THQ 2009 Annual Report Download

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Table of contents

  • Page 1

  • Page 2
    ...of time to market in support of our strategy. We have emerged from this process with a more streamlined organization, a demonstrated track record of delivering quality games and a more focused product pipeline. In order to position THQ for profitability and positive cash flow in fiscal 2010, we took...

  • Page 3
    ... Promise We delivered on our product quality promise with strong Metacritic ratings of 80+ for fiscal 2009 releases Saints Row® 2, WWE® SmackDown® vs. Raw® 2009, de Blob®, Warhammer ® 40,000™ : Dawn of War ® II and other titles. Our fiscal 2010 product pipeline continues to emphasize our...

  • Page 4
    ... in sales of video games based on World Wrestling Entertainment® ("WWE") and this franchise continues to be an annual multi-million unit seller for THQ. In fiscal 2009, we shipped more than 4.5 million units of our WWE SmackDown vs. Raw 2009 title. In March of 2009, we launched a successful new...

  • Page 5
    ... and introduce new casual games at both full and budget price points on the popular Nintendo platforms. Fifth. We view the emerging online gaming market as a solid long-term opportunity for THQ. We plan to extend our key franchises online, first in fiscal 2010 with Company of Heroes® Online™, in...

  • Page 6
    ...which the common equity was last sold, as of the last business day of the registrant's most recently completed second fiscal quarter, September 26, 2008 was approximately $827.4 million. The number of shares outstanding of the registrant's common stock as of May 15, 2009 was approximately 67,553,372...

  • Page 7
    THQ INC. INDEX TO ANNUAL REPORT ON FORM 10-K FILED WITH THE SECURITIES AND EXCHANGE COMMISSION FOR THE FISCAL YEAR ENDED MARCH 31, 2009 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 8
    ... this Annual Report are subject to trademark protection. PART I Item 1. Business Introduction We are a leading worldwide developer and publisher of interactive entertainment software for all popular game systems, including: • Home video game consoles such as Microsoft Xbox 360, Nintendo Wii, Sony...

  • Page 9
    ... Company of Heroes Online, WWE Online (working title) and our Warhammer 40,000 massive multiplayer online (''MMO'') game. We also plan to exploit growing consumer segments, such as the casual MMO market, with the release of Dragonica. 3. 4. 5. We made a number of changes in fiscal 2009 to...

  • Page 10
    ... for play on console platforms, handheld platforms, mobile devices, PCs and online. The following games generated 10% or more of our sales during the fiscal years ended March 31, 2009, 2008 and 2007: • in fiscal 2009, WWE SmackDown vs. Raw 2009, Saints Row 2, and Wall-E; • in fiscal 2008, WWE...

  • Page 11
    ... We develop our products using both internal and external development resources. The internal resources consist of producers, game designers, software engineers, artists, animators and game testers located within our internal studios located throughout North America, in the United Kingdom and in...

  • Page 12
    ...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 13
    ... channel, (ii) the rate of inventory sell-through in the retail channel, and (iii) our remaining inventory on hand. We maintain a policy of giving credits for price protection and returns, but do not give cash refunds. Platform License Agreements Before we can develop, market, or sell video games...

  • Page 14
    ... than 10% of the Company's consolidated net revenue for the fiscal years ended March 31, 2009, 2008 or 2007. A substantial reduction, termination of purchases, or business failure by any of our largest customers could have a material adverse effect on us. Competition As a publisher of interactive...

  • Page 15
    ...and Analysis of Financial Condition and Results of Operations'' and Note 20 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 16
    ... impairment charges related to software development, licenses, and other long-lived assets in future periods. Our lack of earnings over the past two fiscal years has reduced our cash position. While the company has plans in place to generate positive cash flow in fiscal 2010, further deterioration...

  • Page 17
    .... Games we develop based upon licensed brands make up a substantial portion of our sales each year. In fiscal 2009, sales of titles for our three top-selling licensed brands, Disney•Pixar, Nickelodeon and World Wrestling Entertainment (''WWE'') comprised 47% of our net sales; and in fiscal 2008...

  • Page 18
    ... currency rates decreased reported earnings by approximately $1.3 million in fiscal 2009. 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 to...

  • Page 19
    ... 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, and in 2008, the Wii surpassed the Xbox 360 as the most popular console in terms of software game sales, according to International...

  • Page 20
    ...we publish games could negatively affect the sales of our products. In fiscal 2009 and 2008, retailers strongly supported games that were music or peripheral-based, such as Guitar Hero and Rock Band, and we did not publish any games in this category. Future lack of retailer support for our key games...

  • Page 21
    ... licensors not renewing our licenses to publish games based upon their properties that we currently publish or not granting future licenses to us to develop games based on their other properties. For example, in fiscal 2009, Disney decided to develop internally video games based upon its upcoming...

  • 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
    ... in a 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 15, 2009: Purpose North America Europe Asia Pacific Total Sales and administrative ...Product development ...Total leased...

  • Page 24
    ... to approximately 23% of our net sales in fiscal 2009, down compared with approximately 25% of our net sales in fiscal 2008, and up compared with approximately 15% of our net sales in fiscal 2007. The loss of the WWE license would have a negative impact on our future financial results. 17

  • Page 25
    ... have a material adverse impact on our consolidated financial position or results of operations. Item 4. Submission of Matters to a Vote of Security Holders There were no matters submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this Annual Report. 18

  • Page 26
    ...common stock as reported by the NASDAQ Global Select Market: Closing Sales Prices High Low Fiscal Year Ended March 31, 2009 Fourth Quarter ended March 31, 2009 ...Third Quarter ended December 31, 2008 . . Second Quarter ended September 30, 2008 First Quarter ended June 30, 2008 ...Fiscal Year Ended...

  • Page 27
    ... number of shares of THQ common stock to be issued upon exercise of individual compensation arrangements with employee and non-employee option and warrant holders. The outstanding options were primarily granted under the Company's Third Amended and Restated Non-executive Employee Stock Option Plan...

  • Page 28
    .../04 in stock or index, including reinvestment of dividends. Fiscal year ending March 31. 3/31/2004 3/31/2005 3/31/2006 3/31/2007 3/31/2008 3/31/2009 THQ Inc...$100.00...sales, we believed that each purchaser who was not an accredited investor had such knowledge and experience in financial and business...

  • Page 29
    ... February 2009 to close and/or sell BHG, pursuant to the BHG stock purchase agreement, certain shares of the escrowed common stock will be released from escrow and delivered to the holders of such stock on January 18, 2011 and the remaining shares will be released from escrow and delivered to THQ on...

  • Page 30
    ... balance sheets as of March 31, 2009 and 2008, and the consolidated statements of operations for the fiscal years ended March 31, 2009, 2008 and 2007, and the report thereon are included elsewhere in this Form 10-K. STATEMENT OF OPERATIONS DATA (In thousands, except per share data) 2009 Fiscal Year...

  • Page 31
    ... benefit for research and development income tax credits claimed for prior years. (b) Beginning in our first quarter of fiscal 2007, we adopted Statement of Financial Accounting Standard No. 123(R), ''Share-Based Payment'' which requires us to begin expensing stock-based compensation. See Note 16 of...

  • Page 32
    ... channels. With respect to the industry overall, calendar 2008 video game software sales increased 21% in North America and 11% in Europe compared to the prior year, yet much of this growth was realized by Nintendo and other publishers of a relatively small number of ''hit'' titles. We expect video...

  • Page 33
    .../family game franchises, and 5) extending our brands into online markets. In the second half of fiscal 2009, we made changes to our organization to support this new business strategy. We restructured our product development organization under new studio management and discontinued a number of titles...

  • Page 34
    ... 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...

  • Page 35
    .... We analyze historical price protection granted, historical returns, current sell-through of retailer and distributor inventory of 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...

  • Page 36
    ... indicate a reduction in the fair value of the Company. In the latter half of the third quarter of fiscal 2009, our stock price declined significantly, resulting in a market capitalization that was substantially below the carrying value of our net assets. In addition, the unfavorable macroeconomic...

  • Page 37
    ... policies in financial statements filed with the Securities and Exchange Commission (''SEC''). Product Sales: We recognize revenue for packaged software when title and risk of loss transfers to the customer, provided that no significant vendor support obligations remain outstanding and that...

  • Page 38
    ... 31, 2009 the deferred revenue related to these games was $11.6 million and is included within accrued and other current liabilities in our consolidated balance sheet. Although we generally sell our products on a no-return basis, in certain circumstances we may allow price protection, returns or...

  • Page 39
    ... the adoption of this statement did not have any impact on our results of operations, financial position or cash flows. The Company did elect the fair value option for an asset acquired in the third quarter of fiscal 2009 (see ''Note 2-Investments''). In May 2008, the FASB issued SFAS No. 162, ''The...

  • Page 40
    ... issued for fiscal years and interim periods beginning after November 15, 2008, which was our fourth quarter of fiscal year 2009. We adopted this statement on January 1, 2009, and the adoption did not have a material impact on our results of operations, financial position or cash flows. In June 2007...

  • Page 41
    ... those fiscal years, which is our fiscal 2010. We adopted this statement on April 1, 2009, and the adoption did not have a material impact on our results of operations, financial position or cash flows. In December 2008, FASB issued FSP SFAS 140-4 and FIN 46 (R)-8, ''Disclosures by Public Entities...

  • Page 42
    ... and other current assets in our consolidated balance sheets. Net sales decreased by $200.5 million in fiscal 2009 as compared to fiscal 2008, from $1,030.5 million to $830.0 million. Worldwide net sales in fiscal 2009 were primarily driven by sales of WWE SmackDown vs. Raw 2009, Saints Row 2, and...

  • Page 43
    ...our kids business. We also had a decrease in sales of games based on the WWE license primarily due to fewer units sold of WWE Smackdown vs. Raw 2009 in fiscal 2009 compared to sales of WWE Smackdown vs. Raw 2008 in fiscal 2008, partially offset by net sales of WWE Legends of Wrestlemania released in...

  • Page 44
    ... sales increased by 3.0 points in fiscal 2009 as compared to fiscal 2008. This increase was primarily due to: • a shift in title mix on the Wii platform toward lower priced titles such as Big Beach Sports and All Star Cheer, and • a decrease in the average selling price on Smackdown vs. Raw 2009...

  • Page 45
    ... 2009 related to games that were cancelled as part of our business realignment, compared to $23.9 million incurred in fiscal 2008. The increase was also due to lower net sales on fiscal 2009 new releases as compared to fiscal 2008. Cost of Sales-License Amortization and Royalties (in thousands) Year...

  • Page 46
    ... Smackdown vs. Raw 2008 in fiscal 2008 and high marketing spend in the fourth quarter of fiscal 2008 due to the launch of our owned intellectual property Frontlines: Fuel of War. In fiscal 2009, selling and marketing expenses increased by 2.5 points as a percentage of net sales as compared to fiscal...

  • Page 47
    .... THQ*ICE plans to launch Dragonica, a free-to-play, micro-transaction-based massively multiplayer online casual game in North America in calendar 2009. THQ and ICE own equal interests in THQ*ICE. We have consolidated the results of THQ*ICE in accordance with Financial Accounting Standards Boards...

  • Page 48
    ... 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 49
    ..., 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 expenses primarily due to increased...

  • Page 50
    ..., market and sell WWE video games. Venture partner expense increased by $7.3 million in fiscal 2008 as compared to fiscal 2007. This increase is due to an overall increase in net sales of games based upon the WWE license, primarily due to the release of WWE SmackDown vs. Raw 2008 in fiscal 2008 on...

  • Page 51
    ...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 SmackDown vs Raw 2008...

  • Page 52
    ... its board of directors. On December 1, 2006, we sold our interest in Minick. As of March 31, 2008 we have received approximately $18.6 million in cash due to the sale of Minick. We recognized gains of $1.5 million and $3.1 million in fiscal 2008 and fiscal 2007, respectively, related to the sale of...

  • Page 53
    ... due to common stock repurchases of $54.9 in fiscal year 2008; we had no repurchases of our common stock in fiscal 2009. The increase in cash provided by financing activities is also the result of net borrowings of $24.4 under our secured credit line. Key Balance Sheet Accounts Accounts Receivable...

  • Page 54
    ... due to the cancellation of unreleased games resulting from our business realignment plan. These decreases were partially offset by our investment in cross-platform titles scheduled to be released in fiscal 2010 and beyond. Approximately 86% of the software development asset balance at March 31...

  • Page 55
    .... We have estimated the fair value of the remaining ARS using a discounted cash flow analysis that considered the following key inputs: i) credit quality, ii) estimates on the probability of the issue being called or sold prior to final maturity, iii) current market rates, and iv) estimates of the...

  • Page 56
    ... ''Note 10-Secured Credit Lines'' in the notes to the consolidated financial statements. (5) Other. In fiscal 2008 and 2009 we entered into various international distribution agreements with one to two year terms. Pursuant to the terms of these agreements, we had purchase commitments of $2.4 million...

  • 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
    ... consolidated financial statements for further information related to our investments. As of March 31, 2009, we had no outstanding letters of credit. Foreign Currency Exchange Rate Risk We transact business in many different foreign currencies and are exposed to financial market risk resulting from...

  • Page 59
    Item 8. Consolidated Financial Statements and Supplementary Data The report of Independent Registered Public Accounting Firm, consolidated financial statements and notes to consolidated financial statements follow below. 52

  • Page 60
    ... of THQ Inc., Agoura Hills, California We have audited the accompanying consolidated balance sheets of THQ Inc. and subsidiaries (the ''Company'') as of March 28, 2009 and March 29, 2008, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the years...

  • Page 61
    ... CONSOLIDATED BALANCE SHEETS (In thousands, except share data) March 31, 2009 March 31, 2008 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...

  • Page 62
    THQ INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) Fiscal Year Ended March 31, 2009 2008 2007 Net sales ...Costs and expenses: Cost of sales-product costs ...Cost of sales-software amortization and royalties Cost of sales-license amortization and ...

  • Page 63
    ...share data) Fiscal Years Ended March 31, 2007, 2008 and 2009 Accumulated Retained Additional Other Earnings Common Stock Paid-In Comprehensive (Accumulated Shares Amount Capital Income (Loss) Deficit) Balance at March 31, 2006 ...Exercise of options ...Conversion of stock unit awards ...Cancellation...

  • Page 64
    ... CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Fiscal Year Ended March 31, 2009 2008 2007 OPERATING ACTIVITIES: Net income (loss) ...Adjustments to reconcile net income (loss) to net cash provided Minority interest ...Depreciation and amortization ...Amortization of licenses and software...

  • Page 65
    ... FINANCIAL STATEMENTS 1. Description of Business and Summary of Significant Accounting Policies We are a leading worldwide developer and publisher of interactive entertainment software for all popular game systems, including: • Home video game consoles such as Microsoft Xbox 360, Nintendo Wii...

  • Page 66
    ... disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The most significant estimates relate to licenses, software development, accounts...

  • Page 67
    .... We analyze historical price protection granted, historical returns, current sell-through of retailer and distributor inventory of 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...

  • Page 68
    ... second largest customer accounted for 13% of our gross sales in fiscal 2009, 12% of our gross sales in fiscal 2008 and 11% of our gross sales in fiscal 2007. Inventory. Inventory, which consists principally of finished products, is stated at the lower of cost (moving weighted average) or market. We...

  • Page 69
    ... indicate a reduction in the fair value of the Company. In the latter half of the third quarter of fiscal 2009, our stock price declined significantly, resulting in a market capitalization that was substantially below the carrying value of our net assets. In addition, the unfavorable macroeconomic...

  • Page 70
    ... policies in financial statements filed with the Securities and Exchange Commission (''SEC''). Product Sales: We recognize revenue for packaged software when title and risk of loss transfers to the customer, provided that no significant vendor support obligations remain outstanding and that...

  • Page 71
    ... of the product master or the first copy. Per copy royalties on sales that exceed the guarantee are recognized as earned. Revenue from the licensing of software for the fiscal years ended March 31, 2009, 2008 and 2007 was $11.7 million, $7.8 million and $8.6 million, respectively. Wireless Revenue...

  • Page 72
    ...the employee stock purchase plan, and other stock unit awards. However, potential common shares are not included in the denominator of the diluted earnings per share calculation when inclusion of such shares would be anti-dilutive, such as in a period in which a net loss is recorded. Recently Issued...

  • Page 73
    ... of our existing financial assets and liabilities. As such, the adoption of this statement did not have any impact on our results of operations, financial position or cash flows. The Company did elect the fair value option for a financial instrument acquired in the third quarter of fiscal 2009 (see...

  • Page 74
    ... issued for fiscal years and interim periods beginning after November 15, 2008, which was our fourth quarter of fiscal year 2009. We adopted this statement on January 1, 2009, and the adoption did not have a material impact on our results of operations, financial position or cash flows. In June 2007...

  • Page 75
    ... fiscal years, which is our fiscal 2010. We adopted this statement on April 1, 2009, and the adoption did not have a material impact on our results of operations, financial position or cash flows. In December 2008, the FASB issued FSP SFAS 140-4 and FIN 46 (R)-8, ''Disclosures by Public Entities...

  • Page 76
    ... that is classified as available-for-sale and is included in other long-term assets, net (see ''Note 8-Other Long-Term Assets''). During fiscal 2009, we recorded impairment charges of $6.3 million to interest and other income, net, related to declines in fair value that we concluded were other than...

  • Page 77
    ... in other long-term assets (see ''Note 8-Other Long-Term Assets''). The gross unrealized losses on our available-for-sale investments in the above table were primarily caused by a decrease in the fair value of the investments as a result of an increase in market interest rates. None of the available...

  • Page 78
    ... a charge of $4.7 million for the mark-to-market adjustment related to these trading securities in interest and other income, net. In fiscal 2009 the gross losses included in earnings from transfers of securities from the available-for-sale category into the trading category were $5.5 million. In...

  • Page 79
    ...terms. We have estimated the fair value of these ARS using a discounted cash flow analysis that considered the following key inputs: i) credit quality, ii) estimates on the probability of the issue being called or sold prior to final maturity, iii) current market rates, and iv) estimates of the next...

  • Page 80
    ... of changes in fair value of our Level 3 financial assets as of March 31, 2009: Level 3 Fair Value Measurements Balance at March 31, 2008 ...Total gains or (losses) (realized/unrealized): Included in earnings ...Included in accumulated other comprehensive Purchases, sales, issuances and settlements...

  • Page 81
    ... co-op advertising ...Allowance for doubtful accounts and other ...Total ...Year ended March 31, 2007 Allowance for price protection and returns ...Allowance for co-op advertising ...Allowance for doubtful accounts and other ...Total ...4. Balance Sheet Details $ 92,788 19,907 346 $113,041 194,562...

  • Page 82
    ... which $31.1 million was paid in cash at the time of acquisition, $0.3 million in shares issued, with the remaining balance of $3.9 million (which was included in accrued and other current liabilities at March 31, 2008) paid during fiscal 2009: • Big Huge Games, Inc., located in Timonium, Maryland...

  • Page 83
    ... indicate a reduction in the fair value of the Company. In the latter half of the third quarter of fiscal 2009, our stock price declined significantly, resulting in a market capitalization that was substantially below the carrying value of our net assets. In addition, the unfavorable macroeconomic...

  • Page 84
    ...-term assets include our investment in Yuke's, a Japanese video game developer. We own less than a 20% interest in Yuke's, which is publicly traded on the Nippon New Market in Japan. Accordingly, we account for this investment under FAS 115 as available-for-sale. Unrealized holding gains and losses...

  • Page 85
    ...2008, we announced that we updated our strategic plan in an effort to increase our profitability and cash flow generation. We have significantly realigned our business to focus on fewer, higher quality games, and have established an operating structure that supports our more focused product strategy...

  • Page 86
    ... in February 2009 to close and/or sell BHG, pursuant to the BHG stock purchase agreement, certain of the escrowed common stock will be released from escrow and delivered to the holders of such stock on January 18, 2011 and the remaining shares will be released from escrow and delivered to THQ on...

  • Page 87
    ...): Fiscal Year Ended March 31, 2009 2008 2007 Net earnings (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 88
    ...income (loss) before taxes and details of the provision for income tax are as follows (in thousands): Fiscal Year Ended March 31, 2009 2008 2007 Income (loss) from continuing operations before income taxes and minority interest: United States ...Foreign ...Provision for income tax (benefit) Current...

  • Page 89
    ... benefits associated with certain net operating loss carryforwards relates to employee stock options. Pursuant to SFAS No. 109, ''Accounting for Income Taxes'' (''FAS 109''), current year net operating losses have been reduced by $1.4 million for these items. A credit will be recorded to additional...

  • Page 90
    ... benefits is as follows: Balance at April 1, 2007 ...Additions based on tax positions related to the current year ...Reductions for tax positions of prior years ...Reductions as result of lapse of applicable statute of limitations . Settlements ...Balance at April 1, 2008 ...Additions based on tax...

  • Page 91
    ...awards (in the form of performance shares or performance units) to eligible directors and employees of, and consultants or advisors to, the Company. Subject to certain adjustments, as of March 31, 2009, the total number of shares of THQ common stock that may be issued under the LTIP shall not exceed...

  • Page 92
    ... 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 93
    ... years ended March 31, 2009, 2008 and 2007, stock-based compensation expense recognized in the consolidated statements of operations was as follows (in thousands): Year Ended March 31, 2009 2008 2007 Cost of sales-software amortization and royalties . Product development ...Selling and marketing...

  • Page 94
    ... Option Employee Stock Stock Option Employee Stock Stock Option Employee Stock Grants Purchase Plan Grants Purchase Plan Grants Purchase Plan Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended March 31, 2009 March 31, 2009 March 31, 2008 March 31, 2008 March 31, 2007 March 31, 2007...

  • Page 95
    ...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, 2009, 2008 and 2007. At March 31, 2009, 2008 and 2007, we had 390,000 stock warrants outstanding with a weighted average exercise price per share...

  • Page 96
    ... As of March 31, 2007, $2.3 million was paid out to affected employees, and there were no additional amounts paid in fiscal 2008 and 2009. We accounted for the impact of the corrected options as a stock option modification under FAS 123R. As a result of this partial cash settlement of these options...

  • Page 97
    ...common stock of THQ. In the event that any such 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 98
    ...responsible for development, sales and distribution of WWE-licensed games, and JAKKS is responsible for the approval process and other relationship matters with WWE. For financial reporting purposes, we are deemed to control the venture; therefore, all venture operating results are consolidated with...

  • Page 99
    ... ''Note 10-Secured Credit Lines'' in the notes to the consolidated financial statements. (5) Other. In fiscal 2008 and 2009 we entered into various international distribution agreements with one to two year terms. Pursuant to the terms of these agreements, we had purchase commitments of $2.4 million...

  • Page 100
    ...our net sales in fiscal 2009, down compared with approximately 25% of our net sales in fiscal 2008, and up compared with approximately 15% of our net sales in fiscal 2007. The loss of the WWE license would have a negative impact on our future financial results. Operating Agreement with JAKKS Pacific...

  • Page 101
    ... determined as provided in the operating agreement. We do not expect the resolution of this dispute to have a material adverse impact on our reported financial results. Other We are also involved in additional routine litigation arising in the ordinary course of our business. In the opinion of our...

  • Page 102
    ... geographic information on our net sales and total assets for the fiscal years ended March 31, 2009, 2008 and 2007 (in thousands): North America Europe Asia Pacific Consolidated Year ended March 31, 2009 Net sales to unaffiliated customers ...Total assets ...Year ended March 31, 2008 Net sales to...

  • Page 103
    21. Quarterly Financial Data (Unaudited) Twelve Months Ended March 31, 2009 June 30, 2008 Quarter Ended Sept. 30, Dec. 31, 2008 2008 March 31, 2009 Fiscal Year Ended (Amounts in thousands, except per share data) Net sales ...Costs and expenses ...Income (loss) from continuing operations before ...

  • Page 104
    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 ...Costs and expenses ...Income (loss) from continuing operations before interest and other income, net, income taxes...

  • Page 105
    base rate plus a spread of 1.0% to 2.5% or LIBOR plus 2.5% to 4.0%, depending on the company's fixed charge coverage ratio. The credit facility will be guaranteed by certain of our subsidiaries. The commitment letter for the credit facility will expire on July 5, 2009. We paid a $350,000 closing fee...

  • Page 106
    ... 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 changes in our internal control over financial reporting that occurred during our fourth quarter of fiscal 2009...

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    ...consolidated financial statements included in this annual report on Form 10-K, has issued an audit report on our internal control over financial reporting. That report appears on page 103. /s/ BRIAN J. FARRELL Brian J. Farrell Chairman of the Board, President and Chief Executive Officer May 22, 2009...

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    ... of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet as of March 28, 2009 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 22, 2009 expressed an...

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    ... 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, 2009. Item 14. Principal Accounting Fees and Services The information regarding...

  • Page 110
    ... 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, 2009 and 2008 ...Consolidated statements of operations for the fiscal years ended March 31, 2009, 2008 and 2007...

  • Page 111
    ... 3, 2003). 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...

  • Page 112
    ...'s Annual Report on Form 10-K for the year ended March 31, 2008). Latin American Rider to the Global PlayStation 3 Format Licensed Publisher Agreement effective as of December 12, 2008 between Sony Computer Entertainment America Inc. and the Company. Xbox 360 Publisher License Agreement, dated as...

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    ... Report on Form 10-Q for the quarter ended June 30, 2008). Side Letter Agreement to the Confidential License Agreement for Nintendo DS dated February 25, 2009 between Nintendo of America Inc. and the Company. Confidential First Renewal License agreement for Nintendo DS (EEA, Australia, and New...

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    ...Title 14 Code of Ethics for Executive Officers and Other Senior Financial Officers, as adopted May 27, 2004 (incorporated by reference from the Registrant's Form 10-K for the fiscal year ended March 31, 2006). Subsidiaries of the Registrant. Consent of Deloitte & Touche LLP Certification of Brian...

  • Page 115
    .... Dated: May 22, 2009 THQ INC. By: /s/ Brian J. Farrell Brian J. Farrell, Chairman of the Board, President and Chief Executive Officer Dated: May 22, 2009 THQ INC. By: /s/ Paul J. Pucino Paul J. Pucino, Executive Vice President, Chief Financial Officer (Principal Financial Officer) Pursuant...

  • Page 116
    ... investment COmPany five point product strategy as follows: THQ, Vigil Games, Big Beach Sports, Company COMMON STOCK NASDAQ Global Select Market Symbol: THQI of Heroes Online, Darksiders, de Blob, Drawn to Life, Homefront, MX vs. ATV Reflex, Red Faction, Red Faction: Guerrilla, Saints Row, Saints...

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