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Table of Contents
EARTHLINK HOLDINGS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
lives of certain customer relationships in December 2014, the results of operations for the year ended December 31, 2015 includes additional amortization expense
of $5.7 million , or $0.05 per share, respectively.
Amortization of intangible assets, which is included in depreciation and amortization in the Consolidated Statements of Comprehensive Loss, for the years ended
December 31, 2013, 2014 and 2015 was as follows:
Year Ended December 31,
2013
2014
2015
(in thousands)
Amortization expense $ 66,370
$ 63,177
$ 66,164
Based on the current amount of definite-lived intangible assets, the Company expects to record amortization expense of approximately $23.6 million , $1.3 million
and $0.4 million during the years ending December 31, 2016 , 2017 and 2018 , respectively. Actual amortization expense to be reported in future periods could
differ materially from these estimates as a result of acquisitions, changes in useful lives and other relevant factors.
Impairment Tests of Goodwill and Intangible Assets
2015 Interim Test of Goodwill. Prior to September 30, 2015, the Company identified two reporting units for evaluating goodwill, Business Services and Consumer
Services. In connection with changes in the Company's organizational, operational and reporting structure, effective September 30, 2015, the Company identified
four reporting units for evaluating goodwill: Enterprise/Mid-Market, Small Business, Carrier/Transport and Consumer Services. Each of these reporting units
constitute a business for which discrete financial information is available and segment management regularly reviews the operating results. As a result of the
change in reporting units, the Company performed an interim goodwill test immediately prior to the change in reporting units at the legacy reporting unit level and
immediately after the change in reporting units at the new reporting unit level.
Impairment testing of goodwill is required at the reporting unit level and involves a two-step process. However, the Company may first assess qualitative factors to
determine whether it is necessary to perform the two-step quantitative goodwill impairment test. The Company elected to forgo the qualitative assessment of
goodwill for its interim impairment tests. 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 estimated the fair values of its reporting units based on the income approach. This model
uses significant unobservable inputs, or Level 3 inputs, as defined by the fair value hierarchy. Under the income approach, the fair value of the reporting unit was
estimated based on the present value of estimated cash flows using a discounted cash flow method. The significant assumptions used in the discounted cash flow
method included internal forecasts and projections developed by management for planning purposes, available industry/market data, strategic plans, discount rates
and the growth rates to calculate the terminal value.
The interim impairment tests as of September 30, 2015 indicated that the fair value of the Company’s reporting units, both prior to the change in reporting units at
the legacy reporting unit level and immediately after the change in reporting units at the new reporting unit level, exceeded their carrying values. As a result, the
Company did not record any impairment of goodwill.
2013 Interim Test of Goodwill. During the first quarter of 2013, the Company recognized a $256.7 million non-cash impairment charge to goodwill related to its
legacy Business Services reporting unit, of which $255.6 million is included in continuing operations and $1.1 million is reflected in discontinued operations. The
impairment was based on an analysis of a number of factors after a decline in the Company's market capitalization following the announcement of its fourth quarter
2012 earnings and 2013 financial guidance. The primary factor contributing to the impairment was a change in the discount rate and market multiples as a result of
the change in these market conditions, both key assumptions used in the determination of fair value.
The Company's stock price and market capitalization declined during the three months ended March 31, 2013 following the announcement in mid-February 2013
of the Company's fourth quarter 2012 earnings and 2013 financial guidance. As a result of the sustained decrease in stock price and market capitalization, the
Company performed an interim goodwill test in conjunction with the preparation of its financial statements for the three months ended March 31, 2013.
The Company identified two reporting units, Business Services and Consumer Services, for evaluating goodwill as of March 31, 2013. Each of these reporting
units constituted a business for which discrete financial information was available and segment management regularly reviewed the operating results. The
Company estimated the fair values of its reporting units based on
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