LeapFrog 2010 Annual Report Download - page 37

Operating expenses decreased 31% in 2009 as compared to 2008, primarily due to reduced headcount, reductions
in advertising, and lower bad debt expense. The number of total fulltime employees declined 85, or 14%, from
December 31, 2008 to December 31, 2009, due to a combination of reductions in force and the migration of
certain aspects of our product development cycle to external parties. Advertising expense declined 42%, driven
by a reduction in the amount of television-based advertising and fewer new platform launches as compared to
2008. Finally, bad debt expense declined $6.2 million, as the economy continued to stabilize and fewer retailers
declared bankruptcy as compared to 2008.
Basic and diluted net loss per share improved $1.03 or 96% in 2009 as compared to 2008, reflecting primarily the
decrease in our total net loss as well as a favorable tax benefit of $7.8 million in connection with the release of
tax reserves based on expired statutes of limitations. The weighted average of basic and diluted common shares
outstanding remained relatively level.
2011 Outlook
We expect continued modest economic improvement in 2011. However, high retail inventory levels as of
December 31, 2010 may adversely impact sales to our retailers, thereby reducing our net sales in the first half of
2011 as compared to 2010. Offsetting the affect of high beginning retail inventory, we believe additional factors,
such as our ability to leverage and grow our Learning Path, new product introductions across all categories,
international expansion opportunities, and development and distribution of Leapfrog-branded digital content
should positively impact our operating income in 2011. Further, we expect to continue operating at our lower
cost structure, which should also contribute to improved operating income in 2011. Further, our expectations for
2011 operating income are subject to many uncertainties, including the timing and strength of any economic
recovery and many other factors described in the risk factors set forth in Part I “Risk Factors” in Item 1A of this
Form 10-K, there can be no assurance that consumer demand for our products will improve in 2011 compared to
2010.
OPERATING EXPENSES
Selling, General and Administrative Expenses
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, information
technology, supply chain, facilities, human resources, other administrative headcount, legal and other
professional fees, indirect selling expenses, systems costs, rent, office equipment and supplies.
2010 2009 2008
% Change
2010 vs.
2009
% Change
2009 vs.
2008
(Dollars in millions)
SG&A expense ................................ $75.6 $81.7 $ 114.8 (7%) (29%)
As a percent of net sales ......................... 17% 22% 25% (5)* (3)*
* Percentage point increase (decrease)
Fiscal Year 2010 Compared to Fiscal Year 2009
SG&A expenses declined 7% during 2010 as compared to 2009. The decrease was primarily driven by lower
compensation related expenses, including stock-based compensation, as a result of a lower average headcount in
2010.
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