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THQ Reports Fiscal 2011 Fourth Quarter and Year End Results
Q4 Non-GAAP Net Sales up 26% Y-O-Y and Q4 Non-GAAP EPS at High End
of Guidance on Strong Sales of Homefront(TM)
Company Expects Strong Growth and Profitability in Fiscal 2012

AGOURA HILLS, Calif., May 03, 2011 (BUSINESS WIRE) -- THQ Inc. (NASDAQ: THQI) today reported financial results for the fourth quarter and fiscal year ended March 31, 2011.

Financial Highlights

Q4 Non-GAAP net sales were $248.6 million, consistent with guidance of $245 - $260 million.

Q4 Non-GAAP EPS of $0.15 was at the high end of guidance of $0.05 - $0.15.

(in millions, except per share data)

For the Three Months
Ended March 31,

For the Twelve Months
Ended March 31,

2011 2010 2011 2010
GAAP Net Sales $ 124.2 $ 197.7 $ 665.3 $ 899.1
Non-GAAP Net Sales $ 248.6 $ 197.4 $ 802.3 $ 888.7
GAAP Net Loss $ (44.1 ) $ (10.4 ) $ (136.1 ) $ (9.0 )

Non-GAAP Net Income (Loss)

$ 10.5 $ 4.4 $ (16.0 ) $ 12.7

GAAP Diluted Loss Per Share

$ (0.65 ) $ (0.15 ) $ (2.00 ) $ (0.13 )

Non-GAAP Diluted Earnings (Loss) Per Share

$ 0.15 $ 0.06 $ (0.24 ) $ 0.19

A reconciliation of non-GAAP to GAAP results is provided in the accompanying financial tables.

"THQ posted strong fourth quarter results primarily driven by the success of Homefront," said THQ President and CEO Brian Farrell. "We have already shipped 2.6 million units, a solid start for this new franchise, which kicks off the strongest pipeline of AAA core games in our history. We also continued to grow the uDraw franchise with the successful international debut of this compelling new tablet. Today, I am pleased to announce that we plan to bring exclusively designed uDraw GameTablets to Microsoft Xbox 360 and Sony PS3 platforms this holiday."

Farrell continued, "We expect to generate significant growth, profitability and cash in fiscal 2012, driven by the latest installments of multi-million unit selling franchises, Saints Row, Red Faction, Warhammer 40,000, MX vs. ATV, UFC, WWE, and uDraw. We are creating a digital ecosystem for each of these games that will continue to keep consumers engaged and generate additional revenue opportunities beyond the initial retail sale. We also continue to aggressively invest in our digital initiatives, including online social and mobile offerings as well as our Warhammer 40,000: Dark Millennium Online MMO."

FISCAL 2011 HIGHLIGHTS AND RECENT DEVELOPMENTS

Product Highlights

  • Life to date, THQ's new owned IP, Homefront, has shipped 2.6 million units
    • For the month of March 2011, Homefront was the #1 title on Xbox 360 and the #3 title on PS3, in the US and the top five European markets1.
    • Homefront remains the best-selling week-one new console release in 2011 in the UK.
    1Source: NPD (Total US Market, March 2011); GfK (Euro 5, March 2011)

New Franchises and Innovations

  • In fiscal 2011, THQ added Homefront to its growing portfolio of owned brands, which includes Saints Row(R), Red Faction(R), Darksiders(R) and MX vs. ATV(R).
  • THQ brought to market the uDraw GameTablet, a first-of-its-kind, innovative new gaming accessory, which hit retail store shelves worldwide in fiscal 2011, gaining instant popularity for its creativity and unique functionality. Today the company announced plans to bring exclusively designed uDraw GameTablets to Microsoft Xbox 360 and Sony PS3 platforms this holiday.
  • The company continued to increase its investment in digital content, including social and mobile games, today announcing plans to bring Jimmy Buffett's popular Margaritaville brand to Facebook, iPad and iPhone in fiscal 2012.

First Quarter Fiscal 2012 Release Schedule

THQ has announced the following key releases scheduled for the first quarter of fiscal 2012:

Title

Platforms

Red Faction(R): Armageddon(TM)

Xbox 360(R), PlayStation(R)3, PC

MX vs. ATV(R) Alive(TM)

Xbox 360, PlayStation3, PC

UFC(R) Personal Trainer: The Ultimate Fitness System

Kinect(TM) for Xbox 360(R), PlayStation(R) Move for PS3(TM), Wii(TM)

SpongeBob SquigglePants

uDraw GameTablet(TM) for Wii(TM), Nintendo 3DS(TM)

Kung Fu Panda 2(TM)

Kinect for Xbox 360, PlayStation3, uDraw GameTablet for Wii, Nintendo DS(TM)

RIO

Xbox 360, PlayStation3, Wii, Nintendo DS

Fantastic Pets(TM)

Kinect for Xbox 360

Investor Conference Call

THQ will host a conference call to discuss fiscal 2011 fourth quarter results, and fiscal 2012 guidance today at 2:00 p.m. Pacific/5:00 p.m. Eastern. Please dial (877) 356-8075 domestic or (706) 902-0203 international, conference ID 61833420 to listen to the call or visit the THQ Inc. Investor Relations Home page at investor.thq.com. The online archive of the broadcast will be available approximately two hours after the live call ends. In addition, a telephonic replay of the conference call will be accessible approximately two hours after the live call ends through May 5, 2011 by dialing (800) 642-1687 domestically, or (706) 645-9291 internationally, conference ID 61833420.

Non-GAAP Financial Measures

In addition to results determined in accordance with GAAP, the company discloses certain non-GAAP financial measures that exclude the following:

  • stock-based compensation expense,
  • the impact of certain deferred revenue and related costs,
  • business realignment expense,
  • impact of capitalized interest,
  • other-than-temporary impairment on investments and any subsequent realized gains on those investments, and mark-to-market adjustments on investments, and
  • other significant charges and benefits.

For non-GAAP purposes, the company uses a fixed, long-term projected tax rate of 15% to evaluate its operating performance, as well as to forecast, plan and analyze future periods.

THQ may consider whether other significant items that arise in the future should also be excluded in calculating the non-GAAP financial measures it uses.

The company excludes these expenses from its non-GAAP financial measures primarily because its management does not believe they reflect the company's primary business, ongoing operating results or future outlook. THQ's management believes that the use of non-GAAP financial measures provides meaningful supplemental information regarding its financial condition and results of operations, and helps investors compare actual results to its long-term operating goals as well as to its performance in prior periods. The non-GAAP financial measures included in this earnings release have been reconciled to the comparable GAAP results in the accompanying tables, and should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for, or superior to, GAAP results.

In addition to the reasons stated above, which are generally applicable to each of the items THQ excludes from its non-GAAP financial measures, the company's management uses certain of the non-GAAP financial measures for the following reasons:

Stock-Based Compensation. THQ does not consider stock-based compensation charges when evaluating the performance of its business or formulating its operating plans. Stock-based compensation charges are subject to significant fluctuation outside of the control of management due to the variables used to estimate the fair value of a share-based payment, such as THQ's stock price, interest rates and the volatility of the company's stock price. Further, when considering the impact of equity award grants, THQ places a greater emphasis on the use of such grants as retention tools for long-term stockholder value creation, as well as overall stockholder dilution, rather than the accounting charges associated with such grants.

Deferred Revenue/Costs. The company recognizes the revenue and related costs from the sale of certain titles for which the online service is determined to be a deliverable over the estimated online service period. Although the company defers the recognition of all or a portion of its net revenue and costs with respect to these titles, there is no impact to its operating cash flow. THQ's management excludes the impact of deferred net revenue and costs when evaluating the company's operating performance, when planning, forecasting and analyzing future periods, and when assessing the performance of its management team.

Business Realignment Expense. Although THQ has incurred business realignment expenses in the past, each charge relates to a discrete event based on a unique set of business objectives. Management does not believe these charges reflect the company's primary business, ongoing operating results or future outlook. As such, the company believes it is appropriate to exclude these expenses from its non-GAAP financial measures.

Impact of Capitalized Interest. The company capitalizes interest expense as a component of capitalized software development. THQ's management considers interest cost to be a financing cost in the period in which it is incurred, and thus excludes the impact of the capitalization of interest costs to software development and the subsequent amortization expense when evaluating the company's operating performance, when planning, forecasting and analyzing future periods, and when assessing the performance of its management team.

Other significant charges and benefits. THQ does not consider certain significant charges and benefits that are related to discrete events or market conditions to be indicative of ongoing operating results or future outlook. As a result, the company believes it appropriate to exclude expenses and benefits such as legal settlements or market-related impairments, from its non-GAAP financial measures.

Fiscal Periods

Our fiscal year ends on the Saturday nearest March 31st. For simplicity, we present all fiscal periods as ending on a calendar month end. In fiscal 2011, our fourth quarter and fiscal year ended on April 2, 2011. In fiscal 2010, our fourth quarter and fiscal year ended on April 3, 2010. The fiscal three month periods ended March 31, 2011 and 2010 consisted of 13 weeks. The fiscal twelve month periods ended March 31, 2011 and 2010 consisted of 52 and 53 weeks, respectively.

About THQ

THQ Inc. (NASDAQ: THQI) is a leading worldwide developer and publisher of interactive entertainment software. The company develops its products for all popular game systems, personal computers and wireless devices. Headquartered in Los Angeles County, California, THQ sells product through its global network of offices located throughout North America, Europe and Asia Pacific. More information about THQ and its products may be found at http://www.thq.com/. THQ, Darksiders, Homefront, MX vs ATV, MX vs ATV: Alive, Red Faction, Red Faction: Armageddon, Saints Row, uDraw, uDraw GameTablet and their respective logos are trademarks and/or registered trademarks of THQ Inc.

Microsoft, Xbox, Xbox 360, Xbox Live, the Xbox logos, and the Xbox Live logo are either registered trademarks or trademarks of Microsoft Corporation in the U.S. and/or other countries.

"PlayStation" is a registered trademark of Sony Computer Entertainment Inc.

Wii, Nintendo DS and Nintendo DSi are trademarks of Nintendo.

All other trademarks are property of their respective owners.

The statements contained in this press release that are not historical facts may be "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995.Such statements include, but are not limited to, the company's expectations to generate significant growth, profitability and cash in fiscal 2012 and for product releases in future periods. These forward-looking statements are based on current expectations, estimates and projections about the business of THQ Inc. and its subsidiaries (collectively referred to as "THQ") and are based upon management's current beliefs and certain assumptions made by management.Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such forward-looking statements, including, but not limited to, business, competitive, economic, legal, political and technological factors affecting our industry, operations, markets, products or pricing.Readers should carefully review the risk factors and the information that could materially affect THQ's financial results, described in other documents that THQ files from time to time with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the fiscal period ended March 31, 2010, and subsequent Quarterly Reports on Form 10-Q, and particularly the discussion of trends and risk factors set forth therein.Unless otherwise required by law, THQ disclaims any obligation to update its view on any such risks or uncertainties or to revise or publicly release the results of any revision to these forward-looking statements.Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release.

THQ Inc. and Subsidiaries
Unaudited Consolidated Statements of Operations

(In thousands, except per share data)

Three Months Ended Twelve Months Ended
March 31, March 31,
2011 2010 2011 2010
Net sales $ 124,237 $ 197,668 $ 665,258 $ 899,137
Cost of sales:
Product costs 52,463 72,042 272,021 318,590
Software amortization and royalties 24,711 54,527 129,237 196,956
License amortization and royalties 9,039 15,337 118,287 110,503
Total cost of sales 86,213 141,906 519,545 626,049
Gross profit 38,024 55,762 145,713 273,088
Operating expenses:
Product development 27,007 23,811 79,374 87,233
Selling and marketing 47,904 25,231 156,075 131,954
General and administrative 12,229 13,287 45,356 57,879
Restructuring 455 2,813 602 5,671
Total operating expenses 87,595 65,142 281,407 282,737
Operating loss (49,571 ) (9,380 ) (135,694 ) (9,649 )
Interest and other income (expense), net 4,882 (707 ) 524 (2,056 )
Loss before income taxes (44,689 ) (10,087 ) (135,170 ) (11,705 )
Income taxes (633 ) 2,198 928 247
Net loss prior to allocation of noncontrolling interest (44,056 ) (12,285 ) (136,098 ) (11,952 )
Loss attributable to noncontrolling interest -- 1,887 -- 2,935
Net loss attributable to THQ Inc. $ (44,056 ) $ (10,398 ) $ (136,098 ) $ (9,017 )
Loss per share attributable to THQ Inc. - basic $ (0.65 ) $ (0.15 ) $ (2.00 ) $ (0.13 )
Loss per share attributable to THQ Inc. - diluted $ (0.65 ) $ (0.15 ) $ (2.00 ) $ (0.13 )
Shares used in per share calculation - basic 68,119 67,624 67,910 67,522
Shares used in per share calculation - diluted 68,119 67,624 67,910 67,522
THQ Inc. and Subsidiaries

Reconciliation of GAAP net loss to Non-GAAP net income (loss)(a)

(In thousands, except per share data)

For the Three Months
Ended March 31,

For the Twelve Months
Ended March 31,

2011 2010 2011 2010
Net sales $ 124,237 $ 197,668 $ 665,258 $ 899,137
Change in deferred net revenue 124,316 (253 ) 137,075 (10,485 )
Non-GAAP net sales $ 248,553 $ 197,415 $ 802,333 $ 888,652

For the Three Months
Ended March 31,

For the Twelve Months
Ended March 31,

2011 2010 2011 2010
Operating loss $ (49,571 ) $ (9,380 ) $ (135,694 ) $ (9,649 )
Non-GAAP adjustments affecting operating loss:

JAKKS preferred return rate reduction(b)

-- -- -- (24,221 )

JAKKS and WWE settlement(c)

-- -- -- 29,488
Change in deferred net revenue 124,316 (253 ) 137,075 (10,485 )

Change in deferred cost of sales(d)

(67,262 ) 303 (68,518 ) 5,462

License impairment charges(e)

-- -- 30,296 --

Business realignment expenses(d)

2,232 11,715 13,145 14,812

Stock-based compensation and related costs(d)

2,017 2,535 8,843 10,196

Amortization of capitalized interest(f)

672 -- 672 --
Total non-GAAP adjustments affecting operating loss 61,975 14,300 121,513 25,252

Non-GAAP operating income (loss)

$ 12,404 $ 4,920 $ (14,181 ) $ 15,603

For the Three Months
Ended March 31,

For the Twelve Months
Ended March 31,

2011 2010 2011 2010
Net loss attributable to THQ Inc. $ (44,056 ) $ (10,398 ) $ (136,098 ) $ (9,017 )
Non-GAAP adjustments:
Non-GAAP adjustments affecting operating loss 61,975 14,300 121,513 25,252

Realignment attributable to noncontrolling interest(g)

-- (1,050 ) -- (1,050 )

Gain on sale of investments(h)

-- -- (107 ) (640 )

Mark-to-market adjustments on investments(i)

-- (2 ) -- (157 )

Capitalized interest expense(f)

(4,990 ) -- (4,990 ) --
Interest and other income (expense), net -- -- (72 ) (63 )

Income tax adjustments(j)

(2,477 ) 1,566 3,752 (1,657 )
Non-GAAP net income (loss) $ 10,452 $ 4,416 $ (16,002 ) $ 12,668

Non-GAAP earnings (loss) per share(k)

$ 0.15 $ 0.06 $ (0.24 ) $ 0.19

___________________

Notes:

(a) See explanation above regarding the company's practice on reporting non-GAAP financial measures.
(b) Represents the one-time reduction in accrued joint venture partner expense resulting from the settlement of the preferred return rate with JAKKS Pacific.
(c) Represents the expense related to the settlement of litigation with WWE and JAKKS Pacific in December 2009.
(d) See table below for further detail related to income statement classification of these adjustments.
(e) The company reevaluated the sales potential of games based on its kids movie-based licenses. Based on recent industry trends, the company lowered expectations for this category, which resulted in a $30.3 million impairment of kids movie-based licenses for games that have not yet been released; this charge is included in "Cost of sales - License amortization and royalties" in our GAAP statement of operations for the twelve months ended March 31, 2011.
(f) Represents interest expense capitalized to software development and subsequent amortization.
(g) Represents realignment attributable to noncontrolling interest.
(h) Realized gains on sales of investments to the extent we had previously excluded a related other-than-temporary impairment from non-GAAP amounts.
(i) Mark-to-market adjustments, including the impact of changes in foreign currency rates, related to certain of our available-for-sale investment securities; these amounts are recorded in "Accumulated other comprehensive income," a component of stockholders' equity, on our balance sheet until realized. Adjustment also may include unrealized gains on trading Auction Rate Securities (ARS), partially offset by related unrealized losses on a put option received in connection with the ARS; this amount is recorded in "Interest and other income (expense), net."
(j) For non-GAAP purposes, the company uses a fixed, long-term projected tax rate of 15% to evaluate its operating performance, as well as to forecast, plan and analyze future periods.
(k) Non-GAAP earnings (loss) per share has been calculated using diluted shares before applying the "if-converted" method relative to the Notes issued in August 2009.

The following table provides further detail on the income statement classification of certain non-GAAP adjustments that impact cost and expenses (in thousands):

For the Three Months
Ended March 31,

For the Twelve Months
Ended March 31,

2011 2010 2011 2010
Change in deferred cost of sales:
Change in deferred product costs $ (31,544 ) $ 183 $ (30,997 ) $ 2,690
Change in deferred software amortization and royalties (32,580 ) 120 (32,580 ) 2,772
Change in deferred license amortization and royalties (3,138 ) -- (4,941 ) --
Total change in deferred cost of sales $ (67,262 ) $ 303 $ (68,518 ) $ 5,462
Business realignment expenses:

Cost of sales - software amortization and royalties(a)

$ 40 $ 7,853 $ 9,922 $ 7,853

Cost of sales - license amortization and royalties(a)

375 -- 375 --
Product development 929 1,049 1,727 727
Selling and marketing 129 -- 166 497
General and administrative 304 -- 353 64
Restructuring 455 2,813 602 5,671
Total business realignment expenses $ 2,232 $ 11,715 $ 13,145 $ 14,812
Stock-based compensation and related costs:
Cost of sales - software amortization and royalties $ 619 $ 682 $ 2,761 $ 3,408

Product development(b)

546 586 1,098 1,763

Selling and marketing(b)

246 332 1,192 843

General and administrative(b)

606 935 3,792 4,182
Total stock-based compensation and related costs $ 2,017 $ 2,535 $ 8,843 $ 10,196

___________________

Notes:

(a)

In fiscal 2011, the company reevaluated its strategy of adapting certain Western content for free-to-play online games in Asian markets. This resulted in a $9.9 million write-off of capitalized software development and a $0.4 million write-off of capitalized licenses related to the cancellation of Company of Heroes Online and WWE Online.

(b)

Stock-based compensation expense for the twelve months ended March 31, 2011 and 2010 is net of the impact of the reversal of a portion of payroll tax accruals established in fiscal 2007 during our historical stock option grant investigation.
THQ Inc. and Subsidiaries
Unaudited Consolidated Balance Sheets

(In thousands)

March 31,
2011

March 31,
2010

ASSETS
Cash, cash equivalents and short-term investments $ 85,603 $ 271,319
Short-term investments, pledged -- 22,774
Accounts receivable, net of allowances 161,574 41,318
Inventory 31,905 13,970
Licenses 32,869 56,555
Software development 222,631 132,223
Deferred income taxes 8,200 5,590
Income taxes receivable -- 4,914
Prepaid expenses and other current assets 56,908 13,864
Total current assets 599,690 562,527
Property and equipment, net 28,960 28,374
Licenses, net of current portion 85,367 83,752
Software development, net of current portion 49,858 26,792
Deferred income taxes 516 433
Long-term investments -- 1,851
Other long-term assets, net 10,014 10,600
TOTAL ASSETS $ 774,405 $ 714,329
LIABILITIES AND EQUITY
Accounts payable $ 100,550 $ 40,305
Accrued and other current liabilities 137,922 130,929
Deferred revenue, net 141,060 6,403
Secured credit line -- 13,249
Total current liabilities 379,532 190,886
Other long-term liabilities 88,042 98,825
Convertible senior notes 100,000 100,000
Total liabilities 567,574 389,711
Total THQ Inc. stockholders' equity 206,831 324,355
Noncontrolling interest -- 263
Total equity 206,831 324,618
TOTAL LIABILITIES AND EQUITY $ 774,405 $ 714,329
THQ Inc. and Subsidiaries
Unaudited Supplemental Financial Information

(In thousands)

Three Months Ended GAAP Twelve Months Ended GAAP
Platform Revenue Mix

March 31,
2011

March 31,
2010

March 31,
2011

March 31,
2010

Consoles
Microsoft Xbox 360 $ 24,193 19.5 % $ 55,573 28.1 % $ 128,647 19.4 % $ 236,929 26.3 %
Nintendo Wii 46,546 37.5 24,196 12.2 220,140 33.1 137,219 15.3
Sony PlayStation 3 16,049 12.9 46,450 23.5 115,970 17.4 199,546 22.2
Sony PlayStation 2 4,361 3.5 5,428 2.8 24,194 3.6 52,816 5.9
Other -- -- -- -- -- -- 8 --
91,149 73.4 131,647 66.6 488,951 73.5 626,518 69.7
Handheld
Nintendo Dual Screen 11,969 9.6 29,370 14.9 97,869 14.7 144,272 16.0
Sony PlayStation Portable 5,495 4.4 7,393 3.7 29,777 4.5 44,508 5.0
Wireless 637 0.5 2,144 1.1 5,430 0.8 11,403 1.3
18,101 14.5 38,907 19.7 133,076 20.0 200,183 22.3
PC 14,987 12.1 27,114 13.7 43,231 6.5 72,436 8.0
Total Net Sales $ 124,237 100.0 % $ 197,668 100.0 % $ 665,258 100.0 % $ 899,137 100.0 %
Geographic Revenue Mix
Domestic $ 64,606 52.0 % $ 113,250 57.3 % $ 445,134 66.9 % $ 558,673 62.1 %
Foreign 59,631 48.0 84,418 42.7 220,124 33.1 340,464 37.9
Total Net Sales $ 124,237 100.0 % $ 197,668 100.0 % $ 665,258 100.0 % $ 899,137 100.0 %
Three Months Ended Non-GAAP Twelve Months Ended Non-GAAP
Platform Revenue Mix

March 31,
2011

March 31,
2010

March 31,
2011

March 31,
2010

Consoles
Microsoft Xbox 360 $ 91,223 36.7 % $ 55,500 28.1 % $ 201,851 25.2 % $ 236,816 26.7 %
Nintendo Wii 46,546 18.7 24,196 12.3 220,140 27.4 137,219 15.4
Sony PlayStation 3 64,190 25.8 46,478 23.5 170,811 21.3 191,393 21.5
Sony PlayStation 2 4,361 1.8 5,428 2.8 24,194 3.0 52,816 6.0
Other -- -- -- -- -- -- 8 --
206,320 83.0 131,602 66.7 616,996 76.9 618,252 69.6
Handheld
Nintendo Dual Screen 11,969 4.8 29,370 14.9 97,869 12.2 144,272 16.2
Sony PlayStation Portable 5,495 2.2 7,393 3.7 29,777 3.7 44,508 5.0
Wireless 759 0.3 2,144 1.1 5,551 0.7 11,403 1.3
18,223 7.3 38,907 19.7 133,197 16.6 200,183 22.5
PC 24,010 9.7 26,906 13.6 52,140 6.5 70,217 7.9
Total Non-GAAP Net Sales $ 248,553 100.0 % $ 197,415 100.0 % $ 802,333 100.0 % $ 888,652 100.0 %
Geographic Revenue Mix
Domestic $ 137,657 55.4 % $ 113,748 57.6 % $ 524,498 65.4 % $ 555,062 62.5 %
Foreign 110,896 44.6 83,667 42.4 277,835 34.6 333,590 37.5
Total Non-GAAP Net Sales $ 248,553 100.0 % $ 197,415 100.0 % $ 802,333 100.0 % $ 888,652 100.0 %

SOURCE: THQ Inc.

THQ Investor & Media Relations
Julie MacMedan
818-871-5125


 
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