LeapFrog 2011 Annual Report Download - page 40

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Operating expenses for 2010 increased 3% compared to 2009, primarily due to an increase in advertising
mainly to support the launch of Leapster Explorer and to build consumer awareness of the Tag reading
system.
Loss from operations of $3.0 million for 2010 was improved by $15.5 million as compared to 2009. The
improvement was primarily driven by an increase in net sales increases, partially offset by moderate operating
expense increases for 2010 as compared to 2009.
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 and Japan. 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 allocated to our U.S.
segment and not allocated to our International segment.
2011 2010 2009
% Change
2011 vs.
2010
% Change
2010 vs.
2009
(Dollars in millions)
Net sales ........................... $113.1 $88.3 $73.4 28% 20%
Gross margin* ....................... 38.4% 35.8% 41.3% 2.6** (5.5)**
Operating expenses .................... 25.3 20.8 20.2 21% 3%
Income from operations ................. $18.1 $10.8 $10.1 68% 7%
* Gross profit as a percentage of net sales
** Percentage point change in gross margin
Fiscal Year 2011 Compared to Fiscal Year 2010
Net sales for 2011 increased 28% as compared to 2010. The increase was primarily due to strong demand for
the LeapPad learning tablet and associated content in certain international markets. Net sales for 2011
included a 2% positive impact from changes in currency exchange rates.
Gross margin for 2011 improved 2.6 percentage points as compared to 2010. The improvement was primarily
due to higher sales volume which reduced the impact of fixed costs and changes in product mix with
proportionally higher sales of higher margin products.
Operating expenses for 2011 increased 21% as compared to 2010, primarily due to an increase in headcount
in 2011 to support our international growth and higher employee bonus expense due to exceeding the overall
Company performance targets set as a part of our employee bonus programs.
Income from operations for 2011 improved by 68% as compared to 2010, primarily due to significantly
increased net sales and improved gross margin percentage offset by a higher operating expenses.
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.
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