LeapFrog 2015 Annual Report Download - page 59

LEAPFROG ENTERPRISES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
2. Summary of Significant Accounting Policies − (continued)
Revisions
The Company has revised its consolidated balance sheets as of March 31, 2014 to correct the classification of
the capitalized development costs of its proprietary technologies included in certain key products from
property and equipment, to other intangible assets. As compared to previously reported amount, property and
equipment, net, has been reduced and other intangible assets, net, have been increased by $3,805 as of
March 31, 2014. Furthermore, the Company has revised its consolidated balance sheets as of March 31, 2014
to present, on a net basis, its domestic non-current deferred tax liabilities and non-current deferred tax assets.
As compared to previously reported amount, deferred income taxes included in non-current assets and
non-current deferred income taxes liabilities have been reduced by $3,812 as of March 31, 2014. These
revisions represent errors that were not deemed material, individually or in aggregate, to the consolidated
financial statements for the corresponding prior period. These revisions do not impact the Company’s
previously reported consolidated results of operations or statements of cash flows.
Revenue Recognition
The Company derives the majority of its revenue from sales of its technology-based learning products and
related proprietary and licensed content. Revenue is recognized when products are shipped and title passes to
the customer, provided that there is evidence of a commercial arrangement, delivery has occurred, there is a
fixed or determinable fee and collection is reasonably assured. The Company sells App Center cards to
retailers and directly to end customers, which are redeemable on its App Center for content downloads. The
Company records proceeds from the initial sale of the card to deferred revenue, which are then recognized
into revenue when the right to download content is granted to the customer upon redemption of the card. For
content purchased by the customer with a personal credit card directly through the Company’s App Center, the
Company recognizes revenue when the right to download content is granted. Amounts billed to customers for
shipping and handling costs are recognized as revenue. Costs incurred to ship merchandise from warehouse
facilities are recorded in cost of sales.
Net sales consist of gross sales less negotiated price allowances based primarily on volume purchasing levels,
estimated sales returns, allowances for defective products, promotional markdowns, chargebacks and price
changes, and cooperative promotional arrangements. Correspondingly, these allowances are recorded as
reductions of gross accounts receivable.
Allowances for Doubtful Accounts, Sales Returns, Defective Products and Promotions
The Company reduces gross accounts receivable by an allowance for amounts it believes may become
uncollectible. This allowance is an estimate based primarily on management’s evaluation of the customer’s
financial condition in the context of current economic conditions, past collection history and aging of the
accounts receivable balances. The provision for uncollectible accounts is included in selling, general and
administrative (‘‘SG&A’’) expense in the statements of operations. Accounts receivable are written off once
the balance is deemed to be uncollectible.
The Company also provides estimated allowances against revenue and accounts receivable for sales returns,
defective products, promotional markdowns, chargebacks and price changes, and cooperative promotional
arrangements in the same period that the related revenue is recorded. The allowances are estimated utilizing
historical information, maximum known exposures and other available information including current retailer
inventory levels, sell-through of its retailers and distributors, current trends in retail for its products, changes
in customer demand for its products and other related factors.
Accounts receivable are reported on the balance sheet net of all provided allowances.
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