LeapFrog 2006 Annual Report Download - page 100

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LEAPFROG ENTERPRISES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share and percent data)
18. Derivative Financial Instruments
At December 31 2006 and 2005, the Company had outstanding foreign exchange forward contracts, all with
maturities of approximately one month, to purchase and sell the equivalent of approximately $71,286 and
$87,200, respectively in foreign currencies, including British Pounds, Canadian Dollars, Euros and Mexican
Peso. The fair market value of these instruments at December 31, 2006 was $371 recorded in prepaid expense
and other current assets. At December 31, 2005, the fair market value of these instruments was $496, recorded in
prepaid expense and other current assets. The Company believes the counterparties to these contracts are
creditworthy multinational commercial banks and thus the risks of counterparty nonperformance associated with
these contracts are not considered to be material. Notwithstanding the Company’s efforts to manage foreign
exchange risk, there can be no assurances that its hedging activities will adequately protect against the risks
associated with foreign currency fluctuations.
The Company recorded a net loss of $3,872, a net gain of $1,020 and a net loss of $5,850 on the foreign
currency forward contracts for the years ended December 31, 2006, 2005 and 2004, respectively. The Company
also recorded a net gain of $2,812 and a net loss of $1,162 on the underlying transactions denominated in foreign
currencies for the years ended December 31, 2006 and 2005, respectively. These gains and losses were recorded
in other (expense) income, net on the statement of operations.
19. Net Income (Loss) Per Share
The Company follows the provisions of SFAS No. 128, Earnings Per Share ("SFAS 128"), which requires
the presentation of basic net income (loss) per common share and diluted net income (loss) per common share.
Basic net income (loss) per common share excludes any dilutive effects of options and convertible securities.
The following table sets forth the computation of basic and diluted net income (loss) per share.
Year Ended December 31,
2006 2005 2004
Numerator:
Net income (loss) .............................. $(145,092) $17,500 $ (6,528)
Denominator – weighted average shares:
Class A and B – shares .......................... 62,817 61,917 59,992
Less: shares of unvested stock .................... (136) (16)
Denominator for basic net income (loss) per Class A
and B share ................................. 62,817 61,781 59,976
Effect of dilutive securities:
Employee stock options ......................... — 467 —
Restricted stock awards and stock units ............. — 81 —
Denominator for diluted net income (loss) per Class A
and B share ................................. 62,817 62,329 59,976
Net income (loss) per Class A and B share:
Basic .................................... $ (2.31) $ 0.28 $ (0.11)
Diluted ................................... $ (2.31) $ 0.28 $ (0.11)
If the Company had reported net income for the year ended December 31, 2006, the calculation of diluted
net income (loss) per Class A and B share would have included an additional 299 common equivalent shares
related to outstanding stock options and unvested stock (determined using the treasury stock method).
F-28