LeapFrog 2013 Annual Report Download - page 66
Download and view the complete annual report
Please find page 66 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.LEAPFROG ENTERPRISES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
10. Income Taxes − (continued)
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
$102,146 as of December 31, 2013, the Company believed the weight of the objectively verifiable positive
evidence was sufficient to overcome the weight of the existing negative evidence. Accordingly, after
considering the relative impact of all evidence, positive and negative, the Company determined, at the
required more-likely-than-not level of certainty, that a majority of its domestic deferred tax assets will be
realized and $62,759 of the Company’s domestic deferred tax valuation allowance was released and recorded
as an income tax benefit for the year. Due to the high seasonality of the Company’s business with a significant
portion of its annual income earned late in the year, the final determination for the need for valuation
allowances was made at the end of the fourth quarter, for both 2013 and 2012, after the critical holiday season
had passed and actual results for the year were known. In addition, in 2013, the valuation allowance increased
by $1,713 due to certain domestic return to provision adjustments relating to 2012, and by $402 due to
additional valuation allowance of deferred tax assets arising from net operating loss carryforwards generated
in the current year by the Company’s subsidiary in Mexico. As of December 31, 2013, the Company has
maintained a valuation allowance of $9,741 against its deferred tax assets related to state and foreign net
operating loss carryforwards, and capital loss carryforwards.
The Company will continue to evaluate all evidence in future periods to determine if valuation allowances are
warranted on its domestic and foreign deferred tax assets.
The majority of the Company’s domestic deferred tax assets generally have 10 to 20 years until expiration or
indefinite lives. As of December 31, 2013, the Company had federal net operating loss carryforwards of
$116,159 which will expire between 2024 through 2029. State net operating loss carryforwards totaled
$168,859 as of December 31, 2013 and will expire in years 2014 through 2029. Section 382 of the Internal
Revenue Code limits net operating loss carryforwards when an ownership change of more than fifty percent of
the value of the stock in a loss corporation occurs with a three-year period. Sales of the Company’s common
stock could, under some circumstances, result in the occurrence of such a change in control and a limitation
on the Company’s future ability to use these carryforwards. The Company had $11,896 of cumulative excess
tax benefits from stock option deductions generated subsequent to the adoption of the authoritative guidance
regarding stock-based compensation, which are not included in the net operating loss carryforward amounts
above since they have not met the required realization criteria. The Company considers stock option deduction
benefits in excess of book compensation charges realized when it obtains an incremental benefit determined by
the ‘‘with and without’’ calculation method, under which excess tax benefits related to stock-based
compensation are not deemed to be realized until after the utilization of all other tax benefits available to the
Company. When realized, these benefits will increase additional paid-in capital.
As of December 31, 2013, the Company also had federal and California R&D credit carryforwards of $3,992
and $8,194, respectively. The federal research carryforwards will begin to expire in 2023, while the California
research credits can be carried forward indefinitely. In addition, the Company has $5,223 in federal foreign tax
credits that will begin expiring in 2017.
58