LeapFrog 2002 Annual Report Download - page 79

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LEAPFROG ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except share, per share and percent data)
No. 142 requires, among other things, that the assembled workforce be reclassified to goodwill and that goodwill
(including the assembled workforce) and intangible assets with indefinite useful lives no longer be amortized, but
instead be tested for impairment at least annually in accordance with SFAS No. 142. The Company adopted the
provisions of SFAS 141 immediately and SFAS 142 effective January 1, 2002. Accordingly, $19.5 million in
goodwill is no longer being amortized.
Income Taxes
The Company accounts for income taxes using the liability method of accounting for income taxes. Under
this method, deferred tax assets and liabilities are determined based on differences between financial reporting
and tax bases of assets and liabilities and are measured using enacted tax rates and laws that will be in effect
when the differences are expected to reverse.
Comprehensive Earnings
Comprehensive earnings are comprised of gains and losses on the translation of foreign currency financial
statements. The Company provides the required disclosure in the Statement of Stockholders’ Equity.
Stock-Based Compensation
The Company generally grants stock options to its employees for a fixed number of shares with an exercise
price equal to the fair value of the shares on the date of grant. As allowed under the Statement of Financial
Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”), the Company has
elected to follow Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees”
(“APB 25”) and related interpretations in accounting for stock awards to employees. Accordingly, no
compensation expense is recognized in the Company’s financial statements in connection with stock options
granted to employees with exercise prices not less than fair value. Deferred compensation for options granted to
employees is determined as the difference between the deemed fair market value of the Company’s common
stock on the date options were granted and the exercise price.
Stock-based compensation arrangements to nonemployees are accounted for in accordance with SFAS 123
and EITF No. 96-18, “Accounting for Equity Instruments that Are Issued to Other than Employees for Acquiring,
or in Conjunction with Selling Goods or Services,” using a fair value approach. The compensation costs of these
arrangements are subject to remeasurement over the vesting terms as earned.
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