LeapFrog 2013 Annual Report Download - page 20
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Please find page 20 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.2013. Approximately 70%, 75% and 79% of our total net sales occurred during the second half of fiscal years
2013, 2012 and 2011, respectively. A decline of net sales, in the third or fourth quarter in particular, will have
a disproportionate negative impact on our results for the year and can lead to ongoing weakness in sales to
retailers well into the following year. Therefore, we may be significantly and adversely affected, in a manner
disproportionate to the impact on a company with sales spread more evenly throughout the year, by
unforeseen events such as economic crises, strikes, earthquakes, terrorist attacks or other catastrophic events
that harm the retail environment or consumer buying patterns during our key selling season.
System failures in our online services or web store could harm our business.
The online aspects of our business have grown substantially in strategic importance to our overall business.
Any failure to provide a positive user experience in these services could have a negative impact on our
reputation, sales and consumer relationships. In addition, we rely on third parties for certain critical aspects of
the online user experience, such as payment processing and secure handling of credit card and other
confidential information. If consumer demand for accessing our App Center or our website exceeds the
capacity we have planned to handle during peak periods or if other technical issues arise, then we could lose
sales and customers could be inconvenienced or become dissatisfied with our products. Any significant
disruption to or cyber-attack on our App Center, website, internal computer systems, or those of our
third-party service providers, or malfunctions related to transaction processing on our online store or content
management systems, could result in a loss of potential or existing customers and sales.
Although our systems have been designed to reduce downtime in the event of outages or catastrophic
occurrences, they remain vulnerable to damage or interruption from earthquakes, floods, fires, power loss,
telecommunication failures, terrorist attacks, computer viruses, computer denial-of-service attacks, and similar
events. Many of our systems are not fully redundant, and our disaster recovery planning is not sufficient for
all eventualities. Our systems are also subject to break-ins, sabotage, and intentional acts of vandalism. The
occurrence of an earthquake, or other natural disaster or unanticipated problem at our hosting facilities,
including those located in California, could result in lengthy interruptions in our services. We do not carry
business interruption insurance sufficient to compensate us for losses that may result from interruptions in our
service as a result of system failures. Any unplanned disruption of our systems could result in adverse
financial impact to our operations.
Significant increases in the cost of our components and raw materials or an inability to obtain these in
sufficient quantities from our suppliers or alternative sources could negatively impact our financial
results.
Because some of the components used to make our products currently come from a single or a limited number
of suppliers, we are subject to significant supply and pricing risks. Many components that are available from
multiple sources are at times subject to industry-wide shortages and significant commodity pricing
fluctuations. If our suppliers are unable to meet our demand for components or raw materials and we are
unable to obtain an alternative source or if the price available from our current suppliers or an alternative
source is prohibitive, our ability to maintain timely and cost-effective production of our products would be
seriously harmed and our operating results would suffer.
In addition, as we do not have long-term agreements with our major suppliers and cannot guarantee their
stability, they may stop manufacturing our components at any time with little or no notice. If we are required
to use alternative sources, we may be required to redesign some aspects of the affected products, which may
involve delays and additional expense. For example, the 2011 tsunami in Japan required us to replace a chip
in the LeapPad. Although the introduction of the new chip did not ultimately increase our cost for the product
or materially affect its performance, it introduced additional complexity into our supply chain and
manufacturing processes, strained our internal resources, and introduced risk to our launch date. If there are
any significant interruptions in the supply of components or if prices rise significantly, we may be unable to
manufacture sufficient quantities of our finished products or we may be unable to manufacture them at
targeted cost levels, and our business and operating results could be harmed.
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