Vonage 2010 Annual Report Download - page 47

was 48 mont
h
s
i
n 2008
,
44 mont
h
s
i
n 2009
,
an
d
38 mont
h
s
in
2010. For 2011, the avera
g
e customer life will remain at 38
months based on consistent historical trends. The im
p
act of
these chan
g
es to the avera
g
e customer life was not material t
o
the consolidated results of o
p
erations
.
W
e also
p
rovide rebates to customers who
p
urchase their
customer equipment
f
rom retailers and satis
f
y minimum servic
e
p
eriod re
q
uirements. These rebates in excess o
f
activation
f
ee
s
are recorded as a reduction o
f
revenues over the service
p
eriod
b
ased u
p
on the estimated number o
f
customers that will ulti-
mately earn and claim the rebates.
C
ustomer equipment and shippin
g
revenues include sale
s
to our retailers, who subsequently resell this customer equip
-
ment to customers. Revenues were reduced
f
or payments to
r
etailers and rebates to customers, who
p
urchased thei
r
customer equipment throu
g
h these retailers, to the extent o
f
customer equipment and shippin
g
revenues
.
I
nventory
Inventor
y
consists o
f
the cost o
f
customer equipment and i
s
s
tated at the lower of cost or market, with cost determined usin
g
t
he average cost method. We provide an inventory allowance for
customer equ
i
pment t
h
at
h
as
b
een returne
dby
customers
b
u
t
ma
y
not
b
ea
bl
eto
b
ere
i
ssue
d
to new customers or returne
d
t
o
t
he manufacturer for credit.
In
co
m
e
T
a
x
es
We reco
g
nize de
f
erred tax assets and liabilities
f
or th
e
expected tax consequences o
f
temporary di
ff
erences betwee
n
t
he tax bases o
f
assets and liabilities and their re
p
orted amounts
usin
g
tax rates in e
ff
ect
f
or the year the di
ff
erences are expecte
d
to
r
e
v
e
r
se
.W
e
h
a
v
e
r
eco
r
ded a
v
a
l
ua
ti
o
n
a
ll
o
w
a
n
ce o
nth
e
assumption that it is more likely than not that we will not
g
en-
e
r
a
t
e
t
a
x
ab
l
e
in
co
m
e
in th
efu
t
u
r
e
.
Net
O
perating Loss
C
arryforward
s
As of December 31, 2010, we had net operatin
g
loss carry
forwards for United
S
tates federal and state tax
p
ur
p
oses of
$
885,431 and
$
849,567, respectively, expirin
g
at various time
s
from years endin
g
2012 throu
g
h 2030. In addition, we had ne
t
operatin
g
loss carry forwards for
C
anadian tax purposes of
$
42,457 expirin
g
throu
g
h 2027. We also had net operatin
g
loss
carry forwards for United Kin
g
dom tax purposes of
$
40,335 wit
h
no ex
p
iration date
.
U
nder Section 382 of the Internal Revenue Code, if a cor
p
o
-
ration under
g
oes an “ownership chan
g
e” (
g
enerally defined as
a
g
reater than 50% chan
g
e (by value) in its equity ownership ove
r
a three-year period), the corporation’s ability to use its
pre-chan
g
eo
f
control net operatin
g
loss carry
f
orward and othe
r
pre-chan
g
e tax attributes a
g
ainst its post-chan
g
e income may
be limited. The Section 382 limitation is applied annually so as to
l
imit the use o
f
our pre-chan
g
e net operatin
g
loss carry
f
orward
s
t
o an amount that
g
enerally equals the value o
f
our stock imme-
diately be
f
ore the ownership chan
g
e multiplied by a desi
g
nate
d
f
ederal lon
g
-term tax-exempt rate. Due to the cumulative impact
o
f
our equity issuances over the three year period ended April
2005, a chan
g
eo
f
ownership occurred upon the issuance o
f
our
previously outstanding Series E Preferred Stock at the end of
A
pril 2005. As a result, $171,147 of the total United States net
operating losses were subject to an annual base limitation o
f
$39
,
374.
S
hare-Based
C
ompensation
We account
f
or share-based compensation in accordanc
e
with FA
S
BA
SC
718
,
“C
ompensation-
S
tock
C
ompensation
”
.
Under the fair value recognition provisions of this pronounce-
m
ent, s
h
are-
b
ase
d
compensat
i
on cost
i
s measure
d
at t
h
e grant
date based on the fair value of the award, reduced as appro-
priate based on estimated forfeitures, and is recognized a
s
expense over the applicable vesting period of the stock awar
d
u
s
i
ng t
h
e acce
l
erate
d
met
h
o
d
.
Recent Accountin
g
Pronouncement
s
In October 2009, the FASB issued Accountin
g
Standard
s
Up
date No. 2009-13
(
“ASU 2009-13”
)
“
Revenue Reco
g
nitio
n
(Topic 605), Multiple-Deliverable Revenue Arran
g
ements a con
-
s
ensus of the FASB Emer
g
in
g
Issues Task Force (“EITF”)
.
Thi
s
ASU
p
rovides amendments to the criteria in FASB ASC 605-25
f
or separatin
g
consideration in multiple-deliverable arran
g
e
-
ments. ASU 2009-13 chan
g
es existin
g
rules re
g
ardin
g
reco
g
-
nition o
f
revenue in multiple deliverable arran
g
ements and
expands on
g
oin
g
disclosures about the si
g
ni
f
icant jud
g
ments
used in applyin
g
its
g
uidance. It will be e
ff
ective
f
or revenu
e
arrangements entered into or materially modi
f
ied in the
f
isca
l
y
ear beginning on or a
f
ter June 15, 2010. Early adoption is per-
m
i
tte
d
on a prospect
i
ve or retrospect
i
ve
b
as
i
s.
W
e
d
o not
expect the adoption of ASU 2009-13 to have a material impac
t
on our
f
inancial statements
.
40
VO
NA
G
E ANN
U
AL REP
O
RT 2010