Earthlink 2002 Annual Report Download - page 26

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Acquisition-related amortization decreased 49% from $217.5 million during the year ended December 31, 2001 to $110.9 million during
the year ended December 31, 2002. Acquisition-related amortization declined $77.4 million as a result of the intangible assets acquired in the
Spry, Inc. and NETCOM transactions in October 1998 and February 1999, respectively, becoming fully amortized in November 2001 and
February 2002, respectively. Acquisition-related amortization also decreased $42.3 million as a result of the adoption of Statement of Financial
Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets," which required us to cease amortization of goodwill and
other indefinite life intangibles on January 1, 2002. The impact of the adoption of SFAS No. 142 was to eliminate amortization expense of
approximately $50.5 million in the year ending December 31, 2002 associated with indefinite life intangibles that otherwise would have been
recorded assuming a three-year life of such intangible assets. These decreases were offset by the amortization of intangibles resulting from
28
the acquisitions of Cidco and PeoplePC in December 2001 and July 2002, respectively, and other smaller subscriber acquisitions.
Acquisition-related amortization is expected to decline in 2003 as the customer base acquired in the acquisition of OneMain in
September 2000 becomes fully amortized.
The carrying value of intangible assets as of December 31, 2002 is as follows:
The cost basis of goodwill and other indefinite life intangible assets are as follows:
Facility exit costs
On October 30, 2002, EarthLink announced it would close its Phoenix, Arizona call center facility to consolidate operations and reduce
overall costs. The plan for the closure of the Phoenix facility called for the elimination of approximately 259 positions. The Phoenix facility
was closed on November 15, 2002, and in connection with the closing, EarthLink recorded facility exit costs of $3.5 million. These costs
included approximately $1.7 million for employee, personnel and related costs; $0.5 million for real estate and telecommunications contract
termination costs; and approximately $1.3 million in asset write-downs. As of December 31, 2002, EarthLink had eliminated all 259 positions.
Intangible asset write
-off
In February 2001, EarthLink renegotiated its commercial and governance arrangements with Sprint Corporation. Under the renegotiated
arrangements, EarthLink's exclusive marketing and co-branding arrangements with Sprint were terminated. Accordingly, EarthLink recorded a
non-cash charge of approximately $11.3 million to write-off unamortized intangible assets related to the marketing and co-branding
arrangements with Sprint.
Customer
Bases
Goodwill and
Other Indefinite
Life Intangibles
Assets
Total
(in thousands)
Original cost
$
326,298
$
176,497
$
502,795
Less accumulated amortization
(207,944
)
(56,115
)
(264,059
)
Intangible assets, net $
118,354
$
120,382
$
238,736
Balance at
December 31,
2002
(in thousands)
Goodwill and other indefinite life intangible assets associated with the
acquisition of OneMain
$
126,260
Goodwill associated with the acquisition of Cidco
7,281
Goodwill and other indefinite life intangible assets associated with the
acquisition of PeoplePC
42,956
$
176,497