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About Judy

As WP's senior editor, I edit review and preview articles, attempt to keep up with the frantic pace of Rainier's news posts, and keep our reviewers on deadline, which is akin to herding cats. When I have a moment to myself and don't have my nose in a book, I like to play action/RPG, adventure and platforming games.

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THQ Increases Fiscal Outlook, Cancels Titles, Closes Studio

by Judy on Jan. 23, 2008 @ 3:04 p.m. PST

THQ has increased its Q3 financial guidance due to better than expected sales of WWE SmackDown vs. Raw 2008 and MX vs. ATV Untamed. This rosy outlook comes at a price, as THQ officially cancelled Frontlines: Fuel of War for the PS3, which was hinted in earlier reports. Destroy All Humans!: Big Willy Unleashed for the PS2 has also been axed (no word on the PSP and Wii versions), and THQ has decided to not continue with its Juiced and Stuntman IPs. THQ also closed down its Concrete Games studio, which was working on an unannounced title.

THQ today announced updated guidance for its fiscal third quarter ended December 31, 2007, and its fiscal fourth quarter and year ending March 31, 2008.

For the fiscal third quarter ended December 31, 2007, the company increased revenue guidance to approximately $509 million from $490 million, reflecting better-than-expected sales of WWE SmackDown vs. Raw 2008 and MX vs. ATV Untamed. However, the company expects to report approximately $20 million in accelerated amortization expense related to the underperformance of certain previously-released games, including Stuntman:Ignition, Ratatouille and Conan. In addition, consistent with the company's previously-announced quality initiatives relating to product development and its product pipeline, the company expects to record non-cash charges of approximately $27 million related to:

  1. the cancellation of the PlayStation 3 (PS3) version of Frontlines: Fuel of War and the PlayStation 2 (PS2) version of Destroy All Humans!: Big Willy Unleashed;
  2. costs associated with two unannounced titles for Xbox 360 and PS3 that had been scheduled for release in fiscal 2010; and
  3. the company's decision not to pursue its Juiced and Stuntman intellectual properties.

The company also announced the closure of its Concrete Games studio, which was working on one of the unannounced titles. THQ expects a substantial number of the studio's employees to be offered positions in its other studios. The closure will be reflected in the company's fiscal fourth quarter results.

"In October, we announced certain product quality initiatives, including personnel and structural changes in product development and a more rigorous internal and external product evaluation and feedback process," said Brian Farrell, president and CEO of THQ. "Consistent with these initiatives, we have taken actions to strengthen our pipeline and position ourselves to compete aggressively with compelling, high quality games."

As a result of these non-cash charges, the company now expects to report GAAP net income of approximately $0.22 per diluted share for the December quarter. On a non-GAAP basis, excluding stock-based compensation expense of approximately $0.01 per diluted share, the company expects to report net income of approximately $0.23 per diluted share for the quarter. Both GAAP and non-GAAP net income includes a $0.02 per diluted share gain from receipt of additional proceeds related to the sale of Minick AG in fiscal year 2007.

For the fiscal fourth quarter ending March 31, 2008, the company expects to report net sales of approximately $200 million, compared with its previous guidance of $240 million. Due to the significant online play component of Frontlines: Fuel of War on Windows PC, the revised expectations now include the deferral of approximately $10 million of revenue from that title. The revised sales expectations also reflect the cancellation of the PS2 version of Destroy All Humans: Big Willy Unleashed, which was previously scheduled to ship in March, and lowered expectations for several titles which launched earlier in the fiscal year. The company now expects to report a GAAP net loss of approximately $0.13 per share for the fiscal fourth quarter. On a non-GAAP basis, excluding stock-based compensation expense of approximately $0.07 per share, the company expects to report a net loss of approximately $0.06 per share.

As a result, for the fiscal year ending March 31, 2008, THQ expects to report net sales of approximately $1.04 billion and a GAAP loss per share of approximately $0.16, which includes approximately $0.21 per share of stock-based compensation expense. On a non-GAAP basis, excluding stock-based compensation expense, the company expects to report net income of approximately $0.05 per diluted share.

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