LeapFrog 2006 Annual Report Download - page 2

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Fix…Reload…Grow.
Dear fellow shareholders:
Fiscal 2006 was a pivotal year for LeapFrog as we came to terms with the issues
negatively impacting our results, undertook an exhaustive review of our operations
and began rebuilding the senior management team. Beginning with Jeff taking the
helm as CEO in July, and in conjunction with our strategic review, we implemented
significant changes at the company that we believe will reestablish LeapFrog as a
growing, profitable and innovative organization. Our history demonstrates that
technology-based learning products and the strength of the LeapFrog brand can
create significant value for shareholders. In this year’s Letter to Shareholders, we’d
like to share with you our plan to “Fix, Reload and Grow” LeapFrog.
Key Changes in Direction*
Our strategic review resulted in a plan that can be summarized into the following
themes and priorities:
• Retake the reading market. The decline in sales in our LeapPad family of products
has been the largest contributor to our unsatisfactory results. But the reading
market is an area where our assets, skill and brand remain strong with retailers,
parents, teachers and kids. We know what to do here, and we have begun to
build a set of successor products to the LeapPad family.
• Web-connect our products. By web-connecting our products, consumers will
enjoy a more engaging experience, the learning benefit will be deeper and our
products will better reflect current market needs.
• Strengthen and age up the portfolio. Our portfolio can improve significantly
with more disciplined attention to product profitability and product lifecycle.
Additionally, there are currently gaps in our portfolio, including products for
kids aged 6 to 8, an age segment that contributed over $100 million in revenue
in 2002 but very little in 2006. Strengthening and aging up the portfolio (i.e.,
beyond age 6) will lead to both higher revenues and margins.
• Return our SchoolHouse division to profitability quickly and leverage the core
R&D investments of our consumer business. By utilizing the work now underway
on new reading products and keeping expenses under control, this business can
again be a meaningful contributor to earnings as well as a source of product in-
novation.
• Restore profitable international growth and focus on key markets. Our interna-
tional sales have declined as international market requirements were not ad-
equately reflected in our product development, product management or market-
ing processes. With the installation of our new international leadership, we are
making the changes necessary to improve performance.
• Build our product line around fewer, scalable platforms. By using standards-based
software methodologies and hardware components, and fewer of them, we’ll be
faster and more cost effective in the market with all of our products.
• Implement a metrics-driven culture. Each employee needs to know where we and
they stand against a concrete set of measures that define individual performance
and the performance trends of the company. These metrics must be tied to our
strategic plan, and they must be visible so that each employee can contribute to
keeping the company on track toward its goals.