LifeLock 2013 Annual Report Download - page 73

securities when an other-than-temporary decline has occurred. No such impairments of marketable securities have been recorded to date.
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We maintain an allowance for doubtful accounts to provide for uncollectible trade receivables. We base the allowance on historical collections, write-off
experience, current economic trends, and changes in customer payment terms and other factors that may affect our ability to collect payments. As of
December 31, 2013 and 2012, our allowance for doubtful accounts was $104 and $134, respectively.
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We state property and equipment at cost, less accumulated depreciation, amortization, and any impairment in value. We assess long-lived assets,
including our property and equipment, for impairment whenever events or changes in business circumstances arise that may indicate that the carrying amount
of the long-lived assets may not be recoverable.
We compute depreciation and amortization using the straight-line method over the following estimated useful lives of the assets:
Leasehold improvements 3 years or the remaining term of the lease, whichever is shorter
Telecommunications, network and computing equipment 3–5 years
Computer software 3 years
Furniture, fixtures and office equipment 3–5 years
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We defer and amortize issuance costs, underwriting fees, and related expenses incurred in connection with the issuance of debt instruments using the
effective interest rate method over the terms of the instruments. We charge unamortized debt issuance costs to interest expense when the related debt is
extinguished.
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Cost of services consists primarily of the direct and contract labor costs, fulfillment costs, printing and postage fees, and remediation costs to fulfill
our service agreements. Cost of services also includes rent expense, facilities support, quality assurance expenses, and depreciation and amortization of long-
lived assets related to the operations of our service fulfillment centers. We also include sales incentives provided to our members in cost of services.
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Technology and development expenses consist primarily of personnel costs incurred in product development, maintenance and testing of our websites,
developing solutions for new services, internal information systems and infrastructure, third-party development, and other internal-use software systems. Our
development costs are primarily incurred in the United States and primarily devoted to enhancing our consumer and enterprise service offerings.
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We measure share-based compensation cost at fair value, net of estimated forfeitures. We determine fair value at the grant date using the Black-Scholes
option pricing model with compensation cost amortized on a straight-line basis over each award’s full vesting period, except for awards with performance
conditions, which we recognize using the accelerated method. Because of the lack of sufficient historical data to calculate expected term of equity awards, we
use the average of the vesting term and the contractual term to estimate the expected term for service-based options granted to employees. We estimate volatility
by utilizing our historical share price and the historical volatility of comparable companies with publicly available share prices. We include share-based
compensation expense in cost of services, sales and marketing, technology and development, and general and administrative expenses consistent with the
respective employees’ department in the consolidated statement of operations. The fair value of restricted stock units and restricted stock is based on the value
of our stock on the grant date. Compensation cost for restricted stock units is amortized on a straight-line basis over each award’s full vesting period.
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We expense advertising costs as incurred, except for direct-response advertising costs. Direct-response advertising costs include telemarketing, web-
based marketing, and direct mail costs related directly to membership solicitation. Advertising expense totaled approximately $ 86,165, $66,049, and
$54,567 for the years ended December 31, 2013, 2012, and 2011, respectively.
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Prior to our IPO, certain warrants could be exercised to purchase shares of our convertible redeemable preferred stock. We accounted for these warrants
as liabilities and recognized them at their fair value. We adjusted the carrying value of such warrants to fair value at each balance sheet date, with the change i n
the fair value being recorded as a component of other income (expense). In connection with our IPO, such warrants were converted into warrants to purchase
shares of common stock.
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