LeapFrog 2009 Annual Report Download - page 40

Fiscal Year 2009 Compared to Fiscal Year 2008
Interest income declined in 2009 compared with 2008 due to lower average excess cash balances available for
investment as well as lower interest rates in general.
The “other, net” category improved considerably as the fair value of our auction-rate securities (ARS) investment
stabilized during the year, resulting in significantly lower impairment charges. This improvement was partially
offset by higher bank commitment fee expense amortization associated with the renewal of our credit facility in
August 2009.
Fiscal Year 2008 Compared to Fiscal Year 2007
Interest income declined in 2008 as compared to 2007, due both to lower average excess cash balances available
for investment and a change in investment vehicles from a combination of money-market funds, commercial
paper and other similar short-term instruments in 2007 to only money market funds invested in high quality
short-term U.S. government obligations in 2008, which have lower yields due to their relatively low risk.
The “other, net” category consists primarily of impairment losses on our ARS, which losses increased in 2008 as
the general economic uncertainty and adverse credit market conditions deepened, driving lower valuations of
these securities.
SUMMARY OF RESULTS BY SEGMENT FOR FISCAL YEARS ENDED DECEMBER 31, 2009, 2008
and 2007
The net sales, gross margin, total operating expenses and operating loss amounts in this section are presented on
a basis consistent with accounting principles generally accepted in the United States (“GAAP”) and on an
operating segment basis consistent with our internal management reporting structure. During 2008 we
significantly reduced our direct marketing to the educational channel, reduced headcount and direct facilities
expenses accordingly, and transferred responsibility for this sales channel to the former U.S Consumer operating
segment. Accordingly, we consolidated our School segment into our U.S. Consumer segment, which was
renamed the United States segment. All prior year School segment-related data has been combined into the
United States (“U.S.”) segment and prior period financial data has been recast to conform to the current
presentation.
Certain corporate-level costs, including expenses related to corporate operations associated with broad-based
sales and marketing, product support services, supply chain, human resources, legal, finance, information
technology, corporate development and procurement activities, broad-based research and development costs,
legal settlements and other corporate costs are charged entirely to our U.S. Segment, rather than allocated
between the U.S. and International segments.
United States Segment
The U.S. Segment includes net sales and related expenses directly associated with selling our products to national
and regional mass-market and specialty retailers, other retail stores and distributors, school-related distributors
and resellers, and online store and other Internet-based channels.
2009 2008 2007
% Change
2009 vs.
2008
% Change
2008 vs.
2007
(Dollars in millions)
Net sales .......................................... $306.5 $363.4 $ 338.9 -16% 7%
Gross margin * ..................................... 41% 40% 40% 1 — **
Operating expenses ................................. 146.2 202.9 236.0 -28% -14%
Loss from operations ................................ $(18.5) $ (55.9) $(100.9) 67% 45%
* Gross profit as a percentage of net sales
** Percentage point change in gross margin
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