LeapFrog 2003 Annual Report Download - page 39

International. Our International segment’s income from operations increased by $18.7 million, or 243%,
from $7.7 million in 2002 to $26.4 million in 2003. As a percentage of net sales, income from operations
increased from 14.4% in 2002 to 27.4% in 2003. The operating income increase was largely due to strong sales
growth, primarily in the United Kingdom and Canada, increased gross profit margins, and operating expense
leverage. Foreign currency exchange rates favorably impacted our International segment’s operating income by
9.6% in 2003. The favorable currency impact was due to the strengthening of the Canadian Dollar and the British
Pound, and to a lesser extent, the Euro.
Other
Net interest income (expense) increased by $1.3 million, from an expense of $0.1 million in 2002 to income
of $1.2 million in 2003. This increase resulted from our higher balance of invested average cash and short-term
investment balances and the elimination of our debt in July 2002.
Other income increased by $3.6 million, or 343%, from $1.1 million in 2002 to $4.7 million in 2003. This
increase was primarily due to foreign exchange gains resulting from the strengthening of the Canadian Dollar and
the British Pound, and the one-time payment received from Benesse Corporation. The payment received from
Benesse Corporation was in connection with the early cancellation of a Quantum Pad sales contract related to a
discontinued direct-to-home program from Benesse’s middle school subscribers. In 2004, the impact of foreign
currencies on our income statement is expected to be minimal as we have put in place a foreign currency hedging
policy to minimize the impact of adverse currency movements on reported foreign currency gains or losses.
Our effective tax rate was 37.0% in 2003 and was 39.9% in 2002. The 2003 effective tax rate was impacted
by the research and development tax credits accumulated from current and prior years. We anticipate that our
effective tax rate for 2004 will be approximately 34.0%.
Net Income
Net income increased by $29.3 million, or 67%, from $43.4 million in 2002 to $72.7 million in 2003 due to
the above-described factors. As a percentage of net sales, net income increased from 8.2% in 2002 to 10.7% in
2003.
Twelve Months Ended December 31, 2002 Compared To Twelve Months Ended December 31, 2001
Net Sales
Net sales increased by $217.6 million, or 69%, from $314.2 million in 2001 to $531.8 million in 2002. Our
U.S. Consumer segment’s net sales increased $168.9 million, or 58%, from $289.1 million in 2001 to $458.0
million in 2002. Our Education and Training segment’s net sales increased by $11.3 million, or 129%, from $8.8
million in 2001 to $20.1 million in 2002. Our International segment’s net sales increased by $37.3 million, or
228%, from $16.3 million in 2001 to $53.6 million in 2002.
Net sales for each segment and its percentage of total company net sales were as follows:
Year Ended December 31,
2002 2001 Change
Segment $(1)
%of
Total
Company
Sales $(1)
%of
Total
Company
Sales $(1) %
U.S. Consumer .................... $458.0 86% $289.1 92% $168.9 58%
Education and Training ............. 20.1 4% 8.8 3% 11.3 129%
International ...................... 53.6 10% 16.3 5% 37.3 228%
Total Company .................. $531.8 100% $314.2 100% $217.6 69%
(1) In millions.
33
PART II