AKAMAI TECHNOLOGIES, INC

Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 par value

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes þ No o

The aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant was approximately $500,105,750 based on the last reported sale price of the common stock on the Nasdaq National Market on June 30, 2003.

The number of shares outstanding of the registrant’s common stock as of March 4, 2004: 122,633,463 shares.

Portions of the registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission relative to the registrant’s 2004 Annual Meeting of Stockholders to be held on May 25, 2004 are incorporated by reference into Items 10, 11, 12 and 13 of Part III of this annual report on Form 10-K.

We believe that this report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties and are based on the beliefs and assumptions of our management based on information currently available to our management. Use of words such as “believes,” “expects,” “anticipates,” “intends,” “plans,” “estimates,” “should,” “likely” or similar expressions, indicate a forward-looking statement. Forward-looking statements involve risks, uncertainties and assumptions. Certain of the information contained in this annual report on Form 10-K consists of forward-looking statements. Important factors that could cause actual results to differ materially from the forward-looking statements include, but are not limited to, those set forth under the heading “Factors Affecting Future Operating Results.”

Akamai® is the global leader in distributed computing solutions and services, offering solutions designed to make the Internet predictable, scalable, and secure for customers seeking to conduct business over the Internet. The Akamai on demand platform enables customers to easily extend their Internet-facing operations without the cost of building out infrastructure. Akamai serves hundreds of today’s most successful enterprises and government agencies around the globe.

We began selling our content delivery services in 1999 under the trade name FreeFlow®. Later that year, we added streaming media delivery services to our portfolio and introduced traffic management services that allow customers to monitor traffic patterns on their websites both on a continual basis and for specific events. In 2000, we began offering a software solution that identifies the geographic location and network origin from which end users access our customers’ websites, enabling content providers to customize content without compromising user privacy. In 2001, we commenced commercial sales of our EdgeSuite® offering, a suite of services that allows for high-performance and dynamic delivery of web content. In 2003, we began offering on a commercial basis our EdgeComputing^SM service, which allows for delivery of applications, such as store/dealer locators, promotional contests, search functionalities and user registration, over our network.

Our services are easy to implement and are highly scalable. Historically, our FreeFlow customers selected bandwidth-intensive content, typically media-rich non-text objects such as photographs, banner advertisements and graphics, for delivery over our network. With the introduction of our EdgeSuite service, customers may dynamically deliver a broader range of content and applications — such as customer relationship management tools, pay-per-view video, software updates and entire websites — over our platform. The technology underlying our EdgeSuite service enables us to locate applications and content geographically closer to end-users. Customers of our EdgeComputing service are able to deploy applications that scale on demand and perform more reliably while reducing the demands on their own infrastructures. Using the proprietary algorithms we have developed that continuously monitor and load-balance our network in real-time, we determine the most efficient methods and routes available for delivering the applications and content to our customers’ end users.

We were incorporated in Delaware in 1998 and have our corporate headquarters at 8 Cambridge Center, Cambridge, Massachusetts, 02142. Our Internet website address is www.akamai.com. We are not including the information contained on our website as part of, or incorporating it by reference into, this annual report on Form 10-K.

We are registered as a reporting company under the Securities Exchange Act of 1934, as amended, which we refer to as the Exchange Act. Accordingly, we file or furnish with the Securities and Exchange Commission, or the Commission, annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K as required by the Exchange Act and the rules and regulations of the Commission. We refer to these reports as Periodic Reports. The public may read and copy any Periodic Reports or other materials we file with the Commission at the Commission’s Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. Information on the operation of the Public Reference Room is available by calling

1-800-SEC-0330. In addition, the Commission maintains an Internet website that contains reports, proxy and information statements and other information regarding issuers, such as Akamai, that file electronically with the Commission. The address of this website is http://www.sec.gov.

We make available, free of charge, on or through our Internet website our Periodic Reports and amendments to those Periodic Reports as soon as reasonably practicable after we electronically file them with the Commission.

The end of the 20th century witnessed the explosive growth of the Internet and the emergence of e-business. E-business is the use of the Internet to streamline processes, improve productivity and increase efficiencies, enabling enterprises to communicate more effectively with customers, vendors and partners, connect back-end data systems and transact commerce in a secure manner. The Internet, however, is a complex system of networks that was not originally created to accommodate the volume or sophistication of today’s business communication demands. As a result, information is frequently delayed or lost on its way through the Internet as a result of many potential bottlenecks, including:


	•	bandwidth constraints between an end user and the end user’s network provider, such as an Internet Service Provider, or ISP, cable provider or digital subscriber line provider;

	•	Internet traffic exceeding the capacity of routing equipment;

	•	inefficient or nonfunctioning peering points, or points of connection, between ISPs; and

	•	traffic congestion at data centers.

Driven by competition, globalization and cost-containment strategies, e-business is becoming a critical component for corporate enterprises. These trends require enterprises to rely on an agile e-business infrastructure to meet their real-time strategic and business objectives. We expect enterprises to favor a more decentralized information technology architecture to support their goals of disaster recovery, high availability, denial-of-service mitigation and back up. We also anticipate that enterprises will continue to expand their use of technologies that allow an enterprise to conduct business over the Internet, which are referred to as Internet Protocol, or IP, technologies.

In recent years, government agencies have begun to migrate more and more of their processes from in-person, mail, or phone services to Internet-based applications. As a result, it has become essential to many public sector bodies that their websites be more reliable and that they deliver their content and applications more efficiently to their constituents. At the same time, budget cuts preclude development of an expensive self-managed infrastructure. We expect that an increasing number of public sector entities will look to third party content and application delivery providers like Akamai to solve these challenges.

Akamai provides proven services and solutions for predictable, scalable and secure e-business transactions, without the cost of building out infrastructure. Built on the globally distributed Akamai EdgePlatform, Akamai solutions extend Web operations anywhere, anytime, and improve insight and management of applications and content through our EdgeControl^SM technology.

These services and solutions enable customers to reduce the complexity and cost of deploying and operating a uniform IP infrastructure while ensuring superior performance, reliability, scalability and manageability. Forming the core of these services are our EdgeSuite and EdgeComputing offerings, suites of services that allows enterprises to maximize performance and minimize cost while distributing their Internet-related content and applications using IP technology.

Akamai also offers a set of solutions aimed at solving customers’ business problems, including online commerce, Web site security, e-business continuity and optimized extranets. These solutions combine various

By moving electronic content and applications closer to our customers’ end users, our EdgeSuite service allows enterprises to improve the end-user experience, boost reliability and scalability and reduce the cost of their e-business infrastructure. We believe that our EdgeSuite offering is the only service available in the industry capable of providing the benefits of distributed performance to an enterprise’s entire website and all aspects of its applications. Our EdgeSuite service reduces the amount of IP infrastructure that our customers must implement to maintain a global Internet presence. While, site owners maintain a control copy of their applications and content, our EdgeSuite service provides global delivery, load balancing and storage of these applications and content, enabling businesses to focus valuable resources on strategic matters, rather than tactical infrastructure issues.

Customers of our EdgeSuite service have access to the following service features:


	•	*Secure Content*

Enterprises are increasingly aware that having the ability to transmit content securely over the Internet is a crucial component of their e-business program. Our services offer support for the distribution of secure Internet-related content. Using Secure Sockets Layer, or SSL, transport, our EdgeSuite offering ensures that content is distributed privately and reliably between two communicating applications.


	•	*Tiered Distribution*

As their websites and interactions become more complex, enterprises are seeking tools to manage their Internet presence. Tiered distribution is a hierarchical content distribution method that we use on behalf of participating customers. With this approach, we make available a set of well-connected “core” server regions to store given content and, thus, to alleviate the load on the customer’s origin servers. Akamai’s edge servers can obtain content from these core server regions in lieu of going to the customer’s origin servers. As a result, we are able to efficiently distribute our customers’ content so that our customers can significantly reduce the load on their IP infrastructure and protect their online business from unexpected spikes in demand.


	•	*Site Fail Over*


	It is essential that e-businesses maintain constant availability of their websites. Our EdgeSuite service guarantees delivery of default content in the event that the primary, or source, version of the website of an enterprise customer becomes unavailable. Our EdgeSuite offering’s default content capabilities provide a solution for:


	•	Site mirroring — we provide an economical way to mirror a website without the expense of investing in additional data centers to achieve redundancy.

	•	E-business continuity — we ensure content availability if an unforeseen event causes a customer’s website to crash.

	•	Site maintenance — we deliver fail-over service so that a website remains available to end users during updates and maintenance.


	•	*Net Storage*

For an enterprise to most effectively utilize the Internet, it must have available efficient content storage solutions from which to access content for delivery to site visitors. Our EdgeSuite service provides a complete solution for digital storage needs for all content types. Our EdgeSuite Net Storage feature uses multiple terabytes of storage capacity, geographical replication, a scalable architecture and proprietary mapping and routing technology to ensure that content is consistently available.


	•	*Global Traffic Management*


	Our EdgeSuite service substantially reduces the amount of Internet infrastructure required to maintain a global Internet presence by providing geographically distributed IP infrastructures that reduce

reliance on an origin site for presentation and application processing and enable site owners to maintain only a source copy of the website. Enterprises with geographically distributed IP infrastructures can use EdgeSuite Global Traffic Management to improve the availability, responsiveness and reliability of a multi-location website. When we need to access a customer’s origin site that has been mirrored elsewhere, we rely on our Global Traffic Management feature to choose the optimal mirrored site. Global Traffic Management frees enterprises from managing complex hardware and allows them to concentrate on their core business. Global Traffic Management reduces the need for enterprises to purchase, maintain or house hardware that can rapidly become obsolete and provides continuous monitoring and support from our Network Operations Command Center.


	•	*Content Targeting*

Content targeting allows our customers to customize content by accurately identifying the visiting user’s geographic location, connection speed, device type or other specified information so that content can be targeted for each visitor in real time and be delivered from our servers located in networks throughout the Internet. Content targeting enables content providers to deliver localized content, customized store-fronts, targeted advertising and adaptive marketing. We believe that these site attributes encourage individuals to visit sites with these features more frequently and for longer periods of time.


	•	*Digitized Downloads*

Digitized downloads consist of software applications and documents that may be downloaded onto the computers of permitted recipients. Our EdgeSuite service provides a solution for digital file distribution that offers our customers the ability to leverage the Internet as a distribution channel, resulting in expanded customer reach, significant cost efficiencies and time-to-market advantage. The unique, globally distributed network architecture on which the Akamai platform is based enhances the security and reliability of downloads while reducing infrastructure and bandwidth requirements at the origin site.


	•	*Business Intelligence*

The Akamai EdgeControl Management Center provides detailed real-time and historical information about site visitors, their activities while visiting a customer’s site. This can help our customers understand the effectiveness of a website’s content in meeting their goals. It also provides IP infrastructure information with details on website performance, site visitors’ access points, traffic patterns and automated delivery of logs containing information about website traffic and usage in industry-standard formats. Companies use Business Intelligence’s comprehensive tools to evaluate their strategic investments in website functionality.


	•	*Streaming Services*

Our streaming services provide for the delivery of streaming audio and video content to Internet users. We offer streaming services in all major formats. We principally focus on enterprise streaming applications such as video broadcasting of large events over IP networks and video archives of corporate events or public news events. We believe that we have demonstrated superior streaming network performance and quality, particularly for broadband users.


	•	*Edge Side Includes and Dynamic Content Assembly*

Edge Side Includes (ESI) accelerates dynamic web-based applications by identifying cacheable and non-cacheable website page components that can be aggregated, assembled and delivered at the network edge. EdgeSuite Dynamic Content Assembly gives enterprises the ability to deliver rich, dynamically-rendered pages without any performance penalty. EdgeSuite Dynamic Content Assembly allows companies to assemble and customize website pages at an optimal location within the Akamai’s global network of servers. Customized content is delivered quickly and reliably to each user without forcing interaction with a centralized application server.

Enterprises can position themselves to grow revenue and market share, compete more effectively and reduce business costs by enabling World Wide Web applications that improve promotion and sales, customer service, and vendor and partner management. However, most enterprise IT infrastructures are not equipped to handle these applications, which can include store/ dealer locators, promotional contests, search functionality, user registration, product/ pricing configurators and other key tools. Akamai EdgeComputing enables enterprises to deliver Java (J2EE) Web applications that scale on demand and perform faster and more reliably worldwide than they could relying on their internal IT infrastructures. At the same time, we help them reduce the demands on their own IT infrastructures and simplify their support requirements.

EdgeComputing allows enterprises to extend more of their applications into the network, closer to end users, including customers, partners, suppliers, and employees. By adding application server capabilities and support for application and development frameworks, such as Java (J2EE) and Microsoft .NET, we are striving to become a pervasive, distributed, and standards-based high performance deployment platform for enterprise applications, Internet-based services and website content of all kinds.

In May 2003, we launched Akamai EdgeComputing^SM Powered by IBM WebSphere®, a new solution that enables enterprises to deploy Java-based software applications over the Akamai network on a “pay-as-you-go” basis. Our customers can now extend applications built on IBM’s WebSphere Internet infrastructure software to Akamai’s distributed network of servers to handle everyday Web application traffic and spikes in demand. Specific application functions, such as creating and viewing a personalized portal, can now be securely “pushed” to the edge of our network and executed closer to the user.

Akamai Online Commerce is a highly secure, on demand business solution that helps customers more efficiently conduct e-business transactions by meeting peak performance needs to deliver a positive customer experience, increasing conversion rates and ensuring transaction completion while reducing infrastructure build-out costs.

Akamai e-Business Continuity is an e-business solution designed to provide Internet-enabled enterprises with 100% availability of their most critical Web operations, providing online business continuity by distributing applications over a global network.

Akamai Site Security is a set of controls that help protect e-businesses against malicious and random traffic from hackers, worms, and viruses, while providing insight into the effectiveness of their security systems.

Akamai Optimized Extranets is an e-business solution that improves the performance, scalability and security of extranet business applications, without requiring expensive build-outs.

Underlying all of Akamai’s services and solutions is our EdgeControl technology which provides comprehensive reporting and management capabilities. Often businesses use outsourced services to extend the reach and scope of their e-business initiatives and achieve the performance and reliability benefits that these services can deliver. However, for many enterprises, outsourcing also means handing over the control of their e-business infrastructure to a third party. Typically, relying on outside organizations forces a difficult choice: gain the significant advantages of third-party content delivery services or maintain visibility and control of your own infrastructure and the flow of your own information.

Our EdgeControl technology offers a suite of enterprise-class management services for content and applications across the Internet that help eliminate the need to make this choice by:


	•	providing our customers with unprecedented visibility and control over their content and infrastructure across the Internet;


	•	enabling companies to optimize, monitor and manage the performance of their e-business infrastructure; and

	•	ensuring the effectiveness of information and applications.

Our EdgeControl offering seamlessly integrates with existing enterprise management systems, allowing customers to manage their distributed content and applications via a common interface. EdgeControl provides integration with third party network management tools, including those offered by IBM, Hewlett-Packard and BMC Software. Having created one of the industry’s first examples of a commercially proven utility computing platform, we now provide a global network of servers that can be utilized “on demand,” allowing customers to view and manage usage, billing, troubleshooting, monitoring, and reporting, based on their individual business requirements.

We operate in one business segment: providing e-business infrastructure services and solutions. For the years ended December 31, 2003 and 2002, approximately 16% and 13%, respectively, of revenue was derived from our operations outside the United States, of which 13% and 10%, respectively, relate to Europe. No single country accounted for 10% or more of revenue derived outside of the United States. For all other years, less than 10% of revenue was derived from sources outside of the United States. Revenue from services accounted for 98%, 89% and 83%, respectively, of our total revenue for the years ended December 31, 2003, 2002 and 2001. For more information on our segments and geographic areas, including revenues from customers, see our consolidated financial statements appearing in our annual report on Form 10-K, including Note 19 thereto.

The EdgePlatform is the foundation of Akamai’s business solutions. We believe it is the world’s largest globally distributed computing platform, with over 14,000 servers deployed in over 1,000 networks in 71 countries. It includes specialized technologies, including advanced routing, load balancing, data collection and monitoring that lay over the Internet, making it a predictable, scalable, and secure platform for conducting profitable e-business.

Our servers are deployed in over 1,000 networks including Tier 1 providers, medium and small ISPs, cable modem and satellite providers, universities and other networks. We also deploy our servers at smaller and medium-sized domestic and international ISPs through our Akamai Accelerated Network Program. Under this program, we typically do not pay for rack space to house our servers or bandwidth to deliver content from our servers to Internet users. In exchange, ISPs host our servers and obtain access to popular content from the Internet that is served from our platform. As a result, when this content is requested by an enduser, the ISP does not need to pay for the bandwidth otherwise necessary to retrieve the content from the originating website.

The key to the EdgePlatform’s effectiveness is its use of a distributed computing model in which both content and computing applications are exchanged in a system of widely distributed networks of servers, and processed at the most efficient places within the network. Through a combination of architecture and services, Akamai’s EdgePlatform helps organizations maximize e-business efforts quickly, without adding equipment, cost, or complexity to existing IT infrastructure.

Akamai’s EdgePlatform is also the first e-business platform to support Edge Side Includes (ESI), an open specification for dynamic assembly and delivery of highly dynamic Web content at the edge of the Internet. Using ESI and the Akamai EdgePlatform, companies can accelerate e-business applications while reducing complexity, development time and deployment costs. As the first application server to support ESI, the Oracle9i Application Server allows customers to seamlessly write and deploy applications that are optimized to deliver dynamic Web content at top speed across the Akamai EdgePlatform and Oracle9iAS.

Our EdgePlatform is designed so that sites download and run more quickly, deflect security threats and reliably process applications and deliver content — anywhere in the world. Customers are also able to control

We monitor the EdgePlatform through our Network Operations Command Center, or NOCC, located at our corporate headquarters, with a back-up facility in California. Our experienced network operations personnel staff the NOCC 24 hours per day, seven days a week. We perform real-time monitoring of our own servers and of the Internet to make certain that content is delivered to users with the best possible performance and reliability. A key design principle of our system is the use of a distributed network of servers with no single point of failure. As a result, if any computer, data center or portion of the Internet fails, our services will continue operating. We constantly monitor the performance of connections between various locations around the Internet and our regions using numerous types of network information to determine the performance of these connections. The result is a “map” of the optimal Akamai region for each location at that point in time. We rebuild this map periodically to reflect changing conditions.

Our technology is designed so that our servers maintain redundancy with other servers in our network to ensure the highest level of performance and reliability for our customers. This is increasingly important for reliably delivering the mission-critical content and applications of an enterprise over IP networks that, on their own, are often unreliable.

Our customer base is centered on enterprises. As of December 31, 2003, our customers included many of the world’s leading enterprises, including Apple Computer, Inc., Best Buy.com, Inc., FedEx Corporation, General Motors Corporation, Microsoft Corporation, NASDAQ, MTV Networks, Sony Ericsson Mobile Communications and Victoria’s Secret. We have also begun to address the needs of the government market and, as of December 31, 2003, had customers such as the Centers for Disease Control and Prevention, the Department of Defense, the Department of Education, the Food and Drug Administration, the U.S. Army Recruitment, the U.S. Geological Survey’s Earthquake Hazards Program and the Voice of America. For the year ended December 31, 2003, Microsoft Corporation accounted for 15% of total revenue. No customer accounted for 10% or more of total revenue for the years ended December 31, 2001 or 2002.

Our sales and service professionals are located in eight offices in the United States with additional locations in Europe and Japan. We market and sell our services and solutions domestically and internationally through our direct sales and services organization and through more than 25 active resellers including Electronic Data Systems Corporation, IBM, InterNap Network Services Corporation MCI, Telefonica Group and others. In addition to entering into agreements with reseller partners, we have several other types of alliances, including: Edge Architecture Design Partners, ASP Partners, Agency Partners, Technology Partners and Network Partners. By aligning with these companies, we are better able to market our services and adoption of our technology throughout the industry.

Our sales and support organization includes employees in direct and channel sales, professional services, account management and technical consulting. As of December 31, 2003, we had 212 employees in our sales and support organization, including 98 sales representatives whose performance is measured on the basis of achievement of quota objectives. Our ability to achieve significant revenue growth in the future will depend in large part on whether we successfully recruit, train and retain sufficient direct sales, technical and global services personnel, and how well we establish and maintain relationships with our strategic partners. We believe that the complexity of our services will continue to require a number of highly trained global sales and services personnel.

To support our sales efforts and promote the Akamai name, we conduct comprehensive marketing programs. Our marketing strategies include an active public relations campaign, print advertisements, on-line advertisements, trade shows, strategic partnerships and on-going customer communication programs. As of December 31, 2003, we had 20 employees in our global marketing organization.

Our research and development organization is continuously enhancing and improving our existing services, strengthening our network and creating new services in response to our customers’ needs and market demand. As of December 31, 2003, we had 146 employees in our research and development organization, many of whom hold advanced degrees in their field. Our research and development expenses were $13.0 million, $21.8 million and $44.8 million for the years ended December 31, 2003, 2002 and 2001, respectively.

The market for our services remains relatively new, intensely competitive and characterized by rapidly changing technology, evolving industry standards and frequent new product and service installations. We expect competition for our services to increase both from existing competitors and new market entrants. We compete primarily on the basis of:


	•	performance of services and software;

	•	return on investment in terms of cost savings and new revenue opportunities for our customers;

	•	reduced infrastructure complexity;

	•	scalability;

	•	ease of implementation and use of service;

	•	customer support; and

	•	price.

We compete primarily with companies offering products and services that address Internet performance problems, including companies that provide Internet content delivery and hosting services, streaming content delivery services and equipment-based solutions to Internet performance problems, such as load balancers and server switches. Some of these companies resell our services. We also compete with companies that host online conferences using proprietary conferencing applications. We do not believe that any other company currently offers the range of solutions that we offer through our EdgeSuite service.

Our success and ability to compete are dependent on our ability to develop and maintain the proprietary aspects of our technology and operate without infringing on the proprietary rights of others. We rely on a combination of patent, trademark, trade secret and copyright laws and contractual restrictions to protect the proprietary aspects of our technology. We currently have numerous issued United States patents covering our content delivery technology, and we have numerous additional patent applications pending. Our issued patents extend to various dates between approximately 2015 and 2020. In October 1998, we entered into a license agreement with the Massachusetts Institute of Technology, or MIT, under which we were granted a royalty-free, worldwide right to use and sublicense the intellectual property rights of MIT under various patent applications and copyrights relating to Internet content delivery technology. Two of these patent applications have now been issued. These patents will expire in 2018. We seek to limit disclosure of our intellectual property by requiring employees and consultants with access to our proprietary information to execute confidentiality agreements with us and by restricting access to our source code.

As of December 31, 2003, we had a total of 535 full-time and part-time employees. Our future success will depend in part on our ability to attract, retain and motivate highly qualified technical and management personnel for whom competition is intense. Our employees are not represented by any collective bargaining unit. We believe our relations with our employees are good.

The following important factors, among other things, could cause our actual operating results to differ materially from those indicated or suggested by forward-looking statements made in this annual report on Form 10-K or presented elsewhere by management from time to time.

We have never been profitable under generally accepted accounting principles. We have incurred significant losses since inception in 1998 and expect to continue to incur losses through at least the first half of 2004. We have large fixed expenses, and we expect to continue to incur significant bandwidth, sales and marketing, product development, administrative, interest and other expenses. Therefore, we will need to generate higher revenue to achieve and maintain profitability. There are numerous factors that could, standing alone or combined with other factors, impede our ability to increase revenue and/or moderate expenses, including:


	•	failure to increase sales of our EdgeSuite and EdgeComputing services and related features and functions;

	•	significant increases in bandwidth costs or other operating expenses;

	•	any lack of market acceptance of our services due to continuing concerns about commercial use of the Internet, including security, reliability, speed, cost, ease of access, quality of service and regulatory initiatives;

	•	any failure of our current and planned services and software to operate as expected;

	•	a failure by us to respond rapidly to technological changes in our industry that could cause our services to become obsolete;

	•	a continuation of adverse economic conditions worldwide that have contributed to slowdowns in capital expenditures by businesses, particularly capital spending in the information technology market;

	•	failure of a significant number of customers to pay our fees on a timely basis or at all or to continue to purchase our services in accordance with their contractual commitments; and

	•	inability to attract high-quality customers to purchase and implement our current and planned services and software.

The market for our Internet-related services is relatively new. We cannot be certain that a broad-based market for our services will emerge or be sustainable. Many of our customers are early adopters of new technologies such as those we offer. If we are unable to maintain pricing levels or our market share among these companies, our revenues will not grow and may decrease. If enterprises that are less aggressive in adopting new technologies are reluctant to purchase our services, we will have fewer opportunities to sell our services and will have difficulty generating growth and profits.

We have significant long-term debt, and we may not be able to make interest or principal payments when due. As of December 31, 2003, our total long-term debt was approximately $386.0 million and our stockholders’ deficit was approximately $175.4 million. In January 2004, we issued an additional $25.0 million of our 1.0% convertible senior notes due December 15, 2033. Our substantial level of indebtedness could adversely affect our future operations, by increasing our vulnerability to adverse changes in general economic

Neither our existing 5 1/2% convertible subordinated notes due 2007, nor our 1.0% convertible senior notes due in 2033, restrict our ability or our subsidiaries’ ability to incur additional indebtedness. Our ability to satisfy our obligations will depend upon our future performance, which is subject to many factors, including factors beyond our control.

In December 2003 and January 2004, we repurchased $99.0 million in principal amount of our 5 1/2% convertible subordinated notes. In February 2004, we announced a tender offer to repurchase up to an additional $101.0 million in aggregate principal amount of the 5 1/2% convertible subordinated notes. The tender offer period is scheduled to expire on March 10, 2004. There can be no assurance, however, that we will complete the tender offer in whole or in part. In order to reduce further future cash interest payments, as well as future payments due at maturity, we may, from time to time, depending on market conditions, repurchase or redeem additional outstanding 5 1/2% convertible subordinated notes for cash; exchange 5 1/2% convertible subordinated notes for shares of our common stock, warrants, preferred stock, debt or other consideration; or a combination of any of the foregoing. If we exchange shares of our capital stock, or securities convertible into or exercisable for our capital stock, for outstanding 5 1/2% convertible subordinated notes, the number of shares that we might issue as a result of such exchanges could significantly exceed the number of shares originally issuable upon conversion of the 5 1/2% convertible subordinated notes. We cannot assure you that we will repurchase, redeem or exchange any additional 5 1/2% convertible subordinated notes.

Historically, we have had negative cash flow from operations. For the year ended December 31, 2003, net cash used in operating activities was approximately $18.0 million. As of March 9, 2004, we had $201.0 million in aggregate principal amount of our 5 1/2% convertible subordinated notes outstanding. Assuming no additional 5 1/2% convertible subordinated notes are converted or redeemed our annual interest payments on our 5 1/2% convertible subordinated notes will be approximately $11.1 million and annual interest payment on our 1.0% convertible senior notes will be approximately $2.0 million. In addition, if our 5 1/2% convertible subordinated notes are converted or if we do not repurchase, redeem, exchange or otherwise repay our outstanding 5 1/2% convertible subordinated notes prior to 2007, they will become due. The holders of our 1.0% convertible senior notes have the right to require us to redeem such notes in December 2010. Unless we are able to generate sufficient operating cash flow to service and, in 2007, pay the 5 1/2% convertible subordinated notes and service the 1.0% convertible senior notes, we will be required to raise additional funds or default on our obligations under our 5 1/2% convertible subordinated notes and 1.0% convertible senior notes.

The holders of our 5 1/2% convertible subordinated notes have the right to convert those notes into our common stock. The conversion price for the 5 1/2% convertible subordinated notes is $115.47 per share. The current market price for shares of our common stock is significantly below the conversion price of the 5 1/2% convertible subordinated notes. If the market price for our common stock does not exceed the conversion price, the holders of the notes are unlikely to convert their securities into common stock and we will be required instead to pay the holders of such notes.

Our 1% convertible senior notes are convertible into shares of our common stock at the option of the holder under certain circumstances at an initial conversion price of $15.45 per share. The conversion of some or all of the 1% convertible senior notes and any sales in the public market of our common stock issuable upon such conversion could adversely affect the prevailing market price of our common stock. In addition, the existence of the 1% convertible senior notes may encourage short selling by market participants because the conversion of the notes could depress our common stock price.

If our revenue decreases or grows more slowly than we anticipate or if our operating expenses increase more than we expect or cannot be reduced in the event of lower revenue, we may need to obtain funding from outside sources. If we are unable to obtain this funding, our business would be materially and adversely affected. In addition, even if we were to find outside funding sources, we might be required to issue securities with greater rights than the securities we have outstanding today. We might also be required to take other actions that could lessen the value of our common stock, including borrowing money on terms that are not favorable to us, if at all.

We compete in markets that are new, intensely competitive, highly fragmented and rapidly changing. We have experienced and expect to continue to experience increased competition. Many of our current competitors, as well as a number of our potential competitors, have longer operating histories, greater name recognition, broader customer relationships and industry alliances and substantially greater financial, technical and marketing resources than we do. Our competitors may be able to respond more quickly than we can to new or emerging technologies and changes in customer requirements. Some of our current or potential competitors may bundle their services with other services, software or hardware in a manner that may discourage website owners from purchasing any service we offer or ISPs from installing our servers. Increased competition could result in price and revenue reductions, loss of customers and loss of market share, which could materially and adversely affect our business, financial condition and results of operations.

Prices we have been charging for some of our services have declined in recent years. We expect that this decline may continue in the future as a result of, among other things, existing and new competition in the markets we address. Consequently, our historical revenue rates may not be indicative of future revenue based on comparable traffic volumes. If we are unable to sell our services at acceptable prices relative to our costs or if we are unsuccessful with our strategy of “upselling” our higher-priced services to our EdgeSuite delivery customers, our revenue and gross margins will decrease, and our business and financial results will suffer.

For the year ended December 31, 2003, Microsoft accounted for more than 10% of our revenue. In September 2003, we entered into an amendment to our content delivery services customer agreement with Microsoft that has a two-year term and includes a minimum usage commitment. Microsoft will have the right to reduce its commitment levels by 50% for the second year of the term and convert the contract to a month-to-month term after the first year if the parties fail to reach agreement as to appropriate price changes after the first year of the term. While we expect revenue from Microsoft to be greater than 10% of our total revenue in 2004, an unexpected, significant decline in sales to Microsoft would reduce our revenue and cause our business and financial results to suffer.

The market price of our common stock has been volatile. Trading prices may continue to fluctuate in response to a number of events and factors, including the following:


	•	quarterly variations in operating results and announcements of innovations;

	•	new products, services and strategic developments by us or our competitors;

	•	business combinations and investments by us or our competitors;


	•	variations in our revenue, expenses or profitability;

	•	changes in financial estimates and recommendations by securities analysts;

	•	failure to meet the expectations of public market analysts;

	•	performance by other companies in our industry;

	•	any adverse determination in pending or future litigation;

	•	news reports relating to trends in the content delivery, Internet or other product or service industries; and

	•	geopolitical conditions such as acts of terrorism or military conflicts.

Any of these events may cause the price of our shares to fall. In addition, the stock market in general and the market prices for technology companies in particular have experienced significant volatility that often has been unrelated to the operating performance of such companies. These broad market and industry fluctuations may adversely affect the market price of our shares, regardless of our operating performance.

Our business is dependent on providing our customers with fast, efficient and reliable distribution of application and content delivery services over the Internet. For our core services, we currently provide a guarantee that our networks will deliver Internet content 24 hours a day, seven days a week, 365 days a year. If we do not meet this standard, our customer does not pay for all or a part of its services on that day. Our network or services could be disrupted by numerous events, including natural disasters, failure or refusal of our third-party network providers to provide the capacity, power losses, and intentional disruptions of our services, such as disruptions caused by software viruses or attacks by unauthorized users. Any widespread loss or interruption of our network or services would reduce our revenue and could harm our business, financial results and reputation.

Our operations are dependent in part upon transmission capacity provided by third-party telecommunications network providers. We believe that we have access to adequate capacity to provide our services; however, there can be no assurance that we are adequately prepared for unexpected increases in bandwidth demands by our customers. In addition, the bandwidth we have contracted to purchase may become unavailable for a variety of reasons. For example, a number of these network providers are operating under the protection of the federal bankruptcy laws. As a result, there is uncertainty about whether such providers, or others that enter into bankruptcy, will be able to continue to provide services to us. Any failure of these network providers to provide the capacity we require, due to financial or other reasons, may result in a reduction in, or interruption of, service to our customers. If we do not have access to third-party transmission capacity, we could lose customers. If we are unable to obtain transmission capacity on terms commercially acceptable to us, our business and financial results could suffer. In addition, our telecommunications and network providers typically provide rack space for our servers. Damage or destruction of, or other denial of access to, a facility where our servers are housed could result in a reduction in, or interruption of, service to our customers.

Our services are highly complex and are designed to be deployed in and across numerous large and complex networks. From time to time, we have needed to correct errors and defects in our software. In the future, there may be additional errors and defects in our software that may adversely affect our services. If we are unable to efficiently fix errors or other problems that may be identified, we could experience loss of revenues and market share, damage to our reputation, increased expenses and legal actions by our customers.

Our financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments about, including without limitation taxes, revenue recognition, capitalization of internal-use software, contingent obligations, doubtful accounts and restructuring charges, that affect the reported amounts of our assets, liabilities, revenues and expenses, the amounts of charges accrued by us, such as those made in connection with our restructuring charges, and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. If our estimates or the assumptions underlying them are not correct, we may need to accrue additional charges which could adversely affect our results of operations, which in turn could adversely affect our stock price.

We have licensed technology from MIT covered by various patents, patent applications and copyrights relating to Internet content delivery technology. Some of our technology is based in part on the technology covered by these patents, patent applications and copyrights. Our license is effective for the life of the patents and patent applications; however, under limited circumstances, such as a cessation of our operations due to our insolvency or our material breach of the terms of the license agreement, MIT has the right to terminate our license. A termination of our license agreement with MIT could have a material adverse effect on our business.

Other companies or individuals, including our competitors, may obtain patents or other proprietary rights that would prevent, limit or interfere with our ability to make, use or sell our services. As a result, we may be found to infringe the proprietary rights of others. In the event of a successful claim of infringement against us and our failure or inability to license the infringed technology, our business and operating results would be significantly harmed. Companies in the Internet market are increasingly bringing suits alleging infringement of their proprietary rights, particularly patent rights. We have been named as a defendant in several lawsuits alleging that we have violated other companies’ intellectual property rights. Any litigation or claims, whether or not valid, could result in substantial costs and diversion of resources and require us to do one or more of the following:


	•	cease selling, incorporating or using products or services that incorporate the challenged intellectual property;

	•	pay substantial damages;

	•	obtain a license from the holder of the infringed intellectual property right, which license may not be available on reasonable terms or at all; and

	•	redesign products or services.

If we are forced to take any of these actions, our business may be seriously harmed.

We rely on a combination of patent, copyright, trademark and trade secret laws and restrictions on disclosure to protect our intellectual property rights. We have brought numerous lawsuits against entities that we believe are infringing on our intellectual property rights. These legal protections afford only limited protection. Monitoring unauthorized use of our services is difficult and we cannot be certain that the steps we have taken will prevent unauthorized use of our technology, particularly in foreign countries where the laws

may not protect our proprietary rights as fully as in the United States. Although we have licensed from other parties proprietary technology covered by patents, we cannot be certain that any such patents will not be challenged, invalidated or circumvented. Furthermore, we cannot be certain that any pending or future patent applications will be granted, that any future patent will not be challenged, invalidated or circumvented, or that rights granted under any patent that may be issued will provide competitive advantages to us.

Our future success depends upon the continued services of our executive officers and other key technology, sales, marketing and support personnel who have critical industry experience and relationships that they rely on in implementing our business plan. None of our officers or key employees is bound by an employment agreement for any specific term. We have a “key person” life insurance policy covering only the life of F. Thomson Leighton, our Chief Scientist and a member of our Board of Directors. The loss of the services of any of our key employees could delay the development and introduction of and negatively impact our ability to sell our services.

We have operations in several foreign countries and may continue to expand our sales and support organizations internationally. Such expansion could require us to make significant expenditures. We are increasingly subject to a number of risks associated with international business activities that may increase our costs, lengthen our sales cycle and require significant management attention. These risks include:


	•	lack of market acceptance of our software and services abroad;

	•	increased expenses associated with marketing services in foreign countries;

	•	general economic conditions in international markets;

	•	currency exchange rate fluctuations;

	•	unexpected changes in regulatory requirements resulting in unanticipated costs and delays;

	•	tariffs, export controls and other trade barriers;

	•	longer accounts receivable payment cycles and difficulties in collecting accounts receivable; and

	•	potentially adverse tax consequences.

We have made acquisitions of other companies in the past and may enter into additional business combinations and acquisitions in the future. Acquisitions are typically accompanied by a number of risks, including the difficulty of integrating the operations and personnel of the acquired companies, the potential disruption of our ongoing business, the potential distraction of management, expenses related to the acquisition and potential unknown liabilities associated with acquired businesses. If we are not successful in completing acquisitions that we may pursue in the future, we may be required to reevaluate our business strategy, and we may have incurred substantial expenses and devoted significant management time and resources without a productive result. In addition, with future acquisitions, we could use substantial portions of our available cash or make dilutive issuances of securities. Future acquisitions or attempted acquisitions could have an adverse effect on our ability to achieve and maintain profitability.

Laws and regulations that apply to communications and commerce over the Internet are becoming more prevalent. In particular, the growth and development of the market for online commerce has prompted calls

for more stringent tax, consumer protection and privacy laws, both in the United States and abroad, that may impose additional burdens on companies conducting business online. This could negatively affect the businesses of our customers and reduce their demand for our services. Tax laws that might apply to our servers which are located in many different jurisdictions could require us to pay additional taxes that would adversely affect our profitability. Internet-related laws, however, remain largely unsettled, even in areas where there has been some legislative action. The adoption or modification of laws or regulations relating to the Internet or our operations, or interpretations of existing law, could adversely affect our business.

Terrorist attacks in New York, Pennsylvania and Washington, D.C. in September 2001 disrupted commerce throughout the United States and other parts of the world. The continued threat of terrorism within the United States and abroad, and the potential for military action and heightened security measures in response to such threat, may cause significant disruption to commerce throughout the world. To the extent that such disruptions result in delays or cancellations of customer orders, a general decrease in corporate spending on information technology, or our inability to effectively market, sell or operate our services and software, our business and results of operations could be materially and adversely affected.

Provisions of our amended and restated certificate of incorporation, by-laws and Delaware law could make it more difficult for a third party to acquire us, even if doing so would be beneficial to our stockholders. In addition, our Board of Directors has adopted, and recently amended, a shareholder rights plan the provisions of which could make it more difficult for a potential acquirer of Akamai to consummate an acquisition transaction. See “Description of Capital Stock.”

We are named as a defendant in a purported class action lawsuit filed in 2001 alleging that the underwriters of our initial public offering received undisclosed compensation in connection with our initial public offering of common stock in violation of the Securities Act and the Securities Exchange Act of 1934, as amended, which we refer to as the Exchange Act. This litigation could be expensive and divert the attention of our management and other resources. We can provide no assurance as to the outcome of this action. Any conclusion of these matters in a manner adverse to us could have a material adverse affect on our financial position and results of operations.

In the ordinary course of business, we may become involved in litigation, administrative proceedings and governmental proceedings. Such matters can be time-consuming, divert management’s attention and resources and cause us to incur significant expenses. Furthermore, there can be no assurance that the results of any of these actions will not have a material adverse effect on our business, results of operations or financial condition.

Our headquarters are located in approximately 89,000 square feet of leased office space in Cambridge, Massachusetts. Our primary west coast office is located in approximately 25,000 square feet of leased office space in San Mateo, California. We maintain leased office space in several other locations in the United States, including in or near Los Angeles, California; Atlanta, Georgia; Chicago, Illinois; New York, New York; Fairfax, Virginia and Seattle, Washington. We also maintain leased office space in Europe and Asia in or near the following cities: Munich, Germany; Paris, France; London, England; Tokyo, Japan; and Singapore.

We are subject to legal proceedings, claims and litigation arising in the ordinary course of business. We do not expect the ultimate costs to resolve these matters to have a material adverse effect on our consolidated financial position, results of operations or cash flows.

Between July 2, 2001 and August 31, 2001, purported class action lawsuits seeking monetary damages were filed in the United States District Court for the Southern District of New York against us as well as against the underwriters of our October 28, 1999 initial public offering of common stock. The complaints were filed allegedly on behalf of persons who purchased our common stock during different time periods, all beginning on October 28, 1999 and ending on various dates. The complaints are similar and allege violations of the Securities Act of 1933 and the Securities Exchange Act of 1934 primarily based on the allegation that the underwriters received undisclosed compensation in connection with our initial public offering. On April 19, 2002, a single consolidated amended complaint was filed, reiterating in one pleading the allegations contained in the previously filed separate actions. The consolidated amended complaint defines the alleged class period as October 28, 1999 through December 6, 2000. Although we believe that we have meritorious defenses to the claims made in the complaint, an adverse resolution of the action could have a material adverse effect on our financial condition and results of operations in the period in which the lawsuit is resolved. We are not presently able to estimate potential losses, if any, related to this lawsuit.

In February 2002, we filed suit against Speedera Networks, Inc., or Speedera, in federal court in Massachusetts, alleging patent infringement and false advertising by Speedera. In April 2003, we amended our complaint to include an allegation that Speedera infringes a newly-issued content delivery patent held by MIT and licensed to Akamai. In response, Speedera filed a counterclaim in this case alleging that Akamai has infringed a Speedera patent relating to the combined provision of traffic management and content delivery services. We believe that we have meritorious defenses to the claims made in the counterclaim and intend to contest them vigorously; however, there can be no assurance that we will be successful. We are not presently able to reasonably estimate potential losses, if any, related to this counterclaim.

In June 2002, we filed suit against Speedera in California Superior Court alleging theft of Akamai trade secrets from an independent company that provides website performance testing services. In connection with this suit, in September 2002, the Court issued a preliminary injunction to restrain Speedera from continuing to access our confidential information from the independent company’s database and from using any data obtained from such access. In October 2002, Speedera filed a cross-claim against us seeking monetary damages and injunctive relief and alleging that we engaged in various unfair trade practices, made false and misleading statements and engaged in unfair competition. We believe that we have meritorious defenses to the claims made in Speedera’s cross-claim and intend to contest the allegations vigorously; however, there can be no assurance that we will be successful. We are not presently able to reasonably estimate potential losses, if any, related to this cross-claim.

In September 2002, Teknowledge Corporation, or Teknowledge, filed suit in the United States District Court for the District of Delaware against Akamai, C&W and Inktomi Corporation alleging that certain services offered by each company infringe a Teknowledge patent relating to automatic retrieval of changed files by a network software agent. We believe that we have meritorious defenses to the claims made in the complaint and intend to contest the lawsuit vigorously; however, there can be no assurance that we will be successful. We are not presently able to reasonably estimate potential losses, if any, related to this lawsuit.

In November 2002, we filed suit against Speedera in federal court in Massachusetts for infringement of a patent held by Akamai. In January 2003, Speedera filed a counterclaim in this case alleging that Akamai has infringed a patent held by Speedera. We believe that we have meritorious defenses to the claims made in the counterclaim and intend to contest them vigorously; however, there can be no assurance that we will be successful. We are not presently able to reasonably estimate potential losses, if any, related to this counterclaim.

Item 5. Market For Registrant’s Common Equity and Related Stockholder Matters

Our common stock trades under the symbol “AKAM.” From the time that public trading of our common stock commenced on October 29, 1999 until September 3, 2002 and since May 5, 2003, our common stock was listed on The NASDAQ National Market. Our common stock was listed on The NASDAQ SmallCap Market between September 3, 2002 and May 2, 2003. Prior to October 29, 1999, there was no public market for our common stock. The following table sets forth, for the periods indicated, the high and low sale price per share of the common stock on The NASDAQ National Market and The NASDAQ SmallCap Market, as applicable:

We have never paid or declared any cash dividends on shares of our common stock or other securities and do not anticipate paying any cash dividends in the foreseeable future. We currently intend to retain all future earnings, if any, for use in the operation of our business.

The following selected consolidated financial data should be read in conjunction with our consolidated financial statements and related notes and with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other financial data included elsewhere in this annual report on Form 10-K. The statement of operations data and balance sheet data for all periods presented is derived from audited consolidated financial statements included elsewhere in this annual report on Form 10-K or on file with the Securities and Exchange Commission. In 2002, the Company modified the presentation of the consolidated statement of operations to include in cost of revenue equity-related compensation expense, based on the functional role of the related employee, and depreciation and amortization on its network equipment.

We acquired several businesses in 2000 that were recorded under the purchase method of accounting. We allocated $3 billion of the cost of these acquisitions to goodwill and other intangible assets. As a result, loss from operations for the years ended December 31, 2001 and 2000 includes $255.8 million and $676.1 million, respectively, for the amortization of goodwill and other intangible assets related to these acquisitions. In 2001, loss from operations includes a $1.9 billion impairment of goodwill. On January 1, 2002, in accordance with Statement of Financial Accounting Standards, or SFAS, No. 142, “Goodwill and Other Intangible Assets,” we discontinued the amortization of goodwill and reclassified our assembled workforce of $1.0 million to goodwill. Loss from continuing operations for the years ended December 31, 2002 and 2001 includes

restructuring charges of $45.8 million and $40.5 million, respectively, for actual and estimated termination and modification costs related to non-cancelable facility leases and employee severance. Loss from continuing operations for the year ended December 31, 2003 includes a restructuring credit of $8.5 million for the reversal of previously accrued restructuring liabilities and loss on early extinguishment of debt of $2.1 million.

In accordance with SFAS No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13 and Technical Corrections,” losses on the early extinguishment of debt are no longer required to be classified as extraordinary items, as previously required by SFAS No. 4, “Reporting Gains and Losses from Extinguishment of Debt.” Accordingly, for the year ended December 31, 1999, we reclassified the loss resulting from the early extinguishment of debt of $3.3 million from extraordinary loss to a loss from continuing operations.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

We primarily derive revenue from recurring Akamai services sold to customers under contracts of a duration of more than one year, which we refer to as recurring revenue or long-term contracts. These contracts generally commit the customer to a minimum monthly level of usage with additional charges applicable for actual usage above the monthly minimum. Having a consistent and predictable base level of revenue is important to our financial success. Accordingly, to be successful, we must eliminate or reduce loss of monthly recurring revenue due to customer cancellations of terminations, increase our base level of recurring revenue contracts on a quarter-over-quarter basis and build on that base by adding new customers in the future and increasing the number of features and functions our customers purchase. At the same time, we must ensure that our expenses do not substantially exceed our revenue. Accomplishing these goals requires that we compete effectively in the marketplace on the basis of price, quality and the attractiveness of our services and technology. See “Factors Affecting Future Operating Results” elsewhere in the annual report on Form 10-K.

Our improved financial results in 2003 as compared to 2002 and 2001 reflect our ability to increase our monthly recurring revenue while reducing the expenses needed to support such growth. The following sets forth, as a percentage of revenue, consolidated statements of operations data for the years indicated:

Since our inception, we have incurred significant costs to develop our technology, build our worldwide network, sell and market our services and software and support our operations. In recent years, we have incurred significant restructuring expenses related to employee severance payments and facility lease settlements. We have not yet achieved profitability on a quarterly or annual basis; however, we have observed the following known trends and events that are likely to have an impact on our financial condition and results of operation in the future:


	•	During each quarter in 2003, the dollar volume of the recurring revenue contracts that we have booked exceeded the dollar volume of the contracts we lost through cancellations, terminations and non-payment. A continuation of this trend would lead to increased revenue for us.


	•	During 2003, one customer, Microsoft Corporation, accounted for greater than 10% of our total revenue. We expect to continue to do business with this customer under a long-term contract signed during 2003, and we expect that the revenue from that customer will again be greater than 10% of our total revenue in 2004. We expect revenue derived from companies outside the United States will be between 15% and 20% of our total revenue in 2004.

	•	During recent quarters, we have reduced our network bandwidth costs per unit by entering into new supplier contracts with lower pricing and amending existing contracts to take advantage of price reductions in the market. These price reductions contributed to reductions to our cost of revenue. We believe bandwidth costs will increase as traffic delivered on our network increases. However, we expect to continue to improve management of our network. If successful, bandwidth cost per unit would slightly decrease.

	•	During 2003, depreciation of our long-lived assets decreased on a quarterly basis mostly due to these assets becoming fully depreciated. Although we expect that the amortization of internal-use software development costs, which we include in cost of revenue, will increase in the future, we expect that total depreciation and amortization expense will continue to decrease in 2004 due to a decline in equipment purchases in 2003 compared to prior years. Additionally, we believe that depreciation will continue to decrease due to a reduction from previous levels as we replace our equipment at lower cost as compared to historical cost.

	•	We expect a net decline in equity compensation costs in 2004 as equity awards issued in previous years become fully vested. This reduction is primarily due to equity compensation charges incurred in connection with issuances of restricted common stock as part of our 2001 exchange offer, these restricted shares will become fully vested in May 2004. Any change in the accounting rules related to employee stock awards requiring that we record expense for employee stock awards at fair value would increase our net loss in the future because we have a significant number of employee options outstanding and expect to continue to grant new options in the future. The amount of any increase resulting from the change in the method of accounting for employee stock options is not determinable at this time due to the number of variables under consideration when determining fair value of stock awards.

	•	We do not anticipate significant investment losses or gains in the future as our portfolio is currently comprised primarily of high-grade debt instruments.

	•	While operating expenses decreased in each of the past three years, we do not expect significant decreases to continue. We expect a slight increase in operating costs due to a rise in selling related costs and an increase in headcount.

	•	We have restructured our excess leased facilities to align future rent obligations to market rates and to eliminate excess capacity. We do not anticipate significant restructuring charges in the future; however, we will continue to pursue modifications or settlements on our long-term leases if we believe it to be in the best interests of Akamai and our stockholders.

	•	In December 2003 and January 2004, we repurchased $99.0 million in aggregate principal amount of our outstanding 5 1/2% convertible subordinated notes. In December 2003 and January 2004, we issued $200.0 million in principal amount of our 1% convertible senior notes. In February 2004, we commenced a tender offer to repurchase up to an additional $101.0 million in principal amount of the 5 1/2% convertible subordinated notes. If the tender offer is fully successful, we believe that interest expense on our debt obligations will not exceed $10.5 million in 2004.

	•	We expect to incur additional losses related to the extinguishment of debt in 2004 as a result of the repurchase of $25.0 million in principal amount of our 5 1/2% convertible subordinated notes in January 2004 and, if successful, our tender offer to repurchase up to an additional $101.0 million in principal amount of our outstanding 5 1/2% convertible subordinated notes announced in February 2004.

Based on our analysis of the aforementioned known trends and events, we expect to generate net income during 2004; however, our future results will be affected by many factors identified below in “Factors Affecting Future Operating Results,” including our ability to:


	•	increase our revenue by adding customers through long-term contracts and limiting customer cancellations and terminations;

	•	maintain our network bandwidth costs and other operating expenses consistent with our revenue;

	•	address future capital expenditure requirements at costs that are within our expectations; and

	•	maintain the prices we charge for our services.

As a result, there is no assurance that the aforementioned trends will continue or that we will achieve our expected financial objectives.

In November 2003, we entered into an agreement with Cable and Wireless Internet Services, or CWIS, leading to the dismissal of lawsuits filed by CWIS against us in Boston, San Francisco and London alleging that our services infringe several different CWIS patents. We did not admit liability or make any payments in connection with these dismissals. As part of the settlement, we also agreed to dismiss several lawsuits that we had brought against CWIS. In addition, Akamai and CWIS agreed not to sue each other for a period of five years with respect to the patents and their respective service offerings that had been at issue in these cases.

In December 2003, we forgave $247,000 of $778,000 due under a note receivable that had been issued to us by an employee that enabled this employee in 1999, to purchase shares of our common stock. We recorded the forgiveness of $247,000 as equity-related compensation. The remaining $531,000 due on the note was paid in full in December 2003.

In December 2003, we issued $175.0 million in aggregate principal amount of 1% convertible senior notes in exchange for $169.8 million in cash, which reflected a purchase discount of 2.75% to the initial purchaser of the notes and other offering expenses. The notes are due in December 2033; however, we have the right to redeem the notes at par value in December 2010 and the holders of these notes have the right to require us to redeem the notes in December 2010. The 1% convertible senior notes accrue interest at the rate of 1% per year, which is payable semi-annually. Under certain circumstances, holders of these notes may convert them into shares of our common stock at the price of $15.45 per share. As a result of this transaction, we recorded interest expense, including deferred financing amortization costs, totaling $125,000 in 2003.

In January 2004, the initial purchaser of the 1% convertible senior notes exercised its option to purchase an additional $25.0 million in principal amount of the notes for a payment of $24.3 million, net of the initial purchaser’s discount.

In December 2003 and January 2004, in a limited number of individually negotiated transactions, we repurchased an aggregate of $99.0 million in principal amount of our outstanding 5 1/2% convertible subordinated notes for an aggregate cash payment of $98.9 million, net of interest paid or payable to the holders.

In February 2004, we commenced a tender offer to repurchase up to an additional $101.0 million in aggregate principal amount of our outstanding 5 1/2% convertible subordinated notes. Under the modified Dutch Auction structure of the tender offer, we offered to repurchase up to $101.0 million in principal amount of validly tendered 5 1/2% convertible subordinated notes at a purchase price between $1,000 and $1,005 for each $1,000 in principal amount tendered. The tender offer is subject to numerous conditions. The tender offer period is scheduled to expire on March 10, 2004.

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, cash flow and related disclosure of contingent assets and liabilities. Our estimates include those related to revenue recognition, allowance for doubtful accounts, investments, capitalization of internal-use software, intangible assets, income taxes, depreciable lives of property and equipment, restructuring accruals and contingent obligations. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates. For a complete description of our accounting policies, see Note 2 to our consolidated financial statements included in this annual report on Form 10-K.

We define our “critical accounting policies” as those accounting principles generally accepted in the United States of America that require us to make critical accounting estimates about matters that are uncertain and have a material impact on our financial position and results of operations and the specific manner that we apply those principles. We define a “critical accounting estimate” as an estimate that requires us to make assumptions about matters that are highly uncertain at the time the accounting estimate is made and either the estimate is derived from a range of potential outcomes or changes in the estimate would have a material impact on our financial condition or results of operations.


	•	an enforceable arrangement to deliver the service has been established;

	•	the service or software has been delivered to and accepted (when applicable) by the customer;

	•	the fee for the service or software is fixed or determinable; and

	•	collection is reasonably assured.

At the inception of a long-term customer contract for service, we make a critical estimate as to whether collection is reasonably assured. We base our estimate on the successful completion of a credit check, financial review, the receipt of a deposit from the customer and our payment history with the customer. Upon the completion of these steps, we recognize revenue monthly in accordance with our revenue recognition policy, assuming the other criteria are met. If we subsequently determine that collection is not reasonably assured, we cease recognizing revenue until cash is received. We also record an allowance for doubtful accounts and bad debt expense for all other unpaid invoices for the related customer. Changes in our estimates of whether collection is reasonably assured would change the amount of revenue or bad debt expense that we recognize.

When we provide professional services such as custom applications and other services considered essential to the functionality of software for a fixed fee, we recognize revenue from the fees for such services and any related software licenses as we complete the project using the percentage-of-completion method. We generally determine the percentage-of-completion by comparing the labor hours we have incurred to date to the estimate of the total labor hours required to complete the project based on regular discussions with our project managers. This method is used because we consider expended labor hours to be the most reliable, available measure of progress on these projects. Adjustments to contract estimates are made in the periods in which facts resulting in a change become known. When the estimate indicates a loss, such loss is provided for

Other professional services not considered essential to the functionality of the software are limited and primarily include integration fees. We recognize revenue from these professional services monthly, along with the related long-term customer contract. When we provide services on a time and materials basis, we recognize revenue as we perform the services based on actual time incurred. When we provide support and maintenance services, we recognize the revenue ratably over the term of the related contracts, typically one year.

From time to time, we enter into contracts to sell our services or license our technology with unrelated companies at or about the same time we enter into contracts to purchase products or services from the same companies. If we conclude that these contracts were negotiated concurrently, we record as revenue only the net cash received from the vendor, unless the fair value to us of the vendor’s product or service can be established objectively and realization of such value is believed to be probable.

We periodically review all investments for reduction in fair value that is other-than-temporary. We consider several factors that may trigger an other-than-temporary decline in value, such as the length of time the investment’s value has been below cost and the financial results of the entity in which we invest. When we conclude that the reduction is other-than-temporary, the cost of the investment is adjusted to its fair value through a charge to loss on investments on the consolidated statement of operations. Changes in our judgment as to whether a reduction in the value of an investment is other-than-temporary could increase loss on investments.

We review our long-lived assets, such as fixed assets and intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Events that would trigger an impairment review include a change in the use of the asset or forecasted negative cash flows related to the asset. When such a triggering event occurs, we compare the carrying amount of the long-lived asset to the undiscounted expected future cash flows related to the asset. If the carrying amount is greater than the sum of the undiscounted cash flows, we adjust the asset to its fair value through an impairment charge included in loss from operations. We determine fair value based upon a quoted market price or a discounted cash flow analysis. The critical accounting estimates required for this accounting policy include forecasted usage of the long-lived assets and the useful lives of these assets. Changes in these estimates could increase loss from operations materially.

When we vacate a facility subject to a non-cancelable long-term lease, we record a restructuring liability for either the estimated costs to terminate the lease or the estimated costs that will continue to be incurred under the lease for its remaining term where there is no economic benefit to us. In the latter case, we measure the amount of the restructuring liability as the amount of contractual future lease payments reduced by an estimate of sublease income. To date, we have recorded a restructuring liability when our management approves and commits us to a plan to terminate a lease, the plan specifically identifies the actions to be taken, and the actions are scheduled to begin soon after management approves the plan. Beginning in 2003, in accordance with SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities,” we record restructuring liabilities, discounted at the appropriate rate, for a facility lease only when we have both vacated the space and completed all actions needed to make the space readily available for sublease.

As of December 31, 2003, we had $5.2 million in accrued restructuring liabilities related to vacated facilities. In 2003, we were able to renegotiate two of our previously restructured facility leases to reduce rents payable under the leases to current market rates, resulting in a reversal of previously recorded restructuring liabilities of $9.6 million. We expect that approximately $1.6 million of the amount accrued as of December 31, 2003 will be paid within twelve months. In the event that we are able to sublease our restructured space, we will record an adjustment to the restructuring liability in the period in which the adjustment becomes probable and estimable.

We define a loss contingency as a condition involving uncertainty as to a possible loss related to a previous event that will not be resolved until one or more future events occur or fail to occur. Our primary loss contingencies relate to pending or threatened litigation and the collectibility of accounts receivable. We record a liability for a loss contingency when we believe that it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. When we believe the likelihood of a loss is less than probable and more than remote, we do not record a liability but we disclose material loss contingencies in the notes to the consolidated financial statements.

We have recorded certain tax accruals to address potential exposures involving our sales and use and property tax positions. These potential exposures result from the varying application of statutes, rules, regulations and interpretations. Our estimate of the value of our tax accruals contains assumptions based on past experiences and judgments about potential actions by taxing jurisdictions. It is possible that the ultimate resolution of these matters may be greater or less than the amount that we estimated.

The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires us to make estimates and assumptions that affect the reported amount of tax-related assets and liabilities and the provision for income taxes. We assess the recoverability of our deferred tax assets on an ongoing basis. In making this assessment we are required to consider all available positive and negative evidence to determine whether, based on such evidence, it is more likely than not that some portion or all of our net deferred assets will be realized in future periods. This assessment requires significant judgment. In addition, we have made significant estimates involving current and deferred income taxes, tax attributes relating to the interpretation of various tax laws, historical bases of tax attributes associated with certain tangible and intangible assets and limitations surrounding the realizability of our deferred tax assets. We do not recognize current and future tax benefits until it is deemed probable that certain tax positions will be sustained.

We capitalize the salaries and payroll-related costs of employees who devote time to the application development stage of internal-use software projects. If the project is an enhancement to previously developed software, we must assess whether the enhancement is significant and creates additional functionality to the software, thus qualifying the work incurred during the application development stage for capitalization. We must gather employee data for the amount of time incurred during the application development phase. Once the project is complete, we must estimate the useful life of the internal-use software, and we must periodically assess whether the software is impaired. Changes in our estimates related to internal-use software would increase or decrease operating expenses or amortization recorded during the period.

Revenue. Total revenue increased 11%, or $16.3 million, to $161.3 million for the year ended December 31, 2003 as compared to $145.0 million for the year ended December 31, 2002. Total revenue decreased 11%, or $18.2 million, to $145.0 million for the year ended December 31, 2002 as compared to $163.2 million for the year ended December 31, 2001. The increase in total revenue for 2003 as compared to

2002 was attributable to an increase in service revenue of $28.7 million, partially offset by reductions in software and software-related revenue of $2.8 million and related party revenue of $9.7 million. The increase in service revenue was primarily attributable to an increase in monthly committed revenue, along with usage-based customer revenue due to an increase in customer traffic delivered during the year. Microsoft Corporation was the largest contributor to the increase in revenue attributable to usage that was not pre-committed by our customers. Service revenue also increased due to an increase in the number of customers under recurring revenue contracts. As of December 31, 2003, we had 1,126 customers under recurring revenue contracts as compared to 955 as of December 31, 2002, and 1,078 as of December 31, 2001. Revenue decreased in 2002 as compared to 2001 due to a reduction in service revenue of $6.7 million attributable to a decrease in the number of customers under recurring revenue contracts, a reduction in software and software-related revenue of $5.9 million due to a decrease in the amount of software and other technology licensed to customers, as well as a decrease in related party revenue primarily due to the reduction in the monthly commitment of Sockeye Networks, Inc., or Sockeye.

For 2003 and 2002, 16% and 13%, respectively, of our total revenue was derived from our operations located outside of the United States, of which 13% and 10%, respectively, was derived from operations in Europe. No single country accounted for 10% or more of revenue derived outside of the United States. For 2001, less than 10% of our total revenue was derived from our operations located outside of the United States. Resellers accounted for 25% of revenue in 2003, 24% in 2002 and 20% in 2001. For 2003, Microsoft Corporation accounted for 15% of revenue. For 2002 and 2001, no single customer accounted for more than 10% of revenue.

In September 2003, we executed an amendment to our content delivery services customer agreement with Microsoft Corporation. The amended agreement has a two-year term with a minimum usage commitment of $1.3 million. The parties have agreed that, in August 2004, they will negotiate in good faith appropriate changes, if any, to the pricing levels then in effect. If Akamai and Microsoft Corporation are unable to reach agreement on requested pricing changes, the pricing will not change; however, Microsoft Corporation will have the right to reduce its commitment levels by 50% for the second year of the term, and the services shall thereafter be provided on a month-to-month basis subject to termination by either party on ten days notice.

Service revenue, which consists of revenues from our content and application delivery services, increased 22%, or $28.7 million, to $157.4 million for the year ended December 31, 2003 as compared to $128.7 million for the year ended December 31, 2002. Service revenue was $135.3 million for the year ended December 31, 2001. The increase in service revenue in 2003 as compared to 2002 was primarily attributable to an increase in monthly committed revenue, an increase in customer traffic delivered during the year and an increase in the number of customers under recurring revenue contracts. The decrease in service revenue in 2002 as compared to 2001 was attributable to a decrease in customers under recurring revenue contracts, partially offset by an increase in average monthly recurring revenue per customer. We expect service revenue to continue to increase in 2004 as companies continue to choose to outsource some of their IT spending.

Software and software-related revenue decreased 43%, or $2.8 million, to $3.7 million for the year ended December 31, 2003 as compared to $6.5 million for the year ended December 31, 2002. Software and software-related revenue was $12.4 million for the year ended December 31, 2001. Software and software-related revenue includes sales of customized technology solutions sold as perpetual licenses or delivered under long-term contracts. The continual decrease in software and software-related revenue for the periods presented reflects a reduction in the amount of customized software projects and other technology licensed to customers and a decrease in the number of perpetual licenses executed as we focus on our core services business.

Service and software revenue from related parties decreased 99%, or $9.7 million, to $137,000 for the year ended December 31, 2003 as compared to $9.8 million for the year ended December 31, 2002. Service and software revenue from related parties was $15.4 million for the year ended December 31, 2001. The reduction in revenue in 2003 as compared to 2002 from related parties was primarily attributable to revenue in 2002 from Sockeye, Akamai Technologies Japan KK, or Akamai Japan, and SOFTBANK, or SBBM, a co-investor in Akamai Japan, with no associated revenue in 2003. Related party revenue in 2003 represents revenue from

Akamai Australia, a joint venture with ES Group Ventures Pty Ltd, relating to resale commitments. In December 2002 and June 2003, the joint ventures of Akamai Japan and Akamai Australia, respectively, were terminated. In 2003, Akamai formed a wholly-owned subsidiary in Japan. The decrease in revenue from related parties in 2002 as compared to 2001 was a result of the reduction in Sockeye’s minimum monthly revenue commitment in 2001 and the cancellation in November 2002 of Sockeye’s contract with us. We expect no revenue from related parties during 2004.

Cost of Revenue. Cost of revenue includes fees paid to network providers for bandwidth and co-location of our network equipment. Cost of revenue also includes payroll and related costs and equity-related compensation for network operations personnel, cost of licenses, depreciation of network equipment used to deliver our services and amortization of internal-use software costs.

Cost of revenue decreased 28%, or $24.2 million, to $61.1 million for the year ended December 31, 2003 as compared to $85.3 million for the year ended December 31, 2002. Cost of revenue decreased 21%, or $23.0 million, to $85.3 million for the year ended December 31, 2002 as compared to $108.3 million for the year ended December 31, 2001. Traffic delivered over our network increased during 2003 compared to 2002. Despite this increase in traffic, cost of revenue decreased in 2003 as compared to 2002 primarily due to lower bandwidth costs, which we achieved by entering into new, competitively priced network contracts, renegotiating existing network contracts to achieve more favorable pricing and continued improved management of our network traffic. During 2003, depreciation of network equipment continued to decrease as our network assets became fully depreciated. Payroll and payroll-related costs, including equity compensation, also decreased in 2003 due to a reduction in headcount. Cost of revenue decreased in 2002 as compared to 2001 by $23.0 million primarily as a result of a reduction in traffic delivered over our network, lower bandwidth costs per unit and improved management of our network traffic.

Cost of revenue during 2003 and 2002 also included credits received of approximately $3.0 million and $5.6 million, respectively, as a result of entering into new, competitively priced network contracts and renegotiation of existing network contracts. We expect that credits of this nature may occur in the future as a result of our efforts to lower our network costs; however, the timing and amount of these credits, if any, will vary.

We believe cost of revenue will slightly increase in 2004 as compared to 2003 because we expect to deliver more traffic on our network and that amortization of internal-use software development costs will increase. We anticipate that these increases will be offset by a decline in depreciation of our network equipment. In addition, higher expenses associated with increased traffic on our network would be mitigated by lower bandwidth costs per unit, if we are successful at continuing to improve our management of our network.

Research and Development. Research and development expenses consist primarily of payroll and related costs and equity-related compensation for research and development personnel who design, develop, test and enhance our services and our network. Research and development costs are expensed as incurred, except certain software development costs required to be capitalized. During the year ended December 31,

2003 and 2002, we capitalized $7.5 million and $6.0 million, respectively, net of impairments, of payroll and payroll-related costs related to the development of internal-use software used to deliver our services and operate our network. We did not capitalize any payroll costs in 2001. These capitalized internal-use software costs are amortized to cost of revenue over their useful lives of two years.

Research and development expenses decreased 40%, or $8.8 million, to $13.0 million for the year ended December 31, 2003 as compared to $21.8 million for the year ended December 31, 2002. Research and development expenses decreased 51%, or $23.1 million, to $21.8 million for the year ended December 31, 2002 as compared to $44.8 million for the year ended December 31, 2001. The decrease in 2003 as compared to 2002, as well as 2002 as compared to 2001, was primarily due to an increase in capitalization of internal-use software costs and a decrease in payroll and related costs, including equity-related compensation, as a result of workforce reductions in 2002. The decreases in research and development expenses over these years is quantified as follows (in millions):

We believe that research and development expenses will increase slightly in 2004 as compared to 2003, as we continue to make development investments.

Sales and Marketing. Sales and marketing expenses consist primarily of payroll and related costs, equity-related compensation and commissions for personnel engaged in marketing, sales and service support functions, as well as advertising and promotional expenses.

Sales and marketing expenses decreased 27%, or $17.2 million, to $47.6 million for the year ended December 31, 2003 as compared to $64.8 million for the year ended December 31, 2002. Sales and marketing expenses decreased 30%, or $28.1 million, to $64.8 million for the year ended December 31, 2002 as compared to $92.9 million for the year ended December 31, 2001. The decrease in sales and marketing expenses in 2003 as compared to 2002, as well as 2002 as compared to 2001, was primarily due to a reduction in payroll and payroll-related costs, including decreases in equity-related compensation attributable to reductions in headcount in 2002. Sales and marketing during 2003 also decreased as a result of reductions in advertising costs associated with an agreement between CNN News Group and Akamai, which expired in the fourth quarter of 2002. The decreases in sales and marketing expenses over these years is quantified as follows (in millions):

We believe sales and marketing expenses will increase modestly in 2004 as compared to 2003 due to an expected increase in commissions and marketing costs.

General and Administrative. General and administrative expenses consist primarily of depreciation of property and equipment used by us internally, payroll and related costs, equity-related compensation and related expenses for executive, finance, business applications, network management, human resources and

General and administrative expenses decreased 42%, or $40.9 million, to $57.0 million for the year ended December 31, 2003 as compared to $97.9 million for the year ended December 31, 2002. General and administrative expenses decreased 20%, or $24.0 million, to $97.9 million for the year ended December 31, 2002, as compared to $121.9 million for the year ended December 31, 2001. The decrease in general and administrative expenses in 2003 as compared to 2002 was primarily due to reduced payroll and related costs, including equity-related compensation, and reduced rent expense as a result of restructurings. In 2003, general and administrative expenses also decreased due to a reduction in depreciation expense as a result of assets becoming fully depreciated. The decrease in general and administrative expenses in 2002 as compared to 2001 was primarily due to a decrease in the provision for doubtful accounts, reduced payroll and related costs as a result of reductions in headcount and reduced rent expense as a result of facility restructurings. The decrease in the provision for doubtful accounts in 2002 compared to 2001 reflected an improvement in the financial health of our customer base which had begun to include more customers that do not rely solely on Internet-based commerce for their revenues. The decrease in general and administrative over these years is quantified as follows (in millions):

We do not expect significant further decreases in general and administrative expenses in 2004 as compared to 2003, rather we believe that these expenses will remain constant in 2004.

Amortization of Other Intangible Assets. Amortization of other intangible assets consists of the amortization of intangible assets acquired in business combinations. Amortization of other intangible assets decreased 81%, or $9.7 million, to $2.2 million for the year ended December 31, 2003 as compared to $11.9 million for the year ended December 31, 2002. Amortization of other intangible assets decreased 35%, or $6.6 million, to $11.9 million for the year ended December 31, 2002 as compared to $18.5 million for the year ended December 31, 2001. Intangible assets acquired in business combinations were fully amortized as of the end of the first quarter of 2003; therefore, there was no corresponding amortization of such intangibles assets in the remainder of 2003. The decrease in amortization of other intangible assets in 2002 as compared to 2001 was primarily due to the discontinuation of assembled workforce amortization in 2002, partially offset by an impairment to intangible assets in 2002. We expect to amortize approximately $48,000 of intangible assets in 2004 and in each year thereafter through 2008, during which they will become fully amortized.

Amortization of Goodwill. We no longer amortize goodwill as a result of our adoption of SFAS No. 142, “Goodwill and Other Intangible Assets,” on January 1, 2002. In accordance with SFAS No. 142, we reclassified assembled workforce intangible assets of approximately $1.0 million to goodwill. The resulting balance of goodwill was $4.9 million on January 1, 2002. For purposes of performing an impairment test, we determined that we had one reporting unit, and we assigned the entire balance of goodwill to this reporting unit as of January 1, 2004, 2003 and 2002. The fair value of the reporting unit was determined using our market capitalization as of January 1, 2004, 2003 and 2002, respectively. The fair value on January 1, 2004, 2003 and 2002 exceeded the net assets of the reporting unit, including goodwill, as of these dates. Accordingly, we concluded that no impairment existed on these dates. Unless changes in events or

Restructuring Charges. We recorded net restructuring benefits of $8.5 million as a result of amendments to and terminations of facility leases during the year ended December 31, 2003. During the year ended December 31, 2002, we recorded restructuring charges of $45.8 million, which represents $3.6 million for employee severance benefits and $42.2 million attributable to facility leases and long-lived asset impairments. During the year ended December 31, 2001, we recorded restructuring charges of $40.5 million, which represents $5.1 million for employee severance benefits and $35.4 million attributable to facility leases and long-lived asset impairments. Our restructuring expenses are summarized as follows (in millions):

During 2002, in connection with the termination of our facility leases for 500 and 600 Technology Square in Cambridge, Massachusetts, we recorded restructuring charges of $8.0 million for the difference between the actual termination costs and the amount previously accrued. Also during 2002, we recorded restructuring charges of $29.7 million representing the difference between the anticipated costs to terminate or modify vacant facilities under non-cancelable lease agreements and the previously recorded restructuring liabilities for these properties. In addition, we impaired leasehold improvements, furniture and fixtures, deposits, deferred rent and other long-lived assets related to these facilities in the amount of $4.5 million.

During 2003, we amended or terminated three long-term leases in connection with which we paid our lessors a total of $16.1 million in cash and restricted cash. As a result of these lease amendments and terminations, we reversed $9.6 million of previously accrued restructuring liabilities and recorded $1.1 million for costs relating to the restructuring of a facility in Europe. These three transactions are as follows:


	In April 2003, we amended our lease obligation for a substantially vacant facility in Santa Clara, California. Under the terms of the amendment, we made a payment of $9.4 million. The total payment also included the release of $5.7 million in restricted cash. As a result of this amended lease agreement, we reversed $9.2 million of previously accrued restructuring liabilities. We continued to pay rent at the previously contracted rate through the end of 2003. Beginning in January 2004, rent will be reduced to a lower rate substantially aligned with market rates in the area. The amended lease is scheduled to terminate in August 2007. As of December 31, 2003, the remaining restructuring liability related to this facility was $5.0 million. As we make the remaining contractual rent payments allocable to the vacated space, this liability will be reduced. We are actively seeking a subtenant for this space. We have estimated no sublease income for this facility due to the market conditions in the area.

	In May 2003, we terminated our lease for a facility located in the United Kingdom for a fee of approximately $700,000. In connection with this lease termination, we recorded a restructuring charge of $1.1 million for costs related to the termination fee and the write-off of long-lived assets and long-term deposits, of which $144,000 represents a non-cash restructuring charge for impairments of leasehold improvements and other long-lived assets. We have relocated our operations in the United Kingdom to a smaller facility.

	In June 2003, we terminated our long-term lease for our San Mateo, California facility for a payment of $6.0 million and entered into a new lease for 60% less space in this facility. As a result of this terminated lease, we reversed $400,000 of previously recorded restructuring liabilities. Of the $6.0 million payment, $1.1 million was recorded as a prepayment for the remaining utilized space and is being amortized over the remaining term of the original lease. We have previously accrued a restructuring liability for the vacant portion of the original lease. The new lease is scheduled to expire in May 2008.


	Rent payments under the new lease are lower than under the original lease, and are more in line with current market rates.

The following table summarizes the establishment and usage of the restructuring liabilities related to real estate leases (in millions):

We do not anticipate significant restructuring charges in the future; however, we will continue to pursue modifications or settlements on our long-term leases if we believe it to be in the best interests of Akamai and our stockholders. We have estimated the amount of restructuring liabilities associated with real estate leases based on the most recent available market data and discussions with our lessors and real estate advisors.

Impairment of Goodwill. During the first quarter of 2001, we reviewed goodwill and other long-lived assets for impairment under the guidance of SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of.” We considered several factors in determining whether an impairment may have occurred, including our market capitalization compared to book value, the overall business climate and recent estimates for operating results of acquired businesses. A review of these factors as of March 31, 2001 indicated that an impairment assessment was required for long-lived assets of acquired businesses. We grouped all long-lived assets for acquired businesses, including goodwill and other intangible assets, and estimated the future discounted cash flows related to these long-lived assets. The discount rate used was based on the risks associated with the acquired businesses. As a result of this analysis, we recorded an impairment charge of $1,912.8 million during the first quarter of 2001 to adjust the carrying amount of goodwill to its fair value as of March 31, 2001.

Interest Income. Interest income includes interest earned on invested cash balances and interest earned on notes receivable for stock. Interest income decreased 57%, or $1.7 million, to $1.3 million for the year ended December 31, 2003 as compared to $3.0 million for the year ended December 31, 2002. Interest income decreased 75%, or $9.2 million, to $3.0 million for the year ended December 31, 2002 as compared to $12.3 million for the year ended December 31, 2001. The decrease in interest income for each of 2003 and 2002 as compared with prior periods was a result of a decrease in our invested cash balance and a decrease in the interest rates earned on our investments. We expect our interest income in 2004 to be consistent with 2003 as our invested cash balance should remain constant or slightly increase, assuming consummation of the tender offer to repurchase $101.0 million of our outstanding 5 1/2% convertible subordinated notes in March 2004, with no expected change in the interest rates we expect to earn.

Interest Expense. Interest expense includes interest paid on our debt obligations. Interest expense was $18.3 million for the year ended December 31, 2003 as compared to $18.4 million for the year ended December 31, 2002 and $18.9 million for the year ended December 31, 2001. Interest expense remained

relatively constant throughout the periods presented. In December 2003 and January 2004, we repurchased $99.0 million in aggregate principal amount of our outstanding 5 1/2% convertible subordinated notes. In February 2004, we commenced a tender offer to repurchase up to an additional $101.0 million in principal amount of the 5 1/2% convertible subordinated notes. In December 2003 and January 2004, we issued $200.0 million in principal amount of our 1% convertible senior notes. If the tender offer is fully successful, we believe that interest expense on our debt obligations will not exceed $10.5 million in 2004.

Other Income. We received $1.0 million in proceeds on a key-person life insurance policy as a result of the death in September 2001 of Daniel M. Lewin, Akamai’s co-founder.

Gain (loss) on Investments, net. During 2003, we recorded a net gain on investments of $1.6 million, of which $1.7 million related to the sale of equity investments in publicly-traded companies, offset by losses of $55,000 on investments in a privately-held companies and sale of marketable securities. Loss on investments in 2002 included a loss of $4.3 million related to our investment in Netaxs, Inc., a related party, which was realized as a result of a merger transaction between Netaxs and FASTNET Corporation in April 2002. Loss on investments was partially offset by a gain of $400,000 on our sale of our equity interest in Akamai Japan to SBBM. In addition, loss on investments in 2002 consists of a loss of $2.4 million to adjust the cost basis of equity investments to fair value, partially offset by approximately $149,000 of realized investment gains. For the year ended December 31, 2001, loss on investments includes a loss of $10.2 million for the adjustment to market value of equity investments for impairment that was determined to be other-than-temporary, realized losses of $2.8 million and a related party loss of $2.0 million in an investment accounted for under the equity method. We do not expect significant gain or losses on investments, as our portfolio is comprised primarily of high-grade debt instruments.

Loss on Early Extinguishment of Debt. During the year ended December 31, 2003, we recorded a loss on early extinguishment of debt of $2.1 million as a result of costs incurred in connection with our repurchase of $74.0 million in principal amount of our 5 1/2% convertible subordinated notes during the year. This loss represents the reduction of $1.2 million of deferred financing costs associated with repurchases of notes and $890,000 of advisory services incurred related to the repurchases. We expect to incur additional losses on early extinguishment of debt in connection with additional repurchases of our 5 1/2% convertible subordinated debt in 2004. See “Recent Events” above.

To date, we have financed our operations primarily through the following transactions:


	•	private sales of capital stock;

	•	the issuance in April 1999 of senior subordinated notes, which we repaid in 1999, totaling approximately $124.6 million in net proceeds;

	•	an initial public offering of our common stock in October 1999 that provided $217.6 million after underwriters’ discounts and commissions;

	•	the sale in June 2000 of $300 million in principal amount of our 5 1/2% convertible subordinated notes, which generated net proceeds of $290.2 million;

	•	the sale in December 2003 of $175 million in principal amount of our 1% convertible senior notes due December 15, 2033, which generated net proceeds of $169.8 million; and

	•	the sale in January 2004 of an additional $25 million in principal amount of our 1% convertible senior notes as a result of the purchaser’s exercise of its option to purchase additional notes, resulting in net proceeds of $24.3 million.

As of December 31, 2003, cash, cash equivalents and marketable securities totaled $208.4 million, of which $9.6 million is subject to restrictions limiting our ability to withdraw or otherwise use such cash, cash equivalents and marketable securities. See “Letters of Credit and Restricted Cash” below.

Cash used in operating activities decreased 73%, or $47.8 million, to $18.0 million for the year ended December 31, 2003 compared to $65.8 million for the year ended December 31, 2002. Cash used in operating activities decreased 45%, or $53.5 million, to $65.8 million for the year ended December 31, 2002 compared to $119.3 million for the year ended December 31, 2001. The decrease in cash used in operating activities for 2003 as compared to 2002 was primarily due to a decrease of approximately $108.0 million, or 141%, in net losses before non-cash expenses such as depreciation and amortization, loss on investments, equity-related compensation and loss on early extinguishment of debt. Cash used in operating expense in 2002 as compared to 2001 decreased primarily due to a decrease of approximately $54,000, or 41%, in net losses before non-cash expenses.

Cash used in investing activities was $36.4 million for the year ended December 31, 2003, compared to cash provided by investing activities of $96.1 million for the year ended December 31, 2002. Cash provided by investing activities was $39.6 million for the year ended December 31, 2001. The decrease in cash provided by investing activities for 2003 as compared to 2002 was primarily due to an increase in our net investment in marketable securities year over year. Cash used in investing activities for 2003 reflects net purchases, sales and maturities of investments of $27.7 million and capital expenditures, including capitalization of internal-use software development costs of $8.9 million. Cash provided by investing activities for 2002 reflects net purchases, sales and maturities of investments of $116.5 million less capital expenditures of $14.2 million, including capitalization of internal-use software development costs. Cash provided by investing activities during 2002 also includes a payment of $6.5 million to CNN News Group to settle an obligation resulting from our acquisition of InterVu, Inc., or InterVu, in April 2000. See Note 18 to the consolidated financial statements included in this annual report on Form 10-K for further discussion. We expect total capital expenditures, a component of cash used in investing activities, will not exceed 10% of revenue in 2004.

Cash provided by financing activities was $100.2 million for the year ended December 31, 2003, $1.2 million for the year ended December 31, 2003 and $8.5 million for the year ended December 31, 2001. Cash provided by financing activities in 2003 reflects proceeds received from the issuance of our 1% convertible senior notes, net of financing costs, of $169.8 million, issuances of common stock under our stock plans and employee stock purchase plans of $8.6 million, settlement of notes receivable for stock of $2.3 million, offset by payments for the repurchase of $74.0 million in principal amount of our 5 1/2% convertible subordinated notes, an increase in restricted cash to reflect a commitment to repurchase $5.0 million in principal amount of our 5 1/2% convertible subordinated notes in early 2004, and payments on our capital leases of $1.4 million. We satisfied the $5.0 million commitment to repurchase notes in January 2004. Cash provided by financing activities in 2002 reflects proceeds from the issuance of common stock under our stock plans of $2.8 million and payments on our capital lease obligations of $1.6 million. Cash received from the issuance of common stock under stock option and employee stock purchase plans increased in 2003 as compared to prior years as a result of more option exercises in 2003. Assuming consummation of our announced tender offer for up to $101.0 million in principal amount of our 5 1/2% convertible subordinated notes, along with the issuance of an additional $25.0 million in principal amount of our 1% convertible senior notes and the repurchase of $25.0 million in principal amount of our 5 1/2% convertible subordinated notes, we expect our cash used for financing activities in 2004 to increase as compared to 2003.

We believe, based on our present business plan, that our current cash, cash equivalents and marketable securities of $208.4 million will be sufficient to meet our cash needs for working capital and capital expenditures for at least the next 24 months. If the assumptions underlying our business plan regarding future revenue and expenses change or if unexpected opportunities or needs arise, we may seek to raise additional cash by selling equity or debt securities. If additional funds are raised through the issuance of debt securities, these securities could have rights, preferences and privileges senior to those accruing to holders of common stock and outstanding debt securities, and the terms of such debt could impose restrictions on our operations. The sale of additional equity or convertible debt securities could result in additional dilution to our stockholders. See “Factors Affecting Future Operating Results.”

The following table presents our contractual obligations and commercial commitments as of December 31, 2003 over the next five years and thereafter (in millions):

As of December 31, 2003, we had issued $4.6 million in irrevocable letters of credit in favor of third-party beneficiaries, primarily related to long-term facility leases. The letters of credit are collateralized by restricted marketable securities, of which $3.9 million are classified as long-term and $726,000 are classified as short-term on our consolidated balance sheet. The restrictions on these marketable securities lapse as we fulfill our obligations as provided by the letters of credit.

As of December 31, 2003, we had $5.0 million classified as restricted cash on the consolidated balance sheet. This amount reflects our commitment at December 31, 2003 to repurchase $5.0 million in aggregate principal amount of our 5 1/2% convertible subordinated notes. As of December 31, 2003, the related debt is included in our current liabilities as current portion of 5 1/2% convertible subordinated notes in our consolidated balance sheet.

We have entered into various indemnification arrangements with third parties, including vendors, customers, landlords, our officers and directors, stockholders of acquired companies, joint venture partners and third parties to whom and from whom we license technology. Generally, these indemnification agreements require us to reimburse losses suffered by the third party due to various events, such as lawsuits arising from patent or copyright infringement or our negligence. These indemnification obligations are considered off-balance sheet arrangements in accordance with Financial Accounting Standards Board, or FASB, Interpretation 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” We have not accrued a liability for any guarantee identified because the likelihood of incurring a payment obligation under the guarantees is remote. See Note 9 to our consolidated financial statements included in this annual report on Form 10-K for further discussion of these indemnification agreements.

In November 2002, the Emerging Issues Task Force, or EITF, reached a consensus on Issue 00-21 “Revenue Arrangements with Multiple Deliverables.” EITF 00-21 addresses revenue recognition for revenue arrangements with multiple deliverables. The deliverables in these revenue arrangements should be divided into separate units of accounting when the individual deliverables have value to the customer on a stand-alone basis, there is objective and reliable evidence of the fair value of the undelivered elements, and, if the

arrangement includes a general right to return the delivered element, delivery or performance of the undelivered element is considered probable. The relative fair value of each unit should be determined and the total consideration of the arrangement should be allocated among the individual units based on their fair value. The guidance on this issue is effective for revenue arrangements entered into after June 30, 2003. The adoption of EITF 00-21 did not have a material impact on our consolidated financial statements.

In January 2003, the FASB issued Interpretation 46, or FIN 46, “Consolidation of Variable Interest Entities — An Interpretation of Accounting Research Bulletin No. 51.” FIN 46 addresses consolidation of variable interest entities where the equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support from other parties and the equity investors lack one or more essential characteristics of a controlling financial interest. FIN 46 applies immediately to variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. It applies in the first fiscal year or interim period beginning after June 15, 2003, to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. We currently do not hold any variable interest entities and therefore FIN 46 did not have an effect on our consolidated financial statements.

In October 2003, the FASB issued FASB Staff Position, or FSP, 46-6, “Effective Date of FASB Interpretation 46, Consolidation of Variable Interest Entities.” This FSP deferred the effective date for applying the provisions of FIN 46 for interests in variable interest entities or potential variable interest entities created before February 1, 2003. FSP 46-6 had no effect on our consolidated financial statements.

In December 2003, the FASB issued Interpretation 46R, or FIN 46R, “A Revision to FIN 46, Consolidation of Variable Interest Entities.” FIN 46R clarifies some of the provisions of FIN 46 and exempts certain entities from its requirements. FIN 46R is effective at the end of the first interim period ending after March 15, 2004. Entities that have adopted FIN 46 prior to this effective date can continue to apply the provisions of FIN 46 until the effective date of FIN 46R. We currently do not hold any variable interest entities and therefore FIN 46R is not expected to have an effect on our consolidated financial statements.

In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” This statement amends SFAS No. 133 to provide clarification on the financial accounting and reporting of derivative instruments and hedging activities and requires contracts with similar characteristics to be accounted for on a comparable basis. This statement was effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. We adopted SFAS No. 149 on July 1, 2003 and the adoption did not have a material effect on our consolidated financial statements.

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity.” SFAS No. 150 clarifies the accounting for certain financial instruments with characteristics of debt that, under previous guidance, issuers could account for as equity. SFAS No. 150 requires that those instruments be classified as liabilities in statements of financial position. SFAS No. 150 became effective for financial instruments entered into or modified after May 31, 2003, and otherwise became effective July 1, 2003. The adoption of the SFAS No. 150 did not impact our consolidated financial statements.

In August 2003, the EITF reached a consensus on Issue 03-05, “Applicability of AICPA Statement of Position 97-2 to Non-Software Deliverables in an Arrangement Containing More-Than-Incidental Software.” EITF 03-05 addresses the applicability of SOP 97-2 to non-software deliverables in an arrangement containing more-than-incidental software. In an arrangement that includes software that is more than incidental to the products or services as a whole, software and software-related elements are included within the scope of SOP 97-2. Software-related elements include software products and services, as well as any non-software deliverables for which a software deliverable is essential to its functionality. The adoption of EITF 03-05 did not have a material impact on our consolidated financial results.

In December 2003, the SEC issued Staff Accounting Bulletin, or SAB, No. 104, “Revenue Recognition”, which supersedes No. 101, “Revenue Recognition in Financial Statements.” SAB No. 104 rescinds

Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio. In our investment portfolio we do not use derivative financial instruments. We place our investments with high quality issuers and, by policy, limit the amount of risk by investing primarily in money market funds, United States Treasury obligations, high-quality corporate obligations and certificates of deposit.

We may incur realized losses as a result of early redemptions of our debt securities. Our 5 1/2% convertible subordinated notes and 1% convertible senior notes are subject to changes in market value. Under certain conditions, the holders of our 1% convertible senior notes may require us to redeem the notes on or after December 15, 2010. As of December 31, 2003, the carrying amount and fair value of the 5 1/2% convertible subordinated notes were $226.0 million and $187.6 million, respectively. In February 2004, we commenced a tender offer to repurchase up to $101.0 million of the 5 1/2% convertible subordinated notes. The carrying amount and fair value of the 1% convertible senior notes were both $175.0 million as of December 31, 2003.

We have operations in Europe and Asia. As a result, we are exposed to fluctuations in foreign exchange rates. Additionally, we may continue to expand our operations globally and sell to customers in foreign locations, which may increase our exposure to foreign exchange fluctuations.

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of cash flows and of stockholders’ equity (deficit) present fairly, in all material respects, the financial position of Akamai Technologies, Inc. and its subsidiaries at December 31, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2003 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As discussed in Note 2 to the consolidated financial statements, the Company ceased amortization of goodwill and reclassified its assembled workforce intangible asset to goodwill as a result of the adoption of Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets,” in January 2002.

The accompanying notes are an integral part of these consolidated financial statements.


(Mark One)
þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the fiscal year ended December 31, 2003

or

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the transition period from to


Delaware		04-3432319
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

8 Cambridge Center, Cambridge, MA		02142
(Address of Principal Executive Offices)		(Zip Code)


			Page
PART I
	Item 1.	Business		1
	Item 2.	Properties		15
	Item 3.	Legal Proceedings		16
	Item 4.	Submission of Matters to a Vote of Security Holders		17
PART II
	Item 5.	Market for Registrant’s Common Equity and Related Stockholder Matters		17
	Item 6.	Selected Consolidated Financial Data		17
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		19
	Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		35
	Item 8.	Financial Statements and Supplementary Data		36
	Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		71
	Item 9A.	Controls and Procedures		71
PART III
	Item 10.	Directors and Executive Officers of the Registrant		72
	Item 11.	Executive Compensation		72
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		73
	Item 13.	Certain Relationships and Related Transactions		73
	Item 14.	Principal Accounting Fees and Services		73
PART IV
	Item 15.	Exhibits, Financial Statement Schedules and Reports on Form 8-K		74
Signatures				75
EX-10.27 EMPLOYMENT OFFER LETTER
EX-14.1 CODE OF BUSINESS ETHICS
EX-21.1 SUBSIDIARIES OF THE REGISTRANT
EX-23.1 CONSENT OF PRICEWATERHOUSECOOPERS LLP
EX-31.1 SECTION 302 CERTIFICATION OF C.E.O.
EX-31.2 SECTION 302 CERTIFICATION OF C.F.O.
EX-32.1 SECTION 906 CERTIFICATION OF C.E.O.
EX-32.2 SECTION 906 CERTIFICATION OF C.F.O.


	High		Low

Year Ended December 31, 2002:
First Quarter	$	6.34	$	3.05
Second Quarter	$	4.44	$	0.76
Third Quarter	$	1.55	$	0.75
Fourth Quarter	$	2.75	$	0.56

Year Ended December 31, 2003:
First Quarter	$	1.96	$	1.18
Second Quarter	$	5.93	$	1.36
Third Quarter	$	5.90	$	3.22
Fourth Quarter	$	14.20	$	3.39



	For the Years Ended December 31,

	2003			2002			2001			2000			1999


	(In thousands, except per share data)
Consolidated Statements of Operations Data:
Revenue	$	161,259		$	144,976		$	163,214		$	89,766		$	3,986
Total cost and operating expenses		172,414			327,512			2,577,112			989,348			60,424
Net loss		(29,281	)		(204,437	)		(2,435,512	)		(885,785	)		(57,559	)
Net loss attributable to common stockholders		(29,281	)		(204,437	)		(2,435,512	)		(885,785	)		(59,800	)
Basic and diluted net loss per share	$	(0.25	)	$	(1.81	)	$	(23.59	)	$	(10.07	)	$	(1.98	)
Weighted average common shares outstanding		118,075			112,766			103,233			87,959			30,177


	*Failure to increase our revenue and keep our expenses consistent with revenues could prevent us from achieving and maintaining profitability.*


	*The market for our services remains relatively new, and our business will suffer if the market does not develop as we expect.*


	Our substantial leverage may harm our financial condition and results of operations, and our failure to increase our revenue would seriously harm our business and operating results and could cause us to fail to make interest or principal payments or pay our outstanding indebtedness.


	*The conversion price of our 5 1/2% convertible subordinated notes could deter holders of such notes from converting their securities and we will be required to repay these notes.*


	*Conversion of our 1% convertible senior notes may adversely affect the trading price of our common stock.*


	*If we are required to seek additional funding, such funding may not be available on acceptable terms or at all.*


	*The markets in which we operate are highly competitive and we may be unable to compete successfully against new entrants and established companies with greater resources.*


	*If the prices we charge for our services decline over time, our business and financial results are likely to suffer.*


	*Reduction of revenue from Microsoft would cause our business and financial results to suffer.*


	Any unplanned interruption in our network or services could lead to significant costs and disruptions that could reduce our revenue and harm our business, financial results and reputation.


Item 1.	*Business*


	*EdgeSuite*


	*EdgeComputing*


	*Akamai Solutions*


	*We may have insufficient transmission capacity which could result in interruptions in our services and loss of revenue.*


	*Because our services are complex and are deployed in complex environments, they may have errors or defects that could seriously harm our business.*


	*If the estimates we make, and the assumptions on which we rely, in preparing our financial statements prove inaccurate, our actual results may be adversely affected.*


	*If our license agreement with MIT terminates, our business could be adversely affected.*


	*We have incurred and could continue to incur substantial costs defending our intellectual property from infringement or a claim of infringement.*


	*Our business will be adversely affected if we are unable to protect our intellectual property rights from third-party challenges.*


	*If we are unable to retain our key employees and hire qualified sales and technical personnel, our ability to compete could be harmed.*


	*We face risks associated with international operations that could harm our business.*


	As part of our business strategy, we have entered into and may enter into or seek to enter into business combinations and acquisitions that may be difficult to integrate, disrupt our business, dilute stockholder value or divert management attention.


	*Internet-related and other laws could adversely affect our business.*


	*Terrorist activities and resulting military and other actions could adversely affect our business.*


	Provisions of our charter documents, our stockholder rights plan and Delaware law may have anti-takeover effects that could prevent a change in control even if the change in control would be beneficial to our stockholders.


	*A class action lawsuit has been filed against us that may be costly to defend and the outcome of which is uncertain and may harm our business.*


	*We may become involved in other litigation that may adversely affect us.*



	As of December 31,

	2003			2002			2001		2000		1999


	(In thousands)
Consolidated Balance Sheet Data:
Cash, cash equivalents and marketable securities	$	198,707		$	111,765		$	181,514	$	373,300	$	269,554
Restricted cash		5,000			—			—		—		—
Restricted marketable securities		4,648			13,405			28,997		13,634		—
Working capital		139,756			60,584			136,701		270,396		255,026
Total assets		278,941			229,863			421,478		2,790,777		300,815
Current portion of obligations under capital leases and equipment loans		775			1,207			405		1,080		504
Current portion of accrued restructuring		1,638			23,622			17,633		—		—
Current portion of 5 1/2% convertible subordinated notes		15,000			—			—		—		—
Current portion of long-term debt		—			—			—		—		2,751
Obligations under capital leases and equipment loans, net of current portion		—			1,006			113		421		733
Accrued restructuring, net of current portion		3,641			13,994			10,010		—		—
Other liabilities		1,994			1,854			2,823		1,009		—
1% convertible senior notes		175,000			—			—		—		—
5 1/2% convertible subordinated notes, net of current portion		211,000			300,000			300,000		300,000		—
Total stockholders’ (deficit) equity	$	(175,354	)	$	(168,090	)	$	17,234	$	2,404,399	$	281,445


	Tax Accruals and Valuation Allowance for Deferred Income Taxes:



	For the Year Ended
	December 31,

	2003		2002		2001

Bandwidth, co-location and storage	$	24.5	$	32.3	$	55.1
Network operations personnel payroll and related costs, including equity compensation		2.9		6.2		10.5
Cost of software license		0.4		0.5		—
Depreciation of network equipment and amortization of internal-use software		33.3		46.3		42.7

Total cost of revenue	$	61.1	$	85.3	$	108.3



	Decrease in Research
	and Development Expenses

	2003 to 2002			2002 to 2001

Payroll and related costs, including equity compensation	$	(7.4	)	$	(13.5	)
Capitalization of internal-use software development costs		(1.1	)		(6.0	)
Other		(0.3	)		(3.6	)

Total decrease	$	(8.8	)	$	(23.1	)



	(Decrease) Increase in
	Sales and Marketing
	Expenses

	2003 to 2002			2002 to 2001

Payroll and related costs, including equity compensation	$	(10.9	)	$	(27.5	)
Advertising and related costs		(7.2	)		0.2
Other		0.9			(0.8	)

Total net decrease	$	(17.2	)	$	(28.1	)



	(Decrease) Increase in
	General and
	Administrative Expenses

	2003 to 2002			2002 to 2001

Bad debt expense	$	1.5		$	(8.7	)
Payroll and related costs, including equity compensation		(17.7	)		(5.1	)
Rent and facilities		(6.2	)		(4.7	)
Depreciation		(14.5	)		1.0
Other		(4.0	)		(6.5	)

Total net decrease	$	(40.9	)	$	(24.0	)