Earthlink 2001 Annual Report Download - page 38

Organization
EarthLink, Inc. (or the "Company"), is a leading Internet service provider, or ISP, providing reliable nationwide Internet access and related
value-
added services to our individual and business customers. The Company was formed in February 2000 by way of the merger of EarthLink
Network, Inc., ("EarthLink Network"), and MindSpring Enterprises Inc., ("MindSpring") in a transaction accounted for as a "pooling of
interests". The word "Network" was dropped from the name of the combined company to differentiate it from the former EarthLink Network.
Each outstanding share of EarthLink Network securities was exchanged for 1.615 shares of the equivalent security of the new Company and
each outstanding share of MindSpring common stock was exchanged for one share of the common stock of the new Company. Other
outstanding securities of the companies were converted on the same basis. The Company issued the following securities as a result of the
pooling of interests transaction:
Basis of Consolidation
The consolidated financial statements have been prepared to give retroactive effect to the merger of EarthLink Network and MindSpring
in a transaction accounted for as a pooling of interests. The financial statements also include the accounts of EarthLink Operations, Inc., a
wholly-owned subsidiary of the Company. All intercompany transactions and balances have been eliminated. Separate results of EarthLink
Network and MindSpring for the periods prior to the merger were as follows:
F-9
In 1998, MindSpring's management reviewed its net deferred tax asset, consisting primarily of net operating loss carryforwards and based
on the net income generated in 1998, as well as the projections of future income, determined that it was more likely than not that the deferred
tax assets would be realized. Accordingly, MindSpring reversed its valuation allowance in 1998 and did not record one in 1999. In the course
of the reorganization discussions, management of MindSpring and EarthLink Network reviewed the combined net deferred tax assets and
concluded that sufficient uncertainty then existed on a combined basis regarding realizability of the net deferred tax asset. The financial
statements of the combined Company include an adjustment of $25.3 million for 1999 to give effect to the reestablishment of a valuation
allowance on the MindSpring net deferred tax assets. There were no intercompany transactions between the two companies or significant
conforming accounting adjustments.
Revenues
To the former stockholders of
EarthLink
Network
MindSpring
Common shares
53,265,920
63,719,035
Preferred Series A
13,252,499
—
Preferred Series B
978,940
—
Preferred Series C
7,083,333
—
Options and warrants
7,924,887
5,626,890
Total
82,505,579
69,345,925
Year Ended
December 1999
Month Ended
January 31, 2000
(Unaudited)
Revenue:
EarthLink Network, Inc.
$
342,288
$
38,677
MindSpring Enterprises, Inc.
328,145
32,075
$
670,433
$
70,752
Net loss attributable to common stockholders:
EarthLink Network, Inc.
$
(108,248
)
$
(24,721
)
MindSpring Enterprises, Inc.
(40,131
)
(4,647
)
Adjustment to reflect establishment of tax valuation allowance
(25,315
)
—
$
(173,694
)
$
(29,368
)