Earthlink 2003 Annual Report Download - page 50

Property and Equipment
Property and equipment are stated at cost less accumulated depreciation. Depreciation expense is determined using the straight-line
method over the estimated useful lives of the various asset classes, which are generally three to five years for computers and
telecommunications equipment and five years for other non-computer furniture and equipment. Leasehold improvements are depreciated using
the straight-line method over the shorter of their estimated useful lives or the term of the lease. Expenditures for maintenance and repairs are
charged to operating expense as incurred. At the time of retirements, sales, impairments, or other dispositions of property, the original cost and
related accumulated depreciation are removed from the respective accounts, and the gains and losses are presented as depreciation expense or
as facility exit costs, as appropriate.
Equipment Under Capital Lease
The Company leases certain of its data communications and other equipment under capital lease agreements. The assets under capital
lease and related liabilities are recorded at the lesser of the present value of aggregate future minimum lease payments, including estimated
bargain purchase options, or the fair value of the assets under lease. Assets under capital lease are amortized over the lesser of their estimated
useful lives of three to five years or the term of the lease.
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Intangible Assets
Intangible assets consist primarily of acquired subscriber bases and goodwill. Subscriber bases acquired directly are valued at cost plus
assumed service liabilities, which approximates fair value at the time of purchase. Goodwill is the excess of the purchase price over the fair
value of identifiable net assets acquired in business combinations accounted for as purchases. When management determines material
intangible assets, such as customer bases and goodwill, are acquired in conjunction with the purchase of a company, EarthLink undertakes a
study by an independent third party to determine the allocation of the purchase price to the intangible assets acquired.
On January 1, 2002, the Company adopted SFAS No. 142, "Goodwill and Other Intangible Assets," which requires that goodwill and
certain intangible assets, including those recorded in past business combinations, no longer be amortized through the statement of operations,
but instead be tested for impairment at least annually. Other intangible assets continue to be amortized over their useful lives. In connection
with the adoption, the Company reviewed the classification of its goodwill and other intangible assets. Accordingly, on January 1, 2002, the
Company discontinued the amortization of intangible assets with indefinite lives, which consisted primarily of goodwill. Intangible assets
determined to have definite lives, which consist primarily of subscriber bases, are amortized over their estimated useful lives of three years.
The Company performs an impairment test of its goodwill and other indefinite life intangible assets annually during the fourth quarter of
its fiscal year or when events and circumstances indicate the indefinite life intangible assets might be permanently impaired. The Company is
one reporting unit and, consequently, tests its indefinite life intangible assets in the aggregate. The Company's impairment test entails
comparing the aggregate market value of the Company's outstanding securities plus its liabilities to the aggregate carrying value of the
Company's assets, including goodwill and other indefinite life intangible assets. If the aggregate market value of the Company's outstanding
securities plus its liabilities is less than the aggregate carrying value of the Company's assets, including goodwill and other indefinite life
intangible assets, the Company would compare the estimated fair value of goodwill and other indefinite life intangible assets to the
corresponding book value of goodwill and other indefinite life intangible assets and record an impairment loss to the extent the book value
exceeds the estimated fair value.
Long
-Lived Assets
The Company accounts for long-lived assets in accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-
Lived Assets," which addresses financial accounting and reporting for the impairment and disposition of long-lived assets . The Company
evaluates the recoverability of long-lived assets, other than indefinite lived intangible assets, for impairment when events or changes in
circumstances indicate that the carrying amount of an asset may not be recoverable. Conditions that would necessitate an impairment
assessment include a significant decline in the observable market value of an asset, a significant change in the extent or manner in which an
asset is used, or a significant adverse change that would indicate that the carrying amount of an asset or group of assets is not recoverable. For
long-lived assets to be held and used, EarthLink recognizes an impairment loss only if its carrying amount is not recoverable through its
undiscounted cash flows and measures the impairment loss, if any, based on the difference between the carrying amount and fair value. Long-
lived assets held for sale are reported at the lower of cost or fair value less costs to sell.
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Facility Exit Costs