Earthlink 2014 Annual Report Download - page 75

Table of Contents EARTHLINK HOLDINGS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
exercised or converted into common stock. The dilutive effect of outstanding stock options and restricted stock units is reflected in diluted
earnings per share by application of the treasury stock method. In applying the treasury stock method for stock-
based compensation
arrangements, the assumed proceeds are computed as the sum of the amount the employee must pay upon exercise, the amount of compensation
cost attributed to future services and not yet recognized and the amount of excess tax benefits, if any, that would be credited to additional paid-
in
capital assuming exercise of the awards.
Comprehensive Income (Loss)
Comprehensive income (loss) as presented in the Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31,
2012 and 2013 includes unrealized gains and losses, net of tax, on certain investments classified as available-for-sale.
Certain Risks and Concentrations
Credit Risk
. Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash
equivalents and trade receivables. Accounts receivable are typically unsecured and are derived from revenues earned from customers primarily
located in the U.S. Credit risk with respect to trade receivables is limited because a large number of geographically diverse customers make up
the customer base. Additionally, the Company maintains allowances for potential credit losses. As of December 31, 2013 and 2014
, no customer
accounted for more than 10% of gross accounts receivable.
Supply Risk . The Company's business depends on the capacity, affordability, reliability and security of third-
party network service providers.
Only a small number of providers offer the network services the Company requires, and the majority of its network services are currently
purchased from a limited number of network service providers. Although management believes that alternate network providers could be found
in a timely manner, any disruption of these services could have a material adverse effect on the Company's financial position, results of
operations and cash flows.
Fair Value of Financial Instruments
The carrying amounts of the Company's cash, cash equivalents, trade receivables and trade payables approximate their fair values because of
their nature and respective durations.
Recently Issued Accounting Pronouncements
In April 2014, the Financial Accounting Standards Board issued authoritative guidance on reporting discontinued operations. The new guidance
changes the criteria for determining which disposals can be presented as discontinued operations and modifies related disclosure requirements.
Under the new guidance, a discontinued operation is defined as a disposal of a component or group of components that is disposed of or is
classified as held for sale and represents a strategic shift that has (or will have) a major effect on an entity’
s operations and financial results. The
guidance applies prospectively to new disposals and new classifications of disposal groups as held for sale after the effective date. The standard
is required to be adopted by public business entities in annual periods beginning on or after December 15, 2014, and interim periods within those
annual periods.
In May 2014, the Financial Accounting Standards Board issued authoritative guidance on revenue from contracts with customers. The new
guidance outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and
supersedes most current revenue recognition guidance, including industry-
specific guidance. The core principle of the revenue model is that an
entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which
the entity expects to be entitled in exchange for those goods or services. The new standard requires significantly expanded disclosures about
revenue contract assets and liabilities. The standard is required to be adopted by public business entities in annual periods beginning on or after
December 15, 2016, and interim periods within those annual periods, and may be applied on a full retrospective or modified retrospective
approach. Early adoption is prohibited. The Company is evaluating the impact of the implementation of this standard on its financial statements.
In August 2014, the Financial Accounting Standards Board issued authoritative guidance related to the disclosure of uncertainties about an
entity's ability to continue as a going concern. The new guidance requires management to evaluate whether there are conditions and events that
raise substantial doubt about the entity’
s ability to continue as a going concern within one year after the financial statements and to provide
related footnote disclosures if so. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after
December 15, 2016. Early adoption is permitted. The adoption of this standard is not expected to have a material impact on the Company's
financial statements.