LeapFrog 2005 Annual Report Download - page 85

LEAPFROG ENTERPRISES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands)
Derivative Financial Instruments
The Company transacts business in various foreign currencies, primarily in the British Pound, Canadian
Dollar, Euro and Mexican Pesos. In order to protect itself against reductions in the value and volatility of future
cash flows caused by changes in currency exchange rates, the Company implemented a foreign exchange
hedging program for its transaction exposure on January 9, 2004. The program utilizes foreign exchange forward
contracts to enter into fair value hedges of foreign currency exposures of underlying non-functional currency
monetary assets and liabilities that are subject to remeasurement. The exposures are generated primarily through
intercompany sales in foreign currencies. The hedging program reduces, but does not always eliminate, the
impact of the remeasurement of balance sheet items due to movements of currency exchange rates.
The Company does not use forward exchange hedging contracts for speculative or trading purposes. In
accordance with SFAS No. 133, “Accounting For Derivative Instruments and Hedging Activities,” all forward
contracts are carried on the balance sheet at fair value as assets or liabilities and the corresponding gains and
losses are recognized immediately in earnings to offset the changes in fair value of the assets or liabilities being
hedged. These gains and losses are included in “Other income (expense), net” on the statement of operations. The
estimated fair values of the Company’s forward contracts are based on quoted market prices.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and money market funds.
Prior to December 31, 2004, the Company classified its auction rate securities as cash and cash equivalents
because the securities were highly liquid and the periods between interest rate resets generally did not exceed 90
days. Prior to filing its annual report on Form 10-K for the year ended December 31, 2004, the Company
determined that, pursuant to SFAS 95, “Statement of Cash Flows,” its auction rate securities cannot be classified
as cash equivalents because their contractual maturities exceed 90 days. The Company classified its auction rate
securities as of December 31, 2004 as short-term investments.
The Company also corrected the error in its 2003 financial statements by reclassifying $24.5 million of
auction rate securities as of December 31, 2003, from cash and cash equivalents to short-term investments. As a
result, the following table shows the amounts, as originally presented in the Company’s Form 10-K for the year
ended December 31, 2003 and the corrected 2003 and 2002 amounts as presented in its Form 10-K for the year
ended December 31, 2004. This reclassification had no effect on total current assets, stockholders’ equity, net
income (loss), cash provided by operating activities, or on net income (loss) per share.
Correction of amounts relating to 2003 As Reported in
Difference
2004
Form 10-K
2003
Form 10-K
Cash and cash equivalents .............................. $45,319 $ 69,844 $(24,525)
Short-term investments ................................. 67,284 42,759 24,525
Cash used in investing activities .......................... (76,155) (59,030) 17,125
Decrease in cash and cash equivalents ..................... (18,108) (983) (17,125)
Correction of amounts relating to 2002 As Reported in
Difference
2004
Form 10-K
2003
Form 10-K
Cash used in investing activities .......................... $(24,982) $(17,582) $ 7,400
Increase in cash and cash equivalents ..................... 55,158 62,558 (7,400)
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