Mad Catz Interactive, Inc. 2002 Annual Report About Mad Catz Interactive, Inc
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MAD CATZ INTERACTIVE, INC. 2002 ANNUAL REPORT A growing number of people of all ages are spending more and more of their leisure time gaming. A vibrant industry has emerged to provide these gamers with multiple platforms and sophisticated software. Accessories such as controllers, steering wheels and memory cards are an ABOUT MAD CATZ INTERACTIVE, INC. important category because they enhance the gaming experience, adding a new dimen- sion of fun and creativity. Mad Catz is leading the way in designing, developing and distributing high quality, edgy and price competitive accessories that make video gaming a truly exciting experience. Dear Shareholders We have entered a Fiscal year 2002 was an extremely satis- This year marked the first time fying year for Mad Catz — a year of record that our strategic resources were focused new era in the video sales and performance. It was a year that solely on our Mad Catz business. As the saw unprecedented opportunities for video game peripherals business became gaming market, with expansion in the gaming industry and one increasingly vibrant with the introduction in which we laid the foundation for our of new platforms during the year, our unprecedented own future growth. decision to focus on the Mad Catz busi- These opportunities fostered an ness, as evidenced by our financial opportunities for environment for Mad Catz to lead the way results, was a correct one. with 65 new product introductions — the We capitalized on the strength of expansion. MAD CATZ INTERACTIVE, INC. [1] largest introduction in Mad Catz’ history the Mad Catz brand exemplified by the — a solidified and strengthened manage- strategic decision to change our corpo- ment team, enhanced global reach, and rate name to Mad Catz Interactive, Inc. an emphasis on cost controls as key as well as our stock exchange symbol to drivers for improvement of our operating MCZ in September 2001. We also moved efficiencies. our offices in San Diego to a larger facil- With the introduction of several ity to accommodate our expanding oper- new platforms — Microsoft’s Xbox® and ations as well as established a London Nintendo’s GameCube® and Game Boy office giving us a foothold in Europe. Advance® — as well as the significant We devoted resources to deepen- growth of the installed base of Sony’s ing our existing retail relationships and PlayStation 2®, we have entered a new era nurtured new ones. Through a sus- in the video gaming market, with signifi- tained program of category manage- cant opportunities and challenges the ment, Mad Catz continues to place likes of which the industry has never great emphasis on our retailer seen. Mad Catz’ brand-focused, multi- relationships. platform strategy has placed the company in a strong leadership position as we Financial Results enter the most productive phase of the For the fiscal year ended March 31, current industry cycle. 2002, Mad Catz had record net sales Financial Highlights U.S. Dollars millions Fiscal 2002 Fiscal 2001 Net sales $ 83.3 $ 55.8 Gross profit $ 18.4 $ 12.4 EBITDA $ 6.2 $ 1.7 Net income (loss) $ 1.5 $ (22.9) Income (loss) per share $ 0.03 $ (0.51) Xbox 8MB Memory Card Mad Catz has suc- from continuing operations of $83.3 mil- 31, 2002, Mad Catz utilized only $4.3 lion as compared with $55.8 million last million of its line of credit in the face of cessfully leveraged year, representing an increase of 49%. stronger sales. Gross profit for the year ended March 31, the Mad Catz brand 2002 was $18.4 million as compared to Platforms + Products = $12.4 million last year. Net income for Performance across each of the the year was $1.5 million as compared to Mad Catz has assumed a leadership posi- a net loss of $22.9 million last year. tion in the peripherals market and has platforms launched For the year ended March 31, successfully leveraged the Mad Catz 2002, selling, general and administra- brand across each of the platforms MAD CATZ INTERACTIVE, INC. [2] this year. tive expenses (“SG&A”) from continuing introduced this year. Our strategy has operations was $12.2 million as com- been to introduce the highest quality pared to $10.7 million for the same products across all platforms at competi- period last year. Selling expenses as a tive prices. percentage of net sales decreased to Our major emphasis this year was 8.7% as compared to 8.9% last year. the successful launch of our full line-up Administrative expenses as a percentage of products for Xbox and GameCube, of net sales decreased to 5.9% as com- complementing our existing line-up for pared to 10.3% last year. PlayStation 2 and Game Boy Advance. EBITDA for the year ended March We introduced a new generation of prod- 31, 2002, was $6.2 million as compared ucts including the innovative Lynx to $1.7 million, a 314.1% increase, as Control Pad Pro for PlayStation 2, which compared to last year. Income before utilizes radio frequency technology com- taxes and goodwill charges for the year parable to high-end cordless telephones. ended March 31, 2002 was $4.0 mil- In October, we announced the lion, as compared to a net loss of $0.6 launch of our full line-up of officially million last year. Net income for the year licensed and compatible third-party was $1.5 million, or $0.03 per share, as peripherals for the Xbox’ video game con- compared to a net loss of $22.9 million, sole from Microsoft for North America, or a loss of $0.51 per share last year. Europe and Japan. Under this license Our balance sheet is in the agreement Mad Catz branded products strongest shape ever. Inventory levels are officially endorsed by Microsoft and were kept in check despite additional carry the Xbox license logo. At the same inventory necessary for Game Boy time, we launched a full line of products Advance, Xbox and GameCube. At March for Nintendo’s GameCube. 65 products Game Boy Fliplight were introduced to Once again the market during the Company had a the year. We have strong presence at the been highly successful in picking up Electronic Entertainment Expo (E3), the more SKUs in both existing accounts as industry’s most important trade show, well as new customers. where the Company previewed its fall line According to NPD Funworld, a up of new products, most of which are leading market information tracking com- already in the later stage of development, pany, PlayStation 2 sell-through remains including the new wireless controller for robust, with an expanding U.S. installed Xbox, utilizing the same innovative Lynx base of approximately 8.1 million units, radio frequency technology used in the MAD CATZ INTERACTIVE, INC. [3] Game Boy Advance at 5.3 million units, PlayStation 2 version. while the Xbox installed base has Also introduced at E3 was the expanded to approximately 1.7 million “Beat Pad” controller for Playstation 2, units. The installed base of GameCube compatible with THQ Inc.’s Britney’s was approximately 1.4 million units at Dance Beat™, a digital controller for the end of January 2002. dance and action games, featuring Also, according to NPD Funworld, four-way directional control, ten large adoption rates for PlayStation 2 have far high-performance action pads and a outpaced those of PlayStation. In the 17 durable tactile surface for enhanced com- months following PlayStation 2’s launch, fort and improved handling. It is the most adoption rates are equal to those 36 superior dance and action pad on the months following the launch of market today. PlayStation and adoption rates for Xbox and GameCube are significantly higher Continued and than those of PlayStation 2 for the same Sustained Growth post-launch period. While our license agreement with Sony Computer Entertainment America for the U.S Accessories Market 2001-2005e memory card for PlayStation 2 in North in U.S. dollars millions America expired at the end of December 1500 2001, that loss was more than offset 1400 by the increase in sales of new products 1300 for all the new platforms as well as 1200 PlayStation 2. We expect the sales 1100 momentum to continue in fiscal 2003 1000 and we are estimating sales to grow 900 01 02e 03e 04e 05e substantially. Source: 2001 figures based on NPD TRSTS; 2002 and forward projections from International Development Group Control Pad Pro for GameCube 2003 stands to be The continued success of current of increasing market share, building its accounts, as well as the increase in new product line-up of innovative peripherals the year where the business both in the U.S. and abroad, is for all consoles, reducing manufacturing expected to enhance Mad Catz’ growth. and component costs and generating results of all of our We will continue to utilize category man- increased institutional investor aware- agement strategies, such as inventory ness of the company. If 2002 was a year hard work begins to and display management and pricing of transition for our Company and the controls, to broaden our relationships industry as a whole, 2003 stands to be be fully realized. with our retailers. the year where the results of all of our In fiscal 2002, we established hard work begins to be fully realized. MAD CATZ INTERACTIVE, INC. [4] operations in London and signed an agreement with PDQ Distribution Limited to provide logistic distribution services Sincerely, for our products in the U.K. We will remain focused on the European market and will continue to implement our busi- ness strategy aimed at building market share and duplicating the Company’s Pat Brigham success in the U.S.