LeapFrog 2007 Annual Report Download - page 95

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LEAPFROG ENTERPRISES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share and percent data)
The differences between the provision for income taxes and the income tax determined by applying the
statutory federal income tax rate of 35% were as follows:
Year Ended December 31,
In thousands 2007 2006 2005
Income tax (benefit) at the statutory rate ................................ $(34,157) $(41,469) $ 8,329
State income taxes ................................................. 582 5,969 (50)
Foreign operations ................................................. (5,648) 12,561 980
Tax exempt interest ................................................ — (177) (858)
Interest and penalties ............................................... 932 798 987
Nondeductible items ................................................ 164 279 231
Research and development credits ..................................... (505) (1,209) (2,020)
Other ............................................................ 1,625 280 (1,302)
Valuation allowance ................................................ 40,730 49,579 —
Income tax provision (benefit) ........................................ $ 3,723 $ 26,611 $ 6,297
State income tax expense above includes a valuation allowance of $6,580 and $10,854 for 2007 and 2006,
respectively. There is no valuation allowance for 2005. State income tax expense also includes interest and
penalties of $124, $28 and $11 for 2007, 2006 and 2005, respectively.
Undistributed earnings of the Company’s foreign subsidiaries amounted to approximately $22,846 at
December 31, 2007. The earnings are considered to be permanently reinvested and accordingly, no deferred U.S.
income taxes have been provided thereon. Upon distribution of those earnings in the form of dividends or
otherwise, the Company would be subject to U.S. income tax in the appropriate amount of $6,400, net of
resulting credits.
The components of the Company’s deferred taxes are as follows:
Year Ended December 31,
In thousands 2007 2006
Deferred tax assets:
NOL and credits carryover ...................................... $ 76,120 $ 34,757
Inventory and other reserves ..................................... 11,550 14,359
Depreciation and amortization .................................... 4,359 4,855
Other ....................................................... 13,080 7,766
Valuation allowance ........................................... (101,491) (60,433)
Total deferred tax assets .................................... $ 3,618 $ 1,304
Deferred tax liabilities:
Goodwill and tax depreciation .................................... $ 1,815 $ 1,267
Total deferred tax liability ................................... $ 1,815 $ 1,267
Included in deferred tax assets is $239 related to unrealized losses on auction rate securities recorded in
accumulated other comprehensive income.
F-23