Leapfrog Enterprises (LF) 8-K Leapfrog Reports First Quarter 2011 Results

Exhibit 99.1

LEAPFROG REPORTS FIRST QUARTER 2011 RESULTS

EMERYVILLE, California—May 2, 2011—LeapFrog Enterprises, Inc. (NYSE:LF) today announced financial results for the first quarter ended March 31, 2011.

Highlights of first quarter 2011 results compared to first quarter 2010 results:

• Retail point-of-sale, or POS, dollars¹ were up 8% in the U.S. for the 12 weeks ended March 26, 2011 compared to the 12 weeks ended March 27, 2010.

• Consolidated net sales were $40 million, down 6%, reflecting the effect of higher retail inventory at the end of 2010.

• Net loss per share was $0.34, an improvement of $0.03.

• The Toy Industry Association, Inc. awarded Leapster Explorer™ theEducational Toy of the Year and My Own Leaptop™ theInfant/Toddler Toy of the Year.

“I am excited to lead the LeapFrog team,” said John Barbour, Chief Executive Officer. “In the eight weeks that I have been with the Company, I have seen the passion and talent of LeapFrog employees around the world who are creating life-changing learning solutions to help children achieve their full potential.

“LeapFrog has accomplished much over the last few years, including returning to profitability in 2010. Our first quarter results are yet another positive step towards earnings improvement. I believe that LeapFrog has strong earnings potential given our leading brand, unique product portfolio, significant game-changing opportunities, and experienced team.”

First Quarter 2011 Results Compared to First Quarter 2010 Results

Net sales were $40 million, down 6%, and were not materially affected by foreign currency exchange rates.

Net sales from the United States segment were $26 million, down 19%, reflecting the effect of higher retail inventory at the end of 2010. However, our retail POS dollars were up 8% in the U.S.

Net sales from the International segment were $13 million, up 37%, and included a two percentage point favorable impact from changes in currency exchange rates.

Gross margin was 29.6%, up 0.3 percentage points.

¹  Please see Description of Retail Point-of-Sale Dollars below for an explanation of this operating metric.

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Loss from operations was $22 million, a $1 million improvement as a result of our improved cost structure.

Guidance

“Our product portfolio performed well at retail, and earnings improved despite a decline in net sales, which we expected given the year-end retail inventory carry-over,” said Mark Etnyre, Chief Financial Officer.

“While it is still early in the year, we believe we are on track to achieve the full-year guidance that we previously provided. In 2011, we expect net sales to be flat to slightly down compared to 2010 and net income per share to be in the range of $0.15 to $0.20. In the second quarter of 2011, we expect net sales to be down 15% to 20% compared to the second quarter of 2010 given the retail inventory carry-over, and we expect net loss per share to be in the range of $0.23 to $0.26,” continued Mr. Etnyre.

Conference Call and Webcast

LeapFrog will hold a conference call to discuss first quarter 2011 financial results on May 2, 2011, at 2:00 p.m. Pacific Time (5:00 p.m. Eastern Time). The conference call will be webcast and can be accessed at LeapFrog’s investor web site atwww.leapfroginvestor.com. To participate in the call, please dial (706) 634-0183 and request conference ID 61481482. A replay of the call will be available for one month. To access the replay, please dial (706) 645-9291 and use conference ID 61481482.

Description of Retail Point-of-Sale Dollars

Retail point-of-sale, or POS, dollars is a non-audited operating metric that represents a measure of U.S. retailers’ sales of LeapFrog products to consumers. Retail point-of-sale dollars differs significantly from LeapFrog’s reported net sales, which reflect all products sold by LeapFrog to its retailer customers in all markets and also includes other sources of revenue. The point-of-sale data, based on retail prices, is provided to LeapFrog by retailers and also includes sales through online retailers and our online retail store at LeapFrog.com. LeapFrog believes this represents approximately 95% of our U.S. retailers’ dollar sales of LeapFrog products to consumers, based on historical shipments by us to such retailers. LeapFrog management uses point-of-sale data to evaluate the retail channel sales environment and develop net sales forecasts. Results for full year retail point-of-sale dollars are for the 12 weeks ended March 26, 2011 and the 12 weeks ended March 27, 2010.

About LeapFrog

LeapFrog Enterprises, Inc. is an education innovator and a leading developer of fun learning solutions for children. LeapFrog’s award-winning product portfolio is designed to help every child achieve their full potential by delivering best-in-class educational curriculum through age-appropriate technology-based platforms, engaging content, and toys. The Learning Path, LeapFrog’s proprietary online destination for parents and extended family, provides personalized

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feedback on a child’s learning progress and offers product 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 life and academic 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 atwww.leapfrog.com.

NOTE: LEAPFROG, the LeapFrog logo, and LEAPSTER EXPLORER, and MY OWN LEAPTOP are trademarks or registered trademarks of LeapFrog Enterprises, Inc.

Forward-Looking Statements

This news release contains forward-looking statements that involve risks and uncertainties. Such forward-looking statements include statements regarding anticipated financial results (including sales, profitability, net income per share, and POS). 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 highly changeable consumer preferences and toy trends, our ability to achieve anticipated sales levels, particularly with respect to newly-launched products, the overall economic environment and its effect on retail business, the seasonality of our business, introductions of products that compete with our platforms by a variety of other companies, our ability to respond quickly and cost effectively to changes in manufacturing costs and in consumer demand for our products, our ability to manage operating expenses effectively, and our ability to provide high-quality experiences to consumers with all of our products and services. These risks and others are discussed under “Risk Factors” in our filings with the U.S. Securities and Exchange Commission, including our 2010 annual report on Form 10-K filed on February 22, 2011. All information provided in this release is as of the date hereof, and we undertake no obligation to update this information.

Contact Information

Investors:	Media:
Karen Sansot	Monica Ma
Investor Relations	Media Relations
(510) 420-4803	(510) 596-3437

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LEAPFROG ENTERPRISES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

	Three Months Ended March 31,
	2011			2010
Net sales	$	39,678		$	42,406
Cost of sales		27,922			29,974
Gross profit		11,756			12,432
Operating expenses:
Selling, general and administrative		20,487			21,121
Research and development		8,231			8,596
Advertising		2,335			3,343
Depreciation and amortization		2,553			2,427
Total operating expenses		33,606			35,487
Loss from operations		(21,850	)		(23,055	)
Other income (expense):
Interest income		33			60
Interest expense		(36	)		(3	)
Other, net		(560	)		(731	)
Total other expense, net		(563	)		(674	)
Loss before income taxes		(22,413	)		(23,729	)
Benefit from income taxes		(227	)		(171	)
Net loss	$	(22,186	)	$	(23,558	)
Net loss per share:
Class A and B - basic and diluted	$	(0.34	)	$	(0.37	)
Weighted average shares used to calculate net loss per share:
Class A and B - basic and diluted		64,822			64,073

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LEAPFROG ENTERPRISES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Three Months Ended March 31,
	2011			2010
Operating activities:
Net loss	$	(22,186	)	$	(23,558	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		4,526			4,340
Deferred income taxes		(133	)		(80	)
Stock-based compensation expense		1,228			2,458
Loss on disposal of long-term assets		53			—
Allowance for doubtful accounts		411			231
Other changes in operating assets and liabilities:
Accounts receivable, net		119,888			107,008
Inventories		(6,807	)		(7,361	)
Prepaid expenses and other current assets		(2,571	)		(3,078	)
Other assets		(388	)		758
Accounts payable		(9,307	)		(30,440	)
Accrued liabilities		(20,220	)		(16,117	)
Long-term liabilities		262			354
Income taxes payable		(122	)		20
Other		—			(26	)
Net cash provided by operating activities		64,634			34,509
Investing activities:
Purchases of property and equipment		(4,622	)		(2,440	)
Capitalization of product costs		(2,169	)		(2,716	)
Purchases of intangible assets		—			(5,335	)
Disposal of property and equipment		67			—
Other		(65	)		—
Net cash used in investing activities		(6,789	)		(10,491	)
Financing activities:
Proceeds from stock option exercises and employee stock purchase plans		262			446
Net cash paid for payroll taxes on restricted stock unit releases		(536	)		(29	)
Net cash provided by (used in) financing activities		(274	)		417
Effect of exchange rate changes on cash		444			99
Net change in cash and cash equivalents		58,015			24,534
Cash and cash equivalents, beginning of period		19,479			61,612
Cash and cash equivalents, end of period	$	77,494		$	86,146

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LEAPFROG ENTERPRISES, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

(Unaudited)

	March 31,						December 31,
	2011			2010			2010
ASSETS
Current assets:
Cash and cash equivalents	$	77,494		$	86,146		$	19,479
Accounts receivable, net of allowances for doubtful accounts of $1,069, $1,164 and $776, respectively		37,611			40,170			157,646
Inventories		54,667			35,595			47,455
Prepaid expenses and other current assets		11,021			10,475			8,321
Deferred income taxes		1,741			2,112			1,678
Total current assets		182,534			174,498			234,579
Long-term investments		2,681			3,685			2,681
Deferred income taxes		1,059			1,295			989
Property and equipment, net		17,619			14,618			15,059
Capitalized product costs, net		13,276			15,734			13,184
Goodwill		19,549			19,549			19,549
Other intangible assets, net		5,219			7,673			5,653
Other assets		2,174			2,370			1,786
Total assets	$	244,111		$	239,422		$	293,480
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	22,136		$	27,851		$	31,390
Accrued liabilities		21,334			23,734			41,425
Income taxes payable		45			262			167
Total current liabilities		43,515			51,847			72,982
Long-term deferred income taxes		3,311			3,026			3,199
Other long-term liabilities		11,810			12,301			11,734
Stockholders’ equity:
Class A Common Stock, par value $0.0001; Authorized - 139,500 shares; Issued and outstanding: 46,277, 37,069 and 43,783, respectively		5			4			5
Class B Common Stock, par value $0.0001; Authorized - 40,500 shares; Issued and outstanding: 18,749, 27,141 and 20,961, respectively		2			3			2
Treasury stock		(185	)		(185	)		(185	)
Additional paid-in capital		388,787			383,008			387,833
Accumulated other comprehensive income		1,434			303			292
Accumulated deficit		(204,568	)		(210,885	)		(182,382	)
Total stockholders’ equity		185,475			172,248			205,565
Total liabilities and stockholders’ equity	$	244,111		$	239,422		$	293,480

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LEAPFROG ENTERPRISES, INC.

SUPPLEMENTAL FINANCIAL INFORMATION

(In thousands)

(Unaudited)

	Three Months Ended March 31,
	2011			2010
Net sales	$	39,678		$	42,406
Cost of sales (1)		27,922			29,974
Gross profit		11,756			12,432
Operating expenses:(2) (3)
Selling, general and administrative		20,487			21,121
Research and development		8,231			8,596
Advertising		2,335			3,343
Depreciation and amortization		2,553			2,427
Total operating expenses		33,606			35,487
Loss from operations		(21,850	)		(23,055	)
Other income (expense):
Interest income		33			60
Interest expense		(36	)		(3	)
Other, net		(560	)		(731	)
Total other expense, net		(563	)		(674	)
Loss before income taxes		(22,413	)		(23,729	)
Benefit from income taxes		(227	)		(171	)
Net loss	$	(22,186	)	$	(23,558	)
(1)     Includes depreciation and amortization		1,973			1,913
(2)     Includes stock-based compensation as follows:
Selling, general and administrative		1,104			2,120
Research and development		124			338
(3)     Includes severance costs as follows:
Selling, general and administrative		2,366			230
Research and development		4			—
Segment data:
Net sales:
U.S. segment		26,352			32,654
International segment		13,326			9,752
Loss from operations*:
U.S. segment		(21,274	)		(21,892	)
International segment		(576	)		(1,163	)

* 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. All related prior period financial data has been recast to conform to the current presentation.