LeapFrog 2004 Annual Report Download - page 97

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LEAPFROG ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share and percent data)
Company may not have sufficient inventory to meet retail demand, which could adversely impact the Company’s
relations with its customers.
Off-Shore Manufacturing
Since the Company does not have its own manufacturing facilities, it is dependent on close working
relationships with its contract manufacturers for the supply and quality of its products and the computer chips
contained in these products. The Company expects to continue to use a limited number of contract manufacturers
and fabricators, most of which are located in China, and, accordingly, will continue to be highly dependent upon
sources outside the Company for timely production. Given the highly seasonal nature of the Company’s business,
any unusual delays or quality control problems could have a material adverse effect on the Company’s operating
results and financial condition. The Company’s top three vendors supplied a total of 42%, 48% and 58% of the
Company’s products in 2004, 2003 and 2002 respectively; Jetta Company Limited, located in China, supplied
24%, 32% and 45%, respectively.
Customer Concentration
A limited number of customers historically have accounted for a substantial portion of the Company’s net
sales. The significant customers and the relative percentage of net sales for these customers are approximately as
follows:
Year ended
December 31,
2004 2003 2002
Wal-Mart ........................................................ 28% 31% 30%
Toys “R” Us ...................................................... 23% 25% 28%
Target ........................................................... 13% 12% 11%
Kmart ........................................................... 3% 4% 6%
Total ........................................................ 67% 72% 75%
Wal-Mart, Toys “R” Us and Target accounted for 30%, 32% and 14%, respectively, of gross accounts
receivable at December 31, 2004. At December 31, 2003, Wal-Mart, Toys “R” Us and Target accounted for 38%,
29% and 13%, respectively, of gross accounts receivable.
14. Income Taxes
Income (loss) before taxes includes the following components:
Year ended
December 31,
2004 2003 2002
Pre-tax income (loss):
United States .......................................... $(13,514) $110,586 $64,189
Foreign .............................................. 1,057 4,709 8,084
Total ............................................ $(12,457) $115,295 $72,273
F-18