LeapFrog 2010 Annual Report Download - page 42

International Segment
The International segment includes the net sales and related expenses directly associated with selling our
products to national and regional mass-market and specialty retailers and other outlets through our offices in the
United Kingdom, France, Canada and Mexico as well as through distributors in markets such as Spain, Germany,
Australia, Japan and China. Certain corporate-level operating expenses associated with sales and marketing,
product support, human resources, legal, finance, information technology, corporate development, procurement
activities, research and development, legal settlements and other corporate costs are not allocated to our
International segments.
2010 2009 2008
% Change
2010 vs.
2009
% Change
2009 vs.
2008
(Dollars in millions)
Net sales ..................................... $88.3 $73.3 $95.7 20% (23%)
Gross margin * ................................ 36% 41% 36% (5)** 5**
Operating expenses ............................. 20.8 20.2 38.8 3% (48%)
Income (loss) from operations .................... $10.8 $10.1 $ (4.3) 7% 335%
* 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 20% as compared to 2009. The increase was primarily driven by the launch of
Leapster Explorer in June 2010, 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 included a 1% positive impact from changes in
currency exchange rates.
Gross margin for 2010 decreased five percentage points as compared to 2009. The decrease was primarily driven
by higher shipping costs and an increased use of discounts, partially offset by higher sales relative to fixed
warehousing expense. In addition, the gross margin in 2009 benefited from an inventory-related adjustment
resulting in a higher than usual gross margin.
Income from operations for 2010 increased 7% as compared to 2009. The increase was primarily driven by an
increase in net sales, partially offset by lower gross margin for 2010 as compared to 2009.
Fiscal Year 2009 Compared to Fiscal Year 2008
Net sales decreased 23% in 2009 from 2008, primarily due to the management’s focus on profitability as well as
the negative impact of higher than expected 2008 year-end retail inventory levels and suppressed consumer
spending due to the weakened economy. Net sales for 2009 included a negative impact from changes in currency
exchanges rates of two percentage points.
Gross margin improved five percentage points during 2009 due to a higher proportion of sales of high-margin
products, a reduction in our allowance for defective products, as claims have trended lower than expected, and an
inventory-related adjustment resulting in a high than usual gross margin, partially offset by increased discounting
and promotions.
Operating expense decreased 48% in 2009 as compared to 2008, primarily driven by reduced headcount,
reductions in advertising, and lower bad debt expense. The total number of fulltime international employees
declined 16% from December 31, 2008 to December 31, 2009, primarily due to a combination of reductions in
force and the consolidation of the administrative operations of our subsidiaries in France and the United
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