Earthlink 2007 Annual Report Download - page 76

EARTHLINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED—(Continued)
Investments in Other Companies
Minority investments in other companies are classified as investments in other companies in the Consolidated Balance Sheets and are
accounted for under the cost method of accounting because the Company does not have the ability to exercise significant influence over the
companies' operations. Under the cost method of accounting, investments in private companies are carried at cost and are only adjusted for other-
than-temporary declines in fair value and distributions of earnings. For cost method investments in public companies that have readily
determinable fair values, the Company classifies its investments as available-for-sale in accordance with SFAS No. 115 and, accordingly,
records these investments at their fair values with unrealized gains and losses included as a separate component of stockholders' equity and in
total comprehensive income (loss). Upon sale or liquidation, realized gains and losses are included in the Consolidated Statement of Operations.
Management regularly evaluates the recoverability of its investments in other companies based on the performance and the financial
position of those companies as well as other evidence of market value. Such evaluation includes, but is not limited to, reviewing the investee's
cash position, recent financings, projected and historical financial performance, cash flow forecasts and financing needs. Management also
regularly evaluates whether declines in fair values of its investments below their cost are potentially other than temporary. This evaluation
consists of several qualitative and quantitative factors regarding the severity and duration of the unrealized loss as well as the Company's ability
and intent to hold the investment for a period of time to recover the cost basis of the investment.
Variable Interest Entities
The Company applies the guidance prescribed in FIN No. 46, "Consolidation of Variable Interest Entities," to determine if the Company
must consolidate the results of companies in which the Company has invested. Variable interest entities ("VIEs") are entities that either do not
have equity investors with proportionate economic and voting rights or have equity investors that do not provide sufficient financial resources
for the entity to support its activities. Consolidation is required if it is determined that the Company absorbs a majority of the expected losses
and/or receives a majority of the expected returns. In determining if an investee is a VIE and whether EarthLink must consolidate its results,
management evaluates whether the equity of the entity is sufficient to absorb its expected losses and whether EarthLink is the primary
beneficiary. Management generally performs this assessment at the date EarthLink becomes involved with the entity and upon changes in the
capital structure or related governing documents of the entity. Management has concluded that the Company does not have any arrangements
with entities that would require consolidation pursuant to FIN No. 46.
Investment in Equity Affiliate
The Company has a joint venture with SK Telecom Co., Ltd. ("SK Telecom"), HELIO. HELIO is a non-facilities-based mobile virtual
network operator ("MVNO") offering mobile communications services and handsets to U.S. consumers. 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. The Company determined that HELIO does not qualify as a VIE under FIN No. 46, so consolidation pursuant to FIN No. 46 is
not required. In accordance with the equity method of accounting, EarthLink's investment in HELIO was recorded at original cost and has been
adjusted to recognize EarthLink's proportionate share of HELIO's net loss, amortization of basis differences and additional contributions made.
During the year ended December 31, 2007, EarthLink stopped recording additional
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