LeapFrog 2008 Annual Report Download - page 76

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LEAPFROG ENTERPRISES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
During 2008 the Company recorded net sales of $6,139 on $4,899 of inventory written down in 2007. As of
December 31, 2008 the Company recorded new write-downs of $7,058, of which approximately $5,123 related to
inventory on hand at December 31, 2007. During 2007, the Company recorded net sales of $12,000 on $8,173 of
inventory written down in 2006. At December 31, 2007, new write-downs of $12,770 were established, of which
approximately $7,147 related to inventory on hand at December 31, 2006.
At December 31, 2008 and 2007, LeapFrog accrued liabilities for cancelled purchase orders totaling
$751and $1,426, respectively. The inventories related to these purchase orders are returned to the Company and
recorded either in raw materials or work in process.
5. Capitalized Product Costs
The Company’s capitalized product costs include third-party licensed content costs, consisting primarily of
design, artwork, animation, layout, editing, voice, audio and software included in its learning products and third-
party consulting and design costs related to the Company’s website. The Company’s website has an application
designed specifically for use with certain of its products.
December 31,
2008 2007
Content costs ............................................ $23,502 $ 32,773
Website development costs ................................ 13,998 11,156
Less: accumulated amortization ............................. (21,273) (29,528)
Total ............................................. $16,227 $ 14,401
The amortization expense related to content is charged to cost of sales in the statement of operations and
totaled $8,674, $5,840 and $3,786 for the three years ended December 31, 2008, 2007 and 2006, respectively.
Amortization expense related to website development is charged to selling, general and administrative expenses
and totaled $1,333, $885 and $1,045 for the three years ended December 31, 2008, 2007 and 2006, respectively.
The Company performs a quarterly impairment evaluation of capitalized product development costs. The
Company’s evaluation in 2008 and 2007 identified capitalized costs related to several platforms that had recently
been retired or discontinued. Accordingly, the Company accelerated the amortization of these costs, resulting in
an increase in cost of sales in the United States reporting unit of $2,197, $1,716 and $0 in 2008, 2007 and 2006,
respectively.
6. Property and Equipment
As of December 31, 2008 and 2007, property and equipment consisted of the following:
December 31,
2008 2007
Tooling, cards, dies and plates .............................. $17,331 $ 18,883
Computers and software ................................... 38,515 39,115
Equipment, furniture and fixtures ............................ 5,399 9,449
Leasehold improvements .................................. 6,179 5,335
67,424 72,782
Less: accumulated depreciation ............................. (47,813) (53,166)
Total ............................................. $19,611 $ 19,616
F-18