Rosetta Stone 2011 Annual Report Download - page 101

Table of Contents
ROSETTA STONE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Share-based awards to purchase approximately 540,000, 470,000 and 15,000 shares of common stock that had an exercise price in excess of the average
market price of the common stock during the years ended December 31, 2011, 2010 and 2009, respectively, were not included in the calculation of diluted
earnings per share because they were anti-dilutive.
Comprehensive Income (Loss)
Comprehensive income consists of net income and other comprehensive income. Other comprehensive income refers to revenues, expenses, gains, and
losses that are not included in net income, but rather are recorded directly in stockholders' equity. For the years ended December 31, 2011, 2010 and 2009, the
Company's comprehensive income consisted of net income, foreign currency translation gains (losses) and the net unrealized gains or losses on available-for-
sale securities.
Foreign Currency Translation and Transactions
The functional currency of the Company's foreign subsidiaries is their local currency. Accordingly, assets and liabilities of the foreign subsidiaries are
translated into U.S. dollars at exchange rates in effect on the balance sheet date. Income and expense items are translated at average rates for the period.
Translation adjustments are recorded as a component of other comprehensive income (loss) in stockholders' equity.
Cash flows of consolidated foreign subsidiaries, whose functional currency is the local currency, are translated to U.S. dollars using average exchange
rates for the period. The Company reports the effect of exchange rate changes on cash balances held in foreign currencies as a separate item in the
reconciliation of the changes in cash and cash equivalents during the period. The following table presents the effect of exchange rate changes and the net
unrealized gains and losses from our available-for-sale securities on total comprehensive income (dollars in thousands):
Year Ended December 31,
2011 2010 2009
Net Income (loss) $ (19,988) $ 13,284 $ 13,363
Foreign currency translation gain (loss) 98 447 (21)
Unrealized gain (loss) on available-for-sale securities (23) — —
Total comprehensive income (loss) $ (19,913) $ 13,731 $ 13,342
Advertising Costs
Costs for advertising are expensed as incurred. Advertising expense for the years ended December 31, 2011, 2010, and 2009 were $74.4 million,
$54.2 million and $48.2 million, respectively.
Recently Issued Accounting Standards
Accounting Standards Update No. 2011-05—Comprehensive Income (Topic 220). Under the amendments to Topic 220, an entity has the option to
present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous
statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net
income along with total net income, each component of other comprehensive income along with a total for other comprehensive income,
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