LeapFrog 2003 Annual Report Download - page 36

•Higher warehousing fees were incurred due to increased sales volume and average inventory levels
compared to last year.
•Higher freight expenses were due to increased ocean freight rates and due to air freight costs incurred to
expedite delivery of our new platforms, particularly the Leapster platform, from Asia in time for the
holiday shopping season.
•Higher royalty expenses were incurred due to increased sales from our expanded library of licensed
products for our existing and new platforms.
Education and Training. Our Education and Training segment’s gross profit increased by $12.4 million, or
121%, from $10.3 million in 2002 to $22.7 million in 2003. Gross profit as a percentage of net sales increased
from 51.1% in 2002 to 60.5% in 2003. The 940 basis points increase in gross profit percent year-over-year was
primarily due to lower product cost and favorable product mix, offset by higher warehousing due to higher
inventory levels, and content amortization expenses.
International. Our International segment’s gross profit increased by $28.0 million, or 120%, from $23.4
million in 2002 to $51.4 million in 2003. Gross profit as a percentage of net sales increased from 43.6% in 2002
to 53.2% in 2003. The 960 basis points increase in gross profit percent year-over-year was primarily due to lower
product cost, offset by higher royalty, warehousing and freight expenses. Foreign exchange gains favorably
impacted our International segment’s gross profit by 8.3% in 2003.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased by $10.7 million, or 13%, from $80.9 million in 2002
to $91.6 million in 2003. As a percentage of net sales, selling, general and administrative expenses decreased
from 15.2% in 2002 to 13.5% in 2003. All three of our 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 $4.3 million or 7%
from 2002 to 2003. As a percentage of net sales, this expense decreased from 13.1% in 2002 to 11.8% in 2003.
The dollar increase was primarily due to higher salaries and benefit expenses, offset by lower litigation and
incentive compensation expenses as follows:
•Salaries and related employee benefits were higher than last year by $11.8 million, primarily due to the
emphasis on building internal sales and marketing teams and infrastructure to support our worldwide
expansion.
•Litigation expenses decreased by $9.4 million compared to last year primarily due to the settlement in
the first half of 2003 of a number of outstanding legal proceedings that had been active throughout most
or all of 2002.
•Incentive compensation expense decreased by $2.7 million compared to last year as a result of reduced
bonuses.
Selling, general and administrative expenses for our Education and Training segment increased by $3.2
million or 24% from 2002 to 2003. As a percentage of net sales, this expense decreased from 65.3% in 2002 to
43.6% in 2002. The dollar increase in these expenses was primarily due to higher salaries and sales commissions
expenses resulting from our substantial investment in our own direct sales force, offset by lower direct marketing
and consulting expenses.
Selling, general and administrative expenses for our International segment increased $3.2 million or 42%
from 2002 to 2003. As a percentage of net sales, this expense decreased from 14.4% in 2002 to 11.3% in 2003.
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