LeapFrog 2007 Annual Report Download - page 14

• This category of products includes our popular Learn & Groove line, an interactive collection of
instruments that introduce numbers, letters, colors and shapes through music and song in either
English or Spanish, and our Alphabet Pal caterpillar, a musical pull-toy that teaches letter names,
letter sounds, learning songs and colors.
• Learning toys also include early reading products, such as the Fridge magnetic set of products for
infants and toddlers, including Fridge Phonics, a magnetic letter set designed for preschoolers and
kindergarteners that teaches letter names, letter sounds and learning songs, and the Word Whammer,
which challenges young learners to build three-letter words using their knowledge of letters and
letter sounds. This device, targeted at children ages 4 to 6, allows them to build over 300 words
through three different modes of play called load a letter, word play and word building. These
products introduce phonics, vocabulary skills and concepts or reinforce second-language learning to
preschool children through music and interactive play.
• Learning toy products, because of their low price points and focus on younger children, create
customer entry points to our Reading Solutions and Educational Gaming families of products.
For more information about the risks associated with our new products, and particularly LeapFrog’s
Learning Path software, see “Item 1A—Risk Factors—If we fail to predict consumer preferences and trends
accurately, develop and introduce new products rapidly or enhance and extend our existing core products, our
sales will suffer.” in this report.
Progress to Date
Our strategic review of our business, which began in July 2006, has led to significant changes in our
operations designed to reestablish us as a growing, profitable and innovative organization.
Fix, Reload and Grow
We believe our strategic plan will be achieved in three phases, which we describe as “Fix, Reload and
Grow”:
•Fixing the structural and operational problems that we believe contributed to earnings and sales declines
in our business. As its name implies, the “fix” portion of our strategy focuses on issues such as product
cost, stock keeping unit, or SKU mix, product pipeline and LeapFrog and retailer inventory. We believe
that the substantial portion of the “fix” phase is behind us.
• We are currently completing the reload phase of our strategy, which focuses on strengthening our
product pipeline with new products. Our current product development initiatives are focused on
developing successor products for the LeapPad products with Tag in 2008, enhancing our successful
Leapster product line with Leapster 2 and didj, improving our learning toys, and new launches in the
grade school arena. We expect our new product launches in the aggregate during 2008 will be large in
scope, potentially the largest in our history, on a dollar basis when compared to the first year’s sales of
our previous product launches.
• The next phase of our strategic plan is growing our business sustainably and profitably. In mid-2008,
with the introduction of the new products currently being developed, we believe we are positioned to
achieve growth with improved profitability going forward.
Milestones
•We have taken steps to strengthen our management team. A key initiative we undertook in the Fix phase
was strengthening our senior management team to fill leadership gaps and adding skill sets required to
support our strategic initiatives described above. We have hired executives with substantial leadership
expertise in the areas of product management, marketing, game development, international toy
marketing, web commerce, software engineering and finance.
6