THQ 2009 Annual Report Download - page 34

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Overview of Financial Results for Fiscal 2009
Our net loss for the fiscal year ended March 31, 2009 was $431.1 million, or $6.45 per diluted share, and
included a gain on sale of discontinued operations, net of tax, of $2.1 million, compared to a net loss of
$35.3 million, or $0.53 per diluted share, for last fiscal year, including a gain on sale of discontinued
operations, net of tax, of $1.5 million. Our net loss from continuing operations for the fiscal year ended
March 31, 2009 was $433.2 million, or $6.48 per diluted share, compared to a net loss from continuing
operations of $36.9 million, or $0.55 per diluted share, for the year ended March 31, 2008.
Our profitability is dependent upon revenues from the sales of our video games. Net sales in fiscal year
ended March 31, 2009 decreased $200.5 million, or 19%, from fiscal year 2008, to $830.0 million from
$1,030.5 million. The decrease in our net sales was primarily due to a decrease in unit sales, unfavorable
foreign currency changes due to a stronger U.S. dollar, and a shift in title mix on our Wii games towards
lower priced titles. The decrease in unit sales primarily resulted from fewer new releases during fiscal 2009
as compared to the prior fiscal year and, additionally, sales of WWE Smackdown vs. Raw 2009 and
WALL•E were lower than sales of WWE Smackdown vs. Raw 2008 and Ratatouille in the prior fiscal year.
Profitability is also affected by the costs and expenses associated with developing and publishing our
games. Excluding the impact of goodwill impairment charge of $118.8 million, costs and expenses
decreased by $19.6 million, or 1.8%, in the fiscal year ended March 31, 2009 as compared to the prior fiscal
year. This decrease was primarily due to decreases in product costs, license amortization and royalties, and
product development expense as compared to the prior fiscal year, which were the result of cost reductions
in product development expenses and lower sales of licensed products.
Our principal source of cash is from (1) sales of packaged interactive software games designed for play on
home video game consoles, personal computers and handheld devices, (2) downloads by mobile phone
users of our wireless content, (3) interactive online-enabled packaged goods, digital distribution of our
products and downloadable content/micro-transactions, and (4) in-game advertising. Our principal uses of
cash are for product purchases of discs and cartridges along with associated manufacturer’s royalties,
payments to external developers and licensors, the costs of internal software development, and selling and
marketing expenses. Cash used in operations was $194.2 million in fiscal year 2009, as compared to
$9.7 million in fiscal year 2008. The increase in cash used was primarily a result of an increase in our net
loss for the year ended March 31, 2009 as compared to last fiscal year, partially offset by non-cash goodwill
impairment and higher amortization of licenses and software development in fiscal 2009 as compared to
fiscal 2008. Additionally, we had larger investments in software development and prepaid licenses and we
had higher payments to our vendors in fiscal 2009 as compared to fiscal 2008. These increases in cash usage
were partially offset by higher collections of accounts receivable and fewer product purchases reflected in
our ending inventory balance.
Critical Accounting Estimates
The Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses
our consolidated financial statements, which have been prepared in accordance with accounting principles
generally accepted in the United States of America. The preparation of these consolidated financial
statements requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during the reporting period. The
estimates discussed below are considered by management to be critical because they are both important to
the portrayal of our financial condition and results of operations and because their application places the
most significant demands on management’s judgment, with financial reporting results relying on estimates
about the effect of matters that are inherently uncertain. Specific risks for these critical accounting
estimates are described in the following paragraphs. For all of these estimates, we caution that actual
results may differ materially from these estimates under different assumptions or conditions.
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