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Table of Contents
Impairment of goodwill and intangible assets
During the years ended December 31, 2008, 2009 and 2010, we recorded non-
cash impairment charges for goodwill and intangible assets of
$78.7 million, $24.1 million and $1.7 million, respectively. We test goodwill and indefinite-
lived intangible assets for impairment annually or
when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
After completing our annual impairment test during the fourth quarter of 2008, we concluded that goodwill and certain intangible assets
recorded as a result of our April 2006 acquisition of New Edge were impaired and we recorded non-
cash impairment charges related to the New
Edge reporting unit of $64.0 million for goodwill, $3.1 million for the indefinite-
lived trade name and $11.6 million for customer relationships.
The primary factor contributing to the impairment charge was the significant economic downturn. New Edge serves a large percentage of small
and medium-
sized business customers, especially retail businesses, which were particularly affected by the economic downturn. Economic
conditions affecting retail businesses worsened substantially during the "holiday season" in the fourth quarter of 2008. As a result, management
updated its long-
range financial outlook, which reflected decreased expectations of future growth rates and cash flows for New Edge. We used
this updated financial outlook in conjunction with our annual impairment test.
After completing our annual impairment test during the fourth quarter of 2009, we concluded that goodwill and certain intangible assets
recorded as a result of the New Edge acquisition were further impaired and recorded non-
cash impairment charges related to the New Edge
reporting unit of $23.9 million for goodwill and $0.2 million for the indefinite-
lived trade name. As a result, there is no remaining carrying value
related to New Edge goodwill. The primary factor contributing to the impairment charge was continued sales pressure in the small and medium-
sized business market due to the economy, which adversely impacted our long-range financial outlook.
The annual impairment test during the fourth quarter of 2010 indicated that the fair value of our reporting units exceeded their carrying
values. As a result, we concluded that our remaining goodwill relating to our Consumer Segment was not impaired.
Goodwill. Impairment testing of goodwill is required at the reporting unit level and involves a two-
step process. As of the date of our
annual impairment tests, we operated two reportable segments, Consumer Services and Business Services and had three reporting units for
evaluating goodwill, which were Consumer Services, New Edge and Web Hosting. The Consumer Services reportable segment is one reporting
unit, while the Business Services reportable segment consisted of two reporting units, New Edge and Web Hosting. Each of these reporting units
constitutes a business for which discrete financial information is available and segment management regularly reviews the operating results.
The first step of the impairment test involves comparing the estimated fair value of our reporting units with the reporting unit's carrying
amount, including goodwill. We estimated the fair values of our reporting units primarily using the income approach valuation methodology that
included the discounted cash flow method, taking into consideration the market approach and certain market multiples as a validation of the
values derived using the discounted cash flow methodology. The discounted cash flows for each reporting unit were based on discrete financial
forecasts developed by management for planning purposes. Cash flows beyond the discrete forecasts were estimated by using a terminal value
calculation, which incorporated historical and forecasted financial trends for each identified reporting unit.
Upon completion of the first step of the impairment test during the years ended December 31, 2008 and 2009, we determined that the
carrying value of our New Edge reporting unit exceeded its estimated fair value. Because indicators of impairment existed for this reporting unit,
we performed the second step of the test. We determined the implied fair value of goodwill in the same manner used to recognize goodwill in a
business combination. To determine the implied value of goodwill, we allocated fair values to the assets and liabilities of the New Edge
reporting unit. We calculated the implied fair value of goodwill as the excess of the fair value of the New Edge reporting unit over the amounts
assigned to its assets and
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