LeapFrog 2015 Annual Report Download - page 29

To support our long-term initiatives and ongoing business transformation from an educational toy to an
educational entertainment company, we are making, and plan to continue to make, long-term investments in
content, internal business systems, and new platforms.
RESULTS OF OPERATIONS
SUMMARY OF CONSOLIDATED RESULTS FOR THE YEARS ENDED MARCH 31, 2015 AND
2014, AND THE YEARS ENDED DECEMBER 31, 2013 and 2012
Year Ended March 31, Year Ended December 31,
% Change
2015 vs. 2014
% Change
2013 vs. 20122015
2014
(unaudited) 2013 2012
(Dollars in millions, except per share data)
Net sales ................. $339.1 $527.6 $553.6 $581.3 (36)% (5)%
Cost of sales .............. $244.7 323.7 337.6 336.3 (24)% —%
Gross margin* ............. 27.9% 38.6% 39.0% 42.1% (10.7)** (3.1)**
Operating expenses .......... $235.1 183.0 181.1 180.9 28% 0%
Operating expenses as a percent
of net sales .............. 69% 35% 33% 31% 35** 2**
Income (loss) from operations . . . $(140.6) 20.8 34.9 64.1 (775)% (45)%
Net income (loss) per
share − basic ............. $ (3.12) $ 1.09 $ 1.23 $ 1.29 $(4.21)*** $(0.06)***
Net income (loss) per
share − diluted ............ $ (3.12) $ 1.07 $ 1.19 $ 1.24 $(4.19)*** $(0.05)***
* Gross profit as a percentage of net sales
** Percentage point change
*** Dollar change
Years Ended March 31, 2015 and 2014
Net sales for the year ended March 31, 2015 decreased 36% as compared to the year ended March 31, 2014,
primarily due to decreased consumer demand for our LeapPad line of children’s tablets and associated content,
as holiday sales in the overall children’s tablet market declined, lower than anticipated demand for our new
LeapTV educational video game system and associated content, decreased demand for our LeapReader
learn-to-read system, higher than desired inventory levels at retail entering the fiscal year which reduced
retailer replenishment orders, as well as retailers reducing inventory levels. Tighter inventory management
across a number of our retailer partners and the West Coast port slowdown in the U.S. also contributed to
decreased tablet sales. Net sales for the year ended March 31, 2015 included a 1% negative impact from
changes in currency exchange rates.
Cost of sales for the year ended March 31, 2015 decreased 24% as compared to the year ended March 31,
2014 primarily driven by lower net sales resulting in lower product costs, partially offset by higher content
amortization costs and higher inventory allowances.
Gross margin for the year ended March 31, 2015 was 27.9%, a decrease of 10.7 percentage points as
compared to the year ended March 31, 2014 primarily driven by significantly higher trade discounts as
a percentage of net sales to support sell-through of higher than desired inventory levels at retail, higher
content amortization costs, higher inventory allowances, and lower sales volume which increased the impact
of fixed logistics costs. Changes in sales mix with proportionally higher sales of lower-margin toys, partially
offset by lower sales of lower-margin tablet, also contributed to decreased gross margin.
Operating expenses for the year ended March 31, 2015 increased 28% as compared to the year ended
March 31, 2014 primarily due to a $36.5 million non-cash long-lived assets impairment charge against our
property and equipment recorded during the quarter ended March 31, 2015, a $19.5 million non-cash goodwill
impairment charge recorded during the quarter ended December 31, 2014, higher spending on in-store displays
and higher severance costs associated with the reduction in force implemented in February 2015. The
22