LeapFrog 2011 Annual Report Download - page 44

Amortization, or EBITDA, to fixed charges, as defined in the revolving credit facility, of at least 1.1 to
1.0 when the covenant is required to be tested. The ratio is measured only if certain borrowing-availability
thresholds are not met.
On January 31, 2011, we entered into an amendment to the revolving credit facility that, among other things:
(i) extends the maturity date to August 13, 2013, (ii) reduces, starting January 1, 2011, the applicable interest
rate margins to a range of 0.50% to 1.00% above the applicable base rate for base rate loans, as compared to
3.00% above the applicable base rate in the original agreement, and 2.25% to 2.75% above the applicable
LIBOR rate for LIBOR rate loans, as compared to 4.00% above the applicable LIBOR rate in the original
agreement, in each case depending on our borrowing availability, and (iii) reduces, starting January 1, 2011,
the unused line fee to 0.375% per year if utilization of the line is greater than or equal to 50%, and to 0.50%
per year if utilization of the line is less than 50%, as compared to 1.00% per year in the original agreement.
During the fourth quarter of 2011, we drew down $35.0 million on the revolving credit facility. This
borrowing was a LIBOR rate loan, with an initial interest rate per annum of 2.5%, provided that, in
accordance with the loan agreement, such rate may adjust on a monthly basis. We repaid the full amount
during the same quarter with cash provided by operations and had no borrowings outstanding under this
agreement at December 31, 2011.
Contractual Obligations and Commitments
We have no off-balance sheet arrangements.
We conduct our corporate operations from leased facilities under operating leases. Generally, these have initial
lease periods of three to twelve years and contain provisions for renewal options of five years at market rates.
We account for rent expense on a straight-line basis over the term of the lease. In addition, we are obligated
to pay certain minimum royalties in connection with license agreements to which it is a party. The following
table summarizes our outstanding contractual obligations at December 31, 2011.
Total
Payments Due In
Less Than
1 Year 1 − 3 Years 3 − 5 Years
More Than
5 Years
(Dollars in millions)
Operating leases .............. $17.9 $5.1 $9.1 $3.7 $ —
Royalty guarantees ............ 1.4 0.9 0.5 — —
Total .................... $19.3 $6.0 $9.6 $3.7 $ —
In addition, at December 31, 2011, we had no outstanding borrowings or letters of credit under our revolving
credit facility with at December 31, 2011, and had $75.0 million of potential availability on the line. In
addition, we had commitments to purchase inventory under normal supply arrangements totaling
approximately $47.6 million at December 31, 2011.
CRITICAL ACCOUNTING POLICIES, JUDGMENTS AND ESTIMATES
Our financial statements and accompanying notes are prepared in accordance with GAAP. Preparing financial
statements requires management to make estimates and assumptions that affect the reported amounts of assets,
liabilities, revenue, and expenses. We believe that certain accounting policies, which we refer to as critical
accounting policies, are particularly important to the portrayal of our financial position and results of
operations and require the use of significant estimates and the application of significant judgment by our
management. On an on-going basis, we evaluate our estimates, particularly those related to our critical
accounting policies.
The following discussion highlights those policies and the underlying estimates and assumptions, which we
consider critical to an understanding of the financial information in this report.
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