Part I — Financial Information

Item 1. Condensed Consolidated Financial Statements

THQ INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

	December 31, 2007		March 31, 2007
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	168,433	$	174,748
Short-term investments	156,911		283,210
Cash, cash equivalents and short-term investments	325,344		457,958
Accounts receivable, net of allowances	270,740		67,586
Inventory	43,584		27,381
Licenses	27,346		41,406
Software development	148,822		130,512
Income taxes receivable	5,890		18,525
Prepaid expenses and other current assets	14,954		16,238
Total current assets	836,680		759,606
Property and equipment, net	49,359		45,095
Licenses, net of current portion	61,356		49,661
Software development, net of current portion	26,066		33,766
Income taxes receivable, net of current portion	14,104		2,163
Deferred income taxes	15,812		15,812
Goodwill	99,026		88,688
Other long-term assets, net	15,880		18,750
TOTAL ASSETS	$	1,118,283	$	1,013,541

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	73,753	$	28,225
Accrued and other current liabilities	205,562		143,418
Deferred income taxes	24,161		25,647
Total current liabilities	303,476		197,290
Other long-term liabilities	39,979		47,294
Commitments and contingencies (See Note 9)
Stockholders’ equity:
Preferred stock, par value $0.01, 1,000,000 shares authorized	—		—
Common stock, par value $0.01, 225,000,000 shares authorized; 66,409,340 and 66,677,721 shares issued and outstanding as of December 31, 2007 and March 31, 2007, respectively	664		667
Additional paid-in capital	471,431		471,332
Accumulated other comprehensive income	24,184		17,603
Retained earnings	278,549		279,355
Total stockholders’ equity	774,828		768,957
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	1,118,283	$	1,013,541

See notes to condensed consolidated financial statements.

THQ INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

	For the Three Months Ended December 31,					For the Nine Months Ended December 31,
	2007		2006			2007			2006
	(Unaudited)					(Unaudited)
Net sales	$	509,609	$	475,741		$	843,443		$	854,767
Costs and expenses:
Cost of sales — product costs	175,568		162,110			306,732			288,117
Cost of sales — software amortization and royalties	126,270		71,417			177,179			140,364
Cost of sales — license amortization and royalties	50,420		49,759			86,250			86,903
Cost of sales — venture partner expense	19,207		13,503			21,241			14,985
Product development	41,311		21,912			94,504			73,834
Selling and marketing	65,499		51,213			135,495			116,849
General and administrative	15,528		24,100			52,269			59,271
Total costs and expenses	493,803		394,014			873,670			780,323
Income (loss) from continuing operations	15,806		81,727			(30,227		)	74,444
Interest and other income, net	3,412		2,595			13,337			9,071
Income (loss) from continuing operations before income taxes and minority interest	19,218		84,322			(16,890		)	83,515
Income taxes	5,224		24,367			(14,571		)	24,215
Income (loss) from continuing operations before minority interest	13,994		59,955			(2,319		)	59,300
Minority interest	—		(7		)	—			136
Income (loss) from continuing operations	13,994		59,948			(2,319		)	59,436
Gain on sale of discontinued operations, net of tax	1,513		2,107			1,513			2,107
Net income (loss)	$	15,507	$	62,055		$	(806	)	$	61,543
Earnings (loss) per share — basic:
Continuing operations	$	0.21	$	0.92		$	(0.03	)	$	0.92
Discontinued operations	0.02		0.03			0.02			0.03
Earnings (loss) per share — basic	$	0.23	$	0.95		$	(0.01	)	$	0.95
Shares used in per share calculation — basic	66,118		65,387			66,502			64,737
Earnings (loss) per share — diluted:
Continuing operations	$	0.21	$	0.88		$	(0.03	)	$	0.89
Discontinued operations	0.02		0.03			0.02			0.03
Earnings (loss) per share — diluted	$	0.23	$	0.91		$	(0.01	)	$	0.92
Shares used in per share calculation — diluted	67,815		68,101			66,502			67,150

See notes to condensed consolidated financial statements.

THQ INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	For the Nine Months Ended December 31,
	2007			2006
	(Unaudited)
OPERATING ACTIVITIES:
Net income (loss)	$	(806	)	$	61,543
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Minority interest and other	—			54
Depreciation and amortization	13,425			11,420
Amortization of licenses and software development(1)	201,520			155,039
Gain on sale of discontinued operations	(1,513		)	(2,353		)
Loss on disposal of property and equipment	47			621
Stock-based compensation(2)	17,721			14,131
Tax benefit related to stock-based awards	4,393			6,483
Excess tax benefit related to stock-based awards	(2,325		)	(4,091		)
Deferred income taxes	—			—
Changes in operating assets and liabilities:
Accounts receivable, net of allowances	(198,020		)	(104,619		)
Inventory	(15,582		)	(16,206		)
Licenses	(32,864		)	(31,002		)
Software development	(170,679		)	(145,487		)
Prepaid expenses and other current assets	2,036			(22,618		)
Accounts payable	44,075			29,990
Accrued and other liabilities	50,339			49,952
Income taxes	(1,489		)	24,407
Net cash (used in) provided by operating activities	(89,722		)	27,264

INVESTING ACTIVITIES:
Proceeds from sales and maturities of short-term investments	498,689			474,105
Purchase of short-term investments	(372,072		)	(429,841		)
Other long-term assets	(351		)	(2,457		)
Acquisitions, net of cash acquired	(8,332		)	(4,950		)
Net proceeds from sale of discontinued operations	1,513			7,958
Purchases of property and equipment	(16,224		)	(15,282		)
Net cash provided by investing activities	103,223			29,533

FINANCING ACTIVITIES:
Stock repurchase	(41,776		)	(10,061		)
Proceeds from issuance of common stock to employees	20,545			28,493
Excess tax benefit related to stock-based awards	2,325			4,091
Net cash (used in) provided by financing activities	(18,906		)	22,523
Effect of exchange rate changes on cash	(910		)	542
Net (decrease) increase in cash and cash equivalents	(6,315		)	79,862
Cash and cash equivalents — beginning of period	174,748			91,517
Cash and cash equivalents — end of period	$	168,433		$	171,379

(1) Excludes amortization of capitalized stock-based compensation expense.

(2) Includes the net effects of capitalization and amortization of stock-based compensation expense.

See notes to condensed consolidated financial statements.

THQ INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation

The condensed consolidated financial statements included in this Form 10-Q present the results of operations, financial position and cash flows of THQ Inc. (together with its subsidiaries, “THQ”, we, us, our or the “Company”). In the opinion of management, the accompanying condensed consolidated balance sheets and related interim condensed consolidated statements of operations and condensed consolidated statements of cash flows include all adjustments, consisting only of normal recurring items, necessary for their fair presentation in conformity with accounting principles generally accepted in the United States of America. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, sales and expenses. The most significant estimates relate to licenses, software development, accounts receivable allowances, income taxes and stock-based compensation expense. Actual results may differ from these estimates. Interim results are not necessarily indicative of results for a full year. The balance sheet at March 31, 2007 has been derived from the audited financial statements at that date but does not include all of the information and notes required by accounting principles generally accepted in the United States of America for complete financial statements. The information included in this Form 10-Q should be read in conjunction with the financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2007.

Fiscal Quarter.

The results of operations for the three and nine month periods ended December 31, 2007 and 2006 contain the following number of weeks:

Fiscal Period	Number of Weeks	Fiscal Period End Date
Three months ended December 31, 2007	13 weeks	December 29, 2007
Three months ended December 31, 2006	13 weeks	December 30, 2006
Nine months ended December 31, 2007	39 weeks	December 29, 2007
Nine months ended December 31, 2006	39 weeks	December 30, 2006

For simplicity, all fiscal periods in our condensed consolidated financial statements and accompanying notes are presented as ending on a calendar month end.

2. Cash, Cash Equivalents, Short-Term Investments and Financial Instruments

Our investments with maturities beyond one year may be classified as short-term based on their liquid nature and because such securities represent the investment of cash that is available for current operations. All of our short-term investments are classified as available-for-sale and are carried at fair market value with unrealized gains (losses) reported as a separate component of accumulated other comprehensive income (loss) in stockholders’ equity.

The following table summarizes our cash, cash equivalents and short-term investments as of December 31, 2007 (in thousands):

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Cash and cash equivalents	$	168,433	$	—	$	—		$	168,433

Short-term investments:
U.S. agency securities	999		1		—			1,000
Municipal securities	133,343		345		—			133,688
Corporate notes	22,297		1		(75		)	22,223
Total short-term investments	156,639		347		(75		)	156,911
Cash, cash equivalents and short-term investments	$	325,072	$	347	$	(75	)	$	325,344

The following table summarizes the gross unrealized losses and fair value of our short-term investments, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of December 31, 2007 (in thousands):

	Unrealized Losses Less					Unrealized Losses 12
	Than 12 Months					Months or Greater				Total
			Gross					Gross				Gross
	Fair		Unrealized			Fair		Unrealized		Fair		Unrealized
	Value		Losses			Value		Losses		Value		Losses
U.S. agency securities	$	1,000	$	—		$	—	$	—	$	1,000	$	—
Municipal securities	133,688		—			—		—		133,688		—
Corporate notes	22,223		(75		)	—		—		22,223		(75		)
Total short-term investments	$	156,911	$	(75	)	$	—	$	—	$	156,911	$	(75	)

The gross unrealized losses in each of the securities in the above tables were primarily caused by a decrease in the fair value of the investments as a result of an increase in interest rates. The contractual terms of these securities do not permit the issuer to call, prepay or otherwise settle the securities at prices less than the stated par value of the security. Accordingly, we do not consider these investments to be other-than-temporarily impaired as of December 31, 2007.

During the nine months ended December 31, 2007 and 2006 there were no realized gains or losses from sales of available-for-sale securities. In addition to the $318,000 net unrealized gain in the nine months ended December 31, 2007 from our short-term investments, we had an unrealized gain on our investment in Yuke’s Co., Ltd. (“Yuke’s”) which is classified as available-for-sale and is included in other long-term assets (see “Note 7 — Other Long-Term Assets”).

The following table summarizes the amortized cost and fair value of our short-term investments, classified by stated maturity as of December 31, 2007 (in thousands):

	Amortized Cost		Fair Value
Due in one year or less	$	106,304	$	106,381
Due after one year through two years	50,335		50,530
Total short-term investments	$	156,639	$	156,911

Financial Instruments. As of December 31, 2007 and March 31, 2007, we had foreign exchange forward contracts in the notional amount of $63.1 million and $47.0 million, respectively. The net loss recognized from foreign currency contracts during the three and nine month periods ended December 31, 2007 was $1.8 million and $1.6 million, respectively, and the net loss recognized from foreign currency contracts during the three and nine month periods ended December 31, 2006 was $457,000 and $1.2 million, respectively, both of which are included in interest and other income, net in our condensed consolidated statements of operations.

3. Licenses

Minimum guaranteed royalty payments for intellectual property licenses are initially recorded on our balance sheet as an asset (licenses) and as a liability (accrued royalties) at the contractual amount upon execution of the contract if no significant performance obligation remains with the licensor. When a significant performance obligation remains with the licensor, we record royalty payments as an asset (licenses) and as a liability (accrued royalties) when payable rather than upon execution of the contract. Royalty payments for intellectual property licenses are classified as current assets and current liabilities to the extent such royalty payments relate to anticipated product sales during the subsequent year and long-term assets and long-term liabilities if such royalty payments relate to anticipated product sales after one year.

We evaluate the future recoverability of our capitalized licenses on a quarterly basis. The recoverability of capitalized license costs is evaluated based on the expected performance of the specific products in which the licensed trademark or copyright is to be used. As many of our licenses extend for multiple products over multiple years, we also assess the recoverability of capitalized license costs based on certain qualitative factors such as the success of other products and/or entertainment vehicles utilizing the intellectual property, whether there are any future planned theatrical releases or television series based on the intellectual property and the rights holder’s continued promotion and exploitation of the intellectual property. Prior to

the related product’s release, we expense, as part of cost of sales — license amortization and royalties, capitalized license costs when we estimate such amounts are not recoverable.

Licenses are expensed to cost of sales — license amortization and royalties 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 costs, we expense these capitalized costs to cost of sales — license amortization and royalties. If actual revenues or revised forecasted revenues fall below the initial forecasted revenue for a particular license, the charge to cost of sales — license amortization and royalties expense may be larger than anticipated in any given quarter. As of December 31, 2007, the net carrying value of our licenses was $88.7 million. If we were required to write off licenses, due to changes in market conditions or product acceptance, our results of operations could be materially adversely affected.

4. Software Development

We utilize both internal development teams and third-party software developers to develop our software. We account for software development costs in accordance with Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standard (“SFAS”) No. 86, “Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed” (“FAS 86”). We capitalize software development costs once technological feasibility is established and we determine that such costs are recoverable against future revenues. For products where proven game engine technology exists, this may occur early in the development cycle. We capitalize the milestone payments made to third-party software developers and the direct payroll and overhead costs for our internal development teams. We evaluate technological feasibility on a product-by-product basis. Amounts related to software development for which technological feasibility is not yet met are charged as incurred to product development expense in our consolidated statements of operations.

On a quarterly basis, we compare our unamortized software development costs to net realizable value, on a product-by-product basis. The amount by which any unamortized software development costs exceed their net realizable value is charged to cost of sales — software amortization and royalties. The net realizable value is the estimated future net revenues from the product, reduced by the estimated future direct costs associated with the product such as completion costs, cost of sales and advertising.

Commencing upon product release, capitalized software development costs are amortized to cost of sales — software amortization and royalties based on the ratio of current gross revenues to total projected gross revenues. If actual gross revenues, or revised projected gross revenues, fall below the initial projections, the charge to cost of sales — software amortization and royalties may be larger than anticipated in any given quarter. In the three months ended December 31, 2007, we recorded approximately $20.6 million of accelerated amortization due to the underperformance of certain previously released games and approximately $17.9 million of additional amortization expense related to the cancellation of certain games. As of December 31, 2007, the net carrying value of our software development was $174.9 million.

The milestone payments made to our third-party developers during their development of our games are typically considered non-refundable advances against the total compensation they can earn based upon the sales performance of the products. Any additional compensation earned beyond the milestone payments is expensed to cost of sales — software amortization and royalties as earned.

5. Goodwill

The changes in the carrying amount of goodwill for the nine months ended December 31, 2007 are as follows (in thousands):

Balance at March 31, 2007	$	88,688
Goodwill acquired	6,474
Additional consideration paid for ValuSoft acquisition	1,800
Effect of foreign currency exchange rates and other	2,064
Balance at December 31, 2007	$	99,026

6. Other Intangible Assets

Intangible assets include licenses, software development and other intangible assets. Intangible assets are included in other long-term assets, net, except licenses and software development, which are reported separately in the condensed consolidated balance sheets. Other intangible assets are as follows (in thousands):

		December 31, 2007							March 31, 2007
	Useful Lives	Gross Carrying Amount		Accumulated Amortization			Net Amount		Gross Carrying Amount		Accumulated Amortization			Net Amount

Software technology	2-4 years	$	1,125	$	(383	)	$	742	$	953	$	(715	)	$	238

Trade secrets	5 years	—		—			—		1,800		(1,800		)	—

Trade names	3-10 years	1,631		(547		)	1,084		2,100		(922		)	1,178

Non-compete / Employment contracts	1.5-6.5 years	1,011		(832		)	179		1,048		(828		)	220
Total other intangible assets		$	3,767	$	(1,762	)	$	2,005	$	5,901	$	(4,265	)	$	1,636

Amortization of other intangible assets was $228,000 and $697,000 for the three and nine month periods ended December 31, 2007, respectively, and $516,000 and $1.7 million for the three and nine month periods ended December 31, 2006, 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 two to ten years, and are assessed for impairment as prescribed under SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”

The following table summarizes the estimated amortization expense of other intangible assets for each of the next five fiscal years and thereafter (in thousands):

Fiscal Year Ending March 31,
Remainder of 2008	$	206
2009	628
2010	447
2011	307
2012	118
Thereafter	299
	$	2,005

7. Other Long-Term Assets

In addition to other intangible assets, other long-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 SFAS No. 115 “Accounting for Certain Investments in Debt and Equity Securities” as available-for-sale. For the nine months ended December 31, 2007 and 2006 the unrealized holding gain (loss) related to our investment in Yuke’s was $1.8 million and $(3.5) million, respectively, before income taxes. Additionally, development fees incurred but not yet paid to Yuke’s were approximately $5.3 million and $6.0 million as of December 31, 2007 and March 31, 2007, respectively, and are included in accrued and other current liabilities in the condensed consolidated balance sheets.

Other long-term assets as of December 31, 2007 and March 31, 2007 are as follows (in thousands):

	December 31, 2007		March 31, 2007
Investment in Yuke’s	$	7,544	$	5,726
Other intangible assets (see Note 6)	2,005		1,636
Other	6,331		11,388
Total other long-term assets	$	15,880	$	18,750

8. Balance Sheet Details

Inventory. Inventory at December 31, 2007 and March 31, 2007 consists of the following (in thousands):

	December 31,		March 31,
	2007		2007
Components	$	2,640	$	1,693
Finished goods	40,944		25,688
Inventory	$	43,584	$	27,381

Property and Equipment, net. Property and equipment, net at December 31, 2007 and March 31, 2007 consists of the following (in thousands):

	Useful	December 31,			March 31,
	Lives	2007			2007
Building	30 yrs	$	730		$	719
Land	—	401			401
Computer equipment and software	3-10 yrs	65,776			50,777
Furniture, fixtures and equipment	5 yrs	9,343			8,262
Leasehold improvements	3-6 yrs	14,156			12,694
Automobiles	2-5 yrs	100			92
		90,506			72,945
Less: accumulated depreciation		(41,147		)	(27,850		)
Property and equipment, net		$	49,359		$	45,095

Depreciation expense associated with property and equipment amounted to $4.5 million and $12.7 million for the three and nine month periods ended December 31, 2007, respectively, and $3.7 million and $9.9 million for the three and nine month periods ended December 31, 2006, respectively.

Accrued and Other Current Liabilities. Accrued and other current liabilities at December 31, 2007 and March 31, 2007 consist of the following (in thousands):

	December 31,		March 31,
	2007		2007
Accrued liabilities	$	49,028	$	31,125
Accrued compensation	38,354		36,591
Accrued developer milestones	11,043		9,387
Accrued venture partner expense	35,534		15,273
Accrued royalties	71,603		51,042
Accrued and other current liabilities	$	205,562	$	143,418

Other Long-Term Liabilities. Other long-term liabilities at December 31, 2007 and March 31, 2007 consist of the following (in thousands):

	December 31,		March 31,
	2007		2007
Accrued royalties	$	35,658	$	43,966
Accrued liabilities	4,321		3,328
Other long-term liabilities	$	39,979	$	47,294

9. Commitments and Contingencies

A summary of annual minimum contractual obligations and commercial commitments as of December 31, 2007 is as follows (in thousands):

	Contractual Obligations and Commercial Commitments (5) (6)
	License /
Fiscal	Software
Years Ending	Development						Letters of
March 31,	Commitments (1)		Advertising (2)		Leases (3)		Credit (4)		Total
Remainder of 2008	$	24,012	$	4,181	$	3,911	$	45,660	$	77,764
2009	84,380		14,401		15,613		—		114,394
2010	48,621		17,436		14,904		—		80,961
2011	13,850		10,667		13,930		—		38,447
2012	850		2,747		12,072		—		15,669
Thereafter	1,100		4,808		25,776		—		31,684
	$	172,813	$	54,240	$	86,206	$	45,660	$	358,919

(1) Licenses and Software Development. We enter into contractual arrangements with third parties for the rights to intellectual property and for the development of products. Under these agreements, we commit to provide specified payments to an intellectual property holder or developer. Assuming all contractual provisions are met, the total future minimum contract commitments for contracts in place as of December 31, 2007 are approximately $172.8 million. License/software development commitments in the table above include $56.8 million of commitments to licensors that are included in our condensed consolidated balance sheet as of December 31, 2007 because the licensors do not have any significant performance obligations to us. These commitments were included in both current and long-term licenses and accrued royalties.

(2) Advertising. We have certain minimum advertising commitments under most of our major license agreements. These minimum commitments generally range from 2% to 12% of net sales related to the respective license.

(3) Leases. We are committed under operating leases with lease termination dates through 2015. Most of our leases contain rent escalations.

(4) Letters of Credit. As of December 31, 2007, we had outstanding letters of credit of approximately $45.7 million. On October 3, 2006, we entered into an agreement with a bank primarily to provide stand-by letters of credit to a platform manufacturer from whom we purchase products. We pledged cash equivalents and investments to the bank as collateral in an amount equal to 110% of the amount of the outstanding stand-by letters of credit.

(5) Pursuant to the terms of our acquisition of Universomo, a mobile game developer we acquired in May 2007, there is potential additional consideration, up to $2.9 million, related to their meeting certain post-acquisition performance targets that can be earned through May 2009.

(6) We have omitted unrecognized tax benefits from this table due to the inherent uncertainty regarding the timing and amount of certain payments related to these unrecognized tax benefits. The underlying positions have not been fully developed under audit to quantify at this time. As of December 31, 2007 we had $12.1 million of unrecognized tax benefits. See “Note 12 — Income Taxes” for further information regarding the unrecognized tax benefits.

Other material future potential expenditures relate to the following:

Manufacturer Indemnification. We must indemnify the platform manufacturers (Microsoft, Nintendo, Sony) of our games with respect to all loss, liability and expenses resulting from any claim against such manufacturer involving the development, marketing, sale or use of our games, including any claims for copyright or trademark infringement brought against such manufacturer. 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 licensors typically provide indemnification rights for us with respect to certain matters. However, if a manufacturer brings a claim against us for indemnification, the developers or licensors may not have sufficient resources to, in turn, indemnify us.

Director Indemnity Agreements. We have entered into indemnification agreements with the members of our Board of Directors to provide a contractual right of indemnification to our Directors to the extent permitted by law against any and all liabilities, costs, expenses, amounts paid in settlement and damages incurred by the Directors as a result of any lawsuit, or any judicial, administrative or investigative proceeding in which the Directors are sued as a result of their service as members of our Board of Directors. The indemnification agreements provide specific procedures and time frames with respect to requests for indemnification and clarify the benefits and remedies available to Directors in the event of an indemnification request.

Legal Proceedings

WWE related Lawsuits

New York lawsuit. 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, THQ/JAKKS Pacific LLC (the “LLC”), and others, alleging, among other claims, improper conduct by JAKKS, certain executives of JAKKS, an employee of the WWE and an agent of the WWE in granting the WWE videogame license to the LLC. The complaint seeks various forms of relief, including monetary damages and a judicial determination that, among other things, the WWE videogame license is void. On March 30, 2005, WWE filed an amended complaint, adding both new claims and THQ’s president and chief executive officer, Brian Farrell, as a defendant. In August 2005, the Court directed the parties to file briefs on the three federal law claims alleged by the Plaintiffs (i.e., Robinson-Patman, and Sherman Act, and a threshold issue concerning the Plaintiff’s RICO claim). The motions to dismiss the amended complaint based on these issues were fully briefed and argued and, on March 31, 2006, the Court granted the defendants’ motion to dismiss the Robinson-Patman Act and Sherman Act claims and denied the defendants’ motion seeking to dismiss the RICO claims on the basis of the threshold “enterprise” issue that was briefed (the “March 31 Order”).

In an Opinion and Order filed on December 21, 2007, the judge dismissed the remaining RICO claims and declined to exercise supplemental jurisdiction over the remaining state law claims. The judge entered a judgment on December 28, 2007. WWE has filed a notice of appeal with respect to dismissal of the Sherman Act and RICO claims, we and the other defendants have filed cross-appeals on certain issues.

THQ believes that neither it, nor Brian Farrell, is primarily accused of any wrongdoing in the complaint or the amended complaint, and believes that either there is no basis for terminating the WWE videogame license, or that THQ will be made whole by those whose conduct is eventually found to be unlawful. We intend to vigorously protect our rights and, if necessary, pursue appropriate claims against third parties.

Connecticut lawsuit. On October 12, 2006, WWE filed a separate lawsuit against the Company and the LLC in the Superior Court of the State of Connecticut, alleging that the Company’s agreements with Yuke’s Co., Ltd. (“Yukes”), a developer and distributor in Japan, violated a provision of the WWE videogame license prohibiting sublicenses without WWE’s written consent. The lawsuit seeks, among other things, a declaration that the WWE is entitled to terminate the video game license and seek monetary damages. On February 8, 2007, the Company and the LLC jointly moved to strike one of the claims, for violation of the Connecticut Unfair Trading Practices Act; on March 28, 2007, the Court denied that motion, without prejudice to the defendants’ ability to raise the same issue at a later date. On February 22, 2007, the Court established a schedule for this case, including discovery, and ordering that the case be “exposed for trial” as of October 14, 2008. However, on March 30, 2007, WWE moved for leave to amend its pleadings to add allegations and claims substantially similar to those already pending in WWE’s lawsuit in the Southern District of New York and to “cite in” the other defendants from that action. The defendants objected to this motion. At a hearing on May 8, 2007, the Court granted WWE’s request to amend the complaint and add defendants. The Court also suspended deadlines under its existing scheduling order and indicated it will re-examine the schedule after the new defendants have been served and have appeared. The amended complaint was served on the Company and Brian Farrell on or about May 10, 2007. On July 30, 2007, in response to a request by JAKKS and certain other defendants, which THQ and Brian Farrell joined, the Court stayed proceedings in the Connecticut state court action for a period of four months. That stay has expired, and the discovery phase in this action has begun. In light of the ruling in the federal court action, we intend to move for summary judgment on certain of the claims in the Connecticut action, and the Court has established a briefing schedule for that motion.

We intend to vigorously defend ourselves against the claims raised in this action, including those raised in the amended complaint. The Company believes it and the LLC have several bases for defending any claim of breach of the WWE videogame license agreement resulting from the manner of distribution of WWE-licensed products in Japan and other Asian territories. In addition, we believe the rulings of the Court in the federal court action support dismissal of certain of the

claims in the amended complaint, and we intend to file a motion for summary judgment with respect to those claims. We cannot estimate a possible loss, if any, that we would have due to the litigation with the WWE. 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 JAKKS Pacific, Inc.

In June 1999 we entered into an operating agreement with JAKKS that governs our relationship with respect to the WWE videogame license. Pursuant to the terms of this agreement, JAKKS is entitled to a preferred payment from revenues derived from exploitation of the WWE videogame license. The amount of the preferred payment to JAKKS for the period beginning July 1, 2006 and ending December 31, 2009 (the “First Subsequent Distribution Period”) is to be determined by agreement or, failing that, by arbitration.

The parties have not reached agreement on the preferred payment for the First Subsequent Distribution Period. Accordingly, as provided in the operating agreement, the parties are in the process of selecting an arbitrator to resolve this dispute. Although we believe continuation of the previous preferred payment would represent significantly excessive compensation to JAKKS for the First Subsequent Distribution Period, we are not able to predict the outcome of the arbitration or otherwise estimate the amount of the preferred payment for the First Subsequent Distribution Period. Accordingly, we are currently accruing for a preferred payment to JAKKS at the previous rate. As of December 31, 2007, we have accrued approximately $35.5 million, which is included in accrued and other current liabilities in the condensed consolidated balance sheets herein. However, we have advised JAKKS that we do not intend to make any payment until the amount of the preferred payment payable to JAKKS for the First Subsequent Distribution Period is agreed or otherwise determined as provided in the operating agreement.

On April 30, 2007, we filed a petition to compel arbitration and appoint an arbitrator in the Superior Court of the State of California for the County of Los Angeles. Our petition sought a court order compelling JAKKS to comply with the arbitration provisions in the operating agreement and establishing a process and timeline for selecting an arbitrator. On or about May 22, 2007, JAKKS filed a response to our petition, as well as an application for provisional relief requesting that, pending conclusion of the arbitration, THQ either be enjoined from distributing to itself any proceeds from the joint venture since June 2006 or be compelled to resume payments to JAKKS at the same rate that was in effect prior to June 2006. At a hearing on June 19, 2007 (with a subsequent order entered on June 25, 2007), the Court established a process for selecting an arbitrator and denied JAKKS’ request for preliminary relief. Pursuant to the process, the judge named a “shortlist” of five arbitrator candidates drawn from lists submitted by the parties, and afforded the parties five days to agree upon an arbitrator candidate, failing which the judge would appoint an arbitrator from the “shortlist.” On July 18, 2007, JAKKS filed a notice of disqualification, purporting to disqualify all of the arbitrator candidates on the “shortlist” other than the one individual who had been among the candidates submitted by JAKKS. THQ objected to this notice. On July 31, 2007, the Court struck JAKKS’s notice and selected an arbitrator from the “shortlist.” On or about August 22, 2007 JAKKS filed in the Court of Appeal of the State of California a petition for writ of mandate/prohibition or other appropriate relief, seeking an order directing the judge to disqualify all of the arbitrator candidates other than the one individual who had been submitted by JAKKS. In its filing, JAKKS argued that this individual was the only “shortlist” candidate to file certain disclosures within a time period JAKKS maintains is required by statute. The Court of Appeal granted a temporary stay of the arbitration on August 30, 2007, and subsequently scheduled a hearing on JAKKS’s petition for December 18, 2007. The Court subsequently continued the hearing until February 27, 2008 and requested further briefing. On the same day that the Court of Appeal issued its temporary stay, JAKKS filed a notice with the Superior Court that it was exercising its one-time peremptory challenge pursuant to the California Code of Civil Procedure to disqualify “without cause” the arbitrator chosen by the judge. We believe JAKKS’s arguments before the Court of Appeal are without merit. We have filed an opposition to JAKKS’s petition and intend to vigorously defend our position and the ruling of the judge in this matter. In light of JAKKS’s filing, we cannot anticipate when the arbitration will commence.

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.

Other Litigation.

The Company is involved in routine litigation arising in the ordinary course of conducting its business. In the opinion of management, none of such pending litigation is expected to have a material adverse effect on the Company’s consolidated financial condition or results of operations.

For the three and nine month periods ended December 31, 2007 and 2006, stock-based compensation expense recognized in the condensed consolidated statements of operations was as follows (in thousands):

	Three Months Ended December 31,						Nine Months Ended December 31,
	2007			2006			2007			2006
Cost of sales — software amortization and royalties	$	2,413		$	625		$	5,391		$	788
Product development	1,262			951			3,434			2,727
Selling and marketing	573			918			2,083			2,142
General and administrative	482			3,223			6,813			8,474
Stock-based compensation expense before income taxes	4,730			5,717			17,721			14,131
Income tax benefit	(1,585		)	(252		)	(5,719		)	(2,961		)
Total stock-based compensation expense after income taxes	$	3,145		$	5,465		$	12,002		$	11,170

Additionally, stock-based compensation expense is capitalized in accordance with FAS 86, as discussed in “Note 4 — Software Development.” The following table summarizes stock-based compensation expense included in our condensed consolidated balance sheets as a component of software development (in thousands):

Balance at March 31, 2007	$	3,837
Stock-based compensation expense capitalized during the period	4,598
Amortization of capitalized stock-based compensation expense	(5,391		)
Balance at December 31, 2007	$	3,044

FAS 123R requires that stock-based compensation expense be based on awards that are ultimately expected to vest and accordingly, stock-based compensation expense recognized in the three months ended December 31, 2007 and 2006 has been reduced by estimated forfeitures. Our estimate of forfeitures is based on historical forfeiture behavior as well as any expected trends in future forfeiture behavior.

The fair value of stock options granted during the three and nine month periods ended December 31, 2007 was estimated based on the date of grant using the Black-Scholes option pricing model with the weighted-average assumptions noted in the table below. Anticipated volatility is based on implied volatilities from traded options on our stock and on our stock’s historical volatility. The expected term of our stock options granted is based on historical exercise data and represents the period of time that stock options granted are expected to be outstanding. Separate groups of employees that have similar historical exercise behavior are considered separately for valuation purposes. The risk-free rate for periods within the expected lives of our options is based on the US Treasury yield in effect at the time of grant.

	Three Months Ended December 31,				Nine Months Ended December 31,
Stock Option Grants	2007		2006		2007		2006
Dividend yield	—	%	—	%	—	%	—	%
Anticipated volatility	35	%	37	%	36	%	37	%
Weighted-average risk-free interest rate	3.5	%	4.6	%	4.4	%	4.9	%
Expected lives	3.0 years		3.0 years		3.2 years		3.2 years

The weighted-average grant-date fair value per share of options granted during the three and nine month periods ended December 31, 2007 was $7.17 and $9.02, respectively. The weighted-average grant-date fair value per share of options granted during the three and nine month periods ended December 31, 2006 was $10.05 and $7.57, respectively.

The fair value of our ESPP options for the six month offering period that began on September 4, 2007, was estimated using the Black-Scholes option pricing model with the weighted-average assumptions noted in the table below and the per share fair value for that offering period was $7.63.

Employee Stock Purchase Plan
Dividend yield	—	%
Anticipated volatility	37	%
Weighted-average risk-free interest rate	4.2	%
Expected lives	0.5 years

A summary of our stock option activity for the nine months ended December 31, 2007 is as follows (in thousands, except per share amounts):

					Weighted-
					Average
			Weighted-		Remaining
			Average		Contractual	Aggregate
			Exercise		Term	Intrinsic
	Options		Price		(in years)	Value
Outstanding at April 1, 2007	7,564		$	19.15
Granted	2,375		$	29.47
Exercised	(1,175	)	$	15.66
Forfeited/expired/cancelled	(810	)	$	25.72
Outstanding at December 31, 2007	7,954		$	22.07	3.0	$	54,936
Vested and expected to vest	7,157		$	21.64	2.9	$	52,267
Exercisable at December 31, 2007	3,677		$	17.17	1.9	$	41,097

The aggregate intrinsic value is calculated as the difference between the exercise price of a stock option and the quoted price of our common stock at December 31, 2007. It excludes stock options that have exercise prices in excess of the quoted price of our common stock at December 31, 2007. The aggregate intrinsic value of stock options exercised was $5.4 million and $17.2 million during the three and nine month periods ended December 31, 2007, respectively, and $5.3 million and $22.1 million during the three and nine month periods ended December 31, 2006, respectively.

A summary of the status of our nonvested shares as of December 31, 2007 and changes during the nine months then ended, is as follows (in thousands, except per share amounts):

			Weighted-
			Average
			Grant-date
			Fair Value
	Shares		Per Share
Nonvested shares at March 31, 2007	339		$	21.81
Granted	182		$	31.72
Vested	(92	)	$	23.60
Forfeited/cancelled	(129	)	$	25.34
Nonvested shares at December 31, 2007	300		$	25.76

The weighted-average grant-date fair value of nonvested shares granted during the nine months ended December 31, 2007 was $31.72 and was $28.69 and $26.15 during the three and nine month periods ended December 31, 2006, respectively. There were no grants in the three months ended December 31, 2007.

The unrecognized compensation cost, that we expect to recognize, related to our nonvested stock-based awards at December 31, 2007, and the weighted-average period over which we expect to recognize that compensation, is as follows (in thousands):

	Unrecognized Compensation Cost at December 31, 2007		Weighted- Average Period (in years)
Stock options	$	23,185	1.4
Nonvested shares	5,887		3.7
ESPP	335		0.2
	$	29,407

Cash received from exercises of stock options for the nine months ended December 31, 2007 and 2006 was $18.3 million and $28.5 million, respectively. The actual tax benefit realized for the tax deductions from exercises of all stock-based awards totaled $5.0 million and $6.5 million for the nine months ended December 31, 2007 and 2006, respectively.

The fair value of all our stock-based awards that vested during the three and nine month periods ended December 31, 2007 was $4.1 million and $19.8 million, respectively. The fair value of all our stock-based awards that vested during the three and nine month periods ended December 31, 2006 was $6.7 million and $17.3 million, respectively.

Non-Employee Stock Warrants. In prior years, we have granted stock warrants to third parties in connection with the acquisition of licensing rights for certain key intellectual property. The warrants generally vest upon grant and are exercisable over the term of the warrant. The exercise price of third-party stock warrants is equal to the fair market value of our common stock at the date of grant. No third-party stock warrants were granted or exercised during the nine months ended December 31, 2007 and 2006.

At December 31, 2007 and 2006, we had 390,000 stock warrants outstanding with a weighted average exercise price per share of $12.32.

In accordance with EITF No. 96-18, “Accounting for Equity Instruments that 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 stock warrant is capitalized and amortized to expense when the related product is released and the related revenue is recognized. Additionally, as more fully described in Note 3, the recoverability of intellectual property licenses is evaluated on a quarterly basis with amounts determined as not recoverable being charged to expense. In connection with the evaluation of capitalized intellectual property licenses, any capitalized amounts for related third-party stock warrants are additionally reviewed for recoverability with amounts determined as not recoverable being amortized to expense. For each of the three months ended December 31, 2007 and 2006, approximately $128,000 was amortized and included in cost of sales — license amortization and royalties expense. For the nine months ended December 31, 2007 and 2006, approximately $383,000 and $611,000, respectively was amortized and included in cost of sales — license amortization and royalties expense.

11. Capital Stock Transactions

As of March 31, 2007 we had $8.5 million authorized and available for common stock repurchases. On May 15, 2007 our Board authorized the repurchase of up to $25.0 million of our common stock from time to time on the open market or in private transactions. On July 31, 2007 our Board authorized the repurchase of up to $25.0 million of our common stock from time to time on the open market or in private transactions. On October 30, 2007 our Board authorized the repurchase of up to $25.0 million of our common stock from time to time on the open market or in private transactions. During the nine months ended December 31, 2007, we repurchased 1,508,400 shares of our common stock for approximately $41.8 million, leaving approximately $41.7 million available for future repurchases. There is no expiration date for the authorized repurchases.

On July 30, 2007 we amended our certificate of incorporation to increase our authorized number of shares of common stock to 225,000,000, from 75,000,000.

13. Earnings (Loss) Per Share

Basic earnings (loss) per share is computed as net income (loss) divided by the weighted average number of shares outstanding for the period. Diluted earnings (loss) per share reflects the potential dilution that could occur from common shares issuable through stock-based compensation plans including stock options, stock-based awards and purchase opportunities under our ESPP. The following table is a reconciliation of the weighted-average shares used in the computation of basic and diluted earnings (loss) per share for the periods presented (in thousands):

	For the Three Months Ended December 31,				For the Nine Months Ended December 31,
	2007		2006		2007			2006
Net income (loss) used to compute basic and diluted earnings per share	$	15,507	$	62,055	$	(806	)	$	61,543

Weighted-average number of shares outstanding — basic	66,118		65,387		66,502			64,737
Dilutive effect of stock options and warrants	1,697		2,714		—			2,413
Number of shares used to compute earnings (loss) per share — diluted	67,815		68,101		66,502			67,150

The following weighted-average options were excluded from the computation of diluted earnings per share above as such effect would have been anti-dilutive (in thousands):

	For the Three Months Ended December 31,		For the Nine Months Ended December 31,
	2007	2006	2007	2006
Potential common shares	3,907	879	—	2,432

14. Comprehensive Income (Loss)

The table below presents the components of our comprehensive income for the three and nine month periods ended December 31, 2007 and 2006 (in thousands):

	For the Three Months Ended December 31,					For the Nine Months Ended December 31,
	2007			2006		2007			2006
Net income (loss)	$	15,507		$	62,055	$	(806	)	$	61,543
Other comprehensive income (loss):

Foreign currency translation adjustment	(2,490		)	3,765		5,127			7,323
Unrealized gain (loss) on investments, net of tax of $(310), $(59), $(682) and $1,340, respectively	769			99		1,454			(2,230		)
Other comprehensive income (loss)	(1,721		)	3,864		6,581			5,093
Comprehensive income	$	13,786		$	65,919	$	5,775		$	66,636

The foreign currency translation adjustments relate to indefinite investments in non-U.S. subsidiaries and thus are not adjusted for income taxes.

15. Segment and Geographic Information

We operate in one reportable segment in which we are 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 three and nine month periods ended December 31, 2007 and 2006 (in thousands):

	North America		Europe		Asia Pacific		Consolidated
Three months ended December 31, 2007
Net sales to unaffiliated customers	$	278,294	$	202,253	$	29,062	$	509,609
Total assets	830,971		262,215		25,097		1,118,283

Nine months ended December 31, 2007
Net sales to unaffiliated customers	$	422,190	$	363,648	$	57,605	$	843,443

Three months ended December 31, 2006
Net sales to unaffiliated customers	$	294,293	$	157,614	$	23,834	$	475,741
Total assets	813,978		197,899		32,722		1,044,599

Nine months ended December 31, 2006
Net sales to unaffiliated customers	$	509,781	$	299,061	$	45,925	$	854,767

Information about THQ’s net sales by platform for the three and nine month periods ended December 31, 2007 and 2006 is presented below (in thousands):

	Three Months Ended December 31,				Nine Months Ended December 31,
Platform	2007		2006		2007		2006
Consoles
Microsoft Xbox 360	$	62,846	$	59,394	$	117,611	$	123,763
Microsoft Xbox	349		12,352		2,101		25,667
Nintendo Wii	52,952		24,052		68,190		24,052
Nintendo GameCube	767		21,594		6,741		48,838
Sony PlayStation 3	59,949		—		73,231		—
Sony PlayStation 2	130,590		181,899		218,845		267,152
	307,453		299,291		486,719		489,472
Handheld
Nintendo Dual Screen	103,030		53,079		172,213		88,571
Nintendo Game Boy Advance	15,027		48,129		32,358		101,659
Sony PlayStation Portable	43,150		27,987		67,918		55,771
Wireless	5,286		7,485		14,534		22,087
	166,493		136,680		287,023		268,088

PC	35,663		39,746		69,303		96,827
Other	—		24		398		380
Total Net Sales	$	509,609	$	475,741	$	843,443	$	854,767

16. Recently Issued Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurement” (“FAS 157”). FAS 157 provides a single definition of fair value, together with a framework for measuring it, and requires additional disclosure about the use of fair value to measure assets and liabilities. FAS 157 emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and sets out a fair value hierarchy with the highest priority being quoted prices in active markets. FAS 157 is effective for fiscal years beginning after November 15, 2007, which will be our fiscal year 2009. 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 February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of FASB Statement No. 115” (“FAS 159”). FAS 159 permits an entity to choose to measure many financial instruments and certain other items at fair value at specified election dates. Subsequent unrealized gains and losses on items for which the fair value option has been elected will be reported in earnings. FAS 159 is effective for fiscal years beginning after November 15, 2007, which will be our fiscal year 2009. 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 December 2007, the FASB issued SFAS No. 141, “Business Combinations” (“FAS 141R”). FAS 141R retains the fundamental requirements in FAS 141 that the acquisition method of accounting (which FAS 141 called the purchase method) be used for all business combinations and for an acquirer to be identified for each business combination. FAS 141R defines the acquirer as the entity that obtains control of one or more businesses in the business combination and establishes the acquisition date as the date that the acquirer achieves control. FAS 141R is effective for business combination transactions for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008, which will be our fiscal year 2009. 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 December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements” (“FAS 160”). This Statement amends ARB 51 to establish accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a non-controlling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. FAS 160 is effective for fiscal years and interim periods within those fiscal years, beginning on or after December 15, 2008, which will be our fiscal year 2009. We are evaluating the impact, if any, the adoption of this statement will have on our results of operations, financial position or cash flows.

17. Discontinued Operations

In December 2006, we sold our 50% interest in Minick Holding AG (“Minick”). As of December 31, 2007 we received approximately $18.6 million in cash due to the sale of Minick. During the three and nine months ended December 31, 2007 we recognized a gain of approximately $1.5 million in discontinued operations due to the sale of Minick. During the three and nine months ended December 31, 2006 we recognized a gain of approximately $2.1 million in discontinued operations due to the sale of Minick. Pursuant to the Minick sale agreement, we may receive additional consideration of approximately $1.2 million during the six months ended June 30, 2008. If such amounts are received, the additional gain recognized will be reported in discontinued operations in the period the proceeds are collected. The results of Minick’s operations were not material to any of the periods presented and have therefore not been reclassified as discontinued operations.

18. Subsequent Events

On January 18, 2008, we acquired all of the issued and outstanding shares of Big Huge Games, Inc., a leading development studio focused on the Role-Playing-Game genre, to continue to expand our internal development capabilities and our portfolio of owned intellectual properties. The acquisition will be accounted for in the fourth quarter of fiscal 2008 using the purchase method in accordance with FAS 141. Accordingly, the net assets will be recorded at their estimated fair values, and operating results will be included in our financial statements from the date of acquisition. The purchase price will be allocated on a preliminary basis using information currently available.

On January 23, 2008, we announced the closure of our Concrete Games studio; the financial statement impact of the closure, which is not expected to be significant, will be reflected in the fourth quarter of fiscal 2008.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q contains, or incorporates by reference, certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include, but are not limited to, (1) projections of revenues, expenses, income or loss, earnings or loss per share, cash flow projections and other financial items; (2) statements of our plans and objectives, including those relating to product releases; (3) statements of future economic performance; and (4) statements of assumptions underlying such statements. We generally use words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “future,” “intend,” “may,” “plan,” “positioned,” “potential,” “project,” “scheduled,” “set to,” “upcoming” and other similar expressions to help identify forward-looking statements. These forward-looking statements are subject to business and economic risk, reflect management’s current expectations, estimates and projections about our business, and are inherently uncertain and difficult to predict. Our actual results could differ materially. The forward-looking statements contained herein speak only as of the date on which they were made, and we disclaim any obligation to update any forward-looking statements to reflect events or circumstances after the date of this Quarterly Report.

Our business is subject to many risks and uncertainties which may affect our future financial performance. For a discussion of our risk factors, see “Part II - Item 1A. Risk Factors.”

Overview

The following is a discussion of our operating results, as well as material changes in operating results and financial condition from prior reported periods. The discussion and analysis herein should be read in conjunction with the consolidated financial statements, notes to the consolidated financial statements, and management’s discussion and analysis (which includes additional information about our accounting policies, practices and the transactions that underlie our financial results) contained in our Annual Report on Form 10-K for the fiscal year ended March 31, 2007 and our Quarterly Reports on Form 10-Q for the quarters ended June 30, 2007 and 2006 and September 30, 2007 and 2006. All references to “we,” “us,” “our,” “THQ,” or the “Company” in the following discussion and analysis mean THQ Inc. and its subsidiaries.

About THQ

We are a leading worldwide developer and publisher of interactive entertainment software for all popular game systems, including:(1)

· Home video game consoles such as Microsoft Xbox 360, Microsoft Xbox, Nintendo Wii, Nintendo GameCube, Sony PlayStation 3 and Sony PlayStation 2;

· Handheld platforms such as Nintendo DS, Nintendo Game Boy Advance, PSP (PlayStation Portable), wireless devices; and

· Personal computers.

Our titles span a wide range of categories, including action, adventure, fighting, racing, role-playing, simulation, sports and strategy. We have created, licensed and acquired a group of highly recognizable brands, which we market to a variety of consumer demographics ranging from products targeted at children and the mass market to products targeted at core gamers. Our portfolio of licensed properties includes the Disney•Pixar properties Finding Nemo, The Incredibles, Cars and Ratatouille; World Wrestling Entertainment®; Nickelodeon properties such as SpongeBob SquarePants™, Avatar and Nicktoons; Bratz™; Warhammer® 40,000™; and the Ultimate Fighting Championship®; as well as others. We also have licenses to create wireless games and other wireless content based on Disney•Pixar’s Ratatouille as well as Star Wars and major sports leagues. In addition to licensed properties, we also develop games based upon owned intellectual properties, including Company of Heroes™, Destroy All Humans!® MX vs. ATV™, Red Faction® and Saints Row™.

Our business is dependent upon entering into license agreements with the platform manufacturers, which allow us the right to develop, publish and distribute titles for use on such manufacturer’s platform. Our platform licenses include licenses to publish on consoles and handheld platforms manufactured by Nintendo, Sony and Microsoft. Each license is for a fixed term, and as each license expires, we generally enter into a new agreement or an amendment with the licensor to extend the term of the agreement. Certain agreements, such as the licenses with Sony and Microsoft for PlayStation 2 and Xbox 360, respectively, automatically renew each year unless either party gives notice by the applicable date that it intends to terminate the agreement. Additionally, each agreement designates a territory in which we can publish and distribute titles. We are currently licensed or are in negotiations

(1) Nintendo®, DS^™, Game Boy® Advance, GameCube® and Wii^™ are trademarks and/or registered trademarks of Nintendo of America Inc. (“Nintendo”). PSP®, PlayStation® and the “PS” Family logo are registered trademarks of Sony Computer Entertainment Inc. (“Sony”). Microsoft, Xbox®, Xbox 360^™ and the Xbox logos are either registered trademarks or trademarks of Microsoft Corporation (“Microsoft”) in the U.S. and/or in other countries and are used under license from Microsoft. Microsoft, Nintendo and Sony are referred to herein collectively as the “platform manufacturers” or the “manufacturers.”

to license rights to publish and distribute titles on all platforms that are currently sold in North America. 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 PlayStation 2, Xbox and Xbox 360 in various additional territories, including parts of Asia and Central and South America. We expect to enter into additional platform licenses and extend current licenses as new platforms are launched or our current agreements expire.

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 internal development studios and corporate headquarters. The external development resources consist of third-party software developers and other independent resources such as artists. We refer to this group of development resources as our Studio System.

Our global sales network includes offices throughout North America, Europe and Asia Pacific. In the U.S. and Canada, we market and distribute games directly to mass merchandisers, consumer electronic stores, discount warehouses and other national retail chain stores. Internationally, we market and distribute games on a direct-to-retail basis in the territories where we have a direct sales force and to a lesser extent, in the territories where we do not have a direct sales force, third parties distribute our games. We also globally market and distribute games and other content for wireless devices through major wireless carriers.

Overview of Financial Results for the Three and Nine Month Periods Ended December 31, 2007

Our net income for the three months ended December 31, 2007 was $15.5 million, or $0.23 per diluted share, compared to net income of $62.1 million, or $0.91 per diluted share, for the same period last fiscal year. Our net income for the three months ended December 31, 2007 includes $3.1 million, or $0.05 per diluted share, of stock-based compensation expense, net of related tax benefits. Our net income for the three months ended December 31, 2006 includes $5.4 million, or $0.08 per diluted share, of stock-based compensation expense, net of related tax benefits.

Our net loss for the nine months ended December 31, 2007 was $0.8 million, or $0.01 per diluted share, compared to net income of $61.5 million, or $0.92 per diluted share, for the same period last fiscal year. Our net loss for the nine months ended December 31, 2007 includes: i) $12.0 million, or $0.18 per diluted share, of stock-based compensation expense, net of related tax benefits and ii) the recognition of $6.5 million, or $0.10 per diluted share of previously unrecognized tax benefits related to prior years. Our net income for the nine months ended December 31, 2006 includes $11.1 million, or $0.17 per diluted share, of stock-based compensation expense, net of related tax benefits.

Our profitability is dependent upon revenues from the sales of our video game software. Profitability is also affected by the costs and expenses associated with developing and publishing our games. Net sales in the three months ended December 31, 2007 increased 7% from the same period last fiscal year, to $509.6 million from $475.7 million, and net sales in the nine months ended December 31, 2007 decreased 1% from the same period last fiscal year, to $843.4 million from $854.8 million. The increase in our net sales in the three months ended December 31, 2007 was primarily due to higher sales of WWE SmackDown vs Raw! 2008 in the three months ended December 31, 2007 as compared to sales of WWE SmackDown vs Raw! 2007 in the same period last fiscal year. Despite higher sales of WWE SmackDown vs Raw! 2008 in the nine months ended December 31, 2007 as compared to sales of WWE SmackDown vs Raw! 2007 in the same period last fiscal year, our net sales decreased primarily due to the following:

· sales of Ratatouille in the nine months ended December 31, 2007 were outperformed by sales of Cars in the same period last fiscal year, and

· sales of titles based on our Nickelodeon license were lower in the nine months ended December 31, 2007 as compared to the same period last fiscal year.

Costs and expenses increased by $99.8 million, or 25%, in the three months ended December 31, 2007, and increased by $93.3 million, or 12% in the nine months ended December 31, 2007, as compared to the same periods last fiscal year. The increases in the three and nine month periods ended December 31, 2007 were primarily due to:

· higher software amortization and royalties as a result of accelerated amortization taken on current year releases that underperformed relative to our expectations and our decision to discontinue development of certain games in connection with our continued product quality initiatives,

· higher product development expenses primarily due to increased product development efforts to support future growth as well as expense recognized due to a change in our estimate of an unannounced title having reached technological feasibility, and

· higher selling and marketing expenses due to promotional efforts to support our owned intellectual properties Juiced 2: Hot Import Nights and Stuntman: Ignition in the three and nine month periods ended December 31, 2007 as compared to Saints Row in the same periods last fiscal year and increased spend on WWE SmackDown vs. Raw 2008 as compared to our spend on WWE SmackDown vs. Raw 2007 in the same periods last fiscal year.

Cash used in operations was $89.7 million during the nine months ended December 31, 2007, as compared to cash provided by operations of $27.3 million in the same period last fiscal year. The increase in cash used was primarily a result of an increase in accounts receivable and a decrease in net income, partially offset by higher non-cash amortization of licenses and software development.

Our business is highly seasonal, with the highest levels of consumer demand and a significant percentage of our net sales occurring in the December quarter.

Executing on Our Strategy

In order to increase our revenues and expand market share, we believe it is important to offer a broad portfolio of titles for all ages that are playable on all popular platforms. We are also focused on increasing the profitability of our business. We intend to accomplish these goals by executing on the following strategies:

· increase sales and profits from our leading portfolio of mass-market franchises,

· sequel and extend our growing portfolio of owned intellectual property by bringing high quality products to market,

· pursue growing trends of digital content creation and distribution, and

· expand our international business.

Our profitability in the first nine months of fiscal 2008 was significantly lower than our profitability in the first nine months of fiscal 2007 and we expect to incur a net loss in fiscal 2008. Although we expect to increase our revenues slightly in fiscal 2008 from the prior fiscal year, driven by the sales of licensed titles such as WWE SmackDown vs. Raw 2008, Disney•Pixar’s Ratatouille and Cars 2: Mater-National, Nickelodeon’s Avatar and Nicktoons, and owned intellectual properties Frontlines: Fuel of War, Juiced 2: Hot Import Nights, MX vs. ATV Untamed and Stuntman: Ignition, we expect our costs and expenses to significantly outpace our revenue growth. In order to ensure that we strengthen our product pipeline and position ourselves to compete aggressively with compelling, high quality games, we undertook certain product quality initiatives in the second half of fiscal 2008 that resulted in significant non-cash charges (see discussion in Results of Operations — “Cost of Sales — Software Amortization and Royalties”). These initiatives included the cancellation of certain titles that were expected to ship in fiscal 2008, a decision not to further pursue our Juiced and Stuntman intellectual properties, and the closure of our Concrete Games studio along with the cancellation of an unannounced title it was developing. We expect to return to higher revenue growth and profitability in fiscal 2009 as we generate more operating leverage on higher sales levels and a larger installed base of hardware.

During the three months ended December 31, 2007, we increased our revenues from the same period last fiscal year, as we executed on our mass-market strategy with the release of WWE SmackDown vs. Raw 2008, which was the largest simultaneous cross-platform launch to date for the franchise. We also executed on our strategy with respect to our owned intellectual property with the largest cross-platform release of our MX franchise, MX vs. ATV Untamed.

We continue to focus on new revenue streams as they develop (e.g., in-game advertising and downloadable content/micro-transactions), and we believe they will become more significant to our business over time. In fiscal 2008, we continue to position our products for the wireless platform for future growth, adding new brands, such as Indiana Jones, and development capabilities to the platform. During the quarter, we also launched our first downloadable games for Xbox Live® Arcade, including SpongeBob SquarePants.

In the three and nine month periods ended December 31, 2007 we continued to expand our international business. International net sales comprised 45% and 50% of total net sales, respectively, for the three and nine month periods ended December 31, 2007, up from 38% and 40% for the same periods last fiscal year. The increased sales are attributable to our continued focus on releasing content with international appeal, such as WWE SmackDown vs. Raw 2008, Ratatouille, Juiced 2: Hot Import Nights, and MotoGP 2007. They also reflect our expanded direct sales

presence in Europe and Asia. We plan on continued international growth as we explore new gaming opportunities in developing markets in Europe and Asia, especially China and Korea.

Additional information on our strategy as well as prospective business trends is included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2007.

Critical Accounting Estimates

There have been no material changes to our critical accounting estimates as described in Item 7 to our Annual Report on Form 10-K for the fiscal year ended March 31, 2007, under the caption “Critical Accounting Estimates,” except for our adoption of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109” (“FIN 48”).

FIN 48 contains a two step approach to recognizing and measuring uncertain income tax positions. The first step is to evaluate the uncertain tax position for recognition. Each position is evaluated based on its technical merits and a determination is made whether it is “more likely than not” that the position would be sustained upon examination by a tax authority with full knowledge of the facts and circumstances. No benefit is recognized for a tax position that does not meet the “more likely than not” recognition threshold. The second step is to measure the tax benefit of each position. The tax benefit is the largest amount which is more than 50% likely to be realized upon ultimate settlement. See “Note 12 — Income Taxes” in the notes to the condensed consolidated financial statements for further information regarding our adoption of FIN 48.

Results of Operations - Comparison of the Three and Nine Month Periods Ended December 31, 2007 and 2006

Net Sales

We derive revenue principally from sales of packaged interactive 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 the three and nine month periods ended December 31, 2007 and 2006 (in thousands):

	Three Months Ended December 31,								Increase/			%
	2007				2006				(Decrease)			Change
North America	$	278,294	54.6	%	$	294,293	61.9	%	$	(15,999	)	(5.4	)%

Europe	202,253		39.7		157,614		33.1		44,639			28.3
Asia Pacific	29,062		5.7		23,834		5.0		5,228			21.9
International	231,315		45.4		181,448		38.1		49,867			27.5
Consolidated net sales	$	509,609	100.0	%	$	475,741	100.0	%	$	33,868		7.1	%

	Nine Months Ended December 31,								Increase/			%
	2007				2006				(Decrease)			Change
North America	$	422,190	50.1	%	$	509,781	59.6	%	$	(87,591	)	(17.2	)%

Europe	363,648		43.1		299,061		35.0		64,587			21.6
Asia Pacific	57,605		6.8		45,925		5.4		11,680			25.4
International	421,253		49.9		344,986		40.4		76,267			22.1
Consolidated net sales	$	843,443	100.0	%	$	854,767	100.0	%	$	(11,324	)	(1.3	)%

In the three months ended December 31, 2007 worldwide net sales increased by $33.9 million and in the nine months ended December 31, 2007 worldwide net sales decreased by $11.3 million as compared to the same periods

Net Sales by Platform

Our worldwide net sales by platform for the three and nine month periods ended December 31, 2007 and 2006 are as follows (in thousands):

	Three Months Ended December 31,								Increase/
Platform	2007				2006				(Decrease)			% Change
Consoles
Microsoft Xbox 360	$	62,846	12.3	%	$	59,394	12.5	%	$	3,452		5.8	%
Microsoft Xbox	349		0.1		12,352		2.6		(12,003		)	(97.2	)
Nintendo Wii	52,952		10.4		24,052		5.1		28,900			120.2
Nintendo GameCube	767		0.2		21,594		4.5		(20,827		)	(96.4	)
Sony PlayStation 3	59,949		11.8		—		—		59,949			—
Sony PlayStation 2	130,590		25.6		181,899		38.2		(51,309		)	(28.2	)
	307,453		60.4		299,291		62.9		8,162			2.7
Handheld
Nintendo Dual Screen	103,030		20.2		53,079		11.2		49,951			94.1
Nintendo Game Boy Advance	15,027		2.9		48,129		10.1		(33,102		)	(68.8	)
Sony PlayStation Portable	43,150		8.5		27,987		5.9		15,163			54.2
Wireless	5,286		1.0		7,485		1.6		(2,199		)	(29.4	)
	166,493		32.6		136,680		28.8		29,813			21.8

PC	35,663		7.0		39,746		8.3		(4,083		)	(10.3	)
Other	—		—		24		0.0		(24		)	(100.0	)
Total Net Sales	$	509,609	100.0	%	$	475,741	100.0	%	$	33,868		7.1	%

	Nine Months Ended December 31,								Increase/
Platform	2007				2006				(Decrease)			% Change
Consoles
Microsoft Xbox 360	$	117,611	13.9	%	$	123,763	14.5	%	$	(6,152	)	(5.0	)%
Microsoft Xbox	2,101		0.3		25,667		3.0		(23,566		)	(91.8	)
Nintendo Wii	68,190		8.1		24,052		2.8		44,138			183.5
Nintendo GameCube	6,741		0.8		48,838		5.7		(42,097		)	(86.2	)
Sony PlayStation 3	73,231		8.7		—		—		73,231			—
Sony PlayStation 2	218,845		25.9		267,152		31.3		(48,307		)	(18.1	)
	486,719		57.7		489,472		57.3		(2,753		)	(0.6	)
Handheld
Nintendo Dual Screen	172,213		20.4		88,571		10.4		83,642			94.4
Nintendo Game Boy Advance	32,358		3.8		101,659		11.9		(69,301		)	(68.2	)
Sony PlayStation Portable	67,918		8.1		55,771		6.5		12,147			21.8
Wireless	14,534		1.7		22,087		2.6		(7,553		)	(34.2	)
	287,023		34.0		268,088		31.4		18,935			7.1

PC	69,303		8.2		96,827		11.3		(27,524		)	(28.4	)
Other	398		0.1		380		0.0		18			4.7
Total Net Sales	$	843,443	100.0	%	$	854,767	100.0	%	$	(11,324	)	(1.3	)%

Console Platforms

Microsoft Xbox 360 Net Sales (in thousands)

	December 31, 2007	% of net sales	December 31, 2006	% of net sales	% change
Three Months Ended	$62,846	12.3%	$59,394	12.5%	5.8%
Nine Months Ended	$117,611	13.9%	$123,763	14.5%	(5.0)%

In the three months ended December 31, 2007, net sales of video games for Microsoft Xbox 360 (“Xbox 360”) were primarily driven by the current quarter release of WWE SmackDown vs Raw! 2008 and the North American release of MX vs. ATV Untamed. We released four and two new titles on Xbox 360 in the three months ended December 31, 2007 and 2006, respectively. Net sales increased by $3.5 million in the three months ended December 31, 2007, as compared to the same period last fiscal year primarily due to the release of two additional titles in the current period.

In the nine months ended December 31, 2007, net sales of video games for Xbox 360 were primarily driven by sales of WWE SmackDown vs Raw! 2008, Stuntman: Ignition and Juiced 2: Hot Import Nights. We released nine and four new titles on Xbox 360 in the nine months ended December 31, 2007 and 2006, respectively. Net sales decreased by $6.2 million in the nine months ended December 31, 2007, as compared to the same period last fiscal year primarily due to the following:

· a decline in sales of our owned intellectual properties as a result of the strong performance of Saints Row in the nine months ended December 31, 2006;

· a decline in sales of MotoGP 07 as compared to sales of MotoGP 06 in the same period last fiscal year, partially offset by

· the release of additional titles in the current period, as well as

· an increase in sales of our catalog titles.

Microsoft Xbox Net Sales (in thousands)

	December 31, 2007	% of net sales	December 31, 2006	% of net sales	% change
Three Months Ended	$349	0.1%	$12,352	2.6%	(97.2)%
Nine Months Ended	$2,101	0.3%	$25,667	3.0%	(91.8)%

In the three and nine month periods ended December 31, 2007, net sales of video games for Microsoft Xbox (“Xbox”) were primarily driven by sales of our catalog titles. We released zero and two new titles in the three months ended December 31, 2007 and 2006, respectively, and we released one and three new titles in the nine months ended December 31, 2007 and 2006, respectively. Net sales decreased by $12.0 million and $23.6 million in the three and nine month periods ended December 31, 2007, respectively, as compared to the same periods last fiscal year primarily due to consumer demand shifting to games for Microsoft’s new generation console, Xbox 360.

Nintendo Wii Net Sales (in thousands)

	December 31, 2007	% of net sales	December 31, 2006	% of net sales	% change
Three Months Ended	$52,952	10.4%	$24,052	5.1%	120.2%
Nine Months Ended	$68,190	8.1%	$24,052	2.8%	183.5%

In the three months ended December 31, 2007, net sales of video games for Nintendo Wii (“Wii”) were primarily driven by the current quarter release of WWE SmackDown vs Raw! 2008. We released five and four new titles in the three months ended December 31, 2007 and 2006, respectively. Net sales increased by $28.9 million in the three months ended December 31, 2007, as compared to the same period last fiscal year primarily due to sales of WWE SmackDown vs Raw! 2008 in the three months ended December 31, 2007, whereas in the three months ended December 31, 2006 there was no WWE title released on Wii.

In the nine months ended December 31, 2007, net sales of video games for Wii were primarily driven by sales of the current quarter release of WWE SmackDown vs Raw! 2008, as well as sales of Ratatouille. We released seven and four new titles in the nine months ended December 31, 2007 and 2006, respectively. Net sales increased by $44.1 million in the nine months ended December 31, 2007, as compared to the same period last fiscal year primarily due to the following:

· the current quarter release of WWE SmackDown vs Raw! 2008 with no WWE title released on Wii in the same period last fiscal year;

· the release of three additional titles in the current period as compared to the same period last fiscal year, and

· an increase in sales of our catalog titles.

Nintendo GameCube Net Sales (in thousands)

	December 31, 2007	% of net sales	December 31, 2006	% of net sales	% change
Three Months Ended	$767	0.2%	$21,594	4.5%	(96.4)%
Nine Months Ended	$6,741	0.8%	$48,838	5.7%	(86.2)%

In the three months ended December 31, 2007, net sales of video games for Nintendo GameCube (“GameCube”) were driven by sales of our catalog titles and net sales were driven by Ratatouille and catalog titles in the nine months ended December 31, 2007. Net sales decreased by $20.8 million and $42.1 million in the three and nine month periods ended December 31, 2007, respectively, as compared to the same periods last fiscal year due to only one new release, Ratatouille, in the nine months ended December 31, 2007, as compared to eight new releases, including Cars, in the same period last fiscal year. The decreases are also due to the consumer demand shifting to games for Nintendo’s new generation console, Wii.

Sony PlayStation 3 Net Sales (in thousands)

	December 31, 2007	% of net sales	December 31, 2006	% of net sales	% change
Three Months Ended	$59,949	11.8%	$—	—%	—%
Nine Months Ended	$73,231	8.7%	$—	—%	—%

Sony released its new generation console, PlayStation 3 (“PS3”), in November 2006. In the three and nine month periods ended December 31, 2007, net sales of video games for PS3 were primarily driven by the current quarter release of WWE SmackDown vs Raw! 2008. We plan to release additional titles for PS3 as the installed base continues to grow.

Sony PlayStation 2 Net Sales (in thousands)

	December 31, 2007	% of net sales	December 31, 2006	% of net sales	% change
Three Months Ended	$130,590	25.6%	$181,899	38.2%	(28.2)%
Nine Months Ended	$218,845	25.9%	$267,152	31.3%	(18.1)%

In the three months ended December 31, 2007, net sales of video games for Sony PlayStation 2 (“PS2”) were primarily driven by sales of WWE SmackDown vs. Raw 2008. We released six new titles on PS2 in each of the three months ended December 31, 2007 and 2006. Net sales decreased by $51.3 million in the three months ended December 31, 2007 as compared to the same period last fiscal year primarily due to the following:

· lower sales in the three months ended December 31, 2007 of titles released in the first and second quarters of fiscal 2008, including Ratatouille and Bratz: The Movie as compared to sales of Cars and Bratz: Forever Diamondz in the three months ended December 31, 2006;

· stronger sales of games based on our Nickelodeon license in the same period last fiscal year;

· a decline in sales in the North America markets of WWE SmackDown vs. Raw 2008 as compared to WWE SmackDown vs. Raw 2007 in the same period last fiscal year, and

· a decline in sales of our owned intellectual property MX vs. ATV Untamed in the three months ended December 31, 2007 as compared to sales of Destroy All Humans! 2 in the same period last fiscal year.

In the nine months ended December 31, 2007, net sales of video games for PS2 were primarily driven by sales of WWE SmackDown vs. Raw 2008. We released 10 and 11 new titles on PS2 in the nine months ended December 31,

2007 and 2006, respectively. Net sales decreased by $48.3 million in the nine months ended December 31, 2007 as compared to the same period last fiscal year primarily due to a decrease in sales of new releases in the North America markets, including:

· sales of Ratatouille in the current year period as compared to stronger performance of Cars in the same period last fiscal year;

· sales of WWE SmackDown vs. Raw 2008 as compared to sales of WWE SmackDown vs. Raw 2007 in the same period last fiscal year, and

· stronger sales of games based on our Nickelodeon license in the same period last fiscal year.

Sony released its new generation console, PS3, in November 2006 and some of the sales decline in the current fiscal year periods is attributable to consumer demand shifting to PS3. We expect sales of games for PS2 to continue to decline over time as the installed base for PS3 continues to grow and consumer demand continues to shift to PS3.

Handheld Platforms

Nintendo Dual Screen Net Sales (in thousands)

	December 31, 2007	% of net sales	December 31, 2006	% of net sales	% change
Three Months Ended	$103,030	20.2%	$53,079	11.2%	94.1%
Nine Months Ended	$172,213	20.4%	$88,571	10.4%	94.4%

In the three and nine month periods ended December 31, 2007, net sales of video games for Nintendo DS (“DS”) were primarily driven by sales of Ratatouille, Drawn to Life, Bratz: 4 Real, WWE SmackDown vs. Raw 2008 and Cars: Mater National. We released 10 and four new titles on DS in the three months ended December 31, 2007 and 2006, respectively and 16 and nine new titles on DS in the nine months ended December 31, 2007 and 2006, respectively. Net sales increased by $50.0 million and $83.6 million in the three and nine month periods ended December 31, 2007, respectively, as compared to the same periods last fiscal year primarily due to the release of six and seven additional titles in the three and nine month periods as well as increased sales of our catalog titles in such periods.

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 Advance Net Sales (in thousands)

	December 31, 2007	% of net sales	December 31, 2006	% of net sales	% change
Three Months Ended	$15,027	2.9%	$48,129	10.1%	(68.8)%
Nine Months Ended	$32,358	3.8%	$101,659	11.9%	(68.2)%

In the three and nine month periods ended December 31, 2007, net sales of video games for Nintendo Game Boy Advance (“GBA”) were primarily driven by Ratatouille, Cars: Mater National and sales of our catalog titles. We released four and five new titles on GBA in the three months ended December 31, 2007 and 2006, respectively, and six and 11 new titles in the nine months ended December 31, 2007 and 2006, respectively. Net sales decreased by $33.1 million and $69.3 million in the three and nine month periods ended December 31, 2007, respectively, as compared to the same periods last fiscal year primarily due to consumer demand shifting to DS. We expect sales of games for GBA to continue to decline over time as a result of consumer demand shifting to DS.

Sony PlayStation Portable Net Sales (in thousands)

	December 31, 2007	% of net sales	December 31, 2006	% of net sales	% change
Three Months Ended	$43,150	8.5%	$27,987	5.9%	54.2%
Nine Months Ended	$67,918	8.1%	$55,771	6.5%	21.8%

In the three months ended December 31, 2007, net sales of video games for Sony PlayStation Portable (“PSP”) were primarily driven by the current quarter release of WWE SmackDown vs. Raw 2008, Juiced 2: Hot Import Nights and sales of our catalog titles. We released four and three new titles on PSP in the three months ended December 31, 2007 and 2006, respectively. Net sales increased by $15.2 million in the three months ended December 31, 2007 as compared to the same period last fiscal year primarily due to increased sales of our current quarter release of WWE SmackDown vs. Raw 2008 as compared to the release of WWE SmackDown vs. Raw 2007 in the same period last fiscal year, an increase in sales of our catalog titles and the release of one additional title in the current period.

In the nine months ended December 31, 2007, net sales of video games for PSP were primarily driven by sales of WWE SmackDown vs. Raw 2008, Ratatouille, and sales of our catalog titles. We released six and five new titles in the nine months ended December 31, 2007 and 2006, respectively. Net sales increased by $12.1 million in the nine months ended December 31, 2007 as compared to the same period last fiscal year primarily due to the following:

· an increase in sales of WWE SmackDown vs. Raw 2008 as compared to sales of WWE SmackDown vs. Raw 2007 in the same period last fiscal year;

· an increase in sales of catalog titles;

· the release of one additional title in the current period, partially offset by

· fewer units sold of Ratatouille as compared to sales of Cars in the same period last fiscal year.

As the installed base of PSP hardware continues to grow, we expect to continue to bring more titles to the platform.

Wireless Net Sales (in thousands)

	December 31, 2007	% of net sales	December 31, 2006	% of net sales	% change
Three Months Ended	$5,286	1.0%	$7,485	1.6%	(29.4)%
Nine Months Ended	$14,534	1.7%	$22,087	2.6%	(34.2)%

Wireless net sales consist of sales of wireless games and other content such as wireless wallpapers and ringtones. Prior to December 1, 2006, we also derived wireless revenue by providing infrastructure services for the delivery of wireless content and entertainment through our controlling interest in Minick Holding AG (“Minick”).

In the three and nine month periods ended December 31, 2007, wireless net sales were primarily driven by games and other content based on Worms, Star Wars and major sports leagues. Wireless net sales decreased by $2.2 million and $7.6 million during the three and nine month periods ended December 31, 2007, respectively, as compared to the same periods last fiscal year. The decreases in Wireless net sales were primarily due to the three and nine month periods ended December 31, 2006 including revenue from our controlling interest in Minick, which was sold in December 2006.

We expect wireless net sales to decline in fiscal 2008, as compared to fiscal 2007. Excluding net sales from Minick in the prior year, we expect our wireless net sales to increase in fiscal 2008.

PC Net Sales (in thousands)

	December 31, 2007	% of net sales	December 31, 2006	% of net sales	% change
Three Months Ended	$35,663	7.0%	$39,746	8.3%	(10.3)%
Nine Months Ended	$69,303	8.2%	$96,827	11.3%	(28.4)%

In the three and nine month periods ended December 31, 2007, net sales of PC products were primarily driven by the current quarter release of our owned intellectual property, Company of Heroes: Opposing Fronts as well as sales of the current quarter release of the Real-Time Strategy title Supreme Commander: Forged Alliance and sales of catalog titles. We released three and one new titles in the three months ended December 31, 2007 and 2006, respectively, and six new titles in each of the nine months ended December 31, 2007 and 2006. Net sales decreased by $4.1 million and $27.5 million in the three and nine month periods ended December 31, 2007, respectively, as compared to the same periods last fiscal year. The decreases were primarily due to lower sales from an expansion pack, Company of Heroes: Opposing Fronts in the current periods as compared to sales of the original Company of Heroes title in the same periods last fiscal year with premium PC pricing. Also contributing to the decrease were strong sales in the same periods last fiscal year from Titan Quest, also with premium PC pricing.

Costs and Expenses, Interest Income, Income Taxes and Minority Interest

Cost of Sales — Product Costs (in thousands)

	December 31, 2007	% of net sales	December 31, 2006	% of net sales	% change
Three Months Ended	$175,568	34.5%	$162,110	34.1%	8.3%
Nine Months Ended	$306,732	36.4%	$288,117	33.7%	6.5%

Product costs primarily consist of direct manufacturing costs (including platform manufacturer license fees), net of manufacturer volume rebates and discounts. Product costs as a percentage of net sales were relatively flat in the three month period ended December 31, 2007 as compared to the same period last fiscal year. Product costs as a percentage of net sales increased 2.7 points in the nine month period ended December 31, 2007 as compared to the same period last fiscal year. The increase in the nine month period was primarily due to:

· price protection on Stuntman: Ignition and Juiced 2: Hot Import Nights, which significantly lowered the net sales of the titles relative to the manufacturing cost, and

· sales mix in the same period last fiscal year that included Saints Row, which sold at a premium price and the higher gross margin PC product, Company of Heroes.

Cost of Sales — Software Amortization and Royalties (in thousands)

	December 31, 2007	% of net sales	December 31, 2006	% of net sales	% change
Three Months Ended	$126,270	24.8%	$71,417	15.0%	76.8%
Nine Months Ended	$177,179	21.0%	$140,364	16.4%	26.2%

Software amortization and royalties consists of amortization of capitalized payments made to third-party software developers and amortization of capitalized internal studio development costs. Commencing upon product release, capitalized software development costs are amortized to software amortization and royalties based on the ratio of current revenues to total projected revenues. For the three and nine month periods ended December 31, 2007, software amortization and royalties, as a percentage of net sales, increased 9.8 points and 4.6 points, respectively, as compared to the same periods last fiscal year. These increases were primarily due to:

· approximately $20.6 million of accelerated amortization expense in the three months ended December 31, 2007 due to the underperformance of certain previously released games including Stuntman: Ignition, Ratatouille and Conan, and

· approximately $17.9 million of additional amortization expense in the three months ended December 31, 2007 related to the cancellation of Frontlines: Fuel of War on PS3, Destroy All Humans! Big Willy Unleashed on PS2, and a sequel in the Stuntman franchise which we no longer intend to pursue, as well as a previously unannounced title for Xbox 360 that had been scheduled for release in fiscal 2010.

Cost of Sales — License Amortization and Royalties (in thousands)

	December 31, 2007	% of net sales	December 31, 2006	% of net sales	% change
Three Months Ended	$50,420	9.9%	$49,759	10.5%	1.3%
Nine Months Ended	$86,250	10.2%	$86,903	10.2%	(0.8)%

License amortization and royalties expense consists of royalty payments due to licensors, which are expensed at the higher of (1) the contractual royalty rate based on actual net product sales for such license, or (2) an effective rate based upon total projected revenue for such license. In the three months ended December 31, 2007 we recognized approximately $4.6 million of additional license amortization and royalties expense arising from our decision to no longer pursue our Juiced and Stuntman intellectual properties in the future. Excluding these charges, license amortization and royalties as a percentage of net sales would have been lower by 1.5 points and 0.5 of a point in the three and nine month periods ended December 31, 2007, respectively, due to the mix of titles as compared to the same periods last fiscal year.

Cost of Sales — Venture Partner Expense (in thousands)

	December 31, 2007	% of net sales	December 31, 2006	% of net sales	% change
Three Months Ended	$19,207	3.8%	$13,503	2.8%	42.2%
Nine Months Ended	$21,241	2.5%	$14,985	1.8%	41.7%

Venture partner expense is related to the joint license agreement that THQ and JAKKS Pacific, Inc. (“JAKKS”) have with the WWE under which our role is to develop, manufacture, distribute, market and sell WWE video games. For the three and nine month periods ended December 31, 2007, venture partner expense increased by $5.7 million and $6.3 million, respectively, as compared to the same periods last fiscal year. The increases are due to an increase in net sales of games based upon the WWE license. We have not paid these amounts to JAKKS; see “Note 9 — Commitments and Contingencies” in the notes to the condensed consolidated financial statements, herein.

Product Development (in thousands)

	December 31, 2007	% of net sales	December 31, 2006	% of net sales	% change
Three Months Ended	$41,311	8.1%	$21,912	4.6%	88.5%
Nine Months Ended	$94,504	11.2%	$73,834	8.6%	28.0%

Product development expense primarily consists of expenses incurred by internal development studios and payments made to external development studios prior to products reaching technological feasibility. Product development expense increased by $19.4 million and $20.7 million for the three and nine month periods ended December 31, 2007, respectively, as compared to the same periods last fiscal year. The increases are primarily due to overall increased product development efforts to support future growth, including increased quality assurance efforts and increased wireless game development due in part to our acquisition of Universomo, a mobile game developer based in Finland that we acquired in May 2007. Also contributing to the increases in product development expense is approximately $4.7 million recognized in the three months ended December 31, 2007 due to a change in our estimate of an unannounced title having reached technological feasibility.

Selling and Marketing (in thousands)

	December 31, 2007	% of net sales	December 31, 2006	% of net sales	% change
Three Months Ended	$65,499	12.9%	$51,213	10.8%	27.9%
Nine Months Ended	$135,495	16.1%	$116,849	13.7%	16.0%

Selling and marketing expenses consist of advertising, promotional expenses, and personnel-related costs. For the three and nine month periods ended December 31, 2007, selling and marketing expenses increased by $14.3 million and $18.6 million, respectively, as compared to the same periods last fiscal year. The increase in selling and marketing expenses on a dollar basis in the three months ended December 31, 2007 was primarily due to the following:

· an increase in selling and marketing spend to support the current quarter release of WWE SmackDown vs Raw 2008 as compared to the release of WWE SmackDown vs Raw 2007 in the same period last fiscal year;

· promotional efforts to support our owned intellectual properties Juiced 2: Hot Import Nights and Stuntman: Ignition in the three months ended December 31, 2007 as compared to Saints Row in the same period last fiscal year, and

· promotional efforts to support the current quarter release of Cars: Mater National with no comparable Disney/Pixar title released in the same period last fiscal year.

Selling and marketing expenses increased 2.1 points as a percentage of net sales in the three months ended December 31, 2007 primarily due to promotional efforts to support the release of Ratatouille relative to its sales

performance as compared to support for the release of Cars relative to its sales performance in the same period last fiscal year.

The increase in selling and marketing expenses on a dollar basis in the nine months ended December 31, 2007 was primarily due to the following:

· promotional efforts to support our owned intellectual properties Juiced 2: Hot Import Nights and Stuntman: Ignition in the nine months ended December 31, 2007 as compared to Saints Row in the same period last fiscal year, and

Selling and marketing expenses increased 2.4 points as a percentage of net sales in the nine months ended December 31, 2007 primarily due to promotional efforts to support the release of Ratatouille relative to its sales performance as compared to support for the release of Cars relative to its sales performance in the same period last fiscal year, as well as the support of our owned intellectual property Stuntman: Ignition relative to its sales performance in the nine months ended December 31, 2007.

General and Administrative (in thousands)

	December 31, 2007	% of net sales	December 31, 2006	% of net sales	% change
Three Months Ended	$15,528	3.0%	$24,100	5.1%	(35.6)%
Nine Months Ended	$52,269	6.2%	$59,271	6.9%	(11.8)%

General and administrative expenses consist of personnel and related expenses of executive and administrative staff and fees for professional services such as legal and accounting. General and administrative expenses decreased by approximately $8.6 million and $7.0 million during the three and nine month periods ended December 31, 2007, respectively, as compared to the same periods last fiscal year. The decreases were primarily due to:

· lower professional fees in the current year periods as compared to the same periods last fiscal year, which included incremental professional fees related to an informal SEC inquiry into our stock option grant practices, and

· lower stock-based compensation charges in the current year periods related to the departure of certain executives in the current quarter.

Interest and Other Income, net

Interest and other income, net consists 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, net increased by $0.8 million and by $4.3 million in the three and nine months ended December 31, 2007, respectively, as compared to same periods last fiscal year. The increases in the three and nine month periods ended December 31, 2007 were primarily due to higher average yields on short-term investment balances, as well as higher foreign currency transaction gains as compared to the same periods last fiscal year.

Income Taxes

The effective tax rate for the nine months ended December 31, 2007 and 2006 was 86% and 29%, respectively. During the first quarter of fiscal 2008, we received a favorable resolution on our U.S. Federal income tax examinations for the tax years 1999 through March 31, 2005. This examination resulted in the recognition of $7.2 million of unrecognized tax benefits of which $6.5 million had a favorable impact on the effective tax rate. Excluding the impact of this examination and other discrete items, the effective tax rate would have been 44% for the nine months ended December 31, 2007 and 29% for the nine months ended December 31, 2006.

The disparity between the two tax rates (44% and 29%) is primarily due to the projected loss in fiscal 2008, which generates a tax benefit. The tax benefit is increased by research and development tax credits. In contrast, in fiscal 2007 the projected income generated a tax liability, which was decreased by research and development tax credits.

Liquidity and Capital Resources

(In thousands)	December 31, 2007			March 31, 2007			Change
Cash and cash equivalents	$	168,433		$	174,748		$	(6,315	)
Short-term investments	156,911			283,210			(126,299		)
Cash, cash equivalents and short-term investments	$	325,344		$	457,958		$	(132,614	)

Percentage of total assets	29		%	45		%

	Nine Months Ended December 31,
(In thousands)	2007			2006		Change
Cash (used in) provided by operating activities	$	(89,722	)	$	27,264	$	(116,986	)
Cash provided by investing activities	103,223			29,533		73,690
Cash (used in) provided by financing activities	(18,906		)	22,523		(41,429		)
Effect of exchange rate changes on cash	(910		)	542		(1,452		)
Net (decrease) increase in cash and cash equivalents	$	(6,315	)	$	79,862	$	(86,177	)

Cash Flow from Operating Activities. Our principal source of cash is from sales of interactive software games designed for play on video game consoles, handheld devices and personal computers. Our principal uses of cash are for product purchases of discs and cartridges along with associated manufacturer’s royalties, payments to external developers and licensors, the costs of internal software development, and selling and marketing expenses.

Cash used in operating activities increased by approximately $117.0 million for the nine months ended December 31, 2007, as compared to the same period last fiscal year. The increase in cash used was primarily a result of an increase in accounts receivable due to the timing of sales in the three months ended December 31, 2007 as compared to the same period last fiscal year and a decrease in net income, partially offset by higher non-cash amortization of licenses and software development in the nine months ended December 31, 2007 as compared to the same period last fiscal year. We expect to have negative operating cash flow for the full fiscal year 2008.

Cash Flow from Investing Activities. Cash provided by investing activities increased by approximately $73.7 million for the nine months ended December 31, 2007 as compared to the same period last fiscal year primarily due to movement between our short-term investments and our cash balances.

Cash Flow from Financing Activities. Cash used in financing activities increased by approximately $41.4 million for the nine months ended December 31, 2007, as compared to the same period last fiscal year, primarily due to common stock repurchases in the nine months ended December 31, 2007, as well as lower proceeds from issuance of common stock to employees.

Key Balance Sheet Accounts

Accounts Receivable. Accounts receivable increased by $203.1 million from $67.6 million at March 31, 2007 to $270.7 million at December 31, 2007. The increase in net accounts receivable is primarily due to higher net sales in the three months ended December 31, 2007 as compared to the three months ended March 31, 2007 due to the seasonality of our business as well as timing of sales in the three months ended December 31, 2007. Accounts receivable allowances were $133.5 million as of December 31, 2007, a $53.0 million increase from $80.5 million at March 31, 2007. Allowances for price protection and returns as a percentage of trailing nine month net sales were approximately 12% and 10% as of December 31, 2007 and 2006, respectively. We believe these allowances are adequate based on historical experience, inventory remaining in the retail channel, and the rate of inventory sell-through in the retail channel.

Inventory. Inventory increased by $16.2 million from $27.4 million at March 31, 2007 to $43.6 million at December 31, 2007. The increase in inventory is primarily due to the seasonality of our business. On a rolling twelve month basis, inventory turns were 10 for December 31, 2007 as compared to nine at December 31, 2006.

Licenses. Licenses decreased by $2.4 million from $91.1 million at March 31, 2007 to $88.7 million at December 31, 2007. The decrease in licenses is primarily due to advance payments made to key licensors, partially offset by amortization of our existing licenses.

Software Development. Software development increased by $10.6 million from $164.3 million at March 31, 2007 to $174.9 million at December 31, 2007. The increase in software development is primarily the result of our investment in new generation cross-platform titles scheduled to be released in the remainder of fiscal 2008 and in fiscal 2009, offset by software amortization and royalties of titles released in the nine months ended December 31, 2007. Approximately 31% of the software development asset balance at December 31, 2007 is for games that have fiscal 2008 release dates.

Accounts Payable. Accounts payable increased by $45.6 million from $28.2 million at March 31, 2007 to $73.8 million at December 31, 2007. The increase in accounts payable is primarily due to an increase in product purchases due to the seasonality of our business.

Accrued and Other Current Liabilities. Accrued and other current liabilities increased by $62.2 million from $143.4 million at March 31, 2007 to $205.6 million at December 31, 2007. The increase in accrued and other current liabilities is primarily due to an increase in our international value added tax accrual due to the seasonality of our business, accrued payments to be made to key license partners due to current quarter releases and the withholding of payments due our venture partner, which will remain unpaid until a new payment rate has been established as the old payment has expired. See “Note 9 — Commitments and Contingencies” in the notes to the consolidated financial statements, herein.

Inflation

Our management currently believes that inflation has not had a material impact on continuing operations.

Financial Condition

We believe the existing cash, cash equivalents, short-term investments, and cash generated from operations will be sufficient to meet our operating requirements for at least the next twelve months, including working capital requirements, capital expenditures, and potential future acquisitions or strategic investments. We may choose at any time to raise additional capital to strengthen our cash position, facilitate expansion, pursue strategic investments or to take advantage of business opportunities as they arise.

Our ability to maintain sufficient liquidity could be affected by various risks and uncertainties described in “Part II - Item 1A. Risk Factors.”

Guarantees and Commitments

A summary of annual minimum contractual obligations and commercial commitments as of December 31, 2007 is as follows (in thousands):

	Contractual Obligations and Commercial Commitments (5) (6)
	License /
Fiscal	Software
Years Ending	Development						Letters of
March 31,	Commitments (1)		Advertising (2)		Leases (3)		Credit (4)		Total
Remainder of 2008	$	24,012	$	4,181	$	3,911	$	45,660	$	77,764
2009	84,380		14,401		15,613		—		114,394
2010	48,621		17,436		14,904		—		80,961
2011	13,850		10,667		13,930		—		38,447
2012	850		2,747		12,072		—		15,669
Thereafter	1,100		4,808		25,776		—		31,684
	$	172,813	$	54,240	$	86,206	$	45,660	$	358,919

Item 6. Exhibits

Exhibit Number			Title
	3.1		Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to Post-Effective Amendment No. 1 to the Registration Statement on Form S-3 filed on January 9, 1998 (File No. 333-32221) (the “S-3 Registration Statement”)).

	3.2		Amendment to Certificate of Incorporation (incorporated by reference to Exhibit 3.2 to Post-Effective Amendment No. 1 to the S-3 Registration Statement).

	3.3		Amendment to Certificate of Incorporation (incorporated by reference to Exhibit 3.3 to the Registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2001 (the “June 2001 10-Q”)).

	3.4		Amendment to Certificate of Incorporation (incorporated by reference to Exhibit 3.4 to the Registrant’s Quarterly Report on Form 10-Q for the period ended September 30, 2007).

	3.5		Amended and Restated Bylaws (incorporated by reference to Exhibit 3 to the Registrant’s Current Report on Form 8-K, dated June 22, 2000).

	3.6		Certificate of Designation of Series A Junior Participating Preferred Stock of THQ Inc. (incorporated by reference to Exhibit A of Exhibit 1 of Amendment No. 2 to the Registrant’s Registration Statement on Form 8-A filed on August 28, 2001 (File No. 001-15959) (the “August 2001 8-A”)).

	3.7		Amendment to Certificate of Designation of Series A Junior Participating Preferred Stock of THQ Inc. (incorporated by reference to Exhibit 3.6 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2001 (the “September 2001 10-Q”)).

	4.1		Amended and Restated Rights Agreement, dated as of August 22, 2001 between the Registrant and Computershare Investor Services, LLC, as Rights Agent (incorporated by reference to Exhibit 1 to Amendment No. 2 to the Registrant’s August 2001 8-A).

	4.2		First Amendment to Amended and Restated Rights Agreement, dated April 9, 2002 between the Registrant and Computershare Investor Services, LLC, as Rights Agent (incorporated by reference to Exhibit 2 to Amendment No. 3 to the Registrant’s Registration Statement on Form 8-A filed on April 12, 2002 (file No. 000-18813) (the “April 2002 8-A”)).

	10.1	*	Confidential License Agreement for the Wii Console (Western Hemisphere), dated as of October 12, 2007 between Nintendo of America Inc. and the Company.

	31.1	*	Certification of Brian J. Farrell, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	31.2	*	Certification of Rasmus van der Colff, Interim Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	32.1	*	Certification of Brian J. Farrell, Chief Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

	32.2	*	Certification of Rasmus van der Colff, Interim Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*Filed herewith.

x		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2007

OR

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Delaware		13-3541686
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

29903 Agoura Road Agoura Hills, CA		91301
(Address of principal executive offices)		(Zip Code)

Part I — Financial Information

Item 1.		Condensed Consolidated Financial Statements (Unaudited):

		Condensed Consolidated Balance Sheets — December 31, 2007 and March 31, 2007

		Condensed Consolidated Statements of Operations — for the Three and Nine Month Periods Ended December 31, 2007 and 2006

		Condensed Consolidated Statements of Cash Flows — for the Nine Months Ended December 31, 2007 and 2006

		Notes to Condensed Consolidated Financial Statements

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 3.		Quantitative and Qualitative Disclosures About Market Risk

Item 4.		Controls and Procedures

Part II — Other Information

Item 1.		Legal Proceedings

Item 1A.		Risk Factors

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds

Item 3.		Defaults Upon Senior Securities

Item 4.		Submission of Matters to a Vote of Security Holders

Item 5.		Other Information

Item 6.		Exhibits

Signatures

	approximately $172.8 million. License/software development commitments in the table above include $56.8 million of commitments to licensors that are included in our condensed consolidated balance sheet as of December 31, 2007 because the licensors do not have any significant performance obligations to us. These commitments were included in both current and long-term licenses and accrued royalties.

(2)	Advertising. We have certain minimum advertising commitments under most of our major license agreements. These minimum commitments generally range from 2% to 12% of net sales related to the respective license.

(3)	Leases. We are committed under operating leases with lease termination dates through 2015. Most of our leases contain rent escalations.

(4)	Letters of Credit. As of December 31, 2007, we had outstanding letters of credit of approximately $45.7 million. On October 3, 2006, we entered into an agreement with a bank primarily to provide stand-by letters of credit to a platform manufacturer from whom we purchase products. We pledged cash equivalents and investments to the bank as collateral in an amount equal to 110% of the amount of the outstanding stand-by letters of credit.

(5)	Pursuant to the terms of our acquisition of Universomo, a mobile game developer we acquired in May 2007, there is potential additional consideration, up to $2.9 million, related to their meeting certain post-acquisition performance targets that can be earned through May 2009.

(6)	We have omitted unrecognized tax benefits from this table due to the inherent uncertainty regarding the timing and amount of certain payments related to these unrecognized tax benefits. The underlying positions have not been fully developed under audit to quantify at this time. As of December 31, 2007 we had $12.1 million of unrecognized tax benefits. See “Note 12 — Income Taxes” in the notes to the condensed consolidated financial statements, herein for further information regarding the unrecognized tax benefits.

Dated: February 6, 2008	THQ INC.
		By:	/s/ Brian J. Farrell
		Brian J. Farrell
		Chairman of the Board, President and
		Chief Executive Officer


	THQ INC.
		By:	/s/ Rasmus van der Colff
		Rasmus van der Colff
		Vice President,
		Interim Chief Financial Officer

Part I — Financial Information

Part II — Other Information