LeapFrog 2005 Annual Report Download - page 47

The net sales decrease in this segment year-over-year was primarily a result of the following factors:
• Lower sales of our more established platforms and related software, primarily the Classic LeapPad
system, and to a lesser extent, our My First LeapPad and Quantum LeapPad systems. This was partially
offset by higher sales of Leapster and LittleTouch LeapPad platforms and software.
• Retailers were reluctant to take on additional inventory and were lowering their inventory levels
throughout 2004. We estimate that retailers reduced their inventory levels of our products by
approximately $30 million, based on wholesale prices, by the end of 2004 from year end 2003 levels.
• Price reductions on some of our LeapPad family of platforms and higher sales allowances.
• Weaker holiday toy sales in the United States.
International. Our International segment’s net sales increased by $56.6 million, or 59%, from $96.6 million
in 2003 to $153.2 million in 2004. On a constant currency basis, net sales increased 47% from 2003 to 2004. The
favorable currency impact was due to the strength of the Canadian dollar and the British pound, and to a lesser
extent, the Euro. The increase in our International segment was primarily due to:
• Higher sales in the United Kingdom and Canada, and to a lesser extent, increased sales in France.
Increases were primarily due to greater market penetration resulting from more localized products and
increased brand awareness.
• Higher sales to distributors. Sales increased in Australia due to an effective marketing campaign
conducted by our distributor, which resulted in increased shelf space and brand awareness, and in 2004,
we entered into the German-language market in Europe.
• A decrease in sales to Korea due to the termination of our relationship with our primary distributor,
which partially offset sales gains.
Despite the large increase in sales in our International segment in 2004, we experienced a slowdown in
LeapPad platform sales by our major customers in Canada and the United Kingdom during the fourth quarter of
2004. This trend indicated that LeapPad platform sales are maturing in these countries.
Education and Training. Our Education and Training segment’s net sales increased by $17.8 million, or
47% from $37.5 million in 2003 to $55.2 million in 2004. Our SchoolHouse division accounts for substantially
all of the results of our Education and Training segment. The increase in net sales in this segment was primarily
due to larger orders resulting from the continued market penetration of this segment’s flagship product, the
LeapTrack learning system. In addition, our SchoolHouse division experienced strong sales of our interactive
content library resulting from successful direct marketing promotions, an overall expansion of a dedicated sales
force, and increased product offerings and brand awareness.
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,
2004 2003 Change
Segment $(1)
%of
Segment’s
Net Sales $(1)
%of
Segment’s
Net Sales $(1) %
U.S. Consumer ................... $158.4 36.7% $266.1 48.7% $(107.7) (40)%
International ..................... 65.6 42.8% 51.4 53.2% 14.2 28%
Education and Training ............ 35.1 63.5% 22.7 60.5% 12.4 55%
Total Company ................. $259.0 40.5% $340.1 50.0% $ (81.1) (24)%
(1) In millions.
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