LeapFrog 2011 Annual Report Download - page 83

LEAPFROG ENTERPRISES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
Customer Concentration
A limited number of customers historically have accounted for a substantial portion of the Company’s gross
sales. For the last three fiscal years, the Company’s top three customers have been Target, Toys ‘‘R’’ Us and
Wal-Mart. The relative percentage of gross sales to the top three customers to total Company gross sales were
as follows for the three years shown below:
Years Ended December 31,
2011 2010 2009
Gross sales:
Wal-Mart ..................................... 23% 21% 22%
Toys‘‘R’’Us .................................. 18% 20% 19%
Target....................................... 14% 17% 16%
Total ........................................ 55% 58% 57%
Wal-Mart, Target and Toys ‘‘R’’ Us accounted for 38%, 16% and 20% of total Company gross accounts
receivable, respectively at December 31, 2011, as compared to 23%, 21% and 23%, respectively at
December 31, 2010.
19. Commitments and Contingencies
Leases and Royalties
The Company is obligated to pay certain minimum royalties in connection with license agreements to which it
is a party. Royalty expense was $13,874, $18,625 and $15,711 for the three years ended December 31, 2011,
2010 and 2009, respectively.
The Company leases its facilities under operating leases that expire at various dates through 2016. Rent
expense related to facilities for general administration and operations is charged to operating expenses in the
statement of operations and totaled $2,377, $2,480 and $2,497 for the three years ended December 31, 2011,
2010 and 2009, respectively. Rent expense related to warehouse facilities is charged to cost of sales in the
statement of operations and totaled $1,211, $1,856 and $2,694 for the three years ended December 31, 2011,
2010 and 2009, respectively.
Minimum rent commitments under all non-cancelable operating leases and minimum royalty commitments are
set forth in the following table:
Years Ended December 31,
Operating
Leases Royalties Total
2012 .......................................... $ 5,084 $ 881 $ 5,965
2013 .......................................... 4,554 477 5,031
2014 .......................................... 4,561 — 4,561
2015 .......................................... 3,021 — 3,021
2016 .......................................... 735 — 735
Total ........................................ $17,955 $1,358 $19,313
The Company accounts for total rent expense under the leases on a straight-line basis over the lease terms.
The Company had a deferred rent liability relating to rent escalation costs net of tenant incentives for its
Emeryville, California headquarters. In December 2010, the Company early terminated its lease of one of the
remaining three suites in its Emeryville, California headquarters. As a result, the Company reduced its
deferred rent liability by $428 and credited against its rent expenses. At December 31, 2011 and 2010, the
deferred rent liability was $1,843 and $1,571, respectively. Deferred rent is included in long-term liabilities.
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