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LeapFrog Reports Third Quarter 2013 Results

1 Normalized net income per diluted share and adjusted EBITDA are non-GAAP financial measures. They are described below and reconciled to their comparable GAAP measures in the accompanying financial tables.

2 Normalized net income, normalized net income per diluted share, and adjusted EBITDA are non-GAAP financial measures. They are described below and reconciled to their comparable GAAP measures in the accompanying financial tables.

         
LEAPFROG ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
 
Three Months Ended September 30,   Nine Months Ended September 30,
2013 2012 2013 2012
 
Net sales $ 200,985 $ 193,072 $ 366,908 $ 336,562
Cost of sales   121,607     115,771     223,316     200,974  
Gross profit 79,378 77,301 143,592 135,588
 
Operating expenses:
Selling, general and administrative 18,893 21,257 62,612 65,158
Research and development 7,543 9,164 25,250 26,902
Advertising 7,411 7,179 14,253 13,932
Depreciation and amortization   2,631     2,838     8,041     8,751  
Total operating expenses   36,478     40,438     110,156     114,743  
Income from operations 42,900 36,863 33,436 20,845
 
Other income (expense):
Interest income 12 37 54 226
Interest expense (9 ) (49 ) (9 ) (49 )
Other, net   37     (898 )   12     (2,014 )
Total other income (expense), net   40     (910 )   57     (1,837 )
Income before income taxes 42,940 35,953 33,493 19,008
Provision for (benefit from) income taxes   16,567     (5,785 )   13,421     (5,163 )
Net Income $ 26,373   $ 41,738   $ 20,072   $ 24,171  
 
Net income per share:
Class A and B - basic $ 0.38 $ 0.62 $ 0.29 $ 0.36
Class A and B - diluted $ 0.37 $ 0.60 $ 0.28 $ 0.35
 

Weighted average shares used to calculate net income per share:

Class A and B - basic 68,552 67,400 68,200 66,912
Class A and B - diluted 71,051 69,512 70,744 69,071
 

       
LEAPFROG ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
(Unaudited)
 
September 30, December 31,
2013 2012 2012
ASSETS
Current assets:
Cash and cash equivalents $ 78,373 $ 49,427 $ 120,000
Accounts receivable, net of allowances for doubtful accounts of

$106, $3,893 and $292, respectively

184,798 170,106 180,043
Inventories 121,738 115,083 40,311
Prepaid expenses and other current assets 8,727 9,522 8,353
Deferred income taxes   4,248     1,035     9,315  
Total current assets 397,884 345,173 358,022
Deferred income taxes 6,181 1,309 13,269
Property and equipment, net 32,233 20,411 23,723
Capitalized product costs, net 15,825 10,935 12,109
Goodwill 19,549 19,549 19,549
Other intangible assets, net 200 1,550 950
Other assets   1,161     1,534     1,283  
Total assets $ 473,033   $ 400,461   $ 428,905  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 59,086 $ 82,128 $ 31,617
Accrued liabilities 35,348 37,546 51,353
Deferred revenue 12,696 8,176 8,516
Income taxes payable   712     414     493  
Total current liabilities 107,842 128,264 91,979
Long-term deferred income taxes 3,759 3,798 3,759
Other long-term liabilities   1,824     2,723     3,224  

Total liabilities

113,425 134,785 98,962
Stockholders' equity:
Class A Common Stock, par value $0.0001;

Authorized - 139,500 shares; Outstanding: 64,524, 61,905 and 61,970, respectively

6 6 6
Class B Common Stock, par value $0.0001;

Authorized - 40,500 shares; Outstanding: 4,395, 5,715 and 5,715, respectively

1 1 1
Treasury stock (185 ) (185 ) (185 )
Additional paid-in capital 415,618 403,187 405,078
Accumulated other comprehensive (loss) income 124 976 1,071
Accumulated deficit   (55,956 )   (138,309 )   (76,028 )
Total stockholders’ equity   359,608     265,676     329,943  
Total liabilities and stockholders’ equity $ 473,033   $ 400,461   $ 428,905  
 

         
LEAPFROG ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 

Three Months Ended September 30,

Nine Months Ended September 30,
2013 2012 2013 2012
Operating activities:
Net income $ 26,373 $ 41,738 $ 20,072

 

$ 24,171
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization 5,352 5,749 15,241 16,871
Deferred income taxes 15,602 26 12,140 238
Stock-based compensation expense 2,623 2,027 7,166 5,066
Loss on sale of long-term investments, net of tax - - - 91
Loss on disposal of long-term assets - - - 2
Allowance for doubtful accounts (142 ) 119 (101 ) 3,371
Other changes in operating assets and liabilities:
Accounts receivable, net (122,833 ) (118,335 ) (5,117 ) (15,493 )
Inventories (54,980 ) (61,856 ) (81,848 ) (80,149 )
Prepaid expenses and other current assets 1,579 (133 ) (424 ) (1,367 )
Other assets 17 58 122 (414 )
Accounts payable 13,539 49,889 27,509 47,454
Accrued liabilities and deferred revenue 15,534 14,117 (11,712 ) (4,805 )
Other long-term liabilities (120 ) (6,266 ) (1,400 ) (6,638 )
Income taxes payable   18     35     224     37  
Net cash used in operating activities   (97,438 )   (72,832 )   (18,128 )   (11,565 )
Investing activities:
Purchases of property and equipment (5,161 ) (4,004 ) (17,127 ) (10,396 )
Capitalization of product costs (2,874 ) (1,731 ) (9,605 ) (5,623 )
Sale of investments   -     -     -     2,500  
Net cash used in investing activities   (8,035 )   (5,735 )   (26,732 )   (13,519 )
Financing activities:
Proceeds from stock option exercises and employee stock purchase plan 2,236 1,268 4,499 4,007
Net cash paid for payroll taxes on restricted stock unit releases   (259 )   (301 )   (1,126 )   (1,513 )
Net cash provided by financing activities   1,977     967     3,373     2,494  
Effect of exchange rate changes on cash   451     101     (140 )   154  
Net change in cash and cash equivalents (103,045 ) (77,499 ) (41,627 ) (22,436 )
Cash and cash equivalents, beginning of period   181,418     126,926     120,000     71,863  
Cash and cash equivalents, end of period $ 78,373   $ 49,427   $ 78,373   $ 49,427  
 

       
LEAPFROG ENTERPRISES, INC.
SUPPLEMENTAL FINANCIAL INFORMATION
(In thousands)
(Unaudited)
   
Three Months Ended September 30, Nine Months Ended September 30,
2013 2012 2013 2012
 
Net sales $ 200,985 $ 193,072 $ 366,908 $ 336,562

 

Cost of sales (1)

  121,607     115,771     223,316     200,974  
Gross profit 79,378 77,301 143,592 135,588
 
Operating expenses: (2)
Selling, general and administrative 18,893 21,257 62,612 65,158
Research and development 7,543 9,164 25,250 26,902
Advertising 7,411 7,179 14,253 13,932
Depreciation and amortization   2,631     2,838     8,041     8,751  
Total operating expenses   36,478     40,438     110,156     114,743  
Income from operations 42,900 36,863 33,436 20,845
 
Other income (expense):
Interest income 12 37 54 226
Interest expense (9 ) (49 ) (9 ) (49 )
Other, net   37     (898 )   12     (2,014 )
Total other income (expense), net   40     (910 )   57     (1,837 )
Income before income taxes 42,940 35,953 33,493 19,008
Provision for (benefit from) income taxes   16,567     (5,785 )   13,421     (5,163 )
Net income $ 26,373   $ 41,738   $ 20,072   $ 24,171  
     
(1 )Includes depreciation and amortization 2,721 2,911 7,200 8,120
 
(2 )Includes stock-based compensation as follows:
Selling, general and administrative 2,293 1,794 6,334 4,438
Research and development 330 233 832 628
 
Segment data:
Net sales:
U.S. segment 146,831 145,691 263,286 247,050
International segment 54,154 47,381 103,622 89,512
 
Income from operations*:
U.S. segment 29,652 24,781 10,186 2,059
International segment 13,248 12,082 23,250 18,786
     
* Certain corporate-level operating expenses associated with sales and marketing, product support, human resources, legal, finance, information technology, corporate development, procurement activities, research and development, legal settlements and other corporate costs are charged entirely to our U.S. segment, rather than being allocated between the U.S. and International segments.
 

         
LEAPFROG ENTERPRISES, INC.
SUPPLEMENTAL DISCLOSURE REGARDING NON-GAAP FINANCIAL INFORMATION

RECONCILIATION OF GAAP NET INCOME TO NORMALIZED NET INCOME,

GAAP NET INCOME PER SHARE TO NORMALIZED NET INCOME PER SHARE,

AND GAAP NET INCOME TO ADJUSTED EBITDA

(In thousands)
(Unaudited)
 

The following table presents a reconciliation of net income, a GAAP measure, to normalized net income, a non-GAAP measure, where available. Normalized net income is defined as net income adjusted to reflect an effective 37.5% tax rate. Normalized net income per share is calculated as normalized net income divided by weighted-average basic or diluted shares outstanding, as applicable.

 
Three Months Ended September 30, Nine Months Ended September 30,

Twelve Months Ended December 31,

2013 2012 2013 2012 2012
 
Net income - GAAP $ 26,373 $ 41,738 $ 20,072 $ 24,171 $ 86,452
Provision for (benefit from) income taxes   16,567   (5,785 )   13,421     (5,163 )   (24,504 )
Income before income taxes 42,940 35,953 33,493 19,008 61,948
Effective tax expense at 37.5% rate   16,103   13,482     12,560     7,128     23,231  
Normalized net income - Non-GAAP $ 26,837 $ 22,471   $ 20,933   $ 11,880   $ 38,717  
 
Net income per share - GAAP:
Class A and B - basic $ 0.38 $ 0.62 $ 0.29 $ 0.36 $ 1.29
Class A and B - diluted $ 0.37 $ 0.60 $ 0.28 $ 0.35 $ 1.24
 
Normalized net income per share - Non-GAAP:
Class A and B - basic $ 0.39 $ 0.33 $ 0.31 $ 0.18 $ 0.58
Class A and B - diluted $ 0.38 $ 0.32 $ 0.30 $ 0.17 $ 0.56
 
Weighted-average shares used to calculate
net income per share:
Class A and B - basic 68,552 67,400 68,200 66,912 67,100
Class A and B - diluted 71,051 69,512 70,744 69,071 69,720
 
 

The following table presents a reconciliation of net income, a GAAP measure, to adjusted EBITDA, a non-GAAP measure. Adjusted EBITDA is defined as earnings before interest, taxes, depreciation and amortization, other expenses (income), and stock-based compensation.

 
 
Three Months Ended September 30, Nine Months Ended September 30,
2013 2012 2013 2012
 
Net income - GAAP $ 26,373 $ 41,738 $ 20,072 $ 24,171
(Less) add:
Interest income (12 ) (37 ) (54 ) (226 )
Interest expense 9 49 9 49
Provision for (benefit from) income taxes 16,567 (5,785 ) 13,421 (5,163 )
Depreciation and amortization 5,352 5,749 15,241 16,871
Other, net (37 ) 898 (12 ) 2,014
Stock-based compensation   2,623     2,027     7,166     5,066  
 
Adjusted EBITDA - Non-GAAP $ 50,875   $ 44,639   $ 55,843   $ 42,782  
 




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