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THQ Full-Year Losses Widen To $431 Million In 'Disappointing' FY09
by Leigh Alexander
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May 6, 2009
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THQ continues to see major losses in what it calls a "challenging fiscal 2009." The Saints Row publisher reports today that it saw a $431 million net loss during its fiscal year, with sales totaling $830 million -- down 23 percent from $1.04 billion the previous year. THQ's fiscal year ends March 31.
The loss represents quite a profitability gap for THQ, compared to the $35 million loss it reported last fiscal year. CEO Brian Farrell called the year "disappointing."
The company saw fourth quarter sales of $170.3 million, driven by WWE: Legends of Wrestlemania and Warhammer 40,000: Dawn of War II. Saints Row 2 shipped more than 2.8 million units, the publisher says, noting that its goal of raising quality has resulted in Metacritic scores over 80 for all its "key original games."
Nonetheless, these fourth quarter sales represent a 9 percent year over year decline from $189 million. And year over year, THQ's losses widened in the fourth quarter, nearly tripling to $96.9 million. It's not quite the same gap as the publisher reported last quarter, however, when it saw $192 million in losses.
The company is taking what Farrell calls "aggressive" steps to restructure, and president and CEO Brian Farrell says the company has "substantially completed a significant realignment of our business to position THQ for profitability and positive cash flow in fiscal 2010."
THQ says that overall, its plan to save a total $220 million is on track, and that it's "substantially completed actions" necessary toward that goal. In fact, part of the company's profitability gap in the short term can be credited to the cost of its turnaround efforts; THQ's restructuring included some 600 layoffs -- 24 percent of its workforce -- last quarter. The total cost of its business realignment during the fiscal fourth quarter was $44.7 million, $4.5 million of which went to employee severance and contract termination.
Most of the balance went to canceled titles and lost assets from studio closures, says THQ. The company is known to have enacted heavy layoffs at Rise of Nations developer Big Huge Games. Presently, THQ says it maintains eight internal development studios and over 1,200 product development staffers.
At the same time, the publisher says it's currently in the process of securing a new $35 million credit line from Bank of America, backed by its own assets and against which it can borrow for "working capital and other corporate purposes." It'll finalize the deal on July 5.
"In today’s economic environment, we are pursuing this credit facility as a prudent backup to our $141 million cash and short-term investment balance at March 31, 2009," says executive VP and CFO Paul Pucino.
"We have taken decisive actions to achieve our cost saving objectives, eliminating $220 million in cash expenditures while at the same time implementing a focused product strategy," says Farrell.
The company reiterated its "more focused" strategy of producing core titles from owned IP and fewer SKUs in total, the same plan Farrell laid out at the close of the company's difficult third fiscal quarter. The publisher's current pipeline includes Red Faction: Guerilla and Darksiders.
As part of its strategy, the company also plans to leverage its presence in the fighting category with its WWE and UFC licenses, and it will also focus on better profitability for its kids' titles.
In addition to multiplatform owned IP Darksiders and Red Faction: Guerilla and new entries in the UFC and WWE licensed franchises, the company has three unannounced Wii titles in its "mass appeal" lineup, which currently includes All Star Cheer Squad 2 and MX vs. ATV. Four kids games are slated, including the movie tie-in to Pixar's Up and Marvel Super Hero Squad; on the online side, THQ will release Dragonica and Company of Heroes Online.
"We are investing in the brands and products with the highest potential to drive THQ’s long-term profitable growth," Farrell says.
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