Earthlink 2003 Annual Report Download - page 45

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The accompanying notes are an integral part of these consolidated financial statements.
F-6
EARTHLINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization
EarthLink, Inc. ("EarthLink" or the "Company") is a leading Internet service provider ("ISP"), providing nationwide Internet access and
related value-added services to its individual and business customers. EarthLink's primary service offerings are narrowband, broadband or
high-speed, and wireless Internet access services; web hosting services; and advertising and related marketing services. The Company provides
a broad range of products and services to more than five million paying customers through a nationwide network of dial-up points of presence
("POPs"), a nationwide broadband footprint and wireless technologies.
2. Summary of Significant Accounting Policies
Basis of Consolidation
The consolidated financial statements include the accounts of all wholly-owned subsidiaries of the Company. All intercompany
transactions and balances have been eliminated.
Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. These
estimates include, but are not limited to, assessing the collectibility of accounts receivable; the use, recoverability, and/or realizability of certain
assets, including deferred tax and other assets; reserves established for contractual commitments, including non-cancelable leases and
telecommunications services; useful lives for depreciation and amortization periods of tangible and intangible assets; the fair values of assets
acquired and liabilities assumed in acquisitions of businesses; and long-lived asset impairments. Actual results could differ from those
estimates.
Revenues
EarthLink recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or
determinable and collectibility is probable. Generally, these criteria are met monthly as EarthLink's service is provided on a month-to-month
basis and collection for the service is generally made within 30 days of the service being provided. Revenues are recorded as earned.
Narrowband access revenues consist of monthly fees charged to customers for dial-up Internet access and wireless access services.
Narrowband access revenues also include revenues associated with the activation and sale of Internet appliances, including personal computers,
handheld devices and other equipment used to obtain Internet access services. Broadband access revenues consist of fees charged for high-
speed, high-capacity access services including digital subscriber line ("DSL"), cable, satellite, fixed wireless and dedicated circuit services.
Broadband access revenues also include installation, shipping, and equipment revenues as well as activation and early termination fees. Web
hosting revenues consist of fees earned by leasing server space and providing web services to companies and individuals wishing to present a
web or e-commerce presence. Content, commerce and advertising revenues consist of revenues from EarthLink's partnerships, which are
promotional arrangements with advertisers, retailers, service providers and content providers.
F-7
Revenues from multiple element arrangements in which EarthLink provides equipment, activation and Internet access services are
recognized as each element is earned based on the relative fair value of each element and when there are no undelivered elements that are
essential to the functionality of the delivered elements. When the Company's Internet access services are essential to the functionality of the
Net liabilities assumed
12,583
34,004
—
Intangible assets acquired
$
18,436
$
54,378
$
—