LeapFrog 2008 Annual Report Download - page 44

Fiscal Year 2008 Compared to Fiscal Year 2007
Net cash flow from operations in 2008 improved over 2007 by $27.4 million. A primary contributor to the
improvement in 2008 over 2007 was the $33.0 million decrease in our net loss from 2007 to 2008. Other
significant operating cash flow changes included: an increase in 2008 of $27.0 million in accounts receivable-
related allowances which included the amounts attributable to the effects of the 2008 financial crisis on our
business, primarily the allowances for bad debts, sales and product returns; a decrease in inventories of $28.9
million in 2008, primarily attributable to increased allowances for potential product returns including those
affected by the 2008 CPSIA safety regulations and a $30.2 million decrease in accrued liabilities and deferred
revenue in 2008 caused by lower accruals for employee bonuses, legal settlement expenses and general
marketing expenses in 2008.
Net cash flow used in investing activities increased by $64.3 million in 2008 as net proceeds from the sales
and purchases of investments declined by $67.6 million, offset by a $3.3 million decline in capital expenditures.
Net cash used by financing activities increased by $2.1 million as proceeds from stock option exercises and
employee stock purchase plans declined significantly due to the deteriorating stock price in 2008 which
depressed stock purchases.
Fiscal Year 2007 Compared to Fiscal Year 2006
Net cash used in operations in 2007 increased $105.8 million due to accrued liabilities, offset by reduced net
losses and reduced inventory levels. Net cash provided by investing activities in 2007 was $41.0 million in 2007
as compared to net cash used in investing activities of $77.5 million in 2006. In 2006, part of the $113.0 million
in cash generated by accounts receivable was invested in short-term investments, including auction rate securities
and commercial paper. During 2007, we liquidated part of our short-term investment portfolio to provide funding
for our 2007 net loss. As of December 31, 2007, due to having liquidated the majority of our short-term
securities, impairment losses incurred on auction rate securities during the fourth quarter of 2007 and the
reclassification of the auction rate securities to long-term investments, we had no short-term investments on the
balance sheet as compared to $80.8 million at the end of 2006.
Net cash provided by financing activities declined by $2.3 million due primarily to a decrease in cash
inflows from employee stock option exercises and reduced purchases of our Class A common stock for the
employee stock purchase plan.
Seasonal Patterns of Cash Provided By or Used in Operations
The table below shows our seasonal patterns of cash flow provided by (used in) operations by quarter for the
fiscal years ended December 31, 2008, 2007 and 2006.
2008 2007 2006
(Dollars in millions)
1st quarter ............................................................ $18.1 $ 49.6 $133.1
2nd quarter ............................................................ (30.7) (37.6) (21.2)
3rd quarter ............................................................ (35.4) (52.4) (40.1)
4th quarter ............................................................ 60.0 25.0 18.6
Total cash provided by (used in) operations ............................ $12.0 $(15.4) $ 90.4
Generally, our cash flow from operations tends to be 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, 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 in the fourth quarter as we start to collect on the current holiday season accounts receivables.
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