Earthlink 2010 Annual Report Download - page 81

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Table of Contents
Examples of critical estimates in valuing certain of the intangible assets we have acquired include but are not limited to:
• future expected cash flows from customer contracts and acquired developed technologies and patents;
•
the acquired company's brand and competitive position, as well as assumptions about the period of time the acquired brand will
continue to be used in the combined company's product portfolio; and
• discount rates.
Unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates or actual results.
For a given acquisition, we may identify certain pre-
acquisition contingencies as of the acquisition date and may extend our review and
evaluation of these pre-
acquisition contingencies throughout the measurement period (up to one year from the acquisition date) in order to obtain
sufficient information to assess whether we include these contingencies as a part of the purchase price allocation and, if so, to determine their
estimated amounts.
If we determine that a pre-acquisition contingency (non-
income tax related) is probable in nature and estimable as of the acquisition date,
we record our best estimate for such a contingency as a part of the preliminary purchase price allocation. We often continue to gather
information for and evaluate our pre-
acquisition contingencies throughout the measurement period and if we make changes to the amounts
recorded or if we identify additional pre-
acquisition contingencies during the measurement period, such amounts will be included in the purchase
price allocation during the measurement period and, subsequently, in our results of operations.
In addition, uncertain tax positions and tax related valuation allowances assumed in connection with a business combination are initially
estimated as of the acquisition date and we reevaluate these items quarterly with any adjustments to our preliminary estimates being recorded to
goodwill provided that we are within the measurement period and we continue to collect information in order to determine their estimated
values. Subsequent to the measurement period or our final determination of the uncertain tax positions estimated value or tax related valuation
allowances, changes to these uncertain tax positions' and tax related valuation allowances will affect our provision for income taxes in our
consolidated statement of operations and could have a material impact on our results of operations and financial position.
Cost of Revenues
Cost of revenues includes direct expenses associated with providing services to our customers and the cost of equipment sold. These costs
include the cost of leasing facilities from incumbent local exchange carriers and other telecommunications providers that provide us with access
connections to our customers, to some components of our network facilities, and between our various facilities. In addition, we use other carriers
to provide services where we do not have facilities. We use a number of different carriers to terminate our long distance calls outside the
southern United States. These costs are expensed as incurred. Some of these expenses are billed in advance and some expenses are billed in
arrears. Accordingly, we are required to accrue for expected expenses irrespective of whether these expenses have been billed. We use internal
management information to support these required accruals. Experience indicates that the invoices that are received from other
telecommunications providers are often subject to significant billing disputes. We typically accrue for all invoiced amounts unless there are
contractual, tariff or operational data that clearly indicate support for the billing dispute. Experience also has shown that these disputes can
require a significant amount of time to resolve given the complexities and regulatory issues surrounding the vendor relationships. We maintain
reserves for any anticipated exposure associated with these billing disputes. We believe our reserves are adequate. The reserves are reviewed on
a monthly basis, but are subject to changes in estimates and management judgment as new information becomes available. In view
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