LeapFrog 2013 Annual Report Download - page 12
Download and view the complete annual report
Please find page 12 of the 2013 LeapFrog annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.For information on sales of product lines that constituted 10% or more of total net sales by segment, see
Note 20 — ‘‘Segment Reporting’’ in our Consolidated Financial Statements included in this Annual Report on
Form 10-K.
For more information about the risks associated with our new products, see Part I, Item 1A. — Risk
Factors — ‘‘Our business depends on our ability to correctly predict highly changeable consumer preferences
and product trends’’ in this Annual Report on Form 10-K.
Competition
We currently compete in the learning toy and electronic learning-aids categories of the U.S. and international
toy market, with makers of children’s tablets and, to a lesser extent, with general purpose tablets, eBook
readers, mobile devices and mobile game platforms.
While our learning toys compete mainly in the learning toy and electronic learning-aids markets, our
multimedia learning platforms increasingly compete in a broader arena with a variety of electronic products
including tablet computers, eBook readers and mobile devices. The LeapPad family of learning tablets and the
Leapster platform also compete against handheld gaming platforms and against kid-targeted tablets that are
sold in either the toy section or consumer electronics section of stores. Competition is significant in all of
these markets.
We believe the principal areas of competition in our industry are the quality of learning content, brand
recognition, price, performance and features. We believe our products compete favorably in these areas. We
believe the LeapFrog brand is recognized for comparably higher quality educational products, enabling us to
compare favorably with many of our current competitors despite premium pricing. In addition, we believe our
learning toy product category is an important competitive differentiator because it introduces parents to the
LeapFrog brand, provides an entry point to the Learning Path and supports our associated strategy to build
direct relationships with customers.
We face the challenge of competitors introducing similar products or functionality soon after we introduce our
new products or product lines, and these competitors may be able to offer their products at lower prices using
cheaper manufacturing processes or materials, more limited functionality, more limited educational content, or
reduced safety features. In addition, we focus on the educational aspect of our content, ensuring that each
piece of content is based on age-appropriate educational curricula. In contrast, many of our competitors seek
to compete primarily through aggressive pricing and low cost content that lack significant educational value.
Many of our direct, indirect and potential competitors have significantly longer operating histories, greater
brand recognition and substantially greater financial, technical and marketing resources than we do. Our
principal competitors in the learning toy category have included Mattel, Inc., primarily under its Fisher-Price
brand, Hasbro, Inc. and its Playskool division, and VTech Holdings Ltd. The primary competitors for our
multimedia learning products are kid-targeted tablets from Fuhu and VTech and, to a lesser extent, general
tablet computers and eBook readers from Apple, Amazon and Samsung, and the Sony and Nintendo handheld
gaming systems. For information on how competition could affect our business, see Part I, Item 1A. — Risk
Factors — ‘‘If we are unable to compete effectively with existing or new competitors, our sales and market
share could decline.’’
Our products also compete for the leisure time of children and the discretionary spending of parents with
other forms of media and entertainment. We design our products to bring fun to learning in order to compete
favorably with these outside competitive influences.
Manufacturing
We are committed to designing and manufacturing products that meet or exceed applicable safety and
regulatory requirements. As is the case with most toy manufacturers and many consumer electronics
companies, most of our products are manufactured in China. We actively manage our supplier base, mandating
compliance with U.S. and international safety inspections and enforcing our product standards. Our standards
require that we meet or exceed all applicable regulatory requirements regarding safety in the design,
manufacture, packaging, and delivery into the hands of each product’s ultimate user, a child. Our quality
control system processes include product testing and verification for safety and reliability, starting in the
4