LeapFrog 2002 Annual Report Download - page 76

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LEAPFROG ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share, per share and percent data)
1. Description Of Business
LeapFrog Enterprises, Inc. (the “Company”), formerly known as Knowledge Kids Enterprises, Inc., is a
designer, developer and marketer of technology-based educational products and related proprietary content,
dedicated to making learning effective and engaging. The Company currently designs its products to help
preschool through 8th grade children learn age- and skill-appropriate subject matter, including phonics, reading,
math, spelling, science, geography, history and music, and has recently extended its product line downward in
age to reach infants and toddlers and upward in age to reach high school students. The Company’s product line
includes: (1) platforms, which are portable hardware devices, (2) content, such as books and cartridges,
specifically designed for use with the Company’s platforms and (3) stand-alone educational products, primarily
for children who are too young to use the Company’s platforms effectively. The Company’s products are sold
throughout the United States through national and regional mass-market and specialty retailers and, to a lesser
extent, into international markets and to U.S. schools.
The Company is a subsidiary of Knowledge Universe, L.L.C.
2. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of the Company and its wholly owned
subsidiaries, primarily those organized in the United Kingdom, Hong Kong and Canada. Intercompany accounts
and transactions have been eliminated in consolidation.
Certain amounts in the financial statements for prior years have been reclassified to conform to the current
year presentation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the
United States requires management to make estimates and assumptions affecting the amounts reported in the
financial statements and accompanying notes. Actual results could differ from those estimates.
Revenue Recognition
The Company recognizes revenue upon shipment of its products, provided that there are no significant post-
delivery obligations to the customer and collection is reasonably assured. The Company provides for discounts,
sales returns and allowances, including allowances for defective returns. Sales allowances may vary as a
percentage of gross sales due to changes in the Company’s product mix, defective product allowances or other
sales allowances. Sales returns and allowances were $62,418, $31,623 and $8,188 for the years ended December
31, 2002, 2001 and 2000, respectively. Actual amounts for returns and allowances may differ from the
Company’s estimates and such differences could be material to the consolidated financial statements.
The revenue and related cost for the Company’s products whose sole purpose is Internet connectivity,
principally the Mind Station connector, which has generally been packaged with other products, is recognized
F-7