LeapFrog 2002 Annual Report Download - page 59

retain, hire, train and integrate qualified employees and contractors, we will not be able to maintain and expand
our business. Several members of our senior management have been with us for less than one year and any
failure to integrate them into our business or to manage our expansion effectively could harm our business.
Changes in economic conditions, which can result in reduced demand for our products or higher prices for
necessary commodities, could harm our business and operating results.
Recent weak economic conditions in the United States and elsewhere have adversely affected consumer
confidence and consumer sales generally. In addition, the September 11, 2001 terrorist attacks significantly and
negatively affected general economic conditions. Any future attacks and the responses to such attacks or other
significant events could further impact the economy. Further weakening of the economy could damage our sales
in our U.S. Consumer and other segments. Other changes in general economic conditions, such as greater
demand or higher prices for plastic, electronic components, liquid crystal displays and fuel, may delay
manufacture of our products, increase our costs or otherwise harm our margins and operating results.
Earthquakes or other events outside of our control may damage our facilities or the facilities of third
parties on which we depend.
Our two primary U.S. distribution centers and our corporate headquarters are located in California near
major earthquake faults that have experienced earthquakes in the past. An earthquake or other natural disasters
could disrupt our operations. Additionally, the loss of electric power, such as the temporary loss of power caused
by power shortages in the grid servicing our facilities in California, could disrupt operations or impair critical
systems. Any of these disruptions or other events outside of our control could impair our distribution of products,
damage inventory, interrupt critical functions or otherwise affect our business negatively, harming our operating
results. Our existing earthquake insurance relating to our distribution center may be insufficient and does not
cover any of our other operations. If the facilities of our third party finished goods or component manufacturers
are affected by earthquakes, power shortages, floods, monsoons, terrorism or other events outside of our control,
our business could suffer.
We are subject to international, federal, state and local laws and regulations that could impose additional
costs on the conduct of our business.
In addition to being subject to regulation by the CPSC and similar state regulatory authorities, we must also
comply with other laws and regulations. The Children’s Online Privacy Protection Act, as implemented, requires
us to obtain verifiable, informed parental consent before we collect, use or disclose personal information from
children under the age of 13. Additionally, the Robinson-Patman Act requires us to offer non-discriminatory
pricing to similarly situated customers and to offer any promotional allowances and services to competing
retailers and distributors within their respective classes of trade on proportionally equal terms. Our SchoolHouse
division is affected by a number of laws and regulations regarding education and government funding. We are
subject to other various laws, including international and U.S. immigration laws, wage and hour laws and laws
regarding the classification of workers. Compliance with these and other laws and regulations impose additional
costs on the conduct of our business, and failure to comply with these and other laws and regulations or changes
in these and other laws and regulations may impose additional costs on the conduct of our business.
Knowledge Universe, L.L.C., which is jointly controlled by Lawrence J. Ellison, Michael R. Milken and
Lowell J. Milken, controls all stockholder voting power as well as our board of directors.
Holders of our Class A common stock will not be able to affect the outcome of any stockholder vote. Our
Class A common stock entitles its holders to one vote per share, and our Class B common stock entitles its
holders to ten votes per share on all matters submitted to a vote of our stockholders. As of March 11, 2003,
Knowledge Universe and its affiliates beneficially owned 31,636,962 shares of our Class B common stock,
which represents approximately 87% of the combined voting power of our Class A common stock and Class B
common stock.
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