Earthlink 2005 Annual Report Download - page 51

Operating activities
Net cash provided by operating activities improved during the year ended December 31, 2004 compared to the prior year, primarily due to
a decrease in telecommunications service and equipment costs and operating costs discussed elsewhere in Management’s Discussion and
Analysis of Financial Condition and Results of Operation. During the year ended December 31, 2005, we saw continued declines in
telecommunications service and equipment costs and operating costs; however, these declines were offset by a decrease in revenues and an
increase in cash used for working capital, which caused net cash provided by operating activities to remain relatively stable during the year
ended December 31, 2005 compared to the prior year. Cash flows from operating activities are expected to be adversely affected in 2006
because of operating expenses we expect to incur to fund our growth initiatives; however, we must seek to effectively manage expenses
associated with our core access services and our working capital to mitigate the adverse impact our growth initiatives are expected to have on
our operating cash flows.
Non-
cash items include items that are not expected to generate or require the use of cash, such as depreciation and amortization relating to
our network, facilities and intangible assets, net losses of equity affiliate, deferred income taxes, stock-based compensation, non-cash disposals
and impairments of fixed assets and gain (loss) on investments in other companies, net. Non-cash items decreased over the past three years
primarily due to decreases in depreciation and amortization expense. Partially offsetting the decrease during the year ended December 31, 2005
were net losses of equity affiliate related to our investment in HELIO and deferred income taxes associated with the utilization of acquired
NOLs.
Changes in working capital requirements include changes in accounts receivable, prepaid and other assets, accounts payable, accrued and
other liabilities and deferred revenue. Cash used for working capital requirements increased over the past three years primarily due to declines
in accrued liabilities for telecommunications costs due largely to decreases in such costs; declines in deferred revenue primarily associated with
the PeoplePC deferred service liability, the discontinuation of the PeoplePC bundle sales and overall declines in revenue; and payments for
contractual commitments associated with facility exit and restructuring costs.
Investing activities
Our investing activities provided cash of $25.0 million during the year ended December 31, 2003. This consisted of proceeds realized
from sales and maturities of marketable securities, net of purchases, of $64.8 million. Partially offsetting these net proceeds was $28.4 million
used for capital expenditures, primarily associated with network and technology center related projects and $11.9 million used for the
acquisition of subscriber bases from other ISPs, of which $6.3 million related to acquisitions completed in the fourth quarter of 2002.
Our investing activities used cash of $69.1 million during the year ended December 31, 2004. This consisted primarily of $33.7 million
for purchases of investments in marketable securities, net of sales and maturities, as a result of investing cash flows generated by operating
activities in marketable securities. In addition, we used $29.9 million for capital expenditures, primarily associated with network and
technology center related projects; $3.8 million for investments in other companies; and $2.4 million for acquiring subscriber bases from other
ISPs, primarily related to paying liabilities incurred in the acquisitions of subscriber bases during 2003.
Our investing activities used cash of $65.1 million during the year ended December 31, 2005. This consisted primarily of $82.3 million
for our investment in HELIO. In addition, we used $33.9 million for capital expenditures, primarily associated with network and technology
center related projects and customer support related projects. We have invested significantly in our network and technology center
infrastructure, and we expect to continue to invest capital to enhance the reliability and capacity of our network as well as to improve the
efficiency of our technical and customer support services. We also used
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