LeapFrog 2015 Annual Report Download - page 77

LEAPFROG ENTERPRISES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
11. Income Taxes − (continued)
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 2004 and 1999,
respectively, and foreign income tax matters through 2007. The state of California has notified the Company
of a pending examination related to its R&D credits claimed for the tax years 2002 and 2003; however, the
Company has not been notified when the audit will commence.
In 2012, the Company was notified by the tax authority in Mexico of an income tax audit for the 2010 tax
year. This audit has concluded without a material effect. In the current year, the Company was notified by the
taxing authority in the United Kingdom of an income tax audit for the 2012 tax year. The Company was also
notified by the French taxing authority of an income tax audit for tax years 2012 and 2013.
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.
12. 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’’), with a term through May 1, 2017. 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
Earnings Before Interest, Taxes, Depreciation and Amortization (‘‘EBITDA’’), to fixed charges (the ‘‘Fixed
Charge Coverage Ratio’’) to 1.0:1.0 from 1.1:1.0 and changed the applicable periods when such ratio is to be
maintained, and (vi) permitted additional dividends, stock repurchases and acquisitions upon compliance with
certain Fixed Charge Coverage Ratio and availability requirements.
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 $5,000 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
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