THQ Inc. Reports Operating Results (10-Q)

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Nov 05, 2010
THQ Inc. (THQI, Financial) filed Quarterly Report for the period ended 2010-09-30.

Thq Inc. has a market cap of $271.6 million; its shares were traded at around $3.98 with and P/S ratio of 0.3. THQI is in the portfolios of Columbia Wanger of Columbia Wanger Asset Management, Jim Simons of Renaissance Technologies LLC, Bruce Kovner of Caxton Associates, RS Investment Management, Chuck Royce of Royce& Associates.

Highlight of Business Operations:

Net loss attributable to THQ Inc. ("net loss") for the three months ended September 30, 2010 was $47.0 million, or $0.69 per diluted share, compared to a net loss of $5.6 million, or $0.08 per diluted share, for the same period last fiscal year. Net loss for the six months ended September 30, 2010 was $77.1 million, or $1.14 per diluted share, compared to net income of $0.8 million, or $0.01 per diluted share, for the same period last fiscal year.

Our profitability is dependent upon revenue from the sales of our video games. Net sales in the three months ended September 30, 2010 decreased $24.2 million from the same period last fiscal year, to $77.1 million from $101.3 million in the three months ended September 30, 2009. Net sales in the six months ended September 30, 2010 decreased $118.4 million from the same period last fiscal year, to $226.4 million from $344.8 million in the six months ended September 30, 2009. These decreases were primarily due to:

In the three months ended September 30, 2010, our operating expenses were relatively flat compared to the same period last fiscal year and were $53.6 million and $53.3 million in the three months ended September 30, 2010 and 2009, respectively. In the six months ended September 30, 2010, our operating expenses decreased $16.3 million, or 12%, compared to the same period last fiscal year and were $115.8 million and $132.1 million in the six months ended September 30, 2010 and 2009, respectively. This decrease was primarily due to lower expensed product development costs and general and administrative expenses.

Our principal source of cash is from sales of interactive software games designed for play on video game consoles, handheld devices and PCs, including via the Internet. Our principal uses of cash are for product purchases of discs and cartridges along with associated manufacturer's royalties, payments to external developers and licensors, the costs of internal software development, and selling and marketing expenses. Cash used in operations was $156.3 million in the six months ended September 30, 2010, compared to $35.6 million in the same period last fiscal year. The increase in cash used in operations was primarily the result of our net loss during the six months ended September 30, 2010 compared to net income in the same period last fiscal year (adjusted for non-cash reconciling items such as depreciation and amortization), and an increase in investments in licenses and software development in the current fiscal year. These increases were partially offset by a one-time $32.8 million settlement payment made to Jakks in the six months ended September 30, 2009.

Net sales in the three months ended September 30, 2010 in the Asia Pacific territories were relatively flat compared to the same period last fiscal year and in the six months ended September 30, 2010 net sales increased $2.6 million compared to the same period last fiscal year. The increase in the six months ended September 30, 2010 was primarily due to a higher average net selling price on our catalog titles, compared to the same period last fiscal year. We estimate that changes in foreign currency translation rates during the three and six months ended September 30, 2010, as compared to the same periods last fiscal year, increased our reported net sales in the Asia Pacific territories by $0.8 million and $2.5 million, respectively.

Total cost of sales increased $11.6 million in the three months ended September 30, 2010 and decreased $30.9 million in the six months ended September 30, 2010, compared to the same periods last fiscal year. Included in “Cost of sales - License amortization and royalties” in the three months ended September 30, 2009, is a $24.2 million one-time benefit in venture partner expense that

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