LeapFrog 2002 Annual Report Download - page 40

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Advertising Expense
Advertising expense increased by $26.6 million, or 88%, from $30.1 million in 2001 to $56.7 million in
2002. As a percentage of net sales, advertising expense increased from 9.6% in 2001 to 10.7% in 2002.
Advertising expense 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 ................................................. $50.6 11.0% $29.1 10.1%
Education and Training .......................................... 0.2 1.2% 0.1 1.6%
International ................................................... 5.9 11.0% 0.9 5.4%
TotalCompany................................................. $56.7 10.7% $30.1 9.6%
(1) In millions.
Our U.S. Consumer accounted for 81% of the increase in the advertising expense, primarily related to
increases in television advertising and cooperative advertising with our major retailers. The increase in television
advertising expense was due to a substantial increase in media time used in an effort to promote our expanded
product line and strengthen our brand awareness. Cooperative advertising agreements with our major retailers
were expanded in 2002 to increase our advertising exposure to their large customer bases. The increase in our
International segment is related primarily to our television and print advertising spending in the United Kingdom,
which increased 295% from 2001 to 2002.
We expect advertising expenses to remain relatively flat, as a percentage of net sales, in 2003.
Depreciation and Amortization Expenses (excluding depreciation of tooling and other manufacturing
equipment, which is included in cost of sales)
Depreciation and amortization expenses increased by $4.4 million, or 106%, from $4.2 million in 2001, to
$8.6 million in 2002. As a percentage of net sales, depreciation and amortization expense increased from 1.3% in
2001 to 1.6% in 2002. Depreciation and amortization expense 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 ................................................... $7.3 1.6% $4.2 1.4%
Education and Training ............................................ 1.3 6.5% 0.0 0.0%
International ..................................................... 0.1 0.1% 0.0 0.2%
TotalCompany................................................... $8.6 1.6% $4.2 1.3%
(1) In millions.
Our U.S. Consumer segment increased by $3.1 million or 74% and our Education and Training segment
increased by $1.3 million or 100%. The increase in the depreciation and amortization expense is primarily due to
having a full year of amortization for our capitalized website and content development costs. 85% of the
depreciation and amortization expenses in 2002 have been related to our U.S. Consumer segment, the remaining
15% have been related primarily to the amortization of content development for our Education and Training
segment.
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