LeapFrog 2015 Annual Report Download - page 41

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 years ended March 31, 2015, 2014 and 2013:
2015 2014 2013
(Dollars in millions)
Quarter ended June 30 ....................... $(21.1) $ 2.0 $ (4.7)
Quarter ended September 30 ................... (78.6) (95.8) (72.8)
Quarter ended December 31 ................... (5.2) 94.5 79.4
Quarter ended March 31 ...................... 40.3 70.8 75.4
Total ................................. $(64.6) $ 71.5 $ 77.3
Historically, our cash flow from operations has been highest in the quarter ending March 31 of each year
when we collect a majority of our accounts receivable booked in the quarter ending December 31 of the
year. In 2013 and 2014, an increase in earlier sales to retailers during the quarters ended September 30 and
December 31 and credit card-based sales through our App Center in the quarter ended December 31 resulted
in higher cash flow from operations in the quarter ended December 31 than in the quarter ended March 31, a
deviation from our historical norm. Cash flow used in operations tends to be highest in our the quarter ending
September 30, as collections from prior accounts receivable taper off and we invest heavily in inventory in
preparation for the holiday season. Historically, cash flow generally turns positive again in the quarter ending
December 31 as we begin to collect on the accounts receivable associated with the holiday season. However,
this pattern has not continued for the current fiscal year due to later launches of new products as well as the
deterioration of our overall financial performance in the current year as compared to previous years. Due to
the significant reduction in cash generated from operations and increase in inventory levels during the
December quarter in fiscal 2015, we used more cash in operations than was provided. These factors also
reduced our cash provided by operations in the quarter ended March 31, 2015 as compared to 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, 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, with
a term through May 1, 2017. 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 $27.4 million as of March 31, 2015.
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.
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