Earthlink 2009 Annual Report Download - page 74
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Table of Contents
EARTHLINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Advertising Costs
Advertising costs include media, agency and promotion expenses to promote the Company's products and services. Advertising costs are
expensed as incurred and included in sales and marketing expense. Advertising expenses were $159.6 million, $21.6 million and $13.8 million
during the years ended December 31, 2007, 2008 and 2009, respectively.
Income Taxes
The Company recognizes deferred tax assets and liabilities for operating loss carryforwards, tax credit carryforwards and the estimated
future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using tax rates in effect for the year in which the temporary differences are
expected to be recovered or settled. A valuation allowance is recorded to reduce the carrying amounts of net deferred tax assets if there is
uncertainty regarding their realization. EarthLink considers many factors when assessing the likelihood of future realization including the
Company's recent cumulative earnings experience by taxing jurisdiction, expectations of future taxable income, prudent and feasible tax
planning strategies that are available, the carryforward periods available to the Company for tax reporting purposes and other relevant factors.
Earnings per Share
The Company presents a dual presentation of basic and diluted earnings per share ("EPS"). Basic EPS represents net income (loss) divided
by the weighted average number of common shares outstanding during a reported period. Diluted EPS reflects the potential dilution that could
occur if securities or other contracts to issue common stock, including stock options, warrants, restricted stock units, phantom share units,
convertible debt and contingently issuable shares (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. Phantom share units and contingently issuable shares are reflected on an if-
converted basis. In applying
the treasury stock method for stock-
based compensation arrangements, the assumed proceeds are computed 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 options.
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