LeapFrog 2009 Annual Report Download - page 76

LEAPFROG ENTERPRISES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
decrease by up to $226 related to its foreign operations over the course of the next twelve months due to expiring
statutes of limitations. Of this amount, up to $226 could be recognized as a tax benefit and affect the effective tax
rate.
Open and Resolved Tax Matters
The Company files income tax returns in the U.S. federal, various states and foreign jurisdictions. The Company
has substantially concluded all U.S. federal and state income tax matters through 1999. During the quarter ended
June 30, 2008, the Internal Revenue Service (“IRS”) completed its audit of the Company’s research and
development carryback claims for the period of 2001-2003. As a result of the settlement, the Company received a
$5,238 refund from the IRS in July 2008 and recognized $925 of previously unrecognized tax benefit. The total
2008 tax benefit attributable to this refund was $1,918, including interest paid by the IRS.
In 2009, the Mexico taxing authority notified the Company of an income tax audit for the 2007 tax year. The
state of California (“state”) has notified the Company of a pending examination related to its research and
experimentation credits claimed for the tax years 2002 and 2003; however, the Company has not been notified
when the audit will commence. The outcome of the Mexico and state audit are not yet determinable.
With respect to open matters, the outcomes are not yet determinable. However, management does not anticipate
that any adjustments would result in a material change to the Company’s results of operations, financial
conditions or liquidity.
9. Borrowings Under Credit Agreements
On August 13, 2009, the Company, certain financial institutions (“Lenders”) and Bank of America, N.A., as
agent for the Lenders (the “Agent”) entered into an Amended and Restated Loan and Security Agreement for a
$75,000 asset-based revolving credit facility (“Loan Agreement”). The maturity date of the facility is August 13,
2012, at which time any borrowings under the facility must be repaid. The Company may make voluntary
prepayments of borrowings at any time. Provided there is no default under the Loan Agreement and subject to
availability of additional credit, the Company may elect, without the consent of any of the Lenders, to increase
the size of the credit facility under the Loan Agreement up to an aggregate of $150,000. Availability under this
agreement was $75,000 as of December 31, 2009.
This new credit facility supersedes and replaces the Company’s previous $100,000 credit facility dated
November 8, 2005 which would have otherwise expired in November 2010 and was terminated as of August 13,
2009 in connection with signing of the Loan Agreement.
The Loan Agreement includes the following terms, which are substantially similar to those of the Terminated
Agreement:
• The borrowing availability varies according to the levels of the Company’s accounts receivable,
inventory, and cash and investment securities deposited in secured accounts with the Agent or other
Lenders. Subject to the level of this borrowing base, the Company may make and repay borrowings
from time to time until the maturity of the facility.
• The interest rate is, at the Company’s election, the Agent’s prime rate (or base rate) or a LIBOR rate
defined in the Loan Agreement, plus, in each case, an applicable margin. The applicable margin for a
loan depends on the average monthly usage and the type of loan.
• The Loan Agreement contains customary events of default, including payment failures; failure to
comply with covenants; failure to satisfy other obligations under the credit agreements or related
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