LifeLock 2013 Annual Report Download - page 30

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
Whether sales of our services are subject to state sales and use taxes is uncertain, due in part to the nature of our services and the relationships through
which our services are offered, as well as changing state laws and interpretations of those laws. In 2012 we entered into a settlement agreement with the New
York State Department of Taxation and Finances regarding our historic and ongoing tax collection obligations. We currently collect and remit sales tax in
several states related to the sale of our consumer services. Additional states or one or more countries or other jurisdictions may seek to impose sales or other tax
collection obligations on us in the future. A successful assertion by any state, country, or other jurisdiction that we should be collecting sales or other taxes on
the sale of our services could, among other things, increase the cost of our services, create significant administrative burdens for us, result in substantial tax
liabilities for past sales, discourage current members and other consumers from purchasing our services, or otherwise substantially harm our business and
operating results.
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A substantial majority of our members pay for our services using credit cards. From time to time, the major credit card companies or the issuing banks
may increase the fees that they charge for each transaction using their cards. An increase in those fees would require us to either increase the prices we charge
for our services or suffer a negative impact on our margins, either of which could adversely affect our business, operating results, and financial condition.
In addition, our credit card fees may be increased by credit card companies if our chargeback rate, or the rate of payment refunds, exceeds certain
minimum thresholds. If we are unable to maintain our chargeback rate at acceptable levels, our credit card fees for chargeback transactions, or for all credit
card transactions, may be increased, and, if the problem significantly worsens, credit card companies may further increase our fees or terminate their
relationship with us. In addition, changes in billing systems in the future could increase the per transaction cost that we pay. Any increases in our credit card
fees could adversely affect our operating results, particularly if we elect not to raise the retail list price for our consumer services to offset the increase. The
termination of our ability to process payments on any major credit card would significantly impair our business.
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As of December 31, 2013, we had no outstanding debt. We may incur indebtedness in the future, including borrowings available under our $85
million credit facility with Bank of America. Any substantial indebtedness and the fact that a substantial portion of our cash flow from operating activities
could be needed to make payments on this indebtedness could have adverse consequences, including the following:
•reducing the availability of our cash flow for our operations, capital expenditures, future business opportunities, and other purposes;
•limiting our flexibility in planning for, or reacting to, changes in our business and the industries in which we operate, which would place us at a
competitive disadvantage compared to our competitors that may have less debt;
•limiting our ability to borrow additional funds;
•increasing our vulnerability to general adverse economic and industry conditions; and
•failing to comply with the covenants in our debt agreements could result in all of our indebtedness becoming immediately due and payable.
Our ability to borrow any funds needed to operate and expand our business will depend in part on our ability to generate cash. Our ability to generate
cash is subject to the performance of our business as well as general economic, financial, competitive, legislative, regulatory, and other factors that are beyond
our control. If our business does not generate sufficient cash flow from operating activities or if future borrowings are not available to us under our senior
credit facility or otherwise in amounts sufficient to enable us to fund our liquidity needs, our operating results, financial condition, and ability to expand our
business may be adversely affected. Moreover, our inability to make scheduled payments on our debt obligations in the future would require us to refinance all
or a portion of our indebtedness on or before maturity, sell assets, delay capital expenditures, or seek additional equity.
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
The agreement governing our senior credit facility with Bank of America contains covenants that limit various actions that we may take, including the
following:
•incurring additional indebtedness;
•granting additional liens;
•making certain investments and distributions;
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