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COMMITMENTS AND CONTINGENCIES
12 Months Ended
Dec. 31, 2012
COMMITMENTS AND CONTINGENCIES [Abstract]  
COMMITMENTS AND CONTINGENCIES

14. COMMITMENTS AND CONTINGENCIES

 

Operating Lease Commitments

 

We lease office space, computer and other equipment and automobiles under noncancelable lease agreements. The leases generally provide that we pay the taxes, insurance and maintenance expenses related to the leased assets. Future minimum lease payments for noncancelable operating leases as of December 31, 2012 are as follows (in thousands):

 

2013   $ 16,900  
2014     14,421  
2015     11,932  
2016     10,914  
2017     10,725  
Thereafter     18,109  
Net minimum lease payments   $ 83,001  

 

Included in our future minimum lease payments is an aggregate of $0.8 million for leases included in our restructuring efforts. Rent expense under operating leases was $11.1 million, $11.4 million and $12.3 million for the years ended December 31, 2012, 2011 and 2010, respectively. In 2012, 2011 and 2010 facilities rent was reduced by approximately $1.2 million, $1.6 million and $1.7 million, respectively, associated with contractual obligations provided for in the restructuring charge.

 

Asset Retirement Obligation

 

Our recorded asset retirement obligation liability represents the estimated costs to bring certain office buildings that we lease back to their original condition after the termination of the lease. In instances where our lease agreements either contain make-whole provision clauses or subject us to remediation costs, we establish an asset retirement obligation liability with a corresponding increase to leasehold improvements. These amounts are included in "Accrued expenses" under "Long-Term Liabilities" and "Current Liabilities" in our consolidated balance sheets. For the year ended December 31, 2012, asset retirement obligation liabilities increased by approximately $0.2 million primarily as a result of increased remediation costs. Our asset retirement obligation liability balance was $1.2 million and $1.0 million at December 31, 2012 and 2011, respectively.

 

Supply Agreements

 

We purchase voice and data services pursuant to supply agreements with telecommunications service providers. Agreements with some of our telecommunications service providers contain minimum purchase requirements totaling approximately $7.4 million, $2.0 million and $0.3 million for 2013, 2014 and 2015, respectively. Our total minimum purchase requirements were approximately $28.5 million, $51.0 million and $32.9 million in 2012, 2011 and 2010, respectively, of which we incurred costs in excess of these minimums.

 

Litigation and Claims

 

State Telecommunications Excise Tax Matter

 

In March 2013, we were informed by the New York State Department of Taxation and Finance that assessments have been finalized for telecommunications franchise and gross excise taxes on our former Xpedite subsidiary for the tax years ended December 31, 2001-2006.  The assessments total approximately $4.3 million as of March 4, 2013, including approximately $1.9 million in taxes and $2.4 million in accrued interest and penalties, which interest continues to accrue.  We believe we are adequately reserved for this matter.  We plan to vigorously contest these assessments. However, if the New York State Department of Taxation's assessment is sustained, the amount assessed could result in a material adjustment to our consolidated financial statements which would impact our financial condition and results of operations.  We agreed to indemnify EasyLink for this matter in connection with our PGiSend sale.

 

State Corporate Tax Matter

 

On August 6, 2010, our former subsidiary, Xpedite, received a final determination from the New Jersey Division of Taxation upholding a corporate business tax audit assessment for the tax years ended December 31, 1998 through December 31, 2000 and December 31, 2002. The assessment totaled approximately $6.2 million as of August 15, 2010, including approximately $2.4 million in taxes and $3.8 million in accrued interest and penalties, which interest continues to accrue. The assessment relates to the sourcing of Xpedite's receipts for purposes of determining the amount of its income that is properly attributable to, and therefore taxable by, New Jersey. We are vigorously contesting the determination, filed a timely appeal with the Tax Court of New Jersey on November 2, 2010 and continue to engage in settlement negotiations. We believe we are adequately reserved for this matter. However, if the New Jersey Division of Taxation's final determination is sustained, the amount assessed could result in a material adjustment to our consolidated financial statements which would impact our financial condition and results of operations. We agreed to indemnify EasyLink for this matter in connection with our PGiSend sale.

 

Other Litigation and Claims

 

We are involved in other litigation matters and are subject to claims that we do not believe will have a material adverse effect upon our business, financial condition or results of operations, although we can offer no assurance as to the ultimate outcome of any such matters.