Earthlink 2014 Annual Report Download - page 69

Table of Contents EARTHLINK HOLDINGS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Impairment testing of goodwill is required at the reporting unit level (operating segment or one level below operating segment) and involves a
two-step process. Prior to performing the two-
step impairment test, the Company may make a qualitative assessment of the likelihood of
goodwill impairment in order to determine whether a detailed quantitative analysis is required. The first step of the impairment test involves
comparing the estimated fair values of the Company's reporting units with the reporting units' carrying amounts, including goodwill. The
Company estimates the fair value of the reporting unit using discounted expected future cash flows. If the carrying amount of the reporting unit
exceeds its fair value, a second step is performed to compare the carrying amount of goodwill to the implied fair value of that goodwill. If the
carrying amount of goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to the excess.
Other intangible assets consist primarily of customer relationships, developed technology and software, trade names and other assets acquired in
conjunction with the purchases of businesses or purchases of assets from other companies. When management determines material intangible
assets are acquired in conjunction with the purchase of a business, the Company determines the fair values of the identifiable intangible assets by
taking into account management's own analysis and an independent third party valuation specialist's appraisal. Intangible assets determined to
have definite lives are amortized over their estimated useful lives.
Long
-Lived Assets
The Company evaluates the recoverability of long-lived assets, including property and equipment and purchased definite-
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 the carrying amount of an asset or group of assets
is not recoverable. For long-
lived assets to be held and used, the Company 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. During the year ended December
31, 2014, the Company recorded $14.3 million for impairment of long-
lived assets, which consisted of impairment of work in progress for
information technology projects not expected to be used, impairment of software licenses not expected to be used and impairment of certain
assets held for sale. The impairment loss is classified within impairment of goodwill and long-
lived assets in the Consolidated Statement of
Comprehensive Loss.
Leases
The Company categorizes leases at their inception as either operating or capital leases depending on certain criteria. Certain of the Company's
operating lease agreements include scheduled rent escalations or rent holidays over the term of the lease. The Company recognizes rent expense
on a straight-
line basis over the term of the lease. The difference between rent expense and rent paid is recorded as deferred rent and included in
other liabilities in the Consolidated Balance Sheets. Incentives granted under certain leases are treated as a reduction of the Company's rent
expense on a straight-
line basis over the term of the related lease agreement. Leasehold improvements funded by the lessor under operating
leases are recorded as leasehold improvements and deferred rent.
Asset Retirement Obligations
The Company has asset retirement obligations associated with certain assets within leased facilities that the Company is contractually obligated
to restore to their previous condition upon exit from the lease. The fair value of the obligation is also capitalized as property and equipment and
amortized over the estimated useful life of the associated asset. The Company's asset retirement obligations were $4.2 million and
$3.1 million
as of December 31, 2013 and 2014 , respectively, and are included in other long-term liabilities in the Consolidated Balance Sheets.
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