LeapFrog 2010 Annual Report Download - page 83

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 the Company’s 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,
2010 2009 2008
Gross sales:
Wal-Mart .......................................................... 21% 22% 25%
Toys “R” Us ........................................................ 20% 19% 18%
Target ............................................................. 17% 16% 17%
Total .......................................................... 58% 57% 60%
Wal-Mart, Target and Toys “R” Us accounted for 23%, 21% and 23% of total gross accounts receivable,
respectively at December 31, 2010, as compared to 28%, 14% and 19%, respectively at December 31, 2009.
19. 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 $18,625, $15,711 and $19,315 in 2010, 2009 and 2008, respectively.
The Company leases its facilities under operating leases that expire at various dates through 2016. Rent expense,
net of sublease income, was $2,480, $2,497 and $5,827 in 2010, 2009 and 2008, respectively.
Minimum rent commitments under all non-cancelable operating leases and minimum royalty commitments are
set forth in the following table:
Years Ended December 31,
Operating
Leases Royalties Total
2011 ............................................................ 4,829 11,959 16,788
2012 ............................................................ 4,801 881 5,682
2013 ............................................................ 4,499 477 4,976
2014 ............................................................ 4,526 — 4,526
2015 ............................................................ 2,962 — 2,962
Thereafter ....................................................... 717 — 717
Total ....................................................... $22,334 $13,317 $35,651
The Company accounts for total rent expense under the leases on a straight-line basis over the lease terms. The
Company had a deferred rent liability relating to rent escalation costs net of tenant incentives for its Emeryville,
California headquarters. In December 2010, the Company early terminated its lease of one of the remaining three
suites in its Emeryville, California headquarters. As a result, the Company reduced its deferred rent liability by
$428 and credited against its rent expenses. At December 31, 2010 and 2009, the deferred rent liability was
$1,571 and $1,908, respectively. Deferred rent is included in long-term liabilities.
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