THQ 2008 Annual Report Download

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2008 ANNUAL REPORT

Table of contents

  • Page 1
    2008 ANNUAL REPORT

  • Page 2
    ... units of WWE® SmackDown® vs. Raw® 2008, driving THQ's position as the #1 fighting game publisher for the third consecutive year* > Crossed important $1 billion milestone for two franchises: Nickelodeon and WWE > Shipped more than 1.5 million units of internally developed and owned MX vs. ATV...

  • Page 3
    ... of THQ's longterm growth strategy. In fiscal 2008, we continued to grow sales of our owned intellectual properties led by our MX vs. ATVâ„¢ franchise, which has now shipped more than 6.5 million units life-to-date. In the coming fiscal year, we plan to release sequels to two of our most popular...

  • Page 4
    ... unit properties Saints Row and Red Faction. Both games are being developed by our Volition, Inc. studio, which delivered the first open-world action game on the Xbox 360®. Saints Row™ 2 builds on the success of its predecessor with new cooperative online play, improved character customization...

  • Page 5
    ... Nintendo Wii. We are also excited about the potential in fiscal 2009 to extend our leadership in the fighting game category. We expect our WWE franchise to grow in fiscal 2009 based on the continued success of our SmackDown vs. Raw brand and the introduction of an exciting new game, WWE®: Legends...

  • Page 6
    ... of new hardware sales, which should drive software sales well into the future. With a solid slate of drive titles, including Saints Row 2, Red Faction: Guerrilla, de Blob, WALL-E and WWE® SmackDown® vs. Raw® 2009, along with improvements to our product development organization and processes, and...

  • Page 7
    ... second fiscal quarter, September 28, 2007 was approximately $1.6 billion. The number of shares outstanding of the registrant's common stock as of May 23, 2008 was approximately 66,654,620. DOCUMENTS INCORPORATED BY REFERENCE The 2008 Notice of Annual Meeting of Stockholders and Proxy Statement are...

  • 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, 2008 ITEMS IN FORM 10-K PAGE Part I Item Item Item Item Item Item 1. 1A. 1B. 2. 3. 4. Business ...Risk Factors ...Unresolved Staff Comments ...Properties ...Legal ...

  • Page 9
    ...Pixar's Ratatouille and WALL•E as well as Star Wars and major sports leagues. In addition to licensed properties, we also develop games based upon our own intellectual properties, including Company of Heroes, DeBlob, Frontlines, MX vs. ATV, Red Faction and Saints Row. We develop our products using...

  • Page 10
    ... 2008. In the fiscal year ending March 31, 2009 (''fiscal 2009''), we plan to continue to execute on this strategy by shipping new mass-market titles for leading console and handheld platforms, as well as PC. Key upcoming titles include games based on Disney•Pixar's WALL•E; WWE Smackdown vs. Raw...

  • Page 11
    ...gaming. In July, 2007, we announced a co-development and publishing agreement to bring our critically-acclaimed PC game Company of Heroes to the Chinese market via an online version operated by Shanda Interactive Entertainment Limited. This marks THQ's first ''free-to-play, pay for download'' online...

  • Page 12
    ..., mobile devices, PCs and online. The following games generated a significant portion of our sales during the fiscal years ended March 31, 2008, 2007 and 2006: • in fiscal 2008, WWE SmackDown vs. Raw 2008, Disney•Pixar's Ratatouille, and MX vs. ATV Untamed; • in fiscal 2007, Disney•Pixar...

  • Page 13
    ...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 Our Products Other than games we release for sale on PCs, digital download, or wireless devices, our video games are...

  • Page 14
    ..., sell our products to retailers that we do not service directly, such as grocery and drug stores. Our domestic sales activities are led by our national sales team, which has representatives in most major markets in the United States. Our international publishing activities are managed by our office...

  • Page 15
    ..., market, or sell video games on a console or handheld platform, we must enter into a license agreement with the manufacturer of such platform. The current ''platform manufacturers'' are Microsoft, Nintendo and Sony. Each of these platform license agreements allows us a non-exclusive right to use...

  • Page 16
    ...and Analysis of Financial Condition and Results of Operations'' and Note 18 of notes to consolidated financial statements included in Item 8. Available Information We file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission (''SEC...

  • Page 17
    ...video games and our profitability: Popularity of platforms. In the previous console platform cycle, the PlayStation 2 was the best-selling platform and games for the PlayStation 2 dominated software sales. In the current platform cycle, the Wii is the best-selling platform to date; however, the Xbox...

  • Page 18
    ... property: The loss of our key licenses, or renewals of such licenses on less advantageous terms, could cause our revenue to decline. Games we develop based upon a small number of licensed brands make up a substantial portion of our sales each year. In fiscal 2008 and fiscal 2007, sales of titles...

  • Page 19
    ... movie, could significantly affect the sales of such products and thus our financial performance. Video games that are not high quality may not sell according to our forecast, which could materially impact our profitability in any given quarter. Consumers that buy games targeted at the mass market...

  • Page 20
    ...and profitability. Increased sales of used video game products could lower our sales. Increased sales of used 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. Risk factors related to...

  • Page 21
    ...risk of loss of key employees, customers and vendors of the recently-acquired companies. Emerging video game platforms, such as MMO games or games for wireless devices, require investments and present many risks. Globally, MMO games have rapidly become a popular way to play video games. Additionally...

  • Page 22
    ... action could adversely affect our financial results and the market price of our common stock. Fluctuations in our quarterly operating results due to seasonality in the interactive software entertainment industry and other factors related to our business operations could result in substantial losses...

  • Page 23
    ... price of our common stock may fall or significantly fluctuate. Rating systems and future legislation may make it difficult to successfully market and sell our products. Currently, the interactive software entertainment industry is self-regulated and rated by the Entertainment Software Rating Board...

  • Page 24
    ...building located at 29903 Agoura Road, Agoura Hills, California. Including this office, the following is a summary of the principal leased offices we maintained as of May 23, 2008: Purpose North America Europe Asia Pacific Total Sales and administrative ...Product development ...Total leased square...

  • Page 25
    ... contributed to approximately 25% of our net sales in fiscal 2008, up from approximately 15% of our net sales in fiscal 2007 and 2006. The loss of the WWE license would have a negative impact on our future financial results. Operating agreement with JAKKS Pacific, Inc. In June 1999 we entered into...

  • Page 26
    ... our results of operations, financial position or cash flows. Lawsuits related to our historical stock option granting practices Kukor and Ramsey v. Haller, et. Al. On August 25, 2006, following our announcement of the informal inquiry by the SEC, a purported shareholder derivative action captioned...

  • Page 27
    ...common stock as reported by the NASDAQ Global Select Market: Closing Sales Prices High Low Fiscal Year Ended March 31, 2008 Fourth Quarter ended March 31, 2008 ...Third Quarter ended December 31, 2007 . . Second Quarter ended September 30, 2007 First Quarter ended June 30, 2007 ...Fiscal Year Ended...

  • Page 28
    ...'' in the notes to the consolidated financial statements. As of July 20, 2006, the Company does not grant equity awards from the NEEP or from any other non-security holder approved equity compensation plan. Stock Price Performance Graph The following information shall not be deemed to be ''filed...

  • Page 29
    ...Composite 3/06 3/07 3/08 RDG Technology Composite 21MAY200823201207 $100 invested on 3/31/03 in stock or index-including reinvestment of dividends. Fiscal year ending March 31. 3/31/2003 3/31/2004 3/31/2005 3/31/2006 3/31/2007 3/31/2008 THQ Inc...$100.00 $154.91 $215.48 $297.38 $392.72 $250.40...

  • Page 30
    ... the Company's repurchases of our common stock during the three months ended March 31, 2008. 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 Period Total Number of Shares Purchased...

  • Page 31
    ..., 2007 and 2006, and the report thereon are included elsewhere in this Form 10-K. STATEMENT OF OPERATIONS DATA (In thousands, except per share data) Fiscal Year Ended March 31, 2007 2006 2005(a) 2008 2004(b) Net sales ...Costs and expenses: Cost of sales-product costs ...Cost of sales-software...

  • Page 32
    ... (In thousands) As of March 31, 2006 2008 2007 2005 2004 Working capital ...Total assets ...Stockholders' equity ... $ 396,505 $1,084...development income tax credits claimed for prior years. (b) Net income includes a $4.0 million benefit for a settlement of a dispute with directors' and officers...

  • Page 33
    ..., up from $1,026.9 million. Year-over-year growth in the WWE franchise was due to strong sales of WWE SmackDown vs. Raw 2008, which shipped six million units in fiscal 2008, and the strong performance of our owned intellectual properties, MX vs. ATV Untamed, Frontlines: Fuel of War and Drawn to Life...

  • Page 34
    ...fiscal 2008, we launched Frontlines: Fuel of War, which had online capability. MMO gaming has become popular, especially in Asia. In fiscal 2009, we plan to launch Company of Heroes Online in the Chinese market, which marks our first entry into the free-to-play, pay for download model of video games...

  • Page 35
    ... royalties at the higher of (i) the contractual royalty rate based on actual net product sales related to such license, or (ii) 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...

  • Page 36
    ... exist. We performed an annual review of goodwill impairment in each of the fiscal years ended March 31, 2008, 2007 and 2006 and found no impairment. Our impairment review process is based on a discounted future cash flow approach that uses our estimates of revenue for our reporting unit, driven by...

  • Page 37
    ...sales is also subjective and involves management's judgment. During fiscal 2008, we determined the online service for one of our titles, Frontlines: Fuel of War (on PC and Xbox 360), is a substantive deliverable in addition to the packaged software, primarily because of its significance to game play...

  • Page 38
    .... The following table sets forth the amount of stock-based compensation expense recognized in fiscal 2008, 2007 and 2006 (in thousands): Year Ended March 31, 2008 2007 2006 Cost of sales-software amortization and royalties . Product development ...Selling and marketing ...General and administrative...

  • Page 39
    ...the use of fair value to measure assets and liabilities. In February 2008, the FASB issued FSP FAS 157-2, ''Effective Date of FASB Statement No. 157'' which defers the implementation for certain non-recurring, nonfinancial assets and liabilities from fiscal years beginning after November 15, 2007 to...

  • Page 40
    ... period of expected cash flows used to measure the fair value of the asset under FAS 141R and other GAAP. FSP 142-3 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years, which will be our fiscal year 2010. The...

  • Page 41
    ... software games designed for play on video game consoles, handheld devices and personal computers. We also derive revenue through downloads by mobile phone users of our wireless content. In fiscal 2008, we deferred revenue for one of our titles, Frontlines: Fuel of War, on both PC and Xbox 360...

  • Page 42
    ... intellectual properties, including Juiced 2: Hot Import Nights, Stuntman: Ignition and MX vs. ATV Untamed in fiscal 2008, and • sales of Cars 2: Mater National in fiscal 2008, with no comparable title in fiscal 2007. Changes in foreign currency rates increased reported international net sales by...

  • Page 43
    ... video games for Xbox 360 were primarily driven by sales of WWE SmackDown vs. Raw! 2008, and sales of games based on our owned intellectual properties, including MX vs. ATV Untamed, Stuntman: Ignition and Juiced 2: Hot Import Nights. We released 10 and five new titles in fiscal 2008 and fiscal 2007...

  • Page 44
    ..., PS3 in November 2006. In fiscal 2008, net sales of video games for PS3 were primarily driven by WWE SmackDown vs. Raw! 2008 and sales of our owned intellectual properties MX vs. ATV Untamed, Juiced 2: Hot Import Nights and Stuntman: Ignition. We released seven new titles in fiscal 2008 and plan to...

  • Page 45
    ... Life and WWE SmackDown vs. Raw! 2008, and • an increase in sales of our catalog titles in fiscal 2008 as compared to fiscal 2007. The installed base of DS hardware is expected to continue growing, and we plan to continue our strong lineup of mass-market titles for this platform. Nintendo Game Boy...

  • Page 46
    ... fiscal 2008, net sales of video games for PC products were primarily driven by sales of our owned intellectual property, Company of Heroes: Opposing Fronts, sales of the Real-Time Strategy game Warhammer 40,000: Dawn of War-Soulstorm, and sales of our catalog titles. We released eight and nine new...

  • Page 47
    ... properties, including Stuntman: Ignition, Juiced 2: Hot Import Nights and Frontlines: Fuel of War as well as an increase in selling and marketing spend to support WWE SmackDown vs. Raw! 2008 in fiscal 2008 as compared to WWE SmackDown vs. Raw! 2007 in fiscal 2007, and • higher product development...

  • Page 48
    ... as compared to WWE SmackDown vs. Raw 2007 in fiscal 2007. We have not paid these amounts to JAKKS; see ''Item 3-Legal Proceedings'' for information regarding our venture partner agreement. Product Development (in thousands) Year Ended March 31, 2008 % of net sales Year Ended March 31, 2007 % of net...

  • Page 49
    ... Saints Row in fiscal 2007, • promotional efforts to support the launch of Frontlines: Fuel of War, released on PC and Xbox 360 in the fourth quarter of fiscal 2008, and to establish this new title as a core franchise going forward, and • an increase in selling and marketing spend to support WWE...

  • Page 50
    ... software games designed for play on video game consoles, handheld devices and personal computers. We also derive revenue through downloads by mobile phone users of our wireless content. The following table details our net sales by territory for fiscal 2007 and 2006 (in thousands): Fiscal Year...

  • Page 51
    ... million units in fiscal 2007, outperforming sales of WWE SmackDown vs. Raw 2006 in fiscal 2006; • growth in sales of games from our Nickelodeon license, which increased by approximately 22% over sales from this license in fiscal 2006; and • sales of Saints Row, a new internally developed and...

  • Page 52
    ...In 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 titles in fiscal...

  • Page 53
    ... $269.9 million in fiscal 2006. We released 27 and 22 new handheld titles in fiscal 2007 and 2006, respectively. Consistent with our expectations, net sales of games for Nintendo's Dual Screen (''DS'') and Sony's PlayStation Portable (''PSP'') continued to increase in fiscal 2007 with the growth of...

  • Page 54
    ... 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 titles in fiscal 2007 and 2006...

  • Page 55
    ... 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 lowered the overall rate...

  • Page 56
    ... release of WWE↧ SmackDown vs. Raw 2007 in fiscal 2007 and the introduction of this game to the current generation console Xbox360. See ''Item 3-Legal Proceedings'' for information regarding our venture partner agreement. Product Development (in thousands) Year Ended March 31, 2007 % of net sales...

  • Page 57
    ...of interest earned on our short-term investments as well as gains and losses resulting from exchange rate changes for transactions denominated in currencies other than the functional currency. Interest and other income increased by $4.9 million in fiscal 2007 as compared to fiscal 2006. The increase...

  • Page 58
    ...costs of internal software development and selling and marketing expenses. Cash used in operating activities increased by approximately $73.7 million in fiscal 2008 as compared to fiscal 2007. The increase in cash used was primarily a result of our fiscal 2008 net loss as compared to fiscal 2007 net...

  • Page 59
    ... as cancellations of certain unreleased titles. Approximately 67% of the software development asset balance at March 31, 2008 is for games that have fiscal 2009 release dates. Accounts Payable. Accounts payable increased by $33.5 million from $28.2 million at March 31, 2007 to $61.7 million at March...

  • Page 60
    ... 31, 2008, we had purchase commitments of approximately $2.8 million, included in the table above, pertaining to various international distribution agreements signed in fiscal 2008 for products that are expected to ship on various dates during fiscal 2009. These agreements have two year terms and...

  • Page 61
    ...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 62
    ... statements for further information related to our investments. As of March 31, 2008, we had outstanding letters of credit of approximately $30.9 million. Foreign Currency Exchange Rate Risk We transact business in many different foreign currencies and are exposed to financial market risk resulting...

  • Page 63
    ... of THQ Inc., Agoura Hills, California We have audited the accompanying consolidated balance sheets of THQ Inc. and subsidiaries (the ''Company'') as of March 29, 2008 and March 31, 2007, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the years...

  • Page 64
    ... (In thousands, except share data) March 31, 2008 March 31, 2007 ASSETS Current assets: Cash and cash equivalents ...Short-term investments ...Cash, cash equivalents and short-term investments Accounts receivable, net of allowances ...Inventory ...Licenses ...Software development ...Income taxes...

  • Page 65
    ...) Fiscal Year Ended March 31, 2008 2007 2006 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 66
    ...In thousands, except share data) Fiscal Years Ended March 31, 2006, 2007 and 2008 Common Stock Shares Amount Balance at March 31, 2005 ...Exercise of options ...Issuance of restricted stock ...Stock-based compensation ...Tax benefit related to the exercise of employee stock options ...Comprehensive...

  • Page 67
    THQ INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Fiscal Year Ended March 31, 2008 2007 2006 OPERATING ACTIVITIES: Net income (loss) ...Adjustments to reconcile net income (loss) to net cash provided by operating activities: Minority interest and other ...Depreciation ...

  • Page 68
    ... Wars and major sports leagues. In addition to licensed properties, we also develop games based upon our own intellectual properties, including Company of Heroes, DeBlob, Frontlines, MX vs. ATV, Red Faction and Saints Row. Principles of Consolidation. The consolidated financial statements include...

  • Page 69
    ...,'' are carried at fair value based on quoted market prices or estimated based on quoted market prices for financial instruments with similar characteristics. Unrealized gains and losses of the Company's available-for-sale securities are excluded from earnings and reported as a component of other...

  • Page 70
    ... 2008, 11% of our gross sales in fiscal 2007 and 10% of our gross sales in fiscal 2006. Inventory. Inventory, which consists principally of finished products, is stated at the lower of cost (moving weighted average) or market. We estimate the net realizable value of slow-moving inventory on a title...

  • Page 71
    ... 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 72
    performed an annual review of goodwill impairment in each of the fiscal years ended March 31, 2008, 2007 and 2006 and found no impairment. Our impairment review process is based on a discounted future cash flow approach that uses our estimates of revenue for our reporting unit, driven by anticipated...

  • Page 73
    ... statement of operations and our cash flows from operating and financing activities for fiscal 2007. See ''Note 14-Stock-based Compensation.'' Under FAS 123R, we estimate the fair value of stock options granted using the Black-Scholes option pricing model. The fair value for awards that are expected...

  • Page 74
    ...the use of fair value to measure assets and liabilities. In February 2008, the FASB issued FSP FAS 157-2, ''Effective Date of FASB Statement No. 157'' which defers the implementation for certain non-recurring, nonfinancial assets and liabilities from fiscal years beginning after November 15, 2007 to...

  • Page 75
    ... period of expected cash flows used to measure the fair value of the asset under FAS 141R and other GAAP. FSP 142-3 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years, which will be our fiscal year 2010. The...

  • Page 76
    ... fiscal years beginning after December 15, 2007, which is our fiscal 2009, and requires prospective application for new contracts entered into after the effective date. We do not expect the adoption of EITF 07-3 to have a material impact on our results of operations, financial position or cash flows...

  • Page 77
    ...a decrease in the fair value of the investments as a result of an increase in interest rates. During the year ended March 31, 2008 there were $0.1 million of realized gains and no realized losses from sales of available-for-sale securities. During the year ended March 31, 2007 there were no realized...

  • Page 78
    ... and their related inception-to-date gross unrealized gains and (losses), as of March 31, 2007 (in thousands). All of our investment securities are classified as available-for-sale. Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Short-term investments: U.S. agency...

  • Page 79
    ... Assets.'' 3. Accounts Receivable Allowances Accounts receivable allowances at March 31, 2008, 2007 and 2006 consist of the following (in thousands): Balance at Beginning of Period Balance at End of Period Provisions Deductions Year ended March 31, 2008 Allowance for price protection and returns...

  • Page 80
    ..., 2007 Accrued royalties ...Unrecognized tax benefits and related interest ...Accrued liabilities ...Other long-term liabilities ...5. Business Combinations $35,004 5,461 3,714 $44,179 $43,966 - 3,328 $47,294 In fiscal 2008, we acquired certain of the assets and/or all of the outstanding equity...

  • Page 81
    ... for using the purchase method in accordance with FAS 141 ''Business Combinations.'' Accordingly, the net assets were recorded at their estimated fair values, and operating results were included in our financial statements from the date of acquisition. The preliminary purchase price allocation...

  • Page 82
    ... for the fiscal years ended March 31, 2008, 2007 and 2006 was $1.3 million, $1.9 million and $2.6 million, respectively. Finite-lived other intangible assets are amortized using the straight-line method over the lesser of their estimated useful lives or the agreement terms, typically from one and...

  • Page 83
    ...31, 2007 we had $8.5 million authorized and available for common stock repurchases. During fiscal 2008, our Board authorized the repurchase of up to $75.0 million of our common stock from time to time on the open market or in private transactions. During the year ended March 31, 2008, we repurchased...

  • Page 84
    ...): Fiscal Year Ended March 31, 2008 2007 2006 Net income (loss) used to compute basic and diluted earnings (loss) per share ...Weighted average number of shares outstanding-basic ...Dilutive effect of potential common shares ...Number of shares used to compute earnings (loss) per share-diluted...

  • Page 85
    ... follows: Fiscal Year Ended March 31, 2008 2007 2006 U.S. federal statutory tax rate ...Impact of changes in unrecognized tax benefits State taxes, net of federal impact ...Tax exempt interest income ...Research and development credits ...Non-deductible stock-based compensation ...Rate differences...

  • Page 86
    ... the net carrying value of the deferred tax asset will be realized. The tax benefits associated with certain net operating loss carryforwards relate to employee stock options. Pursuant to SFAS No. 109, ''Accounting for Income Taxes'' (''FAS 109''), current year net operating losses have been reduced...

  • Page 87
    ... the fiscal years ended March 31, 2008, 2007 and 2006, respectively. 14. Stock-based Compensation Prior to July 20, 2006, we utilized two stock option plans: the THQ Inc. Amended and Restated 1997 Stock Option Plan (the ''1997 Plan'') and the THQ Inc. Third Amended and Restated Nonexecutive Employee...

  • Page 88
    ... to our fiscal year ended March 31, 2007 and as such certain of our officers vested in 20% of outstanding awards. • PARSUs granted to our non-employee directors under the 1997 Plan are currently fully vested. • Deferred Stock Units (''DSUs'') granted to our non-employee directors under the...

  • Page 89
    ... the fiscal years ended March 31, 2008, 2007 and 2006, stock-based compensation expense recognized in the consolidated statements of operations was as follows (in thousands): Year Ended March 31, 2008 2007 2006 Cost of sales-software amortization and royalties . Product development ...Selling and...

  • Page 90
    ... year A summary of our stock option activity for each of the three years ended March 31, 2008, 2007 and 2006 is as follows (in thousands, except per share amounts): WeightedAverage Remaining Contractual Term (in years) Options WeightedAverage Exercise Price Aggregate Intrinsic Value Outstanding...

  • Page 91
    ...fair market value of our common stock at the date of grant. No thirdparty stock warrants were granted or exercised during the fiscal years ended March 31, 2008, 2007 and 2006. At March 31, 2008, 2007 and 2006, we had 390,000 stock warrants outstanding with a weighted average exercise price per share...

  • Page 92
    ... of our Board of Directors, pursuant to the terms and conditions of our compensatory stock plans under which our stock options had been granted, unilaterally corrected the exercise price of affected options that remained outstanding to increase the exercise price to the fair market value of our...

  • Page 93
    ... 123R. The fair value of each option grant was estimated on the date of grant using the Black-Scholes optionpricing model. The following weighted-average assumptions were used for option grants made under our stock option plans during the fiscal year ended March 31, 2006: Fiscal year ended March 31...

  • Page 94
    the estimated fair value at the grant dates in accordance with the provisions of FAS 123 (in thousands, except per share amounts): Fiscal year ended March 31, 2006 Net income-as reported ...Add: Stock-based employee compensation expense included in reported net income, net of related tax benefit ...

  • Page 95
    ... 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 96
    ...of credit. (5) Other. As of March 31, 2008, we had purchase commitments of approximately $2.8 million pertaining to various international distribution agreements signed in fiscal 2008 for products that are expected to ship on various dates during fiscal 2009. These agreements have two year terms and...

  • Page 97
    ...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 98
    ... contributed to approximately 25% of our net sales in fiscal 2008, up from approximately 15% of our net sales in fiscal 2007 and 2006. The loss of the WWE license would have a negative impact on our future financial results. Operating agreement with JAKKS Pacific, Inc. In June 1999 we entered into...

  • Page 99
    ... our results of operations, financial position or cash flows. Lawsuits related to our historical stock option granting practices Kukor and Ramsey v. Haller, et. Al. On August 25, 2006, following our announcement of the informal inquiry by the SEC, a purported shareholder derivative action captioned...

  • Page 100
    ...a developer, publisher and distributor of interactive entertainment software for home video game consoles, handheld platforms and personal computers. The following information sets forth geographic information on our net sales and total assets for the fiscal years ended March 31, 2008, 2007 and 2006...

  • Page 101
    Information about THQ's net sales by platform for fiscal 2008, 2007 and 2006 is presented below (in thousands): Platform Fiscal Year Ended March 31, 2008 2007 2006 Consoles Microsoft Xbox 360 . Microsoft Xbox ...Nintendo Wii ...Nintendo GameCube Sony PlayStation 3 . . Sony PlayStation 2 . . ... ...

  • Page 102
    ... Data (Unaudited) Twelve Months Ended March 31, 2008 June 30, 2007 Quarter Ended Sept. 30, Dec. 31, 2007 2007 March 31, 2008 Fiscal Year Ended (Amounts in thousands, except per share data) Net sales ...Expenses and other ...Income (loss) from continuing operations before income taxes and minority...

  • Page 103
    Twelve Months Ended March 31, 2007 June 30, 2006 Quarter Ended Sept. 30, Dec. 31, 2006 2006 March 31, 2007 Fiscal Year Ended (Amounts in thousands, except per share data) Net sales ...Expenses and other ...Income (loss) from continuing operations before income taxes and minority interest . Income ...

  • Page 104
    ... we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow...

  • Page 105
    ..., we have concluded that the Company's internal control over financial reporting is effective as of March 29, 2008. /s/ BRIAN J. FARRELL Brian J. Farrell Chairman of the Board, President and Chief Executive Officer May 28, 2008 Item 9B. None. Other Information /s/ COLIN L. SLADE Colin L. Slade...

  • Page 106
    ...Oversight Board (United States), the consolidated balance sheet as of March 29, 2008 and the related consolidated statements of operations, stockholders' equity and cash flows for the year then ended of the Company and our report dated May 28, 2008 expressed an unqualified opinion on those financial...

  • Page 107
    ...filed within 120 days after the close of our fiscal year (the ''Proxy Statement''): • Information regarding directors who are nominated for election is included under the caption ''Proposal Number 1-Election of Directors;'' • Information regarding executive officers is included under the caption...

  • Page 108
    ... 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, 2008 and 2007 ...Consolidated statements of operations for the fiscal years ended March 31, 2008, 2007 and 2006...

  • Page 109
    ...). THQ Inc. Stock Unit Deferred Compensation Plan, effective as of August 18, 2005 (incorporated by reference to Exhibit 10.11 to the Registrant's Annual Report on Form 10-K for the fiscal year ended March 31, 2007 (the ''March 2007 10-K)). Form of Severance Agreement with Executive Officers entered...

  • Page 110
    ... 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 (incorporated by reference to Exhibit 10.25 to the Registrant's Annual Report on the March 2007...

  • Page 111
    ...Exhibit 10.30 to the Registrant's Annual Report on Form 10-K for the fiscal year ended March 31, 2004). Amendment to Xbox↩ Publisher License Agreement, effective as of March 1, 2005 and dated March 9, 2005 by and between Microsoft Licensing, GP and the Company (incorporated by reference to Exhibit...

  • Page 112
    Exhibit Number Title 23.1* 31.1* 31.2* 32.1* 32.2* Consent of Deloitte & Touche LLP Certification of Brian J. Farrell, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Certification of Colin Slade, Chief Financial Officer and Chief Accounting Officer, pursuant to...

  • Page 113
    ... Title Date /s/ BRIAN J. FARRELL Brian J. Farrell /s/ COLIN L. SLADE Colin L. Slade Director, Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer) Executive Vice President, Chief Financial Officer and Chief Accounting Officer (Principal Financial Officer...

  • Page 114
    ... 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 May 28, 2008 3. 4.

  • Page 115
    ... financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; The registrant's other certifying officer and...

  • Page 116
    ... 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 28, 2008 A signed original of this written statement...

  • Page 117
    ... OF 2002 In connection with the annual report on Form 10-K of THQ Inc. (the ''Company'') for the period ended March 31, 2008, as filed with the Securities and Exchange Commission on the date hereof (the ''Report''), I, Colin L. Slade, Chief Financial Officer of the Company, certify, pursuant to 18...

  • Page 118
    ..., THQ Wireless and ValuSoft Steven F. Dauterman Senior Vice President, Product Development Martin J. Good Senior Vice President, Asia Pacific BOARD OF DIRECTORS Brian J. Farrell President and Chief Executive Officer Chairman of the Board of Directors THQ Inc. ANNUAL MEETING July 31, 2008 at...

  • Page 119
    THQ INC. 29903 AGOURA ROAD AGOURA HILLS, CA 91301