LeapFrog 2008 Annual Report Download - page 5

LeapFrog Annual Report 2008
along his or her “learning journey” and helps customers transition to new products along the way. Web
sales on LeapFrog.com, a major focus area for 2008, grew 20 percent year-over-year driven in part by
more than two million Tag audio downloads through the Learning Path. Research results to-date show
that Learning Path users have a signifi cantly stronger affi nity for the LeapFrog brand and, as I noted above,
they are likely to be much bigger buyers of LeapFrog products. We believe there is substantial value to
be created through this learning “ecosystem,” and future investments will emphasize the development,
marketing, and monetization of the Learning Path.
Our Mission for 2009 and Beyond
Nobody has clear visibility as to what 2009 will bring economically, but nearly all key indicators point to
another challenging year in the marketplace. The recession will end eventually, and we will be in a good
position to grow when that occurs. We are taking decisive actions to improve our products, stimulate
content sales, sharpen price points where sell-through velocity or competition warrant, and introduce
new lower price-point products into the learning toy line. We will also continue to fi nd ways to run our
business more effi ciently and further reduce our cost structure as needed while maintaining the quality
and liquidity of our balance sheet. In 2009, we are expecting substantial sales declines given current
levels of retailer inventory and the challenges ahead. Yet, we still believe we will improve on 2008 cash
fl ow performance due to higher gross margin products and a lower operating expense base. We have
built our internal plans around break-even cash usage for the year.
LeapFrog’s strategic priorities are to invest in the core categories of reading, educational gaming, and
our Learning Path “ecosystem.” Our marketing will be oriented to increasing consumer sales in these
categories, to drive a higher percentage of content sales, and to catalyze new growth in the learning
category. In 2009, we will see the launch of new connected products in our reading and gaming categories,
as well as our learning toy line. Importantly, we will also expand our learning toy line, including our
attractively-priced Scout assortment and the Zippity learning system, our fi rst co-branded product with
Disney. For 2010, our product development efforts are underway and we will “up the ante” in all of our
product categories. By doing so, we believe we’ll be positioned for substantial earnings growth as the
consumer begins to feel the benefi ts of a strengthening economy.
We are focused on the interests of our shareholders, and we are driving very hard to improve cash fl ow,
strengthen our product line, and build demand among consumers and retailers for the LeapFrog brand.
We have a lot of work ahead of us, but we fi rmly believe that with our brand, our products, our balance
sheet, and our team, LeapFrog’s future is a bright one.
Sincerely,
Jeffrey G. Katz
Chairman and Chief Executive Offi cer
LeapFrog Enterprises, Inc.
April 20, 2009
This letter to shareholders contains forward-looking statements, including statements about future fi nancial results and anticipated
product launches. Please see the special note on forward-looking statements on page i of the enclosed LeapFrog Enterprises, Inc.
2008 Annual Report on Form 10-K.