Significant Accounting Policies (Policies) | 12 Months Ended |
Dec. 31, 2013 |
Significant Accounting Policies | ' |
Principles of Consolidation | ' |
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Principles of Consolidation |
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The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America ("U.S. GAAP") and pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). The consolidated financial statements include the accounts of the Company and its subsidiaries. The financial results for 2012 include SRS and Phorus from the dates of their respective acquisition. All material intercompany accounts and transactions have been eliminated. |
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Use of Estimates | ' |
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Use of Estimates |
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The preparation of financial statements in accordance with U.S. GAAP and pursuant to the rules and regulations of the SEC requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates and assumptions, including those related to revenue recognition, allowance for doubtful accounts, valuation of goodwill, other intangible assets, and long-lived assets, fair value of contingent consideration, stock-based compensation, income taxes and business combinations. The Company bases its estimates on historical and anticipated results, trends and on various other assumptions that it believes are reasonable under the circumstances, including assumptions as to future events. These estimates form the basis for making assumptions about the carrying values of assets and liabilities that are not readily apparent from other sources. By their nature, estimates are subject to an inherent degree of uncertainty. Actual results could differ materially from those estimates. |
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Reclassifications | ' |
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Reclassifications |
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Certain prior period amounts have been reclassified to conform to current year presentation. |
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Cash Equivalents | ' |
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Cash Equivalents |
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The Company considers all short-term highly liquid investments with an original maturity of three months or less to be cash equivalents. Cash equivalents primarily consist of funds held in money market accounts. Cash equivalents are stated at cost plus accrued interest, which approximates fair value. |
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Investments | ' |
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Investments |
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The Company considers, at the time that they are purchased, investments with maturities greater than three months, but less than one year, to be short-term investments. Investments that have maturities of more than one year are classified as long-term investments. Investments are classified as available-for-sale and are reported at fair value with unrealized gains or losses, if any, reported, net of tax, in accumulated other comprehensive income. The cost of investments sold is based on the specific identification method, and all income generated and realized gains or losses from investments are recorded to interest and other income (expense), net. |
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The Company reviews its investments to identify and evaluate investments that have an indication of possible impairment. Factors considered in determining whether a loss is temporary include the length of time and extent to which fair value has been less than the cost basis, the financial condition and near-term prospects of the investee, and the Company's intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value. Credit losses and other-than-temporary impairments are declines in fair value that are not expected to recover and are charged to interest and other income (expense), net. |
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Concentration of Business and Credit Risk | ' |
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Concentration of Business and Credit Risk |
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The Company markets its products and services to consumer electronics products manufacturers in the U.S. and internationally. Although the Company is generally subject to the financial well-being of the consumer electronics industry, management does not believe that the Company is subject to significant credit risk with respect to trade accounts receivable. Additionally, the Company performs ongoing credit evaluations of its customers and maintains allowances for potential credit losses which, when realized, have generally been within the range of management's expectations. |
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Three customers accounted for 21%, 12% and 12%, respectively, of revenues for the year ended December 31, 2013. The revenue from one of the customers accounting for 12% of revenues for the year ended December 31, 2013 exceeded 10% of revenues due to royalty recoveries. Two customers accounted for 13% and 11%, respectively, of revenues for the year ended December 31, 2012. Two customers accounted for 16% and 12%, respectively, of revenues for the year ended December 31, 2011. |
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One customer accounted for 51% of accounts receivable at December 31, 2013, that resulted largely from royalty recoveries. One customer accounted for 10% of accounts receivable at December 31, 2012, that resulted from royalty recoveries. |
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The Company deposits its cash and cash equivalents in accounts with major financial institutions worldwide. At times, such deposits may be in excess of insured limits. The Company's investment accounts are with major financial institutions and include investment grade municipal securities and U.S. agency securities. The Company has not incurred any significant credit losses on its investments. |
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Allowance For Doubtful Accounts | ' |
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Allowance For Doubtful Accounts |
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The Company continually monitors customer payments and maintains a reserve for estimated losses resulting from its customers' inability to make required payments. In determining the reserve, the Company evaluates the collectibility of its accounts receivable based upon a variety of factors. In cases where the Company becomes aware of circumstances that may impair a specific customer's ability to meet its financial obligations, the Company records a specific allowance against amounts due. For all other customers, the Company recognizes allowances for doubtful accounts based on its historical write-off experience in conjunction with the length of time the receivables are past due, customer creditworthiness, geographic risk and the current business environment. Actual future losses from uncollectible accounts may differ from the Company's estimates. |
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Property and Equipment | ' |
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Property and Equipment |
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Property and equipment are recorded at cost, less accumulated depreciation. Depreciation is calculated using the straight-line method over the related assets' estimated useful lives, as follows: |
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Machinery and equipment | | 2 to 5 years |
Software | | 2 to 7 years |
Office furniture and fixtures | | 3 to 7 years |
Leasehold improvements | | Lesser of useful life or related lease term |
Building and improvements | | Up to 35 years |
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Expenditures that materially increase asset life are capitalized, while ordinary maintenance and repairs are expensed as incurred. |
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Capitalized Software Costs | ' |
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Capitalized Software Costs |
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The Company capitalizes the costs of purchased software licenses, consulting costs and payroll-related costs incurred in developing or implementing internal use computer software. These costs are included in property and equipment, net on the consolidated balance sheets. Costs incurred during the preliminary project and post-implementation stages are charged to expense as incurred. The Company's capitalized software costs are amortized on a straight-line basis over the estimated useful life of the software upon being placed in service, two to seven years. |
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Long-Lived Assets | ' |
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Long-Lived Assets |
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The Company periodically assesses potential impairments to its long-lived assets by performing an impairment review whenever events or changes in circumstances indicate that the carrying value may not be fully recoverable. Factors considered by the Company include, but are not limited to: significant underperformance relative to expected historical or projected future operating results; significant changes in the manner of use of the acquired assets or the strategy for the Company's overall business; and significant negative industry or economic trends. When the Company determines that the carrying value of a long-lived asset may not be recoverable based upon the existence of one or more of the above indicators of impairment, the Company estimates the future undiscounted cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the expected future undiscounted cash flows and eventual disposition is less than the carrying amount of the asset, the Company recognizes an impairment charge. An impairment charge is reflected as the amount by which the carrying amount exceeds the fair market value of the asset, based on the fair market value if available, or discounted cash flows. To date, there has been no impairment of long-lived tangible assets. |
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Goodwill and Other Intangible Assets | ' |
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Goodwill and Other Intangible Assets |
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The Company operates in one reportable and operating segment, but evaluates goodwill for impairment at the reporting unit level. Reporting units are identified based on the current organizational structure, availability of discrete financial information, and economic similarity of components under the Company's operating segment. During the annual strategic planning process in the third quarter of 2013, the Company changed the business model relating to Phorus resulting in the identification of the Phorus business as a separate reporting unit from the rest of the Company for the purpose of testing goodwill for impairment. Goodwill was reassigned to each reporting unit using the relative fair value approach. The Company evaluates the carrying value of goodwill and indefinite-lived intangibles for impairment on an annual basis as of October 31 of each year, or more frequently if events or circumstances indicate that the goodwill and other intangibles might be impaired. |
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Impairment of indefinite-lived intangibles is tested by estimating the fair value of the assets, and an impairment charge would be recorded to the extent that the carrying amount of such assets exceeds the estimated fair value. Evaluation of the recoverability of goodwill includes valuation of the underlying reporting unit using fair value techniques, which may include both income and market approaches. If the carrying value of the reporting unit exceeds its estimated fair value, or if the reporting unit has a negative carrying value and the Company believes it is more likely than not that a goodwill impairment exists, the Company would proceed to estimate the fair value of the goodwill itself and compare it to the carrying value to test for impairment and quantify an impairment charge, if any. The Company would record an impairment charge in an amount equal to the excess of the carrying value of the goodwill over the estimated fair value. Goodwill impairment is measured subsequent to the completion of any impairment of all other intangible and long-lived assets associated with the reporting unit. |
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The Company's definite-lived intangibles principally consist of customer relationships, acquired technology and developed patents and tradenames, which are being amortized over their respective estimated useful lives. The Company reviews such assets for impairment whenever events or changes in circumstances indicate an asset's carrying value may not be recoverable. Factors considered include, but are not limited to, significant underperformance relative to expected historical or projected future operating results; significant changes in the manner of use of the acquired assets or projected future operating results; significant changes in the strategy of the overall business; and significant negative industry or economic trends. Recoverability of an intangible is measured by comparing its carrying amount to the expected future undiscounted cash flows that the asset is expected to generate. If it is determined that an asset is not recoverable, an impairment charge is recorded in the amount by which the carrying amount of the asset exceeds its fair value. |
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If the Company is unable to finalize the results of impairment tests prior to the issuance of the financial statements and an impairment charge is probable and can be reasonably estimated, the Company recognizes its best estimate of the loss in the current period financial statements and discloses that the amount is an estimate. The Company would then recognize any adjustments to that estimate in subsequent reporting periods, once the results of the impairment tests have been finalized. |
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Costs incurred in securing patents and trademarks and protecting the Company's proprietary technology and brand name are capitalized. Patent and trademark costs are amortized over their estimated useful lives, typically five and ten years, respectively. The amortization period commences when the patent or trademark is issued. |
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For additional information refer to Note 7, "Goodwill and Other Intangibles". |
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Business Combinations | ' |
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Business Combinations |
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The Company includes the results of operations of the businesses that it has acquired in its consolidated results as of the respective dates of acquisition. However, as noted below in the revenue recognition policy, the Company did not begin to recognize revenue from per-unit licensing agreements acquired with SRS until the fourth quarter of 2012. |
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The Company allocates the fair value of the purchase consideration of its acquisitions to the tangible assets, liabilities and intangible assets acquired, including in-process research and development ("IPR&D"), based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. The primary items that generate goodwill include the value of the synergies between the acquired companies and the Company and the acquired assembled workforce, neither of which qualifies as an identifiable intangible asset. IPR&D is initially capitalized at fair value as an intangible asset with an indefinite life and assessed for impairment thereafter. When the IPR&D project is complete, it is reclassified as an amortizable purchased intangible asset and is amortized over its estimated useful life. If an IPR&D project is abandoned, the Company records a charge for the value of the related intangible asset in its consolidated statement of operations in the period it is abandoned. The fair value of contingent consideration associated with acquisitions is remeasured each reporting period and adjusted accordingly. Acquisition and integration related costs are recognized separately from the business combination and are expensed as incurred. |
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Revenue Recognition | ' |
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Revenue Recognition |
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The Company recognizes revenue when persuasive evidence of a sales arrangement exists, delivery has occurred or services have been rendered, the buyer's price is fixed or determinable and collection is reasonably assured. Revenues from arrangements involving license fees, up-front payments and milestone payments, which are received or billable by the Company in connection with other rights and services that represent continuing obligations of the Company, are deferred until all of the elements have been delivered or until the Company has established objective and verifiable evidence of the fair value of the undelivered elements. |
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Revenue from licensing audio technology, trademarks and know-how is generated from licensing agreements with consumer electronics products manufacturers that pay a per-unit license fee for products manufactured or shipped, as set forth in those license agreements. Licensees generally report manufacturing or shipping information within 30 to 60 days after the end of the quarter in which such activity takes place. Consequently, the Company recognizes revenue from these licensing agreements on a three-month lag basis, generally in the quarter following the quarter of manufacture or shipment, provided amounts are fixed or determinable and collection is reasonably assured, since the Company cannot reliably estimate the amount of revenue earned prior to the receipt of such reports. Use of this lag method allows for the receipt of licensee royalty reports prior to the recognition of revenue. |
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Certain cash collections from per-unit licensing agreements acquired with SRS during the year ended December 31, 2012 were the result of product shipments prior to July 20, 2012, the acquisition date. Therefore, the Company did not recognize revenue from these per-unit licensing agreements and certain other licensing arrangements acquired with SRS during the year ended December 31, 2012. Accordingly, the Company recognized revenue from per-unit licensing agreements acquired with SRS that resulted from product shipments after the acquisition date. |
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For certain licensing agreements, licensees pay a flat fee for the right to license certain technology over the contract term. Typically, the agreement stipulates a flat fee that corresponds to a minimum number of units or dollars, with additional per-unit fees for any units or dollars exceeding the minimum. For these agreements, the Company has continuing obligations relating to other rights and services provided over the term of the contract. As such, the Company recognizes the minimum or flat fee amount on these agreements as revenue ratably over the duration of contract term as all contractual obligations are met. Consistent with the aforementioned policy for per-unit license fee agreements, the Company recognizes revenue relating to any additional per-unit fees on a quarter lag basis, since the Company cannot reliably estimate the amount of revenue earned from additional units manufactured or shipped prior to the receipt of licensee reports. |
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The Company actively polices and enforces its intellectual property, and pursues third parties who utilize its intellectual property without a license or who have under-reported the amount of royalties owed under a license agreement with it. As a result of these activities, from time to time, the Company may recognize royalty revenues that relate to infringements that occurred in prior periods. These royalty recoveries may cause revenues to be higher than expected during a particular reporting period and may not occur in subsequent periods. Differences between amounts initially recognized and amounts subsequently audited or reported as an adjustment to those amounts due from licensees, will be recognized in the period such adjustment is determined or contracted, as appropriate. |
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Deferred revenues arise primarily from payments for licensing audio technology received in advance of the culmination of the earnings process. Deferred revenues will be recognized as revenue in future periods when the applicable revenue recognition criteria are met. Typically, deferred revenues arise from flat fee arrangements that allow licensees to manufacture an unlimited number of units over a specified term, and accordingly, these deferred revenues will be recognized as revenue ratably over the term of the arrangement. |
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Licensing revenue is recognized gross of withholding taxes that are remitted by the Company's licensees directly to their local tax authorities. For the years ended December 31, 2013, 2012 and 2011, withholding taxes were $5,610, $4,970, and $5,537, respectively. |
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Research and Development ("R&D") Costs | ' |
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Research and Development ("R&D") Costs |
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The Company conducts its R&D internally and expenses are primarily comprised of the following types of costs incurred in performing research and development activities: salaries and benefits, related employee expenses, allocated overhead, contract services, and consultants. R&D costs are expensed as incurred. |
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Foreign Currency Translation | ' |
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Foreign Currency Translation |
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The functional currency of one of the Company's wholly-owned subsidiaries is the currency of the primary economic environment in which it operates. The assets and liabilities of this wholly-owned subsidiary are translated at the prevailing rate of exchange at the balance sheet date, while the results of operations are translated at the average exchange rate in effect for the period. The translation adjustments resulting from translating the functional currency into U.S. dollars have been deferred as a component of accumulated other comprehensive income in stockholders' equity. |
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The functional currency of the Company's other wholly-owned subsidiaries is the U.S. dollar and accordingly, nonmonetary balance sheet accounts are remeasured with the appropriate historical rates. All other balance sheet accounts are translated at the prevailing rate of exchange at the balance sheet date, while the results of operations are translated at the average exchange rate in effect for the period. The gains and losses resulting from this remeasurement and translation are reflected in the determination of net income (loss). |
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To date, annual foreign currency translation adjustments, gains and losses have not been significant. |
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Comprehensive Income (Loss) | ' |
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Comprehensive Income (Loss) |
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Comprehensive income (loss) includes all changes in stockholders' equity during a period from non-owner sources. To date, accumulated other comprehensive income is comprised mostly of foreign currency translation. |
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Advertising Expenses | ' |
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Advertising Expenses |
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Advertising and promotional costs are expensed as incurred and amounted to $4,408, $3,584, and $2,957 for the years ended December 31, 2013, 2012 and 2011, respectively. |
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Treasury Stock | ' |
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Treasury Stock |
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Repurchased shares of the Company's common stock are held as treasury shares until they are reissued or retired. When the Company reissues treasury stock, and the proceeds from the sale exceed the average price that was paid by the Company to acquire the shares, the Company records such excess as an increase in additional paid-in capital. Conversely, if the proceeds from the sale are less than the average price the Company paid to acquire the shares, the Company records such difference as a decrease in additional paid-in capital to the extent of increases previously recorded, with the balance recorded as a decrease in retained earnings. |
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Restricted Stock Withholdings | ' |
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Restricted Stock Withholdings |
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The Company issues restricted stock units as part of its equity incentive plans. For a majority of the restricted stock granted, the number of shares released on the date the restricted stock vests is net of the statutory withholding requirements that the Company pays to the appropriate taxing authorities on behalf of its employees. The shares repurchased to satisfy the statutory withholding requirements are immediately and effectively retired. |
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Income Taxes | ' |
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Income Taxes |
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The Company utilizes the asset and liability method of accounting for income taxes. Under this method, the deferred tax assets and liabilities are measured each year based on the difference between the financial statement and tax basis of assets and liabilities at the applicable enacted tax rates. The deferred tax provision is the result of changes in the deferred tax assets and liabilities. The Company recognizes interest and penalties related to income taxes in the provision for income taxes. Additionally, a valuation allowance is recorded for that portion of deferred tax assets for which it is more likely than not that the assets will not be realized. In assessing the need for a valuation allowance, the Company considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial performance. The Company believes it is more likely than not that its forecasted income, including income generated as a result of a tax planning strategy transacted on January 1, 2014, will be sufficient to realize the deferred tax assets. In the event that all or part of the deferred tax assets are determined not to be realizable in the future, an adjustment to the valuation allowance may be necessary. A valuation allowance adjustment would be recorded in the provision for income taxes in the period such determination is made. |
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Fair Value of Financial Instruments | ' |
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Fair Value of Financial Instruments |
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The carrying amount of cash equivalents, short-term investments, accounts receivable, accounts payable and accrued liabilities approximates fair value due to the short-term nature of these instruments. Long-term debt approximates fair value due to the variable rate nature of the debt. |
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Recent Accounting Pronouncement | ' |
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Recent Accounting Pronouncement |
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In July 2013, the Financial Accounting Standards Board issued Accounting Standards Update ("ASU") 2013-11, "Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists." This standard provides guidance regarding when an unrecognized tax benefit should be classified as a reduction to a deferred tax asset or when it should be classified as a liability in the consolidated balance sheet. This ASU is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013. Early adoption and retrospective application is permitted. The Company is evaluating the potential impact of this adoption on its consolidated financial statements. |
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