LeapFrog 2013 Annual Report Download - page 76
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Please find page 76 of the 2013 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.LEAPFROG ENTERPRISES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
19. Commitments and Contingencies
Contractual Obligations and Commitments
The Company is obligated to pay certain minimum royalties in connection with license agreements to which it
is a party. Royalty expense was $23,021, $19,744 and $13,874 for the years ended December 31, 2013, 2012
and 2011, respectively.
The Company leases its facilities under operating leases that expire at various dates through 2017. Generally,
these have initial lease periods of three to twelve years and contain provisions for renewal options of five
years at market rates. Rent expense related to facilities for general administration and operations is charged to
operating expenses in the statement of operations and totaled $2,466, $2,516 and $2,377 for the years ended
December 31, 2013, 2012 and 2011, respectively, net of sublease income of $629, $611 and $593,
respectively. Rent expense related to warehouse facilities is charged to cost of sales in the statement of
operations and totaled $1,218, $1,019 and $1,211 for the years ended December 31, 2013, 2012 and 2011,
respectively.
Minimum rent commitments under all non-cancelable operating leases and minimum royalty commitments are
set forth in the following table:
Years Ended December 31,
Operating
Leases Royalties Total
2014................................... $ 5,731 $1,962 $ 7,693
2015................................... 3,685 532 4,217
2016................................... 1,068 1,543 2,611
2017................................... 155 — 155
2018................................... — — —
Thereafter ............................... — — —
Total ................................. $10,639* $4,037 $14,676
* Amount was reduced by minimum sublease rent of $1,488 due in the future under non-cancelable
sublease.
The Company accounts for total rent expense under the leases on a straight-line basis over the lease terms.
The Company had a deferred rent liability relating to rent escalation costs net of tenant incentives for its
Emeryville, California headquarters. At December 31, 2013, 2012, and 2011, the deferred rent liability was
$1,028, $1,510 and $1,843, respectively. Deferred rent is included in accrued liabilities and other long-term
liabilities.
In addition, the Company had commitments to purchase inventory under normal supply arrangements totaling
approximately $24,096 at December 31, 2013. The Company also had outstanding off-balance sheet
commitments for outsourced manufacturing and component purchases of $473.
Legal Proceedings
From time to time, the Company is subject to legal proceedings and claims in the ordinary course of business,
including claims of alleged infringement of patents and other intellectual property rights, claims related to
breach of contract, employment disputes and a variety of other matters. We record a liability when we believe
that it is both probable that a loss has been incurred, and the amount can be reasonably estimated. In the
opinion of management, based on current knowledge, it is not reasonably possible that any of the pending
legal proceedings or claims will have a material adverse effect on the Company’s financial position, results of
operations or cash flows. Regardless of the outcome, litigation can have an adverse impact on the Company
because of defense costs, diversion of management resources and other factors. In addition, although
management considers the likelihood of such an outcome to be remote, if one or more of these legal matters
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