UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2004
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 001-31396
LeapFrog Enterprises, Inc.
(Exact Name of Registrant, As Specified in its Charter)
| Delaware | 95-4652013 | |
| (State of Incorporation) | (I.R.S. Employer Identification No.) |
6401 Hollis Street, Suite 150, Emeryville, California 94608-1071
(Address of Principal Executive Offices, Including Zip Code)
Registrant’s Phone Number, Including Area Code: (510) 420-5000
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨
The number of shares of Class A common stock, par value $0.0001, and Class B common stock, par value $0.0001, outstanding as of July 30, 2004, was 32,169,632 and 27,671,804, respectively.
| Page | ||||
| Item 1. |
Legal Proceedings | 35 | ||
| Item 4. |
Submission of Matters to a Vote of Security Holders | 35 | ||
| Item 6. |
Exhibits and Reports on Form 8-K | 37 |
| Signatures |
| Exhibit Index |
i
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
| June 30, |
December 31, 2003 |
|||||||||||
| 2004 |
2003 |
|||||||||||
| (Unaudited) | (Note 1) | |||||||||||
| ASSETS |
||||||||||||
| Current assets: |
||||||||||||
| Cash and cash equivalents |
$ | 103,474 | $ | 105,256 | $ | 69,844 | ||||||
| Short term investments |
57,019 | 23,824 | 42,759 | |||||||||
| Restricted cash |
8,918 | — | — | |||||||||
| Accounts receivable, net of allowances of $12,295, $7,455 and $26,980 at June 30, 2004 and 2003 and December 31, 2003, respectively |
65,328 | 55,174 | 281,792 | |||||||||
| Inventories, net |
177,404 | 96,135 | 90,897 | |||||||||
| Prepaid expenses and other current assets |
9,162 | 16,134 | 8,370 | |||||||||
| Deferred income taxes |
21,696 | 21,478 | 11,735 | |||||||||
| Total current assets |
443,001 | 318,001 | 505,397 | |||||||||
| Property and equipment, net |
23,780 | 21,210 | 20,547 | |||||||||
| Investments in affiliates and related parties |
— | 200 | — | |||||||||
| Deferred income taxes |
576 | 5,826 | 619 | |||||||||
| Intangible assets, net |
30,476 | 25,670 | 25,048 | |||||||||
| Other assets |
8,720 | 172 | 1,048 | |||||||||
| Total assets |
$ | 506,553 | $ | 371,079 | $ | 552,659 | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||||||
| Current liabilities: |
||||||||||||
| Accounts payable |
$ | 72,576 | $ | 36,727 | $ | 86,161 | ||||||
| Accrued liabilities |
27,338 | 20,795 | 44,634 | |||||||||
| Deferred revenue |
228 | 1,520 | 1,417 | |||||||||
| Income taxes payable |
— | — | 4,729 | |||||||||
| Total current liabilities |
100,142 | 59,042 | 136,941 | |||||||||
| Deferred rent and other long term liabilities |
496 | 579 | 572 | |||||||||
| Deferred income taxes |
31 | 2,787 | — | |||||||||
| Commitments and contingencies |
||||||||||||
| Stockholders’ equity: |
||||||||||||
| Class A common stock, par value $0.0001; 139,500 shares authorized; shares issued and outstanding: 32,068, 25,941 and 31,273 at June 30, 2004 and 2003 and December 31, 2003, respectively. |
3 | 3 | 3 | |||||||||
| Class B common stock, par value $0.0001; 40,500 shares authorized; shares issued and outstanding: 27,672, 31,599 and 27,883 at June 30, 2004 and 2003 and December 31, 2003, respectively. |
3 | 3 | 3 | |||||||||
| Additional paid-in capital |
303,951 | 268,015 | 294,976 | |||||||||
| Deferred compensation |
(1,382 | ) | (3,746 | ) | (2,492 | ) | ||||||
| Accumulated other comprehensive income |
711 | 138 | 828 | |||||||||
| Retained earnings |
102,598 | 44,258 | 121,828 | |||||||||
| Total stockholders’ equity |
405,884 | 308,671 | 415,146 | |||||||||
| Total liabilities and stockholders’ equity |
$ | 506,553 | $ | 371,079 | $ | 552,659 | ||||||
See accompanying notes.
1
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
| Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
| 2004 |
2003 |
2004 |
2003 |
|||||||||||||
| Net sales |
$ | 80,814 | $ | 68,030 | $ | 152,446 | $ | 144,763 | ||||||||
| Cost of sales |
44,347 | 32,209 | 84,031 | 68,301 | ||||||||||||
| Gross profit |
36,467 | 35,821 | 68,415 | 76,462 | ||||||||||||
| Operating expenses: |
||||||||||||||||
| Selling, general and administrative |
27,378 | 21,904 | 54,147 | 43,425 | ||||||||||||
| Research and development |
13,469 | 13,272 | 27,415 | 27,676 | ||||||||||||
| Advertising |
5,540 | 6,330 | 14,226 | 12,685 | ||||||||||||
| Depreciation and amortization |
1,743 | 2,257 | 3,536 | 4,160 | ||||||||||||
| Total operating expenses |
48,130 | 43,763 | 99,324 | 87,946 | ||||||||||||
| Loss from operations |
(11,663 | ) | (7,942 | ) | (30,909 | ) | (11,484 | ) | ||||||||
| Interest expense |
(3 | ) | (2 | ) | (4 | ) | (5 | ) | ||||||||
| Interest income |
500 | 382 | 897 | 708 | ||||||||||||
| Other income (expense), net |
(70 | ) | 1,018 | 793 | 2,622 | |||||||||||
| Loss before benefit for income taxes |
(11,236 | ) | (6,544 | ) | (29,223 | ) | (8,159 | ) | ||||||||
| Benefit for income taxes |
(3,829 | ) | (2,618 | ) | (9,993 | ) | (3,264 | ) | ||||||||
| Net loss |
$ | (7,407 | ) | $ | (3,926 | ) | $ | (19,230 | ) | $ | (4,895 | ) | ||||
| Net loss per common share - basic and diluted |
$ | (0.12 | ) | $ | (0.07 | ) | $ | (0.32 | ) | $ | (0.09 | ) | ||||
| Shares used in calculating net loss per common share - basic and diluted |
59,620 | 56,837 | 59,497 | 56,004 | ||||||||||||
See accompanying notes.
2
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| Six Months Ended June 30, |
||||||||
| 2004 |
2003 |
|||||||
| Net loss |
$ | (19,230 | ) | $ | (4,895 | ) | ||
| Adjustments to reconcile net loss to net cash provided by operating activities: |
||||||||
| Depreciation |
7,385 | 7,643 | ||||||
| Amortization |
872 | 522 | ||||||
| Loss on disposal of property and equipment |
— | 18 | ||||||
| Provision for allowances for accounts receivable |
18,032 | 5,184 | ||||||
| Deferred income taxes |
(9,887 | ) | (6,986 | ) | ||||
| Deferred rent |
(76 | ) | 29 | |||||
| Deferred revenue |
(1,189 | ) | (1,486 | ) | ||||
| Amortization of deferred compensation |
920 | 1,101 | ||||||
| Stock option compensation related to nonemployees |
278 | 454 | ||||||
| Tax benefit from exercise of stock options |
4,109 | 24,445 | ||||||
| Amortization of bond premium |
106 | 83 | ||||||
| Other changes in operating assets and liabilities: |
||||||||
| Accounts receivable |
198,432 | 109,312 | ||||||
| Inventories |
(86,507 | ) | (11,675 | ) | ||||
| Prepaid expenses and other current assets |
(792 | ) | (12,069 | ) | ||||
| Notes receivable due from related parties |
— | 595 | ||||||
| Other assets |
(295 | ) | 112 | |||||
| Accounts payable |
(13,585 | ) | (22,116 | ) | ||||
| Accrued liabilities |
(17,296 | ) | (19,738 | ) | ||||
| Income taxes payable |
(4,729 | ) | (21,832 | ) | ||||
| Net cash provided by operating activities |
76,548 | 48,701 | ||||||
| Investing activities: |
||||||||
| Purchases of property and equipment |
(10,618 | ) | (8,632 | ) | ||||
| Purchase of intangible assets |
(6,300 | ) | (3,000 | ) | ||||
| Purchases of short term investments |
(66,982 | ) | (25,532 | ) | ||||
| Sale of short term investments |
36,321 | 4,125 | ||||||
| Net cash used in investing activities |
(47,579 | ) | (33,039 | ) | ||||
| Financing activities: |
||||||||
| Proceeds from the payment of notes receivable from stockholders |
— | 2,624 | ||||||
| Proceeds from the exercise of stock options and employee stock purchase plan |
4,778 | 16,170 | ||||||