LeapFrog 2012 Annual Report Download - page 62

LEAPFROG ENTERPRISES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
However, an additional $14,309, $14,306 and $14,382, respectively, of domestic tax benefit would impact the
Company’s effective rate if recognized, provided the valuation allowance currently established against the
Company’s domestic deferred tax assets were to reverse in full.
The Company recognizes interest and penalties related to uncertain tax positions in income tax expense.
Income tax expense for the years ended December 31, 2012, 2011 and 2010 included interest and penalties of
$276, $446 and $285, respectively. As of December 31, 2012 and 2011, the Company had approximately $625
and $2,373, respectively, of accrued interest and penalties related to uncertain tax positions.
The Company is subject to examination for tax years 2000 and forward. The Company believes it is
reasonably possible that the total amount of unrecognized tax benefits could decrease by up to $296,
excluding potential interest and penalties, related to its foreign operations over the course of the next
twelve months due to expiring statutes of limitations, which 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 state and foreign jurisdictions. The
Company has substantially concluded all U.S. federal and state income tax matters through 1999.
The state of California has notified the Company of a pending examination related to its research and
development credits claimed for the tax years 2002 and 2003; however, the Company has not been notified
when the audit will commence. In 2011, the Company was notified by the tax authority in Mexico of an
income tax audit for the 2009 tax year. Also in 2011, the Government of Ontario, Canada notified the
Company of an income tax examination for the 2007 and 2008 tax years. Both of these foreign audits
concluded in 2012 with no material effect. In 2012, the Company was notified by the tax authority in Mexico
of an income tax audit for the 2010 tax year. The outcome of this foreign audit is not yet determinable.
With respect to the 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.
11. Borrowings under Credit Agreements
On August 13, 2009, the Company, certain financial institutions and Bank of America, N.A., entered into an
amended and restated loan and security agreement for an up-to-$75,000 asset-based revolving credit facility
(the ‘‘revolving credit facility’’). The Company has granted a security interest in substantially all of its assets
to the lenders as security for its obligations under the revolving credit facility. Provided there is no default
under the revolving credit facility, the Company may elect, without the consent of any of the lenders, to
increase the size of the revolving credit facility up to an aggregate of $150,000.
The borrowing availability varies according to the levels of the Company’s accounts receivable and cash and
investment securities deposited in secured accounts with the 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 revolving
credit facility. The interest rate is, at the Company’s election, Bank of America, N.A.’s prime rate (or base
rate) or a LIBOR rate defined in the revolving credit facility, 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.
On May 1, 2012, the Company entered into an amendment to the revolving credit facility that, among other
things: (i) reduced the lenders’ commitment under the revolving credit facility to $50,000 during the seasonal
period of January through August of each year, (ii) extended the maturity date from August 13, 2013 to
May 1, 2017, (iii) lowered the borrowing availability levels at lower applicable interest rate margins,
(iv) reduced the applicable interest rate margins to a range of 1.50% to 2.00% above the applicable LIBOR
rate for LIBOR rate loans, depending on the Company’s borrowing availability, (v) reduced the ratio of
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