GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

General

The Company tests goodwill for impairment annually in the third quarter as of August 1, 2018, or when events occur or circumstances change that could potentially reduce the fair value of the reporting unit. 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.

In order to determine the estimated fair value of our reporting units, the Company utilizes the discounted cash flow and market methods. INAP has consistently utilized both methods in its goodwill impairment assessments and weighted both as appropriate based on relevant factors for each reporting unit. The discounted cash flow method is specific to the anticipated future results of the reporting unit, while the market method is based on the market sector including our competitors. The Company determines the assumptions supporting the discounted cash flow method, including the discount rate, using estimates as of the date of the impairment review. To determine the reasonableness of these assumptions, the Company considered the 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. The Company used reasonable judgment in developing its 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.

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 impairment of goodwill has been identified during the year ended December 31, 2018.

Annual Testing

2018

Effective January 1, 2018, we changed our operating segments, as discussed in Note 10, "Operating Segments and Geographic Information," 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.

The Company performed its annual goodwill impairment test as of August 1, 2018 by evaluating its seven reporting units. In performing this test, the Company utilized long-term growth rates for its reporting units ranging from 0.0% to 2.5% in its estimation of fair value and discount rates ranging from 9.0% to 16.0%, which is an increase versus the prior year discount rates of 2.0% to 5.0% to reflect changes in market conditions. The assumptions used in evaluating goodwill for impairment are subject to change and are tracked against historical results by management. Changes in the key assumptions by management can change the results of testing.

Year-end Testing

2018

During the fourth quarter of 2018, the Company identified a significant decrease in its share price which was considered an impairment indicator. Consequently, the Company performed another goodwill impairment test as of December 31, 2018. As a result of that test, the estimated fair value of these reporting units with goodwill on their balance sheets significantly exceed their carrying values. While management believes the assumptions used are reasonable and commensurate with the views of a market participant, changes in key assumptions for these reporting units, including increasing the discount rate, lowering revenue forecasts, lowering the operating margin or lowering long-term growth rate, could result in a future impairment.

During the years ended December 31, 2018 and 2017, our goodwill activity is as follows (in thousands):



	January 1, 2017		Re-allocations			December 31, 2017		Re-allocations			SingleHop Acquisition		December 31, 2018
Reportable segments:
Data center and network services	$	—	$	—		$	—	$	—		$	—	$	—
Cloud and hosting services	50,209		(50,209		)	—		—			—		—
INAP COLO	—		6,003			6,003		(6,003		)	—		—
INAP CLOUD	—		44,206			44,206		(44,206		)	—		—
INAP US	—		—			—		28,118			66,008		94,126
INAP INTL	—		—			—		22,091			—		22,091
Total	$	50,209	$	—		$	50,209	$	—		$	66,008	$	116,217

Other Intangible Assets

During the year ended December 31, 2018, we concluded that no impairment indicators existed to cause us to reassess our other intangible assets. The estimated useful lives range from 4 years to 15 years.

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



	December 31, 2018					December 31, 2017
	Gross Carrying Amount		Accumulated Amortization			Gross Carrying Amount		Accumulated Amortization
Acquired and developed technology	$	71,586	$	(52,097	)	$	52,825	$	(48,063	)
Customer relationships and trade names	110,785		(57,232		)	71,116		(50,212		)
	$	182,371	$	(109,329	)	$	123,941	$	(98,275	)

Amortization expense for intangible assets during the years ended December 31, 2018, 2017 and 2016 was $11.1 million, $4.4 million and $4.5 million, respectively. As of December 31, 2018, remaining amortization expense is as follows (in thousands):



2019	$	13,080
2020	12,375
2021	11,234
2022	8,317
2023	7,995
Thereafter	20,041
	$	73,042