LeapFrog 2012 Annual Report Download - page 70

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 years shown below:
Years Ended December 31,
2012 2011 2010
Gross sales:
Wal-Mart .................................... 23% 23% 21%
Toys‘‘R’’Us ................................. 18% 18% 20%
Target ...................................... 13% 14% 17%
Total ..................................... 54% 55% 58%
Wal-Mart, Target and Toys ‘‘R’’ Us accounted for 32%, 13% and 24%, respectively, of total Company net
accounts receivable at December 31, 2012, as compared to 38%, 16% and 20%, respectively, at
December 31, 2011.
19. Commitments and Contingencies
Contractual Obligations and Commitments
The Company is obligated to pay certain minimum royalties in connection with license agreements to which it
is a party. Royalty expense was $19,744, $13,874 and $18,625 for the years ended December 31, 2012, 2011
and 2010, respectively.
The Company leases its facilities under operating leases that expire at various dates through 2017. Generally,
these have initial lease periods of three to twelve years and contain provisions for renewal options of five
years at market rates. Rent expense related to facilities for general administration and operations is charged to
operating expenses in the statement of operations and totaled $2,516, $2,377 and $2,480 for the years ended
December 31, 2012, 2011 and 2010, respectively. Rent expense related to warehouse facilities is charged to
cost of sales in the statement of operations and totaled $1,019, $1,211 and $1,856 for the years ended
December 31, 2012, 2011 and 2010, 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
2013................................... $ 5,439 $5,393 $10,832
2014................................... 5,433 434 5,867
2015................................... 3,548 1,500 5,048
2016................................... 1,068 121 1,189
2017................................... 167 — 167
Total ................................. $15,655 $7,448 $23,103
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, 2012 and 2011, the
deferred rent liability was $1,510 and $1,843, respectively. Deferred rent is included in accrued liabilities and
other long-term liabilities.
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