LeapFrog 2008 Annual Report Download - page 72

LEAPFROG ENTERPRISES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
determination of the Company’s income tax assets, liabilities and expense requires management to make certain
estimates and judgments in the calculation of tax benefits, tax credits and deductions. Significant changes in these
estimates may result in increases or decreases in the tax provision or benefit in subsequent periods.
Valuation allowances are provided when it is more likely than not that all or a portion of a deferred tax asset
will not be realized. Determination of whether or not a valuation allowance is warranted requires consideration of
many factors, including prior earnings history, expected future earnings, carryback and carryforward periods, and
tax strategies that could potentially enhance the likelihood of realization of a deferred tax asset.
The financial statements also include accruals for the estimated amounts of probable future assessments that
may result from the examination of federal, state or international tax returns. The Company’s tax accruals, tax
provision, deferred tax assets or income tax liabilities may be adjusted if there are changes in circumstances, such
as changes in tax law, tax audits or other factors, which may cause management to revise its estimates. The
amounts ultimately paid on any future assessments may differ from the amounts accrued and may result in an
increase or reduction to the effective tax rate in the year of resolution.
Stock-Based Compensation
Pursuant to the Company’s 2002 Equity Incentive Plan and its 2002 Non-Employee Directors’ Stock Award
Plan (collectively, the “Plans”), the Company issues stock options, restricted stock awards and restricted stock
units to its employees, directors and occasionally to non-employee service providers, to purchase shares of the
Company’s Class A common stock. The Company accounts for stock-based compensation in accordance with the
provisions of SFAS No. 123(R), “Share-Based Compensation” (“SFAS 123(R)”). Under the fair value
recognition provisions of this statement, share-based compensation cost is measured at the grant date based on
the fair value of the award and is recognized as expense over the applicable vesting period of the stock award
(generally four years) using the straight-line method.
The Company’s management reviews and updates its estimates of the variables used to calculate grant date
fair values of the awards quarterly and adjusts its valuation model as necessary.
Comprehensive Loss
Comprehensive loss is comprised of the Company’s net loss, gains and losses on the translation of foreign
currency denominated financial statements and temporary gains and losses on investments.
Recently Issued Accounting Standards
Recently Adopted Accounting Pronouncements
Effective January 1, 2008, the Company adopted SFAS No. 157, “Fair Value Measurements” with respect
to its financial assets and liabilities only, pursuant to the guidance of FASB Staff Position No. FSP FAS 157-2,
“Effective Date of FASB Statement No. 157” (“FSP 157-2”), which was issued in February 2008. On October 10,
2008, the FASB issued Staff Position No. FSP FAS 157-3, “Determining the Fair Value of a Financial Asset
When the Market for That Asset Is Not Active” (“FSP 157-3”). This pronouncement provides more detailed
guidance on issues such as evaluating when the inputs used to calculate fair value for an instrument should be
considered observable or unobservable and the use of valuation techniques such as the discounted cash flow
approach or reference to broker quotes in an inactive market. The Company is currently following the guidance
in FSP 157-3 as applicable.
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