LeapFrog 2009 Annual Report Download - page 74

LEAPFROG ENTERPRISES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
dividends or otherwise, the Company would not be subject to U.S. income tax due as any tax liability generated
would be offset by net operating loss carryforwards.
Deferred income taxes reflect the impact of “temporary differences” between asset and liability amounts for
financial reporting purposes and such amounts as determined based on existing tax laws. The tax effect of
temporary differences and carryforwards which give rise to deferred tax assets and liabilities are as follows:
December 31,
2009 2008
Deferred tax assets:
NOL and credits carryover ............................................. $ 96,747 $ 88,709
Inventory and other reserves ........................................... 5,981 16,424
Depreciation and amortization .......................................... 14,699 7,644
Other .............................................................. 17,993 18,097
Less: valuation allowance .............................................. (132,018) (127,122)
Total deferred tax assets ......................................... $ 3,402 $ 3,752
Deferred tax liabilities:
Goodwill and tax depreciation .......................................... 2,993 2,637
Total deferred tax liabilities ...................................... $ 2,993 $ 2,637
Starting in 2006, the Company recorded a non-cash charge to establish a valuation allowance against its gross
domestic deferred tax assets. The amount represents 100% of the domestic deferred tax assets as set out in the
table below.
December 31,
2009 2008
Current deferred tax asset ................................................ $ 8,286 $ 18,627
Less: valuation allowance .................................................. (8,286) (18,627)
Net total ........................................................... $ — $ —
Non-current deferred tax asset ............................................ $123,732 $ 108,496
Less: valuation allowance .................................................. (123,732) (108,496)
Net total ........................................................... $ — $ —
Due to the Company’s domestic net operating losses for the most recent three year period, the Company has
established a full valuation allowance against its domestic deferred tax assets. The valuation allowance in both
2009 and 2008 includes $8,503 related to excess tax benefits of stock option deductions prior to the adoption of
ASC Topic No. 718. The benefits will increase additional paid-in capital when realized. The Company intends to
maintain a valuation allowance until sufficient positive evidence exists to support its reversal. Should the
Company determine that it would be able to realize all or part of its deferred tax asset in the future, an adjustment
to the valuation allowance would be recorded in the period such determination was made. The majority of the
Company’s domestic deferred tax assets generally have 10 to 20 years until expiration or indefinite lives.
As of December 31, 2009, the Company had federal net operating loss carryforwards of $215,436 which will
expire between 2025 through 2029. State net operating loss carryforwards totaling $223,518 as of December 31,
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