LeapFrog 2009 Annual Report Download - page 86
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LEAPFROG ENTERPRISES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
Customer Concentration
A limited number of customers historically have accounted for a substantial portion of our gross sales. For the
last three fiscal years, the Company’s top three customers have been Target, Toys “R” Us and Wal-Mart. The
relative percentage of gross sales to the top three customers to total Company sales were as follows for the three
years shown below:
Years Ended December 31,
2009 2008 2007
Gross sales:
Wal-Mart ..................................................... 22% 25% 21%
Toys “R” Us ................................................... 19% 18% 20%
Target ........................................................ 16% 17% 13%
Total ..................................................... 57% 60% 54%
Wal-Mart, Target and Toys “R” Us accounted for 28%, 14% and 19% of total gross accounts receivable at
December 31, 2009, respectively, as compared to 36%, 12% and 17%, respectively at December 31, 2008.
18. Commitments and Contingencies
Leases and Royalties
The Company is obligated to pay certain minimum royalties in connection with license agreements to which it is
a party. Royalty expense was $15,711, $19,315 and $21,768 in 2009, 2008 and 2007, respectively.
LeapFrog leases a portion of its capital equipment and certain of its facilities under operating leases that expire at
various dates through 2016. Rent expense was $2,497, $5,827 and $4,591 in 2009, 2008 and 2007, respectively.
Minimum rent commitments under all non-cancelable leases with an initial term in excess of one year and
minimum royalty commitments are set forth in the following table:
Years Ended December 31, Leases Royalties Total
2010 ............................................................. 7,915 7,201 15,116
2011 ............................................................. 4,620 10,691 15,311
2012 ............................................................. 4,116 669 4,785
2013 ............................................................. 3,810 477 4,287
2014 ............................................................. 3,869 — 3,869
Thereafter ......................................................... 5,028 — 5,028
Total ......................................................... $29,358 $19,038 $48,396
LeapFrog accounts for total rent expense under the leases on a straight-line basis over the lease terms. At
December 31, 2009 and 2008, the Company had a deferred rent liability of $1,908 and $2,092, respectively,
relating to rent escalation costs net of tenant incentives for its Emeryville, California headquarters. Deferred rent
is included in long-term liabilities.
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