LeapFrog Reports 2012 Income From Operations Increased 170%

         LeapFrog Reports 2012 Income From Operations Increased 170%

2012 Net Sales Grew 28%

LeapFrog Had the #1 Selling Toys in Both the U.S. and the U.K. in 2012

Digital App Sales Nearly Four Times Prior Year

PR Newswire

EMERYVILLE, Calif., Feb. 6, 2013

EMERYVILLE, Calif., Feb. 6, 2013 /PRNewswire/ -- LeapFrog Enterprises, Inc.
(NYSE:LF) today announced financial results for the fourth quarter and full
year ended December 31, 2012.

(Logo: http://photos.prnewswire.com/prnh/20090219/LFLOGO)

Highlights of full year 2012 results compared to full year 2011 results:

  oConsolidated net sales were up 28%.
  oU.S. segment net sales were up 24%, and international segment net sales
    were up 38%.
  oIncome from operations was up 170%.
  oIncome from operations as a percentage of net sales was 11.0%, more than
    double the prior year.
  oNet income was $86.5 million, up 334%.
  oNet income per diluted share was $1.24, up $0.94.
  oAdjusted EBITDA was $93.1 million, up 89%.^1
  oCash and cash equivalents were $120.0 million as of December 31, 2012, up
    67% compared to the balance as of December 31, 2011.

"The quality of execution from the LeapFrog team was exceptional this past
year. Despite a tough global economy and a declining U.S. toy industry,^2 we
achieved a third straight year of sales growth and nearly tripled our income
from operations, continuing to drive shareholder value," said John Barbour,
Chief Executive Officer.

"Our focus on creating the best children's educational entertainment platforms
and content resulted in our award-winning line of cartridge content becoming
the #1 top-selling toy in the U.S. and a Top 10 selling toy in the U.K. in
2012 based on sales according to NPD data.^2 In addition, net sales of digital
download content from our curated selection of over 475 titles, including
LeapFrog-developed content and content from 30 media partners, were nearly
four times the prior year as families took advantage of our 24x7 online App
Center.

"We had more products in NPD's list of U.S. 2012 Top 10 selling toys than any
other manufacturer, with three of the top four and four of the Top 10.^2 In
the U.K., we also had two of the Top 10 selling toys.^2 We also achieved
significant market share growth in all the major markets in which we operate
and built solid foundations for more growth in 2013."

"LeapFrog is in a very exciting position and I am optimistic about our
continued growth in 2013," continued Mr. Barbour. "More and more parents
around the world are searching for effective learning solutions to supplement
their children's education. We have 18 years of experience creating the best
learning solutions in the market and are uniquely positioned to take advantage
of this opportunity.

"I am very excited about the quality of the team we have assembled and
developed at LeapFrog over the last two years. I believe our market-leading
performance in 2012 is a direct result of our world-class talent, our
wonderful brand that is loved by millions of families, and the fun and
engaging entertainment experiences we create that provide children with
life-changing learning."

Financial Overview for the Fourth Quarter 2012 Compared to the Fourth Quarter
2011

Fourth quarter 2012 net sales were $244.7 million, up 16% compared to $210.2
million last year, and were not materially impacted by changes in currency
exchange rates. Net sales growth was primarily driven by strong content sales,
high consumer demand for the LeapPad learning tablets and accessories, and the
introduction of the LeapsterGS game system. In the U.S. segment, net sales
were $177.8 million, up 11% compared to $160.6 million last year. In the
International segment, net sales were $67.0 million, up 35% compared to $49.6
million last year, and included a 2% positive impact from changes in currency
exchange rates.

Income from operations for the fourth quarter was $43.2 million, up 28%
compared to $33.7 million reported a year ago. Income from operations as a
percentage of net sales was 17.7%, up 170 basis points compared to 16.0% a
year ago.

Net income for the fourth quarter was $62.3 million, up 90% compared to $32.8
million a year ago. Net income per diluted share was $0.89, up 82% compared
to $0.49 a year ago. Net income in the fourth quarter of 2012 included a tax
benefit of $20.3 million, or $0.29 per diluted share, as a result of recording
the expected tax benefit of a portion of the company's past accumulated net
operating losses due to improved historical results and future prospects.

Adjusted EBITDA for the fourth quarter was $50.4 million, up 24% compared to
$40.7 million a year ago.

Financial Overview for the Full Year 2012 Compared to the Full Year 2011

Full year 2012 net sales were $581.3 million, up 28% compared to $455.1
million last year, and were not materially impacted by changes in currency
exchange rates. Net sales growth was primarily driven by strong content sales,
high consumer demand for the LeapPad learning tablets and accessories, and the
introduction of the LeapsterGS game system. In the U.S. segment, net sales
were $424.8 million, up 24% compared to $342.0 million last year. In the
International segment, net sales were $156.5 million, up 38% compared to
$113.1 million last year, and included a 1% negative impact from changes in
currency exchange rates.

Income from operations was $64.1 million in 2012, up $40.4 million or 170%
compared to 2011. Income from operations as a percentage of net sales was
11.0%, up 112%, or 580 basis points, compared to 5.2% a year ago.

Net income was $86.5 million in 2012, more than four times the net income of
$19.9 million in 2011. Net income per diluted share was $1.24, more than four
times the net income per share of $0.30 in 2011. Net income in 2012 included a
tax benefit of $20.3 million, or $0.29 per diluted share, as a result of
recording the expected tax benefit of a portion of the company's past
accumulated net operating losses due to improved historical results and future
prospects. Net income in 2012 also included a $6.4 million, or $0.09 per
diluted share, tax benefit due to expiring statute of limitations.

Adjusted EBITDA for the full year was $93.1 million, up 89% compared to $49.3
million a year ago.

"We delivered a terrific performance in 2012 with strong sales, earnings, and
cash growth," said Ray Arthur, Chief Financial Officer. "Consumer demand for
our educational entertainment was robust, resulting in good consumer
sell-through and healthy year-end retail inventory levels. Our balance sheet
also improved with inventory and receivables balances growing at a lower rate
than our net sales growth, and our accounts payable balance actually
declining. Working capital improved by 42%, allowing us to self-fund our
operations without accessing our asset-based credit line."

Guidance

"We are excited about our market-leading portfolio and new product launches
for 2013, including a new learn-to-read system, new iPhone and iPad app
activity products and new LeapPad tablets," stated Mr. Arthur. "As a result,
despite a global economy that remains sluggish and a U.S. toy industry that
declined in 2012,^2 we plan to continue to grow our business at a pace
significantly ahead of the market and expect net sales to increase at a high
single-digit percentage growth rate. Like 2012, we will be prepared to chase
upside whenever possible.

"To support our market-leading growth and our ongoing business transformation,
we plan to make long-term investments in content, international expansion,
online communities, systems and new platforms. Even with this investment for
the future, we expect our operating margin as a percentage of net sales to
remain consistent with 2012.

"Additional guidance will be provided at a later date when we have more
clarity regarding our book tax accounting position. The ultimate outcome of
our book tax accounting position will have no impact on cash taxes paid. We do
not expect to pay any significant amount of U.S. federal taxes in the next
several years."^3

First quarter 2013 guidance is as follows:

We expect:

  oNet sales to increase by about 10% compared to the first quarter of 2012.
  oNet loss per share to be in the range of $0.07 to $0.09, which includes a
    tax benefit at a 37.5% effective tax rate, compared to a net loss per
    share of $0.14 in the first quarter of 2012. First quarter 2012 results
    did not include a net tax benefit related to the period operating loss.

Conference Call and Webcast

LeapFrog will hold a conference call to discuss fourth quarter and full year
2012 financial results on February 6, 2013, at 2:00 p.m. Pacific Standard Time
(5:00 p.m. Eastern Standard Time). The conference call will be webcast live
and can be accessed at LeapFrog's investor relations web site at
www.leapfroginvestor.com. An archive of the webcast will be available on the
web site approximately three hours after completion of the call. In addition,
more information about LeapFrog, including this press release and other
financial and investor information, is also available on the investor
relations web site.

To participate in the call, please dial (706) 634-0183 and request conference
ID 88607415. A telephonic replay of the call will be available for one month.
To access the replay, please dial (404) 537-3406 and use conference ID
88607415.

About LeapFrog

LeapFrog Enterprises, Inc. is the leader in educational entertainment for
children. LeapFrog's award-winning product portfolio helps millions of
children achieve their potential by delivering best-in-class curriculum
through engaging content, fun multimedia learning platforms and toys.The
Learning Path, LeapFrog's proprietary online destination for parents and
extended family, provides personalized feedback on a child's learning progress
and offers recommendations to enhance each child's learning experience.
Through the power of play, LeapFrog's products and curriculum help children of
all ages prepare for school and life success.LeapFrog's products are
available in more than 45 countries and have been used by teachers in more
than 100,000 U.S. classrooms. LeapFrog is based in Emeryville, California, and
was founded in 1995 by a father who revolutionized technology-based learning
solutions to help his child learn how to read. Come see the learning at
www.leapfrog.com. 

TM & © 2013 LeapFrog Enterprises, Inc. All rights reserved.

Use of Non-GAAP Financial Information

This press release includes a non-GAAP financial measure, specifically
adjusted EBITDA which is defined as earnings (or net income) before interest,
income taxes, depreciation and amortization, other expenses (income), and
stock-based compensation. As required by SEC rules, we have provided an
attached schedule with a reconciliation of adjusted EBITDA to the most
directly comparable GAAP measure, net income.

Management believes that adjusted EBITDA is one of the appropriate measures
for evaluating the operating performance of the Company because it reflects
the resources available for strategic opportunities including, among others,
to invest in the business, strengthen the balance sheet, and make strategic
acquisitions. However, this measure should be considered in addition to, not
as a substitute for, or superior to, net income or other measures of financial
performance prepared in accordance with GAAP as more fully discussed in the
Company's financial statements and filings with the SEC. As used herein,
"GAAP" refers to accounting principles generally accepted in the United States
of America.

Forward-Looking Statements

This news release contains forward-looking statements that involve risks and
uncertainties, including statements regarding anticipated financial results.
Our actual results may differ materially from those expressed or implied by
such forward-looking statements. The risks that could cause our results to
differ include, without limitation, deterioration of global economic
conditions, our ability to correctly predict highly changeable consumer
preferences and product trends, our ability to continue to develop new
products and services, our reliance on a small group of retailers for the
majority of our gross sales, our dependence on our suppliers for our
components and raw materials, the seasonality of our business, our growing
focus on online products and services, system failures in our online services
or web store, our reliance on a limited number of manufacturers, our ability
to maintain sufficient inventory levels, our ability to compete effectively
with competitors, our ability to maintain or acquire licenses, third parties
who claim we are infringing on their intellectual property rights, errors or
defects in our products, privacy concerns about our Internet-connected
products, the sufficiency of our liquidity, the risk associated with
international operations, continued compliance and associated costs with
and/or changes in laws and regulations, negative political developments,
natural disasters, armed hostilities, terrorism, labor strikes or public
health issues, the loss of members of our executive management team, continued
ownership by a few stockholders of a significant percentage of voting power in
us, and the volatility of our stock price. These risks and others are
discussed under "Risk Factors" in our filings with the U.S. Securities and
Exchange Commission, including our 2011 annual report on Form 10-K filed on
February 29, 2012. All information provided in this release is as of the date
hereof, and we undertake no obligation to update this information.

^1 This non-GAAP financial measure is described below and reconciled to its
comparable GAAP measure in the accompanying tables.

^2 Source: The NPD Group / Retail Tracking Service.

^3 Tax Note: In 2006 and subsequent years, the company recorded reserves
against its deferred tax assets (DTA). In 2012, a portion, $20.3 million, or
$0.29 per diluted share, of these reserves was released. As a result, in 2013,
the company will report (for book purposes) tax expense or benefit at an
effective tax rate of 37.5%. In addition, the company has reserves against its
DTA of approximately $70 million at year-end 2012. The company will reevaluate
the need for these remaining reserves during the second half of 2013.

Contact Information


Investors:           Media:
Karen Sansot, CFA    Monica Ma
Investor Relations   Media Relations
(510) 420-4803       (510) 596-3437
ksansot@leapfrog.com mma@leapfrog.com



LEAPFROG ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
                                       Three Months Ended  Twelve Months Ended
                                       December 31,        December 31,
                                       2012      2011      2012       2011
Net sales                              $244,726  $210,210  $581,288   $455,140
    Cost of sales                      135,370   116,603   336,344    268,988
         Gross profit                  109,356   93,607    244,944    186,152
Operating expenses:
    Selling, general and               24,441    21,972    89,599     77,984
    administrative
    Research and development           9,725     9,136     36,627     33,784
    Advertising                        29,091    25,909    43,023     39,526
    Depreciation and amortization      2,878     2,900     11,629     11,161
         Total operating expenses      66,135    59,917    180,878    162,455
              Income from operations   43,221    33,690    64,066     23,697
Other income (expense):
    Interest income                    15        32        241        136
    Interest expense                   (1)       (157)     (50)       (259)
    Other, net                         (295)     (334)     (2,309)    (4,809)
         Total other expense, net      (281)     (459)     (2,118)    (4,932)
              Income before income     42,940    33,231    61,948     18,765
              taxes
(Benefit from) provision for income    (19,341)  421       (24,504)   (1,137)
taxes
         Net income                    $ 62,281  $ 32,810  $ 86,452   $ 19,902
Net income per share:
    Class A and B - basic              $ 0.92    $ 0.50    $ 1.29     $ 0.30
    Class A and B - diluted            $ 0.89    $ 0.49    $ 1.24     $ 0.30
Weighted-average shares used to
calculate net income per share:
    Class A and B - basic              67,656    65,888    67,100     65,406
    Class A and B - diluted            69,831    66,711    69,720     66,332



LEAPFROG ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
(Unaudited)
                                                           December 31,
                                                           2012      2011
ASSETS
Current assets:
 Cash and cash equivalents                                 $120,000  $ 71,863
 Accounts receivable, net of allowances for doubtful
 accounts of                                               180,043   157,418

 $292 and $659, respectively
 Inventories                                               40,311    34,288
 Prepaid expenses and other current assets                 8,353     8,078
 Deferred income taxes                                     9,315     983
 Total current assets                                      358,022   272,630
Long-term investments                                      -         2,681
Deferred income taxes                                      13,269    1,311
Property and equipment, net                                23,723    17,881
Capitalized product costs, net                             12,109    12,511
Goodwill                                                   19,549    19,549
Other intangible assets, net                               950       3,350
Other assets                                               1,283     1,119
 Total assets                                              $428,905  $331,032
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
 Accounts payable                                          $ 31,617  $ 34,629
 Accrued liabilities                                       51,353    42,544
 Deferred revenue                                          8,516     7,836
 Income taxes payable                                      493       377
 Total current liabilities                                 91,979    85,386
Long-term deferred income taxes                            3,759     3,542
Other long-term liabilities                                3,224     9,360
 Total liabilities                                         98,962    98,288
Commitments and contingencies
Stockholders' equity:
 Class A Common Stock, par value $0.0001;
 Authorized - 139,500 shares; Outstanding: 61,970 and
                                                           6         6
 54,923, respectively
 Class B Common Stock, par value $0.0001;
 Authorized - 40,500 shares; Outstanding: 5,715 and
                                                           1         1
 11,113, respectively
 Treasury stock                                            (185)     (185)
 Additional paid-in capital                                405,078   395,627
 Accumulated other comprehensive income (loss)             1,071     (225)
 Accumulated deficit                                       (76,028)  (162,480)
 Total stockholders' equity                                329,943   232,744
 Total liabilities and stockholders' equity                $428,905  $331,032



LEAPFROG ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
                                       Three Months Ended  Twelve Months Ended
                                       December 31,        December 31,
                                       2012      2011      2012       2011
Operating activities:
  Net income                           $ 62,281  $32,810   $ 86,452   $19,902
Adjustments to reconcile net income to
net cash provided by operating
activities:
  Depreciation and amortization        5,211     5,485     22,082     19,995
  Deferred income taxes                (20,285)  260       (20,047)   716
  Stock-based compensation expense     1,925     1,498     6,991      5,562
  Loss on sale of long-term            -         -         91         -
  investments, net of tax
  Loss on disposal of long-term assets -         6         2          14
  Allowance for doubtful accounts      (331)     245       3,040      417
Other changes in operating assets and
liabilities:
  Accounts receivable, net             (9,346)   (21,612)  (24,839)   (481)
  Inventories                          74,422    36,012    (5,727)    13,006
  Prepaid expenses and other current   1,170     (5)       (197)      214
  assets
  Other assets                         249       722       (165)      667
  Accounts payable                     (50,573)  (23,175)  (3,119)    3,293
  Accrued liabilities and deferred     14,116    17,453    9,311      9,043
  revenue
  Other long-term liabilities          503       (106)     (6,135)    (2,396)
  Income taxes payable                 79        4         116        210
        Net cash provided by operating 79,421    49,597    67,856     70,162
        activities
Investing activities:
  Purchases of property and equipment  (5,925)   (2,363)   (16,321)   (11,732)
  Capitalization of product costs      (3,170)   (1,803)   (8,793)    (8,122)
  Disposal of property and equipment   -         -         -          67
  Sale of investments                  -         -         2,500      -
  Other                                -         -         -          (65)
        Net cash used in investing     (9,095)   (4,166)   (22,614)   (19,852)
        activities
Financing activities:
  Proceeds from stock option exercises 215       980       4,222      3,029
  and employee stock purchase plan
  Net cash paid for payroll taxes on   (249)     (80)      (1,762)    (797)
  restricted stock unit releases
  Borrowing on line of credit          -         35,000    -          35,000
  Payment on line of credit            -         (35,000)  -          (35,000)
        Net cash (used in) provided by (34)      900       2,460      2,232
        financing activities
Effect of exchange rate changes on     281       (131)     435        (158)
cash
Net change in cash and cash            70,573    46,200    48,137     52,384
equivalents
Cash and cash equivalents, beginning   49,427    25,663    71,863     19,479
of period
Cash and cash equivalents, end of      $120,000  $71,863   $120,000   $71,863
period
Supplemental disclosure of cash flow
information:
Cash paid for income taxes, net        $ (250)   $ (137)   $ (1,221)  $ (412)



LEAPFROG ENTERPRISES, INC.
SUPPLEMENTAL FINANCIAL INFORMATION
(In thousands)
(Unaudited)
                                    Three Months Ended    Twelve Months Ended
                                    December 31,          December 31,
                                    2012       2011       2012       2011
Net sales                           $ 244,726  $ 210,210  $ 581,288  $ 455,140
       Cost of sales (1)            135,370    116,603    336,344    268,988
           Gross profit             109,356    93,607     244,944    186,152
Operating expenses: (2) (3)
       Selling, general and         24,441     21,972     89,599     77,984
       administrative
       Research and development     9,725      9,136      36,627     33,784
       Advertising                  29,091     25,909     43,023     39,526
       Depreciation and             2,878      2,900      11,629     11,161
       amortization
           Total operating expenses 66,135     59,917     180,878    162,455
               Income from          43,221     33,690     64,066     23,697
               operations
Other income (expense):
       Interest income              15         32         241        136
       Interest expense             (1)        (157)      (50)       (259)
       Other, net                   (295)      (334)      (2,309)    (4,809)
           Total other expense, net (281)      (459)      (2,118)    (4,932)
               Income before income 42,940     33,231     61,948     18,765
               taxes
(Benefit from) provision for income (19,341)   421        (24,504)   (1,137)
taxes (4)
           Net income               $ 62,281   $ 32,810   $ 86,452   $ 19,902
(1)    Includes depreciation and    2,335      2,585      10,455     8,834
       amortization
(2)    Includes stock-based
       compensation as follows:
       Selling, general and         1,732      1,392      6,170      4,877
       administrative
       Research and development     193        106        821        685
(3)    Includes severance costs as
       follows:
       Selling, general and         570        7          836        2,429
       administrative
       Research and development     -          -          208        22
(4)    Includes release of          (20,340)   -          (20,340)   -
       valuation allowances
Segment data:
Net sales:
       U.S. segment                 177,766    160,601    424,816    342,050
       International segment        66,960     49,609     156,472    113,090
Income from operations*:
       U.S. segment                 26,017     23,313     28,076     5,553
       International segment        17,204     10,377     35,990     18,144



  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 ADJUSTED EBITDA
(In thousands)
(Unaudited)
The following table presents a reconciliation of net income, a GAAP measure,
to adjusted EBITDA, a non-GAAP measure. Adjusted EBITDA, a non-GAAP measure,
is defined as earnings (or net income) before interest, taxes, depreciation
and amortization, other expenses (income), and stock-based compensation.
                      Three Months Ended December 31,   Twelve Months Ended
                                                        December 31,
                      2012                2011          2012          2011
Net income - GAAP     $62,281             $32,810       $86,452       $19,902
Interest income       (15)                (32)          (241)         (136)
Interest expense      1                   157           50            259
(Benefit from)
provision for income  (19,341)            421           (24,504)      (1,137)
taxes
Depreciation and      5,213               5,485         22,084        19,995
amortization
Other, net            295                 334           2,309         4,809
Stock-based           1,925               1,498         6,991         5,562
compensation
Adjusted EBITDA -     $50,359             $40,673       $93,141       $49,254
Non-GAAP

SOURCE LeapFrog Enterprises, Inc.

Website: http://www.leapfrog.com