LeapFrog 2005 Annual Report Download - page 42

The net sales decrease in our International segment was primarily due to a significant decrease in our United
Kingdom and Canadian markets. Factors driving this decline were:
• Lower demand for our LeapPad family of products.
• Weak sales forecasting and inventory production planning processes, which caused a few key items to
be out of stock in the third and fourth quarters of 2005, resulting in lost sales.
• Increased competition in our screen-based platforms.
These negative factors were partially offset by sales growth in Mexico, Spain and France.
Education and Training. Our Education and Training segment’s net sales decreased by $14.9 million, or
27.0% from $55.2 million in 2004 to $40.3 million in 2005. Our Education and Training segment’s net sales
decline was primarily a result of the following factors:
• Transition in management and attrition of key sales personnel due to an investigation related to a
transaction in a large school district.
• Lengthened sales cycle as we pursue orders involving larger installations which require additional
district and some state level approvals.
• Release of federal funds to districts later in 2005 compared to 2004 in several key states.
By the end of 2005, we completed installation of a new leadership team, including a new SchoolHouse
division president, vice president of marketing and vice president of sales. In addition we have replaced
approximately 40% of our direct sales force.
Gross Profit
The gross profit in dollars for each segment and the related gross profit percentage of segment net sales
were as follows:
Year Ended December 31,
2005 2004 Change
Segment $(1)
%of
Segment’s
Net Sales $(1)
%of
Segment’s
Net Sales $(1) %
U.S. Consumer .................... $193.8 40.5% $158.4 36.7% $35.4 22%
International ...................... 59.5 45.3% 65.6 42.8% (6.1) (9)%
Education and Training .............. 26.3 65.3% 35.1 63.5% (8.7) (25)%
Total Company ................... $279.6 43.0% $259.0 40.5% $20.6 8%
(1) In millions.
U.S. Consumer. The 3.8 percentage point increase in our U.S. Consumer segment’s gross profit percentage
year-over-year was primarily the result of the following:
• Shipments to retail customers in the third and fourth quarters of our FLY Pentop Computer and related
software and accessories, which have relatively strong margins.
• Reduced sales allowances in 2005 compared to 2004 when customers received allowances to offset
operational issues encountered during the start up of our new distribution facility in the third quarter of
2004.
• Lower freight costs in 2005 compared to 2004 when costs were incrementally higher due to the use of
air freight to address certain transition issues into our Fontana warehouse in the third quarter.
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