THQ 10-Q 123111

10-Q 1 thq10-q123111.htm 10-Q THQ 10-Q 123111

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

___________________________________________________________

FORM 10-Q

(Mark One)



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

For the quarterly period ended December 31, 2011



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

For the transition period from _______ to _______

Commission file number 0-18813

___________________________________________________________

THQ INC.

(Exact Name of Registrant as Specified in Its Charter)



	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)

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 x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

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



	Large accelerated filer o		Accelerated filer x
	Non-accelerated filer o		Smaller reporting company o
	(Do not check if a smaller reporting company)

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

The number of shares outstanding of the registrant's common stock as of February 3, 2012 was approximately 68,397,107.

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THQ INC. AND SUBSIDIARIES

INDEX



Part I - Financial Information

Item 1.	Condensed Consolidated Financial Statements (Unaudited):	3

	Condensed Consolidated Balance Sheets — December 31, 2011 and March 31, 2011	3

	Condensed Consolidated Statements of Operations — for the Three and Nine Months Ended December 31, 2011 and 2010	4

	Condensed Consolidated Statements of Cash Flows — for the Nine Months Ended December 31, 2011 and 2010	5

	Notes to Condensed Consolidated Financial Statements	6

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	21

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35

Item 4.	Controls and Procedures	36

Part II - Other Information

Item 1.	Legal Proceedings	37

Item 1A.	Risk Factors	37

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	45

Item 3.	Defaults Upon Senior Securities	45

Item 4.	(Removed and Reserved)	46

Item 5.	Other Information	46

Item 6.	Exhibits	47

Signatures		49

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Part I — Financial Information

Item 1. Condensed Consolidated Financial Statements

THQ INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except share data)



	December 31, 2011			March 31, 2011
	(Unaudited)			(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	47,685		$	85,603
Accounts receivable, net of allowances	147,932			161,574
Inventory	27,032			31,905
Licenses	29,985			32,869
Software development	127,399			222,631
Deferred income taxes	7,584			8,200
Prepaid expenses and other current assets	56,543			56,908
Total current assets	444,160			599,690
Property and equipment, net	25,013			28,960
Licenses, net of current portion	67,627			85,367
Software development, net of current portion	62,988			49,858
Deferred income taxes	516			516
Other long-term assets, net	9,759			10,014
TOTAL ASSETS	$	610,063		$	774,405

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	114,146		$	100,550
Accrued and other current liabilities	140,846			137,922
Deferred revenue, net	157,092			141,060
Total current liabilities	412,084			379,532
Other long-term liabilities	78,412			88,042
Convertible senior notes	100,000			100,000
Commitments and contingencies (see Note 7)

Stockholders' equity:
Preferred stock, par value $0.01, 1,000,000 shares authorized	—			—
Common stock, par value $0.01, 225,000,000 shares authorized as of December 31, 2011; 68,382,984 and 68,300,482 shares issued and outstanding as of December 31, 2011 and March 31, 2011, respectively	684			683
Additional paid-in capital	524,762			520,797
Accumulated other comprehensive income	13,039			17,560
Accumulated deficit	(518,918		)	(332,209		)
Total stockholders' equity	19,567			206,831
TOTAL LIABILITIES AND EQUITY	$	610,063		$	774,405

See notes to condensed consolidated financial statements.

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THQ INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except per share data)



	For the Three Months Ended December 31,						For the Nine Months Ended December 31,
	(Unaudited)						(Unaudited)
	2011			2010			2011			2010
Net sales	$	305,449		$	314,589		$	646,606		$	541,021
Cost of sales:
Product costs	154,893			123,852			279,942			219,558
Software amortization and royalties	74,706			50,011			217,519			104,526
License amortization and royalties	27,606			78,775			58,901			109,248
Total cost of sales	257,205			252,638			556,362			433,332

Gross profit	48,244			61,951			90,244			107,689
Operating expenses:
Product development	16,702			17,992			74,845			52,367
Selling and marketing	75,596			50,522			164,037			108,171
General and administrative	11,057			9,405			35,143			33,127
Restructuring	(480		)	140			5,462			147
Total operating expenses	102,875			78,059			279,487			193,812

Operating loss	(54,631		)	(16,108		)	(189,243		)	(86,123		)
Interest and other income (expense), net	1,234			1,223			4,144			(4,358		)
Loss before income taxes	(53,397		)	(14,885		)	(185,099		)	(90,481		)
Income taxes	2,482			62			1,610			1,561
Net loss	$	(55,879	)	$	(14,947	)	$	(186,709	)	$	(92,042	)

Loss per share — basic	$	(0.82	)	$	(0.22	)	$	(2.73	)	$	(1.36	)
Loss per share — diluted	$	(0.82	)	$	(0.22	)	$	(2.73	)	$	(1.36	)

Shares used in per share calculation — basic	68,381			67,965			68,346			67,841
Shares used in per share calculation — diluted	68,381			67,965			68,346			67,841

See notes to condensed consolidated financial statements.

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THQ INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)



	For the Nine Months Ended December 31,
	(Unaudited)
	2011			2010
OPERATING ACTIVITIES:
Net loss	$	(186,709	)	$	(92,042	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	7,983			8,609
Amortization of licenses and software development⁽¹⁾	250,621			191,168
Loss on disposal of property and equipment	225			18
Restructuring charges	5,462			147
Changes in deferred net revenue and related expenses	24,486			11,503
Amortization of debt issuance costs	187			589
Amortization of interest	—			808
Gain on investments	(248		)	(2,807		)
Stock-based compensation⁽²⁾	4,653			7,098
Changes in operating assets and liabilities:
Accounts receivable, net of allowances	7,254			(53,713		)
Inventory	4,564			(9,269		)
Licenses	(22,183		)	(55,954		)
Software development	(135,005		)	(173,526		)
Prepaid expenses and other current assets	2,359			(4,485		)
Accounts payable	16,834			29,055
Accrued and other liabilities	(6,677		)	(28,298		)
Income taxes	(1,529		)	3,679
Net cash used in operating activities	(27,723		)	(167,420		)

INVESTING ACTIVITIES:
Proceeds from sales and maturities of available-for-sale investments	—			149,915
Proceeds from sales and maturities of trading investments	—			22,775
Purchases of available-for-sale investments	—			(64,781		)
Other long-term assets	1,224			(473		)
Purchases of property and equipment	(6,237		)	(10,467		)
Net cash provided by (used in) investing activities	(5,013		)	96,969

FINANCING ACTIVITIES:
Proceeds from issuance of common stock to employees	21			777
Payment of debt issuance costs	(1,264		)	—
Borrowings on secured credit line	52,000			—
Payment of secured credit lines	(52,000		)	(13,249		)
Net cash used in financing activities	(1,243		)	(12,472		)
Effect of exchange rate changes on cash	(3,939		)	3,944
Net decrease in cash and cash equivalents	(37,918		)	(78,979		)
Cash and cash equivalents — beginning of period	85,603			188,378
Cash and cash equivalents — end of period	$	47,685		$	109,399

________________________________


⁽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 Quarterly Report on Form 10-Q ("10-Q") present the results of operations, financial position and cash flows of THQ Inc. and its subsidiaries (collectively "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. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of net sales and expenses during the reporting period. Actual results could differ from those estimates. The most significant estimates relate to accounts receivable allowances, licenses, software development, revenue recognition, stock-based compensation expense and income taxes. Interim results are not necessarily indicative of results for a full year. The balance sheet at March 31, 2011 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 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, 2011 (the "2011 10-K").

At December 31, 2011, we had working capital of $32.1 million, including cash and cash equivalents of $47.7 million, and we had total stockholder's equity of $19.6 million. On January 25, 2012, we announced an updated business strategy to exit the traditional kids' licensed video games market and focus on our core video game franchises and digital initiatives for the future. On January 26, 2012, we initiated a plan of restructuring in connection with the updated business strategy in order to better align our operating expenses with the lower expected revenues under the updated strategy. The restructuring plan includes a realignment of the organizational structure resulting in reductions of up to 240 selling, general and administrative personnel worldwide. The majority of the restructuring plan is expected to be implemented by March 31, 2012, with the remainder completed by September 30, 2012. In addition, subsequent to December 31, 2011, we entered into agreements with two of our kids' movie-based licensors which reduced certain of our future financial commitments (see "Note 15 — Subsequent Events"). With our revised product plan, lower cost structure, cash balance, existing credit facility and other sources of external liquidity, we believe we have adequate resources to execute on our plan and deliver on our strong multi-year pipeline of games.

Although we believe our business plan is achievable, should we fail to achieve the sales, gross margin levels, and vendor credit terms we anticipate, or if we were to incur significant unplanned cash outlays, it would become necessary for us to obtain additional sources of liquidity or make further cost cuts (including future product development) to fund our operations, which could result in additional restructuring and impairment charges. However, there is no assurance that we would be able to obtain such financing on favorable terms, if at all, or to successfully further reduce costs in such a way that would continue to allow us to operate our business. If for any reason our projections do not materialize, we may not be able to comply with the requirements of our credit facility (see "Note 6 — Debt").

Principles of Consolidation. Our condensed consolidated financial statements include the accounts of THQ Inc. and our wholly-owned subsidiaries. Prior to April 30, 2010, we consolidated the results of THQ*ICE LLC (a joint venture with ICE Entertainment, Inc.) in the consolidated financial statements as we believed we were the primary beneficiary and would have received the majority of expected returns or absorbed the majority of expected losses of THQ*ICE LLC. We sold our interest in THQ*ICE LLC on April 30, 2010 and recognized an insignificant gain.

Summary of Significant Accounting Policies. In the nine months ended December 31, 2011, we did not have any material changes to our significant accounting policies, and we did not adopt any new accounting pronouncements.

In June 2011, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2011-05, "Comprehensive Income (Topic 220): Presentation of Comprehensive Income" ("ASU 2011-05"). ASU 2011-05 requires companies to present the components of net income and other comprehensive income either as one continuous statement or as two consecutive statements and it eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholders' equity. ASU 2011-05 does not change the items which must be reported in other comprehensive income, how such items are measured or when they must be reclassified to net income. In December 2011, the FASB issued ASU 2011-12, "Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in ASU 2011-05" ("ASU 2011-12").

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ASU 2011-12 defers the effective date of the specific requirement to present items that are reclassified out of accumulated other comprehensive income to net income alongside their respective components of net income and other comprehensive income. All other provisions of ASU 2011-05 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, which will be our fiscal quarter ending June 30, 2012. The adoption is not expected to have a material impact on our results of operations, financial position or cash flows.

In December 2011, the FASB issued ASU 2011-11, "Disclosures about Offsetting Assets and Liabilities" ("ASU 2011-11"). ASU 2011-11 creates new disclosure requirements about the nature of an entity’s rights of offset and related arrangements associated with its financial instruments and derivative instruments. The disclosure requirements are effective for annual reporting periods beginning on or after January 1, 2013, and interim periods therein, with retrospective application required, which will be our quarter ending June 30, 2013. The new disclosures are designed to make financial statements that are prepared under U.S. Generally Accepted Accounting Principles more comparable to those prepared under International Financial Reporting Standards. The adoption is not expected to have a material impact on our results of operations, financial position or cash flows.

Fiscal Quarter. We report our fiscal year on a 52/53-week period with our fiscal year ending on the Saturday nearest March 31. For simplicity, all fiscal periods in our condensed consolidated financial statements and accompanying notes are presented as ending on a calendar month end. The results of operations for the three and nine months ended December 31, 2011 and 2010 contain the following number of weeks:



Fiscal Period	Number of Weeks	Fiscal Period End Date
Three months ended December 31, 2011	13 weeks	December 31, 2011
Three months ended December 31, 2010	13 weeks	January 1, 2011
Nine months ended December 31, 2011	39 weeks	December 31, 2011
Nine months ended December 31, 2010	39 weeks	January 1, 2011

2. Balance Sheet Details

Inventory. Inventory at December 31, 2011 and March 31, 2011 consisted of the following (amounts in thousands):



	December 31, 2011		March 31, 2011
Finished goods	$	23,501	$	28,515
Components	3,531		3,390
Inventory	$	27,032	$	31,905

Inventory balances at December 31, 2011 and March 31, 2011 are net of reserves of $26.7 million and $1.9 million, respectively. The inventory reserve balance at December 31, 2011 consists primarily of reserves related to our uDraw GameTablet ("uDraw").

Prepaid expenses and other current assets. Prepaid expenses and other current assets at December 31, 2011 and March 31, 2011 primarily consisted of product costs totaling $34.7 million and $32.0 million, respectively, that were deferred in connection with the deferral of related net revenue. Also included in prepaid expenses and other current assets at December 31, 2011 and March 31, 2011 were product prepayments of $7.2 million and $4.5 million, respectively.

Property and equipment, net. Property and equipment, net at December 31, 2011 and March 31, 2011 consisted of the following (amounts in thousands):

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	Useful lives	December 31, 2011			March 31, 2011
Building	30 yrs	$	730		$	730
Land	—	401			401
Computer equipment and software	3-10 yrs	57,659			60,254
Furniture, fixtures and equipment	5 yrs	7,804			8,880
Leasehold improvements	3-6 yrs	13,419			15,999
Automobiles	2-5 yrs	86			88
		80,099			86,352
Less: accumulated depreciation		(55,086		)	(57,392		)
Property and equipment, net		$	25,013		$	28,960

Depreciation expense associated with property and equipment amounted to $2.4 million and $8.0 million for the three and nine months ended December 31, 2011, respectively, and $3.0 million and $8.6 million for the three and nine months ended December 31, 2010, respectively.

Accrued and other current liabilities. Accrued and other current liabilities at December 31, 2011 and March 31, 2011 consisted of the following (amounts in thousands):



	December 31, 2011		March 31, 2011
Accrued liabilities	$	30,002	$	33,175
Settlement payment	4,000		6,000
Accrued compensation	12,040		20,093
Accrued third-party software developer milestones	24,412		22,951
Accrued royalties	70,392		55,703
Accrued and other current liabilities	$	140,846	$	137,922

Subsequent to December 31, 2011, we entered into agreements with two of our licensors that resulted in a reduction of our minimum license guarantees classified as accrued royalties (see "Note 15 — Subsequent Events" for further details).

Other long-term liabilities. Other long-term liabilities at December 31, 2011 and March 31, 2011 consisted of the following (amounts in thousands):



	December 31, 2011		March 31, 2011
Minimum license guarantees	$	61,559	$	69,209
Deferred rent	6,891		7,517
Accrued liabilities	6,440		4,215
Settlement payment	3,522		7,101
Other long-term liabilities	$	78,412	$	88,042

Settlement payments included in the tables above are payable to JAKKS Pacific, Inc. ("Jakks"). A portion of the settlement payment due to Jakks is reflected in "Accrued and other current liabilities" and a portion is reflected in "Other long-term liabilities" in our condensed consolidated balance sheets at the present value of the consideration payable under the agreement between THQ and Jakks. See "Note 18 — Joint Venture and Settlement Agreements" in the notes to the consolidated financial statements in our 2011 10-K for a discussion of the Jakks settlement payments.

3. Licenses and Software Development

Licenses. As of December 31, 2011 and March 31, 2011, the net carrying value of our licenses was $97.6 million and $118.2 million, respectively, and was reflected as “Licenses” and “Licenses, net of current portion” in our condensed consolidated balance sheets. At December 31, 2011, we had commitments of $0.3 million that are not reflected in our condensed consolidated balance sheet due to remaining performance obligations of the licensor. License amortization and royalties expense in the nine months ended December 31, 2011 included a $16.0 million charge related to the abandonment of a license for an unannounced game that

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was cancelled in connection with a studio closure (see "Note 5 — Restructuring and Other Charges”). Subsequent to December 31, 2011, we entered into agreements with two of our licensors that resulted in a reduction of our prepaid license asset balance (see "Note 15 — Subsequent Events" for further details).

Software Development. As of December 31, 2011 and March 31, 2011, the net carrying value of our software development was $190.4 million and $272.5 million, respectively, and was reflected as “Software development” and “Software development, net of current portion” in our condensed consolidated balance sheets. At December 31, 2011 we had commitments of $76.0 million that are not reflected in our condensed consolidated financial statements due to remaining performance obligations of the external developers. Software amortization and royalties expense in the three and nine months ended December 31, 2011 included charges of $3.2 million and $22.1 million, respectively, related to the write-offs of capitalized software development for titles that were cancelled in connection with our realignment plans (see "Note 5 — Restructuring and Other Charges”). In the three months ended December 31, 2010, we recorded a $9.9 million charge related to cancelled titles (see "Note 5 — Restructuring and Other Charges"). Subsequent to December 31, 2011, we entered into an agreement with one of our licensors that resulted in a reduction of our capitalized software development balance (see "Note 15 — Subsequent Events" for further details).

Impairment analysis. We evaluate the future recoverability of our capitalized licenses and software development on a quarterly basis in connection with the preparation of our financial statements. In this evaluation, we compare the carrying value of such capitalized costs to their net realizable value, on a product-by-product basis. The net realizable value is determined using Level 3 inputs, specifically, the estimated future net sales from the product, reduced by the estimated future direct costs associated with the product such as completion costs, cost of sales, and selling and marketing expenses. Net sales inputs are developed using recent internal sales performance for similar titles, adjusted for current market trends and comparable products. As certain 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.

In the three and nine months ended December 31, 2010 we had license impairment charges of $30.3 million and $36.2 million, respectively; these charges were related to several of our unreleased kids' movie-based licensed titles.

In the nine months ended December 31, 2011 we recorded a software development impairment charge of $0.6 million related to one of our titles. In the nine months ended December 31, 2010 we recognized software development impairment charges of $7.0 million.

4. Other Long-Term Assets

Other long-term assets include our investment in Yuke's, a Japanese video game developer. We own approximately 15% of Yuke's, which is publicly traded on the Nippon New Market in Japan. This investment is classified as available-for-sale and reported at fair value with unrealized holding gains and losses excluded from earnings and reported as a component of accumulated other comprehensive income until realized. The pre-tax unrealized holding gain related to our investment in Yuke's for the nine months ended December 31, 2011 and 2010 was $0.7 million and $1.1 million. As of December 31, 2011, the inception-to-date unrealized holding gain on our investment in Yuke's was $2.2 million. Due to the long-term nature of this relationship, this investment is included in "Other long-term assets, net" in our condensed consolidated balance sheets.

Other long-term assets as of December 31, 2011 and March 31, 2011 consisted of the following (amounts in thousands):



	December 31, 2011		March 31, 2011
Investment in Yuke's	$	5,354	$	4,686
Deferred financing costs	1,669		2,146
Other	2,736		3,182
Total other long-term assets	$	9,759	$	10,014

5. Restructuring and Other Charges

Restructuring charges and adjustments are recorded as "Restructuring" expenses in our condensed consolidated statements of operations and generally include costs such as, severance and other employee-based charges in excess of standard business practices, costs associated with lease abandonments (less estimates of sublease income), charges related to long-lived assets, and costs of other non-cancellable contracts.

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On January 26, 2012, we initiated a plan of restructuring in connection with our updated business strategy in order to better align our operating expenses with the lower expected revenues under the updated strategy (see "Note 15 — Subsequent Events" for further details).

Fiscal 2012 Third Quarter Realignment. In the third quarter of fiscal 2012, we announced weaker-than-expected initial sales of uDraw. This resulted in a reduction of approximately 30 people from our Kids, Family and Casual staff and the cancellation of three titles. In connection with these actions we incurred $1.5 million of cash severance and other employee-based charges (recorded within operating expenses in our condensed consolidated statements of operations) and charges of $3.0 million related to cancelled titles in development (recorded within "Cost of sales — Software development amortization" in our condensed consolidated statements of operations). We do not expect any significant future charges under the fiscal 2012 third quarter realignment.

Fiscal 2012 Second Quarter Realignment. On August 9, 2011, we announced a plan to realign our internal studio development teams and video games in development in order to better match our resources with our target portfolio of interactive entertainment and continue our transition away from traditional console games based on licensed kids' titles and movie entertainment properties. Under this plan, we closed two studios in Australia and eliminated a game development team at one additional studio. We also cancelled two unannounced titles at these locations that were no longer in line with our strategic business priorities. These actions resulted in a reduction of approximately 200 people on our product development staff. The following table summarizes the components and activity under the fiscal 2012 second quarter realignment, classified as "Restructuring" in our condensed consolidated statements of operations, for the three and nine months ended December 31, 2011, and the related restructuring reserve balances (amounts in thousands):



	Three Months Ended December 31, 2011									Nine Months Ended December 31, 2011
	Lease and Contract Terminations			Net Asset Impairments			Total			Lease and Contract Terminations			Net Asset Impairments			Total
Beginning balance	$	2,919		$	—		$	2,919		$	—		$	—		$	—
Charges (benefit) to operations	(68		)	(260		)	(328		)	2,798			1,010			3,808
Non-cash write-offs	—			260			260			—			(1,010		)	(1,010		)
Cash payments, net of sublease income	(784		)	—			(784		)	(784		)	—			(784		)
Foreign currency and other adjustments	303			—			303			356			—			356
Ending balance	$	2,370		$	—		$	2,370		$	2,370		$	—		$	2,370

Additionally, in connection with these actions, in the three and nine months ended December 31, 2011, we incurred a benefit of $0.1 million and charges of $4.3 million, respectively, related to estimates of cash severance and other employee-based charges (recorded within operating expenses in our condensed consolidated statements of operations). In the three and nine months ended December 31, 2011 we incurred charges of $0.2 million and $17.7 million, respectively, related to the cancellation of two unannounced titles in development at these studios (recorded within "Cost of sales — Software development amortization" in our condensed consolidated statements of operations). In the three and nine months ended December 31, 2011 we also incurred gains of $0.4 million and $1.6 million related to accumulated foreign currency translation adjustments (recorded within "Interest and other income (expense), net" in our condensed consolidated statements of operations). Additionally, in the three months ended September 30, 2011, we incurred a $16.0 million charge for an abandoned license (inclusive of $11.0 million in cash charges; all of which are recorded within "Cost of sales — License amortization and royalties" in our condensed consolidated statements of operations). We do not expect any future charges under the fiscal 2012 second quarter realignment, other than additional facility-related charges and adjustments in the event actual and estimated sublease income changes.

Fiscal 2012 First Quarter Realignment. In the first quarter of fiscal 2012, we announced the closure of our studio located in the U.K. as we continued to refine our video game line-up and utilize studio locations in more cost effective markets. The following table summarizes the components and activity under the fiscal 2012 first quarter realignment, classified as "Restructuring" in our condensed consolidated statements of operations, for the three and nine months ended December 31, 2011, and the related restructuring reserve balances (amounts in thousands):

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	Three Months Ended December 31, 2011								Nine Months Ended December 31, 2011
	Lease and Contract Terminations			Net Asset Impairments		Total			Lease and Contract Terminations			Net Asset Impairments			Total
Beginning balance	$	632		$	—	$	632		$	—		$	—		$	—
Charges to operations	10			—		10			628			117			745
Non-cash write-offs	—			—		—			—			(117		)	(117		)
Cash payments, net of sublease income	(39		)	—		(39		)	(142		)	—			(142		)
Foreign currency and other adjustments	(3		)	—		(3		)	114			—			114
Ending balance	$	600		$	—	$	600		$	600		$	—		$	600

Additionally, in connection with the U.K. studio closure, in the nine months ended December 31, 2011, we incurred $1.7 million of cash severance and other employee-based charges related to the notification to employees of position eliminations (recorded within operating expenses in our condensed consolidated statements of operations). In the three months ended December 31, 2011 we also incurred a $0.1 million gain and in the nine months ended December 31, 2011 we incurred a $1.6 million loss related to accumulated foreign currency translation adjustments (recorded within "Interest and other income (expense), net" in our condensed consolidated statements of operations). Additionally, in the nine months ended December 31, 2011, we incurred a $1.4 million charge related to the cancellation of an unannounced title in development at this studio (recorded within "Cost of sales — Software development amortization" in our condensed consolidated statements of operations). We do not expect any future charges under the fiscal 2012 first quarter realignment, other than additional facility related charges and adjustments in the event actual and estimated sublease income changes.

Fiscal 2011 Fourth Quarter Realignment. In the fourth quarter of fiscal 2011, we performed an assessment of our product development and publishing staffing models. This resulted in a change to our staffing plans to better address peak service periods, as well as better utilize shared-services and more cost-effective locations. The following table summarizes the components and activity under the fiscal 2011 fourth quarter realignment, classified as "Restructuring" in our condensed consolidated statements of operations, for the three and nine months ended December 31, 2011 and 2010, and the related restructuring reserve balances (amounts in thousands):



	Three Months Ended December 31, 2011								Nine Months Ended December 31, 2011
	Lease and Contract Terminations			Net Asset Impairments		Total			Lease and Contract Terminations			Net Asset Impairments			Total
Beginning balance	$	730		$	—	$	730		$	41		$	—		$	41
Charges (benefit) to operations	(177		)	—		(177		)	561			90			651
Non-cash write-offs	—			—		—			—			(90		)	(90		)
Cash payments, net of sublease income	(69		)	—		(69		)	(197		)	—			(197		)
Foreign currency and other adjustments	107			—		107			186			—			186
Ending balance	$	591		$	—	$	591		$	591		$	—		$	591

Since the inception of the fiscal 2011 fourth quarter realignment through December 31, 2011, total restructuring charges amounted to $0.7 million.

Additionally, in connection with this change, in the three and nine months ended December 31, 2011, we incurred a benefit of $0.1 million and charges of $1.8 million, respectively, related to estimates of cash severance and other employee-based charges (recorded within operating expenses in our condensed consolidated statements of operations), as well as a $0.5 million loss related to accumulated foreign currency translation adjustments (recorded within "Interest and other income (expense), net" in our condensed consolidated statements of operations). We do not expect any future charges under the fiscal 2011 fourth quarter realignment, other than additional facility related charges and adjustments in the event actual and estimated sublease income changes.

Fiscal 2011 Third Quarter Realignment. In the third quarter of our fiscal 2011, we reevaluated our strategy of adapting certain Western content for free-to-play online games in Asian markets. As a result, we cancelled two games, eliminated certain positions, and closed our Korean support office. Restructuring expenses recorded in the nine months ended December 31, 2010 related to

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the closure of our Korean support office were $14,000, and consisted of lease and other contract termination charges and write-offs of related long-lived assets. The cancellation of the games, Company of Heroes Online and WWE Online, resulted in charges of $9.9 million in the nine months ended December 31, 2010, recorded in "Cost of sales — Software amortization and royalties" in our condensed consolidated statements of operations. Additionally, in the nine months ended December 31, 2010, we incurred $0.8 million of cash severance charges related to eliminated positions, which were classified within operating expenses in our condensed consolidated statements of operations. We do not expect any future charges in relation to these items.

Fiscal 2009 Realignment. During the twelve months ended March 31, 2009 ("fiscal 2009"), we updated our strategic plan in an effort to increase our profitability and cash flow generation. We significantly realigned our business to focus on fewer, higher quality games, and established an operating structure that supports our more focused product strategy. The fiscal 2009 realignment included the cancellation of several titles in development, the closure or spin-off of several of our development studios, and the streamlining of our corporate organization in order to support the new product strategy, including reductions in worldwide personnel. We do not expect any future charges under the fiscal 2009 realignment, other than additional facility related charges and adjustments in the event actual and estimated sublease income changes.

The following table summarizes the restructuring lease and contract termination activity under the fiscal 2009 realignment for the three and nine months ended December 31, 2011 and 2010, and the related restructuring reserve balances (amounts in thousands):



	Three Months Ended December 31,						Nine Months Ended December 31,
	2011			2010			2011			2010
Beginning balance	$	1,296		$	1,486		$	1,335		$	2,392
Charges to operations	15			126			258			133
Non-cash write-offs	—			—			—			—
Cash payments, net of sublease income	(81		)	(356		)	(407		)	(1,214		)
Foreign currency and other adjustments	(4		)	(55		)	40			(110		)
Ending balance	$	1,226		$	1,201		$	1,226		$	1,201

Since the inception of the fiscal 2009 realignment through December 31, 2011, total restructuring charges amounted to $18.8 million.

The aggregated restructuring accrual balances at December 31, 2011 and March 31, 2011 of $4.8 million and $1.3 million, respectively, related to future lease payments for facilities vacated under all of our realignment plans (offset by estimates of future sublease income), and accruals for other non-cancellable contracts. As of December 31, 2011, $1.9 million of the restructuring accrual is included in "Accrued and other current liabilities" and $2.9 million is included in "Other long-term liabilities" in our condensed consolidated balance sheet. As of March 31, 2011, $0.7 million of the restructuring accrual was included in "Accrued and other current liabilities" and $0.6 million was included in "Other long-term liabilities" in our condensed consolidated balance sheet. We expect the final settlement of this accrual to occur by August 1, 2015, which is the last payment date under our lease agreements that were vacated.

6. Debt

Credit Facility

On September 23, 2011, we entered into a Credit Agreement and a Security Agreement (collectively, the “Credit Facility”) with Wells Fargo Capital Finance, LLC (“Wells Fargo”). The Credit Facility provides for a $50.0 million revolving facility during its term, however, the availability under the Credit Facility increased to $75.0 million during the period from October 1, 2011 through December 14, 2011. The Credit Facility allows for up to $10.0 million to be used as a letter of credit subfacility.

The Credit Facility has a four-year term; however, it will terminate on June 16, 2014 if any obligations are still outstanding under the $100.0 million 5% convertible senior notes more fully described below. Borrowings under the Credit Facility bear interest at a rate equal to an applicable margin plus, at our option, either a variable base rate or a LIBOR rate. The applicable margin for base rate loans ranges from 2.25% to 2.5% and for LIBOR rate loans ranges from 3.75% to 4.0%, in each case, depending on the level of our borrowings. Debt issuance costs capitalized in connection with the Credit Facility totaled $1.4 million; these costs are being amortized over the term of the Credit Facility. We are required to pay other customary fees, including an unused line fee based on usage under the Credit Facility as well as fees in respect of letters of credit.

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During the three months ended December 31, 2011 we borrowed $52.0 million under the Credit Facility, which was repaid as of December 31, 2011. In the three and nine months ended December 31, 2011 interest expense was $0.2 million and amortization of debt costs related to the Credit Facility was $0.1 million; these amounts were capitalized as part of in-process software development costs (as further discussed below). There were no outstanding borrowings under the Credit Facility as of December 31, 2011.

The Credit Facility provides for certain events of default such as nonpayment of principal and interest when due, breaches of representations and warranties, noncompliance with covenants, acts of insolvency, default on certain agreements related to indebtedness, including the $100.0 million 5% convertible senior notes more fully described below, and entry of certain judgments against us. Upon the occurrence of a continuing event of default and at the option of the required lenders (as defined in the Credit Facility), all of the amounts outstanding under the Credit Facility are currently due and payable and any amount outstanding bears interest at 2.0% above the interest rate otherwise applicable. In the event availability on the Credit Facility is below 12.5% of the maximum revolver amount, the Credit Facility requires that we maintain certain financial covenants. As of December 31, 2011, we had availability in excess of 12.5% and therefore we were not subject to the financial covenants. In the event the financial covenants become applicable, we would be required to have EBITDA, as defined in the Credit Facility, in the most recent period of $73.3 million, $63.3 million or $9.8 million for the two quarters ended December 31, 2011, three quarters ended March 31, 2012 or four quarters ended June 30, 2012, respectively. Additionally, beginning September 30, 2012, the financial covenants would require that we maintain an annual fixed charge coverage ratio of 1.1 to 1.0.

The Credit Facility is guaranteed by most of our domestic subsidiaries and secured by substantially all of our assets. The Credit Facility contains customary affirmative and negative covenants, including, among other terms and conditions, and limitations (subject to certain permitted actions) on our ability to: create, incur, guarantee or be liable for indebtedness; dispose of assets outside the ordinary course; acquire, merge or consolidate with or into another person or entity; create, incur or allow any lien on any of their respective properties; make investments or capital expenditures; or pay dividends or make distributions.

As of December 31, 2011, we were in compliance with all applicable covenants and requirements in the Credit Facility.

Convertible Senior Notes

On August 4, 2009, we issued $100.0 million 5% convertible senior notes ("Notes"). After offering costs, the net proceeds to THQ were $96.8 million. The Notes are due August 15, 2014, unless earlier converted, redeemed or repurchased. The Notes pay interest semiannually, in arrears on February 15 and August 15 of each year, beginning February 15, 2010, through maturity and are convertible at each holder's option at any time prior to the close of business on the trading day immediately preceding the maturity date. The Notes are our unsecured and unsubordinated obligations.

The Notes are initially convertible into shares of our common stock at a conversion rate of 117.4743 shares of common stock per $1,000 principal amount of Notes, equivalent to an initial conversion price of approximately $8.51 per share. At this conversion rate and upon conversion of 100% of our Notes outstanding at December 31, 2011, our Notes would convert into 11.7 million shares of common stock. The conversion rate is subject to adjustment in certain events such as a stock split, the declaration of a dividend or the issuance of additional shares. Also, the conversion rate will be subject to an increase in certain events constituting a make-whole fundamental change; provided, however, that the maximum number of shares to be issued thereunder cannot exceed 14.7 million, subject to adjustment. We considered all our other commitments that may require the issuance of stock (e.g., stock options, restricted stock units, warrants, and other potential common stock issuances) and have determined that as of December 31, 2011, we have sufficient authorized and unissued shares available for the conversion of the Notes during the maximum period the Notes could remain outstanding. The Notes will be redeemable, in whole or in part, at our option, at any time after August 20, 2012 for cash, at a redemption price of 100% of the principal amount of the Notes, plus accrued but unpaid interest, if the price of a share of our common stock has been at least 150% of the conversion price then in effect for specified periods.

In the case of certain events such as the acquisition or liquidation of THQ, or delisting of our common stock from a U.S. national securities exchange, holders may require us to repurchase all or a portion of the Notes for cash at a purchase price of 100% of the principal amount of the Notes, plus accrued and unpaid interest. On January 25, 2012, we received a written notification from Nasdaq regarding our listing on The Nasdaq Global Select Market (refer to "Note 15 — Subsequent Events" for further details).

Costs incurred related to the Notes offering amounted to $3.2 million and are classified as "Other long-term assets, net" in our condensed consolidated balance sheets at December 31, 2011; these costs are being amortized over the term of the Notes.

In the three and nine months ended December 31, 2011 all interest expense and amortization of debt costs related to the Notes were capitalized to software development. Interest expense and amortization of debt costs related to the Notes that is not capitalized to software development is classified as "Interest and other income (expense), net" in our condensed consolidated statements of

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operations and was $1.4 million and $4.2 million in the three and nine months ended December 31, 2010, respectively. We began capitalizing interest expense in the fourth quarter of fiscal 2011; see "Note 25 — Quarterly Financial Data (Unaudited)" in the notes to the consolidated financial statements in our 2011 10-K for a discussion of the impact of this change. The effective interest rate, before capitalization of any interest expense and amortization of debt issuance costs, was 5.65% for the three and nine months ended December 31, 2011 and 2010.

Capitalization of Interest Expense

We capitalize interest expense and related amortization of debt costs as part of in-process software development costs. Capitalization commences with the first capitalized expenditure for the software development project and continues until the project is completed. We amortize these balances to "Cost of sales — Software development amortization" as part of the software development costs. The following table summarizes the interest expense and amortization of debt costs that are included in our condensed consolidated balance sheets as a component of software development (amounts in thousands):



Balance at March 31, 2011	$	4,318
Capitalized during the period	4,720
Amortized during the period	(4,729		)
Balance at December 31, 2011	$	4,309

7. Commitments and Contingencies

A summary of annual minimum contractual obligations and commercial commitments as of December 31, 2011 is as follows (amounts in thousands):



	Contractual Obligations and Commercial Commitments (6)
Fiscal Years Ending March 31,	License / Software Development Commitments (1)		Advertising (2)		Leases (3)		Debt (4)		Other (5)		Total
Remainder of 2012	$	49,894	$	5,643	$	3,825	$	—	$	146	$	59,508
2013	79,454		20,580		14,880		—		4,000		118,914
2014	20,012		4,716		13,953		—		4,000		42,681
2015	16,619		589		12,501		100,000		—		129,709
2016	10,000		500		7,589		—		—		18,089
Thereafter	19,904		875		14,376		—		—		35,155
	$	195,883	$	32,903	$	67,124	$	100,000	$	8,146	$	404,056

(1)

Licenses and Software Development. We enter into contractual arrangements with third parties for the rights to exploit 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 such agreements in place as of December 31, 2011 are $195.9 million. Of these obligations, $6.0 million is accrued and classified as "Accrued and other current liabilities" in our December 31, 2011 condensed consolidated balance sheet related to the abandonment of a license in connection with our fiscal 2012 second quarter realignment plan (see "Note 5 — Restructuring and Other Charges"). Additionally, license commitments in the table above include $113.5 million of commitments payable to licensors that are included in both "Accrued and other current liabilities" and "Other long-term liabilities" in our December 31, 2011 condensed consolidated balance sheet because the licensors do not have any remaining significant performance obligations. Subsequent to December 31, 2011, we entered into agreements with two of our licensors that resulted in a reduction of our future commitments contained in the table above related to certain of our licenses (see "Note 15 — Subsequent Events" for further details).


(2)	Advertising. We have certain minimum advertising commitments under many of our major license agreements. These minimum commitments generally range from 3% to 10% of net sales related to the respective license.


(3)	Leases. We are committed under operating leases with lease termination dates through 2020. Most of our leases contain rent escalations. Of these obligations, $1.5 million and $2.9 million are accrued and classified as "Accrued and other current liabilities" and "Other long-term liabilities," respectively, in our December 31, 2011 condensed consolidated balance sheet

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due to the abandonment of certain lease obligations in connection with our realignment plans (see "Note 5 — Restructuring and Other Charges"). We expect future sublease rental income under non-cancellable agreements of approximately $2.7 million; this income is not contemplated in the lease commitments shown in the table above.

(4)

Debt. We issued the Notes on August 4, 2009. The Notes pay interest semiannually, in arrears on February 15 and August 15 of each year, beginning February 15, 2010, through maturity and are convertible at each holder's option at any time prior to the close of business on the trading day immediately preceding the maturity date. Absent any conversions or required repurchases of the Notes, we expect to pay $2.5 million in the remainder of fiscal 2012, $5.0 million in each of the fiscal years 2013 and 2014, and $2.5 million in fiscal 2015, for an aggregate of $15.0 million in interest payments over the remaining term of the Notes (see "Note 6 — Debt").

(5)

Other. As discussed more fully in "Note 18 — Joint Venture and Settlement Agreements" in the notes to the consolidated financial statements in our 2011 10-K, amounts payable to Jakks totaling $8.0 million are reflected in the table above. The present value of these amounts is included in "Accrued and other current liabilities" and "Other long-term liabilities" in our condensed consolidated balance sheet at December 31, 2011 (see "Note 2 — Balance Sheet Details"). The remaining other commitments included in the table above are also included as current or long-term liabilities in our December 31, 2011 condensed consolidated balance sheet.

(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. At December 31, 2011, we had $3.8 million of unrecognized tax benefits. See "Note 9 — Income Taxes" for further information regarding the unrecognized tax benefits.

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.

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

Litigation. We are subject to ordinary routine claims and litigation incidental to our business. We do not believe that any liability from any reasonably foreseeable disposition of such claims and litigation, individually or in the aggregate, would have a material adverse effect on our financial position or results of operations.

8. Stock-based Compensation

In the nine months ended December 31, 2011, we began granting performance shares to our executive officers and other senior officers. These performance shares are earned if certain two-year cumulative performance targets for the Company are attained and vest with respect to 50% of the earned shares on the second anniversary of the grant date and the remaining 50% on the third anniversary of the grant date, subject to the continued employment of the recipient through a vesting date.

Subject to certain adjustments, as of December 31, 2011, the total number of shares of THQ common stock reserved for issuance under our Long-Term Incentive Plan (“LTIP”) was 18.5 million shares.

Under our Employee Stock Purchase Plan ("ESPP"), shares of our common stock may be purchased by eligible employees during six-month offering periods that commence each March 1 and September 1, or the first business day thereafter (each, an "Offering Period"). At March 1, 2011 we had insufficient shares available for issuance under the ESPP and accordingly we suspended offerings as of that date. On July 28, 2011, our stockholders approved an amendment to the ESPP to increase by 1,000,000 shares, the number of shares of common stock reserved for issuance and an Offering Period commenced on September 1, 2011.

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9. Income Taxes

We evaluate our deferred tax assets on a regular basis to determine if a valuation allowance is required. A cumulative taxable loss in recent years is significant negative evidence in considering whether deferred tax assets are realizable. As we have had U.S. tax losses in recent years, we can no longer rely on common tax planning strategies to use our U.S. tax losses and we are precluded from relying on projections of future taxable income to support the recognition of deferred tax assets. As such, the ultimate realization of deferred tax assets is dependent upon the existence of sufficient taxable income generated in the carryforward periods.

Our income tax expense for the three and nine months ended December 31, 2011 and December 31, 2010 was $2.5 million and $1.6 million, and $0.1 million and $1.6 million, respectively. These amounts represent effective tax rates for the three and nine months ended December 31, 2011 and December 31, 2010 of 4.6% and 0.9% (provision on a loss), and 0.4% and 1.7% (provision on a loss), respectively. The rates differ from the U.S. federal statutory rate of 35% primarily due to the fact that our domestic and certain foreign net operating losses are fully valued.

Our unrecognized tax benefits increased by $0.4 million in the nine months ended December 31, 2011, from $3.4 million at March 31, 2011 to $3.8 million at December 31, 2011, of which $3.7 million would impact our effective tax rate if recognized. Due to inherent uncertainty we are not able to determine the timing and recognition of our unrecognized tax benefits. Additionally, due to the valuation of our deferred tax assets, any benefit recognized would not be realized in our effective tax rate for at least the next 12 months.

We conduct business internationally and, as a result, one or more of our subsidiaries files income tax returns in U.S. Federal, U.S. state, and certain foreign jurisdictions. Accordingly, we are subject to examination by taxing authorities throughout the world, including Australia, China, France, Germany, Italy, Japan, Korea, Luxembourg, Netherlands, Spain, Switzerland, and the United Kingdom. Certain state and certain non-U.S. income tax returns are currently under various stages of audit or potential audit by applicable tax authorities and the amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ materially from the amounts accrued for each year. In October 2011, we received notification that our German tax audit for fiscal years 2005-2009 concluded with no significant adjustments. We are no longer subject to U.S. Federal, U.S. state, and local or foreign jurisdiction income tax examinations by tax authorities for years prior to March 31, 2007.

At December 31, 2011, approximately 45% of our cash and cash equivalents were domiciled in foreign tax jurisdictions. In the event we repatriate all or a portion of these funds to the United States, we may be required pay additional taxes (such as foreign withholdings) in certain foreign jurisdictions, which we do not expect to be significant. We do not anticipate that such repatriation, in the short-term, would result in actual cash payments in the United States, as the taxable event would likely be offset by the utilization of our net operating losses and tax credits.

Our policy is to recognize interest and penalty expense, if any, related to uncertain tax positions as a component of income tax expense. As of December 31, 2011, we had no amounts accrued for interest and for the potential payment of penalties.

10. Earnings (Loss) Per Share

The following table is a reconciliation of the weighted-average shares used in the computation of basic and diluted loss per share for the periods presented (amounts in thousands):



	For the Three Months Ended December 31,						For the Nine Months Ended December 31,
	2011			2010			2011			2010
Net loss used to compute basic loss per share	$	(55,879	)	$	(14,947	)	$	(186,709	)	$	(92,042	)

Weighted-average number of shares outstanding — basic	68,381			67,965			68,346			67,841
Dilutive effect of potential common shares	—			—			—			—
Number of shares used to compute loss per share — diluted	68,381			67,965			68,346			67,841

As a result of our net loss for the three and nine months ended December 31, 2011 and 2010, the result of the if-converted calculation applied to the Notes was antidilutive and as such we did not include the potential conversion of 11.7 million shares under our Notes in our diluted loss per share calculation.

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As a result of our net loss for the three and nine months ended December 31, 2011 and 2010, all potential shares were excluded from the computation of diluted loss per share, as their inclusion would have been antidilutive. As a result, there were 10.4 million and 10.0 million, for the three and nine months ended December 31, 2011, respectively, and 10.3 million and 10.4 million for the three and nine months ended December 31, 2010, respectively, of potential common shares that were excluded from the computation of diluted loss per share for these periods. Had we reported net income for these periods, an additional 0.3 million and 0.2 million shares of common stock would have been outstanding in the number of shares used to calculate diluted loss per share for the three and nine months ended December 31, 2011, respectively. An additional 0.4 million shares of common stock would have been outstanding in the number of shares used to calculate diluted loss per share for both the three and nine months ended December 31, 2010.

11. Comprehensive Income (Loss)

The table below presents the components of our comprehensive loss for the three and nine months ended December 31, 2011 and 2010 (in thousands):



	For the Three Months Ended December 31,						For the Nine Months Ended December 31,
	2011			2010			2011			2010
Net loss	$	(55,879	)	$	(14,947	)	$	(186,709	)	$	(92,042	)
Other comprehensive income (loss):
Foreign currency translation gain (loss)	1,476			568			(5,373		)	5,102
Reclassification of foreign currency translation adjustments included in net loss	(478		)	—			435			—
Unrealized gain on investments, net of tax	176			615			417			3,336
Reclassification of gain on investments included in net loss, net of tax	—			(2,475		)	—			(2,722		)
Comprehensive loss	$	(54,705	)	$	(16,239	)	$	(191,230	)	$	(86,326	)

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

12. Fair Value

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. There is a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value. We used the following methods and assumptions to estimate the fair value of our financial assets:

• Level 1 — Quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. We do not adjust the quoted prices for these investments.

• Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

• Level 3 — Discounted cash flow analysis using unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities, as discussed further below.

Our policy is to recognize transfers between these levels of the fair value hierarchy as of the beginning of the reporting period.

The following table summarizes our financial assets measured at fair value on a recurring basis as of December 31, 2011(amounts in thousands):

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	Level 1		Level 2		Level 3		Total
Cash equivalents - Money market funds	$	61	$	—	$	—	$	61
Other long-term assets, net - Investment in Yuke's	5,354		—		—		5,354
Total	$	5,415	$	—	$	—	$	5,415

The following table summarizes our financial assets measured at fair value on a recurring basis as of March 31, 2011 (amounts in thousands):



	Level 1		Level 2		Level 3		Total
Cash equivalents - Money market funds	$	30,461	$	—	$	—	$	30,461
Other long-term assets, net - Investment in Yuke's	4,686		—		—		4,686
Total	$	35,147	$	—	$	—	$	35,147

During the nine months ended December 31, 2011 we did not hold any Level 3 financial assets.

Financial Instruments

The carrying value of certain financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, and accrued royalties approximate fair value based on their short-term nature.

The book value and fair value of the Notes at December 31, 2011 was $100.0 million and $51.0 million, respectively; the fair value was determined using quoted market prices in active markets.

We transact business in many different foreign currencies and are exposed to financial market risk resulting from fluctuations in foreign currency exchange rates, particularly the GBP and the Euro, which may result in a gain or loss of earnings to us. We utilize foreign currency exchange forward contracts to mitigate foreign currency risk associated with foreign currency-denominated assets and liabilities, primarily certain inter-company receivables and payables. Our foreign currency exchange forward contracts are not designated as hedging instruments and are accounted for as derivatives whereby the fair value of the contracts are reported as "Prepaid expenses and other current assets" or "Accrued and other current liabilities" in our condensed consolidated balance sheets, and the associated gains and losses from changes in fair value are reported in "Interest and other income (expense), net" in our condensed consolidated statements of operations.

Cash Flow Hedging Activities. From time to time, we may elect to hedge a portion of our foreign currency risk related to forecasted foreign currency-denominated sales and expense transactions by entering into foreign currency exchange forward contracts that generally have maturities of less than 90 days. Our hedging programs reduce, but do not entirely eliminate, the impact of currency exchange rate movements in net sales and operating expenses. During the nine months ended December 31, 2011 and 2010, we did not enter into any foreign exchange forward contracts related to cash flow hedging activities.

Balance Sheet Hedging Activities. The foreign currency exchange forward contracts related to balance sheet hedging activities generally have a contractual term of one month or less and are transacted near month-end. Therefore, the fair value of the forward contracts are generally not significant at each month-end.

At December 31, 2011 and March 31, 2011, we had foreign currency exchange forward contracts related to balance sheet hedging activities in the notional amount of $109.7 million and $100.6 million, respectively, with a fair value that approximates zero at both December 31, 2011 and March 31, 2011. We estimated the fair value of these contracts using Level 1 inputs, specifically, inputs obtained in quoted public markets. The net gain recognized from these contracts during the three months ended December 31, 2011 was $2.1 million and the net loss recognized from these contracts during the nine months ended December 31, 2011 was $0.6 million. The net gain recognized from these contracts during the three and nine months ended December 31, 2010 was $0.7 million and $3.0 million, respectively. Net gains and losses recognized from these contracts are included in "Interest and other income (expense), net" in our condensed consolidated statements of operations.

13. Capital Stock Transactions

On July 31, 2007 and 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, for an aggregate of $50.0 million. As of December 31, 2011 and March 31, 2011 we had $28.6 million, authorized and available for common stock repurchases. During the nine months ended December 31, 2011, we did not repurchase any shares of our common stock. There is no expiration date for the authorized repurchases.

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14. Segment and Geographic Information

We operate in one reportable segment in which we are a developer, publisher and distributor of interactive entertainment software for video game consoles, handheld devices and PCs, including via the Internet. The following information sets forth geographic information on our net sales and total assets for the three and nine months ended December 31, 2011 and 2010 (amounts in thousands):



	North America			Europe			Asia Pacific			Consolidated
Three months ended December 31, 2011
Net sales to unaffiliated customers before changes in deferred net revenue	$	237,491		$	135,470		$	31,394		$	404,355
Changes in deferred net revenue	(61,714		)	(28,433		)	(8,759		)	(98,906		)
Net sales to unaffiliated customers	$	175,777		$	107,037		$	22,635		$	305,449
Total assets	$	353,680		$	196,200		$	60,183		$	610,063
Nine months ended December 31, 2011
Net sales to unaffiliated customers before changes in deferred net revenue	$	393,991		$	210,845		$	60,368		$	665,204
Changes in deferred net revenue	(8,601		)	(1,428		)	(8,569		)	(18,598		)
Net sales to unaffiliated customers	$	385,390		$	209,417		$	51,799		$	646,606

Three months ended December 31, 2010
Net sales to unaffiliated customers before changes in deferred net revenue	$	237,704		$	70,617		$	14,795		$	323,116
Changes in deferred net revenue	(3,564		)	(4,603		)	(360		)	(8,527		)
Net sales to unaffiliated customers	$	234,140		$	66,014		$	14,435		$	314,589
Total assets	$	495,491		$	106,681		$	45,694		$	647,866
Nine months ended December 31, 2010
Net sales to unaffiliated customers before changes in deferred net revenue	$	386,841		$	126,512		$	40,427		$	553,780
Changes in deferred net revenue	(6,313		)	(5,942		)	(504		)	(12,759		)
Net sales to unaffiliated customers	$	380,528		$	120,570		$	39,923		$	541,021

Information about our net sales by platform for the three and nine months ended December 31, 2011 and 2010 is as follows (amounts in thousands):



	Three Months Ended December 31,						Nine Months Ended December 31,
Platform	2011			2010			2011			2010
Consoles
Microsoft Xbox 360	$	161,878		$	49,417		$	249,518		$	110,628
Sony PlayStation 3	114,633			44,874			178,530			106,621
Nintendo Wii	63,225			141,423			97,752			173,594
Sony PlayStation 2	648			13,227			2,959			19,833
	340,384			248,941			528,759			410,676
Handheld
Nintendo Dual Screen	42,155			48,988			81,116			85,900
Sony PlayStation Portable	2,233			13,079			6,329			24,282
Wireless	356			1,704			1,822			4,792
	44,744			63,771			89,267			114,974

PC	19,227			10,404			47,178			28,130
Net sales before changes in deferred net revenue	404,355			323,116			665,204			553,780
Changes in deferred net revenue	(98,906		)	(8,527		)	(18,598		)	(12,759		)
Total net sales	$	305,449		$	314,589		$	646,606		$	541,021

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15. Subsequent Events

Restructuring

On January 25, 2012, we announced an updated business strategy to exit the traditional kids' licensed video games market and focus on our core video game franchises and digital initiatives for the future. On January 26, 2012, we initiated a plan of restructuring in connection with the updated business strategy in order to better align our operating expenses with the lower expected revenues under the updated strategy. The restructuring plan includes a realignment of the organizational structure resulting in reductions of up to 240 selling, general and administrative personnel worldwide. The majority of the restructuring plan is expected to be implemented by March 31, 2012, with the remainder completed by September 30, 2012. In addition, subsequent to December 31, 2011, we entered into agreements with two of our kids' movie-based licensors which reduced certain of our future financial commitments.

We estimate that implementation of the restructuring plan will result in special charges of up to $11.0 million, which will be recorded primarily during the fourth quarter of fiscal 2012. These charges will primarily be severance costs for affected employees, which are estimated at approximately $8.0 million, potential charges related to other fixed assets that may be abandoned, which are estimated to be up to $2.5 million, and contract terminations, which are estimated at approximately $0.5 million. Of the total charges, $8.5 million are expected to be cash expenditures. Of the cash expenditures, approximately $4.5 million are expected to be paid in the quarter ending March 31, 2012; approximately $2.5 million are expected to be paid in the quarter ending June 30, 2012; with the remainder to be paid thereafter.

The amounts stated above are preliminary and subject to change as we finalize our assessment of the charges and costs associated with the above items. These charges and cash expenditures do not take into consideration any potential cost savings associated with the plan of restructuring.

Licensor Agreements

Subsequent to December 31, 2011, we entered into agreements with two of our kids' property licensors which reduced our future financial commitments with respect to certain of our kids' movie-based licensed console titles in development. We estimate these actions will result in reductions of $5.0 million, $5.1 million and $13.0 million to our balances in licenses, software development, and accrued and other current liabilities, respectively, as well as a benefit of $2.9 million to be recorded within "Cost of sales — License amortization and royalties," during the quarter ending March 31, 2012. An additional $2.0 million reduction of accrued and other current liabilities is possible, contingent upon the actions of a third-party developer.

Nasdaq Notice

In accordance with Marketplace Rule 5810(c)(3)(A), we have a period of 180 calendar days, or until July 23, 2012, to regain compliance with the Rule. If at any time before July 23, 2012, the bid price of our common stock closes at or above $1.00 per share for a minimum of 10 consecutive business days, Nasdaq will provide written notification that we have achieved compliance with the Rule. If compliance with the Rule cannot be demonstrated by July 23, 2012, our common stock will be subject to delisting from The Nasdaq Global Market. In the event that we receive notice that our common stock is subject to being delisted from The Nasdaq Global Select Market, Nasdaq rules permit us to appeal any delisting determination by the Nasdaq staff to a Nasdaq hearings panel. Alternatively, Nasdaq may permit us to transfer our securities to The Nasdaq Capital Market if we satisfy the requirements for initial inclusion set forth in Marketplace Rule 5505, except for the bid price requirement. If our application for transfer is approved, we would have an additional 180 calendar days to comply with the Rule in order to remain on The Nasdaq Capital Market.

We will continue to monitor the bid price for our common stock and consider various options available to us if our common stock does not trade at a level that is likely to regain compliance.

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

The statements contained in this Quarterly Report on Form 10-Q ("10-Q") that are not historical facts may be "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include, but are not limited to, statements regarding industry prospects, our future financial performance including anticipated revenues and expenditures, results of operations or liquidity/financial position, and other financial items, our business plans and objectives, including our updated business strategy, realignment plans and intended product releases, and may include certain assumptions that underlie the forward-looking statements. We generally use words such as "anticipate," "believe," "could," "estimate," "expect," "forecast," "future," "intend," "may," "plan," "positioned," "potential," "project," "scheduled," "set to," "subject to," "upcoming," and other similar expressions to help identify forward-looking statements. These forward-looking statements are based on current expectations, estimates and projections about the business of THQ Inc. and its subsidiaries and are based upon management's current beliefs and certain assumptions made by management. Our business and such forward-looking statements are subject to risks and uncertainties that may affect our future results. For a discussion of our risk factors, see "Part II, Item 1A. Risk Factors." The forward-looking statements contained herein speak only as of the date on which they were made, and, except as required by law, we disclaim any obligation to update any forward-looking statements to reflect events or circumstances after the date of this 10-Q.

All references to "we," "us," "our," "THQ," or the "Company" in this 10-Q mean THQ Inc. and its subsidiaries. Most of the properties and titles referred to in this 10-Q are subject to trademark protection.

Overview

The following is a discussion of our operating results and financial condition, 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 our 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, 2011 (the "2011 10-K") and our Quarterly Reports on Form 10-Q for the quarters ended June 30, 2011 and September 30, 2011.

About THQ

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


•	home video game consoles such as the Microsoft Xbox 360 and Xbox 360 Kinect (collectively referred to as "Xbox 360"), Nintendo Wii ("Wii"), and Sony PlayStation 3 ("PS3");


•	handheld platforms such as the Nintendo DS, DSi and 3DS (collectively referred to as "DS"), and Sony PlayStation Portable ("PSP");


•	wireless devices based on the Apple iOS (including the iPhone, iTouch and iPad), Google Android, and Windows Mobile platforms;


•	personal computers ("PCs"), including games played online; and


•	the Internet, including on social networking sites such as Facebook.

In addition to titles published on the wireless devices noted above, we also develop and publish titles (and supplemental downloadable content) for digital distribution via Sony's PlayStation Network ("PSN") and Microsoft's Xbox LIVE Marketplace ("Xbox LIVE") and Xbox LIVE Arcade ("XBLA"), as well as digitally offer our PC titles through online download stores and services such as Amazon, OnLive, Origin, and Valve.

Our titles span a wide range of categories, including action, adventure, fighting, 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 core gamers to products targeted to mass market. Our portfolio of key brands includes:


•	games based on our owned intellectual properties including Company of Heroes, Darksiders, Devil's Third, Homefront, inSANE, and Saints Row; and


•	core games based on licensed properties including Games Workshop's Warhammer 40,000 universe, Metro, the Ultimate Fighting Championship ("UFC"), and World Wrestling Entertainment ("WWE"), and


•	casual and lifestyle brands including Jimmy Buffet's Margaritaville.

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Revised Business Strategy

The disappointing performance of uDraw during this holiday season, combined with continued declines in the kids' licensed category, significantly impacted our profitability in the three and nine months ended December 31, 2011. This created a catalyst for us to evaluate our business in detail, including our continued participation in the kids' licensed video game category.

On January 25, 2012, we announced an updated business strategy to exit the traditional kids' licensed video games market and focus on our core video game franchises and digital initiatives for the future. On January 26, 2012, we initiated a plan of restructuring in connection with the updated business strategy in order to better align our operating expenses with the lower expected revenues under the updated strategy. The restructuring plan includes a realignment of the organizational structure resulting in reductions of up to 240 selling, general and administrative personnel worldwide. The majority of the restructuring plan is expected to be implemented by March 31, 2012, with the remainder completed by September 30, 2012. In connection with this realignment, we expect to significantly reduce other future non-personnel related expenditures and certain product development expenditures which do not align with our current strategy.

Subsequent to December 31, 2011, we also entered into agreements with two of our kids' movie-based licensors which reduced certain of our future financial commitments, and are in ongoing discussions with two other kids' licensors. With our revised product plan, lower cost structure, cash balance, existing credit facility and other sources of external liquidity, we believe we have adequate resources to execute on our plan and deliver on our strong multi-year pipeline of games. See "Note 15 — Subsequent Events" in the notes to the condensed consolidated financial statements included in Part I, Item 1.

Our goal is to transform THQ into an agile entertainment company positioned for sustained profitability. In order to achieve this, we are focused on maintaining the right resources to develop a select number of high quality titles targeted at the core gamer; building our expertise in games as a service through community and digital delivery; using that expertise to extend franchises and create new, high potential brands on emerging and digital platforms; and developing new intellectual properties on new platforms as they emerge.

Trends Affecting Our Business

The following trends affect our business:

Shifting Preferences in the Casual and Lifestyle Market

Over the past few years, our industry has seen a shift in preferences in the casual and lifestyle games market away from kids' movie-based licensed console titles. We believe this shift is due to gameplay with online digital delivery methods, including games played online and on social networking sites such as Facebook, and through wireless devices. As discussed above, in response to this continued shift in preferences, we are exiting the market for video games based on licensed kids' and movie-based entertainment properties and uDraw. Approximately 34% and 43% of our net sales before changes in deferred net revenue in the nine months ended December 31, 2011 and fiscal 2011, respectively, came from these products.

Increasing Shift to Online Content and Digital Downloads

We provide our products through both the retail channel and through online digital delivery methods. Recently, the interactive entertainment software industry began delivering a growing amount of games, downloadable content and product add-ons by direct digital download through the Internet and gaming consoles. We believe that much of the growth in the industry will continue to come via online distribution such as massively multiplayer games, casual free-to-play micro-transaction based games, supplemental paid downloadable content, and digital downloads of full-games, including those on wireless platforms. Conversely, we believe retail sales for the industry will continue to be a decreasing revenue source over the next several years. For the twelve months ended December 31, 2011, retail software sales in the U.S. for the industry decreased 7.8% compared to the same period in 2010 according to The NPD Group; for the same period, across the U.K., Germany, France, Spain and Benelux, aggregated retail software sales decreased 7.4% compared to the same twelve-month period in 2010 according to GfK. However, digital sales for the industry are expected to grow over 20% worldwide in calendar 2011 and more than double over the next four years, to over $42.3 billion worldwide according to the International Development Group, Inc.'s Digital Gaming Thought Piece (October 2011). Accordingly, we plan to continue integrating digital components into our core game franchises. In the event our games are released with increasingly more undelivered elements at the time of sale, such as the online service present within some of our games, more of our revenue may be deferred, which will impact the timing of our revenue recognition but not our cash flow from operations.

Sales Concentration of Top Titles

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The majority of money spent by consumers on video game software is spent on select top titles. Because of the demand for select “hit” titles and the costs to develop our games, we believe that it is important to focus our development efforts on bringing a select number of high-quality, competitive products to market.

Sales of Used Video Games

Large retailers, such as GameStop and Best Buy, have increased their focus on selling used video games, which provides higher margins for the retailers than sales of new games. This focus reduces demand for new copies of our games. We believe customer retention through compelling online play and downloadable content offerings may reduce consumers' propensity to trade in games. Additionally, certain of our titles include free access to online content through a code (included in the packaging) for initial purchasers. This structure creates a new revenue stream by offering second-hand buyers of these titles the opportunity to separately purchase the online content.

Fiscal 2012 Third Quarter Highlights


•	With third quarter shipments of approximately 3.6 million units, Saints Row: The Third was the largest owned-IP launch in THQ's history.


•	WWE ’12 shipped more than two million units in the quarter.


•	We announced the development of “South Park: The Game,” a collaboration between THQ, South Park Digital Studios LLC and Obsidian Entertainment, Inc.


•	We were the #5 publisher (#4 third-party publisher) in the U.S. in calendar 2011 with 5.4 percent market share according to the NPD Group.

Recent Digital Initiatives Highlights


•	THQ’s digital revenues, excluding the impact of any related changes in deferred net revenue, for the third quarter of 2012 were more than double those in the year-ago quarter. Digital revenues for the nine months ended December 31, 2011 were 81% higher than the same period one year ago.


•	Saints Row: The Third community members have created nearly 10 million characters, both in-game and via the Initiation Station. The game has also generated strong results from downloadable content (DLC) sales and is expected to be THQ’s highest-selling DLC title ever.


•	The Margaritaville Online cross-platform game launched on Facebook and iPad on January 25, 2012, and the iPhone companion application is scheduled to come soon. The social/mobile versions of Apples to Apples, which launched on Xbox Live® and PlayStation Network in December, is expected to release in the fourth quarter of fiscal 2012.

Nasdaq Notice

We will continue to monitor the bid price for our common stock and consider various options available to us if our common stock does not trade at a level that is likely to regain compliance.

Results of Operations — Comparison of the Three and Nine Months Ended December 31, 2011 and 2010

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For the three months ended December 31, 2011, we reported a net loss of $55.9 million, or $0.82 per diluted share. For the nine months ended December 31, 2011, we reported a net loss of $186.7 million, or $2.73 per diluted share. This compared with a net loss of $14.9 million, or $0.22 per diluted share, and $92.0 million, or $1.36 per diluted share, in the three and nine months ended December 31, 2010, respectively.

Net Sales

Our net sales are principally derived from sales of interactive software games designed for play on video game consoles, handheld devices, and PCs, including via the Internet. The following table presents our net sales before changes in deferred net revenue and adjusts those amounts by the changes in deferred net revenue to arrive at consolidated net sales as presented in our condensed consolidated statements of operations for the three and nine months ended December 31, 2011 and 2010 (amounts in thousands):



	Three Months Ended December 31,										Increase/ (Decrease)			% Change
	2011					2010					Increase/ (Decrease)			% Change
Net sales before changes in deferred net revenue	$	404,355		132.4	%	$	323,116		102.7	%	$	81,239		25.1	%
Changes in deferred net revenue	(98,906		)	(32.4	)	(8,527		)	(2.7	)	(90,379		)	1,059.9
Consolidated net sales	$	305,449		100.0	%	$	314,589		100.0	%	$	(9,140	)	(2.9	)%



	Nine Months Ended December 31,										Increase/ (Decrease)			% Change
	2011					2010					Increase/ (Decrease)			% Change
Net sales before changes in deferred net revenue	$	665,204		102.9	%	$	553,780		102.4	%	$	111,424		20.1	%
Changes in deferred net revenue	(18,598		)	(2.9	)	(12,759		)	(2.4	)	(5,839		)	45.8
Consolidated net sales	$	646,606		100.0	%	$	541,021		100.0	%	$	105,585		19.5	%

In the three and nine months ended December 31, 2011, net sales before changes in deferred net revenue were primarily driven by the release of our owned intellectual property title Saints Row: The Third, WWE '12, and catalog titles (titles released in fiscal years prior to the respective fiscal year).

Changes in deferred net revenue reflect the deferral and subsequent recognition of net revenue related to undelivered elements at the time of sale, such as online services that are offered in some of our games. The revenue deferrals are recognized as net sales as the undelivered elements are delivered or, over the estimated online service period of generally six months, as applicable. The changes in deferred net revenue are driven by the timing of the release of games that have undelivered elements, and the subsequent timing of the delivery of those undelivered elements. Generally, as it relates to revenue deferrals related to the online services, revenue deferred in the first half of our fiscal year would be recognized by the end of that fiscal year, and revenue deferred in the second half of the fiscal year would be partially recognized in that fiscal year with the remaining amounts of deferred revenue recognized in the following fiscal year.

Net Sales by New Releases and Catalog Titles

The following table presents our net sales of new releases (titles initially released in the respective fiscal year) and catalog titles for the three and nine months ended December 31, 2011 and 2010 (amounts in thousands):



	Three Months Ended December 31,										Increase/			%
	2011					2010					(Decrease)			Change
New releases	$	350,774		86.7	%	$	264,890		82.0	%	$	85,884		32.4	%
Catalog	53,581			13.3		58,226			18.0		(4,645		)	(8.0	)
Net sales before changes in deferred net revenue	404,355			100.0	%	323,116			100.0	%	81,239			25.1
Changes in deferred net revenue	(98,906		)			(8,527		)			(90,379		)	1,059.9
Consolidated net sales	$	305,449				$	314,589				$	(9,140	)	(2.9	)%

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	Nine Months Ended December 31,										Increase/			%
	2011					2010					(Decrease)			Change
New releases	$	515,251		77.5	%	$	383,323		69.2	%	$	131,928		34.4	%
Catalog	149,953			22.5		170,457			30.8		(20,504		)	(12.0	)
Net sales before changes in deferred net revenue	665,204			100.0	%	553,780			100.0	%	111,424			20.1
Changes in deferred net revenue	(18,598		)			(12,759		)			(5,839		)	45.8
Consolidated net sales	$	646,606				$	541,021				$	105,585		19.5	%

Net sales of our new releases increased $85.9 million and $131.9 million in the three and nine months ended December 31, 2011, respectively, compared to the same periods last fiscal year. The increase in the three and nine months ended December 31, 2011 was primarily due to the current quarter release of Saints Row: The Third with no comparable title released in the same periods last fiscal year. The increase in net sales in the nine months ended December 31, 2011 from Saints Row: The Third was partially offset by net sales in the same period last fiscal year of UFC Undisputed 2010 which was released in the first quarter of fiscal 2011.

Net sales of our catalog titles decreased $4.7 million and $20.5 million in the three and nine months ended December 31, 2011, respectively, compared to the same periods last fiscal year. The decreases were due to fewer units sold with lower net average selling prices.

Net Sales by Territory

The following table presents our net sales by territory for the three and nine months ended December 31, 2011 and 2010 (amounts in thousands):



	Three Months Ended December 31,										Increase/			%
	2011					2010					(Decrease)			Change
North America	$	237,491		58.7	%	$	237,704		73.5	%	$	(213	)	(0.1	)%
Europe	135,470			33.5		70,617			21.9		64,853			91.8
Asia Pacific	31,394			7.8		14,795			4.6		16,599			112.2
International	166,864			41.3		85,412			26.5		81,452			95.4
Net sales before changes in deferred net revenue	404,355			100.0	%	323,116			100.0	%	81,239			25.1
Changes in deferred net revenue	(98,906		)			(8,527		)			(90,379		)	1,059.9
Consolidated net sales	$	305,449				$	314,589				$	(9,140	)	(2.9	)%



	Nine Months Ended December 31,										Increase/			%
	2011					2010					(Decrease)			Change
North America	$	393,991		59.2	%	$	386,841		69.9	%	$	7,150		1.8	%
Europe	210,845			31.7		126,512			22.8		84,333			66.7
Asia Pacific	60,368			9.1		40,427			7.3		19,941			49.3
International	271,213			40.8		166,939			30.1		104,274			62.5
Net sales before changes in deferred net revenue	665,204			100.0	%	553,780			100.0	%	111,424			20.1
Changes in deferred net revenue	(18,598		)			(12,759		)			(5,839		)	45.8
Consolidated net sales	$	646,606				$	541,021				$	105,585		19.5	%

Net sales in North America in the three and nine months ended December 31, 2011 were relatively flat compared to the same periods last fiscal year. The slight decrease in this territory in the three months ended December 31, 2011 reflected lower net sales on uDraw and catalog titles, partially offset by higher net sales from current quarter releases which were driven by Saints Row: The Third, which had no comparable title released in the same period last fiscal year. The slight increase in net sales in the nine months ended December 31, 2011 reflected net sales from the release of Saints Row: The Third, which had no comparable title

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released in the same period last fiscal year, along with several other titles from our portfolio of core games, including Warhammer 40K: Space Marine. This increase was partially offset by i) lower net sales from titles based on our license with the UFC, which was due to the timing of releases related to this brand, and ii) lower net sales of uDraw.

Net sales in Europe in the three and nine months ended December 31, 2011 increased $64.9 million and $84.3 million, respectively, compared to the same periods last fiscal year. We estimate that changes in foreign currency translation rates during the three and nine months ended December 31, 2011 decreased our reported net sales in this territory by $0.8 million and increased our reported net sales by $5.1 million, respectively. The increase in net sales in this territory in the three and nine months ended December 31, 2011 was primarily due to the release of Saints Row: The Third, with no comparable title released in the same period last fiscal year.

Net sales in the Asia Pacific territory in the three and nine months ended December 31, 2011 increased $16.6 million and $19.9 million, respectively, compared to the same periods last fiscal year. We estimate that changes in foreign currency translation rates increased our reported net sales in this territory by $0.9 million and $5.5 million during the three and nine months ended December 31, 2011, respectively. The increase in net sales in this territory in the three and nine months ended December 31, 2011 was primarily due to the release of Saints Row: The Third, with no comparable title released in the same period last fiscal year.

International net sales in the three and nine months ended December 31, 2011 included sales of uDraw whereas the same periods last fiscal year did not; the prior year version of uDraw was released internationally in the fourth quarter of fiscal 2011.

Cost of Sales

Cost of sales increased $4.6 million, or 1.8%, and $123.0 million, or 28.4%, in the three and nine months ended December 31, 2011, respectively, compared to the same periods last fiscal year. As a percent of net sales, cost of sales increased 3.9 points and 5.9 points in the three and nine months ended December 31, 2011, respectively, compared to the same periods last fiscal year.

Cost of Sales - Product Costs (amounts in thousands)



	December 31, 2011	% of net sales	December 31, 2010	% of net sales	% Change
Three Months Ended	$154,893	50.7%	$123,852	39.4%	25.1%
Nine Months Ended	$279,942	43.3%	$219,558	40.6%	27.5%

Product costs primarily consist of direct manufacturing costs, including platform manufacturer license fees, net of manufacturer volume rebates and discounts. In the three and nine months ended December 31, 2011, product costs as a percent of net sales increased 11.3 points and 2.7 points, respectively, compared to the same periods last fiscal year. The increases as a percent of net sales were primarily due to the release of uDraw which had a lower average net selling price and higher product costs per unit in the three and nine months ended December 31, 2011 compared to the same periods last fiscal year.

Cost of Sales - Software Amortization and Royalties (amounts in thousands)



	December 31, 2011	% of net sales	December 31, 2010	% of net sales	% Change
Three Months Ended	$74,706	24.5%	$50,011	15.9%	49.4%
Nine Months Ended	$217,519	33.6%	$104,526	19.3%	108.1%

Software amortization and royalties expense 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 expense based on the ratio of current gross sales to total projected gross sales. Excluding charges associated with title cancellations and impairments (see “Note 3 — Licenses and Software Development” in the notes to the condensed consolidated financial statements included in Part I, Item 1 for further information), software amortization and royalties expense as a percent of net sales in the three and nine months ended December 31, 2011 increased 10.7 points and 13.9 points, respectively, compared to the same periods last fiscal year. The increases were primarily due to titles such as Homefront, Red Faction: Armageddon, and Warhammer 40K: Space Marine, that were recognized in the three and nine months ended December 31, 2011 and had higher capitalized development costs relative to their net sales, compared to the mix of titles included in net sales in the same periods last fiscal year.

Cost of Sales - License Amortization and Royalties (amounts in thousands)

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	December 31, 2011	% of net sales	December 31, 2010	% of net sales	% Change
Three Months Ended	$27,606	9.0%	$78,775	25.0%	(65.0)%
Nine Months Ended	$58,901	9.1%	$109,248	20.2%	(46.1)%

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 net sales for such license.

Net sales from our licensed properties represented 71% and 59% of our total net sales in the three and nine months ended December 31, 2011, respectively, compared to 72% and 76% of our total net sales in the three and nine months ended December 31, 2010.

Excluding charges associated with title cancellations and impairments (see “Note 3 — Licenses and Software Development” in the notes to the condensed consolidated financial statements included in Part I, Item 1 for further information), license amortization and royalties expense as a percent of net sales in the three and nine months ended December 31, 2011 decreased 6.4 points and 6.9 points, respectively, compared to the same periods last fiscal year. The primary driver of the decrease in the three month comparative periods was a high effective license amortization rate in the three months ended December 31, 2010 on Megamind. The primary driver of the decrease in the nine month comparative periods was the larger mix of net sales from licensed products in the prior year period, which was primarily due to the release of UFC Undisputed 2010 in that period.

Operating Expenses

Our operating expenses increased $24.8 million, or 31.8%, and $85.7 million, or 44.2% in the three and nine months ended December 31, 2011, respectively, compared to the same periods last fiscal year.

Product Development (amounts in thousands)



	December 31, 2011	% of net sales	December 31, 2010	% of net sales	% Change
Three Months Ended	$16,702	5.5%	$17,992	5.7%	(7.2)%
Nine Months Ended	$74,845	11.6%	$52,367	9.7%	42.9%

Product development expense primarily consists of expenses incurred by internal development studios and payments made to external development studios which are not eligible, or are in a phase of development that is not yet able to be capitalized as part of software development. Product development expense decreased $1.3 million and increased $22.5 million in the three and nine months ended December 31, 2011, respectively, compared to the same periods last fiscal year.

Included in the three months ended December 31, 2011 and 2010 was $0.8 million of cash severance charges and other employee-based costs recorded related to our business realignments (see "Note 5 — Restructuring and Other Charges” in the notes to the condensed consolidated financial statements included in Part I, Item 1). The decrease in product development expense in the three month comparative periods reflected a reduction in expenditures resulting from our studio closures, partially offset by increased product development expenses due to changes in the timing of our development cycles as more of our games during the three months ended December 31, 2011 were in a phase of development that was not capitalizable to software development, compared to the same period last fiscal year.

Included in the nine months ended December 31, 2011 and 2010 was $8.7 million and $0.8 million, respectively, of cash severance charges and other employee-based costs recorded related to our business realignments (see "Note 5 - Restructuring and Other Charges” in the notes to the condensed consolidated financial statements included in Part I, Item 1). Excluding these charges, product development expense increased $14.6 million in the nine months ended December 31, 2011 compared to the same period last fiscal year. The increase in the nine month comparative periods was primarily due to increased product development expenses due to changes in the timing of our development cycles as more of our games during the nine months ended December 31, 2011 were in a phase of development that was not capitalizable to software development, including increased investments in our social, mobile and digital games, compared to the same period last fiscal year. This increase was partially offset by a reduction in expenditures resulting from our studio closures.

Selling and Marketing (amounts in thousands)

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	December 31, 2011	% of net sales	December 31, 2010	% of net sales	% Change
Three Months Ended	$75,596	24.7%	$50,522	16.1%	49.6%
Nine Months Ended	$164,037	25.4%	$108,171	20.0%	51.6%

Selling and marketing expenses consist of advertising, promotional expenses, and personnel-related costs. Selling and marketing expenses increased $25.1 million and $55.9 million in the three and nine months ended December 31, 2011, respectively, compared to the same periods last fiscal year. The increase on a dollar-basis in the three and nine months ended December 31, 2011 was primarily due to promotional efforts supporting the launch of Saints Row: The Third in the current quarter. Additionally, the increase in the nine months ended December 31, 2011 was also due to promotional efforts to support the launch of new releases such as Warhammer 40,000: Space Marine and Red Faction: Armageddon in the current nine month period.

Excluding the impact of changes in deferred net revenue, to arrive at a net sales basis that most closely relates to our selling and marketing activities in a given period, selling and marketing expenses as a percent of net sales increased 3.1 points and 5.0 points in the three and nine months ended December 31, 2011, respectively, compared to the same periods last fiscal year. The increase in the three and nine months ended December 31, 2011 was primarily due to the current quarter release of uDraw, which had higher levels of marketing support relative to its net sales as compared to the uDraw release in the same period last fiscal year. Additionally, the increase in the nine months ended December 31, 2011 was also due to higher marketing support for catalog titles on lower net sales from catalog titles, compared to the same period last fiscal year.

General and Administrative (amounts in thousands)



	December 31, 2011	% of net sales	December 31, 2010	% of net sales	% Change
Three Months Ended	$11,057	3.6%	$9,405	3.0%	17.6%
Nine Months Ended	$35,143	5.4%	$33,127	6.1%	6.1%

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. The increase in general and administrative expenses in the three and nine months ended December 31, 2011 was due to recoveries of bad debt in the prior year period.

Restructuring

Restructuring charges generally include costs such as, severance and other employee-based charges in excess of standard business practices, costs associated with lease abandonments less estimates of sublease income, charges related to long-lived assets, and costs of other non-cancellable contracts. In the three and nine months ended December 31, 2011, restructuring charges and adjustments due to changes in estimates resulted in a gain of $0.5 million and expense of $5.5 million, respectively, and consisted of charges and adjustments due to changes in estimates incurred in connection with previously announced business realignment plans. In the three and nine months ended December 31, 2010, restructuring charges and adjustments were minimal and reflected facility-related charges and adjustments due to changes in actual and estimated sublease income related to our fiscal 2009 realignment. For further information related to our realignment plans and charges and the events and decisions that gave rise to such charges, see “Note 5 — Restructuring and Other Charges” in the notes to the condensed consolidated financial statements included in Part I, Item 1.

Interest and Other Income (Expense), net

Interest and other income (expense), net, consists of interest earned on our investments, gains and losses resulting from exchange rate changes for transactions denominated in currencies other than the functional currency, and interest expense, net of capitalization and amortization of debt issuance costs on our $100.0 million 5% convertible senior notes (“Notes”) and our Credit Agreement and Security Agreement (collectively, the “Credit Facility”) with Wells Fargo Capital Finance, LLC. For further discussion of the Notes and the Credit Facility, see “Note 6 — Debt” in the notes to the condensed consolidated financial statements included in Part I, Item 1.

Interest and other income (expense), net in the three months ended December 31, 2011 was income of $1.2 million and primarily consisted of various other income. Interest and other income (expense), net in the nine months ended December 31, 2011 was income of $4.1 million and primarily consisted of foreign currency gains.

Interest and other income (expense), net in the three months ended December 31, 2010 was income of $1.2 million and primarily reflected foreign currency gains that were partially offset by interest expense under the Notes that was not capitalized. We began

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capitalizing interest expense in the fourth quarter of fiscal 2011; see "Note 25 — Quarterly Financial Data (Unaudited)" in the notes to the consolidated financial statements in our 2011 10-K for a discussion of the impact of this change. Interest and other income (expense), net in the nine months ended December 31, 2010 was an expense of $4.4 million and primarily consisted of interest expense under the Notes that was not capitalized.

Income Taxes

In the three and nine months ended December 31, 2011, we had income tax expense of $2.5 million and $1.6 million, compared to income tax expense of $0.1 million and $1.6 million in the same periods last fiscal year. Income tax expense in all periods relates primarily to income earned in foreign jurisdictions, which is not reduced by carryforward losses generated in the U.S. The effective tax rate differs significantly from the federal statutory rate primarily due to taxable losses in the U.S., and certain foreign jurisdictions, which are fully offset by a valuation allowance.

Liquidity and Capital Resources

Financial Condition

At December 31, 2011, we had working capital of $32.1 million, including cash and cash equivalents of $47.7 million, and we had total stockholder's equity of $19.6 million. On January 25, 2012, we announced an updated business strategy to exit the traditional kids' licensed video games market and focus on our core video game franchises and digital initiatives for the future. On January 26, 2012, we initiated a plan of restructuring in connection with the updated business strategy in order to better align our operating expenses with the lower expected revenues under the updated strategy. The restructuring plan includes a realignment of the organizational structure resulting in reductions of up to 240 selling, general and administrative personnel worldwide. The majority of the restructuring plan is expected to be implemented by March 31, 2012, with the remainder completed by September 30, 2012. In addition, subsequent to December 31, 2011, we entered into agreements with two of our kids' movie-based licensors which reduced certain of our future financial commitments, and we are in ongoing discussions with two other kids' licensors. In connection with this realignment, we expect to significantly reduce other future non-personnel related expenditures and certain product development expenditures which do not align with our current strategy. With our revised product plan, lower cost structure, cash balance, existing credit facility and other sources of external liquidity, we believe we have adequate resources to execute on our plan and deliver on our strong multi-year pipeline of games.

Sources and Uses of Cash



(Amounts in thousands)	December 31, 2011			March 31, 2011			Change
Cash and cash equivalents	$	47,685		$	85,603		$	(37,918	)
Percentage of total assets	8		%	11		%

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	Nine Months Ended December 31,
(Amounts in thousands)	2011			2010			Change
Net cash used in operating activities	$	(27,723	)	$	(167,420	)	$	139,697
Net cash provided by (used in) investing activities	(5,013		)	96,969			(101,982		)
Net cash used in financing activities	(1,243		)	(12,472		)	11,229
Effect of exchange rate changes on cash	(3,939		)	3,944			(7,883		)
Net decrease in cash and cash equivalents	$	(37,918	)	$	(78,979	)	$	41,061

Generally, our primary sources of liquidity are cash and cash equivalents. In addition, as further discussed below, we may elect to sell or borrow against certain of our eligible North American accounts receivable and we have other external sources of liquidity available to us, including our Credit Facility (as described below). Our principal source of cash is from sales of interactive software games designed for play on video game consoles, handheld devices and PCs, including via the Internet, and from sales of uDraw. Our principal uses of cash are for product purchases of discs and cartridges along with associated manufacturer's royalties, purchases of hardware components for uDraw, payments to external developers and licensors, costs of internal software development, and selling and marketing expenses. Although uDraw has been a source and use of cash in the three months ended December 31, 2011, we do not intend to continue producing uDraw and thus do not expect this to continue in future periods. In the nine months ended December 31, 2011 our cash and cash equivalents decreased $37.9 million, from $85.6 million at March 31, 2011 to $47.7 million at December 31, 2011. The decrease in our cash balance was primarily due to investments in software development and existing licenses, partially offset by our net loss (adjusted for non-cash reconciling items such as depreciation, amortization, and changes in deferred net revenue and related expenses). For further information regarding the movement in our cash balance during the nine months ended December 31, 2011, refer to the Condensed Consolidated Statement of Cash Flows for that period which is included in Part I, Item 1.

Our business is cyclical and thus our working capital needs are impacted by seasonality, and the timing of new product releases. Cash used in operations tends to be at its highest during the first part of the third fiscal quarter, as we invest heavily in inventory for the holiday buying season. During the three months ended December 31, 2011, in order to help fund our working capital needs during the holiday season, we borrowed and repaid $52.0 million under our Credit Facility (as discussed below) and we expect to borrow additional amounts in the future, as needed. In addition, in order to expedite collections on our accounts receivable, we have sold, and expect to continue to sell certain of our accounts receivables from Walmart Stores, Inc. ("Walmart") without recourse, to Wells Fargo Bank, N.A. ("Wells") (as discussed below).

Walmart Purchase Agreement.

In November 2010, we entered into a Receivables Purchase Agreement ("Purchase Agreement") with Wells. The Purchase Agreement gives us the option to sell our Walmart receivables to Wells, at our discretion, and significantly expedite our Walmart receivables collections. Wells will pay us the value of any receivables we elect to sell, less LIBOR + 1.25% per annum, and then collect the receivables from Walmart. During the three months ended December 31, 2011, to expedite our receivables collections from Walmart, we sold $43.3 million of accounts receivable under the Purchase Agreement, without recourse, that would have otherwise been collected subsequent to December 31, 2011. In the three and nine months ended December 31, 2011 we recognized a loss of $0.2 million related to interest on the transaction, which is classified in "Interest and other income (expense), net" in our condensed consolidated statements of operations. We expect to continue to sell our Walmart accounts receivable pursuant to the Purchase Agreement to further expedite collections.

Credit Facility.

On September 23, 2011, we entered into the Credit Facility. The Credit Facility provides for a $50.0 million revolving facility during its term, however, the availability under the Credit Facility increased to $75.0 million during the period from October 1, 2011 through December 14, 2011. The Credit Facility allows up to $10.0 million of the total to be used as a letter of credit subfacility.

The Credit Facility has a four-year term; provided, however, it will terminate on June 16, 2014 if any obligations are still outstanding under the Notes. Borrowings under the Credit Facility bear interest at a rate equal to an applicable margin plus, at our option, either a variable base rate or a LIBOR rate. The applicable margin for base rate loans ranges from 2.25% to 2.5% and for LIBOR rate loans ranges from 3.75% to 4.0%, in each case, depending on the level of our borrowings. We will be required to pay other customary fees, including an unused line fee based on usage under the Credit Facility as well as fees in respect of letters of credit.

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indebtedness, including the Notes, and entry of certain judgments against us. Upon the occurrence of a continuing event of default and at the option of the required lenders (as defined in the Credit Facility), all of the amounts outstanding under the Credit Facility are currently due and payable and any amount outstanding bears interest at 2.0% above the interest rate otherwise applicable. In the event availability on the Credit Facility is below 12.5% of the maximum revolver amount, the Credit Facility requires that we maintain certain financial covenants. As of December 31, 2011, we had availability in excess of 12.5% and therefore we were not subject to the financial covenants. In the event the financial covenants become applicable, we would be required to have EBITDA, as defined in the Credit Facility, in the most recent period of $73.3 million, $63.3 million or $9.8 million for the two quarters ended December 31, 2011, three quarters ended March 31, 2012 or four quarters ended June 30, 2012, respectively. Additionally, beginning September 30, 2012, the financial covenants would require that we maintain an annual fixed charge coverage ratio of 1.1 to 1.0.

During the three months ended December 31, 2011 we borrowed $52.0 million under the Credit Facility, which was repaid as of December 31, 2011. In the three and nine months ended December 31, 2011 interest expense was $0.2 million and amortization of debt costs related to the Credit Facility was $0.1 million; these amounts were capitalized as part of in-process software development costs. There were no outstanding borrowings under the Credit Facility as of December 31, 2011.

As of December 31, 2011, we were in compliance with all applicable covenants and requirements in the Credit Facility.

Cash Flow from Operating Activities. Cash used in operations was $27.7 million in the nine months ended December 31, 2011, compared to $167.4 million in the same period last fiscal year. The change in cash flow from operations was primarily the result of an increase in investments in software development and licenses. Additionally, we had higher cash collections of receivables during the nine months ended December 31, 2011 compared to the same period last fiscal year. The increase in cash collections was driven by the collection of fiscal 2011 year-end receivables, primarily related to titles that were released late in the fourth quarter of fiscal 2011, as well as from the expedited collection of fiscal 2012 third quarter receivables under the Purchase Agreement.

Cash Flow from Investing Activities. Cash used in investing activities was $5.0 million in the nine months ended December 31, 2011, compared to $97.0 million cash provided by investing activities in the same period last fiscal year. The change in cash flow from investing activities was primarily due to investment related activity in the nine months ended December 31, 2010 as there was no such activity in the nine months ended December 31, 2011.

Cash Flow from Financing Activities. Cash used in financing activities was $1.2 million in the nine months ended December 31, 2011, compared to $12.5 million in the same period last fiscal year. The change in cash flow from financing activities was primarily due to the repayment of our secured credit line in the nine months ended December 31, 2010.

Effect of exchange rate changes on cash. Changes in foreign currency translation rates decreased our reported cash balance by $3.9 million.

Key Balance Sheet Accounts

At December 31, 2011, our total current assets were $444.2 million, down from $599.7 million at March 31, 2011. In addition to cash and cash equivalents, our current assets primarily consisted of:

Accounts Receivable. Accounts receivable decreased $13.7 million, from $161.6 million at March 31, 2011 to $147.9 million at December 31, 2011. The decrease was primarily due to our expedited collection of receivables under the Purchase Agreement and higher allowances as a percentage of gross receivables, both of which were partially offset by the higher sales volume during the holiday buying season compared to the fourth quarter of fiscal 2011. Accounts receivable allowances were $116.5 million at

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December 31, 2011, a $28.9 million increase from $87.6 million at March 31, 2011. Allowances for price protection and returns as a percentage of trailing nine-month net sales, excluding the impact of changes in deferred net revenue, were 14% and 11% at December 31, 2011 and 2010, respectively. The increase was primarily due to allowances for price protection on uDraw. We believe our current 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 decreased $4.9 million, from $31.9 million at March 31, 2011 to $27.0 million at December 31, 2011. The decrease in inventory was primarily due to continued sales of late fiscal 2011 and early fiscal 2012 releases, partially offset by an increase in uDraw inventory. Inventory turns, excluding the impact of changes in deferred costs, on a rolling twelve-month basis were 14 at December 31, 2011 and March 31, 2011.

Licenses. Our investment in licenses, including the long-term portion, decreased $20.6 million, from $118.2 million at March 31, 2011 to $97.6 million at December 31, 2011.

Software Development. Capitalized software development, including the long-term portion, decreased $82.1 million, from $272.5 million at March 31, 2011 to $190.4 million at December 31, 2011. The decrease in software development is primarily the result of software development amortization of titles released in the nine months ended December 31, 2011, as well as titles that were released late in the fourth quarter of fiscal 2011. This decrease was partially offset by our continued investment in future titles. Approximately 67% of the software development asset balance at December 31, 2011 is for titles that have expected release dates in the remainder of fiscal 2012 and beyond.

Total current liabilities at December 31, 2011, were $412.1 million, up from $379.5 million at March 31, 2011. Current liabilities primarily consisted of:

Accounts Payable. Accounts payable increased $13.5 million, from $100.6 million at March 31, 2011 to $114.1 million at December 31, 2011. The increase was primarily due to the timing of product purchases.

Accrued and Other Current Liabilities. Accrued and other current liabilities increased $2.9 million, from $137.9 million at March 31, 2011 to $140.8 million at December 31, 2011. The increase was primarily due to accruals related to our investments in licenses, partially offset by a decrease in accrued compensation.

Our liabilities at December 31, 2011 also consisted of:

Other long-term liabilities. Other long-term liabilities decreased $9.6 million, from $88.0 million at March 31, 2011 to $78.4 million at December 31, 2011. The decrease was primarily due to movements of accrued royalties and a portion of the settlement payment due to Jakks, from long-term into current liabilities.

Convertible Senior Notes. We issued the Notes on August 4, 2009 and the full principal amount of $100.0 million is outstanding as of December 31, 2011 (see “Note 6 — Debt” in the notes to the condensed consolidated financial statements in Part I, Item 1).

Inflation

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

Contractual Obligations

Guarantees and Commitments

A summary of annual minimum contractual obligations and commercial commitments as of December 31, 2011 is as follows (amounts in thousands):

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	Contractual Obligations and Commercial Commitments (6)
Fiscal Years Ending March 31,	License / Software Development Commitments (1)		Advertising (2)		Leases (3)		Debt (4)		Other (5)		Total
Remainder of 2012	$	49,894	$	5,643	$	3,825	$	—	$	146	$	59,508
2013	79,454		20,580		14,880		—		4,000		118,914
2014	20,012		4,716		13,953		—		4,000		42,681
2015	16,619		589		12,501		100,000		—		129,709
2016	10,000		500		7,589		—		—		18,089
Thereafter	19,904		875		14,376		—		—		35,155
	$	195,883	$	32,903	$	67,124	$	100,000	$	8,146	$	404,056

(1)

Licenses and Software Development. We enter into contractual arrangements with third parties for the rights to exploit 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 such agreements in place as of December 31, 2011 are $195.9 million. Of these obligations, $6.0 million is accrued and classified as "Accrued and other current liabilities" in our December 31, 2011 condensed consolidated balance sheet related to the abandonment of a license in connection with our fiscal 2012 second quarter realignment plan (see "Note 5 — Restructuring and Other Charges" in the notes to the condensed consolidated financial statements included in Part I, Item I). Additionally, license commitments in the table above include $113.5 million of commitments payable to licensors that are included in both "Accrued and other current liabilities" and "Other long-term liabilities" in our December 31, 2011 condensed consolidated balance sheet because the licensors do not have any remaining significant performance obligations. Subsequent to December 31, 2011, we entered into agreements with two of our licensors that resulted in a reduction of our future commitments contained in the table above related to certain of our licenses (see "Note 15 — Subsequent Events" for further details).


(2)	Advertising. We have certain minimum advertising commitments under many of our major license agreements. These minimum commitments generally range from 3% to 10% of net sales related to the respective license.

(3)

Leases. We are committed under operating leases with lease termination dates through 2020. Most of our leases contain rent escalations. Of these obligations, $1.5 million and $2.9 million are accrued and classified as "Accrued and other current liabilities" and "Other long-term liabilities," respectively, in our December 31, 2011 condensed consolidated balance sheet due to the abandonment of certain lease obligations in connection with our realignment plans (see "Note 5 — Restructuring and Other Charges" in the notes to the condensed consolidated financial statements included in Part I, Item I). We expect future sublease rental income under non-cancellable agreements of approximately $2.7 million; this income is not contemplated in the lease commitments shown in the table above.

(4)

Debt. We issued the Notes on August 4, 2009. The Notes pay interest semiannually, in arrears on February 15 and August 15 of each year, beginning February 15, 2010, through maturity and are convertible at each holder's option at any time prior to the close of business on the trading day immediately preceding the maturity date. Absent any conversions, we expect to pay $2.5 million in the remainder of fiscal 2012, $5.0 million in each of the fiscal years 2013 and 2014, and $2.5 million in fiscal 2015, for an aggregate of $15.0 million in interest payments over the remaining term of the Notes (see "Note 6 — Debt" in the notes to the condensed consolidated financial statements included in Part I, Item 1).

(5)

Other. As discussed more fully in "Note 18 — Joint Venture and Settlement Agreements" in the notes to the consolidated financial statements in our 2011 10-K, amounts payable to Jakks totaling $8.0 million are reflected in the table above. The present value of these amounts is included in "Accrued and other current liabilities" and "Other long-term liabilities" in our condensed consolidated balance sheet at December 31, 2011 (see "Note 2 — Balance Sheet Details" in the notes to the condensed consolidated financial statements included in Part I, Item 1). The remaining other commitments included in the table above are also included as current or long-term liabilities in our December 31, 2011 condensed consolidated balance sheet.

(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. At December 31, 2011, we had $3.8 million of unrecognized tax benefits. See "Note 9 — Income Taxes" in the notes to the condensed consolidated financial statements included in Part I, Item 1 for further information regarding the unrecognized tax benefits.

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Critical Accounting Estimates

There have been no material changes to our critical accounting estimates as described in Part II, Item 7 to our 2011 10-K, under the caption “Critical Accounting Estimates.”

Recently Issued Accounting Pronouncements

See “Note 1 — Basis of Presentation" in the notes to the condensed consolidated financial statements in Part 1, Item 1.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Market Risk

We are exposed to certain market risks arising from transactions in the normal course of business, principally risks associated with interest rate and foreign currency fluctuations. Market risk is the potential loss arising from changes in market rates and market prices. We employ established policies and practices to manage these risks. We use foreign currency exchange option and forward contracts to hedge anticipated exposures or mitigate some existing exposures subject to foreign currency exchange rate risk as discussed below. We do not enter into derivatives or other financial instruments for trading or speculative purposes.

Interest Rate Risk

At December 31, 2011, our $47.7 million of cash and cash equivalents were comprised of cash and time deposits and money market funds; none of our cash equivalents are classified as trading securities. We generally manage our interest rate risk by maintaining an investment portfolio generally consisting of debt instruments of high credit quality and relatively short maturities. However, because short-term investments mature relatively quickly and are generally reinvested at the then current market rates, interest income on a portfolio consisting of cash equivalents and short-term investments is more subject to market fluctuations than a portfolio of longer-term investments. The value of these investments may fluctuate with changes in interest rates; however, the contractual terms of the investments do not permit the issuer to call, prepay or otherwise settle the investments at prices less than the stated par value. Interest income recognized in the three and nine months ended December 31, 2011 was $0.1 million and $0.4 million, respectively, and is included in "Interest and other income (expense), net" in our condensed consolidated statements of operations.

At December 31, 2011, we had no outstanding balances under the Credit Facility.

Foreign Currency Exchange Rate Risk

We transact business in many different foreign currencies and are exposed to financial market risk resulting from fluctuations in foreign currency exchange rates, particularly Australian Dollars ("AUD"), Euros ("EUR"), and Great British Pounds ("GBP), which may result in a gain or loss of earnings to us. Our international business is subject to risks typical of an international business, including, but not limited to, foreign currency exchange rate volatility. Accordingly, our future results could be materially and adversely affected by changes in foreign currency exchange rates. Throughout the year, we frequently monitor the volatility of the AUD, EUR, and GBP (and all other applicable currencies).

Cash Flow Hedging Activities. From time to time, we hedge a portion of our foreign currency risk related to forecasted foreign currency-denominated sales and expense transactions by entering into foreign exchange forward contracts that generally have maturities less than 90 days. Our hedging programs reduce, but do not entirely eliminate, the impact of currency exchange rate movements in net sales and operating expenses. During the nine months ended December 31, 2011 and 2010, we did not enter into any foreign exchange forward contracts related to cash flow hedging activities.

Balance Sheet Hedging Activities. We utilize foreign exchange forward contracts to mitigate foreign currency risk associated with foreign currency-denominated assets and liabilities, primarily certain inter-company receivables and payables. Our foreign currency exchange forward contracts are not designated as hedging instruments and are accounted for as derivatives whereby the fair value of the contracts are reported as "Prepaid expenses and other current assets" or "Accrued and other current liabilities" in our condensed consolidated balance sheets, and the associated gains and losses from changes in fair value are reported in "Interest and other income (expense), net" in our condensed consolidated statements of operations. The forward contracts generally have a contractual term of one month or less and are transacted near month-end. Therefore, the fair value of the forward contracts generally is not significant at each month-end.

At December 31, 2011, we had foreign currency exchange forward contracts related to balance sheet hedging activities in the notional amount of $109.7 million with a fair value that approximates zero. The contracts consisted primarily of AUD, CAD, EUR, and GBP. The net gain recognized from these contracts during the three months ended December 31, 2011 was $2.1 million

and the net loss recognized during the nine months ended December 31, 2011 was $0.6 million, respectively, and is included in "Interest and other income (expense), net" in our condensed consolidated statements of operations.

Foreign currency exchange forward contracts are designed to offset gains and losses on the underlying foreign currency-denominated assets and liabilities. Any movement in foreign currency exchange rates resulting in a gain or loss on our foreign currency exchange forward contracts are offset by an opposing gain or loss in the underlying foreign currency-denominated assets

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and liabilities that were hedged and would not have a material impact on our financial position.

The counterparties to these forward contracts are creditworthy multinational commercial or investment banks. The risks of counterparty non-performance associated with these contracts are not considered to be material. Notwithstanding our efforts to manage foreign currency exchange risks, there can be no assurances that our mitigating or hedging activities will adequately protect us against the risks associated with foreign currency fluctuations.

We do not hedge foreign currency translation risk. A hypothetical 10% adverse change in foreign currency translation rates would result in a reduction of reported net sales of approximately $26.1 million and an increase in reported loss from operations before income taxes of approximately $1.7 million for the nine months ended December 31, 2011. A hypothetical 10% adverse change in foreign currency translation rates would result in a reduction of reported total assets of approximately $26.5 million. These estimates assume an adverse shift in all foreign currency exchange rates, which do not always move in the same direction; actual results may differ materially.

Item 4. Controls and Procedures

Definition and limitations of disclosure controls and procedures. Our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act, such as this report, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures are also designed to ensure that such information is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

There are inherent limitations to the effectiveness of any system of disclosure controls and procedures. These limitations include the possibility of human error, the circumvention or overriding of the controls and procedures and reasonable resource constraints. In addition, because we have designed our disclosure controls and procedures based on certain assumptions, which we believe are reasonable, about the likelihood of future events, our disclosure controls and procedures may not achieve their desired purpose under all possible future conditions. Accordingly, our disclosure controls and procedures provide reasonable assurance, but not absolute assurance, of achieving their objectives.

Evaluation of disclosure controls and procedures. Our Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures, have concluded that as of December 31, 2011, our disclosure controls and procedures were effective in providing the requisite reasonable assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in internal control over financial reporting. There were no changes in our internal control over financial reporting that occurred during our third quarter of fiscal 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION

Item 1. Legal Proceedings

From time to time we are involved in ordinary routine litigation incidental to our business. In the opinion of our management, none of such pending litigation is expected to have a material adverse effect on our financial condition or results of operations.

Item 1A. Risk Factors

Our business is subject to many risks and uncertainties that may impact our future financial performance. Some of those important risks and uncertainties that may cause our operating results to vary or may materially and adversely impact our operating results are described below. These risks are not presented in order of importance or probability of occurrence.

We operate in a capital intensive business and must continue to generate cash from our operations and external sources of liquidity to be able to execute on our business plan and meet our anticipated cash requirements in the future.

At December 31, 2011, we had working capital of $32.1 million, including cash and cash equivalents of $47.7 million, and we had total stockholder's equity of $19.6 million. In January 2012 we updated our business strategy and began restructuring our business in order better align our operating expenses with the lower expected revenues under the updated strategy. With our revised product plan, lower cost structure, cash balance, existing credit facility, and other existing sources of external liquidity, we believe we have adequate resources to execute on our plan and deliver our multi-year pipeline of games; however, there can be no assurance that we will be able to do so. In the event our future net sales or required expenditures differ from our expectations for any reason, and our external liquidity sources, including our credit facility and vendor credit terms, are not sufficient to meet our operating requirements, we may need to defer and/or curtail currently-planned expenditures, cancel projects currently in development, and/or pursue additional funding or additional external sources of liquidity, which may not be available on financially attractive terms, if at all, to meet our cash needs.

We may not be able to refinance or generate sufficient cash to service and/or pay our convertible senior notes.

On August 4, 2009, we issued the Notes. The Notes pay interest semiannually, in arrears on February 15 and August 15 of each year and are due August 15, 2014, unless earlier converted, redeemed or repurchased. As mentioned below, if our common stock is not listed on a U.S. national securities exchange, the holders of the Notes may require us to repay the principal prior to the maturity date. Our ability to make principal and interest payments on the Notes will depend on our financial and operating performance, which is subject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond our control. We may be unable to refinance the Notes or maintain a level of cash flows from operating activities sufficient to permit us to pay the principal or interest on the Notes. In addition, if the Notes are converted to common stock, our current shareholders will suffer dilution in their percentage ownership.

If we fail to maintain the listing of our common stock with a U.S. national securities exchange, the liquidity of our common stock could be adversely affected and could result in the acceleration of our Notes.

On January 25, 2012, we received a written notification from Nasdaq notifying us that we fail to comply with Nasdaq's Marketplace Rule 5450(a)(1) (the “Rule”) because the bid price for our common stock, over the last 30 consecutive business days, has closed below the minimum $1.00 per share requirement for continued listing. The notification has no immediate effect on the listing of our common stock. In accordance with Marketplace Rule 5810(c)(3)(A), we have a period of 180 calendar days, or until July 23, 2012, to regain compliance with the Rule. If at any time before July 23, 2012, the bid price of our common stock closes at or above $1.00 per share for a minimum of 10 consecutive business days, Nasdaq will provide written notification that we have achieved compliance with the Rule. If compliance with the Rule cannot be demonstrated by July 23, 2012, our common stock will be subject to delisting from The Nasdaq Global Market. In the event that we receive notice that our common stock is subject to being delisted from The Nasdaq Global Select Market, Nasdaq rules permit us to appeal any delisting determination by the Nasdaq staff to a Nasdaq hearings panel. Alternatively, Nasdaq may permit us to transfer our securities to The Nasdaq Capital Market if we satisfy the requirements for initial inclusion set forth in Marketplace Rule 5505, except for the bid price requirement. If our application for transfer is approved, we would have an additional 180 calendar days to comply with the Rule in order to remain on The Nasdaq Capital Market.

We will continue to monitor the bid price for our common stock and consider various options available to us if our common stock does not trade at a level that is likely to regain compliance. If we fail to maintain our listing with any U.S. national securities exchange, the Note holders may require us to repurchase the Notes. Additionally, our common stock may become more difficult for investors to trade, potentially leading to further declines in our stock price.

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Our business is "hit" driven. If we do not deliver "hit" games, our net sales and profitability could suffer.

While many new titles are regularly introduced in our industry, increasingly, only a relatively small number of "hit" titles account for a significant portion of video game sales. If we fail to develop "hit" titles, or if "hit" products published by our competitors take a larger share of consumer spending than we anticipate, our product sales could fall below our expectations, which could negatively impact both our net sales and profitability.

We may not be able to adequately adjust our cost structure in a timely fashion in response to a sudden decrease in demand.

A significant portion of our cost structure is attributable to expenditures for personnel and facilities. In the event of additional declines in our current expected net sales, we may not be able to dispose of facilities, reduce personnel or make other changes to our cost structure without disruption to our operations or without significant termination and exit costs. Management may not be able to implement such actions in a timely manner, if at all, to offset an immediate shortfall in net sales and profit. Moreover, reducing costs may impair our ability to produce and develop software titles at sufficient levels in the future.

We must continue to develop and sell new titles in order to generate net sales and remain profitable.

We derive almost all of our net sales from sales of interactive software games. Even the most successful video games remain popular for only limited periods of time, often less than six months, and thus the success of our business is dependent upon our ability to continually develop and sell successful new games. Because net sales associated with an initial product launch generally constitutes a high percentage of the total net sales associated with the life of a product, the inability of our products to achieve significant market acceptance, delays in product releases or disruptions following the commercial release of our products may have a material adverse impact on our net sales and profitability.

Failure to appropriately adapt to rapid technological changes or emerging distribution channels may negatively impact our market share and our operating results.

Rapid technology changes in our industry require us to anticipate, sometimes years in advance, which technologies we must implement and take advantage of in order to make our products and services competitive. Currently, our industry is experiencing an increasing shift to online content and digital downloads. We believe that much of the growth in the industry will come via online markets or digital distribution such as massively multi-player games (both subscription and free-to-play), casual micro-transaction based games, paid downloadable content and digital downloads of games. Accordingly, we plan to continue integrating a digital component into all of our key franchises. However, if we fail to anticipate and adapt to these and other technological changes, our market share and our operating results may suffer. Our future success in providing online games, wireless games and other content will depend upon our ability to adapt to rapidly-changing technologies, develop applications to accommodate evolving industry standards, and improve the performance and reliability of our applications.

Connectivity issues related to digital sales and online gameplay could impact our ability to sell and provide online services for our games, and could impact our profitability.

We rely upon various third-party providers, such as PlayStation Network, Microsoft's Xbox Live, Valve's Steam platform, and Facebook, to provide connectivity from the consumer to our digital products and our online services. Connectivity issues could prevent customers from accessing this content and our ability to successfully market and sell our products could be adversely impacted. In addition, we could experience similar issues related to services we host on our internal servers. Such issues also could impact our ability to provide online services, and could impact our business.

Our inability to acquire or create new intellectual property that has a high level of consumer recognition or acceptance could negatively impact our net sales and profitability.

We generate a portion of our net sales from owned intellectual property and under our January 2012 revised business plan, expect to generate an increased portion of net sales from our owned intellectual property. The success of our internal brands depends upon our ability to create original ideas that appeal to the core gamer. Titles based on owned intellectual property can be expensive to develop and market since they do not have a built-in consumer base or licensor support. Our inability to create new products that find consumer acceptance could negatively impact our net sales and profitability.

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Since a portion of our net sales is based upon licensed properties, failure to renew such licenses, or renewals of such licenses on less advantageous terms, could cause our net sales and/or our profitability to decline.

Games we develop based upon licensed brands make up a portion of our net sales each year. Sales of our games based upon our two top-selling licensed brands, UFC and WWE, excluding the impact of changes in deferred net revenue, collectively comprised approximately 32% and 35% of our net sales in fiscal 2011 and fiscal 2010 respectively. A limited number of licensed brands may continue to produce a disproportionately large amount of our sales. Due to the importance to us of a limited number of brands and the intense competition from other video game publishers to publish games based upon these licensed brands, we may not be able to renew our current licenses or may have to renew a brand license on less advantageous terms, which could significantly lower our net sales and/or our profitability. Our licenses with Games Workshop (for which we develop and publish games based on the Warhammer 40,000 brand), UFC, and WWE expire on December 31, 2020, December 31, 2018, and December 31, 2017, respectively. There can be no assurance that we will be able to extend such licenses and if we are not able to extend them, our net sales and/or our profitability may decline significantly.

A decrease in the popularity of our licensed brands or video games based on those brands could materially impact our net sales and financial position.

As previously mentioned, a portion of our net sales are derived from products based on popular licensed properties. Over the last several years, the popularity of our video games based on these brands has declined, causing us to exit the traditional, kids' movie-based licensed games market. A decrease in the popularity of the underlying property of our remaining licenses could negatively impact our ability to sell games based on such licenses and could lead to lower net sales, profitability, and/or an impairment of our licenses, which would negatively impact our profitability.

High development costs for games which do not perform as anticipated and failure of platforms to achieve significant market penetration could decrease our profitability and result in potential impairments of capitalized software development costs.

Video games played on consoles and certain online games (e.g., multi-player online games) are expensive to develop. If the high development costs are not offset by high net sales and other cost efficiencies, our operating margins and profitability will be negatively impacted. If our internally developed games and/or franchises do not achieve significant market penetration, we may reduce our internal development studio teams which support these games and/or franchises. Additionally, if our games do not achieve significant market penetration, we may not be able to recover our development costs, which could result in the impairment of capitalized software costs, which would negatively impact our profitability.

Video game product development schedules are difficult to predict and can be subject to delays. Postponements in shipments can substantially impact our sales and profitability in any given quarter.

Our ability to meet product development schedules is impacted by a number of factors, including the creative processes involved, the coordination of large and sometimes geographically-dispersed development teams required by the complexity of our products, the need to localize certain products for distribution outside of the U.S., the need to refine our products prior to their release, and the time required to manufacture a game once it is submitted to the platform manufacturer. In the past, we have experienced development and manufacturing delays for several of our products. Failure to meet anticipated production schedules may cause a shortfall in our expected sales and profitability and cause our operating results in any given quarter to be materially different from expectations. Delays that prevent release of our products during peak selling seasons or in conjunction with specific events, such as the release of a related movie, could significantly impact the sales of such products and thus our profitability.

We rely on external developers for the development of some of our titles.

Some of our games are developed by third-party developers. While we own approximately 15% of Yuke's, the developer of our UFC Undisputed and some of our WWE-based games, we do not have direct control over the business, finances and operational practices of these external developers, including Yuke's. A delay or failure to complete the work performed by external developers has and may in the future result in delays in, or cancellations of, product releases. Additionally, the future success of externally-developed titles will depend on our continued ability to maintain relationships and secure agreements on favorable terms with skilled external developers. Our competitors may acquire the businesses of key developers or sign them to exclusive development arrangements. In either case, we would not be able to continue to engage such developers' services for our products, except for those that they are contractually obligated to complete for us. We cannot guarantee that we will be able to establish or maintain such relationships with external developers, and failure to do so could result in a material adverse impact on our business and financial results.

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Defects in our game software could harm our reputation or decrease the market acceptance of our products.

Our game software may contain defects. In addition, because we do not manufacture our games for console platforms, we may not discover defects until after our products are in use by retail customers. Any defects in our software could damage our reputation, cause our customers to terminate relationships with us or to initiate product liability suits against us, divert our engineering resources, delay market acceptance of our products, increase our costs or cause our net sales to decline.

Our business is dependent upon the success and availability of the video game platforms on which consumers play our games.

We derive most of our net sales from the sale of products for play on video game platforms manufactured by third parties, such as PS3, Xbox 360, and the Wii and DS. The following factors related to such platforms can adversely impact sales of our video games and our profitability:

Popularity of platforms. Since the typical development cycle for a console, handheld, or PC game is from 9 to 36 months, we must make decisions about which games to develop on which platforms based on current expectations of what the consumer preference for the platforms will be when the game is finished. Launching a game on a platform that has declined in popularity, or failure to launch a game on a platform that has grown in popularity, could negatively impact our net sales and profitability.

Platform pricing. The cost of the hardware could impact consumer purchases of such hardware, which could in turn negatively impact sales of our products for these platforms since consumers need a platform in order to play most of our games.

Platform shortages. From time to time, the platforms on which our games are played have experienced shortages. Platform shortages generally negatively impact the sales of video games since consumers do not have consoles on which to play the games.

Our inability to enter into agreements with the manufacturers to develop, publish and distribute titles on their platforms could seriously impact our operations.

We are dependent on the platform manufacturers (Microsoft, Nintendo and Sony) and our non-exclusive licenses with them, both for the right to publish titles for their platforms and for the manufacture of our products for their platforms. Our existing platform licenses require that we obtain approval for the publication of new games on a title-by-title basis. As a result, the number of titles we are able to publish for these platforms, and our sales from titles for these platforms, may be limited. Should any manufacturer choose not to renew or extend our license agreement at the end of its current term, or if any license were terminated, we would be unable to publish additional titles for that manufacturer's platform, which could negatively impact our operating results.

Additionally, since each of the manufacturers publishes games for its own platform, and also manufactures products for all of its other licensees, a manufacturer may give priority to its own products or those of other publishers in the event of insufficient manufacturing capacity. Unanticipated delays in the delivery of products due to delayed manufacturing could also negatively impact our operating results.

We rely on a small number of customers that account for a significant amount of our sales. If these customers reduce their purchases of our products or become unable to pay for them, our business could be harmed.

Our largest customers, Best Buy, GameStop, Target, and Walmart, in aggregate accounted for approximately 44% of our consolidated gross sales before changes in deferred gross revenue in fiscal 2011. A substantial reduction or termination of purchases by any of our significant customers could have a material adverse impact on us. In addition, if one or more of our significant customers experience deterioration in their business, or become unable to obtain sufficient financing to maintain their operations and pay their outstanding receivables to us, our business could be harmed.

We may face difficulty obtaining access to retail shelf space necessary to market and sell our products effectively.

Retailers typically have a limited amount of shelf space and promotional resources, and there is intense competition among consumer interactive entertainment software products for high quality retail shelf space and promotional support from retailers. To the extent that the number of products and platforms increases, competition for shelf space may intensify and may require us to increase our marketing expenditures. Retailers with limited shelf space typically devote the most and highest quality shelf space to those products expected to be best sellers. We cannot be certain that our new products will consistently achieve such "best seller" status. Due to increased competition for limited shelf space, retailers and distributors are in an increasingly better position to negotiate favorable terms of sale, including price discounts, price protection, marketing and display fees, and

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product return policies. Our products constitute a relatively small percentage of most retailers' sales volume. We cannot be certain that retailers will continue to purchase our products or to provide those products with adequate levels of shelf space and promotional support on acceptable terms. A prolonged failure in this regard may significantly harm our business and financial results.

Increased sales of used video game products could reduce demand for new copies of our games.

Large retailers, including one of our largest customers, GameStop, have increased their focus on selling used video games, which provides higher margins for the retailers than sales of new games. This focus reduces demand for new copies of our games. We believe customer retention through compelling online play and downloadable content offers may reduce consumers' propensity to trade in games; however, continued sales of used games, rather than new games, may negatively impact our ability to sell new games and thus lower our net sales in any given quarter.

Software pricing and sales allowances may impact our net sales and profitability.

Software prices for games sold for play on the PS3 and Xbox 360 are generally higher than prices for games for the Wii, handheld platforms or PC games. Our product mix in any given fiscal quarter or fiscal year may cause our net sales to significantly fluctuate depending on which platforms we release games on in that quarter or year. Additionally, reductions in software pricing on any platform may result in lower net sales, which could materially impact our profitability.

In addition, we establish sales allowances based on estimates of future price protection and returns with respect to current period product net sales. While we believe that we can reliably estimate future returns and price protection, if product sell-through does not perform in line with our current expectations, return rates and price protection could exceed our reserves, and our net sales could be negatively impacted in future periods.

Our platform licensors control the fee structures for online distribution of our games on their platforms.

Certain platform licensors have retained the right to change the fee structures for online distribution of both paid content and free content (including patches and corrections) on their platforms. Each licensor's ability to set royalty rates makes it difficult for us to forecast our costs. Increased costs could negatively impact our operating margins. We may be unable to distribute our content in a cost-effective or profitable manner through this distribution channel, which could adversely impact our results of operations.

Development of software by platform manufacturers may lead to reduced sales of our products.

The platform manufacturers, Microsoft, Nintendo and Sony, each develop software for their own hardware platforms. As a result of their commanding positions in the industry, the platform manufacturers may have better bargaining positions with respect to retail pricing, shelf space and retailer accommodations than do any of their licensees, including us. Additionally, the platform manufacturers can bundle their software with their hardware, creating less demand for individual sales of our products. In the twelve month period ended March 31, 2011, Nintendo's market share in the U.S. was nearly 34% on its Wii platform and more than 37% on its DS platforms. Continued or increased dominance of software sales by the platform manufacturers may lead to reduced sales of our products and thus lower net sales.

Increased development of software and online games by intellectual property owners and developers may lead to reduced net sales.

Some of our games are based upon licensed intellectual properties. In recent years, licensors and independent developers have increased their development of video games in digital and other online distribution channels, which could lead to such licensors not renewing our licenses to publish games based upon their properties that we currently publish, or not granting future licenses to us to develop games based on their other properties. If intellectual property owners continue expanding internal efforts to develop video games based upon properties that they own rather than renewing our licenses or granting us additional licenses, our net sales could be significantly impacted.

Competitive launches may negatively impact the sales of our games.

We compete for consumer dollars with several other video game publishers, and consumers must make choices among available games. If we make our games available for sale at the same time as our competitors' games become available, consumers may choose to spend their money on products published by our competitors rather than our products and retailers may choose to give more shelf space to our competitors' products, leaving less space to sell our products. Since the life cycle of a game is short,

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strong sales of our competitors' games could negatively impact the sales of our games.

Competition for licenses may negatively impact our profitability.

Some of our competitors have greater name recognition among consumers and licensors of properties, a broader product line, or greater financial, marketing and other resources than we do. Accordingly, these competitors may be able to market their products more effectively or make larger offers or guarantees in connection with the acquisition of licensed properties. As competition for popular properties increases, our cost of acquiring licenses for such properties may increase, which could result in reduced margins and thus negatively impact our profitability.

Competition with other forms of home-based entertainment may reduce sales of our products.

We also compete with other forms of entertainment and leisure activities. For example, we believe the overall growth in the use of the Internet and online services, including social networking, by consumers may pose a competitive threat if customers and potential customers spend less of their available time using our video games and more of their time using the Internet, including playing social networking games on Facebook, and online services.

Competition for qualified personnel is intense in the interactive entertainment software industry and failure to hire and retain qualified personnel could seriously harm our business.

To a substantial extent, we rely on the management, marketing, sales, technical and software development skills of a limited number of employees to formulate and implement our business plan. To a significant extent, our success depends upon our ability to attract and retain key personnel. Competition for employees can be intense and the process of locating key personnel with the right combination of skills is often lengthy. The loss of key personnel could have a material adverse impact on our business.

Adverse economic conditions could result in a prolonged reduction in discretionary spending by consumers that could reduce demand for our products.

Our products involve discretionary spending on the part of consumers. Consumers are generally more willing to make discretionary purchases, including purchases of products like ours, during periods in which favorable economic conditions prevail. As a result, our products may be sensitive to general economic conditions and economic cycles. Declining consumer confidence, inflation, recession and rising unemployment may lead consumers to delay or reduce purchases of our products. Reduced consumer spending may also require us to incur increased selling and promotional expenses. Additionally, a reduction or shift in domestic or international consumer spending due to regional macroeconomic conditions could negatively impact our business, results of operations and financial condition.

A significant portion of our net sales is derived from our international operations, which may subject us to economic, currency, political, regulatory and other risks.

In fiscal 2011, excluding the impact of changes in deferred net revenue, we derived 34.6% of our consolidated net sales from outside of North America. Our international operations subject us to many risks, including: different consumer preferences; challenges in doing business with foreign entities caused by distance, language and cultural differences; unexpected changes in regulatory requirements, tariffs and other barriers; difficulties in staffing and managing foreign operations; and possible difficulties collecting foreign accounts receivable. These factors or others could have an adverse impact on our future foreign sales or the profits generated from those sales.

There are additional risks inherent in doing business in certain international markets, such as China. For example, foreign exchange controls may prevent us from expatriating cash earned in China, and standard business practices in China may increase our risk of violating U.S. laws such as the Foreign Corrupt Practices Act.

Additionally, sales generated by our international offices will generally be denominated in the currency of the country in which the sales are made, and may not correlate to the currency in which inventory is purchased, or software is developed. To the extent our foreign sales are not denominated in U.S. dollars, our sales and profits could be materially and adversely impacted by foreign currency fluctuations. Year-over-year changes in foreign currency translation rates had the mathematical effect of increasing our reported net loss by approximately $1.0 million in fiscal 2011.

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Fluctuations in our quarterly operating results due to seasonality in the interactive entertainment software industry and other factors related to our business operations could result in substantial losses to investors.

We have experienced, and may continue to experience, significant quarterly fluctuations in sales and operating results. The interactive entertainment software industry is highly seasonal, with sales typically significantly higher during the year-end holiday buying season. Other factors that cause fluctuations in our sales and operating results include:


•	the timing of our release of new titles as well as the release of our competitors' products;


•	the popularity of both new titles and titles released in prior periods;


•	the deferral or subsequent recognition of net sales and costs related to certain of our products which contain online functionality;


•	the profit margins for titles we sell;


•	the competition in the industry for retail shelf space;


•	fluctuations in the size and rate of growth of consumer demand for titles for different platforms; and


•	the timing of the introduction of new platforms and the accuracy of retailers' forecasts of consumer demand.

We believe that quarter-to-quarter comparisons of our operating results are not a good indication of our future performance. We may not be able to maintain consistent profitability on a quarterly or annual basis. It is likely that in some future quarter, our operating results may be below the expectations of public market analysts and investors as a result of the factors described above and others described throughout this "Risk Factors" section, which may in turn cause the price of our common stock to fall or significantly fluctuate.

Our stock price has been volatile and may continue to fluctuate significantly.

The market price of our common stock historically has been, and may continue to be, subject to significant fluctuations. These fluctuations may be due to factors specific to us (including those discussed in this "Risk Factors" section, as well as others not currently known to us or that we currently do not believe are material), to changes in securities analysts' earnings estimates or ratings, to our results or future financial guidance falling below our expectations and analysts' and investors' expectations, to factors impacting the entertainment, computer, software, Internet, media or electronics industries, to our ability to successfully integrate any acquisitions we may make, or to national or international economic conditions. In particular, economic downturns may contribute to the public stock markets' experiencing extreme price and trading volume volatility. These broad market fluctuations have and could continue to adversely impact the market price of our common stock.

We may not be able to protect our intellectual property rights against piracy, infringement by third parties, or declining legal protection for intellectual property.

We defend our intellectual property rights and combat unlicensed copying and use of software and intellectual property rights through a variety of techniques. Preventing unauthorized use or infringement of our rights is difficult. Unauthorized production occurs in the computer software industry generally, and if a significant amount of unauthorized production of our products were to occur, it could materially and adversely impact our results of operations. We hold copyrights on the products, manuals, advertising and other materials owned by us and we maintain certain trademark rights. We regard our titles, including the underlying software, as proprietary and rely on a combination of trademark, copyright and trade secret laws as well as employee and third-party nondisclosure and confidentiality agreements, among other methods, to protect our rights. We include with our products a "shrink-wrap" or "click-wrap" license agreement which imposes limitations on use of the software. It is uncertain to what extent these agreements and limitations are enforceable, especially in foreign countries. Policing unauthorized use of our products is difficult, and software piracy is a persistent problem, especially in some international markets. Further, the laws of some countries where our products are or may be distributed, either do not protect our products and intellectual property rights to the same extent as the laws of the U.S., or are poorly enforced. Legal protection of our rights may be ineffective in such countries. We cannot be certain that existing intellectual property laws will provide adequate protection for our products.

Software piracy may negatively impact our business.

Software piracy is increasing rapidly in the video game industry. The growth in peer-to-peer networks and other channels to download pirated copies of our products, the increasing availability of broadband access to the Internet and the proliferation of

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technology designed to circumvent the protection measures used with our products all have contributed to an expansion in piracy. While we are taking various steps to protect our intellectual property and prevent illegal downloading of our video games, we may not be successful in preventing or controlling such piracy, which may negatively impact our business.

While legal protections exist to combat piracy, preventing and curbing infringement through enforcement of our intellectual property rights may be difficult, costly and time consuming, particularly in countries where laws are less protective of intellectual property rights. Further, the scope of the legal protection of copyright and prohibitions against the circumvention of technological protection measures to protect copyrighted works are often under scrutiny by courts and governing bodies. The repeal or weakening of laws intended to combat piracy, protect intellectual property and prohibit the circumvention of technological protection measures could make it more difficult for us to adequately protect against piracy. These factors could have a negative effect on our growth and profitability in the future.

Third parties may claim we infringe their intellectual property rights.

Although we believe that we make reasonable efforts to ensure our products do not violate the intellectual property rights of others, from time to time, we receive notices from others claiming we have infringed their intellectual property rights. The number of these claims may grow. Responding to these claims may require us to enter into royalty and licensing agreements on unfavorable terms, require us to stop selling or to redesign impacted products, or pay damages or satisfy indemnification commitments including contractual provisions under various license arrangements. If we are required to enter into such agreements or take such actions, our operating margins may decline as a result.

If one or more of our titles were found to contain objectionable undisclosed content, our business could suffer.

Throughout the history of our industry, many video games have been designed to include certain hidden content and gameplay features that are accessible through the use of in-game cheat codes or other technological means that are intended to enhance the gameplay experience. However, in some cases, objectionable undisclosed content or features, which were placed in games without the publishers' knowledge, have been found in interactive entertainment software products. In a few cases, the Entertainment Software Ratings Board (“ESRB”) has reacted to discoveries of undisclosed content and features in other publisher's products by changing the rating that was originally assigned to the product, requiring the publisher to change the game and/or game packaging and/or fining the publisher. Retailers have on occasion reacted to the discovery of such undisclosed content by removing these games from their shelves, refusing to sell them, and demanding that the publishers accept them as product returns. Likewise, some consumers have reacted to the revelation of undisclosed content by refusing to purchase such games, demanding refunds for games they have already purchased, refraining from buying other games published by the company whose game contained the objectionable material, and, on at least one occasion, filing a lawsuit against the publisher of the product containing such content.

We have implemented preventive measures designed to reduce the possibility of objectionable undisclosed content from appearing in the video games we publish. Nonetheless, these preventive measures are subject to human error, circumvention, overriding, and reasonable resource constraints. If a video game we publish is found to contain undisclosed content, we could be subject to any of these consequences and our reputation could be harmed, which could have a negative impact on our operating results and financial condition, and our business and financial performance could be significantly harmed.

Rating systems and future legislation may make it difficult to successfully market and sell our products.

Currently, the interactive entertainment software industry is self-regulated and products are rated by the ESRB. Our retail customers take the ESRB rating into consideration when deciding which of our products they will purchase. If the ESRB or a manufacturer determines that a product should have a rating directed to an older or more mature consumer, we may be less successful in our marketing and sales of a particular product.

From time to time, legislation has been introduced for the establishment of a government mandated rating and governing system in the U.S. and in foreign countries for our industry. In April 2010, the U.S. Supreme Court granted the state of California's certiorari petition in connection with the constitutionality of California's proposed legislation (“Brown v. EMEA/ESA”) to regulate the sale of violent video games to minors. In June 2011, the U.S. Supreme Court ruled on Brown v. EMEA/ESA, declaring that content-based restrictions on video games are unconstitutional. Outside of the U.S., various foreign countries already allow government censorship of interactive entertainment products. We believe that if our industry were to become subject to a government rating system or other regulation, our ability to successfully market and sell our products could be adversely impacted.

Breaches of our security measures and unintended disclosures of our intellectual property or our customer data could adversely affect our business.

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We take measures to prevent our source code, and other confidential information, from unauthorized access. A security breach that results in the disclosure of our source code, other confidential assets, or pre-release software could lead to piracy of our software or otherwise compromise our product plans. When we conduct business online directly with consumers, we may be the victim of fraudulent transactions, including credit card fraud, which presents a risk to our revenues and potentially disrupts service to our customers. As we increase our online businesses, we are also collecting and storing an increasing amount of customer data, some of it personally identifiable information including credit card data. It is possible that our security controls over customer data may not prevent the improper disclosure of personally identifiable information. A security breach that leads to disclosure of customer account information (including personally identifiable information) could harm our reputation and subject us to liability under laws that protect personal data, resulting in increased costs or loss of revenue. A resulting perception that our products or services do not adequately protect the privacy of personal information could result in a loss of current or potential customers for our online offerings that require the collection of customer data.

We have significant net operating loss and tax credit carryforwards ("NOLs"). If we are unable to use our NOLs, our future profitability may be significantly impacted.

As of March 31, 2011, we had federal net operating loss carryforwards of $509.2 million and federal R&D tax credit carryforwards of $25.5 million. Under applicable tax rules, we may "carry forward" these NOLs in certain circumstances to offset any current and future taxable income and thus reduce our income tax liability, subject to certain requirements and restrictions. Therefore, we believe that these NOLs could be a substantial asset. However, if we experience an "ownership change," as defined in Section 382 of the Internal Revenue Code, our ability to use the NOLs could be substantially limited, which could significantly increase our future income tax liability. On May 12, 2010, we entered into a Section 382 Rights Agreement with Computershare Trust Company, N.A., as rights agent, in an effort to prevent an "ownership change" from occurring and thereby protect the value of the NOLs. There can be no assurance, however, that the Section 382 Rights Plan will prevent an ownership change from occurring or protect the value of the NOLs.

We cannot be certain of the future effectiveness of our internal control over financial reporting or the impact of the same on our operations and the market price for our common stock.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we are required to include in our 10-K our assessment of the effectiveness of our internal control over financial reporting. Furthermore, our independent registered public accounting firm is required to report on whether it believes we maintain, in all material respects, effective internal control over financial reporting. Although we believe that we currently have adequate internal control procedures in place, we cannot be certain that our internal control over financial reporting will be effective in the future. In addition, the staff reductions announced January 26, 2012 could have an adverse impact on the effectiveness of our internal controls in the future. If we cannot adequately maintain the effectiveness of our internal control over financial reporting, we might be subject to sanctions or investigation by regulatory authorities, such as the SEC. Any such action could adversely impact our financial results and the market price of our common stock.

Catastrophic events or geo-political conditions may disrupt our business.

Our net sales are derived from sales of our games, which are developed within a relatively small number of studio facilities located throughout the world. If a fire, flood, earthquake or other disaster, condition or event such as political instability, civil unrest or a power outage, adversely affected any of these facilities while personnel were finishing development of a game, it could significantly delay the release of the game, which could result in a substantial loss of sales in any given quarter and cause our operating results to differ materially from expectations.

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

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

There were no repurchases of our common stock by the Company during the quarter ended December 31, 2011.

Limitations upon Payment of Dividends

Our Credit Facility contains limitations on our ability to pay cash dividends.

Item 3. Defaults Upon Senior Securities

None

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Item 4. (Removed and Reserved)

Item 5. Other Information

None

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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 Company's Quarterly Report on Form 10-Q for the period ended June 30, 2001).

3.4		Amendment to Certificate of Incorporation (incorporated by reference to Exhibit 3.4 to the Company'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 3.1 to the Company's Current Report on Form 8-K filed on March 12, 2009).

3.6		Amended and Restated Certificate of Designation, Preferences, and Rights of Series A Junior Participating Preferred Stock of THQ Inc. (incorporated by reference to Exhibit 3.1 to the Company's Registration Statement on Form 8-A filed on May 13, 2010 (File No. 001-15959) (the "May 2010 8-A")).

4.1		Rights Agreement dated as of May 12, 2010, by and between the Company and Computershare Trust Company, N.A., as rights agent, which includes as Exhibit B the Form of Rights Certificate (incorporated by reference to Exhibit 4.1 to the May 2010 8-A).

4.2		First Amendment to the Rights Agreement dated February 18, 2011, by and between the Company and Computershare Trust Company, N.A., as rights agent (incorporated by reference to Exhibit 4.2 to the Company's Registration Statement, as amended, on Form 8-A/A filed on February 24, 2011 (File No. 001-15959)).

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

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

4.5		Second Amendment to Amended and Restated Rights Agreement, dated as of May 12, 2010 between the Company and Computershare Investor Services, LLC (incorporated by reference to Exhibit 10.1 to the Form 8‑K filed with the SEC on May 13, 2010).

4.6		Indenture dated as of August 4, 2009, between the Company and Union Bank, N.A., as trustee (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed on August 4, 2009).

4.7		Form of 5.00% Convertible Senior Note (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed on August 4, 2009).

10.1	* +	Amendment to the Xbox 360 Publisher License Agreement dated as of October 24, 2011, by and between Microsoft Licensing, GP 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 Paul J. Pucino, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32	*	Certification of Brian J. Farrell, Chief Executive Officer, and Paul J. Pucino, Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS	* †	XBRL Instance Document

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101.SCH	* †	XBRL Taxonomy Extension Schema Document

101.CAL	* †	XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF	* †	XBRL Taxonomy Extension Definition Linkbase Document

101.LAB	* †	XBRL Taxonomy Extension Label Linkbase Document

101.PRE	* †	XBRL Taxonomy Extension Presentation Linkbase Document


*	Filed herewith.


+	Portions have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment in accordance with rule 24b-2 under the Securities Exchange Act of 1934, as amended.

†

Pursuant to Rule 406T of Regulation S-T, these interactive data files are furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended; are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended; and otherwise are not subject to liability under these sections. We are deemed to have complied with the reporting obligation relating to the submission of interactive data files in these exhibits and are not subject to liability under the anti-fraud provisions of the Securities Act of 1933 or any other liability provision as long as we make a good faith attempt to comply with the submission requirements and promptly amend the interactive data files after becoming aware that the interactive data files fail to comply with the submission requirements.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



2/9/2012	THQ INC.

	By:	/s/ Brian J. Farrell
		Brian J. Farrell,
		Chairman of the Board, President and Chief Executive Officer


2/9/2012	THQ INC.

	By:	/s/ Paul J. Pucino
		Paul J. Pucino,
		Executive Vice President, Chief Financial Officer


2/9/2012	THQ INC.

	By:	/s/ Teri J. Manby
		Teri J. Manby,
		Vice President, Chief Accounting Officer