LeapFrog 2010 Annual Report Download - page 28

example, we may be required to manufacture at levels that lag rather than anticipate future order levels, which
could limit our ability to sell and ship our products as demand increases, delaying our ability to benefit from
improvements in the retail sales environment.
Our international business may not succeed and subjects us to risks associated with international
operations.
We derived approximately 20%, 19% and 21% of our net sales from markets outside the United States during
fiscal years 2010, 2009 and 2008, respectively. Our efforts to increase sales for our products outside the United
States may not be successful and may not achieve higher sales or gross margins or contribute to profitability.
Our business is, and will increasingly be, subject to risks associated with conducting business internationally,
including:
• developing successful products that appeal to the international markets;
• difficulties managing and maintaining relationships with vendors, customers, distributors and other
commercial partners;
• greater difficulty in staffing and managing foreign operations;
• transportation delays and interruptions;
• greater difficulty enforcing intellectual property rights and weaker laws protecting such rights;
• complications in complying with laws in varying jurisdictions and changes in governmental policies;
• trade protection measures and import or export licensing requirements;
• currency conversion risks and currency fluctuations;
• limitations, including taxes, on the repatriation of earnings;
• public health problems, especially in locations where we manufacture or otherwise have operations;
• natural disasters; and
• political and economic instability, military conflicts and civil unrest.
Sales to our international customers are transacted primarily in the country’s local currency. If foreign currency
weakens compared to the U.S. dollar, our International segment sales results will suffer. Any difficulties with our
international operations could harm our future sales and operating results.
We are subject to international, federal, state and local laws and regulations that could impose additional
costs or changes on the conduct of our business.
We operate in a highly regulated environment with international, federal, state and local governmental entities
regulating many aspects of our business, including products and the importation of products. Regulations with
which we must comply include accounting standards, taxation requirements (including changes in applicable
income tax rates, new tax laws and revised tax law interpretations), trade restrictions, regulations regarding
financial matters, environmental regulations, privacy, advertising directed toward children, safety and other
administrative and regulatory restrictions. Compliance with these and other laws and regulations could impose
additional costs on the conduct of our business. For example, the “Safer Consumer Product Alternatives” draft
regulations proposed by the California Department of Toxic Substances Control on June 23, 2010 as part of a
California “Green Chemistry” initiative designed to reduce or eliminate the use of certain materials in consumer
products, may impose additional costs on our business if enacted. In addition, numerous states have enacted, and
many others are considering enacting, laws directed at manufacturers regarding recycling of electronic products.
While we take steps that we believe are necessary to comply with these laws and regulations, there can be no
18