Earthlink 2003 Annual Report Download - page 51

The Company accounts for facility exit costs in accordance with SFAS No. 144 and SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities," which requires that a liability for a cost associated with an exit or disposal activity be recognized when the
liability is incurred and nullifies EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to
Exit an Activity (Including Certain Costs Incurred in a Restructuring)."
Reclassifications
Certain amounts in the prior year financial statements have been reclassified to conform to the current year presentation.
Recently Issued Accounting Pronouncements
In November 2002, the EITF reached a consensus on EITF Issue No. 00-21, "Revenue Arrangements with Multiple Deliverables." EITF
Issue No. 00-21 addresses certain aspects of the accounting for arrangements under which a vendor will perform multiple revenue-generating
activities. EITF Issue No. 00-21 addresses when a revenue arrangement with multiple deliverables should be divided into separate units of
accounting and, if separation is appropriate, how the arrangement consideration should be allocated to the identified accounting units. EITF
Issue No. 00-21 is applicable to transactions entered into in fiscal periods beginning after June 15, 2003. The Company's adoption of EITF
Issue No. 00-21 on July 1, 2003 did not have a material effect on its results of operations or financial position.
In January 2003, the Financial Accounting Standards Board ("FASB") issued Interpretation No. 46 ("FIN 46"). In December 2003, the
FASB published revised guidance on FIN 46. FIN 46 addresses the consolidation of certain variable interest entities ("VIEs"). As modified,
FIN 46 is effective immediately for financial interests in special purpose entities and is effective for all other types of VIEs for periods ending
after March 15, 2004. The Company does not expect the adoption of FIN 46 will have a material effect on its results of operations or financial
position.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and
Equity," which establishes standards for classifying and measuring as liabilities certain financial instruments that include obligations of the
issuer and have characteristics of both liabilities and equity. SFAS No. 150 requires mandatorily redeemable instruments be classified as
liabilities. SFAS No. 150 is effective at the beginning of the first interim period beginning after June 15, 2003, including all financial
instruments created or modified after May 31, 2003. The Company's adoption of SFAS No. 150 on July 1, 2003 did not have a material effect
on its results of operations or financial position.
In December 2003, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin ("SAB") No. 104, "Revenue
Recognition." SAB No. 104 revises or rescinds the guidance included in Topic B of the Codification of Staff Accounting Bulletins in order to
make this interpretive guidance consistent with current authoritative accounting and auditing guidance and SEC rules and regulations. The
adoption of SAB No. 104 did not have a material effect on the Company's results of operations or financial position.
F-15
3. Acquisitions and Asset Purchases
Cidco Incorporated
In December 2001, EarthLink acquired 80% of the outstanding common stock of Cidco Incorporated ("Cidco"), a developer, distributor
and provider of email appliances and related services for $5.8 million in cash. In February 2002, EarthLink completed its acquisition of Cidco
by purchasing the remaining 20% of Cidco's common stock for $1.1 million in cash. The Cidco acquisition was accounted for using the
purchase method of accounting, and accordingly, the results of operations of Cidco have been included in the accompanying consolidated
financial statements since the date of acquisition, December 1, 2001.
Since the Company's acquisition of Cidco in December 2001, EarthLink has provided Cidco's email appliances such as the MailStation
and related Internet services. During the year ended December 31, 2003, the Company ceased active marketing of the MailStation products and
services but intends to continue providing services to MailStation customers that are currently activated or may activate in the future.
Consequently, the Company reduced the carrying value of its MailStation hardware, including inventory on hand and in the retail channels, to
its estimated net realizable value. The resulting write-down of MailStation hardware of $4.8 million is included in telecommunications service
and equipment costs in the Company's Consolidated Statement of Operations for the year ended December 31, 2003.
OmniSky Corporation
In January 2002, the Company acquired the proprietary software platform of OmniSky Corporation ("OmniSky") in a Bankruptcy Code
Section 363 purchase of assets. OmniSky was a provider of wireless data applications and services for use on mobile devices. The aggregate
cost to acquire the OmniSky platform consisted of $2.7 million in cash, transaction charges of $0.8 million and the assumption of $2.7 million
in liabilities. In connection with the acquisition of the OmniSky platform, the Company recorded $6.0 million in computer software and