LeapFrog 2011 Annual Report Download - page 35

Operating expenses for 2010 increased 3% 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 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 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.
2012 Outlook
The year ahead will present challenges including continuing global economic volatility, key platform launches,
product transitions, and increased competition in the children’s tablet space. Despite these challenges, we are
encouraged by the progress we made in 2011 and enter 2012 with momentum. We believe we are well
positioned to achieve higher levels of profitability in 2012.
We expect earnings improvement to be driven by net sales growth, modest margin expansion, and disciplined
growth and expense management. We believe net sales growth will be much stronger in the seasonally less
significant first half of 2012 compared to the second half of the year. The first half of 2012 should benefit
from continued LeapPad momentum and healthier retail inventory levels entering the year, while the second
half growth may moderate compared to the second half of 2011, given the comparison to the year which
featured the successful LeapPad launch, managing through key platform transitions, and uncertainty around
the global economy.
Our expectations for 2012 results 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
2012 compared to 2011.
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. The
related prior period data has been recast to conform to the current year presentation.
2011 2010 2009
% Change
2011 vs.
2010
% Change
2010 vs.
2009
(Dollars in millions)
SG&A expenses ...................... $78.0 $77.3 $82.9 1% (7)%
As a percent of net sales ................ 17% 18% 22% (1)* (4)*
* Percentage point increase (decrease)
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