LeapFrog 2011 Annual Report Download - page 26

Our liquidity may be insufficient to meet the long-term or periodic needs of our business.
Global credit market fluctuations could increase the cost of capital or limit our ability to raise additional
capital should we need it and unforeseen events could stress or exceed our current or future liquidity. In
addition to cash received from the collection of accounts receivable, from time to time, we may fund our
operations and strengthen our liquidity through borrowings under our line of credit. Our line of credit has
numerous financial tests and covenants that affect the amount we can borrow, and includes various events of
default that could impair our ability to access credit under the credit line. In addition, the line of credit
terminates in August 2013 and we cannot be sure whether we will be able to renew it on similar terms or at
all. If we are unable to borrow sufficient funds in a timely manner or at an acceptable cost, we may need to
alter our business practices. For example, we may be required to manufacture at levels that lag rather than
anticipate future order levels, which could limit our ability to sell and ship our products as demand increases,
delaying our ability to benefit from improvements in the retail sales environment.
Our international business may not succeed and subjects us to risks associated with international
operations.
We derived approximately 25%, 20% and 19% of our net sales from markets outside the U.S. during fiscal
years 2011, 2010 and 2009, respectively. Our efforts to increase sales for our products outside the U.S. may
not be successful and may not achieve higher sales or gross margins or contribute to profitability.
Our business is, and will increasingly be, subject to risks associated with conducting business internationally,
including:
• the appeal of our products in international markets;
• difficulties managing and maintaining relationships with vendors, customers, retailers, distributors
and other commercial partners;
• greater difficulty in staffing and managing foreign operations;
• transportation delays and interruptions, including cross-border delays due to customs clearance and
other point of entry restrictions;
• greater difficulty enforcing intellectual property rights and weaker laws protecting such rights;
• compliance with the Foreign Corrupt Practices Act, the UK Bribery Act and similar laws;
• trade protection measures and import or export licensing requirements;
• currency conversion risks and currency fluctuations; and
• limitations, including taxes, on the repatriation of earnings.
Sales to our international customers are transacted primarily in the country’s local currency. If foreign
currency weakens compared to the U.S. dollar, our International segment sales results will suffer. Any
difficulties with our international operations could harm our future sales and operating results.
We are subject to international, federal, state and local laws and regulations that could impose
additional costs or changes on the conduct of our business.
We operate in a highly regulated environment with international, federal, state and local governmental entities
regulating many aspects of our business, including products and the importation of products. Regulations with
which we must comply include accounting standards, taxation requirements (including changes in applicable
income tax rates, new tax laws and revised tax law interpretations), trade restrictions, regulations regarding
financial matters, environmental regulations, privacy, advertising directed toward children, safety and other
administrative and regulatory restrictions. We are also subject to regulation by the United States Consumer
Product Safety Commission and other similar federal, state and international regulatory authorities, some of
which have conflicting standards and requirements. Compliance with the various laws and regulations and
other requirements of regulatory authorities could impose additional costs on the conduct of our business. For
example, if our products were made subject to an involuntary recall or other action by one of the regulatory
authorities with jurisdiction over us, we may have to write off inventory and allow our customers to return
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