UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

Commission file number 0-18813

THQ INC.
(Exact Name of Registrant as Specified in Its Charter)

Registrant's telephone number, including area code: (818) 871-5000

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes ý    No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o    No ý

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: As of November 2, 2007, there were 66,060,988 shares of common stock outstanding.

THQ INC. AND SUBSIDIARIES
INDEX

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Part I — Financial Information
Item 1. Condensed Consolidated Financial Statements

THQ INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)

See notes to condensed consolidated financial statements.

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THQ INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)

See notes to condensed consolidated financial statements.

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THQ INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

(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.

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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 six month periods ended September 30, 2007 and 2006 contain the following number of weeks:

For simplicity, all fiscal periods in our 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.

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The following table summarizes our cash, cash equivalents and short-term investments as of September 30, 2007 (in thousands):

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 September 30, 2007 (in thousands):

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 September 30, 2007.

During the six months ended September 30, 2007 and 2006 there were no realized gains or losses from sales of available-for-sale securities. In addition to the $66,000 net unrealized gain in the six months ended September 30, 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 September 30, 2007 (in thousands):

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Financial Instruments.    As of September 30, 2007 and March 31, 2007, we had foreign exchange forward contracts in the notional amount of $61.6 million and $47.0 million, respectively. The net (loss) gain recognized from foreign currency contracts during the three and six month periods ended September 30, 2007 was $(733,000) and $155,000, respectively, and the net gain (loss) recognized from foreign currency contracts during the three and six month periods ended September 30, 2006 was $1.1 million and $(776,000), 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 September 30, 2007, the net carrying value of our licenses was $98.1 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

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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. As of September 30, 2007, the net carrying value of our software development was $241.1 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 six months ended September 30, 2007 are as follows (in thousands):

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 consolidated balance sheets. Other intangible assets are as follows (in thousands):

Amortization of other intangible assets was $244,000 and $469,000 for the three and six month periods ended September 30, 2007, respectively, and $560,000 and $1.2 million for the three and six month

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periods ended September 30, 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):

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. For the six months ended September 30, 2007 and 2006 the unrealized holding gain (loss) related to our investment in Yuke's was $1.0 million and $(3.7) million, respectively, before income taxes. Additionally, development fees incurred but not yet paid were approximately $16.9 million and $6.0 million as of September 30, 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 September 30, 2007 and March 31, 2007 are as follows (in thousands):

8.     Balance Sheet Details

Inventory.    Inventory at September 30, 2007 and March 31, 2007 consists of the following (in thousands):

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Property and Equipment, net.    Property and equipment, net at September 30, 2007 and March 31, 2007 consists of the following (in thousands):

Depreciation expense associated with property and equipment amounted to $4.3 million and $8.2 million for the three and six month periods ended September 30, 2007, respectively, and $3.2 million and $6.3 million for the three and six month periods ended September 30, 2006, respectively.

Accrued and Other Current Liabilities.    Accrued and other current liabilities at September 30, 2007 and March 31, 2007 consist of the following (in thousands):

Other Long-Term Liabilities.    Other long-term liabilities at September 30, 2007 and March 31, 2007 consist of the following (in thousands):

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9.     Commitments and Contingencies

A summary of annual minimum contractual obligations and commercial commitments as of September 30, 2007 is as follows (in thousands):

(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 September 30, 2007 are approximately $168.7 million. License/software development commitments in the table above include $55.1 million of commitments to licensors that are included in our consolidated balance sheet as of September 30, 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 September 30, 2007, we had outstanding letters of credit of approximately $42.8 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)

Other.    Included in accrued and other current liabilities in our condensed consolidated balance sheet at September 30, 2007 is $1.7 million of additional consideration payable to the selling shareholders of Universomo, a mobile game developer we acquired in May 2007, related to their meeting certain post-acquisition performance targets. Pursuant to the terms of the acquisition, there is potential additional consideration, up to $2.8 million, that can be earned through May 2009 for meeting certain additional performance targets.

(6)

We have omitted unrecognized tax benefits from this table due to the inherent uncertainty regarding the timing of potential issue resolution. Specifically, either (a) the underlying positions have not been fully enough developed under audit to quantify at this time, or (b) the years relating to the issues for certain jurisdictions are not currently under audit. As of September 30, 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

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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").

On April 7, 2006, the Company and the other defendants sought certification to appeal from the portion of the March 31 Order denying the motion to dismiss the RICO claim on the one ground that was briefed. Shortly thereafter, WWE filed a motion for re-argument with respect to the portion of the March 31 Order that dismissed the Sherman Act claim and, alternatively, sought judgment with respect to the Sherman Act claim so that it could pursue an immediate appeal. At a court hearing on April 26, 2006, the Court deferred a ruling on the requests for partial judgment and for certification and set briefing schedules with respect to the remaining grounds for defendants' motion to dismiss the RICO claim, currently the sole remaining basis for federal jurisdiction in this action, that were not the subject of the first round of briefing. The Court also established a briefing schedule for WWE's motion for re-argument of the dismissal of the Sherman Act claim. The briefing was completed in August of 2006 and a hearing was held in September of 2006. The Court has not yet ruled on the pending motions. Discovery in this action remains stayed.

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

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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 Pacific, Inc. 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. 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. We intend to vigorously defend ourselves against the claims raised in this action, including those raised in the amended complaint.

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. 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.

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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. 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.

10.   Stock-based Compensation

Prior to July 20, 2006, we utilized two stock option plans: the THQ Inc. Amended and Restated 1997 Stock Option Plan (the "1997 Plan") and the THQ Inc. Third Amended and Restated Nonexecutive Employee Stock Option Plan (the "NEEP Plan"). The 1997 Plan provided for the issuance of up to 14,357,500 shares available for employees, consultants and non-employee directors, and the NEEP plan provided for the issuance of up to 2,142,000 shares available for nonexecutive employees of THQ of which no more than 20% was available for awards to our nonexecutive officers and no more than 15% was available for awards to the nonexecutive officers or general managers of our subsidiaries or divisions. The 1997 Plan and the NEEP Plan were cancelled on July 20, 2006, the same day THQ's stockholders approved the THQ Inc. 2006 Long-Term Incentive Plan ("LTIP").

Under the 1997 Plan, we granted incentive stock options, non-qualified stock options, performance accelerated restricted stock ("PARS") and performance accelerated restricted stock units ("PARSUs"). The NEEP Plan provided for the grant of only non-qualified stock options to non-executive officers of

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the Company. The LTIP provides for the grant of stock options (including incentive stock options), stock appreciation rights ("SARs"), restricted stock awards, other stock unit awards, and performance awards (in the form of performance shares or performance units) to eligible directors and employees of, and consultants or advisors to, the Company. Subject to certain adjustments, the total number of shares of THQ common stock that may be issued under the LTIP shall not exceed 6,000,000 shares. Shares subject to awards of stock options or SARs will count as one share for every one share granted against the share limit, and all other awards will count as 1.6 shares for every one granted against the share limit. As of September 30, 2007, we had 3,425,867 shares under the LTIP available for grant.

The purchase price per share of common stock purchasable upon exercise of each option granted under the 1997 Plan, the NEEP Plan and the LTIP may not be less than the fair market value of such share of common stock on the date that such option is granted. Generally, options granted under our plans become exercisable over three years and expire on the fifth anniversary of the grant date. PARS and PARSUs that have been granted to our officers under the 1997 Plan and the LTIP vest with respect to 100% of the shares subject to the award on the fifth anniversary of the grant date; provided, however, 20% of the shares subject to each award will vest on each of the first through fourth anniversaries of the grant date if certain performance targets for the Company are attained each fiscal year. In the six months ended September 30, 2007, it was determined that certain performance targets had been met with respect to our fiscal year ended March 31, 2007 and as such certain of our officers vested in 20% of their awards. PARSUs granted to our non-employee directors under the 1997 Plan are currently fully vested. Deferred Stock Units ("DSUs") granted to our non-employee directors under the LTIP vest immediately, however, may not be paid to a director until thirteen (13) months after the date of grant. The fair value of our nonvested restricted stock is determined based on the closing trading price of our common stock on the grant date. The fair value of PARS, PARSUs and DSUs granted is amortized over the vesting period.

In March 2007, we offered our non-executive employees the ability to participate in an employee stock purchase plan ("ESPP"). Pursuant to our ESPP, eligible employees may authorize payroll deductions of up to 15 percent of their base salary, subject to certain limitations, to purchase shares at 85 percent of the lower of the fair market value of our common stock on the first day of the offering period or the last. Our first offering period began on March 1, 2007 and ended on August 31, 2007. On August 31, 2007, the most recent purchase date, employees purchased 124,650 shares of our common stock at a purchase price of $24.47. The fair value of the ESPP options granted is amortized over the offering period. The next offering period began on September 4, 2007 and will end on February 29, 2008. As of September 30, 2007, we had 375,350 shares available for issuance under the ESPP.

Any references we make to unspecified "stock-based compensation" and "stock-based awards" are intended to represent the collective group of all our awards: stock options, PARS, PARSUs, DSUs and ESPP options. Any references we make to "nonvested shares" and "vested shares" are intended to represent our PARS, PARSU and DSU awards.

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For the three and six month periods ended September 30, 2007 and 2006, stock-based compensation expense recognized in the condensed consolidated statements of operations was as follows (in thousands):

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):

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 September 30, 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 six month periods ended September 30, 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.

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The weighted-average grant-date fair value per share of options granted during the three and six month periods ended September 30, 2007 was $7.71 and $9.21, respectively. The weighted-average grant-date fair value per share of options granted during the three and six month periods ended September 30, 2006 was $6.71 and $7.39, 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.

A summary of our stock option activity for the six months ended September 30, 2007 is as follows (in thousands, except per share amounts):

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 September 30, 2007. It excludes stock options that have exercise prices in excess of the quoted price of our common stock at September 30, 2007. The aggregate intrinsic value of stock options exercised was $3.2 million and $11.8 million during the three and six month periods ended September 30, 2007, respectively, and $11.4 million and $16.8 million during the three and six month periods ended September 30, 2006, respectively.

A summary of the status of our nonvested shares as of September 30, 2007 and changes during the six months then ended, is as follows (in thousands, except per share amounts):

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The weighted-average grant-date fair value of nonvested shares granted during the three and six month periods ended September 30, 2007 was $27.73 and $31.72, respectively, and $20.74 and $25.76 during the three and six month periods ended September 30, 2006, respectively.

The unrecognized compensation cost, that we expect to vest, related to our nonvested stock-based awards at September 30, 2007, and the weighted-average period over which we expect to recognize that compensation, is as follows (in thousands):

Cash received from exercises of stock options for the six months ended September 30, 2007 and 2006 was $11.5 million and $21.8 million, respectively. The actual tax benefit realized for the tax deductions from exercises of all stock-based awards totaled $7.4 million and $5.3 million for the six months ended September 30, 2007 and 2006, respectively.

The fair value of all our stock-based awards that vested during the three and six month periods ended September 30, 2007 was $7.1 million and $14.8 million, respectively. The fair value of all our stock-based awards that vested during the three and six month periods ended September 30, 2006 was $5.0 million and $10.6 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 six months ended September 30, 2007 and 2006.

At September 30, 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 September 30, 2007 and 2006, approximately $128,000 was amortized and included in cost of sales — license amortization and royalties expense. For the six months ended September 30, 2007 and 2006, approximately $255,000 and $483,000, respectively was amortized and included in cost of sales — license amortization and royalties expense.

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11.   Capital Stock Transactions

As of March 31, 2007 we had $8.5 million authorized and available for common stock repurchases. On May 16, 2007 we announced that 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 we announced that 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, bringing the amount authorized and available for common stock repurchases up to $58.5 million as of that date. During the six months ended September 30, 2007, we repurchased 1,508,400 shares of our common stock for approximately $41.8 million, leaving approximately $16.7 million available for future repurchases. 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, bringing the amount authorized and available for common stock repurchases up to $41.7 million as of that date. 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.

12.   Income Taxes

In July 2006, the FASB issued 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. FIN 48 is effective for fiscal years beginning after December 15, 2006. Our adoption of FIN 48 on April 1, 2007 had no impact on our beginning retained earnings balance.

We file income tax returns in the U.S. and various foreign jurisdictions.

As of April 1, 2007, we had $19.3 million in unrecognized tax benefits, of which $10.6 million would impact our tax rate if recognized.

We recognize accrued interest and penalties related to unrecognized tax benefits in our condensed consolidated statement of operations. These items are classified as interest expense, which is included in interest and other income, net in our condensed consolidated statement of operations. As of April 1, 2007, we had accrued $0.7 million for interest and zero for the potential payment of penalties.

As of April 1, 2007 we were subject to a U.S. Federal income tax examination for the tax years 1999 through March 31, 2005, and a UK income tax examination for the fiscal year ended March 31, 2005. In addition, we are subject to a California income tax examination for the calendar year 2000 and a Texas franchise tax examination for the years 2001 through fiscal 2004.

During the first quarter of fiscal 2008, we received a favorable resolution to our U.S. Federal income tax examinations for the years 1999 through March 31, 2005. The resolution of these examinations resulted in the recognition of $7.2 million of unrecognized tax benefits of which $6.5 million favorably impacted our effective tax rate.

During the second quarter of fiscal 2008, there were no material changes affecting our unrecognized tax benefits. We became subject to a French tax audit for the fiscal years 2004 through 2007 and closed our fiscal year 2005 UK tax audit.

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We do not anticipate any significant changes in our unrecognized tax benefits over the next twelve months.

13.   Net Income (Loss) Per Share

Basic income (loss) per share is computed as net income (loss) divided by the weighted average number of shares outstanding for the period. Diluted income (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 net income (loss) per share for the periods presented (in thousands):

14.   Comprehensive Income (Loss)

The table below presents the components of our comprehensive income (loss) for the three and six month periods ended September 30, 2007 and 2006 (in thousands):

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

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computers. The following information sets forth geographic information on our net sales and total assets for the three and six month periods ended September 30, 2007 and 2006 (in thousands):

Information about THQ's net sales by platform for the three and six month periods ended September 30, 2007 and 2006 is presented below (in thousands):