THQ 2005 Annual Report Download - page 4

2thq inc. 2005 annual report
A RECORD YEAR
W
e’re very pleased to report that THQ posted record results in fiscal 2005. We continued
to outperform the video game software market with 18% revenue growth over the prior
twelve months. We posted a 6.7% market share in calendar 2004, and continued our
momentum as the number two independent video game publisher for the first four months of
2005, according to The NPD Group, a leading independent market information provider. In
addition to posting record net sales and net income for the company, we published a record six
titles that shipped more than one million units during the fiscal year, with four of these titles
surpassing two million units shipped.
In fiscal 2005, THQ reported record net sales of $756.7 million, our tenth consecutive year of
revenue growth. Our net income climbed to $62.8 million, or $1.56 per diluted share, up from
$35.8 million, or $0.92 per diluted share, in the prior twelve months. We posted a 9.8% operating margin, up 220 basis
points from 7.6% a year ago. We generated operating cash flow of $60.5 million. We continued to strengthen our
extremely solid balance sheet: at March 31, 2005, THQ had $331.2 million in cash and investments, or nearly $8.00 per
diluted share, with no debt, and stockholders’ equity of $548.8 million.
Executing on our strategy of expanding our global reach, THQ grew international revenues to a record 38% of total net
sales from 29% for the previous twelve months. As part of our strategy to bring key franchises in-house and increase the
number of our own intellectual properties, we grew our internal development studio organization to a record 10 studios
and more than 900 professionals. Product development staff now represents 70% of THQ’s more than 1,300 employees
worldwide. Executing on our goal of becoming a leader in wireless entertainment, we more than tripled our wireless
revenues to a record $25 million from $7 million a year ago. In short, our fiscal 2005 financial performance was solid as
we successfully executed on our strategies. We grew revenue, operating margin and net income while we continued to
invest in product development, international expansion and wireless, three strategic growth drivers for THQ’s future.
INDUSTRY-LEADING FRANCHISES SECURED FOR THE LONG TERM
In fiscal 2005, we strengthened our portfolio of franchises to support THQ’s long-term growth. We renewed our
relationships with two of the most sought-after partners in the industry: Pixar Animation Studios and Nickelodeon. Our
new, four-property agreement with Pixar commences in 2007 with games based on their first theatrical release after
Cars. We also extended our long-standing master interactive licensing agreement with Nickelodeon through 2010. We
expect to publish world-class video games based on Pixar’s films and Nickelodeon’s characters for many years to come.
Why are we so excited to have renewed these relationships? In fiscal 2005, games based on Disney/Pixar and
Nickelodeon brands generated more than $300 million in net sales and helped drive our significantly improved
operating margins as we developed games based on The Incredibles and The SpongeBob SquarePants
™
Movie in-house.
We shipped more than 4.5 and 2.5 million units of these titles, respectively, during fiscal 2005. Importantly, titles based
on the Disney/Pixar and Nickelodeon brands enjoy extremely long shelf life. In fiscal 2005, we shipped more than two
million units of games based on Disney/Pixar’s Finding Nemo, bringing life-to-date shipments to more than seven
million units, and more than one million units of games based on SpongeBob SquarePants
™
: Battle for Bikini Bottom,
bringing life-to-date shipments to more than three million units.
Titles based on our long-term license agreement with World Wrestling Entertainment
™
continued to post sales in excess
of $100 million for THQ in fiscal 2005, marking the third consecutive year of this achievement. Our WWE
™
SmackDown!
™
Vs. Raw
®
PlayStation
®
2 game shipped more than two million units during fiscal 2005, with strong international sales
reflecting the growing popularity of WWE
™
programming overseas. In fiscal 2006, we plan to publish WWE games on
each console and to extend the WWE brand to the new PSP
™
portable entertainment system and wireless devices.
BUILDING ON OUR SUCCESS WITH NEW FRANCHISES FOR AVID GAMERS
In fiscal 2005, we achieved our goal of growing our market share against the core gamer segment. New original property
Full Spectrum Warrior
™
shipped more than one million units worldwide. We plan to follow up on its success with a
sequel, Full Spectrum Warrior
™
: Ten Hammers
™
, in fiscal 2006. We are also extremely pleased with the fiscal 2005
performance of games developed by our own internal studios. MX Unleashed
™
, which was developed by our Rainbow
Studios
™
, launched in February 2004 and crossed the million-unit threshold in fiscal 2005. We built on this achievement
with the release of its sequel, MX vs. ATV Unleashed
™
, in March 2005. That title has already surpassed half a million
units shipped and we expect it to become a million-unit seller. PC-exclusive title Warhammer
®
40,000: Dawn of War
™
,
developed by our Relic Entertainment studio, shipped more than half a million units in fiscal 2005. We plan to launch an
extension to that franchise this year.