LeapFrog 2006 Annual Report Download - page 8

PART I
Item 1. Business.
Overview
LeapFrog designs, develops and markets technology-based educational platforms with curriculum
interactive software content and stand-alone products and these products are for sale through retailers,
distributors and directly to schools. We operate three business segments, namely U.S. Consumer, International,
and SchoolHouse (formerly referred to as “Education and Training”). To date, we have established our brands
and products primarily for children up to age 12 in the U.S. retail markets and in a number of international retail
markets. Sales in the U.S. Consumer and International segments, the largest business segments, currently are
generated in the toy aisles of retailers. Sales of products in the SchoolHouse segment are predominantly to
educational institutions. Our products are based on sound educational pedagogy under the guidance of our
in-house educational experts and our Education Advisory Board. We use our proprietary technologies and
content to make these products interactive and engaging.
In July 2006, our board of directors appointed Jeffrey G. Katz, as our President and Chief Executive Officer.
Under Mr. Katz’s leadership, we commenced and completed a full strategic review of our business. This detailed
review was substantially completed in the Fall of 2006, when we announced the Company’s plan to:
• Regain market leadership in the learn-to-read market.
• Build our business around key technology platform architectures.
• Provide web connectivity for all our key products.
• Strengthen our portfolio of products, including those for ages 6 and above.
• Manage the business by creating a metrics-driven culture.
• Continually review and strengthen our international product offering and distribution capabilities, as a
significant part of our overall plan.
We expect sales productivity in 2007. For information on our operating plan that could affect our business,
see “Item 1A.—Risk Factors—Our operating plan may not correct recent trends in our business.”
Our platform products provide us with a large installed base of platforms on which to build continued
software content sales. For our LeapPad family of platforms, which includes our LittleTouch LeapPad, My First
LeapPad, Classic LeapPad, LeapPad Plus Writing and Quantum LeapPad platforms, we sell a library of
interactive content related to those platforms that consists of an audio software cartridge and a corresponding
interactive book or activity card. For our Leapster and Leapster L-MAX handhelds and our FLY Pentop
Computer, our content comes in software cartridges that slot easily into the platforms.
Users of our interactive content can hear information regarding various academic subjects, read engaging
stories or play interactive, educational games. These titles feature our internally developed, branded LeapFrog
characters, such as Leap, Lily, Tad and Professor Quigley, while others feature popular licensed characters such
as Thomas the Tank Engine, Dora the Explorer, SpongeBob SquarePants, Bob the Builder, Winnie-the-Pooh,
Disney Princesses, Batman, Spider-Man and characters from movies such as Madagascar,Finding Nemo and
The Incredibles.
Our product line also includes a variety of stand-alone educational products for children from birth to 12
years. These stand-alone products combine our proprietary technologies with a fixed set of content and include
interactive plush toys, Learn & Groove Counting Maracas and Alphabet Drum, our LeapStart learning table, our
Fridge Phonics magnetic set products for infants and toddlers, our The Letter Factory video and our Explorer
interactive globes for older children.
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