Earthlink 2003 Annual Report Download - page 61

Download and view the complete annual report

Please find page 61 of the 2003 Earthlink annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 70

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70

based on an analysis of Section 382 limitations associated with acquired federal and state net operating loss carryforwards. As a result, the net
operating loss carryforward amount at December 31, 2003 reflects the restriction on the Company's ability to use its federal and state net
operating loss carryforwards. The utilization of these carryforwards could be further restricted in future periods which could result in
significant amounts of these carryforwards expiring prior to benefiting the Company. At December 31, 2002 and 2003, the net operating loss
carryforwards include $75.2 million and $76.8 million, respectively, related to the exercise of employee stock options and warrants. Any
benefit resulting from the utilization of this portion of the net operating loss carryforward will be credited directly to equity. The Company has
provided a valuation allowance for its deferred tax assets, including net operating loss carryforwards, because of uncertainty regarding their
realization.
14. Commitments and Contingencies
Leases
The Company leases certain of its facilities and equipment under non-cancelable operating leases expiring in various years through 2011.
Total rent expense in the years ended December 31, 2001, 2002 and 2003 for all operating leases amounted to $31.0 million, $29.7 million and
$26.2 million, respectively. The Company also leases equipment, primarily data communications equipment, under non-cancelable capital
leases. Most of the Company's capital leases include escalation clauses and purchase options at the end of the lease term.
Minimum lease commitments under non-cancelable leases at December 31, 2003 are as follows:
Significant Agreements
Access to the Internet for customers outside of the Company's base of owned POPs is provided through capacity leased from a number of
third-party providers such as Level 3 and Sprint. EarthLink is, in effect, buying this capacity in bulk at a discount, and providing access to
EarthLink's customer base at
F-28
EarthLink's normal rates. Amounts payable at December 31, 2002 and 2003 under such agreements are included in accrued communications
costs in Note 8.
Minimum commitments under non-cancelable network service agreements are as follows at December 31, 2003:
Year Ending December 31,
Capital
Leases
Operating
Leases
(in thousands)
2004
$
893
$
28,873
2005
30
22,584
2006
—
19,431
2007
—
14,910
2008
—
6,547
Thereafter
—
7,054
Total minimum lease payments
923
99,399
Less aggregate sublease income
(12,487
)
Less amount representing interest
(9
)
Present value of future lease payments
914
Less current portion
(884
)
$
30
$
86,912
Year Ending December 31,
2004
$
117,496
2005
16,509
2006
2,656
2007
815
2008
251