LeapFrog 2013 Annual Report Download - page 59
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Please find page 59 of the 2013 LeapFrog annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.LEAPFROG ENTERPRISES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
2. Summary of Significant Accounting Policies − (continued)
related tax authority and establishes a reserve against any portion of the tax benefit not meeting the
recognition threshold. The Company records potential interest and penalties on uncertain tax positions as a
component of income tax expense.
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
The Company issues stock options and restricted stock units (‘‘RSUs’’) to its employees, directors and
occasionally to non-employee service providers, to purchase shares of the Company’s Class A common stock
pursuant to the Company’s Amended and Restated 2011 Equity and Incentive Plan (‘‘2011 EIP’’). In the past,
the Company has issued awards under its Amended and Restated 2002 Equity Incentive Plan (‘‘2002 EIP’’)
and its 2002 Non-Employee Directors’ Stock Award Plan (‘‘NEDSAP’’), both of which have been suspended
and no new awards are issued under those plans. Stock-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 also has an employee stock
purchase plan (‘‘ESPP’’), the Amended and Restated 2002 Employee Stock Purchase Plan.
The Company’s management reviews and updates its estimates of the variables used to calculate grant-date
fair values of the awards and adjusts its valuation model as necessary.
Comprehensive Income
Comprehensive income is comprised of the Company’s net income, gains and losses on the translation of
foreign currency denominated financial statements and temporary gains and non-credit losses on investments.
Net Income per Share
Basic earnings per share is computed by dividing net income by the weighted-average number of shares of
Class A and Class B common stock (‘‘common shares’’) outstanding during the reporting period. Diluted
earnings per share is computed by dividing net income by the combination of dilutive common share
equivalents, which comprises of dilutive common shares issued and outstanding under the Company’s
stock-based compensation plans, and the weighted-average number of common shares outstanding during the
reporting period. Dilutive common share equivalents include in-the-money common share equivalents; whether
common share equivalents are ‘‘in-the-money’’ is calculated based on the average share price for each period
using the treasury stock method. Under the treasury stock method, the exercise price of an option, the amount
of compensation cost, if any, for future service that the Company has not yet recognized, and the estimated
tax benefits that would be recorded in paid-in capital, if any, when the option is exercised are assumed to be
used to repurchase shares in the current period.
Recently Adopted Accounting Guidance
In July 2013, the FASB issued Accounting Standards Updates (‘‘ASU’’) 2013-11, Income Taxes (Topic 740).
The objective of this guidance is to eliminate the diversity in practice in the presentation of unrecognized tax
benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. This
guidance is effective for reporting periods beginning after December 15, 2013, with early adoption permitted.
The Company adopted this guidance during the three months ended September 30, 2013. The adoption of this
guidance did not result in any material impact to the Company’s consolidated financial statements.
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