Earthlink 2015 Annual Report Download - page 57

Table of Contents
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.
During the year ended December 31, 2014, we 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. We did not recognize any other material
impairment charges for our long-lived assets during the past
three years.
During the year ended December 31, 2015, we recorded
additional amortization expense of $5.7 million as a result of a
change in estimate in December 2014 for the estimated useful
lives of certain customer relationships. We did not have any
other material changes in useful lives 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, E911 payments, 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
We have not made any material changes in the accounting
methodology used to accrue for loss contingencies during the
past three years.
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 an audit by
the Universal Service Administrative Company on previous
ITC^DeltaCom Universal Service Fund assessments and
payments. 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. Such amount
was settled and paid during the year ended December 31,
2015.
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