LeapFrog 2008 Annual Report Download - page 91

Download and view the complete annual report

Please find page 91 of the 2008 LeapFrog annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 168

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150
  • 151
  • 152
  • 153
  • 154
  • 155
  • 156
  • 157
  • 158
  • 159
  • 160
  • 161
  • 162
  • 163
  • 164
  • 165
  • 166
  • 167
  • 168

LEAPFROG ENTERPRISES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
Legal Proceedings
From time to time, in the normal course of business, LeapFrog is party to various pending claims and
lawsuits. The Company is not aware of any such actions as of the date of this report that are expected to have a
material impact on the financial statements.
The Company was a party to the lawsuit described below, which was settled in September 2008.
• In December 2003, April 2005 and June 2005, six purported class action lawsuits were filed in federal
district court for the Northern District of California against LeapFrog and certain of the Company’s
former officers alleging violations of the Securities Exchange Act of 1934. These actions were
consolidated into a single proceeding captioned In Re LeapFrog Enterprises, Inc. Securities
Litigation. In 2006 and 2007, two of our motions to dismiss were granted by the court with leave to
amend, culminating with the filing of the third amended complaint by plaintiffs in November
2007. In February 2008, the parties reached an agreement-in-principle to settle these class actions. In
September 2008, the court issued a judgment and order approving the settlement and dismissing the
case. The settlement has been funded by insurance, and the Court’s approval of the settlement and
related judgment are now final.
The Company was a party to the lawsuit described below which was settled in November 2007.
• In August 2005, Tinkers & Chance, a Texas partnership, filed a complaint against LeapFrog in the
federal district court for the Eastern District of Texas. The complaint alleged that the Company
infringed, and induced others to infringe, certain patents by making, selling and/or offering for sale in
the United States, and/or importing, certain LeapFrog products.
On January 4, 2008, the parties executed a formal agreement whereby the Company paid to Tinkers &
Chance $7.5 million and, as part of the overall agreement, Tinkers & Chance agreed to grant to LeapFrog a
worldwide, non-exclusive license to all of its current patents and patent applications, as well as patents related to
its business arising from applications filed by Tinkers & Chance or its principals through November 2014. The
pending litigation in federal district court for the Eastern District of Texas was dismissed with prejudice.
The settlement was accrued as legal expense in the third quarter of 2007. At that time, the Company
determined that the value of the license for current and future products was insignificant and therefore did not
record an asset as of December 31, 2007. The full amount of the settlement was paid by the Company during
2008.
20. Segment Reporting
The Company has identified its operating segments in accordance with the guidance in SFAS No. 131,
“Disclosures about Segments of an Enterprises and Related Information” (“SFAS 131”). The Company’s
business is organized, operated and assessed in two geographic segments, United States and International. The
Company’s Chief Executive Officer (“CEO”) is the Company’s chief operating decision maker. LeapFrog’s CEO
allocates resources to and assesses the performance of each operating segment based on information about the
segments’ net sales and operating income (loss) before interest and taxes.
Historically, LeapFrog organized, operated and assessed its business in three segments, U.S. Consumer,
International and School. The School segment sold products tailored for the educational market directly to
schools, teacher supply stores and through catalogs and websites aimed at educators, all in the United States.
F-33