LeapFrog 2003 Annual Report Download - page 86

LEAPFROG ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share and percent data)
While the Company believes that its tax return positions are supportable, the tax provision includes
sufficient accruals for possible future assessments that may result from the examination of prior year’s tax
returns. The amounts ultimately paid on any possible future assessments may differ from the amounts accrued.
Tax benefits of $37,100 related to employee stock options were credited directly to Stockholders’
equity.
The components of the Company’s deferred taxes are as follows:
December 31
2003 2002
Deferred tax assets:
Inventory and other reserves ............................. $10,272 $12,856
Equity in affiliates ..................................... — 698
Depreciation ......................................... 227 1,118
Amortization of intangibles .............................. 392 —
Other ............................................... 1,463 3,928
12,354 18,600
Deferred tax liabilities:
Amortization of intangibles .............................. — (1,069)
Net deferred tax assets .................................. $12,354 $17,531
As of December 31, 2003 and 2002, the Company had net deferred tax assets of $12,354 and $17,531,
respectively. SFAS Statement 109, “Accounting for Income Taxes,” states that a valuation allowance must be
recognized if, based on the weight of available evidence, it is more likely than not that some portion or all of the
deferred tax asset will not be realized. Management has determined that the Company is more likely than not to
realize its entire deferred tax asset. Therefore, no valuation allowance has been established for 2003 or 2002.
The differences between the provision for income taxes and the income tax determined by applying the
statutory federal income tax rate of 35% for 2003, 2002 and 2001 were as follows:
Year Ended
December 31,
2003 2002 2001
Income tax at the statutory rate .............................. $40,353 $25,295 $ 5,059
State income taxes ........................................ 4,798 2,632 703
Nondeductible items ...................................... 180 108 111
R&D credit ............................................. (4,808) — —
Valuation allowance ...................................... — — (1,298)
Other .................................................. 2,097 794 209
Income tax provision ...................................... $42,620 $28,829 $ 4,784
Undistributed earnings of the Company’s foreign subsidiaries amounted to approximately $10,800 at
December 31, 2003. The earnings are considered to be permanently reinvested and no deferred U.S. income taxes
have been provided thereon. Upon distribution of those earnings in the form of dividends or otherwise, the
Company would be subject to U.S. income tax in the approximate amount of $1,700.
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