Earthlink 2008 Annual Report Download - page 80

Table of Contents
EARTHLINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The assets of discontinued operations as of December 31, 2007 consisted primarily of property and equipment and the liabilities of
discontinued operations as of December 31, 2007 consisted primarily of accruals for purchases of property and equipment. Pursuant to SFAS
No. 144, the assets as of December 31, 2007 were reported at their estimated fair value less costs to sell and depreciation had ceased.
5. Acquisition
In April 2006, EarthLink acquired New Edge, a company that provides private IP-
based wide area networks and dedicated Internet access
for businesses and communications carriers. Through this acquisition, EarthLink expanded its business in the small and medium-
sized business
market. New Edge is a wholly-
owned subsidiary of EarthLink and continues to operate under its current name. The results of operations of New
Edge are included in the consolidated financial statements from the date of the acquisition.
The acquisition was accounted for pursuant to SFAS No. 141. The total purchase price of $144.8 million consisted of $108.7 million net
cash paid, including direct transaction costs of $3.7 million; $20.2 million in EarthLink, Inc. common stock, representing approximately
1.7 million shares; and estimated net liabilities assumed of $15.9 million. The fair value of EarthLink, Inc. common stock was determined based
on the average market price per share the three days before and the three days after the announcement of the execution of the merger agreement.
In July 2007, approximately 0.1 million shares of EarthLink, Inc. common stock were issued as additional purchase price and approximately
0.8 million shares of EarthLink, Inc. common stock that had been held in escrow were returned to the Company to cover liabilities that arose
under EarthLink's indemnification rights under the merger agreement.
EarthLink allocated $37.0 million of the total purchase price to identifiable definite lived intangible assets, consisting of acquired customer
relationships and software, and $7.8 million of the total purchase price to identifiable indefinite lived intangible assets, consisting of trade names.
The fair values of identifiable intangible assets acquired were determined by management taking into account management's own analysis and a
third party appraisal. The purchase price allocation resulted in $100.0 million of goodwill, which related to the Company's Business Services
segment. The purchase price was allocated to the assets acquired and liabilities assumed based on their estimated fair values, including
identifiable intangible assets. The acquired customer relationships and software are being amortized on a straight-
line basis from the date of the
acquisition over the estimated useful lives of the assets, which range from three to six years. The weighted average amortizable life of the
acquired intangible assets is 5.9 years. The acquired trade names were deemed to have indefinite useful lives. The pro forma effect of the
transaction was not material.
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