LeapFrog 2004 Annual Report Download - page 64

Cash equivalents and short-term investments are presented at fair value on our balance sheets. We invest our
excess cash in accordance with our investment policy. At December 31, 2004 and December 31, 2003, our cash
was invested primarily in municipal auction rate securities, money market funds, short-term fixed income
municipal securities and auction preferred securities. Any adverse changes in interest rates or securities prices
may harm the valuation of our short-term investments and operating results.
We are exposed to market risk from changes in interest rates on our outstanding bank debt. The level of a
certain financial ratio maintained by us determines interest rates we pay on borrowings. The interest rate will be
between prime and prime plus 0.25% or LIBOR plus 1.25% and LIBOR plus 2.00%. Prime rate is the rate
publicly announced by Bank of America as its prime rate The interest cost of our bank debt is affected by
changes in either prime rates or LIBOR. Any adverse changes could harm our operating results. We had no
outstanding debt at December 31, 2004 and December 31, 2003.
Item 8. Financial Statements and Supplementary Data.
See “Index to Consolidated Financial Statements” at page F-1 below.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None
Item 9A. Controls and Procedures.
Attached as exhibits to this Form 10-K are certifications of LeapFrog’s Chief Executive Officer and Chief
Financial Officer, which are required in accordance with Rule 13a-14 of the Securities Exchange Act of 1934, as
amended. This “Controls and Procedures” section includes information concerning the controls and controls
evaluation referred to in the certifications.
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this annual report on Form 10-K, we evaluated the effectiveness of
the design and operation of our disclosure controls and procedures or disclosure controls. This controls
evaluation was performed under the supervision and with the participation of management, including our Chief
Executive Officer and Chief Financial Officer. Disclosure controls are controls and procedures designed to
reasonably assure that information required to be disclosed in our reports filed under the Exchange Act, such as
this report, is recorded, processed, summarized and reported within the time periods specified in the U.S.
Securities and Exchange Commission’s rules and forms. Disclosure controls are also designed to reasonably
assure that such information is accumulated and communicated to our management, including the CEO and CFO,
as appropriate to allow timely decisions regarding required disclosure.
The evaluation of our disclosure controls included a review of the controls’ objectives and design, our
implementation of the controls and the effect of the controls on the information generated for use in this report.
In the course of the controls evaluation, we reviewed identified data errors and control problems and sought to
confirm that appropriate corrective actions, including process improvements, were being undertaken. This type of
evaluation is performed on a quarterly basis so that the conclusions of management, including the CEO and CFO,
concerning the effectiveness of the disclosure controls can be reported in our periodic reports on Form 10-Q and
Form 10-K.
Based upon the controls evaluation, our CEO and CFO have concluded that, as a result of the matters
discussed below with respect to our internal control over financial reporting, our disclosure controls as of
December 31, 2004 were not effective.
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