LeapFrog 2006 Annual Report Download - page 95

LEAPFROG ENTERPRISES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share and percent data)
17. Stock-Based Compensation
At December 31, 2006, the Company had stock-based compensation plans for employees and nonemployee
directors that authorized the granting of various stock-based incentives including stock options, restricted stock
and restricted stock units. On June 16, 2006, the stockholders approved amendments to these plans to increase
the number of shares of Class A common stock reserved for issuance to employees to 21,000 from 19,000 and to
increase the number of shares of Class A common stock reserved for issuance to nonemployee directors to 1,250
from 750.
Effective January 1, 2006, the Company adopted the recognition provisions of Statement of Financial
Accounting Standard No. 123(R), “Share-Based Compensation” (“SFAS 123(R)”), using the modified-
prospective transition method. Under this transition method, compensation cost in 2006 includes the portion
vesting in the period for (1) all share-based payments granted prior to, but not vested, as of January 1, 2006,
based on the grant date fair value estimated in accordance with the original provisions of SFAS 123, and (2) all
share-based payments granted subsequent to January 1, 2006, based on the grant date fair value estimated in
accordance with the provisions of SFAS 123(R). Results for the prior periods have not been restated.
Compensation costs related to stock-based compensation are generally amortized over the vesting period in
selling, general and administrative expense and research and development expense in the statement of operations.
The Company recognized total stock-based compensation expense of $7,303, $2,642 and $1,690 for the years
ended December 31, 2006, 2005 and 2004, respectively, for employees and nonemployee directors. For the years
ended December 31, 2006, 2005, and 2004, $4,688 and $1,397, and $633 respectively, was recorded in selling,
general and administrative expense, and $2,615, $1,245 and $1,057, respectively, was recorded in research and
development expense.
Prior to adopting SFAS 123(R), the Company presented all benefits from tax deductions arising from stock-
based compensation as cash flows from operating activities in the statement of cash flows. SFAS 123(R)
generally requires that the tax benefits in excess of the compensation cost recognized for those exercised options
and vested restricted stock units and restricted stock awards be classified as financing cash flows. However, as
the Company is in a net operating loss position, no tax benefit was recorded for stock options exercises or for
vested restricted stock units and awards. As a result, no excess tax benefit was included in net cash provided by
financing activities and is included in cash provided by operating activities.
Prior to January 1, 2006, the Company accounted for the plans under the measurement and recognition
provisions of APB Opinion No.25, “Accounting for Stock Issued to Employees,” and related Interpretations,
permitted under Statement of Financial Accounting Standard No. 123, “Accounting for Stock-Based
Compensation” (“SFAS 123”).
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