LeapFrog 2002 Annual Report Download - page 37

respectively. The increase in net sales from platform products is primarily due to the successful introduction of
the Quantum Pad platform, the growth in our My First LeapPad and iQuest platforms, and to the continued
success in our LeapPad platform. Software net sales in our U.S. Consumer segment increased 126%, from $61.8
million in 2001 to $139.6 million in 2002. Software sales, as a percentage of total U.S. Consumer sales, were
30% and 21% in 2002 and 2001, respectively. The increase in net sales from software products is primarily due
to our LeapPad books, the introduction of Quantum Pad books and the growth in My First LeapPad books and
iQuest cartridges. Net sales of standalone products increased 44%, from $77.4 million in 2001 to $111.3 million
in 2002. Standalone sales, as a percentage of total U.S. Consumer sales, were 24% and 27% in 2002 and 2001,
respectively. The increase in net sales from standalone products is primarily due to the introduction of the
LeapStart learning table and the Pretend and Learn shopping cart.
Our Education and Training segment comprised 4% of total company net sales for the twelve months ended
December 31, 2002 and accounted for 5% of the increase in total company net sales. We believe the year-over-
year 129% increase in net sales for our Education and Training segment was the result of our larger direct sales
force and increased brand offerings and awareness.
Our International segment comprised 10% of total company net sales in 2002 and accounted for 17% of the
increase in total company net sales from 2001 to 2002. The year-over-year increase of 228% was primarily due to
sales into the United Kingdom, Japan and Canada. Sales into the United Kingdom accounted for 33% of the
segment’s increase from 2001 to 2002. This increase is primarily due to strong advertising and marketing
campaigns and larger shelf space in the major toy retailers. Our sales into Japan accounted for 31% of the
segment’s increase in net sales. This increase was primarily the result of our strategic relationships with Benesse
Corporation and Sega Toys that commenced in January 2002. In 2003, we modified our relationship with
Benesse, and as a result, we expect our sales from Benesse to decrease in 2003, and the overall sales from Japan
to be lower for 2003. Our sales into Canada represented 23% of the segment’s increase in net sales. The increase
in net sales into Canada was primarily due to our transition from an outside distributor to an internally controlled
supply and distribution operation. We expect the net sales of our International segment to increase significantly
in 2003 despite lower sales in Japan, due primarily to our direct sales operations in the United Kingdom, Canada
and France.
Gross Profit
Gross profit increased by $127.4 million, or 88%, from $144.6 million for the twelve months ended
December 31, 2001 to $272.0 million for the same period in 2002. Gross profit as a percentage of net sales
increased from 46.0% for the twelve months ended December 31, 2001 to 51.2% for the twelve months ended
December 31, 2002. The gross profit in dollars for each segment and the related percentage of segment net sales
were as follows:
Year Ended December 31,
2002 2001
Segment $(1)
%of
Segment
Net Sales $(1)
%of
Segment
Net Sales
U.S.Consumer ............................................... $237.1 51.8% $133.2 46.1%
Education and Training ........................................ 11.6 57.6% 5.6 63.8%
International ................................................. 23.4 43.6% 5.8 35.4%
TotalCompany............................................... $272.0 51.2% $144.6 46.0%
(1) In millions.
Our U.S. Consumer and International segments experienced significant dollar and percentage increases for
2002 compared to 2001. This improvement was primarily due to lower manufacturing and chip costs and the
relatively larger increase in software sales, which have a significantly higher gross margin percentage.
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