Earthlink 2014 Annual Report Download - page 98

Table of Contents EARTHLINK HOLDINGS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The Company periodically disputes network access charges that it is assessed by other companies with which the Company interconnects. The
Company maintains adequate reserves for anticipated exposure associated with these billing disputes. The reserves are subject to changes in
estimates and management judgment as new information becomes available. In view of the length of time historically required to resolve these
disputes, they may be resolved or require adjustment in future periods and relate to costs invoiced, accrued or paid in prior periods. While the
Company believes its reserves for billing disputes are adequate, it is reasonably possible that the Company could record additional expense of up
to $5.9 million for unrecorded disputed amounts. The Company recognized $11.7 million
for favorable disputes with telecommunication vendors
during the year ended December 31, 2014
, which is included in Business Services cost of revenues in the Consolidated Statement of
Comprehensive Loss.
Regulation
The Company's services are subject to varying degrees of federal, state and local regulation. These regulations are subject to ongoing
proceedings at federal and state administrative agencies or within state and federal judicial systems. Results of these proceedings could change,
in varying degrees, the manner in which the Company operates. The Company cannot predict the outcome of these proceedings or their effect on
the Company's industry generally or upon the Company specifically.
16. Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date (an exit price). A three-
tier fair value hierarchy is used to prioritize the inputs used in measuring fair
value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as observable inputs
other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs for which
little or no market data exists, therefore requiring an entity to develop its own assumptions.
Assets and liabilities measured at fair value on a nonrecurring basis
Disclosures are required for certain assets and liabilities that are measured at fair value on a nonrecurring basis in periods subsequent to initial
recognition. Such measurements of fair value relate primarily to long-
lived asset impairments. During the year ended December 31, 2013, the
Company recognized a $256.7 million non-
cash impairment charge to goodwill related to its Business Services reporting unit. See Note 8,
"Goodwill and Other Intangible Assets," for more information regarding the impairment of goodwill and the fair value methodology. During the
year ended December 31, 2014, the Company recorded
$14.3 million for impairment of long-
lived assets primarily related to work in progress
and software licenses not expected to be used, which were written down to zero. There were no other material long-
lived asset impairments
during the years ended December 31, 2012, 2013 and 2014 .
Fair value of debt
The estimated fair values of the Company’
s debt was determined based on Level 2 input using observable market prices in less active markets.
The following table presents the fair value of the Company’s debt, excluding capital leases, as of December 31, 2013 and 2014 :
86
As of December 31, 2013 As of December 31, 2014
Carrying Carrying
Amount Fair Value Amount Fair Value
(in thousands)
Senior Secured Notes
$
300,000
$
303,663
$
300,000
$
301,503
Senior Notes
292,238
304,470
293,399
300,300
Total debt, excluding capital leases
$
592,238
$
608,133
$
593,399
$
601,803