Earthlink 2003 Annual Report Download - page 28

We made equity investments in several companies prior to December 31, 2001. During the years ended December 31, 2001 and 2002,
management determined that the full recovery of certain investments was unlikely. Accordingly, we recorded a charge of $10.0 million and
$0.6 million during the years ended December 31, 2001 and 2002, respectively, to write equity investments down to their estimated net
realizable value.
Interest income and other, net
Interest income and other, net, decreased 50% from $25.5 million during the year ended December 31, 2001 to $12.6 million during the
year ended December 31, 2002. The decrease was due to a decrease in our average cash and marketable securities balances and a decrease in
investment yields. Our cash and investment balances decreased as a result of the purchases of subscriber bases from several companies; the
acquisitions of Cidco, the OmniSky platform and PeoplePC; the repurchase of 2.6 million shares of our common stock; and capital
expenditures. Our weighted average investment yields decreased from approximately 4.2% during the year ended December 31, 2001 to
approximately 2.6% during the year ended December 31, 2002 as the U.S. Federal Reserve Bank reduced interest rates. The decrease in interest
income and other, net, was partially offset by a reduction in interest expense attributable to a decrease in the average balance of obligations
under capital lease from $22.5 million during the year ended December 31, 2001 to $8.7 million during the year ended December 31, 2002.
Restructuring Charges and Facility Exit Costs
PeoplePC
Our acquisition of PeoplePC included costs related to a formal EarthLink plan (the "PeoplePC Plan") to integrate PeoplePC's operations
into our operations and to exit PeoplePC's international operations. The PeoplePC Plan called for the net reduction of 13 positions in operations
and customer support, sales and marketing, and in general and administrative departments. The original estimates for costs associated with the
PeoplePC Plan included $2.1 million related to the write-off of duplicative and abandoned assets, $0.8 million related to employee termination
benefits and $1.8 million related to exiting PeoplePC's international operations, including $0.6 million for the write-
off of abandoned assets and
$1.2 million related to costs associated with a non-cancelable lease. The costs of the PeoplePC Plan are included in the purchase price of
PeoplePC and are included in the fair values of tangible assets acquired and liabilities assumed in the acquisition. The costs associated with the
PeoplePC Plan were less than original estimates and, as a result, we decreased our liability related to severance costs and the non-cancelable
lease during the year ended December 31, 2003 by $0.5 million resulting in a decrease in goodwill. As of December 31,
32
2003, we have paid all exit costs and written off the impaired assets associated with the PeoplePC plan. The following table summarizes the
status of the restructuring and exit costs and the related reserves for the PeoplePC Plan as of and for the years ended December 31, 2002 and
2003:
Facility exit costs
During the fourth quarter of 2002, we closed our Phoenix, Arizona contact center facility. The closure of the Phoenix facility resulted in
the termination of 259 positions, primarily customer support personnel. In connection with the closing, we recorded facility exit costs of
$3.5 million in the fourth quarter of 2002. These costs included approximately $1.7 million for employee, personnel and related costs;
$0.5 million for real estate and telecommunications contract termination costs; and $1.3 million in asset write-downs. We have paid all exit
costs and written off the impaired assets associated with the Phoenix facility.
During the first quarter of 2003, we executed a plan to streamline our contact center facilities (the "Contact Center Plan") and utilize
outsourced contact center service providers. In connection with the Contact Center Plan, we closed contact center facilities in Dallas, Texas;
Purchase
Related
Costs
Non-Cash
Items
Payments
Balance
December 31,
2002 Payments Adjustments
Balance
December 31,
2003
(in thousands)
Write-
off duplicative and abandoned software
$
2,136
$
(2,136
) $ — $ — $ — $ — $ —
Severance costs
769
— (
578
)
191
(62
)
(129
) —
International operations exit costs
Write
-
off abandoned assets
576
(576
)
—
—
—
—
—
Non
-cancelable lease
1,196
— (
600
)
596
(233
)
(363
) —
Total international exit costs
1,772
(576
)
(600
)
596
(233
)
(363
) —
$
4,677
$
(2,712
) $
(1,178
) $
787
$
(295
) $
(492
) $ —