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Technology Stocks : THQ,Inc. (THQI) -- Ignore unavailable to you. Want to Upgrade?

To: Marc Newman who wrote (9303)	1/13/1999 1:05:00 AM
From: EbolaMan	Respond to of 14266

Hi All Just signed onto AOL and got treated to a "no way around it" ad to purchase Rugrats. Its the first and only thing on the screen. Hopefully it will drum up some extra sales.

To: Marc Newman who wrote (9303)	1/13/1999 7:41:00 PM
From: Kory	Read Replies (1) \| Respond to of 14266

Marc, Re: your questions about the reserves and WCW, there are no hard & fast accounting rules here - all the reserve need be is "probable and estimable". THQ could reasonably justify both, as some level of returns is "probable", and they can use actual history for the "estimable" portion. (BTW, this is why companies often don't accrue for "probable" legal liability, as they simply disclose in footnotes that the amount of loss cannot be reasonably "estimated".) BF stated in the recent CC that THQ has continued to follow a consistent reserve policy. As such, D&T has probably already reviewed the policy and agreed to it in the past. It would take a very opinionated auditor to claim it is no longer reasonable in the present. In addition, as auditors, D&T is usually looking for overly aggressive accounting, not conservative accounting. Investors rarely sue the auditors when companies do better than expected in the future. With the current SEC focus, however, I'm sure they auditors will raise the issue. But THQ's reserve does not have much to do with bad debts; it is mainly for customer returns and accomodations. As such, it would be fairly easy for THQ to justify that a fair amount of liability for return exists in addition to WCW, (i.e. Rugrats, Quest, Gameboy titles). Furthermore, I don't know what the terms of the final WCW agreement are. THQ has stated they must quit selling WCW products after June 99. But, I don't know if there is a mandatory recall of product left on the shelves at that date. For example, if WalMart has 5 copies of Thunder left on the shelf, do they stay there or get recalled? If they all must be recalled, THQ will probably need a fair chunk of the reserve to handle all the returns. If they just sit there at the WalMart and wait to be sold, there is still the potential that THQ may grant customer returns or other accomodation when/if the product does not move. My guess is the reality of the WCW agreement is the second situation (no recall) which means that the return potential does not go away at June 1999, and therefore the reserve does not have to. Assuming I'm correct, the reserve could continue to increase or decrease depending on sales and actual returns. Furthermore, it is a general reserve with no real need to ever identify exactly which titles it is for. As for the NOL, the $2M is an calculated annual maximum amount that THQ can use . In fact, THQ actually had $15.4M left in unused NOL's at the end of 1997 - they simply are limited to $2.225M per year due to rules about change in ownership which limit the amount of NOL they can take in any one year. BF has stated that a reasonable rule of thumb for tax estimation is to take annual profits less $2.225 million and multiple that result times approx. 40%. Depending on the actual profits for the year, the $2.225 million can be a big percentage; or in the case of 1998, very small {g}. Haven't bought more THQ in a while. May do some more if the price dips much from here. Kory