LeapFrog 2007 Annual Report Download - page 43

Valuation allowances are provided when it is more likely than not that all or a portion of a deferred tax asset
will not be realized. In determining whether a valuation allowance is warranted, we take into account such factors
as prior earnings history, expected future earnings, carryback and carryforward periods, and tax strategies that
could potentially enhance the likelihood of realization of a deferred tax asset.
Our financial statements also include accruals for the estimated amounts of probable future assessments that
may result from the examination of federal, state or international tax returns. Our tax accruals, tax provision,
deferred tax assets or income tax liabilities 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 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.
Results of Operations
The following table sets forth selected information concerning our results of operations as a percentage of
net sales for the periods indicated:
Year Ended December 31,
2007 2006 2005
Net sales ...................................................................... 100.0% 100.0% 100.0%
Cost of sales ................................................................... 60.8 70.7 57.0
Gross profit .................................................................... 39.2 29.3 43.0
Operating expenses:
Selling, general and administrative .............................................. 32.1 26.3 19.4
Research and development .................................................... 13.4 10.8 8.1
Advertising ................................................................ 14.5 15.0 10.8
Depreciation and amortization ................................................. 2.1 2.0 1.6
Total operating expenses .......................................................... 62.1 54.1 39.9
Income (loss) from operations ..................................................... (22.9) (24.8) 3.1
Net interest income and other income (expense), net .................................... 0.8 1.2 0.4
Income (loss) before provision (benefit) for income taxes ................................ (22.1) (23.6) 3.5
Provision for income taxes ........................................................ 0.8 5.3 1.0
Net income (loss) ............................................................... (22.9)% (28.9)% 2.5%
Twelve Months Ended December 31, 2007 Compared To Twelve Months Ended December 31, 2006
Net Sales
Net sales decreased by $60.0 million, or 12%, from $502.3 million in 2006 to $442.3 million in 2007, on a
reported basis. On a constant currency basis, which assumes that foreign currency exchange rates were the same
in 2007 as 2006, sales declined by 13%.
Net sales for each segment and its percentage of total Company net sales were as follows:
Year Ended December 31,
2007 2006 Change
Segment $(1)
%of
Total
Company
Sales $(1)
%of
Total
Company
Sales $(1) %
U.S. Consumer .......................................... $312.9 71% $350.7 70% $(37.8) (11)%
International ............................................ 103.4 23% 114.6 23% (11.2) (10)%
School ................................................. 26.0 6% 37.0 7% (11.0) (30)%
Total Company ......................................... $442.3 100% $502.3 100% $(60.0) (12)%
(1) In millions
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