LeapFrog 2005 Annual Report Download - page 45

The $13.2 million decrease in year-over-year advertising expense was primarily related to:
• Cost containment efforts.
• Reduced spending in our U.S. Consumer segment on in-store display units and merchandising, and the
elimination of our mail-order catalog costs.
Depreciation and Amortization Expenses (excluding depreciation of tooling and amortization of content
development costs, which are included in cost of sales)
Depreciation and amortization expenses increased year-over-year by $2.2 million, or 27%, from $8.0
million in 2004, to $10.1 million in 2005. As a percentage of net sales, depreciation and amortization expense
increased from 1.2% in 2004 to 1.6% in 2005. The increase in depreciation and amortization expense was
primarily due to higher depreciation expense for computers, capitalized software and leasehold improvements.
Income (Loss) From Operations
Income (loss) from operations in dollars and the related 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 ..................... $(4.9) (1.0)% $(49.8) (11.5)% $ 44.9 90%
International ....................... 24.9 19.0% 24.9 16.3% 0.0 0%
Education and Training .............. 0.9 2.3% 10.9 19.8% (10.0) (92)%
Total Company .................... $20.9 3.2% $(14.0) (2.2)% $ 34.9
(1) In millions.
We record indirect expenses in our U.S. Consumer segment and do not allocate these expenses to our
International and Education and Training segments.
U.S. Consumer. The lower year-over-year loss from operations in our U.S. Consumer segment was
primarily due to higher sales and stronger gross margins, as well as lower operating expenses.
International. The year-over-year operating income increase in our International segment was primarily due
to lower operating expenses, partially offset by reduced sales.
Education and Training. The year-over-year operating income decrease in our Education and Training
segment was due to lower sales and higher operating expenses, primarily due to increased headcount in 2005
compared to 2004.
Other
Net Interest Income and Other (Expense) Income, net. Net interest income increased by $1.7 million from
$1.7 million in 2004 to $3.4 million in 2005. This increase was due to higher interest rates in 2005 on invested
balances.
Tax Rate. Our effective tax rate for the year ended December 31, 2005 is 26.5%as compared to 47.6% in
2004. The change in effective tax rate was due to the mix of United States and international pre-tax income in
2005 as compared to 2004, higher research and development tax credits in 2005 and higher exempt interest
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