LeapFrog 2009 Annual Report Download - page 67

LEAPFROG ENTERPRISES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
debt securities to make it more operational and to improve the presentation and disclosure of other-than-
temporary impairments on debt and equity securities in the financial statements. The guidance did not amend
existing recognition and measurement guidance related to other-than-temporary impairment of equity securities.
It was effective for interim reporting periods ending after June 15, 2009. Adoption of this guidance in the second
quarter of 2009 had an immaterial impact on the way the Company records the credit portion of other-than-
temporary impairments related to its investments in auction rate securities.
In May of 2009, the FASB issued guidance codified within ASC 855 “Subsequent Events.” This guidance
established general standards of accounting for and disclosure of events that occur after the balance sheet date
but before financial statements are issued or are available to be issued. This guidance was effective for interim or
annual reporting periods ending after June 15, 2009. Adoption of this guidance in the second quarter of 2009 did
not impact the Company’s consolidated financial statements but did require additional disclosures.
Recently Issued Accounting Guidance Not Yet Adopted
In January of 2010, the FASB issued Accounting Standards Update (ASU) 2010-06, “Fair Value Measures and
Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements.” This guidance is intended to
improve transparency with respect to recurring and nonrecurring fair value measurements through new disclosure
requirements for transfers in and out of Level 1 and Level 2 and for activity in Level 3. Clarification of existing
disclosure requirements is also provided. A majority of this guidance will be effective for interim or annual
reporting periods ending after December 15, 2009. The remainder of the guidance will be effective for fiscal and
interim periods beginning after December 31, 2010. Adoption of this guidance in 2010 and 2011 is not expected
to impact the Company’s consolidated financial statements but may require additional disclosures.
2. Fair Value of Financial Instruments
Fair value is based on exit price, or the amount that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants as of the measurement date. The guidance
establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and
minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available.
Observable inputs are inputs that market participants would use in valuing the asset or liability and are developed
based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that
reflect the Company’s assumptions about the factors market participants would use in valuing the asset or
liability. The guidance establishes three levels of inputs that may be used to measure fair value:
• Level 1 includes financial instruments for which quoted market prices for identical instruments are
available in active markets. The Company’s Level 1 assets consist of money market funds with original
maturities of three months or less. These assets are considered highly liquid and are stated at cost which
approximates market value.
• Level 2 includes financial instruments for which there are inputs other than quoted prices included
within Level 1 that are observable for the instrument. Such inputs could be quoted prices for similar
instruments in active markets, quoted prices for identical or similar instruments in markets with
insufficient volume or infrequent transactions (less active markets) or model-driven valuations in which
significant inputs are observable or can be derived principally from, or corroborated by, observable
market data, including market interest rate curves, referenced credit spreads and pre-payment rates. The
Company’s Level 2 assets and liabilities consist of outstanding foreign exchange forward contracts used
to hedge its exposure to certain foreign currencies, including the British Pound, Canadian Dollar, Euro,
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