Earthlink 2003 Annual Report Download - page 17

Acquisitions and Asset Purchases
In December 2001, we acquired Cidco Incorporated ("Cidco"), a developer, distributor and provider of email appliances and related
services. Since our acquisition of Cidco, we have provided Cidco's affordable, portable and easy-to-use email appliances such as the
MailStation and related Internet services. During the year ended December 31, 2003, we ceased active marketing of the MailStation products
and services but intend to continue providing services to MailStation customers that are currently activated or may activate in the future.
Accordingly, we reduced the carrying value of MailStation hardware by $4.8 million to its estimated net realizable value, and the write-
down is
included in telecommunications service and equipment costs for the year ended December 31, 2003.
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In January 2002, we acquired the proprietary software platform of OmniSky Corporation ("OmniSky") in a Bankruptcy Code Section 363
purchase of assets. OmniSky was a provider of wireless data applications and services for use on mobile devices. During 2003, we decided to
discontinue providing services to certain customers supported by and to cease adding subscribers to the OmniSky platform. Accordingly, we
reduced the carrying value of the acquired software and hardware by $2.4 million based on the estimated future cash flows of the customers
who continue to be supported by the OmniSky platform, and the write-
down is included in telecommunications service and equipment costs for
the year ended December 31, 2003.
In July 2002, we acquired PeoplePC. PeoplePC provides value-priced Internet access using a cost-
efficient technology platform and a start
page customizable for marketing partners. PeoplePC also provides a membership package that includes a brand-name computer, unlimited
Internet access, customer support and an in-home warranty ("Membership Package"). In the transaction, we acquired approximately 518,000
PeoplePC prepaid, bundled subscribers ("Membership Customers") and approximately 55,000 value-priced, monthly billed subscribers. The
PeoplePC business accelerated our efforts to create and market a value-priced access service and to compete in the value-priced Internet access
market. Beginning in the first quarter of 2004, PeoplePC discontinued sales of Membership Packages which generated revenues from the sale
of personal computers but did not contribute meaningfully to gross margins, and, as a result, PeoplePC is now focused solely on the sale of
value-priced, monthly billed access services.
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Results of Operations
The following table sets forth consolidated financial and operating data as well as the percentage of total revenues represented by certain
items in our Consolidated Statements of Operations for the periods indicated:
Year Ended December 31,
2001
% of
Revenues
2002
% of
Revenues
2003
% of
Revenues
(in thousands, except employee data)
Statement of operations data:
Revenues:
Narrowband access
$
999,251
80
$
1,037,829
76
$
965,025
69
Broadband access
167,935
13
250,591
19
361,124
26
Web hosting
59,263
5
53,210
4
49,902
3
Content, commerce and advertising
18,479
2
15,791
1
25,879
2
Total revenues
1,244,928
100
1,357,421
100
1,401,930
100
Operating costs and expenses:
Telecommunications service and equipment costs
509,514
41
543,981
40
519,149
37
Sales incentives
67,919
5
37,669
3
21,176
2
Total cost of revenues
577,433
46
581,650
43
540,325
39
Sales and marketing
327,951
26
373,481
28
382,965
27
Operations and customer support
339,490
28
324,555
24
297,045
21
General and administrative
127,849
10
123,379
9
127,664
9
Acquisition
-
related amortization (1)
217,483
18
110,885
8
84,299
6
Facility exit costs (2) — —
3,492
—
36,596
3
Intangible asset write-off (3)
11,252
1
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