Earthlink 2004 Annual Report Download - page 71

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EARTHLINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Comprehensive Income (Loss)
Comprehensive income (loss) as presented in the Consolidated Statements of Stockholders’ Equity and Comprehensive Income (Loss)
includes unrealized gains and losses which are excluded from the Consolidated Statements of Operations in accordance with SFAS No. 130,
“Reporting Comprehensive Income.” For the years ended December 31, 2002, 2003 and 2004, these amounts included changes in unrealized
gains and losses on certain investments classified as available-for-sale. The amounts are presented net of tax-related effects which management
estimated to be approximately zero due to losses incurred by the Company and uncertainty regarding realization of deferred tax assets.
Cash and Cash Equivalents
All highly liquid investments with original maturities of three months or less at the date of acquisition are considered cash equivalents.
These investments primarily consist of money market funds and commercial paper.
Investments in Marketable Securities
Investments in marketable securities are accounted for in accordance with SFAS No. 115, “Accounting for Certain Investments in Debt
and Equity Securities.” All investments with original maturities greater than three months and with maturities less than one year from the
balance sheet date are considered short-term investments. Short-term investments also include investments in asset-backed, auction rate
securities that have reauction periods of 90 days or less but whose underlying agreements have original maturities of more than 90 days.
Investments with maturities greater than one year from the balance sheet date are considered long-term investments. The investments are of
investment grade and include corporate bonds and government agency notes.
The Company has classified all short- and long-term investments in marketable securities as available-for-sale. Available-for-sale
securities are carried at fair value, with any unrealized gains and losses, net of tax, included in unrealized gains (losses) on investments as a
separate component of stockholders’ equity. Realized gains and losses are included in interest income and other, net, in the Consolidated
Statements of Operations and are determined on a specific identification basis.
Other Investments
Investments in other companies are included in other long-term assets and are accounted for under the cost method of accounting because
the Company does not have the ability to exercise significant influence over the companies’ operations. Under the cost method of accounting,
investments in private companies are carried at cost and are only adjusted for other-than-temporary declines in fair value and distributions of
earnings. For cost method investments in public companies that have readily determinable fair values, the Company classifies its investments
as available-for-sale in accordance with SFAS No. 115 and, accordingly, records these investments at their fair values with unrealized gains
and losses included as a separate component of stockholders’ equity and in total comprehensive income (loss). Upon sale or liquidation,
realized gains and losses are included in the Consolidated Statement of Operations.
Management regularly evaluates the recoverability of its investments in other companies based on the performance and the financial
position of those companies as well as other evidence of market value. Such evaluation includes, but is not limited to, reviewing the investee’s
cash position, recent financings,
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