LeapFrog 2008 Annual Report Download - page 77

LEAPFROG ENTERPRISES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
Property and equipment is depreciated on a straight-line basis over a period of two to three years.
Depreciation expense for tooling cards, dies and plates and manufacturing equipment is charged to cost of sales
in the statement of operations as the expense relates directly to the product manufacturing process. The expense
charged to cost of sales was $2,486, $4,307 and $4,286 for the three years ended December 31, 2008, 2007 and
2006, respectively. During the years ended December 31, 2008 and 2007, the Company retired fully depreciated
tooling cards, dies and plates with a cost of $7,524 and $13,310, respectively. There were no write-offs of
tooling-related assets during the year ended December 31, 2006.
Depreciation expense related to the remainder of property and equipment is charged to selling, general and
administrative expense in the statements of operations. The expense charged to selling, general and
administrative expense was $7,631, $7,158 and $7,167 for the three years ended December 31, 2008, 2007 and
2006, respectively.
At December 31, 2008 and 2007 equipment, furniture and fixtures included $33 and $321, respectively, of
assets acquired under capital leases. The accumulated depreciation on these assets was $288 and $411 at
December 31, 2008 and 2007, respectively. The related capital lease obligation is reflected on the balance sheet
in accrued liabilities and deferred revenue.
7. Goodwill
The Company’s goodwill is related to its 1997 acquisition of substantially all the assets and business of our
predecessor, LeapFrog RBT, and our 1998 acquisition of substantially all the assets of Explore Technologies. All
of the goodwill is allocated to the Company’s United States reporting unit pursuant to SFAS 141. The Company
tests goodwill for impairment at least annually in accordance with SFAS 142.
The Company performed both the SFAS 142 Step One analysis and a comparison of the Company’s total
fair value to its market capitalization as of December 31, 2008 and 2007 and concluded that, based on the results
of its tests, its goodwill of $19.5 million had not been impaired as of either of those dates.
8. Accrued Liabilities and Deferred Revenue
The Company’s accrued liabilities and deferred revenue as of December 31, 2008 and 2007 were as follows:
December 31,
2008 2007
Advertising and promotion .................................................... $11,054 $ 8,877
Royalties payable ........................................................... 9,037 8,114
Employee-related expenses .................................................... 8,455 14,467
Accrued inventory, manufacturing and warehousing ................................ 3,945 3,295
Deferred revenue ............................................................ 1,828 1,958
One-time termination benefits .................................................. 1,401 —
Marketing, consulting and web-related ........................................... 2,642 9,647
Facilities-related closure costs ................................................. 534 —
Legal fees and settlement costs ................................................. 282 7,915
Capital lease obligation ....................................................... 21 26
Other ..................................................................... 5,397 3,292
Total ................................................................. $44,596 $57,591
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