Earthlink 2008 Annual Report Download - page 72

Table of Contents
EARTHLINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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 $6.4 million and $4.0 million as of
December 31, 2007 and 2008, respectively. The Company recorded bad debt expense of $23.0 million, $26.3 million and $16.1 million during
the years ended December 31, 2006, 2007 and 2008, respectively. The Company's write-
offs of uncollectible accounts were $25.2 million,
$28.0 million and $18.5 million during the years ended December 31, 2006, 2007 and 2008, 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 (expense) 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.
Investments
Minority investments in other companies are classified as investments in the Consolidated Balance Sheets and are accounted for under the
cost method of accounting because the Company does not have the ability to exercise significant influence over the companies' operations.
Under the cost method of accounting, investments in private companies are carried at cost and are only adjusted for other-than-
temporary
declines in fair value and distributions of earnings. For cost method investments in public companies that have readily determinable fair values,
the Company classifies its investments as available-for-
sale in accordance with SFAS No. 115 and, accordingly, records these investments at
their fair values with unrealized gains and losses included as a separate component of stockholders' equity and in total comprehensive income
(loss). Upon sale or liquidation, realized gains and losses are included in the Consolidated Statement of Operations. Amounts reclassified out of
accumulated other comprehensive income (loss) into earnings are determined on a specific identification basis.
Management regularly evaluates the recoverability of its investments based on the performance and the financial position of those
companies as well as other evidence of market value. Such evaluation includes, but is not limited to, reviewing the investee's cash position,
recent financings, projected and historical financial performance, cash flow forecasts and financing needs. Management also regularly
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