LeapFrog 2011 Annual Report Download - page 11

PART I
ITEM 1. BUSINESS
LeapFrog Enterprises, Inc. (‘‘LeapFrog’’ or ‘‘we,’’ ‘‘us’’ or ‘‘our’’), founded in 1995 and incorporated in 1997
in the State of Delaware, is a leading developer of educational entertainment for children. Our product
portfolio consists of multimedia learning platforms and related content and learning toys. We have developed
a number of learning platforms, including the LeapPad Explorer (‘‘LeapPad’’) learning tablet, the Leapster
family of multimedia learning platforms and the Tag and Tag Junior reading systems, which support a broad
library of content titles. We have created hundreds of interactive content titles for our platforms, covering
subjects such as phonics, reading, writing and math. In addition, we have a broad line of stand-alone learning
toys. Many of our products connect to our proprietary online LeapFrog Learning Path (the ‘‘Learning Path’’),
which provides personalized feedback on a child’s learning progress and offers product recommendations to
enhance each child’s learning experience. Our products are available in four languages (including Queen’s
English) and are sold globally through retailers, distributors and directly to consumers via the leapfrog.com
online store and LeapFrog App Center. LeapFrog is headquartered in Emeryville, California.
Our mission is to help children achieve their potential. Since our inception, we have won more than
1,200 educational and parenting awards and have won Educational Toy of the Year from the Toy Industry
Association in 8 out of 12 years, including 2011.
We generate revenue from selling our multimedia learning platforms and a range of learning toys. In 2011, in
the United States (‘‘U.S.’’), we had the best selling kids learning tablet, the best selling learning game system,
the best selling learn to read system and the best selling electronic learning toy line according to industry
sources. We also generate revenue from the sale of a wide range of cartridge based and digitally downloadable
content and books for our platforms that we develop based on licensed characters or our LeapFrog-owned
characters. All of our products are based on our proprietary curriculum, which teaches more than 2,500 skills
across nearly 100 skill categories.
Our multimedia platforms and certain other products connect to our proprietary online LeapFrog Learning
Path, which provides parents personalized feedback on their child’s learning progress and offers product
recommendations to enhance their child’s learning experience. Parents are able to ‘‘see the learning’’ and gain
personalized insight into their child’s learning progress.
Our App Center, launched in 2011, gives our consumers access to a variety of downloadable content for our
multimedia platforms. We also began distributing third party video content for use on our multimedia
platforms through the App Center near the end of 2011.
Beginning April 2004 and continuing through late December 2011, we were a ‘‘controlled company’’ under
the rules of the New York Stock Exchange (‘‘NYSE’’), as Mollusk Holdings, LLC (‘‘Mollusk’’) held more
than 50% of the voting power of our outstanding shares. On December 27, 2011, Mollusk’s voting power of
LeapFrog’s outstanding shares decreased to approximately 42.8% resulting from a conversion of our Class B
common stock into shares of Class A common stock, and therefore, LeapFrog is no longer considered a
‘‘controlled company’’ under the NYSE rules.
Business Segments and Operations
We organize, operate and assess our business in two primary operating segments: U.S. and International.
See Note 19 — ‘‘Segment Reporting’’ in our Consolidated Financial Statements included in this Annual Report
on Form 10-K for detailed information on our segments and their financial results for the fiscal years ended
December 31, 2011, 2010 and 2009.
The operations of our business segments are described below.
•United States: The U.S. segment is responsible for the development, design, sales and marketing
of multimedia learning platforms and related content, as well as learning toys, sold in the U.S. This
segment markets and sells our products directly to national and regional mass-market and specialty
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