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 September 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 October 31, 2004, was 33,178,649 and 27,618,768, respectively.
i
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
| September 30, |
December 31, 2003 |
|||||||||||
| 2004 |
2003 |
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| (Unaudited) | (Note 1) | |||||||||||
| ASSETS |
||||||||||||
| Current assets: |
||||||||||||
| Cash and cash equivalents |
$ | 78,295 | $ | 55,028 | $ | 69,844 | ||||||
| Short term investments |
34,123 | 42,815 | 42,759 | |||||||||
| Restricted cash |
8,918 | — | — | |||||||||
| Accounts receivable, net of allowances of $1,155, $1,268 and $1,620 at September 30, 2004 and 2003 and December 31, 2003, respectively |
188,847 | 155,447 | 281,792 | |||||||||
| Inventories, net |
192,792 | 119,508 | 90,897 | |||||||||
| Prepaid expenses and other current assets |
9,778 | 9,847 | 8,370 | |||||||||
| Deferred income taxes |
25,773 | 26,121 | 11,735 | |||||||||
| Total current assets |
538,526 | 408,766 | 505,397 | |||||||||
| Property and equipment, net |
25,997 | 22,028 | 20,547 | |||||||||
| Deferred income taxes |
1,218 | 9,332 | 619 | |||||||||
| Intangible assets, net |
29,997 | 25,359 | 25,048 | |||||||||
| Other assets |
9,515 | 185 | 1,048 | |||||||||
| Total assets |
$ | 605,253 | $ | 465,670 | $ | 552,659 | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||||||
| Current liabilities: |
||||||||||||
| Accounts payable |
$ | 115,806 | $ | 64,230 | $ | 86,161 | ||||||
| Accrued liabilities |
39,624 | 32,700 | 44,634 | |||||||||
| Deferred revenue |
322 | 1,027 | 1,417 | |||||||||
| Income taxes payable |
9,620 | 2,440 | 4,729 | |||||||||
| Total current liabilities |
165,372 | 100,397 | 136,941 | |||||||||
| Deferred rent and other long term liabilities |
844 | 575 | 572 | |||||||||
| Deferred income taxes |
31 | 3,595 | — | |||||||||
| Commitments and contingencies |
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| Stockholders’ equity: |
||||||||||||
| Class A common stock, par value $0.0001; 139,500 shares authorized; shares issued and outstanding: 33,147, 28,166 and 31,273 at September 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: 27,619, 30,346 and 27,883 at September 30, 2004 and 2003 and December 31, 2003, respectively. |
3 | 3 | 3 | |||||||||
| Additional paid-in capital |
315,881 | 286,284 | 294,976 | |||||||||
| Deferred compensation |
(907 | ) | (3,113 | ) | (2,492 | ) | ||||||
| Accumulated other comprehensive income |
1,195 | 264 | 828 | |||||||||
| Retained earnings |
122,831 | 77,662 | 121,828 | |||||||||
| Total stockholders’ equity |
439,006 | 361,103 | 415,146 | |||||||||
| Total liabilities and stockholders’ equity |
$ | 605,253 | $ | 465,670 | $ | 552,659 | ||||||
See accompanying notes.
1
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
| Three Months Ended September 30, |
Nine Months Ended September 30, |
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| 2004 |
2003 |
2004 |
2003 |
|||||||||||||
| Net sales |
$ | 231,094 | $ | 203,888 | $ | 383,540 | $ | 348,651 | ||||||||
| Cost of sales |
137,541 | 99,066 | 221,572 | 167,367 | ||||||||||||
| Gross profit |
93,553 | 104,822 | 161,968 | 181,284 | ||||||||||||
| Operating expenses: |
||||||||||||||||
| Selling, general and administrative |
29,971 | 22,750 | 84,118 | 66,175 | ||||||||||||
| Research and development |
15,242 | 14,003 | 42,657 | 41,679 | ||||||||||||
| Advertising |
15,659 | 13,545 | 29,885 | 26,230 | ||||||||||||
| Depreciation and amortization |
2,042 | 1,943 | 5,578 | 6,103 | ||||||||||||
| Total operating expenses |
62,914 | 52,241 | 162,238 | 140,187 | ||||||||||||
| Income/(loss) from operations |
30,639 | 52,581 | (270 | ) | 41,097 | |||||||||||
| Interest expense |
(7 | ) | (3 | ) | (11 | ) | (8 | ) | ||||||||
| Interest income |
494 | 250 | 1,391 | 958 | ||||||||||||
| Other income (expense), net |
(449 | ) | 412 | 344 | 3,034 | |||||||||||
| Income before provision for income taxes |
30,677 | 53,240 | 1,454 | 45,081 | ||||||||||||
| Provision for income taxes |
10,444 | 19,836 | 451 | 16,572 | ||||||||||||
| Net income |
$ | 20,233 | $ | 33,404 | $ | 1,003 | $ | 28,509 | ||||||||
| Net income per common share: |
||||||||||||||||
| Basic |
$ | 0.34 | $ | 0.58 | $ | 0.02 | $ | 0.50 | ||||||||
| Diluted |
$ | 0.33 | $ | 0.55 | $ | 0.02 | $ | 0.47 | ||||||||
| Shares used in calculating net income per common share: |
||||||||||||||||
| Basic |
60,060 | 58,045 | 59,686 | 56,692 | ||||||||||||
| Diluted |
61,545 | 61,086 | 61,520 | 60,169 | ||||||||||||
See accompanying notes.
2
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| Nine Months Ended September 30, |
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| 2004 |
2003 |
|||||||
| Net income |
$ | 1,003 | $ | 28,509 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Depreciation |
10,973 | 11,375 | ||||||
| Amortization |
1,371 | 833 | ||||||
| Loss on disposal of property and equipment |
— | 20 | ||||||
| Loss on sale of investment with related party |
— | 19 | ||||||
| Provision for doubtful accounts |
1,311 | 251 | ||||||
| Deferred income taxes |
(14,606 | ) | (14,327 | ) | ||||
| Deferred rent |
272 | 25 | ||||||
| Deferred revenue |
(1,095 | ) | (1,979 | ) | ||||
| Amortization of deferred compensation |
1,315 | 1,627 | ||||||
| Stock option compensation related to nonemployees |
400 | 705 | ||||||
| Tax benefit from exercise of stock options |
8,805 | 35,542 | ||||||
| Amortization of bond premium |
158 | 112 | ||||||
| Other changes in operating assets and liabilities: |
||||||||
| Accounts receivable |
91,634 | 13,372 | ||||||
| Inventories |
(101,895 | ) | (35,048 | ) | ||||
| Prepaid expenses and other current assets |
(1,408 | ) | (5,782 | ) | ||||
| Notes receivable due from related parties |
— | 595 | ||||||
| Other assets |
277 | 99 | ||||||
| Accounts payable |
29,645 | 5,386 | ||||||
| Accrued liabilities |
(5,010 | ) | (7,833 | ) | ||||
| Income taxes payable |
4,891 | (19,392 | ) | |||||
| Net cash provided by operating activities |
28,041 | 14,709 | ||||||
| Investing activities: |
||||||||
| Purchases of property and equipment |
(16,423 | ) | (13,183 | ) | ||||
| Purchase of intangible assets |
(6,320 | ) | (3,000 | ) | ||||
| Purchases of short term investments |
(69,725 | ) | (59,063 | ) | ||||
| Sale/maturities of short term investments |
60,541 | 18,635 | ||||||