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Despite Slowdown THQ Exceeds Expectations, Cancels 'The Sopranos' on X360

by Rainier on July 28, 2006 @ 2:40 a.m. PDT

For the first quarter of fiscal 2007, THQ reported net sales of $138.8 million, exceeding expectations of $125.0 million, primarily due to better-than-anticipated sales of Pixar's Cars and MotoGP 2006 videogames. In the subsequent conference call however, THQ confirmed that it has cancelled the Xbox 360 version of The Sopranos.

The company reported a fiscal 2007 first quarter net loss of $12.1 million, or $0.19 per share, which included equity-based compensation of $0.03 per share, related to the adoption of FAS 123®. On a non-GAAP basis, excluding equity-based compensation expense, the net loss was $10.5 million, or $0.16 per share. Both GAAP and non-GAAP EPS exceeded the company's previous guidance of a net loss of $0.25 and $0.21 per share, respectively. For the first quarter of fiscal 2006, THQ reported a net loss of $4.0 million, or $0.06 per share. A reconciliation of non-GAAP results to GAAP results is provided in the accompanying financial tables.

"Among a number of strong-performing titles in the June quarter, Cars was especially noteworthy, with U.S. sales outpacing both Finding Nemo and The Incredibles over a comparable period," said Brian Farrell, THQ president and CEO. "Our internal development teams delivered a great interactive experience based on the film and our sales and marketing teams executed at retail. We expect sales of Cars to continue to drive our upcoming quarterly results as we complete the global roll-out across Europe and Asia this summer and then bring Cars to the Xbox 360 and Nintendo Wii platforms this holiday season."

Farrell continued, "With the roll-out of Cars overseas and the launch of our key brands on next-generation hardware, we expect to outperform the market in what is widely viewed as a transition year for the industry. Our confidence reflects the strength of THQ's product portfolio, which offers a balance of new original properties for avid gamers on next-generation consoles and Windows PC, including the upcoming Saints Row and Company of Heroes, and multi-platform releases of proven mass-market licensed titles, including games based on Disney*Pixar, WWE and Nickelodeon brands."

Financial Guidance

THQ reaffirmed previous guidance for the 2007 full fiscal year and provided initial guidance for the second fiscal quarter of 2007:

* For the 2007 fiscal year, the company continues to expect net sales in the range of $900 million to $950 million and net income in the range of $0.90 to $1.00 per diluted share. This excludes forecasted equity-based compensation expense of $0.16 per diluted share.
* For the second quarter of fiscal 2007, the company expects net sales of approximately $195 million and net income of $0.01 per diluted share. This excludes forecasted equity-based compensation expense of $0.04 per diluted share.

Recent Developments

* Cars videogames ranked #1 in the US and Australia markets for the month of June 2006, according to the NPD Group, Inc. and GfK Australia
* During the June quarter, THQ shipped more than 2 million units of Cars
* MotoGP 2006 earned the #1 Xbox 360 ranking in the UK, Benelux, France, Germany, Italy and Spain, according to UK Chart-Track, GfK, Media Control and Nielsen sell-through data
* THQ's games earned numerous accolades at the Electronic Entertainment Expo in May 2006, including Supreme Commander ("Best Strategy Game of E3 2006" by the Game Critics Award Committee), Company of HeroesTM ("Best Strategy Game of E3 2006" by and MotoGP 2006 ("Best Racing Game of E3 2006" by
* THQ announced the acquisition of the Stuntman® franchise and its developer Paradigm Entertainment studio, along with plans to bring the Stuntman franchise to next-generation systems in fiscal 2008
* THQ announced the formation of Incinerator Studios, a sister studio to the previously announced Concrete Games studio based in Carlsbad, California
* Industry veterans Bob Aniello and Gary Rosenfeld joined THQ as senior vice president, worldwide marketing and senior vice president, business development, respectively

Non-GAAP Measures To supplement THQ's consolidated financial statements presented in accordance with GAAP, THQ provides non-GAAP net income (loss) and non-GAAP net income (loss) per share data. The presentation of these non-GAAP financial measures should be considered in addition to our GAAP results and is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP.

THQ makes reference to measures of operating income, certain expenses (including sales and marketing, product development, general and administrative), net loss and net loss per share for the first quarter of fiscal 2007, which exclude equity-based compensation to allow for a better comparison of results in the current period to those in prior periods that did not include FAS 123® equity-based compensation. THQ's reference to these measures should be considered in addition to results that are presented as consistent with GAAP. These non-GAAP measures are provided to enhance investors' overall understanding of the company's current financial performance and the company's prospects for the future and provide further information for comparative purposes due to the adoption of the new accounting standard FAS 123®. Specifically, the company believes the non-GAAP measures provide useful information to both management and investors by excluding certain expenses that may not be indicative of its core operating results and business outlook.

The company believes the non-GAAP measures that exclude equity-based compensation enhance the comparability of results against prior periods. These measures 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.

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