LeapFrog 2005 Annual Report Download - page 15

accounted for approximately 35%, 24% and 21% of net sales in our U.S. Consumer segment in 2005 and 37%,
30% and 20% in 2004, respectively. Our remaining U.S. Consumer retail sales come from sales of our products
to other mass marketers, club stores, electronic, office supply and specialty toy stores.
Our sales team works with store buyers from our key retailers to forecast demand for our products, develop
the store floor footprint, secure retail shelf space for our products and agree upon pricing components, including
cooperative advertising allowances. The large retail chains generally provide us with a preliminary forecast of
their expected purchases of our products during the year. While these and subsequent forecasts are not
contractually binding, they provide important feedback that we use in our planning process throughout the year.
We work closely with our key retailers during the year to establish and revise our expected demand forecasts and
plan our production and delivery needs accordingly. Most retailers issue purchase orders to us as they need
product. Based on these purchase orders, we prepare shipments for delivery through various methods. We sell to
smaller retail stores through a combination of independent sales representatives and direct salespeople.
International Consumer
As of December 31, 2005 we maintained four overseas subsidiaries through which we sell our products
directly to leading retailers in the United Kingdom, Canada, Mexico and France. We currently have distribution
arrangements in Korea, Australia, New Zealand, Latin America and Europe. Distribution of products to the
Middle East, Southeast Asia and Eastern Europe are coordinated out of our United Kingdom office.
In Japan, Benesse Corporation is assisting us in developing the Japanese supplemental educational materials
market by distributing the CoCoPad system to its preschool through 3rd grade level subscribers. Additionally,
Benesse Corporation has developed original educational content in Japanese and English for interactive books to
be used with the CoCoPad system.
Education and Training
Our Education and Training segment’s primary customers represent U.S. pre-kindergarten through 8th grade
classrooms and also include teacher supply stores and catalog sales by our SchoolHouse division. Using our
in-house sales team as well as independent sales representatives, we sell directly to educational institutions at the
classroom, school and district levels, and to resellers and retail outlets that target the education market. We also
publish a catalog that is aimed at and distributed to educators. In 2005, we began selling classroom products in
Mexico through local distributors and continue to sell products through local distributors in Puerto Rico. In 2005,
we also established key strategic partnerships that are designed to diversify our revenue sources. These
relationships include an alliance with the National Head Start Association.
Financial Information About Geographic Areas
The information about sales in geographic areas is included in Note 20 of the Notes to the Consolidated
Financial Statements in Item 8 of this report and is incorporated herein by reference.
Research and Development
Hardware and Software Development
To develop our products and content, we have assembled a team of technologists with backgrounds in a
wide variety of fields including education, child development, hardware engineering, software development,
video games and toys. We have developed internally each of our current platforms and stand-alone products,
although we use licensed technology if it is advantageous to do so. For example, we use a version of
Macromedia’s Flash player in our Leapster and Leapster L-MAX platforms, and we use optical scanning
technology from Anoto AB in our FLY Pentop Computer platform, which we launched in Fall 2005.
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