Earthlink 2015 Annual Report Download - page 68

Table of Contents
EARTHLINK HOLDINGS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and highly liquid investments with original maturities of three months or less at the date of acquisition. Cash equivalents
are stated at amortized cost, which approximates fair value.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable consist principally of trade receivables from customers and are generally unsecured and due within 30 days. The Company maintains an
allowance for doubtful accounts for accounts receivable that may not be collectible. In assessing the adequacy of the allowance for doubtful accounts, management
considers a number of factors, including the aging of the accounts receivable balances, historical collection experience and a specific customer's ability to meet its
financial obligations to the Company. If the financial condition of the Company's customers were to deteriorate, resulting in an inability to make payments,
additional allowances may be required. Bad debt expense related to allowances for doubtful accounts is included in selling, general and administrative expenses in
the Consolidated Statements of Comprehensive Loss.
The Company's allowance for doubtful accounts was $6.2 million and $3.5 million as of December 31, 2014 and 2015 , respectively. The Company's bad debt
expense was $9.8 million , $8.7 million and $6.2 million during the years ended December 31, 2013, 2014 and 2015 , respectively. The Company's write-offs of
uncollectible accounts were $9.0 million , $11.1 million and $8.9 million during the years ended December 31, 2013, 2014 and 2015 , respectively.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation. Property and equipment acquired in connection with business combinations are recorded
at acquisition date fair value. The costs of additions, replacements and substantial improvements are capitalized, while the costs of maintenance and repairs are
charged to operating expense as incurred. Upon retirements or sales, the Company removes the original cost and related accumulated depreciation and any gains
and losses are included in income (loss) from operations in the Consolidated Statements of Comprehensive Loss. Upon impairment, the Company accelerates
depreciation of the asset and such cost is included in income (loss) from operations in the Consolidated Statements of Comprehensive Loss.
Depreciation expense is determined using the straight-line method over the estimated useful lives of the various asset classes. Leasehold improvements are
depreciated using the straight-line method over the shorter of the estimated useful life or the remaining term of the lease. When leases are extended, the remaining
useful lives of leasehold improvements are increased as appropriate, but not for a period in excess of the remaining lease term. The estimated useful lives of
property and equipment are as follows:
Buildings 20–40 years
Communications and fiber optic network 5–20 years
Computer equipment and software 3–5 years
Office and other equipment 3–5 years
Customer acquisition costs 3 years
Leasehold improvements Shorter of estimated useful life or lease term
The Company capitalizes costs directly related to the design, deployment and expansion of its network and operating support systems, including employee-related
costs. The Company also capitalizes customer installation and acquisition costs related to certain business customers to the extent they are recoverable. Customer
installation costs represent nonrecurring fees paid to other telecommunications carriers for services performed by the carriers when the Company orders last mile
facilities in connection with new customers acquired by the Company. Customer acquisition costs include external and internal personnel costs directly associated
with the provisioning of new customer orders. Such customer acquisition costs represent incremental direct costs incurred by the Company that would not have
been incurred absent a new customer contract. Customer installation and acquisition costs are amortized over the weighted average initial contract terms of
contracts initiated each month, assuming a customer churn factor.
Goodwill and Other Intangible Assets
Goodwill is the excess of the purchase price over the fair value of identifiable net assets acquired in business combinations accounted for under the acquisition
method of accounting. The Company does not amortize goodwill. The Company tests its goodwill annually during the fourth quarter of its fiscal year or when
events and circumstances indicate that those assets might not be recoverable.
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