LeapFrog 2003 Annual Report Download - page 35

Education and Training. Our Education and Training segment’s net sales increased by $17.3 million, or
86%, from $20.1 million in 2002 to $37.5 million in 2003. This segment comprised 6% of total company net
sales in 2003 and accounted for 12% of the increase in total company net sales from 2002 to 2003. The segment’s
86% net sales increase year-over-year is attributed to the success and sales growth of our top four selling
products in this segment, the LeapTrack Learning Center, the Literacy Center, the Ready, Set, Leap! program and
the Language First! program. 2003 was the first full year of sales for each of the LeapTrack system, the Ready,
Set, Leap! program and the Language First! program.
International. Our International segment’s net sales increased by $43.0 million, or 80%, from $53.6 million
in 2002 to $96.6 million in 2003. This segment comprised 14% of total company’s net sales in 2003 and
accounted for 29% of the increase in total company net sales from 2002 to 2003. The increase in our
International segment was primarily due to increased sales in the United Kingdom and Canada, and to a lesser
extent sales increases in France and Australia, offset by a decrease in Japan. Sales into the United Kingdom and
Canada accounted for 44% and 38%, respectively, of the segment’s sales increase from 2002 to 2003. The sales
increase in the United Kingdom and Canada was primarily due to larger market penetration resulting from more
localized products. Sales in Japan decreased 42% from 2002 to 2003, primarily due to the cancellation of our
two-year Quantum Pad sales program with Benesse Corporation in the first quarter of 2003, however, we have an
ongoing relationship with Benesse Corporation with focus on our LeapPad platform and its related content.
Foreign currency exchange rates favorably impacted our International segment’s net sales by 8.0% in 2003.
The favorable currency impact was due to the strength of the Canadian Dollar and the British Pound, and to a
lesser extent, the Euro.
Gross Profit
Gross profit increased by $70.1 million, or 26%, from $270.0 million in 2002 to $340.1 million in 2002.
Gross profit as a percentage of net sales decreased from 50.8% in 2002 to 50.0% in 2003. The gross profit in
dollars for each segment and the related percentage of segment net sales were as follows:
Year Ended December 31,
2003 2002 Change
Segment $(1)
%of
Segment’s
Net Sales $(1)
%of
Segment’s
Net Sales $(1) %
U.S. Consumer .................... $266.1 48.7% $236.4 51.6% $29.7 13%
Education and Training ............. 22.7 60.5% 10.3 51.1% 12.4 121%
International ...................... 51.4 53.2% 23.4 43.6% 28.0 120%
Total Company ................... $340.1 50.0% $270.0 50.8% $70.1 26%
(1) In millions.
U.S. Consumer. Our U.S. Consumer segment’s gross profit increased by $29.7 million, or 13%, from $236.4
million in 2002 to $266.1 million in 2003. Gross profit as a percentage of net sales decreased from 51.6% in 2002
to 48.7% in 2003. The 290 basis points decrease in gross profit percent year-over-year was primarily due to
product mix and increased warehousing, freight and royalty expenses as follows:
•Unfavorable product mix was primarily due to sales of the new Leapster platform, which has a lower
gross margin percent than our other platforms. We are seeking to build a large base of installed Leapster
platform users that will lead to sales of higher margin Leapster software. In addition, our other two new
platforms, LeapPad Plus Writing and LittleTouch LeapPad, have lower margins than our existing
mature platforms. Historically, as our platforms mature, gross margins have benefited from engineering
improvements and higher sales volumes.
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PART II