LeapFrog 2006 Annual Report Download - page 48

The net sales increase in this segment year-over-year was primarily a result of the following factors:
• Introduction of our FLY Pentop Computer and related software and accessories, which began shipping
to retail customers in the third quarter of 2005 for our October 2005 product launch.
• Introduction of our Leapster L-MAX system in the third quarter which added to the increased demand
for our screen-based platforms and related software products. In total sales of our screen-based products
more than doubled.
• Higher demand for our stand-alone products, specifically for our Fridge Phonics and Alphabet Pal
products.
These factors were partially offset by continued decline in sales of our LeapPad family of products.
International. Our International segment’s net sales decreased by $22.0 million, or 14 %, from $153.2 million
in 2004 to $131.2 million in 2005. On a constant currency basis, net sales decreased 14% from 2004 to 2005.
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.
SchoolHouse. Our SchoolHouse 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 SchoolHouse 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
segment president, vice president of marketing and vice president of sales. In addition we 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)%
SchoolHouse ...................... 26.3 65.3% 35.1 63.5% (8.7) (25)%
Total Company ................... $279.6 43.0% $259.1 40.5% $20.6 8%
(1) In millions.
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