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Table of Contents
EARTHLINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Adoption of Recent Accounting Pronouncements
Codification.
In the third quarter of 2009, the Company adopted the FASB Accounting Standards Codification ("ASC"). The ASC
became the single official source of authoritative U.S. generally accepted accounting principles ("GAAP") recognized by the FASB, other than
guidance issued by the Securities and Exchange Commission. The adoption of the ASC did not have a material impact on the Company's
financial statements. However, the adoption of the ASC changed the Company's references to GAAP in its consolidated financial statements.
Convertible Debt.
On January 1, 2009, the Company adopted new accounting guidance related to accounting for convertible debt
instruments that may be settled in cash upon conversion. The new accounting guidance requires that the liability and equity components of
convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) be separately accounted for in a
manner that reflects an issuer's non-
convertible debt borrowing rate. The resulting debt discount is accreted over the period the convertible debt
is expected to be outstanding as additional non-
cash interest expense. Retrospective application to all periods presented is required. The adoption
of this new guidance on January 1, 2009 affected the accounting for the Company's Convertible Senior Notes due November 15, 2026 (the
"Notes"), which were issued in November 2006. Upon adoption, the Company recorded an adjustment to increase additional paid-
in capital as of
the November 2006 issuance date by approximately $62.1 million. The Company is accreting the resulting debt discount to interest expense over
the estimated five-
year life of the Notes, which represents the first redemption date of November 2011. Upon adoption, the Company also
recorded an adjustment to decrease additional paid-in capital and other long-
term assets by approximately $1.8 million to reclassify debt
issuance costs related to the equity component of the Notes. The Company recorded a pre-
tax adjustment of approximately $22.3 million to
accumulated deficit that represents accretion of the debt discount and decrease in amortization of debt issuance costs during the years ended
December 31, 2006, 2007 and 2008, recognized additional non-
cash interest expense of $12.2 million during the year ending December 31, 2009
and will recognize additional non-
cash interest expense of $13.4 million and $12.4 million during the years ending December 31, 2010 and 2011,
respectively, for accretion of the debt discount and decrease in amortization of debt issuance costs. As a result of the adoption of this new
guidance, the Company reduced income from continuing operations and net income for the year ended December 31, 2009 by $12.2 million and
reduced basic and diluted earnings per share by $0.11 per share. The Company also recorded a deferred tax liability for temporary tax
differences. However, this was offset by a corresponding decrease in the valuation allowance for deferred tax assets.
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