GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

General

The Company tests goodwill and intangible assets with indefinite lives for impairment annually in the third quarter. Additionally, the Company may perform interim tests if an event occurs or circumstances change that could potentially reduce the fair value of a reporting unit or indefinite lived intangible asset below its carrying amount. The carrying value of each reporting unit is determined by assigning the assets and liabilities, including the existing goodwill and intangible assets, to those reporting units.

The Company tests goodwill for impairment by either performing a qualitative evaluation or a quantitative test. The qualitative evaluation is an assessment of factors, including reporting unit specific operating results as well as industry, market and general economic conditions, to determine whether it is more likely than not that the fair values of a reporting unit is less than its carrying amount, including goodwill. The Company may elect to bypass this qualitative assessment for some or all of its reporting units and perform a quantitative test.

Goodwill is considered impaired if the carrying amount of the net assets exceeds the fair value of the reporting unit. Impairment, if any, would be recorded in operating income / (loss) and this could result in a material impact to net income / (loss) and income / (loss) per share.

In 2017, the Company adopted the new guidance under ASU No. 2017-04: Intangibles - Goodwill and Other: Simplifying the Accounting for Goodwill Impairment (Topic 350) which eliminated step 2 of the goodwill impairment test, which required a hypothetical purchase price allocation to measure goodwill impairment loss as of January 1, 2018. A goodwill impairment loss under the new guidance is instead measured using a single step test based on the amount by which a reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of goodwill. Based on the Company’s impairment test, no impairments were noted.

Annual Testing

2018

During the nine months ended September 30, 2018, we changed our operating segments, as discussed in Note 10, “Operating Segments,” and, subsequently, our reporting units. We now have seven reporting units: US Colocation, US Cloud, US Network, INTL Colocation, INTL Cloud, INTL Network, and Ubersmith. We allocated goodwill to our new reporting units using a relative fair value approach. In addition, we completed an assessment of any potential goodwill impairment for all reporting units immediately prior to and after the reallocation and determined that no impairment existed.

We performed our annual impairment review as of August 1, 2018. To determine the estimated fair value of our reporting units, we utilized the discounted cash flow and market methods. We have consistently utilized both methods in our goodwill impairment assessments and weighted both as appropriate based on relevant factors for each reporting unit. The discounted cash flow method is specific to our anticipated future results of the reporting unit, while the market method is based on our market sector including our competitors.

We determined the assumptions supporting the discounted cash flow method, including the discount rate, using our estimates as of the date of the impairment review. To determine the reasonableness of these assumptions, we considered our past performance and empirical trending of results, looked to market and industry expectations used in the discounted cash flow method, such as forecasted revenues and discount rate. We used reasonable judgment in developing our estimates and assumptions. The market method estimates fair value based on market multiples of revenue and earnings derived from comparable companies with similar operating and investment characteristics as the reporting unit.

The assumptions, inputs and judgments used in performing the valuation analysis are inherently subjective and reflect estimates based on known facts and circumstances at the time we perform the valuation. These estimates and assumptions primarily include, but are not limited to, discount rates; terminal growth rates; projected revenues and costs; earnings before interest, taxes, depreciation and amortization for expected cash flows; market comparables and capital expenditure forecasts. The use of different assumptions, inputs and judgments, or changes in circumstances, could materially affect the results of the valuation. Due to inherent uncertainty involved in making these estimates, actual results could differ from our estimates and could result in additional non-cash impairment charges in the future.

The Company determined, after performing the fair value analysis above, that all reporting units’ fair values were in excess of its carrying value. No impairment of goodwill has been identified for the nine months ended September 30, 2018.

During the nine months ended September 30, 2018, our goodwill activity is as follows (in thousands):



	December 31, 2017		Re-allocations			SingleHop Acquisition (Note 4)		September 30, 2018
Operating segments:
INAP COLO	$	6,003	$	(6,003	)	$	—	$	—
INAP CLOUD	44,206		(44,206		)	—		—
INAP US	—		28,304			66,496		94,800
INAP INTL	—		21,905			—		21,905
Total	$	50,209	$	—		$	66,496	$	116,705

Other Intangible Assets

The components of our amortizing intangible assets, including capitalized software, are as follows (in thousands):



	September 30, 2018					December 31, 2017
	Gross Carrying Amount		AccumulatedAmortization			Gross Carrying Amount		AccumulatedAmortization
Acquired and developed technology	$	70,201	$	(50,997	)	$	52,825	$	(48,063	)
Customer relationships, trade names and noncompete	110,774		(55,240		)	71,116		(50,212		)
	$	180,975	$	(106,237	)	$	123,941	$	(98,275	)

During the three months ended September 30, 2018 and 2017, amortization expense for intangible assets was approximately $3.2 million and $1.8 million, respectively. Amortization expense for intangible assets was approximately $8.0 million and $4.0 million for the nine months ended September 30, 2018 and 2017, respectively. As of September 30, 2018, remaining amortization expense is as follows (in thousands):



Three months remaining in 2018	$	3,598
2019	13,961
2020	13,394
2021	11,210
2022	8,251
2023	7,747
Thereafter	16,577
Total	$	74,738