Earthlink 2002 Annual Report Download - page 21

LLC ("eCompanies"). Sky Dayton is a founder and director of eCompanies.
(6)
Represents earnings (loss) before depreciation and amortization, interest income and expense, income tax expense, investment write-offs, and certain facility exit costs. EBITDA is
not determined in accordance with accounting principles generally accepted in the United States, is not indicative of cash provided or used by operating activities, and may differ
from comparable information provided by other companies. EBITDA should not be considered in isolation, as an alternative to, or more meaningful than measures of performance
determined in accordance with accounting principles generally accepted in the United States. EBITDA is a measure commonly used in our industry and is included herein because
we believe EBITDA provides relevant and useful information to our investors. Since the elements of EBITDA are determined using the accrual basis of accounting and EBITDA
excludes the effects of capital and financing related costs, investors should use it to analyze and compare companies on the basis of operating performance. We utilize and have
disclosed EBITDA to provide additional information with respect to our ability to meet future capital expenditures and working capital requirements, to incur additional
indebtedness, and to fund continued growth.
(7)
The amount of acquired subscribers reported for the year ended December 31, 2002 does not include the approximately 518,000 Membership Customers that purchased a
Membership Package prior to the date of our acquisition of PeoplePC, and the reported amount of subscribers as of December 31, 2002 excludes the approximately 487,000
Membership Customers that purchased Membership Packages prior to the acquisition date that we continued to provide service to as of December 31, 2002. We have excluded
these Membership Customers because they prepaid for service for periods of up to four years prior to the date of our acquisition of PeoplePC.
22
Year Ended December 31, 2002 Compared to Year Ended December 31, 2001
Narrowband access revenues
Narrowband access revenues consist of monthly fees charged to customers for dial-up Internet access. In addition, narrowband access
revenues include monthly service fees, any associated equipment revenues for Internet appliances, and wireless access services provided as part
of our "EarthLink Everywhere" initiative as well as revenues derived from the sale of personal computers and related products. Narrowband
revenues increased $38.5 million, or 4%, from $999.3 million during the year ended December 31, 2001 to $1,037.8 million during the year
ended December 31, 2002. The increase in narrowband revenues was due to an increase in average monthly service revenue per narrowband
subscriber, an increase in equipment-related revenue from $4.6 million during the year ended December 31, 2001 to $17.9 million during the
year ended December 31, 2002, and the inclusion of revenue related to the deferred service liability for PeoplePC Membership Customers
noted below. The effect of the increase in average monthly service revenue per narrowband subscriber was largely offset by a decrease in the
average number of subscribers during the year ended December 31, 2002 as compared to the year ended December 31, 2001.
Average monthly narrowband access service revenue per subscriber was $19.42 and $20.70 during the years ended December 31, 2001
and 2002, respectively. Average narrowband subscribers decreased 199,000, or 5%, from 4.3 million during the year ended December 31, 2001
to 4.1 million during the year ended December 31, 2002.
The following is a summary of our narrowband subscriber activity for the years ended December 31, 2001 and 2002:
The amount of acquired subscribers reported for the year ended December 31, 2002 does not include the approximately 518,000
Membership Customers that purchased a Membership Package prior to the date of our acquisition of PeoplePC, and the reported amount of
subscribers as of December 31, 2002 excludes the approximately 487,000 Membership Customers that purchased Membership Packages prior
to the acquisition date and to whom we continued to provide service as of December 31, 2002. We have excluded these Membership
Customers because they generally prepaid for service for periods of up to four years prior to the date of our acquisition of PeoplePC. At the
acquisition date, we established a liability for the estimated direct cost to deliver services to these Membership Customers pursuant to their
contract terms, and we reduce the liability and record non-cash revenue as we deliver services to these Membership Customers. Such reduction
is intended to offset the cost of delivering the services. EarthLink recorded revenue during the year ended December 31, 2002 of $9.1 million
associated with the delivery of services to Membership Customers acquired. EarthLink expects to record approximately $13.8 million of
revenue during the year ended December 31, 2003 associated with the acquired Membership Customers, and then lesser amounts in following
years.
In July 2001, we increased the price of our unlimited dial-up service, generally from $19.95 to $21.95 per month. The increase became
effective on July 2, 2001 for all new subscribers and on the first billing on or after August 1, 2001 for the majority of our existing subscribers.
Year Ended December 31,
2001 2002
(in thousands)
Subscribers at beginning of year
4,306
4,203
Gross organic subscriber additions
1,856
1,607
Acquired subscribers
428
308
Narrowband subscribers converted to broadband
(62
)
(98
)
Churn
(2,325
)
(1,985
)
Subscribers at end of year
4,203
4,035