Earthlink 2007 Annual Report Download - page 180

HELIO, INC. and HELIO LLC
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies (Continued)
hardware and software. Leasehold improvements and other are generally depreciated using the straight-line method over the shorter of their
estimated useful lives or the remaining term of the underlying lease.
Software Development Costs
The Company capitalizes certain costs incurred in connection with developing or obtaining internal use software in accordance with
American Institute of Certified Public Accountants Statement of Position No. 98-1, Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use and Emerging Issues Task Force No. 00-2, Website Development Costs. Capitalized costs include direct
development costs associated with internal use software and website development costs, including internal direct labor costs and external costs
of materials and services. These capitalized costs are included in property and equipment in the combined balance sheets and are generally
amortized on a straight-line basis over a period of three years. Costs incurred during the preliminary project stage, as well as maintenance and
training costs are expensed as incurred.
Costs incurred in connection with developing or obtaining internal use software to be used, consumed and or marketed in conjunction with
the Company's devices or services are accounted for pursuant to Statement of Financial Accounting Standards No. 86, Accounting for the Costs
of Computer Software to Be Sold, Leased, or Otherwise Marketed ("SFAS 86"). Under SFAS 86, these software costs are charged to expense up
until the point of technological feasibility. As the vast majority, if not all of these software costs are incurred up to the point of technological
feasibility, the Company charges these types of software costs to expense as incurred.
Goodwill and Purchased Intangible Assets
In conjunction with the formation of the Company, EarthLink contributed its then-existing wireless assets valued by the Partners at
$40.0 million (the "EarthLink Wireless Assets"). In fiscal 2005 an independent third party performed a valuation analysis of the fair value of the
contributed EarthLink Wireless Assets and determined that of the total $40.0 million value, $36.6 million was attributable to intangible assets
and the remaining $3.4 million was classified as goodwill. The intangible assets primarily consisted of the implied value of contributed carrier
and customer relationships, subscribers, which includes an agreement between EarthLink and the Company to prospectively market the
Company's services (the "Marketing Services"), and billing systems transferred over to the Company upon formation. With the exception of the
Marketing Services, the Company amortizes its intangibles on a straight-line basis over the shorter of their contractual terms or intended useful
lives, generally between three to five years, beginning in March 2005. In September 2007, Earthlink announced that it was restructuring and
would no longer be providing funding to the Company, and as a result the Company recorded an impairment charge of $3.1 million pertaining to
the net remaining intangible Marketing Services obligations from EarthLink (Note 7). In accordance with Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible Assets, goodwill and other indefinite-lived intangible assets are not amortized.
The Company tests goodwill and indefinite-lived intangible assets for impairment in accordance with Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible Assets ("SFAS 142"). Under SFAS 142, goodwill and intangible assets are tested for
impairment on an annual basis, or sooner if events or changes in circumstances indicate that an asset may be impaired, including but not limited
to significant changes in a business climate, legal factors, operating performance indicators, and or competition.
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