Vonage 2010 Annual Report Download - page 66

V
O
NA
G
EH
O
LDIN
GS CO
RP
.
N
OTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(
In thousands, except per share amounts
)
costs included
$
1,090 for severance and personnel-relate
d
costs which were recorded as selling, general and admin
-
istrative in the statement of o
p
erations,
$
670 for leas
e
t
e
rmin
a
ti
o
n
a
n
d
f
ac
iliti
es
-r
e
l
a
t
ed cos
t
s
whi
c
hw
e
r
e
r
eco
r
ded
as sellin
g
,
g
eneral and administrative in the statement of
o
p
erations, and
$
769 for asset im
p
airments which were
r
ecorded in the statement of o
p
erations as
p
art of de
p
recia
-
tion ex
p
ense. As o
f
December 31, 2009, all o
f
these cost
s
were
p
aid.
Restricted
C
ash and Letters of
C
redi
t
O
ur credit card
p
rocessors had established reserves to
cover an
y
exposure that the
y
ma
y
have as we collect rev-
enue in advance of providin
g
services to our customers
,
which is a customary practice for companies that bill thei
r
customers in advance of providin
g
services. Based on
a
r
eview of credit risk ex
p
osure, our credit card
p
rocessors
r
educed our cash reserves to
$
0 as of December 31, 2010
,
from
$
22,423 at December 31, 2009. We also had a cash
collateralized letter of credit for
$
0 and
$
10,500 as o
f
December 31, 2010 and 2009, respectively. In addition, w
e
had a cash collateralized letter of credit for $7,350 as o
f
December 31, 2010 and 2009, respectively, related to leas
e
de
p
osits
f
or our o
ff
ices and a cash collateralized letter o
f
credit for $535 and $0 as of December 31, 2010 and 2009
,
r
espectively, related to an ener
g
y curtailment pro
g
ram
f
o
r
ou
r
off
i
ces
.Th
e
t
o
t
a
l
a
m
ou
nt
of co
ll
a
t
e
r
a
liz
ed
l
e
tt
e
r
sof
credit was $7,885 and $18,000 at December 31, 2010 and
2009, respectively. In the a
gg
re
g
ate, cash reserves and
collateralized letters of credit of $7,978 and $43,700 wer
e
r
ecorded as lon
g
-term restricted cash at December 31
,
2010 and 2009, respectively. Pursuant to the terms o
f
ou
r
p
rior credit facilities (see Note 6. Lon
g
-term Debt
)
commencin
g
October 1, 2009, all specified unrestricte
d
cash above $30,000, sub
j
ect to certain ad
j
ustments, was
s
we
p
t into a concentration account
(
the “Concentratio
n
Account”), and until the balance in the Concentratio
n
Account was at least equal to $30,000, we could not
access or make an
y
withdrawals from the Concentratio
n
Account. Therea
f
ter, with limited exceptions, we had th
e
r
ight to withdraw funds from the Concentration Account i
n
excess of $30
,
000. As of December 31
,
2009
,
we had
funded $3
,
277 into the Concentration Account. Th
e
C
oncentration Account requirement was eliminated upo
n
r
epa
y
ment o
f
our prior credit
f
acilities in December 2010
and is not included in our new credit facilit
y.
Debt Related
C
osts
C
osts incurred in raisin
g
debt are deferred and amor
-
t
ized as interest expense usin
g
the effective interes
t
m
e
th
od o
v
e
rth
e
lif
eo
fth
e deb
t.
D
e
riv
a
tiv
es
W
e do not hold or issue derivative instruments for trad
-
in
g
purposes. However, in accordance with FA
S
BA
SC
815,
“
D
erivatives and Hed
g
in
g
”(
“FA
S
BA
SC
815”
)
, we review
our contractual obli
g
ations to determine whether there are
terms that possess the characteristics of derivative financial
instruments that must be accounted for separatel
y
from the
financial instrument in which they are embedded. Base
d
upon this review, we are required to value the followin
g
features separately for accountin
g
purposes
:
>
certain features within a common stock warrant to pur
-
chase 514 shares of common stock at an exercise price
of
$
0.58 because the number of shares to be received b
y
th
e
h
o
ld
er cou
ld
c
h
ange un
d
er certa
i
n con
di
t
i
ons;
>
certain features within our prior
C
onvertible Note
s
because the number of shares to be received b
y
th
e
h
o
ld
er cou
ld h
ave c
h
ange
d
un
d
er certa
i
n con
di
t
i
ons; an
d
>
t
he make-whole
p
remium
p
rovisions within our
p
rior Firs
t
Lien Senior Facility and our prior Second Lien Senio
r
F
ac
ili
ty
b
ecause upon prepayment un
d
er certa
i
nc
i
rcum-
stances we ma
y
have been required to settle the debt
f
o
r
m
ore than its
f
ace amount.
W
e recognize these features as liabilities in our con-
s
olidated balance sheet at fair value each period and
r
ecognize any change in the fair value in our statement o
f
operations in the period of change. We estimate the fai
r
v
alue of these liabilities using available market informatio
n
and appropriate valuation methodologies.
Foreign
C
urrenc
y
G
enerally, the functional currency of our non-Unite
d
S
tates subsidiaries is the local currency. The financia
l
s
tatements o
f
these subsidiaries are translated to United
S
tates dollars usin
g
month-end rates of exchan
g
e for
assets and liabilities, and avera
g
e rates o
f
exchan
g
e
f
o
r
r
evenues, costs, and expenses. Translation
g
ains and
losses a
r
e defe
rr
ed a
n
d
r
eco
r
ded
in
accu
m
u
l
a
t
ed o
th
er
com
p
rehensive loss as a com
p
onent o
f
stockholders’ e
q
ui
-
t
y.
I
ncome
T
axe
s
We reco
g
nize de
f
erred tax assets and liabilities a
t
enacted income tax rates
f
or the temporary di
ff
erences
b
etween the
f
inancial reportin
g
bases and the tax bases o
f
our assets and liabilities. Any e
ff
ects o
f
chan
g
es in incom
e
t
ax rates or tax laws are included in the
p
rovision
f
o
r
i
ncome taxes in the
p
eriod o
f
enactment. We record a valu-
a
ti
o
n
a
ll
o
w
a
n
ce
t
o
r
educe
th
e defe
rr
ed
t
a
x
asse
t
s
t
o
th
e
amount that we estimate is more likely than not to be real-
i
zed. We reco
g
nize the tax bene
f
it
f
rom an uncertain ta
x
p
osition only i
f
it is more likely than not that the tax positio
n
w
ill b
e susta
i
ne
d
on exam
i
nat
i
on
b
yt
h
e tax
i
n
g
aut
h
or
i
t
i
es
,
b
ased on the technical merits o
f
the position. The tax bene-
f
its recognized in the
f
inancial statements
f
rom such a posi
-
t
ion are measured based on the largest bene
f
it that has
a
greater than 50 percent likelihood o
f
being realized upon
u
l
t
i
mate reso
l
ut
i
on
.
We have not had any unreco
g
nized tax benefits. W
e
r
eco
g
nize interest and penalties accrued related t
o
unreco
g
nized tax bene
f
its as components o
f
our incom
e
t
ax provision. We have not had any interest and penaltie
s
accrued related to unreco
g
nized tax bene
f
its.
F
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11