LeapFrog 2009 Annual Report Download - page 38

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OPERATING EXPENSES
Selling, General and Administrative Expenses
Selling, general and administrative, or SG&A, expenses consist primarily of salaries and related employee
benefits including stock-based compensation expense and other headcount-related expenses associated with
executive management, finance, IT, facilities, human resources, other administrative headcount, legal and other
professional fees, indirect selling expenses, marketing expenses, systems costs, rent, office equipment
and supplies.
2009 2008 2007
% Change
2009 vs.
2008
% Change
2008 vs.
2007
(Dollars in millions)
SG&A expense ...................................... $81.7 $114.8 $142.8 -29% -20%
As a percent of net sales ............................... 22% 25% 32% (3) (7)*
* Percentage point increase (decrease)
Fiscal Year 2009 Compared to Fiscal Year 2008
SG&A expenses declined 29% during 2009, reflecting decreased headcount-related expenses and lower bad debt
expense, offset in part by slightly higher severance expense than in 2008. Attrition and workforce reductions
implemented during 2009 resulted in a 14% year-over-year decline in full time headcount, contributing to lower
salary and bonus expenses. Bad debt expense declined by $6.2 million as the economy began to stabilize and
fewer retailers declared bankruptcy in 2009.
Fiscal Year 2008 Compared to Fiscal Year 2007
SG&A expenses declined 20% during 2008, reflecting decreased headcount-related expenses and decreased legal
fees and settlement expenses, offset slightly by higher bad debt expense and restructuring charges. Attrition and
workforce reductions implemented during 2008 resulted in a 26% year-over-year decline in full time headcount.
Legal fees and legal settlement expenses declined significantly due to the settlement reached in a patent lawsuit
in 2007.
The 2008 decrease in employee-related expenses was partially offset by fourth quarter restructuring charges of
$3.9 million, comprising $1.5 million in severance benefits and $2.4 million in costs associated with vacating
space in Austin, Texas and part of our Emeryville, California facilities. Bad debt expense increased by $5.3
million in 2008 due to the escalating number of retailer bankruptcies in the US and the overall weakening
financial environment in the fourth quarter of 2008.
Research and Development Expenses
Research and development, or R&D, expenses consist primarily of salaries, employee benefits, stock-based
compensation and other headcount-related expenses associated with content development, product development,
product engineering, third-party development and programming and localization costs to translate content for
international markets. We capitalize external third-party costs related to content development, which are
subsequently amortized into cost of sales in the statements of operations.
2009 2008 2007
% Change
2009 vs.
2008
% Change
2008 vs.
2007
(Dollars in millions)
R&D expense ....................................... $35.0 $48.5 $59.4 -28% -18%
As a percent of net sales ............................... 9% 11% 13% (2) (2)*
* Percentage point increase (decrease)
28