LeapFrog 2003 Annual Report Download - page 41

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Gross Profit
Gross profit increased by $125.4 million, or 87%, from $144.6 million for the twelve months ended
December 31, 2001 to $270.0 million for the same period in 2002. Gross profit as a percentage of net sales
increased from 46.0% for the twelve months ended December 31, 2001 to 50.8% for the twelve months ended
December 31, 2002. The gross profit in dollars for each segment and the related percentage of segment net sales
were as follows:
Year Ended December 31,
2002 2001 Change
Segment $(1)
%of
Segment’s
Net Sales $(1)
%of
Segment’s
Net Sales $(1) %
U.S. Consumer ................... $236.4 51.6% $133.2 46.1% $103.2 77%
Education and Training ............ 10.3 51.1% 5.6 63.8% 4.7 84%
International ..................... 23.4 43.6% 5.8 35.4% 17.6 303%
Total Company .................. $270.0 50.8% $144.6 46.0% $125.4 87%
(1) In millions.
Our U.S. Consumer and International segments experienced significant dollar and percentage increases for
2002 compared to 2001. This improvement was primarily due to lower manufacturing and chip costs and the
relatively larger increase in software sales, which have a significantly higher gross margin percentage.
Our Education and Training segment experienced a decrease in gross profit margin in 2002 compared to
2001 primarily due to discounting certain sales to wholesale customers and incentive pricing of new product
offerings to establish an installed base.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased by $25.4 million, or 46%, from $55.5 million in 2001
to $80.9 million in 2002. As a percentage of net sales, selling, general and administrative expenses decreased
from 17.7% in 2001 to 15.2% in 2002.
All of our three 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 $15.5 million or
35% from 2001 to 2002. As a percentage of net sales, this expense decreased from 15.4% in 2001 to 13.1% in
2002. The dollar increase in these expenses was primarily due to an increase in salaries and benefit expenses
associated with a larger employee base and higher legal expense. In 2001, a provision for $6.4 million was
recorded for the write-off of our accounts receivable from Kmart due to their bankruptcy. In 2002, an additional
$0.8 million provision was recorded. Without the effect of the Kmart write-off, selling, general and
administrative expenses for our U.S. Consumer segment, as a percentage of net sales, would have been 12.9%
and 13.2% for 2002 and 2001, respectively.
Selling, general and administrative expenses for our Education and Training segment increased $4.9 million
or 60% from 2001 to 2002. As a percentage of net sales, this expense decreased from 93.3% in 2001 to 65.3% in
2002. The dollar increase in these expenses was primarily due to our substantial investment in our own direct
sales force and marketing programs.
35
PART II