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LEAPFROG ENTERPRISES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
instruments in active markets, quoted prices for identical or similar instruments in markets with
insufficient volume or infrequent transactions (less-active markets), or model-driven valuations in
which significant inputs are observable or can be derived principally from, or corroborated by,
observable market data, including market interest rate curves, referenced credit spreads and
prepayment rates.
The Company’s Level 2 assets and liabilities consist of outstanding foreign exchange forward
contracts used to hedge its exposure to certain foreign currencies, including the British Pound,
Canadian Dollar, Euro, and Mexican Peso. The Company’s outstanding foreign exchange forward
contracts, all with maturities of approximately one month, had notional values of $53,577 and
$21,299 at December 31, 2012 and 2011, respectively. The fair market values of these instruments,
based on quoted prices, as of the same periods were $(255) and $40, on a net basis, respectively.
The fair value of these contracts was recorded in accrued liabilities for December 31, 2012 and in
prepaid expenses and other current assets for December 31, 2011.
• Level 3 includes financial instruments for which fair value is derived from valuation techniques,
including pricing models and discounted cash flow models, in which one or more significant inputs,
including the Company’s own assumptions, are unobservable.
The Company did not hold any Level 3 assets as of December 31, 2012. As of December 31, 2011,
the Company’s Level 3 assets consisted of investments in auction rate securities (‘‘ARS’’), for which
the Company engaged a third-party valuation firm to assist in the estimation of the fair value using a
discounted cash flow approach.
The following table presents the Company’s fair value hierarchy for assets and liabilities measured at fair
value on a recurring basis as of December 31, 2012 and 2011:
Estimated Fair Value Measurements
Carrying
Value
Quoted
Prices in
Active
Markets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
December 31, 2012:
Financial Assets:
Money market funds ................. $85,003 $85,003 $ — $ —
Financial Liabilities:
Forward currency contracts ............. $ (255) $ — $ (255) $ —
December 31, 2011:
Financial Assets:
Money market funds ................. $45,000 $45,000 $ — $ —
Forward currency contracts ............. 40 — 40 —
Long-term investments ................ 2,681 — — 2,681
Total financial assets ............... $47,721 $45,000 $ 40 $ 2,681
During the year ended December 31, 2012, the Company divested its remaining ARS investments for $2,500,
resulting in a loss of $181 recorded in other income (expense) in the consolidated statement of operations
during the period then ended. The Company also transferred the temporary gain related to ARS valuation of
$241, previously recorded as other comprehensive income in stockholders’ equity, to other income (expense)
in the consolidated statement of operations. In addition, the Company transferred the associated income tax of
$151, previously recorded as other comprehensive loss in stockholders’ equity, to the provision for income
taxes in the consolidated statement of operations.
48