Earthlink 2000 Annual Report Download - page 47

EARTHLINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATION
Certain amounts in the prior year financial statements have been reclassified to conform to current year presentation.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS 133, Accounting for Derivative Investments and Hedging Activities.
SFAS 133 establishes a new model for accounting for derivatives and hedging activities and supersedes several existing standards. SFAS 133,
as amended by SFAS 137 and SFAS 138, is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. The Company does
not expect that the adoption of SFAS 133 will have a material impact on its financial statements.
In December 1999, the SEC staff issued Staff Accounting Bulletin No. 101 ("SAB 101"), Revenue Recognition in Financial Statements. SAB
101 explains how the SEC staff applies by analogy the existing rules on revenue recognition to other transactions not covered by such rules. In
March 2000, the SEC issued SAB 101A that delayed the original effective date of SAB 101 until the second quarter of 2000 for calendar year
companies. In June 2000, the SEC issued SAB 101B that further delayed the effective date of SAB 101 until no later than the fourth fiscal
quarter of fiscal years beginning after December 15, 1999. The Company adopted SAB 101 in the fourth quarter of 2000. The adoption did not
have a material impact on its financial statements.
2. STRATEGIC ALLIANCES AND ACQUISITIONS
On February 10, 1998, EarthLink Network entered into certain agreements to establish a broad strategic relationship (the "Strategic Alliance")
with Sprint Corporation ("Sprint") in the area of consumer Internet access and related services. In connection with the Strategic Alliance, on
June 5, 1998, Sprint consummated a tender offer for 4.0 million shares of EarthLink Network's common stock at a price per share of $13.94 in
cash to each tendering stockholder (the "Offer"). Immediately following the closing of the Offer, Sprint received approximately 6.6 million
shares of the EarthLink Network's Series A convertible preferred stock which was valued at $135 million, in exchange for (i) transfer to the
EarthLink Network of Sprint's approximately 130,000 Sprint Internet Passport subscribers, (ii) aggregate cash consideration of approximately
$24 million and (iii) the exclusive right to use certain ports within Sprint's high-speed data network for four years. EarthLink Network and
Sprint also entered into a Marketing and Distribution Agreement, which included a commitment by Sprint to deliver a minimum of 150,000
new subscribers per year for five years through its own channels, EarthLink Network's right to be Sprint's exclusive provider of consumer
Internet access services for at least ten years and the right to use Sprint's brand and distribution network for at least ten years. Sprint also
provided EarthLink Network with a credit facility of up to $50 million (increasing to $100 million over three years) in the form of convertible
senior debt. Collectively, the above is referenced to as the "Sprint Transaction".
In connection with the Sprint Transaction, a newly-formed company, "EarthLink Operations, Inc.," was formed and became a wholly-owned
subsidiary of the EarthLink Network, Inc. All references in these financial statements to EarthLink Network relate, collectively, to both
EarthLink Network and EarthLink Operations, Inc.
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