LeapFrog 2009 Annual Report Download - page 51

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We develop products in the United States and market our products primarily in North America and, to a lesser
extent, in Europe and the rest of the world. We are billed by and pay our third-party manufacturers in United
States dollars (“USD”). Sales to our international customers are transacted primarily in the country’s local
currency. As a result, our financial results have been and are expected to continue to be affected by factors such
as changes in foreign currency rates or weak economic conditions in foreign markets.
We manage our foreign currency transaction exposure by entering into short-term forward contracts. The purpose
of this hedging program is to minimize the foreign currency exchange gain or loss reported in our financial
statements. The table below shows the results of our hedging program for the fiscal years ended December 31,
2009, 2008 and 2007.
Years Ended December 31,
(Dollars in thousands) 2009 2008 2007
Gains (losses) on foreign exchange forward contracts .................. $ (55) $ 874 $(2,967)
Gains (losses) on underlying transactions denominated in foreign
currency ................................................... (404) (2,092) 2,964
Net losses ................................................ $(459) $(1,218) $ (3)
Our foreign exchange forward contracts generally have original maturities of one month or less. A summary of
all foreign exchange forward contracts that were outstanding as of December 31, 2009 and 2008 follows:
2009 2008
Average
Forward
Exchange
Rate per $1
Notional
Amount
in Local
Currency
Fair Value of
Instruments
in USD
Average
Forward
Exchange
Rate per $1
Notional
Amount
in Local
Currency
Fair Value of
Instruments
in USD
(1) (2) (1) (2)
Currencies:
British Pound (USD/GBP) ...... 1.615 628 $ (11) 1.435 4,238 $ 55
Euro (USD/Euro) ............. 1.435 4,113 171 1.388 6,381 303
Canadian Dollar (CAD/USD) .... 1.048 5,586 (4) 1.236 4,476 72
Mexican Peso (MXP/USD) ...... 13.065 11,115 4 13.960 33,409 110
Total fair value of
instruments in USD ..... $160 $540
(1) In thousands of local currency
(2) In thousands of USD
Cash and cash equivalents are presented at fair value on our balance sheet. We invest our excess cash in
accordance with our investment policy. At December 31, 2009 and 2008 our cash was invested primarily in high-
grade U.S. government obligations and money market funds.
We experience interest rate risk and impairment risk only on our long-term investment in auction rate securities,
as we have no long-term borrowings. Due to the financial market collapse that commenced in the fourth quarter
of 2007, the fair value of our remaining ARS investment has declined by $8.3 million from its original par value
of $12.0 million. We evaluate this investment on a quarterly basis and will continue to recognize impairment
losses in the statements of operations, if and when they occur.
41