Earthlink 2002 Annual Report Download - page 58

F-16
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 out of bankruptcy. 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 hardware and $0.2 million in other assets. The transaction also included approximately 30,000 subscribers deemed to
have no fair market value based on a discounted cash flow analysis.
AT&T Broadband
In March 2002, EarthLink entered into an agreement with AT&T Broadband (now part of Comcast Corporation) under which EarthLink
gained access to cable networks to offer high-speed Internet access services in AT&T Broadband's Seattle and Boston area markets. In
connection with the agreement, AT&T Broadband receives compensation from EarthLink for providing last mile broadband access to certain
broadband subscribers. In connection with the agreement, EarthLink launched high-speed service in the Seattle and Boston markets over
AT&T Broadband's network in July 2002 and October 2002, respectively.
PeoplePC
In July 2002, EarthLink purchased, via tender offer, the outstanding stock of PeoplePC. PeoplePC provides value-priced Internet access
using a cost-efficient technology platform and a start page customizable for marketing partners. Pursuant to the agreement, EarthLink paid
$0.0221 per share in cash, or a total of approximately $12.9 million, and assumed approximately $24.6 million in deferred service liabilities to
PeoplePC subscribers who purchased prepaid Internet access services and a personal computer as part of a bundled package prior to the
acquisition date ("Membership Customers"). The Company has accounted for the acquisition of PeoplePC using the purchase method of
accounting, and accordingly, the results of operations of PeoplePC for the period July 31, 2002 to December 31, 2002 are included in the
accompanying consolidated financial statements.
The Company determined the deferred service liability assumed of approximately $24.6 million based on the present value of the direct
costs, including telecommunications and customer support costs, expected to be incurred over the Membership Customers' remaining prepaid
terms. Based on an independent valuation, EarthLink allocated $2.0 million of the purchase price to fixed assets for proprietary technologies
and software acquired in the transaction and attributed $11.0 million of the purchase price to the acquired customer base, including the value of
the approximately 400,000 U.S. Membership Customers and the approximately 55,000 service only customers acquired in the transaction. A
summary of the assets acquired and liabilities assumed as a result of the acquisition of PeoplePC is as follows (in thousands):
Goodwill
7,281
Assets acquired
$
30,486
Accounts payable
$
4,965
Accrued liabilities
9,063
Deferred and prepay revenue
9,230
Liabilities assumed
23,258
Cash consideration
6,859
Transaction costs
369
Cash consideration
7,228
Liabilities assumed and cash consideration
$
30,486
Cash acquired
$
2,444
Accounts receivable
4,831
Fixed assets and technology
3,152
Other assets
285
Customer base
11,000
Goodwill and other indefinite life intangible assets
42,956
Assets acquired
$
64,668