Earthlink 2010 Annual Report Download - page 100

Download and view the complete annual report

Please find page 100 of the 2010 Earthlink annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 152

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150
  • 151
  • 152

Table of Contents
EARTHLINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Advertising Costs
Advertising costs are expensed as incurred and included in selling, general and administrative expense. Advertising expenses were
$21.6 million, $13.8 million and $12.4 million during the years ended December 31, 2008, 2009 and 2010, respectively.
Stock-Based Compensation
As of December 31, 2010, EarthLink had various stock-based compensation plans, which are more fully described in Note 12, "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 Company's current estimates, such amounts will 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.
Restructuring and Acquisition
-Related Costs
The Company recognizes a liability for costs associated with an exit or disposal activity when the liability is incurred. Facility exit and
restructuring liabilities include estimates for, among other things, severance payments and amounts due under lease obligations, net of estimated
sublease income, if any. Key variables in determining lease estimates include operating expenses due under lease arrangements, the timing and
amounts of sublease rental payments, tenant improvement costs and brokerage and other related costs. The Company periodically evaluates and,
if necessary, adjusts its estimates based on currently-available information. Such adjustments are classified as restructuring and acquisition-
related costs in the Consolidated Statements of Operations.
Acquisition-related costs are expensed in the period in which the costs are incurred and the services are received. Acquisition-
related costs
consist of external costs directly related to EarthLink's acquisitions, such as advisory, legal, accounting, valuation and other professional fees.
Acquisition-related costs also include employee severance and benefit costs and costs resulting from the settlement of stock-
based awards
attributable to postcombination service in connection with the ITC^DeltaCom acquisition. See Note 3, "Acquisitions," for more detail.
Post
-Employment Benefits
Post-
employment benefits primarily consist of the Company's severance plans. When the Company has either a formal severance plan or a
history of consistently providing severance benefits representing a substantive plan, the Company recognizes severance costs when they are both
probable and reasonably estimable.
93