LeapFrog 2009 Annual Report Download - page 36

RESULTS OF OPERATIONS
Revisions for the Years Ended 2008 and 2007
Subsequent to the issuance of our September 30, 2009 unaudited consolidated financial statements, we
determined there was an error in the way our stock plan management and reporting software was calculating
stock-based compensation expense. We became aware of the error as a result of an upgrade to a newer version of
the software, which calculated stock-based compensation expense amounts for prior periods that were different
from those calculated using the older version. Specifically, the older software version we had been using
calculated stock-based compensation expense by incorrectly applying a weighted average forfeiture rate to the
vested portion of stock option awards until the grant’s final vest date, rather than calculating stock-based
compensation expense based upon the actual vested portion of the grant date fair value. As a result, stock-based
compensation expense was understated in certain periods prior to the grant’s final vest date. Consequently,
revision of the errors in the calculation and recognition of stock-based compensation expense increased operating
expenses, and therefore, increased net loss by $0.1 million, $1.2 million and $0.8 million, for the fiscal years
ended December 31, 2008, 2007 and 2006, respectively.
We have determined that the impact of these errors is not significant to the previously issued annual and interim
financial statements as defined by Accounting Standards Codification (ASC) Topic 250, “Accounting Changes
and Error Corrections.” The audited financial statements, related notes, tables and analyses for the years ended
December 31, 2008 and 2007 have been revised in this Form 10-K filing. In addition, all references to results for
the year ended December 31, 2006 have also been revised. All future filings, including interim financial
statements, will be revised appropriately. Refer to Note 1, “Summary of Significant Accounting Policies” for
more information.
SUMMARY OF CONSOLIDATED RESULTS FOR FISCAL YEARS ENDED DECEMBER 31, 2009,
2008 and 2007
2009 2008 2007
% Change
2009 vs.
2008
% Change
2008 vs.
2007
(Dollars in millions)
Net sales .......................................... $379.8 $459.1 $ 442.3 -17% 4%
Gross margin * ..................................... 42% 40% 39% 2 1**
Operating expenses ................................. 166.4 241.7 275.6 -31% -12%
Loss from operations ................................ (8.4) (60.2) (102.3) 86% 41%
Net loss per share—basic and diluted ................... $(0.04) $ (1.07) $ (1.62) 96% 34%
* Gross profit as a percentage of net sales
** Percentage point change in gross margin
Fiscal Year 2009 Compared to Fiscal Year 2008
Net sales for 2009 declined 17% from those recorded in 2008. The decline was driven primarily by the high 2008
year-end retail inventory levels and depressed consumer spending due to the weakened economy, which led to
lower shipments for the first three quarters of 2009. The 2008 year-end retail inventory levels impacted all
business lines, but had the most profound impact on the gaming business, including both platforms and software-
related content. Net sales for 2009 included a negative impact from changes in currency exchanges rates of one
percentage point.
Gross margin improved two percentage points in 2009 to 42% as a result of a higher proportion of sales of high-
margin products and reductions in sales returns allowances due lower retail inventory levels and the fact that we
had no charges in 2009 related to the Consumer Product Safety Improvement Act as compared to 2008. In
addition, we reduced our allowance for defective products, as claims have trended lower than expected. These
increases were offset in part by increased use of discounting and promotions in 2009.
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