Earthlink 2015 Annual Report Download - page 41

Table of Contents
2014 vs 2013
2015 vs 2014
(in millions)
Due to cost saving initiatives and declines in traditional products (a) $ (36.6)
$ (48.7)
Due to change in favorable settlements (b) (10.3)
1.9
Due to change in reserves for regulatory audits (c) 7.2
—
Due to acquisitions (d) 3.0
—
Total change in business services cost of revenues $ (36.7)
$ (46.8)
______________
(a) Decrease due to a concentrated effort to manage cost of revenues through network grooming, auditing invoices and other cost saving initiatives and
declines in traditional voice and data products. Partially offsetting these declines were increased sales of growth products.
(b) Decrease due to changes in favorable dispute settlements and other adjustments. During the years ended December 31, 2013, 2014 and 2015, we
recognized $4.4 million, $14.8 million and $12.9 million, respectively, of total favorable settlements and adjustments. Included in this amount was $4.4
million, $11.7 million and $12.0 million, respectively, of dispute settlements with telecommunications vendors recognized during the years ended
December 2013, 2014 and 2015. The remaining amounts during the years ended December 31, 2014 and 2015 were due to other settlements and
adjustments.
(c) Increase in 2014 due to a $7.2 million favorable adjustment recorded during the year ended December 31, 2013 to decrease our reserves for regulatory
audits resulting from final interpretation and resolution of certain regulatory audits, primarily an audit by the Universal Service Administrative Company
on previous ITC^DeltaCom, Inc. Universal Service Fund assessments and payments.
(d) Increase due to inclusion of CenterBeam cost of revenues beginning in July 2013.
Consumer Services
Consumer services cost of revenues decreased during the years ended December 31, 2014 and 2015 compared to the prior years primarily due to the following:
• The decreases in average consumer services subscribers noted above under Consumer Services Revenues.
•Partially offset by increases in our average cost per subscriber. This was due to a shift in the mix to customers with higher costs associated with delivering
services and higher unit costs as our agreements with certain service providers generally have volume based tiered pricing which is leading to higher unit
costs as we see a decline in subscribers over time. Also contributing to the increase from 2013 to 2014 was costs associated with modem equipment rental
revenue which we began billing to certain broadband customers beginning in April 2014.
Selling, general and administrative
Selling, general and administrative expenses consist of expenses related to sales and marketing, customer service, network operations, information technology,
regulatory, billing and collections, corporate administration, and legal and accounting. Such costs include salaries and related employee costs (including stock-
based compensation), outsourced labor, professional fees, property taxes, travel, insurance, occupancy costs, advertising and other administrative expenses.
The following table presents our selling, general and administrative expenses for the years ended December 31, 2013, 2014 and 2015 :
Year Ended December 31,
2014 vs 2013
2015 vs 2014
2013
2014
2015
$ Change
% Change
$ Change
% Change
(dollars in thousands)
Selling, general and administrative
expenses $ 426,070
$ 419,019
$ 368,763
$ (7,051)
(2)%
$ (50,256)
(12)%
The following table presents the primary reasons for the changes in selling, general and administrative expenses for the years ended December 31, 2014 and 2015
compared to the prior years:
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