THQ, Inc. - How Serious Are its Problems?

| About: THQ, Inc. (THQIQ)
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It’s been a while since I mentioned the way, way back option re-staters. Here’s a new one in the fold: THQ, Inc. (THQI), who filed a non-reliance 8-K on January 9 outlining the extent of its problems.

The company’s special committee conducting the investigation found “instances where documentation of certain grants was lacking”and that “the company used incorrect measurement dates for financial accounting and reporting purposes on a number of occasions, primarily from misapplication of accounting standards,” noting that most of the understated compensation related to grants made to non-executive employees.

The aggregate corrections sound pretty minor: after-tax effects on net income for the period from January 1, 1996 through March 31, 2006 amount to about $11 million. The fiscal year 2007 are deemed immaterial and will be shown in the September 10-Q. For each of the 2006, 2005 and 2004 fiscal years, “the after-tax adjustments were approximately $2 million and will be reflected in the company’s amended” FY 2006 10-K -- again, minor compared to the net income of the same period.

As has been typical of such releases, no word on any added tax burdens. While THQ seems to have escaped with relatively minor effects, it does show that their controls needed polishing (no documentation?). It’s a minimum lesson to learn from the backdating maelstrom: controls over financial reporting matter. (As we still wait to see how widespread the SEC prosecution of these cases will be.)

THQI 1-yr chart
THQI 1-yr chart