Earthlink 2009 Annual Report Download - page 77

Table of Contents
EARTHLINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
and losses on marketable securities are included in gain (loss) on investments, 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 $4.0 million and $1.7 million as of
December 31, 2008 and 2009, respectively. The Company recorded bad debt expense of $26.3 million, $16.1 million and $6.2 million during the
years ended December 31, 2007, 2008 and 2009, respectively. The Company's write
-
offs of uncollectible accounts were $28.0 million,
$18.5 million and $8.5 million during the years ended December 31, 2007, 2008 and 2009, 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
Investments in other companies 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 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.
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