LeapFrog 2011 Annual Report Download - page 4

rough-and-tumble play. LeapPad offers more than 150 learning games, videos, eBooks, Ultra eBooks, music,
creativity studios, and flash cards as well as a built-in camera, video recorder, and microphone.
We are honored that LeapPad won many prominent awards around the globe, including the “Educational Toy
of the Year,” “Preschool Toy of the Year,” and the highly prestigious “Toy of the Year” by the U.S. Toy Industry
Association, as well as the “Toy of the Year” and “Lifestyle Toy of the Year” from the British Toy & Hobby
Association. These recent accolades continue a rich history of critical acclaim for LeapFrog. Over the years,
LeapFrog has received more than 20 awards from the U.S. Toy Industry Association in a variety of categories.
In fact, LeapFrog has won “Educational Toy of the Year” eight times in the twelve year history of the award.
Along with the launch of LeapPad, we launched our App Center to provide downloadable content for our LeapPad
and Leapster Explorer™ platforms. The App Center is an important extension of our connected strategy and
enables parents to download new and personalized content for our connected multimedia platforms and toys.
It also provides parents with personalized feedback about their child’s learning experiences with our products.
We continue to grow our base of millions of connected consumers which is proving to be a very valuable asset
in helping us to better understand customer needs, behaviors, and usage trends. This information is used to
improve our products and help us deliver more effective learning experiences. These relationships also offer us
a more cost effective route to market and communicate directly to our customer base.
In December, we took another big step in the strategic expansion of our company by opening our platform to
include quality educational entertainment content created by outside companies and studios. This is a step
in transforming LeapFrog from a company that develops and sells its own products into one that curates,
aggregates, and distributes all that is best in children’s educational entertainment. We announced deals with
six major networks and studios in December and had content from all of them available in our App Center prior
to the holiday tidal wave of platform connections.
As a result of these, and several other, key accomplishments, we delivered solid financial results in 2011. Net
sales increased 5% compared to the prior year. Sales in our international segment were particularly strong,
increasing 28% compared to the prior year, stemming from our investments in key regions. Retail point-of-
sale dollars1 increased 10% in the U.S. for the year and was even higher in international markets. Profitability
improved significantly. Operating income increased threefold and net income increased fourfold compared to
2010. Cash flow also improved significantly. Our cash balance at the end of the year improved by $52 million
and our free cash flow improved by $90 million compared to the prior year. We are especially pleased with
these results given the continued volatile global economy.
2012 and Beyond
We are well-positioned to continue to build on our strong performance.
We have an exciting pipeline of new products, in both the U.S. and international markets. We will introduce
innovative new educational toys, which are typically the “first handshake” with consumers into our brand.
We will also build on our base of multimedia learning platforms, such as LeapPad, Leapster Explorer, Tag™,
and Tag™ Junior, by launching new learning tablets and a new game system. And importantly, we will deliver
substantially more life-changing content in the form of game cartridges and apps, books, maps, eBooks, Ultra
eBooks, music, flash cards and more. We will do this by creating our own content and teaming up with the very
best third party content developers.
While we clearly have good momentum, we are aware that continued execution on our vision is a key to our
continued success. In addition, we are preparing for expected challenges, including difficult global economic
conditions, some platform transitions, and the inevitability of increased competitive entrants. Nonetheless,
we have several important strategic assets that position us well for continued growth and innovation, and as a
result, we are excited about our prospects for 2012 and beyond.
LeapFrog Annual Report 2011
1Please see Description of Retail Point-of-Sale Dollars at the end of this letter for an explanation of this operating metric.