Earthlink 2003 Annual Report Download - page 53

PeoplePC
EarthLink's acquisition of PeoplePC included costs related to a formal EarthLink plan (the "PeoplePC Plan") to integrate PeoplePC's
operations into EarthLink's operations and to exit PeoplePC's international operations. The PeoplePC Plan called for the net reduction of 13
positions in operations and
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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, the Company decreased its 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. 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
On November 15, 2002, EarthLink closed its Phoenix, Arizona contact center facility. The plan for the closure of the Phoenix facility
called for the elimination of 259 positions, primarily customer support personnel. In connection with the closing, EarthLink 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 approximately $1.3 million in asset write-downs. As
of December 31, 2002, EarthLink had eliminated all 259 positions and had accrued but unpaid severance related to the eliminated positions of
$0.3 million. The Company has paid all exit costs and written off the impaired assets associated with the Phoenix facility.
On January 28, 2003, EarthLink announced a plan to streamline its contact center facilities (the "Contact Center Plan"). In connection with
the Contact Center Plan, EarthLink closed contact center facilities in Dallas, Texas; Sacramento, California; Pasadena, California; and Seattle,
Washington during the months of February and March 2003. The closure of the four contact center facilities resulted in the termination of
1,220 employees, primarily customer support personnel. As of March 31, 2003, the Company had communicated details of the Contact Center
Plan, including termination dates, to all 1,220 affected employees and all affected employees' positions had been eliminated. The Contact
Center Plan resulted in a net reduction of 920 employees, primarily customer support personnel, because EarthLink hired customer support
personnel at its remaining facilities to support its broadband service offerings. In connection with the Contact Center Plan, EarthLink recorded
facility exit costs of $36.6 million. These
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costs included approximately $10.7 million for employee, personnel and related costs, $18.2 million for real estate and telecommunications
service termination costs and $7.7 million in asset write-downs.
The following table summarizes the status of the accrued costs associated with the Phoenix contact center facility exit costs as well as the
facility exit costs associated with the Contact Center Plan as of and for the years ended December 31, 2002 and 2003:
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
) $ —