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EARTHLINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization
EarthLink, Inc. (“EarthLink” or the “Company”) is an 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 and broadband 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”) and a nationwide
broadband footprint.
In March 2005, the Company completed the formation of HELIO (formerly SK-EarthLink), a joint venture with SK Telecom Co., Ltd.
(“SK Telecom”). HELIO is a non-facilities-based mobile virtual network operator (“MVNO”) offering mobile communications services and
handsets to U.S. consumers. EarthLink and SK Telecom each have a 50 percent voting and economic ownership interest in HELIO.
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 U.S. generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the
date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, the
Company evaluates its estimates, including, but not limited to, those related to the allowance for doubtful accounts; 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; contingent liabilities and long-lived asset impairments. The Company bases its estimates on historical
experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from those
estimates.
Revenues
General. 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
installation fees, usage fees early termination fees and revenues associated with the activation and
sale of Internet appliances 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
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