LeapFrog 2008 Annual Report Download - page 86

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LEAPFROG ENTERPRISES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
RSUs and RSAs:
RSAs and RSUs are payable in shares of the Company’s Class A common stock. The fair value of these
stock-based awards is equal to the closing market price of our stock on the trading day immediately prior to the
date of grant. The grant date fair value is recognized on a straight-line basis in compensation expense over the
vesting period of these stock-based awards, which is generally four years.
Non-Employee Stock-Based Awards:
Stock-based compensation arrangements to non-employees are accounted for using a fair value approach.
The compensation costs of these arrangements are subject to re-measurement over the vesting terms.
The Company calculates employee stock-based compensation expense based on awards ultimately expected
to vest and reduces compensation expense as necessary for estimated forfeitures. Stock-based compensation
expense is a non-cash charge to employee compensation expense and a credit to additional paid-in capital.
The following table summarizes stock-based compensation expense charged to selling, general and
administrative (“SG&A”) and research and development (“R&D”) expense for the three years ended
December 31, 2008, 2007 and 2006.
Years Ending December 31,
2008 2007 2006
SG&A:
Stock options ......................................... $ 7,069 $6,510 $3,350
RSUs/RSAs .......................................... 2,400 1,795 1,345
Total SG&A ..................................... 9,469 8,305 4,695
R&D:
Stock options ......................................... 721 604 1,659
RSUs/RSAs .......................................... 821 602 949
Total R&D ...................................... 1,542 1,206 2,608
Total expense .................................... $11,011 $9,511 $7,303
The table below shows the weighted-average total fair value of all awards granted and the weighted-average
assumptions used to calculate grant date fair value for the three years ended December, 31, 2008, 2007 and 2006.
2008 2007 2006
Estimate of fair value for total awards granted ........... $ 50,336 (1) $ 6,660 $ 22,692
Expected life in years .............................. 6.25 6.25 6.25
Expected volatility ................................ 40%–45% 40% 40%
Risk-free interest rate .............................. 1.75% – 3.64% 3.64% – 5.05% 4.54% – 5.07%
Dividend yield rate ................................ 0% 0% 0%
(1) Fair value in 2008 includes $33,433 for options granted in June 2008 pursuant to the stock option exchange
program
Prior to July 1, 2008 the weighted-average expected volatility for the Company’s stock awards was
calculated based on the weighted average of three stock market factors: the price volatility of LeapFrog’s
common shares, LeapFrog’s implied volatility as indicated by our publicly traded long-term options, Long-Term
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