XO Communications 2010 Annual Report Download - page 60

XO Holdings, Inc.
Notes to Consolidated Financial Statements
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES − (continued)
Repairs and maintenance are charged to expense when incurred. Depreciation and amortization are
calculated for financial reporting purposes using the straight-line method over the estimated useful lives
beginning in the month telecommunications networks and acquired bandwidth are substantially complete and
available for use, and in the month equipment and furniture are acquired. The estimated useful lives of
property and equipment are as follows:
Telecommunications networks and acquired bandwidth . . 3 − 20 years
Furniture, fixtures, equipment and other ............. 5−7years
Leasehold improvements ....................... shorter of estimated useful life or term
of the lease
Equipment held under capital leases are stated at the lower of the fair value of the asset or the net
present value of the future minimum lease payments at the inception of the lease. For equipment held under
capital leases, depreciation is computed using the straight-line method over the shorter of the estimated useful
lives of the leased assets or the related lease term.
f. Goodwill and Indefinite-Lived Intangible Assets
Goodwill and indefinite-lived intangible assets are tested for impairment on an annual basis or when
impairment indicators exist. Both goodwill and indefinite-lived intangible assets are tested using a discounted
cash flow model. Cash flow projections and assumptions are based on a combination of the Company’s
historical performance and trends, the Company’s business plans and management’s estimate of future
performance, giving consideration to existing and anticipated competitive economic conditions. Other
assumptions include the Company’s estimated weighted average cost of capital and long-term rate of growth
for the business.
For indefinite-lived intangible assets, the evaluation requires a comparison of the estimated fair value of
the asset to the carrying value of the asset. If the carrying value exceeds its fair value, the carrying value of
the asset is reduced to its fair value, resulting in an impairment charge. Goodwill is tested by comparing the
fair value of a reporting unit with its carrying amount including goodwill. If the carrying value of the
reporting unit exceeds fair value, the second step of the goodwill impairment test is performed to measure the
impairment loss, if any. As a result of impairment evaluations of its LMDS licenses, the Company recognized
an impairment charge in both 2010 and 2009. See Note 3, Fair Value Measurements, for further discussion.
g. Long-lived Assets
Long-lived assets include property and equipment and definite-lived intangible assets. Long-lived assets
are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount
may not be recoverable. If impairment indicators exist for a long-lived asset, the undiscounted future cash
flows expected to result from the use and eventual disposal of the assets are compared to the carrying value of
the asset. This analysis requires management to make subjective assessments of factors including future cash
flows, holding periods of assets and capitalization rates. If management’s best estimate of future undiscounted
cash flows is less than the carrying value of the asset, an impairment charge is recorded to reduce the asset to
its fair value. Fair value is determined based on discounted cash flows, appraised values or management’s
estimates, depending on the nature of the asset. There were no impairments of long-lived assets as of
December 31, 2010, 2009 or 2008.
56