LifeLock 2013 Annual Report Download - page 74

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We account for income taxes using the asset and liability method. We recognize deferred tax assets and liabilities for the future tax benefits and
consequences attributable to temporary differences between the financial reporting basis of assets and liabilities and their related tax basis. We measure deferred
tax assets and liabilities using the enacted tax rates expected to be in effect in the years in which those temporary differences are expected to be recovered or
settled. We report any penalties and interest related to income taxes in income tax expense. We provide a valuation allowance for deferred tax assets when it is
more likely than not that the related benefits will not be realized. The determination of recording or releasing tax valuation allowances is made pursuant to an
assessment performed by management regarding the likelihood that we will generate future taxable income against which benefits of our deferred tax assets may
or may not be realized. This assessment requires management to exercise significant judgment and make estimates with respect to our ability to generate
revenues, gross profits, operating income, and taxable income in future periods.
We utilize a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by
determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related
appeals or litigation processes. The second step is to measure the tax benefit as the largest a mount that is more than 50% likely of being realized upon ultimate
settlement. We consider many factors when evaluating and estimating our tax positions and tax benefits, which may require periodic adjustments and which
may not accurately forecast actual outcomes.
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The carrying values of cash and cash equivalents, restricted cash, trade and other receivables, and current liabilities approximate fair values, because
of the short-term nature of these items. Prior to the conversion in connection with our IPO, we carried our convertible redeemable preferred stock warrant
liability at fair value.
We determine the fair value of financial instruments using an exit price: the amount that would be received from the sale of an asset or paid to transfer a
liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on
assumptions that market participants would use in pricing an asset or liability. We use a three-tier value hierarchy, which prioritizes the inputs used in
measuring fair value as follows: Level 1 – observab le inputs such as quoted prices in active markets; Level 2 – inputs other than the quoted prices in active
markets that are observable, either directly or indirectly; and Level 3 – unobservable inputs for which there is little or no market data, which requires us to
develop our own assumptions. On a recurring basis, we measure certain financial assets and liabilities at fair value, including our cash equivalents.
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In February 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2013-02, which supersedes
and replaces the presentation requirements for reclassifications out of accumulated other comprehensive income in ASUs 2011-05 and 2011-12. The
amendment requires that an entity must report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line
items in net income if the amount being reclassified is required under U.S. GAAP. For other amounts that are not required under U.S. GAAP to be reclassified
in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures required under U.S. GAAP that provide
additional detail about those amounts. ASU 2013-02 was effective for fiscal years, and interim periods within those years, beginning on or after December 15,
2012. We adopted the amended standards beginning January 1, 2013. As there were no amounts reclassified out of other comprehensive income during the
years ended December 31, 2013 or 2012, there was no impact on our financial position, results of operations, or cash flows.
In March 2013, the FASB issued ASU 2013-04, which provides guidance on the recognition, measurement, and disclosure of obligations resulting
from joint and several liability arrangements for which the total amount of the obligation is fixed at the reporting date. The update requires an entity to measure
obligations resulting from joint and several liability obligations for which the total amount of the obligation within the scope of the update is fixed at the
reporting date, as the sum of the amount the reporting entity agreed to pay on the basis of its arrangements among its co-obligors and any additional amount the
reporting entity expects to pay on behalf of its co-obligors. The update also requires an entity to disclose the nature and amount of the obligation as well as other
information about those obligations. The amendments in ASU 2013-04 are effective for fiscal years, and interim periods within those years, beginning on or
after December 15, 2013 and must be applied retrospectively. We do not expect the adoption of ASU 2013-04 in the first quarter of 2014 to have a material
impact on our financial position, results of operations, or cash flows.
In July 2013, the FASB issued ASU 2013-11,which requires a reporting entity to present an unrecognized tax benefit as a liability in the financial
statements separate from deferred tax assets if a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available as of the
reporting date to settle taxes that would result from the disallowance of the tax position or if a reporting entity does not intend to use the deferred tax asset for
such purpose. The amendments in ASU 2013-11 are effective for fiscal years, and interim periods within those years, beginning on or after December 15,
2013. We do not expect the adoption of ASU 2013-11 to have a material impact on our consolidated financial statements.
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