LeapFrog 2012 Annual Report Download - page 30

Fiscal Year 2011 Compared to Fiscal Year 2010
Net sales for 2011 increased 5% compared to 2010. The increase was largely driven by the launch of the
LeapPad learning tablet in August 2011 and strong growth in our International segment, partially offset by
higher than desired U.S. retail inventory levels at the end of 2010, which generally reduced retailer demand
for our products in the first half of 2011. Net sales for 2011 were not materially affected by foreign currency
exchange rates.
Cost of sales for 2011 increased 6% compared to 2010. The increase was primarily driven by higher sales
volume and higher product costs due to sales mix with proportionally higher sales of higher-cost platforms.
Gross margin for 2011 declined 50 basis points over 2010, primarily driven by changes in product mix with
proportionally higher sales of lower-margin multimedia learning platforms, specifically LeapPad, partially
offset by lower trade allowances and discounts.
Operating expenses for 2011 decreased 5% compared to 2010, primarily driven by an overall planned decrease
in marketing, advertising and promotional spending through continued leverage of our consumer email
database and expanded use of social networks. SG&A expenses increased slightly due to higher employee
bonus expense as we exceeded the overall company performance targets set as a part of our employee bonus
programs, largely offset by lower rent expense and other employee-related expenses resulting from a decrease
in headcount during the year. Operating expenses as a percentage of net sales declined by 4 percentage points
to 36%.
Income from operations for 2011 improved 204% as compared to 2010, due to the increase in net sales and
lower, better-leveraged operating expenses, partially offset by a slight decline in gross margin.
Our basic and diluted net income per share for 2011 improved by $0.22 per share 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.
2012 2011 2010
% Change
2012 vs. 2011
% Change
2011 vs. 2010
(Dollars in millions)
SG&A expenses ............. $89.6 $78.0 $77.3 15% 1%
As a percent of net sales ........ 15% 17% 18% (2)* (1)*
* Percentage point change
Fiscal Year 2012 Compared to Fiscal Year 2011
SG&A expenses for 2012 increased 15% as compared to 2011, but declined as a percentage of net sales by
2 percentage points. The increase was primarily driven by higher employee compensation expenses related to
increased headcount, greater achievement against overall company performance targets set as a part of our
employee bonus programs, as well as bad debt expense of $3.1 million related to an isolated customer
bankruptcy.
Fiscal Year 2011 Compared to Fiscal Year 2010
SG&A expenses for 2011 increased 1% as compared to 2010, but declined as a percentage of net sales by
1 percentage point. The increase was primarily due to higher compensation expenses resulting from exceeding
the overall company performance targets set as a part of our employee bonus programs, largely offset by
lower rent expense and lower other employee-related expenses resulting from a decrease in headcount during
the year as well as the termination of a portion of our leased headquarter facilities in Emeryville, California in
the fourth quarter of 2010.
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