Vonage 2012 Annual Report Download - page 41

35 VONAGE ANNUAL REPORT 2012
period, or
> the base rate determined by reference to the highest of (a)
the federal funds effective rate from time to time plus 0.50%,
(b) the prime rate of JPMorgan Chase Bank, N.A., and (c) the
LIBOR rate applicable to one month interest periods plus
1.00%, plus an applicable margin equal to 2.125% if our
consolidated leverage ratio is less than 0.75 to 1.00, 2.275%
if our consolidated leverage ratio is greater than or equal to
0.75 to 1.00 and less than 1.50 to 1.00, and 2.625% if our
consolidated leverage ratio is greater than or equal to 1.50
to 1.00, payable on the last business day of each March, June,
September, and December and the maturity date of the 2013
Credit Facility.
The 2013 Credit Facility provides greater flexibility to us in funding
acquisitions and restricted payments, such as stock buybacks, than the
2011 Credit Facility.
We may prepay the 2013 Credit Facility at our option at any
time without premium or penalty. The 2013 Credit Facility is subject to
mandatory prepayments in amounts equal to:
> 100% of the net cash proceeds from any non-ordinary course
sale or other disposition of our property and assets for
consideration in excess of a certain amount subject to
customary reinvestment provisions and certain other
exceptions and
> 100% of the net cash proceeds received in connection with
other non-ordinary course transactions, including insurance
proceeds not otherwise applied to the relevant insurance loss.
Subject to certain restrictions and exceptions, the 2013 Credit
Facility permits us to obtain one or more incremental term loans and/or
revolving credit facilities in an aggregate principal amount of up to
$60,000 plus an amount equal to repayments of the senior secured term
loan upon providing documentation reasonably satisfactory to the
administrative agent, without the consent of the existing lenders under
the 2013 Credit Facility. The 2013 Credit Facility includes customary
representations and warranties and affirmative covenants of the
borrowers. In addition, the 2013 Credit Facility contains customary
negative covenants, including, among other things, restrictions on the
ability of us and our subsidiaries to consolidate or merge, create liens,
incur additional indebtedness, dispose of assets, consummate
acquisitions, make investments, and pay dividends and other
distributions. We must also comply with the following financial
covenants:
> a consolidated leverage ratio of no greater than 2.00 to 1.00;
> a consolidated fixed coverage charge ratio of no less than
1.75 to 1.00 subject to adjustment to exclude up to $50,000
in specified restricted payments;
> minimum cash of $25,000 including the unused portion of the
revolving credit facility or $35,000 in the event of certain
specified corporate actions; and
> maximum capital expenditures not to exceed $55,000 during
any fiscal year, provided that the unused amount of any
permitted capital expenditures in any fiscal year may be
carried forward to the next following fiscal year. In addition,
annual excess cash flow up to $8,000 increases permitted
capital expenditures.
The 2013 Credit Facility contains customary events of default
that may permit acceleration of the debt. During the continuance of a
payment default, interest will accrue at a default interest rate of 2%
above the interest rate which would otherwise be applicable, in the case
of loans, and at a rate equal to the rate applicable to base rate loans
plus 2%, in the case of all other amounts.
State and Local Sales Taxes
We also have contingent liabilities for state and local sales
taxes. As of December 31, 2012, we had a reserve of $1,514. If our
ultimate liability exceeds this amount, it could affect our liquidity
unfavorably. However, we do not believe it would significantly impair our
liquidity.
Capital expenditures
For 2012, capital expenditures were primarily for the
implementation of software solutions and purchase of network
equipment as we continue to expand our network. Our capital
expenditures for the year ended 2012 were $26,750, of which $12,987
was for software acquisition and development. The majority of these
expenditures are comprised of investments in information technology
and systems infrastructure, including an electronic data warehouse,
online customer service, customer management platforms, and the
Amdocs billing and order management system. As previously disclosed,
we experienced delays and incremental costs during the course of the
development and implementation of the Amdocs billing and ordering
system and the transition of customers to the system. We conducted
discussions with Amdocs to resolve the issues associated with the billing
and ordering system. Based on these discussions, and after our
consideration of the progress made improving our overall IT
infrastructure, the incremental time and costs to develop and implement
the Amdocs system, as well as the expected reduction in capital
expenditures, in June 2012 we and Amdocs determined that terminating
the program was in the best interest of both parties. On July 30, 2012,
we entered into a settlement agreement with Amdocs terminating the
related license agreement. As a result, we determined that a write-off
of our investment in the system of $25,262, net of settlement amounts
to the Company, was required in the second quarter of 2012. This charge
is recorded as loss from abandonment of software assets in the
statement of operations. For 2013, we believe our capital and software
expenditures will be approximately $30,000 to $35,000.
Operating Activities
Cash provided by operating activities decreased to $119,843
during the year ended December 31, 2012 compared to $146,786 for
the year ended December 31, 2011, primarily due to planned
investments in our growth initiatives, lower revenues and changes in
working capital.
Changes in working capital requirements include changes in
accounts receivable, inventory, prepaid and other assets, other assets,
accounts payable, accrued and other liabilities, and deferred revenue
and costs. Cash used for working capital increased by $5,704 during
the year ended December 31, 2012 compared to the year ended
December 31, 2011, primarily due to the timing of payments.
Cash provided by operating activities decreased to $146,786
during the year ended December 31, 2011 compared to $194,212 for
the year ended December 31, 2010 , primarily due to changes in working
capital requirements and higher marketing expenditures partially offset
by lower interest expense as a result of our debt refinancings in
December 2010 and July 2011.
Changes in working capital requirements include changes in
accounts receivable, inventory, prepaid and other assets, other assets,
accounts payable, accrued and other liabilities, and deferred revenue
and costs. Cash provided by working capital decreased by $69,137
during the year ended December 31, 2011 compared to the year ended
December 31, 2010, primarily due to the timing of payments.
Investing Activities
Cash used in investing activities for 2012 of $25,472 was
attributable to capital expenditures of $13,763 and software acquisition
and development of $12,987, offset by a decrease in restricted cash of
$1,278 due primarily to the return of part of the security deposit on our
leased office property in Holmdel, New Jersey.
Cash used in investing activities for 2011 of $37,604 was
attributable to capital expenditures of $12,636, software acquisition and
development of $22,292, and purchase of intangible assets of $3,725,
offset by a decrease in restricted cash of $1,049 due primarily to the
return of part of the security deposit on our leased office property in
Holmdel, New Jersey.