LeapFrog 2007 Annual Report Download - page 80

LEAPFROG ENTERPRISES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share and percent data)
1. Description of Business
LeapFrog Enterprises, Inc. (the “Company” or “LeapFrog”), designs, develops and markets innovative,
technology-based learning products and related proprietary content for the education of infant through grade
school children at home and in schools around the world. The Company has developed a number of learning
platforms that come to life with more than 100 interactive software titles, covering important subjects including
phonics, reading, writing, and math. In addition, the Company has created a broad line of “stand-alone”
educational products that do not require the separate purchase of software and are generally targeted at young
children – from infants to five year olds. LeapFrog operates three business segments namely U.S. Consumer,
International, and School (formerly referred to as “Education and Training” or “SchoolHouse”). The products are
sold through retailers and distributors by the International and U.S. Consumer segments, directly to consumers at
our web store by the U.S. Consumer segment and directly to schools by the School segment. The products are
available in six languages at major retailers globally.
Based on voting control, LeapFrog is a subsidiary of Mollusk Holdings, LLC., an entity controlled by
Lawrence J. Ellison.
2. Summary of Significant Accounting Policies
Basis of Presentation
LeapFrog’s fiscal year is based upon a calendar year that ends on December 31.
The consolidated financial statements include the accounts of LeapFrog and its wholly owned subsidiaries,
primarily those organized in the United Kingdom, Canada, France, Mexico, Macau, Hong Kong and China. Inter-
company accounts and transactions have been eliminated in consolidation. The subsidiary in Macau was closed
effective July 31, 2007.
LeapFrog utilizes the U.S. dollar as a functional currency, as well as monetary operations in non-U.S.
currencies. Translation adjustments are recorded through accumulated other comprehensive loss.
Certain amounts in the financial statements for prior years have been reclassified to conform to the current
year presentation.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles
requires management to make estimates and judgments that affect the amounts reported in the financial
statements and accompanying notes. The accounting estimates that require management’s most significant,
difficult, and subjective judgments include the sales returns and allowances, recognition and measurement of
current and deferred income tax assets and liabilities; the assessment of recoverability of long-lived assets; the
valuation of intangible assets and inventory; the valuation and nature of impairments of investments and the
valuation and recognition of stock-based compensation.
These estimates involve the consideration of complex factors and require management to make judgments.
The analysis of historical and future trends, can require extended periods of time to resolve, and are subject to
change from period to period. The actual results experienced may differ from management’s estimates.
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