Earthlink 2002 Annual Report Download - page 57

forward for a third party to acquire a controlling interest in EarthLink. In that case, EarthLink's Board of Directors is not contractually
obligated to accept Sprint's counter-offer, but the Board of Directors will analyze and weigh the offer in exercising its fiduciary duties to
stockholders.
In addition, Sprint relinquished its right to appoint two members to the Company's Board of Directors. Accordingly, Sprint's
representatives resigned from the Board of Directors.
Apple Computer, Inc.
In January 2000, EarthLink entered into a strategic alliance with Apple Computer, Inc. and a subsidiary (together, "Apple"). In connection
with this alliance, EarthLink expanded its existing commercial relationship with Apple so that EarthLink serves as the default ISP for Apple's
line of Macintosh branded computers sold in the U.S. for a minimum of two years. The overall commercial relationship with Apple has since
been extended through January 4, 2005. In connection with the alliance, the Company pays Apple for each gross organic subscriber addition
generated as a result of the relationship. In addition, Apple purchased 7.1 million shares of the Company's Series C convertible preferred stock
for $200.0 million and gained the right to appoint one member to the Company's Board of Directors. However, Apple's right to appoint a
member to the Company's Board of Directors terminated in September 2001 upon Apple's conversion of all of its Series C convertible
preferred stock into common stock. As a result, Apple's representative resigned from the Board of Directors.
OneMain.com, Inc.
In September 2000, EarthLink acquired OneMain.com, Inc. ("OneMain") in a transaction accounted for as a purchase. Based on an
independent appraisal, $189.5 million of the $315.8 million purchase price was attributed to the approximately 758,000 subscribers acquired
from OneMain. The excess of cost over
F-15
the estimated fair value of tangible net assets acquired and the subscriber base was $126.3 million and was allocated to goodwill and other
indefinite life intangible assets.
Time Warner Cable
In November 2000, the Company entered into an agreement with Time Warner Cable. The agreement allows EarthLink to offer its
broadband Internet services over Time Warner Cable systems as well as systems previously managed by Time Warner Cable. The networks
over which EarthLink may offer its broadband services pass approximately 20 million homes and directly serve approximately 13 million cable
television subscribers. EarthLink began offering its broadband services over the Time Warner Cable systems in certain markets in 2001, and as
of December 31, 2002, EarthLink's full package of high-speed Internet access, content, applications and functionality was available in all 39
markets for which the contract allows EarthLink to offer its services, including the New York and Los Angeles markets. In connection with the
agreement, Time Warner Cable receives compensation from EarthLink for providing last mile broadband access to certain broadband
subscribers.
Cidco Incorporated
In December 2001, EarthLink purchased, via a tender offer, approximately 80% of the outstanding stock of Cidco Incorporated ("Cidco").
The aggregate purchase price consisted of $5.8 million in cash. Cidco was a developer, distributor and provider of email appliances and related
services. The acquisition provides additional capability to deliver Internet access services through home devices other than personal computers.
In February 2002, EarthLink completed its acquisition of Cidco by purchasing the remaining 20% of Cidco's stock for approximately
$1.1 million, making Cidco a wholly-owned subsidiary. The Cidco acquisition has been accounted for using the purchase method of
accounting, and accordingly, the results of operations of Cidco for the period December 1, 2001 through December 31, 2001 and for the year
ended December 31, 2002 are included in the accompanying consolidated financial statements.
In connection with the acquisition of Cidco, the Company acquired approximately 123,000 Cidco customers. The Company allocated
$11.6 million of the purchase price to the acquired customers based on the present value of the estimated net cash inflows to be derived from
the customers. A summary of the assets acquired and liabilities assumed in connection with the acquisition of Cidco are as follows (in
thousands):
Cash acquired
$
240
Accounts receivable
1,597
Deferred cost of revenue
2,721
Inventory
4,505
Other assets
1,700
Fixed assets
866
Customer base
11,576