Earthlink 2011 Annual Report Download - page 76

Table of Contents
Fair value measurements
As of December 31, 2010 and 2011, we held certain assets that are required to be measured at fair value on a recurring basis. These
included our cash equivalents and marketable securities. Fair value is defined as the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). A three-
tier fair value hierarchy
is used to prioritize the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in
active markets; Level 2, defined as observable inputs other than quoted prices in active markets that are either directly or indirectly observable;
and Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own
assumptions.
We classify certain marketable securities, including government and agency securities, corporate debt securities, commercial paper and
certificates of deposit, within Level 2 because these securities are valued based on quoted prices in markets that are less active, broker or dealer
quotations or alternative pricing sources with reasonable levels of price transparency. Determining the fair values of these marketable securities
requires judgment. If other assumptions and estimates had been used, the fair value of our marketable securities could have been materially
impacted.
Recently Issued Accounting Pronouncements
In May 2011, the Financial Accounting Standards Board ("FASB") issued authoritative guidance related to fair value measurements. This
guidance was issued to provide a consistent definition of fair value and ensure that the fair value measurement and disclosure requirements are
similar between U.S. GAAP and International Financial Reporting Standards. This guidance also changes certain fair value measurement
principles and enhances the disclosure requirements particularly for Level 3 fair value measurements. This guidance is effective for fiscal years,
and interim periods within those years, beginning after December 15, 2011. The Company does not expect this guidance to have a material
impact on its consolidated financial statements.
In June 2011, the FASB issued authoritative guidance related to comprehensive income. This guidance was issued to increase the
prominence of items reported in other comprehensive income and requires that all non-
owner changes in stockholders' equity be presented either
in a single continuous statement of comprehensive income or in two separate but consecutive statements. This guidance is effective for fiscal
years, and interim periods within those years, beginning after December 15, 2011. In December 2011, the FASB issued authoritative guidance
which deferred the requirement to present on the face of the financial statements reclassification adjustments for items that are reclassified from
other comprehensive income to net income while the FASB further deliberates this aspect of the proposal. The Company does not expect this
guidance to have a material impact on its consolidated financial statements.
In September 2011, the FASB issued authoritative guidance related to goodwill testing. This guidance allows an entity to first assess
qualitative factors to determine whether it is necessary to perform the two-
step quantitative goodwill impairment test. Under these amendments,
an entity would not be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that
it is more-likely-than-
not that its fair value is less than its carrying amount. This guidance is effective for fiscal years beginning after
December 15, 2011, with early adoption permitted. We adopted this new guidance in the fourth quarter of 2011. The adoption did not have a
material impact on our consolidated financial statements.
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