Earthlink 2006 Annual Report Download - page 71

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EARTHLINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization
EarthLink, Inc. (“EarthLink” or the “Company”) is a total communications provider, providing integrated communication services and
related value-added services to individual consumers and business customers utilizing Internet Protocol, or IP, based technologies. EarthLink’s
core service offerings are dial-up and wireline broadband Internet access services and value-added services. EarthLink’s growth initiatives
include IP-based voice services, municipal wireless broadband services and services for business customers.
2. Summary of Significant Accounting Policies
Basis of Consolidation
The consolidated financial statements include the accounts of EarthLink and all wholly-
owned subsidiaries. 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, revenues and expenses, and the disclosure of contingent
assets and liabilities in the consolidated financial statement and accompanying footnotes. 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; stock-based compensation; 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. Actual results could differ from those estimates.
Revenues
General. EarthLink recognizes revenue in accordance with Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin
(“SAB”) No. 104, “Revenue Recognition.” Revenue is recognized 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. Deferred revenue is recorded when payments are received in advance of EarthLink performing its service obligations
and recognized ratably over the service period.
Narrowband access revenues consist of monthly fees charged to customers for dial-up Internet access. Broadband access revenues consist
of retail and wholesale fees charged for high-speed, high-
capacity access services including DSL, cable, satellite, wireless and dedicated circuit
services; fees charged for high-speed data networks to businesses and communications carriers; fees charged for IP-based voice services;
installation fees; fees for equipment; early termination fees; and regulatory surcharges billed to customers. Web hosting revenues consist of
fees charged for leasing server space and providing web services to companies and individuals wishing to present a web or e-commerce
presence. Advertising and other value-added services revenues consist of revenues earned from promotional arrangements with advertisers,
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