EarthLink Holdings Corp.
Jul 27, 2010

EarthLink Announces Second Quarter 2010 Results

Raises Full Year Guidance

ATLANTA, July 27, 2010 /PRNewswire via COMTEX News Network/ -- EarthLink, Inc. (Nasdaq: ELNK) today announced financial results for its second quarter ended June 30, 2010. Highlights of today's announcement include:

"Today we announced results that once again exceeded expectations and reflect positive momentum in our business. We are pleased with the improvements in customer retention and tenure and the resulting favorable impacts on cost structure and profitability. As a result of these favorable trends, we also announced that we have once again increased full-year guidance," explained EarthLink Chairman and Chief Executive Officer Rolla P. Huff. "In addition, we began to see sales traction in our New Edge business from multi-location business customers as the economy is showing signs of recovery. We believe that the strength of our balance sheet continues to provide us with a range of strategic alternatives."

Financial and Operating Results

EarthLink reported revenue of $153.0 million for the second quarter of 2010, declining 3 percent from the first quarter of 2010 and 18 percent from the second quarter of 2009. The company's revenue mix continued to shift towards broadband as 60 percent of EarthLink's revenue in the second quarter of 2010 was comprised of broadband, up from 56 percent in the year-ago quarter.

In the second quarter of 2010, 88 percent of EarthLink's consumer narrowband and DSL customers had two or more years of tenure with the company and 50 percent had five or more years of tenure, up from 76 percent and 36 percent, respectively, in the year-ago quarter. The continual increase in EarthLink's customer tenure was the primary driver behind ongoing improvements in monthly subscriber churn. In the second quarter of 2010, EarthLink reported churn of 2.9 percent, an improvement from 3.1 percent in the first quarter of 2010 and from 3.6 percent churn in the year-ago quarter. EarthLink's subscriber losses continued to attenuate with second quarter 2010 net subscriber losses of 109,000, as compared to net subscriber losses of 118,000 in the first quarter of 2010 and 149,000 in the year-ago quarter.

The benefits of increasing customer tenure extend to the company's cost structure, which was also positively impacted by new technology rollouts, product simplifications and customer support process improvements. EarthLink's total sales and marketing, operations, customer support, and general and administrative expenses were $43.3 million for the second quarter of 2010, a 5 percent reduction from the first quarter of 2010 and a 21 percent reduction from expenses in the year-ago quarter.

Profitability and Other Financial Measures

For the second quarter of 2010, EarthLink's net income was $28.0 million, or $0.26 per share, as compared to net income of $26.7 million, or $0.25 per share in the first quarter of 2010 and $31.5 million, or $0.29 per share, in the year-ago quarter.

Multiple business improvements, including those in customer churn, network management and value-added services revenue contributed to $56.7 million in Adjusted EBITDA (a non-GAAP measure, see definition in "Non-GAAP Measures" below) in the second quarter of 2010. EarthLink's Adjusted EBITDA was $57.3 million in the first quarter of 2010 and $68.5 million in the second quarter of 2009.

Balance Sheet and Cash Flow

EarthLink generated free cash flow (a non-GAAP measure, see definition in "Non-GAAP Measures" below) of $54.0 million during the second quarter of 2010, compared to $54.2 million in the first quarter of 2010 and $66.6 million in the second quarter of 2009.

Capital expenditures for the company were $2.7 million in the second quarter of 2010. EarthLink made $17.3 million of dividend payments in the quarter and repurchased 0.1 million shares of common stock for $0.85 million. EarthLink ended the second quarter of 2010 with $740.1 million in cash and marketable securities.

Business Outlook

The following statements are forward-looking, and actual results may differ materially. See comments under "Cautionary Information Regarding Forward-Looking Statements" below. EarthLink undertakes no obligation to update these statements.

Today EarthLink increased its guidance for the full year 2010. Management now expects 2010 Adjusted EBITDA of $205 million to $211 million; free cash flow of $191 million to $201 million, based upon the aforementioned Adjusted EBITDA guidance combined with $10 million to $14 million in estimated capital expenditures; and net income of $91 million to $97 million for the full year 2010.

Non-GAAP Measures

Adjusted EBITDA is defined as net income before interest expense and other, net, income taxes, depreciation and amortization, stock-based compensation expense, gain (loss) on investments, net, impairment of goodwill and intangible assets, and facility exit and restructuring costs.

Free cash flow is defined as net income before interest expense and other, net, income taxes, depreciation and amortization, stock-based compensation expense, gain (loss) on investments, net, impairment of goodwill and intangible assets, and facility exit and restructuring costs, less cash used for purchases of property and equipment and purchases of subscriber bases.

Adjusted EBITDA and free cash flow are non-GAAP financial performance measures. They should not be considered in isolation or as an alternative to measures determined in accordance with U.S. generally accepted accounting principles. Please refer to the Consolidated Financial Highlights for a reconciliation of these non-GAAP financial performance measures to the most comparable measures reported in accordance with U.S. generally accepted accounting principles and Footnote 2 of the Consolidated Financial Highlights for a discussion of the presentation, comparability and use of such financial performance measures.

Conference Call for Analysts and Investors

Conference Call Details

Tuesday, July 27, 2010, at 8:30 a.m. ET hosted by EarthLink's Chairman and Chief Executive Officer, Rolla P. Huff and Chief Financial Officer, Bradley A. Ferguson.


    U.S. and Canada Dial-in
     Number                    800-706-0730
    International Dial-in
     Number                    706-634-5173



Participants reference the EarthLink call and dial in 10 minutes prior to scheduled start time.

Webcast

A live Webcast of the conference call will be available at: http://ir.earthlink.net/index.cfm

Replay

Replay available from 11:30 a.m. ET on July 27 through midnight on August 3.

Dial 800-642-1687 from US and Canada, International callers dial 706-645-9291.

The replay confirmation code is 86028688.

The Webcast will be archived on the company's website at: http://ir.earthlink.net/events.cfm

About EarthLink

"EarthLink. We revolve around you(TM)." A leading Internet service provider, Atlanta-based EarthLink has earned an award-winning reputation for outstanding customer service and its suite of online products and services. EarthLink offers what every user should expect from their Internet experience: high-quality connectivity, minimal online intrusions and customizable features. Whether it's dial up, high speed, voice, web hosting or "EarthLink Extras" like home networking or security, EarthLink connects people to the power and possibilities of the Internet. Learn more about EarthLink by calling (800) EARTHLINK or visiting EarthLink's website at www.EarthLink.net.

Cautionary Information Regarding Forward-Looking Statements

This press release includes "forward-looking" statements (rather than historical facts) that are subject to risks and uncertainties that could cause actual results to differ materially from those described. Although we believe that the expectations expressed in these forward-looking statements are reasonable, we cannot promise that our expectations will turn out to be correct. Our actual results could be materially different from and worse than our expectations. We disclaim any obligation to update any forward-looking statements contained herein, except as may be required pursuant to applicable law. With respect to forward-looking statements in this press release, the company seeks the protections afforded by the Private Securities Litigation Reform Act of 1995. These risks include, without limitation, (1) that the continued decline of our consumer access subscribers, combined with the change in mix of our consumer access subscriber base from narrowband to broadband, will adversely affect our results of operations; (2) that we will have less ability in the future to implement cost reduction initiatives to offset our revenue declines, which will adversely affect our results of operations; (3) that we face significant competition which could reduce our profitability; (4) that adverse economic conditions may harm our business; (5) that we may not be able to execute our business strategy for our Business Services segment, which could adversely impact our results of operations and cash flows; (6) that our commercial and alliance arrangements may not be renewed or may not generate expected benefits, which could adversely affect our results of operations; (7) that our business is dependent on the availability of third-party telecommunications service providers; (8) that we may be unable to retain sufficient qualified personnel, particularly in light of recent workforce and cost reduction initiatives and in a recovering economy, and the loss of any of our key executive officers could adversely affect us; (9) that we may be unsuccessful in making and integrating acquisitions into our business, which could result in operating difficulties, losses and other adverse consequences; (10) that if we do not continue to innovate and provide products and services that are useful to subscribers, we may not remain competitive, and our revenues and operating results could suffer; (11) that our business may suffer if third parties used for customer service and technical support and certain billing services are unable to provide these services or terminate their relationships with us; (12) that interruption or failure of our network and information systems and other technologies could impair our ability to provide our services, which could damage our reputation and harm our operating results; (13) that government regulations could adversely affect our business or force us to change our business practices; (14) that privacy concerns relating to our business could damage our reputation and deter current and potential users from using our services; (15) that we may not be able to protect our intellectual property; (16) that we may be accused of infringing upon the intellectual property rights of third parties, which is costly to defend and could limit our ability to use certain technologies in the future; (17) that if we are unable to successfully defend against legal actions we could face substantial liabilities; (18) that our business depends on effective business support systems, processes and personnel; (19) that as a result of our continuing review of our business, we may have to undertake further restructuring plans that would require additional charges, including incurring facility exit and restructuring charges; (20) that we may be required to recognize additional impairment charges on our goodwill and intangible assets, which would adversely affect our results of operations and financial position; (21) that we may have exposure to greater than anticipated tax liabilities and the use of our net operating losses and certain other tax attributes could be limited in the future; (22) that we may change our cash return strategy; (23) that our stock price may be volatile; (24) that our indebtedness could adversely affect our financial health and limit our ability to react to changes in our industry; and (25) that provisions of our second restated certificate of incorporation, amended and restated bylaws and other elements of our capital structure could limit our share price and delay a change of management. These risks and uncertainties, as well as other risks and uncertainties that could cause our actual results to differ significantly from management's expectations, are not intended to represent a complete list of all risks and uncertainties inherent in our business, and should be read in conjunction with the more detailed cautionary statements and risk factors included in our Annual Report on Form 10-K for the year ended December 31, 2009.

                                   EARTHLINK, INC.
              Unaudited Condensed Consolidated Statements Of Operations
                        (in thousands, except per share data)


                            Three Months Ended            Six Months Ended
                                  June 30,                    June 30,
                            ------------------        ----------------
                            2009            2010      2009            2010
                            ----            ----      ----            ----
    Revenues:
      Access and
       service          $166,918        $137,748  $345,616        $279,085
      Value-added
       services           18,679          15,259    39,044          31,180
                          ------          ------    ------          ------
        Total revenues   185,597         153,007   384,660         310,265

    Operating costs
     and expenses:
      Cost of revenues    69,270          58,018   144,835         118,832
      Sales and
       marketing          14,543          11,623    31,565          22,924
      Operations and
       customer support   23,940          18,930    51,686          38,587
      General and
       administrative     16,409          12,742    35,031          27,116
      Amortization of
       intangible
       assets              2,038           1,232     4,185           2,496
      Facility exit and
       restructuring
       costs (1)           4,927             (89)    5,415           1,346
                           -----             ---     -----           -----
        Total operating
         costs and
         expenses        131,127         102,456   272,717         211,301

    Income from
     operations           54,470          50,551   111,943          98,964
    Gain on
     investments, net         11             154       270             572
    Interest expense
     and other, net       (5,100)         (5,483)   (9,391)        (10,775)
                          ------          ------    ------         -------
        Income before
         income taxes     49,381          45,222   102,822          88,761
    Income tax
     provision           (17,896)        (17,182) (38,840)         (33,974)
                         -------         -------   -------         -------
        Net income       $31,485         $28,040   $63,982         $54,787
                         =======         =======   =======         =======

    Net income per
     share
      Basic                $0.30           $0.26     $0.60           $0.51
                           =====           =====     =====           =====
      Diluted              $0.29           $0.26     $0.59           $0.50
                           =====           =====     =====           =====

    Weighted average
     common shares
     outstanding
      Basic              105,908         108,053   106,976         107,840
                         =======         =======   =======         =======
      Diluted            107,080         108,888   108,110         108,685
                         =======         =======   =======         =======


                             EARTHLINK, INC.
           Reconciliation of Net Income to Adjusted EBITDA (2)
                              (in thousands)


                                                  Three Months Ended
                                                  ------------------
                                        June 30,       March 31,     June 30,
                                             2009           2010         2010
                                             ----           ----         ----

    Net income                            $31,485        $26,747      $28,040
    Income tax provision                   17,896         16,792       17,182
    Depreciation and amortization           6,069          4,748        4,577
    Stock-based compensation expense        3,026          2,667        1,707
    Gain on investments, net                  (11)          (418)        (154)
    Interest expense and other, net         5,100          5,292        5,483
    Facility exit and restructuring
     costs (1)                              4,927          1,435          (89)
                                            -----          -----          ---
      Adjusted EBITDA (2)                 $68,492        $57,263      $56,746
                                          =======        =======      =======

    Depreciation - cost of revenues        $1,996         $1,934       $1,889
    Depreciation - other                    2,035          1,550        1,456
    Amortization of intangible
     assets                                 2,038          1,264        1,232
                                            -----          -----        -----
      Depreciation and amortization        $6,069         $4,748       $4,577
                                           ======         ======       ======


                                EARTHLINK, INC.
              Reconciliation of Net Income to Free Cash Flow (2)
                                (in thousands)

                                                Three Months Ended
                                               ------------------
                                        June 30,       March 31,     June 30,
                                             2009           2010         2010
                                             ----           ----         ----

    Net income                            $31,485        $26,747      $28,040
    Income tax provision                   17,896         16,792       17,182
    Depreciation and amortization           6,069          4,748        4,577
    Stock-based compensation expense        3,026          2,667        1,707
    Gain on investments, net                  (11)          (418)        (154)
    Interest expense and other, net         5,100          5,292        5,483
    Facility exit and restructuring
     costs (1)                              4,927          1,435          (89)
    Purchases of property and
     equipment                             (1,927)        (3,072)      (2,711)
                                           ------         ------       ------
      Free cash flow (2)                  $66,565        $54,191      $54,035
                                          =======        =======      =======


                          EARTHLINK, INC.
    Reconciliation of Guidance Provided in Non-GAAP Measures (2)
                           (in millions)


                                                            Year
                                                           Ending
                                                          December
                                                              31,
                                                                2010
                                                                ----
    Net income                                             $91 - $97
    Income tax provision                                          61
    Depreciation                                                  14
    Amortization of intangible assets                              4
    Stock-based compensation expense                              12
    Interest expense and other, net                               21
    Facility exit and restructuring costs (1)                      2
                                                                  --
      Adjusted EBITDA (2)                                $205 - $211
                                                         ===========

                                                            Year
                                                           Ending
                                                          December
                                                              31,
                                                                2010
                                                                ----
    Net income                                             $91 - $97
    Income tax provision                                          61
    Depreciation                                                  14
    Amortization of intangible assets                              4
    Stock-based compensation expense                              12
    Interest expense and other, net                               21
    Facility exit and restructuring costs (1)                      2
    Purchases of property and equipment                 (14) - (10)
                                                        -----------
      Free cash flow (2)                                 $191 - $201
                                                         ===========


                                  EARTHLINK, INC.
               Supplemental Financial Data and Key Operating Metrics



                        June 30,  December 31,      March 31, June 30,
                             2009         2009           2010      2010
                             ----         ----           ----      ----
    Balance Sheet
     Data                                 (in thousands)
    Cash and
     marketable
     securities          $610,349     $695,961       $707,777  $740,100
    Convertible
     Senior Notes (3)     258,750      258,750        255,791   255,791
    Stockholders'
     equity               539,809      734,024        745,241   757,899

    Employee Data
    Number of
     employees at end
     of period (4)            693          623            600       576


                        June 30,  December 31,      March 31, June 30,
                             2009         2009           2010      2010
                             ----         ----           ----      ----
    Subscriber Data
     (5)
    Consumer services
      Narrowband access
       subscribers (6)  1,456,000    1,225,000      1,134,000 1,060,000
      Broadband access
       subscribers (7)    845,000      804,000        781,000   748,000
                          -------      -------        -------   -------
        Total consumer
         subscribers    2,301,000    2,029,000      1,915,000 1,808,000

    Business services
      Narrowband access
       subscribers         11,000        8,000          8,000     8,000
      Broadband access
       subscribers         56,000       54,000         52,000    53,000
      Web hosting
       accounts            81,000       75,000         73,000    70,000
                           ------       ------         ------    ------
        Total business
         subscribers      148,000      137,000        133,000   131,000

    Total subscribers
     at end of period   2,449,000    2,166,000      2,048,000 1,939,000
                        =========    =========      ========= =========




                           Three Months Ended         Six Months Ended
                                 June 30,                 June 30,
                             ------------------      ----------------
                             2009            2010       2009            2010
                             ----            ----       ----            ----
    Subscriber Activity
    Subscribers at
     beginning of
     period             2,598,000       2,048,000  2,806,000       2,166,000
    Gross organic
     subscriber
     additions            120,000          66,000    236,000         143,000
    Adjustment (8)              -               -     (7,000)              -
    Churn                (269,000)       (175,000)  (586,000)       (370,000)
    Subscribers at end
     of period          2,449,000       1,939,000  2,449,000       1,939,000
                        =========       =========  =========       =========

    Churn Rate (9)            3.6%            2.9%       3.8%            3.0%

    Consumer Data
    Average subscribers
     (10)               2,371,000       1,859,000  2,457,000       1,915,000
    ARPU (11)              $20.75          $21.57     $20.84          $21.23
    Churn rate (9)            3.6%            3.0%       3.8%            3.1%

    Business Data
    Average subscribers
     (10)                 152,000         132,000    156,000         133,000
    ARPU (11)              $83.32          $82.71     $82.80          $82.95
    Churn rate (9)            2.7%            1.9%       2.9%            1.9%


                                 EARTHLINK, INC.
                Supplemental Schedule of Segment Information (12)
                                  (in thousands)


                          Three Months Ended          Six Months Ended June
                                June 30,                       30,
                          ------------------    ----------------------
                           2009           2010        2009           2010
                           ----           ----        ----           ----
    Consumer
     Services
      Revenues
        Access and
         service       $129,479       $105,552    $269,269       $213,750
        Value-added
         services        18,127         14,753      37,899         30,119
                         ------         ------      ------         ------
        Total revenues  147,606        120,305     307,168        243,869
      Cost of
       revenues          47,345         37,507      99,679         77,968
                         ------         ------      ------         ------
      Gross margin      100,261         82,798     207,489        165,901
      Segment
       operating
       expenses          33,372         23,248      70,578         47,213
      Segment income
       from
       operations       $66,889        $59,550    $136,911       $118,688
                        =======        =======    ========       ========

    Business
     Services
      Revenues
        Access and
         service        $37,439        $32,196     $76,347        $65,335
        Value-added
         services           552            506       1,145          1,061
                            ---            ---       -----          -----
        Total revenues   37,991         32,702      77,492         66,396
      Cost of
       revenues          21,925         20,511      45,156         40,864
                         ------         ------      ------         ------
      Gross margin       16,066         12,191      32,336         25,532
      Segment
       operating
       expenses           9,823         10,449      21,082         20,390
      Segment income
       from
       operations        $6,243         $1,742     $11,254         $5,142
                         ======         ======     =======         ======

    Consolidated
      Revenues
        Access and
         service       $166,918       $137,748    $345,616       $279,085
        Value-added
         services        18,679         15,259      39,044         31,180
                         ------         ------      ------         ------
        Total revenues  185,597        153,007     384,660        310,265
      Cost of
       revenues          69,270         58,018     144,835        118,832
                         ------         ------     -------        -------
      Gross margin      116,327         94,989     239,825        191,433
      Direct segment
       operating
       expenses          43,195         33,697      91,660         67,603
                         ------         ------      ------         ------
      Segment income
       from
       operations        73,132         61,292     148,165        123,830
      Stock-based
       compensation
       expense            3,026          1,707       7,416          4,374
      Amortization of
       intangible
       assets             2,038          1,232       4,185          2,496
      Facility exit
       and
       restructuring
       costs (1)          4,927            (89)      5,415          1,346
      Other operating
       expenses           8,671          7,891      19,206         16,650
      Income from
       operations       $54,470        $50,551    $111,943        $98,964
                        =======        =======    ========        =======


                                 EARTHLINK, INC.
                 Footnotes to Consolidated Financial Highlights


          In August 2007, EarthLink adopted a restructuring plan (the "2007
          Plan") to reduce costs and improve the efficiency of the Company's
          operations. The 2007 Plan was the result of a comprehensive review
          of operations within and across the Company's functions and
          businesses. Under the 2007 Plan, the Company reduced its workforce
          by approximately 900 employees, closed office facilities in
          Orlando, Florida; Knoxville, Tennessee; Harrisburg, Pennsylvania;
          and San Francisco, California and consolidated its office
          facilities in Atlanta, Georgia and Pasadena, California. The 2007
          Plan was primarily implemented during 2007 and 2008. However, since
          management continues to evaluate EarthLink's businesses, there have
          been and may continue to be supplemental provisions for new plan
          initiatives as well as changes in estimates to amounts previously
    1.    recorded.

          Adjusted EBITDA is defined as net income before interest expense and
          other, net, income taxes, depreciation and amortization, stock-
          based compensation, gain (loss) on investments, net, impairment of
          goodwill and intangible assets, and facility exit and restructuring
          costs.  Free cash flow is defined as net income before interest
          expense and other, net, income taxes, depreciation and
          amortization, stock-based compensation, gain (loss) on
          investments, net, impairment of goodwill and intangible assets, and
          facility exit and restructuring costs, less purchases cash used for
    2.    of property and equipment and purchases of subscriber bases.

      Adjusted EBITDA and free cash flow are non-GAAP measures and are not
       determined in accordance with U.S. generally accepted accounting
       principles. These financial performance measures are not indicative of
       cash provided or used by operating activities and may differ from
       comparable information provided by other companies, and they should not
       be considered in isolation, as an alternative to, or more meaningful
       than measures of financial performance determined in accordance with
       U.S. generally accepted accounting principles. These financial
       performance measures are commonly used in the industry and are
       presented because EarthLink believes they provide relevant and useful
       information to investors. EarthLink utilizes these financial
       performance measures to assess its ability to meet future capital
       expenditures and working capital requirements. EarthLink also uses
       these financial performance measures to evaluate the performance of its
       business, for budget planning purposes and as factors in its employee
       compensation programs.

          The principal amount of the Convertible Senior Notes was $258.8
          million, $258.8 million, $255.8 million and $255.8 million as of
          June 30, 2009, December 31, 2009, March 31, 2010 and June 30, 2010,
          respectively. The unamortized discount was $32.9 million, $26.5
          million, $22.9 million and $19.6 million as of June 30, 2009,
          December 31, 2009, March 31, 2010 and June 30, 2010, respectively.
          The net carrying value was $225.8 million, $232.2 million, $232.8
          million and $236.2 million as of June 30, 2009, December 31, 2009,
    3.    March 31, 2010 and June 30, 2010, respectively.

    4.   Represents full-time equivalents.

          Subscriber counts do not include nonpaying customers. Customers
          receiving service under promotional programs that include periods
          of free service at inception are not included in subscriber counts
    5.    until they become paying customers.

          Narrowband access subscribers include customers who subscribe to our
          premium and value priced dial-up Internet access services and
    6.    customers who subscribe to our premium email only service.

          Paying customers who subscribe to EarthLink DSL and Home Phone
          service are counted as both a broadband subscriber and a voice
    7.    subscriber.

          During the six months ended June 30, 2009, EarthLink removed
          approximately 7,000 satellite subscribers from its broadband
          subscriber count and total subscriber count as a result of the sale
    8.    of these subscriber accounts.

          Churn rate is used to measure the rate at which subscribers
          discontinue service on a voluntary or involuntary basis.  Churn
          rate is computed by dividing the average monthly number of
          subscribers that discontinued service during the period by the
    9.    average subscribers for the period.

          Average subscribers for the three month periods is calculated by
          averaging the ending monthly subscribers or accounts for the four
          months preceding and including the end of the quarterly period.
          Average subscribers for the six month periods is calculated by
          averaging the ending monthly subscribers or accounts for the seven
    10.   months preceding and including the end of the period.

          ARPU represents the average monthly revenue per user (subscriber).
          ARPU is computed by dividing average monthly revenue for the period
          by the average number of subscribers for the period. Average
          monthly revenue used to calculate ARPU includes recurring service
          revenue as well as nonrecurring revenues associated with equipment
          and other one-time charges associated with initiating or
    11.   discontinuing services.

          The Company reports segment information along the same lines that
          its chief executive officer reviews its operating results in
          assessing performance and allocating resources. The Company
          operates two reportable segments, Consumer Services and Business
          Services. The Company's Consumer Services segment provides Internet
          access services and related value-added services to individual
          customers. These services include dial-up and high-speed Internet
          access and voice-over-Internet protocol services, among others.
          The Company's Business Services segment provides integrated
          communications services and related value-added services to
          businesses and communications carriers. These services include
          managed IP-based wide area networks, dedicated Internet access and
    12.   web hosting, among others.

      EarthLink evaluates performance of its operating segments based on
       segment income from operations. Segment income from operations includes
       revenues from external customers, related cost of revenues and
       operating expenses directly attributable to the segment, which include
       expenses over which segment managers have direct discretionary control,
       such as advertising and marketing programs, customer support expenses,
       site operations expenses, product development expenses, certain
       technology and facilities expenses, billing operation and provisions
       for doubtful accounts. Segment income from operations excludes other
       income and expense items and certain expenses that segment managers do
       not have discretionary control over. Costs excluded from segment income
       from operations include various corporate expenses (consisting of
       certain costs such as corporate management, human resources, finance
       and legal), amortization of intangible assets, stock-based
       compensation expense, impairment of goodwill and intangible assets and
       facility exit and restructuring costs, as they are not evaluated in the
       measurement of segment performance.


SOURCE EarthLink, Inc.

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