LeapFrog 2010 Annual Report Download - page 36

RESULTS OF OPERATIONS
SUMMARY OF CONSOLIDATED RESULTS FOR FISCAL YEARS ENDED DECEMBER 31, 2010,
2009 and 2008
2010 2009 2008
% Change
2010 vs.
2009
% Change
2009 vs.
2008
(Dollars in millions)
Net sales ..................................... $432.6 $379.8 $459.1 14% (17%)
Gross margin * ................................ 41% 42% 40% (1)** 2**
Operating expenses ............................. 171.2 166.4 241.7 3% (31%)
Income (loss) from operations .................... 7.8 (8.4) (60.2) 193% 86%
Net income (loss) per share—basic and diluted ....... $ 0.08 $ (0.04) $ (1.07) 300% 96%
* Gross profit as a percentage of net sales
** Percentage point change in gross margin
Fiscal Year 2010 Compared to Fiscal Year 2009
Net sales for 2010 increased 14% as compared to 2009. The increase was primarily driven by the launch of
Leapster Explorer in June 2010, a full year of sales of our Scout line of learning toys, which we launched late in
the second quarter of 2009, and significantly lower retail inventory levels leading into the first and second
quarters of 2010 as compared to 2009. Net sales for 2010 were not materially affected by foreign currency
exchange rates.
Gross margin for 2010 declined 1% as compared to 2009 as a result of the decrease of five percentage points in
the international segment, which was offset by the increase of one percentage point in the U.S. segment.
Operating expenses for 2010 increased 3% as compared to 2009, primarily due to an increase in advertising to
support the launch of Leapster Explorer and to build consumer awareness of the Tag reading system. The
increase was partially offset by a decrease in SG&A expenses driven by lower compensation related costs as a
result of lower average headcount in 2010.
Income from operations of $7.8 million for 2010 increased by $16.2 million as compared to 2009. The
improvement was primarily driven by an increase in net sales and offset by modest operating expense increases
in 2010 as compared to 2009.
Our basic and diluted net income per share of $0.08 for 2010 increased by $0.12 per share as compared to 2009.
The net loss in 2009 included a one-time favorable tax benefit of $7.8 million, or $0.12 per share, in connection
with the release of tax reserves based on expired statutes of limitations.
Fiscal Year 2009 Compared to Fiscal Year 2008
Net sales for 2009 declined 17% as compared to 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 mobile learning 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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