Press release

EX-99.1 2 dex991.htm PRESS RELEASE Press release

Exhibit 99.1

FOR IMMEDIATE RELEASE


Press Contact:		Investor Contact:

Cherie Stewart		Jim Curley
LeapFrog Enterprises, Inc.		LeapFrog Enterprises, Inc.
510-596-3343		510-420-4882
cstewart@leapfrog.com		jcurley@leapfrog.com

LEAPFROG REPORTS THIRD QUARTER 2004 RESULTS

EMERYVILLE, Calif. – October 27, 2004 – LeapFrog Enterprises, Inc. (NYSE: LF), a leading developer of innovative technology-based educational products, today reported financial results for the third quarter ended September 30, 2004.

Net Sales

Net sales for the third quarter of 2004 were $231.1 million, compared with $203.9 million in the third quarter of 2003, up 13%.

Segment Results

Net sales from the U.S. Consumer segment were $170.8 million, up 2% from $167.1 million in the third quarter of 2003. Net sales from the International segment were $46.1 million, up 56% from $29.5 million in the third quarter of 2003. Net sales from the Education and Training segment were $14.2 million, up 96% from $7.3 million in the third quarter of 2003. The three segments represented 74%, 20% and 6%, respectively, of consolidated quarterly net sales for the third quarter of 2004, as compared with 82%, 14% and 4% of consolidated quarterly net sales in the third quarter of last year.

Gross Margin

Gross margin was 40.5% in the third quarter of 2004, compared with 51.4% in the third quarter of 2003. Gross margin declined largely due to lower gross profit margins in the U.S. Consumer segment, which saw a shift in the mix of products sold in the quarter from higher margin software to newer lower margin platforms, and to a lesser extent due to costs related to warehousing, freight and increased component and materials costs.

LeapFrog Reports Third Quarter 2004 Results

October 27, 2004

Page 2 of 6

Net Income

The company recorded net income for the third quarter of 2004 of $20.2 million, or $0.33 per diluted share, compared with net income for the third quarter of 2003 of $33.4 million, or $0.55 per diluted share.

“While our SchoolHouse and International Consumer businesses currently exhibit strong growth, the management team at LeapFrog is focused on optimizing our processes and reducing expenses, revitalizing our LeapPad business, increasing software sales this holiday season and increasing product margins in 2005, and improving the performance of our supply chain,” said Tom Kalinske, Chief Executive Officer. “We are committed to implementing these changes while also maintaining our focus on effective education, innovation and achieving our mission to become the leading learning products company in the world.”

Outlook for 2004

The company’s published guidance for the full 2004 year is as follows:

•

Net sales of $680 to $710 million

•

Gross profit margin of 42% to 43% of net sales

•

Operating expenses of 36% to 37% of net sales

•

Fully diluted share count of approximately 61.5 million

•

Diluted net income per share of $0.40 to $0.60

Third Quarter Report Conference Call

A conference call will be held today, Wednesday, October 27 at 5:00 p.m. Eastern time (2:00 p.m. Pacific time) to discuss these announcements and to provide further discussion of results for the quarter and outlook for 2004. A live web cast of the conference call will be offered on LeapFrog’s investor relations website at www.leapfroginvestor.com and on www.ccbn.com. A replay of the web cast will be available on these websites through December 31, 2004. To participate in the call, please dial (706) 634-0183.

LeapFrog Reports Third Quarter 2004 Results

October 27, 2004

Page 3 of 6

About LeapFrog

LeapFrog Enterprises, Inc. (NYSE: LF) is a leading designer, developer and marketer of innovative, technology-based learning products and related proprietary content, dedicated to making learning effective and engaging for all ages, at home and in schools, around the world. The company was founded in 1995 and is based in Emeryville, California. LeapFrog has developed a family of learning platforms that come to life with more than 100 interactive software titles, covering important subjects such as phonics, reading, writing, math, music, geography, social studies, spelling, vocabulary and science. In addition, the company has created more than 35 stand-alone educational products for children from birth to 16 years.

LeapFrog’s award-winning U.S. consumer products are available in six languages at major retailers in more than 25 countries around the world. The LeapFrog SchoolHouse-curriculum programs are currently in classrooms across the U.S. with over 200 interactive books and over 450 skill cards representing more than 6,000 pages of educational content. LeapFrog SchoolHouse^™ products have won numerous awards from the education industry, including the Golden Lamp Award and Distinguished Achievement Award from the Association of Educational Publishers, the Award of Excellence from Technology & Learning magazine and the Teacher’s Choice Award from Learning magazine.

LEAPFROG, LEAPPAD and the LeapFrog logo are trademarks or registered trademarks of

Forward-Looking Statements

Cautionary Statement Under The Private Securities Litigation Reform Act Of 1995:

Except for the historical information contained herein, this news release contains forward-looking statements, including the financial guidance in the section entitled “Outlook for 2004,” as well as other statements regarding the company’s anticipated net sales, gross margins, earnings, product introductions and availability, expected sales to U.S. schools, future sales to retailers based on retailers’ sales to consumers, and anticipated infrastructure and expense improvements. These forward-looking statements involve risks and uncertainties, including changes in budgets and product review cycles of schools and other educational programs, reseller’s changes in their own inventory and stocking models, the financial condition of retailers of the company’s products, the company’s ability to implement planned distribution and supply chain initiatives on time, the company’s ability to invent, develop, introduce and market products in a timely and cost-effective manner, the cost and availability of components and materials, the shelf space allocated to the company by its retail customers, the seasonality of the consumer electronics and toy business at retail, and the acceptance of the company’s products by consumers in the United States and internationally. These and other risks and uncertainties detailed from time to time in the company’s SEC filings, including its quarterly report on Form 10-Q filed on August 6, 2004, could cause the company’s actual results to differ materially from those discussed in this release. All forward-looking statements are based on information available to the company on the date hereof, and the company assumes no obligation to update such statements.

LeapFrog Reports Third Quarter 2004 Results

October 27, 2004

Page 4 of 6

###

LEAPFROG ENTERPRISES, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands)


	September 30,				December 31, 2003
	2004		2003		December 31, 2003
	(Unaudited)				(Audited)
ASSETS

Current assets:
Cash and cash equivalents	$	78,295	$	55,028	$	69,844
Short term investments		34,123		42,815		42,759
Restricted cash		8,918		—		—
Accounts receivable, net		188,847		155,447		281,792
Inventories, net		192,792		119,508		90,897
Prepaid expenses and other current assets		9,778		9,847		8,370
Deferred income taxes		25,773		26,121		11,735

Total current assets		538,526		408,766		505,397

Property and equipment, net		25,997		22,028		20,547
Deferred income taxes		1,218		9,332		619
Intangible assets, net		29,997		25,359		25,048
Other assets		9,515		185		1,048

Total assets	$	605,253	$	465,670	$	552,659

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Accounts payable	$	115,806	$	64,230	$	86,161
Accrued liabilities		39,624		32,700		44,634
Deferred revenue		322		1,027		1,417
Income taxes payable		9,620		2,440		4,729

Total current liabilities		165,372		100,397		136,941

Deferred rent and other long term liabilities		844		575		572
Deferred income taxes		31		3,595		—

Total stockholders’ equity		439,006		361,103		415,146

Total liabilities and stockholders’ equity	$	605,253	$	465,670	$	552,659

LeapFrog Reports Third Quarter 2004 Results

October 27, 2004

Page 5 of 6

LEAPFROG ENTERPRISES, INC.

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data)

(Unaudited)


	Three Months Ended September 30,					Nine Months Ended September 30,
	2004			2003		2004			2003
Net sales	$	231,094		$	203,888	$	383,540		$	348,651
Cost of sales		137,541			99,066		221,572			167,367

Gross profit		93,553			104,822		161,968			181,284

Operating expenses:
Selling, general and administrative		29,971			22,750		84,118			66,175
Research and development		15,242			14,003		42,657			41,679
Advertising		15,659			13,545		29,885			26,230
Depreciation and amortization		2,042			1,943		5,578			6,103

Total operating expenses		62,914			52,241		162,238			140,187

Income/(loss) from operations		30,639			52,581		(270	)		41,097

Interest income, net		487			247		1,380			950
Other income/(expense)		(449	)		412		344			3,034

Income before provision for income taxes		30,677			53,240		1,454			45,081

Provision for income taxes		10,444			19,836		451			16,572

Net income	$	20,233		$	33,404	$	1,003		$	28,509

Net income per common share:
Basic	$	0.34		$	0.58	$	0.02		$	0.50
Diluted	$	0.33		$	0.55	$	0.02		$	0.47

Shares used in calculating net income per common share:
Basic		60,060			58,045		59,686			56,692
Diluted		61,545			61,086		61,520			60,169

LeapFrog Reports Third Quarter 2004 Results

October 27, 2004

Page 6 of 6

LEAPFROG ENTERPRISES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Nine Months Ended September 30,
	2004			2003
Net income	$	1,003		$	28,509

Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		12,344			12,208
Provision for doubtful accounts		1,311			251
Deferred income taxes		(14,606	)		(14,327	)
Tax benefit from exercise of stock options and other		8,805			35,542
Other non-cash items		1,050			529

Other changes in operating assets and liabilities:
Accounts receivable		91,634			3,556
Inventories		(101,895	)		(24,632	)
Prepaid expenses and other current assets		(1,408	)		(5,782	)
Notes receivable due from related parties		—			595
Other assets		277			99
Accounts payable		29,645			5,386
Accrued liabilities		(5,010	)		(7,833	)
Income taxes payable		4,891			(19,392	)

Net cash provided by operating activities		28,041			14,709

Investing activities:
Purchases of property and equipment		(16,423	)		(13,183	)
Purchase of intangible assets		(6,320	)		(3,000	)
Purchases of investments		(69,725	)		(59,063	)
Sale of short term investments		60,541			18,635
Sale of investments in related party		—			181

Net cash used in investing activities		(31,927	)		(56,430	)

Financing activities:
Proceeds from the payment of notes receivable from stockholders		—			2,624
Proceeds from the exercise of stock options and employee stock purchase plan		11,970			23,199

Net cash provided by financing activities		11,970			25,823

Effect of exchange rate changes on cash		367			99

Increase in cash and cash equivalents		8,451			(15,799	)
Cash and cash equivalents at beginning of year		69,844			70,827

Cash and cash equivalents at end of period	$	78,295		$	55,028