LeapFrog 2007 Annual Report Download - page 105

LEAPFROG ENTERPRISES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share and percent data)
The payment will be made in 2008 and has been accrued as selling, general and administrative expense in
the third quarter of 2007. The Company has determined that the value of the license for current and future
products is insignificant and therefore no asset was recorded as of December 31, 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 of our former officers 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. In January 2006, the lead plaintiffs
in this action filed an amended and consolidated complaint. In July 2006, the Court granted our motion to dismiss
the amended and consolidated complaint with leave to amend. In September 2006, plaintiffs filed a second
amended consolidated class action complaint. This second amended complaint sought unspecified damages on
behalf of persons who acquired LeapFrog’s Class A common stock during the period July 24, 2003 through
October 18, 2004. Like the predecessor complaint, this complaint alleged that the defendants caused us to make
false and misleading statements about our business and forecasts about our financial performance, and that
certain of our current and former individual officers and directors sold portions of their stock holdings while in
the possession of adverse, non-public information.
In September 2007, the federal district court granted the Company’s motion to dismiss the second amended
complaint, with leave for the plaintiffs to amend and re-file a third amended complaint. In November 2007, the
plaintiffs filed a third amended complaint. In February 2008, the parties reached an agreement-in-principle to
settle these class actions. The Company expects the proposed settlement, which is subject to court approval, to be
funded entirely by insurance. The parties are in the process of seeking court approval of the settlement. The
Company has not accrued any amount related to this matter because it expects the settlement to be funded by
insurance.
20. Segment Reporting
LeapFrog’s reportable segments are called the U.S. Consumer, International and School segments. The
Company records all indirect expenses in our U.S. Consumer segment, and does not allocate these expenses to
the International and School segments. The accounting policies of the segments are the same as those described
in Note 2 of these notes to consolidated financial statements.
The Chief Operating Decision Maker as defined by SFAS No. 131, “Disclosures about Segments of an
Enterprise and Related Information” (SFAS No. 131), is LeapFrog’s Chief Executive Officer (CEO). The Chief
Operating Decision Maker allocates resources to and assesses the performance of each operating segment using
information about its net sales and operating income (loss) before interest and taxes.
LeapFrog reports the financial results of the following operating segments:
• The U.S. Consumer segment includes the development, design and marketing of electronic educational
hardware products and related software, sold primarily through retail channels and online in the United
States.
• The International segment includes the localization and marketing of electronic educational hardware
products and related software, sold primarily in retail channels outside of the United States.
F-33