LeapFrog 2013 Annual Report Download - page 37
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Please find page 37 of the 2013 LeapFrog annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.Income from operations for 2012 improved by 98% as compared to 2011, primarily due to significantly
increased net sales, improved gross margin and better leveraging of operating expenses.
LIQUIDITY AND CAPITAL RESOURCES
Financial Condition
Cash and cash equivalents totaled $168.1 million and $120.0 million at December 31, 2013 and 2012,
respectively. The increase in cash balance was primarily due to an increase in cash provided by accounts
receivable collection, partially offset by reduced operating results, higher capital expenditure and a reduction
in the accounts payable and accrued liabilities balances. In line with our investment policy, all cash
equivalents were invested in high-grade short-term money market funds at December 31, 2013.
Cash and cash equivalents held by our foreign subsidiaries totaled $31.4 million and $34.2 million at
December 31, 2013 and 2012, respectively. We consider the undistributed earnings of our foreign subsidiaries
as of December 31, 2013 to be indefinitely reinvested, and accordingly, no U.S. income taxes have been
provided thereon. We do not currently intend to repatriate any foreign earnings to the U.S. However, if we
were to repatriate these amounts to the U.S., any associated tax liability would be fully offset by our domestic
net operating loss or tax credit carryforwards for the foreseeable future.
A recent change in business strategy for distributing product into Mexico will ultimately result in the
liquidation of our Mexican subsidiary as we outsource distribution in Mexico to a third party. At the end of
the liquidation process, we intend to repatriate any residual cash to the U.S. We believe this cash repatriation
will be considered to be a return of capital (and not a repatriation of earnings) and therefore will not result in
a U.S. tax consequence. Accordingly we have not recorded a tax provision for such.
We have an asset-based revolving credit facility (the ‘‘revolving credit facility’’) with a potential borrowing
availability of $75.0 million for the months of September through December and $50.0 million for the
remaining months. The borrowing availability varies according to the levels of our accounts receivable and
cash and investment securities deposited in secured accounts with the lenders. Borrowing availability under
this revolving credit facility was $75.0 million as of December 31, 2013. There were no borrowings
outstanding under the revolving credit facility as of December 31, 2013.
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 for 2014, including
those for capitalized content and website development costs, will be funded with cash flows generated by
operations. Capital expenditures were $32.2 million for 2013, $25.1 million for 2012, and $19.9 million, for
2011. We expect capital expenditures to be in the range of $35 million to $45 million for the year ending
December 31, 2014, as we make significant investments to upgrade our internal business systems and invest in
significant new product launches in 2014. We expect capital expenditures to be lower than this level in future
years.
We believe that cash on hand, cash flow from operations and amounts available under our revolving credit
facility will provide adequate funds for our 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 revolving credit facility, depend on our future
operating performance and cash flows.
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