LeapFrog 2012 Annual Report Download - page 31

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Research and Development Expenses
R&D expenses consist primarily of salaries, employee benefits, stock-based compensation and other
headcount-related expenses associated with content development, product development, product engineering,
third-party development and programming, and localization costs to translate and adapt content for
international markets. We capitalize external third-party costs related to content development, which are
subsequently amortized into cost of sales in the statements of operations.
2012 2011 2010
% Change
2012 vs. 2011
% Change
2011 vs. 2010
(Dollars in millions)
R&D expenses .............. $36.6 $33.8 $33.4 8% 1%
As a percent of net sales ........ 6% 7% 8% (1)* (1)*
* Percentage point change
Fiscal Year 2012 Compared to Fiscal Year 2011
R&D expenses for 2012 increased 8% as compared to 2011, but declined as a percentage of net sales by
1 percentage point. The increase was primarily due to increased headcount and higher employee compensation
expenses resulting from exceeding the overall company performance targets set as a part of our employee
bonus programs.
Fiscal Year 2011 Compared to Fiscal Year 2010
R&D expenses for 2011 remained relatively level, increasing 1% as compared to 2010 with no significant
offsetting items.
Advertising Expenses
Advertising expense consists of costs associated with marketing, advertising and promoting our products,
including customer-related discounts and promotional allowances.
2012 2011 2010
% Change
2012 vs. 2011
% Change
2011 vs. 2010
(Dollars in millions)
Advertising expenses .......... $43.0 $39.5 $49.3 9% (20)%
As a percent of net sales ........ 7% 9% 11% (2)* (2)*
* Percentage point change
Fiscal Year 2012 Compared to Fiscal Year 2011
Advertising expense for 2012 increased 9% as compared to 2011, but declined as a percentage of net sales by
2 percentage points. The increase was in line with our strategy to drive continued demand for our multimedia
learning family of products including content, accessories, and hardware, including the launch of LeapPad2.
Fiscal Year 2011 Compared to Fiscal Year 2010
Advertising expense for 2011 declined 20% as compared to 2010 and declined as a percentage of sales by
2 percentage points. The decline was primarily driven by an overall planned decrease in marketing,
advertising and promotion of our products through the utilization of more cost-effective in-store promotional
displays, continued leveraging of our consumer email database and expanded use of social networks for our
marketing communications.
23