NOTES TO FINANCIAL STATEMENTS

1. Principal accounting policies
The financial statements have been prepared in accordance with applicable accounting standards in the United Kingdom.

A summary of the principal accounting policies, which have been applied consistently is set out below.

Basis of accounting
The financial statements are prepared in accordance with the historical cost convention.

Basis of consolidation
The consolidated financial statements include the Company and its subsidiary undertakings drawn up to 1 June 2003.

Goodwill
Goodwill arising on acquisition of subsidiaries, representing any excess of the fair value of the consideration given over the fair value of the identifiable net assets acquired, is capitalised and amortised on a straight line basis over its useful economic life. The goodwill arising on the acquisition of Sabertooth Games, Inc. is being amortised over six years in line with the minimum period over which the minority shareholders are incentivised to remain with the business under the acquisition agreement. All other acquired goodwill is amortised over 20 years. Provision is made for any impairment.

Goodwill arising on acquisitions prior to 31 May 1998 was written off to reserves in accordance with the accounting standard then in force. As permitted by the current accounting standard, the goodwill previously written off to reserves has not been reinstated in the balance sheet. In the event of disposal or closure of a previously acquired business, the attributable amount of goodwill previously written off to reserves will be included in determining the profit or loss on disposal.

Development expenditure
Product development and design expenditure is written off as it is incurred. The development costs in respect of the Warhammer Online project are also written off up to the point where the relationship between that expenditure and the revenue of a future period can be established with reasonable certainty.

Tangible fixed assets
Tangible fixed assets are stated at cost, net of depreciation and any provision for impairment. The cost of tangible fixed assets is their purchase cost, together with any incidental costs of acquisition.

Depreciation is calculated so as to write off the cost of tangible fixed assets on a straight line basis over the expected useful economic lives of the assets concerned. The principal annual rates used for this purpose are:

	%
Freehold buildings	2
Plant and equipment	20-33
Motor vehicles	33
Fixtures and fittings	15-33
Moulding tools	25

Leasehold premises are amortised over the period of the lease. Freehold land is not depreciated.

Operating leases and hire purchase contracts
Costs in respect of operating leases and any benefits received as an incentive to sign a lease, are charged or credited on a straight line basis over the lease term. Hire purchase contracts which transfer to the Group substantially all the benefits and risks of ownership of an asset, are treated as if the asset had been purchased outright. The assets are included in fixed assets and the capital element of the hire purchase commitment is shown as obligations under hire purchase contracts. The capital element of the payment is applied to reduce the outstanding obligations and the interest element is charged against profit in proportion to the reducing capital element outstanding.

Stocks
Stocks are valued at the lower of cost and net realisable value. In respect of finished goods, cost includes appropriate production overheads. Where necessary, provision is made for obsolete, slow moving and defective stocks.

Foreign currencies
Assets and liabilities expressed in foreign currencies are translated into sterling at rates of exchange ruling at the end of the financial year or at rates of exchange fixed using forward foreign currency contracts where they exist. The results of overseas subsidiary companies are translated at the average rate of exchange for the year.

Gains and losses arising on the translation of the net assets of overseas subsidiary companies are taken to reserves, net of exchange differences arising on related foreign currency borrowings.

All other foreign exchange differences are taken to the profit and loss account in the year in which they arise.

Investments
Shares and loans in subsidiary undertakings are stated at cost less provision for impairment.

Own shares are stated at cost less amortisation. Where the Company’s shares have been acquired to fulfil future commitments under incentive plans, the cost of those shares is amortised over the performance period of the incentive plans.

Turnover
Turnover, which excludes value added tax and sales between group companies, represents the invoiced value of goods and services supplied.

Turnover on goods sold to customers on a sale or return basis, is recognised after making full provision for the level of expected returns, based on past experience.

Royalty income is recognised by spreading the guarantees and advances receivable over the term of the licence agreement, and recognising all other income receivable by reference to the underlying licencee performance period.

Taxation
Current tax, including UK corporation tax and foreign tax, is provided at amounts expected to be paid/(recovered) using the tax rates and laws that that have been enacted or substantially enacted by the balance sheet date.

Deferred taxation is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or events that result in an obligation to pay more tax in the future or a right to pay less tax in the future have occurred at the balance sheet date. Timing differences are differences between the Group’s taxable profits and its results as stated in the financial statements that arise from the inclusion of gains and losses in tax assessments in periods different from those in which they are recognised in the financial statements.

A net deferred tax asset is regarded as recoverable and therefore recognised only when, on the basis of all available 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.

Deferred tax is measured at the average tax rates that are expected to apply in the periods in which the timing differences are expected to reverse, based on tax rates and laws that have been enacted or substantially enacted by the balance sheet date. Deferred tax is measured on a non-discounted basis.

Pension costs
The Group operates a defined contribution scheme and a group personal pension plan. Pension contributions are charged to the profit and loss account as they accrue.

Bonus and incentive plans
The costs of annual bonus schemes are charged to the profit and loss account as they accrue. For those incentive plans which are based upon performance criteria measured over a period in excess of one year, costs are charged to the profit and loss account based upon the directors’ estimate of the likely future outcome of those criteria. Where the criteria include the Company’s share price, costs are charged by reference to the evolution of the share price over the lifetime of the scheme, with the annual expense taking account of the year end price. These estimates are revised at each period end.

2. Geographical analysis

Turnover
By geographical area of sales operation

	2003 £000	2002 £000
Continental Europe	50,030	36,518
United Kingdom	39,353	32,369
The Americas	32,218	32,791
Asia Pacific	7,508	6,879
Turnover	129,109	108,557

By geographical area of destination

	2003 £000	2002 £000
Continental Europe	51,672	37,814
United Kingdom	37,160	30,168
The Americas	32,384	33,375
Asia Pacific	7,683	7,017
Other	210	183
Turnover	129,109	108,557

Operating profit
By geographical area of sales operation

	2003 £000	2002 £000
Continental Europe	13,550	8,551
United Kingdom	11,343	6,424
The Americas	2,430	6,132
Asia Pacific	1,098	955
	28,421	22,062
Design and development costs	(3,725)	(2,605)
New businesss development costs	(2,531)	(2,125)
Central costs	(4,901)	(3,949)
Operating profit before royalties	17,264	13,383
Royalty income	197	122
Operating profit	17,461	13,505

New business development costs include £1.7 million (2002 : £1.5 million) in respect of the Warhammer Online venture.

Net assets
By geographical area of sales operation

	2003 £000	Restated 2002 £000
Continental Europe	6,337	4,585
United Kingdom	2,315	779
The Americas	11,544	8,247
Asia Pacific	598	(254)
	20,794	13,357
New business development	(3,708)	(1,946)
Goodwill	3,190	3,647
Unallocated net assets	7,897	7,168
Net assets	28,173	22,226

The prior year has been restated to separate tax and cash balances from the net assets by geographical area. These are now included in unallocated net assets. This reflects the definition of return on capital employed as described in the financial review.

3. Turnover, cost of sales, gross profit and net operating expenses

	2003 £000	2002 £000
Turnover	129,109	108,557
Cost of sales	42,592	36,550
Gross profit	86,517	72,007
Selling and distribution costs	37,996	34,360
Adminstrative costs	31,257	24,264
Other operating income - royalty income	(197)	(122)
Net operating expenses	69,056	58,502
Operating profit	17,461	13,505

	2003 £000	2002 £000
Administrative costs include:
Design and development costs	3,725	2,605
New business development costs	2,531	2,125
Other adminstrative costs	25,001	19,534
Total adminstrative costs	31,257	24,264

4. Directors’ emoluments

	2003 £000	2002 £000
Aggregate emoluments and benefits	1,616	577
Pension contributions	45	40
	1,661	617

Directors’ emoluments for the year ended 2 June 2002 include emoluments for S G Forrest of £20,000. Further information relating to directors’ emoluments, shareholdings and share options are disclosed in the audited section of the remuneration report.

5. Employee information

The average monthly number of persons (including executive directors) employed by the Group during the year was:

	2003 Number	2002 Number
Production	372	324
Selling and distribution:
Full time	1,319	1,224
Key time*	779	631
Administration	402	303
	2,872	2,482

* Key time employees are employed in our retail stores and typically work a 20 hour week.

Staff costs (for the above persons)

	2003 £000	2002 £000
Wages and salaries	41,378	34,236
Social security costs	4,437	3,665
Other pension costs	863	761
	46,678	38,662

6. Interest payable and similar charges

	2003 £000	2002 £000
On bank loans and overdrafts	270	224
On hire purchase contracts	4	11
	274	235

7. Profit on ordinary activities before taxation

	2003 £000	2002 £000
Profit on ordinary activities before taxation is stated after charging:
Amortisation
goodwill	457	252
own shares	121	662
Depreciation
tangible owned fixed assets	5,689	4,809
tangible fixed assets under hire purchase contracts	20	38
Operating leases
property	7,388	5,892
plant and equipment	242	490
other	115	172
Auditors' remuneration for audit services	198	134

Amounts payable to Deloitte & Touche by the Company and its subsidiary undertakings in respect of non-audit services were as follows:

	2003 £000	2002 £000
Taxation advice	133	-
Accounting assistance and advice	60	-
Total	192	-

Amounts payable to Arthur Andersen by the Company and its subsidiary undertakings in respect of non-audit services were as follows:

	2003 £000	2002 £000
Taxation advice	-	182
Internal audit fees	-	28
Corporate restructuring advice	-	45
Accounting assistance and advice	-	17
Total	-	272

8. Taxation on profit on ordinary activities

	2003 £000	2002 £000
Current taxation
UK corporation tax	6,341	4,439
Over provision in respect of prior years	(1,137)	(7)
	5,204	4,432
Overseas taxation	1,844	1,116
Total current taxation	7,048	5,548
Origination and reversal of timing differences	(578)	(613)
Taxation on profit on ordinary activities	6,470	4,935

	2003 £000	2002 £000
Profit on ordinary activities before taxation	17,452	13,523
Profit on ordinary activities multiplied by standard rate of corporation tax in the UK of 30%	5,236	4,057
Effects of:
Expenses not deductible for tax purposes	402	278
Movement in deferred tax not recognised	1,515	323
Origination and reversal of timing differences	578	613
Losses attributable to minority interests	168	146
Higher tax rates on overseas earnings	167	169
Adjustments to tax charge in respect of previous years	(1,018)	(38)
Current tax charge for the year	7,048	5,548

9. Profit for the financial year

As permitted by section 230 of the Companies Act 1985, the Company’s profit and loss account has not been included in these financial statements. Of the profit for the financial year, £7.4 million (2002: £12.7 million) is attributable to the Company, after including dividends from subsidiary companies of £13.0 million (2002: £14.5 million).

10. Dividends

	2003 £000	2002 £000
Interim paid of 4.5 pence per share (2002: 4.15 pence)	1,335	1,262
Final proposed of 12.5 pence per share (2002: 8.85 pence)	3,759	2,631
Over provision in respect of prior years	(8)	(77)
	5,086	3,816

11. Earnings per ordinary share

The calculation of basic earnings per ordinary share has been based on profit for the year of £11.0 million (2002: £8.6 million) and the weighted average number of shares in issue throughout the year.

The calculation of diluted earnings per ordinary share has been based on profit for the year and the weighted average number of shares in issue throughout the year, adjusted for the dilution effect of share options outstanding at the year end.

	2003	2002
Weighted average number of shares:
For basic earnings per ordinary share	29,689,168	30,485,802
Dilution effect of share options outstanding	600,302	708,818
For diluted earnings per ordinary share	30,289,470	31,194,620

12. Goodwill

	£000
Group Cost At 3 June 2002 and at 1 June 2003	4,217
Amortisation
At 3 June 2002	570
Charge for the year	457
At 1 June 2003	1,027
Net book value at 1 June 2003	3,190
Net book value at 2 June 2002	3,647

The Company had no goodwill at either year end.

13. Tangible fixed assets

	Freehold land and buildings £000	Long leasehold premises £000	Short leasehold premises £000	Plant & equipment & vehicles £000	Fixtures and fittings £000	Moulding tools £000	Total £000
Group
Cost
At 3 June 2002	639	6,346	2,018	12,002	9,640	6,298	36,943
Exchange adjustments	-	-	(51)	(26)	320	-	243
Additions	-	-	731	3,452	2,896	1,155	8,234
Disposals	-	-	(309)	(2,820)	(848)	-	(3,977)
Reclassifications	-	(470)	(1,792)	51	2,211	-	-
At 1 June 2003	639	5,876	597	12,659	14,219	7,453	41,443
Depreciation
At 3 June 2002	70	587	1,031	8,034	7,180	4,830	21,732
Exchange adjustments	-	-	(20)	28	196	-	204
Charge for the year	17	436	375	1,939	2,061	881	5,709
Eliminated in respect of disposals	-	-	(309)	(2,699)	(817)	-	(3,825)
Reclassifications	-	-	(742)	28	714	-	-
At 1 June 2003	87	1,023	335	7,330	9,334	5,711	23,820
Net book value at 1 June 2003	552	4,853	262	5,329	4,885	1,742	17,623
Net book value at 2 June 2002	569	5,759	987	3,968	2,460	1,468	15,211

The net book value of tangible fixed assets includes an amount of £nil (2002: £20,000) in respect of assets held under hire purchase contracts. The depreciation charged on these assets was £20,000 (2002: £38,000). Freehold land amounting to £341,000 (2002: £341,000) has not been depreciated.

The Company held no tangible fixed assets at either year end.

14. Fixed asset investments

	Group		Company
	2003 £000	2002 £000	2003 £000	2002 £000
Cost
Subsidiary undertakings - equity	-	-	27,867	17,886
Own shares	-	121	-	121
	-	121	27,867	18,007

The increase in equity investments of £10.0 million relates to the recapitalisation of Games Workshop America, Inc.

Interests in group undertakings
The directors consider that to give full particulars of all subsidiary undertakings would lead to a statement of excessive length. The following information relates to those subsidiary undertakings whose results or financial position, in the opinion of the directors, principally affect the Group.

Name of undertaking	Country of incorporation or registration	Description of shares held	Proportion of nominal value of issued shares held by:		Principal business activity
			Company	Subsidiary company
Games Workshop Limited	England and Wales	£1 ordinary	100%		Manufacturer, distributor and retailer of games and miniatures
Games Workshop America, Inc	United States of America	$1 common stock		100%	Distributor and retailer of games and miniatures
		$100,00 preferred stock	100%
Games Workshop Retail, Inc	United States of America	$1 common stock		100%	Distributor and retailer of games and miniatures
Games Workshop US Manufacturing LLC	United States of America	Owners capital		100%	Manufacturer of games and miniatures
Games Workshop (Queen Street) Limited	Canada	Can $1		100%	Distributor and retailer of games and miniatures
EURL Games Workshop	France	Euro 1		100%	Distributor and retailer of games and miniatures
Games Workshop SL	Spain	Euro 1		100%	Distributor and retailer of games and miniatures
Games Workshop Oz Pty Limited	Australia	Aus $1		100%	Distributor and retailer of games and miniatures
Games Workshop Deutschland GmbH	Germany	Euro 1		100%	Distributor and retailer of games and miniatures
Games Workshop Limited	New Zealand	NZ $1		100%	Distributor and retailer of games and miniatures
Games Workshop Italia Retail SRL	Italy	Euro 1		100%	Retailer of games and miniatures
Games Workshop Tooling Limited	England and Wales	£1 ordinary	100%		Manufacturer of tools for injection moulding
Games Workshop International Limited	England and Wales	£1 ordinary	100%		Holding company for overseas subsidiary companies
Warhammer Online Limited	England and Wales	£1 ordinary		71.25%	Developer of online games
Sabertooth Games, Inc	United States of America	$1 common stock		85%	Distributor of collectible card games

All the above companies operate principally in their country of incorporation or registration.

Own shares

	Cost £000	Amortisation £000	Total £000
Group and Company
At 3 June 2002	1,011	(890)	121
Amortisation	-	(121)	(121)
At 1 June 2003	1,011	(1,011)	-

The Company operates a long-term incentive plan for the senior management of the Group. An Employee Share Ownership Plan (ESOP), in the form of a discretionary trust, has been established to facilitate the operation of the incentive scheme. Details of the scheme are given in the remuneration report above. The number and market value of the ordinary shares held by the ESOP at 1 June 2003 was 260,492 (2002: 260,492) and £1,424,000 (2002: £1,530,000) respectively. Dividends have been waived on these shares.

15. Stocks

	2003 £000	2002 £000
Group
Raw materials and consumables	1,636	1,409
Finished goods and goods for resale	10,860	7,851
	12,496	9,260

There is no material difference between the balance sheet value of stocks and their replacement cost.

The Company held no stocks at either year end.

16. Debtors

	Group		Company
	2003 £000	2002 £000	2003 £000	2002 £000
Amounts falling due within one year
Trade debtors	7,499	5,537	-	-
Amounts owed by group undertakings	-	-	8,018	6,535
Other debtors	532	437	51	51
Prepayments and accrued income	2,215	1,868	61	48
Deferred taxation	1,572	913	720	125
	11,818	8,755	8,850	6,759

	Group		Company
	2003 £000	2002 £000	2003 £000	2002 £000
Amounts falling due after more than one year
Amounts owed by group undertakings	-	-	252	1,683
Other debtors	328	317	-	-
Deferred taxation	1,066	1,141	7	393
	1,394	1,458	259	2,076
Total	13,212	10,213	9,109	8,835

Deferred taxation
Deferred tax can be analysed over the following timing differences:

Recognised	Group		Company
	2003 £000	2002 £000	2003 £000	2002 £000
Accelerated depreciation	1,066	750	7	2
Short-term timing differences	1,572	1,304	720	516
	2,638	2,054	727	518

Unrecognised	Group		Company
	2003 £000	2002 £000	2003 £000	2002 £000
Tax losses	2,107	592	-	-
	2,107	592	-	-

No deferred tax asset has been recognised on unrelieved tax losses in certain countries due to the uncertainty as at the balance sheet date as to their recovery over the next 12 months.

17. Creditors: amounts falling due within one year

	Group		Company
	2003 £000	2002 £000	2003 £000	2002 £000
Obligations under hire purchase contracts	-	20	-	-
Bank and other loans	-	2,500	-	2,500
Bank overdraft	-	-	3,406	-
Trade creditors	7,353	5,575	785	412
Amounts owed to group undertakings	-	-	5,263	3,281
Corporation tax	4,402	3,138	-	-
Other taxation and social security	1,984	1,204	74	26
Other creditors	1,353	1,826	11	381
Accruals and deferred income	9,484	6,458	1,577	115
Proposed dividend	3,759	2,631	3,759	2,631
	28,335	23,352	14,875	9,346

18. Creditors: amounts falling due after more than one year

	Group		Company
	2003 £000	2002 £000	2003 £000	2002 £000
Accruals and deferred income	16	-	-	-
	16	-	-	-
Analysis of borrowings
Secured
Sterling hire purchase contracts	-	20	-	-
Unsecured
Medium-term revolving credit facility	-	2,500