LeapFrog 2003 Annual Report Download - page 17

preliminary forecast of their expected purchases of our products early in the year. While these and subsequent
forecasts are not contractually binding, they provide important feedback that we use in our planning process
throughout the year. We work closely with our key retailers during the year to establish and revise our expected
demand forecasts and plan our production and delivery needs accordingly. Most retailers issue purchase orders to
us, as they need product. Based on these purchase orders, we prepare shipments for delivery through various
methods. We sell to smaller retail stores through a combination of sales representatives and direct salespeople.
Education and Training
Our Education and Training group’s primary customers represent U.S. pre-kindergarten through 8th grade
classrooms as well as teacher supply stores and catalogs through our SchoolHouse division. As of December 31,
2003, using our in-house sales team as well as independent sales representatives, we estimate that we have sold
our Literacy Centers, LeapTrack systems and Ready, Set, Leap! programs, as well as other products into an
estimated 25,000 classrooms. We plan to grow our sales team significantly over the next few years to provide a
more focused sales effort and increase our penetration of the school market.
International
In 2000, we established our U.K. office, located outside London, England, which sells our products directly
to Woolworth’s, Early Learning Centres, Toys “R” Us, Argos and other leading U.K. retailers. Our emerging
success in penetrating the U.K. market is exemplified by the British Association of Toy Retailers choosing our
LeapPad platform as the top preschool toy for each of 2001, 2002 and 2003. Our U.K. office also coordinates
distribution of our U.K.-localized British English products into Australia and New Zealand. We also have
satellite offices in Hong Kong and Macau that help us oversee global manufacturing of our products. In 2002, we
began selling directly to retailers in Canada and in France and in 2003 we began selling directly to retailers in
Mexico.
Prior to the establishment of overseas offices or subsidiaries, we utilize simple distribution arrangements to
sell our products in other non-English speaking countries, using separate distributors for the consumer and school
markets as appropriate. In markets where we do not establish direct sales, we plan on continuing to use these
distribution arrangements. Paralleling our segmentation of the U.S. market between consumer and school
markets, we believe that overseas markets represent similar dual opportunities. Although we plan to develop
most key consumer markets directly, we expect to seek a strategic education partner in key overseas markets
given the costs and challenges associated with developing country-by-country curricula.
We currently have distribution arrangements with distributors in countries such as Spain, Korea, Australia
and New Zealand. In March 2002, Sega Toys began distributing the CoCoPad system, a co-branded, modified
version of our LeapPad platform, and Sega Toys has developed original Japanese-language content for
interactive books used with the CoCoPad system, including books by Berlitz International that help teach
English. Benesse Corporation is assisting us in developing the Japanese supplemental educational materials
market by distributing the CoCoPad system to its preschool through third grade level subscribers. Additionally,
Benesse Corporation has developed original educational content in Japanese and English for interactive books to
be used with the CoCoPad system.
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PART I