Earthlink 2015 Annual Report Download - page 93

Download and view the complete annual report

Please find page 93 of the 2015 Earthlink annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 114

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114

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 $14.7 million for unrecorded disputed amounts. The Company recognized $4.4
million , $11.7 million and $12.0 million for favorable disputes with telecommunication vendors during the years ended December 31, 2013, 2014 and 2015 ,
respectively, which is included in cost of revenues in the Consolidated Statements 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.
14. 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 5, "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 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. There were no other material long-lived asset impairments during the years
ended December 31, 2013, 2014 and 2015 .
Fair value of debt
The estimated fair value of the Company’s Senior Secured Notes and Senior Notes was determined based on Level 2 input using observable market prices in less
active markets. The carrying amount of the Company’s senior secured revolving credit facility approximated its fair value as of December 31, 2015 . The following
table presents the fair value of the Company’s debt, excluding capital leases, as of December 31, 2014 and 2015 :
As of December 31, 2014
As of December 31, 2015
Carrying
Carrying
Amount
Fair Value
Amount
Fair Value
(in thousands)
Senior Secured Notes $ 294,208
$ 301,503
$ 295,277
$ 305,439
Senior Notes 288,226
300,300
168,532
177,404
Senior secured revolving credit facility —
—
35,000
35,000
Total debt, excluding capital leases $ 582,434
$ 601,803
$ 498,809
$ 517,843
90