0001144204-13-026512.txt : 20130506
0001144204-13-026512.hdr.sgml : 20130506
20130506162154
ACCESSION NUMBER: 0001144204-13-026512
CONFORMED SUBMISSION TYPE: 10-Q
PUBLIC DOCUMENT COUNT: 11
CONFORMED PERIOD OF REPORT: 20130331
FILED AS OF DATE: 20130506
DATE AS OF CHANGE: 20130506
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: LEAPFROG ENTERPRISES INC
CENTRAL INDEX KEY: 0001138951
STANDARD INDUSTRIAL CLASSIFICATION: GAMES, TOYS & CHILDREN'S VEHICLES (NO DOLLS & BICYCLES) [3944]
IRS NUMBER: 954700094
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-Q
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-31396
FILM NUMBER: 13816406
BUSINESS ADDRESS:
STREET 1: 6401 HOLLIS ST
STREET 2: STE 100
CITY: EMERYVILLE
STATE: CA
ZIP: 94608
BUSINESS PHONE: 5104205000
MAIL ADDRESS:
STREET 1: 6401 HOLLIS STREET
STREET 2: SUITE 100
CITY: EMERYVILLE
STATE: CA
ZIP: 94608
10-Q
1
v341890_10q.htm
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
x
QUARTERLY
REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly
period ended March 31, 2013
OR
¨
TRANSITION
REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition
period from
to
Commission File Number: 001-31396
LeapFrog Enterprises, Inc.
(Exact name of registrant as specified in its charter)
DELAWARE
95-4652013
(State or other jurisdiction
of
incorporation or organization)
(I.R.S. Employer
Identification No.)
6401
Hollis Street, Suite 100, Emeryville, California
94608-1463
(Address of
principal executive offices)
(Zip Code)
510-420-5000
(Registrant’s telephone number,
including area code)
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
x No
¨
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
x No
¨
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated
filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
¨
Accelerated filer
x
Non-accelerated filer
¨ (Do not check
if a smaller reporting company)
Smaller reporting company
¨
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨
No x
As of April 30, 2013, 63,730,942 shares of Class A common
stock, par value $0.0001 per share, and 4,395,461 shares of Class B common stock, par value $0.0001 per share, of the registrant
were outstanding.
In the opinion of management, all normal, recurring adjustments
considered necessary for a fair statement of the financial position and interim results of LeapFrog Enterprises, Inc. and its
consolidated subsidiaries (collectively, the “Company” or “LeapFrog” unless the context indicates otherwise)
as of and for the periods presented have been included. The accompanying unaudited consolidated financial statements and related
disclosures have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”)
applicable to interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. The
consolidated financial statements include the accounts of LeapFrog and its wholly-owned subsidiaries. All intercompany accounts
and transactions have been eliminated in consolidation.
The consolidated balance sheet at December 31, 2012 has
been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes
required by U.S. GAAP for complete financial statements. The financial information included herein should be read in conjunction
with the consolidated financial statements and related notes in the Company’s 2012 Annual Report on Form 10-K filed with
the United States (“U.S.”) Securities and Exchange Commission (the “SEC”) on March 11, 2013 (the
“2012 Form 10-K”).
The accounting policies used by the Company in its presentation
of interim financial results are consistent with those presented in Note 2 to the consolidated financial statements included in
the Company’s 2012 Form 10-K.
Due to the seasonality of the Company’s business, the
results of operations for interim periods are not necessarily indicative of the operating results for a full year.
Certain amounts in the financial statements for prior periods
have been reclassified to conform to the current year presentation.
Accumulated other comprehensive income consists solely of currency
translation adjustments.
2.
Fair Values of Financial Instruments and Investments
Fair value is defined by authoritative guidance as the exit
price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants as of the measurement date. The guidance establishes a hierarchy for inputs used in measuring fair value that
maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs
be used when available. Observable inputs are inputs that market participants would use in valuing the asset or liability and
are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect
the Company’s assumptions about the factors market participants would use in valuing the asset or liability. The guidance
establishes three levels of inputs that may be used to measure fair value:
·
Level
1 includes financial
instruments for which
quoted market prices
for identical instruments
are available in active
markets. As of March
31, 2013, the Company’s
Level 1 assets consist
of money market funds
with original maturities
of three months or less
and recorded in cash
and cash equivalents.
These assets are considered
highly liquid and are
stated at cost, which
approximates market
value.
·
Level
2 includes financial
instruments for which
there are inputs other
than quoted prices included
within Level 1 that
are observable for the
instrument. Such inputs
could be quoted prices
for similar 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 $22,921, $53,577 and $15,719 at March 31, 2013, December 31,
2012 and March 31, 2012, respectively. The fair market values of these instruments as of the same periods were $(27), $(255) and
$(126), respectively. The fair value of these contracts was recorded in accrued liabilities as of March 31, 2013, December 31,
2012 and March 31, 2012.
·
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
March 31, 2013 and December 31, 2012. During the three months ended March 31, 2012, the Company divested its remaining auction
rate security (“ARS”) investments, and therefore did not hold any Level 3 assets as of March 31, 2012.
The following table presents the Company’s fair value
hierarchy for assets and liabilities measured at fair value on a recurring basis as of March 31, 2013, December 31,
2012 and March 31, 2012:
Estimated Fair Value Measurements
Carrying Value
Quoted Prices in
Active Markets (Level 1)
Significant Other
Observable Inputs (Level 2)
Significant Unobservable
Inputs (Level 3)
March 31, 2013:
Financial Assets:
Money market funds
$
150,006
$
150,006
$
-
$
-
Financial Liabilities:
Forward currency contracts
$
(27
)
$
-
$
(27
)
$
-
December 31, 2012:
Financial Assets:
Money market funds
$
85,003
$
85,003
$
-
$
-
Financial Liabilities:
Forward currency contracts
$
(255
)
$
-
$
(255
)
$
-
March 31, 2012:
Financial Assets:
Money market funds and certificates of deposit
$
103,023
$
103,023
$
-
$
-
Financial Liabilities:
Forward currency contracts
$
(126
)
$
-
$
(126
)
$
-
During the three months ended March 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 during the three months ended March 31, 2012. 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 during the same quarter. The proceeds of $2,500 were recorded to other current assets
as of March 31, 2012, and received by the Company in early April 2012.
Inventories consisted of the following as of March 31, 2013
and 2012, and December 31, 2012:
March 31,
December 31,
2013
2012
2012
Raw materials
$
4,348
$
3,252
$
1,243
Finished goods
40,801
35,616
39,068
Total
$
45,149
$
38,868
$
40,311
4.
Other Intangible Assets
The Company’s other intangible assets were as follows
as of March 31, 2013 and 2012, and December 31, 2012:
March 31,
December 31,
2013
2012
2012
Intellectual property, license agreements and other intangibles
$
16,755
$
16,755
$
16,755
Less: accumulated amortization
(16,255
)
(14,005
)
(15,805
)
Total
$
500
$
2,750
$
950
5.
Income Taxes
The Company’s (benefit from) provision for income taxes
and effective tax rates were as follows:
Three Months Ended March
31,
2013
2012
(Benefit from) provision for income taxes
$
(2,024
)
$
335
Loss before income taxes
(5,035
)
(9,122
)
Effective tax rate
40.2
%
(3.7
)%
During the fourth quarter of 2012, after considering the relative
impact of all evidence, positive and negative, the Company determined, at the required more-likely-than-not level of certainty,
that a portion of its domestic deferred tax assets will be realized. Accordingly, the Company’s effective tax rate and income
tax benefit for the three months ended March 31, 2013 included a benefit attributable to its domestic operating loss. In addition,
the Company recognized previously unrecognized tax benefits due to the expiration of statutes of limitations in one of its foreign
jurisdictions. The effective tax rate and tax provision for the three months ended March 31, 2012 included a non-cash valuation
allowance recorded against the Company’s domestic deferred tax assets; therefore, no federal or state tax benefits were
recorded on its domestic operating loss. The tax provision for the 2012 period was primarily attributable to certain discrete
tax items including amortization of goodwill for tax purposes and an accrual for potential interest and penalties on certain tax
positions, offset by tax benefits from the Company’s foreign operations.
The balance of gross unrecognized tax benefits was reduced
by $207 in the current quarter as a result of lapse in statutes of limitations. The Company believes it is reasonably possible
that the total amount of unrecognized income tax benefit in the future could decrease by up to $203, excluding potential interest
and penalties, related to its foreign operations over the course of the next twelve months ending March 31, 2014 due to expiring
statutes of limitations that, if recognized, would affect its effective tax rate. The Company recognizes interest and penalties
related to uncertain tax positions in income tax expense. The tax benefit for the three months ended March 31, 2013 included a
release of interest and penalties of $57. As of March 31, 2013 and 2012, and December 31, 2012, the Company had approximately
$597, $2,475 and $625, respectively, of accrued interest and penalties related to uncertain tax positions. The recognition of
previously unrecognized tax benefits and the release of associated accrued interest and penalties reduced other long-term tax
liabilities.
The Company maintains a valuation allowance of $70,385 against
its deferred tax assets related to various net operating loss carryforwards, tax credits, and loss carryforwards that are capital
in nature. The Company will continue to evaluate the need for a valuation allowance in future periods. As of March 31, 2013, the
Company had long-term deferred tax liabilities of $3,759 and other long-term tax liabilities of $1,045. Both are reported as long-term
liabilities on the consolidated balance sheet.
LeapFrog sponsors a defined contribution plan under Section 401(k)
of the Internal Revenue Code. The 401(k) plan allows employees to defer up to 100% of their eligible compensation, not to exceed
the Internal Revenue Service (the “IRS”) maximum contribution limit. The Company provides a matching opportunity of
100% of eligible contributions up to a maximum of $3.5 per year per employee, which vests over three years. For the three months
ended March 31, 2013 and 2012, the Company recorded total compensation expense of $934 and $707, respectively, related to the
defined contribution plan.
7.
Stock-Based Compensation
The Company currently has outstanding two types of stock-based
compensation awards to its employees and directors: stock options and restricted stock units (“RSUs”). Both stock
options and RSUs can be used to acquire shares of the Company’s Class A common stock, are exercisable or convertible,
as applicable, over a period not to exceed ten years, and are most commonly assigned four-year vesting periods. The Company also
has an employee stock purchase plan (“ESPP”).
Stock plan activity
The table below summarizes award activity for the three months
ended March 31, 2013:
Stock
Total
Options
RSUs
Awards
Outstanding at December 31, 2012
6,148
1,251
7,399
Grants
780
336
1,116
Stock option exercises/vesting RSUs
(257
)
(88
)
(345
)
Retired or forfeited
(18
)
(9
)
(27
)
Outstanding at March 31, 2013
6,653
1,490
8,143
Total shares available for future grant at March 31, 2013
8,294
As of March 31, 2013, the total shares available for future
grant under the ESPP were 1,052.
Impact of stock-based compensation
The table below summarizes stock-based compensation expense
for the three months ended March 31, 2013 and 2012:
Stock-based compensation expense related to stock options is
calculated based on the fair value of each award on the grant date. In general, the fair value for stock option grants with only
a service condition is estimated using the Black-Scholes option pricing model with the following weighted-average assumptions
for the three months ended March 31, 2013 and 2012:
Three Months Ended March 31,
2013
2012
Expected term (years)
4.55
4.49
Volatility
73.1
%
74.3
%
Risk-free interest rate
0.72
%
0.87
%
Expected dividend yield
-
%
-
%
RSUs are payable in shares of the Company’s Class A
common stock. The fair value of these stock-based awards is equal to the closing market price of the Company’s common stock
on the date of grant. The grant-date fair value is recognized on a straight-line basis in compensation expense over the vesting
period of these stock-based awards, which is generally four years.
Stock-based compensation expense related to the ESPP is estimated
using the Black-Scholes option pricing model with the following assumptions for the three months ended March 31, 2013 and 2012:
Three Months Ended March 31,
2013
2012
Expected term (years)
0.5
0.5
Volatility
49.9% - 57.5
%
44.1% - 59.8
%
Risk-free interest rate
0.12% - 0.14
%
0.05% - 0.13
%
Expected dividend yield
- %
-
%
8.
Derivative Financial Instruments
At March 31, 2013, December 31, 2012 and March 31,
2012, the Company had outstanding foreign exchange forward contracts with notional values of $22,921, $53,577 and $15,719, respectively.
The gains and losses on these instruments are recorded in other income (expense) in the consolidated statements of operations.
Gains and losses from foreign exchange forward contracts, net of gains and losses on the underlying transactions denominated in
foreign currency, for the three months ended March 31, 2013 and 2012 are shown in the table below:
Three Months Ended March 31,
2013
2012
Gains (losses) on foreign exchange forward contracts
$
1,472
$
(538
)
(Losses) gains on underlying transactions denominated in foreign currency
(1,857
)
90
Net losses
$
(385
)
$
(448
)
9.
Net Loss per Share
Options to purchase shares of common stock and RSUs totaling
7,428 and 6,088 were excluded from the calculation of diluted net loss per share for the three months ended March 31, 2013 and
2012, respectively, as the effect would have been antidilutive.
10.
Segment Reporting
The Company’s business is organized, operated and assessed
in two geographic segments: U.S. and International.
The Company attributes sales to non-U.S. countries on the basis
of sales billed by each of its foreign subsidiaries to its customers. Additionally, the Company attributes sales to non-U.S. countries
if the product is shipped from Asia or one of its leased warehouses in the U.S. to a distributor in a foreign country. The Company
charges all of its indirect operating expenses and general corporate overhead to the U.S. segment and does not allocate any of
these expenses to the International segment.
The primary business of the two operating segments is as follows:
·
The
U.S. segment is responsible
for the development,
design, sales and marketing
of the Company’s
multimedia learning
platforms, related content
and learning toys, which
are sold primarily through
retailers, distributors,
and directly to consumers
via the leapfrog.com
online store and the
LeapFrog App Center
(“App Center”)
in the U.S.
·
The
International segment
is responsible for the
localization, sales
and marketing of multimedia
learning platforms,
related content and
learning toys, originally
developed for the U.S.,
sold primarily through
retailers, distributors
and the App Center outside
of the U.S.
The table below shows certain information by segment for the
three months ended March 31, 2013 and 2012:
Three Months Ended March 31,
2013
2012
Net sales:
United States
$
58,097
$
52,218
International
24,840
19,792
Totals
$
82,937
$
72,010
(Loss) income from operations:
United States
$
(9,251
)
$
(11,701
)
International
4,700
3,153
Totals
$
(4,551
)
$
(8,548
)
For the three months ended March 31, 2013, no countries other
than the U.S. accounted for more than 10% of the Company’s consolidated net sales. For the three months ended March 31,
2012, the U.S. and the United Kingdom individually accounted for more than 10% of the Company’s consolidated net sales.
11.
Commitments and Contingencies
From time to time, the Company is subject to legal proceedings
and claims in the ordinary course of business, including claims of alleged infringement of patents and other intellectual property
rights, claims related to breach of contract, employment matters and a variety of other claims. Unsettled matters are in various
stages of litigation and their outcome is currently not determinable. However, in the opinion of management, based on current
knowledge, none of the pending legal proceedings or claims is likely to have a material adverse effect on the Company’s
financial position, results of operations or cash flows. Regardless of the outcome, litigation can have an adverse impact on the
Company because of defense costs, diversion of management resources and other factors. In addition, although management considers
the likelihood of such an outcome to be remote, if one or more of these legal matters were resolved against the Company in a particular
reporting period for amounts in excess of management’s expectations, the Company’s consolidated financial statements
of the same reporting period could be materially adversely affected.
In addition, as of March 31, 2013, the Company had outstanding
off-balance sheet commitments for outsourced manufacturing and component purchases of $8,230.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-looking Statements
This Quarterly Report on Form 10-Q contains forward-looking
statements about management’s expectations, including, without limitation, our expectations regarding the effect of our
net operating loss or tax credit carryforwards on any tax liability associated with the repatriation of cash held by our foreign
subsidiaries, the anticipated impact of our accumulated deficit, the funding, nature and amount of future capital expenditures,
the future funding of our working capital needs, the timing, seasonality and expectations of cash flows from operations, as well
as any statements regarding our existing and future products, our anticipated results of operations and other measures of financial
performance, our strategic priorities, our future marketing efforts, our future research and development, and other anticipatory
matters. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts.
In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “expect,”
“intend,” “plan,” “anticipate,” “believe,” “future,” “potential,”
or the negative of these terms or other comparable terminology. Our actual results, levels of activity, performance, achievements
or the timing of events may differ materially from those expressed or implied by such forward-looking statements. The risks that
could cause our results to differ include, without limitation, deterioration of global economic conditions, our ability to correctly
predict highly changeable consumer preferences and product trends, our ability to continue to develop new products and services,
our reliance on a small group of retailers for the majority of our gross sales, our ability to compete effectively with competitors,
the seasonality of our business, our growing focus on online products and services and privacy concerns about our Internet-connected
products, system failures in our online services or web store, our dependence on our suppliers for our components and raw materials,
our reliance on a limited number of manufacturers, our ability to maintain sufficient inventory levels, our ability to maintain
or acquire licenses, third parties who claim we are infringing on their intellectual property rights, errors or defects in our
products, the sufficiency of our liquidity, the risk associated with international operations, continued compliance and associated
costs with and/or changes in laws and regulations, negative political developments, natural disasters, armed hostilities, terrorism,
labor strikes or public health issues, the loss of members of our executive management team, continued ownership by a few stockholders
of significant voting power in us, and the volatility of our stock price. Although we believe that the expectations reflected
in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, achievements
or the timing of any events. We make these statements as of the date of this Quarterly Report on Form 10-Q and undertake no obligation
to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise
after the date of this report, except as required by law.
The following management’s discussion and analysis of
financial condition and results of operations (“MD&A”) is intended to help the reader understand the results of
operations and financial condition of LeapFrog Enterprises, Inc. (“LeapFrog,” “we,” “us” or
“our”). This MD&A is provided as a supplement to, and should be read in conjunction with, our Consolidated Financial
Statements and the accompanying Notes to the Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report
on Form 10-Q.
Our Business
LeapFrog, founded in 1995 and incorporated in 1997 in the State
of Delaware, is a leading developer and distributor of educational entertainment for children. Our product portfolio consists
of multimedia learning platforms and related content and learning toys. We have developed a number of learning platforms, including
the LeapPad family of learning tablets, the Leapster family of handheld learning game systems and the Tag and Tag Junior reading
systems, all of which support a broad library of content titles. We have created hundreds of interactive content titles for our
platforms, covering subjects such as phonics, reading, writing and math. In addition, we have a broad line of stand-alone learning
toys. Many of our products connect to our proprietary online LeapFrog Learning Path, which provides personalized feedback on a
child’s learning progress and offers product recommendations to enhance each child’s learning experience. Our products
are available in four languages and are sold globally through retailers, distributors and directly to consumers via the leapfrog.com
online store and LeapFrog App Center.
Due to the seasonality of our business, our results of operations
for interim periods are not necessarily indicative of the operating results for a full year.
Net sales for the three months ended March 31, 2013 increased
15% as compared to the same period in 2012, largely driven by the launch of the LeapPad2 in August 2012, which led to increased
sales of tablets, higher digital content sales, and the Easter holiday occurring in the current period, partially offset by higher
trade allowances and discounts resulting from an increase in claims related to higher sales in the fourth quarter of the prior
year. Net sales for the three months ended March 31, 2013 were not materially affected by foreign currency exchange rates.
Cost of sales for the three months ended March 31, 2013 increased
17% as compared to the same period in 2012, primarily driven by higher sales volume and higher royalty costs resulting from an
increase in sales of licensed content distributed through our App Center.
Consolidated gross margin for the three months ended March
31, 2013 was 40.2%, a decrease of 1.1 percentage points as compared to the same period of 2012, primarily driven by higher trade
allowances and discounts, partially offset by higher sales volume which reduced the impact of fixed logistic costs.
Operating expenses for the three months ended March 31, 2013
decreased 1% as compared to the same period of 2012, primarily driven by bad debt expense of $3.1 million in 2012 related to an
isolated customer bankruptcy, partially offset by higher advertising expenses. Operating expenses as a percentage of net sales
declined by 7 percentage points to 46% as higher sales volume reduced the impact of fixed costs.
Loss from operations for the three months ended March 31, 2013
improved 47% as compared to the same period in 2012 due to the increase in net sales, partially offset by lower gross margin.
Basic and diluted net loss per share for the three months ended
March 31, 2013 improved by $0.10 as compared to the same period of 2012. The improvement includes $0.02 due to the recognition
of U.S. tax benefits previously unrecognized due to the valuation allowance.
Operating Expenses
Selling, General and Administrative Expenses
Selling, general and administrative (“SG&A”)
expenses consist primarily of salaries and related employee benefits, including stock-based compensation expense and other
headcount-related expenses associated with executive management, finance, information technology, supply chain, facilities, human
resources, other administrative headcount, legal and other professional fees, indirect selling expenses, systems costs, rent,
office equipment and supplies.
SG&A expenses for the three months ended March 31, 2013
decreased 8% as compared to the same period in 2012, primarily driven by bad debt expense of $3.1 million in 2012 related to an
isolated customer bankruptcy, partially offset by higher employee compensation expenses due to greater headcount.
Research and Development Expenses
Research and development (“R&D”) expenses consist
primarily of salaries, employee benefits, stock-based compensation and other headcount-related expenses associated with content
development, product development, product engineering, third-party development and programming and localization costs to translate
content for international markets. We capitalize external third-party costs related to content development, which are subsequently
amortized into cost of sales in the statements of operations.
Three Months Ended March 31,
% Change 2013 vs.
2013
2012
2012
(Dollars in millions)
R&D expenses
$
9.0
$
8.9
1
%
As a percent of net sales
11
%
12
%
(1
)*
*
Percentage point change
R&D expenses for the three months ended March 31, 2013
remained relatively level, increasing 1% as compared to the same period in 2012.
Advertising Expense
Three Months Ended March 31,
% Change 2013 vs.
2013
2012
2012
(Dollars in millions)
Advertising expenses
$
4.2
$
2.4
72
%
As a percent of net sales
5
%
3
%
2
*
*
Percentage point change
Advertising expense for the three months ended March 31, 2013
increased 72% as compared to the same period in 2012 due to an increase in cooperative print advertising to drive higher retail
sales and the Easter holiday occurring in the current period.
Income Taxes
See Note 5—“Income Taxes” in our Consolidated
Financial Statements included in this Quarterly Report on Form 10-Q.
We organize, operate and assess our business in two primary
operating segments: U.S. and International. This presentation is consistent with how our chief operating decision maker reviews
performance, allocates resources and manages the business.
U.S. Segment
The U.S. segment includes net sales and related expenses directly
associated with selling our products to national and regional mass-market and specialty retailers, other retail stores, distributors,
resellers, and online channels including our online store and App Center. Certain corporate-level operating expenses associated
with sales and marketing, product support, human resources, legal, finance, information technology, corporate development, procurement
activities, R&D, legal settlements and other corporate costs are charged entirely to our U.S. segment.
Three Months Ended March 31,
% Change 2013 vs.
2013
2012
2012
(Dollars in millions)
Net sales
$
58.1
$
52.2
11
%
Cost of sales
35.1
30.9
14
%
Gross margin *
39.6
%
40.8
%
(1.2
)**
Operating expenses
32.2
33.0
(2
)%
Loss from operations
$
(9.3
)
$
(11.7
)
21
%
*
Gross profit as a percentage of net sales
**
Percentage point change in gross margin
Net sales for the three months ended March 31, 2013 increased
11% as compared to the same period in 2012, largely driven by the launch of the LeapPad2 in August 2012, which led to increased
sales of tablets, higher digital content sales, and the Easter holiday occurring in the current period, partially offset by higher
trade allowances and discounts resulting from an increase in claims related to higher sales in the fourth quarter of the prior
year.
Cost of sales for the three months ended March 31, 2013 increased
14% as compared to the same period in 2012, primarily driven by higher sales volume and higher royalty costs resulting from an
increase in sales of content distributed through our App Center.
Gross margin for the three months ended March 31, 2013 declined
1.2 percentage points over the same period of 2012, primarily driven by higher trade allowances and discounts, partially offset
by higher sales volume which reduced the impact of fixed logistic costs.
Operating expenses for the three months ended March 31, 2013
decreased 2% as compared to the same period in 2012, primarily driven by bad debt expense of $3.1 million in 2012 related to an
isolated customer bankruptcy, partially offset by higher employee compensation expenses due to greater headcount and higher advertising
expenses due to an increase in cooperative print advertising to drive higher retail sales and the Easter holiday occurring in
the current period. Operating expenses as a percentage of net sales declined by 8 percentage points to 55% as higher sales volume
reduced the impact of fixed costs.
Loss from operations for the three months ended March 31, 2013
improved 21% as compared to the same period in 2012 due to the increase in net sales, partially offset by lower gross margin.
International Segment
The International segment includes the net sales and related
expenses directly associated with selling our products to national and regional mass-market and specialty retailers and other
outlets through our offices in the United Kingdom, France, Canada and Mexico and through distributors in markets such as Australia,
South Africa and Spain, as well as through our online store. Certain corporate-level operating expenses associated with sales
and marketing, product support, human resources, legal, finance, information technology, corporate development, procurement activities,
research and development, legal settlements and other corporate costs are allocated to our U.S. segment and not allocated to our
International segment.
Net sales for the three months ended March 31, 2013 increased
26% as compared to the same period in 2012, largely driven by the release of a French version of the LeapPad and the launch in
English-language markets of the LeapPad2 in August 2012, which led to increased sales of tablets, and higher content sales, partially
offset by higher trade allowances and discounts. Net sales for the three months ended March 31, 2013 were not materially affected
by currency exchange rates.
Cost of sales for the three months ended March 31, 2013 increased
28% as compared to the same period in 2012, primarily driven by higher sales volume and higher royalty costs resulting from an
increase in sales of content distributed through our App Center.
Gross margin for the three months ended March 31, 2013 declined
1.2 percentage points as compared to the same period of 2012, primarily driven by higher trade allowances and discounts, partially
offset by higher sales volume which reduced the impact of fixed logistic costs.
Operating expenses for the three months ended March 31, 2013
increased 6% as compared to the same period in 2012, primarily driven by higher employee compensation expenses due to greater
headcount. Operating expenses as a percentage of net sales declined by 4 percentage points to 23% as higher sales volume reduced
the impact of fixed costs.
Income from operations for the three months ended March 31,
2013 increased 49% as compared to the same period in 2012, primarily due to the increase in net sales and improved gross margin
percentage.
Liquidity and Capital Resources
Financial Condition
Cash and cash equivalents totaled $189.7 million and $134.8
million at March 31, 2013 and 2012, respectively. The increase in cash and cash equivalents was primarily due to an increase in
cash provided by accounts receivable collection and improved operating loss. Cash and cash equivalents held by our foreign subsidiaries
totaled $25.6 million and $20.6 million at March 31, 2013 and 2012, respectively. We do not currently intend to repatriate any
foreign cash and cash equivalents as we expect it will be used to fund foreign operations. However, if we were to do so, any associated
tax liability would be fully offset by our net operating loss or tax credit carryforwards for the foreseeable future. In line
with our investment policy, all cash equivalents were invested in high-grade short-term money market funds, including Treasury
money market funds, as of March 31, 2013.
We have an asset-based revolving credit facility (the “revolving
credit facility”) with a potential borrowing availability of $75.0 million for the months of September through December
and $50.0 million for the remaining months. The borrowing availability varies according to the levels of our accounts receivable
and cash and investment securities deposited in secured accounts with the lenders. Borrowing availability under this revolving
credit facility was $28.3 million as of March 31, 2013. There were no borrowings outstanding on our revolving credit facility
at March 31, 2013.
Our accumulated deficit of $79.0 million at March 31, 2013
is not expected to have an impact on our future ability to operate, given our anticipated cash flows from operations, strong cash
position and the availability of our revolving credit facility.
Future capital expenditures are primarily planned for new product
development and purchases related to the upgrading of our information technology capabilities. We expect that capital expenditures
for the remainder of 2013, including those for capitalized content and website development costs, will be funded with cash flows
generated by operations. Capital expenditures were $8.7 million for the three months ended March 31, 2013 and $4.6 million for
the same period of 2012. We expect capital expenditures to be in the range of $30.0 million to $35.0 million for the year ending
December 31, 2013.
We believe that cash on hand, cash flow from operations and
amounts available under our revolving credit facility will provide adequate funds for our foreseeable working capital needs and
planned capital expenditures over the next twelve months. Our ability to fund our working capital needs and planned capital expenditures,
as well as our ability to comply with all of the financial covenants of our revolving credit facility, depend on our future operating
performance and cash flows, which in turn are subject to prevailing economic conditions.
Cash Sources and Uses
The table below shows our sources and uses of cash for the
three months ended March 31, 2013 as compared to the same period in 2012:
Three Months Ended March 31,
% Change 2013 vs.
2013
2012
2012
(Dollars in millions)
Cash flows provided by (used in):
Operating activities
$
77.5
$
66.0
17
%
Investing activities
(8.7
)
(4.6
)
(90
)%
Financing activities
1.3
1.0
34
%
Effect of exchange rate fluctuations on cash
(0.4
)
0.5
N/M
Increase in cash and cash equivalents
$
69.7
$
62.9
11
%
Cash flow provided by operations for the three months ended
March 31, 2013 increased $11.5 million as compared to the same period in 2012, primarily due to an increase in cash provided by
accounts receivable collection and improved net loss, partially offset by lower accounts payable.
Net cash used in investing activities for the three months
ended March 31, 2013 increased $4.1 million as compared to the same period of 2012, primarily due to an increase in computer hardware
and software purchases to upgrade our information technology capabilities.
Net cash provided by financing activities for the three months
ended March 31, 2013 increased $0.3 million as compared to the same period of 2012, primarily due to lower payroll taxes related
to a decrease in employee RSUs released.
Seasonal Patterns of Cash Provided By or Used in Operations
Generally, our cash flow provided by operations is highest
in the first quarter of the year when we collect the majority of our accounts receivable booked in the fourth quarter of the prior
year. Cash flow used in operations tends to be highest in our third quarter and early fourth quarter, as collections from prior
accounts receivables taper off and we invest heavily in inventory in preparation for the fourth quarter holiday season. Cash flow
generally turns positive again late in the fourth quarter as we start to collect on the accounts receivables associated with the
holiday season. However, these seasonal patterns may vary depending upon general economic conditions and other factors.
We have had no material changes outside the ordinary course
of our business in our contractual obligations during the three months ended March 31, 2013.
In addition, as of March 31, 2013, we had outstanding off-balance
sheet commitments for outsourced manufacturing and component purchases of $8.2 million.
Critical Accounting Policies
In the ordinary course of business, we make a number of estimates
and assumptions relating to the reporting of results of operations and financial position in the preparation of our consolidated
financial statements in conformity with U.S. generally accepted accounting principles. Actual results could differ significantly
from those estimates under different assumptions and conditions. We included in our 2012 Form 10-K a discussion of our critical
accounting policies that are particularly important to the portrayal of our financial position and results of operations and that
require the use of our management’s most difficult, subjective and complex judgments, often as a result of the need to make
estimates about the effect of matters that are inherently uncertain.
We have made no material changes to any of our critical accounting
policies through March 31, 2013.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
Our market risk disclosures set forth in Item 7A of our
2012 Form 10-K have not changed materially for our quarter ended March 31, 2013.
We develop products in the U.S. 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 U.S. dollars. Sales to our international customers are transacted primarily in the country’s local currency. As a result,
our financial results could 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, but the program, when properly executed, may not always eliminate our exposure to movements
of currency exchange rates. The results of our hedging program for the three months ended March 31, 2013 and 2012 are as follows:
Three Months Ended March 31,
2013
2012
(In thousands)
Gains (losses) on foreign exchange forward contracts
$
1,472
$
(538
)
(Losses) gains on underlying transactions denominated in foreign currency
Our foreign exchange forward contracts generally have original
maturities of one month or less. A summary of all foreign exchange forward contracts outstanding as of March 31, 2013 is as follows:
As of March 31, 2013
Average Forward Exchange Rate
Notional Amount
in Local Currency
Fair Value of Instruments in USD
(1)
(2)
Currencies:
British Pound (GBP/USD)
1.515
10,948
$
(23
)
Euro (Euro/USD)
1.286
1,894
8
Canadian Dollar (USD/CAD)
1.023
3,085
(7
)
Mexican Peso (USD/MXN)
12.312
10,822
(5
)
Total fair value of instruments in USD
$
(27
)
(1)
In thousands of local currency
(2)
In thousands of USD
Cash equivalents are presented at fair value on our consolidated
balance sheet. We invest our excess cash in accordance with our investment policy. As of March 31, 2013 and December 31, 2012,
our excess cash was invested only in high-grade money market funds. As of March 31, 2012, our excess cash was invested only
in high-grade money market funds and certificates of deposit. Any adverse changes in interest rates or securities prices may decrease
the value of our investments and operating results.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We have evaluated the effectiveness of our disclosure controls
and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. This evaluation was performed under
the supervision and with the participation of management, including our Chief Executive Officer (“CEO”) and Chief
Financial Officer (“CFO”). Disclosure controls and procedures are designed to ensure that information required to
be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), such as this Quarterly Report on Form 10-Q, is recorded, processed, summarized and reported, within the time periods
specified in the U.S. SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the
Exchange Act, is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions
regarding required disclosure.
The evaluation of our disclosure controls and procedures included
a review of the controls’ objectives and design, our implementation of the controls and the effect of the controls on the
information generated for use in our reports. In the course of the controls evaluation, we reviewed any identified data errors
and control problems and sought to confirm that appropriate corrective actions, including process improvements, were undertaken.
This type of evaluation is performed on a quarterly basis so that the conclusions of management, including our CEO and CFO, concerning
the effectiveness of the disclosure controls and procedures can be reported in our periodic reports filed with the U.S. SEC on
Forms 10-Q, 10-K, and others as may be required from time to time.
Based upon the evaluation of our disclosure controls and procedures,
our CEO and CFO have concluded that our disclosure controls and procedures were effective as of March 31, 2013.
Inherent Limitations on Effectiveness of Controls
A control system, no matter how well conceived and operated,
can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of inherent limitations
in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company
have been detected. Accordingly, our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance
that the objectives of our disclosure system are met.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial
reporting during the three months ended March 31, 2013 that has materially affected, or is reasonably likely to materially affect,
our internal control over financial reporting.
Refer to Note 11—“Commitments and Contingencies”
in our Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.
ITEM 1A. RISK FACTORS
There have been no material changes to the risk factors disclosed
under Part I, Item 1A. “Risk Factors” in our 2012 Form 10-K.
ITEM 6. EXHIBITS
Incorporated
by Reference
Exhibit Number
Exhibit
Description
Form
File
No.
Original Exhibit Number
Filing Date
Filed Herewith
3.01
Amended and Restated Certificate of Incorporation
S-1/A
333-86898
3.03
7/22/2002
3.02
Amended and Restated Bylaws
8-K
001-31396
3.01
11/20/2012
4.01
Form of Specimen Class A Common Stock Certificate
10-Q
001-31396
4.01
11/3/2011
4.02
Fourth Amended and Restated Stockholders Agreement,
dated as of May 30, 2003, by and among LeapFrog Enterprises, Inc. and the other persons named therein
10-Q
001-31396
4.02
8/12/2003
31.01
Certification of the Chief Executive Officer Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
X
31.02
Certification of the Chief Financial Officer Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
X
32.01
Certification of the Chief Executive Officer and
the Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
X
101
The following materials from the registrant’s
Quarterly Report on Form 10-Q for the quarter ended March 31, 2013, formatted in eXtensible Business Reporting Language (XBRL),
include: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements
of Comprehensive Loss, (iv) the Consolidated Statements of Cash Flows, and (v) Notes to the Consolidated Financial Statements
(furnished herewith)
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
LeapFrog Enterprises, Inc.
(Registrant)
/s/ John Barbour
John Barbour
Chief Executive Officer
(Principal Executive Officer)
Date: May 6, 2013
/s/
Raymond L. Arthur
Raymond L. Arthur
Chief Financial Officer
(Principal Financial Officer)
Date: May 6, 2013
23
EX-31.01
2
v341890_ex31-01.htm
EXHIBIT 31.01
Exhibit 31.01
CERTIFICATION
I, John Barbour, certify that:
1.
I have reviewed this Quarterly Report
on Form 10-Q of LeapFrog Enterprises, Inc.;
2.
Based on my knowledge, this report does
not contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3.
Based on my knowledge, the financial
statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4.
The registrant’s other certifying
officer and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
a)
Designed such disclosure controls
and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b)
Designed such internal control
over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of
the registrant’s disclosure controls and procedures and
presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
d)
Disclosed in this report any change
in the registrant’s internal control over financial reporting
that occurred during the registrant’s most recent fiscal
quarter (the registrant’s fourth fiscal quarter in the case
of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant’s internal control
over financial reporting.
5.
The registrant’s other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee
of the registrant’s board of directors (or persons performing
the equivalent functions):
a)
All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s
ability to record, process, summarize and report financial information;
and
b)
Any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date: May 6,
2013
/s/ John Barbour
John Barbour
Chief Executive Officer
EX-31.02
3
v341890_ex31-02.htm
EXHIBIT 31.02
Exhibit 31.02
CERTIFICATION
I, Raymond L. Arthur, certify that:
1.
I have reviewed this Quarterly Report
on Form 10-Q of LeapFrog Enterprises, Inc.;
2.
Based on my knowledge, this report does
not contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3.
Based on my knowledge, the financial
statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4.
The registrant’s other certifying
officer and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
a.
Designed such disclosure controls
and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b.
Designed such internal control
over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles;
c.
Evaluated the effectiveness of
the registrant’s disclosure controls and procedures and
presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
d.
Disclosed in this report any change
in the registrant’s internal control over financial reporting
that occurred during the registrant’s most recent fiscal
quarter (the registrant’s fourth fiscal quarter in the case
of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant’s internal control
over financial reporting.
5.
The registrant’s other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee
of the registrant’s board of directors (or persons performing
the equivalent functions):
a)
All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s
ability to record, process, summarize and report financial information;
and
b)
Any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date: May 6,
2013
/s/ Raymond L. Arthur
Raymond L. Arthur
Chief Financial Officer
EX-32.01
4
v341890_ex32-01.htm
EXHIBIT 32.01
Exhibit 32.01
Certifications of Chief Executive Officer
and Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350
Pursuant to the requirements set
forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, John Barbour, the Chief Executive Officer of LeapFrog
Enterprises, Inc. (the “Company”), and Raymond L. Arthur, the Chief Financial Officer
of the Company, each hereby certifies as of the date hereof and solely for purposes of Title 18, Chapter 63, Section 1350 of the
United States Code that, to the best of his knowledge:
1.
The
Company’s Quarterly Report
on Form 10-Q for the quarter ended
March 31,
2013, to which this Certification
is attached as Exhibit 32.01 (the
“Quarterly Report”),
fully complies with the requirements
of Section 13(a) or Section 15(d)
of the Exchange Act, as applicable;
and
2.
The information contained in the Quarterly Report fairly presents,
in all material respects, the financial condition of the Company at
the end of the period covered by the Quarterly Report and results of
operations of the Company for the periods covered in the financial
statements in the Quarterly Report.
Dated: May 6, 2013
/s/ John Barbour
/s/ Raymond
L. Arthur
John Barbour
Raymond L. Arthur
Chief Executive Officer
Chief Financial Officer
Note:
This certification accompanies the Quarterly Report pursuant
to 18 U.S.C. Section 1350 and shall not be deemed “filed”
by the Company for purposes of Section 18 of the Exchange Act,
or incorporated by reference into any filing of the Company under
the Exchange Act or the Securities Act of 1933, as amended, whether
made before or after the date hereof and irrespective of any general
incorporation language contained in such filing.
Aggregate notional amount of foreign currency exchange rate derivatives. Notional amount refers to the number of currency units specified in the foreign currency derivative contract.
This element represents the portion of the balance sheet assertion valued at fair value by the entity whether such amount is presented as a separate caption or as a parenthetical disclosure. Additionally, this element may be used in connection with the fair value disclosures required in the footnote disclosures to the financial statements. The element may be used in both the balance sheet and disclosure in the same submission. This item includes currency on hand as well as demand deposits with banks or financial institutions. It also includes other kinds of accounts that have the general characteristics of demand deposits in that the Company may deposit additional funds at any time and also effectively may withdraw funds at any time without prior notice or penalty. Cash equivalents, excluding items classified as marketable securities, include short-term, highly liquid investments that are both readily convertible to known amounts of cash, and so near their maturity that they present minimal risk of changes in value because of changes in interest rates. Generally, only investments with original maturities of three months or less qualify under that definition. Original maturity means original maturity to the entity holding the investment. For example, both a three-month US Treasury bill and a three-year Treasury note purchased three months from maturity qualify as cash equivalents. However, a Treasury note purchased three years ago does not become a cash equivalent when its remaining maturity is three months.
-Name Statement of Financial Accounting Standard (FAS)
-Number 95
-Paragraph 8
-Footnote 2
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-Number 95
-Paragraph 7, 8, 9, 10
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-Number 95
-Paragraph 7
-Footnote 1
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This element represents the portion of the balance sheet assertion valued at fair value by the entity whether such amount is presented as a separate caption or as a parenthetical disclosure. Additionally, this element may be used in connection with the fair value disclosures required in the footnote disclosures to the financial statements. The element may be used in both the balance sheet and disclosure in the same submission. This item represents contracts related to the exchange of different currencies, including foreign currency options, forward (delivery or nondelivery) contracts, and swaps entered into and existing as of the balance sheet date.
The net realized gain (loss) on investments sold during the period, not including gains (losses) on securities separately or otherwise categorized as trading, available-for-sale, or held-to-maturity, which, for cash flow reporting, is a component of proceeds from investing activities.
-Name Statement of Financial Accounting Standard (FAS)
-Number 95
-Paragraph 28
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Aggregate notional amount of foreign currency exchange rate derivatives. Notional amount refers to the number of currency units specified in the foreign currency derivative contract.
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-Number 130
-Paragraph 17
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-Name Statement of Financial Accounting Standard (FAS)
-Number 115
-Paragraph 13
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-Name Statement of Financial Accounting Standard (FAS)
-Number 130
-Paragraph 24
-Subparagraph b
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-Number 130
-Paragraph 25
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The cash inflow associated with the sale and maturity (principal being due) of other investments, prepayment and call (request of early payment) of other investments not otherwise defined in the taxonomy.
-Name Statement of Financial Accounting Standard (FAS)
-Number 95
-Paragraph 15, 16
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.
-Name Statement of Financial Accounting Standard (FAS)
-Number 95
-Paragraph 31
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.
-Name Statement of Financial Accounting Standard (FAS)
-Number 115
-Paragraph 18
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.
The entire disclosure for inventory. This may include, but is not limited to, the basis of stating inventory, the method of determining inventory cost, the major classes of inventory, and the nature of the cost elements included in inventory. If inventory is stated above cost, accrued net losses on firm purchase commitments for inventory and losses resulting from valuing inventory at the lower-of-cost-or-market may also be included. For LIFO inventory, may disclose the amount and basis for determining the excess of replacement or current cost over stated LIFO value and the effects of a LIFO quantities liquidation that impacts net income.
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.