Earthlink 2012 Annual Report Download - page 73

Download and view the complete annual report

Please find page 73 of the 2012 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 133

  • 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

Table of Contents
EARTHLINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization
EarthLink, Inc. (“EarthLink” or the “Company”),
together with its consolidated subsidiaries, is a leading network, communications and
IT services provider to business and residential customers in the United States. The Company operates two
reportable segments, Business
Services and Consumer Services. The Company’
s Business Services segment provides a broad range of data, voice and IT services to retail and
wholesale business customers. The Company’s Consumer Services segment provides nationwide Internet access and related value-
added
services to residential customers. The Company operates an extensive network including approximately 28,800 route fiber miles, 90
metro fiber
rings and four enterprise-class data centers that provide IP coverage across more than 90 percent
of the United States. For further information
concerning the Company’s reportable segments, see Note 18, “Segment Information.”
2. Summary of Significant Accounting Policies
Basis of Consolidation
The consolidated financial statements of EarthLink include the accounts of its wholly-
owned subsidiaries. All significant intercompany
transactions have been eliminated.
Reclassifications
Certain amounts in the prior year financial statements have been reclassified to conform to the current year presentation. Specifically,
the Company reclassified certain amounts within current liabilities and between current and other long-term liabilities as of
December 31, 2011
to conform with current year presentation, including a $7.5 million reclassification from other accrued liabilities to other long-
term liabilities that
primarily related to the presentation of tax liabilities.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles ("GAAP") requires
management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure
of contingent assets and liabilities in the consolidated financial statements and accompanying footnotes. Actual results could differ from those
estimates. On an ongoing basis, the Company evaluates its estimates, including, but not limited to, those related to the allowance for doubtful
accounts; revenue reserves for billings to other carriers; expected results of disputed vendor charges for cost of services; the use, recoverability,
and/or realizability of certain assets, including deferred tax assets; useful lives of intangible assets and property and equipment; the fair values of
assets acquired and liabilities assumed in acquisitions of businesses, including acquired intangible assets; facility exit and restructuring
liabilities; fair values of investments; stock-
based compensation expense; unrecognized tax benefits; and contingent liabilities. The Company
bases its estimates on historical experience and on various other assumptions that are believed to be reasonable.
Business Combinations
The Company accounts for business combinations by recognizing all of the assets acquired and liabilities assumed at the acquisition
date fair value. Goodwill as of the acquisition date is measured as the excess of consideration transferred and the net of the acquisition date fair
values of the assets acquired and the liabilities assumed. While the Company uses its best estimates and assumptions as a part of the purchase
price allocation process to accurately value assets acquired and liabilities assumed at the acquisition date, the Company's estimates are inherently
uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, the
Company records adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of
the measurement period, any subsequent adjustments are recorded to the Company's Consolidated Statements of Comprehensive Income.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and highly liquid investments with original maturities of three months or less at the date of
acquisition. Cash equivalents are stated at amortized cost, which approximates fair value.
66