LeapFrog 2008 Annual Report Download - page 45

However, our 2008 quarterly cash flows did not fully conform to our historical pattern due to the following
factors. Net sales fell on a year-over-year basis from 2005 through 2007. This resulted in a decline in cash
collected from accounts receivable from year to year for the three-year period, negatively impacting cash flows
in the first quarter of each subsequent year. In 2008, this net sales-related cash flow decline was partially offset
during the fourth quarter as we tightened our cash management practices in response to the economic crisis,
resulting in an increase in accounts payable of approximately $10 million at the end of 2008 as compared to the
end of 2007. Thus, cash flow provided by operations was higher in the fourth quarter of 2008 than in the first
quarter. As described elsewhere in this Form 10-K, decreased sales in the fourth quarter of 2008 and potential
retailer liquidity issues may reduce or delay collections of cash in the first quarter of 2009, which could mean
that cash flow provided by operations in the fourth quarter of 2008 could exceed cash flow provided by
operations in the first quarter of 2009.
Line of Credit and Borrowing Availability
In November 2005, we entered into a $75 million asset-based revolving credit facility with Bank of
America. In May 2008 we, certain banks, financial institutions and other institutional lenders and Bank of
America entered into an amendment to the original credit facility agreement, increasing the maximum borrowing
availability on the credit line from $75 million to $100 million. We granted security interests in substantially all
of our assets as collateral for the loans under the credit facility agreement, as amended. The borrowing
availability varies according to the levels of our eligible accounts receivable, eligible inventory and cash and
investment securities deposited in secured accounts with the administrative agent or other lenders. Availability
under this agreement was $28.2 million as of December 31, 2008. The termination date of the agreement and the
maturity date for any outstanding loans under the facility is November 8, 2010. Among other customary
covenants, the credit facility contains a fixed charge coverage ratio covenant. We are required to maintain a ratio
of EBITDA to fixed charges, as defined in the agreement, of at least 1.0 to 1.0 when the covenant is required to
be tested. The ratio is measured only if certain borrowing-availability thresholds are not met. We expect that we
will meet or exceed these borrowing-availability thresholds and be in compliance with all related requirements in
2009. The agreement also contains customary events of default and prohibits the payment of cash dividends on
our common stock. If an event of default occurs, the lenders may terminate their commitments, declare all
borrowings under the credit facility as due immediately, and foreclose on the collateral. As of December 31,
2008 we were in compliance with all covenants under this agreement. Bank of America is committed to lend up
to 75% of the total borrowing and Wachovia Capital Finance Corporation is committed to lend the remaining
25%.
The interest rate for our revolving credit facility is, at our election, the Bank of America prime rate (or base
rate) or a LIBOR rate defined in the credit agreement, plus in each case an applicable margin. The applicable
margin for a loan depends on the average monthly usage and type of loan. We had no borrowings outstanding
under this agreement at December 31, 2008.
During the fourth quarter of 2008, we borrowed a total of $30.0 million on the line and repaid $30.0 million
during the same quarter from cash provided by operations.
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