Earthlink 2004 Annual Report Download - page 74

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EARTHLINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
undertakes a study by an independent third party to determine the allocation of the purchase price to the intangible assets acquired.
The Company accounts for intangible assets in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,” which prohibits
the amortization of goodwill and certain intangible assets deemed to have indefinite lives. SFAS No. 142 requires the Company to test its
goodwill and other indefinite life intangible assets for impairment at least annually. The Company performs an impairment test of its goodwill
and other indefinite life intangible assets annually during the fourth quarter of its fiscal year or when events and circumstances indicate the
indefinite life intangible assets might be permanently impaired. The Company is one reporting unit and, consequently, tests its indefinite life
intangible assets in the aggregate. The Company’s impairment test entails comparing the aggregate market value of the Company’
s outstanding
securities plus its liabilities to the aggregate carrying value of the Company’s assets, including goodwill and other indefinite life intangible
assets. If the aggregate market value of the Company’s outstanding securities plus its liabilities is less than the aggregate carrying value of the
Company’s assets, including goodwill and other indefinite life intangible assets, the Company would compare the estimated fair value of
goodwill and other indefinite life intangible assets to the corresponding book value of goodwill and other indefinite life intangible assets and
record an impairment loss to the extent the book value exceeds the estimated fair value. The Company determined that its goodwill and other
indefinite life intangible assets were not impaired based on its annual test during the years ended December 31, 2002, 2003 and 2004.
Long
-Lived Assets
The Company accounts for long-lived assets in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-
Lived Assets,” which addresses financial accounting and reporting for the impairment and disposition of long-lived assets . The Company
evaluates the recoverability of long-lived assets, other than indefinite 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 that the carrying amount of an asset or group of assets is not recoverable. For
long-lived assets to be held and used, EarthLink 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.
Facility Exit Costs
The Company accounts for facility exit costs in accordance with SFAS No. 144 and SFAS No. 146, “Accounting for Costs Associated
with Exit or Disposal Activities,” which requires that a liability for a cost associated with an exit or disposal activity be recognized when the
liability is incurred. SFAS No. 146 was effective January 1, 2003.
Segments
The Company operates in one principal business segment, a provider of Internet access services. Substantially all of the Company’s
operating results and identifiable assets are in the U.S.
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