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, 2000
RADICA GAMES LIMITED
(Translation of registrant's name into English)
Suite R, 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 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, 2000
2. Press Release dated November 20, 2000
3. Press Release dated November 13, 2000
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 and No. 333-59737) and on Form F-3 (No. 333-7526 and No. 333-79005).
<PAGE>
QUARTERLY REPORT *
For the quarterly period ending September 30, 2000
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 R, 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, 2000
--------------------------------------- ---------------------------------
Common Stock, par value $0.01 per share 17,650,602
----------
* 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
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PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
RADICA GAMES LIMITED
FORM 6-K
The accompanying consolidated financial statements have been prepared
by the Company, without audit, and reflect all adjustments which are, in the
opinion of management, necessary for a fair statement of the results for the
interim periods. The statements have been prepared in accordance with the
regulations of the Securities and Exchange Commission (the "SEC"), but omit
certain information and footnote disclosures necessary to present the statements
in accordance with generally accepted accounting principles in the United States
of America.
These financial statements should be read in conjunction with the
financial statements, accounting policies and notes included in the Form 20F for
the year ended December 31, 1999 as filed with the Securities and Exchange
Commission. Management believes that the disclosures are adequate to make the
information presented herein not misleading.
3
<PAGE>
<TABLE>
<CAPTION>
RADICA GAMES LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(US Dollars in thousands, Three months ended Nine months ended
except per share data) September 30, September 30,
------------------------------ -----------------------------
2000 1999 2000 1999
------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUES:
Net sales 39,899 47,388 69,050 89,050
Cost of sales (26,299) (28,657) (57,120) (51,466)
------------- -------------- ------------- -------------
Gross profit 13,600 18,731 11,930 37,584
------------- -------------- ------------- -------------
OPERATING EXPENSES:
Selling, general and administrative expenses (7,335) (7,299) (20,140) (17,086)
Research and development (1,358) (1,686) (4,182) (3,878)
Depreciation and amortization (1,399) (1,383) (4,127) (3,557)
Restructuring charge - - (1,369) -
------------- -------------- ------------- -------------
Total operating expenses (10,092) (10,368) (29,818) (24,521)
------------- -------------- ------------- -------------
OPERATING INCOME (LOSS) 3,508 8,363 (17,888) 13,063
OTHER INCOME 356 364 1,034 720
SHARE OF LOSS OF AFFILIATED COMPANY - (142) - (704)
NET INTEREST INCOME 78 327 556 1,281
------------- -------------- ------------- -------------
INCOME (LOSS) BEFORE INCOME TAXES 3,942 8,912 (16,298) 14,360
(PROVISION) CREDIT FOR INCOME TAXES (78) (95) 614 (184)
------------- -------------- ------------- -------------
NET INCOME (LOSS) $ 3,864 $ 8,817 $ (15,684) $ 14,176
============= ============== ============= =============
EARNINGS (LOSS) PER SHARE - BASIC:
Net earnings (loss) per share $ 0.22 $ 0.50 $ (0.89) $ 0.78
============= ============== ============= =============
Average number of shares outstanding 17,639,400 17,801,396 17,624,297 18,282,007
============= ============== ============= =============
EARNINGS (LOSS) PER SHARE
- ASSUMING DILUTION:
Net earnings (loss) per share and
dilutive potential common stock $ 0.22 $ 0.48 $ (0.89) $ 0.74
============= ============== ============= =============
Average number of shares and dilutive
potential common stock outstanding 17,937,229 18,530,393 17,624,297 19,163,933
============= ============== ============= =============
<FN>
See accompanying notes to the consolidated financial statements.
</FN>
</TABLE>
4
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<TABLE>
<CAPTION>
RADICA GAMES LIMITED
CONSOLIDATED BALANCE SHEETS
ASSETS
<S> <C> <C>
(US Dollars in thousands, except share data) September 30, December 31,
-------------- --------------
2000 1999
-------------- --------------
(unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 26,368 $ 32,159
Accounts receivable, net of allowances for doubtful accounts
of $2,260 ($389 at Dec. 31, 1999) and estimated customer
returns of $595 ($624 at Dec. 31, 1999) 19,837 23,750
Inventories, net of provision of $7,305 ($2,339 at Dec. 31, 1999) 21,411 24,625
Prepaid expenses and other current assets 3,073 4,752
Income taxes receivable - 1,257
Deferred income taxes 3,667 3,667
-------------- --------------
TOTAL CURRENT ASSETS 74,356 90,210
-------------- --------------
PROPERTY, PLANT AND EQUIPMENT, NET 18,448 17,523
-------------- --------------
INTANGIBLE ASSETS, NET 12,037 14,351
-------------- --------------
DEFERRED INCOME TAXES, NONCURRENT 11 11
-------------- --------------
TOTAL ASSETS $ 104,852 $ 122,095
============== ==============
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES:
Short term borrowings 2,980 1,464
Accounts payable 11,618 10,929
Accrued warranty expenses 1,100 1,100
Current portion of long-term debt 3,648 1,399
Accrued payroll and employee benefits 518 2,511
Accrued advertising expenses 1,098 1,203
Accrued sales expenses 2,368 856
Commissions payable 823 464
Accrued other expenses 4,110 5,091
Income taxes payable 140 70
-------------- --------------
TOTAL CURRENT LIABILITIES 28,403 25,087
-------------- --------------
LONG-TERM DEBT 6,385 10,946
-------------- --------------
TOTAL LIABILITIES 34,788 36,033
-------------- --------------
SHAREHOLDERS' EQUITY:
Common stock
par value $0.01 each, 100,000,000 shares authorized,
17,650,602 shares outstanding (17,639,594 at Dec. 31, 1999) 177 176
Additional paid-in capital 1,843 1,757
Retained earnings 68,068 84,100
Cumulative translation adjustment (24) 29
-------------- --------------
TOTAL SHAREHOLDERS' EQUITY 70,064 86,062
-------------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 104,852 $ 122,095
============== ==============
<FN>
See accompanying notes to the consolidated financial statements.
</FN>
</TABLE>
5
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<TABLE>
<CAPTION>
RADICA GAMES LIMITED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(unaudited)
(US Dollars in thousands)
Common stock Accumulated
------------ Additional other Total
Number paid-in Retained comprehensive shareholders'
of shares Amount capital earnings income (loss) equity
---------------- ---------------- ------------ ------------ --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1999 17,639,594 $ 176 $ 1,757 $84,100 $ 29 $86,062
Cancellation of repurchased stock (50,000) - 15 - - 15
Issuance of stock 5,408 - (8) (348) - (356)
Stock options exercised 55,600 1 79 - - 80
Net loss - - - (15,684) - (15,684)
Foreign currency translation - - - - (53) (53)
---------------- ---------------- ------------ ------------ --------------- -------------
Balance at September 30, 2000 17,650,602 $ 177 $ 1,843 $68,068 $ (24) $70,064
================ ================ ============ ============ =============== =============
<FN>
See accompanying notes to the consolidated financial statements.
</FN>
</TABLE>
6
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<TABLE>
<CAPTION>
RADICA GAMES LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(US dollars in thousands) Nine months
ended September 30,
----------------------------
2000 1999
------------- -------------
<S> <C> <C>
Cash flow from operating activities:
Net (loss) income $(15,684) $ 14,176
Adjustments to reconcile net (loss) income
to net cash provided by operating activities:
Deferred income taxes - (12)
Depreciation 1,937 1,749
Amortization 2,190 1,808
Decrease of goodwill resulting in adjusted
acquisition price 1,384 -
Loss on disposal and write off of
property, plant and equipment 19 50
Loan notes forfeited (1,399) -
Share of loss of affiliated company - 703
Changes in assets and liabilities:
Accounts receivable 3,860 (9,893)
Receivable from affiliated company - (1,019)
Inventories 3,214 (3,000)
Prepaid expenses and other current assets 1,679 (3,051)
Accounts payable 689 9,445
Accrued payroll and employee benefits (1,993) (393)
Commissions payable 359 35
Accrued advertising expenses (105) (443)
Accrued sales expenses 1,512 (2,475)
Accrued warranty expenses - (850)
Accrued other expenses (981) 3,179
Income taxes 1,327 (1,997)
Notes payable - 12,345
------------- -------------
Net cash (used in) provided by operating activities (1,992) 20,357
------------- -------------
Cash flow from investing activities:
Proceeds from sale of property, plant and equipment 44 24
Purchase of property, plant and equipment (2,925) (2,188)
Acquisition of LMP, net of cash acquired - (15,970)
Purchase of intangible assets (1,260) -
------------- -------------
Net cash used in investing activities (4,141) (18,134)
------------- -------------
Cash flow from financing activities:
Repurchase of common stock $ (356) $(16,787)
Funds from stock options exercised 80 525
Funds from issuance of stock 15 -
Increase in short-term borrowings 1,516 -
Proceeds from bank loan 10,945 -
Repayments of loan notes (11,858) -
------------- -------------
Net cash provided by (used in) financing activities 342 (16,262)
------------- -------------
Net decrease in cash and cash equivalents (5,791) (14,039)
Cash and cash equivalents:
Beginning of period 32,159 47,527
------------- -------------
End of period $ 26,368 $ 33,488
============= =============
Supplementary disclosures of cash flow information:
Cash paid during the period:
Interest $ 508 $ 11
Income taxes - 2,479
<FN>
See accompanying notes to the consolidated financial statements.
</FN>
</TABLE>
7
<PAGE>
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(US dollars in thousands)
(Unaudited)
1. ORGANIZATION AND BASIS OF FINANCIAL STATEMENTS
The Company designs, develops, manufactures and market a diverse line of
electronic products including handheld and tabletop games, high-tech toys,
video game controllers and peripherals, and internet enabled appliances.
The consolidated financial statements include the accounts of the Company
and all subsidiaries. Investments in affiliates, owned more than 20 percent
but not in excess of 50 percent, are recorded using the equity method. All
significant intra-group transactions and balances have been eliminated on
consolidation.
The accompanying consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United
States of America and are presented in US dollars.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and cash equivalents - Cash and cash equivalents include cash on hand,
cash accounts, interest-bearing savings accounts, and time certificates of
deposit with a maturity at purchase date of three months or less.
Inventories - Inventories are stated at the lower of cost, determined by
the weighted average method, or market value. Provision for potentially
obsolete or slow-moving inventory is made based on management's analysis of
inventory levels and future expected sales.
Depreciation and amortization of property, plant and equipment -
Depreciation is provided on the straight-line method at rates based upon
the estimated useful lives of the property, generally not more than seven
years except for leasehold land and buildings which are 50 years or where
shorter, the remaining term of the lease, by equal annual instalments.
Costs of leasehold improvements and leased assets are amortized over the
life of the related asset or the term of the lease, whichever is shorter.
Upon sale or retirement, the costs and related accumulated depreciation or
amortization are eliminated from the respective accounts and any resulting
gain or loss is included in income.
Intangible assets - Intangible assets primarily represent the excess of the
purchase price of acquisition of a business over the fair value of the net
assets acquired ("goodwill"). Intangible assets also represent cost
allocated to brand names and sublicensing rights. Such assets are amortized
on a straight-line basis over the period estimated to be benefited, but not
to exceed 20 years. The carrying value of intangible assets is periodically
reviewed by the Company and impairments are recognized when there is a
permanent diminution in value.
8
<PAGE>
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(US dollars in thousands)
(Unaudited)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Mold costs - The Company expenses all mold costs in the year of purchase or
for internally produced molds, in the year of construction.
Revenue recognition - Revenues are recognized as sales when merchandise is
shipped. The Company permits the return of damaged or defective products
and accepts limited amounts of product returns in certain other instances.
Accordingly, the Company provides allowances for the estimated amounts of
these returns at the time of revenue recognition, based on historical
experience adjusted for known trends.
Investments - Debt securities which the Company has both the positive
intent and ability to hold to maturity are classified as held-to-maturity
and carried at amortized cost. Debt securities which might be sold prior to
maturity are classified as available-for-sale and carried at approximate
fair value. Any material unrealized gains and losses related to
available-for-sale investments, net of applicable taxes, are reported in
other comprehensive income. The Company determines the appropriate
classification of securities at the time of purchase and evaluates such
classification as of each balance sheet date.
Income taxes - Income taxes are provided based on an asset and liability
approach for financial accounting and reporting of income taxes. Deferred
income tax liabilities or assets are recorded to reflect the tax
consequences in future years of differences between the taxable basis of
assets and liabilities and the financial reporting amounts at each period
end using rates currently in effect. A valuation allowance is recognized
for any portion of the deferred tax asset for which realization is not
likely.
Advertising - The production costs of advertising are expensed by the
Company the sooner of the first time the advertising takes place or the
invoice date for the media purchase. Advertising costs associated with
customer benefit programs are accrued as the related revenues are
recognized.
Foreign currency translation - Assets and liabilities of foreign currency
are translated into US dollars using the exchange rates in effect at the
balance sheet date. Revenues and expenses in foreign currencies are
translated into US dollars using weighted-average rates prevailing during
each reporting period. The impact of exchange rate changes is dealt with as
a separate component of equity.
Post-retirement and post-employment benefits - The Company does not provide
post-retirement benefits other than pensions to employees and
post-employment benefits are immaterial.
Warranty - Future warranty costs are provided for at the time of revenue
recognition based on management's estimate by reference to historical
experience adjusted for known trends.
9
<PAGE>
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(US dollars in thousands)
(Unaudited)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Stock options - The Company continues to follow Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees", in accounting
for its stock options. As a result, no compensation expense has been
recognized as the exercise price of the Company's employee stock options
equals the market price of the underlying stock at the date of grant. Pro
forma disclosures of the effect on net income and earnings per share as if
the Company had accounted for its employee stock options under the fair
value method prescribed by Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock-Based Compensation", are shown in
note 13.
Earnings (loss) per share - Earnings (loss) per share is based on the
weighted average number of shares of common stock and dilutive potential
common stock outstanding. Dilutive potential common stock results from
dilutive stock options. The effect of such dilutive potential common stock
on net income per share is computed using the treasury stock method. All
potentially dilutive securities were excluded from the computation in loss
periods as their inclusion would have been anti-dilutive.
Use of estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect reported amounts of certain assets,
liabilities, revenues and expenses as of and for the reporting periods.
Actual results could differ from those estimates. Differences from those
estimates are reported in the period they become known.
New Accounting Pronouncement - In June 1998, the Financial Accounting
Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities". SFAS No. 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. The
statement requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure
those instruments at fair value. Implementation of SFAS No. 133 is required
commencing with the first quarter of 2001. The Company does not expect the
adoption to have a material impact on the Company's consolidated financial
statements.
Reclassifications - Certain reclassifications have been made to prior
period amounts to conform with the 2000 presentation and to comply with new
SFAS's.
10
<PAGE>
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(US dollars in thousands)
(Unaudited)
3. INVENTORIES
Inventories by major categories are summarized as follows:
September 30, December 31,
2000 1999
-------------- --------------
Raw materials $ 3,933 $ 5,397
Work in progress 2,488 5,166
Finished goods 14,990 14,062
-------------- --------------
$ 21,411 $ 24,625
============== ==============
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
September 30, December 31,
2000 1999
-------------- --------------
Land and buildings $ 12,288 $ 12,261
Plant and machinery 6,820 7,385
Furniture and equipment 7,339 6,124
Leasehold improvements 2,694 2,562
Construction in progress 1,059 --
-------------- --------------
Total $ 30,200 $ 28,332
Less: Accumulated
depreciation and
amortization (11,752) (10,809)
-------------- --------------
Total $ 18,448 $ 17,523
============== ==============
11
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RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(US dollars in thousands)
(Unaudited)
5. ACQUISITION
On June 24, 1999, the Company acquired Leda Media Products Limited ("LMP"),
the leading supplier of third party video game controllers in the United
Kingdom. The Company purchased LMP for approximately $16 million. The
acquisition price consisted of cash payment of approximately $2.6 million,
assumption of LMP net indebtedness of approximately for $1.1 million and
issuance of notes payable for $12.3 million. During the quarter ended June
30, 2000, upon claiming certain breaches of warranty at LMP, the Company
and the vendors of LMP mutually agreed to cancel certain loan notes such
that the Company received approximately $1.4 million in consideration. The
acquisition has been accounted for using the purchase method. The purchase
price has been allocated to the assets acquired and liabilities assumed
based on estimates of fair values as of the acquisition date. The Company
recorded goodwill of $12.1 million resulting in the adjusted aggregate
purchase price. The goodwill is being amortized on a straight-line basis
over a fifteen year fiscal period.
The pro forma results of operation have not been presented because the
effect of the acquisition was not material to the Company's consolidated
financial statements.
6. INTANGIBLE ASSETS
Intangible assets consist of the excess of purchase price over the
estimated fair value of net assets acquired in acquisition of LMP and Girl
Tech(R), and acquired use in certain cases of the Electronic Arts(TM)
("EA") brand name and XaviX(TM) sublicensing rights.
During the quarter ended March 31, 2000, the Company announced it had
entered into a licensing agreement with Shinsedai Co., Ltd. ("SSD") for the
rights to use their patented XaviX(TM) technology. As part of its agreement
with SSD, the Company became an exclusive sublicensing agent for the
XaviX(TM) technology in the North American market for use in entertainment
applications. The fair value of the exclusive sublicensing right of $1,260
has been recorded as an intangible asset, which is being amortized on a
straight-line basis over a three year fiscal period.
During the year of 1999, the Company and EA announced a strategic alliance
for the extension of EA brands and game properties in the dedicated
electronic handheld game category. As part of this alliance, the Company
entered into a worldwide licensing agreement with EA. In an additional
agreement, the Company granted EA warrants to purchase 375,000 shares of
the Company common stock during the term of the agreement. The agreement
with EA runs through the end of 2002. The fair value of the warrants of
$667 has been recorded as an intangible asset for the acquired license. The
asset is being amortized on a straight-line basis over the term of
agreement.
12
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RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(US dollars in thousands)
(Unaudited)
6. INTANGIBLE ASSETS (Continued)
The Company purchased the assets and business of KidActive, LLC, dba Girl
Tech(R) during the quarter ended April 30, 1998. KidActive, LLC, dba Girl
Tech(R) was a development stage enterprise and had not traded prior to the
Company's acquisition of its assets. The Company purchased the assets and
business of KidActive, LLC, dba Girl Tech(R) for $2.4 million in cash plus
190,094 shares, a total of $6 million. Of this $4.5 million was capitalized
as goodwill and brand name, and $1.5 million was written off immediately as
purchased research and development. Goodwill and brand name are being
amortized over a three year fiscal period on a straight-line basis.
Accumulated amortization was $6,507 and $4,317 at September 30, 2000 and
December 31, 1999, respectively.
7. SHORT-TERM BORROWINGS
As of September 30, 2000, the Company had line-of-credit agreements with
various banks that provided for borrowings of up to approximately $6
million, including available for uncommitted credit facilities, the
issuance of letters of credit and foreign currency exchange activity.
Substantially all of the short-term borrowings outstanding as of September
30, 2000 and as of December 31, 1999 represent borrowings made under, or
supported by, these line-of-credit. The weighted average interest rate of
the outstanding borrowing was approximately 8% for the quarter ended
September 30, 2000.
8. INCOME TAXES
The components of (loss) income from continuing operations before income
taxes are as follows:
Nine months ended September 30,
----------------------------------
2000 1999
-------------- --------------
United States $ (11,581) $ 925
International (4,717) 13,435
-------------- --------------
$ (16,298) $ 14,360
============== ==============
13
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RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(US dollars in thousands)
(Unaudited)
8. INCOME TAXES (Continued)
As the Company's subsidiary in the People's Republic of China ("PRC") is a
sino-foreign joint venture enterprise, it is eligible for an exemption from
income tax for two years starting from the first profitable year of
operations and thereafter a 50 percent relief from income tax for the
following three years under the Income Tax Law of the PRC. That subsidiary
had its first profitable year of operations in the year ended December 31,
1997 and the 2000 effective tax rate was 12%. In addition, under the
existing processing arrangement and in accordance with the current tax
regulations in the PRC, manufacturing income generated in the PRC is not
subject to PRC income taxes.
The (credit) provision for income taxes consists of the following:
Nine months ended September 30,
----------------------------------
2000 1999
-------------- --------------
United States
Federal tax expense
(benefit), net of state
tax expense (benefit) $ 55 $ 73
International
Current income tax (669) 111
-------------- --------------
Total (credit) provision
for income tax $ (614) $ 184
============== ==============
14
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RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(US dollars in thousands)
(Unaudited)
8. INCOME TAXES (Continued)
A reconciliation between the (credit) provision for income taxes computed
by applying the statutory tax rates in the United States to income before
income taxes and the actual (credit) provision for income taxes is as
follows:
Nine months ended September 30,
----------------------------------
2000 1999
-------------- --------------
US statutory rate 34% 34%
-------------- --------------
(Credit) provision for
income taxes at
statutory rate on income $ (5,541) $ 4,883
International rate
differences (2,739) (4,814)
Accounting losses (gains)
for which deferred
income tax cannot be
recognized 3,109 73
Increase in valuation
allowance 4,237 --
Other 320 42
-------------- --------------
Income tax (credit)
provision $ (614) $ 184
============== ==============
15
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RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(US dollars in thousands)
(Unaudited)
8. INCOME TAXES (Continued)
Deferred income taxes reflect the net tax effect of temporary differences
between the amounts of assets and liabilities for income tax purposes
compared with the respective recorded amounts for financial statement
purposes. Significant components of the Company's deferred taxes assets and
liabilities are as follows:
September 30, December 31,
2000 1999
-------------- --------------
Deferred tax assets (liabilities):
Excess of tax over financial
reporting depreciation $ 67 $ 67
Tax losses 4,430 1,841
Bad debt allowance 452 132
Advertising allowances 342 409
Inventory obsolescence reserve 1,323 355
Accrued sales adjustments and returns 956 519
Other 571 581
-------------- --------------
8,141 3,904
Valuation allowance (4,463) (226)
-------------- --------------
$ 3,678 $ 3,678
============== ==============
16
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RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(US dollars in thousands)
(Unaudited)
9. LONG-TERM DEBT
On June 24, 1999, the Company entered into a $12.3 million guaranteed loan
agreement with the vendors as part of financing of the LMP acquisition.
Interest on the loan notes was based on US$ LIBOR offered rate minus 130
basis points. In June 2000, the Company entered a new agreement with one of
its banks. The new agreement provided for converting the guaranteed loan
into a three-year term loan, and used the proceeds to retire and pay back
the outstanding guaranteed loan notes in full. The Company has borrowed $10
million under the new loan agreement as of September 30, 2000, which bears
interest at the three month Singapore Interbank Offered Rate ("SIBOR") plus
2% (8.6% at September 30, 2000). The agreement requires quarterly principal
and interest payment, which matures in June 2003. Additionally, the Company
has a revolving loan with the bank, which permits borrowings of up to $2
million. This revolving loan bears interest at the three month SIBOR plus
2.5%. At September 30, 2000, no amount was outstanding on this revolving
loan.
The term loan and revolving loan are secured by properties and deposits of
the Company. The agreement contains covenants that, among other things,
require the Company to maintain a minimum tangible net worth, gearing
ratio, and other financial ratios.
Long-term debts are as follows:
September 30, December 31,
2000 2000
-------------- --------------
Term loan payable $ 10,033 --
Guaranteed loan notes -- 12,345
-------------- --------------
10,033 12,345
Less: Current portion (3,648) (1,399)
-------------- --------------
$ 6,385 $ 10,946
============== ==============
As of September 30, 2000, the future minimum principal payments due on
long-term debt are as follows:
September 30,
2000
--------------
2000 $ 912
2001 3,648
2002 3,648
2003 1,825
--------------
$ 10,033
==============
17
<PAGE>
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS --
(Continued) (US dollars in thousands, except share and
per share data)
(Unaudited)
10. COMMON STOCK
During the nine months ended September 30, 2000, the Company repurchased
50,000 shares at an average price of $7.125 per share under the Company's
authorized repurchase programs. All repurchased shares were cancelled. As
of September 30, 2000, approximately 0.8 million shares remain available
for repurchase under the repurchase programs.
11. RESTRUCTURING CHARGE
During the quarter ended June 30, 2000, the Company completed a
restructuring program of its worldwide operations. As part of this
restructuring, the Company made a number of layoffs and organizational
changes in the United States, the United Kingdom and Asia to allow the
Company to streamline operations and reposition itself for future
profitability. As a result, the Company recognized a one time restructuring
charge of $1.4 million.
12. EARNINGS PER SHARE
The following information shows the numbers used in computing earnings per
share and the effect on income and the weighted average number of shares of
dilutive potential common stock:
Three months ended September 30,
--------------------------------
2000 1999
-------------- --------------
Numerator for basic and diluted
earnings per share:
Net income $ 3,864 $ 8,817
============== ==============
Denominator:
Denominator for basic
earnings per share 17,639,400 17,801,396
Effect of dilutive options 297,829 728,997
-------------- --------------
Denominator for diluted
earnings per share 17,937,229 18,530,393
============== ==============
Basic earnings per share: $ 0.22 $ 0.50
============== ==============
Diluted earnings per share: $ 0.22 $ 0.48
============== ==============
Options and warrants on 2,062,600 shares of common stock were not included
in computing diluted loss per share since their effects were antidilutive.
18
<PAGE>
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS --
(Continued) (US dollars in thousands, except share and
per share data)
(Unaudited)
12. EARNINGS PER SHARE (Continued)
The following information shows the numbers used in computing (loss)
earnings per share and the effect on (loss) income and the weighted average
number of shares of dilutive potential common stock:
Nine months ended September 30,
-------------------------------
2000 1999
-------------- --------------
Numerator for basic and diluted
(loss) earnings per share:
Net (loss) income $ (15,684) $ 14,176
============== ==============
Denominator:
Denominator for basic
(loss) earnings per share 17,624,297 18,282,007
Effect of dilutive options -- 881,926
-------------- --------------
Denominator for diluted
(loss) earnings per share 17,624,297 19,163,933
============== ==============
Basic (loss) earnings per share: $ (0.89) $ 0.78
============== ==============
Diluted (loss) earnings per share: $ (0.89) $ 0.74
============== ==============
Options and warrants on 2,638,800 shares of common stock were not included
in computing diluted loss per share since their effects were antidilutive.
13. STOCK OPTIONS
The Company's 1994 Stock Option Plan of employees and directors (the "Stock
Option Plan") provided for options to be granted for the purchase of an
aggregate of 1,600,000 shares of common stock at per share prices not less
than 100% of the fair market value at the date of grant as determined by
the Compensation Committee of the Board of Directors. Following approval at
the annual shareholders meetings in April 1997, 1998, the meeting of the
Board of Directors in June 1999 and the annual shareholders meetings in May
2000, the Stock Option Plan's aggregated common stock increased by 400,000,
800,000, 60,000 and 840,000, respectively. In total, the Stock Option
Plan's aggregate common stock increased to 3,700,000 shares available for
options. Options under this plan are generally exercisable ratably over
three to five years from the date of grant unless otherwise provided.
19
<PAGE>
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS --
(Continued) (US dollars in thousands, except share and
per share data)
(Unaudited)
13. STOCK OPTIONS (Continued)
Option activity for the nine months ended September 30, 2000:-
Weighted average
Number exercise price
of shares per share
-------------- --------------
(in thousands)
Outstanding at December 31, 1999 2,000 $ 7.93
Options granted 707 2.99
Options cancelled (387) 10.49
Options exercised (56) 1.43
--------------
Outstanding at September 30, 2000 2,264 $ 6.11
==============
Exercisable at September 30, 2000 865 $ 7.68
The following is additional information relating to options outstanding as
of September 30, 2000:
<TABLE>
<CAPTION>
Options outstanding Options exercisable
---------------------------------------------------------- -----------------------------
Weighted average
Weighted average remaining Weighted average
Exercise Number exercise price contractual Number exercise price
price range of shares per share life (years) of shares per share
----------- --------- --------- ------------ ---------- ---------
(in thousands) (in thousands)
<S> <C> <C> <C> <C> <C>
$ 1.090 to 2.000 532 $ 1.30 5.52 275 $ 1.32
$ 2.001 to 4.000 972 3.14 8.62 168 3.48
$ 4.001 to 6.000 3 5.00 6.67 1 5.00
$ 6.001 to 8.000 39 6.72 6.77 21 6.90
$ 8.001 to 10.000 56 9.59 8.57 13 9.69
$ 10.001 to 12.000 192 10.90 8.24 136 10.98
$ 12.001 to 14.000 174 12.71 8.20 92 12.67
$ 14.001 to 16.000 95 14.62 7.87 24 14.83
$ 16.001 to 18.000 118 17.00 7.69 84 16.99
$ 18.001 to 20.000 83 18.99 7.53 51 19.08
---------- ----------
2,264 $ 6.11 7.67 865 $ 7.68
========== ==========
</TABLE>
20
<PAGE>
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS --
(Continued) (US dollars in thousands, except share and
per share data)
(Unaudited)
13. STOCK OPTIONS (Continued)
Pro forma information regarding net (loss) income and (loss) earnings per
share is required by SFAS No. 123, and has been determined as if the
Company had accounted for its employee stock options under the fair value
method of SFAS No. 123. The weighted average fair value of stock options at
date of grant was $1.67 and $4.54 per option for the nine months ended
September 30, 2000 and 1999, respectively. The value was estimated on the
date of grant using the Black-Scholes option pricing model with the
following weight average assumptions:
Nine months ended September 30,
------------------------------------
2000 1999
---------------- ---------------
Expected life of options 5 years 5 years
Risk-free interest rate 6.0% 5.1%
Expected volatility of
underlying stock 58% 35%
Dividends 0% 0%
The Black-Scholes option pricing models require the input of highly
subjective assumptions, including the expected volatility of stock price.
Because changes in subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing model does not
necessarily provide a reliable single measure of the fair value of the
stock options.
If the Company had accounted for its stock option plans by recording
compensation expenses based on the fair value at grant date for such awards
consistent with the method of SFAS No. 123, the Company's net (loss) income
and (loss) earnings per share would have been adjusted to the pro forma
amounts as follows:
Nine months ended September 30,
-----------------------------
2000 1999
------------- ------------
Pro forma net (loss) income $ (16,592) $ 13,524
Pro forma (loss) earnings
per share
Basic (0.94) 0.74
Diluted (0.94) 0.71
21
<PAGE>
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(US dollars in thousands)
(Unaudited)
14. CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS
Accounts receivable of the Company are subject to a concentration of credit
risk with customers in the retail sector. This risk is limited due to the
large number of customers composing the Company's customer base and their
geographic dispersion, though the Company's games business has two
customers which accounted for more than twenty-one percent and sixteen
percent of net sales for the nine months ended September 30, 2000 and two
customers which accounted for more than twenty-five percent and eighteen
percent of net sales in the nine months ended September 30, 1999. The
Company performs ongoing credit evaluations of its customers' financial
condition and, generally, requires no collateral from its customers.
15. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of financial instruments is made in accordance
with the requirements of SFAS No. 107, "Disclosures about Fair Value of
Financial Instruments". The estimated fair value amounts have been
determined by the Company, using available market information and
appropriate valuation methodologies. The estimates presented herein are not
necessarily indicative of the amounts that the Company could realize in a
current market exchange.
The carrying amounts of cash and cash equivalents, accounts receivable,
accounts payable, notes payable and warrants are reasonable estimates of
their fair value.
16. PLEDGE OF ASSETS
At September 30, 2000, the Company's term loan agreements and general
banking facilities including overdraft and trade facilities were
collateralized by certain leasehold land and buildings, bank balances, and
inventories with a net book value of $4,681, $11,139 and $7,171,
respectively.
17. RETIREMENT PLAN
The Company has defined contribution retirement plans covering
substantially all employees. Under these plans, eligible employees may
contribute amounts through payroll deductions which are 5% or more of
individual salary, supplemented by employer contributions ranging from 5%
to 10% of individual salary depending on the years of service. The expenses
related to these plans were $124 and $142 for the nine months ended
September 30, 2000 and 1999, respectively.
22
<PAGE>
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(US dollars in thousands)
(Unaudited)
18. SEGMENT INFORMATION
The Company adopted the SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information". The adoption of SFAS No. 131 did not
affect results of operations or financial position, but did affect the
disclosure of segment information. As a result of this change, prior
periods' presentations are restated to conform to current year
presentations.
Prior to the acquisition of LMP, the Company historically operated in one
principal industry segment: the design, development, manufacture and
distribution of a variety of electronic and mechanical handheld and
tabletop games. On June 24, 1999, the Company acquired LMP. Due to the
distinct differences between the core products of LMP and the remainder of
the Company, the Company has decided to operate and report on these product
lines as two different business segments: Peripherals, which includes video
game controllers and steering wheels and other video games accessories; and
Games, which includes electronic and mechanical handheld and tabletop
games.
The Company evaluates performance and allocates resources based on income
or loss from operations before interest and income taxes, not including
profits and losses on the Company's investment portfolio. The accounting
policies of the reportable segments are the same as those described in the
summary of significant accounting policies.
23
<PAGE>
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(US dollars in thousands)
(Unaudited)
18. SEGMENT INFORMATION (Continued)
A summary of the Company's two business segments is set forth below.
Nine months ended September 30,
---------------------------------
2000 1999
-------------- --------------
Net sales
Games $ 62,684 $ 85,868
Peripherals 6,366 3,182
-------------- --------------
Total net sales $ 69,050 $ 89,050
============== ==============
Depreciation and amortization
Games $ 3,385 $ 2,906
Peripherals 742 651
-------------- --------------
Total depreciation and amortization $ 4,127 $ 3,557
============== ==============
Segment (loss) income
Games $ (10,835) $ 15,087
Peripherals (6,019) (1,304)
-------------- --------------
Total segment (loss) income $ (16,854) $ 13,783
Corporate and unallocated
Interest income 1,064 1,422
Interest expense (508) (141)
Equity in net loss of
affiliated company -- (704)
-------------- --------------
Total consolidated (loss) income
before income taxes $ (16,298) $ 14,360
============== ==============
Capital expenditures
Games $ 953 $ 295
Peripherals 173 56
Corporate and unallocated 1,799 1,837
-------------- --------------
Total capital expenditures $ 2,925 $ 2,188
============== ==============
24
<PAGE>
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(US dollars in thousands)
(Unaudited)
18. SEGMENT INFORMATION (Continued)
September 30, December 31,
2000 1999
-------------- --------------
Segment assets
Games $ 43,118 $ 67,347
Peripherals 17,557 22,589
Corporate and unallocated 44,177 32,159
-------------- --------------
Total consolidated assets $ 104,852 $ 122,095
============== ==============
Assets included in corporate and unallocated principally are cash and cash
equivalents, investment in affiliated company and certain unallocated
property, plant and equipment.
Information about the Company's operations in different geographic areas is
set forth in the table below. Net sales are attributed to countries based
on the location of customers, while identifiable assets are reported based
on their location.
Nine months ended September 30,
-----------------------------------
2000 1999
-------------- --------------
Net sales:
United States and Canada $ 59,105 $ 81,508
Europe 8,271 5,645
Asia Pacific and other
countries 1,674 1,897
-------------- --------------
$ 69,050 $ 89,050
============== ==============
September 30, December 31,
2000 1999
-------------- --------------
Identifiable assets:
United States and Canada $ 37,454 $ 39,702
Europe 17,319 26,485
Asia Pacific and other
countries 50,079 55,908
-------------- --------------
$ 104,852 $ 122,095
============== ==============
25
<PAGE>
RADICA GAMES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(US dollars in thousands)
(Unaudited)
19. VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance at Charged to Balance at
beginning cost and Deductions / end of
of period expenses write-offs period
--------- -------- ---------- ------
<S> <C> <C> <C> <C>
Nine months ended September 30, 2000
Allowances for doubtful accounts $ 389 $ 2,892 $ (1,021) $ 2,260
Estimated customer returns 624 524 (553) 595
Provision for inventories 2,339 5,966 (1,000) 7,305
--------------- ---------------- ---------------- ---------------
$ 3,352 $ 9,382 $ (2,574) $ 10,160
=============== ================ ================ ===============
Nine months ended September 30, 1999
Allowances for doubtful accounts $ 446 $ 3 $ (17) $ 432
Estimated customer returns 1,077 450 (1,123) 404
Provision for inventories 2,437 201 (327) 2,311
--------------- ---------------- ---------------- ---------------
$ 3,960 $ 654 $ (1,467) $ 3,147
=============== ================ ================ ===============
</TABLE>
26
<PAGE>
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, 1999 as filed with the
United States Securities and Exchange Commission.
RESULTS OF OPERATIONS -- QUARTER ENDED SEPTEMBER 30, 2000
COMPARED TO THE QUARTER ENDED SEPTEMBER 30, 1999
The following table sets forth items from the Company's Consolidated
Statements of Income as a percentage of net revenues:
Three months ended
September 30,
-----------------------
2000 1999
-------- --------
Net revenues 100.0% 100.0%
Cost of sales 65.9% 60.5%
Gross margin 34.1% 39.5%
Selling, general and administrative expenses 18.4% 15.4%
Research and development 3.4% 3.6%
Depreciation and amortization 3.5% 2.9%
Operating income 8.8% 17.6%
Other income 0.9% 0.8%
Share of loss of affiliated company -- 0.3%
Interest income, net 0.2% 0.7%
Income before income taxes 9.9% 18.8%
Provision for income taxes 0.2% 0.2%
Net income 9.7% 18.6%
After tax net income for the third quarter ended September 30, 2000 was
$3.9 million or $0.22 diluted earnings per share versus $8.8 million or $0.48
diluted earnings per share for the third quarter last year. The Company's total
revenues for the third quarter ended of 2000 were $39.9 million, compared to
$47.4 million for the same period in 1999.
27
<PAGE>
Summary of sales achieved from each category of products:
<TABLE>
<CAPTION>
QUARTER ENDED SEPTEMBER 30,
--------------------------------------------------------------------------
2000 1999
---------------------------------- ---------------------------------
NET % OF NET NET % OF NET
Product Lines Sales Value Sales Value Sales Value Sales Value
----------------------- ---------------- ---------------- --------------- ---------------
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Handheld $ 18,132 46% $ 30,597 65%
PlayTV 5,239 13% - 0%
Girl Tech games 6,845 17% 2,560 5%
ODM products 7,330 18% 11,049 23%
Peripherals 2,353 6% 3,182 7%
---------------- ---------------- --------------- ---------------
Total $ 39,899 100% $ 47,388 100%
================ ================ =============== ===============
</TABLE>
As reported in previous quarters, we saw adverse market conditions in
the electronic handheld game category which have only partially been offset by
the growth of the Company's Girl Tech(R) product line and the introduction of
Radica's new PlayTV(TM) line of games. Video game controllers revenues were also
down from 1999 as a result of the effects of the platform transition form Sony's
PlayStation to PlayStation 2.
Gross margin for the quarter declined to 34.1%, compared to 39.5% in
the third quarter of 1999 as a result of the impact of sales of closeout
product.
Operating expenses dropped from $10.4 million in the third quarter of
1999 to $10.1 million as a result of savings in salaries due to the second
quarter reorganization offset by an increase in advertising expenditures of $1
million. Expenses were down by approximately $0.8 million from last quarter of
2000 (before the effect of the Q2 restructuring charge).
CAPITAL RESOURCES AND LIQUIDITY
As of September 30, 2000, the Company had $26.4 million in cash and
cash equivalents, a decrease of $5.8 million from December 31, 1999. Working
capital at September 30, 2000 was nearly $46 million, a $19.2 million decrease
from December 31, 1999. Net cash used in operating activities and investing
activities was $2 million and $4.1 million, respectively. Investing activities,
consisting primarily of purchase of property, plant and machinery and intangible
assets. As of September 30, 2000, the Company had more than $6 million of
various lines of credit available for use. The Company believes that its
existing cash and cash equivalents and cash generated from operations are
sufficient to satisfy the current anticipated working capital needs of its core
business.
28
<PAGE>
Item 3. Qualitative and Quantitative Disclosures About Market Risk
MARKET RISK DISCLOSURES
The following discussion about the Company's market risk disclosures
contains forward-looking statements. Forward-looking statements are subject to
risks and uncertainties. Actual results could differ materially from those
discussed in the forward-looking statements. The Company is exposed to market
risk related to changes in interest rates and foreign currency exchange rates.
The Company does not have derivative financial instruments for hedging,
speculative, or trading purposes.
INTEREST RATE SENSITIVITY
The Company's long-term loan agreement is based upon the US$ Singapore
Interbank Offered Rate ("SIBOR") and, as such, is sensitive to changes in
interest rates. The Company has not used derivative financial instruments in its
indebtedness. At September 30, 2000, the result of a hypothetical one percentage
change in the underlyng US$ SIBOR rates would have resulted in an approximate
$0.1 million change in the annual amount of interest payable on such debt.
FOREIGN CURRENCY RISK
The Company has net 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 Renminbi. International
distribution and sales revenues usually are made by the Company's 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, the operating results
of the Company are exposed to changes in exchange rates between the United
States Dollar and the Pound Sterling or the Canadian dollar. The Company does
not currently hedge its foreign exchange risk, which is not significant at this
time. The Company will continue to monitor its exposure to currency
fluctuations, and, where appropriate, may use financial hedging techniques in
the future to minimize the effect of these fluctuations. There can be no
assurance that exchange rate fluctuations will not harm the business in the
future.
29
<PAGE>
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in 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 and Reports on Form 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
30
<PAGE>
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 21, 2000 /s/ Craig D. Storey
--------------------------- -------------------------------
Craig D. Storey
Chief Accounting Officer
31
