Vonage 2010 Annual Report Download - page 65

V
O
NA
G
EH
O
LDIN
GS CO
RP
.
N
OTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(
In thousands, except per share amounts
)
C
ash and
C
ash Equivalent
s
We maintain cash with several investment
g
rade finan-
cial institutions. Hi
g
hly liquid investments, which are readily
convertible into cash, with ori
g
inal maturities of three
months or less, are recorded as cash e
q
uivalents.
C
ertain Risks and
C
oncentration
s
Fi
nanc
i
a
li
nstruments t
h
at potent
i
a
lly
su
bj
ect us t
o
concentrations of credit risk consist principall
y
of cas
h
equivalents and accounts receivable. They are subject t
o
fluctuations in both market value and yield based upon
chan
g
es in market conditions, includin
g
interest rates, liq
-
uidity,
g
eneral economic conditions, and conditions specifi
c
t
o the issuers. Accounts receivable are typically unsecure
d
a
n
da
r
ede
riv
ed f
r
o
mr
e
v
e
n
ues ea
rn
ed f
r
o
m
cus
t
o
m
e
r
s
p
rimarily located in the United States. A portion of ou
r
accounts receivable represents the timin
g
di
ff
erenc
e
be
tw
ee
nwh
e
n
a cus
t
o
m
e
r’
sc
r
ed
it
ca
r
d
i
sb
ill
ed a
n
d
th
e
s
ubse
q
uent settlement o
f
that transaction with our credit
card processors. This timin
g
di
ff
erence is
g
enerally 3 day
s
f
or substantially all o
f
our credit card receivables. We hav
e
never experienced any accounts receivable write-o
ff
sdu
e
t
o this timin
g
di
ff
erence. In addition, we collect subscriptio
n
f
ees in advance, which minimizes our accounts receivabl
e
and bad debt ex
p
osure. I
f
a customer’s credit card, debit
card or ECP is declined, we
g
enerally suspend international
callin
g
capabilities as well as their ability to incur domesti
c
usa
g
e char
g
es in excess o
f
their plan minutes. I
f
the cus
-
t
omer’s credit card, debit card or ECP could not be suc
-
cessfully processed durin
g
three billin
g
cycles (i.e., th
e
current and two subsequent monthly billin
g
cycles), w
e
t
erm
i
nate t
h
e account.
I
na
ddi
t
i
on, we automat
i
ca
ll
yc
h
ar
g
e
an
y
per minute
f
ees to our customers’ credit card, debi
t
card or ECP monthly in arrears. To further mitigate our bad
debt exposure, a customer’s credit card, debit card or ECP
will be charged in advance o
f
their monthly billing i
f
their
i
nternat
i
ona
l
ca
lli
ng or overage c
h
arges excee
d
a certa
in
d
o
ll
ar t
h
res
h
o
ld.
I
nventor
y
Inventor
y
consists of the cost of customer equipmen
t
and is stated at the lower of cost or market
,
with cost
determined usin
g
the avera
g
e cost method. We provide a
n
i
nventory allowance for customer equipment that has bee
n
r
eturned by customers but may not be able to be re-issued
to
n
e
w
cus
t
o
m
e
r
so
rr
e
t
u
rn
ed
t
o
th
e
m
a
n
u
f
ac
t
u
r
e
rf
o
r
c
r
ed
-
it.
P
roperty an
dE
qu
i
pmen
t
Propert
y
and equipment includes acquired assets and
t
hose accounted for under ca
p
ital leases and consis
t
p
rincipall
y
of network equipment and computer hardware
,
furniture, software, and leasehold im
p
rovements. In addi-
t
ion, the lease of our cor
p
orate head
q
uarters has bee
n
accounted for as a capital lease and is included in property
and e
q
ui
p
ment. Network e
q
ui
p
ment and com
p
uter hard
-
ware and furniture are stated at cost with de
p
reciation
p
ro-
v
ided usin
g
the strai
g
ht-line method over the estimated
useful lives of the related assets, which ran
g
e from three to
five years. Leasehold improvements are amortized ove
r
t
h
e
ir
es
tim
a
t
ed usefu
lli
fe of
th
e
r
e
l
a
t
ed asse
t
so
rth
e
li
fe of
t
he lease, whichever is shorter. The cost o
f
renewals an
d
s
ubstantial im
p
rovements is ca
p
italized while the cost o
f
maintenance and repairs is char
g
ed to operatin
g
expense
s
as
in
cu
rr
ed.
O
ur network e
q
ui
p
ment and com
p
uter hardware,
which consists o
f
routers,
g
ateways and servers that enabl
e
our telephony services, is subject to technolo
g
ical risks and
r
apid market chan
g
es due to new products and services
and chan
g
in
g
customer demand. These chan
g
es may result
i
n
f
uture ad
j
ustments to the estimated use
f
ul lives or th
e
carryin
g
value o
f
these assets, or both
.
S
oftware
C
ost
s
We capitalize certain costs, such as purchased soft
-
ware and internall
y
developed software that we use for
customer acqu
i
s
i
t
i
on an
d
customer care automat
i
on too
l
s
,
i
n accordance with FA
S
BA
SC
350-40
,
“I
nterna
l
-
U
se
S
oftware”.
C
omputer software is stated at cost less accu-
mulated amortization and the estimated useful life is two t
o
th
ree
y
ears.
Intan
g
ible Assets
Intan
g
ible assets acquired in the settlement o
f
liti
g
atio
n
or by direct purchase are accounted
f
or based upon the
f
ai
r
va
l
ue of asse
t
s
r
ece
iv
ed.
P
atents an
dP
atent
Li
cense
s
Patent rights acquired in the settlement of litigation o
r
by
direct purchase are accounted for based upon the fai
r
va
l
ue o
f
asse
t
s
r
ece
iv
ed.
L
ong-
Li
ve
dA
ssets
W
e eva
l
uate
i
mpa
i
rment
l
osses on
l
ong-
li
ve
d
asset
s
use
di
n operat
i
ons w
h
en events an
d
c
h
anges
i
nc
i
rcum-
s
tances indicate that the assets might be impaired. If our
r
eview indicates that the carrying value of an asset will no
t
b
e recoverable, based on a comparison of the carrying
v
alue of the asset to the undiscounted future cash flows
,
th
e
i
mpa
i
rment w
ill b
e measure
db
y compar
i
ng t
h
e carry
i
n
g
v
alue of the asset to its fair value. Fair value will be
d
eterm
i
ne
db
ase
d
on quote
d
mar
k
et va
l
ues,
di
scounte
d
cash flows or appraisals. Impairments are recorded in th
e
s
tatement of operations as part of depreciation expense
.
Facilit
y
Exit and Restructurin
g
Cost
s
In June 2009, we announced the closin
g
o
f
our o
ff
ic
e
facility in Canada. The facility exit and restructurin
g
cost
s
for the year ended December 31, 2009 were $2,529. Thes
e
F-10
VO
NA
G
E ANN
U
AL REP
O
RT 2010