LeapFrog 2006 Annual Report Download - page 45
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• Bonus expense, which increased by approximately $1.7 million, associated with the 2006 bonus plan
that rewards individual employee performance as well as our Company performance. In 2005, the bonus
plan paid out was based solely on our Company business performance goals, whereas in 2006
employees were able to achieve a portion of the bonus opportunity based on achievement of individual
goals that support our Company strategic objectives.
These factors were partially offset by a decrease of approximately $7.4 million for legal expense in 2006
compared to 2005 due to:
• Lower legal costs resulting from the settlement of outstanding litigation.
• Less patent enforcement fees in 2006 compared to 2005.
Research and Development Expense
Research and development expense consists primarily of costs associated with content development, product
development and product engineering. We record all of our indirect expenses in our U.S. Consumer segment and
do not allocate these expenses to our International and SchoolHouse segments.
The research and development expense in dollars for each segment and the related percentage of our total
net sales were as follows:
Year Ended December 31,
2006 2005 Change
Segment $(1)
%of
Segment’s
Net Sales $(1)
%of
Segment’s
Net Sales $(1) %
U.S. Consumer ........................ $48.7 13.9% $46.2 9.7% $ 2.5 5%
International .......................... 2.5 2.2% 2.7 2.0% (0.2) (7)%
SchoolHouse ......................... 3.3 8.8% 3.4 8.5% (0.1) (3)%
Total Company ...................... $54.5 10.9% $52.3 8.0% $ 2.2 4%
(1) In millions.
We classify research and development expense into two categories, product development and content
development. Product development expense reflects the costs related to the conceptual design, engineering and
testing stages of our platforms and stand-alone products. Content development expense reflects the costs related
to the conceptual, design and testing stages of our software and books. These expenses were as follows:
Year Ended December 31,
2006 2005 Change
Segment $(1)
%of
Total
Company
Net sales $(1)
%of
Total
Company
Net sales $(1) %
Product development ................... $24.4 4.9% $26.1 4.0% $(1.7) (7)%
Content development ................... 30.1 6.0% 26.2 4.0% 3.9 15%
Research & Development .............. $54.5 10.9% $52.3 8.0% $2.2 4%
(1) In millions.
Research and development expense increased by $2.1 million for the year ended December 31, 2006
compared to 2005. In 2006, we decided to consolidate our office locations, moving our research and development
offices from Los Gatos, California to our corporate headquarters in Emeryville, California, to better align our
38