LeapFrog 2011 Annual Report Download - page 58

LEAPFROG ENTERPRISES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
1. Ownership and Business
LeapFrog Enterprises, Inc. and its consolidated subsidiaries (collectively, the ‘‘Company’’ or ‘‘LeapFrog’’
unless the context indicates otherwise) is a leading developer of educational entertainment for children. The
Company’s product portfolio consists of multimedia learning platforms and related content and learning toys.
LeapFrog has developed a number of learning platforms, which support a broad library of content titles.
LeapFrog has created hundreds of interactive content titles for our platforms, covering subjects such as
phonics, reading, writing and math. In addition, we have a broad line of stand-alone learning toys. Many of
our products connect to our proprietary online LeapFrog Learning Path, which provides personalized feedback
on a child’s learning progress and offers product recommendations to enhance each child’s learning
experience. The Company’s products are available in four languages (including Queen’s English) and are sold
globally through retailers, distributors and directly to consumers via the leapfrog.com online store and the
LeapFrog App Center.
Beginning April 2004 and continuing through late December 2011, LeapFrog was a ‘‘controlled company’’
under the rules of the New York Stock Exchange (‘‘NYSE’’), as Mollusk Holdings, LLC (‘‘Mollusk’’) held
more than 50% of the voting power of the Company’s outstanding shares. On December 27, 2011, Mollusk
converted, on a one-to-one basis, approximately 3.7 million shares of the Company’s Class B common stock
into shares of the Company’s Class A common stock. After the conversion, Mollusk holds approximately
6.7 million shares of the Company’s Class B common stock and 3.8 million shares of the Company’s Class A
common stock, which together represent approximately 16.0% of the outstanding capital stock of the
Company. Mollusk is an entity indirectly controlled by Lawrence J. Ellison, Chief Executive Officer of Oracle
Corporation. As a result of the conversion, Mollusk’s voting power of the Company’s outstanding shares
decreased to approximately 42.8%, and therefore, LeapFrog is no longer considered a ‘‘controlled company’’
under the rules of the NYSE.
2. Summary of Significant Accounting Policies
Principles of Consolidation and Basis of Presentation
The consolidated financial statements included herein have been prepared in accordance with accounting
principles generally accepted in the United States of America (‘‘GAAP’’).
The Company’s consolidated financial statements include the accounts of LeapFrog and its wholly owned
subsidiaries organized in the United Kingdom, Canada, France, Mexico, Hong Kong and China.
Inter-company accounts and transactions have been eliminated in consolidation.
Foreign Currencies
LeapFrog measures and records the assets, liabilities and operations of its foreign operations using the
functional currency of the country in which the operations are located and utilizes the U.S. dollar as its
reporting currency. Assets and liabilities recorded in foreign currencies are translated at the exchange rate as
of the balance sheet date. Revenues and expenses are translated at average exchange rates prevailing during
the period. Translation adjustments resulting from this process are charged or credited to ‘‘accumulated other
comprehensive income (loss),’’ an equity account. Foreign currency transaction gains and losses are included
in income as incurred.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and
judgments that affect the amounts reported in the financial statements and accompanying notes. The
accounting estimates that require management’s most significant, difficult, and subjective judgments include
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