LeapFrog 2012 Annual Report Download - page 32

OTHER INCOME (EXPENSE)
The components of other income (expense) were as follows:
2012 2011 2010
% Change
2012 vs. 2011
% Change
2011 vs. 2010
(Dollars in millions)
Other income (expense):
Interest income ............ $0.2 $0.1 $0.2 77% (33)%
Interest expense ............ (0.1) (0.3) (0.2) 81% (7)%
Other, net ................ (2.3) (4.8) (1.8) 52% (169)%
Total .................. $(2.1) $(4.9) $(1.8) 57% (170)%
Fiscal Year 2012 Compared to Fiscal Year 2011
Other expense decreased significantly for 2012 as compared to 2011, resulting primarily from our foreign
currency activity. The U.S. dollar weakened against several of our foreign currencies during 2012 while it
strengthened in 2011, resulting in a $1.6 million unrealized foreign currency translation loss for the third
quarter of 2011. Additionally in that quarter, an operational error resulted in our entering into forward hedging
contracts that differed from what we had intended. As a result of this error, we recorded a $1.5 million
realized loss on foreign exchange forward contracts in our U.S. segment.
Fiscal Year 2011 Compared to Fiscal Year 2010
Other expense increased significantly for 2011 as compared to 2010, resulting primarily from our foreign
currency activity noted above. The U.S. dollar strengthened significantly against several of our foreign
currencies late in the third quarter of 2011, resulting in a $0.3 million realized foreign currency translation
loss and a $1.6 million unrealized foreign currency translation loss for the third quarter of 2011. That quarter
also included the operational error noted above.
INCOME TAXES
Our (benefit from) provision for income taxes and effective tax rates were as follows:
2012 2011 2010
(Dollars in millions)
(Benefit from) provision for income taxes ............... $(24.5) $ (1.1) $ 1.0
Income before income taxes ......................... 61.9 18.8 6.0
Effective tax rate ................................ (39.6)% (6.1)% 17.2%
Our tax rate is affected by recurring items, such as tax expense relative to the amount of income earned in our
domestic and foreign jurisdictions. Our tax rate is also affected by discrete items, such as tax benefits
attributable to the recognition of previously unrecognized tax benefits that may occur in any given year, but
are not consistent from year to year.
Our effective tax rates for 2011 and 2010 reflected a non-cash valuation allowance recorded against 100% of
our domestic deferred tax assets. Accordingly, no federal or state tax expense or benefit was recorded on our
domestic operating income or loss for those periods. Our 2012 effective tax rate included the release of a
portion the valuation allowance against our domestic deferred tax assets resulting in a benefit for the year.
During 2012, after considering the relative impact of all evidence, positive and negative, we determined, at the
required more-likely-than-not level of certainty, that a portion of our domestic deferred tax assets will be
realized. Due to the high seasonality of our business with a significant portion of our annual income earned
late in the year, this determination was made at the end of the fourth quarter after the critical holiday season
had passed and actual results for the year were known. Although we believe profitability will continue in the
near term and add to our three-year cumulative profit position, based on the duration and severity of losses in
prior years, rapidly changing consumer demands, increasing pace of technological innovation, significant
product, retailer and seasonal revenue concentrations, transition at the highest levels of our management, and
unproven new product pipeline, we could not project future earnings beyond 2013, at a more-likely-than-not
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