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Certain statements in this presentation contain forward-looking statements. The forward-looking statements involve a number of risks and uncertainties. A number of factors could cause our actual results, performance, achievements or industry results to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Additional information concerning factors that could cause actual results to materially differ from those in the forward-looking statements is contained in the Company’s filings with the Securities and Exchange Commission.
Forward-Looking Statements
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Who are we?
• LeapFrog is first and foremost an educational products company
• We are driven by our passion to be the most effective brand for quality, technology-based products
• Our products solve education problems• Content of all products align with state and national
educational standards
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The LeapFrog Vision
Become the Leading Brand for Quality, Technology-Based Educational Products for
School, Work and Home Use for All Ages Around the World
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Our Business Segments - 2005
International
Revenue: $131
Education
and Training
Revenue: $40
US Consumer
Revenue: $478
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• Ranked third of all brands in the industry
• Strong portfolio of educational products
• Four large product categories– Stand-Alone– Book-based– Screen-based– FLY pentop computer
• Benefit: All products are based on real education curriculum
EducationUS Consumer
International
US Consumer Segment
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Little Touch 4%Stand-Alone 25% My First LeapPad 13%
Leapster /
LeapPad 44%
Stand-Alone 28%
Leapster / Leapster L-MAX 32%
LeapPad 13%
My First LeapPad 6%Little Touch7%
Other 6%
2003 2005
FLY 11%
Other 2%
Total LeapPad Family 61% Total LeapPad Family 27%
Our Product Portfolio is Broader(US Consumer Segment Only)
Leapster L-MAX 7%
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2005 FLY Pentop ComputerBig winner at this year’s 2005 Toy Fair
•Most Innovative Toy of the Year
•Best 2005 Educational Toy
•Overall best Toy of the Year
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• Includes sales in 6 languages in more than 25 countries
• Leapster L-MAX named Toy of the Year by the Canadian Toy Testing Council in 2005
• Growing France, Spain and Mexico businesses
Education
US Consumer
International
International Segment
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FLY™ Pentop Computer, Oppenheim Toy Portfolio, Platinum AwardLeapster™ Learning Game System, Dr. Toy, Best Smart Play/Smart Toy Product 2005Leapster L-MAX™ Learning Game System, Oppenheim Toy Portfolio, Platinum AwardLeapster L-MAX™ Learning Game System, The National Parenting Center Seal of ApprovalLearn-Around™ Playground, Oppenheim Toy Portfolio, Platinum AwardLearning Connections™ Train, - The National Parenting Center Seal of ApprovalLearning Connections™ Train, Parents' Choice Approved Award winnerLearning Connections™ Train, Oppenheim Toy Portfolio, Gold AwardMy First LeapPad® learning system, Oppenheim Toy Portfolio, Gold AwardMy First LeapPad® learning system, The National Parenting Center Seal of ApprovalTalking Words Factory™ 2: Code Word Caper, Parents’ Choice Silver Award
Our Products Have Received Numerous Awards in 2005:
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LeapFrog International Awards 2005
Leapster L-MAX learning game system, Canadian Toy Testing Council Energizer Battery-Operated Toy of the Year AwardLeapster L-MAX learning game system, Canadian Toy Association “2005 Hot Toy”Leapster L-MAX learning game system, Today’s Parent Top ToysLeapster L-MAX Letters on the Loose Software, Canadian Toy Testing Council three-out-of three-star ratingLearn-Around Playground, Canadian Toy Association 2005 Hot Toy - Pre-School CategoryLearning Band Walker, Canadian Toy Testing Council, three-out-of-three-star ratingLearning Connections Train, Canadian Toy Testing Council Children’s Choice AwardLearning Connections Train, Today’s Parent, Top ToysLittleTouch LeapPad Learning System, Canadian Toy Association 2005 Hot Toy - Pre-School Category – FrenchLittleTouch LeapPad Learning System, Canadian Toy Testing Council, three-out-of three-star ratingLittleTouch LeapPad Learning System, Protégez-Vous, five-out-of-six point rating
for French version
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T.O.T.Y (Toy of the Year) 2006
Toy of the Year: FLY™ Pentop Computer
Educational Toy of the Year: FLY™ Pentop Computer
Most Innovative Toy of the Year : FLY™ Pentop Computer
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The 2006 HOT winners (by category) are:
Apparel & Accessories: Perfect Panty, by HanesAutomotives: Ice & Frost Shield, by PrestoneCE & Entertainment: SoundDock, by BoseHardware: ONELink, by First AlertHealth & Beauty: Venus Vibrance, by GilletteHome Goods & Housewares: Tide To Go, by Procter & GambleOffice Supplies & Stationery: Scotch brand Stretchy Tape, by 3MSporting Goods: StreetPilot, by GarminToys: FLY Pentop computer, by LeapFrog
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49Dora the Explorer50Nemo50Robot Chicken51Shrek (Movie)51Winnie the Pooh51The Easter Bunny51Cinderella52Toy Story 255Shrek (Movie Character)56Toy Story 59LeapFrog68Santa Claus
Positive Q ScoreProperty
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• Products used in over 100,000 Classrooms– LFSH editorial staff– Educational Advisory Board– Maps to state standards
• Adjustable learning paths personalized to the child’s abilities
• Multimedia abundance, especially audio language support
• Grows with the child for added value
US Consumer
International
Education
Education and Training Segment
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• Individualized instructional “Learning Paths”• Comprehensive suite of reports• Aligned to State Standards
• Reading
• Language Arts
• Math
LeapTrack: K to 5 System for Formative Assessment and Differentiated Instruction
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To Strengthen the Company We Implemented a Three Step Process
Grow the Business
Restore Profitability
Fix Business Processes
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We Did What We Said We Would Do
• Successful launch of new products • Strong and more diversified portfolio of product line• Sales improved by 11% in US Consumer segment• Gross margin improved 2.5%• Operating expenses down $14 million• Net income of $17.5 vs. loss of $6.5 in 2004
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2005 Financial Performance Summary
• Strong US Consumer business offset sales declines in our International and Education and Training segments
• Gross margins increased for all segments – Better product mix and improved processes– Lower charges for inventory reserves and sales
allowances• Operating expenses are down• Strong cash position, debt free
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2005 Full Year Results
- 2.7 ppts39.9%Operating Expense+ 5.4 ppts3.1%Income / Loss from Operations
+ $24.0$17.5Net Income / (Loss)+ $0.39$0.28Diluted EPS
+ 3.5 ppts2.5%Net Income / (Loss)
+ 2.5 ppts43.0%Gross Profit% to Net Sales
+ $34.9$21.0Income / (Loss) from Operations(5.3%)$258.7Operating Expense8.0%$279.6Gross Profit1.5%$649.8Net Sales
Vs. 20042005 Amt.($ millions, except EPS)
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Consolidated Net Sales Stable
$400
$450
$500
$550
$600
$650
2004 2005
• Sales growth in US Consumer segment
• Offset by decline in sales in International and Education and Training segment
(US$ in Millions) Up 1%
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Consolidated Gross Margin (%) Improved
40.5%
43.0%
30%
32%
34%
36%
38%
40%
42%
44%
2004 2005
• Favorable product mix– Accretive FLY pentop computer
margin• Improvements in cost of sales• Improved freight costs• Gross margin up in each
segment– US Consumer: up 3.8 ppts– International: up 2.5 ppts– Education and Training: up 1.8 ppts
Up 2.5 ppts
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Consolidated Operating Expense down $14 million
$175$185$195$205$215$225$235$245$255$265$275
2004 2005
• Consumer business cost reduction actions
• R&D expense decreased– FLY Pentop Computer – Global Leverage
• Lower displays and catalog related costs
• Some increases due to:– restructuring – process improvements
(US$ in Millions)
Down $14
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Consolidated Operating Income Improves
-$30
-$20
-$10
$0
$10
$20
$30
2004 2005
Sales Stable+
Margins up 2.5 ppts+
Expenses Down $14 Million=
Operating Income up $35 million
(US$ in Millions)
Up $35
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Continuing the Innovation
Global launch of Little Leaps Grow-with-Me learning system
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Continuing the Innovation
Software for FLY Pentop Computer platform– Algebra, Creative writing, In-classroom testing
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Continuing the Innovation in the ClassroomThe Literacy Center
Now with alignment to DIBELS
Leapster Portable Technology Center
FLY Pentop Computer
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Long-Term Goals
• Continue to build global consumer educational brand
• Become leading provider of PreK-12 supplemental curriculum
• Create strategic advantage in the “extended learning” market
• Achieve superior levels of profitability and shareholder value
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