues associated with equipment and other one-time charges associated with initiating or discontinuing services.
(d) Chum rate is used to measure the rate at which subscribers discontinue service on a voluntary or involuntar basis. Chum rate is computed
by dividing the average monthly number of subscribers that discontinued service during the period by the average subscribers for the period.
Consumer Services revenues
Access services. Access service revenues consist of recurring monthly charges for narrowband and broadband access services; usage
fees; installation fees; tennination fees; and fees for equipment. Consumer access revenues decreased $22.1 milion, or 21 %, from the three
months ended June 30, 2010 to the three months ended June 30, 2011 and decreased $42.9 milion, or 20%, from the six months ended June 30,
20 I 0 to the six months ended June 30, 2011. The decrease in consumer access revenues was due to a decrease in narrowband access and
broadband access revenues. Average consumer narrowband subscribers were 1.1 millon during the three and six months ended June 30, 20 io
and 0.9 million during the three and six months ended June 30, 2011. Average consumer broadband subscribers were 0.8 million during the
three and six months ended June 30, 20 10 and 0.7 mi Ilon during the three and six months ended June 30, 2011. Narowband access comprised
a larger portion of the average consumer access subscriber decreases, as average narrowband subscribers were approximately 59% of average
consumer access subscribers during the three and six months ended June 30, 2010 and 56% of average consumer access subscribers during the
three and six months ended June 30, 2011. Within narrowband access, our value-priced narrowband services comprised a larger proportion of
the total narrowband decrease, as average PeoplePC access subscribers were approximately 33% and 34% of our average consumer
narrowband customer base during the three and six months ended June 30, 2010, respectively, and 26% and 27% of our average consumer
narrowband customer base during the three and six months ended June 30, 2011, respectively. The decrease in average consumer access
subscribers resulted from reduced sales and marketing activities, the continued maturation of and competition in the market for narowband
Internet access and competitive pressures in the industry. However, we continue to focus on the retention of customers and on marketing
channels that we believe wi ii produce an acceptable rate of return.
Our monthly consumer subscriber chum rates decreased from 3.0% and 3.1 % during the three and six months ended June 30, 2010,
respectively, to 2.6% during the three and six months ended June 30,2011, which moderated the decline in average consumer subscribers.
Churn rates decreased due to the increased tenure of our subscriber base. We expect our consumer access and service subscriber base to
continue to decrease due to decreased sales and marketing activities, competitive pressures and the continued maturation of the market for
narrowband Internet access. However, as our customers become more tenured, we expect our chum rates to decline.
Value-added services revenues. Value-added services revenues consist ofrevenues from ancilary services sold as add-on features to
our Internet access services, such as security products, premium email only, home networking, email storage and Internet call waiting; search
revenues; and advertising revenues. We derive
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Table of Contents
these revenues from fees charged for ancilary services; fees generated through revenue sharing arangements with online partners whose
products and services can be accessed through our web properties, such as the Google ™ search engine; and fees charged for advertising on
our various web properties.
Value-added services revenues decreased $2.2 millon, or I 5%, from the three months ended June 30, 2010 to the three months ended
June 30,201 I and decreased $4.4 milion, or 15%, from the six months ended June 30, 2010 to the six months ended June 30, 201 I. This was
due primarily to a decrease in subscribers for ancillar services, primarily security services, and in search revenues. The decrease resulted from
the decline in total average consumer subscribers. However, partially offsetting this decrease was an increase in subscription revenue per
subscriber.
Consumer Services cost o/revenues
Cost of revenues for our Consumer Services segment primarily consists of telecommunications fees and network operations costs
incurred to provide our Internet access services; fees paid to suppliers of our value-added services; fees paid to content providers for
information provided on our online properties; and the cost of equipment sold to customers for use with our services. Our principal provider for
narrowband services is Level 3 Communications, Inc. We also purchase lesser amounts of narrowband services from certain regional and local
providers. Our principal providers of broadband connectivity are AT&T Inc., Bright House Networks, Comcast Corporation, Covad
Communications Group, Inc., Qwest Corporation, Time Warer Cable and Verizon Communications, Inc. Cost of revenues for our Consumer
Services segment also include sales incentives, which include the cost of promotional products and services provided to potential and new
subscribers, including free modems and other hardware and free Internet access on a trial basis.
Consumer Services cost of revenues decreased $6.3 millon, or 17%, from the three months ended June 30, 2010 to the three months
ended June 30, 201 I and decreased $14.5 million, or 19%, from the six months ended June 30, 2010 to the six months ended June 30, 201 i.
The decreases were primarily due to the decline in average consumer services subscribers. Also contributing was a decline in average consumer
cost of revenue per subscriber resulting from contract renegotiations with network service providers and internal network cost management
efforts.
Consumer Services operating expenses
Operating expenses for our Consumer Services decreased $5.0 million, or 22%, from the three months ended June 30, 20 10 to the
three months ended June 30, 201 I and decreased $8.5 milion, or 19%, from the six months ended June 30, 2010 to the six months ended
June 30, 20 I I. This was due to decreases in personnel-related costs, outsourced labor, advertising expense, bad debt an d payment processing
fees and legal and professional fees. The decreases resulted from reduced head count and continued cost reduction initiatives, reduced
discretionary sales and marketing spend, and continued benefits as our overall consumer subscriber base has decreased and become longer
tenured. Longer tenured customers have a lower frequency of non-payment and require less customer service and technical support.
Stock-Based Compensation
We measure stock-based compensation cost for all stock awards at fair value on the date of grant and recognition of compensation
over the requisite service period for awards expected to vest. The fair value of our stock options is estimated using the Black-Scholes valuation
model, and the fair val ue of restricted stock units is determined based on the number of shares granted and the quoted price of our common
stock on the date of grant. Such value is recognized as expense over the requisite service period, net of estimated forfeitures, using the straight-
line attribution method. For performance-based awards, we recognize expense over the requisite service period, net of estimated forfeitures,
using the accelerated attribution method when it is probable that the performance measure wil be achieved. The estimate of awards that will
ultimately vest requires significant judgment, and to the extent actual results or updated estimates differ from management's current estimates,
such amounts will be recorded as a cumulative adjustment in the period estimates are revised. We consider many factors when estimating
expected forfeitures, including types of awards, employee class and historical employee
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Table of Contents
attrition rates. Actual results, and future changes in estimates, may differ substantially from our current estimates.
Stock-based compensation expense was $1.7 million and $3.5 milion during the three months ended June 30, 2010 and 201 I,
respectively, and $4.4 mi Ilion and $7. I million during the six months ended June 30, 2010 and 20 I I, respectively. Stock-based compensation
expense is classified within sell ing, general and administrative expenses, which is the same operating expense line item as cash compensation
paid to employees.
Facilty Exit and Restructuring Costs
We expect to incur future cash outflows for real estate obligations through 2014 related to the 2007 Plan. The following table
reconciles the beginning and ending liability balances associated with the 2007 Plan as of June 30, 20 I I, including changes during the period
attributable to costs incurred and charged to expense and costs paid or otherwise settled.
Balance as of December 3 1,2010
Accruals
Payments
Balance as of June 30, 201 I
Facilties
(in thousands)$ 13,613
463
(4,324)$ 9,752
Liquidity and Capital Resources
The following table sets forth summarized cash flow data for the six months ended June 30, 2010 and 201 I:
Net income
Non-cash items
Changes in working capital
Net cash provided by operating activities
Siii Months Ended June 30,
2010 2011
(in thousands)
$54,787 $22,91 I
51,852 91,185
(29,207)(68,623)
$77,432 $45,473
$(155,429)$240,613
$(34,449)$(38,554)
Net cash (used in) provided by in investing activities
Net cash used in financing activities
Operating activites
The decrease in net cash provided by operating activities during the six months ended June 30, 20 I I compared to the prior year period
was primarily due to cash used for liabilities assumed in our acquisition of One Communications and increased liabilities associated with our
acquisitions, including severance and retention costs, transaction costs and other integration-related costs.
Investing activites
Our investing activities used cash of$1 55.4 million during the six months ended June 30, 2010. This consisted primarily of$1 5 I.
millon of purchases of investments in marketable securities, net of sales and maturities, as we invested some of our excess cash in longer term
marketable securities. Included in the net purchase amount was $3 1.3 million of proceeds received for the sale of auction rate securities. We
also used cash of$5.8 million for capital expenditures, primarily associated with network and technology center related
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Table of Contents
projects. Partially offsetting these amounts was $ 1.6 milion of proceeds received from the sale of certin investments.
Our investing activities provided cash of $240.6 milion during the six months ended June 30,201 I. This consisted primarily of
$3 i 9.7 milion of sales and maturities of investments in marketable securities as we converted our investments to cash equivalents during the
quarter. This was partially offset by $40.4 milion of cash used for acquisitions, net of cash acquired, and $40.4 million for capital
expenditures, primarily associated with network and technology center related projects, which includes incremental capital spending for our
business services activity.
Financing activities
Our financing activities used cash of$34.4 milion during the six months ended June 30,2010. This consisted primarily of$32.7
milion of dividend payments, $2.8 mi Ilion to pay for early conversion of a portion of our Notes and $0.9 milion used to repurchase O. i million
shares of our common stock. Under the termS of the indenture governing the Notes, our payment of cash dividends requires an adjustment to
the conversion rate for the Notes. In addition, as a result of the adjustment, the Notes may be surrendered for conversion for a period of time
between the declaration date and the record date, as defined in the indenture, for the consideration provided for in the indenture. These uses of
cash were partially offset by $ i. 9 millon of proceeds from the exercise of stock options.
Our financing activities used cash of$38.6 million during the six months ended June 30, 201 I. This consisted primarly of $269.9
million for repayment of debt and capital lease obligations, $36. I million used to repurchase 4.5 milion shares of our common stock and $1 1.8
million of dividend payments. In connection with the One Communications acquisition, we repaid $266.5 milion of One Communications
debt. In addition, under the indenture for the ITC"DeltaCom Notes, following the consummation of the acquisition of
ITC"DeltaCom, ITC"DeltaCom was required to offer to repurchase any or all of the ITC"DeltaCom Notes at 101% of their principal amount.
The tender window was open from December 20,2010 through January 18,201 I. As a result, approximately $0.2 milion outstanding principal
amount of the ITC"DeltaCom Notes was repurchased in January 2011. Also during the six months ended June 30, 201 I, we repaid $3.0 milion
of debt assumed in the STS Telecom acquisition. These uses of cash were partially offset by $279.2 million of proceeds from the issuance of
debt and $0.4 milion of proceeds from the exercise of stock options. In May 201 I, we completed a private placement of $300.0 milion
aggregate principal amount of 8-7/8% Senior Notes due 2019 at an issue price of96.55% and received net proceeds of$281.0 milion after
transaction fees. We also paid transaction fees of$I.8 milion related to our senior secured revolving credit facility entered into in May 201 i.
Future Uses of cash
Debt and interest. We expect to use cash related to our outstanding indebtedness. On November 15,20 I I, holders of our convertible
senior notes due 2026 ("Convertible Notes") have the right under the governing indenture to require us to repurchase the Convertible Notes and
from October 15,201 I to November 15,2011. the Convertible Notes are convertible. We will use cash to repurchase Convertible Notes or in
connection with holders' conversion of Convertible Notes if the holders exercise their right on those dates or on potential future dates. In
addition, in connection with our acquisition ofITC"DeltaCom, we assumed ITC"DeltaCom's outstanding $325 milion aggregate principal
amount of I 0.5% senior secured notes due on April i. As a result, we also expect to use cash for incremental interest payments. We also may
use cash to redeem the Convertible Notes or the ITC"DeltaCom Notes in accordance with the terms of the related indenture or to purchase
them in the open market. Finally, we expect to use cash for incremental interest payments related to our Senior Notes issued in May 20 I 1.
Capital expenditures. We believe that to remain competitive with much larger telecommunications and cable companies, we will
require significant additional capital expenditures to enhance and operate our fiber network. We expect to incur capital expenditures of
approximately $64.0 million to $77.0 million during the remainder of201 I to maintain and upgrade our network and technology infrastructure.
The actual amount of capital expenditures may fluctuate due to a number of factors which are diffcult to predict and could change significantly
over time. Additionally, technological advances may require us to make capital expenditures to
49
Tabk of Contents
develop or acquire new equipment or technology in order to replace aging or technologically obsolete equipment.
Acquisitons. We expect to use cash for one-time costs related to our recent acquisitions, including severance and retention costs and
integration-related costs. These transactions may result in significant costs and expenses, including those related to severance pay, payments to
executive offcers and key employees under retention plans, employee benefit costs, and legal, accounting and financial advisory fees. There
are a number of systems that must be integrated, including management information, sales, biling and human resources. We expect to incur
expenses in connection with integrating the businesses, policies, procedures, operations, technologies and systems of our acquisitions with
ours. In addition, we expect to incur integration costs related to branding initiatives associated with changing the trade name to EarthLink
Business.
Dividends. During the six months ended June 30, 2010 and 2011, cash dividends declared were $0.30 and $0.10 per common share,
respectively. We currently intend to continue to pay regular quarterly dividends on our common stock. However, any decision to declare future
dividends will be made at the discretion of the Board of Directors and will depend on, among other things, our results of operations, financial
condition, cash requirements, investment opportunities and other factors the Board of Directors may deem relevant.
Cost reduction initatives. We plan to continue to implement cost reduction initiatives and to manage our business more effciently.
This may include outsourcing certain functions, renegotiating contacts with network service providers and consolidating or closing certain
facilities, including our data centers. We may incur upfront costs in connection with implementing these initiatives. We wi ii also continue to
use cash to pay real estate obligations associated with facil ities exited in our past restructuring plans and for workforce reduction initiatives.
Other. We may use cash to invest in or acquire other companies or to repurchase common stock. We expect to continue to evaluate
and consider potential strategic transactions that we believe may complement our business. Although we continue to consider and evaluate
potential strategic transactions, there can be no assurance that we wil be able to consummate any such transaction.
Our cash requirements depend on numerous factors, including costs required to integrate our acquisitions, costs required to repurchase
debt, the size and types of future acquisitions in which we may engage, the costs required to maintain our network infrastructure, the pricing of
our access services, and the level of resources used for our sales and marketing activities, among others. In addition, our use of cash in
connection with acquisitions may lim it other potential uses of our cash, including stock repurchases, debt repayments, dividend payments and
payments for outstanding indebtedness.
Sources of cash
Our principal sources of liquidity are our cash and cash equivalents, as well as the cash flow we generate from our operations. During
the six months ended June 30, 2010 and 201 I, we generated $77.4 milion and $45.5 milion in cash from operations, respectively. As of
June 30, 2011, we had $490.5 milion in cash and cash equivalents. Our cash, cash equivalents and marketable securities are subject to general
credit, liquidity, market, and interest rate risks, which may be exacerbated by unfavorable economic conditions. If financial markets experience
prolonged periods of decline, the value or liquidity of our cash, cash equivalents and marketable securities could decline and result in an other-
than-temporary decline in fair value, which could adversely affect our financial condition.
In May. 201 I. we entered into a credit agreement providing for a senior secured revolving credit facility with aggregate revolving
commitments of$150.0 million. Also in May 2011, we terminated our $30.0 millon revolving credit facility entered into in March 2011. The
senior secured revolving credit facility terminates in May 2015, and at that time all amounts outstanding thereunder shall be due and payable in
fulL. No amounts were outstanding under the senior secured revolving credit facility as of June 30, 2011.
Our available cash and cash equivalents, together with our results of operations, are expected to be suffcient to meet our operating
expenses, capital requirements and investment and other obligations for the next
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Table of Contents
12 months. However, to increase available liquidity or to fund acquisitions or other strategic activities, we may seek additional financing. We
have no commitments for any additional financing and have no lines of credit or si milar sources of financing, other than a $150.0 milion credit
facility we entered into in May 2011 and which expires in May 2015. We cannot be sure that we can obtain additional financing on favorable
terms, if at all, through the issuance of equity securities or the incurrence of additional debt. Additional equity financing may dilute our
stockholders, and debt financi ng, if available, may restrict our ability to repurchase common stock or debt, declare and pay dividends and raise
future capitaL. If we are unable to obtain additional needed financing, it may prohibit us from making acquisitions, capital expenditures and/or
investments, which could materially and adversely affect our business.
Contractual Obligations and Commitments
The following table sets forth our contractual obligations and commercial commitments as of June 30, 20 11:
Total
Remaining
2011
Payment Due by Period2012 - 2014-2013 2015
(in thousands)$ $After 5 Years
Long-term debt, including current portinn(l)
Interest payments on long-term debt (2)
Purchase commitments (3)
Operating leases (4)
Capital leases (5)
Total (6)
$880,591
372,595
161,907
225,756
32,945
1,673,794
$ 255,791
34,532
38,375
22,366
1,947
$ 353,011
121,500 121,500
93,792 19,085
76,332 46,695
6,897 6,326
$298,521 $193,606 $
$ 624,800
95,063
10,655
80,363
17,775
828,656$
(1) Long-term debt, including current portion. includes principal payments on outstanding debt obligations. Long-term debt, including current
portion, excludes unamortized discounts and premiums. As of June 30, 201 1, we had $880.6 millon aggregate principal amount of debtoutstanding, consisting of $300.0 million of 8-7/8% Senior Notes due 2019, $324.8 million of ITCI\DeltaCom's 10.5% senior secured notes
due on April 1,2016 and $255.8 million of convertible senior notes due November 15,2026.
The Convertible Notes are convertible on October 15,2011 and upon certain events we have the option to redeem the Convertible Notes, in
whole or in part, for cash, on or after November 15,2011, provided that we have made at least ten semi-annual interest payments. In addition,
the holders may require us to purchase all or a portion of their EarthLink Notes on each of November 15,2011, November 15,2016 and
Novem ber 15, 2021 .
(2) Interest payments on long-term debt includes interest due on outstanding debt through maturity, except for our Convertible Notes. Interest
payments on our Convertible Notes assumes repurchase or conversion during the year ended December 31,201 i.
(3) Purchase commitments represent non-cancellable contractual obligations for services and equipment; minimum commitments under
network access agreements with several carriers; and non-cancelable contractual obligations for certain advertising spending.
(4) These amounts represent base rent payments under non-cancellable operating leases for facilties and equipment that expire in various years
through 2016, as well as an allocation for operating expenses. Not included in these amounts is expected sublease income of$0.9 milion
during the remaining six months in the year ended December 3 1,2011 and $ 1.9 millon, $2.0 milion and $1. million during the years ended
December 31,2012,2013 and 2104, respectively.
(5) Represents remaining payments under capital leases, including interest, substantially all of which were assumed from our acquisition of
One Communications.
(6) The table does not include our reserve for uncertain taxes, which as of June 30, 201 1 total $8.2 milion, as the specific timing of any cash
payments relating to this obligation cannot be projected with reasonable certainty.
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Tablt~ of Contents
Under the indentures governing our debt agreements, acceleration on principal payments would occur upon payment default or
violation of debt covenants. We were in compliance with all covenants under our debt agreements as of June 30, 2011.
Off-Balance Sheet Arrangements
As of June 30, 20 i 1, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future
effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or
capital resources that are material to investors.
Share Repu rchase Program
The Board of Directors has authorized a total of$750.0 million to repurchase our common stock under our share repurchase program.
As of June 30,2011, we had utilized approximately $639.2 million pursuant to the authorizations and had $110.8 milion available under the
current authorization. We may repurchase our common stock from time to time in compliance with the Securities and Exchange Commission's
regulations and other legal requirements, and 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 by the Board of Directors at any time.
Safe Harbor Statement
The Management's Discussion and Analysis and other portions of this Quarerly Report on Form 10-Q include "forward-looking"
statements (rather than historical facts) that are subject to risks and uncertainties that could cause actual results to differ materially from those
described. Although we believe that the expectations expressed in these forward-looking statements are reasonable, we cannot promise that our
expectations will turn out to be correct. Our actual results could be materially different from and worse than our expectations. With respect to
such forward-looking statements, we seek the protections afforded by the Private Securities Litigation Reform Act of 1995. These risks and
uncertainties (1) that we may not be able to execute our business strategy to transition to a leading IP infrastructure and managed services
provider, which could adversely impact our results of operations and cash flows; (2) that we may be unsuccessful in making and integrating
acquisitions into our business, which could result in operating diffculties, losses and other adverse consequences; (3) that adverse economic
conditions could harm our business; (4) that if we do not continue to innovate and provide products and services that are useful to individual
subscribers and business customers, we may not remain competitive, and our revenues and operating results could suffer; (5) that our failure to
implement cost reduction initiatives will adversely affect our results of operations; (6) that we wil require a significant amount of cash, which
may not be available to us, to service our debt and fund our other liquidity needs; (7) that we face significant competition in the Internet
industry that could reduce our profitability; (8) that our consumer business is dependent on the availability of third-part network service
providers; (9) that the continued dec i ine of our consumer access subscribers. com bined with the change in mix of our consumer access base
from narrowband to broadband, will adversely affect our results of operations; (10) that our commercial and all iance arrangements may not be
renewed or may not generate expected benefits, which could adversely affect our results of operations; (11) that privacy concerns relating to
our business could damage our reputation and deter current and potential users from using our services; (i 2) that changes in technology in the
Internet access industry could cause a decline in our business; (i 3) that we face significant competition in the communications industry that
could reduce our profitability; (14) that decisions by the Federal Communications Commission relieving ILECs (incumbent local exchange
carrier, which term includes former Bell Sy stems or other independent telephony companies responsible for providing local telephone
exchange services in a specified geographic area) of certain regulatory requirements, and possible further deregulation in the future, may
restrict our abil ity to provide services and may increase the costs we incur to provide these services; (15) that our wholesale services, including
our broadband transport services, will be adversely affected by pricing pressure, network overcapacity, service cancellations and other factors;
(16) that our financial performance will suffer if we are not offered competitive rates for the access services we need to provide our long
distance services; (i 7) that we may experience reductions in switched access and reciprocal compensation revenue; (18) that our inability to
maintain and upgrade our network infrastructure, portions of which we do not own, could
52
Tabk~ of Contents
adversely affect our operating results; (19) that if we are unable to interconnect with AT&T, Verizon and other incumbent carriers on
acceptable terms, our ability to offer competitively priced local telephone services wil be adversely affected; (20) that we may not be able to
compete effectively if we are unable to install additional network equipment or convert our network to more advanced technology; (2 i) that f
ailure to obtain and maintain necessary permits and rights-of-way could interfere with our network infrastructure and operations; (22) that w e
may be unable to retain suffcient qualified personnel, and the loss of any of our key executive offcers could adversely affect us; (23) that
interrption or failure of our network and information systems and other technologies could impair our abilty to provide our services, which
could damage our reputation and harm our operating results; (24) that our business depends on effective business support systems and
processes; (25) that government regulations could adversely affect our business or force us to change our business practices; (26) that our
business may suffer if third parties used for customer service and technical support and certain biling services are unable to provide these
services or terminate their relationships with us; (27) that we may not be able to protect our intellectual propert; (28) that we may be accused
of infringing upon the intellectual propert rights of third parties, which is costly to defend and could limit our ability to use certin
technologies in the future; (29) that if we, or other industry participants, are unable to successfully defend against legal actions, we could face
substantial liabilities or suffer harm to our financial and operational prospects; (30) that we may be required to recognize additional impairment
charges on our goodwill and intangible assets, which would adversely affect our results of operations and financial position; (31) that we may
have to undertake further restructuring plans that would require additional charges, including incurring facility exit and restructuring charges;
(32) that we may have exposure to greater than anticipated tax liabilities and the use of our net operating losses and certain other tax attributes
could be limited in the future; (33) that we may reduce, or cease payment of, quarterly cash dividends; (34) that our stock price may be volatie;
(35) that our indebtedness could adversely affect our financial health and limit our ability to react to changes in our industry; and (36) that
provisions of our second restated certificate of incorporation, amended and restated bylaws and other elements of our capital structure could
limit our share price and delay a change of management. These risks and uncertainties, as well as other risks and uncertainties that could cause
our actual results to differ significantly from management's expectations, are not intended to represent a complete list of all risks and
uncertainties inherent in our business, and should be read in conjunction with the more detailed cautionar statements and risk factors included
in our Annual Report on Form 10-K for the year ended December 3 1,2010.
Item 3. . QuantitatjYJLand Qll!lljtatiyeDisd2Sure£Ab()"tMarket.Risk.
There have been no material changes in market risk from the information provided in Par II, Item 7 A "Quantitative and Qualitative
Disclosures About Market Risk" in our Annual Report on Form 10-K for the year ended Decem ber 3 I, 20 10.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Pursuant to Rule l3a- 1 5(b) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), we carried out an
evaluation, with the paricipation of our management, including our Chief Executive Offcer and Chief Financial Offcer, of the effectiveness of
our disclosure controls and procedures (as defined under Rule 13a-1 5(e) under the Exchange Act) as of the end ofthe period covered by this
report. Based upon that evaluation, our Chief Executive Offcer and Chief Financial Offcer concluded that our disclosure controls and
procedures are effective to ensure that information required to be disclosed in the reports that are fied or submitted under the Exchange Act, is
recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms,
and that such information is accumulated and communicated to management, including our Chief Executive Offcer and Chief Financial
Offcer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the three months ended June 30, 201 i that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
53
Table of Contents
Part II
llemJ . LegllIPrll~ee~il1~,
EarthLink is a party to various legal proceedings that are ordinar and incidental to its business. Management does not expect that any
currently pending legal proceedings will have a material adverse effect on EarthLink's results of operations or financial position.
UeIiJA, Risj(flltllL~,
There were no material updates to the risk factors discussed in EarthLink's Annual Report on Form I O-K for the year ended
December 3 1,2010
Item 2. l!liregister~d Sales QfEguitYSeJ:uritievmd Use!lll"~eeds_,
The number of shares repurchased and the average price paid per share for each month in the three months ended June 30, 20 I I are as
follows:
2011
Total Number
of Shares
Repurchase
Total Number ofAverage Shares Repurchased
Price Paid as Part of Publicly
per Share Announced Program (I)
(in thousands, except average price paid per share)
$
Maximum Dollar
Value that May
Yet be Purchased
Under the Program
April I through April 30
May I through May 3 I
June 1 through June 30
Total
520
1,871
2,391
$ 129,029
125,001
110,799
520
1,871
2,391
7.74
7.59
(I) Since the inception of the share repurchase program ("Repurchase Program "), the Board of Directors has authorized a total of $750.0
million for the repurchase of our common stock. The Board of Directors has also approved repurchasing common stock pursuant to
plans under Rule IOb5-1 of the Securities Exchange Act of 1934, as amended. We may repurchase our common stock from time to
time in compliance with the Securities and Exchange Commission's regulations and other legal requirements, and subject to market
conditions and other factors. The Repurchase Program does not require EarthLink to acquire any specific number of shares and may
be term inated at any time.
54
Table of Contents
Item 5. Other Information.
Itein~~~b ibits~
None.
\0.1
(a) Exhibits. The following exhibits are fied as part of this report :
First Supplemental Indenture, Dated as of June 7, 201 i.
31.
31.2
32.1
32.2
101.NS
io1.SCH
101.CAL
101.DEF
101.LAB
10l.PRE
Certification of Chief Executive Offcer pursuant to Securities Exchange Act Rules 13 a- I 4 and I 5d- I 4, as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of2002.
Certification of Chief Financial Offcer pursuant to Securities Exchange Act Rules 13 a- 14 and I 5d-14, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of2002.
Certification of Chief Executive Offcer pursuant to 18 U .S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of2002.
Certification of Chief Financial Offcer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
XBRL Instance Document
XBRL Taxonomy Extension Schema Document
XBRL Taxonomy Extension Calculation Linkbase Document
XBRL Taxonomy Extension Definition Linkbase Document
XBRL Taxonomy Extension Label Linkbase Document
XBRL Taxonomy Extension Presentation Linkbase Document
55
Tab": of Contents
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
EARTHLINK, INC.
Date: August 8, 2011 lsi ROLLA P. HUFF
Rolla P. Huff, Chairman of the Board and Chief
Executive Offcer (principal executive offcer)
Date: August 8, 20 II lsi BRADLEY A. FERGUSON
Bradley A. Ferguson, Chief Financial Offcer
(principal financial and accounting offcer)
56
Exhibit 10.1
FIRST SUPPLEMENTAL INDENTURE
Supplementing the Indenture Dated as of May 17, 2011
EARTH LINK, INC.,
as Company,
and the Subsidiary Guarantors part hereto
and
DEUTSCHE BANK TRUST COMPANY AMERICAS,
as Trustee
8-7/8% Senior Notes due 2019
Dated as of June 7, 201 I
FIRST SUPPLEMENTAL INDENTURE, dated as of June 7, 201 I by and among EarthLink, Inc. a Delaware corporation (the"
Compli_"), Choice One Communications of Pennsylvania Inc. (" Choice One Pennsylvania "), Conversent Communications of Pennsylvania,
LLC (" Conversent Pennsylvania "), CTC Communications Corp. (" CTC "), LogicaISolutions.net, Inc. (" Logical Solutions ") and New Edge
Network, Inc. (" New Edge," and together with Choice One Pennsylvania, Conversent Pennsylvania, CTC and Logical Solutions, each, an "
AdditiQnaISuhsidiaryQuaJ'antQr," and, collectively, the" AddÜioni!lSubs.Wiary Q.um:antQIs"), the Subsidiaries of the Company parties hereto
(the" Su1JIDsHitryQaarantQrs "), and Deutsche Bank Trust Company Americas (the " Iru~~~-"), as Trustee under the Indenture, dated as of
May 17,201 i (the" Bas_e IngenluJ'e");
Capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed thereto in the Base Indenture;
RECITALS
WHEREAS, the Company has heretofore executed and delivered to the Trustee the Base Indenture providing for the issuance by the
Company of $300,000,000 aggregate principal amount of its 8-7/8% Senior Notes due 20 i 9 (the" Notes ");
WHEREAS, each Additional Subsidiary Guarantor is required to be a Subsidiar Guarantor under the definition of "Subsidiar
Guarantor" in the Base Indenture;
WHEREAS, pursuant to Sections 4. i 9 and 10.03 of the Base I ndenture, each Additional Subsidiary Guarantor desires to become a
Subsidiary Guarantor under the Base Indenture;
WHEREAS, Sections 4. i 9 and i 0.03 provide that the Company shall cause each Additional Subsidiar Guarantor to execute and
deliver a supplemental indenture pursuant to which such Additional Subsidiar Guarantor wil guarantee the payment and performance of the
Notes, and upon such execution and delivery of a supplemental indenture, each such Additional Subsidiary Guarantor wil be deemed to be a
Subsidiary Guarantor for all purposes under the Base Indenture, including, without limitation, Article io of the Base Indenture.
WHEREAS, pursuant to Section i i .03 of the Base Indenture, there have been delivered to the Trustee on the date hereof an Officer's
Certificate and Opinion of Counsel certifying, among other things, that the covenants and conditions under the Base Indenture relating to
execution and delivery of the First Supplemental Indenture have been complied with; and
WHEREAS, all things necessary to make this First Supplemental Indenture a valid supplement to the Base Indenture according to its
terms and the term s of the Base i ndenture have been done.
NOW, THEREFORE, in consideration of the foregoing and the mutual premises and covenants contained herein and for other good
and valuable consideration, the parties hereto agree as follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICA TION
Section 1.01. Refer~ii~. Each reference to a particular section set forth in this First Supplemental Indenture shall, unless the
context otherwise requires, refer to this First Supplemental Indenture.
ARTICLE TWO
AGREEMENT TO GUARANTEE
Section 2.01. Additional.Subsidiary Guarantors. Each Additional Subsidiary Guarantor, by its signature below, agrees to
become a Subsidiary Guarantor under the Indenture with respect to the Notes and agrees to be subject to all of the terms, conditions, waivers
and covenants applicable to a Subsidiary Guarantor under the Base Indenture. Upon its execution hereof, each Additional Subsidiary Guarantor
acknowledges that it shall be a Subsidiary Guarantor for all purposes set forth in the Indenture, effective as of the date hereof.
ARTICLE THREE
MISCELLANEOUS PROVISIONS
Section 3.0 i. çQntirniation of ßase Indenture. The Base Indenture, as heretofore supplemented and amended by this First
Supplemental Indenture is in all respects ratified and confirmed and the Base Indenture, this First Supplemental Indenture and all indentures
supplemental thereto shall be read, taken and construed as one and the same instrument.
Section 3.02. Goyerning Law. THIS FIRST SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY THE LA WS OF
THE STATE OF NEW YORK. THE TRUSTEE, THE COMPANY, THE ADDITIONAL SUBSIDIARY GUARANTORS, THE
SUBSIDIARY GUARANTORS AND THE HOLDERS AGREE TO SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE
OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS FIRST SUPPLEMENTAL
INDENTURE.
Section 3.03. Separabilty. In case any provision in this First Supplemental Indenture shall be invalid. illegal or unenforceable,
the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.
Section 3.04. CQuntemar~. This First Supplemental Indenture may be executed in several counterpars, each of which shall be
an original and all of which shall constitute but one and the same document.
Section 3.05. Effect of Headings. The Section headings herein are for convenience of reference only, are not to be considered a
part hereof and shall in no way modify or restrict any of the terms and provisions hereof.
Section 3.06. Trl!sJee Makes~o.~resentations. The Trustee makes no representations as to the validity or suffciency of this
First Supplemental Indenture. The recitals of fact
2
contained herein shall be taken as statements solely of the Company and the Trustee assumes no responsibility for the correctness thereof.
Section 3.07. Successors and Assigns. All agreements of the Company, the Additional Subsidiary Guarantors and the
Subsidiary Guarantors in this First Supplemental Indenture shall bind their respective successors.
(Remainder of page intentionally left blank.)
3
IN WITNESS WHEREOF, the parties hereto have caused this First Supplemental Indenture to be duly executed as of the day and year
first above written.
EARTHLINK, INC.
By:
Name: Mark Droege
Title: Senior Vice President, Treasurer
ADDITIONAL SUBSIDIARY GUARANTORS:
CHOICE ONE COMMUNICATIONS OF PENNSYLVANIA INC.
CONVERSENT COMMUNICATIONS OF PENNSYLVANIA, LLC
CTC COMMUNICATIONS CORP.
LOGICALSOLUTIONS.NET, INC.
NEW EDGE NETWORKS, INC.
By:
Name: Mark Droege
Title: Authorized Offcer
SUBSIDIARY GUARANTORS:
CHOICE ONE CO MMUNICA TIONS OF CONNECTICUT INC.
CHOICE ONE COMMUNICATIONS OF INTERNATIONAL INC.
CHOICE ONE COMMUNICATIONS OF MAINE INC.
CHOICE ONE COMMUNICATIONS OF MASSACHUSETTS INC.
CHOICE ONE COMMUNICATIONS OF NEW YORK INC.
CHOICE ONE COMMUNICATIONS OF OHIO INC.
CHOICE ONE COMMUNICATIONS RESALE L.L.C.
CHOICE ONE COMMUNICATIONS OF RHODE ISLAND INC.
(SIGNATURE PAGE TO FIRST SUPPLEMENTAL INDENTURE)
CHOICE ONE COMMUNICATIONS OF VERMONT INC.
CHOICE ONE OF NEW HAMPSHIRE INC.
CONNECTICUT BROADBAND, LLC
CONNECTICUT TELEPHONE & COMMUNICATION
SYSTEMS, INC.
CONVERSENT COMMUNICATIONS OF CONNECTICUT, LLC
CONVERSENTCOMMUNICATIONS LONG DISTANCE, LLC
CONVERSENT COMMUNICATIONS OF MAINE, LLC
CONVERSENT COMMUNICATIONS OF
MASSACHUSETTS, INC.
CONVERSENT COMMUNICATIONS OF NEW HAMPSHIRE, LLC
CONVERSENT COMMUNICATIONS OF NEW JERSEY, LLC
CONVERSENT COMMUNICATIONS OF NEW YORK, LLC
CONVERSENT COMMUNICATIONS OF RHODE ISLAND, LLC
CONVERSENT COMMUNICATIONS OF VERMONT, LLC
CONVERSENT COMMUNICATIONS RESALE L.L.C.
CONVERSENT COMMUNICATIONS, INC.
CONVERSENT COMMUNICATIONS. LLC
CONVERSENT DATA VAULT, LLC
CONVERSENT HOLDINGS, INC.
CTBB HOLDINGS, INC.
CTC COMMUNICATIONS OF VIRGINIA, INC.
CVB NORTHWEST, LLC
EARTHLINK BUSINESS HOLDING CORP.
INTELECOM DATA SYSTEMS, INC.
LIGHTSHIP HOLDING, INC.
LIGHTSHIP TELECOM, LLC
NEW EDGE HOLDING COMPANY
NEW EDGE NETWORKS OF VIRGINIA, INC.
ONE COMMUNICA TIONS ACQUISITION CORP. I
ONE COMMUNICA TIONS CORP.
ONE COMMUNICA TIONS MANAGEMENT CO.
ONE COMMUNICA TIONS MERGER CORP. I
(SIGNATURE PAGE TO FIRST SUPPLEMENTAL INDENTURE)
REON BROADBAND CORP.
US XCHANGE OF ILLINOIS, L.L.c.
US XCHANGE OF INDIANA, L.L.C.
US XCHANGE OF MICHIGAN, L.L.C.
US XCHANGE OF WISCONSIN, L.L.C.
US XCHANGE, INC.
By:
Name: Mark Droege
Title: Authorized Offcer
(SIGNATURE PAGE TO FIRST SUPPLEMENTAL INDENTURE)
DEUTSCHE BANK TRUST COMPANY AMERICAS, as Trustee
By: Deutsche Bank National Trust Company
By:
Name:
Title:
By:
Name:
Title:
(SIGNATURE PAGE TO FIRST SUPPLEMENTAL INDENTURE)
Exhibit 31.
CERTIFICA TION OF CEO PURSUANT TO
SECURITIES EXCHANGE ACT RULES 13a-14 AND 15d-14
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Rolla P. Huff, certify that:
1. 1 have reviewed this quarterly report on Form 10-Q for the period ended June 30, 2011 of EarhLink, Inc.;
2. Based on my knowledge, this report does not contain any untrue statem ent of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the
period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying offcer and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13 a- 1 5(e) and 1 5d- 1 5(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 1 3a- 1 5(f) and i 5d- 1 5(f)) for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluation; and
(d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth fiscal quarer in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying offcer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting. to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the
equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial
information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: August 8, 201 1 By: lsi ROLLA P. HUFF
Rolla P. Huff
Chief Executive Offcer
Exhibit 31.2
CERTIFICA TION OF CFO PURSUANT TO
SECURITIES EXCHANGE ACT RULES 13a-14 AND 15d-14
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Bradley A. Ferguson, certify that:
I. I have reviewed this quarterly report on Form I O-Q for the period ended June 30, 201 I of Earh Link, Inc.;
2. Based on my knowledge, this report does not contain any untrue statem ent of a material fact or om it to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the
period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying offcer and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13 a- I 5(e) and 1 5d- I 5(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 1 3a- 1 5(t) and I 5d- 1 5(t)) for the registrat and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reli ability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accou nting principles;
(c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluation; and
(d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the
registrant's most recent fiscal quarer (the registrant's fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying offcer and i have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the
equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial
information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: August 8, 201 I By: lsi BRADLEY A. FERGUSON
Bradley A. Ferguson
Chief Financial Offcer
Exhibit 32.1
CERTIFICA TION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of EarthLink, Inc. (the "Company") for the period ended June 30, 201 1 as fied
with the Securities and Exchange Commission on the date hereof (the "Report"), 1, Rolla P. Huff, Chief Executive Offcer of the Company,
certify, pursuant to 18 U.S.c. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of2002, to my knowledge that:
(I) the Report fully complies with the requirements of Section 1 3(a) or 15(d) of the Securitie s Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of
the Company.
lsi ROLLA P. HUFF
Rolla P. Huff
Chief Executive Offcer
August 8, 201 1
Exhibit 32.2
CERTIFICA TION OF CHIEF FINANCIAL OFFICER PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form lO-Q of EarthLink, Inc. (the "Company") for the period ended June 30, 201 1 as fied
with the Securities and Exchange Commission on the date hereof (the "Report"), I, Bradley A. Ferguson, Chief Financial Offcer of the
Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of2002, to my
knowledge that:
(I) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of
the Company.
lsI BRADLEY A. FERGUSON
Bradley A. Ferguson
Chief Financial Offcer
August 8, 201 I
EXHIBIT 6
Proposed Local Exchange Tariff
N74489639.1
New Edge Network, Inc. d/b/a EarhLink Business Idaho Tariff No. I
Original Title Page
LOCAL EXCHANGE TELECOMMUICATIONS TARIFF
IDAHO
TELECOMMUNICATIONS SERVICES TARIFF
OF
NEW EDGE NETWORK, INC. D/B/A EARTHLINK BUSINESS
This tariff contains the descriptions, regulations, and rates applicable to the provision of local exchange
telecommunications services provided by New Edge Network, Inc. d//a EarthLink Business, with
principal offces at 1375 Peachtree Street, Level A, Atlanta, GA 30309, for services furnished within the
State of Idaho. This tariff is on fie with the Idaho Public Utilities Commission, and copies may be
inspected, during normal business hours, at the Company's principal place of business.
CONTACT INFORMATION
Commission Staff and Consumer Complaints Contact:
New Edge Network, Inc. d/b/a EarhLink Business
Telephone: [phone]
Toll Free: 888-832-5802
Email: inquiry(icorp.earhlink.com
Issued: October 20, 20 i i
Effective Date:
Issued By:Vice President, Tax
1375 Peachtree Street, Level A
Atlanta, GA 30309
New Edge Network, Inc. d/b/a EarhLink Business Idaho Tariff No. I
Preface
Original Page i
LOCAL EXCHANGE TELECOMMUICA nONS TARIFF
TABLE OF CONTENTS
Title Page Title
Preface
Table of Contents
Check Sheet
Explanation of Symbols
Application of Tariff
Service Area Map
Tariff Format
i
2
3
4
4
5
Definitions Section i
Rules and Regulations Section 2
Service Areas Section 3
Services, Rates and Charges Section 4
Issued: October 20, 20 I i
Effective Date:
Issued By:Vice President, Tax
1375 Peachtree Street, Level A
Atlanta, GA 30309
New Edge Network, Inc. d/b/a EarhLink Business Idaho Tariff No. I
Preface
Original Page 2
LOCAL EXCHANGE TELECOMMUNICATIONS TARIFF
CHECK SHEET
The pages listed below of this tariff are effective as of the date shown. Revised pages contain all changes
from the original tariff that are in effect as of the date indicated.
SECTION PAGE REVISION SECTION PAGE REVISION
Title Original *2 15 Original *
Preface I Original *2 16 Original *
Preface 2 Original *2 17 Original *
Preface 3 Original *2 18 Original *
Preface 4 Original *2 19 Original *
Preface 5 Original *2 20 Original *
1 1 Original *2 21 Original *
1 2 Original *2 22 Original *
1 3 Original *2 23 Original *
I 4 Original *2 24 Original *
1 5 Original *2 25 Original *
2 I Original *2 26 Original *
2 2 Original *2 27 Original *
2 3 Original *2 28 Original *
2 4 Original *2 29 Original *
2 5 Original *2 30 Original *
2 6 Original *2 31 Original *
2 7 Original *2 32 Original *
2 8 Original *2 33 Original *
2 9 Original *2 34 Original *
2 10 Original *2 35 Original *
2 11 Original *2 36 Original *
2 12 Original *2 37 Original *
2 13 Original *2 38 Original *
2 14 Original *2 39 Original *
2 40 Original *
2 41 Original *
3 I Original *
4 1 Original *
* - indicates those pages included with this tariff
Issued: October 20, 20 II
Effective Date:
Issued By:Vice President, Tax
1375 Peachtree Street, Level A
Atlanta, GA 30309
New Edge Network, Inc. d/b/a EarhLink Business Idaho Tariff No. I
Preface
Original Page 3
LOCAL EXCHANGE TELECOMMUNICATIONS TARiFF
EXPLANATION OF SYMBOLS
The following symbols are used for the purposes indicated below:
(C) To signify changed listing, rule, or condition that may affect rates or charges.
(D) To signify discontinued material, including listing, rate, rule, or condition.
(I) To signify an increase.
(M) To signify material relocated from or to another part of tariff schedule with no change in
text, rate, rule or condition.
(N) To signify new material including listing, rate, rule or condition.
(R) To signify a reduction.
(S) To signify reissued materiaL.
(T) To signify change in wording of text but not change in rate, rule, or condition.
Issued: October 20,201 I
Effective Date:
Issued By:Vice President, Tax
1375 Peachtree Street, Level A
Atlanta, GA 30309
New Edge Network, Inc. d/b/a EarhLink Business Idaho Tariff No. 1
Preface
Original Page 4
LOCAL EXCHANGE TELECOMMUNICATIONS TARIFF
APPLICATION OF JARIFF
This tariff sets forth the service offerings, rates, terms and conditions applicable to the
furnishing of intrastate end-user local exchange communications services by New Edge
Network, Inc. d/b/a EarthLink Business, hereinafter referred to as the Company, to
Customers within the state of Idaho. New Edge's services are furnished subject to the
availability of facilities and subject to the terms and conditions set forth herein.
This tariff is on fie with the Idaho Public Utilities Commission. In addition, this tariff is
available for review at the main offce of New Edge Network, Inc. d/b/a EarthLink
Business, at 1375 Peachtree Street, Level A, Atlanta, GA 30309.
SERVICE AREA MAP
New Edge Network, Inc. d/b/a EarthLink Business will provide local exchange service in
areas currently served by the ILEC throughout the State of Idaho. Local calling areas are
as defined in Section 3 of this tariff.
Issued: October 20, 20 II
Effective Date:
Issued By:Vice President, Tax
1375 Peachtree Street, Level A
Atlanta, GA 30309
New Edge Network, Inc. d/b/a EarhLink Business Idaho Tariff No. I
Preface
Original Page 5
LOCAL EXCHANGE TELECOMMUNICA nONS TARIFF
TARIFF FORMT
A. Page Numbering - Page numbers appear in the upper right comer of the page. Pages are
numbered sequentially, however, new pages are occasionally added to the tariff. When a new
page is added between pages already in effect, a decimal is added. For example, a new page
added between pages 14 and 15 would be 14.1.
B. Page Revision Numbers - Revision numbers also appear in the upper right comer of each page.
These numbers are used to determine the most current page version on fie with the Commission.
For example, the 4th Revised Page 14 cancels the 3rd Revised Page 14. Because of various
suspension periods, deferrals, etc., the most current page number on fie with the Commission is
not always the tariff page in effect. Consult the Check Sheet for the page currently in effect.
C. Paragraph Numbering Sequence - There are nine levels of paragraph coding. Each level of
coding is subservient to its next higher level:
2.
2.1.
2.1.1.
2.1.1.A.
2. 1. 1. A. 1.
2.I.I.A.I.(a).
2.1.1.A.I.(a).L.
2.1.I.A. i .(a).L.(i).
2.1.I.A.l .(a).L.(i).( I).
D. Check Sheets - When a tariff filing is made with the Commission, an updated Check Sheet
accompanies the tariff fiing. The Check Sheet lists the pages contained in the tariff, with a cross
reference to the current revision number. When new pages are added, the Check Sheet is changed
to reflect the revision. All revisions made in a given fiing are designated by an asterisk (*). There
wil be no other symbols used on this page if these are the only changes made to it (i.e., the
format, etc. remain the same, just revised revision levels on some pages.) The tariff user should
refer to the latest Check Sheet to find out if a particular page is the most current on fie with the
Commission.
Issued: October 20, 201 I
Effective Date:
Issued By:Vice President, Tax
1375 Peachtree Street, Level A
Atlanta, GA 30309
New Edge Network, Inc. d/b/a EarhLink Business Idaho Tariff No. i
Section i
Original Page I
LOCAL EXCHANGE TELECOMMUNICA TIONS TARIFF
SECTION I - DEFINITIONS
Advance Payment - Payment of all or part of a charge required before the start of service.
Authorization Code - A numerical code, one or more of which may be assigned to a Customer, to enable
Carrier to identify the origin of service of the Customer so it may rate and bil the calL. All authorization
codes shall be the sole propert of Carier and no Customer shall have any propert or other right or
interest in the use of any particular authorization code. Automatic numbering identification (ANI) may be
used as or in connection with the authorization code.
Authorized User - A person, corporation or other entity that is authorized by the Company Customer to
utilze service provided by the Company to the customer. The customer is responsible for all charges
incurred by an Authorized
Automatic Numbering Identification (ANI) - A type of signaling provided by a local exchange telephone
company which automatically identifies the local exchange line from which a call originates.
Common Carrier - An authorized company or entity providing telecommunications services to the public
Company - New Edge Network, Inc. d/b/a EarthLink Business, the issuer of this tariff.
Customer - The person, firm or corporation that orders service and is responsible for the payment of
charges and compliance with the terms and conditions of this tariff.
Customer Premises - A location designated by the Customer for the purposes of connecting to the
Company's services.
Customer Terminal Equipment - Terminal equipment provided by the Customer.
Commission - Idaho Public Utilities Commission.
Issued: October 20, 201 i
Effective Date:
Issued By:Vice President, Tax
1375 Peachtree Street, Level A
Atlanta, GA 30309
New Edge Network, Inc. d/b/a EarhLink Business Idaho Tariff No. I
Section I
Original Page 2
LOCAL EXCHANGE TELECOMMUNICATIONS TARIFF
SECTION 1 - DEFINITIONS, (CONT'D.)
Deposit - Refers to a cash or equivalent of cash security held as a guarantee for payment of the charges.
End Offce - The LEC switching system office or serving wire center where Customer station loops are
term inated for purposes of interconnection to each other and/or to trunks.
Equal Access - A form of dialed access provided by local exchange companies whereby interexchange
calls dialed by the Customer are automatically routed to the Company network. Presubscribed Customers
may also route interexchange calls to the Company network by dialing an access code supplied by the
Company.
Exchange Telephone Company or Telephone Company - Denotes any individual, partnership, association,
joint-stock company, trust, or corporation authorized by the appropriate regulatory bodies to engage in
providing public switched communication service throughout an exchange area, and between exchange
areas within the LATA.
Individual Case Basis (lCB) - A service arrangement in which the regulations, rates and charges are
developed based on the specific circumstances of the Customer's situation.
IXC or lnterexchange Carrier - A long distance telecommunications services provider.
Interruption - The inabilty to complete calls due to equipment malfunctions or human errors. Interrption
shall not include, and no allowance shall be given for service diffculties such as slow dial tone, circuits
busy or other network and/or switching capability shortages. Nor shall Interrption include the failure of
any service or facilities provided by a common carrier or other entity other than the Carrier. Any
Interrption allowance provided within this Tariff by Carrier shall not apply where service is interrpted
by the negligence or wilful act of the Customer, or where the Carrier, pursuant to the terms of this Tariff,
term inates service because of non-payment of bils, unlawful or improper use of the Carrier's facilities or
service, or any other reason covered by this Tariff or by applicable law.
Issued: October 20, 20 II
Effective Date:
Issued By:Vice President, Tax
1375 Peachtree Street, Level A
Atlanta, GA 30309
New Edge Network, Inc. d/b/a EarhLink Business Idaho Tariff No. I
Section I
Original Page 3
LOCAL EXCHANGE TELECOMMUICATIONS TARIFF
SECTION I - DEFINITIONS, (CONT'D.)
Joint User - A person, firm or corporation designated by the Customer as a user of local exchange service
furnished to the Customer by the Company, and to whom a portion of the charges for such facilities are
biled under a joint use arrangement.
LA T A - A Local Access and Transport Area established pursuant to the Modification of Final Judgment
entered by the United States District Court for the District of Columbia in Civil Action No. 82-0192; or
any other geographic area designated as a LATA in the National Exchange Carrier Association, Inc.
TariffF.C.C. No.4, or its successor tariff(s).
LEC - Local Exchange Company refers to the dominant, monopoly local telephone company in the area
also served by the Company.
Local Callng - A completed call or telephonic communication between a calling Station and any other
Station within the local service area of the Calling Station.
Monthly Recurring Charges - The monthly charges to the Customer for services, facilities and equipment,
which continue for the agreed upon duration of the service.
MOU - Minutes of Use.
NECA - National Exchange Carriers Association.
New Edge - New Edge Network, Inc. d/b/a EarthLink Business, issuer of this tariff.
Non-Recurring Charge ("NRC") - The initial charge, usually assessed on a one-time basis, to initiate and
establish service.
PIN - Personal Identification Number. See Authorization Code.
Issued: October 20, 2011
Effective Date:
Issued By:Vice President, Tax
1375 Peachtree Street, Level A
Atlanta, GA 30309
New Edge Network, Inc. d/b/a EarhLink Business Idaho Tariff No. I
Section I
Original Page 4
LOCAL EXCHANGE TELECOMMUICATIONS TARIFF
SECTION i - DEFINITIONS, (CONT'D.)
Point of Presence ("POP") - The Point of Presence.
Premises - The space occupied by a Customer or authorized user in a building or buildings or contiguous
propert not separated by a public right of way.
Recurring Charges - Monthly charges to the Customer for services, and equipment, which continues for
the agreed upon duration of the service.
Service - Any means of service offered herein or any combination thereof.
Service Commencement Date - The first day following the date on which the Company notifies the
Customer that the requested service or facility is available for use, unless extended by the Customer's
refusal to accept service which does not conform to standards set forth in the Service order or this tariff,
in which case the Service Commencement Date is the date of the Customer's acceptance of service. The
parties may mutually agree on a substitute Service Commencement Date.
Service Order - The written or verbal request for Company services by the Customer and the Company in
the format devised by the Company. A Service Order initiates the respective obligations of the parties as
set forth therein and pursuant to this tariff.
Services - The Company telecommunications services offered on the Company network.
Shared Inbound Calls - Refers to calls that are terminated via the Customer's Company-provided local
exchange line.
Shared Outbound Calls - Refers to calls in Feature Group (FGD) exchanges whereby the Customer's local
telephone lines are presubscribed by the Company to the Company outbound service such that "I + 10-
digit number" calls are automatically routed to the Company or an IXC network. Calls to stations within
the Customer's LATA may be placed by dialing "IOXXX" or "IOIXXXX" with I + 10-digit number."
Issued: October 20, 20 II
Effective Date:
Issued By:Vice President, Tax
1375 Peachtree Street, Level A
Atlanta, GA 30309
New Edge Network, Inc. d/b/a EarhLink Business Idaho Tariff No. I
Section I
Original Page 5
LOCAL EXCHANGE TELECOMMUNICATIONS TARiFF
SECTION I - DEFINITIONS, (CONT'D.)
Station - The network control signaling unit and any other equipment provided at the Customer premises
that enables the Customer to establish communications connections and to effect communications through
such connections.
Subscriber - The person, firm, partnership, corporation, or other entity that orders telecommunications
service from the Company. Service may be ordered by, or on behalf of, those who own, lease or otherwise
manage the pay telephone, PBX, or other switch vehicle from which an End User places a call utilzing
the services of the Company.
Switched Access Origination/Termination - Where access between the Customer and. the interexchange
carrier is provided on local exchange company Feature Group circuits and the connection to the Customer
is a LEC-provided business or residential access line. The cost of switched Feature Group access is biled
to the interexchange carrier.
Terminal Equipment - Any telecommunications equipment other than the transmission or receiving
equipment installed at a Company location.
Usage Charges - Charges for minutes or messages traversing over local exchange facilities.
User or End User - A Customer, Joint User, or any other person authorized by a Customer to use service
provided under this tariff.
Issued: October 20, 20 II
Effective Date:
Issued By:Vice President, Tax
1375 Peachtree Street, Level A
Atlanta, GA 30309
New Edge Network, Inc. d/b/a EarhLink Business Idaho Tariff No. I
Section 2
Original Page I
LOCAL EXCHANGE TELECOMMUNICATIONS TARIFF
SECTION 2 - RULES AND REGULATIONS
2. i Undertaking of the Company
2. I.I Scope
The Company undertakes to furnish communications service pursuant to the terms of this
tariff in connection with one-way and/or two-way information transmission between
points within the state of Idaho.
The Company is responsible under this tariff only for the services and facilities provided
hereunder, and it assumes no responsibility for any service provided by any other entity
that purchases access to the Company network in order to originate or terminate its own
services, or to communicate with its own customers.
The Company arranges for installation, operation, and maintenance of the
communications services provided in this tariff for Customers in accordance with the
terms and conditions set forth under this tariff. The Company may act as the Customer's
agent for ordering access connection facilities provided by other carriers or entities, when
authorized by the Customer, to allow connection of a Customer's location to the
Company network. The Customer shall be responsible for all charges due for such service
arrangement.
2.1.2 Shortage of Equipment or Facilties
A. The Company reserves the right to limit or to allocate the use of existing
facilities, or of additional facilities offered by the Company, when necessary
because of lack of facilties, or due to some other cause beyond Company
control.
B. The furnishing of service under this tariff is subject to the availability on a
continuing basis of all the necessary facilities and is limited to the capacity ofthe
Company facilities as well as facilties the Company may obtain from other
carriers to furnish service from time to time as required at the sole discretion of
the Company.
Issued: October 20, 2011
Effective Date:
Issued By:Vice President, Tax
1375 Peachtree Street, Level A
Atlanta, GA 30309
New Edge Network, Inc. d/b/a EarhLink Business Idaho Tariff No. i
Section 2
Original Page 2
LOCAL EXCHANGE TELECOMMUNICATIONS TARIFF
SECTION 2 - RULES AND REGULATIONS, (CONT'D.)
2.1 Undertking of the Company, (Contd.)
2.1.3 Terms and Conditions
A. Service is provided on the basis of a minimum period of at least thirt (30) days,
24-hours per day. For the purpose of computing charges in this tariff, a month is
considered to have 30 days. When a service is discontinued prior to the
expiration of the minimum period, charges are applicable, whether the service is
used or not.
B. Except as otherwise stated in this tariff, Customers may be required to enter into
written service orders which shall contain or reference a specific description of
the service ordered, the rates to be charged, the duration of the services, and the
terms and conditions in this tariff. Customers wil also be required to execute any
other documents as may be reasonably requested by the Company to provide
service.
C. At the expiration of the initial term specified in each Service Order, or in any
extension thereof, service shall continue on a month-to-month basis, unless
otherwise specified by the written Service Order, at the then current rates unless
terminated by either part upon notice. Any termination shall not relieve the
Customer of its obligation to pay any charges incurred under the service order
and this tariff prior to termination. The rights and obligations which by their
nature extend beyond the termination of the term of the service order shall
survive such termination.
Issued: October 20, 20 I i
Effective Date:
Issued By:Vice President, Tax
1375 Peachtree Street, Level A
Atlanta, GA 30309
New Edge Network, Inc. d/b/a EarhLink Business Idaho Tariff No. 1
Section 2
Original Page 3
LOCAL EXCHANGE TELECOMMUNICATIONS TARIFF
SECTION 2 - RULES AND REGULATIONS, (CONT'D.)
2.1 Undertaking of the Company, (Contd.)
2.1.3 Terms and Conditions, (Contd.)
D. Service may be terminated by Company upon written notice to the Customer if:
1. the Customer is using the service in violation of this tariff; or
2. the Customer is using the service in violation of the law; or
3. the Customer is in violation of written Service Order terms.
E. This tariff shall be interpreted and governed by the laws of the State of Idaho
regardless of its choice of laws provision.
F. Any other telephone company may not interfere with the right of any person or
entity to obtain service directly from the Company. No person or entity shall be
required to make any payment, incur any penalty, monetary or otherwise, or
purchase any services in order to have the right to obtain service directly from the
Company.
G. To the extent that either the Company or any other telephone company exercises
control over available cable pairs, conduit, duct space, raceways, or other
facilities needed by the other to reach a person or entity, the part exercising such
control shall make them available to the other on terms equivalent to those under
which the Company makes similar facilties under its control available to its
Customers. At the reasonable request of either part, the Company and the other
telephone company shall join the attempt to obtain from the owner of the
propert access for the other part to serve a person or entity.
Issued: October 20, 2011
Effective Date:
Issued By:Vice President, Tax
1375 Peachtree Street, Level A
Atlanta, GA 30309
New Edge Network, Inc. d/b/a EarhLink Business Idaho Tariff No. I
Section 2
Original Page 4
LOCAL EXCHANGE TELECOMMUICATIONS TARIFF
SECTION 2 - RULES AND REGULATIONS, (CONT'D.)
2.1 Undertking of the Company, (Contd.)
2.1.4 Limitations on Liability
A. Except as otherwise stated in this section, the liability of the Company for
damages arising out of either: (I) the furnishing of its services, including but not
limited to mistakes, omissions, interruptions, delays, or errors, or other defects,
representations, or use of these services or (2) the failure to furnish its service,
whether caused by acts or omission, shall be limited to the extension of
allowances to the Customer for interrptions in service as set forth in Section 2.7.
B. Except for the extension of allowances to the Customer for interrptions in
service as set forth in Section 2.7, the Company shall not be liable to a Customer
or third part for any direct, indirect, special, incidental, reliance, consequential,
exemplary or punitive damages, including, but not limited to, loss of revenue or
profits, for any reason whatsoever, including, but not limited to, any act or
omission, failure to perfonn, delay, interrption, failure to provide any service or
any failure in or breakdown of facilities associated with the service.
C. The liabilty of the Company for errors in biling that result in overpayment by
the Customer shall be limited to a credit equal to the dollar amount erroneously
biled or, in the event that payment has been made and service has been
discontinued, to a refund of the amount erroneously billed.
Issued: October 20, 20 i 1
Effective Date:
Issued By:Vice President, Tax
1375 Peachtree Street, Level A
Atlanta, GA 30309
New Edge Network, Inc. d/b/a EarhLink Business Idaho Tariff No. I
Section 2
Original Page 5
LOCAL EXCHANGE TELECOMMUNICA nONS TARIFF
SECTION 2 - RULES AND REGULATIONS, (CONT'D.)
2. i Undertaking of the Company, (Contd.)
2.IA Limitations on Liability, (Contd.)
D. The Company shall be indemnified and saved harless by the Customer from
and against all loss, liability, damage and expense, due to:
1. Any act or omission of: (a) the Customer, (b) any other entity furnishing
service, equipment or facilities for use in conjunction with services or
facilities provided by the Company; or (c) common carriers or
warehousemen, except as contracted by the Company;
2. Any delay or failure of perfonnance or equipment due to causes beyond
the Company control, including but not limited to, acts of God, fires,
floods, earthquakes, hurricanes, or other catastrophes; national
emergencies, insurrections, riots, wars or other civil commotions; strikes,
lockouts, work stoppages or other labor difficulties; criminal actions
taken against the Company; unavailabilty, failure or malfunction of
equipment or facilities provided by the Customer or third parties; and
any law, order, regulation or other action of any governing authority or
agency thereof;
3. Any unlawful or unauthorized use of Company facilities and services;
4. Libel, slander, invasion of privacy or infringement of patents, trade
secrets, or copyrights arising from or in connection with the material
transmitted by means of Company-provided facilities or services; or by
means of the combination of Company-provided facilities or services;
5. Breach in the privacy or security of communications transmitted over
Company facilities;
Issued: October 20, 2011
Effective Date:
Issued By:Vice President, Tax
1375 Peachtree Street, Level A
Atlanta, GA 30309
New Edge Network, Inc. d/b/a EarhLink Business Idaho Tariff No. I
Section 2
Original Page 6
LOCAL EXCHANGE TELECOMMUNICATIONS TARIFF
SECTION 2 - RULES AND REGULATIONS, (CONT'D.)
2.1 Undertaking of the Company, (Contd.)
2. i A Limitations on Liability, (Contd.)
D. (Contd.)
6. Changes in any of the facilities, operations or procedures of the
Company that render any equipment, facilities or services provided by
the Customer obsolete, or require modification or alteration of such
equipment, facilties or services, or otherwise affect their use or
performance, except where reasonable notice is required by the Company
and is not provided to the Customer, in which event the Company
liabilty is limited as set forth in Section 2.IA.A.
7. Defacement of or damage to Customer premises resulting from the
furnishing of services or equipment on such premises or the installation
or removal thereof;
8. Injury to propert or injury or death to persons, including claims for
payments made under Workers' Compensation law or under any plan for
employee disability or death benefits, arising out of, or caused by, any
act or omission of the Customer, or the construction, installation,
maintenance, presence, use or removal of the Customer's facilties or
equipment connected, or to be connected to Company facilties;
9. Any non-completion of calls due to network busy conditions;
i O. Any calls not actually attempted to be completed during any period that
service is unavailable;
i 1. And any other claim resulting from any act or omission of the Customer
or patron(s) of the Customer relating to the use of Company services or
facilities.
Issued: October 20, 20 i I
Effective Date:
Issued By:Vice President, Tax
1375 Peachtree Street, Level A
Atlanta, GA 30309
New Edge Network, Inc. d/b/a EarhLink Business Idaho Tariff No. I
Section 2
Original Page 7
LOCAL EXCHANGE TELECOMMUICATIONS TARIFF
SECTION 2 - RULES AND REGULATIONS, (CONT'D.)
2.1 Undertaking of the Company, (Contd.)
2.104 Limitations on Liability, (Contd.)
E. The Company does not guarantee nor make any warranty with respect to
installations provided by it for use in an explosive atmosphere.
F. The Company makes no warranties or representations, EXPRESS OR IMPLIED,
either in fact or by operation of law, statutory or otherwise, including warranties
of merchantability or fitness for a particular use, except those expressly set forth
herein.
G. Failure by the Company to assert its rights pursuant to one provision of this rate
sheet does not preclude the Company from asserting its rights under other
provisions.
H. Directory Errors - In the absence of gross negligence or wilful misconduct, no
liability for damages arising from errors or mistakes in or omissions of directory
listings, or errors or mistakes in or omissions of listing obtainable from the
directory assistance operator, including errors in the reporting thereof, shall
attach to the Company. An allowance for errors or mistakes in or omissions of
published directory listings or for errors or mistakes in or omissions of listing
obtainable from the directory assistance operator shall be at the monthly tariff
rate for each listing, or in the case of a free or no-charge directory listing, credit
shall equal two times the monthly tariff rate for an additional listing, for the life
of the directory or the charge period during which the error, mistake or omission
occurs.
Issued: October 20, 20 iI
Effective Date:
Issued By:Vice President, Tax
1375 Peachtree Street, Level A
Atlanta, GA 30309
New Edge Network, Inc. d/b/a EarhLink Business Idaho Tariff No. 1
Section 2
Original Page 8
LOCAL EXCHANGE TELECOMMUNICATIONS TARIFF
SECTION 2 - RULES AND REGULATIONS, (CONT'D.)
2.1 Undertking of the Company, (Contd.)
2.IA Limitations on Liabilty, (Contd.)
i. With respect to Emergency Number 911 Service
1. This service is offered solely as an aid in handling assistance calls in
connection with fire, police and other emergencies. The Company is not
responsible for any losses, claims, demands, suits or any liabilty
whatsoever, whether suffered, made instituted or asserted by the
Customer or by any other part or person for any personal injury or death
of any person or persons, and for any loss, damage or destruction of any
propert, whether owned by the Customer or others, caused or claimed to
have been caused by: (1) mistakes, omissions, interrptions, delays,
errors or other defects in the provision of service, of (2) installation,
operation, failure to operate, maintenance, removal, presence, condition,
local or use of any equipment and facilities furnishing this service.
2. Neither is the Company responsible for any infringement, nor invasion of
the right of privacy of any person or persons, caused or claimed to have
been caused directly or indirectly, by the installation, operation, failure to
operate, maintenance, removal, presence, condition, occasion or use of
emergency 911 service features and the equipment associated therewith,
or by any services furnished by the Company, including, but not limited
to the identification of the telephone number, address or name associated
with the telephone used by the part or parties accessing emergency 91 1
service, and which arise out of the negligence or other wrongful act of
the Company, the Customer, its users, agencies or municipalities, or the
employees or agents of anyone of them.
3. When a Customer with a nonpublished telephone number, as defined
herein, places a call to the emergency 91 I service, the Company wil
release the name and address of the callng part, where such information
can be determined, to the appropriate local governmental authority
responsible for emergency 911 service upon request of such
governmental authority. By subscribing to service under this rate sheet,
the Customer acknowledges and agrees with the release of information as
described above.
Issued: October 20, 20 I 1
Effective Date:
Issued By:Vice President, Tax
1375 Peachtree Street, Level A
Atlanta, GA 30309
New Edge Network, Inc. d/b/a EarhUnk Business Idaho Tariff No. I
Section 2
Original Page 9
LOCAL EXCHANGE TELECOMMUNICATIONS TARIFF
SECTION 2 - RULES AND REGULATIONS, (CONT'D.)
2.1 Undertaking of the Company, (Cont'd.)
2.IA Limitations on Liability, (Cont'd.)
J. The included tariff language does not constitute a determination by the
Commission that a limitation of liability imposed by the Company should be
upheld in a court of law. Acceptance for filing by the Commission recognizes
that it is a court's responsibility to adjudicate negligence and consequential
damage claims. It is also the court's responsibility to determine the validity of the
exculpatory clause.
2.1.5 Notification of Service-Affecting Activities
The Company will provide the Customer reasonable notification of service-affecting
activities that may occur in normal operation of its business. Such activities may include,
but are not limited to, equipment or facilities additions, removals or rearrangements and
routine preventative maintenance. Generally, such activities are not specific to an
individual Customer but affect many Customers' services. No specific advance
notification period is applicable to all service activities. The Company wil work
cooperatively with the Customer to determine the reasonable notification requirements.
With some emergency or unplanned service-affecting conditions, such as an outage
resulting from cable damage, notification to the Customer may not be possible.
Issued: October 20, 20 II
Effective Date:
Issued By:Vice President, Tax
1375 Peachtree Street, Level A
Atlanta, GA 30309
New Edge Network, Inc. d/b/a EarhLink Business Idaho Tariff No. I
Section 2
Original Page 10
LOCAL EXCHANGE TELECOMMUNICA nONS TARIFF
SECTION 2 - RULES AND REGULA nONS, (CONT'D.)
2.1 Undertking of the Company, (Cont'd.)
2.1.6 Provision of Equipment and Facilities
A. The Company shall use reasonable efforts to make available services to a
Customer on or before a particular date, subject to the provisions of and
compliance by the Customer with, the regulations contained in this tariff. The
Company does not guarantee availability by any such date and shall not be liable
for any delays in commencing service to any Customer.
B. The Company shall use reasonable efforts to maintain only the facilties and
equipment that it furnishes to the Customer. The Customer may not, nor may the
Customer penn it others to, rearrange, disconnect, remove, attempt to repair, or
otherwise interfere with any of the facilities or equipment installed by the
Company, except upon the written consent of the Company.
C. The Company may substitute, change or rearrange any equipment or facilty at
any time and from time to time, but shall not thereby alter the technical
parameters of the service provided the Customer.
D. Equipment the Company provides or installs at the Customer Premises for use in
connection with the services the Company offers shall not be used for any
purpose other than that for which it was provided.
E. The Customer shall be responsible for the payment of service charges as set forth
herein for visits by Company agents or employees to the Premises of the
Customer when the service diffculty or trouble report results from the use of
equipment or facilities provided by any part other than the Company, including
but not limited to the Customer.
Issued: October 20,2011
Effective Date:
Issued By:Vice President, Tax
1375 Peachtree Street, Level A
Atlanta, GA 30309
New Edge Network, Inc. d/b/a EarhLink Business Idaho Tariff No. I
Section 2
Original Page II
LOCAL EXCHANGE TELECOMMUNICA nONS TARIFF
SECTION 2 - RULES AND REGULA nONS, (CONT'D.)
2.1 Undertking of the Company, (Cont'd.)
2.1.6 Provision of Equipment and Facilties, (Cont'd.)
F. The Company shall not be responsible for the installation, operation, or
maintenance of any Customer-provided communications equipment. Where such
equipment is connected to the facilities furnished pursuant to this tariff, the
responsibility of the Company shall be limited to the furnishing of facilities
offered under this tariff and to the maintenance and operation of such facilities.
Subject to this responsibility, the Company shall not be responsible for:
1. the transmission of signals by Customer-provided equipment or for the
quality of, or defects in, such transmission; or
2. the reception of signals by Customer-provided equipment.
2.1.7 Non-routine Installation
At the Customer's request, installation and/or maintenance may be performed outside
Company regular business hours or in hazardous locations. In such cases, charges based
on cost of the actual labor, material, or other costs incurred by or charged to the Company
will apply. If installation is started during regular business hours, but, at the Customer's
request, extends beyond regular business hours into time periods including, but not
limited to, weekends, holidays, and/or night hours, additional charges may apply.
Issued: October 20, 2011
Effective Date:
Issued By:Vice President, Tax
1375 Peachtree Street, Level A
Atlanta, GA 30309
New Edge Network, Inc. d/b/a EarhLink Business Idaho Tariff No. 1
Section 2
Original Page 12
LOCAL EXCHANGE TELECOMMUNICATIONS TARIFF
SECTION 2 - RULES AND REGULATIONS, (CONT'D.)
2.1 Undertking of the Company, (Cont'd.)
2.1.8 Special Construction
Subject to the agreement of the Company and to all of the regulations contained in this
tariff, special construction of facilities may be undertaken on a reasonable efforts basis at
the request of the Customer. Special construction is that construction undertken:
A. where facilities are not presently available, and there is no other requirement for
the facilities so constructed;
B. of a type other than that which the Company would nonnally utilize in the
furnishing of its services;
C. over a route other than that which the Company would nonnally utilize in the
furnishing of its services;
D. in a quantity greater than that which the Company would nonnally construct;
E. on an expedited basis;
F. on a temporary basis until pennanent facilities are available;
G. involving abnonnal costs; or
H. in advance of its nonnal construction.
2.1.9 Ownership of Facilities
Title to all facilities provided in accordance with this tariff remains in the Company, its
parters, agents, contractors or suppliers.
Issued: October 20, 20 i i
Effective Date:
Issued By:Vice President, Tax
1375 Peachtree Street, Level A
Atlanta, GA 30309
New Edge Network, Inc. d/b/a EarhLink Business Idaho Tariff No. I
Section 2
Original Page 13
LOCAL EXCHANGE TELECOMMUICATIONS TARIFF
SECTION 2 - RULES AND REGULATIONS, (CONT'D.)
2.2 Prohibited Uses
2.2. i The services the Company offers shall not be used for any unlawful purpose or for any
use as to which the Customer has not obtained all required governmental approvals,
authorizations, licenses, consents and permits.
2.2.2 The Company may require applicants for service who intend to use Company offerings
for resale and/or for shared use to fie a letter with the Company confirming that their use
of the Company offerings complies with relevant laws and Commission regulations,
policies, orders, and decisions.
2.2.3 The Company may block any signals being transmitted over its Network by Customers
who cause interference to the Company or other users. Customer shall be relieved of all
obligations to make payments for charges relating to any blocked Service and shall
indemnify the Company for any claim, judgment or liability resulting from such
blockage.
2.2.4 A Customer, joint user, or authorized user may not assign, or transfer in any manner, the
service or any rights associated with the service without the written consent of the
Company. The Company wil permit a Customer to transfer its existing service to another
entity if the existing Customer has paid all charges owed to the Company for regulated
communications services. Such a transfer wil be treated as a disconnection of existing
service and installation of new service, and non-recurring installation charges as stated in
this tariff wil apply.
Issued: October 20, 2011
Effective Date:
Issued By:Vice President, Tax
1375 Peachtree Street, Level A
Atlanta, GA 30309
New Edge Network, Inc. d/b/a EarhLink Business Idaho Tariff No. I
Section 2
Original Page 14
LOCAL EXCHANGE TELECOMMUNICATIONS TARIFF
SECTION 2 - RULES AND REGULATIONS, (CONT'D.)
2.3 Obligations of the Customer
2.3.1 General
The Customer is responsible for making proper application for service; placing any
necessary order, complying with tariff regulations; payment of charges for services
provided. Specific Customer responsibilities include, but are not limited to the following:
A. the payment of all applicable charges pursuant to this tariff and written Service
Orders;
B. damage to or loss of Company facilties or equipment caused by the acts or
omissions of the Customer; or the noncompliance by the Customer, with these
regulations; or by fire or theft or other casualty on the Customer Premises, unless
caused by the negligence or wilful misconduct of the employees or agents of the
Company;
C. providing at no charge, as specified from time to time by the Company, any
needed personnel, equipment space and power to operate Company facilities and
equipment installed on the premises of the Customer, and the level of heating and
air conditioning necessary to maintain the proper operating environmenton such
premises;
D. obtaining, maintaining, and otherwise having full responsibility for all rights-of-
way and conduits necessary for installation of fiber optic cable and associated
equipment used to provide Communication Services to the Customer from the
cable building entrance or propert line to the location of the equipment space
described in 2.3. i.C. Any and all costs associated with obtaining and maintaining
the rights-of-way described herein, including the costs of altering the structure to
permit installation of the Company-provided facilities, shall be borne entirely by,
or may be charged by the Company to, the Customer. The Company may require
the Customer to demonstrate its compliance with this section prior to accepting
an order for service;
Issued: October 20, 2011
Effective Date:
Issued By:Vice President, Tax
1375 Peachtree Street, Level A
Atlanta, GA 30309
New Edge Network, Inc. d/b/a EarhLink Business Idaho Tariff No. I
Section 2
Original Page 15
LOCAL EXCHANGE TELECOMMUNICATIONS TARIFF
SECTION 2 - RULES AND REGULATIONS, (CONT'D.)
2.3 Obligations of the Customer, (Contd.)
2.3.1 General, (Contd.)
E. providing a safe place to work and complying with all laws and regulations
regarding the working conditions on the premises at which Company employees
and agents shall be installing or maintaining Company facilities and equipment.
The Customer may be required to install and maintain Company facilities and
equipment within a hazardous area if, in the Company opinion, injury or damage
to Company employees or propert might result from installation or maintenance
by the Company. The Customer shall be responsible for identifying, monitoring,
removing and disposing of any hazardous material (e.g., asbestos) prior to any
construction or installation work;
F. complying with all laws and regulations applicable to, and obtaining all consents,
approvals, licenses and permits as may be required with respect to, the location
of Company facilties and equipment in any Customer premises or the rights-of-
way for which Customer is responsible under Section 2.3 .1.D.; and granting or
obtaining permission for Company agents or employees to enter the premises of
the Customer at any time for the purpose of installng, inspecting, maintaining,
repairing, or upon termination of service as stated herein, removing the facilties
or equipment of the Company;
G. not creating, or allowing to be placed, any liens or other encumbrances on
Company equipment or facilities; and
H. making Company facilties and equipment available periodically for maintenance
purposes at a time agreeable to both the Company and the Customer. No
allowance wil be made for the period during which service is interrpted for
such purposes.
Issued: October 20, 20 II
Effective Date:
Issued By:Vice President, Tax
1375 Peachtree Street, Level A
Atlanta, GA 30309
New Edge Network, Inc. d/b/a EarhLink Business Idaho Tariff No. I
Section 2
Original Page 16
LOCAL EXCHANGE TELECOMMUICA nONS TARIFF
SECTION 2 - RULES AND REGULA nONS, (CONT'D.)
2.3 Obligations of the Customer, (Cont'd.)
2.3.2 Liability of the Customer
A. The Customer wil be liable for damages to the facilties of the Company and for
all incidental and consequential damages caused by the negligent or intentional
acts or omissions of the Customer, its officers, employees, agents, invites, or
contractors where such acts or omissions are not the direct result of Company
negligence or intentional misconduct.
B. To the extent caused by any negligent or intentional act of the Customer as
described in A., preceding, the Customer shall indemnify, defend and hold
harmless the Company from and against all claims, actions, damages, liabilities,
costs and expenses, for (I) any loss, destruction or damage to propert of any
third part, and (2) any liability incurred by the Company to any third part
pursuant to this or any other rate sheet of the Company, or otherwise, for any
interrption of, interference to, or other defect in any service provided by the
Company to such third part.
C. The Customer shall not assert any claim against any other Customer or user of
Company services for damages resulting in whole or in part from or arising in
connection with the furnishing of service under this rate sheet including but not
limited to mistakes, omissions, interrptions, delays, errors or other defects or
misrepresentations, whether or not such other Customer or user contributed in
any way to the occurrence of the damages, unless such damages were caused
solely by the negligent or intentional act or omission of the other Customer or
user and not by any act or omission of the Company. Nothing in this rate sheet is
intended either to limit or to expand Customer's right to assert any claims against
third parties for damages of any nature other than those described in the
preceding sentence.
Issued: October 20, 20 II
Effective Date:
Issued By:Vice President, Tax
1375 Peachtree Street, Level A
Atlanta, GA 30309
New Edge Network, Inc. d/b/a EarhLink Business Idaho Tariff No. 1
Section 2
Original Page 17
LOCAL EXCHANGE TELECOMMUICATIONS TARIFF
SECTION 2 - RULES AND REGULA nONS, (CONT'D.)
2.4 Customer Equipment and Channels
2.4.1 General
A User may transmit or receive infonnation or signals via the facilties of the Company.
Company services are designed primarily for the transmission of voice-grade telephonic
signals, except as otherwise stated in this tariff. A User may transmit any fonn of signal
that is compatible with Company equipment, but the Company does not guarantee that its
services wil be suitable for purposes other than voice-grade telephonic communication
except as specifically stated in this tariff.
2.4.2 Station Equipment
A. Terminal equipment on the User's Premises and the electric power consumed by
such equipment shall be provided by and maintained at the expense of the User.
The User is responsible for the provision of wiring or cable to connect its
tenninal equipment to the Company Point of Connection.
B. The Customer is responsible for ensuring that Customer-provided equipment
connected to Company equipment and facilities is compatible with such
equipment and facilities. The magnitude and character of the voltages and
currents impressed on Company-provided equipment and wiring by the
connection, operation, or maintenance of such equipment and wiring shall be
such as not to cause damage to the Company-provided equipment and wiring or
injury to Company employees or to other persons. Any additional protective
equipment required to prevent such damage or injury shall be provided by the
Company at the Customer's expense, subject to prior Customer approval of the
equipment expense.
Issued: October 20, 2011
Effective Date:
Issued By:Vice President, Tax
1375 Peachtree Street, Level A
Atlanta, GA 30309
New Edge Network, Inc. d//a EarhLink Business Idaho Tariff No. I
Section 2
Original Page 18
LOCAL EXCHANGE TELECOMMUNICATIONS TARIFF
SECTION 2 - RULES AND REGULATIONS, (CONT'D.)
2.4 Customer Equipment and Channels, (Cont'd.)
2.4.3 Interconnection of Facilities
A. Any special interface equipment necessary to achieve compatibility between the
facilities and equipment of the Company used for furnishing Communication
Services and the channels, facilities, or equipment of others shall be provided at
the Customer's expense.
B. Communication Services may be connected to the services or facilities of other
communications carriers only when authorized by, and in accordance with, the
terms and conditions of the tariffs of the other communications carriers that are
applicable to such connections.
C. Facilities furnished under this tariff may be connected to Customer-provided
terminal equipment in accordance with the provisions of this tariff. All such
terminal equipment shall be registered by the Federal Communications
Commission pursuant to Part 68 of Title 47, Code of Federal Regulations; and all
User-provided wiring shall be installed and maintained in compliance with those
regulations.
D. Users may interconnect communications facilities that are used in whole or in
part for interstate communications to services provided under this tariff only to
the extent that the user is an is "End User" as defined in Section 69.2(m), Title
47, Code of Federal Regulations (1992 edition).
Issued: October 20, 20 I I
Effective Date:
Issued By:Vice President, Tax
1375 Peachtree Street, Level A
Atlanta, GA 30309
New Edge Network, Inc. d/b/a EarhLink Business Idaho Tariff No. I
Section 2
Original Page 19
LOCAL EXCHANGE TELECOMMUICATIONS TARIFF
SECTION 2 - RULES AND REGULATIONS, (CONT'D.)
2.4 Customer Equipment and Channels, (Contd.)
2.4.4 Inspections
A. Upon suitable notification to the Customer, and at a reasonable time, the
Company may make such tests and inspections as may be necessary to determine
that the Customer is complying with the requirements set forth in Section
2.4.2.A. for the installation, operation, and maintenance of Customer-provided
facilities, equipment, and wiring in the connection of Customer-provided
facilities and equipment to Company-owned facilities and equipment.
B. If the protective requirements for Customer-provided equipment are not being
complied with, the Company may take such action as it deems necessary to
protect its facilities, equipment, and personneL. The Company wil notify the
Customer promptly if there is any need for further corrective action. Within ten
days of receiving this notice, the Customer must take this corrective action and
notify the Company of the action taken. If the Customer fails to do this, the
Company may take whatever additional action is deemed necessar, including
the suspension of service, to protect its facilties, equipment and personnel from
harm.
Issued: October 20, 20 II
Effective Date:
Issued By:Vice President, Tax
1375 Peachtree Street, Level A
Atlanta, GA 30309
New Edge Network, Inc. d//a EarhLink Business Idaho Tariff No. I
Section 2
Original Page 20
LOCAL EXCHANGE TELECOMMUNICATIONS TARIFF
SECTION 2 - RULES AND REGULATIONS, (CONT'D.)
2.5 Payment Arrangements
2.5.1 Payment for Service
The Customer is responsible for the payment of all charges for facilities and services
furnished by the Company to the Customer and to all Authorized Users by the Customer,
regardless of whether those services are used by the Customer itself or are resold to or
shared with other persons.
The Customer is responsible for payment of any sales, use, gross receipts, excise, access
or other local, state, federal and 911 taxes, charges or surcharges (however designated)
(excluding taxes on Company net income) imposed on or based upon the provision, sale
or use of Network Services.
The security of the Customer's PIN is the responsibilty of the Customer. All calls placed
using a PIN shall be biled to and shall be the obligation of the Customer. The Customer
shall not be responsible for charges in connection with the unauthorized use of PINs
arising after the Customer notifies the Company of the loss, theft, or other breach of
security of such PINs.
Customers wil only be charged once, on either an interstate or intrastate basis, for any
nonrecurring charges.
Issued: October 20, 20 II
Effective Date:
Issued By:Vice President, Tax
1375 Peachtree Street, Level A
Atlanta, GA 30309
New Edge Network, Inc. d/b/a EarhLink Business Idaho Tariff No. I
Section 2
Original Page 21
LOCAL EXCHANGE TELECOMMUICATIONS TARIFF
SECTION 2 - RULES AND REGULATIONS, (CONT'D.)
2.5 Payment Arrangements, (Contd.)
2.5.2 Billing and Collection of Charges
The Customer is responsible for payment of all charges incurred by the Customer or other
Authorized Users for services and facilties furnished to the Customer by the Company.
A. Nonrecurring charges are due and payable within thirt (30) days after the
invoice date, unless otherwise agreed to in advance.
B. The Company shall present invoices for recurring charges monthly to the
Customer, in advance of the month in which service is provided, and Recurring
Charges shall be due and payable within thirt (30) days after the invoice date
unless otherwise agreed to in advance. When biling is based on customer usage,
charges wil be biled monthly for the preceding biling periods.
C. When service does not begin on the first day of the month, or end on the last day
of the month, the charge for the fraction of the month in which service was
furnished wil be calculated on a pro rata basis. For this purpose, every month is
considered to have thirt (30) days.
D. Billng of the Customer by the Company wil begin on the Service
Commencement Date, which is the first day following the date on which the
Company notifies the Customer that the service or facilty is available for use,
except that the Service Commencement Date may be postponed by mutual
agreement of the parties, or if the service or facility does not conform to
standards set forth in this tariff or the Service Order. Biling accrues through and
includes the day that the service, circuit, arrangement or component is
discontinued.
Issued: October 20, 20 II
Effective Date:
Issued By:Vice President, Tax
1375 Peachtree Street, Level A
Atlanta, GA 30309
New Edge Network, Inc. d/b/a EarhLink Business Idaho Tariff No. I
Section 2
Original Page 22
LOCAL EXCHANGE TELECOMMUICATIONS TARIFF
SECTION 2 - RULES AND REGULATIONS, (CONT'D.)
2.5 Payment Arrangements, (Contd.)
2.5.2 Billing and Collection of Charges, (Contd.)
E. If any portion of the payment is not received by the Company, or if any portion
of the payment is received by the Company in funds that are not immediately
available, thirt (30) days following the invoice date, then a late payment penalty
shall be due the Company. The late payment penalty shall be that portion of the
payment not received by the date due minus any charges biled as local taxes
multiplied by 1.5%.
F. The Customer wil be assessed a charge of twenty-five dollars ($25.00) for each
check submitted by the Customer to the Company that a financial institution
refuses to honor.
G. If service is disconnected by the Company in accordance with Section 2.6
following and later restored, restoration of service wil be subject to all
applicable installation charges. Service shall, at the Company's discretion, be
restored when all past due amounts are paid or the event giving rise to the
discontinuance (if other than nonpayment) is corrected.
Issued: October 20, 2011
Effective Date:
Issued By:Vice President, Tax
1375 Peachtree Street, Level A
Atlanta, GA 30309
New Edge Network, Inc. d/b/a EarhLink Business Idaho Tariff No. 1
Section 2
Original Page 23
LOCAL EXCHANGE TELECOMMUICA nONS TARIFF
SECTION 2 - RULES AND REGULA nONS, (CONT'D.)
2.5 Payment Arrangements, (Cont'd.)
2.5.3 Disputed Bils
A. In the event that a billing dispute occurs concerning any charges biled to the
Customer by the Company, the Company may require the Customer to pay the
undisputed portion of the bill to avoid discontinuance of service for non-
payment. The Customer must submit a documented claim for the disputed
amount. The Customer wil submit all documentation as may reasonably be
required to support the claim. All claims must be submitted to the Company
within 30 days of receipt of biling for those services. If the Customer does not
submit a claim as stated above, the Customer waives all rights to filing a claim
thereafter.
B. Unless disputed the invoice shall be deemed to be correct and payable in full by
the Customer. If the Customer is unable to resolve any dispute with the
Company, then the Customer may fie a complaint with the Idaho Public Utilities
Commission, 472 West Washington, P.O. Box 83720, Boise ID 83720-0074;
208-334-0300 or 1-800-432-0369.
C. If the dispute is resolved in favor ofthe Customer and the Customer has withheld
the disputed amount, no interest credits or penalties wil apply.
D. If the dispute is resolved in favor of the Company and the Customer has withheld
the disputed amount, payment is due within 5 days of notice of resolution or late
fees and penalties wil apply.
Issued: October 20, 20 II
Effective Date:
Issued By:Vice President, Tax
1375 Peachtree Street, Level A
Atlanta, GA 30309
New Edge Network, Inc. d/b/a EarhLink Business Idaho TanffNo. I
Section 2
Original Page 24
LOCAL EXCHANGE TELECOMMUICATIONS TARIFF
SECTION 2 - RULES AND REGULATIONS, (CONT'D.)
2.5 Payment Arrangements, (Contd.)
2.5.4 Advance Payments
A. Advance payments are not required of residential Customers.
B. For commercial Customers, the Company may require a Customer to make an
advance payment before services and facilties are furnished. The advance
payment wil not exceed an amount equal to the non-recurring charge(s) and one
month's charges for the service or facility. In addition, where special
constrction is involved, the advance payment may also include an amount equal
to the estimated non-recurring charges for the special constrction and recurring
charges (if any) for a period to be set between the Company and the Customer.
The advance payment wil be credited to the Customer's initial bil. An advance
payment may be required in addition to a deposit.
Issued: October 20, 2011
Effective Date:
Issued By:Vice President, Tax
13 75 Peachtree Street, Level A
Atlanta, GA 30309
New Edge Network, Inc. d/b/a EarhLink Business Idaho Tariff No. I
Section 2
Original Page 25
LOCAL EXCHANGE TELECOMMUICATIONS TARIFF
SECTION 2 - RULES AND REGULATIONS, (CONT'D.)
2.5 Payment Arrangements, (Contd.)
2.5.5 Deposits
A. Commercial Customers
i. The Company may, in order to safeguard its interests, require a Customer
which has a proven history of late payments to the Company or does not
have established credit or has a bad credit rating to make a deposit prior
to or at any time after the provision of service to the Customer to be held
by the Company as a guarantee of the payment of rates and charges. No
such deposit wil be required of a Customer which has established
satisfactory credit and has no history oflate payments to the Company.
2. The amount of the deposit which may be required of a Customer for the
purpose of establishing credit shall not exceed two times the average
monthly bil for residential Customers whose bils are payable in
advance. The amount of deposit may be adjusted at the request of the
Customer at any time when the character, purpose, or degree of the
Customer's use of the service has materially changed, or when it is
indicated that it wil change.
3. The making of a deposit shall not relieve any Customer of the obligation
to pay current bils when due. A deposit shall only be applied to the
indebtedness of the Customer for jurisdictional telecommunications
services of the provider.
Issued: October 20, 20 i i
Effective Date:
Issued By:Vice President, Tax
1375 Peachtree Street, Level A
Atlanta, GA 30309
New Edge Network, Inc. d/b/a EarhLink Business Idaho Tariff No. i
Section 2
Original Page 26
LOCAL EXCHANGE TELECOMMUNICATIONS TARIFF
SECTION 2 - RULES AND REGULATIONS, (CONT'D.)
2.5 Payment Arrangements, (Contd.)
2.5.5 Deposits, (Contd.)
A. Commercial Customers, (Contd.)
4. The Company will pay interest on deposits, to accrue from the date the
deposit is made until it has been refunded, or until a reasonable effort has
been made to effect refund. The Company will pay interest at the rate
prescribed by the Commission.
5. The Company shall keep a record of each cash deposit until the deposit is
returned. The record wil show the name of each Customer making a
deposit; the premises occupied by the Customer when making the deposit
and each successive prem ises occupied while the deposit is retained by
the Company; the amount and date of making the deposit; and a record
of each transaction, such as the payment of interest, interest credited,
etc., concerning the deposit. Concurrently with receiving a deposit, the
Company wil provide the Customer a receipt showing the deposit date,
the name and biling address of the Customer and the deposit amount.
6. Upon discontinuance of service, or when a Customer has established
credit by other means, the Company wil promptly refund any deposit,
plus accrued simple interest, or the balance, if any, in excess of the
unpaid bils for the services furnished by the Company. A transfer of
service from one location to another within the Company serving area
shall not be deemed a discontinuance with the Company if the character
of the service remains unchanged.
7. Deposits wil be refunded after twelve months of timely payment, with
interest as specified above.
Issued: October 20, 20 II
Effective Date:
Issued By:Vice President, Tax
1375 Peachtree Street, Level A
Atlanta, GA 30309
New Edge Network, Inc. d/b/a EarhLink Business Idaho Tariff No. I
Section 2
Original Page 27
LOCAL EXCHANGE TELECOMMUNICATIONS TARIFF
SECTION 2 - RULES AND REGULA TlONS, (CONT'D.)
2.5 Payment Arrangements, (Cont'd.)
2.5.6 Cancellation of Application for Service
A. Applications for service cannot be canceled without Company agreement. Where
the Company permits a Customer to cancel an application for service prior to the
start of service or prior to any special construction, no charges wil be imposed
except for those specified below.
B. Where, prior to cancellation by the Customer, the Company incurs any expenses
in installng the service or in preparing to install the service that it otherwise
would not have incurred, a charge equal to the costs incurred by the Company,
less net salvage, shall apply, but in no case shall this charge exceed the sum of
the charge for the minimum period of services ordered, including installation
charges, and all charges others levy against the Company that would have been
chargeable to the Customer had service commenced (all discounted to present
value at six percent).
C. Where the Company incurs any expense in connection with special constrction,
or where special arrangements of facilities or equipment have begun, before the
Company receives a cancellation notice, a charge equal to the costs incurred by
the Company, less net salvage, applies. In such cases, the charge wil be based on
such elements as the cost of the equipment, facilities, and material, the cost of
installation, engineering, labor, and supervision, general and administrative
expense, other disbursements, depreciation, maintenance, taxes, provision for
return on investment, and any other costs associated with the special construction
or arrangements.
D. Special charges described in 2.5.6.A. through 2.5.6.C. wil be calculated and
applied on a case-by-case basis.
Issued: October 20, 2011
Effective Date:
Issued By:Vice President, Tax
1375 Peachtree Street, Level A
Atlanta, GA 30309
New Edge Network, Inc. d/b/a EarhLink Business Idaho Tariff No. I
Section 2
Original Page 28
LOCAL EXCHANGE TELECOMMUICATIONS TARIFF
SECTION 2 - RULES AND REGULATIONS, (CONT'D.)
2.5 Payment Arrangements, (Contd.)
2.5.7 Changes in Service Requested
If the Customer makes or requests material changes in circuit engineering, equipment
specifications, service parameters, premises locations, or otherwise materially modifies
any provision of the application for service, the Customer's installation fee shall be
adjusted accordingly.
Issued: October 20, 20 II
Effective Date:
Issued By:Vice President, Tax
1375 Peachtree Street, Level A
Atlanta, GA 30309
New Edge Network, Inc. d/b/a EarhLink Business Idaho Tariff No. I
Section 2
Original Page 29
LOCAL EXCHANGE TELECOMMUICATIONS TARIFF
SECTION 2 - RULES AND REGULATIONS, (CONT'D.)
2.6 Discontinuance of Service
Service continues to be provided until canceled by the Customer, in writing, or until discontinued
by the Company as set forth below. The Company may render bils subsequent to the termination
of service for charges incurred before termination.
Without incurring liability, New Edge may refuse or discontinue service for the following reasons
provided that, unless otherwise stated, business Customers wil be given five (5) days written
notice and residential Customers wil be given fifteen (15) days written notice by first class mail,
with a final notice by Certified Mail five (5) days prior to discontinuance.
2.6.1 For noncompliance with or violation of any State, municipal, or Federal law, ordinance or
regulation pertaining to telephone service.
2.6.2 For noncompliance with or violation of Commission regulation or New Edge's rules and
regulations on fie with the Commission.
2.6.3 Without notice by reason of any order or decision of a court or other government
authority having jurisdiction which prohibits Company from furnshing such services.
2.6.4 For failure of the Customer to make proper application for service or for use of telephone
service for any other propert or purpse than that described in the application.
Issued: October 20, 20 II
Effective Date:
Issued By:Vice President, Tax
1375 Peachtree Street, Level A
Atlanta, GA 30309
New Edge Network, Inc. d/b/a EarhLink Business Idaho Tariff No. I
Section 2
Original Page 30
LOCAL EXCHANGE TELECOMMUNICATIONS TARIFF
SECTION 2 - RULES AND REGULATIONS, (CONT'D.)
2.6 Discontinuance of Service, (Contd.)
2.6.5 Without notice in the event of tampering with the equipment or services owned by New
Edge or its agents.
2.6.6 Without notice in the event of Customer use of equipment or services in such a manner as
to adversely affect Company equipment or Company service to others.
2.6.7 For neglect or refusal to provide reasonable access to New Edge or its agents for the
purpose of inspection and maintenance of equipment owned by New Edge or its agents.
2.6.8 For non-payment of any amount past due to the Company by the Customer.
2.6.9 Without notice for unauthorized or unlawful use of Authorization Codes. Authorization
Codes are issued only by the Company to the Customer and may not be sold or otherwise
distributed without the written consent of the Company.
2.6.10 Without notice in the event of any other unauthorized or fraudulent use of service.
Whenever service is discontinued for fraudulent use of service, New Edge may, before
restoring service, require the Customer to make, at his or her own expense, all changes in
facilities or equipment necessary to eliminate ilegal use and to pay an amount reasonably
estimated as the loss in revenues resulting from such fraudulent use.
2.6.11 For Customer's breach of contract for service between the Company and the Customer.
Issued: October 20, 20 i I
Effective Date:
Issued By:Vice President, Tax
1375 Peachtree Street, Level A
Atlanta, GA 30309
New Edge Network, Inc. d/b/a EarhLink Business Idaho Tariff No. I
Section 2
Original Page 3 I
LOCAL EXCHANGE TELECOMMUNICATIONS TARIFF
SECTION 2 - RULES AND REGULATIONS, (CONT'D.)
2.7 Allowances for Interruptions in Service
Interruptions in service that are not due to the negligence of, or noncompliance with the
provisions of this tariff by, the Customer or the operation or malfunction of the facilties, power
or equipment provided by the Customer, will be credited to the Customer as set forth in 2.7.1 for
the part of the service that the interrption affects.
2.7.1 General
A. Service Outage
A credit allowance wil be given when service is interrupted, except as specified
below. A service is interrpted when it becomes inoperative to the Customer,
e.g., the Customer is unable to transmit or receive, because of a cross4alk, static
or other transmission problem, the Company wil respond to a Customer's report
of such a "service outage" in accordance with IDAPA 31.41.0 I Rule 503.
Customer's bils wil be appropriately and automatically credited pursuant to the
terms of Rule 503.
B. Receipt and Recording of Reports
The Company will provide for the receipt of Customer trouble reports at all hours
and make a full and prompt investigation of and response to all reports. The
Company will maintain an accurate record of trouble reports made by its
Customers. This record wil include accurate identification of the Customer or
service affected, the time, date and nature of the report, the action taken to clear
the trouble or satisfy the Customer, and the date and time of trouble clearance or
other disposition. This record wil be available to the Commission or its
authorized representatives upon request at any time within two (2) years of the
date of the record.
C. Repair Commitments
Commitments to the Customer for repair service will be set in accordance with
Rule 503. The Company wil make every reasonable attempt to fulfill repair
commitments to its Customers. Customers wil be timely notified of unavoidable
changes. Failure to meet a repair commitment does not relieve the Company of
the credited provisions in Rule 503.01, unless the Customer fails to keep an
appointment the Customer agreed to when the original commitment was made
Issued: October 20, 20 II
Effective Date:
Issued By:Vice President, Tax
1375 Peachtree Street, Level A
Atlanta, GA 30309
New Edge Network, Inc. d//a EarhLink Business Idaho Tariff No. I
Section 2
Original Page 32
LOCAL EXCHANGE TELECOMMUICA nONS TARIFF
SECTION 2 - RULES AND REGULA nONS, (CONT'D.)
2.7 Allowances for Interrptions in Service, (Contd.)
2.7. i General, (Contd.)
D. Restoration of Service
When the Company providing local exchange is informed by a Customer of a
local exchange service outage, the Company will:
I. restore service within sixteen (16) hours after the report of the outage if
the Customer notifies the Company that the service outage creates an
emergency for the Customer, or
2. restore service within twenty-four (24) hours after the report of the
outage if no emergency exists, except that outages reported between
noon on Saturday and 6:00 p.m. on the following Sunday must be
restored within fort-eight (48) hours or by 6:00 p.m. on the following
Monday, whichever is sooner. If the Company does not restore service
within the times required by this subsection, the Company wil credit the
Customer's account for an amount equal to the monthly rate for one (1)
month of basic local exchange service.
Issued: October 20, 20 I i
Effective Date:
Issued By:Vice President, Tax
1375 Peachtree Street, Level A
Atlanta, GA 30309
New Edge Network, Inc. d/b/a Earh Link Business Idaho Tariff No. I
Section 2
Original Page 33
LOCAL EXCHANGE TELECOMMUNICATIONS TARIFF
SECTION 2 - RULES AND REGULATIONS, (CONT'D.)
2.7 Allowances for Interruptions in Service, (Cont'd.)
2.7.1 General, (Cont'd.)
E. Extenuating Circumstances
Following disruption of local exchange service caused by natural disaster or
other causes not within the Company's control and affecting large groups of
Customers, or in conditions where the personal safety on an employee would be
jeopardized, the Company is not required to provide the credit referred to in
Subsection 503.01 as long as it uses reasonable judgment and dilgence to restore
service, giving due regard for the needs of various Customers and the
requirements of the telecommunications service priority (TSP) program ordered
in FCC Docket 88-341. When a Customer causes the Customer's own service
outage or does not make a reasonable effort to arrange a repair visit within the
service restoration deadline, or when the Company determines that the outage is
attibutable to the Customer's own equipment or inside wire, the Company is not
required to provide to that Customer the credit referred to in Subsection 503.0 I.
F. Compliance Standard
Each month at least ninety percent (90%) of out-of-service trouble reports wil be
cleared in accordance with Subsection 503.01 and 503.02. The Company wil
keep a monthly service record as described in Subsection 502.0 I and wil notify
the Commission whenever the record indicates the ninety percent (90%) level has
not been met for a period of three (3) consecutive months.
Issued: October 20, 2011
Effective Date:
Issued By:Vice President, Tax
1375 Peachtree Street, Level A
Atlanta, GA 30309
New Edge Network, Inc. d/b/a EarhLink Business Idaho Tariff No. I
Section 2
Original Page 34
LOCAL EXCHANGE TELECOMMUICATIONS TARIFF
SECTION 2 - RULES AND REGULATIONS, (CONT'D.)
2.7 Allowances for Interruptions in Service, (Contd.)
2.7.2 Cancellation For Service Interruption
Cancellation or tennination for service interrption is pennitted only if any circuit
experiences a single continuous outage of 8 hours or more or cumulative service credits
equaling 16 hours in a continuous 12-month period. The right to cancel service under this
provision applies only to the single circuit that has been subject to the outage or
cumulative service credits.
Issued: October 20, 2011
Effective Date:
Issued By:Vice President, Tax
1375 Peachtree Street, Level A
Atlanta, GA 30309
New Edge Network, Inc. d//a EarhLink Business Idaho Tariff No. I
Section 2
Original Page 35
LOCAL EXCHANGE TELECOMMUICATIONS TARIFF
SECTION 2 - RULES AND REGULATIONS, (CONT'D.)
2.8 Use of Customer's Service by Others
2.8.1 Joint Use Arrangements
Joint use arrangements wil be pennitted for all services provided under this tariff. From
each joint use arrangement, one member wil be designated as the Customer responsible
for the manner in which the joint use of the service wil be allocated. The Company wil
accept orders to start, rearrange, relocate, or discontinue service only from the designated
Customer. Without affecting the Customer's ultimate responsibility for payment of all
charges for the service, each joint user shall be responsible for the payment of the charges
billed to it.
Issued: October 20, 2011
Effective Date:
Issued By:Vice President, Tax
1375 Peachtree Street, Level A
Atlanta, GA 30309
New Edge Network, Inc. d/b/a EarhLink Business Idaho Tariff No. 1
Section 2
Original Page 36
LOCAL EXCHANGE TELECOMMUICATIONS TARIFF
SECTION 2 - RULES AND REGULATIONS, (CONT'D.)
2.9 Cancellation of Service/Termination Liability
If a Customer cancels a Service Order or terminates services before the completion of the. term for
any reason whatsoever other than a service interrption (as defined in Section 2.7.1 above), the
Customer agrees to pay to the Company termination liability charges, as defined below unless
otherwise stated in written Service Order. These charges shall become due as of the effective date
of the cancellation or termination and be payable within the period, set forth in Section 2.5.2.
2.9.1 Termination Liability
The Customer's termination liabilty for cancellation of service shall be equal to:
A. all unpaid Non-Recurring charges reasonably expended by the Company to
establish service to the Customer; plus
B. any disconnection, early cancellation or termination charges reasonably incurred
and paid to third parties by the Company on behalf of the Customer; plus
C. all Recurring Charges specified in the applicable Service Order Tariff for the
balance of the then current term.
Issued: October 20, 2011
Effective Date:
Issued By:Vice President, Tax
1375 Peachtree Street, Level A
Atlanta, GA 30309
New Edge Network, Inc. d/b/a Earh Link Business Idaho Tariff No. I
Section 2
Original Page 37
LOCAL EXCHANGE TELECOMMUNICATIONS TARIFF
SECTION 2 - RULES AND REGULATIONS, (CONT'D.)
2.10 Transfers and Assignments
Neither the Company nor the Customer may assign or transfer its rights or duties in connection
with the services and facilties provided by the Company without the written consent of the other
part, except that the Company may assign its rights and duties:
2. i O. i to any subsidiary, parent company or affliate of the Company; or
2. i 0.2 pursuant to any sale or transfer of substantially all the assets of the Company; or
2.10.3 pursuant to any financing, merger or reorganization of the Company.
Issued: October 20, 201 i
Effective Date:
Issued By:Vice President, Tax
1375 Peachtree Street, Level A
Atlanta, GA 30309
New Edge Network, Inc. d/b/a EarhLink Business Idaho Tariff No. I
Section 2
Original Page 38
LOCAL EXCHANGE TELECOMMUNICATIONS TARIFF
SECTION 2 - RULES AND REGULATIONS, (CONT'D.)
2.11 Customer Liabilty for Unauthorized Use of the Network
Unauthorized use of the network occurs when a person or entity that does not have actual,
apparent, or implied authority to use the network, obtains Company services provided under this
tariff.
2. i 1. Customer Liability for Fraud and Unauthorized Use of the Network
A. The Customer is liable for the unauthorized use of the network obtained through
the fraudulent use of a Company calling card, if such a card is offered by the
Company, or an accepted credit card, provided that the unauthorized use occurs
before the Company has been notified.
B. A Company callng card is a telephone calling card issued by the Company at the
Customer's request, which enables the Customer or user(s) authorized by the
Customer to place calls over the Network and to have the charges for such calls
biled to the Customer's account.
An accepted credit card is any credit card that a cardholder has requested or
applied for and received, or has signed, used, or authorized another person to use
to obtain credit. Any credit card issued as a renewal or substitute in accordance
with this paragraph is an accepted credit card when received by the cardholder.
C. The Customer must give the Company written or oral notice that an unauthorized
use of a Company callng card or an accepted credit card has occurred or may
occur as a result of loss, and/or theft.
D. The Customer is responsible for payment of all charges for callng card services
furnished to the Customer or to users authorized by the Customer to use service
provided under this rate sheet, unless due to the negligence of the Company. This
responsibility is not changed due to any use, misuse, or abuse of the Customer's
service or Customer-provided equipment by third parties, the Customer's
employees, or the public.
The liabilty of the Customer for unauthorized use of the Network by credit card
fraud will not exceed the lesser of fift dollars ($50.00) or the amount of money,
propert, labor, or services obtained by the unauthorized user before notification
to the Company.
Issued: October 20, 20 II
Effective Date:
Issued By:Vice President, Tax
1375 Peachtree Street, Level A
Atlanta, GA 30309
New Edge Network, Inc. d/b/a EarhLink Business Idaho Tariff No. I
Section 2
Original Page 39
LOCAL EXCHANGE TELECOMMUNICATIONS TARIFF
SECTION 2 - RULES AND REGULATIONS, (CONT'D.)
2.12 Notices and Communications
2.12.1 The Customer shall designate on the Service Order the address to which the Company
shall mail or deliver all notices and other communications, except that the Customer may
also designate a separate address to which Company bils for service shall be mailed.
2.12.2 The Company shall designate on the Service Order an address to which the Customer
shall mail or deliver all notices and other communications, except that Company may
designate a separate address on each bil for service to which the Customer shall mail
payment on that bilL.
2.12.3 Except as otherwise stated in this tariff, all notices or other communications required to
be given pursuant to this tariff wil be in writing. Notices and other communications of
either part, and all bills mailed by the Company, shall be presumed to have been
delivered to the other part on the third business day following placement of the notice,
communication or bil with the U.S. Mail or a private delivery service, prepaid and
properly addressed, or when actually received or refused by the addressee, whichever
occurs first.
2.12.4 The Company or the Customer shall advise the other par of any changes to the
addresses designated for notices, other communications or billng, by following the
procedures for giving notice set forth herein.
Issued: October 20, 20 I I
Effective Date:
Issued By:Vice President, Tax
1375 Peachtree Street, Level A
Atlanta, GA 30309
New Edge Network, Inc. d/b/a EarhLink Business Idaho Tariff No. I
Section 2
Original Page 40
LOCAL EXCHANGE TELECOMMUICATIONS TARIFF
SECTION 2 - RULES AND REGULATIONS, (CONT'D.)
2. i 3 Taxes, Fees and Surcharges
The Company reserves the right to bil any and all applicable taxes, fees and surcharges in
addition to nonnal rates and charges for services provided to the Customer, where pennitted by
law. Taxes and fees include, but are not limited to: Federal Excise Tax, State Sales Tax,
Municipal Tax, Gross Receipts Tax, Idaho Telecommunications Service Assistance Program, and
Universal Service. Unless otherwise specified in this tariff, such taxes, fees and surcharges are in
addition to rates as quoted in this tariff and will be itemized separately on Customer invoices.
Issued: October 20,2011
Effective Date:
Issued By:Vice President, Tax
1375 Peachtree Street, Level A
Atlanta, GA 30309
New Edge Network, Inc. d/b/a EarhLink Business Idaho Tariff No. I
Section 2
Original Page 41
LOCAL EXCHANGE TELECOMMUNICATIONS TARIFF
SECTION 2 - RULES AND REGULATIONS, (CONT'D.)
2.14 Miscellaneous Provisions
2.14.1 Telephone Number Changes
Whenever any Customer's telephone number is changed after a directory is published,
the Company shall intercept all calls to the former number for at least one hundred and
twenty (120) days and give the callng part the new number provided existing central
offce equipment wil permit, and the Customer so desires.
When service in an existing location is continued for a new Customer, the existing
telephone number may be retained by the new Customer only if the former Customer
consents in writing, and if all charges against the account are paid or assumed by the new
Customer.
2.14.2 Maintenance and Operations Records
Records of various tests and inspections, to include non-routine corrective maintenance
actions or monthly traffc analysis summaries for network administration, necessary for
the purposes of the Company or to fulfill the requirements of Commission rules shall be
kept on fie in the office ofthe Company as required under Commission rules.
2.15 Universal Emergency Telephone Number Service (911)
Universal Emergency Telephone Number Service (911 Service) is an arrangement of Company
central offce and trnking facilities whereby any telephone user who dials the numbers 911 wil
reach the emergency report center for the telephone from which the number is dialed or wil be
routed to an operator if all lines to an emergency report center are busy. If no emergency report
center Customer exists for a central office entity, a telephone user who dials the number 911 wil
be routed to an operator. No call-specific charges apply to 911 calls.
Issued: October 20, 2011
Effective Date:
Issued By:Vice President, Tax
1375 Peachtree Street, Level A
Atlanta, GA 30309
New Edge Network, Inc. d/b/a EarhLink Business
LOCAL EXCHANGE TELECOMMUICATIONS TARIFF
Idaho Tariff No. I
Section 3
Original Page I
SECTION 3 - SERVICE AREAS
3.1 Local Exchange Service Areas
Local exchange services are provided, subject to availability of facilties and equipment, in the
exchanges and local calling areas currently served by the Incumbent LEC.
Issued: October 20, 2011
Effective Date:
Issued By:Vice President, Tax
1375 Peachtree Street, Level A
Atlanta, GA 30309
New Edge Network, Inc. d/b/a EarhLink Business Idaho Tariff No. I
Section 4
Original Page 1
LOCAL EXCHANGE TELECOMMUNICATIONS TARIFF
SECTION 4 - SERVICES, RATES AND CHARGES
4. I Nationwide Integrated Products Suite
Nationwide PRJ is a dynamic bandwidth product offering Trunk-side PRI and DID Services, with
Dynamic Bandwidth allocation. The base product offers up to 23 voice-grade channels to a TDM
based PRJ using standard PRI hand-offs and support up to 46 b-channels depending on the chosen
options. It also provides Internet and/or MPLS (MPLS IP VPN) service delivery across dedicated
Tl, NxTl, or Ethernet based local loops. NF AS not supported. EarthLink Business must provide
the lAD. The local voice service and data transmission share the available bandwidth. Only
available to business customers and only where suitable facilities exist.
Nationwide Line Side Service offers delivery of Internet service and line side local exchange
service. The option employs the use of the entire available bandwidth for data transmission when
voice lines are not in use. When multiple services are in use, voice applications wil takes
precedence over data. The Line Side product accommodates local lines and Internet bandwidth on
a single access line, at a single location. Only available to business customers and only where
suitable facilties exist.
Customers ordering from the Nationwide Integrated Products Suite must pre-subscribe to the
Company's long distance service. Customers wil have the option to purchase bundles of long
distance minutes.
Issued: October 20, 2011
Effective Date:
Issued By:Vice President, Tax
1375 Peachtree Street, Level A
Atlanta, GA 30309
VERICATION
COMMONWALTH OF MASSACHUSETTS
COUN OF MIDDLESEX
§
§
§
I, Paula Foley, state that I am Regulatory Mfairs Counsel of New Edge Networks, Inc.
d//a Earin Business; that I am authorized to make this Veriication; that the foregoing fiing
was prepared under my direction and supervision; that the Applicant wil comply with all Idaho
laws and Commssion rules and regulations; and that matters set fort in the filing are tre and
correct to the best of my knowledge, inormation, and belief.
Paula Foley
Regulatory Mfairs Co
Earin Business
SWORN TO AN SUBSCRffED before me on the sfI day of October, 2011.
My commission expires:SA~f
oo~ JEANETE M.ó LYD
~ Noar Pub rCOTH OF MAMy ComI Ex
. May 9. 2014
N74489639.1