LeapFrog 2011 Annual Report Download - page 33

sales made up 46%, 44% and 50% of total net sales for the years, respectively. Conversely, our cash flow
from operations tends to be highest in the first quarter of the year when we collect the majority of our
accounts receivable related to sales made in the fourth quarter of the prior year. Cash flow from operations
generally tends to be lowest in our third quarter, as accounts receivables collections taper off and we build our
inventory levels in preparation for the fourth quarter holiday season. The reduction in cash flow in the third
quarter generally means that our available cash is at its lowest point for the year in the first month of the
fourth quarter.
In 2010, we achieved significant net sales growth and returned to profitability for the first time in several
years due to the successful launch of several new products. However, weaker than expected consumer demand
of our products in the fourth quarter of 2010 resulted in higher end of the year retail inventory levels, which
contributed to a decrease in net sales in the first half of 2011. In the second half of the year, the successful
launch of the LeapPad learning tablet contributed significantly to overall year over year growth in net sales in
2011. However, despite the modest economic recovery, we still face significant risk associated with consumer
spending, especially in light of sustained low levels of consumer confidence.
Total operating expenses decreased 5% in 2011 over 2010, and were down nearly 4 points as a percentage of
net sales. This is the lowest level of annual spend we have achieved since 2001. In 2010 and 2011, we
benefitted from reduced selling, general, and administrative (‘‘SG&A’’) expenses as a result of actions taken in
2009 and 2010. During the fourth quarter of 2010, we terminated several employees in the U.S. and
terminated the lease of a portion of our headquarter facilities in Emeryville, California prior to the end of the
contracted term. As a result, we benefited from a further decline in SG&A expenses in 2011, offset in part by
an increase in compensation expenses due to exceeding the financial performance targets included in our 2011
employee bonus programs. In addition, our advertising expense was well managed, down 12% year over year
given the effectiveness of our social media and direct marketing efforts.
We significantly expanded our profitability in 2011 with income from operations up threefold and net
income up fourfold over the prior year with earnings per share of $0.30, an improvement of $0.22 compared
to 2010. This is the highest income from operations, net income and earnings per share that we have
reported since 2003.
Our 2011 ending cash and equivalents balance was $71.9 million which represents an increase of
$52.4 million compared to a year ago and is the largest year over year increase in our cash balance since
2002. And importantly, operating cash flow was $70.2 million for 2011, an improvement of $92.8 million.
Lastly, we ended the year with both our inventory and retail inventory at more appropriate levels.
We organize, operate and assess our business in two primary operating segments: U.S. and International.
See Note 20 — ‘‘Segment Reporting’’ in our Consolidated Financial Statements included in this Annual Report
on Form 10-K for certain detailed information on our segments and their financial results for the fiscal years
ended December 31, 2011, 2010 and 2009.
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