LeapFrog 2007 Annual Report Download - page 102

LEAPFROG ENTERPRISES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share and percent data)
designed to provide the executives at the level of vice-president and above a performance-based, long-term full-
value share program related to three-year performance cycles. The vesting schedule of such awards was based on
the Company’s performance against pre-established annual financial measures.
As of March 15, 2007, the Company granted to selected executives options to acquire approximately 70
shares of Class A common stock as a replacement for the terminated performance share awards. These stock
options were granted at an exercise price equal to the closing market price of the Company’s stock on the trading
day immediately prior to the date of the grant and have weighted average vesting period of just over one year, the
same as cancelled performance shares. The Company recognized the replacement of the performance share
awards with stock option awards as a modification of the terms and conditions of the performance share program,
in accordance with the provisions of SFAS 123(R). As a result, the Company recorded an insignificant amount
for stock-based compensation expense for the replacement awards.
Shares Reserved for Future Issuance
Shares of Class A common stock reserved for issuance under LeapFrog’s equity plans at December 31, 2007
are:
Number of
Shares
Options and stock awards available and outstanding under Equity Incentive Plan ................. 13,832
Shares issuable under the Employee Stock Purchase Plan .................................... 1,475
15,307
17. Derivative Financial Instruments
At December 31, 2007 and 2006, the Company had outstanding foreign exchange forward contracts, all with
maturities of approximately one month, to purchase and sell the equivalent of approximately $34,785 and
$71,286, respectively in foreign currencies, including British Pounds, Canadian Dollars, Euros and Mexican
Pesos. The fair market value of these instruments at December 31, 2007 and December 31, 2006 was $192 and
$371, respectively. For 2007, the fair market value of $192 was recorded in accrued liabilities. For 2006, the fair
market value of $371 for derivative financial instruments was recorded in prepaid expense and other current
assets. The Company believes that 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 LeapFrog’s efforts to manage foreign exchange risk, there can be no
assurance that its hedging activities will adequately protect against the risks associated with foreign currency
fluctuations.
LeapFrog recorded a net loss of $2,966 in 2007, a net loss of $3,872 in 2006, and a net gain of $1,020 in
2005 on foreign currency forward contracts. The Company also recorded a net gain of $2,966 in 2007, a net gain
of $2,812 in 2006, and a net loss of $1,162 in 2005 on the underlying transactions denominated in foreign
currencies.
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