LeapFrog 2004 Annual Report Download - page 98

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LEAPFROG ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share and percent data)
The income tax (benefit) provision recognized in the consolidated statements of operations consists of the
following:
Year ended
December 31,
2004 2003 2002
Current:
Federal ........................................... $ 9,004 $31,129 $ 31,505
State ............................................. 1,227 3,746 5,834
Foreign ........................................... 3,073 2,534 2,753
13,304 37,409 40,092
Deferred:
Federal ........................................... (14,013) 4,824 (10,130)
State ............................................. (4,717) 505 (1,133)
Foreign ........................................... (503) (118) —
(19,233) 5,211 (11,263)
Provision (benefit) for income taxes ........................ $ (5,929) $42,620 $ 28,829
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 federal, state, or
international tax returns. The tax contingency accruals may be adjusted if there are changes in circumstances,
such as changes in tax law, tax audits, or other factors, which may cause management to revise its estimates. The
amounts ultimately paid on any possible future assessments may differ from the amounts accrued and may result
in an increase or reduction to the effective tax rate in the year of resolution. The Company believes that the tax
contingency accruals reflect the probable outcome of known tax contingencies at this time.
Tax benefits of $8,420 related to employee stock options were credited directly to Stockholders’ equity.
The differences between the provision for income taxes and the income tax determined by applying the
statutory federal income tax rate of 35% was as follows:
Year Ended December 31,
2004 2003 2002
Income tax (benefit) at the statutory rate ...................... $(4,360) $40,353 $25,295
State income taxes ........................................ (834) 4,798 2,632
Foreign tax rates differential ................................ 1,590 (167) 209
International sourcing operations ............................ (1,948) — —
Nondeductible items ...................................... 270 180 108
Research and development credits ........................... (2,277) (4,808) —
Other .................................................. 1,630 2,264 585
Income tax provision (benefit) .............................. $(5,929) $42,620 $28,829
Undistributed earnings of the Company’s foreign subsidiaries amounted to approximately $25,536 at
December 31, 2004. 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 $6,523.
F-19