LeapFrog 2002 Annual Report Download - page 38

Our Education and Training segment experienced a decrease in gross profit margin in 2002 compared to
2001 primarily due to discounting certain sales to wholesale customers and incentive pricing of new product
offerings to establish an installed base.
We have experienced significant gross profit margin increases for the past four years. We anticipate that our
gross profit margin will increase further as a result of lower manufacturing costs due to higher purchasing
volumes and lower chip costs and the increased mix of higher margin software sales. However, we anticipate the
rate of increase for our gross profit margin to be lower in 2003 compared to prior years.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased by $25.4 million, or 46%, from $55.5 million in 2001
to $80.9 million in 2002. As a percentage of net sales, selling, general and administrative expenses decreased
from 17.7% in 2001 to 15.2% in 2002. Selling, general and administrative expenses 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 ................................................. $60.0 13.1% $44.5 15.4%
Education and Training .......................................... 13.2 65.3% 8.2 93.3%
International ................................................... 7.7 14.4% 2.8 16.9%
TotalCompany................................................. $80.9 15.2% $55.5 17.7%
(1) In millions.
All of our three business segments had reductions in selling, general and administrative expenses as a
percentage of net sales. This was due primarily to leverage achieved against the strong growth in sales in all
segments.
Selling, general and administrative expenses for our U.S. Consumer segment increased $15.5 million or
35% from 2001 to 2002. As a percentage of net sales, this expense decreased from 15.4% in 2001 to 13.1% in
2002. The dollar increase in these expenses was primarily due to an increase in salaries and benefit expenses
associated with a larger employee base and higher legal expense. In 2001, a provision for $6.4 million was
recorded for the write-off of our accounts receivable from Kmart due to their bankruptcy. In 2002, an additional
$0.8 million provision was recorded. Without the effect of the Kmart write-off, selling, general and
administrative expenses for our U.S. Consumer segment, as a percentage of net sales, would have been 12.9%
and 13.2% for 2002 and 2001, respectively.
Selling, general and administrative expenses for our Education and Training segment increased $4.9 million
or 60% from 2001 to 2002. As a percentage of net sales, this expense decreased from 93.3% in 2001 to 65.3% in
2002. The dollar increase in these expenses was primarily due to our substantial investment in our own direct
sales force and marketing programs. We anticipate these expenses will continue to increase, but decline as a
percentage of sales, as we expand our employee base in an effort to increase our business.
Selling, general and administrative expenses for our International segment increased $5.0 million or 180%
from 2001 to 2002. As a percentage of net sales, this expense decreased from 16.9% in 2001 to 14.4% in 2002.
The dollar increase in these expenses was largely related to increased personnel and legal set up costs associated
with our operations in Canada and Europe.
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