LeapFrog 2011 Annual Report Download - page 84

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LEAPFROG ENTERPRISES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
Legal Proceedings
Although the Company is not currently party to any material pending legal proceedings, from time to time,
third parties assert patent infringement claims against the Company. Currently, the Company is engaged in
lawsuits regarding patent issues, and the Company also is occasionally notified of other potential patent
disputes. In addition, from time to time, the Company is subject to other legal proceedings and claims in the
ordinary course of business, including claims of alleged infringement of other intellectual property rights,
claims related to breach of contract, employment matters and a variety of other claims. Unsettled matters are
in various stages of litigation and their outcome is currently not determinable. However, in the opinion of
management, based on current knowledge, there is not at least a reasonable possibility that any of the
foregoing legal proceedings or claims may have a material adverse effect on the Company’s financial position,
results of operations or cash flows. Regardless of the outcome, litigation can have an adverse impact on the
Company because of defense costs, diversion of management resources and other factors. In addition,
although management considers the likelihood of such an outcome to be remote, if one or more of these legal
matters were resolved against the Company in the same reporting period for amounts in excess of
management’s expectations, the Company’s consolidated financial statements of a particular reporting period
could be materially adversely affected.
20. Segment Reporting
The Company’s business is organized, operated and assessed in two geographic segments: U.S. and
International.
The Company attributes sales to non-U.S. countries on the basis of sales billed by each of its foreign
subsidiaries to its customers. Additionally, the Company attributes sales to non-U.S. countries if the product is
shipped from Asia or one of its leased warehouses in the U.S. to a distributor in a foreign country. The
Company charges all of its indirect operating expenses and general corporate overhead to the U.S. segment
and does not allocate any of these expenses to the International segment.
The accounting policies of the segments are the same as those described in Note 2 of these Notes to the
Consolidated Financial Statements.
The primary business of the two operating segments is as follows:
• The U.S. segment is responsible for the development, design, sales and marketing of multimedia
learning platform products and related content, and learning toys, sold primarily through retail and
distributor channels and through the Company’s website in the U.S. In addition, beginning in late
2011, this segment began distributing third party content through our App Center.
• The International segment is responsible for the localization, sales and marketing of multimedia
learning platform products and related content, and learning toys, originally developed for the
U.S., sold primarily in retail and distributor channels outside of the U.S. In addition, beginning in
late 2011, this segment began distributing to certain territories, third party content through our
App Center.
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