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| LeapFrog Reports First Quarter 2006 Financial Results |
First Quarter Highlights
EMERYVILLE, Calif., May 4 /PRNewswire-FirstCall/ -- LeapFrog Enterprises, Inc. (NYSE: LF) today reported financial results for the quarter ended March 31, 2006. For the quarter, the company recorded a net loss of $23.6 million, or ($0.38) per share compared to a net loss of $19.9 million, or ($0.32) per share for the first quarter of 2005. "We continue to make progress in improving our business processes and are on schedule for our new product introductions," commented Tom Kalinske, Chief Executive Officer. "We are investing in products and programs to strengthen the product line for the long-term. Towards that end, we will be increasing our research and development spending over 2005 levels to drive innovation, while continuing to provide marketing programs to support long-term growth." Financial Overview Net sales for the first quarter of 2006 were $66.5 million, compared to $71.9 million, for the first quarter of 2005, down 7% on both a reported and constant-currency basis. Net sales declined in the International and Education and Training segments, partially offset by a net sales increase in our U.S. Consumer segment. First quarter gross margin decreased by 1.3 percentage points to 37.3% in 2006 from 38.6% in the same period of 2005. An unfavorable segment mix and lower gross margin in the International segment contributed to the overall decline in gross margin. Selling, general and administrative expenses declined slightly due to $3 million of lower legal expenses than the first quarter of 2005 and the on-going benefits from the 2005 workforce reduction, partially offset by a $1.4 million increase in equity-based compensation. The increase in equity-based compensation was due in part to the adoption of Statement of Financial Accounting Standard No. 123 (R), Share-Based Payment. Research and development expenses declined by $2.3 million due to the timing of expenditures. The operating loss for the quarter was $29.2 million, compared to an operating loss of $29.1 million in the first quarter of 2005. Lower sales and gross margins were offset by reductions in operating expenses. The effective tax rate fell to 13.9% for the first quarter of 2006 from 29.5% for the first quarter of 2005. The decline in the tax rate was due to the benefits of foreign sourcing arrangements and the impact of research and development tax credits. As a result of the lower effective tax rate and resulting lower tax benefit, net loss increased to $23.6 million for the first quarter of 2006, compared to a net loss of $19.9 million for the first quarter of 2005. Cash from operations was $133 million for the quarter, up $43 million from the first quarter last year. Reductions in accounts receivable, and to a lesser degree, inventories, drove the improvement. Cash and short term investments at the end of the quarter stood at $202 million, up from $186 million at the end of the first quarter of 2005. Conference Call A conference call will be held today, May 4, at 5:00 pm Eastern time (2:00 pm Pacific time) to provide further discussion of the results for the first quarter of 2006. 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 April 30, 2007. To participate in the call, please dial 706-634-0183. 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 18 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(TM) curriculum programs are currently in more than 100,000 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(TM) 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. NOTE: LEAPFROG, the LeapFrog Logo, LEAPFROG SCHOOLHOUSE, LEAPPAD, LEAPSTER TV, LITTLE LEAPS, FLY, LEAPSTER and LEAPSTER L-MAX are trademarks or registered trademarks of LeapFrog Enterprises, Inc. 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 statements regarding long-term sales and profit growth, expected levels of research and development spending, and anticipated product launches. These forward-looking statements involve risks and uncertainties, including the company's ability to develop and launch new products on time and at anticipated margin and profit levels, the company's ability to develop and market products that are accepted by consumers, schools and retailers at sales and profit levels to justify the development investment, and the company's ability to achieve cost reductions and implement business process and system efficiencies on a timely basis. These and other risks and uncertainties detailed from time to time in the company's SEC filings, including its 2005 annual report on Form 10-K filed on March 7, 2006, 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.
Investor Contact: Media Contact:
Eileen VanEss Cherie Stewart
510-420-5361 510-596-3343
evaness@leapfrog.com cstewart@leapfrog.com
LEAPFROG ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
March 31 December 31
2006 2005 2005
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $97,624 $35,343 $48,422
Short term investments 104,650 150,794 23,650
Restricted cash -- -- 150
Accounts receivable, net of
allowances of $1,601, $2,353,
and $1,328 at March 31, 2006
and 2005 and December 31,
2005, respectively 50,257 69,305 257,747
Inventories, net 163,733 129,289 169,072
Prepaid expenses and other
current assets 16,403 13,715 21,319
Deferred income taxes 11,141 34,153 10,715
Total current assets 443,808 432,599 531,075
Property and equipment, net 23,253 22,915 23,817
Deferred income taxes 19,295 7,087 16,588
Intangible assets, net 27,153 29,024 27,574
Other assets 9,844 3,979 6,775
Total assets $523,353 $495,604 $605,829
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $22,532 $32,169 $ 74,329
Accrued liabilities 33,658 36,278 43,811
Deferred revenue 413 332 414
Income taxes payable 375 6,811 1,781
Total current liabilities 56,978 75,590 120,335
Deferred rent and other long
term liabilities 19,714 1,212 19,171
Stockholders' equity:
Class A common stock, par value
$0.0001; 139,500 shares
authorized; shares issued
and outstanding: 34,862;
33,962 and 34,853 at March 31,
2006 and 2005 and December 31,
2005, respectively. 3 3 3
Class B common stock, par value
$0.0001; 40,500 shares
authorized; shares issued and
outstanding: 27,614 at March 31,
2006 and 2005 and December 31,
2005, respectively. 3 3 3
Treasury Stock (185) -- (148)
Additional paid-in capital 336,462 323,218 342,595
Deferred compensation -- (1,899) (9,855)
Accumulated other comprehensive
income 1,174 2,056 925
Retained earnings 109,204 95,421 132,800
Total stockholders' equity 446,661 418,802 466,323
Total liabilities and
stockholders' equity $523,353 $495,604 $605,829
LEAPFROG ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Ended March 31
2006 2005
Net sales $66,548 $71,859
Cost of sales 41,759 44,087
Gross profit 24,789 27,772
Operating expenses:
Selling, general and administrative 32,851 33,209
Research and development 12,440 14,739
Advertising 6,158 6,493
Depreciation and amortization 2,529 2,430
Total operating expenses 53,978 56,871
Loss from operations (29,189) (29,099)
Interest expense (98) (4)
Interest income 1,376 853
Other income (expense), net 462 55
Loss before benefit for income taxes (27,449) (28,195)
Benefit for income taxes 3,853 8,316
Net loss $(23,596) $(19,879)
Net loss per common share:
Basic $(0.38) $(0.32)
Diluted $(0.38) $(0.32)
Shares used in calculating net loss per
common share:
Basic and Diluted 62,469 61,187
Segment Reporting
The Company's reportable segments include U.S. Consumer, International and
Education and Training.
Three Months Ended March 31
2006 2005 % Change
Segment Net Sales
U.S. Consumer 46,800 44,260 6%
International 12,041 17,533 (31%)
Education and Training 7,707 10,066 (24%)
Total Company Net Sales $66,548 $71,859 (7%)
LEAPFROG ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended March 31
2006 2005
Net loss $(23,596) $(19,879)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation 4,699 3,833
Amortization 421 472
Unrealized foreign currency loss 894 3,538
Loss (Gain) on disposal of property
and equipment (393) 74
Provision for doubtful accounts (344) (124)
Deferred income taxes (3,134) (9,612)
Deferred rent and deferred revenue 542 (118)
Stock-based compensation related to employees 2,364 --
Tax benefit from exercise of stock options -- 1,034
Other changes in operating assets and liabilities:
Accounts receivable 207,833 158,059
Inventories 5,339 1,545
Prepaid expenses and other current assets 4,916 (407)
Other assets (3,070) --
Accounts payable (51,797) (30,515)
Accrued and other liabilities (10,150) (17,454)
Income taxes payable (1,406) (143)
Other 12 289
Net cash provided by operating activities 133,130 90,592
Investing activities:
Purchases of property and equipment (3,742) (2,023)
Purchases of short-term investments (179,673) (190,665)
Sale of short-term investments 98,823 76,483
Net cash used in investing activities (84,592) (116,205)
Financing activities:
Cash used to purchase treasury stock (37) --
Proceeds from the exercise of stock options
and employee stock purchase plan 1,346 3,201
Net cash provided by financing activities 1,309 3,201
Effect of exchange rate changes on cash (645) (2,804)
(Decrease) Increase in cash and
cash equivalents 49,202 (25,216)
Cash and cash equivalents at beginning
of period 48,422 60,559
Cash and cash equivalents at end of period $97,624 $35,343
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for income taxes,
net of refunds $788 $376
Supplemental Disclosure of Non-Cash Investing
and Financing Activities
Issuance of restricted stock to employees $-- $289
SOURCE LeapFrog Enterprises, Inc.
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