The accompanying notes are an integral part of these consolidated financial statements.
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EIDOS PLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 Nature of Business and Organization
The activities of Eidos plc ("Eidos" or the "Company") and subsidiaries (including Eidos, the "Group") during the periods presented herein were the developing and publishing of interactive software titles for PC and certain games consoles (under license with the console manufacturer), the design, manufacture and sale of video compression and video editing software, post-production video editing and new media design and consultancy.
Currently the principal markets for the Group's products, all of which are similar in size based on turnover, are the United States, United Kingdom and Continental Europe. Asia and the Rest of the World make up a small but growing part of the Group revenue. Computer software titles are sold primarily to wholesale and retail distributors.
The computer games industry is characterized by the dominance of "hit titles"; consequently a relatively small number of titles (or franchises) will often make up a significant proportion of turnover and net income. Eidos' stated policy is to concentrate on quality titles and consequently titles which management believes to be marginal are often terminated or sub-licensed.
2 Summary of Significant Accounting Policies
The financial statements have been prepared under the historical (UK GAAP) cost convention and in accordance with applicable Accounting Standards in the United Kingdom. A summary of the more important Group accounting policies, which have been applied consistently, and, where appropriate, a description of any areas of judgement which could have a material affect on the consolidated financial statements of the Group is set out below.
Generally accepted accounting principles in the United Kingdom (UK GAAP) differ in certain significant respects from those in the United States (US GAAP). Application of US GAAP would have affected shareholders funds and results of operations at June 30, 2001 and 2002 and for the three months ended June 30, 2000, 2001 and 2002 to the extent summarized in Note 31.
Basis of preparation
In the UK, the directors have prepared statutory consolidated financial statements for Eidos plc for the fifteen months to June 30, 2002. The statutory consolidated accounts have been prepared in accordance with the measurement principles within applicable accounting standards, under historical cost basis of accounting and the Companies Act, as if those requirements were to apply except that only consolidated amounts have been presented. In the US, the directors have prepared 2 Form 20-Fs, one covering the twelve months to March 31, 2002 and this transitional Form 20-F covering the three months to June 30, 2002. This three months is not a statutory period. The comparative figures for the quarter to June 30, 2001 and 2000 are not the company's statutory accounts for those periods and were based on quarterly results released in those periods and previously filed on Form 6-K.
Changes in Presentation of Financial Statements and Reclassification
In accordance with FRS14, the earnings per share figures for June 30, 2000 and 2001 have been restated for the Rights Issue that occurred during the year.
Certain co-operative advertising expenses that were previously charged against Turnover have now been reclassified as an expense within Sales and marketing costs and the June 30, 2001 and 2000 comparatives have been restated to reflect this.
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The figures for research and development and general and administrative expenses have been restated in the quarter ended June 30, 2001 and 2000 for a change in the classification of certain expenses that occurred in the period.
Financial Reporting Standard 19 Deferred Tax (FRS 19) has been adopted by the Group. Under FRS 19, deferred tax is provided for on certain timing differences in full. FRS 19 requires prior years to be restated. However the impact on net income of the implementation of FRS 19 on the Group was nil for the quarters ended June 30, 2000, 2001 and 2002. In accordance with FRS 19, deferred tax assets are regarded as recoverable to the extent that, on the basis of all available evidence, it can be regarded as more likely than not that evidence, it can be regarded as more likely than not that there will be suitable taxable profits from which the future reversal of the underlying timing differences can be deducted. See Note 19 for an analysis of deferred taxes.
Basis of consolidation
The consolidated financial statements include the financial statements of the Company and its subsidiary undertakings. The results of subsidiaries sold or acquired are included in the consolidated income statement up to, or from, the date control passes. Intra-group sales and profits are eliminated fully on consolidation.
On acquisition of a subsidiary, all of the subsidiary's assets and liabilities that exist at the date of acquisition are recorded at their fair values reflecting their condition at that date. All changes to those assets and liabilities, and the resulting gains and losses, that arise after the Group has gained control of the subsidiary are charged to the post acquisition statements of operations.
Associated undertakings and joint arrangements
Associated undertakings are undertakings in which the Group holds a long term interest and over which it actually exercises significant influence. Joint ventures are undertakings that are jointly controlled with other entities or individuals. The Group's share of profits less losses from associated undertakings is included in the profit and loss account on the equity accounting basis. The holding value of associated and joint undertakings is based upon the Group's equity in net assets of such undertakings, as shown by the most recent accounts available.
Goodwill
Goodwill in respect of acquisitions of subsidiaries and associated undertakings represents the excess of the fair value of the consideration given over the fair value of the identifiable net assets acquired. Goodwill arising prior to April 1, 1998 has been written off immediately against reserves. Goodwill arising after April 1, 1998 has been capitalized and amortized to nil in the profit and loss account over the estimated economic life in accordance with FRS 10.
A charge is recognized in income in respect of any impairment in the value of goodwill. Goodwill written off directly to reserves and not previously charged to income is included in determining the income or loss on disposal of a subsidiary.
Goodwill previously written off to reserves was not reinstated in the balance sheet when FRS 10 was adopted. It has been set off against the merger reserve with the balance being set off against the profit and loss account reserve.
Given the nature of the industry, the useful economic life of goodwill is estimated to be three years and the intangible asset is being amortized over this period. In deriving the estimated useful economic life of goodwill the Group takes account of a number of factors including the future prospects for the entity concerned and the consequent projections for both net income and net cash-flow. To the extent that these projections no longer justify the carrying value of any remaining goodwill, then the amortization charge will be accelerated to the degree required to reflect the revised estimate of the fair value of the goodwill. The estimates used in assessing the carrying value of goodwill carried at cost rely on assumptions made about the performance and
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prospects of the entities themselves and also about the markets in which they operate. Where the entities do not have an established track record or where they are operating in new or emerging markets then the inherent uncertainty in forecasting future performance may be compounded.
Turnover
Turnover, which excludes sales between Group companies, represents the invoiced amounts of goods sold, net of provisions for returns, value added tax and trade discounts (excluding co-operative advertising expenses). Revenue from royalty agreements is recognized upon reaching specific dates set out in royalty contracts. In the case of minimum royalty agreements revenue is recognized when the amounts are contractually due and are non-refundable.
The majority of the Group's reported turnover is derived from the sale of pre-packaged entertainment software. Turnover is recorded at the point of sale, net of taxes and provisions for future returns and price protection. In common with other publishers of entertainment software the Group operates a number of territory-specific programmes under which retailers may qualify to return unsold product, subject to certain qualifying conditions. Alternatively the Group may offer price protection programmes in certain markets, though again these are subject to the satisfaction of certain qualifying conditions. Typically the Group maintains a policy of issuing credits under such programmes. By analysing historical rates of return and price protection in conjunction with a number of key variables including the prevailing market and economic conditions at that time, the Group is able to estimate future expected rates of returns and price protection. The adequacy of the reserves generated by these estimated rates is reviewed regularly in the light of current market and economic conditions, considering in particular up to date patterns of sell-through, anticipated trends in the hardware and software markets, seasonal factors, perceived consumer preferences and general economic conditions. If the Group's estimates of future expected returns and price protection are not adequate, the charges to the profit and loss account may be greater than expected in any given reporting period.
Tangible fixed assets
The cost of fixed assets is their purchase cost, together with any incidental costs of acquisition. Provision is made for depreciation on all tangible fixed assets at rates calculated to write off the cost less residual value of each asset over its expected useful life as follows:
| Leasehold improvements | Over the life of the lease |
| Fixture and fittings | 20% per annum straight line |
| Computer equipment | 33% per annum straight line |
| Motor vehicles | 25% per annum straight line |
Research and development
All research and development expenditure is charged to income as incurred. This includes all software development expenditure on individual titles, advance royalties paid under publishing agreements to external developers and advance royalties paid under licensing arrangements.
Investments
Investments held as fixed assets are stated at cost less provision for any impairment in value.
In determining whether there has been any permanent impairment in the carrying value of investments the Group takes account of a number of factors including the future prospects for the entities concerned and the consequent projections for both net income and net cash-flow. To the extent that these projections no longer justify the carrying value of an investment then a provision will be made through the profit and loss account to reflect the revised estimate of the fair value of the investment. The estimates used in assessing the carrying value of investments rely on assumptions made about the performance and prospects of the entities themselves and also about the markets in which they operate. Where the entities do not have an established track
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record or where they are operating in new or emerging markets then the inherent uncertainty in forecasting future performance may be compounded and in certain circumstances the investments may be recorded at a net nil cost on acquisition.
License fees
License fees payable to celebrities and professional sports organizations for use of their name over a number of years or for a range of products (a franchise), including sub-license arrangements and fees payable through intermediaries, are charged to income as sales and marketing expenditure over the life of the license. License fees are classified as current and non-current assets based on the remaining life of the license.
Management regularly reviews the carrying value of such licenses and where it appears unlikely that any remaining prepaid amounts will be recovered through the sale of future licensed titles, then these remaining amounts will be expensed in full immediately. In reviewing the recoverability of prepaid royalties and licenses, senior management relies on forecasts of future revenues. If revised revenue forecasts fall below the original forecasts, then the charge to the profit and loss account may be greater than expected in any given reporting period.
Deferred taxation
Deferred tax is recognised, without discounting, in respect of all timing differences between the treatment of certain items for taxation and accounting purposes which have arisen but not reversed by the balance sheet date, except as otherwise required by UK Accounting Standards. In reviewing the recoverability of deferred tax assets the Group has to estimate future taxable income for the relevant countries.
Tax charges or credits arising on the retranslation of foreign currency borrowings used to finance or provide a hedge against equity investments in foreign enterprises are taken to the Statement of Total Recognised Gains and Losses together with the exchange differences on the borrowings themselves.
The estimation of the Group's consolidated tax charge is a complex matter encompassing many different international tax jurisdictions. In calculating the Group charge management has to make certain estimates regarding individual exposures in different countries and assess the recoverability of deferred tax assets. It can often take many years to finalise individual tax charges and to reach agreement on areas of contention with the relevant tax authorities. In reviewing the recoverability of deferred tax assets the Group has to estimate future taxable income for the relevant countries. To the extent that these estimations indicate that any such assets are not recoverable, then full provision will be made against their carrying value.
Foreign currencies
Assets and liabilities of subsidiaries in foreign currencies are translated into sterling at rates of exchange ruling at the end of the financial year. The results and cash flows of foreign subsidiaries are translated at the average rate of exchange for the year. Gains and losses on exchange arising from the re-translation of the opening net investment in subsidiary companies and from the translation of the results of those companies are taken to reserves and are reported in the statement of total recognized gains and losses. Exchange differences arising from the re-translation of long-term foreign currency borrowings used to finance foreign currency investments are also taken to reserves. All other foreign exchange differences are taken to income in the year in which they arise.
Stocks
Stocks are valued at the lower of cost and net realizable value. In general, cost is determined on a first in, first out basis and includes transport and handling costs.
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The Group carries its inventory of finished goods at the lower of cost and net realisable value. In order to determine what this carrying value should be, management has to estimate the price that they expect to achieve on the future sale of the stock. This process involves reviewing current patterns of demand in the market and projecting these forward. It may also require an assessment of how future demand could be affected by changes in the wholesale price charged by the Group and by other factors that may be beyond the control of the group. In this way management will seek to determine the most realistic price that they believe can be achieved and hence the likelihood that inventories on hand can be sold at or above cost.
Finance and operating leases
Costs in respect of operating leases are charged on a straight-line basis over the lease term. Leasing agreements that transfer to the Group substantially all the benefits and risks of ownership of an asset are treated as if the asset has been purchased outright. These assets are included in fixed assets and the capital element of the leasing commitments is shown as obligations under finance leases. The capital element of lease payments is applied to reduce the outstanding obligations and the interest element is charged to income so as to give a constant periodic rate of charge on the remaining balance outstanding at each accounting period. Assets held under finance leases are depreciated over the shorter of the lease terms and the useful lives of equivalent owned assets.
Pensions
The Group operates various defined contribution pension schemes. Contributions are charged to income as they become payable in accordance with the rules of the schemes.
Derivative financial instruments
The Group uses derivative financial instruments to reduce exposure to foreign exchange risk. The Group does not hold or issue derivative financial instruments for speculative purposes.
For a forward foreign exchange contract to be treated as a hedge, the instrument must be related to actual foreign currency assets or liabilities or to a probable commitment. It must involve the same currency or similar currencies as the hedged item and must also reduce the risk of foreign currency exchange movements on the Group's operations. Gains and losses arising on these contracts are deferred and recognized in the profit and loss account, or as adjustments to the carrying amount of fixed assets, only when the hedged transaction has itself been reflected in the Group's accounts.
If an instrument ceases to be accounted for as a hedge, for example, because the underlying hedged position is eliminated, the instrument is marked to market and any resulting profit or loss recognized at that time.
Use of estimates
The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
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3 Segmental Analysis
The analysis by class of business of the Group's turnover, income before taxation and assets for the years ended June 30, 2002, June 30, 2001 and June 30, 2000 is set out below.
Turnover by class of business
| | 3 months ended June 30, 2000 | | 3 months ended June 30, 2001 | | 3 months ended June 30, 2002 | |
| |
| |
| |
| |
| | (unaudited) | | (unaudited) | | | | |
| | £'000 | | £'000 | | £'000 | |
Class of business | | | | | | | | | |
| Computer software | | 16,241 | | | 12,466 | | | 8,657 | |
| Video editing | | 1,086 | | | — | | | — | |
| |
| |
| |
| |
| | | 17,327 | | | 12,466 | | | 8,657 | |
| |
| |
| |
| |
Income/(loss) on ordinary activities before tax
| | 3 months ended June 30, 2000 | | 3 months ended June 30, 2001 | | 3 months ended June 30, 2002 | |
| |
| |
| |
| |
| | (unaudited) | | (unaudited) | | | | |
| | £'000 | | £'000 | | £'000 | |
Class of business | | | | | | | | | |
| Computer software | | (22,156 | ) | | (15,353 | ) | | (16,486 | ) |
| Video editing | | (178 | ) | | (12 | ) | | — | |
| |
| |
| |
| |
| | | (22,334 | ) | | (15,365 | ) | | (16,486 | ) |
| |
| |
| |
| |
Net Assets/(liabilities)
| | 3 months ended June 30, 2001 | | 3 months ended June 30, 2002 | |
| |
| |
| |
| | (unaudited) | | | | |
| | £'000 | | £'000 | |
Class of business | | | | | | |
| Computer software | | 17,341 | | | 59,384 | |
| Video editing | | (2,791 | ) | | (2,795 | ) |
| |
| |
| |
| | | 14,550 | | | 56,589 | |
| |
| |
| |
Video editing was provided by Eidos Post Productions Ltd (formerly Glassworks Productions Ltd), an 85% subsidiary; the business and assets of which were sold on December 15, 2000.
Turnover by destination
The Group manages its computer software business by geographical area.
Eidos has offices in the United Kingdom, United States, France, Germany, Japan and Singapore. The latter two do not generate significant income in relation to the remainder of the Group and are included within the 'Rest of World' segment. The French and German offices sell to other French and German speaking European countries (namely Belgium, Austria and Switzerland). For reporting purposes these territories are included within 'Rest of Europe'.
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The turnover is attributable to the Group's principal activities and arose in the following geographical areas:
| | 3 months ended June 30, 2000 | | 3 months ended June 30, 2001 | | 3 months ended June 30, 2002 | |
| |
| |
| |
| |
| | (unaudited)
£'000 | | (unaudited)
£'000 | | £'000 | |
| United Kingdom | | 3,424 | | | 2,680 | | | 3,598 | |
| France | | 2,397 | | | 2,170 | | | 1,204 | |
| Germany | | 2,250 | | | 1,970 | | | 1,109 | |
| Rest of Europe | | 825 | | | 1,036 | | | 974 | |
| United States of America | | 6,529 | | | 3,109 | | | 2,602 | |
| Rest of World | | 1,902 | | | 1,501 | | | (830 | ) |
| |
| |
| |
| |
| | | 17,327 | | | 12,466 | | | 8,657 | |
| |
| |
| |
| |
Turnover by origination
| | 3 months ended June 30, 2000 | | 3 months ended June 30, 2001 | | 3 months ended June 30, 2002 | |
| |
| |
| |
| |
| | (unaudited)
£'000 | | (unaudited)
£'000 | | £'000 | |
| United Kingdom | | 5,351 | | | 3,680 | | | 4,149 | |
| France | | 2,525 | | | 2,560 | | | 1,388 | |
| Germany | | 2,162 | | | 2,147 | | | 1,280 | |
| United States of America | | 6,924 | | | 3,569 | | | 1,126 | |
| Rest of World | | 365 | | | 510 | | | 714 | |
| |
| |
| |
| |
| | | 17,327 | | | 12,466 | | | 8,657 | |
| |
| |
| |
| |
Inter-segment sales (predominantly royalties)
| | By origination
| |
| | 3 months ended June 30, 2000 | | 3 months ended June 30, 2001 | | 3 months ended June 30, 2002 | |
| |
| |
| |
| |
| | (unaudited)
£'000 | | (unaudited)
£'000 | | £'000 | |
| United Kingdom | | 639 | | | 3,215 | | | 1,425 | |
| United States of America | | 1,317 | | | 21 | | | (1,556 | ) |
| Rest of World | | 229 | | | 194 | | | 233 | |
| |
| |
| |
| |
| | | 2,185 | | | 3,430 | | | 102 | |
| |
| |
| |
| |
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Income/(loss) on ordinary activities before tax
| | 3 months ended June 30, 2000 | | 3 months ended June 30, 2001 | | 3 months ended June 30, 2002 | |
| |
| |
| |
| |
| | (unaudited)
£'000 | | (unaudited)
£'000 | | £'000 | |
Geographical segment | | | | | | | | | |
| United Kingdom | | (12,858 | ) | | (3,895 | ) | | (17,321 | ) |
| France | | (495 | ) | | 192 | | | (120 | ) |
| Germany | | 357 | | | 15 | | | (523 | ) |
| Spain (joint ventures) | | (773 | ) | | (1,083 | ) | | (991 | ) |
| United States of America | | (8,517 | ) | | (10,507 | ) | | 2,703 | |
| Rest of World | | (48 | ) | | (87 | ) | | (234 | ) |
| |
| |
| |
| |
| | | (22,334 | ) | | (15,365 | ) | | (16,486 | ) |
| |
| |
| |
| |
Turnover from the joint ventures originates from Spain and relates to computer software. In addition, turnover in the United Kingdom includes £180,000 (2001: £(51,000), 2000: £316,000) sales to the joint venture in Spain.
Net Assets/(liabilities)
| | June 30, 2001 | | June 30, 2002 | |
| |
| |
| |
| | (unaudited)
£'000 | | £'000 | |
Geographical segment | | | | | | |
| United Kingdom | | 73,114 | | | 89,965 | |
| France | | 779 | | | 1,724 | |
| Germany | | 35 | | | (324 | ) |
| Spain (joint ventures) | | 7,601 | | | 3,789 | |
| United States of America | | (67,460 | ) | | (38,980 | ) |
| Rest of World | | 481 | | | 415 | |
| |
| |
| |
| | | 14,550 | | | 56,589 | |
| |
| |
| |
4 Directors emoluments
| | 3 months ended June 30, 2000 | | 3 months ended June 30, 2001 | | 3 months ended June 30, 2002 | |
| |
| |
| |
| |
| | (unaudited)
£'000 | | (unaudited)
£'000 | | £'000 | |
Directors' emoluments | | | | | | | | | |
| Salary payments and royalties | | 374 | | | 209 | | | 278 | |
| Fees | | 20 | | | 24 | | | 44 | |
| Other benefits | | 77 | | | 61 | | | 71 | |
| Company pension contributions | | 45 | | | 25 | | | 33 | |
| |
| |
| |
| |
| | | 516 | | | 319 | | | 426 | |
| |
| |
| |
| |
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For the 3 months to June 30, 2002 | Salary and Fees | | Benefits | | Pension
contributions | | Total | | 3 Months to June 30, 2001 | |
| |
| |
| |
| |
| |
| |
| | | | | | | | | | | | | | (unaudited) | |
| | £ | | £ | | £ | | £ | | £ | |
Current Serving Executives | | | | | | | | | | | | | | | |
| Mr Cruickshank | | 47,500 | | | 6,347 | | | 5,700 | | | 59,547 | | | N/a | |
| Mr Heath-Smith | | 62,500 | | | 27,070 | | | 7,500 | | | 97,070 | | | 95,150 | |
| Mr Livingstone | | 60,000 | | | 8,693 | | | 7,200 | | | 75,893 | | | 75,747 | |
| Mr McGarvey | | 87,047 | | | 24,527 | | | 10,419 | | | 121,993 | | | 99,116 | |
| Mr Protheroe | | 20,625 | | | 4,092 | | | 2,000 | | | 26,717 | | | 25,172 | |
Non-Executive | | | | | | | | | | | | | | | |
| Mr Adams | | 4,167 | | | — | | | — | | | 4,167 | | | 3,718 | |
| Mr van Kuffeler (from 18 April 2002) | | 20,513 | | | — | | | — | | | 20,513 | | | N/a | |
| Mr Steel | | 10,000 | | | — | | | — | | | 10,000 | | | 10,000 | |
| Mr Thomas | | 10,000 | | | — | | | — | | | 10,000 | | | 10,000 | |
| |
| |
| |
| |
| |
| |
Total 2002 | | 322,352 | | | 70,729 | | | 32,819 | | | 425,900 | | | 318,903 | |
| |
| |
| |
| |
| |
| |
| Total 2001 | | 232,468 | | | 61,385 | | | 25,050 | | | 318,903 | | | — | |
| |
| |
| |
| |
| |
| |
Interests in shares
| | June 30,
2001 | | June 30,
2002 | |
| |
|
| |
|
| |
| Mr Livingstone | | 2,681,915 | | | 2,942,612 | |
| Mr Heath-Smith | | 728,534 | | | 1,010,065 | |
| Mr McGarvey | | 25,435 | | | 64,913 | |
| Mr Cruickshank | | — | | | 9,074 | |
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Interests in share options
Details of options held by directors are set out below:
| | March 31, 2002 | | Granted in period | | Lapsed in period | | June 30, 2002 | | Exercise price | | Date from which exercisable | | Expiry date | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| Mr. Cruickshank | | 88,236 | | | — | | | — | | | 88,236 | | | 255.00 | | | 09/05/04 | | | 09/05/08 | |
| | | 11,764 | | | — | | | — | | | 11,764 | | | 255.00 | | | 09/05/04 | | | 09/05/11 | |
| | | — | | | **8,119 | | | — | | | 8,119 | | | 117.00 | | | 04/01/05 | | | 10/01/05 | |
| Mr. Heath-Smith | | 201,077 | | | — | | | — | | | 201,077 | | | 141.04 | | | 04/25/99 | | | 04/24/03 | |
| | | 21,267 | | | — | | | — | | | 21,267 | | | 141.04 | | | 04/25/99 | | | 04/24/06 | |
| | | — | | | **8,119 | | | — | | | 8,119 | | | 117.00 | | | 04/01/05 | | | 10/01/05 | |
| Mr. Livingstone | | 245,763 | | | — | | | — | | | 245,763 | | | 142.48 | | | 04/03/99 | | | 04/01/03 | |
| | | 21,050 | | | — | | | — | | | 21,050 | | | 142.48 | | | 04/03/99 | | | 04/01/06 | |
| | | *314,485 | | | — | | | — | | | 314,485 | | | 121.43 | | | — | | | — | |
| Mr. McGarvey | | 139,543 | | | — | | | — | | | 139,543 | | | 154.26 | | | 10/16/00 | | | 10/14/04 | |
| | | 1,111,725 | | | — | | | — | | | 1,111,725 | | | 105.24 | | | 10/14/01 | | | 10/13/05 | |
| Mr. Protheroe | | 77,820 | | | — | | | — | | | 77,820 | | | 142.48 | | | 04/03/99 | | | 04/01/03 | |
| | | 55,586 | | | — | | | — | | | 55,586 | | | 61.76 | | | 07/21/97 | | | 07/19/04 | |
| | | 111,172 | | | — | | | — | | | 111,172 | | | 62.96 | | | 03/11/98 | | | 03/09/05 | |
| |
| |
| |
| |
| | | | | | | | | | |
| Total | | 2,399,488 | | | 16,238 | | | — | | | 2,415,726 | | | | | | | | | | |
| |
| |
| |
| |
| | | | | | | | | | |
None of the non-executive Directors have any options in the Company
*Effective holding shown. Mr. Livingstone holds an option to purchase shares in Eidos Interactive Limited which upon exercise are exchangeable for shares in the Company. |
**Mr. Heath-Smith and Mr. Cruickshank are both contributing to a Sharesave Scheme which will become exercisable on April 1, 2005 with an estimated potential number of shares of 8,119 each at a price of 117.0p, such exercise periods to expire on October 1, 2005. |
The closing market price of shares in Eidos plc was 128.0p on June 30, 2002 and 120.0p on August 31, 2002. The highest closing price during the 3 month period was 170.00p and the lowest was 116.00p.
All options give the holders the rights to acquire shares on a one for one basis.
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5 Employee Information
The average weekly number of persons (including executive directors) employed by the Group and total costs during the periods indicated below were:
| | 3 months ended June 30, 2000 | | 3 months ended June 30, 2001 | | 3 months ended June 30, 2002 | |
| |
| |
| |
| |
| | (unaudited) | | (unaudited) | | | | |
By activity | | | | | | | | | |
| Corporate | | 33 | | | 28 | | | 30 | |
| Computer entertainment software | | 478 | | | 499 | | | 509 | |
| Video editing, post production and new media | | 63 | | | — | | | — | |
| |
|
| |
|
| |
|
| |
| | | 574 | | | 527 | | | 539 | |
| |
|
| |
|
| |
|
| |
Computer entertainment software employees can be futher broken down as follows:
| | 3 months ended June 30, 2000 (unaudited)
| |
| | UK | | US | | Continental Europe | | Asia | | Total | |
| Sales and Marketing | | 60 | | | 31 | | | 61 | | | 5 | | | 157 | |
| Research and development | | 122 | | | 125 | | | — | | | 7 | | | 254 | |
| Administration | | 14 | | | 30 | | | 15 | | | 8 | | | 67 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| Total | | 196 | | | 186 | | | 76 | | | 20 | | | 478 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| | 3 months ended June 30, 2001 (unaudited)
| |
| | UK | | US | | Continental Europe | | Asia | | Total | |
| Sales and Marketing | | 50 | | | 26 | | | 71 | | | 7 | | | 154 | |
| Research and development | | 130 | | | 119 | | | — | | | 9 | | | 258 | |
| Administration | | 12 | | | 37 | | | 30 | | | 8 | | | 87 | |
| |
| |
| |
| |
| |
| |
| Total | | 192 | | | 182 | | | 101 | | | 24 | | | 499 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| | 3 months ended June 30, 2002
| |
| | UK | | US | | Continental Europe | | Asia | | Total | |
| Sales and Marketing | | 48 | | | 24 | | | 42 | | | 9 | | | 123 | |
| Research and development | | 126 | | | 178 | | | 1 | | | 9 | | | 314 | |
| Administration | | 12 | | | 37 | | | 15 | | | 8 | | | 72 | |
| |
| |
| |
| |
| |
| |
| Total | | 186 | | | 239 | | | 58 | | | 26 | | | 509 | |
| |
| |
| |
| |
| |
| |
| | 3 months ended June 30, 2000 | | 3 months ended June 30, 2001 | | 3 months ended June 30, 2002 | |
| |
|
| |
|
| |
|
| |
| | (unaudited) | | (unaudited) | | | | |
| | £'000 | | £'000 | | £'000 | |
Staff costs | | | | | | | | | |
| Wages and salaries | | 6,129 | | | 5,446 | | | 5,571 | |
| Social security costs | | 640 | | | 590 | | | 941 | |
| Pension costs (See Note 28) | | 216 | | | 190 | | | 213 | |
| |
| |
| |
| |
| | | 6,985 | | | 6,226 | | | 6,725 | |
| |
| |
| |
| |
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6 Net interest and similar charges
| | 3 months ended June 30, 2000 | | 3 months ended June 30, 2001 | | 3 months ended June 30, 2002 | |
| |
|
| |
|
| |
|
| |
| | | (unaudited) | | | (unaudited) | | | | |
| | £'000 | | £'000 | | £'000 | |
Interest payable | | | | | | | | | |
Group | | | | | | | | | |
| Bank loans and overdrafts | | (207 | ) | | (368 | ) | | (236 | ) |
| Finance leases | | (7 | ) | | (6 | ) | | (74 | ) |
| Other interest | | (40 | ) | | (37 | ) | | (92 | ) |
| |
|
| |
|
| |
|
| |
| | | (254 | ) | | (411 | ) | | (402 | ) |
| Share of joint ventures | | (12 | ) | | (5 | ) | | (12 | ) |
| |
|
| |
|
| |
|
| |
| | | (266 | ) | | (416 | ) | | (414 | ) |
| |
|
| |
|
| |
|
| |
Interest receivable | | | | | | | | | |
| Group | | 428 | | | 118 | | | 532 | |
| Share of joint ventures | | 4 | | | 59 | | | 42 | |
| |
|
| |
|
| |
|
| |
| | | 432 | | | 177 | | | 574 | |
| |
|
| |
|
| |
|
| |
| Net interest receivable/(payable) | | 166 | | | (239 | ) | | 160 | |
| |
|
| |
|
| |
|
| |
7 Income/(Loss) on Ordinary Activities Before Tax
| | 3 months ended June 30, 2000 | | 3 months ended June 30, 2001 | | 3 months ended June 30, 2002 | |
| |
|
| |
|
| |
|
| |
| | (unaudited) | | (unaudited) | | | | |
| | £'000 | | £'000 | | £'000 | |
This is stated after charging: | | | | | | | | | |
| Depreciation of tangible owned fixed assets | | 880 | | | 429 | | | 523 | |
| Depreciation of tangible fixed assets held under finance leases | | 22 | | | 41 | | | 36 | |
| Amortization of goodwill | | 3,899 | | | 4,030 | | | 1,486 | |
| Auditors' remuneration for audit | | 67 | | | 106 | | | 17 | |
| Other fees paid to the auditors and their associates* | | 221 | | | 214 | | | 333 | |
| Hire of plant and machinery – operating leases | | 182 | | | 143 | | | 132 | |
| Hire of other assets – operating leases | | 591 | | | 731 | | | 667 | |
| (Gain) or Loss on Exchange differences | | (457 | ) | | 133 | | | (580 | ) |
*Other fees paid to the auditors and their associates for the three months ended June 30, 2002, include tax compliance and advisory fees of £327,000, review of interim statements and quarterly US filings of £6,000. |
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8 Tax on Income/(Loss) on Ordinary Activities
| | 3 months ended June 30, 2000 | | 3 months ended June 30, 2001 | | 3 months ended June 30, 2002 | |
| |
|
| |
|
| |
|
| |
| | (unaudited) | | (unaudited) | | | | |
| | £'000 | | £'000 | | £'000 | |
| UK Corporation tax charge/(credit) | | (5,566 | ) | | — | | | — | |
| Overseas taxation | | (1,440 | ) | | 86 | | | 159 | |
| |
|
| |
|
| |
|
| |
| | | (7,006 | ) | | 86 | | | 159 | |
| Adjustment in respect of prior years: | | | | | | | | | |
| Overseas taxation | | — | | | (193 | ) | | (78 | ) |
| UK taxation | | — | | | 107 | | | (25 | ) |
| |
|
| |
|
| |
|
| |
| | | (7,006 | ) | | — | | | 56 | |
| |
|
| |
|
| |
|
| |
| Of which: | | | | | | | | | |
| Remaining Group taxation | | (7,104 | ) | | (42 | ) | | (101 | ) |
| Joint ventures' taxation | | 98 | | | 42 | | | 157 | |
| |
| |
| |
| |
| | | (7,006 | ) | | — | | | 56 | |
| |
|
| |
|
| |
|
| |
9 Tax on Income/(Loss) on Ordinary Activities reconciliation
Total income tax expense differs from the amounts computed by applying the UK statutory income tax rate of 30% (2001: 30%, 2000: 30%) to income/(loss) before taxes, as a result of the following:
| | 3 months ended June 30, 2000 | | 3 months ended June 30, 2001 | | 3 months ended June 30, 2002 | |
| |
|
| |
|
| |
|
| |
| | (unaudited) | | (unaudited) | | | | |
| | £'000 | | £'000 | | £'000 | |
| Loss for the quarter | | (22,344 | ) | | (15,365 | ) | | (16,486 | ) |
| |
|
| |
|
| |
|
| |
| UK statutory rate | | (6,703 | ) | | (4,610 | ) | | (4,956 | ) |
| Difference between overseas and UK tax rate | | (303 | ) | | (751 | ) | | 633 | |
| Permanent disallowables | | 1,170 | | | 1,209 | | | 6,472 | |
| Deferred tax asset not recognized, net | | — | | | — | | | (4,238 | ) |
| Utilization of brought forward losses and losses previously not recognised | | — | | | — | | | (379 | ) |
| Current year losses unable to be used in current period | | — | | | 4,152 | | | 3,314 | |
| Other differences | | (1,170 | ) | | — | | | (790 | ) |
| |
|
| |
|
| |
|
| |
| Provision/(credit) | | (7,006 | ) | | — | | | 56 | |
| |
|
| |
|
| |
|
| |
There is no current year tax effect in the profit and loss account relating to the exceptional items in either the current or prior year.
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10 Earnings/(loss) Per Share
The calculations of earnings per share are based on the following information. All numbers (including the comparatives) reflect the five for one share split, which took place on January 25, 2000 and the 1 for 3 Rights Issue, which took place during July 2001.
Weighted average number of shares:
| | 3 months ended
June 30, 2000 | | 3 months ended
June 30, 2001 | | 3 months ended
June 30, 2002 | |
| |
| |
| |
| |
| | (unaudited) | | (unaudited) | | | | |
| Basic earnings per share | | 115,106,060 | | | 115,570,183 | | | 139,744,013 | |
| Exercise of share options | | 3,417,749 | | | 2,580,748 | | | 1,299,565 | |
| |
| |
| |
| |
| Diluted earnings per share | | 118,523,809 | | | 118,150,931 | | | 141,043,578 | |
| |
| |
| |
| |
| | | | | | | | | | |
No dividends were paid during any of the last three fiscal years.
| | Basic
| | Diluted
| |
| | 3 months ended
June 30,
2000 | | 3 months ended
June 30,
2001 | | 3 months ended
June 30,
2002 | | 3 months ended
June 30,
2000 | | 3 months ended
June 30,
2001 | | 3 months ended
June 30,
2002 | |
| |
| |
| |
| |
| |
| |
| |
| | (unaudited) | | (unaudited) | | | | | (unaudited) | | (unaudited) | | | | |
| | £'000 | | £'000 | | £'000 | | £'000 | | £'000 | | £'000 | |
| Net loss for the year | | (15,328 | ) | | (15,365 | ) | | (16,542 | ) | | (15,328 | ) | | (15,365 | ) | | (16,542 | ) |
| |
| |
| |
| |
| |
| |
| |
| ! |
| Loss per share | | (13.3p | ) | | (13.3p | ) | | (11.8p | ) | | (13.3p | ) | | (13.3p | ) | | (11.8p | ) |
| |
| |
| |
| |
| |
| |
| |
11 Intangible fixed Assets
| | Joint Ventures | | Others | | Total | |
| |
| |
| |
| |
| | £'000 | | £'000 | | £'000 | |
Goodwill | | | | | | | | | |
Cost | | | | | | | | | |
| At April 1, 2002 | | 15,745 | | | 34,774 | | | 50,519 | |
| |
| |
| |
| |
At June 30, 2002 | | 15,745 | | | 34,774 | | | 50,519 | |
| |
| |
| |
| |
Amortization | | | | | | | | | |
| At April 1, 2002 | | 13,855 | | | 34,112 | | | 47,967 | |
| Exchange adjustments | | 4 | | | 41 | | | 45 | |
| Amortization for the period | | 1,415 | | | 71 | | | 1,486 | |
| |
| |
| |
| |
At June 30, 2002 | | 15,274 | | | 34,224 | | | 49,498 | |
| |
| |
| |
| |
Net book value | | | | | | | | | |
At June 30, 2002 | | 471 | | | 550 | | | 1,021 | |
| |
| |
| |
| |
| At March 31, 2002 | | 1,890 | | | 662 | | | 2,552 | |
| |
| |
| |
| |
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Goodwill amortization on Proein SL, Pyro Studios SL (acquired in 2000), Crystal Dynamics, Inc. (acquired in 1999) and Ion Storm (acquired 2002) has been calculated based on the three year estimated useful economic life as detailed in note 2.
12 Tangible Fixed Assets
| | Leasehold improvements | | Fixtures and fittings | | Computer equipment | | Motor vehicles | | Total | |
| |
| |
| |
| |
| |
| |
| | £'000 | | £'000 | | £'000 | | £'000 | | £'000 | |
Cost | | | | | | | | | | | | | | | |
| At April 1, 2002 | | 2,895 | | | 2,620 | | | 9,645 | | | 81 | | | 15,241 | |
| Exchange Adjustment | | (64 | ) | | (52 | ) | | (153 | ) | | — | | | (269 | ) |
| Additions | | 182 | | | 6 | | | 432 | | | — | | | 620 | |
| Disposals | | — | | | (1 | ) | | (528 | ) | | — | | | (529 | ) |
| |
| |
| |
| |
| |
| |
At June 30, 2002 | | 3,013 | | | 2,573 | | | 9,396 | | | 81 | | | 15,063 | |
| |
| |
| |
| |
| |
| |
Depreciation | | | | | | | | | | | | | | | |
| At April 1, 2002 | | 965 | | | 2,114 | | | 6,778 | | | 79 | | | 9,936 | |
| Exchange Adjustments | | (17 | ) | | (44 | ) | | (126 | ) | | — | | | (187 | ) |
| Charge for the period | | 65 | | | 60 | | | 432 | | | 2 | | | 559 | |
| Eliminated in respect of disposals | | — | | | (1 | ) | | (456 | ) | | — | | | (457 | ) |
| |
| |
| |
| |
| |
| |
At June 30, 2002 | | 1,013 | | | 2,129 | | | 6,628 | | | 81 | | | 9,851 | |
| |
| |
| |
| |
| |
| |
Net book value | | | | | | | | | | | | | | | |
At June 30, 2002 | | 2,000 | | | 444 | | | 2,768 | | | — | | | 5,212 | |
| |
| |
| |
| |
| |
| |
| Net book value | | | | | | | | | | | | | | | |
| At March 31, 2002 | | 1,930 | | | 506 | | | 2,867 | | | 2 | | | 5,305 | |
| |
| |
| |
| |
| |
| |
The net book value of tangible fixed assets includes an amount of £276,000 (June 2001: £350,000) in respect of assets held under finance leases.
13 Investments
| | Joint ventures | | Associated undertakings | | Total | |
| |
| |
| |
| |
| | £'000 | | £'000 | | £'000 | |
| At April 1, 2002 | | 2,886 | | | 1 | | | 2,887 | |
| Share of retained profits less dividends paid | | 235 | | | — | | | 235 | |
| Translation adjustment | | 197 | | | — | | | 197 | |
| |
| |
| |
| |
| At June 30, 2002 | | 3,318 | | | 1 | | | 3,319 | |
| |
| |
| |
| |
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Interests in Group undertakings
The directors consider that to give full particulars of all interests in Group undertakings would lead to a statement of excessive length. The following information relates to those subsidiary undertakings, joint ventures and associated undertakings whose results or financial position, in the opinion of the directors, principally affected the financial statements of the Group:
Subsidiary undertakings | | Country of
incorporation | | Nature of business | | Description of
shares held | | Other
Group
companies | | Company | |
| |
| |
| |
| |
| |
| |
| Eidos Interactive Limited | | | England and Wales | | | Developer and Publisher of computer software | | | Ordinary £1 shares each and 'A' ordinary £0.05 shares each | | | — | | | 100 | % |
| Eidos Interactive Inc | | | U.S.A | | | Developer and Publisher of computer software | | | Common stock $0.001 par value | | | 100% | | | — | |
| Crystal Dynamics Inc | | | U.S.A | | | Developer of computer software | | | Common stock no par value | | | 100% | | | | |
| Core Design Limited | | | England and Wales | | | Developer of computer software | | | Ordinary £1 shares | | | 100% | | | — | |
| Eidos Interactive France SARL | | | France | | | Publisher of computer software | | | Ordinary Shares of 7,623 Euros | | | 100% | | | — | |
| Eidos Interactive (Deutschland) GmbH | | | Germany | | | Publisher of computer software | | | Euros 25,565 | | | 100% | | | — | |
| Eidos Interactive KK | | | Japan | | | Publisher of computer software | | | 100 million Yen | | | — | | | 100 | % |
| Eidos Interactive Pte Limited | | | Singapore | | | Publisher of computer software | | | Ordinary S$1 shares | | | — | | | 100 | % |
| Ion Storm LLP | | | U.S.A. | | | Developer of computer software | | | Partnership units | | | 89% | | | — | |
Joint ventures | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Proein SL | | | Spain | | | Publisher of computer software | | | 5000 Common shares of 6 Euros each | | | 75% | | | — | |
| Pyro Studios SL | | | Spain | | | Developer of computer software | | | 500 Common shares of 6 Euros each | | | 25% | (1) | | — | |
Associated undertakings | | Country of
incorporation | | Nature of business | | Description of
shares held | | Other
Group
companies | | Company | |
| |
| |
| |
| |
| |
| |
| Sports Interactive Limited | | | England & Wales | | | Developer of computer software | | | Ordinary shares | | | 25% | | | — | |
All the above companies operated principally in their country of incorporation.
| (1) | Effective holding shown. |
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14 Stocks
| | June 30, 2001 | | June 30, 2002 | |
| |
|
| |
|
| |
| | (unaudited) | | | | |
| | £'000 | | £'000 | |
| Raw materials and consumables | | 461 | | | 406 | |
| Finished goods | | 2,386 | | | 2,984 | |
| |
| |
| |
| Stocks | | 2,847 | | | 3,390 | |
| |
|
| |
|
| |
15 Debtors
| | June 30, 2001 | | June 30, 2002 | |
| |
|
| |
|
| |
| | (unaudited) | | | | |
| | £'000 | | £'000 | |
| Trade debtors | | 6,522 | | | 1,390 | |
| Prepaid licenses | | 3,587 | | | 2,516 | |
| Deferred tax asset (note 19) | | 1,428 | | | 1,334 | |
| Corporation tax recoverable | | 3,931 | | | — | |
| Other debtors | | 4,573 | | | 2,307 | |
| Prepayments and accrued income | | 3,155 | | | 2,935 | |
| |
|
| |
|
| |
| | | 23,196 | | | 10,482 | |
| |
|
| |
|
| |
Included within prepaid licenses is £1,449,000 in respect of periods that extend beyond one year (2001: £2,523,000).
16 Creditors: Amounts Falling Due Within One Year
| | June 30, 2001 | | June 30, 2002 | |
| |
| |
| |
| | (unaudited) | | | | |
| | £'000 | | £'000 | |
| Bank loans and overdrafts | | 19,060 | | | — | |
| Obligations under finance leases | | 85 | | | 167 | |
| Trade creditors | | 7,061 | | | 3,408 | |
| Royalty creditors | | 2,389 | | | 1,170 | |
| Other taxes and social security costs | | 572 | | | 238 | |
| Other creditors | | 768 | | | 1,182 | |
| Accruals | | 4,797 | | | 5,628 | |
| Corporation tax | | 1,716 | | | 11,393 | |
| |
| |
| |
| | | 36,448 | | | 23,186 | |
| |
| |
| |
During the quarter ended June 30, 2002, the Group received £11.4 million that comprised a tax rebate of £10.5 million plus accrued interest of £0.9 million. The monies were received following the submission of a claim to the Inland Revenue, however this claim remains subject to agreement by the Inland Revenue. Until such time as the Inland Revenue has concluded its work in this respect, the Group will continue to carry this sum within creditors: amounts falling due within one year.
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17 Creditors: Amounts Falling Due After More Than One Year
| | June 30, 2001 | | June 30, 2002 | |
| |
| |
| |
| | (unaudited) | | | | |
| | £'000 | | £'000 | |
| Accruals and deferred income | | 2,000 | | | 1,176 | |
| Obligations under finance leases: | | | | | | |
| Due between one and two years | | 100 | | | 59 | |
| Due between two and five years | | 272 | | | 48 | |
| |
| |
| |
| | | 2,372 | | | 1,283 | |
| |
| |
| |
18 Provisions for liabilities and charges
| | £'000 | |
| As at April 1, 2002 | | 1,524 | |
| Release of provision for future rent commitments | | (106 | ) |
| |
| |
| As at June 30, 2002 | | 1,418 | |
| |
| |
The provision represents the discounted value of future lease payments in respect of a vacant property which is leased until 2008 by a subsidiary.
19 Deferred Taxation
| | June 30, 2001 | | June 30, 2002 | |
| |
| |
| |
| | (unaudited) | | | | |
| | £'000 | | £'000 | |
Unrecognized | | | | | | |
| Difference between tax allowances and book depreciation | | 428 | | | 548 | |
| Other timing differences | | 9,730 | | | 7,018 | |
| Tax effect of losses carried forward | | 25,499 | | | 30,025 | |
| |
| |
| |
| Unrecognized deferred tax asset | | 35,657 | | | 37,591 | |
| |
| |
| |
| | June 30, 2001 | | June 30, 2002 | |
| |
| |
| |
| | (unaudited) | | | | |
| | £'000 | | £'000 | |
Recognized | | | | | | |
| Tax effect of losses carried forward | | 1,428 | | | 1,334 | |
| |
|
| |
|
| |
The tax effect of losses carried forward includes £16 million acquired tax losses, which arose during the year March 31, 1999 on the acquisition of Crystal Dynamics, Inc. which are available over a number of years.
The other timing differences arise in the USA where they relate mainly to disallowed interest expenses and movements on provisions for future returns.
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20 Called up Share Capital
| | June 30, 2001 | | June 30, 2002 | |
| |
| |
| |
| | £'000 | | £'000 | |
Authorized | | | | | | |
| June 30, 2001 : 142,500,000 Ordinary Shares of 2p each | | 2,850 | | | — | |
| June 30, 2002 : 192,500,000 Ordinary Shares of 2p each | | — | | | 3,850 | |
| |
| |
| |
Allotted, called up and fully paid | | | | | | |
| June 30, 2001 : 103,988,348 Ordinary Shares of 2p each | | 2,080 | | | — | |
| June 30, 2002 : 139,753,355 Ordinary Shares of 2p each | | — | | | 2,795 | |
| |
| |
| |
During the period, 14,939 ordinary 2p shares were allotted following the exercise of Eidos options and 85,901 were allotted in conjunction with the US stock purchase plan. The total consideration received on all share allotments was £124,725 cash (total nominal value £2,069)
21 Stock Options
The Eidos stock option schemes provide for the granting of options to purchase shares to directors and employees of the Company and its subsidiaries up to a maximum of 10% of the issued share capital of the Company immediately prior to the day any options are granted. The option price may not be less than the higher of the nominal value of one Eidos share or the fair market value of an Eidos share on the date the option is granted.
In general the periods of the Approved and Unapproved Scheme options are ten years and seven years respectively. In addition, certain US employees have been granted options under the US Stock Option Plan and these have a seven year term.
Options are generally exercisable three years after being granted and are on a one share for one option basis with no specific performance criteria.
During 1999 the Company launched an Inland Revenue approved SAYE Share Scheme ("Sharesave Scheme") for all UK employees. Similar schemes were rolled out to employees in the French, German, Japanese and Singapore offices during 2000.
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The following options for 2p Ordinary Shares were open at June 30, 2002:
| | Number of shares over which options granted | | Option
exercise price | | Option exercise period | |
| |
|
| |
|
| |
|
| |
UK Inland Revenue Approved Scheme | | 55,586 | | | 61.76p | | | 07/21/97 – 07/19/04 | |
| | | 111,172 | | | 62.96p | | | 03/11/98 – 03/09/05 | |
| | | 21,267 | | | 141.04p | | | 04/25/99 – 04/24/06 | |
| | | 21,050 | | | 142.48p | | | 04/03/99 – 04/01/06 | |
| | | 168,379 | | | 154.26p | | | 01/21/00 – 01/19/07 | |
| | | 159,033 | | | 254.00p | | | 07/25/04 – 07/25/11 | |
| | | 11,764 | | | 255.00p | | | 09/05/04 – 09/05/11 | |
| | | 22,232 | | | 298.63p | | | 04/11/03 – 10/11/03 | |
| | | 175,832 | | | 298.63p | | | 04/11/03 – 04/10/10 | |
| | | 9,110 | | | 329.21p | | | 05/29/02 – 05/28/09 | |
| | | | | | | | | | |
UK Inland Revenue Unapproved Scheme | | 1,111,725 | | | 105.24p | | | 10/14/01 – 10/13/05 | |
| | | 257,930 | | | 140.92p | | | 09/11/01 – 09/10/05 | |
| | | 201,077 | | | 141.04p | | | 04/25/99 – 04/24/03 | |
| | | 323,583 | | | 142.48p | | | 04/03/99 – 04/01/03 | |
| | | 235,232 | | | 154.26p | | | 01/21/00 – 01/19/04 | |
| | | 139,543 | | | 154.26p | | | 10/16/00 – 10/14/04 | |
| | | 630,137 | | | 298.63p | | | 04/11/03 – 04/10/07 | |
| | | 129,855 | | | 329.21p | | | 05/29/02 – 05/28/06 | |
| | | 861,467 | | | 254.00p | | | 07/25/04 – 07/25/08 | |
| | | 88,236 | | | 255.00p | | | 09/05/04 – 09/05/08 | |
| | | | | | | | | | |
US Stock Option Plan | | 138,454 | | | 254.70c | | | 01/21/00 – 01/19/04 | |
| | | 452,500 | | | 361.00c | | | 07/24/04 – 07/24/08 | |
| | | 239,013 | | | 472.76c | | | 04/11/03 – 04/10/07 | |
| | | 111,172 | | | 525.80c | | | 05/29/02 – 05/28/06 | |
| |
| | | | | | | |
| | | 5,675,349 | | | | | | | |
| |
| | | | | | | |
| | Number | | Exercise price | | Maturity date | |
| |
|
| |
|
| |
|
| |
International Sharesave Scheme | | 21,527 | | | 125.93p | | | 02/01/02 | |
| | | 12,480 | | | 263.55p | | | 08/01/02 | |
| | | 682 | | | 842.29p | | | 02/01/03 | |
| | | 4,707 | | | 403.00 euro cents | | | 06/01/03 | |
| | | 57,359 | | | 205.98p | | | 08/01/03 | |
| | | 72,394 | | | 160.11p | | | 02/01/04 | |
| | | 8,775 | | | 403.00 Euro cents | | | 06/01/04 | |
| | | 15,803 | | | 198.00p | | | 08/01/04 | |
| | | 4,837 | | | 149.31p | | | 02/01/05 | |
| | | 7,879 | | | 192.00 Euro cents | | | 04/01/05 | |
| | | 29,670 | | | 213.50 Euro cents | | | 04/01/05 | |
| | | 234,833 | | | 117.00p | | | 04/01/05 | |
| | *65,530 | | | 174.00c | | | 09/30/02 | |
| |
| | | | | | | |
| | | 536,476 | | | | | | | |
| |
| | | | | | | |
These options include those granted to directors of the Company, which are also detailed in Note 4.
| * | This is a US Stock Purchase Plan. The actual exercise price and number of purchase rights cannot be determined until maturity (ie 6 months following the date of grant). 60,530 is a provisional number of shares subject to purchase rights based on the market based on the market price of an Eidos Ordinary share (less an applicable 15% discount) as at the date of grant. |
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22 Share Premium Account, Reserves and Reconciliation of Movements in Shareholders' Funds
The balances as at each balance sheet date and the movements in the periods are set out in the Consolidated Statements of Changes in Shareholders' Equity.
23 Reconciliation of operating profit/(loss) to net cash outflow/(inflow) from operating activities
| | 3 months ended
June 30, 2000 | | 3 months ended
June 30, 2001 | | 3 months ended
June 30, 2002 | |
| |
|
| |
|
| |
|
| |
| | (unaudited)
£'000 | | (unaudited)
£'000 | | £'000 | |
| | | | | | | | | | |
| Operating income/(loss) | | (21,537 | ) | | (13,989 | ) | | (15,625 | ) |
| Depreciation of tangible fixed assets | | 902 | | | 470 | | | 559 | |
| Amortization and write off of goodwill | | 2,647 | | | 2,827 | | | 71 | |
| (Increase)/decrease in stock | | 33 | | | 386 | | | 520 | |
| (Increase)/decrease in debtors | | 48,622 | | | 24,323 | | | 20,970 | |
| Increase/(decrease) in creditors | | (26,582 | ) | | (22,465 | ) | | (9,611 | ) |
| |
| |
| |
| |
Net cash inflow/(outflow) from operating activities | | 4,085 | | | (8,448 | ) | | (3,116 | ) |
| |
| |
| |
| |
| | | | | | | | | | |
24 Analysis of Net Funds
| | March 31, 2001 | | Change in quarter | | June 30, 2001 | | | | | March 31, 2002 | | Change in quarter | | June 30, 2002 | |
| |
| |
| |
| | | | |
| |
| |
| |
| | (unaudited)
£'000 | | (unaudited)
£'000 | | (unaudited)
£'000 | | | | | £'000 | | £'000 | | £'000 | |
Net cash: | | | | | | | | | | | | | | | | | | | | | |
| Cash at bank and in hand | | 28,355 | | | (19,717 | ) | | 8,638 | | | | | | 16,603 | | | 4,368 | | | 20,971 | |
| Bank overdrafts | | (368 | ) | | 368 | | | — | | | | | | — | | | — | | | — | |
| |
| |
| |
| | | | |
| |
| |
| |
Total cash and
demand debt | | 27,987 | | | (19,349 | ) | | 8,638 | | | | | | 16,603 | | | 4,368 | | | 20,971 | |
Loans repayable
within one year | | (18,500 | ) | | (500 | ) | | (19,000 | ) | | | | | (66 | ) | | 66 | | | — | |
| |
| |
| |
| | | | |
| |
| |
| |
| | | 9,487 | | | (19,849 | ) | | (10,362 | ) | | | | | 16,537 | | | 4,434 | | | 20,971 | |
| |
| |
| |
| | | | |
| |
| |
| |
| Short-term deposits and liquid resources | | — | | | — | | | — | | | | | | 34,030 | | | 4,051 | | | 38,081 | |
| |
| |
| |
| | | | |
| |
| |
| |
| | | 9,487 | | | (19,849 | ) | | (10,362 | ) | | | | | 50,567 | | | 8,485 | | | 59,052 | |
| Finance leases | | (385 | ) | | (72 | ) | | (457 | ) | | | | | (256 | ) | | (18 | ) | | (274 | ) |
| |
| |
| |
| | | | |
| |
| |
| |
Net funds | | 9,102 | | | (19,921 | ) | | (10,819 | ) | | | | | 50,311 | | | 8,467 | | | 58,778 | |
| |
| |
| |
| | | | |
| |
| |
| |
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Reconciliation of Net Cash Flow to Movement in Net Funds
| | 3 months ended
June 30, 2000 | | 3 months ended
June 30, 2001 | | 3 months ended
June 30, 2002 | |
| |
|
| |
|
| |
|
| |
| | (unaudited)
£'000 | | (unaudited)
£'000 | | £'000 | |
| | | | | | | | | | |
| Increase/(decrease) in cash in period | | (8,294 | ) | | (19,532 | ) | | 4,223 | |
| Cash outflow from decrease in lease financing | | 98 | | | 58 | | | (38 | ) |
| Increase in term deposits | | — | | | — | | | 4,051 | |
| |
|
| |
|
| |
|
| |
| Change in net funds resulting from cash flows | | (8,196 | ) | | (19,474 | ) | | 8,236 | |
| New finance leases | | (12 | ) | | (132 | ) | | (124 | ) |
| Exchange rate movements | | 75 | | | (315 | ) | | 355 | |
| |
|
| |
|
| |
|
| |
| Movement in net funds in period | | (8,133 | ) | | (19,921 | ) | | 8,467 | |
| Net funds at beginning of period | | 22,632 | | | 9,102 | | | 50,311 | |
| |
|
| |
|
| |
|
| |
| Net funds at end of period | | 14,499 | | | (10,819 | ) | | 58,778 | |
| |
|
| |
|
| |
|
| |
25 Contingent Liabilities
From time to time, the Group is subject to claims and litigation and at the period end there were a small number of claims outstanding against the Group. Full provision has been made in the Financial Statements where it is considered that the Group may have a liability. A total of £100,000 has been provided in respect of such claims at June 30, 2002.
In the opinion of the Directors the remaining claims outstanding are not expected to give rise to any significant liability for the Group.
26 Commitments under Operating Leases
The Group had the following annual commitments under non-cancelable operating leases, analyzed into leases that expire as follows:
| | Land and buildings
| | Plant, machinery, motor vehicles and computer equipment
| |
| | June 30, 2001 | | June 30, 2002 | | June 30, 2001 | | June 30, 2002 | |
| |
| |
| |
| |
| |
| | (unaudited)
£'000 | | £'000 | | (unaudited)
£'000 | | £'000 | |
| Within one year | | 288 | | | 152 | | | 223 | | | 81 | |
| In two to five years | | 1,098 | | | 2,177 | | | 442 | | | 219 | |
| After five years | | 500 | | | 514 | | | — | | | — | |
| |
|
| |
|
| |
|
| |
|
| |
| | | 1,886 | | | 2,843 | | | 665 | | | 300 | |
| |
|
| |
|
| |
|
| |
|
| |
27 Capital Commitments
As at June 30, 2002 the Group had contracted to make payments, conditional upon the completion of development milestones, totalling £10.4 million to various licensors and developers involved in providing games software for the Group's use. £8.8 million is payable within one year and the remaining £1.6 million is due within one to two years. All development contracts can be terminated by Eidos at any time without penalties, if the development milestones are not achieved.
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28 Pension Commitments
Effective from January 1, 1997 the Group has operated a defined contribution private pension plan. The assets of the plan are held separately from those of the Group in an independently administered fund. Defined contributions are paid to the plan and charged to income so as to spread the cost of pensions over the employees' and directors' working lives within the Group. Contributions paid by the Group during the current quarter were £94,000 (2001: £95,000, 2000: £107,000). At the quarter end no contributions were outstanding.
In addition, one director is a member of the Core Design Pension Scheme. This is also a defined contribution scheme. Contributions paid by the Group during the current quarter were £7,500 (2001: £7,500, 2000: £6,975). No contributions were outstanding at the period end.
All significant overseas pension arrangements are also of a defined contribution nature. Contributions for the year were £112,000 (2001: £88,000, 2000: £102,000). No contributions were outstanding at the period end.
In October 2001, the UK Government made it compulsory for most companies in the UK employing over 5 members of staff to give their staff access to Stakeholder pensions. Eidos plc has reviewed its Group Personal Pension Plan and implemented a number of minor changes (such as lowering the entrance age) to ensure that the Plan is Stakeholder Exempt and no further action was needed to comply.
29 Related Party disclosures
In relation to material transactions, the Group has not identified any parties who are able to negotiate more favorable terms than would have been available to any other independent party on an arms length basis.
Quarter to June 30, 2002
| a) | During the quarter the Group paid £1.3 million (2001: £3.2 million) to its associated companies as royalties and advances on games being developed for the Group. |
| | |
| b) | In July 1999 Eidos acquired a 75% stake in Proein SL. In the quarter to June 30, 2002 Eidos sold games to Proein SL totalling £179,000 (2001: £112,000). These games were all sold on an arm's length basis. In addition in the same period Eidos paid £0.5 million (2001: £0.3 million) to Pyro Studios SL (in which Eidos acquired a 25% stake) as royalties and for the development of games for Eidos. At June 30, 2002 Eidos was owed £24,000 by Proein SL, (2001: Eidos owed Proein SL £119,000) and was owed by Pyro Studios SL £112,000 (2001: £69,000). |
| | |
| c) | In June 2001 Eidos took its stake in Ion Storm to 89%. In the quarter to June 30, 2002 Eidos paid £1.4 million to Ion Storm for the development of games for Eidos. As at June 30, 2002, Eidos was owed £4,623,000 by Ion Storm. |
The Group has taken advantage of the exemption in Financial Reporting Standard No 8 in respect of subsidiaries that are greater than 90% subsidiaries.
All inter-company transactions are required to be on an arm's length basis.
30 Derivatives and other Financial Instruments
The Group is exposed to certain market risks arising from transactions in the normal course of business and financial instruments used to finance the Group's operations. The main risks arising are foreign currency risk and interest rate risk. The Group's treasury policy is to manage financial risks that arise in relation to underlying business needs.
The numerical disclosures in this note deal with financial liabilities as defined by Financial Reporting Standard 13: Derivatives and Other Financial Instruments: Disclosures (FRS 13).41
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Certain financial assets such as investments in subsidiary, joint and associated undertakings are excluded from the scope of these disclosures.
As permitted by FRS13, short-term debtors and creditors have also been excluded from the disclosure, other than the currency disclosures.
Interest rate risk profile of financial liabilities
The interest rate and currency profile of the Group's financial assets and liabilities at June 30, 2002 was as follows:
| | Sterling | | US Dollar | | Euro | | Singapore Dollar | | Japanese Yen | | Total | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| | £'000 | | £'000 | | £'000 | | £'000 | | £'000 | | £'000 | |
| Cash and liquid resources – floating rate | | 53,646 | | | 495 | | | 4,509 | | | 169 | | | 233 | | | 59,052 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | 53,646 | | | 495 | | | 4,509 | | | 169 | | | 233 | | | 59,052 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
The corresponding interest rate and currency profile of the Group's financial assets and liabilities at June 30, 2001 was as follows:
| | Sterling | | US Dollar | | Euro | | Singapore Dollar | | Japanese Yen | | Total | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| | (unaudited) | | (unaudited) | | (unaudited) | | (unaudited) | | (unaudited) | | (unaudited) | |
| | £'000 | | £'000 | | £'000 | | £'000 | | £'000 | | £'000 | |
| Cash and liquid resources – floating rate | | 3,802 | | | 2,480 | | | 2,050 | | | 116 | | | 190 | | | 8,638 | |
| Floating rate debt | | (19,000 | ) | | — | | | — | | | — | | | — | | | (19,000 | ) |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | (15,198 | ) | | 2,480 | | | 2,050 | | | 116 | | | 190 | | | (10,362 | ) |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Cash deposits and liquid resources comprise of cash deposits placed on money markets for periods of up to six months. Floating rate debt comprises of bank borrowings bearing interest at rates based on inter-bank interest rates.
Currency exposures
The Group's objective in managing the currency exposures is to minimize gains and losses arising in its overseas subsidiaries. The Company provides working capital to its overseas subsidiaries in their functional currencies and hedges its exposure in accordance with Company policy.
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The table below shows the Group's currency exposures, i.e. those transactional exposures that give rise to the net currency gains and losses recognized in the profit and loss account. These exposures were as follows:
| | Net foreign currency monetary assets/(liabilities)
| |
| | US dollar | | Euros | | Singapore
dollar | | Japanese
Yen | | Total | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| | £'000 | | £'000 | | £'000 | | £'000 | | £'000 | |
Functional currency of group operation | | | | | | | | | | | | | | | |
| Sterling | | (3,618 | ) | | 5,208 | | | 25 | | | 253 | | | 1,868 | |
| US Dollar | | — | | | 117 | | | 2 | | | 133 | | | 252 | |
| Euro | | — | | | — | | | — | | | (1 | ) | | (1 | ) |
| Yen | | — | | | — | | | (2 | ) | | — | | | (2 | ) |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| at June 30, 2002 | | (3,618 | ) | | 5,325 | | | 25 | | | 385 | | | 2,117 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| at June 30, 2001 (unaudited) | | (3,547 | ) | | 7,953 | | | 117 | | | 1,325 | | | 5,848 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Maturity of financial liabilities
The maturity profile of the Group's financial liabilities at June 30, 2002 were as follows:
| | 2001 | | 2002 | |
| |
|
| |
|
| |
| | (unaudited) | | | | |
| | £'000 | | £'000 | |
| In one year or less | | 19,000 | | | — | |
Borrowing facilities
The undrawn committed facilities of the Group at June 30, 2002, mature as follows:
| | 2001 | | 2002 | |
| |
|
| |
|
| |
| | (unaudited) | | | | |
| | £'000 | | £'000 | |
| Within one year | | 31,000 | | | 15,821 | |
Guarantees
The company has given a letter of guarantee to secure a committed borrowing facility of £0.8 million for a subsidiary undertaking.
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Fair values
Set out below is a comparison by category of book values and fair values of the Group's financial assets and liabilities at June 30, 2002.
| | 2001 (unaudited)
| | 2002
| |
| | Book value | | Fair value | | Book value | | Fair value | |
| |
|
| |
|
| |
|
| |
|
| |
| | £'000 | | £'000 | | £'000 | | £'000 | |
Primary financial instruments held or issued to finance the Group's operations | | | | | | | | | | | | |
| Borrowing falling due within one year | | (19,000 | ) | | (19,000 | ) | | — | | | — | |
| Financial assets: | | | | | | | | | | | | |
| Investments | | 5,102 | | | 17,760 | | | 3,319 | | | 3,319 | |
| Cash and liquid resources | | 8,638 | | | 8,638 | | | 59,052 | | | 59,052 | |
All investments have been valued at cost, as this is not significantly different from their fair values.
Gains and losses on hedges
The Group enters into forward foreign currency contracts to eliminate the currency exposures that arise on trading balances denominated in foreign currencies. Changes in the fair value of instruments used to hedge foreign currency monetary assets and liabilities are recognized in the financial statements in the hedged periods. There were no unrecognized gains or losses at the quarter end as there were no open derivative positions.
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31 Summary of Major Differences between Generally Accepted Accounting Principles in the United Kingdom and the United States
The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United Kingdom. Such principles differ in certain respects from US GAAP.
Application of US GAAP as described below has the following effect on the Group's consolidated net income/(loss) and shareholders' equity:
| | 3 months ended
June 30, 2000 | | 3 months ended
June 30, 2001 | | 3 months ended
June 30, 2002 | |
| |
| |
| |
| |
| | (unaudited) | | (unaudited) | | | | |
| | £'000 | | £'000 | | £'000 | |
Net loss according to the consolidated statements of operations
(prepared under UK GAAP) | |
(15,328 | ) | | (15,365 | )
| | (16,542 | ) |
| Business combinations: | | | | | | | | | |
| Amortization of goodwill | | (194 | ) | | 138 | | | — | |
| Full consolidation of joint venture company | | 67 | | | — | | | — | |
| Deferred bank charges | | — | | | (1,250 | ) | | — | |
| |
| |
| |
| |
| Net loss in accordance with US GAAP | | (15,455 | ) | | (16,477 | ) | | (16,542 | ) |
| |
| |
| |
| |
| Loss per share in accordance with US GAAP | | | | | | | | | |
| Basic | | (13.4p | ) | | (14.3p | ) | | (11.8p | ) |
| Diluted | | (13.4p | ) | | (14.3p | ) | | (11.8p | ) |
| | June 30, 2001 | | June 30, 2002 | |
| |
| |
| |
| | (unaudited) | | | | |
| | £'000 | | £'000 | |
Shareholders' equity according to the consolidated balance sheet
(prepared under UK GAAP) | |
14,550 | | |
56,589 | |
| Goodwill | | 13,632 | | | 13,632 | |
| Write off of in process research and development | | (2,368 | ) | | (2,368 | ) |
| Amortisation of goodwill | | (11,388 | ) | | (11,264 | ) |
| Investment in associates – net assets | | 204 | | | — | |
| Investment in associates – goodwill | | 7,114 | | | 7,114 | |
| Less amortisation | | (6,717 | ) | | (7,114 | ) |
| Unrealized appreciation on investments | | 12,598 | | | — | |
| Full consolidation of joint venture company | | (19 | ) | | — | |
| Revenue recognition | | (938 | ) | | — | |
| Deferred bank charges | | — | | | — | |
| Tax effect of US GAAP adjustments | | (3,760 | ) | | — | |
| |
| |
| |
| Shareholders' equity in accordance with US GAAP | | 22,908 | | | 56,589 | |
| |
| |
| |
(1) Purchase Accounting
All of the Group's acquisitions have been accounted for using purchase accounting for both UK and US GAAP. Under UK GAAP, in-process research and development costs are not identified as an acquired asset in the purchase price but rather are capitalized as goodwill and amortized over the expected useful life. US GAAP requires the identification of in-process research and development as a component of the purchase price allocation. Such amounts in which
45
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technological feasibility has not been established and that have no alternative future use must be charged as an expense at the time of acquisition. In accordance with US GAAP, the Group has identified £24.2 million in the aggregate as in-process research and development, all of which was expensed in the periods in which the related acquisitions were completed (1996: £8.2 million, 1997: £13.8 million, and 1999: £2.4 million).
The Group has recorded the excess of the fair value of consideration paid over the fair value of identifiable net assets acquired, for US GAAP purposes in connection with various acquisitions. For the quarters ended June 30, 2000, 2001 and 2002, goodwill is amortized over 3 years for both UK and US GAAP purposes as 3 years is the estimated useful life due to the rapid pace of change in the industry.
In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard ("SFAS") No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001 as well as all purchase method business combinations completed after June 30, 2001. SFAS No. 141 also specifies criteria intangible assets acquired in a purchase method business combination must meet to be recognized and reported apart from goodwill, noting that any purchase price allocable to an assembled workforce may not be accounted for separately. SFAS No. 142 will require that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually in accordance with the provisions of SFAS No. 142. SFAS No. 142 will also require t hat intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS No. 144, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.
The Group is required to adopt the provisions of SFAS No. 141 immediately and SFAS No. 142 is effective for fiscal years beginning after December 15, 2001. Furthermore, any goodwill and any intangible asset determined to have an indefinite useful life that are acquired in a purchase business combination completed after June 30, 2001 will not be amortized, but will continue to be evaluated for impairment in accordance with the appropriate pre-SFAS No. 142 accounting literature. Goodwill and intangible assets acquired in business combinations completed before July 1, 2001 will continue to be amortized prior to the adoption of SFAS No. 142.
Under UK GAAP, purchased goodwill in respect of acquisitions before 1 January 1998 was written off to reserves in the year of acquisition. Purchased goodwill in respect of acquisitions since 1 January 1998 is capitalized in accordance with the requirements of FRS 10 Goodwill and Intangible Assets. Positive goodwill is amortized to nil in equal installments over the estimated useful life. Upon subsequent disposal or closure of an acquired business, any goodwill previously taken directly to shareholders' equity is reflected in the income or loss on disposal.
For acquisitions prior to 1 April 1998, the benefit of acquired tax losses, as they are recognized in periods subsequent to acquisition are credited to income under UK GAAP and credited to goodwill for US GAAP. There is no difference in treatment for acquisitions subsequent to 1 April 1998.
(2) Consolidation and Accounting for Investments in Common Stock
Certain investments made by the Group during the year ended 31 March 2000 have been reported differently under UK GAAP and US GAAP due to the respective definitions of a subsidiary, joint venture, associate and investment.
Under UK GAAP, definitions of subsidiary, joint venture, associate and investment are broadly based upon control, to a certain extent irrespective of the percentage of shares held. Under US GAAP, the percentage of shares held is the primary basis on which an investment is categorized as a subsidiary, joint venture, associate and investment. Strong evidence must be
46
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present in order to not consolidate an entity with a greater than 50% shareholding or to equity account for an investment of greater than 20% shareholding.
During the year ended 31 March 2000, the Group acquired a 75% interest in Proein SL. Because of the nature of the contractual joint control arrangements, this investment is considered joint ventures in accordance with UK GAAP and is accounted for using the equity method of accounting. For US GAAP purposes, Proein SL has been treated as a subsidiary and consolidated. While on a line-by-line basis, the statement of operations and balance sheets differs under UK and US GAAP, in reconciling net income and shareholders' equity from UK to US GAAP, there is only one difference relating to the treatment of the provision for unsold inventory. The Group is one of Proein SL's main suppliers. At each period-end, adjustments are made to eliminate the Group's profit on inventory sold to Proein SL that remains unsold. Adjustments are made for both UK and US GAAP, however the adjustment is 75% for UK GAAP and 100% for US GAAP.
The Group, in a series of acquisitions, acquired a 26% interest in Top Cow Productions during the years ended 31 March 1999 and 2000. Under UK GAAP, this was considered an investment and not an associate that would be accounted for using the equity method because although the Group had a participating interest (defined as greater than 20%), it did not exercise significant influence over the operating and financial policies of Top Cow Productions. Under US GAAP, an investment of over 20% of the voting stock of an investee leads to the presumption that an investor has the ability to exercise significant influence over the investee. In accordance with US GAAP, the investment in Top Cow Productions was accounted for using the equity method.
(3) Equity securities
Under UK GAAP, available for sale securities are stated at cost less provision for any impairment in value. Under US GAAP, these securities are marked to market with any unrealized gains and losses excluded from earnings and reported in a separate component of shareholders' equity. In prior years, the Group had a significant investment (15%) in a technology company listed on the Norwegian stock exchange (Opticom ASA). During March 2000, the Group sold a large proportion of its shareholding (at a discount to then quoted market price). The remaining holding was being marked to market under US GAAP until its disposal during the twelve months ended March 31, 2002.
(4) Revenue recognition
Under UK GAAP, license income and advance royalties are recognized when contractually due and non-refundable. Under US GAAP, SEC Staff Accounting Bulletin No. 101 requires the deferral of non-refundable, up-front fees unless the up-front fees are in exchange for products delivered or services performed that represent the culmination of a separate earnings process. During the year ended March 31, 2000, the Group received non-refundable advance royalties which met the criteria for revenue recognition under UK GAAP but not under US GAAP. Accordingly, under US GAAP these advance royalties had been deferred but were recognized in the fifteen months to June 30, 2002 as the associated royalties were actually earned.
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(5) Deferred taxation
The tax effects of temporary differences that give rise to deferred taxes are:
| | June 30, 2001 | | June 30, 2002 | |
| |
|
| |
|
| |
| | (unaudited) | | | | |
| | £'000 | | £'000 | |
| Net operating loss carry forward | | 26,927 | | | 31,357 | |
| Capital loss on investment in Express.Com | | 10,798 | | | 8,520 | |
| Other | | 10,158 | | | 7,568 | |
| |
|
| |
|
| |
| | | 47,883 | | | 47,445 | |
| Valuation allowance | | (46,455 | ) | | (46,111 | ) |
| |
|
| |
|
| |
| Deferred tax asset | | 1,428 | | | 1,334 | |
| Unrealized appreciation of investments | | (3,760 | ) | | — | |
| |
|
| |
|
| |
| Net deferred tax asset/(liability) | | (2,332 | ) | | 1,334 | |
| |
|
| |
|
| |
As at June 30, 2002, the Group had federal operating loss carry forwards of £79.2 million, of which £70.1 million expire between 2012 and 2022 and £9.1 million have an unlimited carry forward period. Additionally, the Group has local operating less carry forwards of £31.7 million, expiring between 2003 and 2012.
The deferred tax asset in relation to Express.com relates to the £35.4 million writedown of this investment. At 30 June 2002, the capital/loss carry forward is £28.4. Capital losses in relation to this have unlimited carry forward.
As of June 30, 2002, management of the Company has evaluated the positive and negative evidence as required by US GAAP, impacting the realizability of the deferred tax assets. Accordingly, the deferred tax assets have been partially reserved. Management believes that it is more likely than not that the net deferred tax asset will be realized.
Subsequently recognized tax benefits relating to the valuation allowance for deferred tax assets as of June 30, 2002 will be allocated as follows:
| | £'000 | |
| |
|
| |
| Income tax benefit that would be reported in the Consolidated Statement of Income | | 45,805 | |
| Goodwill and other non-current intangible assets | | 306 | |
| |
|
| |
| | | 46,111 | |
| |
|
| |
The net change in the valuation allowance for the quarter was a decrease of £0.5 million (2001: increase of £0.5 million).
Under UK GAAP, deferred tax assets are classified under Debtors, or in some circumstances, net off deferred tax liabilities. Under US GAAP, deferred tax liabilities and assets are classified as current or non-current based on the classification of the related asset or liability for financial reporting. Deferred tax assets related to carry forwards are classified according to the expected reversal date of the carry forward.
As at June 30, 2002, the Group does not believe that there was any material deferred tax liability arising from the excess of the value of its subsidiaries, joint ventures or associates over their base cost for tax purposes.
Under UK GAAP, the share of tax incurred by joint ventures is included in the tax on loss of ordinary activities. Under US GAAP, this tax would be included as part of equity in loss of affiliates within income before income taxes.
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(6) Deferred Bank Charges
Under the terms of the agreement with the Royal Bank of Scotland, certain fees became payable on the variation of the Group's banking facility which took place after the 31 March 2001 year end. Since these fees were both known and quantifiable at the year end, they were accrued in full in the year, under UK GAAP. Under US GAAP however, any such fees relating to the early extinguishment of debt must be recognised in the period of extinguishment. Consequently, these fees were expensed during the quarter to June 30, 2001 under US GAAP.
(7) Consolidated Statements of Cashflow
The consolidated statements of cashflow prepared in accordance with Financial Reporting Standard No. 1 (revised) present substantially the same information as that required under US GAAP. However, under US GAAP the cashflows of one of the joint ventures in Spain (which is consolidated as a subsidiary under US GAAP and equity accounted under UK GAAP) should be added. This has the effect of increasing the net cash inflow by £6,000. In addition, under US GAAP, there are certain differences from UK GAAP with regard to classification of items within the cashflow statement and with regard to the definition of cash and cash equivalents.
Under UK GAAP, cashflow is presented separately for operating activities, returns on investments and servicing of finance, taxation, capital expenditure and financial investment, acquisitions and disposals, management of liquid resources and financing activities. Under US GAAP cashflow is presented separately for operating activities, investing activities and financing activities. Cashflow from taxation and returns on investments and servicing of finance would, with the exception of dividends paid and costs of financing, be included as operating activities under US GAAP. The payments of dividends and costs of financing would be included under financing activities under US GAAP.
Under US GAAP, cash and cash equivalents do not include bank overdrafts, as is the case under UK GAAP. Under US GAAP such bank overdrafts are presented within financing activities.
Under US GAAP, capital expenditure and financial investment and acquisitions and disposals are included in investing activities.
Set out below, for illustrative purposes, is a summary consolidated statement of cashflow under US GAAP.
| | Quarter ended June 30, 2000 | | Quarter ended June 30, 2001 | | Quarter ended June 30, 2002 | |
| |
|
| |
|
| |
|
| |
| | (unaudited) | | (unaudited) | | | | |
| | £'000 | | £'000 | | £'000 | |
| Cash flow from operating activities | | (7,641 | ) | | (18,781 | ) | | 8,878 | |
| Cash flow from investing activities | | (1,165 | ) | | (265 | ) | | (758 | ) |
| Cash flow from financing activities | | (24 | ) | | 42 | | | 93 | |
| |
|
| |
|
| |
|
| |
| Net increase/(decrease) in cash and cash equivalents | | (8,830 | ) | | (19,004 | ) | | 8,213 | |
| |
|
| |
|
| |
|
| |
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Accounting for stock-based compensation
The Group has adopted only the disclosures required by SFAS No. 123, Accounting for Stock-Based Compensation, and will continue to recognize stock-based compensation expenses under APB Opinion No. 25. Accounting for Stock Issued to Employees. As required, pro-forma net income/(loss), earnings/(loss) per share and weighted-average grant-date fair value of options granted, based on SFAS 123's fair value methodology are disclosed below. The fair values of options were determined assuming an expected average life of three years (three or four years for the Sharesave Schemes) and risk-free interests ranging from 4.9% to 5.1%. Furthermore, volatility of 75% (2001: 75%, 2000: 186%) and dividend yield of nil were assumed. The stock-based compensation expense is recognized over the vesting period which is generally three years.
| | 3 months ended June 30, 2000 | | 3 months ended June 30, 2001 | | 3 months ended June 30, 2002 | |
| |
|
| |
|
| |
|
| |
| | (unaudited) | | (unaudited) | | | | |
In thousands, except per share data | £'000 | | £'000 | | £'000 | |
| Income/(loss) for the period under US GAAP | | (15,455 | ) | | (16,477 | ) | | (16,542 | ) |
| Adjustment: | | | | | | | | | |
| Stock-based compensation expense under SFAS 123 | | (434 | ) | | (446 | ) | | (420 | ) |
| |
|
| |
|
| |
|
| |
| Pro forma income/(loss) for the period | | (15,889 | ) | | (16,923 | ) | | (16,962 | ) |
| |
|
| |
|
| |
|
| |
| Pro forma earnings/(loss) per share | | (13.8p | ) | | (14.6p | ) | | (12.1p | ) |
| |
|
| |
|
| |
|
| |
| | Eidos stock option schemes | |
| |
|
| |
| | £ | |
| Weighted-average grant-date fair value of options granted: | | | |
| Quarter ended June 30, 2000 | | 2.20 | |
| Quarter ended June 30, 2001 | | 1.94 | |
| Quarter ended June 30, 2002 | | 1.33 | |
32 Companies Act 1985
The consolidated financial statements do not constitute "statutory accounts" within the meaning of the Companies Act 1985 (United Kingdom) for any of the periods presented. Statutory accounts for the periods ended March 31, 2001 and 2000 have been filed with the United Kingdom's Registrar of Companies. The auditor has reported on these accounts. The reports were unqualified and did not contain statements under Section 237 (2) or (3) of the Act. In addition, statutory accounts for the fifteen months to June 30, 2002 will be filed shortly.
These consolidated financial statements exclude certain parent company statements and other information required by the Companies Act 1985, however, they include all material disclosures required by generally accepted accounting principles in the United Kingdom including those Companies Act 1985 disclosures relating to the statement of income and balance sheet items.
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ITEM 19 – EXHIBITS.
The following documents are filed as part of this annual report:
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this transition report on its behalf.
Eidos plc
(Registrant)
/s/Stuart Cruickshank
(Group Finance Director)
Date: September 27, 2002
CERTIFICATIONS
I, Michael McGarvey, certify that:
| 1. | I have reviewed this transition report on Form 20-F of Eidos plc: |
| | |
| 2. | Based on my knowledge, this transition report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this transition report: |
| | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this transition report, fairly present in all materially respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this transition report. |
| | |
Date: September 27, 2002
| | /s/ Michael McGarvey |
| | Michael McGarvey
Chief Executive Officer |
I, Stuart Cruickshank, certify that:
| 1. | I have reviewed this transition report on Form 20-F of Eidos plc: |
| | |
| 2. | Based on my knowledge, this transition report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this transition report: |
| | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this transition report, fairly present in all materially respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this transition report. |
| | |
Date: September 27, 2002
| | /s/ Stuart Cruickshank |
| | Stuart Cruickshank
Group Finance Director |
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