Earthlink 2007 Annual Report Download - page 75

EARTHLINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED—(Continued)
The Company has classified all short- and long-term investments in marketable securities as available-for-sale. The Company may or may
not hold its investments in marketable securities until maturity. In response to changes in the availability of and the yield on alternative
investments as well as liquidity requirements, the Company may sell its investments in marketable securities prior to their stated maturities.
Available for sale securities are carried at fair value, with any unrealized gains and losses, net of tax, included in unrealized gains (losses) on
investments as a separate component of stockholders' equity and in total comprehensive income (loss). Realized gains and losses on investments
in marketable securities are included in interest income and other, net, in the Consolidated Statements of Operations and are determined on a
specific identification basis.
The Company periodically evaluates whether declines in fair values of its investments below their cost are potentially other than temporary.
This evaluation consists of several qualitative and quantitative factors such as the length of time and extent to which fair value has been below
cost basis, the financial condition of the issuer and the Company's ability and intent to hold the investment for a period of time which may be
sufficient for anticipated recovery in market value.
Allowance for Doubtful Accounts
EarthLink maintains an allowance for doubtful accounts for estimated losses resulting from the inability of EarthLink's customers to make
payments. In assessing the adequacy of the allowance for doubtful accounts, management considers multiple factors including the aging of its
receivables, historical write-offs, the credit quality of its customers, the general economic environment and other factors that may affect
customers' ability to pay. If the financial condition of EarthLink's customers were to deteriorate, resulting in an impairment of their ability to
make payments, additional allowances may be required. The Company's allowance for doubtful accounts was $8.1 million and $6.4 million as of
December 31, 2006 and 2007, respectively. The Company recorded bad debt expense of $22.6 million, $23.0 million and $26.3 million during
the years ended December 31, 2005, 2006 and 2007, respectively. The Company's write-offs of uncollectible accounts were $22.4 million,
$25.2 million and $28.0 million during the years ended December 31, 2005, 2006 and 2007, respectively.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation. Depreciation expense is determined using the straight-line method
over the estimated useful lives of the various asset classes, which are generally three to five years for computers, telecommunications equipment
and furniture and other office equipment and 15 years for buildings. Leasehold improvements are depreciated using the straight-
line method over
the shorter of their estimated useful lives 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. Expenditures for maintenance and repairs
are charged to operating expense as incurred. Upon retirements or sales, the original cost and related accumulated depreciation are removed from
the respective accounts, and the gains and losses are included in interest income and other, net, or as facility exit and restructuring costs, as
appropriate. Upon impairment, the Company accelerates depreciation of the asset and such cost is included in operating expenses or as facility
exit and restructuring costs, as appropriate.
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