LeapFrog 2013 Annual Report Download - page 33
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Please find page 33 of the 2013 LeapFrog annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.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.
INCOME TAXES
Our benefit from income taxes and effective tax rates were as follows:
2013 2012 2011
(Dollars in millions)
Benefit from income taxes .................... $ (50.2) $(24.5) $ (1.1)
Income before income taxes ................... 33.8 61.9 18.8
Effective tax rate .......................... (148.2)% (39.6)% (6.1)%
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 2013 effective tax rate included the release of a substantial portion of the remaining valuation allowance
previously recorded against our domestic deferred tax assets, resulting in a tax benefit for the year. Our 2012
effective tax rates included a partial release of valuation allowance previously recorded against our domestic
deferred tax assets, resulting in a tax benefit for the year. In addition, no federal or state tax expense was
recorded on our domestic operating income due to the remaining valuation allowance against our domestic
deferred tax assets as of December 31, 2012. Our 2011 effective tax rate reflected a non-cash full valuation
allowance recorded against our domestic deferred tax assets. Accordingly, no federal or state tax expense was
recorded on our domestic operating income for the year.
In addition, the tax benefits for 2013, 2012 and 2011 included $0.7 million, $6.4 million and $2.9 million,
respectively, in benefit associated with the recognition of previously unrecognized tax benefits due to the
expiration of statutes of limitation in some of our foreign jurisdictions, offset by foreign tax expense and
certain discrete tax items including amortization of goodwill for tax purposes, return to provision adjustments,
and an accrual for potential interest and penalties on certain tax positions. In 2013, we realized $10.4 million
of income tax benefit from utilizing tax attributes primarily comprised of federal and state net operating
losses. In 2012, we realized $23.3 million of tax benefit from utilizing previously unrecognized income tax
benefit attributes primarily comprised of domestic net operating loss and tax credit carryforwards. In 2011, we
realized $8.8 million of previously unrecognized income tax benefit attributable to our domestic net operating
loss and tax credit carryforwards.
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 would be
realized and a deferred tax valuation allowance release of $21.6 million was recorded as an income tax benefit
for the year. At the end of 2012, we could not assert, at the required more-likely-than-not level of certainty,
that our domestic operations would generate sufficient taxable income to realize all of our deferred tax assets
after considering the duration and severity of losses in prior years, high seasonal revenue concentrations, an
unproven new product pipeline, and recent transition at the highest levels of our management team.
During 2013, we evaluated our ability to realize the benefit of our domestic deferred tax assets and weighed
all available positive and negative evidence both objective and subjective in nature. In determining the need
for a valuation allowance, the weight given to positive and negative evidence is commensurate with the extent
to which the evidence may be objectively verified. Consideration was given to negative evidence such as: the
duration and severity of losses in prior years, high seasonal revenue concentrations, increasing competitive
pressures, and a challenging retail environment. However, after considering four consecutive years of
profitability and a three year cumulative domestic income position of $102.1 million at the end of 2013, we
believe the weight of the objectively verifiable positive evidence is sufficient to overcome the weight of the
negative evidence. As of December 31, 2013, we concluded that it was more-likely-than-not that we would
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