LeapFrog 2002 Annual Report Download - page 25

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our LeapPad platform for introduction in 2003 under Mattel’s Fisher-Price brand. In June 2002, Toshiba
Corporation began selling an interactive educational platform product in Japan under the name “Ex-Pad”. We
also compete with educational software publishers, such as Knowledge Adventure (a studio of Vivendi Universal
Games), whose products have distribution at mass retailers and electronics and toy stores. We believe that
producers of popular game platforms and smart mobile devices, such as personal digital assistants, and software
may be able to compete effectively in our primary markets by developing engaging educational products that run
on their platforms. These companies have significantly larger installed bases than we do. We are also beginning
to cross over into their markets with products such as our iQuest handheld device and our Leapster platform,
which we plan to introduce by the end of 2003. In addition, a number of major hardware and software makers
have developed pen-based portable computers like the Tablet PC that could compete with some of our products,
such as our LeapPad and Quantum Pad platforms. Consequently, future competitors may include companies like
Acer Inc., Apple Computer, Inc., Fujitsu Limited, Handspring, Inc., Hewlett-Packard Company, Microsoft
Corporation, NEC Corporation, Nintendo Co., Ltd., Palm, Inc., Sega Corporation, Sony Corporation and
Toshiba. Many of our direct, indirect and potential competitors have significantly longer operating histories,
greater brand recognition and substantially greater financial, technical and marketing resources than we do.
Our SchoolHouse division competes in the supplemental educational materials market. We believe the
principal competitive factors affecting the market for our products in the school market are educational
soundness, proven effectiveness, brand, features and price. Our SchoolHouse division faces competition in the
supplemental curriculum market from major textbook publishers such as Harcourt (a division of Reed Elsevier),
Houghton Mifflin Company, McGraw-Hill, Pearson plc and Scholastic Corporation, as well as electronic
educational material and service providers such as Knowledge Adventure, Lightspan, Inc., Renaissance Learning
and Riverdeep Group plc. Our test preparation products may compete on a national level with offerings from
established companies such as Kaplan, Inc., Sylvan Learning Centers and The Princeton Review, some of which
currently license content to us. We also face competition from many local and regional companies that provide
test preparation and test performance assessment to students. Many of the companies with whom we compete
have significantly more experience in the supplemental educational materials market and greater resources than
we do.
In the future, large entertainment companies such as Viacom International, Inc. and Walt Disney Co. may
begin to target the school markets. For a discussion of the possible effects that competition could have on our
business, see “ Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk
Factors That May Affect Our Results and Stock Price — If we are unable to compete effectively with existing or
new competitors, our net sales and market share could decline.”
Seasonality
Our business is subject to significant seasonal fluctuations. For more information, see “Seasonality and
Quarterly Results of Operations” and “Risk Factors That May Affect Our Results and Stock Price — Our
business is seasonal, and therefore our annual operating results will depend, in large part, on sales relating to the
brief holiday season” in Item 7 of this Form 10-K.
Employees
As of December 31, 2002, we had 690 full-time employees, including: 110 in sales and sales support, 61 in
hardware and software engineering; 262 in product development, Internet and content production; 116 in
manufacturing, logistics and operations; 57 in marketing; and 84 in finance, general and administrative. Of these
employees, 500 worked in our Emeryville, California headquarters; 64 worked at our Los Gatos, California
office; 14 worked in our U.K. office; 62 worked in Hong Kong and China; 15 worked in our Education and
Training segment’s sales office in Austin, Texas; 8 worked in our office near Chicago; and 27 worked in satellite
sales offices, out of their homes or on site at third-party locations. We intend to hire additional employees as
needed at each of our facilities. We also retain independent contractors to provide various services, primarily in
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