LeapFrog 2012 Annual Report Download - page 50

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LEAPFROG ENTERPRISES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
1. Business
LeapFrog Enterprises, Inc. and its consolidated subsidiaries (collectively, the ‘‘Company’’ or ‘‘LeapFrog’’
unless the context indicates otherwise) is a leading developer of educational entertainment for children. The
Company’s product portfolio consists of multimedia learning platforms and related content and learning toys.
LeapFrog has developed a number of learning platforms, including the LeapPad family of learning tablets, the
Leapster family of handheld learning game systems and the Tag and Tag Junior reading systems, which
support a broad library of content titles. LeapFrog has created hundreds of interactive content titles for its
platforms, covering subjects such as phonics, reading, writing and math. Many of the Company’s products
connect to its proprietary online LeapFrog Learning Path, which provides personalized feedback on a child’s
learning progress and offers product recommendations to enhance each child’s learning experience. In
addition, the Company has a broad line of stand-alone learning toys. The Company’s products are available in
four languages and are sold globally through retailers, distributors and directly to consumers via the
leapfrog.com online store and the LeapFrog App Center.
2. Summary of Significant Accounting Policies
Principles of Consolidation and Basis of Presentation
The consolidated financial statements included herein have been prepared in accordance with accounting
principles generally accepted in the United States of America (‘‘GAAP’’).
The Company’s consolidated financial statements include the accounts of LeapFrog and its wholly-owned
subsidiaries organized in the United Kingdom, Canada, France, Mexico, Hong Kong and China. Intercompany
accounts and transactions have been eliminated in consolidation.
Foreign Currencies
LeapFrog measures and records the assets, liabilities and operations of its foreign operations using the
functional currency of the country in which the operations are located and utilizes the U.S. dollar as its
reporting currency. Assets and liabilities recorded in foreign currencies are translated at the exchange rate as
of the balance sheet date. Revenues and expenses are translated at average exchange rates prevailing during
the period. Translation adjustments resulting from this process are charged or credited to accumulated other
comprehensive income (loss), an equity account. Foreign currency transaction gains and losses are included in
income as incurred.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and
judgments that affect the amounts reported in the financial statements and accompanying notes. The
accounting estimates that require management’s most significant, difficult, and subjective judgments include
the evaluation of the Company’s accounts receivable-related allowances for doubtful accounts receivable, sales
returns, defective products, promotional markdowns, chargebacks and price changes, and cooperative
promotional arrangements, the valuation and nature of impairments of financial instruments, valuation and
amortization of capitalized product costs, inventory valuation, the recognition, measurement and valuation of
current and deferred income tax assets and liabilities, valuation of goodwill and stock-based compensation
assumptions. These estimates involve the consideration of complex factors and require management to make
judgments. The analysis of historical and future trends can require extended periods of time to resolve, and
are subject to change from period to period. The actual results experienced may differ from management’s
estimates.
Reclassifications
Certain amounts in prior year financial statements included herein have been reclassified to conform to the
current year presentation.
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