LeapFrog 2010 Annual Report Download - page 40

Calculation of the effective tax rate for all periods included a non-cash valuation allowance recorded against our
domestic deferred tax assets.
The income tax expense for 2010 was primarily attributable to our foreign operations and amortization of the
deferred tax liability for goodwill, and included $2.0 million of income tax benefit attributable to our domestic
operations from the utilization of previously unrecognized net operating loss and tax credit carryforwards. The
income tax benefit for 2009 was primarily attributable to the recognition of previously unrecognized tax benefits
due to expirations of statutes of limitations in the amount of $7.8 million. The income tax expense in 2008 was
primarily attributable to our foreign operations, which were offset partially by a U.S. federal income tax
refund. In 2008, we received an income tax refund from the Internal Revenue Service (“IRS”) in settlement of an
audit related to our research and development carry-back claims for the years 2001 through 2003. The total 2008
income tax benefit attributable to this refund was $1.9 million, including interest paid by the IRS.
SUMMARY OF RESULTS BY SEGMENT FOR FISCAL YEARS ENDED DECEMBER 31, 2010, 2009
and 2008
We organize, operate and assess our business in two primary operating segments: United States and
International. This presentation is consistent with how our chief operating decision maker reviews performance,
allocates resources and manages the business.
Certain corporate-level operating expenses associated with sales and marketing, product support, human
resources, legal, finance, information technology, corporate development, procurement activities, research and
development, legal settlements and other corporate costs are charged entirely to our U.S. Segment, rather than
being allocated between the U.S. and International segments. All related prior period financial data has been
recast to conform to the current presentation.
The net sales, gross margin, total operating expenses and operating loss amounts in this section are presented on
a basis consistent with accounting principles generally accepted in the United States (“GAAP”) and on an
operating segment basis consistent with our internal management reporting structure.
United States Segment
The U.S. Segment includes net sales and related expenses directly associated with selling our products to national
and regional mass-market and specialty retailers, other retail stores and distributors, school-related distributors
and resellers, and online store and other Internet-based channels. Certain corporate-level operating expenses
associated with sales and marketing, product support, human resources, legal, finance, information technology,
corporate development, procurement activities, research and development, legal settlements and other corporate
costs are charged entirely to our U.S. Segment.
2010 2009 2008
% Change
2010 vs.
2009
% Change
2009 vs.
2008
(Dollars in millions)
Net sales ..................................... $344.3 $306.5 $363.4 12% (16%)
Gross margin * ................................ 43% 42% 40% 1** 2**
Operating expenses ............................. 150.4 146.2 202.9 3% (28%)
Loss from operations ............................ $ (3.0) $ (18.5) $ (55.9) 84% 67%
* Gross profit as a percentage of net sales
** Percentage point change in gross margin
30