Earthlink 2014 Annual Report Download - page 67

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
Income (Loss).
The Company's allowance for doubtful accounts was $8.6 million and $6.2 million as of December 31, 2013 and 2014
, respectively. The
Company recorded bad debt expense of $8.6 million , $9.8 million and $8.7 million during the years ended December 31, 2012, 2013 and 2014
,
respectively. The Company's write-offs of uncollectible accounts were $8.0 million , $9.0 million and $11.1 million
during the years ended
December 31, 2012, 2013 and 2014 , 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 original cost and related
accumulated depreciation are removed from the respective accounts and any gains and losses are included in depreciation and amortization
expense in the Consolidated Statements of Comprehensive Income (Loss). Upon impairment, the Company accelerates depreciation of the asset
and such cost is included in depreciation and amortization expense in the Consolidated Statements of Comprehensive Income (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:
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 its Business Services 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.
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