LeapFrog 2007 Annual Report Download - page 85

LEAPFROG ENTERPRISES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share and percent data)
Intangible Assets
Intangible assets include the excess of purchase price over the cost of net assets acquired (Goodwill).
Goodwill arose from its September 23, 1997 acquisition of substantially all the assets and business of the
Company’s predecessor, LeapFrog RBT, and its acquisition of substantially all the assets of Explore
Technologies on July 22, 1998 and is allocated to the U.S. Consumer segment. Pursuant to the Statement of
Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”), goodwill is
tested for impairment at least annually. The Company determined no adjustments to the stated value of goodwill
were necessary.
Intangible assets with other than indefinite lives include patents, trademarks and licenses, and are amortized
on a straight-line basis over their estimated useful lives, ranging from 3 to 15 years. At December 31, 2007, the
weighted average amortization period for these intangibles was approximately 6 years. At December 31, 2007,
the Company tested these intangible assets for impairment and determined that no significant adjustments to the
stated values were necessary.
Income Taxes
The Company accounts for income taxes using the liability method. Under this method, deferred tax assets
and liabilities are determined based on differences between financial reporting and tax bases of assets and
liabilities and are measured using enacted tax rates and laws that will be in effect when the differences are
expected to reverse. In determining its income tax assets, liabilities and expense, we make certain estimates and
judgments in the calculation of tax benefits, tax credits and deductions. Significant changes in these estimates
may result in increases or decreases in the tax provision or benefit in subsequent periods. Effective January 1,
2007, the Company adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes.”
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.
The 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. The Company’s 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.
Comprehensive Income (Loss)
Comprehensive income (loss) is comprised of net income (loss), gains and losses on the translation of
foreign currency denominated financial statements, and temporary gains and losses on investments.
Stock-Based Compensation
Prior to January 1, 2006, the Company accounted for stock-based compensation under the measurement and
recognition provisions of APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related
Interpretations, permitted under Statement of Financial Accounting Standard No. 123, “Accounting for Stock-
Based Compensation” (“SFAS 123”).
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