LeapFrog 2011 Annual Report Download - page 43

Seasonal Patterns of Cash Provided By (Used in) Operations
The table below shows our seasonal patterns of cash flow provided by (used in) operations by quarter for the
fiscal years ended December 31, 2011, 2010 and 2009.
2011 2010 2009
(Dollars in millions)
1st quarter ............................................ $64.6 $ 34.5 $ 10.1
2nd quarter ........................................... (16.6) (27.2) (20.6)
3rd quarter............................................ (27.4) (30.3) (39.8)
4th quarter............................................ 49.6 0.4 45.3
Total, net for fiscal year ................................ $70.2 $(22.6) $ (5.0)
With the exception of 2009, our cash flow from operations is generally highest in the first quarter of each year
when we collect a majority of our accounts receivable booked in the fourth quarter of the prior year. In 2009,
quarterly cash flows did not conform to this general pattern as a result of our tightened cash management
practices in response to the global economic crisis, leading to higher accounts payable balances. Thus, cash
flow provided by operations was higher in the fourth quarter of 2009 than in the first quarter of 2010.
Cash flow used in operations tends to be highest in our third quarter, as collections from prior accounts
receivables taper off and we invest heavily in inventory in preparation for the fourth quarter holiday season.
Historically, cash flow generally turns positive again in the fourth quarter as we begin to collect on the
accounts receivables associated with the holiday season. Based on the shift in ordering patterns by retailers
beginning in 2009, which resulted in orders being placed significantly later in the year, cash flows from
operations in the fourth quarter of 2010 were significantly lower than has historically been the case in the
fourth quarter of our fiscal year. As a result, cash flows from operations in the first quarter of 2011 were
higher than in previous years.
These seasonal patterns may vary depending upon general economic conditions and other factors.
Line of Credit and Borrowing Availability
On August 13, 2009, we entered into an amended and restated loan and security agreement for a $75.0 million
asset-based revolving credit facility with Bank of America, N.A. and certain other financial institutions. We
have granted a security interest in substantially all of our assets to the lenders as security for our obligations
under the revolving credit facility. Provided there is no default under the revolving credit facility, we may
elect, without the consent of any of the lenders, to increase the size of the revolving credit facility up to an
aggregate of $150.0 million.
The borrowing availability varies according to the levels of our accounts receivable and cash and investment
securities deposited in secured accounts with the lenders. Subject to the level of this borrowing base, we may
make and repay borrowings from time to time until the maturity of the facility. The interest rate is, at our
election, Bank of America, N.A.’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 daily
availability for the most recent fiscal quarter and the type of loan. Borrowing availability under the revolving
credit facility was $75.0 million as of December 31, 2011.
The revolving credit facility contains customary events of default, including for: payment failures; failure to
comply with covenants; failure to satisfy other obligations under the revolving credit facility or related
documents; defaults in respect of other indebtedness; bankruptcy, insolvency and inability to pay debts when
due; change-in-control provisions; and the invalidity of guaranty or security agreements. If any event of
default occurs, the lenders may terminate their respective commitments, declare immediately due all
borrowings under the revolving credit facility and foreclose on the collateral. A cross-default provision applies
if a default occurs on other indebtedness in excess of $5.0 million and the applicable grace period in respect
of the indebtedness has expired, such that the lender of, or trustee for, the defaulted indebtedness has the right
to accelerate. We are also required to maintain a ratio of Earnings Before Interest, Taxes, Depreciation and
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