LeapFrog 2011 Annual Report Download - page 64

LEAPFROG ENTERPRISES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
Plan’’), the Company issues stock options, restricted stock awards (‘‘RSAs’’) 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. Share-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’s management reviews and updates its estimates of the variables used to calculate grant date
fair values of the awards quarterly and adjusts its valuation model as necessary.
Comprehensive Income (Loss)
Comprehensive income (loss) is comprised of the Company’s net loss, gains and losses on the translation of
foreign currency denominated financial statements and temporary gains and non-credit losses on investments.
Net Income (Loss) 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 common shares issuable under the Company’s share-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 June 2011, the FASB issued Accounting Standards Update (‘‘ASU’’) 2011-05, Comprehensive Income
(Topic 220): Presentation of Comprehensive Income. This guidance allows an entity 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. This guidance eliminates the option to present the components of other comprehensive income as
part of the statement of changes in stockholders’ equity. The Company early adopted this guidance for the
year ended December 31, 2011 and applied retrospectively as required to present the total of comprehensive
income, the components of net income, and the components of other comprehensive income in two separate
consecutive statements. The adoption of this guidance did not result in any material impact to the Company’s
consolidated financial statements.
In September 2011, the FASB issued ASU 2011-08, Intangibles — Goodwill and Other (Topic 350). This
guidance permits an entity to first assess qualitative factors to determine whether it is more likely than not that
the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is
necessary to perform the two-step goodwill impairment test. Under this guidance, if an entity determines, after
assessing such qualitative factors, that it is not more likely than not that the fair value of a reporting unit is
less than its carrying amount, then performing the two-step impairment test is unnecessary. The Company
early adopted this guidance for its December 31, 2011 annual goodwill impairment test, which did not result
in any material impact to the Company’s consolidated financial statements.
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