Earthlink 2005 Annual Report Download - page 85

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EARTHLINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
During the years ended December 31, 2003, 2004 and 2005, the Company recognized losses of $0.2 million, $1.4 million and $0.9
million, respectively, on certain of its investments in other companies as a result of a decline in fair value that was considered other-than-
temporary. These losses are included in gain (loss) on investments in other companies, net, in the Consolidated Statements of Operations.
Investment in Equity Affiliate
On March 24, 2005, the Company completed the formation of a joint venture with SK Telecom, HELIO, to market and sell wireless voice
and data services in the U.S. Under the terms of the joint venture agreement, EarthLink and SK Telecom each have a 50 percent voting and
economic ownership interest in HELIO. EarthLink and SK Telecom, as partners, invested an aggregate of $166.0 million of cash and non-cash
assets upon completing the formation of HELIO, invested an aggregate of $78.0 million of cash in August 2005 and have committed to invest
additional cash of $196.0 million in HELIO at various dates through August 2007.
On March 24, 2005, the Company invested $43.0 million of cash and contributed non-cash assets valued at $40.0 million, including
27,000 wireless customers, contractual arrangements and agreements to prospectively market HELIO’s services. The non-cash assets
contributed were recorded by the Company as an additional investment of $0.5 million based on the Company’s carrying value of the assets.
The Company recorded its initial investment at $43.5 million, reflecting the cash invested plus the carrying value of assets contributed. In
addition, the Company paid HELIO to assume $0.9 million of net liabilities associated with wireless customers and related operations. The
Company recorded no gain or loss in March 2005 associated with the contribution of non-cash assets, the transfer of net liabilities, or the
associated payment to HELIO to assume the net liabilities upon completing the formation of HELIO. In August 2005, the Company
contributed $39.0 million of cash pursuant to the HELIO Contribution and Formation Agreement. The Company contributed $39.5 million in
February 2006 and is committed to invest an additional $58.5 million of cash in HELIO at various dates through August 2007.
The Company accounts for its investment in HELIO under the equity method of accounting because the Company can exert significant
influence over HELIO’s operating and financial policies. As a result, the Company records its proportionate share of HELIO’s net income
(loss) in its statement of operations. During the year ended December 31, 2005, the Company recorded $20.7 million of equity method losses
related to its HELIO investment.
The Company is amortizing the difference between the book value and fair value of definite-lived non-cash assets contributed to HELIO
over the estimated useful lives of the definite-lived non-cash assets contributed. The amortization increases the carrying value of the
Company’s investment and decreases the net losses of equity affiliate included in the statement of operations. During the year ended
December 31, 2005, the Company recorded $5.1 million of amortization associated with the difference between the carrying value and fair
value of assets contributed.
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