Leapfrog Enterprises (LF) 8-K Announces Key Changes in Direction

©

2006 Copyright LeapFrog Enterprises, Inc.

LeapFrog Enterprises Inc.

Key Changes in Direction

November 2, 2006

Issued in conjunction with

Third Quarter 2006 Earnings Release

Exhibit 99.2

2

©

2006 Copyright LeapFrog Enterprises, Inc. All rights reserved.

LeapFrog’s Mission

LeapFrog’s mission is to create value for our shareholders,

customers and employees in the largest education markets

in the world.

Here’s how we do it:

LeapFrog makes learning fun with connected, innovative

technology that teaches and engages. We create

educational products, content and services that kids love,

parents trust, and teachers value.

3

©

2006 Copyright LeapFrog Enterprises, Inc. All rights reserved.

LeapPad is past its peak, successor

products are required…

1999

2000

2001

2002

2003

2004

2005

Up 6X from Introduction

Down 60% from Peak

Year

4

©

2006 Copyright LeapFrog Enterprises, Inc. All rights reserved.

LeapFrog’s R & D spending

needs to be shifted

Ages   0 –

6

(74%)

11 –

14

(25%)

Ages 7 –

10

(Grade School)

(1%)

2003 –

2006 R&D Spending by Age

Category

•

Too much R&D

concentration under six

•

Revenue growth requires

investment allocation to

Grade and Middle School

age segments

5

©

2006 Copyright LeapFrog Enterprises, Inc. All rights reserved.

•

Retake Reading Market

•

Build the Business Around Platform Architecture

•

Age Up and Strengthen the Portfolio

•

Refresh the Brand

•

Web Connect Key Products

•

Drive More Content

•

Create a Metrics-Driven Company Culture

Results of Strategic Review: Key Findings

6

©

2006 Copyright LeapFrog Enterprises, Inc. All rights reserved.

•

Simpler Technology Architecture

–

Fewer Chip Sets

–

Fewer Software Development Environments

•

Rebuild Grade School Business

•

Increase Web Sales

–

Retailer.com

–

LeapFrog.com

•

Improve Tie Ratios

–

Retail Merchandising

–

Web Marketing and Promotion

–

Increase Licensed Titles

Some Example “Must Do’s”

7

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2006 Copyright LeapFrog Enterprises, Inc. All rights reserved.

•

Is connected

•

Drives software sales

•

Represents a priority

area (e.g., Reading)

•

Is high margin, high

revenue

Defining What is “On Strategy”

Overall, the higher the number of criteria below that are

met, the more likely a product or business is “on strategy”

•

Helps us age up the portfolio

•

Supports US and

International launches

•

Meets needs of our retailers

•

Utilizes Customer

Relationship Management

marketing methodology to

sell additional product to

consumers over time

8

©

2006 Copyright LeapFrog Enterprises, Inc. All rights reserved.

Strategic Fit

Higher

Lower

Lower

Higher

Contribution

Margin (%)

Leapster

Optimal

Products

Defining What is “On Strategy”

Products not “on-strategy”

require higher margins

Leapster +

Software

Stand Alone

Toys

LeapPad

9

©

2006 Copyright LeapFrog Enterprises, Inc. All rights reserved.

•

Operating

Losses

•

SKU

Management

•

Clean up

Inventories

–

LeapFrog

–

Retail

•

Build

Capabilities

LeapFrog Financial Path Forward

•

Launch New

Products

–

FLY Fusion

–

Rocket

•

Develop New

Platforms

–

Reading

Solutions

–

Leapster

Next Gen

–

Digital Business

•

Significant

Revenue

Growth

•

Strong

Profitability

•

Good Cash

Generation

•

Superior

Shareholder

Returns

FIX

RELOAD

GROW

10

©

2006 Copyright LeapFrog Enterprises, Inc. All rights reserved.

Specific metrics will track progress

Financial

Net Sales

Gross Margin %

Operating Margin

Cash

Business Scope

% Sales > Age 6

% of Sales Direct/Online

International Sales %/Total

Tie Ratio

% Sales from New Products

Customer Health

POS

GM/ROI %

Inventory Turns

Order Fill Rate

Customer Ending Inventory $

Employee

Revenue per Employee

Bench Strength/”A”

Players

Attrition

Digital Business

Retailer Web Sales

Retail Web Conversion

LF Registered Users

# Repeat LF Customers

Product

Development

% Products Global at

Launch

New Products on Time

Internal vs. External

R&D as % of Revenue

11

©

2006 Copyright LeapFrog Enterprises, Inc. All rights reserved.

•

Reading Platforms

•

Leapster Next Gen

•

FLY Fusion

•

Digital Business

•

Retake a leading position in

reading

•

Greater mindshare among pre-teens

•

Commonality with reading platform

•

“Age Up”

the business

•

Web-connected platform

•

Retailer and LeapFrog Web sales

•

Web marketing and CRM

•

Web play and learning products

Initiative

Strategic Imperative

US Consumer Investment

4 Bets on the Future

12

©

2006 Copyright LeapFrog Enterprises, Inc. All rights reserved.

•

Clean up 2006 inventory

•

Streamline our portfolio

•

Focus R&D spend in strategic areas

•

Simplify platform architectures

•

Reorganize for better decision making

•

Leverage strong brand

Mitigating Risk

13

©

2006 Copyright LeapFrog Enterprises, Inc. All rights reserved.

Reading

Platform Architecture

Age up/Strengthen

Product Portfolio

Brand

Web Connectivity

Content

Metrics-Driven

Company Culture

Summary

We make learning fun!

–

Connected, innovative

technology, that

–

Teaches and

engages

–

In the largest markets

in the world

We create educational

products, content, and

services that:

–

Kids love

–

Parents trust

–

Teachers value

To create value for our:

–

Shareholders

–

Customers

–

Employees

How

What

Why

©

2006 Copyright LeapFrog Enterprises, Inc.

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