Earthlink 2004 Annual Report Download - page 51

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approximately $26.4 million, $27.3 million and $27.6 million during the years ended December 31, 2002, 2003 and 2004, respectively, for
these services. The prices for services provided by us to Sprint were negotiated at arms-length. As of December 31, 2003 and 2004, we had
accounts receivable related to these arrangements with Sprint of $5.2 million and $6.0 million, respectively.
Sprint is one of our principal telecommunications service providers. We paid Sprint approximately $75.4 million, $74.0 million and $57.6
million during the years ended December 31, 2002, 2003 and 2004, respectively, associated with network and voice services agreements. The
prices paid for services purchased from Sprint were negotiated at arms-length. The aggregate amount due to Sprint pursuant to these service
agreements was $15.8 million and $6.0 million at December 31, 2003 and 2004, respectively.
We have a commercial arrangement with Boingo Wireless, Inc. (“Boingo”). Sky Dayton, a member of EarthLink’s Board of Directors, is
the founder and the former Chief Executive Officer of Boingo. The amounts paid to and received from Boingo during the years ended
December 31, 2002 and 2003 were less than $0.1 million. During the year ended December 31, 2004, the Company paid Boingo $0.8 million
pursuant to various arrangements, including a software license, maintenance and network access agreement and a revenue sharing arrangement.
Our investments in other companies include an investment in EVG, a limited partnership formed to invest in domestic emerging Internet-
related companies. Sky Dayton, a member of our Board of Directors, is a founding partner in EVG. EVG also has an affiliation with
eCompanies. Sky Dayton is a founder and director of eCompanies.
See Item 13 of this Form 10-K, “Certain Relationships and Related Transactions,” and Note 18, “Related Party Transactions,”
in the Notes
to Consolidated Financial Statements in Item 8 for further information related to transactions with related parties.
Critical Accounting Policies and Estimates
Set forth below is a discussion of the accounting policies and related estimates that we believe are the most critical to understanding our
consolidated financial statements, financial condition, and results of operations and which require complex management judgments,
uncertainties and/or estimates. The preparation of financial statements in accordance 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, and the reported amounts of revenues and expenses during a reporting period; however, actual results could differ from
those estimates. Management has discussed the development, selection and disclosure of the critical accounting policies and estimates with the
Audit Committee of the Board of Directors. Information regarding our other accounting policies is included in the Notes to Consolidated
Financial Statements.
Revenue recognition
Gross versus net revenue recognition. We maintain relationships with certain telecommunications partners (including cable companies)
in which we provide services to customers using the “last mile” element of the telecommunications providers’ networks. The term “last mile”
generally refers to the element of telecommunications networks that is directly connected to homes and businesses. In these instances,
management evaluates the criteria outlined in EITF Issue No. 99-19, “Reporting Revenue Gross as a Principal versus Net as an Agent,” in
determining whether it is appropriate to record the gross amount of revenue and related costs or the net amount due from the
telecommunications partner as revenue. Generally, when we are the primary obligor in the transaction with the subscriber, have latitude in
establishing prices, are the party determining the service specifications or have several but not all of these indicators, we record the revenue at
the amount billed the subscriber. If we are not the primary obligor and/or the telecommunications partner has latitude in establishing prices, we
record revenue associated
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