Earthlink 2014 Annual Report Download - page 56

Table of Contents
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Description Judgments and Uncertainties Effect if Actual Results Differ From Assumptions
Long-lived assets
We depreciate property and equipment and amortize
intangible assets using the straight-line method over the
estimated useful lives of the assets. Estimates of useful lives
are based on the nature of the underlying assets as well as
our experience with similar assets and intended use. We
periodically review estimated useful lives for
reasonableness.
We evaluate recoverability of long-lived assets, including
property and equipment and definite-lived intangible assets,
when events or changes in circumstances indicate that the
carrying amount may not be recoverable.
Estimates of useful lives can differ from actual useful lives
due to the inherent uncertainty in making these estimates.
Our impairment tests contain uncertainties because they
require management to make assumptions and apply
judgment to estimate future cash flows and asset fair
values including, subscriber additions, churn, prices,
marketing spending, operating costs and capital spending.
Significant judgment is involved in estimating these
factors, and they include inherent uncertainties.
We have not made any material changes in the accounting
methodology we use to account for long-lived assets
during the past three years. We did not recognize any
material impairment charges for our long-lived assets
during the past three years.
We do not believe there is a reasonable likelihood that
there will be a material change in the future estimates or
assumptions used to account for long-lived assets.
Loss Contingencies
We are party to various legal proceedings and other disputes
arising in the normal course of business, including, but not
limited to, regulatory audits, trademark and patent
infringement, billing disputes, rights of access, tax,
consumer protection, employment and tort. We accrue for
such matters when it is both probable that a liability has
been incurred and the amount of the loss can be reasonably
estimated. Where it is probable that a liability has been
incurred and there is a range of expected loss for which no
amount in the range is more likely than any other amount,
we accrue at the low end of the range. We review our
accruals each reporting period.
Significant judgment is required to determine both
likelihood of there being and the estimated amount of a
loss related to such matters. In addition, we are subject to
significant regulation, and regulatory matters are subject to
differing interpretations.
Until the final resolution of such matters, there may be an
exposure to loss in excess of the amount recorded, and
such amounts could be material. Should any of our
estimates and assumptions change, it could have a material
impact on our business, consolidated financial position,
results of operations or cash flows
During the year ended December 31, 2012, we recorded an
$8.3 million charge to increase our reserves for regulatory
audits, primarily an audit that was conducted by the
Universal Service Administrative Company on previous
ITC^DeltaCom Universal Service Fund assessments and
payments, because the amount became probable and
estimable during the period. During the year ended
December 31, 2013, we recorded a $7.2 million favorable
adjustment to decrease our reserves for regulatory audits
resulting from final interpretation and resolution of certain
regulatory audits, primarily the audit by the Universal
Service Administrative Company. During the year ended
December 31, 2014, we recorded a $2.2 million liability
for a loss contingency that became probable and estimable
during the year.
We have not made any material changes in the accounting
methodology used to accrue for loss contingencies during
the last three years.