LeapFrog 2006 Annual Report Download - page 56

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We estimate that our capital expenditures for 2007 will be similar to prior years. In 2006 and 2005, capital
expenditures were $20.1 million and $16.7 million, respectively. The capital expenditures will be primarily for
new products and purchases related to the upgrading of our information technology capabilities.
Operating activities
Net cash provided by operating activities was $90.4 million in 2006. In 2005, net cash used in operating
activities was $24.7 million and $0.1 million was provided by operating activities in 2004. The $115.1 million
increase in net cash provided by operating activities from 2005 to 2006 was primarily due to reduced inventory
levels and improved accounts receivable collection.
Working Capital—Major Components
Accounts receivable
Gross accounts receivable decreased to $142.6 million at December 31, 2006 from $259.1 million at
December 31, 2005. Allowances for doubtful accounts decreased to $0.8 million at December 31, 2006 from $1.3
million at December 31, 2005. As a percentage of gross accounts receivable, allowances for doubtful accounts
increased to 0.6% at December 31, 2006 from 0.5% at December 31, 2005. The increase in the allowance for
doubtful accounts percentage was primarily due to the reduction of sales and in customer claims caused by
improved logistics and operational procedures in our U.S. Consumer segment. Our days-sales outstanding, or
DSO, at December 31, 2006 was 70.7 days compared to 93.3 days at December 31, 2005. The decrease in
accounts receivable was driven by lower sales and earlier cash collections.
Inventories
Inventories, net of allowances, were $73.0 million at December 31, 2006 and $169.1 million at
December 31, 2005. Inventory decreased by $96.1 million, or 56% from December 31, 2005 to December 30,
2006. The decline in our inventory compared to 2005 is primarily caused by our continuing effort to reduce the
levels of inventory. In addition, excess and obsolete allowance increased by $9.9 million to reflect our
expectations about future sales decline of existing products as well as products that will be replaced or
discontinued resulting from our updated strategic direction. We have implemented strategies to better forecast
and control our inventories.
Inventories consisted of the following:
December 31,
2006(1) 2005(1) Change(1)
Raw materials ............................................ $ 6.7 $ 32.0 $(25.3)
Work in process ........................................... 8.1 11.2 (3.1)
Finished goods ............................................ 92.3 150.6 (58.3)
Allowances .............................................. (34.1) (24.7) (9.4)
Inventories, net ........................................... $73.0 $169.1 $(96.1)
(1) In millions.
Raw materials reduced by $25.2 million reflecting the full implementation of our turnkey arrangements,
which allows our engineering resources to focus on product design and manufacturability while our contract
manufacturers manage the supply of raw materials.
Deferred income taxes
We recorded gross domestic current deferred tax assets of $15.1 million at December 31, 2006 and $16.6
million at December 31, 2005. The year-over-year decrease in our gross current deferred income tax asset was
49