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LEAPFROG ENTERPRISES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share and percent data)
LeapFrog Enterprises, Inc. v. Fisher-Price, Inc. and Mattel, Inc.
In October 2003, the Company filed a complaint in the federal district court for the district of Delaware
against Fisher-Price, Inc., alleging that the Fisher-Price PowerTouch learning system violates United States
Patent No. 5,813,861. In September 2004, Mattel, Inc. was joined as a defendant. The Company is seeking
damages and injunctive relief. Following a trial in the district court, the court declared a mistrial because the jury
was unable to reach a unanimous verdict, and the parties stipulated to have the case decided by the court based on
the seven-day trial record. On March 30, 2006, the district court issued an order entering judgment in favor of
Fisher-Price, Inc. with respect to patent infringement and invalidated claim 25 of the Company’s ‘861 patent.
The Company has appealed this decision. The appeal has been fully briefed and a hearing on the appeal is
currently scheduled for March 7, 2007.
Stockholder Class Actions
In December 2003, April 2005 and June 2005, six purported class action lawsuits were filed in federal
district court for the Northern District of California against Leapfrog and certain Company’s current and former
officers and directors alleging violations of the Securities Exchange Act of 1934. These actions have since been
consolidated into a single proceeding captioned In Re LeapFrog Enterprises, Inc. Securities Litigation.On
January 27, 2006, the lead plaintiffs in this action filed an amended and consolidated complaint. In July 2006, the
Court granted the Company’s motion to dismiss the amended and consolidated complaint with leave to amend.
On September 29, 2006, plaintiffs filed a second amended consolidated class action complaint. This second
amended complaint seeks unspecified damages on behalf of persons who acquired the Company’s Class A
common stock during the period July 24, 2003 through October 18, 2004. Like the predecessor complaint, this
complaint alleges that the defendants caused LeapFrog to make false and misleading statements about the
Company’s business and forecasts about the Company’s financial performance, and that certain of the
Company’s current and former individual officers and directors sold portions of their stock holdings while in the
possession of adverse, non-public information. The Company has filed a motion to dismiss the second amended
consolidated complaint, and a hearing on the Company’s motion is set for March 16, 2007. Discovery has not
commenced, and a trial date has not been set. The Company has not accrued any amount related to this matter
because the incurrence of liability is neither currently probable nor estimable.
21. Segment Reporting
The Company’s reportable segments include U.S. Consumer, International and SchoolHouse. The Company
records all indirect expenses at its U.S. Consumer segment, and does not allocate these expenses to its
International and SchoolHouse segments. The accounting policies of the segments are the same as those
described in Note 2 of these notes to consolidated financial statements.
F-30