LeapFrog 2009 Annual Report Download - page 44

Future capital expenditures are planned to be primarily for new product development and purchases related to the
upgrading of our information technology capabilities. We expect that capital expenditures in 2010, including
those for capitalized content and website development costs, will be funded with cash flows generated by
operations and will remain lower than in prior years. Capital expenditures were $14.3 million, $23.4 million and
$26.6 million in 2009, 2008 and 2007, respectively.
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 2010 strategies for capital expenditures will be focused on driving sales of our
learn-to-read and educational gaming market platforms, introducing additional connected products, expanding
our content library, establishing parents’ familiarity with the Learning Path and expanding our online play
components. 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 credit facility, depend on our future operating
performance and cash flows, which in turn are subject to prevailing economic conditions, including the limited
availability of capital in light of the current economic downturn, and to financial, business and other factors,
some of which are beyond our control.
Changes in Cash Flows
The table below shows our sources and uses of cash for the three fiscal years ended December 31, 2009, 2008
and 2007.
2009 2008 2007
% Change
2009 vs.
2008
% Change
2008 vs.
2007
(Dollars in millions)
Cash flows provided by (used in):
Operating activities ............................... $ (5.0) $ 12.0 $(15.4) -142% 178%
Investing activities ............................... (13.3) (23.4) 41.0 43% -157%
Financing activities ............................... (0.2) (0.2) 1.9 0% -111%
Effect of exchange rate fluctuations on cash ............ 1.0 (2.8) (1.3) 136% -115%
Increase (decrease) in cash and cash
equivalents ............................... $(17.5) $(14.4) $ 26.2 -22% -155%
Fiscal Year 2009 Compared to Fiscal Year 2008
Net cash flow from operations in 2009 declined by $17 million from 2008 as a result of a higher proportion of net
sales in the fourth quarter of 2009, and the relative timing of sales within the fourth quarter. Net sales in the
fourth quarter of 2009 increased 37% over the same period of 2008, with a significant portion of the sales
occurring later in the quarter compared to the same period of 2008. While net inventory declined by $29.0
million as a result of the stronger 2009 fourth quarter sales and effective production management, net accounts
receivable increased by $57.5 million. Given that a majority of the sales occurred later in the quarter, a larger
proportion of 2009 sales were not due until 2010 as compared to sales at the end of 2008.
Net cash flow used in investing activities decreased by $10 million in 2009 driven by reductions in capital
expenditures, principally property and equipment and capitalized content, as well as proceeds received from the
sale of part of our investment in ARS.
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 $34.1 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
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