THQI » Topics » Seasonality

These excerpts taken from the THQI 10-K filed May 26, 2009.

Seasonality

The interactive entertainment software market is highly seasonal, with sales typically significantly higher during the third quarter of our fiscal year, due primarily to the increased demand for interactive games during the year-end holiday buying season.

Seasonality



The interactive entertainment software market is highly seasonal, with sales typically significantly higher during the third quarter of our fiscal
year, due primarily to the increased demand for interactive games during the year-end holiday buying season.



This excerpt taken from the THQI 10-Q filed Feb 5, 2009.
Seasonality.  The interactive entertainment software market is highly seasonal.  Sales are typically significantly higher during the third quarter of our fiscal year, due primarily to the increased demand for interactive games during the holiday buying season.

 

Overview of Financial Results for the Three and Nine Month Periods Ended December 31, 2008

 

Our net loss for the three months ended December 31, 2008 was $191.8 million, or $2.86 per diluted share, compared to net income of $15.5 million, or $0.23 per diluted share, for the same period last fiscal year.  Our net loss from continuing operations for the nine months ended December 31, 2008 was $336.3 million, or $5.04 per diluted share, compared to a net loss from continuing operations of $2.3 million, or $.03 per diluted share, for the same period last fiscal year.  Our net loss for the nine months ended December 31, 2008 was $334.2 million, or $5.01 per diluted share, and included a $2.1 million gain on sale of discontinued operations.

 

Our profitability is dependent upon revenues from the sales of our video games.  Net sales in the three months ended December 31, 2008 decreased $152.3 million, or 30%, from the same period last fiscal year, to $357.3 million from $509.6 million. Net sales in the nine months ended December 31, 2008 decreased $183.7 million, or 22%, from the same period last fiscal year, to $659.7 million from $843.4 million.  The decrease in our net sales in the three and nine months periods ended December 31, 2008 was primarily due to a decrease in unit sales, unfavorable foreign

 

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Table of Contents

 

currency changes, as well as a shift in product mix toward lower priced Wii and DS titles as compared to releases on the higher priced Xbox 360 and PS2 titles in the same periods last fiscal year.  The decrease in unit sales partially resulted from fewer new releases during fiscal 2008 as compared to the same periods last fiscal year. In addition, sales of WWE Smackdown vs. Raw 2009, WALLE were lower than sales of WWE Smackdown vs. Raw 2008, Ratatouille, and Cars: Mater-National in the same periods last fiscal year.

 

Profitability is also affected by the costs and expenses associated with developing and publishing our games.  Excluding the impact of goodwill impairment charge of $118.1 million, costs and expenses decreased by $55.0 million, or 11%, in the three months ended December 31, 2008, and decreased by $31.5 million, or 4% in the nine months ended December 31, 2008, as compared to the same periods last fiscal year.  This decrease was primarily due to decreases in product costs, license amortization and royalties, and product development expense as compared to the same periods last fiscal year, which were the result of cost reductions in product development expenses and lower sales.

 

Our principal source of cash is from (1) sales of packaged interactive software games designed for play on home video game consoles, personal computers and handheld devices, (2) downloads by mobile phone users of our wireless content, (3) interactive online-enabled packaged goods, digital distribution of our products and downloadable content/micro-transactions, and (4) in-game advertising.  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 $200.0 million in the nine months ended December 31, 2008, as compared to $89.7 million in the nine months ended December 31, 2007.  The increase in cash used in operations was primarily a result of an increase in our net loss for the nine months ended December 31, 2008 as compared to the same period last fiscal year as well as increases in our prepaid license spending offset by collections of accounts receivable.

 

Strategic Plan and Business Realignment

 

In November 2008, in order to address the significant trends affecting our business, we created a new strategic plan to focus on 1) developing a select number of high quality titles targeted at the core gamer, 2) extending our leadership in the fighting category, 3) reinvigorating the product portfolio and improving profitability in our kids’ business, 4) building strong casual game franchises, and 5) extending our brands into emerging online markets.  In the quarter ended December 31, 2008, we made changes to our organization to support this new business strategy. We restructured our product development organization under new studio management and discontinued a number of titles in our product pipeline that did not fit our strategic objectives.  As a result, we closed five of our studios and reduced our product development headcount by approximately 250 people, which was approximately 17% of our production staff.  Additionally, we realigned our sales, marketing and corporate organizational structure to support this more focused product strategy by reducing both costs and headcount in our corporate and global publishing organizations.

 

As a result of these realignment initiatives, we recorded a $4.8 million restructuring charge for the quarter ended December 31, 2008.  Restructuring charges include the costs associated with lease abandonments, less estimates of sublease income, write-off of related fixed assets due to the studio closures, as well as other non-cancellable contracts.  Additionally, as of December 31, 2008 we incurred non-cash charges of $29.8 million, recorded in cost of sales – software amortization and royalties, related to the write-off of capitalized software for games that have been cancelled.  We also incurred $6.2 million in cash charges related to severance and other employee benefits for terminated employees.  Employee related severance costs are classified in product development, selling and marketing, and general and administrative expenses in our consolidated statements of operations based upon the terminated employee’s classification.

 

On February 4, 2009, in response to continued economic weakness and uncertainty in the market, we announced additional cost reduction actions consistent with our new strategy.  We intend to reduce additional costs in product development spending through studio dispositions and other project and headcount reductions.  We also intend to reduce sales, marketing and corporate expenses globally through headcount and other cost reductions.  As part of our execution on these additional cost cutting measures, we have downsized our THQ Wireless operations by approximately 100 people and narrowed our focus to publish games for high-end wireless devices. At this time, we are unable to estimate the charges that we will incur in connection with these additional cost reduction actions.  However, we expect the charges to consist primarily of costs associated with lease abandonments, the write-off of fixed assets due to studio closures, the write-off of capitalized software for cancelled games, costs associated with non-cancellable contracts, and severance and other employee benefit costs for terminated employees.

 

We plan to achieve $100 million in incremental cost savings with the additional cost reduction actions, which are expected to be realized starting in fiscal 2010.

 

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This excerpt taken from the THQI 10-Q filed Nov 6, 2008.
Seasonality.  The interactive entertainment software market is highly seasonal.  Sales are typically significantly higher during the third quarter of our fiscal year, due primarily to the increased demand for interactive games during the holiday buying season.  

 

New Strategic Plan and Business Realignment

 

In order to address the significant trends affecting our business, we have created a new strategic plan in an effort to increase our profitability and grow revenue in fiscal 2010.  We plan to significantly realign our business to focus on fewer, higher quality games, a more even product flow throughout the year, and an operating structure that supports our more focused product strategy. Specifically, we plan to do the following: 

 

1.     Publish fewer, bigger core gamer titles.  The quality bar for core gamers continues to be set higher and the cost to deliver this quality has increased significantly.  As a result, we have reduced the number of core gamer games in our development pipeline, but will increase our development budgets where appropriate to compete at the highest levels. 

 

2.     Continue to build on our dominant share in the fighting category with both our WWE and UFC licenses, including the launch of select product extensions such as WWE Legends of WrestleMania.

 

3.     Capitalize on the emerging family gaming segment.  We plan to build franchises such as de Blob, Big Beach Sports and Drawn to Life, which appeal to the broadening gamer demographic.  

 

4.     Make our kids business more profitable.  We plan to rationalize our product line in the kids business by publishing on the most relevant platforms and by reducing development costs through more outsourcing.  We are also reinvigorating our licensed franchise portfolio with the recent additions of Marvel and DreamWorks Animation.

 

5.     Migrate our key brands to the online gaming market.  We plan to make targeted investments in extending key brands, including Company of Heroes Online, WWE Online (working title) and our Warhammer 40,000 massive multiplayer online (“MMO”) game.  We also plan to exploit growing consumer segments, such as the casual MMO market, with the release of Dragonica working with our joint venture partner, ICE Entertainment.

 

We are making a number of changes to our organization to support our new business strategy.  We have restructured our product development organization under new studio management.  We have discontinued a number of titles in our product pipeline that did not fit our strategic objectives.  As a result, we have closed five of our studios:  Helixe, Locomotive Games, Mass Media, Paradigm Entertainment and Sandblast, and we have also reduced staff at Juice Games and Rainbow Studios.  These actions resulted in a headcount reduction of approximately 250 people, which is approximately 17% of our production staff.  We are also realigning our organizational structure to support this more focused product strategy.  Starting in November 2008, we plan to reduce both costs and headcount in our corporate and global publishing organizations.

 

Impairment charges related to the cancellation of the titles and long-lived assets associated with the studio closures are currently expected to be $30 million to $35 million.  In addition, we expect to incur further business realignment charges related to the associated personnel and facilities as the realignment plan is further implemented.

 

These excerpts taken from the THQI 10-K filed May 28, 2008.

Seasonality

The interactive entertainment software market is highly seasonal, with sales typically significantly higher during the third quarter of our fiscal year, due primarily to the increased demand for interactive games during the year-end holiday buying season.

Seasonality



The interactive entertainment software market is highly seasonal, with sales typically significantly higher during the third quarter of our fiscal year, due primarily to the
increased demand for interactive games during the year-end holiday buying season.



This excerpt taken from the THQI 10-K filed May 30, 2007.

Seasonality

The interactive entertainment software market is highly seasonal, with sales typically significantly higher during the third quarter of our fiscal year, due primarily to the increased demand for interactive games during the year-end holiday buying season.

This excerpt taken from the THQI 10-K filed May 30, 2007.

Seasonality

The interactive entertainment software market is highly seasonal, with sales typically significantly higher during the third quarter of our fiscal year, due primarily to the increased demand for interactive games during the year-end holiday buying season.

8




This excerpt taken from the THQI 10-K filed Jan 19, 2007.

Seasonality

The interactive entertainment software market is highly seasonal, with sales typically significantly higher during the third quarter of our fiscal year, due primarily to the increased demand for interactive games during the year-end holiday buying season.

This excerpt taken from the THQI 10-K filed Jun 7, 2006.

Seasonality

The interactive entertainment software market is highly seasonal, with sales typically significantly higher during the third quarter of our fiscal year, due primarily to the increased demand for interactive games during the year-end holiday buying season.

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