Earthlink 2010 Annual Report Download - page 65

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Table of Contents
personnel-
related costs, outsourced labor, advertising expense, bad debt and payment processing fees, legal and professional fees, and occupancy
and related costs. The decreases resulted from reduced headcount and continued cost reduction initiatives, reduced discretionary sales and
marketing spend, consolidation to primarily one outsourced customer service and technical support provider for our consumer services and cost
benefits as our overall subscriber base has decreased and become longer tenured. Longer tenured customers have a lower frequency of non-
payment and require less customer service and technical support. Partially offsetting these decreases were costs incurred as a result of certain
legal settlements and resolution of various state and local tax issues and audits. As a result of the foregoing, selling, general and administrative
expenses decreased from 33% of revenues during the year ended December 31, 2008 to 31% of revenues during year ended December 31, 2009.
Selling, general and administrative expenses decreased $43.8 million, or 20%, from the year ended December 31, 2009 to the year ended
December 31, 2010. The decrease consisted primarily of decreases in personnel-
related costs, outsourced labor, advertising expense, bad debt
and payment processing fees and legal and professional fees. The decreases resulted from reduced headcount and continued cost reduction
initiatives, reduced discretionary sales and marketing spend, and continued benefits as our overall subscriber base has decreased and become
longer tenured. These decreases were partially offset by the inclusion of ITC^DeltaCom's selling, general and administrative expenses for the
period December 8, 2010 through December 31, 2010. Selling, general and administrative expenses decreased from 31% of revenues during the
year ended December 31, 2009 to 29% of revenues during year ended December 31, 2010.
Depreciation and amortization
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. Property and equipment is depreciated using the straight-
line
method over the estimated useful lives of the various asset classes. Definite-
lived intangible assets, which primarily consist of subscriber bases
and customer relationships, acquired software and technology, trade names and other assets, are amortized on a straight-
line basis over their
estimated useful lives, which range from three to six years.
Depreciation and amortization decreased $12.4 million, or 34%, from the year ended December 31, 2008 to the year ended December 31,
2009. This consisted of a $6.8 million decrease in depreciation expense and a $5.6 million decrease in amortization expense. The decrease in
depreciation expense compared to the year ended December 31, 2008 was primarily due to property and equipment becoming fully depreciated
over the past year. The decrease in amortization expense compared to the year ended December 31, 2008 was primarily due to certain
identifiable definite-lived intangible assets becoming fully amortized over the past year. In addition, we impaired certain identifiable definite-
lived intangible assets during the fourth quarter of 2008, which contributed to the decrease in amortization expense.
Depreciation and amortization decreased $0.6 million, or 2%, from the year ended December 31, 2009 to the year ended December 31,
2010. This consisted of a $2.0 million decrease in amortization expense, partially offset by a $1.4 million increase in depreciation expense. The
decrease in amortization expense compared to the year ended December 31, 2009 was due to certain identifiable definite-
lived intangible assets
becoming fully amortized over the past year, which was partially offset by the inclusion of amortization of acquired ITC^DeltaCom intangible
assets for the period December 8, 2010 through December 31, 2010. The increase in depreciation expense compared to the year ended
December 31, 2009 was primarily attributable to depreciation expense resulting from property and equipment obtained in the acquisition of
ITC^DeltaCom. We expect depreciation and amortization to increase in 2011 as a result of property and equipment and definite-
lived intangible
assets obtained in our acquisition of ITC^DeltaCom and potential future acqusitions.
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