Significant Accounting Policies (Policy) | 12 Months Ended |
Dec. 31, 2013 |
Significant Accounting Policies [Abstract] | ' |
Revenue Recognition | ' |
Revenue Recognition |
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We recognize revenue primarily from the sale of PROVENGE. Revenue from the sale of PROVENGE is recorded net of product returns and estimated price discounts, including rebates and chargebacks offered pursuant to mandatory federal and state government programs and to members of Group Purchasing Organizations (“GPOs”) with which we have contracts. Revenue from sales of PROVENGE is recognized upon confirmed product delivery to and issuance of a product release form to the physician. Product returns are limited to those instances in which the physician receives the product but does not infuse the product prior to expiry, either due to timing or the failure of the product to meet specifications and pass site inspection. Due to the limited usable life of PROVENGE of approximately 18 hours from the completion of the manufacturing process to patient infusion, actual return information is known and credited against sales in the month incurred. |
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PROVENGE sales are direct to physician; however, we have entered into distribution agreements with several credit-worthy third-party wholesalers (the “Wholesalers”) whereby we manufacture and ship the product direct to the physician and transfer the sale of PROVENGE to the Wholesalers. Under the distribution agreements, the Wholesalers assume all bad debt risk from the physician or institution; therefore no allowance for bad debt is recorded. Under the terms of the distribution agreements, our return policy allows for the return of product that has expired or has a defect prior to delivery, product that is damaged during delivery and product that cannot be infused because it does not otherwise meet specified requirements. |
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Our product is subject to certain required pricing discounts via rebates and/or chargebacks pursuant to mandatory federal and state government programs and, accordingly, revenue recognition requires estimates of rebates and chargebacks. |
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We have agreements with the Centers for Medicare and Medicaid Services (“CMS”) providing for a rebate on sales to eligible Medicaid patients. The physician purchases our product at full price, and then receives reimbursement from the applicable state. The state, in turn, invoices us for the amount of the Medicaid rebate. Estimated rebates payable under Medicaid are recognized in the same period that the related revenue is recognized, resulting in a reduction in gross product revenue, and are classified as other accrued liabilities until paid. Our estimate of rebates payable is based on historical claim information. Medicaid rebates were not material for each period presented. |
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We also have agreements with the Public Health Service (“PHS”), providing for a chargeback on sales to PHS-eligible providers, and Federal Supply Schedule (“FSS”) customers, including the Department of Veteran Affairs and the Department of Defense, providing for a chargeback on sales to eligible patients. Chargebacks occur when a contracted physician purchases our product at fixed contract prices that are lower than the price we charge the Wholesalers. Each Wholesaler, in turn, charges us back for the difference between the price initially paid by the Wholesaler and the contract price paid to the Wholesaler by the physician. These chargebacks are estimated and recorded in the period that the related revenue is recognized, resulting in a reduction in gross product revenue and trade accounts receivable. During the years ended December 31, 2013 and 2012, we revised our estimate of outstanding chargebacks related to PHS-eligible providers, resulting in a reduction in the chargebacks reserve and an increase in net product revenue of $2.8 million and $3.8 million, respectively. |
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The following is a roll forward of our chargebacks reserve associated with the PHS and FSS programs: |
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| Year Ended December 31, |
| 2013 | | 2012 |
| (in thousands) |
Beginning balance, January 1 | $ | 3,107 | | $ | 7,065 |
Current provision related to sales made in current period | | 15,070 | | | 16,615 |
Current provision related to sales made in prior periods | | — | | | 50 |
Adjustments | | -2,775 | | | -3,824 |
Payments/credits | | -11,862 | | | -16,799 |
Balance at December 31 | $ | 3,540 | | $ | 3,107 |
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We have entered into agreements with certain GPOs that contract for the purchase of PROVENGE on behalf of their members and provide contract administration services. Beginning in July of 2012, eligible members of the GPOs purchase PROVENGE at contracted prices through a chargeback. These chargebacks are estimated and recorded in the period that the related revenue is recognized, resulting in a reduction in gross product revenue and trade accounts receivable. The following is a roll forward of our chargebacks reserve associated with the GPO programs: |
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| Year Ended December 31, |
| 2013 | | 2012 |
| (in thousands) |
Beginning balance, January 1 | $ | 182 | | $ | — |
Current provision related to sales made in current period | | 11,031 | | | 779 |
Payments/credits | | -9,623 | | | -597 |
Balance at December 31 | $ | 1,590 | | $ | 182 |
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Eligible members of the GPOs may also be entitled to receive a rebate on eligible purchases of PROVENGE at the end of each quarter. Estimated rebates and administrative fees payable to GPOs are recognized in the same period that the related revenue is recognized, resulting in a reduction in gross product revenue, and are classified as other accrued liabilities until paid. Our estimate of rebates payable is based upon information we gather related to sales of our product to eligible GPO members. The following is a roll forward of our accrued GPO rebates and administrative fees balance: |
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| Year Ended December 31, |
| 2013 | | 2012 |
| (in thousands) |
Beginning balance, January 1 | $ | 1,950 | | $ | 885 |
Current provision related to sales made in current period | | 6,459 | | | 7,600 |
Current provision related to sales made in prior periods | | — | | | 57 |
Payments/credits | | -6,621 | | | -6,592 |
Balance at December 31 | $ | 1,788 | | $ | 1,950 |
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In the third quarter of 2011, we began receiving royalties on Merck’s sales of VICTRELIS™ (boceprevir) for the treatment of chronic hepatitis C, which was approved in May 2011. We received royalties on worldwide net sales of boceprevir pursuant to the terms of a license and collaboration agreement. Royalty revenue and royalty receivables were recorded in the period earned, in advance of collection. We recorded royalty revenue of $3.0 million during the year ended December 31, 2011, related to royalties received on sales of this product. In the fourth quarter of 2011, we sold this royalty to an unrelated third-party for $125.0 million and recognized the full amount as revenue, as we have no further obligations under the agreement. No revenue will be recorded related to this royalty in future periods. |
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Cash, Cash Equivalents And Investments | ' |
Cash, Cash Equivalents and Investments |
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We consider investments in highly liquid instruments purchased with an original maturity at purchase of 90 days or less to be cash equivalents. The amounts are recorded at cost, which approximates fair value. Our cash equivalents and short-term and long-term investments consist principally of commercial paper, money market securities, treasury notes, agency bonds, corporate bonds/notes and certificates of deposit. |
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We have classified our entire investment portfolio as available-for-sale. Available-for-sale securities are carried at fair value, with unrealized gains and losses reported as a separate component of stockholders’ equity and included in accumulated other comprehensive income (loss). The cost of investments is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization and accretion are included in interest income. Interest earned on securities is included in interest income. Gains are recognized when realized in our consolidated statements of operations. Losses are recognized when realized or when we have determined that an other-than-temporary decline in fair value has occurred. |
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We periodically evaluate whether declines in fair values of our investments below their cost are other-than-temporary. This evaluation consists of several qualitative and quantitative factors regarding the severity and duration of the unrealized loss as well as our ability and intent to hold the investment until a forecasted recovery occurs. Additionally, we assess whether it is more likely than not we will be required to sell any investment before recovery of its amortized cost basis. |
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We consider an investment with a maturity greater than twelve months from the balance sheet date as long-term and a maturity less than twelve months as short-term at the balance sheet date. The cost of securities sold is based on the specific identification method. |
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Inventory | ' |
Inventory |
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Inventories are determined at the lower of cost or market value with cost determined under the specific identification method. We began capitalizing raw material inventory in mid-April 2009, in anticipation of the potential approval for marketing of PROVENGE in the first half of 2010. At this time, our expectation of future benefits became sufficiently high to justify capitalization of these costs, as regulatory approval was considered probable and the related costs were expected to be recoverable through the commercialization of the product. Costs incurred prior to mid-April 2009 were recorded as research and development expense in the statements of operations, which resulted in zero-cost inventory. |
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For the years ended December 31, 2012 and 2011, we used $4.7 million and $18.4 million, respectively, of zero-cost inventory; no zero-cost inventory remained on hand as of June 30, 2012. As a result, cost of product revenue reflects a lower average per unit cost of raw material prior to the second half of 2012. |
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We periodically evaluate our inventory for impairment by considering factors such as expiry, obsolescence and net realizable value. We review inventory for expiry risk by evaluating current and future product demand relative to inventory life. Currently, the estimated remaining life of our raw material inventory is approximately 3 years. We expect to realize the carrying value of our inventory. |
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In addition, we evaluate our inventory for impairment when events and circumstances indicate that our inventory may not meet the quality specifications required to be used in commercial production. If we determine it is likely that inventory does not meet quality specifications, we record an impairment of this inventory. Refer to Note 5 – Inventory for disclosure of impairment losses recorded in 2013 related to inventory which no longer met quality specifications. |
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Property And Equipment | ' |
Property and Equipment |
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Property and equipment are stated at cost and are depreciated using the straight-line method over the estimated useful lives of the assets. Estimated useful lives of furniture and office equipment and laboratory and manufacturing equipment are seven years, computer equipment and software are three years and buildings are fourteen to fifteen years. Computers and equipment financed under capital leases are amortized over the shorter of the useful lives of the related assets or the lease term. Leasehold improvements are amortized over the remaining life of the lease or ten years, whichever is shorter. Included in fixed assets is the cost of internally developed software. Costs incurred during the application development stage are capitalized and amortized over the estimated useful life of the software. All other costs related to internally developed software are expensed as incurred. Construction in progress is reclassified to the appropriate fixed asset classifications and depreciated accordingly when related assets are placed in service. We capitalize interest on borrowings during the construction period of major capital projects. Capitalized interest is added to the cost of the underlying assets and is amortized accordingly. |
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Impairment Of Long-Lived Assets | ' |
Impairment of Long-Lived Assets |
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We periodically evaluate the carrying value of long-lived assets to be held and used when events and circumstances indicate that the carrying amount of an asset may not be recovered. When evaluating long-lived assets for impairment, we compare the carrying value of the asset to the asset's estimated undiscounted future cash flows. Impairment is recorded if the estimated future cash flows are less than the carrying value of the asset. The impairment loss recognized, if any, is the excess of the asset’s carrying value over the fair value of the long-lived asset. The determination of fair value of the assets evaluated for impairment requires the use of judgmental assumptions surrounding the amount and timing of future cash flows and the highest and best use of the assets. |
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The long-lived assets at our manufacturing facilities in Atlanta, Georgia and in Orange County, California represent our most significant long-lived assets and have an average remaining estimated useful life of approximately 7.0 years. Our determination of the cash flows used to support the recoverability of these assets requires us to estimate future revenue growth and costs of operations, requiring significant management judgments. The estimates we used to forecast the future operating results are consistent with the plans and estimates that we use to manage our business. Significant assumptions utilized in this analysis as of December 31, 2013 included maintaining our current revenue levels and successfully implementing the cost reduction measures further discussed in Note 13 – Restructuring, Contract Termination and Asset Impairment. The recoverability test is particularly sensitive to our estimates of future revenue and operating expenses. Although we believe that our current underlying assumptions supporting this assessment are reasonable, if actual product revenues do not meet the levels we have forecasted or if we do not achieve the reductions in operating expense we have forecasted, we may be required to update the assumptions in our impairment analysis. Such updates to this analysis may impact the recoverability of these assets, which may result in a material charge to our statement of operations. |
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Convertible Senior Notes Due 2016 | ' |
Convertible Senior Notes due 2016 |
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The Company’s 2.875% Convertible Senior Notes due 2016 (the “2016 Notes”), issued in the first quarter of 2011, are convertible at the option of the holder, and we may choose to satisfy conversions, if any, in cash, shares of our common stock, or a combination of cash and shares of our common stock, based on a conversion rate initially equal to 19.5160 shares of common stock per $1,000 principal amount of the 2016 Notes, which is equivalent to an initial conversion price of $51.24 per share. Should a holder of the 2016 Notes exercise their conversion option during the next twelve month period, it is our intention to satisfy the conversion with shares of common stock. |
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The 2016 Notes are accounted for in accordance with Accounting Standards Codification (“ASC”) 470-20, Debt with Conversion and Other Options, under which issuers of certain convertible debt instruments that may be settled in part in cash upon conversion, are required to separately account for the liability (debt) and equity (conversion option) components of the instrument. The liability component of the 2016 Notes, as of the issuance date, was calculated by estimating the fair value of a similar liability issued at an 8.1% effective interest rate, which was determined by considering the rate of return investors would require in the Company’s debt structure. The amount of the equity component was calculated by deducting the fair value of the liability component from the principal amount of the 2016 Notes and resulted in a corresponding increase to debt discount. The debt discount is being amortized as interest expense through the earlier of the maturity date of the 2016 Notes or the date of conversions, if any. |
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For details of the issuance and additional information regarding the 2016 Notes, see Note 10 – Convertible Notes. |
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Debt Issuance Costs | ' |
Debt Issuance Costs |
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Debt issuance costs related to the 2016 Notes were allocated to the liability and equity components in accordance with ASC 470-20. We are amortizing the debt issuance costs allocated to the liability component of the 2016 Notes to interest expense through the earlier of the maturity date of the 2016 Notes or the date of conversions, if any. The debt issuance costs allocated to the equity component of the 2016 Notes were recorded as an offset to additional paid-in capital. See Note 10 – Convertible Notes for further details of the issuance and additional information regarding the 2016 Notes. |
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Debt issuance costs related to our 4.75% Convertible Senior Subordinated Notes due 2014 (the “2014 Notes”) issued in June and July of 2007 are amortized to interest expense through the earlier of the maturity date of the 2014 Notes or the date of conversions, if any. |
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Fair Value | ' |
Fair Value |
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We measure and report at fair value our cash equivalents and investment securities. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability, an exit price, in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. |
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Assets and liabilities typically recorded at fair value on a non-recurring basis include long-lived assets measured at fair value due to an impairment assessment under ASC 360-10, Property, Plant and Equipment, and asset retirement obligations initially measured under ASC 410-20, Asset Retirement and Environmental Obligations. |
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Restructuring And Contract Termination Expenses | ' |
Restructuring and Contract Termination Expenses |
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We record a liability for costs associated with an exit or disposal activity at fair value in the period in which the liability is incurred. Employee termination benefits are accrued when the obligation is probable and estimable. Employee termination benefits are expensed at the date the employee is notified unless the employee must provide future service in excess of 60 days, in which case such benefits are expensed ratably over the future service period. For contract termination costs, we record a liability upon the later of the contract termination date or the date we cease using the rights conveyed by the contract. |
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Accounting For Stock-Based Compensation | ' |
Accounting for Stock-Based Compensation |
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Stock-based compensation cost is estimated at the grant date based on the award’s fair value and is recognized on the accelerated method as expense over the requisite service period. The fair value of stock options and awards under our Employee Stock Purchase Plan are calculated using the Black-Scholes-Merton (“BSM”) option pricing model. The BSM model requires various judgmental assumptions regarding volatility and expected option life. If any of the assumptions used in the BSM model change significantly, stock-based compensation expense for new awards may differ materially from that recorded for existing awards. |
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Restricted stock awards generally vest and are expensed over two- to four-year periods. We have granted restricted stock awards and options with certain performance conditions to certain executive officers and key employees. At each reporting date, we evaluate whether achievement of the performance conditions is probable. Compensation expense is recorded over the appropriate service period based upon our assessment of accomplishing each performance provision or the occurrence of other events which may have caused the awards or options to accelerate and vest. |
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In the second quarter of 2013, we granted cash-settled stock appreciation rights with a two-year vest period to certain employees. These awards are classified as liabilities and are measured at fair value at each reporting date, with fair value being determined using the BSM model. |
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Stock-based compensation expense also requires the estimate of forfeiture rates. In 2013, we increased our estimated forfeiture rates based on our historical data, resulting in cumulative catch-up adjustments to decrease stock-based compensation expense and net loss by $7.5 million for the year ended December 31, 2013. These adjustments decreased basic and diluted net loss per share by $0.05 for the year ended December 31, 2013. |
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Net Loss Per Share | ' |
Net Loss Per Share |
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Basic net loss per share is calculated by dividing net loss by the weighted average number of common shares outstanding. For the calculation of diluted net loss per share, we have excluded all outstanding stock options, unvested restricted stock and shares issuable upon potential conversion of the 2.875% Convertible Senior Notes due 2016 (the “2016 Notes”) and the 4.75% Convertible Senior Subordinated Notes due 2014 (the “2014 Notes”) from the calculation because all such securities are anti-dilutive; accordingly, diluted net loss per share is the same as basic net loss per share. |
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Income Taxes | ' |
Income Taxes |
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Deferred taxes are measured using enacted tax rates expected to be in effect in the year(s) in which the basis difference is expected to reverse. We continue to record a valuation allowance for the full amount of deferred tax assets, which would otherwise be recorded for tax benefits relating to operating loss and tax credit carryforwards, as realization of such deferred tax assets cannot be determined to be more likely than not. |
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Comprehensive Income (Loss) | ' |
Comprehensive Income (Loss) |
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Comprehensive income (loss) includes charges and credits to stockholders’ equity that are not the result of transactions with stockholders. Our comprehensive loss consisted of net loss plus changes in unrealized gain or loss on investments for the years ended December 31, 2013, 2012 and 2011. |
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Loss Contingencies | ' |
Loss Contingencies |
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A loss contingency is recorded if it is probable that an asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated. We evaluate, among other factors, the probability of an unfavorable outcome and our ability to make a reasonable estimate of the amount of the ultimate loss. Loss contingencies that we determine to be reasonably possible, but not probable, are disclosed but not recorded. Changes in these estimates could materially affect our financial position and results of operations. |
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Concentrations Of Risk | ' |
Concentrations of Risk |
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We are subject to concentration of risk from our single-source vendors for some components necessary for PROVENGE. Our risk for single-source vendors is managed by maintaining a certain level of existing stock of components and a continued effort to establish additional suppliers. |
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We are also subject to concentration of risk from our investments. Our investment portfolio is maintained in accordance with our investment policy, which specifies credit quality standards, limits credit exposure to any single issuer or security issuance and defines allowable investments. Pursuant to our policy, auction rate or asset-backed securities without a guarantee by the United States government are not permitted to be purchased. The fair value of our cash equivalents and marketable securities is subject to change as a result of changes in market interest rates and investment risk related to the issuers’ credit worthiness. |
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We actively monitor and manage our portfolio. If necessary, we believe we are able to liquidate our investments within the next year without significant loss. We currently believe these securities are not impaired; however, it could take until the final maturity of the underlying notes to realize our investments’ recorded values. Based on expected operating cash flows and other sources of cash, we do not anticipate the potential lack of liquidity on these investments will affect our ability to execute our current business plan. |
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Recent Accounting Pronouncements | ' |
Recent Accounting Pronouncements |
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In February 2013, the Financial Accounting Standards Board (the “FASB”) issued an Accounting Standards Update which requires companies to provide information about the amounts reclassified from accumulated other comprehensive income to net income by component. In addition, companies are required to present, either on the face of the statements of operations or in the notes to the financial statements, significant amounts reclassified from accumulated other comprehensive income by statement of operations line item. There were no reclassifications from accumulated other comprehensive income to net income for the year ended December 31, 2013. |
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In June 2013, the FASB ratified Emerging Issues Task Force (“EITF”) Issue 13-C, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists,” which concludes that an unrecognized tax benefit should be presented as a reduction of a deferred tax asset when settlement in this manner is available under the tax law. We will adopt this amendment as of January 2014, and do not believe it will have an impact on financial position, results of operations or cash flows. |
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