LeapFrog 2010 Annual Report Download - page 43

Kingdom. The decline in advertising expense was driven by a reduction in television-based advertising and fewer
new platform launches as compared to 2008. Bad debt expense declined $2.8 million as the worldwide economy
began to stabilize and fewer international retailers encountered liquidity problems or declared bankruptcy
compared to 2008.
Income (loss) from operations improved significantly in 2009 as compared to 2008 as the gross margin
improvement and significant decrease in operating expenses offset the decrease in net sales.
LIQUIDITY AND CAPITAL RESOURCES
Financial Condition
Cash and cash equivalents totaled $19.5 million and $61.6 million at December 31, 2010 and 2009, respectively.
The decrease in cash balance was due to inventory purchasing to support expected sales demand as well as
timelier payments to our suppliers resulting in a significantly lower accounts payable balance. As of
December 31, 2010, we did not have any cash equivalents.
As of December 31, 2010, we held $2.7 million, stated at fair value, in long-term investments in ARS. Due to the
illiquidity of these investments, we have not included and do not intend, for the foreseeable future, to include
them as potential sources of liquidity in our future cash flow projections. Thus, we do not anticipate that future
declines in value, if any, will have an adverse impact on our future ability to support operations and meet our
obligations as they come due.
We have an asset-backed revolving credit facility, which is discussed in more detail below, with a potential
borrowing availability of $75.0 million. There were no borrowings outstanding on this line of credit at
December 31, 2010.
Our accumulated deficit of $182.4 million at December 31, 2010 is not expected to have an impact on our future
ability to operate, given our anticipated cash flows from operations and the availability of our credit facility.
Future capital expenditures are primarily planned for new product development and purchases related to the
upgrading of our information technology capabilities. We expect that capital expenditures in 2011, including
those for capitalized content and website development costs, will be funded with cash flows generated by
operations. Capital expenditures were $22.5 million, including a $5.3 million purchase of intangible assets, $14.6
million, including a $0.2 million purchase of intangible assets, and $23.4 million in 2010, 2009 and 2008,
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 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.
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