UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| [X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2002
OR
[ ] |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ______________ to ______________
Commission file number 0-18813
THQ INC.
(Exact Name of Registrant as Specified in Its Charter)
_______________
Delaware |
13-3541686 |
|
(State or Other Jurisdiction of |
(I.R.S. Employer |
|
Incorporation or Organization) |
Identification No.) |
|
27001 Agoura Road |
||
Calabasas Hills, CA |
91301 |
|
(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (818) 871-5000
_______________
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [x] No [ ]
Indicate the number of shares outstanding of each of the issuer’s classes of
common stock, as of the latest practicable date.
Common stock, $0.01 par value: 39,696,644 shares (as of November 11, 2002).
THQ INC. AND SUBSIDIARIES
INDEX
| PAGE | ||||||||
| Part I — Financial Information |
||||||||
| Item 1. |
Consolidated Financial Statements: | |||||||
| Consolidated Balance Sheets — September 30, 2002 and December 31, 2001 | 3 | |||||||
| Consolidated Statements of Operations — for the Three Months and Nine Months Ended September 30, 2002 and 2001 | 4 | |||||||
| Consolidated Statements of Stockholders’ Equity — for the Year Ended December 31, 2001 and the Nine Months Ended September 30, 2002 | 5 | |||||||
| Consolidated Statements of Cash Flows — for the Nine Months Ended September 30, 2002 and 2001 | 6 | |||||||
| Notes to Consolidated Financial Statements | 7 | |||||||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 14 | ||||||
| Item 3. |
Quantitative and Qualitative Disclosures About Market Risk | 23 | ||||||
| Item 4. |
Disclosure Controls and Procedures | 23 | ||||||
| Part II — Other Information |
||||||||
| Item 1. |
Legal Proceedings | 24 | ||||||
| Item 2. |
Changes in Securities and Use of Proceeds | 25 | ||||||
| Item 6. |
Exhibits and Reports on Form 8-K | 26 | ||||||
| Signatures |
28 | |||||||
| Certifications |
29 | |||||||
2
Part I — Financial Information
Item 1. Financial Statements.
THQ INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
| September 30, | December 31, | |||||||||
| 2002 | 2001 | |||||||||
| (Unaudited) | ||||||||||
ASSETS |
||||||||||
Current assets: |
||||||||||
Cash and cash equivalents |
$ | 66,169 | $ | 171,059 | ||||||
Short-term investments |
139,870 | 35,106 | ||||||||
Cash, cash equivalents and short-term investments |
206,039 | 206,165 | ||||||||
Accounts receivable net of allowances of $37,673 and $40,616,
respectively |
68,110 | 126,011 | ||||||||
Inventory, net |
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 |
||||||||||
Current liabilities: |
||||||||||
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 | ||||||||
Commitments and contingencies |
— | — | ||||||||
Stockholders’ equity: |
||||||||||
Common stock, par value $.01, 75,000,000 shares authorized;
39,578,987 and 38,979,747 shares issued and outstanding as of
September 30, 2002 and December 31, 2001, respectively |
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 | ||||||
See notes to consolidated financial statements.
3
THQ INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
| For the Three Months Ended | For the Nine Months Ended | ||||||||||||||||
| September 30, | September 30, | ||||||||||||||||
| (Unaudited) | (Unaudited) | ||||||||||||||||
| 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 — basic |
$ | .12 | $ | .10 | $ | .25 | $ | .24 | |||||||||
Net income per share — diluted |
$ | .12 | $ | .09 | $ | .24 | $ | .22 | |||||||||
Shares used in per share calculation — basic |
39,633 | 32,428 | 39,366 | 31,778 | |||||||||||||
Shares used in per share calculation — diluted |
41,464 | 35,333 | 41,742 | 34,654 | |||||||||||||
See notes to consolidated financial statements.
4
THQ INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except per share data)
| For the Year Ended December 31, 2001 and the Nine Months Ended September 30, 2002 | ||||||||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||||||||
| Accumulated | ||||||||||||||||||||||||||
| Additional | Other | |||||||||||||||||||||||||
| Common | Common | Paid-in | Comprehensive | Retained | ||||||||||||||||||||||
| Shares | Stock | Capital | Loss | Earnings | Total | |||||||||||||||||||||
Balance at January 1, 2001 |
30,690,807 | $ | 307 | $ | 85,645 | $ | (1,715 | ) | $ | 47,888 | $ | 132,125 | ||||||||||||||
Exercise of warrants and options |
2,405,413 | 24 | 16,697 | — | — | 16,721 | ||||||||||||||||||||
Issuance of common stock from secondary offering |
4,596,222 | 46 | 154,559 | — | — | 154,605 | ||||||||||||||||||||
Issuance of common stock for Rainbow acquisition |
1,287,305 | 13 | 48,635 | — | — | 48,648 | ||||||||||||||||||||
Stock compensation |
— | — | 299 | — | — | 299 | ||||||||||||||||||||
Tax benefit related to the exercise of employee stock options |
— | — | 10,923 | — | — | 10,923 | ||||||||||||||||||||
Comprehensive income: |
||||||||||||||||||||||||||
Net income |
— | — | — | — | 36,013 | 36,013 | ||||||||||||||||||||
Other comprehensive income |
||||||||||||||||||||||||||
Foreign currency translation adjustment |
— | — | — | (703 | ) | — | (703 | ) | ||||||||||||||||||
Unrealized gain on investments |
— | — | — | 231 | — | 231 | ||||||||||||||||||||
Comprehensive income |
35,541 | |||||||||||||||||||||||||
Balance at December 31, 2001 |
38,979,747 | 390 | 316,758 | (2,187 | ) | 83,901 | 398,862 | |||||||||||||||||||
Exercise of warrants and options |
514,340 | 5 | 5,213 | — | — | 5,218 | ||||||||||||||||||||
Adjustments related to secondary offering |
— | — | 52 | — | — | 52 | ||||||||||||||||||||
Stock repurchase |
(81,700 | ) | (1 | ) | (1,920 | ) | (1,921 | ) | ||||||||||||||||||
Issuance of common stock for ValuSoft acquisition |
166,600 | 2 | 4,626 | 4,628 | ||||||||||||||||||||||
Adjustments related to Rainbow acquisition |
— | — | (82 | ) | — | — | (82 | ) | ||||||||||||||||||
Issuance of warrants |
— | — | 1,213 | — | — | 1,213 | ||||||||||||||||||||
Stock compensation |
— | — | 141 | — | — | 141 | ||||||||||||||||||||
Tax benefit related to the exercise of employee stock options |
— | — | 3,044 | — | — | 3,044 | ||||||||||||||||||||
Comprehensive income: |
||||||||||||||||||||||||||
Net income |
— | — | — | — | 9,859 | 9,859 | ||||||||||||||||||||
Other comprehensive income |
||||||||||||||||||||||||||
Foreign currency translation adjustment |
— | — | — | 2,631 | — | 2,631 | ||||||||||||||||||||
Unrealized loss on investments |
— | — | — | (1,092 | ) | — | (1,092 | ) | ||||||||||||||||||
Comprehensive income |
11,398 | |||||||||||||||||||||||||
Balance at September 30, 2002 |
39,578,987 | |||||||||||||||||||||||||