FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Report of Foreign Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the month of December, 2004
Commission File Number: 0-23696
RADICA GAMES LIMITED
(Translation of registrant's name into English)
Suite V, 6/F., 2-12 Au Pui Wan Street, Fo Tan, Hong Kong
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual
reports under cover of Form 20-F or 40-F
Form 20-F X Form 40-F
------ ------
Indicate by check mark if the registrant is submitting the Form 6-K in
paper as permitted by Regulation S-T Rule 101(b)(1):
Indicate by check mark if the registrant is submitting the Form 6-K in
paper as permitted by Regulation S-T Rule 101(b)(7):
Indicate by check mark whether the registrant by furnishing the
information contained in this Form is also thereby furnishing the information to
the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.
Yes No X
------ ------
If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b): 82-
-----------------
Contents:
1. Quarterly Report for the Quarter Ended September 30, 2004
2. Press Release dated December 16, 2004
3. Press Release dated December 7, 2004
4. Press Release dated November 8, 2004 (2 releases)
5. Press Release dated September 21, 2004
This Report on Form 6-K shall be deemed to be incorporated by reference
into the Registrant's Registration Statements on Form S-8 (No. 33-86960,
No. 333-7000, No. 333-59737 and 333-61260) and on Form F-3 (No. 333-7526 and
No. 333-79005).
QUARTERLY REPORT *
For the quarterly period ended September 30, 2004
Commission File Number 0-23696
RADICA GAMES LIMITED
(Exact name of registrant as specified in charter)
Bermuda N/A
(Country of Incorporation) (I.R.S. Employer Identification No.)
Suite V, 6/F., 2-12 Au Pui Wan Street, Fo Tan, Hong Kong
(Address of principal executive offices)
Registrant's telephone number, including area code: (852) 2693 2238
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 the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at September 30, 2004
--------------------------------------- ---------------------------------
Common Stock, par value $0.01 per share 18,722,864
------------------------
* As a foreign private issuer, the registrant is not required to file reports on
Form 10-Q. It intends to make voluntary quarterly reports to its stockholders
which generally follow the Form 10-Q format. Such reports, of which this is one,
are furnished to the Commission pursuant to Form 6-K.
2
RADICA GAMES LIMITED
INDEX TO QUARTERLY REPORT ON FORM 6-K
QUARTER ENDED SEPTEMBER 30, 2004
ITEMS IN FORM 6-K
Page
PART I - FINANCIAL INFORMATION.................................................4
Item 1. Financial Statements.............................................4
Condensed Consolidated Balance Sheets
September 30, 2004 (unaudited) and December 31, 2003.............4
Condensed Consolidated Statements of Operations
for the Three Months and Nine Months Ended September 30, 2004
(unaudited) and 2003 (unaudited).................................5
Condensed Consolidated Statements of Shareholders' Equity
for the Nine Months Ended September 30, 2004 (unaudited) and
2003 (unaudited).................................................6
Condensed Consolidated Statement of Cash Flows
for the Nine Months Ended September 30, 2004 (unaudited) and
2003 (unaudited).................................................7
Notes To The Condensed Consolidated Financial Statements.........8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................14
Item 3. Quantitative and Qualitative Disclosures about Market Risk......17
Item 4. Controls and Procedures.........................................17
PART II - OTHER INFORMATION...................................................18
---------------------------
Item 1. Legal Proceedings...............................................18
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.....18
Item 3. Defaults Upon Senior Securities.................................18
Item 4. Submission of Matters to a Vote of Security Holders.............18
Item 5. Other Information...............................................18
Item 6. Exhibits........................................................18
3
PART I - FINANCIAL INFORMATION
Item 1. Financial Information
-----------------------------
RADICA GAMES LIMITED
CONSOLIDATED BALANCE SHEETS
September 30, 2004 and December 31, 2003
(US dollars in thousands, except share data) September 30, December 31,
-------------- --------------
2004 2003
-------------- --------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 20,209 $ 13,944
Investment securities 15,761 28,009
Accounts receivable, net of allowances for doubtful accounts
of $165 ($251 as at December 31, 2003) 26,036 15,360
Inventories 28,869 15,503
Prepaid expenses and other current assets 4,136 2,748
Income taxes receivable - 1,404
Deferred income taxes 1,706 1,706
------------- --------------
Total current assets 96,717 78,674
------------- --------------
Property, plant and equipment, net 11,436 11,908
------------- --------------
Goodwill 9,551 9,551
------------- --------------
Other assets 859 875
------------- --------------
Deferred income taxes, noncurrent 56 1,206
------------- --------------
Total assets $ 118,619 $ 102,214
============= ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 17,128 $ 6,350
Accrued warranty expenses 1,390 1,040
Accrued payroll and employee benefits 1,249 1,353
Accrued liabilities 5,709 3,976
Dividends payable 749 -
Income taxes payable 196 339
------------- --------------
Total current liabilities 26,421 13,058
------------- --------------
Total liabilities 26,421 13,058
------------- --------------
Shareholders' equity:
Common stock
par value $0.01 each, 100,000,000 shares authorized, 18,722,864
shares outstanding (18,225,204 as at December 31, 2003) 187 182
Additional paid-in capital 4,551 3,517
Retained earnings 87,502 85,437
Accumulated other comprehensive (loss) income (42) 20
------------- --------------
Total shareholders' equity 92,198 89,156
------------- --------------
Total liabilities and shareholders' equity $ 118,619 $ 102,214
============= ==============
See accompanying notes to the consolidated financial statements.
4
RADICA GAMES LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months and nine months ended September 30, 2004 and 2003
(US dollars in thousands, Three months ended September 30, Nine months ended September 30,
except per share data) -------------------------------------------------------------------------
2004 2003* 2004 2003*
-------------- -------------- ------------- --------------
(unaudited) (unaudited) (unaudited) (unaudited)
Revenues:
Net sales $ 48,972 $ 37,655 $ 79,896 $ 70,644
Cost of goods sold
(exclusive of items shown separately below) (33,703) (23,320) (53,335) (44,716)
-------------- -------------- -------------- --------------
Gross profit 15,269 14,335 26,561 25,928
-------------- -------------- -------------- --------------
Operating expenses:
Selling, general and administrative expenses (7,271) (6,189) (17,466) (16,511)
Research and development (926) (985) (2,724) (2,820)
Depreciation and amortization (450) (460) (1,300) (1,576)
Restructuring charge - - - (87)
-------------- -------------- -------------- --------------
Total operating expenses (8,647) (7,634) (21,490) (20,994)
-------------- -------------- -------------- --------------
Operating income 6,622 6,701 5,071 4,934
Other income 394 50 524 213
Net interest income 324 70 612 176
Foreign currency gain, net 2 76 46 236
-------------- -------------- -------------- --------------
Profit before income taxes 7,342 6,897 6,253 5,559
Provision for income taxes (1,352) (272) (1,204) (327)
-------------- -------------- -------------- --------------
Net profit $ 5,990 $ 6,625 $ 5,049 $ 5,232
============== ============== ============== ==============
Net profit per share:
Basic $ 0.32 $ 0.37 $ 0.27 $ 0.29
============== ============== ============== ==============
Diluted $ 0.31 $ 0.34 $ 0.26 $ 0.28
============== ============== ============== ==============
Weighted average number of
common and common equivalent shares:
Basic 18,687,802 18,085,226 18,626,530 17,964,728
============== ============== ============== ==============
Diluted 19,519,694 19,263,343 19,506,360 19,004,858
============== ============== ============== ==============
Cash dividends declared per share
(4 cents declared and paid for each
quarter ended March 31, June 30,
September 30, and December 31, 2004) $ 0.04 $ - $ 0.16 $ -
============== ============== ============== ==============
* Reclassified to conform with 2004 presentation.
See accompanying notes to the consolidated financial statements.
5
RADICA GAMES LIMITED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
AND COMPREHENSIVE INCOME (LOSS)
Nine months ended September 30, 2004 and 2003
(US dollars in thousands) Common stock Accumulated
------------ Additional other Total
Number paid-in Retained comprehensive shareholders'
of shares Amount capital earnings income (loss) equity
----------- ----------- ----------- ----------- -------------- -------------
Balance at December 31, 2003 18,225,204 $ 182 $ 3,517 $ 85,437 $ 20 $ 89,156
Issuance of stock 1,726 - 16 - - 16
Stock options exercised 495,934 5 1,018 - - 1,023
Dividends declared - - - (2,984) - (2,984)
Net income - - - 5,049 - 5,049
Unrealized loss on investment - - - - (41) (41)
securities available-for-sale,
net of nil tax
Foreign currency translation, - - - - (21) (21)
net of nil tax
----------- ----------- ----------- ----------- ------------- -------------
Balance at September 30, 2004 18,722,864 $ 187 $ 4,551 $ 87,502 $ (42) $ 92,198
=========== =========== =========== =========== ============= =============
Balance at December 31, 2002 17,796,131 $ 178 $ 2,320 $ 72,946 $ (808) $ 74,636
Issuance of stock 2,240 - 13 - - 13
Stock options exercised 347,692 3 963 - - 966
Net income - - - 5,232 - 5,232
Unrealized loss on investment securities - - - - (200) (200)
Foreign currency translation - - - - 188 188
----------- ----------- ----------- ----------- ------------- -------------
Balance at September 30, 2003 18,146,063 $ 181 $ 3,296 $ 78,178 $ (1,008) $ 80,835
=========== =========== =========== =========== ============= =============
The comprehensive income of the Company, which represents the aggregate of the
net profit, unrealized loss on investment securities, and foreign currency
translation adjustments, was $4,987 and $5,220 for the nine months ended
September 30, 2004 and 2003 respectively.
See accompanying notes to the consolidated financial statements.
6
RADICA GAMES LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended September 30, 2004 and 2003
(US dollars in thousands) 2004 2003
---------------- ----------------
(unaudited) (unaudited)
Cash flow from operating activities:
Net income $ 5,049 $ 5,232
Adjustments to reconcile net income to net cash
used in operating activities:
Deferred income taxes 1,150 -
Depreciation and amortization 1,300 1,576
(Gain) Loss on disposal and write off of property, plant and equipment (19) 132
Compensatory elements of stock issuances 16 13
Gain on trading investments - (23)
Changes in current assets and liabilities:
Increase in accounts receivable (10,676) (4,928)
Increase in inventories (13,366) (1,174)
Increase in prepaid expenses and other current assets (1,388) (1,196)
Increase in accounts payable 10,778 3,297
Decrease in accrued payroll and employee benefits (104) (1,515)
Increase in accrued warranty expenses 350 -
Increase (decrease) in other accrued liabilities 1,733 (795)
Decrease (increase) in income taxes receivable 1,261 (46)
---------------- ----------------
Net cash (used in) provided by operating activities (3,916) 573
---------------- ----------------
Cash flow from investing activities:
Proceeds from sale of trading investments 12,207 -
Proceeds from sale of property, plant and equipment 1,278 915
Purchase of available-for-sale investment - (10,000)
Purchase of trading investments - (10,000)
Purchase of property, plant and equipment (2,071) (797)
---------------- ----------------
Net cash provided by (used in) investing activities 11,414 (19,882)
---------------- ----------------
Cash flow from financing activities:
Funds from stock options exercised 1,023 966
Dividends paid (2,235) -
Decrease in short-term borowings - (846)
Repayment of long-term debt - (1,825)
---------------- ----------------
Net cash used in financing activities (1,212) (1,705)
---------------- ----------------
Effect of currency exchange rate change (21) 188
---------------- ----------------
Net increase (decrease) in cash and cash equivalents 6,265 (20,826)
Cash and cash equivalents:
Beginning of period 13,944 32,692
---------------- ----------------
End of period $ 20,209 $ 11,866
================ ================
See accompanying notes to the consolidated financial statements.
7
RADICA GAMES LIMITED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(QUARTER ENDED SEPTEMBER 30, 2004)
(US dollars in thousands)
1. BASIS OF PRESENTATION
FINANCIAL STATEMENT PRESENTATION
The condensed consolidated financial statements of Radica Games Limited
(the "Company") have been prepared in accordance with accounting principles
generally accepted in the United States of America for interim financial
information and the rules and regulations of the Securities and Exchange
Commission (the "SEC"). Certain information and footnote disclosures
normally included in the financial statements prepared in accordance with
accounting principles generally accepted in the United States of America
have been condensed or omitted pursuant to such rules and regulations. The
accompanying condensed consolidated financial statements contain all normal
and recurring adjustments, which, in the opinion of management, are
necessary to present fairly the financial position of the Company as of
September 30, 2004, and its results of operations and cash flows for the
periods presented herein. These unaudited condensed consolidated financial
statements should be read in conjunction with the Company's Annual Report
on Form 20-F for the year ended December 31, 2003.
Because the Company's business is seasonal, revenues, expenses, assets and
liabilities can vary during each quarter of the year. Accordingly, the
operating results and trends in these unaudited condensed consolidated
interim financial statements are not necessarily indicative of future
results that may be expected for any other interim period or the full year.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect reported amounts
of certain assets, liabilities, revenues and expenses and the disclosure of
contingent assets and liabilities as of and during the reporting periods.
Significant items subject to such estimates and assumptions include the
carrying amount of goodwill, property, plant and equipment, valuation
allowances for receivables and deferred income tax assets and provisions
for product returns and warranties, as well as in estimates used in
accounting for legal contingencies. Actual results could differ from the
estimated results. Differences from those estimates are recorded in the
period they become known.
ACCOUNTING FOR STOCK BASED COMPENSATION
The Company applies the intrinsic-value-based method of accounting
prescribed by Accounting Principles Board (APB) Opinion No. 25, Accounting
for Stock Issued to Employees, and related interpretations including FASB
Interpretation No. 44, Accounting for Certain Transactions involving Stock
Compensation, an interpretation of APB Opinion No. 25, issued in March
2000, to account for its fixed-plan stock options. Under this method,
compensation expense is recorded on the date of grant only if the current
market price of the underlying stock exceeded the exercise price. SFAS No.
123, Accounting for Stock-based Compensation, established accounting and
disclosure requirements using a fair-value-based method of accounting for
stock-based employee compensation plans. As allowed by SFAS No. 123, the
Company has elected to continue to apply the intrinsic-value-based method
of accounting described above, and has adopted only the disclosure
requirements of SFAS No. 123. The following table illustrates the effect on
net profit if the fair value based method had been applied to all
outstanding and unvested awards in the period:
8
RADICA GAMES LIMITED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(QUARTER ENDED SEPTEMBER 30, 2004)
(US dollars in thousands except per share data)
1. BASIS OF PRESENTATION (CONTINUED)
Three months ended September 30, Nine months ended September 30,
--------------------------------------------------------------------------------
2004 2003 2004 2003
----------------- ----------------- ----------------- -----------------
Net profit
As reported $ 5,990 $ 6,625 $ 5,049 $ 5,232
Less: Total stock-based employee
compensation expense (130) (174) (380) (478)
determined under fair-value-
based method for all rewards, net
of related tax effects
----------------- ----------------- ----------------- -----------------
Pro forma $ 5,860 $ 6,451 $ 4,669 $ 4,754
================= ================= ================= =================
Reported net profit per share
Basic $ 0.32 $ 0.37 $ 0.27 $ 0.29
Diluted 0.31 0.34 0.26 0.28
Pro forma net profit per share
Basic $ 0.31 $ 0.36 $ 0.25 $ 0.26
Diluted 0.30 0.33 0.24 0.25
In April 2003, the Financial Accounting Standards Board ("FASB") announced
that it would mandate the fair value method of accounting for all
stock-based awards. In March 2004, the FASB issued an Exposure Draft of a
proposed statement. The adoption of proposed statement would be required
for interim and annual periods beginning after June 15, 2005. Until a final
statement is issued, the Company cannot estimate the effect that this
change in accounting would have on its consolidated statement of
operations.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In December 2003, the FASB issued FASB Interpretation No. 46 (revised
December 2003), Consolidation of Variable Interest Entities, which
addresses how a business enterprise should evaluate whether it has a
controlling financial interest in an entity through means other than voting
rights and accordingly should consolidate the entity. FIN 46R replaces FASB
Interpretation No. 46, Consolidation of Variable Interest Entities, which
was issued in January 2003. The Company will be required to apply FIN 46R
to variable interests in VIEs created after December 31, 2003. For variable
interests in VIEs created before January 1, 2004, the Interpretation will
be applied beginning on January 1, 2005. For any VIEs that must be
consolidated under FIN 46R that were created before January 1, 2004, the
assets, liabilities and noncontrolling interests of the VIE initially would
be measured at their carrying amounts with any difference between the net
amount added to the balance sheet and any previously recognized interest
being recognized as the cumulative effect of an accounting change. If
determining the carrying amounts is not practicable, fair value at the date
FIN 46R first applies may be used to measure the assets, liabilities and
noncontrolling interest of the VIE.
The Company has evaluated the impact of applying FIN 46R and believes that,
other than those entities already consolidated in the Company's
consolidated financial statements, no additional entities would need to be
consolidated by the Company.
9
RADICA GAMES LIMITED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(QUARTER ENDED SEPTEMBER 30, 2004)
(US dollars in thousands except per share data)
1. BASIS OF PRESENTATION (CONTINUED)
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. SFAS No.
150 establishes standards for classification and measurement in the balance
sheets for certain financial instruments which possess characteristics of
both a liability and equity. The Company currently does not have any
financial instruments that are within the scope of this Statement. The
company adopted SFAS No. 150, effective January 1, 2004. The adoption of
SFAS No. 150 did not result in any classification of the company's
consolidated financial statements in all prior periods presented.
In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. SFAS No. 149 amends and
clarifies the accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging
activities under SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities. SFAS No. 149 is generally effective for contracts
entered into or modified after June 30, 2003 and for hedging relationships
designated after June 30, 2003. The adoption of SFAS No. 149 did not have a
material affect on the Company's results of operations or financial
position.
RECLASSIFICATIONS
Certain reclassifications have been made to prior year amounts to conform
to the current year's presentation. These reclassifications had no effect
on net profit or shareholders' equity.
2. NET PROFIT PER SHARE
Basic net profit per share is based on the weighted average number of
shares of common stock, and with respect to diluted net profit per share,
also includes the effect of all dilutive potential common stock
outstanding. Dilutive potential common stock results from dilutive stock
options and warrants. The effect of such dilutive potential common stock on
net profit per share is computed using the treasury stock method. Dilutive
potential common stock has no effect on net loss per share as the effect
would be anti-dilutive.
The following table sets forth the computations of net profit per share for
the three-month and nine-month periods ended September 30:
Three months ended September 30, Nine months ended September 30,
---------------------------------------------------------------------------
2004 2003 2004 2003
--------------- ---------------- --------------- ----------------
Numerator for basic and diluted net profit
per share:
Net profit $ 5,990 $ 6,625 $ 5,049 $ 5,232
=============== ================ =============== ================
Denominator:
Basic weighted average shares 18,687,802 18,085,226 18,626,530 17,964,728
Effect of dilutive options 831,892 1,178,117 879,830 1,040,130
--------------- ---------------- --------------- ----------------
Diluted weighted average shares 19,519,694 19,263,343 19,506,360 19,004,858
=============== ================ =============== ================
Basic net profit per share: $ 0.32 $ 0.37 $ 0.27 $ 0.29
=============== ================ =============== ================
Diluted net profit per share: $ 0.31 $ 0.34 $ 0.26 $ 0.28
=============== ================ =============== ================
10
RADICA GAMES LIMITED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(QUARTER ENDED SEPTEMBER 30, 2004)
(US dollars in thousands)
3. BUSINESS SEGMENTS
The Company is a worldwide designer, producer and marketer of electronic
entertainment devices. The Company has two reportable segments from which
it derives its revenues: the Games business that sells product under the
Company's Radica(R), Play TV(R) and Girl Tech(R) brand names, and the Video
Game Accessory ("VGA") business that sells product under the Company's
Gamester(R) brand name. The Company also sources certain VGA and other
electronic products through third party manufacturers for retailers to sell
under their own brands; this is also included in the VGA segment. The
reportable segments are strategic businesses that offer different products.
The Company measures segment performance based on net profit before
interest and other income and income taxes. Inter-segment sales and
transfers have been eliminated and are not included in the following table.
Certain corporate expenses are managed outside of the operating segments.
Corporate expenses consist primarily of costs related to business
integration and other general and administrative expenses. All corporate
and indirect costs have been apportioned on the basis of corresponding
sales and direct costs.
Information by segment for the three months and nine months ended September
30, 2004 and 2003 are as follows:
Three months ended September 30, Nine months ended September 30,
---------------------------------------------------------------------------------
2004 2003 2004 2003
------------------ ------------------ ------------------- ------------------
Revenues from external customers
Games and Youth Electronics $ 45,793 $ 33,352 $ 72,326 $ 59,099
VGA 3,179 4,303 7,570 11,545
------------------ ------------------ ------------------- ------------------
Total revenues from external $ 48,972 $ 37,655 $ 79,896 $ 70,644
customers
================== ================== =================== ==================
Segment profit (loss)
Games and Youth Electronics $ 7,306 $ 7,788 $ 7,615 $ 8,687
VGA (42) (192) (426) (1,402)
------------------ ------------------ ------------------- ------------------
Total segment profit $ 7,264 $ 7,596 $ 7,189 $ 7,285
Corporate
Unallocated corporate expenses $ (640) $ (819) $ (2,072) $ (2,115)
Net interest and other income 718 120 1,136 389
Income tax expense (1,352) (272) (1,204) (327)
------------------ ------------------ ------------------- ------------------
Net profit $ 5,990 $ 6,625 $ 5,049 $ 5,232
================== ================== =================== ==================
11
RADICA GAMES LIMITED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(QUARTER ENDED SEPTEMBER 30, 2004)
(US dollars in thousands)
4. GOODWILL
At September 30, 2004 and December 31, 2003, the Company's cost in excess
of fair value of assets purchased (goodwill) related to the 1999
acquisition of Leda Media Products Limited, now called Radica UK Limited
("Radica UK"). On June 24, 1999, the Company purchased Radica UK for
approximately $15,970. During the quarter ended June 30, 2000, upon
claiming certain breaches of warranty at Radica UK, the Company and the
ex-shareholders of Radica UK mutually agreed to cancel certain loan notes
such that the purchase price was reduced by $1,399. The Company recorded
goodwill of approximately $12,100 resulting from the adjusted purchase
price. Accumulated amortization related to goodwill of $2,518 arising prior
to the adoption of SFAS No. 142 has been reflected in the gross carrying
amount of goodwill as of December 31, 2001.
Effective January 1, 2002, the Company adopted SFAS No. 142, Goodwill and
Other Intangible Assets. Goodwill is required to be tested for impairment
on an annual basis at the reporting unit level. Furthermore, goodwill is
required to be tested on an interim basis if an event or change in
circumstances indicates that the asset might be impaired. The goodwill
arising from the purchase of Radica UK was allocated to the Video Games
Accessories ("VGA") reporting unit. In December 2003, the Company has
undertaken goodwill impairment testing to determine whether the goodwill
was impaired and the extent of such impairment. After performing this
evaluation there was no impairment of goodwill as at December 31, 2003 as
the fair value of the reporting unit (as determined using the expected
present value of future cash flows) exceeded the carrying amount of the
reporting unit (including goodwill). There have been no events since
December 31, 2003 which would cause the Company to change this assessment.
5. INVENTORIES
Inventories by major categories are summarized as follows:
September 30, December 31,
2004 2003
-------------- --------------
Raw materials $ 6,117 $ 1,554
Work in progress 7,654 2,758
Finished goods 15,098 11,191
-------------- --------------
$ 28,869 $ 15,503
============== ==============
6. PROPERTY, PLANT AND EQUIPMENT
Property and Plant and Equipment consists of the following:
September 30, December 31,
2004 2003
-------------- --------------
Land and buildings $ 9,423 $ 10,953
Plant and machinery 8,143 7,754
Furniture and equipment 8,104 7,514
Leasehold improvements 3,040 2,943
-------------- --------------
Total 28,710 29,164
Less: Accumulated depreciation (17,274) (17,256)
and amortization
-------------- --------------
Total, net $ 11,436 $ 11,908
============== ==============
12
RADICA GAMES LIMITED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(QUARTER ENDED SEPTEMBER 30, 2004)
(US dollars in thousands)
7. ACCRUED LIABILITIES
Other accrued liabilities consist of the following:
September 30, December 31,
2004 2003
-------------- --------------
Accrued advertising expenses $ 1,121 $ 1,091
Accrued license and royalty fees 2,371 1,062
Commissions payable 260 166
Other accrued liabilities 1,957 1,657
------------- --------------
Total $ 5,709 $ 3,976
============= ==============
8. PLEDGE OF ASSETS
At September 30, 2004, the Company's general banking facilities including
overdraft and trade facilities were collateralized by leasehold land and
buildings and bank balances with an aggregate net book value of $2,234 and
$1,292, respectively.
9. LITIGATION
On April 4, 2000 a lawsuit was filed by the Lemelson Foundation
("Lemelson") against the Company in Arizona Court for patent infringement.
Lemelson claims to be owners of nearly 800 issued and pending patents,
including the patent on Machine Vision and Automatic Identification (Auto
ID) operations. The Auto ID operation is used in machines that are part of
the Company's bonding and heat-sealing manufacturing processes. Lemelson is
contesting that the use of machines that incorporate this patented
technology infringes on their IP rights and therefore the Company is
obligated to pay a royalty based on the use of this technology. The suit by
Lemelson has been stayed pending the outcome of Lemelson vs. Cognex, a
similar suit filed by Lemelson, which will have some bearing on the Radica
case with Lemelson. On January 23, 2004 a declaratory judgment was given in
the Cognex case that the Lemelson's patent claims are invalid. If this
judgment is upheld following appeal, the Company believes that this result
is favorable to the Company's defense of the Lemelson lawsuit. On June 29,
2004, Lemelson filed its notice of appeal to the Court of Appeals for the
Federal Circuit. The briefing is not expected to be completed until the
first quarter of 2005 and a decision from the Court will likely not be
issued until 2006.
The Company cannot predict the outcome of the Lemelson case or the effect
of such litigation on the financial results of the Company. No accrual has
been recorded at September 30, 2004 and December 31, 2003 in respect of the
Lemelson case or other claims or legal actions, in accordance with SFAS No.
5 Accounting for Contingencies. Management does not believe that the
ultimate disposition of the other matters will have a material adverse
effect on the Company's consolidated financial position, results of
operations or liquidity.
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the attached
financial statements and notes thereto, and with the audited financial
statements, accounting policies and notes included in the Company's Annual
Report on Form 20-F for the year ended December 31, 2003, as filed with the
United States Securities and Exchange Commission.
DESCRIPTION OF BUSINESS
Founded in 1983 by Americans living in Hong Kong, Radica Games Limited (NASDAQ:
RADA) was incorporated in Bermuda in 1993. We are headquartered in Hong Kong and
manufacture our products in our factory in southern China. In 1994 we went
public when our shares began trading on the Nasdaq National Market.
We manufacture and market a diverse line of electronic entertainment products
covering multiple product lines -- electronic games carrying the Radica(R), Play
TV(R) and Arcade Legends (TM) brand names, Gamester(R) branded video game
controllers & accessories, girls' lifestyle electronics carrying the Girl
Tech(R) and Barbie(TM) brand names and three new categories introduced in 2004,
a doll line carrying the Twinkleberries(TM) brand name, an infra red car line
carrying the Nitro Battlerz(TM) brand name and a remote control combination
truck and plane product being distributed in the United Kingdom under the Atlas
brand name. Product sales data for these three new brands are displayed in the
sales summary under "Other Electronic Toys". Our factory also manufactures for
other companies in the electronic game industry. We market our products through
subsidiaries in the United States, the United Kingdom, Canada, Macau and Hong
Kong. Our largest market is in the United States where in 2003 we had the second
largest market share in the electronic handheld and tabletop electronic games
categories according to industry data source, The NPD Group, Inc.
RESULTS OF OPERATIONS
The following table sets forth items from our Consolidated Statements of
Operations as a percentage of net sales:
Three months ended September 30,
--------------------------------
2004 2003
------------- --------------
Net sales 100.0% 100.0%
Cost of goods sold (68.8%) (61.9%)
Gross margin 31.2% 38.1%
Selling, general and administrative expenses (14.9%) (16.4%)
Research and development (1.9%) (2.6%)
Depreciation and amortization (0.9%) (1.2%)
Operating income 13.5% 17.8%
Net interest and other income 1.5% 0.3%
Foreign currency gain, net - 0.2%
Profit before income taxes 15.0% 18.3%
Provision for income taxes (2.8%) (0.7%)
Net profit 12.2% 17.6%
We reported a net profit for the third quarter of 2004 of $6.0 million or $0.31
per diluted share compared to $6.6 million or $0.34 per diluted share in the
third quarter of 2003.
14
Summary of sales achieved from each category of products:
Three months ended September 30,
---------------------------------------------------------------------------------------------------
2004 2003
---------------------------------------------------------------------------------------------------
% of Net Net % of Net Net
Product Lines Sales Value Sales Value Sales Value Sales Value
-------------------------- --------------------- ---------------------- --------------------- ----------------------
(US dollars in thousands)
Electronic Games 69.9% $ 34,220 62.5% $ 23,511
Youth Electronics 13.2% 6,447 15.7% 5,925
Other Electronic Toys 3.3% 1,657 - -
VGA 6.5% 3,179 9.2% 3,479
Manufacturing Services 7.1% 3,469 12.6% 4,740
--------------------- ---------------------- --------------------- ----------------------
Total 100.0% $ 48,972 100.0% $ 37,655
===================== ====================== ===================== ======================
Gross profit margin for the quarter of 2004 was 31.2% compared to 38.1% in the
third quarter of 2003. Gross margins for the quarter were significantly impacted
by costs associated with meeting the large surge in demand for our products. As
a result of this and the recent delays in ocean freight experienced in the
industry at large, we incurred a significantly higher percentage of air freight
than in past years to meet customer plan-o-gram and advertising dates.
Additionally, we needed to increase the percentage of higher cost outsourcing
during this peak production period. Finally, there was a sales mix shift in the
direction of lower margin Play TV Legends products and increased plastics costs.
Sales for the quarter increased by 30.1% to $49.0 million from $37.7 million due
to increases in sales in all toy and game areas, but particularly in the new
Play TV Legends line and in 20Q, which are seeing strong demand. Excluding
Manufacturing Services, Radica branded products sales set a quarterly all time
record of $45.5 million and increased by 38.2% versus the prior year.
In Manufacturing Services, our strategy to move away from this business and
increase our focus on the more profitable Radica branded sales resulted in a
$1.3 million reduction in Manufacturing Services sales compared to the third
quarter of 2003.
Operating expenses increased to $8.6 million for the quarter from $7.6 million
in Q3 2003. The increase was due to advertising and variable selling expenses
affected by increased sales.
Pre-tax profits grew by 6.5% for the quarter and 12.5% year to date. The tax
provision for the quarter was $1.4 million compared to $0.3 million for 2003 as
the net operating loss carry forwards in the United States have now been fully
utilized. As a result, the tax rate for the group was 18.4% for the quarter
compared to 3.9% for Q3 of 2003.
The following table shows the major operating expenses:
Three months ended September 30,
-----------------------------------
(US dollars in millions) 2004 2003
---------------- -----------------
Advertising expenses 1.6 1.0
Other selling and promotion expenses 1.5 1.1
Indirect salaries and bonus 2.2 2.1
Other general & administrative expenses 1.9 1.9
Research and development expenses 0.9 1.0
Depreciation and amortization 0.5 0.5
15
LIQUIDITY AND CAPITAL RESOURCES
Our cash and investment securities totaled $36.0 million at September 30, 2004
as compared to $42.0 million at December 31, 2003. The $6.0 million decrease was
primarily due to changes in assets and liabilities and non-cash items ($9.0
million), dividend paid ($2.2 million) and the purchase of property, plant and
equipment ($2.1 million) that was partially offset by the $5.0 million net
income and receipt of cash proceeds related to exercise of stock options ($1.0
million) and proceeds from sales of property, plant and equipment ($1.3
million).
Change in assets and liabilities result primarily from the timing of production,
sales and purchases. These timing differences resulted in increases in accounts
receivables, inventories and accounts payable. Such seasonal changes in assets
and liabilities are typical for the toy industry and should partially reverse by
year-end.
Our accounts receivable was $26.0 million at September 30, 2004 as compared to
$15.4 million at December 31, 2003. Inventories increased to $28.9 million from
$15.5 million at December 31, 2003. Our business is inherently seasonal.
Normally our sales have been lowest during the first and second quarters and
highest during the third and fourth quarters. Receivables have been lowest
during the succeeding first and second quarters. Likewise, inventory buildup is
seasonal. The increase in accounts receivable related primarily to the increased
sales in the third quarter of 2004 compared to the third quarter of 2003. The
increase in inventory was due primarily to a greater increase in inventory
buildup for next quarter's demands but customers could change their delivery
schedules or cancel orders. Lead times for the release of purchase orders depend
upon the scheduling practices of individual customers and delivery times of our
new products can be affected by scheduling factors and other manufacturing
considerations.
Current liabilities were $26.4 million at September 30, 2004, up $13.3 million
from the $13.1 million reported at December 31, 2003. This was mainly due to an
increase in payables related to inventory purchases and dividends payable. There
was no debt at September 30, 2004 and December 31, 2003.
At September 30, 2004, we had net assets of $92.2 million compared with $89.2
million at December 31, 2003. Our business generates a significant majority of
its cash from its normal operations but seasonal cash requirements have been met
with the use of short-term borrowings, which included borrowings under secured
lines of credit. We had no derivative instruments or off-balance sheet financing
activities during the quarter ended September 30, 2004. We believe that our
existing cash and cash equivalents and cash generated from operations are
sufficient to satisfy the current anticipated working capital needs of our core
business.
We believe that our existing credit lines are sufficient to meet future
short-term cash demands, including seasonal build up of inventory. We fund our
operations and liquidity needs primarily through cash flow from operations, as
well as utilizing borrowings under secured and unsecured credit facilities when
needed. During 2004, we expect to continue to fund our working capital needs
through operations and the revolving credit facility and we believe that the
funds are available to meet our needs. However, unforeseen circumstances such as
severe softness in, or a collapse of, the retail environment may result in a
significant decline in revenues and operating results, thereby causing us to
exhaust our cash resources. If this were to occur, we may be required to seek
alternative financing of working capital.
On January 5, March 29 and June 21, 2004, we declared first, second and third
dividends each of 4 cents per share which were paid on January 30, April 30 and
July 30, 2004, respectively. On September 21, 2004, we declared a fourth
dividend of 4 cents per share which was paid on October 29, 2004.
CRITICAL ACCOUNTING POLICIES
For a discussion of our critical accounting policies, see "Item 5, operating and
financial review and prospects" in our 2003 Form 20-F.
16
RECENTLY ISSUED ACCOUNTING STANDARDS
A discussion of certain recently issued accounting standards and the estimated
impact on us is set out in note 1 to the condensed consolidated financial
statements.
RISK FACTORS
For a discussion of our risk factors, see "Item 3. Key Information -- Risk
Factors" and "Item 5. Operating and Financial Review and Prospects" in our 2003
Form 20-F. Additional risk factors:
Foreign Currency Risk
Efforts to increase worldwide distribution have made our business increasingly
global. We expect that international sales may continue to represent a
significant portion of our revenue. Although most of our international sales are
denominated in the US dollars, fluctuations in foreign currencies may have an
impact on our financial results. We are prepared to hedge against fluctuations
in foreign currencies if the exposure is material, although we have not engaged
in hedging activities to date.
We have monetary asset and liability balances in foreign currencies other than
the U.S. dollar, including the Pound Sterling, the Canadian dollar, the Hong
Kong dollar and the China RMB. International distribution and sales revenues
usually are made by our subsidiaries in the United States, United Kingdom and
Canada, and are denominated typically in their local currency. However, the
expenses incurred by these subsidiaries are also denominated in the local
currency. As a result, our operating results are exposed to changes in exchange
rates between the United States Dollar and the Pound Sterling or the Canadian
dollar. Our operating results could also be affected by changes in the exchange
rate between the US dollar and the China RMB if the Chinese currency were to
stop being pegged to the US dollar.
FORWARD-LOOKING STATEMENTS AND CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS
(CAUTIONARY STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995)
Certain written and oral statements made or incorporated by reference from time
to time by us or our representatives in this Form 6-K, other filings or reports
filed with the Securities and Exchange Commission, press releases, conferences,
or otherwise, contain certain "forward-looking" statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. You can identify these forward-looking statements by the
fact they use words such as "should", "expect", "anticipate", "estimate", "may",
"will", "project", "guidance", "intend", "plan", "believe" and other words and
terms of similar meaning and expression in connection with any discussion of
future operating or financial performance. One can also identify forward-looking
statements by the fact that they do not relate strictly to historical or current
facts. Such forward-looking statements are based on current expectations and
involve inherent risks and uncertainties, including factors that could delay,
divert or change any of them, or depend on the outcome of contingencies such as
legal proceedings. Management cautions you that forward-looking statements
involve risks and uncertainties that may cause actual results to differ
materially from the forward-looking statements. For a more complete discussion
of our risk factors, you are referred to the sections in our Form 20-F and Form
6-K identified above under the caption "Risk Factors". The forward-looking
statements made in this Form 6-K speaks only as of the date on which the
statements are made.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The market risk disclosures have not materially changed from those
appearing in our 2003 Form 20-F (see Item 11).
ITEM 4. CONTROLS AND PROCEDURES
Not Applicable.
17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------------------
See Note 9 to the accompanying Financial Statements.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
-----------------------------------------------------------------------
None.
Item 3. Defaults Upon Senior Securities
-------------------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------------------
None.
Item 5. Other Information
-----------------------------
None.
Item 6. Exhibits
--------------------
None.
18
SIGNATURE
Pursuant to the requirements of Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
RADICA GAMES LIMITED
Date: December 23, 2004 /s/ Craig D. Storey
----------------------------------- ------------------------------
Craig D. Storey
Chief Accounting Officer
19
RADICA GAMES LIMITED
COMMENTS ON FOURTH QUARTER OUTLOOK
FOR IMMEDIATE RELEASE CONTACT: PATRICK S. FEELY
DECEMBER 16, 2004 PRESIDENT & CEO
(LOS ANGELES, CALIFORNIA)
(626) 744 1150
DAVID C.W. HOWELL
PRESIDENT ASIA OPERATIONS
& CFO
(HONG KONG)
(852) 2688 4201
(HONG KONG) Radica Games Limited (NASDAQ: RADA) announced today that while 4th
quarter sales are likely to exceed prior year's 4th quarter sales by 5% to 10%,
they are tracking below the Company's expectations. The Company cited the
primary issue as the reduction in orders from a major customer that normally
accounts for about one third of 4th quarter sales. The Company has also
experienced production shortages on certain key products and shipping delays due
to U.S. port congestion.
In addition, gross margins for the fourth quarter have continued to be impacted
by material and shipping costs. As a result, the Company expects 4th quarter
earnings per share to be in single digits.
Pat Feely, Radica's President and CEO said, "In spite of the sales reduction we
are experiencing from one key customer, our business with our other key accounts
and the product "sell through" have been excellent. We are disappointed with the
results we expect for the quarter; however we are encouraged by the sales
movement of our products, particularly 20Q. We continue to have very positive
expectations for 2005."
The foregoing discussion contains forward-looking statements that
involve risks and uncertainties that could cause actual results to
differ materially from projected results. Forward-looking statements
include statements about efforts to attract or prospects for
additional or increased business, new product introductions and other
statements of a non-historical nature. Actual results may differ from
projected results due to various Risk Factors, including Risks of
Manufacturing in China, Dependence on Product Appeal and New Product
Introductions, and Dependence on Major Customers, as set forth in the
Company's Annual Report on Form 20-F for the fiscal year ended
December 31, 2003, as filed with the Securities and Exchange
Commission. See "Item 3. Key Information -- Risk Factors" in such
report on Form 20-F.
Radica Games Limited (Radica) is a Bermuda company headquartered in Hong Kong
(NASDAQ: RADA). Radica is a leading developer, manufacturer and distributor of a
diverse line of electronic entertainment products including electronic games,
youth electronics, video game accessories and high-tech toys. Radica has
subsidiaries in the U.S.A., Canada and the U.K., and a factory in Dongguan,
Southern China. More information about Radica can be found on the Internet at
www.radicagames.com.
-- END --
RADICA(R) TAKES TOP TECH TOY HONORS
AT INAUGURAL ULTIMATE TOY AWARDS SHOW
FOR IMMEDIATE RELEASE CONTACT: PATRICK S. FEELY
DECEMBER 7, 2004 PRESIDENT & CEO
(LOS ANGELES, CALIFORNIA)
(626) 744 1150
DAVID C.W. HOWELL
PRESIDENT ASIA OPERATIONS
& CFO
(HONG KONG)
(852) 2688 4201
(HONG KONG) Radica Games Limited (NASDAQ: RADA), a leading developer,
manufacturer and distributor of a diverse line of electronic entertainment
products was honored at the first-ever Ultimate Toy Awards Show. My Photo Booth,
from the company's Girl Tech line of toys for tween girls, received the
`Ultimate Tech Toy of the Year' award, which aired nationally on NBC December
4th. Toy Wishes Magazine, The Ultimate Guide to Family Entertainment, and DIC
Entertainment, a leading independent children's entertainment company, partnered
to produce this one-of-a-kind televised awards program, produced by Dick Clark
Productions, celebrating play, entertainment and the toy industry.
"Radica is a prominent leader in electronic entertainment," notes Jim Silver,
editor-in-chief of Toy Wishes Magazine. "My Photo Booth has an innovative,
technological kind of `magic' that appeals to kids, so it's no surprise that
Radica took top honors in the Tech Toy category."
"We are absolutely thrilled to receive this award," states Pat Feely, president
and chief executive officer of Radica. "To be honored by our peers, the press
and most importantly, consumers, is a testament to our brand and our commitment
of manufacturing innovative, high-tech, quality toys."
Radica products were also among the finalists in four other categories,
including the top prize, `The Best Toy of the 2004.' Nitro Battlerz, an R/C game
where kids build their vehicles and dome track then give the cars super speed to
race and crash them, finished as a runner-up. The item was also nominated in the
Radio-Controlled Toys category. Barbie Balance Beam was a nominee in the Girls'
Toys category and Play TV EA Sports SSX Snowboarder was a nominee in the Video
Games & CD-Roms categories.
THE VOTING PROCESS:
Toy lovers were asked to cast their votes online at Toysrus.com in 20
categories, ranging from "Ultimate Action & Adventure Toy of the Year" to
"Ultimate Stuffed Animal Toy of the Year." There were also three non-toy
categories such as "Girl Cartoon Star of the Year," "Boy Cartoon Star of the
Year" and "Movie Star of the Year." Voters also selected their choice for the
top prize of all -- "The Best Toy of 2004." Online votes cast by consumers,
coupled with votes cast by members of the American toy press, determined the
winners of "The Ultimate Toy Awards." Voting ended on November 3rd.
ABOUT THE AWARD WINNING PRODUCT:
With My Photo Booth, kids just strike a pose and say "Cheese" to experience the
thrill of a real life photo booth right at home. It has a mirror to make sure
that everyone is in the picture and a red flash, just like a real photo booth.
And the best part is, My Photo Booth is portable, so kids never have to worry
about missing a photo op! Includes one pack of Polaroid Instant Izone film.
($44.99 / 6 years and up)
ABOUT TOY WISHES:
The inaugural issue of Toy Wishes Magazine, The Ultimate Guide to Family
Entertainment, hit newsstands in October 1999 and was met with phenomenal
success. The first-ever magazine about toys is not only designed to help
parents, grandparents even the kids themselves -- wade through the often
overwhelming clutter to find the most outstanding toys of the season -- the
coveted Toy Wishes Hot Dozen -- but includes over 500 toy reviews, a
comprehensive guide to family entertainment, exciting sweepstakes and
informative articles filled with `how to' tips on shopping, time management and
planning family activities. Toy Wishes is available at newsstands everywhere.
For more information, check out www.toywishes.com.
ABOUT DIC ENTERTAINMENT:
DIC Entertainment, a leading children's entertainment company, is a full-service
studio dedicated to creating, developing, producing, distributing, marketing and
merchandising family-based intellectual properties. DIC has distinguished itself
by building one of the largest libraries of U.S. animation with more than 3,000
half-hours of renowned programming, including Inspector Gadget(TM), Strawberry
Shortcake(TM), Knights of the Zodiac(TM), Sabrina (TM), Madeline(TM), Liberty's
Kids(TM), Where On Earth Is Carmen Sandiego?(TM), Sonic The Hedgehog(TM), Super
Mario Bros(TM) and Super Duper Sumos(TM). In September 2003, DIC launched the
DIC Kid's Network, a unique syndicated programming block designed to meet core
FCC requirements and the only network for kids that reaches effectively 100
percent of U.S. households on over 400 stations, airing in every Designated
Market Area across the country. As a pre-eminent supplier of kid's programming
worldwide, DIC has developed strategic partnerships with key domestic and
international broadcast partners throughout the U.S., Europe, Asia, Latin
America, Africa and Australia. DIC is headquartered in Burbank, California with
international offices in New York, Paris, London and Cologne.
ABOUT DICK CLARK PRODUCTIONS, INC.:
Dick Clark Productions, Inc. is a leading independent producer of a wide range
of television programming for broadcast.
ABOUT RADICA GAMES LIMITED:
Radica Games Limited (Radica) is a Bermuda company headquartered in Hong Kong
(NASDAQ: RADA). Radica is a leading developer, manufacturer and distributor of a
diverse line of electronic entertainment products including electronic games,
youth electronics, video game accessories and high-tech toys. Radica has
subsidiaries in the U.S.A., Canada and the U.K., and a factory in Dongguan,
Southern China. More information about Radica can be found on the Internet at
www.radicagames.com.
-- END --
RADICA GAMES LIMITED
REPORTS THIRD QUARTER 2004 RESULTS
FOR IMMEDIATE RELEASE CONTACT: PATRICK S. FEELY
NOVEMBER 8, 2004 PRESIDENT & CEO
(LOS ANGELES, CALIFORNIA)
(626) 744 1150
DAVID C.W. HOWELL
PRESIDENT ASIA OPERATIONS
& CFO
(HONG KONG)
(852) 2688 4201
HIGHLIGHTS FOR Q3 2004:
o Total sales increase 30.1% -- Radica branded sales set quarterly record up
38.2%
o Profits impacted by higher air shipping and outsourcing costs triggered by
large increase in demand.
o Pretax Profit increased 6.5%; however, net profit decreased 9.6% reflecting
normalized tax status
o Strong demand noted for Play TV Legends and 20Q products
(HONG KONG) Radica Games Limited (NASDAQ: RADA) announced today its results for
the third quarter ended September 30, 2004. The Company reported a net profit
for the quarter of $6.0 million or $0.31 per diluted share compared to $6.6
million or $0.34 per share in the third quarter of 2003. While pretax profit
increased by 6.5% for the quarter, net profit decreased by 9.6% due to certain
tax credits favorably effecting only the prior year. Net profit for the
nine-month period ended September 30, 2004 was $5.0 million or $0.26 per diluted
share compared to $5.2 million or $0.28 per diluted share for the same period in
2003 and pretax profits increased by 12.5% for the nine-month period.
Profitability for the quarter was affected by an increased amount of air freight
necessary to fill demand and overcome ocean freight delays as well as
outsourcing costs to address higher production requirements for the quarter.
Other factors affecting profit margins included increased plastics costs and
change in sales mix resulting from large import shipments of lower margin Play
TV Legends products.
Sales for the quarter increased by 30.1% to $49.0 million from $37.7 million due
to increases in sales in all toy and game areas, but particularly in the new
Play TV Legends line and in 20Q, which are seeing strong demand. Sales year to
date increased 13.1% to $79.9 million as compared to $70.6 million for the same
period in 2003. Excluding Manufacturing Services, Radica branded products sales
set a quarterly all time record of $45.5 million and increased by 38.2% versus
the prior year. Branded sales are up by 22.5% for the nine-month period.
Gross margins for the quarter were significantly impacted by costs associated
with meeting the large surge in demand for the Company's products. As a result
of this and the recent delays in ocean freight experienced in the industry at
large, the Company incurred a significantly higher percentage of air freight
than in past years to meet customer plan-o-gram and ad promotion dates.
Additionally, the Company needed to increase the percentage of higher cost
outsourcing during this peak production period. Finally, there was a sales mix
shift in the direction of lower margin Play TV Legends products and increased
plastics costs. While there may be some impact from these factors again in Q4,
the impact is expected to be substantially less than in Q3.
Pat Feely, Radica's President and CEO commented, "Radica's sales growth this
quarter is particularly gratifying considering the softness in the current toy
market. While we were disappointed that operating profits did not grow more
significantly due to the additional costs we experienced trying to satisfy
surging demand, we believe this is a short term issue that will significantly
impact only this quarter. However, it has to be taken into account in full year
estimates. Additionally, with the current soft retail environment, caution will
continue to be called for as the year unfolds."
"We are very pleased with the early fall retail movement we are seeing from our
Play TV Legends product line and particularly the Sega Genesis product and 20Q
has developed into a genuine hit. Radica has received numerous awards this fall
from various publications and toy rating services for other new products
including Nitro Battlerz, Girl Tech Photo Booth, Girl Tech Friend Chips, and
Play TV SSX Snowboarding. We were also encouraged by the reaction from customers
to our 2005 product line at the Fall Toy Fair in October. Given these factors,
we are excited about the opportunities we see for continuing our momentum into
2005 and beyond," added Feely.
The following table shows the detailed revenue comparisons for the quarter:
Three months ended September 30, Nine months ended September 30,
--------------------------------------------------------------------------
Product Line Revenues 2004 2003 2004 2003
--------------------- ---------------- ---------------- ---------------- ---------------
(US$ in thousands)
Radica Branded Products:
Electronic Games $ 34,220 $ 23,511 $ 51,791 $ 40,105
Youth Electronics 6,447 5,925 11,273 9,799
Other Electronic Toys 1,657 - 2,222 -
VGA 3,179 3,479 7,187 9,250
---------------- ---------------- ---------------- ---------------
Subtotal branded $ 45,503 $ 32,915 $ 72,473 $ 59,154
Manufacturing Services $ 3,469 $ 4,740 $ 7,423 $ 11,490
---------------- ---------------- ---------------- ---------------
---------------- ---------------- ---------------- ---------------
TOTAL $ 48,972 $ 37,655 $ 79,896 $ 70,644
================ ================ ================ ===============
Gross profit margin for Q3 2004 was 31.2% compared to 38.1% in Q3 2003 and was
33.2% for the year to date compared to 36.7% for the comparable period in 2003.
This decrease in gross margin was in large measure due to increased air freight
costs coupled with increased outsourcing costs due to significantly increased
demand for the Company's products. Margins were also impacted by an increased
percentage of sales coming from lower margin Play TV Legends products as well as
increased material costs for certain products with high plastic content.
Operating expenses increased to $8.6 million for the quarter from $7.6 million
in Q3 2003. The increase was due to variable expenses affected by increased
sales. For the nine months ended September 30, 2004, operating expenses
increased $0.5 million from the comparative period in 2003 for similar reasons.
Pre-tax profits grew by 6.5% for the quarter and 12.5% year to date. The tax
provision for the quarter stood at $1.4 million compared to $0.3 million in Q3
of 2003 as the net operating loss carry forwards in the United States have now
been fully utilized pushing the tax rate for the group to 18.4% for the quarter
compared to 3.9% for Q3 of 2003.
At September 30, 2004 the Company had $36.0 million of cash and investment
securities, and net assets of $92.2 million as compared to $42.0 million and
$89.2 million, respectively, at December 31, 2003. There was no debt at
September 30, 2004 and December 31, 2003. Inventories increased to $28.9 million
from $15.5 million at December 31, 2003, reflecting normal seasonal increases.
Receivables increased to $26.0 million from $15.4 million at December 31, 2003
also due to normal seasonality and higher sales.
On September 21, 2004, the Company declared a fourth dividend for the year of 4
cents per share, which was paid on October 29, 2004.
The foregoing discussion contains forward-looking statements that
involve risks and uncertainties that could cause actual results to
differ materially from projected results. Forward-looking statements
include statements about efforts to attract or prospects for
additional or increased business, new product introductions and other
statements of a non-historical nature. Actual results may differ from
projected results due to various Risk Factors, including Risks of
Manufacturing in China, Dependence on Product Appeal and New Product
Introductions, and Dependence on Major Customers, as set forth in the
Company's Annual Report on Form 20-F for the fiscal year ended
December 31, 2003, as filed with the Securities and Exchange
Commission. See "Item 3. Key Information -- Risk Factors" in such
report on Form 20-F.
Radica Games Limited (Radica) is a Bermuda company headquartered in Hong Kong
(NASDAQ: RADA). Radica is a leading developer, manufacturer and distributor of a
diverse line of electronic entertainment products including electronic games,
youth electronics, video game accessories and high-tech toys. Radica has
subsidiaries in the U.S.A., Canada and the U.K., and a factory in Dongguan,
Southern China. More information about Radica can be found on the Internet at
www.radicagames.com.
-- END --
RADICA GAMES LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
(US dollars in thousands, Three months ended September 30, Nine months ended September 30,
--------------------------------------------------------------------------------
except per share data) 2004 2003* 2004 2003*
----------------- ------------------ ----------------- -----------------
(unaudited) (unaudited) (unaudited) (unaudited)
Revenues:
Net sales $ 48,972 $ 37,655 $ 79,896 $ 70,644
Cost of goods sold
(exclusive of items shown separately below) (33,703) (23,320) (53,335) (44,716)
----------------- ------------------ ----------------- -----------------
Gross profit 15,269 14,335 26,561 25,928
----------------- ------------------ ----------------- -----------------
Operating expenses:
Selling, general and administrative expenses (7,271) (6,189) (17,466) (16,511)
Research and development (926) (985) (2,724) (2,820)
Depreciation and amortization (450) (460) (1,300) (1,576)
Restructuring charge - - - (87)
----------------- ------------------ ----------------- -----------------
Total operating expenses (8,647) (7,634) (21,490) (20,994)
----------------- ------------------ ----------------- -----------------
Operating income 6,622 6,701 5,071 4,934
Net interest and other income 718 120 1,136 389
Foreign currency gain, net 2 76 46 236
----------------- ------------------ ----------------- -----------------
Profit before income taxes 7,342 6,897 6,253 5,559
Provision for income taxes (1,352) (272) (1,204) (327)
----------------- ------------------ ----------------- -----------------
Net profit $ 5,990 $ 6,625 $ 5,049 $ 5,232
================= ================== ================= =================
Net profit per share:
Basic $ 0.32 $ 0.37 $ 0.27 $ 0.29
================= ================== ================= =================
Diluted $ 0.31 $ 0.34 $ 0.26 $ 0.28
================= ================== ================= =================
Weighted average number of common and common
equivalent shares:
Basic 18,687,802 18,085,226 18,626,530 17,964,728
================= ================== ================= =================
Diluted 19,519,694 19,263,343 19,506,360 19,004,858
================= ================== ================= =================
Cash dividends declared per share
(4 cents declared and paid for each $ 0.04 $ - $ 0.16 $ -
quarter ended March 31, June 30,
September 30, and December 31, 2004)
================= ================== ================= =================
* Reclassified to conform with 2004 presentation.
RADICA GAMES LIMITED
CONSOLIDATED BALANCE SHEETS
(US Dollars in thousands, except share data) September 30, December 31,
------------------------- -------------------------
2004 2003
------------------------- -------------------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 20,209 $ 13,944
Investment securities 15,761 28,009
Accounts receivable, net of allowances for doubtful accounts
of $165 ($251 as at December 31, 2003) 26,036 15,360
Inventories 28,869 15,503
Prepaid expenses and other current assets 4,136 2,748
Income taxes receivable - 1,404
Deferred income taxes 1,706 1,706
------------------------- -------------------------
Total current assets 96,717 78,674
------------------------- -------------------------
Property, plant and equipment, net 11,436 11,908
------------------------- -------------------------
Goodwill 9,551 9,551
------------------------- -------------------------
Other asset 859 875
------------------------- -------------------------
Deferred income taxes, noncurrent 56 1,206
------------------------- -------------------------
Total assets $ 118,619 $ 102,214
========================= =========================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 18,518 $ 7,390
Accrued payroll and employee benefits 1,249 1,353
Accrued expenses 6,458 3,976
Income taxes payable 196 339
------------------------- -------------------------
Total current liabilities 26,421 13,058
------------------------- -------------------------
Total liabilities 26,421 13,058
------------------------- -------------------------
Shareholders' equity:
Common stock
par value $0.01 each, 100,000,000 shares authorized, 18,722,864
shares outstanding (18,225,204 as at December 31, 2003) 187 182
Additional paid-in capital 4,551 3,517
Retained earnings 87,502 85,437
Accumulated other comprehensive (loss) income (42) 20
------------------------- -------------------------
Total shareholders' equity 92,198 89,156
------------------------- -------------------------
Total liabilities and shareholders' equity $ 118,619 $ 102,214
========================= =========================
RADICA GAMES LIMITED CEO AND CFO TO SPEAK
AT HARRIS NESBITT PLAYTIME 2004 INVESTOR CONFERENCE
FOR IMMEDIATE RELEASE
NOVEMBER 8, 2004
(HONG KONG) Radica Games Limited (NASDAQ: RADA) announced today that Patrick S.
Feely, President & Chief Executive Officer, and David Howell, President Asia
Operations & Chief Financial Officer, will be presenting during the Harris
Nesbitt Playtime 2004 Investor Conference being held at the Grand Hyatt Hotel in
New York, New York on November 8-9, 2004. Messrs. Feely and Howell are scheduled
to present on Tuesday, November 9th at 11:30 AM EST.
An audio webcast of the presentation will be available at the Investor Relations
section of the Company's website (www.radicagames.com) or at the Audio Webcast
section of the Harris Nesbitt website
(www.harrisnesbitt.com/conferences/playtime2004/default.asp). To listen to the
presentation, logon to the website at least fifteen minutes early to register,
download and install any necessary audio software. An archive of Radica's
presentation may be accessed beginning two hours after the completion of the
live presentation, for up to 30 days.
Radica Games Limited (Radica) is a Bermuda company headquartered in Hong Kong
(NASDAQ: RADA). Radica is a leading developer, manufacturer and distributor of a
diverse line of electronic entertainment products, including electronic games,
youth electronics, video game accessories and high-tech toys. Radica has
subsidiaries in the U.S.A., Canada and the U.K., and a factory in Dongguan,
Southern China. More information about Radica can be found on the Internet at
www.radicagames.com.
Contact: Vivian Merrill, Investor Relations
(Los Angeles, California)
(626) 744-1150
-- END --
RADICA GAMES LIMITED
ANNOUNCES QUARTERLY CASH DIVIDEND
FOR IMMEDIATE RELEASE CONTACT: PATRICK S. FEELY
SEPTEMBER 21, 2004 PRESIDENT & CEO
(LOS ANGELES, CALIFORNIA)
(626) 744 1150
DAVID C.W. HOWELL
PRESIDENT ASIA OPERATIONS
& CFO
(HONG KONG)
(852) 2688 4201
(HONG KONG) Radica Games Limited (NASDAQ: RADA) announced today that its Board
of Directors has declared a quarterly dividend of $0.04 per share. The dividend
will be payable on October 29, 2004, to shareholders of record as of October 19,
2004.
ABOUT RADICA GAMES LIMITED
Radica Games Limited (Radica) is a Bermuda company headquartered in Hong Kong
(NASDAQ: RADA). Radica is a leading developer, manufacturer and distributor of a
diverse line of electronic entertainment products including electronic games,
youth electronics, video game accessories and high-tech toys. Radica has
subsidiaries in the U.S.A., Canada and the U.K., and a factory in Dongguan,
Southern China. More information about Radica can be found on the Internet at
www.radicagames.com.
-- END --