LeapFrog 2013 Annual Report Download - page 39
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Please find page 39 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.Historically, through 2011, our cash flow from operations has been 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 2013
and 2012, an increase in earlier third and fourth quarter sales to retailers and credit card-based sales through
our App Center in the fourth quarter resulted in higher cash flow from operations in the fourth quarter than in
the first quarter, a deviation from our historical norm that may continue in future years. Cash flow used in
operations tends to be highest in our third quarter, as collections from prior accounts receivable 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 receivable associated
with the holiday season. Earlier demand in 2013 resulted in significantly higher inventory purchases during
the third quarter and higher collections in the fourth quarter.
These seasonal patterns may vary depending upon general economic conditions and other factors.
Line of Credit and Borrowing Availability
On August 13, 2009, we, certain financial institutions and Bank of America, N.A., entered into an amended
and restated loan and security agreement for an up-to-$75.0 million asset-based revolving credit facility. 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 credit 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 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. Borrowing availability under
the revolving credit facility was $75.0 million as of December 31, 2013.
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 Fixed Charge Coverage Ratio, during a trigger period as
defined under the revolving credit facility when certain borrowing availability thresholds are not met.
We did not borrow any amount against the revolving credit facility during 2013 and had no borrowings
outstanding under the revolving credit facility at December 31, 2013.
Contractual Obligations and Commitments
We conduct our corporate operations from leased facilities under operating leases that expire at various dates
through 2017. Generally, these have initial lease periods of three to twelve years and contain provisions for
renewal options of five years at market rates. We account for rent expense on a straight-line basis over the
term of the lease. In addition, we are obligated to pay certain minimum royalties in connection with license
agreements to which it is a party.
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