LeapFrog 2012 Annual Report Download - page 29

Download and view the complete annual report

Please find page 29 of the 2012 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.

Page out of 153

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150
  • 151
  • 152
  • 153

RESULTS OF OPERATIONS
SUMMARY OF CONSOLIDATED RESULTS FOR FISCAL YEARS ENDED DECEMBER 31, 2012,
2011 and 2010
2012 2011 2010
%Change
2012 vs. 2011
%Change
2011 vs. 2010
(Dollars in millions, except per share data)
Net sales .................. $581.3 $455.1 $432.6 28% 5%
Cost of sales ................ 336.3 269.0 253.6 25% 6%
Gross margin* ............... 42.1% 40.9% 41.4% 1.2** (0.5)**
Operating expenses ........... 180.9 162.5 171.2 11% (5)%
Income from operations ........ 64.1 23.7 7.8 170% 204%
Net income per share − basic ..... $ 1.29 $ 0.30 $ 0.08 330% 275%
Net income per share − diluted .... $ 1.24 $ 0.30 $ 0.08 313% 275%
* Gross profit as a percentage of net sales
** Percentage point change in gross margin
Fiscal Year 2012 Compared to Fiscal Year 2011
Net sales for 2012 increased 28% compared to 2011. The increase was largely driven by continued strong
demand for LeapPad which was available for the full year in 2012, the launch of the LeapPad2 in
August 2012, and strong content sales, partially offset by lower sales due to product transitions and aging
product lines. In addition, trade allowances and discounts were proportionally lower in the current year. Net
sales for 2012 also included the impact of lower-level and higher-quality beginning retail-channel inventories
as compared to 2011, which generally increased retailer demand for our products in the first half of 2012. Net
sales for 2012 were not materially affected by foreign currency exchange rates.
Cost of sales for 2012 increased 25% compared to 2011. The increase was primarily driven by higher sales
volume, higher product costs associated with sales mix, higher royalty costs resulting from an increase in
licensed content sold, and a full year of content distributed through our App Center which was launched in
August 2011. In addition, an increase in product transitions resulted in higher inventory allowances.
Gross margin for 2012 increased 1.2 percentage points over 2011, primarily driven by proportionally lower
trade allowances and discounts and higher sales, which reduced the impact of fixed logistics costs, partially
offset by changes in product mix with proportionally higher sales of lower-margin hardware.
Operating expenses for 2012 increased 11% compared to 2011, primarily driven by higher employee
compensation expenses associated with increased headcount, greater achievement against overall company
performance targets set as a part of our employee bonus programs, as well as bad debt expense of
$3.1 million related to an isolated customer bankruptcy. Operating expenses as a percentage of net sales
declined by 5 percentage points to 31%.
Income from operations for 2012 improved 170% as compared to 2011, due to the increase in net sales,
improved gross margin, and better leveraging of higher operating expenses.
Our basic and diluted net income per share for 2012 improved by $0.99 and $0.94, respectively, compared to
2011. Our 2012 results included a net tax benefit of $20.3 million due to adjustments to our deferred tax asset
valuation allowances. In addition, tax benefits of $6.4 million and $2.9 million associated with the recognition
of previously unrecognized tax benefits due to the expiration of statutes of limitations were recognized in
2012 and 2011, respectively. These items accounted for $0.40 and $0.38 of our 2012 basic and diluted net
income per share, respectively, and $0.04 of our 2011 basic and diluted net income per share.
21