Earthlink 2013 Annual Report Download - page 92

Table of Contents EARTHLINK HOLDINGS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Other Intangible Assets
The following table presents the components of the Company’s acquired identifiable intangible assets included in the accompanying
Consolidated Balance Sheets as of December 31, 2012 and 2013 :
Definite-
lived intangible assets are amortized over their estimated useful lives. The Company amortizes its customer relationships using
the straight-
line method to match the estimated cash flow generated by such assets, and amortizes its developed technology and trade names
using the straight-
line method because a pattern to which the expected benefits will be consumed or otherwise used up could not be reliably
determined. As of December 31, 2013 , the weighted average amortization periods were 5.3 years for customer relationships, 3.8
years for
developed technology and software, 3.3 years for trade names and 4.4 years for other identifiable intangible assets.
Amortization of intangible assets, which is included in depreciation and amortization in the Consolidated Statements of Comprehensive
Income (Loss), for the years ended December 31, 2011, 2012 and 2013 was as follows:
Based on the current amount of definite-
lived intangible assets, the Company expects to record amortization expense of approximately
$62.7 million , $60.7 million , $29.6 million , $1.9 million and $0.5 million during the years ending December 31, 2014 , 2015 , 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
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 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 tests its goodwill annually during the fourth quarter of each fiscal year or when events or changes in circumstances
indicate that goodwill might be impaired. 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.
Impairment testing of goodwill is required at the reporting unit level and involves a two-step process. The Company identified
two
reporting units, Business Services and Consumer Services, for evaluating goodwill. 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 values of the Company's reporting units with
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As of December 31, 2012 As of December 31, 2013
Gross
Carrying
Value
Accumulated
Amortization
Net
Carrying
Value
Gross
Carrying
Value
Accumulated
Amortization
Net
Carrying
Value
(in thousands)
Customer relationships
$
361,961
$
(160,513
)
$
201,448
$
366,651
$
(219,030
)
$
147,621
Developed technology and software
24,311
(14,801
)
9,510
26,261
(19,194
)
7,067
Trade names
9,121
(6,345
)
2,776
9,121
(8,796
)
325
Other
1,800
(849
)
951
1,800
(1,385
)
415
$
397,193
$
(182,508
)
$
214,685
$
403,833
$
(248,405
)
$
155,428
Year Ended December 31,
2011 2012 2013
(in thousands)
Amortization expense
$
59,219
$
70,676
$
66,370