LeapFrog 2006 Annual Report Download - page 15

U.S. Consumer
Our U.S. Consumer segment accounted for 70% and 74%, respectively, of consolidated sales in 2006 and
2005. We market and sell our products primarily through national and regional mass-market retail stores as well
as specialty toy stores. Sales of our products to Wal-Mart (including Sam’s Club and Walmart.com), Toys “R”
Us (including Toys “R” Us.com) and Target (including Target.com) accounted for approximately 27%, 22% and
21% of net sales in our U.S. Consumer segment in 2006 and 35%, 24% and 21% in 2005, 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. In 2006, as part of our marketing strategy to increase customer
awareness of our products, we developed and expanded our online store to promote high-traffic and repeat
customer visits.
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 and promotional sales 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
salespersons.
International Consumer
Our International segment accounted for 23% and 20%, respectively, of consolidated sales in 2006 and
2005. As of December 31, 2006, we maintained 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 the third
quarter of 2006, we established a marketing and sales office in Beijing, China.
SchoolHouse
Our SchoolHouse segment accounted for 7% and 6%, respectively, of consolidated sales in 2006 and 2005.
Our SchoolHouse segment’s primary customers represent U.S. pre-kindergarten through 5th grade classrooms and
also include teacher supply stores and catalog sales by our SchoolHouse segment. 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.
Financial Information About Geographic Areas
The information about sales in geographic areas is included in Note 21 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
8