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Table of Contents EARTHLINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Other assets includes a fair value of $39.7 million assigned to accounts receivable which had a gross contractual value of
$43.4 million
as of December 8, 2010. The $3.7 million
difference represents the Company's best estimate of the contractual cash flows that will not be
collected.
Goodwill arising from the acquisition is attributable to the assembled workforce and expected synergies and economies of scale from
combining the operations of EarthLink and ITC^DeltaCom. All of the goodwill was assigned to the Company's Business Services segment. The
goodwill recognized is not deductible for income tax purposes.
The following table summarizes the components of intangible assets acquired in connection with the ITC^DeltaCom acquisition (in
thousands):
In connection with the acquisition, EarthLink assumed ITC^DeltaCom's outstanding $325.0 million
aggregate principal amount of
10.5%
senior secured notes due 2016 (the "ITC^DeltaCom Notes"). The ITC^DeltaCom Notes were recorded at acquisition date fair value,
which was based on publicly-quoted market prices. The resulting debt premium of $26.3 million
is being amortized over the remaining life of
the ITC^DeltaCom Notes.
One Communications
On April 1, 2011, EarthLink completed its acquisition of One Communications Corp. (“One Communications”), a privately-
held
integrated telecommunications solutions provider serving customers in the northeast, mid-
Atlantic and upper midwest sections of the United
States. EarthLink acquired 100% of One Communications in a merger transaction with One Communications surviving as a wholly-
owned
subsidiary of EarthLink. The primary reason for the acquisition was to further transform the Company into a network and communications
provider for business customers by expanding its IP network footprint. EarthLink also believes the acquisition will provide strategic benefits
because One Communications has a large established customer base that generates cash. EarthLink has included the financial results of One
Communications in its consolidated financial statements from the date of the acquisition.
Pursuant to the terms of the merger agreement, the aggregate merger consideration for One Communications was $370.0 million
,
which included assumption and repayment of debt and other liabilities and certain working capital and other adjustments. EarthLink issued a
total of 3.0 million shares in connection with the One Communications acquisition, which consisted of 1.3 million
shares deposited in escrow
(discussed below) and 1.7 million
shares issued to One Communications shareholders. Pursuant to the merger agreement, the following escrow
transactions have occurred:
The resulting fair value of consideration transferred was $39.9 million which consisted of $20.0 million in cash and $19.9 million
for
the issuance of EarthLink common stock. The assets acquired and liabilities assumed of One Communications were recognized at their
acquisition date fair values.
75
Fair Value
Useful Life
Customer relationships
$
117,600
5 – 6 years
Developed technology
9,900
6 years
Trade name
3,700
3 years
Total intangible assets
$
131,200
• Included in the aggregate merger consideration was $13.5 million (combination of cash and approximately 0.8 million
shares of
common stock) deposited into an escrow account to secure potential post-
closing adjustments to the aggregate consideration relating to
working capital and other similar adjustments. Of the $13.5 million escrow account, approximately $1.4 million of cash and
0.2 million
shares of common stock valued at $1.4 million have been returned to EarthLink as of December 31, 2012 .
• EarthLink deposited $7.5 million (combination of cash and approximately 0.5 million
shares of common stock) into an escrow account
to fund certain post-closing employment-
related obligations of the Company on the terms provided in the escrow agreement. This was
accounted for separately from the purchase price allocation. As of December 31, 2012 , the entire $7.5 million
escrow had been
returned to EarthLink and none of the escrow account remained outstanding.