THQ 2007 Annual Report Download

Download and view the complete annual report

Please find the complete 2007 THQ annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 108

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108

Table of contents

  • Page 1

  • Page 2
    ... units of Disney•Pixar's Cars, 4 million units of WWE ® SmackDown® vs. Raw ® 2007 and 4 million units combined of our new Nickelodeon titles :: Published 8 games that shipped more than one million units :: Secured the long-term videogame publishing rights to the Ultimate Fighting Championship...

  • Page 3
    ... 2006, respectively. GROWING MARKET OPPORTUNITY NORTH AMERICA AND EUROPE SOFTWARE DOLLAR GROWTH $30 $ Billions $15 THQ GAINED SHARE IN ALL MAJOR MARKETS REVENUE GROWTH % IN FY2007 $0 2006 2007E 2008E 2009E 40 35% PC CONSOLE HANDHELD NEW OPPORTUNITIES Source: International Development Group...

  • Page 4
    ... to Support Future Growth We've built a solid foundation of both owned and licensed franchises. In fiscal 2007 we successfully launched new owned and internally developed titles Saints Row and % O W SED IP 80 NED IP 33% OWNED IP 20% FY07 $1.0B FY08E $1.1B LI EN Company of Heroes. We...

  • Page 5
    ... more than ten titles planned for the Wii in fiscal 2008, including games targeted at a slightly older demographic such as WWE ® SmackDown ® development efforts. INCREASING INTERNAL DEVELOPMENT PERCENT OF THQ REVENUE vs. Raw ® 2008 and the next installment in our MX vs. ATV ™ franchise. We...

  • Page 6
    ... our three well-established multi-million unit licensed franchises: Disney•Pixar, WWE and Nickelodeon to continue to fuel THQ's growth. In addition to releasing new games based on these franchises, we expect to publish games based on the Ultimate Fighting Championship starting in fiscal 2009...

  • Page 7
    ... value of the voting stock held by non-affiliates of the registrant as of the last business day of the registrant's second fiscal quarter, September 30, 2006 was approximately $1.9 billion (based on the closing sales price of the registrant's common stock on September 29, 2006). The number of shares...

  • Page 8
    THQ INC. INDEX TO ANNUAL REPORT ON FORM 10-K FILED WITH THE SECURITIES AND EXCHANGE COMMISSION FOR THE FISCAL YEAR ENDED MARCH 31, 2007 ITEMS IN FORM 10-K PAGE Part I Item 1. Item 1A. Item 1B. Item 2. Item 3. Item 4. Business...Risk Factors ...Unresolved Staff Comments ...Properties ...Legal ...

  • Page 9
    ... to licensed properties, we also develop games based upon owned intellectual properties, including Company of Heroes™, Destroy All Humans! ® Juiced™, MX vs. ATV™, Red Faction®, Saints Row™ and Stuntman®. (1) Nintendo®, Dual Screen, Game Boy® Advance, GameCube® and Wii are trademarks...

  • Page 10
    ... JAKKS Pacific, Inc., grants us the exclusive rights to publish games based on WWE across all viable game systems through 2014. Our license agreement with Nickelodeon grants us the exclusive right to publish games based on all existing and future Nickelodeon animated television and movie properties...

  • Page 11
    ... internally developed Saints Row franchise, the internally developed Company of Heroes franchise, the release of a sequel in our Destroy All Humans! franchise and the introduction of PC game Titan Questâ„¢. In fiscal 2008, we plan to introduce internally developed Frontlinesâ„¢: Fuel of Warâ„¢. We...

  • Page 12
    ... for Saints Row and plan to expand our digital download offerings in fiscal 2008. We re-positioned our wireless business for future growth, adding new brands and development capabilities to the business. We secured the rights to publish Warhammer:40,000 as a massively multiplayer online game and...

  • Page 13
    ... following list identifies games that generated a significant portion of our sales during the fiscal years ended March 31, 2007, 2006 and 2005: • in fiscal 2007, Disney•Pixar's Cars, WWE SmackDown vs. Raw 2007, Saints Row, Nickelodeon titles, Avatar: The Last Airbender and SpongeBob SquarePants...

  • Page 14
    ... platforms that are currently sold in the United States and Canada. Our key platform licenses also allow us to publish and distribute titles in Europe, Australia, New Zealand and Japan. We are also licensed to publish and distribute titles for GameCube, PlayStation 2, Xbox, and Xbox 360 in various...

  • Page 15
    ... lines during regular business hours. The customer support group tracks customer inquiries, and we use this data to help improve the development and production processes. Manufacturing Other than games that we release for sale on PCs or wireless devices, our video games are manufactured for us by...

  • Page 16
    ... and business reporters. Our marketing efforts for products released in fiscal 2007 covered a broad range of media including, television, print, in-theater, radio, internet advertising and promotional events. Most of our major new releases in fiscal 2007 received television support. Our games were...

  • Page 17
    ... of product releases, brand-name recognition, access to distribution channels, and effectiveness of marketing and price. We compete both for licenses to properties and the sale of interactive entertainment software with Sony, Microsoft and Nintendo, each of which is a large developer and marketer of...

  • Page 18
    ... our operating results are as follows: Risk factors related to console hardware Our business depends on hardware on which consumers play our games. In the past 18 months, Microsoft, Nintendo and Sony each released a new console platform, the Xbox 360, Wii and PlayStation 3 ("PS3"), respectively...

  • Page 19
    .... Games we develop based upon a small number of licensed brands make up a substantial portion of our sales each year. In fiscal 2007, sales of titles for our three top-selling brands, Disney•Pixar, Nickelodeon and World Wrestling Entertainment ("WWE") comprised 54% of our net sales; in fiscal 2006...

  • Page 20
    ... video games, which are generally priced lower than new video games, by one of our key customers could negatively affect our sales of new titles and thus our revenues. Competition in the interactive software entertainment industry may lead to reduced sales of our products and reduced market share...

  • Page 21
    ... entertainment industry and failure to hire and retain qualified personnel could seriously harm our business. We rely to a substantial extent on the management, marketing, sales, technical and software development skills of a limited number of employees to formulate and implement our business plan...

  • Page 22
    ..., and software piracy is a persistent problem, especially in some international markets. Further, the laws of some countries where our products are or may be distributed either do not protect our products and intellectual property rights to the same extent as the laws of the United States, or...

  • Page 23
    ... operating results. The interactive software entertainment market is highly seasonal, with sales typically significantly higher during the year-end holiday buying season. Other factors that cause fluctuations in our sales and operating results include: • the timing of our release of new titles as...

  • Page 24
    ... results or trends in future periods. Item 1B. Unresolved Staff Comments None. Item 2. Properties The following is a summary of the principal leased offices we maintained as of May 25, 2007: Purpose North America Europe Asia Pacific Total Sales and administrative ...Product development ...Total...

  • Page 25
    ... a possible loss, if any. Games we develop based upon our WWE videogame license have contributed to approximately 15% of our net sales during each of the three years in the period ended March 31, 2007. The loss of the WWE license would have a negative impact on our future financial results. 17

  • Page 26
    ... is scheduled for June 19, 2007. We do not expect the resolution of this dispute to have a material adverse impact on our results of operations, financial position or cash flows. SEC Informal Inquiry On August 4, 2006, we received an informal inquiry from the Securities and Exchange Commission...

  • Page 27
    Financial Statements of our Amendment No. 2 on Form 10-K/A for the year ended March 31, 2006, which in a number of occasions resulted in employees receiving options with stated exercise prices lower than the market prices as measured based upon the measurement dates as determined by the applicable ...

  • Page 28
    ... low closing sales prices of our common stock as reported by the NASDAQ Global Select Market: Closing Sales Prices High Low Fiscal Year Ended March 31, 2007 Fourth Quarter ended March 31, 2007 ...Third Quarter ended December 31, 2006 ...Second Quarter ended September 30, 2006 ...First Quarter ended...

  • Page 29
    ... 2006 and fiscal 2007. Holders As of May 25, 2007 there were approximately 262 holders of record of our common stock. Dividend Policy We have never paid cash dividends on our common stock. We currently intend to retain future earnings, if any, to finance the growth and development of our business...

  • Page 30
    ... stock during the three months ended March 31, 2007. Total Number of Shares Purchased as Part of Publicly Announced Plans Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans (2) Period Total Number of Shares Purchased (1) Average Price Paid per Share...

  • Page 31
    ... and expenses: Cost of sales-product costs ...Cost of sales-software amortization and royalties . Cost of sales-license amortization and royalties...Cost of sales-venture partner expense...Product development...Selling and marketing ...General and administrative...Total costs and expenses ...Income...

  • Page 32
    ...software development for "WWF" branded games that we had been prevented from shipping pursuant to an action by the World Wide Fund for Nature against World Wrestling Entertainment, Inc. and a charge of $2.8 million, net of tax, related to the discontinuation of our online joint venture in the United...

  • Page 33
    ...-year growth in our net sales was due primarily to significant growth in sales of games from our key long-term licensed properties; Disney Pixar, WWE and Nickelodeon as well as sales of our new, owned intellectual property, Saints Row. Titles released in fiscal 2007 under our key licensed properties...

  • Page 34
    ... focuses on the Xbox 360, PS3 and PC platforms. Our mass-market brands are targeted primarily for the Nintendo Wii, PS2 and DS platforms. We plan to publish some of our licensed brands, such as WWE and Disney•Pixar across all viable platforms. Software development. The new generation consoles have...

  • Page 35
    ... our products, current trends in the video game market and the overall economy, changes in customer demand and acceptance of our products, and other related factors when evaluating the adequacy of the price protection and returns allowance. In addition, management monitors the volume of our sales to...

  • Page 36
    ... to our financial statements when applied retrospectively. We will perform this annual review on the first day of our fourth fiscal quarter in future years or more frequently if indicators of potential impairment exist. Our impairment review process is based on a discounted future cash flow approach...

  • Page 37
    ...our cash flows from operating and financing activities for fiscal 2007. See "Note 14 - Stock-based Compensation" in the notes to the consolidated financial statements. Under FAS 123R, we estimate the fair value of stock options granted using the Black-Scholes option pricing model. The fair value for...

  • Page 38
    ... amount of stock-based compensation expense recognized in fiscal 2007, 2006 and 2005 (in thousands): Year Ended March 31, 2007 2006 2005 Cost of sales-software amortization and royalties...Product development ...Selling and marketing ...General and administrative ...Total stock-based compensation...

  • Page 39
    ... our fiscal year 2008. We are evaluating the impact, if any, the adoption of this statement will have on our results of operations, financial position or cash flows. In September 2006, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 108 ("SAB 108"). SAB 108 states...

  • Page 40
    ... $220,296 North America and international net sales in fiscal 2007 were primarily driven by the release of Cars, from the Disney Pixar franchise, WWE SmackDown vs. Raw 2007, and the successful launch of Saints Row, a new internally developed and owned intellectual property. Net sales in fiscal 2007...

  • Page 41
    ... fiscal 2007, net sales of video games for Xbox 360 were primarily driven by the release of our owned and internally developed property Saints Row and by WWE SmackDown vs. Raw 2007. In fiscal 2006, The Outfit was the only game released for the Xbox 360, while we released five new SKUs in fiscal 2007...

  • Page 42
    ...the release of Disney Pixar's Cars, Destroy All Humans! 2 and sales of our catalog titles. We released three and 11 new SKUs in fiscal 2007 and 2006, respectively. Net sales decreased by $60.7 million in fiscal 2007 as compared to fiscal 2006 primarily due to fewer units sold of video games for Xbox...

  • Page 43
    ...wireless net sales consisted of games and other content based on Star Wars and Worms; licensed properties such as SpongeBob SquarePants and WWE; and owned intellectual properties such as Saints Row and Juiced. Wireless net sales decreased by $9.6 million during fiscal 2007 as compared to fiscal 2006...

  • Page 44
    ...In fiscal 2007, net sales of video games for PC products were primarily driven by the release of our new owned and internally developed property, Company of Heroes, as well as S.T.A.L.K.E.R.: Shadow of Chernobyl, Supreme Commander and Titan Quest. We released nine and 11 new SKUs in fiscal 2007 and...

  • Page 45
    ...versus fiscal 2006. The top selling titles in fiscal 2007 were Cars and WWE® SmackDown vs. Raw 2007, both licensed properties. However, the increased mix of net sales from games based on our owned intellectual properties including Saints Row, Destroy All Humans! 2, Company of Heroes and Titan Quest...

  • Page 46
    ... promotional efforts supporting Cars and WWE SmackDown vs. Raw 2007 which exceeded the promotional costs for Incredibles: Rise of the Underminer and WWE SmackDown vs. Raw 2006 in fiscal 2006 as well as the launch of Saints Row in fiscal 2007. The increase is also due to $2.8 million of stock-based...

  • Page 47
    ... to the core gamer, Juiced, Destroy All Humans! and The Outfit, our first new generation console title, as compared to core gamer titles released in fiscal 2005: Full Spectrum Warrior™, The Punisher and Warhammer 40,000: Dawn of War. • International net sales increased $30.5 million and 11...

  • Page 48
    ... respective movie releases. North America Year-over-year net sales growth in North America was primarily due to sales of original, owned properties targeted to the core gamer, Destroy All Humans! and Juiced, sales of games based on our WWE SmackDown vs. Raw franchise on current generation console...

  • Page 49
    ...release of WWE SmackDown vs. Raw 2006, Juiced and Destroy All Humans!, as well as catalog sales. In fiscal 2005, net sales of video games for PS2 were primarily driven by the release of WWE SmackDown vs. Raw, The Incredibles, and The SpongeBob SquarePants Movie, as well as catalog sales. We released...

  • Page 50
    ... our top selling mass-market titles. In fiscal 2005, net sales of video games for Game Boy Advance were primarily driven by the release of The Incredibles, The SpongeBob SquarePants Movie and Sonic Advance 3, as well as catalog titles. We released 10 and 19 new SKUs in fiscal 2006 and 2005...

  • Page 51
    ...fiscal 2006, net sales of video games for PSP were driven by the release of WWE SmackDown vs. Raw 2006. We released four and zero new SKUs in fiscal 2006 and fiscal 2005, respectively. Wireless Net Sales (in thousands) Year Ended March 31, 2006 % of net sales Year Ended March 31, 2005 % of net sales...

  • Page 52
    ..., as well as catalog titles. In fiscal 2005, net sales of video games for PC were primarily driven by the release of Warhammer 40,000: Dawn of War, The Incredibles, Full Spectrum Warrior and The SpongeBob SquarePants Movie. We released 11 and 12 new titles in fiscal 2006 and 2005, respectively. Net...

  • Page 53
    ... current revenues to total projected revenues. In fiscal 2006 software amortization and royalties as a percentage of net sales increased by 2.0 points over fiscal 2005 primarily due to a change in our development strategy for our WWE games wherein we ceased internal product development for wrestling...

  • Page 54
    ...and with the formation of two new studios, Kaos Studios and Incinerator Games. Product development expense also increased due to spending on development of games for new generation platforms. Selling and Marketing (in thousands) Year Ended March 31, 2006 % of net sales Year Ended March 31, 2005 % of...

  • Page 55
    ..., the costs of internal software development and selling and marketing expenses. Cash provided by operating activities increased by approximately $21.2 million in fiscal 2007 as compared to fiscal 2006. The increase in cash provided was primarily a result of an increase in earnings, improved working...

  • Page 56
    ...164.3 million at March 31, 2007. The increase in software development is primarily the result of our investment in new generation cross-platform titles with higher development costs which are scheduled to be released in fiscal 2008 and beyond. Accrued and Other Current Liabilities. Accrued and other...

  • Page 57
    ...As a result, we bear a risk that the properties upon which the titles of our games are based, or that the information and technology licensed from others and incorporated into the products, may infringe the rights of third parties. Our agreements with our third-party software developers and property...

  • Page 58
    ... different foreign currencies and are exposed to financial market risk resulting from fluctuations in foreign currency exchange rates, particularly the British Pound ("GBP") and the Euro, which may result in a gain or loss of earnings to us. Our international business is subject to risks typical of...

  • Page 59
    ... respects, the financial position of the Company as of March 31, 2007 and 2006, and the results of its operations and its cash flows for each of the three years in the period ended March 31, 2007, in conformity with accounting principles generally accepted in the United States of America. We have...

  • Page 60
    ...$0.01, 1,000,000 shares authorized ...Common stock, par value $0.01, 75,000,000 shares authorized; 66,677,721 and 64,140,977 shares issued and outstanding as of March 31, 2007 and 2006, respectively ...Additional paid-in capital ...Accumulated other comprehensive income ...Retained earnings ...Total...

  • Page 61
    ...) Fiscal Year Ended March 31, 2007 2006 2005 Net sales...Costs and expenses: Cost of sales-product costs...Cost of sales-software amortization and royalties ...Cost of sales-license amortization and royalties ...Cost of sales-venture partner expense ...Product development ...Selling and marketing...

  • Page 62
    ...Comprehensive income...Balance at March 31, 2006 ...Exercise of options ...Conversion of stock unit awards ...Cancellation of restricted stock...Repurchase of common stock ...Stock-based compensation ...Tax benefit related to the exercise of employee stock options ...Comprehensive income: Net income...

  • Page 63
    ... cash provided by operating activities: Minority interest and other ...Depreciation and amortization...Amortization of licenses and software development...Gain on sale of discontinued operations...Loss on disposal of property and equipment ...Stock-based compensation ...Tax benefit related to stock...

  • Page 64
    ... to licensed properties, we also develop games based upon owned intellectual properties, including Company of Heroes, Destroy All Humans!, Juiced, MX vs. ATV, Red Faction, Saints Row and Stuntman. Principles of Consolidation. The consolidated financial statements include the accounts of THQ Inc...

  • Page 65
    ... currency gains and losses for the fiscal years ended March 31, 2006 and 2005 were $0.3 million and $2.3 million, respectively. Foreign Currency Translation. Assets and liabilities of foreign operations are translated at current rates of exchange while results of operations are translated at average...

  • Page 66
    ... revenues from sales of packaged software for video game systems and personal computers and sales of content and services for wireless devices. Product revenue is recognized net of allowances for price protection and returns and various customer discounts. We typically only allow returns for our...

  • Page 67
    ... at the higher of (1) the contractual royalty rate based on actual net product sales related to such license or (2) an effective rate based upon total projected revenue related to such license. When, in management's estimate, future cash flows will not be sufficient to recover previously capitalized...

  • Page 68
    ...the reporting units, driven by anticipated success of our products and product release schedules, and estimated costs as well as appropriate discount rates. These estimates are consistent with the plans and estimates that we use to manage the underlying businesses. All identifiable intangible assets...

  • Page 69
    ... our cash flows from operating and financing activities for fiscal 2007. See "Note 14-Stock-based Compensation" in the notes to the consolidated financial statements. Under FAS 123R, we estimate the fair value of stock options granted using the Black-Scholes option pricing model. The fair value for...

  • Page 70
    ... for fiscal years beginning after November 15, 2006, which will be our fiscal year 2008. We do not expect the adoption of this statement to have material impact on our results of operations, financial position or cash flows. In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurement...

  • Page 71
    ... weeks: Fiscal Period Number of Weeks Fiscal Period End Date Year ended March 31, 2007...Year ended March 31, 2006...Year ended March 31, 2005... 52 weeks 52 weeks 52 weeks March 31, 2007 March 31, 2006 March 31, 2005 For simplicity, all fiscal periods in our consolidated financial statements and...

  • Page 72
    ...by stated maturity as of March 31, 2007 (in thousands): Amortized Cost Fair Value Due in one year or less ...Due after one year through two years ...Total ...3. Accounts Receivable Allowances $255,630 27,626 $283,256 $255,614 27,596 $283,210 Accounts receivable allowances at March 31, 2007, 2006...

  • Page 73
    ...in Moorpark, California, a developer of interactive entertainment software for video game hardware devices. Goodwill recognized in the above transactions amounted to $3.8 million, none of which is expected to be deductible for income tax purposes. The preliminary purchase price allocation, including...

  • Page 74
    ... exchange rates and other...Balance at March 31, 2007 ...$83,440 4,801 2,800 (169) 90,872 (9,598) 3,753 1,800 1,861 $88,688 We performed an annual review of goodwill impairment in each of the fiscal years ended March 31, 2007, 2006 and 2005 and found no impairment. 7. Other Intangible Assets...

  • Page 75
    ... development agreements, Yuke's creates certain World Wrestling Entertainment wrestling games for us. Other long-term assets as of March 31, 2007 and 2006 are as follows (in thousands): March 31, 2007 March 31, 2006 Investment in Yuke's ...Other intangible assets (see Note 7) ...Other ...Total...

  • Page 76
    ... presented (in thousands): Fiscal Year Ended March 31, 2007 2006 2005 Net income used to compute basic and diluted earnings per share...Weighted average number of shares outstanding-basic ...Dilutive potential common shares...Number of shares used to compute earnings per share-diluted ... $68,038...

  • Page 77
    ...): Fiscal Year Ended March 31, 2007 2006 2005 Income from continuing operations before income taxes and minority interest: United States ...Foreign...Provision for income tax expense (benefit): Current Federal...State ...Foreign ...Total current...Deferred Federal...State ...Foreign ...Total...

  • Page 78
    ... current year tax returns. Moreover, the Internal Revenue Service ("IRS") has commenced a routine examination of our U.S. income tax returns for the calendar year 1999 through fiscal year 2004. A portion of the contingent tax liability relates to the fiscal years under examination. On May 24, 2007...

  • Page 79
    ... shares or performance units) to eligible directors and employees of, and consultants or advisors to, the Company. Subject to certain adjustments, the total number of shares of THQ common stock that may be issued under the LTIP shall not exceed 6,000,000 shares. Shares subject to awards of stock...

  • Page 80
    ... 2007, 2006 and 2005, stock-based compensation expense recognized in the statement of operations was as follows (in thousands): Year Ended March 31, 2007 2006 2005 Cost of sales-software amortization and royalties...Product development ...Selling and marketing ...General and administrative ...Total...

  • Page 81
    ... as a financing cash inflow in the year ended March 31, 2007 would have been classified as an operating cash inflow. The fair value of stock options and ESPP shares granted during the year ended March 31, 2007 were estimated on the date of grant using the Black-Scholes option pricing model with the...

  • Page 82
    ... $32.9 million and $24.9 million, respectively. The weighted-average grant-date fair value per share of options granted during fiscal years ended March 31, 2007, 2006 and 2005 was $7.81, $9.15 and $6.74. As a result of the stock option grant practices inquiry, as discussed more fully in our March 31...

  • Page 83
    ...-date fair value of nonvested shares granted in the fiscal year ended March 31, 2006 was $19.34. There were no grants of nonvested shares in the fiscal year ended March 31, 2005. The unrecognized compensation cost, that we expect to vest, related to our nonvested stock-based awards at March 31, 2007...

  • Page 84
    ... are Issued to Other Than Employees for Acquiring or in Connection with Selling Goods or Services," we measure the fair value of these warrants on the measurement date. The fair value of each warrant is capitalized and amortized to expense when the related product is released and the related revenue...

  • Page 85
    ... common stock of THQ. In the event that any person or group acquires 15% or more of our outstanding common stock, each holder of a Right (other than such person or group) will be entitled to purchase, at the exercise price, the number of shares of common stock having a current market value equal...

  • Page 86
    ... JAKKS Pacific, Inc. ("JAKKS") that governs our relationship with respect to the World Wrestling Entertainment, Inc. ("WWE") license. This agreement was amended in January 2002. Our relationship with JAKKS was established to enable THQ to develop, manufacture, distribute, market and sell video games...

  • Page 87
    ...As a result, we bear a risk that the properties upon which the titles of our games are based, or that the information and technology licensed from others and incorporated into the products, may infringe the rights of third parties. Our agreements with our third-party software developers and property...

  • Page 88
    ... Directors in the event of an indemnification request. Litigation. WWE related Lawsuits On October 19, 2004, World Wrestling Entertainment, Inc. ("WWE") filed a lawsuit in the United States District Court for the Southern District of New York (the "Court") against JAKKS Pacific, Inc. ("JAKKS"), THQ...

  • Page 89
    ..., if any. Games we develop based upon our WWE videogame license have contributed to approximately 15% of our net sales during each of the three years in the period ended March 31, 2007. The loss of the WWE license would have a negative impact on our future financial results. Operating agreement with...

  • Page 90
    ...date selection methods discussed in detail in Note 2 to the Notes to the Consolidated Financial Statements of our Amendment No. 2 on Form 10-K/A for the year ended March 31, 2006, which in a number of occasions resulted in employees receiving options with stated exercise prices lower than the market...

  • Page 91
    ... entertainment software for home video game consoles, handheld platforms and personal computers. The following information sets forth geographic information on our sales and total assets for the fiscal years ended March 31, 2007, 2006 and 2005 (in thousands): North America Europe Asia Pacific...

  • Page 92
    ... March 31, 2007 2006 2005 Consoles Microsoft Xbox 360 ...Microsoft Xbox...Nintendo Wii ...Nintendo GameCube ...Sony PlayStation 2 ...Handheld Nintendo Dual Screen...Nintendo Game Boy Advance ...Sony PlayStation Portable ...Wireless ...PC ...Other ...Total Net Sales ...19. Quarterly Financial Data...

  • Page 93
    ...current period consolidated financial statements. 20. Discontinued Operations In December 2006, we sold our 50% interest in Minick. As of March 31, 2007 we have received approximately $17.1 million in cash and recognized a gain of approximately $3.1 million in discontinued operations due to the sale...

  • Page 94
    ... Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. (c) Changes in internal control over financial reporting. There were no material changes in our internal control over financial reporting in the fourth quarter of fiscal 2007. 86

  • Page 95
    ...auditors of the Company's consolidated financial statements, has issued an attestation report on management's assessment of the Company's internal control over financial reporting. /s/ BRIAN J. FARRELL Brian J. Farrell Chairman of the Board, President and Chief Executive Officer May 30, 2007 Item 9B...

  • Page 96
    ... of the Public Company Accounting Oversight Board (United States), the Company's consolidated balance sheet as of March 31, 2007 and the related consolidated statements of operations, stockholders' equity and cash flows for the year then ended. Our report dated May 30, 2007 expressed an unqualified...

  • Page 97
    ... Relationships and Related Transactions, and Director Independence There were no reportable business relationships, transactions with management, or indebtedness of management during the fiscal year ended March 31, 2007. Item 14. Principal Accounting Fees and Services The information regarding...

  • Page 98
    ...Schedules The following financial statements of the Company are included in Part II Item 8: Page REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ...CONSOLIDATED FINANCIAL STATEMENTS...Consolidated balance sheets-March 31, 2007 and 2006 ...Consolidated statements of operations for the fiscal...

  • Page 99
    ...'s Proxy Statement on Schedule 14A filed July 3, 2003). THQ Inc. Stock Unit Deferred Compensation Plan, effective as of August 18, 2005. Form of Severance Agreement with Executive Officers entered into June 15, 2006 (incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report on...

  • Page 100
    ...the Registrant's Quarterly Report on Form 10-Q for the quarter ended December 31, 2006). Amendment to the Xbox 360 Publisher License Agreement, dated as of January 17, 2007, by and between Microsoft Licensing, GP and the Company. Microsoft Corporation Xboxâ„¢ Publisher License Agreement, dated as of...

  • Page 101
    ... Nintendo of America, Inc. and the Company (incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2005). Confidential License Agreement for Nintendo GameCube (Asia), dated as of November 17, 2003 between Nintendo Co., Ltd. and THQ Asia Pacific...

  • Page 102
    ...report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: May 30, 2007 THQ INC. By: /s/ Brian J. Farrell Brian J. Farrell, Chairman of the Board, President and Chief Executive Officer THQ INC. By: /s/ Edward Zinser Edward Zinser, Executive Vice President, Chief Financial...

  • Page 103
    ..., process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. By: /s/ Brian J. Farrell Brian J. Farrell Chief Executive Officer...

  • Page 104
    ..., process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. By: /s/ Edward K. Zinser Edward K. Zinser Chief Financial Officer...

  • Page 105
    ... Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Brian J. Farrell Brian J. Farrell Chief Executive Officer May 30, 2007 A signed original of this written statement...

  • Page 106
    ...(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Edward K. Zinser Edward K. Zinser Chief Financial Officer and Chief Accounting Officer May 30, 2007 A signed original of this written statement...

  • Page 107
    ... Senior Vice President, Business Development Douglas C. Clemmer Senior Vice President and President, THQ Wireless and ValuSoft THQ, Company of Heroes, Destroy All Humans!, Frontlines: Fuel of War, Juiced, Mass Media, MX vs. ATV, Paradigm Entertainment, Red Faction, Saints Row, Stuntman: Ignition...

  • Page 108