LeapFrog 2013 Annual Report Download - page 29
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Please find page 29 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.RESULTS OF OPERATIONS
SUMMARY OF CONSOLIDATED RESULTS FOR FISCAL YEARS ENDED DECEMBER 31, 2013,
2012 and 2011
2013 2012 2011
% Change
2013 vs. 2012
% Change
2012 vs. 2011
(Dollars in millions, except per share data)
Net sales ................. $553.6 $581.3 $455.1 (5)% 28%
Cost of sales ............... 337.6 336.3 269.0 —% 25%
Gross margin* .............. 39.0% 42.1% 40.9% (3.1)** 1.2**
Operating expenses .......... 181.1 180.9 162.5 —% 11%
Operating expenses as a percent of
net sales ................ 33% 31% 36% 2** (5)**
Income from operations ....... 34.9 64.1 23.7 (45)% 170%
Net income per share − basic .... $ 1.23 $ 1.29 $ 0.30 $ (0.06)*** $0.99***
Net income per share − diluted . . . $ 1.19 $ 1.24 $ 0.30 $ (0.05)*** $0.94***
* Gross profit as a percentage of net sales
** Percentage point change
*** Dollar change
Fiscal Year 2013 Compared to Fiscal Year 2012
Net sales for 2013 decreased 5% compared to 2012. The decrease was largely driven by increased competition
in the children’s tablet market, a challenging retail environment and deep retailer discounting during the
holiday season, which led to lower shipments for the fourth quarter of 2013. As a result of the promotional
environment at retail during the holiday season, trade allowances and discounts as a percentage of net sales
increased. Net sales for 2013 were not materially affected by foreign currency exchange rates.
Cost of sales for 2013 remained relatively flat as compared to 2012, despite the sales decline. Higher product
costs resulting from a change in sales mix with proportionally higher sales of lower-margin hardware and
higher royalty costs resulting from an increase in sales of licensed content were largely offset by lower sales
volume and lower inventory allowances.
Gross margin for 2013 was 39.0%, a decrease of 3.1 percentage points as compared to 2012, primarily driven
by changes in product mix with proportionally higher sales of lower-margin hardware, higher trade allowances
and discounts as a percentage of net sales, and higher royalty costs resulting from an increase in sales of
licensed content. The decreases were partially offset by lower inventory allowances.
Operating expenses for 2013 remained relatively flat as compared to 2012. Higher expenses due to an increase
in headcount to support our strategic initiatives and higher advertising expense were largely offset by a
decrease in the provision for incentive compensation expense and a decrease in bad debt expense due to a
$3.1 million charge in the prior year period related to an isolated customer bankruptcy. Operating expenses as
a percentage of net sales increased by two percentage points to 33% for 2013.
Income from operations for 2013 decreased 45% as compared to 2012, due to the decrease in net sales and
reduced gross margin.
Our basic and diluted net income per share for 2013 decreased by $0.06 and $0.05, respectively, compared to
2012. Our 2013 results included $62.8 million of a release of our deferred tax asset valuation allowances, and
tax benefits of $0.7 million associated with the recognition of previously unrecognized tax benefits due to the
expiration of statutes of limitations. Our 2012 results included $20.3 million of net tax benefit due to
adjustments to our deferred tax asset valuation allowances, and tax benefits of $6.4 million associated with the
recognition of previously unrecognized tax benefits due to the expiration of statutes of limitations. These
income tax items accounted for $0.93 and $0.90 of our 2013 basic and diluted net income per share,
respectively, and $0.40 and $0.38 of our 2012 basic and diluted net income per share, respectively.
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