HONG KONG, Aug. 14 /PRNewswire-FirstCall/ -- Radica Games Limited (NASDAQ:RADA) announced today its results for the second quarter ended June 30, 2006. The Company reported a net loss for the quarter of ($0.6) million or ($0.03) per diluted share compared to ($3.4) million or ($0.18) per diluted share in Q2 2005. Net loss for the six-month period ended June 30, 2006 was ($1.6) million or ($0.08) per diluted share compared to ($2.9) million or ($0.16) per diluted share for the same period in 2005.
During the quarter, the Company incurred legal and other costs amounting to $0.4 million relating to the prospective merger with Mattel, Inc. announced on July 26, 2006. In addition, as a result of a change in the methodology used to calculate VAT in China by local officials, the Company recorded a one time, additional VAT charge relating to 2004 and 2005 of $0.8 million during Q2 2006. In Q2 of 2005, the Company recorded a goodwill impairment charge of $6 million. On a non-GAAP basis, excluding these one time charges in both periods the Company made a profit for the quarter of $0.6 million compared to a profit of $2.6 million in Q2 of 2005.
Sales for Q2 2006 decreased by 32% to $21.0 million from $31.1 million for the same period in 2005. Of this decrease $7.2 million came in non-core, low margin areas of business that were expected to decline including Play TV Legends, Video Game Accessories (VGA) and ODM sales. The remainder of the unfavorable variance to Q2 of 2005 was due to the decision by a major customer to significantly increase the percentage of their orders from domestic supply and to decrease the percentage from import supply in 2006 as previously reported in the first quarter results. This shifts the timing of a substantial amount of shipments from the second quarter to the third and fourth quarters. While this impacted our second quarter in comparison to the second quarter of 2005, this year's sales pattern is more typical of how this account was shipped in years prior to 2005. Sales for the year-to-date decreased 26% to $39.5 million as compared to $53.6 million for the same period in 2005 for the same reasons.
Pat Feely, Radica's Chief Executive Officer said, "While our second quarter results were below 2005 given changes in customer order patterns, we are on track for the full year with our expectations. We continue to believe this will be a solid year as indicated by our strong year to date point of sale retail movement and solid fall listings as well as retail promotional support for fall." "We look forward to our merger with Mattel and the many benefits that the synergy of our respective strengths can bring to our business. The process leading to a closing is continuing on schedule and we hope will be concluded in the fourth quarter. In the meantime it is business as usual at Radica," said Feely.
The following table shows the detailed revenue comparisons for the quarter: Three months ended Six months ended
June 30, June 30,
Product Lines 2006 2005 2006 2005
(US Dollars in thousands) Electronic Games $15,786 $22,990 $30,042 $40,088
Youth Electronics 3,355 3,104 5,513 5,550
Other Electronic Toys 287 648 735 498
Video Game Accessories 326 1,847 1,211 3,441
Manufacturing
Services 1,281 2,542 2,001 4,028 TOTAL $21,035 $31,131 $39,502 $53,605
Gross profit margin for Q2 2006 was 32.5% compared to 30.4% in Q2 2005 and was 36.1% after adjusting for the impact of the VAT charge in cost of goods. This improvement was due to a shift in product mix from lower margin product lines to higher margin core categories. Gross profit for the six-month period ended June 30, 2006 was 34.9% (or 36.8% as adjusted for the VAT charge) compared to 33.9% for the same period in 2005.
Operating expenses for the quarter decreased to $8.9 million from $13.4 million in Q2 2005. The decrease was due to the impact of the $6 million goodwill impairment charge in Q2 2005, a reduction in sales related variable expenses offset by an increase of $0.9 million of advertising and co-op expenses and $0.4 million of charges related to the Company's strategic process and prospective merger with Mattel. For the six months ended June 30, 2006, operating expenses decreased by $4.1 million from the comparative period in 2005 due to similar reasons.
Income tax benefit for the quarter stood at $0.8 million compared to $0.2 million in Q2 2005 and at $0.9 million year to date compared to $0.1 million in 2005 due to higher losses incurred during the quarter in the U.S. subsidiary.
At June 30, 2006 the Company had $47.5 million in cash and investment securities, and net assets of $97.1 million as compared to $31.0 million and $86.7 million respectively as of June 30, 2005 and $53.3 million and $98.4 million, respectively, at December 31, 2005. There was no debt at June 30, 2006, December 31, 2005 and June 30, 2005. Inventories increased to $33.9 million from $21.4 million at December 31, 2005 and decreased from $39.1 million at June 30, 2005 reflecting normal seasonality, improved inventory control and the change in ordering patterns from a large customer to later in the year as previously mentioned. Receivables decreased to $10.8 million from $18.7 million at December 31, 2005 and from $16.7 million at June 30, 2005 reflecting normal seasonality and reduced sales in the first half in comparison with 2005.
On July 10, 2006, the Company declared a third quarter dividend for fiscal 2006 of $0.05 per share, which was paid on July 31, 2006.
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, 2005, 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, the U.K. and Macau, and a factory in Dongguan, Southern China. More information about Radica can be found on the Internet at http://www.radicagames.com/ .
RADICA GAMES LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS Three months ended Six months ended
(US dollars in June 30, June 30,
thousands, except per 2006 2005 2006 2005
share data) (unaudited) (unaudited) (unaudited) (unaudited) Revenues:
Net sales $21,035 $31,131 $39,502 $53,605
Cost of goods sold
(exclusive of items
shown separately below) (14,199) (21,659) (25,725) (35,417)
Gross profit 6,836 9,472 13,777 18,188 Operating expenses:
Selling, general and
administrative expenses (7,192) (6,032) (13,842) (12,691)
Research and development (1,147) (892) (2,552) (2,089)
Depreciation and
amortization (588) (458) (1,146) (862)
Impairment of goodwill - (6,015) - (6,015)
Total operating expenses (8,927) (13,397) (17,540) (21,657) Operating loss (2,091) (3,925) (3,763) (3,469) Net interest and other
income 664 226 1,177 445 Foreign currency gain
(loss), net 61 14 153 (11) Loss before income taxes (1,366) (3,685) (2,433) (3,035) Income tax benefit 814 248 869 93 Net loss $(552) $(3,437) $(1,564) $(2,942) Net loss per share: Basic and diluted $(0.03) $(0.18) $(0.08) $(0.16) Weighted average number of
common and common
equivalent shares: Basic and diluted 19,360,894 19,005,208 19,232,840 18,932,945 Cash dividends declared
per share
(2006: 5.0 cents
for each of Q1 2006
and Q2 2006 (see
note), 2005:
4.5 cents for
Q1 2005 and Q2
2005) $- $0.045 $0.10 $0.09
Note: The Q2 2006 dividend was declared on March 30, 2006. RADICA GAMES LIMITED
CONSOLIDATED BALANCE SHEETS (US dollars in thousands, June 30, December 31, June 30,
except per share data) 2006 2005 2005
(unaudited) (unaudited)
Assets
Current assets:
Cash and cash equivalents $41,344 $37,358 $21,145
Investment securities 6,160 15,928 9,857
Accounts receivable, net of
allowances for doubtful accounts of
$150 ($165 as at December 31,
2005 and $131 as at June 30, 2005) 10,810 18,703 16,709
Inventories 33,907 21,420 39,097
Prepaid expenses and other current
assets 5,901 4,196 5,055
Income taxes receivable 432 479 23
Deferred income taxes 3,793 3,237 2,027 Total current assets 102,347 101,321 93,913 Property, plant and equipment, net 14,523 14,542 14,340 Other assets 822 833 843 Deferred income taxes, noncurrent 580 572 1,013 Total assets $118,272 $117,268 $110,109
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $14,586 $8,636 $16,179
Accrued payroll and employee benefits 1,321 3,833 1,415
Accrued expenses 5,248 5,987 5,712
Income taxes payable 5 417 136 Total current liabilities 21,160 18,873 23,442 Total liabilities 21,160 18,873 23,442 Shareholders' equity:
Common stock
par value $0.01 each, 100,000,000
shares authorized, 19,405,736 shares
outstanding (19,080,004 as at
December 31, 2005 and 19,023,645 as
at June 30, 2005) 194 191 190
Additional paid-in capital 7,571 6,122 5,861
Retained earnings 89,543 93,025 81,265
Deferred compensation - (203) (356)
Accumulated other comprehensive loss (196) (740) (293) Total shareholders' equity 97,112 98,395 86,667 Total liabilities and shareholders'
equity $118,272 $117,268 $110,109
DATASOURCE: Radica Games Limited CONTACT: Patrick S. Feely, Chief Executive Officer (Los Angeles, California), +1-626-744-1150, or David C.W. Howell, Chief Financial Officer (Hong Kong), +852-2688-4201, both of Radica Games Limited Web site: http://www.radicagames.com/
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