Earthlink 2014 Annual Report Download - page 42

Table of Contents
Consumer Services
Consumer Services cost of revenues decreased during the years ended December 31, 2013 and 2014 compared to the prior years primarily due to
the following:
Selling, general and administrative
The following table presents our selling, general and administrative expenses for the years ended December 31, 2012, 2013 and 2014 :
Selling, general and administrative expenses consist of expenses related to sales and marketing, customer service, network operations,
information technology, regulatory, billing 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, occupancy
costs, advertising and other administrative expenses.
The decrease in selling, general and administrative expenses during the year ended December 31, 2013 compared to the prior year was primarily
due to cost savings realized from workforce reductions and other synergies from integrating acquisitions made in 2010 through 2013. The
decrease in selling, general and administrative expenses during the year ended December 31, 2014 compared to the prior year was primarily due
to an increased focus on optimizing our cost structure, including reduced people costs, bad debt and payment processing, occupancy costs and
advertising. Partially offsetting these declines was the inclusion of CenterBeam selling, general and administrative expenses beginning in July
2013.
Depreciation and amortization
The following table presents our depreciation and amortization expense for the years ended December 31, 2012, 2013 and 2014 :
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.
37
(c)
Decrease in 2013 due to an $8.3 million charge recorded in 2012 to increase our reserves for regulatory audits, primarily an audit
conducted by the Universal Service Administrative Company on previous ITC^DeltaCom Universal Service Fund assessments and
payments, and a $7.2 million favorable adjustment recorded in the third quarter of 2013 to decrease our reserves for regulatory audits
resulting from final interpretation and resolution of certain regulatory audits, primarily the audit by the Universal Service
Administrative Company.
(d)
Increase due to inclusion of CenterBeam cost of revenues beginning in July 2013.
•
The decreases in average consumer services subscribers noted above under Consumer Services Revenues.
•
Partially offset by increases in our average cost per subscriber. This was due to a shift in the mix to customers with higher costs
associated with delivering services and higher unit costs as our agreements with certain service providers generally have volume based
tiered pricing which is leading to higher unit costs as we see a decline in subscribers over time. Also contributing to the increase from
2013 to 2014 was costs associated with modem equipment rental revenue which we began billing to certain broadband customers
beginning in April 2014.
Year Ended December 31, 2013 vs 2012 2014 vs 2013
2012 2013 2014 $ Change % Change $ Change % Change
(dollars in thousands)
Selling, general and
administrative expenses
$
429,087
$
426,070
$
419,019
$
(3,017
)
(1)%
$
(7,051
)
(2
)%
Year Ended December 31, 2013 vs 2012 2014 vs 2013
2012 2013 2014 $ Change % Change $ Change % Change
(dollars in thousands)
Depreciation expense
$
112,489
$
116,744
$
123,695
$
4,255
4%
$
6,951
6%
Amortization expense
70,676
66,370
63,177
(4,306
)
(6)%
(3,193
)
(5)%
Total depreciation and amortization
$
183,165
$
183,114
$
186,872
$
(51
)
—%
$
3,758
2%