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Table of Contents
EARTHLINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
related lease agreement. Leasehold improvements funded by the lessor under operating leases are recorded as leasehold improvements and
deferred rent.
Asset Retirement Obligations
The Company has asset retirement obligations associated with certain assets within leased facilities that the Company is contractually
obligated to retire upon termination of the associated lease agreement and the return of facilities to pre-
lease condition. The fair value of the
obligation is also capitalized as property and equipment and amortized over the estimated useful life of the associated asset. The Company's asset
retirement obligations were $2.1 million and $4.3 million as of December 31, 2010 and 2011, respectively, and are included in other long-
term
liabilities in the Consolidated Balance Sheets.
Revenue Recognition
General.
EarthLink recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed
or determinable and collectibility is reasonably assured. EarthLink's customers generally pay in advance for their services, and revenue is
recognized ratably over the service period. Advance payments from customers for invoiced services that have not yet been performed are
recorded as deferred revenue in the Consolidated Balance Sheets.
The Company's Business Services segment earns revenue by providing a broad range of data, voice, managed IT and equipment services to
businesses, enterprise organizations and communications carriers. The Company presents its Business Services revenue into the following three
categories: (1) retail services, which includes data, voice and managed IT services provided to businesses and enterprise organizations;
(2) wholesale services, which includes the sale of transmission capacity to other telecommunications carriers; and (3) other services, which
includes the sale of customer premises equipment and web hosting. Revenues generally consist of recurring monthly charges for such services;
usage fees; installation fees; equipment fees; and termination fees.
The Company's Consumer Services segment earns revenue by providing nationwide Internet access and related value-
added services. The
Company presents its Consumer Services revenue into the following two categories: (1) access services, which includes narrowband and
broadband Internet access services and (2) value-added services, which includes revenues from ancillary services sold as add-
on features to
EarthLink's Internet access services, such as security products, premium email only, home networking, email storage and Internet call waiting;
search revenues; and advertising revenues. Revenues generally consist of recurring monthly charges for such services; usage fees; installation
fees; termination fees; and fees for equipment.
Multiple element arrangements.
Revenues may be part of multiple element arrangements, such as equipment sold with data and voices
services. For multiple element arrangements, the Company separates deliverables into units of accounting and recognizes revenue for each unit
of accounting based on evidence of each unit's relative selling price to the total arrangement consideration, assuming all other revenue
recognition criteria have been met. Each deliverable is considered a separate unit of accounting if the delivered item has stand-
alone value to the
customer. The Company uses a hierarchy to determine the selling price to be used for allocating revenue to deliverables: 1) the price the
Company sells the same unit for when the Company sells it separately; 2) the price another vendor would sell a generally interchangeable item;
or 3) the Company's best estimate of the stand-alone price.
Gross versus net revenue recognition. The Company offers certain services that are provided by third-
party vendors. When the Company
is the primary obligor in a transaction, has latitude in establishing prices, is the party determining the service specifications or has several but not
all of these indicators, the
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