THX 3rd Quarter Profits
Posted by benadmin on Monday, October 21 2002

( BW)(CA-THQ)(THQI) THQ Announces Third Quarter 2002 Results

Business Editors

CALABASAS HILLS, Calif.--(BUSINESS WIRE)--Oct. 21, 2002--THQ(R) Inc. (Nasdaq:THQI) today announced financial results for the three months and nine months ended September 30, 2002, reaffirmed guidance for 2002 and offered initial earnings guidance for 2003.

Financial Results

Third quarter 2002 net income grew 50% to $4.8 million, or $0.12 per diluted share compared to net income for the third quarter of 2001 of $3.2 million, or $0.09 per diluted share. Revenue in the third quarter 2002 increased 43% to $97.3 million, compared to revenue of $68.0 million in the same period of 2001.

For the nine months ended September 30, 2002, net income increased 44%, excluding the second quarter NIS charge, to $12.5 million, or $0.30 per diluted share, on a revenue increase of 66% to $262.8 million. Net income for the nine months ended September 30, 2001 was $7.5 million, or $0.22 per diluted share, on revenue of $182.6 million.

Complete financial results for the three months and nine months ended September 30, 2002 are contained in the attached tables. Table 1 results are shown excluding the NIS charge and Table 2 results include the NIS charge.

"We are pleased with our continued strong performance through the third quarter," said Brian Farrell, president and CEO, THQ. "We have a strong product line-up for the fourth quarter, although our optimism is tempered by the unusual degree of uncertainty in the global economy, the domestic retail environment this holiday season, and the ability of Nintendo and Microsoft to meet their global projections for Gamecube and Xbox sales."

Holiday Outlook

Reflecting these uncertainties, THQ provided earnings guidance at the lower end of the current range of $0.95 to $1.00 per diluted share on revenue of $270 million to $275 million for the fourth quarter of 2002.

For the full year 2002, THQ offered guidance at the lower end of the current range of $1.26 to $1.31 per diluted share on revenue of $515 million to $525 million. This would represent an expected earnings per share increase of approximately 23% to 30% on a revenue increase exceeding 35% over 2001.

Major releases for the third quarter in North America included role-playing game "Summoner(R) 2," "Jimmy Neutron Boy Genius" and "Rocket Power Beach Bandits," all for the PlayStation 2 computer entertainment system; "Monsters, Inc. Scream Arena" for the Nintendo Gamecube; and "SpongeBob Squarepants: Revenge of the Flying Dutchman" for the Nintendo Game Boy(R) Advance. "Scooby Doo! Night of 100 Frights" for the PlayStation 2 computer entertainment system; "WWE Raw" for the Xbox(TM) video game console from Microsoft and "WWE Wrestlemania X8" for Nintendo(R) Gamecube(TM) were well received across Europe.

Key fourth quarter releases include "Red Faction(R) II," "WWE SmackDown! Shut Your Mouth" and "SpongeBob Squarepants: Revenge of the Flying Dutchman" for the PlayStation 2 computer entertainment system, as well as a number of major kids brands published across multiple platforms.

Continued Growth Through 2003

The Company offered initial guidance for revenue and earnings of approximately $585 million and $1.40 per share for the full year 2003. Because of the Company's relatively light first quarter release schedule, it expects a loss of $0.10 to $0.12 per share on revenue of approximately $55 million. For the second quarter of 2003, the company expects revenue and net income to substantially exceed the second quarter of 2002 with the with the release of "WWE Raw" for the Xbox videogame system from Microsoft, which released in Q1 of 2002, along with "Disney/Pixar's Finding Nemo," the first products under THQ's multi-property, multi-platform agreement with award-winning interactive entertainment publisher Disney Interactive and Academy Award(R)-winning Pixar Animation Studios. "Disney/Pixar's Finding Nemo" will be available across multiple platforms in conjunction with Disney/Pixar's digitally animated theatrical release of the same name.

Mr. Farrell continued, "We are confident that THQ can maintain, if not increase, our market share in 2003."

About THQ

THQ Inc. is a leading, worldwide developer and publisher of interactive entertainment software for a variety of hardware platforms including PC CD-ROM, wireless devices, and those manufactured by Sony Computer Entertainment America Inc., Nintendo and Microsoft. The THQ web site is located at www.thq.com. The THQ Wireless site is located at www.thqwireless.com.

This press release contains statements that are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on current expectations, estimates and projections about THQ's business based, in part, on assumptions made by its management. These statements are not guarantees of THQ's future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements due to numerous factors, including, but not limited to, those described above and the following: changes in demand for THQ's products, product mix, the timing of customer orders and deliveries, the impact of competitive products and pricing and difficulties encountered in the integration of acquired businesses. In addition, such statements could be affected by growth rates and market conditions relating to the interactive software industry and general domestic and international economic conditions. Specific information concerning these and other such factors is contained in THQ's Prospectus dated March 26, 2002 as filed with the Securities and Exchange Commission on March 27, 2002. A copy of this filing may be obtained by contacting THQ or the SEC. The forward-looking statements contained herein speak only as of the date on which they are made, and THQ does not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of this release. -0-

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THQ Inc.
Third Quarter Earnings Announcement, 2002

Condensed Statements of Operations
(In thousands, except per share data)

Table 1 Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001

Net sales $97,335 $68,045 $262,778 $182,609

Costs and expenses:
Cost of sales 37,006 29,378 103,182 81,262
License amortization and
royalties 8,015 6,616 22,178 15,876
Software development
amortization 12,982 6,774 35,370 15,825
Product development 9,979 5,554 26,647 15,513
Selling and marketing 13,838 9,952 35,018 25,563
Payment to venture partner 1,044 342 4,116 2,105
General and administrative 8,288 4,922 20,687 16,384

Total costs and expenses 91,152 63,538 247,198 172,528

Income from operations 6,183 4,507 15,580 10,081
Interest income, net 1,257 608 4,158 1,915

Income before income taxes 7,440 5,115 19,738 11,996
Income taxes 2,636 1,901 7,249 4,468

Net income $ 4,804 $ 3,214 $ 12,489 $ 7,528

Net income per share
- diluted $ 0.12 $ 0.09 $ 0.30 $ 0.22

Shares used in per share
calculation - diluted 41,464 35,333 41,742 34,654


This table excludes a non-cash charge of $2.6 million (net after tax) for the discontinuation of the NIS on-line joint venture in the United Kingdom.

Condensed Statements of Operations
(In thousands, except per share data)


Table 2 Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001

Net sales $97,335 $68,045 $262,778 $182,609

Costs and expenses:
Cost of sales 37,006 29,378 103,182 81,262
License amortization and
royalties 8,015 6,616 22,178 15,876
Software development
amortization 12,982 6,774 35,370 15,825
Product development 9,979 5,554 26,647 15,513
Selling and marketing 13,838 9,952 35,018 25,563
Payment to venture partner 1,044 342 4,116 2,105
General and administrative 8,288 4,922 20,687 16,384

Total costs and expenses 91,152 63,538 247,198 172,528

Income from operations 6,183 4,507 15,580 10,081
Interest income, net 1,257 608 4,158 1,915
Other expenses -- -- (3,006 ) --

Income before income taxes 7,440 5,115 16,732 11,996
Income taxes 2,636 1,901 6,873 4,468

Net income $ 4,804 $ 3,214 $ 9,859 $ 7,528

Net income per share
- diluted $ 0.12 $ 0.09 $ 0.24 $ 0.22

Shares used in per share
calculation - diluted 41,464 35,333 41,742 34,654


This table includes a non-cash charge of $2.6 million (net after tax) for the discontinuation of the NIS on-line joint venture in the United Kingdom.

Table 3 Balance Sheets
(In thousands)

September December
30, 31,
2002 2001

ASSETS
Cash, cash equivalents and short-term
investments $206,039 $206,165
Accounts receivable - net 68,110 126,011
Inventory 24,037 9,917
Licenses 19,274 16,758
Software development 55,473 34,664
Income taxes receivable -- 290
Prepaid expenses and other current assets 9,514 7,498

Total current assets 382,447 401,303

Property and equipment, net 15,777 13,891
Licenses - net of current portion 28,672 8,345
Software development - net of current portion 4,746 4,466
Goodwill - net 60,322 48,202
Other long term assets - net 8,142 11,759

Total assets $500,106 $487,966

LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 18,876 $ 27,186
Accrued expenses 15,294 22,944
Accrued royalties 23,348 30,001
Income taxes payable 2,351 --
Deferred income taxes 1,629 1,567

Total current liabilities 61,498 81,698

Accrued royalties - net of current portion 14,925 6,686
Deferred income taxes 1,130 720

Common stock 396 390
Additional paid-in capital 329,045 316,758
Accumulated other comprehensive loss (648) (2,187)
Retained earnings 93,760 83,901

Total stockholders' equity 422,553 398,862

Total liabilities and stockholders' equity $500,106 $487,966


THQ Inc.
Supplementary Tables

Three Months Nine Months
Ended Ended
September 30, September 30,
2002 2001 2002 2001

Platform Revenue Mix
PlayStation 2 23.4% 19.4% 21.6% 20.3%
PlayStation 10.2 10.8 10.1 18.7
Game Boy Advance 24.8 33.5 28.9 15.7
Game Boy Color 7.5 17.4 5.8 24.8
Game Cube 17.0 -- 12.8 --
Nintendo 64 -- 1.5 -- 9.7
Xbox 4.9 -- 10.9 --
PC 12.7 16.7 9.4 10.2
Wireless 0.7 -- 0.4 --
Other (1.2) 0.7 0.1 0.6
100.0% 100.0% 100.0% 100.0%

Geographic Revenue Mix
Domestic 76.4% 69.3% 75.9% 65.0%
Foreign 23.6 30.7 24.1 35.0
100.0% 100.0% 100.0% 100.0%
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