Use these links to rapidly review the documentTHQ INC. INDEX TO ANNUAL REPORT ON FORM 10-K FILED WITH THE SECURITIES AND EXCHANGE COMMISSION FOR THE FISCAL YEAR ENDED MARCH 31, 2008 ITEMS IN FORM 10-K PART IV



UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

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FORM 10-K

(Mark One)

ý ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2008
ORo 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

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THQ INC. LOGO

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

|Delaware(State or Other Jurisdiction of
Incorporation or Organization)     |  | 13-3541686(I.R.S. Employer
Identification No.)
|-------------------------------------------------------------------------- |  | ----------------------------------------------
|29903 Agoura Road
Agoura Hills, CA(Address of principal executive offices) |  | 91301(Zip Code)                               

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

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Securities
registered pursuant to Section 12(b) of the Act:

Title of each class:

Name of each exchange on which registered:Common Stock, $.01 par value

The NASDAQ Stock Market LLCPreferred Stock Purchase Rights

The NASDAQ Stock Market LLC


Securities registered pursuant to Section 12(g) of the Act: None

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Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ

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 þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. 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 þ |  | Accelerated filer o |  | Non-accelerated filer o (Do not check if a smaller reporting company) |  | Smaller reporting company o
|------------------------- |  | ------------------- |  | --------------------------------------------------------------------- |  | ---------------------------

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

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of the last business day of the
registrant's most recently completed second fiscal quarter, September 28, 2007 was approximately $1.6 billion.

The
number of shares outstanding of the registrant's common stock as of May 23, 2008 was approximately 66,654,620.

DOCUMENTS INCORPORATED BY REFERENCE

The
2008 Notice of Annual Meeting of Stockholders and Proxy Statement are incorporated by reference into Part III herein.



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THQ INC.        INDEX TO ANNUAL REPORT ON FORM 10-K        FILED WITH THE SECURITIES AND EXCHANGE COMMISSION        FOR THE FISCAL YEAR ENDED MARCH 31, 2008        ITEMS
IN FORM 10-K



|               |  |                                                                                                                  |  | PAGE
|-------------- |  | ---------------------------------------------------------------------------------------------------------------- |  | ----
|               |  |                                                                                                                  |  |     
|               |  | Part I                                                                                                           |  |     
|Item 1.        |  | Business                                                                                                         |  | 1   
|Item 1A.       |  | Risk Factors                                                                                                     |  | 9   
|Item 1B.       |  | Unresolved Staff Comments                                                                                        |  | 15  
|Item 2.        |  | Properties                                                                                                       |  | 16  
|Item 3.        |  | Legal Proceedings                                                                                                |  | 16  
|Item 4.        |  | Submission of Matters to a Vote of Security Holders                                                              |  | 18  
|               |  | Part II                                                                                                          |  |     
|Item 5.        |  | Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 19  
|Item 6.        |  | Selected Consolidated Financial Data                                                                             |  | 23  
|Item 7.        |  | Management's Discussion and Analysis of Financial Condition and Results of Operations                            |  | 25  
|Item 7A.       |  | Quantitative and Qualitative Disclosures About Market Risk                                                       |  | 53  
|Item 8.        |  | Consolidated Financial Statements and Supplementary Data                                                         |  | 54  
|Item 9.        |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                             |  | 96  
|Item 9A.       |  | Controls and Procedures                                                                                          |  | 96  
|Item 9B.       |  | Other Information                                                                                                |  | 97  
|               |  | Part III                                                                                                         |  |     
|Item 10.       |  | Directors, Executive Officers and Corporate Governance                                                           |  | 99  
|Item 11.       |  | Executive Compensation                                                                                           |  | 99  
|Item 12.       |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters                   |  | 99  
|Item 13.       |  | Certain Relationships and Related Transactions, and Director Independence                                        |  | 99  
|Item 14.       |  | Principal Accounting Fees and Services                                                                           |  | 99  
|               |  | Part IV                                                                                                          |  |     
|Item 15.       |  | Exhibits and Consolidated Financial Statement Schedules                                                          |  | 100 
|Signatures     |  | 105                                                                                                             
|Certifications |  |                                                                                                                 

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The statements contained in this Annual Report on Form 10-K 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 and future results of operations or financial position. 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. Such forward-looking statements are subject to risks and
uncertainties that could cause actual results to differ materially from those expressed or implied by such forward-looking statements, including, but not limited to, business, competitive, economic,
legal, political and technological factors affecting our industry, operations, markets, products or pricing. The forward-looking statements contained herein speak only as of the date on which they
were made, and we disclaim any obligation to update any forward-looking statements to reflect events or circumstances after the date of this Annual Report. Risks and uncertainties that may affect our
future results include, but are not limited to, those discussed under the heading "Risk Factors," included in Item 1A herein.

All references to "we," "us," "our," "THQ," or the "Company" in the following discussion and analysis mean THQ Inc. and its subsidiaries. Most of the properties and
titles referred to in this Annual Report are subject to trademark protection.

PART I

Item 1.    Business

Introduction

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



Our
titles span a wide range of categories, including action, adventure, fighting, racing, role-playing, simulation, sports and strategy. We have created, licensed and acquired a group of
highly recognizable brands, which we market to a variety of consumer demographics ranging from products targeted at children and the mass market to products targeted at core gamers. Our portfolio of
licensed properties includes the DisneyPixar propertiesFinding Nemo,The Incredibles, Cars, RatatouilleandWALLE; World Wrestling Entertainment; Nickelodeon properties such as SpongeBob SquarePants,Avatar, andNicktoons; Bratz;Warhammer 40,000; and the Ultimate Fighting Championship; as well as others.
We also have
licenses to create wireless products based on DisneyPixar'sRatatouilleand WALLEas well asStar Warsand major sports leagues. In addition to licensed properties, we
also develop games based upon our own intellectual properties, includingCompany of Heroes,DeBlob, Frontlines,MX vs. ATV,Red Factionand Saints Row.

We
develop our products using both internal and external development resources. The internal resources consist of producers, game designers, software engineers, artists, animators and game testers
located within our internal development studios and corporate headquarters. The external development resources consist of third-party software developers and other independent resources such as
artists. We refer to this group of development resources as our Studio System.

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

We
were originally incorporated in New York in 1989 as Trinity Acquisition Corporation, which changed its name in 1991 to T.HQ, Inc. following a merger with THQ, Inc., a California
corporation. We were reincorporated in Delaware as THQ Inc. in 1997. Our principal executive offices are located at 29903 Agoura Road, Agoura Hills, California 91301, and our telephone number
is (818) 871-5000. Our internet address is http://www.thq.com.

Strategy

We offer consumers a broad portfolio of video game titles for all ages that are playable on all popular platforms. In order to remain a leading publisher of interactive
entertainment software, our strategy is to use our portfolio to bring the right products to the right platforms at the right times. We believe this strategy will allow us to increase our revenues and
expand our market share. We are also focused on increasing the profitability of our business. We pursue our strategy through four key areas as follows:

We
have grown and diversified our products targeted at the mass market by managing some of the biggest brands in entertainment in the video game category. We currently have key licenses to publish
video games based on certain intellectual properties owned by The Walt Disney Company's Pixar Animation Studios ("Pixar"), World Wrestling Entertainment ("WWE") (through our joint venture with JAKKS
Pacific, Inc.), Nickelodeon, DreamWorks Animation, MGA, Zuffa LLC's Ultimate Fighting Championship and Marvel.

We
have increased sales in each of the last 13 fiscal years by leveraging these licensed brands both by introducing new products and through continued sale of our catalog of existing titles. In the
fiscal year ended March 31, 2008 ("fiscal 2008"), we significantly grew revenue from games based on the WWE brand, shipping six million units of the newSmackDown vs.
Raw! 2008title. We shipped more than
four million units of games based on DisneyPixar'sRatatouilleand more than one million units ofCars 2: Mater
Nationalin fiscal 2008. We also shipped three million units of new games based on the Nickelodeon brand in fiscal 2008.

In
the fiscal year ending March 31, 2009 ("fiscal 2009"), we plan to continue to execute on this strategy by shipping new mass-market titles for leading console and handheld
platforms, as well as PC. Key upcoming titles include games based on DisneyPixar'sWALLE; WWE Smackdown vs. Raw! 2009and WWE Legends of Wrestlemania;Nickelodeon titles includingTak, SpongeBob,and new music games based onNaked Brothers Band;Bratz: Girls Really Rock!;and others.

Additionally,
in order to increase our profits, our goal is to shift more development to our internal development studios. In fiscal 2008, we continued to develop our key DisneyPixar and
Nickelodeon titles internally. We also hold a long-term agreement with Yuke's to continue to develop games based on the WWE brand. Yuke's has consistently delivered
high-quality WWE games since we started working with them in 1999. As discussed further in "Note 8Other Long-Term Assets" in the notes to the consolidated
financial statements, we own less than a 20% interest in Yuke's.

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In
order to grow revenue and increase profitability, we believe it is important for us to create and acquire new intellectual property, expand our internal development capabilities and increase
ownership of development tools and technology.

In
fiscal 2008, we executed on this strategy with the shipment of more than 1.5 million units ofMX vs. ATV Untamed, bringing the MX vs. ATV
franchise lifetime shipments to more than 6.5 million units. We established a new original franchise,Frontlines: Fuel of War, developed
internally by our Kaos Studio, as well as a new innovative original title for Nintendo DS, calledDrawn to Life. We plan to extend our new intellectual
properties in the future, including the Drawn to Life property, with the introduction ofSpongeBob Drawn to Lifein fiscal 2009.

In
January 2008, we expanded our development capabilities to address the lucrative Role Playing Games ("RPG") genre with the acquisition of Big Huge Games development studio.

In
our fiscal year ending March 31, 2009, we plan to increase revenue from owned intellectual properties. We plan to launchSaints Row 2and Red Faction
Guerrilla, sequels to two of our best-selling owned intellectual properties. We also plan to introduce a promising new
intellectual property,Darksiders. Additionally, we have a strong line-up of owned games for Nintendo's fast growing Wii platform, including de Blob, Deadly
CreaturesandAll Star Cheer Squad, which utilizes the popular Wii-fit
balance board.

As
the interactive entertainment industry continues to evolve, new revenue streams are emerging from the growing trends of digital content creation and distribution. While still nascent, these revenue
opportunities are expected to increase significantly in future years. We are currently focused on generating revenue from in-game advertising, downloadable content/micro-transactions,
mobile content and massively multi-player online ("MMO") gaming. In July, 2007, we announced a co-development and publishing agreement to bring our critically-acclaimed PC game Company of Heroesto the
Chinese market via an online version operated by Shanda Interactive Entertainment Limited. This marks THQ's first
"free-to-play, pay for download" online game, which is scheduled to launch in mainland China in fiscal 2009. We are also developing an MMO title based on the popular Warhammer
40,000 universe in our Vigil Games studio.

As
the global gaming market continues to grow, we believe that international markets represent a significant growth opportunity for us. We are focused on expanding our international business by
focusing on a global product portfolio and driving higher sales via direct distribution of our products. In fiscal 2008, THQ's international net sales grew 24%, and for the first time represented more
than 50% of total net sales. International growth was fueled by the opening of direct sales offices in additional countries, as well as strong international sales ofWWE
SmackDown vs. Raw! 2008andRatatouilleand changes in foreign currency rates. In fiscal 2009, we expect international net sales
to represent approximately 50% of total net sales, as we continue to publish our portfolio of globally-appealing products through our global network of direct sales offices and continue our expansion
efforts, especially in Asia.

Our Industry

The video game industry is the economic sector involved with the development, marketing and sale of video and computer games. It encompasses dozens of job disciplines and
employs thousands of people worldwide. Video games have increasingly become a mainstream entertainment choice for both children and adults: 72% of the United States population between the ages of
6-44 plays video games, a significant increase from the 64% who played video games only a year ago, according to a recent study conducted by NPD, an independent provider of consumer and
retail market research for video games and other

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industries.
According to the International Development Group, Inc. ("IDG"), an independent consulting and advisory services company that analyzes the consumer electronics and interactive
entertainment industries, sales of console, handheld and PC games (excluding wireless) reached $10.0 billion in North America, and $9.9 billion in Europe in calendar 2007.

The
first modern video game platform was introduced by Nintendo in 1985. Advances in technology over the past 23 years have resulted in continuous increases in the processing power of the chips
that power both the consoles and PC. Today's video game consolesthe Sony PlayStation 3, Microsoft Xbox 360 and Nintendo Wiiare not simply gaming platforms, but also
function as multimedia hubs that can deliver high-quality digital movies and television programs. Video games are also played on personal computers that contain powerful graphics cards,
and on advanced handheld devices such as PSP (PlayStation Portable), Nintendo DS and Nintendo GameBoy Advance. Additionally, both online gaming and wireless gaming have become popular platforms for
video game players over the last several years.

Our Products

We develop, market and sell video games and other interactive software and content for play on console platforms, handheld platforms, mobile devices, PCs and online. The
following games generated a significant portion of our sales during the fiscal years ended March 31, 2008, 2007 and 2006:



Our
games are based on intellectual property that is either wholly-owned by us or licensed from third parties. We develop our games using both internal development resources and external development
resources working for us pursuant to contractual agreements. Whether a game is developed internally or externally, upon completion of development we extensively play-test each game, and if
required, send the game to the manufacturer for its review and approval. Other than games we release for PCs or wireless devices, the console manufacturers or their authorized vendors manufacture our
products for us. We then market and distribute our games for sale throughout the world.

Creating and Acquiring Our Intellectual Property

Our business process begins with an idea. Inspiration for our interactive entertainment software comes from many sourcesfrom our internal studios, from our
external studio partners, or from existing intellectual properties that we either license or acquire. Traditionally, most of our titles were based upon licensed properties that have attained a high
level of consumer recognition or acceptance. We have relationships with many well-known licensors and have created games based on their properties, including DisneyPixar,
Nickelodeon, World Wrestling Entertainment, Warner Bros. and MGA Entertainment. These intellectual property licenses usually grant us the exclusive use of the property for specified titles, on
specified platforms, within a defined territory and for a specified license term. The licenses are of varying duration, and we pay royalties to our property licensors generally based on our net sales
of the title that includes the licensor's intellectual property. We typically advance payments against minimum guaranteed royalties over the license term. Royalty rates are generally higher for
properties with proven popularity and less perceived risk of commercial failure.

A
cornerstone of our strategy is to create or acquire new intellectual properties that we own. Our owned intellectual property is generally created either by one of our development studios or by a
third-party

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developer
with whom we contract. We have also acquired intellectual properties from other publishers or developers. The titles we create based on intellectual properties we own may contain certain
licensed content, such as music or rights to use of a name or object (such as a brand-name vehicle). In this case, we enter into a license agreement with the content owner and pay either a
fixed fee or royalty for the use of such content.

Developing Our Products

We develop our products using both internal and external development resources. The internal resources consist of producers, game designers, software engineers, artists,
animators and game testers located within our internal studios located throughout the United States, in the United Kingdom and in Australia, and in our corporate headquarters. The external development
resources consist of third-party software developers and other independent resources such as artists. We refer to this collective group of development resources as our Studio System.

We
make the decision as to which development resources to use based upon the creative and technical challenges of the product, including whether the intellectual property being developed into a game
is licensed, an original concept that we created, or an original concept created by a third-party developer. Once we determine where a product will be developed, our product development team oversees
the internal or external resources in its design, technical assessment and construction of each game.

The
development cycle for a new game depends on the platform and the complexity and scope of the game. Additionally, when developing an intellectual property into a game which is simultaneously being
made into a motion picture, our development schedule is designed to ensure that our games are commercially available by the motion picture's theatrical release. The development cycle for console and
PC games ranges from 18-36 months and the development cycle for handheld games ranges from 12-24 months.

These
development cycles require that we assess whether there will be adequate retailer and consumer demand for a game well in advance of its release. The investments in such development, prior to
reaching technological feasibility, are recorded as product development expenses in our consolidated statement of operations. We had product development expenses of $128.9 million in fiscal
2008, $97.1 million in fiscal 2007 and $94.6 million in fiscal 2006.

Upon
completion of development, each game is extensively play-tested by us to ensure compatibility with the appropriate hardware systems and configurations, and to minimize the number of
bugs and other defects found in the products. If required, we also send the game to the manufacturer for its review and approval. To support our products after release, we provide online access to our
customers on a 24 hour basis as well as operator help lines during regular business hours. The customer support group tracks customer inquiries, and we use this data to help improve the
development and production processes.

Manufacturing Our Products

Other than games we release for sale on PCs, digital download, or wireless devices, our video games are manufactured for us by the platform manufacturers or their authorized
vendors. We contract with various DVD replicators for the manufacturing of our PC products.

The
platform game manufacturing process begins with our placing a purchase order with a manufacturer. We then send the approved software code to the manufacturer (together with related artwork, user
instructions, warranty information, brochures and packaging designs) for manufacturing.

We
are required by our platform licenses to provide a standard defective product warranty on all of the products sold. Generally, we are responsible for resolving, at our own expense, any warranty or
repair claims. We have not experienced any material warranty claims, but there is no guarantee that we will not experience such claims in the future.

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Distributing Our ProductsMarketing and Sales

The manner in which we drive consumer demand for our brands across the globe has evolved significantly in recent years as we have expanded our owned and licensed franchise
portfolio. At the global brand management level, we take a disciplined approach to defining and refining positioning for our key game releases. We implement extensive consumer and retail research
including concept and play testing in conjunction with our development studios.

Our
marketing plans vary by target demographic but generally consist of a three-pronged media plan encompassing TV, print and online advertising. Certain of our campaigns also include billboard
advertising, event sponsorship, in-theater advertising and radio placements. Retail or Channel Marketing efforts for our games include pre-sell give-aways, displays
and/ or demonstrations at retailer-specific trade shows, and cooperative retail advertising campaigns.

We
are taking a more aggressive approach in what we term the "connected marketing" space. This includes how we build our brand in the online space via editorial opportunities; screen shot, trailer and
other game content releases online; advertising; official game websites; and community outreach and management. Game trial has been a key driver of consumer demand for several of our core games,
through consumer demos released at retail or online, or game demos available at kiosks stationed at sports or other entertainment events.

Publicity
is another key driver of awareness for our game portfolio, as well as for THQ, as a publicly-held company. We maintain strong relationships with a broad group of business,
consumer, entertainment and games enthusiast reporters across the globe, working closely to secure positive editorial coverage across broadcast, print and online editorial outlets.

Product Sales.In North America, our products are primarily sold directly to mass merchandisers, consumer
electronics stores, discount warehouses and national retail chain stores. Our products are also sold to smaller, regional retailers, as well as distributors who, in turn, sell our products to
retailers that we do not service directly, such as grocery and drug stores. Our domestic sales activities are led by our national sales team, which has representatives in most major markets in the
United States.

Our
international publishing activities are managed by our office in Switzerland and operated via our offices in the United Kingdom, Australia, France, Germany, Korea, Japan, Spain, Austria, Denmark,
the Netherlands and Italy. International offices market and distribute to direct-to-retail customers and through distributors in both their home territories and to
approximately 60 additional territories.

We
utilize electronic data interchange with most of our major customers in order to (i) efficiently receive, process, and ship customer product orders, and (ii) accurately track and
forecast sell-through of products to consumers in order to determine whether to order additional products from the manufacturers. We believe that the direct relationship model we use
allows us to better manage inventory, merchandise and communications. We ship all of our products to our North American customers from warehouses located in Michigan and Minnesota, and we ship most of
our products to our international customers from warehouses located throughout Europe and Asia Pacific.

As
discussed in "Management's Discussion and Analysis of Financial Condition and Results of Operations," we typically only allow returns for our personal computer products; however, we may decide to
provide price protection or allow returns for our video games after we analyze: (i) inventory
remaining in the retail channel, (ii) the rate of inventory sell-through in the retail channel, and (iii) our remaining inventory on hand. We maintain a policy of giving
credits for price protection and returns, but do not give cash refunds.

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Platform License Agreements

Before we can develop, market, or sell video games on a console or handheld platform, we must enter into a license agreement with the manufacturer of such platform. The current
"platform manufacturers" are Microsoft, Nintendo and Sony. Each of these platform license agreements allows us a non-exclusive right to use, for a fixed term, technology that is owned by
the platform manufacturer. As each platform license expires, if we intend to continue publishing games on such platform, we must enter into a new agreement or an amendment with the licensor to extend
the term of the agreement. Certain agreements, such as the licenses with Sony and Microsoft for PlayStation 3 and Xbox 360, respectively, automatically renew each year unless either party gives
notice by the applicable date that it intends to terminate the agreement. Additionally, each agreement designates a territory in which we can publish and distribute titles. We are currently licensed
to develop and publish titles on all platforms that are currently sold in North America. Our key platform licenses also allow us to develop and publish titles in Europe, Australia, New Zealand and
Japan. We are also licensed to develop and publish titles for PlayStation 2, Xbox and Xbox 360 in various additional territories, including parts of Asia and Central and South America. We
expect to enter into additional platform licenses and extend current licenses as new platforms are launched or our current agreements expire.

Our
platform licenses require that each title be approved by the manufacturer. The manufacturers have the right to review, evaluate and approve a prototype of each title and the title's packaging and
marketing materials. Once a title is developed and has been approved by the manufacturer, the title is manufactured solely by such manufacturer or a designated vendor of the manufacturer. The licenses
establish the payment terms for the manufacture of each cartridge or disc made, which generally provide for a charge for every cartridge or disc manufactured. The amounts charged by the manufacturers
for both console discs and handheld cartridges include a manufacturing, printing and packaging fee as well as a royalty for the use of the manufacturer's name, proprietary information and technology,
and are subject to adjustment by the manufacturers at their discretion.

The
platform license agreements also require us to indemnify the manufacturers with respect to all loss, liability and expense resulting from any claim against the manufacturer involving the
development, marketing, sale, or use of our games, including any claims for copyright or trademark infringement brought against the manufacturer. Each platform license may be terminated by the
manufacturer if a breach or default by us is not cured after we receive written notice from the manufacturer, or if we become insolvent. Upon termination of a platform license for any reason other
than our breach or default, we have a limited period of time to sell any existing product inventory remaining as of the date
of termination. The length of this sell-off period varies between 90 and 180 days, depending upon the platform agreement. We must destroy any such inventory remaining after the end
of the sell-off period. Upon termination as a result of our breach or default, we must destroy any remaining inventory within a minimum number of days as specified by the manufacturer.

Seasonality

The interactive entertainment software market is highly seasonal, with sales typically significantly higher during the third quarter of our fiscal year, due primarily to the
increased demand for interactive games during the year-end holiday buying season.

Major Customers

Our largest customers worldwide include Best Buy, GameStop, Target, Toys "R" Us and Wal-Mart. We also sell our products to other national and regional retailers,
discount store chains and specialty retailers. Wal-mart and GameStop each accounted for more than 10% of our gross sales in fiscal 2008, 2007 and 2006. A substantial reduction, termination
of purchases, or business failure by any of our largest customers could have a material adverse effect on us.

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Competition

As a publisher of interactive entertainment software, we consider ourselves to be part of the entertainment industry. At the most fundamental level, our products compete with
other forms of entertainment, such as motion pictures, television and music, for the leisure time and discretionary spending of consumers. Our primary competition for sales of video games comes from
Sony, Microsoft and Nintendo, each of which is a large developer and marketer of software for its own platforms, as well as other publishers and developers of interactive entertainment software, such
as Activision, Atari, Electronic Arts, LucasArts, Namco, Sega, Take-Two Interactive Software, Ubisoft, and Vivendi Games.

In
addition to competing for video game revenue, we compete with our competitors over licenses and brand-name recognition, access to distribution channels, and effectiveness of marketing
and price. We also face intense competition from our competitors for the services of talented video game producers, artists, engineers and other employees.

In
addition to our traditional competitors in the video game industry, some of our competitors are very large, diversified corporations that have begun to develop games based upon their own highly
recognizable brands, and, as a result, stand to become more direct competitors. Disney Interactive Studios recently expanded its internal software game publishing efforts and Viacom has expanded its
efforts in interactive entertainment software publishing.

Employees

As of March 31, 2008, we employed approximately 2,400 people, of whom over 800 were outside the United States. We believe that our ability to attract and retain
qualified employees is a critical factor in the successful development of our products and that our future success will depend, in large measure, on our ability to continue to attract and retain
qualified employees. None of our employees are represented by a labor union or covered by a collective bargaining agreement and we consider our relations with employees to be favorable.

Financial Information About Geographic Areas

See Item 7 "Management Discussion and Analysis of Financial Condition and Results of Operations" and Note 18 of notes to consolidated financial statements
included in Item 8.

Available Information

We file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission ("SEC"). Our SEC filings, including our annual
report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports filed or furnished
pursuant to Section 13(a) of the Exchange Act are available to the public free of charge over the internet at our website at http://www.thq.com or at the SEC's web site at http://www.sec.gov.
Our SEC filings will be available on our website as soon as reasonably practicable after we have electronically filed or furnished them to the SEC. Information contained on our website is not
incorporated by reference into this annual report on Form 10-K. You may also read and copy any materials we file with the SEC at the SEC's Public Reference Room at 100 F
Street, NE, Room 1580, Washington D.C. 20549.
You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330 or on the internet at
http://www.sec.gov/info/edgar/prrrules.htm. You can view our Code of Business Conduct and Ethics, our Code of Ethics for Executive Officers and Other Senior Financial Officers and the charters for
each of our committees of the Board of Directors free of charge on the corporate governance section of our website.

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Item 1A.    Risk Factors

Our
business is subject to many risks and uncertainties that may affect our future financial performance. Some of those important risks and uncertainties that may cause our operating results to vary
or may materially and adversely affect our operating results are as follows:

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

We derive almost all of our revenue from sales of interactive software games designed for play on video game consoles, handheld devices and personal computers. 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.

Our business is "hit" driven. If we do not deliver "hit" games, our revenue and profitability can suffer.

While many new products are regularly introduced, 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.

Risk factors related to video game platforms:

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 revenue from the sale of products for play on video game platforms manufactured by third parties, such as Sony's PlayStation 2,
PlayStation 3 and PSP, Microsoft's Xbox 360, and Nintendo's Wii and DS. The following factors related to such platforms can adversely affect sales of our video games and our
profitability:

Popularity of platforms.In the previous console platform cycle, the PlayStation 2 was the
best-selling platform and games for the PlayStation 2 dominated software sales. In the current platform cycle, the Wii is the best-selling platform to date; however, the
Xbox 360 is currently the most popular console in terms of software game sales. Since the development cycle for a game is from 12 to 36 months, we must make decisions about which games
to develop on which platforms before knowing what the consumer preference for the platforms will be when the game is finished. Choosing the wrong games for the wrong platforms could negatively impact
our revenues and profitability.

Platform shortages.In the past few years, many of the platforms on which our games are played have experienced
shortages and some, including the Nintendo Wii, are still difficult for consumers to purchase. Platform shortages generally negatively affect the sales of video games since consumers do not have
consoles on which to play the games.

Platform pricing.The current generation of console platforms are priced higher than their respective predecessor
platforms. The Xbox 360 can cost as much as $449.99, the Wii is priced at $249.99 and the PS3 is priced at $399.99. The cost of the hardware could adversely affect their sales, which could
negatively affect sales of our products for these platforms since consumers need a platform in order to play our 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

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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 affect 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 affect our
operating results.

Risk factors related to creating and acquiring our intellectual property:

The loss of our key licenses, or renewals of such licenses on less advantageous terms, could cause our revenue to
decline.Games we develop based upon a small number of licensed brands make up a substantial portion of our sales each year. In fiscal 2008 and fiscal 2007, sales
of titles for our three top-selling brands, DisneyPixar, Nickelodeon and World Wrestling Entertainment ("WWE") comprised 54% of our net sales; and in fiscal 2006, 47% of our
net sales were based on titles from such brands. A limited number of licensed brands may continue to produce a disproportionately large amount of our sales. Due to this dependence on a limited number
of brands, the loss of a brand license or the renewal of a brand license on less advantageous terms may significantly harm our business and financial results.

We
are currently involved in litigation with the WWE with respect to our video game license. Since WWE titles make up a significant portion of our sales, our inability to retain the license could harm
us. See, Item 3 "Legal Proceedings" for a more detailed discussion of this litigation.

A decrease in the popularity of our licensed brands can materially affect our revenue.A significant portion of our
net sales are derived from products based on popular licensed properties. A decrease in the
popularity of the underlying property of our licenses could negatively impact our ability to sell games based on such licenses.

Our inability to acquire or create new intellectual property that has a high level of consumer recognition or acceptance could harm
us.We generate a portion of our revenue from wholly-owned intellectual property. The success of our internal brands depends on our ability to create original
ideas that appeal to the avid gamer. Titles based on wholly-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 profitability.

Risk factors related to the development of our products:

Increasing development costs can decrease our profitability.Video games are becoming increasingly expensive to
develop. Because the current generation console platforms and computers have greater complexity and capabilities than the earlier platforms and computers, costs are higher to develop games for the
current generation platforms and computers. Greater costs can lead to lower operating margins, negatively affecting our profitability.

Video game product development schedules are difficult to predict and can be subject to delays. Postponements in shipments can substantially impact our
profitability in any given quarter.Our ability to meet product development schedules is affected by a number of factors, including the creative processes
involved, the coordination of large and sometimes geographically-dispersed development teams required by the increasing complexity of our products, the need to refine and tune our products prior to
their release, and the time required to manufacture a game once it is submitted to the manufacturer. We have in the past 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

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release
of a related movie, could significantly affect the sales of such products and thus our financial performance.

Video games that are not high quality may not sell according to our forecast, which could materially impact our profitability in any given
quarter.Consumers that buy games targeted at the mass market and core gamers prefer high-quality games. If our games are not high quality, consumers
may not
purchase as many games as we expected, which could materially impact our revenue and profitability in any given quarter.

We have experienced development challenges on the PlayStation 3. Our inability to overcome our development challenges for games developed for the
PlayStation 3 could negatively impact our revenue and profitability.We have experienced unexpected challenges in developing games for the
PlayStation 3, which has caused us to miss ship dates or cancel games that were being developed for the platform. If we fail to successfully develop games for the PlayStation 3 in the
future, our revenues and profitability could be materially affected.

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 revenue to decline.

We rely on external developers for the development of some of our titles.Some of our titles are developed by
third-party developers. We have no direct control over the business, finances and operational practices of these external developers. A delay or failure to complete the work performed by external
developers may 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 effect on our business and financial
results.

Risk factors related to distribution of our products:

Software pricing.Software prices for the current generation console games are higher than prices for games for the
predecessor platforms. There is no assurance that consumers will continue to pay the higher prices of these games. Additionally, although we still publish games for the PlayStation 2, as
consumers purchase games for current generation consoles rather than for the PS2 and demand for games on the PS2 declines, the prices of our games for the PS2 may also decline. Reduced pricing of our
PS2 products may result in lower revenues, which could materially affect our profitability.

We rely on a small number of customers that account for a significant amount of our sales.Our largest single
customer, Wal-Mart, accounted for more than 10% of our gross sales in the last three fiscal years. In fiscal 2008, our five largest customers, including Wal-Mart, accounted for
41% of our gross sales. A substantial reduction, termination of purchases, or business failure by any of our largest customers could have a material adverse effect on us.

We compete aggressively with other video game publishers for retail shelf space. Our inability to get our games placed on retailers' shelves could
materially impact our revenues and profitability.As video game publishers strive to release more blockbuster titles and as retailers merge, competition for retail
shelf space may become more intense. Our inability to get our products on retailers' shelves may force us to increase our

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marketing
expenditures to maintain sales of our titles. Increased expenses without corresponding increased sales could reduce our profit margins and thus have a negative effect on our business and
financial results.

Lack of retailer support for categories in which we publish games could negatively affect the sales of our
products.In fiscal 2008, retailers strongly supported games that were music or peripheral-based and we did not publish any games in this category. Future lack of
retailer support for our key games could cause lower sales of such games, negatively affecting our revenue and profitability.

Increased sales of used video game products could lower our sales.Increased sales of used video games, which are
generally priced lower than new video games, by one of our key customers could negatively affect our sales of new titles and thus our revenues.

Risk factors related to competition:

Competitive launches may negatively affect 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 many other new 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, strong sales of our competitors' games could negatively affect the sales of our games.

Competition in the interactive software entertainment industry may lead to reduced sales of our products and reduced market
share.Our industry is intensely competitive. We compete for both the sale of games and licenses to properties with the platform manufacturers and other
publishers. Such competition could negatively affect sales of our games as follows:

Development of software by hardware manufacturers.Microsoft, Nintendo and Sony have each increased development
efforts of software for their own hardware platforms. As a result of their commanding positions in the industry, the 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 manufacturers can bundle their software with their hardware, creating less demand for individual
sales of our products.

Development of software and online games by intellectual property owners.As discussed above, a significant portion
of our revenue is due to sales of games based upon licensed properties. In recent years, some of our key licensors, including Disney and Warner Bros., have increased their development of video games,
which could lead to such licensors not renewing our licenses to publish games based upon their properties or not grant future licenses to develop games based upon such properties. If we do not publish
such games, our revenue could be significantly affected.

Competition for licenses.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,
resulting in reduced margins.

Competition with emerging 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 by consumers may pose a competitive threat
if customers and potential customers spend less of their available time using interactive entertainment software and more using the internet and online services.

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Competition for qualified personnel is intense in the interactive software entertainment industry and failure to hire and retain qualified personnel
could seriously harm our business.We rely to a substantial extent on the management, marketing, sales, technical and software development skills of a limited
number of employees to formulate and implement our business plan. Our success depends to a significant extent 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 services of key personnel could have a material adverse effect on our business.

Consolidation in the interactive software entertainment industry presents challenges with respect to resources and integration of acquired businesses.

Consistent with our strategy to expand our internal development capabilities and distribution channels, we intend to continue to pursue acquisitions of companies, intellectual
property rights and other assets that can be acquired on acceptable terms and which we believe can be operated or exploited profitably. As our industry continues to consolidate, we face additional
competitive pressures that can negatively affect our business.

Further,
as we acquire companies, we are faced with additional challenges. The integration of newly-acquired companies' operations with our existing operations requires management time and effort.
Additionally, there is a risk of loss of key employees, customers and vendors of the recently-acquired companies.

Emerging video game platforms, such as MMO games or games for wireless devices, require investments and present many risks.

Globally, MMO games have rapidly become a popular way to play video games. Additionally, wireless network and mobile phone technologies are continually undergoing rapid
innovation. New mobile phones with more advanced processors and supporting advanced programming languages continue to be introduced in the market. We have no control over the demand for, or success
of, these products. 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 on our ability to adapt to rapidly changing technologies, develop applications to accommodate evolving industry standards and improve the
performance and reliability of our applications.

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

In fiscal 2008 we derived 51% of our net sales outside of North America, up from 42% in fiscal 2007. We intend to continue expanding our international operations, which may
subject us to many risks, including: different consumer preferences, challenges caused by distance, language and cultural differences in doing business with foreign entities, 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
effect on our future foreign sales or the profits generated from these 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. To the extent our foreign sales are not denominated
in U.S. dollars, our sales and profits could be materially and adversely affected by foreign currency fluctuations.

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We may not be able to protect our intellectual property rights against piracy, infringement of our patents 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 affect 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 United States, 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.

Third parties may claim we infringe their intellectual property rights.

Although we believe that we make reasonable efforts to ensure that 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 affected 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.

We cannot be certain of the future effectiveness of our internal controls over financial reporting or the impact of the same on our operations or 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 Annual Report on Form 10-K our assessment of the
effectiveness of our internal controls 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 controls over financial reporting. Although we believe that we currently have adequate internal controls procedures in place, we cannot be certain that future
material changes to our internal controls over financial reporting will be effective. If we cannot adequately maintain the effectiveness of our internal controls over financial reporting, we might be
subject to sanctions or investigation by regulatory authorities, such as the Securities and Exchange Commission. Any such action could adversely affect our financial results and the market price of
our common stock.

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

We have experienced, and may continue to experience, significant quarterly fluctuations in sales and operating results. The interactive software entertainment market 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:



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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, and the price of our common stock may fall or significantly fluctuate.

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

Currently, the interactive software entertainment industry is self-regulated and rated by the Entertainment Software Rating Board ("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 at the local, state and federal levels for the establishment of a government mandated rating and governing system in the United States and in foreign
countries for our industry. 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 affected.

Any significant downturn in general economic conditions that results in a reduction in discretionary spending could reduce demand for our products and harm our business.

Our product sales are affected by the retail customer's ability and desire to spend disposable income on the purchase of our games. Any significant downturn in general economic
conditions that results in a reduction in discretionary spending could result in a reduction in demand for our products and could harm our business. Such industry downturns have been, and may continue
to be, characterized by diminished product demand and subsequent erosion of average selling prices.

Because
of these and other factors affecting our operating results and financial condition, past financial performance should not be considered a reliable indicator of future performance, and
investors should not use historical trends to anticipate results or trends in future periods.

Item 1B.    Unresolved Staff Comments

None.

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Item 2.    Properties

Our principal corporate and administrative office is located in approximately 100,000 square feet of leased space in a building located at 29903 Agoura Road, Agoura Hills,
California. Including this office, the following is a summary of the principal leased offices we maintained as of May 23, 2008:

|Purpose                  |                             | North America |         | Europe |        | Asia Pacific |        | Total  
|------------------------ | --------------------------- | ------------- | ------- | ------ | ------ | ------------ | ------ | -------
|Sales and administrative |                             | 123,900       |         | 69,900 |        | 21,300       |        | 215,100
|Product development      |                             | 385,500       |         | 6,100  |        | 23,700       |        | 415,300
|                         |                             |               |         |        |        |              |        |        
|                         | Total leased square footage |               | 509,400 |        | 76,000 |              | 45,000 |        
|                         |                             |               |         |        |        |              |        |        

We
also own 10,820 square feet of space in Phoenix, Arizona, which serves as our data center and motion capture studio.

Item 3.    Legal Proceedings

WWE related Lawsuits

On October 19, 2004, World Wrestling Entertainment, Inc. ("WWE") filed a lawsuit in the United States District Court for the Southern District of New York (the
"Court") against JAKKS Pacific, Inc. ("JAKKS"), us, THQ/JAKKS Pacific LLC (the "LLC"), and others, alleging, among other claims, improper conduct by JAKKS, certain executives of JAKKS,
an employee of the WWE and an agent of the WWE in granting the WWE videogame license to the LLC. The complaint seeks various forms of relief, including monetary damages and a judicial
determination that, among other things, the WWE videogame license is void. On March 30, 2005, WWE filed an amended complaint, adding both new claims and our president and chief executive
officer, Brian Farrell, as a defendant. In August 2005, the Court directed the parties to file briefs on the three federal law claims alleged by the Plaintiffs (i.e., Robinson-Patman, and
Sherman Act, and a threshold issue concerning the Plaintiff's RICO claim). The motions to dismiss the amended complaint based on these issues were fully briefed and argued and, on March 31,
2006, the Court granted the defendants' motion to dismiss the Robinson-Patman Act and Sherman Act claims and denied the defendants' motion seeking to dismiss the RICO claims on the basis of the
threshold "enterprise" issue that was briefed.

The
Court then set a second round of briefing on the motions to dismiss on all other federal issues, including other defenses under RICO. After extensive briefing concluded in August 2006 and a
hearing held in September 2006, on December 21, 2007, the Court granted our motions to dismiss the federal claims, and denied a motion by WWE to reconsider the Court's prior March 2006 order
dismissing the antitrust claims. Among the Court's grounds for its decision were its findings that WWE had failed to allege a pattern of racketeering activity, RICO injury or antitrust injury, and
that its RICO claims were barred by the statutes of limitations. The Court also dismissed WWE's state law claims, without prejudice to refiling them in state court, for lack of federal jurisdiction.
WWE has now asserted its state law claims in Connecticut, as described below. WWE has appealed the Court's rulings, and the appeal is pending in the Second Circuit Court of Appeals. The appeal is
currently in abeyance, and there is currently no briefing schedule or timetable for resolution of the appeal.

On
October 12, 2006, WWE filed a separate lawsuit against us and the LLC in the Superior Court of the State of Connecticut, alleging that our agreements with
Yuke's Co., Ltd. ("Yuke's"), a developer and distributor in Japan, violated a provision of the WWE videogame license prohibiting sublicenses without WWE's written consent. The lawsuit
seeks, among other things, a declaration that the WWE is entitled to terminate the video game license and seek monetary damages. On February 8, 2007, we and the LLC jointly moved to
strike one of the claims, for violation of the Connecticut Unfair Trading Practices Act; on March 28, 2007, the Court denied that motion, without prejudice to our ability to raise the same
issue at a later date. At a hearing on May 8, 2007, the Court granted WWE's request to amend its pleadings to add

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allegations
and claims substantially similar to those already pending in WWE's lawsuit in the Southern District of New York and to "cite in" the other defendants from that action, including our CEO,
Brian Farrell. Following the dismissal without prejudice of WWE's lawsuit in the Southern District of New York, WWE sought leave to refile its state law claims in this action, which was granted. The
claims now pending in this action are a combination of the earlier claims relating to the Yuke's agreements and the Connecticut equivalents of the state law claims that had previously been pending in
the Southern District of New York. We have moved to dismiss many of the claims in this action. Moreover, JAKKS has filed a summary judgment motion based on the collateral estoppel effects of the
dismissal of WWE's lawsuit in the Southern District of New York, and we intend to join in that motion. JAKKS's motion was scheduled for hearing on May 19, 2008, and there is not yet a hearing
scheduled on the THQ defendants' motion. Discovery in this action is scheduled to be completed by June 2009, and the case is to be ready for trial by May 1, 2010.

We
intend to vigorously defend ourselves against the claims raised in this action, including those raised in the amended complaint. However, in light of the early status of this litigation, we cannot
estimate a possible loss, if any. Games we develop based upon our WWE videogame license have contributed to approximately 25% of our net sales in fiscal 2008, up from approximately 15% of our net
sales in fiscal 2007 and 2006. The loss of the WWE license would have a negative impact on our future financial results.

Operating agreement with JAKKS Pacific, Inc.

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

The
parties have not reached agreement on the preferred payment for the First Subsequent Distribution Period. Accordingly, as provided in the operating agreement, the parties are in the process of
selecting an arbitrator to resolve this dispute. Although we believe continuation of the previous preferred payment would represent significantly excessive compensation to JAKKS for the First
Subsequent Distribution Period, we are not able to predict the outcome of the arbitration or otherwise estimate the amount of the preferred payment for the First Subsequent Distribution Period.
Accordingly, we are currently accruing for a preferred payment to JAKKS at the previous rate. However, we have advised JAKKS that we do not intend to make any payment until the amount of the preferred
payment payable to JAKKS for the First Subsequent Distribution Period is agreed or otherwise determined as provided in the operating agreement. On April 30, 2007, we filed a petition to compel
arbitration and appoint an arbitrator in the Superior Court of the State of California for the County of Los Angeles, West District. At a hearing on June 19, 2007 (with a subsequent order
entered on June 25, 2007), the Court established a process for selecting an arbitrator and denied a request by JAKKS for provisional relief requesting that, pending conclusion of the
arbitration, THQ either be enjoined from distributing to itself any proceeds from the joint venture since June 2006 or be compelled to resume payments to JAKKS at the same rate that was in effect
prior to June 2006. Pursuant to the process, the judge named a "shortlist" of five arbitrator candidates drawn from lists submitted by the parties, and afforded the parties five days to agree upon an
arbitrator candidate, failing which the judge would appoint an arbitrator from the "shortlist." On July 18, 2007, JAKKS filed a notice of disqualification, purporting to disqualify all of the
arbitrator candidates on the "shortlist" other than the one individual who had been among the candidates submitted by JAKKS. We objected to this notice. On July 31, 2007, the Court struck
JAKKS's notice and selected an arbitrator from the "shortlist." On or about August 22, 2007 JAKKS filed in the Court of Appeal of the State of California a petition for writ of
mandate/prohibition or other appropriate relief, seeking an order directing the judge to disqualify all of the arbitrator candidates other than the one individual who had been submitted by JAKKS. In
its filing,

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JAKKS
argued that this individual was the only "shortlist" candidate to file certain disclosures within a time period JAKKS maintains is required by statute. The Court of Appeal granted a temporary
stay of the arbitration on August 30, 2007. On the same day that the Court of Appeal issued its temporary stay, JAKKS filed a notice with the Superior Court that it was exercising its
one-time peremptory challenge pursuant to the California Code of Civil Procedure to disqualify "without cause" the arbitrator chosen by the judge. Following a hearing, the Court of Appeal
denied JAKKS's petition in an opinion and order filed February 28, 2008. The case has now been returned to the trial court for further proceedings. At this time, we cannot anticipate when the
arbitration will commence.

We
do not expect the resolution of this dispute to have a material adverse impact on our results of operations, financial position or cash flows.

Lawsuits related to our historical stock option granting practices

Kukor and Ramsey v. Haller, et. Al.On August 25, 2006, following our announcement of the informal inquiry by the SEC, a purported
shareholder derivative action captionedRamsey v. Haller et. Al.was filed against certain of our current and former officers and directors in the
California Superior Court, Los Angeles County. The complaint alleges, among other things, purported improprieties in our issuance of stock options, breach of fiduciary duty and unjust enrichment.
Another lawsuit was subsequently filed by the same law firm on behalf of another purported shareholder, David Kukor, and the parties stipulated to consolidate the two actions. On or about
April 19, 2007, a Consolidated Shareholder Derivative Complaint (the "Consolidated Complaint") was filed, alleging the same types of claims and quoting from various public statements by us
since the filing of the original complaint. We are also named as a nominal defendant. On May 29, 2007, we filed a demurrer to the Consolidated Complaint as a whole. The demurrer was overruled
by the Court on October 11, 2007, and a status conference before the Court is currently scheduled for May 28, 2008. No discovery has been conducted, nor can it be conducted absent
further court order.

Although
litigation is subject to inherent uncertainties, we do not believe the results of the remaining shareholder action will have a material adverse impact on our consolidated financial position
or results of operations.

Other

We are also involved in additional routine litigation arising in the ordinary course of our business. In the opinion of our management, none of such pending litigation is
expected to have a material adverse effect on our consolidated financial condition or results of operations.

Terminated Proccedings

SEC Informal Inquiry.On August 4, 2006, we received an informal inquiry from the Securities and Exchange Commission ("SEC")
requesting certain documents and information relating to our stock option grant practices from January 1, 1996 to the present. We fully cooperated with the SEC's inquiry and on
February 27, 2008 received a notice from the SEC that its investigation of our stock option grant practices has been completed and that the SEC does not intend to recommend any action against
THQ.

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

There were no matters submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this Annual Report.

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PART II

Item 5.    Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

THQ's common stock is quoted on the NASDAQ Global Select Market under the symbol "THQI." The following table sets forth, for the periods indicated, the high and low closing
sales prices of our common stock as reported by the NASDAQ Global Select Market:

Closing
Sales PricesHigh

LowFiscal Year Ended March 31, 2008Fourth Quarter ended March 31, 2008

$
28.19

$
17.94Third Quarter ended December 31, 2007


29.63


23.39Second Quarter ended September 30, 2007


31.32


24.98First Quarter ended June 30, 2007


36.39


30.52Fiscal Year Ended March 31, 2007Fourth Quarter ended March 31, 2007

$
34.33

$
29.64Third Quarter ended December 31, 2006


34.00


28.69Second Quarter ended September 30, 2006


30.87


19.74First Quarter ended June 30, 2006


27.76


19.65


The
last reported price of our common stock on May 23, 2008, as reported by NASDAQ Global Select Market, was $20.50 per share.

Holders

As of May 23, 2008 there were approximately 303 holders of record of our common stock.

Dividend Policy

We have never paid cash dividends on our common stock. We currently intend to retain future earnings, if any, to finance the growth and development of our business and,
therefore, we do not anticipate paying any cash dividends in the future.

19

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Securities Authorized for Issuance Under Equity Compensation Plans

Information for our equity compensation plans in effect as of March 31, 2008 is as follows (amounts in thousands, except per share amounts):

|                                                           |  | (a)       |     | (b) |       | (c)
|---------------------------------------------------------- |  | --------- | --- | --- | ----- | ---
|
|Equity compensation plans approved by security holders     |  | 8,713,875 |     | $   | 20.74 |    
|Equity compensation plans not approved by security holders |  | 551,717   | (1) | $   | 12.05 |    
|                                                           |  |           |     |     |       |    
|Total                                                      |  | 9,265,592 |     | $   | 20.22 |    
|                                                           |  |           |     |     |       |    

---

Stock Price Performance Graph

The following information shall not be deemed to be "filed" with the Securities and Exchange Commission nor shall this information be incorporated by reference into any future
filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that we specifically incorporate it by reference into a filing.

The
following graph shows a five-year comparison of cumulative total stockholder returns for the period from March 31, 2003 through March 31, 2008, for the Company's common
stock, NASDAQ Global Select Market Composite Index and the RDG Technology Index. The comparison assumes an initial investment of $100 in each on March 31, 2003. We have not paid any cash
dividends and, therefore, the cumulative total return calculation is based solely upon stock price appreciation and not upon reinvestment of cash dividends.

The
comparisons in the graph below are based on historical data and are not intended to forecast the possible future performance of THQ's common stock.

20

---



COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*Among THQ Inc., The NASDAQ Composite Index  And The RDG Technology Composite Index

CHART

---

|                         |  | 3/31/2003 |        | 3/31/2004 |   | 3/31/2005 |  | 3/31/2006 |        | 3/31/2007 |   | 3/31/2008
|------------------------ |  | --------- | ------ | --------- | - | --------- |  | --------- | ------ | --------- | - | ---------
|THQ Inc.                 |  | $         | 100.00 |           | $ | 154.91    |  | $         | 215.48 |           | $ | 297.38   
|NASDAQ Composite         |  | $         | 100.00 |           | $ | 151.01    |  | $         | 152.38 |           | $ | 181.06   
|RDG Technology Composite |  | $         | 100.00 |           | $ | 149.02    |  | $         | 144.21 |           | $ | 170.59   

Recent Sales of Unregistered Securities

On January 18, 2008, in connection with our acquisition of Big Huge Games, Inc. ("BHG"), we issued an aggregate of 199,631 shares of our common stock to
stockholders of BHG as partial consideration for the purchase of their shares of BHG. The shares are restricted from transfer and held in escrow by THQ until certain criteria are met, as set forth in
the BHG stock purchase agreement. We issued and sold these shares in a transaction exempt from registration under Section 4(2) of the Securities Act of 1933 (the "Act") and/or
Regulation D promulgated thereunder. The recipients of the shares were not acting as underwriters within the meaning of Section 2(a)(11) of the Act, written disclosure was made to each
recipient that the shares have not been registered under the Act and, therefore, cannot be resold unless they are registered under the Act or unless an exemption from registration is available, and
appropriate legends were affixed to the share certificates issued to each recipient. The issuance of these shares was made without general solicitation or advertising.

21

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Purchases of Equity Securities by the Issuer and Affiliated Purchases

The following table presents the Company's repurchases of our common stock during the three months ended March 31, 2008.

|Period                   |  | Total Number
of Shares
Purchased (1) |  | Average Price
Paid per Share |       | Total Number of
Shares Purchased
as Part of Publicly
Announced Plans |         | Maximum Number
(or Approximate Dollar
Value) of Shares that
May Yet Be Purchased
Under the Plans
|------------------------ |  | ------------------------------------ |  | ---------------------------- | ----- | -------------------------------------------------------------------- | ------- | ------------------------------------------------------------------------------------------------
|January 1 - January 31   |  |                                     |  | $                            |      |                                                                      |        |                                                                                                 
|February 1 - February 29 |  | 685,000                              |  |                              | 19.14 |                                                                      | 685,000 |                                                                                                 
|March 1 - March 31       |  |                                     |  |                              |      |                                                                      |        |                                                                                                 
|                         |  |                                      |  |                              |       |                                                                      |         |                                                                                                 
|Total                    |  | 685,000                              |  | $                            | 19.14 |                                                                      | 685,000 |                                                                                                 
|                         |  |                                      |  |                              |       |                                                                      |         |                                                                                                 

---

22

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Item 6.    Selected Consolidated Financial Data

The following table summarizes certain selected consolidated financial data, which should be read in conjunction with our consolidated financial statements and Notes thereto
and with Management's Discussion and Analysis of Financial Condition and Results of Operations included elsewhere herein. The selected consolidated financial data presented below as of and for each of
the fiscal years in the five-year period ended March 31, 2008 are derived from our audited consolidated financial statements. The consolidated balance sheets as of March 31,
2008, and 2007, and the consolidated statements of operations for the fiscal years ended March 31, 2008, 2007 and 2006, and the report thereon are included elsewhere in this
Form 10-K.

STATEMENT OF OPERATIONS DATA  (In thousands, except per share data)

|                                                                                   |                                                   | Fiscal Year Ended March 31,
|---------------------------------------------------------------------------------- | ------------------------------------------------- | ---------------------------
|
|Net sales                                                                          |                                                   | $                          
|Costs and expenses:                                                                |                                                   |                            
|                                                                                   | Cost of salesproduct costs                       |                            
|                                                                                   | Cost of salessoftware amortization and royalties |                            
|                                                                                   | Cost of saleslicense amortization and royalties  |                            
|                                                                                   | Cost of salesventure partner expense             |                            
|                                                                                   | Product development                               |                            
|                                                                                   | Selling and marketing                             |                            
|                                                                                   | General and administrative                        |                            
|                                                                                   |                                                   |                            
|                                                                                   |                                                   | Total costs and expenses   
|                                                                                   |                                                   |                            
|Income (loss) from continuing operations                                           |                                                   |                            
|Interest and other income, net                                                     |                                                   |                            
|                                                                                   |                                                   |                            
|Income (loss) from continuing operations before income taxes and minority interest |                                                   |                            
|                                                                                   |                                                   | Income taxes               
|                                                                                   |                                                   |                            
|Income (loss) from continuing operations before minority interest                  |                                                   |                            
|                                                                                   |                                                   | Minority interest          
|                                                                                   |                                                   |                            
|Income (loss) from continuing operations                                           |                                                   |                            
|Gain on sale of discontinued operations, net of tax                                |                                                   |                            
|                                                                                   |                                                   |                            
|Net income (loss)                                                                  |                                                   | $                          
|                                                                                   |                                                   |                            
|Earnings (loss) per sharebasic:                                                   |                                                   |                            
|                                                                                   | Continuing operations                             |                            
|                                                                                   | Discontinued operations                           |                            
|                                                                                   |                                                   |                            
|                                                                                   | Earnings (loss) per sharebasic                   |                            
|                                                                                   |                                                   |                            
|Earnings (loss) per sharediluted:                                                 |                                                   |                            
|                                                                                   | Continuing operations                             |                            
|                                                                                   | Discontinued operations                           |                            
|                                                                                   |                                                   |                            
|                                                                                   | Earnings (loss) per sharediluted                 |                            
|                                                                                   |                                                   |                            
|Shares used in per share calculationbasic                                         |                                                   |                            
|                                                                                   |                                                   |                            
|Shares used in per share calculationdiluted                                       |                                                   |                            
|                                                                                   |                                                   |                            

23

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BALANCE SHEET DATA  (In thousands)

|                     |  | As of March 31,
|-------------------- |  | ---------------
|
|Working capital      |  | $              
|Total assets         |  | $              
|Stockholders' equity |  | $              

---

Notes:

24

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Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations

Overview

The following is a discussion of our operating results and the primary trends that affect our business. Certain of these trends and other statements made herein may be
"forward-looking" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are included herein because we believe that an understanding of these trends
is important to understand our results for fiscal 2008, as well as our future prospects. This summary is not intended to be exhaustive, nor is it intended to be a substitute for the detailed
discussion and analysis provided elsewhere in this Form 10-K, including in the remainder of "Management's Discussion and Analysis of Financial Condition and Results of Operations"
or the consolidated financial statements and related notes. The discussion and analysis herein may be understood more fully by reference to the consolidated financial statements and notes to the
consolidated financial statements. Additionally, readers should refer to our cautionary statement on page 1 herein as well as "Risk Factors" set forth in Item 1A. All references to "we,"
"us," "our," "THQ," or the "Company" in the following discussion and analysis mean THQ Inc. and its subsidiaries.

Overview of Fiscal 2008 Results

Net sales in fiscal 2008 were $1,030.5 million, up from $1,026.9 million. Year-over-year growth in the WWE franchise was due to strong
sales ofWWE SmackDown vs. Raw 2008,which shipped six million units in fiscal 2008, and the strong performance of our owned intellectual properties, MX vs. ATV
Untamed,Frontlines: Fuel of WarandDrawn to
Life, was largely offset by weakness in our kids games and under-performance of theJuiced 2: Hot Import Nights, Stuntman:
IgnitionandConantitles relative to our expectations. Despite higher sales in fiscal 2008, our operating margin was (9)% as
compared to 8% in fiscal 2007. The decline in operating margin was primarily due to higher sales returns and allowances, accelerated
amortization of software development, write-offs related to the cancellation of projects in development, higher product development expenses and higher selling and marketing expenses as a
percentage of net sales in fiscal 2008 as compared to fiscal 2007.

Our
net loss from continuing operations for fiscal 2008 was $36.8 million, or $0.55 per diluted share, compared to net income from continuing operations of $65.0 million, or $0.96 per
diluted share, for fiscal 2007. Our net loss for fiscal 2008 was $35.3 million, or $0.53 per diluted share, and included a $1.5 million gain on sale of discontinued operations.

Cash
used in operations was $9.7 million during fiscal 2008, as compared to cash provided by operations of $64.0 million in fiscal 2007. The increase in cash used was primarily a result
of our fiscal 2008 net loss as compared to fiscal 2007 net income and an increase in accounts receivable due to higher net sales and the timing of product releases in the three months ended
March 31, 2008 as compared to the same period last fiscal year, partially offset by higher non-cash amortization of licenses and software development in fiscal 2008 as compared to
fiscal 2007.

Trends Affecting Our Business

We operate in one business segment: video game development, publishing and distribution. We derive revenue principally from sales of packaged interactive software games
designed for play on video game consoles, handheld devices and personal computers. The significant trends that affect our business include the following:

Products.In order to increase revenues while facing higher development costs, we believe it is increasingly important in our industry to
have a robust and diversified product portfolio. The success of our product portfolio relative to our competition is a principle driver of our continued success. In recent years, we have focused our
efforts on growing both our owned intellectual properties and our licensed brands. As a result of these efforts, we believe we can continue to grow our revenues at or above the video game software
market growth rate.

25

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Development Costs.The current generation consoles have increased functionality (e.g. realistic environments and artificial
intelligence) over their legacy counterparts. The increased functionality delivers a more exciting gaming experience but adds complexity to the development of video games for these new consoles. This
complexity increases the overall cost to develop these games and accordingly,
during fiscal 2009, we expect our average software development costs to increase as we develop more games for these new consoles.

Online Gaming.Online gaming is growing rapidly in popularity. According to the NPD report, "Online Gaming 2007: The Virtual Landscape,"
62% of gamers report playing games online. With technology advances over the past few years, gamers can play online via PC, console and handheld systems. In fiscal 2008, we launched Frontlines: Fuel of War, which had online capability. MMO gaming has become popular, especially in Asia. In fiscal 2009, we plan to launch Company of Heroes Onlinein the Chinese market, which marks our first entry
into the free-to-play, pay for download model of
video games.

Platform Market Segmentation.In fiscal 2008, our industry continued to transition from the legacy consoles to the current generation
consoles, Microsoft Xbox 360, Sony PlayStation 3 ("PS3") and Nintendo Wii. Additionally, the Nintendo DS and Sony PSP handhelds continued to grow. With the current generation of console systems
and current handheld platforms, we believe segmenting our market will be extremely important. We have designed our publishing strategy to take advantage of the unique feature sets of the new consoles,
handhelds and PC. Our strategy to reach core gamers focuses on the Xbox 360, PS3 and PC platforms. Our mass-market brands are targeted primarily for the Nintendo Wii, PS2 and DS
platforms. We plan to publish some of our licensed brands, such as WWE and DisneyPixar across all viable platforms.

International growth.Over the past few years, sales of video games outside of the United States have grown significantly. In fiscal 2008,
international net sales increased 24% to $527.3 million, from $426.7 million in fiscal 2007. The international installed base of video game platforms continues to increase, and we are
focused on expanding our international presence by identifying territories where we see opportunity and establishing a direct sales presence to seize such opportunities. In addition to our sales force
presence, we are focused on releasing and aggressively marketing titles with international appeal. We continue to evaluate new business opportunities in the Asia Pacific region.

Critical Accounting Estimates

The Management's Discussion and Analysis of Financial Condition and Results of Operations discusses our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported
amounts of revenues and expenses during the reporting period. The estimates discussed below are considered by management to be critical because they are both important to the portrayal of our
financial condition and results of operations and because their application places the most significant demands on management's judgment, with financial reporting results relying on estimates about
the effect of matters that are inherently uncertain. Specific risks for these critical accounting estimates are described in the following paragraphs. For all of
these estimates, we caution that actual results may differ materially from these estimates under different assumptions or conditions.

Accounts receivable allowances.We derive revenue from sales of packaged software for video game systems and personal computers and sales
of content and services for wireless devices. Product revenue is recognized net of allowances for price protection and returns and various customer discounts. We typically only allow returns for our
personal computer products; however, we may decide to provide price protection or allow returns for our video games after we analyze the following:



26

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We
maintain a policy of giving credits for price protection and returns, but do not give cash refunds. Included in our accounts receivable allowances is our allowance for co-operative
advertising that we engage in with our retail channel partners. Our co-operative advertising allowance is based upon specific contractual commitments and does not involve estimates made by
management.

We
establish sales allowances based on estimates of future price protection and returns with respect to current period product revenue. We analyze historical price protection granted, historical
returns, current sell-through of retailer and distributor inventory of our products, current trends in the video game market and the overall economy, changes in customer demand and
acceptance of our products, and other related factors when evaluating the adequacy of the price protection and returns allowance. In addition, we monitor the volume of our sales to retailers and
distributors and their inventories, because slow-moving inventory in the distribution channel can result in the requirement for price protection or returns in subsequent periods. Actual
price protection and returns in any future period are uncertain. While we believe we can make reliable estimates for these matters, if we changed our assumptions and estimates, our price protection
and returns reserves would change, which would impact the net revenue we report. In addition, if actual price protection and
returns were significantly greater than the reserves we have established, the actual results of our reported net sales would decrease. Conversely, if actual price protection and returns were
significantly less than our reserves, our reported net sales would increase.

Similarly,
we must use significant judgment and make estimates in connection with establishing allowances for doubtful accounts in any accounting period. We analyze customer concentrations, customer
credit-worthiness and current economic trends when evaluating the adequacy of the allowance for doubtful accounts. Material differences may result in the amount and timing of our bad debt
expense for any period if we made different judgments or utilized different estimates. If our customers experience financial difficulties and are not able to meet their ongoing financial obligations
to us, our results of operations may be adversely impacted.

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

We
evaluate the future recoverability of our capitalized licenses on a quarterly basis. The recoverability of capitalized license costs is evaluated based on the expected performance of the specific
products in which the licensed trademark or copyright is to be used. As many of our licenses extend for multiple products over multiple years, we also assess the recoverability of capitalized license
costs based on certain qualitative factors such as the success of other products and/or entertainment vehicles utilizing the intellectual property, whether there are any future planned theatrical
releases or television series based on the intellectual property and the rights holder's continued promotion and exploitation of the intellectual property. Prior to the related product's release, we
expense, as part of cost of saleslicense amortization and royalties, capitalized license costs when we estimate such amounts are not recoverable.

Licenses
are expensed to cost of saleslicense amortization and royalties at the higher of (i) the contractual royalty rate based on actual net product sales related to such
license, or (ii) an effective rate based upon total projected revenue related to such license. When, in management's estimate, future cash flows will not be sufficient to recover previously
capitalized costs, we expense these capitalized costs to cost

27

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of
saleslicense amortization and royalties. If actual revenues or revised forecasted revenues fall below the initial forecasted revenue for a particular license, the charge to cost of
saleslicense amortization and royalties expense may be larger than anticipated in any given quarter. As of March 31, 2008, the net carrying value of our licenses was
$86.8 million. If we were required to write off licenses, due to changes in market conditions or product acceptance, our results of operations could be materially adversely affected.

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

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

Commencing
upon product release, capitalized software development costs are amortized to cost of salessoftware amortization and royalties based on the ratio of current gross revenues to
total projected gross revenues. If actual gross revenues, or revised projected gross revenues, fall below the initial projections, the charge to cost of salessoftware amortization and
royalties may be larger than anticipated in any given quarter. In fiscal 2008, we recorded approximately $35.4 million of accelerated amortization due to the underperformance of certain
previously released games and approximately $23.9 million of additional amortization expense related to the cancellation of certain games. As of March 31, 2008, the net carrying value of
our software development was $181.2 million.

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

Goodwill and Other Intangible Assets.We perform our annual review for goodwill impairment on the first day of our fourth fiscal quarter,
or more frequently if indicators of potential impairment exist. We performed an annual review of goodwill impairment in each of the fiscal years ended March 31, 2008, 2007 and 2006 and found no
impairment. Our impairment review process is based on a discounted future cash flow approach that uses our estimates of revenue for our reporting unit, driven by anticipated success of our products
and product release schedules, and estimated costs as well as appropriate discount rates. These estimates are consistent with the plans and estimates that we use to manage the underlying business. All
identifiable intangible assets with finite lives will continue to be amortized over their estimated useful lives and assessed for impairment under SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets."

Based
on these judgments and assumptions, we determine whether we need to take an impairment charge to reduce the value of the goodwill and indefinite-lived intangible assets stated on our
balance sheets to reflect their estimated fair values. Judgments and assumptions about future values are complex and often subjective. They can be affected by a variety of factors, including, but not
limited to, significant negative industry or economic trends, significant changes in the manner or use of the acquired assets or the strategy

28

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of
our overall business and significant underperformance relative to expected historical or projected future operating results. Although we believe the judgments and assumptions we have made in the
past have been reasonable and appropriate, there is nonetheless a high degree of uncertainty and judgment involved.

We
continue to encounter the risks and difficulties faced with launching or acquiring a new business. When the business is a development studio, we look for ways to maximize the talent and
intellectual property within the studio. We make judgments and assumptions as to the commercial success and quantity of games developed by a particular studio. Different judgments and assumptions
could materially impact our reported financial results. For example, if we do not develop games with the same commercial success or the same number of games as we have estimated, we may need to take
an impairment charge against goodwill in the future. More conservative assumptions of the anticipated future benefits from these businesses would result in lower fair values which could result in
impairment charges, which would decrease net income and result in lower asset values on our balance sheets. Conversely, less conservative assumptions would result in higher fair values which could
result in lower impairment charges and higher net income.

Revenue Recognition.Our revenue recognition policies are in compliance with American Institute of Certified Public Accountants Statement
of Position ("SOP") 97-2, "Software Revenue
Recognition," as amended by SOP 98-9, "Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions," which provide guidance on
generally accepted accounting principles ("GAAP") for recognizing revenue on software transactions, and Staff Accounting Bulletin ("SAB") No. 104, "Revenue Recognition in Financial Statements,"
which outlines the basic criteria that must be met to recognize revenue and provides guidance for presentation of revenue and for disclosure related to revenue recognition policies in financial
statements filed with the Securities and Exchange Commission ("SEC").

Some
of our packaged software products are developed with the ability to be connected to, and played via, the internet. In order for consumers to participate in online communities and play against one
another via the internet, we (either directly or through outsourced arrangements with third parties) maintain servers that support an online service we provide to consumers for activities such as
matchmaking, roster updates, tournaments and player rankings. Generally, we consider the online service to be incidental to the overall product offering and an inconsequential deliverable.
Accordingly, we do not defer any revenue related to products containing the limited online service.

In
instances where the online service is considered a substantive deliverable in addition to the software product, we account for the sale as a "bundled" sale, or multiple element arrangement, in
which we sell both the packaged software product and the online service for one combined price. Vendor specific objective evidence for the fair value of the online service does not exist as we do not
separately offer or charge for the online service. Therefore, when the online service is determined to be a substantive deliverable, we recognize the revenue from sales of such software products
ratably over the estimated online service period of six months, beginning the month after shipment of the software product. Costs of sales related to such products are also deferred and recognized
with the related revenues and include product costs, software amortization and royalties, and license amortization and royalties.

Determining
whether the online service for a particular game constitutes a substantive deliverable is subjective and requires management's judgment. Determining the estimated service period over which
to recognize the related revenue and costs of sales is also subjective and involves management's judgment.

During
fiscal 2008, we determined the online service for one of our titles,Frontlines: Fuel of War(on PC and Xbox 360), is a substantive
deliverable in addition to the packaged software, primarily because of its significance to game play. We will recognize all of the revenue and related costs of sales from the sale of this game ratably
over the service period, which we have estimated to be six months beginning the month after shipment. At March 31, 2008 the deferred revenue related to this game was $30.9 million and is
included within Accrued and Other Current Liabilities in our Consolidated Balance Sheet.

29

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Stock-based compensation.We adopted SFAS No. 123(R) "Share-Based Payment" ("FAS 123R") in our first
quarter of fiscal 2007 and accordingly, we now record stock-based compensation expense for all of our stock-based awards. The adoption of this accounting pronouncement had a
material impact on our consolidated statement of operations and our cash flows from operating and financing activities for fiscal 2007. See "Note 14Stock-based
Compensation" in the notes to the consolidated financial statements.

Under
FAS 123R, we estimate the fair value of stock options granted using the Black-Scholes option pricing model. The fair value for awards that are expected to vest is then
amortized on a straight-line basis over the requisite service period of the award, which is generally the option vesting term. The amount of expense recognized represents the expense
associated with the stock options we expect to ultimately vest based upon an estimated rate of forfeitures; this rate of forfeitures is updated as necessary and any adjustments needed to recognize the
fair value of options that actually vest or are forfeited are recorded. The Black-Scholes option pricing model, used to estimate the fair value of an award, requires the input of
subjective assumptions, including the expected volatility of our common stock and an option's expected life. As a result, the financial statements include amounts that are based upon our best
estimates and judgments relating to the expenses recognized for stock-based compensation. We adopted FAS 123R under the modified prospective transition method wherein no prior
period financial statement information was affected. All prior period financial statements include stock-based compensation accounted for under Accounting Principles Board Opinion ("APB")
No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and the disclosure only provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," as amended
("FAS 123"). The financial statements for fiscal 2008 and 2007, include stock-based compensation accounted for under FAS 123R. There were no material differences in valuation
methodologies or assumptions compared to those that were used in estimating the fair value of stock options under the disclosure only provisions of FAS 123.

The
following table sets forth the amount of stock-based compensation expense recognized in fiscal 2008, 2007 and 2006 (in thousands):

Year Ended March 31,2008

2007

2006Cost of salessoftware amortization and royalties

$
6,800

$
2,087

$
Product development


4,773


3,364


926Selling and marketing


2,654


2,817


981General and administrative


8,444


10,704


1,515Total stock-based compensation expense

$
22,671

$
18,972

$
3,422


Income taxes.As part of the process of preparing our consolidated financial statements, we are required to estimate our income taxes in
each of the jurisdictions in which we operate. This process involves: (i) estimating our current tax exposure in each jurisdiction including the impact, if any, of changes or interpretations to
applicable tax laws and regulations, (ii) estimating additional taxes resulting from tax examinations and (iii) making judgments regarding the recoverability of deferred tax assets. To
the extent recovery of deferred tax assets is not likely based on our estimates of future taxable income in each jurisdiction, a valuation allowance is established.

The
calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations. We recognize liabilities for anticipated tax audit issues in the U.S. and
other tax jurisdictions based on our estimate of whether, and the extent to which, additional taxes will be due. Our estimate for the potential outcome for any uncertain tax issue, including our
claims for research and development income tax credits, requires judgment. We believe we have adequately provided for any reasonably foreseeable outcome related to these matters. However, our future
results may include favorable or unfavorable adjustments to our estimated tax liabilities in the period in which they are resolved or when statutes of limitation on potential assessments expire.

30

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As
of April 1, 2007, we adopted the provisions of FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement No. 109"
("FIN 48"). Previously, we had accounted for income tax contingencies in accordance with SFAS No. 5, "Accounting for Contingencies." As required by FIN 48, we recognize the
financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For income tax positions
meeting the "more likely than not" threshold, the amount recognized
in the financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority. At the adoption date, we applied
FIN 48 to all income tax positions for which the statute of limitations remained open. Our adoption of FIN 48 on April 1, 2007 had no impact on our April 1, 2007 beginning
retained earnings balance. The amount of unrecognized tax benefits as of April 1, 2007 and March 31, 2008 was $18.6 million and $11.6 million, respectively. The contingent
tax liability relates to tax positions taken in previously filed tax returns and similar positions expected to be taken in our current year income tax returns. A portion of the contingent tax
liability relates to fiscal years under examination. On May 24, 2007 we received notification from the IRS that the Joint Committee on Taxation had completed its review of our file and took no
exception to the conclusions reached by the IRS. We have evaluated the impact of the conclusions reached in the IRS examination in the FIN 48 measurement and recognition process. We are
currently under routine examination by the IRS for our income tax returns for fiscal years 2004 through 2007 and by various state jurisdictions for fiscal years subsequent to 2003. We do not expect
these examinations to be concluded and settled in the next 12 months, therefore, we are currently unable to estimate the potential impact to the liability for unrecognized tax benefits or the
timing of such changes. We do not anticipate any significant changes in the unrecognized tax benefits in fiscal 2009 related to the expiration of the statutes of limitations.

Recently Issued Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurement" ("FAS 157"). FAS 157 provides a single definition of fair value, together with a
framework for measuring it, and requires additional disclosure about the use of fair value to measure assets and liabilities. In February 2008, the FASB issued FSP FAS 157-2,
"Effective Date of FASB Statement No. 157" which defers the implementation for certain non-recurring, nonfinancial assets and liabilities from fiscal years beginning after
November 15, 2007 to fiscal years beginning after November 15, 2008, which will be our fiscal year 2010. The statement provisions effective as of April 1, 2008, do not have a
material effect on our results of operations, financial position, or cash flows. We are evaluating the impact, if any, the adoption of the remaining provisions will have on our results of operations,
financial position or cash flows.

In
February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial LiabilitiesIncluding an Amendment of FASB Statement No. 115"
("FAS 159"). FAS 159 permits an entity to choose to measure many financial instruments and certain other items at fair value at specified election dates. Subsequent unrealized gains and
losses on items for which the fair value option has been elected will be reported in earnings. We adopted this statement on April 1, 2008 and did not make this election. As such, the adoption
of this statement did not have any impact on our results of operations, financial position or cash flows.

In
May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted Accounting Principles" ("FAS 162"). FAS 162 is intended to improve financial reporting by
identifying a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements that are presented in conformity with GAAP for nongovernmental
entities. FAS 162 is effective 60 days following the SEC's approval of the Public Company Accounting Oversight Board amendments to AU Section 411, "The Meaning of Present
Fairly in Conformity with Generally Accepted Accounting
Principles." We do not expect the adoption of this statement to have a material impact on our results of operations, financial position or cash flows.

31

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In
December 2007, the FASB issued SFAS No. 141R, "Business Combinations" ("FAS 141R"). FAS 141R retains the fundamental requirements in FAS 141 that the acquisition method
of accounting (which FAS 141 called the purchase method) be used for all business combinations and for an acquirer to be identified for each business combination. FAS 141R defines the
acquirer as the entity that obtains control of one or more businesses in the business combination and establishes the acquisition date as the date that the acquirer achieves control. FAS 141R
is effective for business combination transactions for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008,
which will be our fiscal year 2010. We are evaluating the impact, if any, the adoption of this statement will have on our results of operations, financial position or cash flows.

In
April 2008, the FASB issued FSP FAS 142-3, "Determination of the Useful Life of Intangible Assets" ("FSP 142-3"). FSP 142-3 amends
the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, "Goodwill and
Other Intangible Assets" ("FAS 142"). This change is intended to improve the consistency between the useful life of a recognized intangible asset under FAS 142 and the period of expected
cash flows used to measure the fair value of the asset under FAS 141R and other GAAP. FSP 142-3 is effective for financial statements issued for fiscal years beginning after
December 15, 2008, and interim periods within those fiscal years, which will be our fiscal year 2010. The requirement for determining useful lives must be applied prospectively to intangible
assets acquired after the effective date and the disclosure requirements must be applied prospectively to all intangible assets recognized as of, and subsequent to, the effective date. We do not
expect the adoption of this statement to have a material impact on our results of operations, financial position or cash flows.

In
December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements" ("FAS 160"). This Statement amends ARB 51 to establish
accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a non-controlling interest in
a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. FAS 160 is effective for fiscal years and interim
periods within those fiscal years, beginning on or after December 15, 2008, which will be our fiscal year 2010. We are evaluating the impact, if any, the adoption of this statement will have on
our results of operations, financial position or cash flows.

In
March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activitiesan amendment of FASB Statement No. 133"
("FAS 161"). This Statement changes the disclosure requirements for derivative instruments and hedging activities. Under FAS 161,
entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted
for under Statement 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity's financial position, financial performance, and cash
flows. FAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, which will be our fiscal year 2010. We are evaluating
the impact, if any, the adoption of this statement will have on our results of operations, financial position or cash flows.

In
December 2007, the FASB ratified the Emerging Issues Task Force's ("EITF") consensus on EITF Issue No 07-1, "Accounting for Collaborative Arrangements" that discusses how
parties to a collaborative arrangement (which does not establish a legal entity within such arrangement) should account for various activities. The consensus indicates that costs incurred and revenues
generated from transactions with third parties (i.e. parties outside of the collaborative arrangement) should be reported by the collaborators on the respective line items in their income
statements pursuant to EITF Issue No. 99-19, "Reporting Revenue Gross as a Principal Versus Net as an Agent". Additionally, the consensus provides that income statement
characterization of payments between the participation in a collaborative arrangement should be based upon existing authoritative pronouncements; analogy to such pronouncements if not within their
scope; or a reasonable, rational, and consistently applied accounting policy election. EITF Issue No. 07-1 is

32

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effective
for interim or annual reporting periods in fiscal years beginning after December 15, 2008, which is our fiscal 2010 and is to be applied retrospectively to all periods presented for
collaborative arrangements existing as of the date of adoption. We are currently evaluating the impact, if any, the adoption of this standard will have on our results of operations, financial position
or cash flows.

In
June 2007, the FASB ratified the EITF consensus conclusion on EITF 07-3, "Accounting for Advance Payments for Goods or Services to be Used in Future Research and Development".
EITF 07-3 addresses the diversity which exists with respect to the accounting for the non-refundable portion of a payment made by a research and development entity for
future research and development activities. Under this conclusion, an entity is required to defer and capitalize non-refundable advance payments made for research and development
activities until the related goods are delivered or the related services are performed. EITF 07-3 is effective for interim or annual reporting periods in fiscal years beginning
after December 15, 2007, which is our fiscal 2009, and requires prospective application for new contracts entered into after the effective date. We do not expect the adoption of
EITF 07-3 to have a material impact on our results of operations, financial position or cash flows.

Results of Operations

Comparison of Fiscal 2008 to Fiscal 2007

Our net loss from continuing operations for fiscal 2008 was $36.8 million, or $0.55 per diluted share, compared to net income from continuing operations of
$65.0 million, or $0.96 per diluted share, for fiscal 2007. Our net loss for fiscal 2008 was $35.3 million, or $0.53 per diluted share, and included a $1.5 million gain on sale of
discontinued operations.

Net Sales

We derive revenue principally from sales of packaged interactive software games designed for play on video game consoles, handheld devices and personal computers. We also
derive revenue through downloads by mobile phone users of our wireless content.

In
fiscal 2008, we deferred revenue for one of our titles,Frontlines: Fuel of War, on both PC and Xbox 360. We will recognize revenue from the
sale of this title over an estimated service period of six months, beginning the month after shipment. At March 31, 2008 the deferred revenue related to this game was $30.9 million and
is included within accrued and other current liabilities in our consolidated balance sheet. At March 31, 2008 the deferred costs related to this game were $20.7 million and are included
within software development and prepaid expenses and other current assets in our consolidated balance sheet.

The
following table details our net sales by territory for fiscal 2008 and fiscal 2007 (in thousands):

Fiscal Year Ended March 31,Increase/
(Decrease)

% Change2008

2007North America

$
503,134

48.8
%
$
600,159

58.4
%
$
(97,025
)
(16.2
)%Europe


454,880

44.2


365,406

35.6


89,474

24.5
%Asia Pacific


72,453

7.0


61,291

6.0


11,162

18.2
%International


527,333

51.2


426,697

41.6


100,636

23.6
%Consolidated net sales

$
1,030,467

100.0
%
$
1,026,856

100.0
%
$
3,611

0.4
%


Net
sales increased by $3.6 million in fiscal 2008 as compared to fiscal 2007, from $1,026.9 million to $1,030.5 million. Worldwide net sales in fiscal 2008 were primarily driven
by sales ofWWE SmackDown vs. Raw! 2008,Ratatouilleand sales of our catalog
titles.

33

---



North America net sales decreased by $97.0 million in fiscal 2008 as compared to fiscal 2007. The decrease in North America net sales was primarily due to the following:



International
net sales increased by $100.6 million in fiscal 2008 as compared to fiscal 2007. The increase in international net sales was primarily due to the following:



Changes
in foreign currency rates increased reported international net sales by $44.6 million or 10% in fiscal 2008, as compared to fiscal 2007. Excluding the impacts of foreign exchange rates,
international net sales increased by 13% in fiscal 2008 as compared to fiscal 2007.

Net Sales by Platform

Our worldwide net sales by platform for fiscal 2008 and fiscal 2007 are as follows (in thousands):

Fiscal Year Ended March 31,Platform

Increase/
(Decrease)

% Change2008

2007ConsolesMicrosoft Xbox 360

$
129,483

12.6
%
$
134,908

13.1
%
$
(5,425
)
(4.0
)%Microsoft Xbox


2,278

0.2


27,476

2.7


(25,198
)
(91.7
)%Nintendo Wii


91,431

8.9


30,025

2.9


61,406

204.5
%Nintendo GameCube


7,090

0.7


52,338

5.1


(45,248
)
(86.5
)%Sony PlayStation 3


85,533

8.3







85,533


%Sony PlayStation 2


252,642

24.5


304,916

29.7


(52,274
)
(17.1
)%568,457

55.2


549,663

53.5


18,794

3.4
%HandheldNintendo Dual Screen


226,912

22.0


114,143

11.1


112,769

98.8
%Nintendo Game Boy Advance


36,655

3.6


119,869

11.7


(83,214
)
(69.4
)%Sony PlayStation Portable


84,030

8.2


65,402

6.4


18,628

28.5
%Wireless


19,751

1.9


26,467

2.6


(6,716
)
(25.4
)%367,348

35.7


325,881

31.8


41,467

12.7
%PC


94,264

9.1


149,546

14.6


(55,282
)
(37.0
)%Other


398

0.0


1,766

0.1


(1,368
)
(77.5
)%Net Sales

$
1,030,467

100.0
%
$
1,026,856

100.0
%
$
3,611

0.4
%


34

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Console Platforms

Net sales for console platforms increased by 3% in fiscal 2008 to $568.5 million from $549.7 million in fiscal 2007. In fiscal 2008, sales of games for the Sony
PlayStation 2 ("PS2") constituted 44% of our sales for console platforms, down from 55% of total console sales in fiscal 2007, while sales of games on the Sony PlayStation 3 ("PS3") and
Nintendo Wii ("Wii") climbed from approximately zero and 5%, respectively of total console sales in fiscal 2007 to 15% and 16%, respectively in fiscal 2008. We released 40 and 31 new
titles for console platforms in fiscal 2008 and fiscal 2007, respectively.

Microsoft Xbox 360 Net Sales (in thousands)

|Year Ended
March 31, 2008 |  | % of net sales |  | Year Ended
March 31, 2007 |  | % of net sales |  | % change
|------------------------- |  | -------------- |  | ------------------------- |  | -------------- |  | --------
|$129,483                  |  | 12.6%          |  | $134,908                  |  | 13.1%          |  | (4.0)%  
|                          |  |                |  |                           |  |                |  |         

In
fiscal 2008, net sales of video games for Xbox 360 were primarily driven by sales ofWWE SmackDown vs. Raw! 2008, and
sales of games based on our owned intellectual properties, includingMX vs. ATV Untamed, Stuntman: IgnitionandJuiced 2:
Hot Import Nights. We released 10 and five new titles in fiscal 2008 and fiscal 2007, respectively. Although we released five more titles in fiscal 2008 as
compared to fiscal 2007, net sales decreased by $5.4 million primarily due to the following:



Microsoft Xbox Net Sales (in thousands)

|Year Ended
March 31, 2008 |  | % of net sales |  | Year Ended
March 31, 2007 |  | % of net sales |  | % change
|------------------------- |  | -------------- |  | ------------------------- |  | -------------- |  | --------
|$2,278                    |  | 0.2%           |  | $27,476                   |  | 2.7%           |  | (91.7)% 
|                          |  |                |  |                           |  |                |  |         

In
fiscal 2008, net sales of video games for Microsoft Xbox ("Xbox") were primarily driven by sales of our catalog titles. We released one and three new titles in fiscal 2008 and fiscal 2007,
respectively. Net sales decreased by $25.2 million in fiscal 2008 as compared to fiscal 2007 primarily due to consumer demand shifting to games for Microsoft's current generation console,
Xbox 360.

Nintendo Wii Net Sales (in thousands)

|Year Ended
March 31, 2008 |  | % of net sales |  | Year Ended
March 31, 2007 |  | % of net sales |  | % change
|------------------------- |  | -------------- |  | ------------------------- |  | -------------- |  | --------
|$91,431                   |  | 8.9%           |  | $30,025                   |  | 2.9%           |  | 204.5%  
|                          |  |                |  |                           |  |                |  |         

In
fiscal 2008, net sales of video games for Wii were primarily driven by sales ofWWE SmackDown vs. Raw! 2008, as well as sales of RatatouilleandCars 2: Mater-National. We released 10 and four new titles in fiscal 2008
and fiscal 2007, respectively. Net sales increased by $61.4 million in fiscal 2008 as compared to fiscal 2007 primarily due to the following:



35

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Nintendo GameCube Net Sales (in thousands)

|Year Ended
March 31, 2008 |  | % of net sales |  | Year Ended
March 31, 2007 |  | % of net sales |  | % change
|------------------------- |  | -------------- |  | ------------------------- |  | -------------- |  | --------
|$7,090                    |  | 0.7%           |  | $52,338                   |  | 5.1%           |  | (86.5)% 
|                          |  |                |  |                           |  |                |  |         

In
fiscal 2008, net sales of video games for Nintendo GameCube ("GameCube") were driven by sales ofRatatouilleand our catalog titles. Net sales
decreased by $45.2 million in fiscal 2008 as compared to fiscal 2007 primarily due to only one new release,Ratatouille, in fiscal 2008,
as compared to eight new releases, includingCars, in fiscal 2007. The decrease is also due to consumer demand shifting to games for Nintendo's current
generation console, Wii.

Sony PlayStation 3 Net Sales (in thousands)

|Year Ended
March 31, 2008 |  | % of net sales |  | Year Ended
March 31, 2007 |  | % of net sales |  | % change
|------------------------- |  | -------------- |  | ------------------------- |  | -------------- |  | --------
|$85,533                   |  | 8.3%           |  | $                        |  | %             |  | %      
|                          |  |                |  |                           |  |                |  |         

Sony
released its current generation console, PS3 in November 2006. In fiscal 2008, net sales of video games for PS3 were primarily driven byWWE SmackDown vs.
Raw! 2008and sales of our owned intellectual propertiesMX vs. ATV Untamed, Juiced 2: Hot Import Nightsand Stuntman: Ignition. We released seven new titles in fiscal 2008 and plan to release additional titles for PS3 as the installed base continues to grow.

Sony PlayStation 2 Net Sales (in thousands)

|Year Ended
March 31, 2008 |  | % of net sales |  | Year Ended
March 31, 2007 |  | % of net sales |  | % change
|------------------------- |  | -------------- |  | ------------------------- |  | -------------- |  | --------
|$252,642                  |  | 24.5%          |  | $304,916                  |  | 29.7%          |  | (17.1)% 
|                          |  |                |  |                           |  |                |  |         

In
fiscal 2008, net sales of video games for PS2 were primarily driven by sales ofWWE SmackDown vs. Raw! 2008and sales of our catalog titles. We
released 11 new titles in both fiscal 2008 and fiscal 2007. Net sales decreased by $52.3 million in fiscal 2008 as compared to fiscal 2007 primarily due to a decrease in sales of new
releases in the North America markets, including:



Sony
released its current generation console, PS3, in November 2006 and some of the sales decline in fiscal 2008 is attributable to consumer demand shifting to PS3. We expect sales of games for PS2 to
continue to decline over time as the installed base for PS3 continues to grow and consumer demand continues to shift to PS3.

Handheld Platforms

Net sales for handheld platforms increased by 13% in fiscal 2008 to $367.3 million from $325.9 million in fiscal 2007. Consistent with our expectations, net sales
of games for Nintendo's Dual Screen ("DS") and

36

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Sony's
PlayStation Portable ("PSP") continued to increase in fiscal 2008 with the growth of the installed base, while net sales of games for Game Boy Advance ("GBA") declined from 37% of game sales
for handheld platforms in fiscal 2007 to 10% in fiscal 2008. We released 30 and 27 new handheld titles in fiscal 2008 and fiscal 2007, respectively.

Nintendo Dual Screen Net Sales (in thousands)

|Year Ended
March 31, 2008 |  | % of net sales |  | Year Ended
March 31, 2007 |  | % of net sales |  | % change
|------------------------- |  | -------------- |  | ------------------------- |  | -------------- |  | --------
|$226,912                  |  | 22.0%          |  | $114,143                  |  | 11.1%          |  | 98.8%   
|                          |  |                |  |                           |  |                |  |         

In
fiscal 2008, net sales of video games for DS were primarily driven by sales ofRatatouille, our owned intellectual property, Drawn to Life,and sales of
our catalog titles. We released 18 and nine new titles in fiscal 2008 and fiscal 2007, respectively. Net sales increased by
$112.8 million in fiscal 2008 as compared to fiscal 2007 primarily due to the following:



The
installed base of DS hardware is expected to continue growing, and we plan to continue our strong lineup of mass-market titles for this platform.

Nintendo Game Boy Advance Net Sales (in thousands)

|Year Ended
March 31, 2008 |  | % of net sales |  | Year Ended
March 31, 2007 |  | % of net sales |  | % change
|------------------------- |  | -------------- |  | ------------------------- |  | -------------- |  | --------
|$36,655                   |  | 3.6%           |  | $119,869                  |  | 11.7%          |  | (69.4)% 
|                          |  |                |  |                           |  |                |  |         

In
fiscal 2008, net sales of video games for GBA were primarily driven byRatatouilleand sales of our catalog titles. We released six and 13 new
titles in fiscal 2008 and fiscal 2007, respectively. Net sales decreased by $83.2 million in fiscal 2008 as compared to fiscal 2007 primarily due to consumer demand shifting to DS. We expect
sales of games for GBA to continue to decline over time as a result of consumer demand shifting to DS.

PlayStation Portable Net Sales (in thousands)

|Year Ended
March 31, 2008 |  | % of net sales |  | Year Ended
March 31, 2007 |  | % of net sales |  | % change
|------------------------- |  | -------------- |  | ------------------------- |  | -------------- |  | --------
|$84,030                   |  | 8.2%           |  | $65,402                   |  | 6.4%           |  | 28.5%   
|                          |  |                |  |                           |  |                |  |         

In
fiscal 2008, net sales of video games for PSP were primarily driven by sales ofWWE SmackDown vs. Raw! 2008, Ratatouille, and sales of our
catalog titles. We released six and five new titles in fiscal 2008 and fiscal 2007, respectively. Net sales
increased by $18.6 million in fiscal 2008 as compared to fiscal 2007 primarily due to the following:



37

---





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

Wireless Net Sales (in thousands)

|Year Ended
March 31, 2008 |  | % of net sales |  | Year Ended
March 31, 2007 |  | % of net sales |  | % change
|------------------------- |  | -------------- |  | ------------------------- |  | -------------- |  | --------
|$19,751                   |  | 1.9%           |  | $26,467                   |  | 2.6%           |  | (25.4)% 
|                          |  |                |  |                           |  |                |  |         

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

In
fiscal 2008, wireless net sales were primarily driven by games and other content based on Worms, Star Wars and major sports leagues. Wireless net sales decreased by $6.7 million in
fiscal 2008 as compared to fiscal 2007 primarily due to fiscal 2007 including revenue from our controlling interest in Minick, which was sold in December 2006.

We
expect wireless net sales to increase in fiscal 2009, as compared to fiscal 2008.

PC Net Sales (in thousands)

|Year Ended
March 31, 2008 |  | % of net sales |  | Year Ended
March 31, 2007 |  | % of net sales |  | % change
|------------------------- |  | -------------- |  | ------------------------- |  | -------------- |  | --------
|$94,264                   |  | 9.1%           |  | $149,546                  |  | 14.6%          |  | (37.0)% 
|                          |  |                |  |                           |  |                |  |         

In
fiscal 2008, net sales of video games for PC products were primarily driven by sales of our owned intellectual property,Company of Heroes: Opposing
Fronts, sales of the Real-Time Strategy gameWarhammer 40,000: Dawn of WarSoulstorm, and sales
of our catalog titles. We released eight and nine new titles in fiscal 2008 and fiscal 2007, respectively. Net sales decreased by $55.3 million in fiscal 2008 as compared to fiscal 2007
primarily due to the following:



38

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

Costs and expenses increased by $169.9 million, or 17.9%, in fiscal 2008 as compared to fiscal 2007, to $1,118.5 million, from $948.7 million. This
increase, on a dollar basis, was primarily due to:



Cost of SalesProduct Costs (in thousands)

|Year Ended
March 31, 2008 |  | % of net sales |  | Year Ended
March 31, 2007 |  | % of net sales |  | % change
|------------------------- |  | -------------- |  | ------------------------- |  | -------------- |  | --------
|$389,097                  |  | 37.8%          |  | $351,449                  |  | 34.2%          |  | 10.7%   
|                          |  |                |  |                           |  |                |  |         

Product
costs primarily consist of direct manufacturing costs (including platform manufacturer license fees), net of manufacturer volume rebates and discounts. Product costs as a percentage of net
sales increased by 3.6 points in fiscal 2008 as compared to fiscal 2007. This increase was primarily due to:



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

|Year Ended
March 31, 2008 |  | % of net sales |  | Year Ended
March 31, 2007 |  | % of net sales |  | % change
|------------------------- |  | -------------- |  | ------------------------- |  | -------------- |  | --------
|$231,800                  |  | 22.5%          |  | $165,462                  |  | 16.1%          |  | 40.1%   
|                          |  |                |  |                           |  |                |  |         

Software
amortization and royalties primarily consists of amortization of capitalized payments made to third-party software developers and amortization of capitalized internal studio development
costs. Commencing upon product release, capitalized software development costs are amortized to software amortization and royalties based on the ratio of current revenues to total projected revenues.
In fiscal 2008 software amortization and royalties increased by 6.4 points as a percentage of net sales over fiscal 2007. This increase was primarily due to:



39

---





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

|Year Ended
March 31, 2008 |  | % of net sales |  | Year Ended
March 31, 2007 |  | % of net sales |  | % change
|------------------------- |  | -------------- |  | ------------------------- |  | -------------- |  | --------
|$99,524                   |  | 9.7%           |  | $99,533                   |  | 9.7%           |  | 0.0%    
|                          |  |                |  |                           |  |                |  |         

License
amortization and royalties expense consists of royalty payments due to licensors, which are expensed at the higher of (1) the contractual royalty rate based on actual net product sales
for such license, or (2) an effective rate based upon total projected revenue for such license. License amortization and royalties as a percentage of net sales remained flat at 9.7% in both
fiscal 2008 and fiscal 2007. In fiscal 2008, we recognized approximately $4.6 million of additional license amortization and royalties expense arising from our decision to no longer pursue our
Juiced and Stuntman intellectual properties in the future. Excluding these charges, license amortization and royalties, as a percentage of net sales, would have been lower by half a point in fiscal
2008 due to the increased mix of net sales from games based on our owned intellectual properties, includingMX vs. ATV Untamed, Juiced 2: Hot Import Nights,Stuntman: IgnitionandDrawn to
Life.

Cost of SalesVenture Partner Expense (in thousands)

|Year Ended
March 31, 2008 |  | % of net sales |  | Year Ended
March 31, 2007 |  | % of net sales |  | % change
|------------------------- |  | -------------- |  | ------------------------- |  | -------------- |  | --------
|$24,056                   |  | 2.3%           |  | $16,730                   |  | 1.6%           |  | 43.8%   
|                          |  |                |  |                           |  |                |  |         

Venture
partner expense is related to the license agreement that the THQ/JAKKS Pacific joint venture, comprised of THQ and JAKKS Pacific, Inc. ("JAKKS"), has with the WWE, under which our role
is to develop, manufacture, distribute, market and sell WWE video games. Venture partner expense increased by $7.3 million in fiscal 2008 as compared to fiscal 2007. This increase is due to an
overall increase in net sales of games based upon the WWE license, primarily due to the release ofWWE SmackDown vs. Raw 2008in fiscal 2008 on three
additional platforms as compared toWWE SmackDown vs. Raw 2007in fiscal 2007. We have not paid these amounts to JAKKS; see
"Item 3Legal Proceedings" for information regarding our venture partner agreement.

Product Development (in thousands)

|Year Ended
March 31, 2008 |  | % of net sales |  | Year Ended
March 31, 2007 |  | % of net sales |  | % change
|------------------------- |  | -------------- |  | ------------------------- |  | -------------- |  | --------
|$128,869                  |  | 12.5%          |  | $97,105                   |  | 9.5%           |  | 32.7%   
|                          |  |                |  |                           |  |                |  |         

Product
development expense primarily consists of expenses incurred by internal development studios and payments made to external development studios prior to products reaching technological
feasibility. Product development expense increased by $31.8 million in fiscal 2008 as compared to fiscal 2007. This increase is primarily due to overall increased product development efforts to
support future growth, including increased quality assurance efforts and increased wireless game development due in part to our acquisition of Universomo, a mobile game developer based in Finland that
we acquired in May 2007. Also contributing to the increases in product development expense is approximately $4.7 million recognized in the three months ended December 31, 2007 due to a
change in our estimate of an unannounced title having reached technological feasibility.

40

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Selling and Marketing (in thousands)

|Year Ended
March 31, 2008 |  | % of net sales |  | Year Ended
March 31, 2007 |  | % of net sales |  | % change
|------------------------- |  | -------------- |  | ------------------------- |  | -------------- |  | --------
|$175,288                  |  | 17.0%          |  | $139,958                  |  | 13.6%          |  | 25.2%   
|                          |  |                |  |                           |  |                |  |         

Selling
and marketing expenses consist of advertising, promotional expenses, and personnel-related costs. In fiscal 2008, selling and marketing expenses increased on a dollar basis by
$35.3 million as compared to fiscal 2007. This increase was primarily due to the following:



In
fiscal 2008, selling and marketing expenses increased by 3.4 points as a percentage of net sales as compared to fiscal 2007. This increase is primarily due to the following:



General and Administrative (in thousands)

|Year Ended
March 31, 2008 |  | % of net sales |  | Year Ended
March 31, 2007 |  | % of net sales |  | % change
|------------------------- |  | -------------- |  | ------------------------- |  | -------------- |  | --------
|$69,901                   |  | 6.8%           |  | $78,413                   |  | 7.6%           |  | (10.9)% 
|                          |  |                |  |                           |  |                |  |         

General
and administrative expenses consist of personnel and related expenses of executive and administrative staff, as well as fees for professional services such as legal and accounting. General and
administrative expenses decreased by $8.5 million in fiscal 2008 as compared to fiscal 2007. The decrease was primarily due to:



Interest and Other Income,net

Interest and other income, net consists of interest earned on our investments as well as gains and losses resulting from exchange rate changes for transactions denominated in
currencies other than the functional currency. Interest and other income, net increased by $2.6 million in fiscal 2008 as compared to fiscal 2007. The increase in fiscal 2008 was primarily due
to higher average yields on higher average investment balances.

41

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Income Taxes

We recorded an income tax benefit of $35.8 million for fiscal 2008 as compared to income tax expense of $26.2 million for fiscal 2007. The income tax benefit in
fiscal 2008 reflects an effective tax rate of 49%, which is higher than our statutory rate of 35%. The significant items that generated the variance between our effective tax rate and the statutory
tax rate for fiscal 2008 were (i) the partial release of the reserve on previous years' research and development tax credits, (ii) fiscal 2008 research and development tax credits, and
(iii) tax free interest income.

The
income tax expense for fiscal 2007 reflects an effective income tax rate of 29%, which is lower than our statutory rate of 35%. The significant items that generated the variance between our
effective tax rate and the statutory tax rate for fiscal 2007 were research and development tax credits and tax free interest income.

Minority Interest and Discontinued Operations

Minority interest reflects the income allocable to equity interests in Minick that are not owned by THQ. Prior to December 1, 2006, we owned 50% of Minick's outstanding
common stock and controlled its board of directors. On December 1, 2006, we sold our interest in Minick. As of March 31, 2008 we have received approximately $18.6 million in cash
due to the sale of Minick. We recognized gains of $1.5 million and $3.1 million in fiscal 2008 and fiscal 2007, respectively, related to the sale of Minick. These gains are presented as
"Gain on sale of discontinued operations, net of tax" in our consolidated statements of operations. Pursuant to the Minick sale agreement, we may receive additional consideration of approximately
$1.2 million during the three months ended June 30, 2008. If such amounts are received, the additional gain recognized will be reported in discontinued operations in the period the
proceeds are collected. The results of Minick's operations were not material to any of the periods presented and have therefore not been reclassified as discontinued operations.

Comparison of Fiscal 2007 to Fiscal 2006

Net income from continuing operations for fiscal 2007 was $65.0 million, or $0.96 per diluted share, compared to net income from continuing operations of
$32.1 million, or $0.49 per diluted share, for fiscal 2006. Net income for fiscal 2007 was $68.0 million, or $1.01 per diluted share, and included a $3.1 million gain on sale of
discontinued operations.

Net Sales

We derive revenue principally from sales of packaged interactive software games designed for play on video game consoles, handheld devices and personal computers. We also
derive revenue through downloads by mobile phone users of our wireless content.

The
following table details our net sales by territory for fiscal 2007 and 2006 (in thousands):

Fiscal Year Ended March 31,Increase/
(Decrease)2007

2006

% ChangeNorth America

$
600,159

58.4
%
$
489,945

60.7
%
$
110,214

22.5
%Europe


365,406

35.6


269,928

33.5


95,478

35.4
%Asia Pacific


61,291

6.0


46,687

5.8


14,604

31.3
%International


426,697

41.6


316,615

39.3


110,082

34.8
%Consolidated net sales

$
1,026,856

100.0
%
$
806,560

100.0
%
$
220,296

27.3
%


42

---



North
America and international net sales in fiscal 2007 were primarily driven by the release ofCars, from the DisneyPixar franchise, WWE SmackDown vs. Raw 2007, and the successful launch ofSaints Row, a new internally developed and
owned intellectual property.

Net
sales in fiscal 2007 increased 27% over fiscal 2006, from $806.6 million to $1,026.9 million. The increase in net sales was primarily due to the following:



In
fiscal 2007, our North American sales increased by 22.5% over fiscal 2006. Our international sales increased by $110.1 million, or 35% in fiscal 2007 due to marketing and sales expansion in
the international markets as well as the release of games with increased international appeal.

Changes
in foreign currency rates increased reported international net sales by $25.2 million or 6% in fiscal 2007, as compared to fiscal 2006. Excluding the impacts of foreign exchange rates,
international net sales increased by 22% in fiscal 2007.

Net Sales by Platform

Our worldwide net sales by platform for fiscal 2007 and fiscal 2006 are as follows (in thousands):

|          |                           | Fiscal Year Ended March 31, |           |         |       |      |  
|--------- | ------------------------- | --------------------------- | --------- | ------- | ----- | ---- | -
|
|
|Consoles  |                           |                             |           |         |       |      |  
|          | Microsoft Xbox 360        |                             | $         | 134,908 |       | 13.1 | %
|          | Microsoft Xbox            |                             |           | 27,476  |       | 2.7  |  
|          | Nintendo Wii              |                             |           | 30,025  |       | 2.9  |  
|          | Nintendo GameCube         |                             |           | 52,338  |       | 5.1  |  
|          | Sony PlayStation 2        |                             |           | 304,916 |       | 29.7 |  
|          |                           |                             |           |         |       |      |  
|          |                           |                             | 549,663   |         | 53.5  |      |  
|          |                           |                             |           |         |       |      |  
|Handheld  |                           |                             |           |         |       |      |  
|          | Nintendo Dual Screen      |                             |           | 114,143 |       | 11.1 |  
|          | Nintendo Game Boy Advance |                             |           | 119,869 |       | 11.7 |  
|          | Sony PlayStation Portable |                             |           | 65,402  |       | 6.4  |  
|          | Wireless                  |                             |           | 26,467  |       | 2.6  |  
|          |                           |                             |           |         |       |      |  
|          |                           |                             | 325,881   |         | 31.8  |      |  
|          |                           |                             |           |         |       |      |  
|PC        |                           |                             | 149,546   |         | 14.6  |      |  
|Other     |                           |                             | 1,766     |         | 0.1   |      |  
|          |                           |                             |           |         |       |      |  
|Net Sales |                           | $                           | 1,026,856 |         | 100.0 | %    | $
|          |                           |                             |           |         |       |      |  

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Console Platforms

Net sales for console platforms increased by 20% in fiscal 2007 to $549.7 million from $458.2 million in fiscal 2006. In fiscal 2007, sales of games for the Sony
PlayStation 2 constituted 55% of our sales for
console platforms, down from 65% of total console sales in fiscal 2006, while sales of games on the Microsoft Xbox 360 climbed from approximately 3% of total console sales in fiscal 2006 to
almost 25% in fiscal 2007. We released 31 new titles for console platforms in fiscal 2007 and 2006.

Microsoft Xbox 360 Net Sales (in thousands)

|Year Ended
March 31, 2007 |  | % of net sales |  | Year Ended
March 31, 2006 |  | % of net sales |  | % change
|------------------------- |  | -------------- |  | ------------------------- |  | -------------- |  | --------
|$134,908                  |  | 13.1%          |  | $14,479                   |  | 1.8%           |  | 831.7%  
|                          |  |                |  |                           |  |                |  |         

In
fiscal 2007, net sales of video games for Xbox 360 were primarily driven by the release of our owned and internally developed propertySaints
Rowand byWWE SmackDown vs. Raw 2007. In fiscal 2006,The Outfitwas the only
game released for the Xbox 360, while we released five new titles in fiscal 2007. The $120.4 million increase in net sales in fiscal 2007 is due to our release of four more titles as
compared to fiscal 2006. As the installed base of Xbox 360 hardware has grown since its launch in November 2005, we have brought more titles to the platform, including
DisneyPixar'sCars. We expect to continue to bring new titles to this platform as the installed base of Xbox 360 continues to grow.

Microsoft Xbox Net Sales (in thousands)

|Year Ended
March 31, 2007 |  | % of net sales |  | Year Ended
March 31, 2006 |  | % of net sales |  | % change
|------------------------- |  | -------------- |  | ------------------------- |  | -------------- |  | --------
|$27,476                   |  | 2.7%           |  | $88,181                   |  | 10.9%          |  | (68.8)% 
|                          |  |                |  |                           |  |                |  |         

In
fiscal 2007, net sales of video games for Xbox were primarily driven by the release of DisneyPixar'sCars, Destroy All Humans! 2and sales of our
catalog titles. We released three and 11 new titles in fiscal 2007 and 2006, respectively. Net sales decreased by
$60.7 million in fiscal 2007 as compared to fiscal 2006 primarily due to fewer units sold of video games for Xbox as consumer demand shifted to games for Microsoft's current generation console,
Xbox 360.

Nintendo Wii Net Sales (in thousands)

|Year Ended
March 31, 2007 |  | % of net sales |  | Year Ended
March 31, 2006 |  | % of net sales |  | % change
|------------------------- |  | -------------- |  | ------------------------- |  | -------------- |  | --------
|$30,025                   |  | 2.9%           |  | $                        |  | %             |  | %      
|                          |  |                |  |                           |  |                |  |         

Nintendo
launched its current generation console, Nintendo Wii ("Wii") in November 2006. In fiscal 2007, we released four new titles, which accounted for all sales on Wii in fiscal 2007. The games
released were DisneyPixar'sCarsand three Nickelodeon titles:SpongeBob SquarePants: Creature from the Krusty
Krab,Avatar: The Last AirbenderandBarnyard.

Nintendo GameCube Net Sales (in thousands)

|Year Ended
March 31, 2007 |  | % of net sales |  | Year Ended
March 31, 2006 |  | % of net sales |  | % change
|------------------------- |  | -------------- |  | ------------------------- |  | -------------- |  | --------
|$52,338                   |  | 5.1%           |  | $59,255                   |  | 7.3%           |  | (11.7)% 
|                          |  |                |  |                           |  |                |  |         

In
fiscal 2007, net sales of video games for Nintendo GameCube ("GameCube") were primarily driven by sales of DisneyPixar'sCarsand our
Nickelodeon titles, as well as sales of our catalog titles. We released

44

---



eight
and seven new titles in fiscal 2007 and 2006, respectively. Net sales decreased by $6.9 million in fiscal 2007 as compared to fiscal 2006 primarily due to decreased sales of catalog
titles in fiscal 2007 as consumers shifted to the current generation consoles. We expect net sales for GameCube to continue to decline in the future as consumer demand shifts to video games made for
Wii.

Sony PlayStation 2 Net Sales (in thousands)

|Year Ended
March 31, 2007 |  | % of net sales |  | Year Ended
March 31, 2006 |  | % of net sales |  | % change
|------------------------- |  | -------------- |  | ------------------------- |  | -------------- |  | --------
|$304,916                  |  | 29.7%          |  | $296,294                  |  | 36.7%          |  | 2.9%    
|                          |  |                |  |                           |  |                |  |         

In
fiscal 2007, net sales of video games for PlayStation 2 ("PS2") were primarily driven byWWE SmackDown vs. Raw 2007, DisneyPixar's Carsand sales of
our Nickelodeon and catalog titles. We released 11 and 12 new titles in fiscal 2007 and 2006, respectively. Net sales increased
$8.6 million in fiscal 2007 as compared to fiscal 2006 primarily due to sales of DisneyPixar'sCarsas compared to sales of The Incredibles: Rise of the
Underminerin fiscal 2006, partially offset by lower sales of catalog titles, which were higher in fiscal 2006. Sony
released its current generation console, PS3, in November 2006. We expect net sales of games for PS2 to decline in the future as the installed base of PS3 grows.

Handheld Platforms

Net sales for handheld platforms increased by 21% in fiscal 2007 to $325.9 million from $269.9 million in fiscal 2006. We released 27 and 22 new handheld titles
in fiscal 2007 and 2006, respectively. Consistent with our expectations, net sales of games for Nintendo's Dual Screen ("DS") and Sony's PlayStation Portable ("PSP") continued to increase in fiscal
2007 with the growth of the installed base, while net sales of games for Game Boy Advance ("GBA") declined from 64% of game sales for handheld platforms in fiscal 2006 to 37% in fiscal 2007.

Nintendo Dual Screen Net Sales (in thousands)

|Year Ended
March 31, 2007 |  | % of net sales |  | Year Ended
March 31, 2006 |  | % of net sales |  | % change
|------------------------- |  | -------------- |  | ------------------------- |  | -------------- |  | --------
|$114,143                  |  | 11.1%          |  | $32,855                   |  | 4.1%           |  | 247.4%  
|                          |  |                |  |                           |  |                |  |         

In
fiscal 2007, sales ofCars,Bratz: Forever Diamondzand sales of our Nickelodeon and catalog titles
drove our sales and contributed to an $81.3 million increase in net sales over fiscal 2006. We released nine and eight new titles in fiscal 2007 and 2006, respectively. As the installed base of
DS hardware continues to grow, we expect to continue to bring more titles to the platform.

Nintendo Game Boy Advance Net Sales (in thousands)

|Year Ended
March 31, 2007 |  | % of net sales |  | Year Ended
March 31, 2006 |  | % of net sales |  | % change
|------------------------- |  | -------------- |  | ------------------------- |  | -------------- |  | --------
|$119,869                  |  | 11.7%          |  | $171,477                  |  | 21.3%          |  | (30.1)% 
|                          |  |                |  |                           |  |                |  |         

In
fiscal 2007, net sales of video games for GBA were primarily driven byCarsand sales of our catalog titles. We released 13 and 10 new titles in
fiscal 2007 and 2006, respectively. Net sales decreased by $51.6 million in fiscal 2007 as compared to fiscal 2006 as consumer demand shifted to DS. We expect net sales from GBA products to
continue to decline as a result of continued growth of DS and PSP into the handheld video game market.

45

---



PlayStation Portable Net Sales (in thousands)

|Year Ended
March 31, 2007 |  | % of net sales |  | Year Ended
March 31, 2006 |  | % of net sales |  | % change
|------------------------- |  | -------------- |  | ------------------------- |  | -------------- |  | --------
|$65,402                   |  | 6.4%           |  | $29,406                   |  | 3.6%           |  | 122.4%  
|                          |  |                |  |                           |  |                |  |         

In
fiscal 2007, net sales of video games for PSP were driven byCarsandWWE SmackDown vs. Raw
2007. We released five and four new titles in fiscal 2007 and 2006, respectively. Net sales increased by $36.0 million in fiscal 2007 as compared to fiscal 2006
primarily due to sales ofCarsand increased sales of catalog titles. As the installed base of PSP hardware continues to grow, we expect to continue to
bring more titles to the platform.

Wireless Net Sales (in thousands)

|Year Ended
March 31, 2007 |  | % of net sales |  | Year Ended
March 31, 2006 |  | % of net sales |  | % change
|------------------------- |  | -------------- |  | ------------------------- |  | -------------- |  | --------
|$26,467                   |  | 2.6%           |  | $36,112                   |  | 4.5%           |  | (26.7)% 
|                          |  |                |  |                           |  |                |  |         

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

In
fiscal 2007, wireless net sales consisted of games and other content based onStar WarsandWorms;licensed properties such as SpongeBob SquarePants and WWE; and owned intellectual properties such asSaints Rowand Juiced. Wireless net sales decreased by
$9.6 million during fiscal 2007 as compared to fiscal 2006. The decrease is due to the sale of our
interest in Minick in December 2006 and fewer new titles released as we re-align our wireless product portfolio to emphasize more casual game content to position ourselves for wireless
platform share gains in the future.

PC Net Sales (in thousands)

|Year Ended
March 31, 2007 |  | % of net sales |  | Year Ended
March 31, 2006 |  | % of net sales |  | % change
|------------------------- |  | -------------- |  | ------------------------- |  | -------------- |  | --------
|$149,546                  |  | 14.6%          |  | $77,615                   |  | 9.6%           |  | 92.7%   
|                          |  |                |  |                           |  |                |  |         

In
fiscal 2007, net sales of video games for PC products were primarily driven by the release of our new owned and internally developed property,Company of
Heroes, as well asS.T.A.L.K.E.R.: Shadow of Chernobyl,Supreme Commanderand Titan Quest. We released nine and 11 new titles in fiscal 2007 and 2006, respectively. Net sales increased by $71.9 million in fiscal 2007, as
compared to fiscal 2006 primarily due to these core-gamer titles with premium PC pricing.

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

Costs and expenses increased by $174.0 million, or 22%, in fiscal 2007 compared to fiscal 2006, to $948.7 million, from $774.7 million. This increase was
primarily due to:



46

---





Costs
and expenses as a percentage of net sales decreased by 4 points to 92% in fiscal 2007 from 96% in fiscal 2006. This decrease was primarily due to product mix of higher priced titles and leverage
of our selling and marketing and general and administrative expenses.

Cost of SalesProduct Costs (in thousands)

|Year Ended
March 31, 2007 |  | % of net sales |  | Year Ended
March 31, 2006 |  | % of net sales |  | % change
|------------------------- |  | -------------- |  | ------------------------- |  | -------------- |  | --------
|$351,449                  |  | 34.2%          |  | $287,946                  |  | 35.7%          |  | 22.1%   
|                          |  |                |  |                           |  |                |  |         

Product
costs primarily consist of direct manufacturing costs (including platform manufacturer license fees), net of manufacturer volume rebates and discounts. Product costs as a percentage of net
sales decreased by 1.5 points in fiscal 2007 as compared to fiscal 2006. This decrease was primarily due to an
increase in sales from our premium priced PC games includingCompany of Heroes,S.T.A.L.K.E.R.: Shadow of
Chernobyl,Supreme CommanderandTitan Quest. These PC games have lower product
costs as compared to most of our other platforms due to the lack of a platform manufacturer license fee.

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

|Year Ended
March 31, 2007 |  | % of net sales |  | Year Ended
March 31, 2006 |  | % of net sales |  | % change
|------------------------- |  | -------------- |  | ------------------------- |  | -------------- |  | --------
|$165,462                  |  | 16.1%          |  | $116,371                  |  | 14.4%          |  | 42.2%   
|                          |  |                |  |                           |  |                |  |         

Software
amortization and royalties primarily consists of amortization of capitalized payments made to third-party software developers and amortization of capitalized internal studio development
costs. Commencing upon product release, capitalized software development costs are amortized to software amortization and royalties based on the ratio of current revenues to total projected revenues.
In fiscal 2007 software amortization and royalties as a percentage of net sales increased by 1.7 points over fiscal 2006. This increase was primarily due to a greater mix of current generation titles
with higher development costs.

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

|Year Ended
March 31, 2007 |  | % of net sales |  | Year Ended
March 31, 2006 |  | % of net sales |  | % change
|------------------------- |  | -------------- |  | ------------------------- |  | -------------- |  | --------
|$99,533                   |  | 9.7%           |  | $80,508                   |  | 10.0%          |  | 23.6%   
|                          |  |                |  |                           |  |                |  |         

License
amortization and royalties expense consists of royalty payments due to licensors, which are expensed at the higher of (1) the contractual royalty rate based on actual net product sales
for such license or (2) an effective rate based upon total projected revenue for such license. In fiscal 2007 license amortization and royalties as a percentage of net sales decreased slightly
versus fiscal 2006. The top selling titles in fiscal 2007 wereCarsandWWE® SmackDown vs. Raw
2007, both licensed properties. However, the increased mix of net sales from games based on our owned intellectual properties includingSaints
Row,Destroy All Humans! 2,Company of HeroesandTitan
Questlowered the overall rate as compared to fiscal 2006.

47

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Cost of SalesVenture Partner Expense (in thousands)

|Year Ended
March 31, 2007 |  | % of net sales |  | Year Ended
March 31, 2006 |  | % of net sales |  | % change
|------------------------- |  | -------------- |  | ------------------------- |  | -------------- |  | --------
|$16,730                   |  | 1.6%           |  | $12,572                   |  | 1.6%           |  | 33.1%   
|                          |  |                |  |                           |  |                |  |         

Venture
partner expense is related to the joint license agreement that THQ and JAKKS Pacific, Inc. ("JAKKS") have with the WWE under which our role is to develop, manufacture, distribute,
market and sell WWE video games. Venture partner expense increased by $4.2 million in fiscal 2007 as compared to fiscal 2006. This increase is due to an overall increase in net sales of games
based upon the WWE license, which is primarily due to the release ofWWE®SmackDown vs. Raw
2007in fiscal 2007 and the introduction of this game to the current generation console Xbox360. See "Item 3Legal Proceedings" for information regarding our
venture partner agreement.

Product Development (in thousands)

|Year Ended
March 31, 2007 |  | % of net sales |  | Year Ended
March 31, 2006 |  | % of net sales |  | % change
|------------------------- |  | -------------- |  | ------------------------- |  | -------------- |  | --------
|$97,105                   |  | 9.5%           |  | $94,575                   |  | 11.7%          |  | 2.7%    
|                          |  |                |  |                           |  |                |  |         

Product
development expense primarily consists of expenses incurred by internal development studios and payments made to external development studios prior to products reaching technological
feasibility. Product development expense increased by $2.5 million in fiscal 2007 as compared to fiscal 2006. This increase is primarily due to $3.4 million of stock-based compensation
expense due to our adoption of FAS 123R in our first quarter of fiscal 2007, $2.4 million higher than in fiscal 2006, and $1.5 million from the payroll tax effects of our
historical stock option grant practices investigation in fiscal 2007. This increase was partially offset by more products under development that reached technological feasibility earlier in the
development process in fiscal 2007 as compared to fiscal 2006.

Selling and Marketing (in thousands)

|Year Ended
March 31, 2007 |  | % of net sales |  | Year Ended
March 31, 2006 |  | % of net sales |  | % change
|------------------------- |  | -------------- |  | ------------------------- |  | -------------- |  | --------
|$139,958                  |  | 13.6%          |  | $124,809                  |  | 15.5%          |  | 12.1%   
|                          |  |                |  |                           |  |                |  |         

Selling
and marketing expenses consist of advertising, promotional expenses, and personnel-related costs. In fiscal 2007, selling and marketing expenses increased on a dollar basis by
$15.1 million over
fiscal 2006. This increase was primarily due to the promotional efforts supportingCarsandWWE SmackDown vs. Raw
2007which exceeded the promotional costs forIncredibles: Rise of the UnderminerandWWE
SmackDown vs. Raw 2006in fiscal 2006 as well as the launch ofSaints Rowin fiscal 2007. The increase is also due to
$2.8 million of stock-based compensation expense due to our adoption of FAS 123R in our first quarter of fiscal 2007, $1.8 million higher than in fiscal 2006, and
$0.7 million from the payroll tax effects of our historical stock option grant practices investigation in fiscal 2007.

In
fiscal 2007, selling and marketing expenses decreased by 1.9 points as a percentage of net sales as compared to fiscal 2006. This decrease is due to our effective marketing spend that drove a 27%
increase in net sales as compared to fiscal 2006.

48

---



General and Administrative (in thousands)

|Year Ended
March 31, 2007 |  | % of net sales |  | Year Ended
March 31, 2006 |  | % of net sales |  | % change
|------------------------- |  | -------------- |  | ------------------------- |  | -------------- |  | --------
|$78,413                   |  | 7.6%           |  | $57,944                   |  | 7.2%           |  | 35.3%   
|                          |  |                |  |                           |  |                |  |         

General
and administrative expenses consist of personnel and related expenses of executive and administrative staff, as well as fees for professional services such as legal and accounting. General and
administrative expenses increased by $20.5 million in fiscal 2007 as compared to fiscal 2006. The increase was primarily due to $10.7 million of stock-based compensation expense due to
our adoption of FAS 123R in our first quarter of fiscal 2007, which was $9.2 million higher than in fiscal 2006. The increase is also attributable to $5.0 million in legal and
accounting fees incurred in connection with the investigation of our historical stock option grant practices and $0.8 million for the related payroll tax effects.

Interest and Other Income, net

Interest and other income consists of interest earned on our short-term investments as well as gains and losses resulting from exchange rate changes for
transactions denominated in currencies other than the functional currency. Interest and other income increased by $4.9 million in fiscal 2007 as compared to fiscal 2006. The increase was
primarily due to higher average yields on our short-term investment balances.

Income Taxes

The effective income tax rate was 29% for fiscal 2007 and 19% for fiscal 2006. The fiscal 2006 effective income tax rate benefited from the following factors: (1) a
higher ratio of research and development tax credits to pre-tax income and (2) a higher ratio of tax exempt interest income to overall pre-tax income. If fiscal 2006
pretax income were the same as in fiscal 2005 the effective tax rate would have been approximately 28%. The tax rate for fiscal 2007 is higher because of non-deductible stock-based
compensation expense recognized under FAS 123R.

Minority Interest and Discontinued Operations

Minority interest reflects the income allocable to equity interests in Minick that are not owned by THQ. Prior to December 1, 2006, we owned 50% of Minick's outstanding
common stock and controlled its board of directors. On December 1, 2006, we sold our interest in Minick. As of March 31, 2007 we received approximately $17.1 million in cash and
recognized a gain of approximately $3.1 million in discontinued operations due to the sale. The results of Minick's operations were not material to any of the periods presented and have
therefore not been reclassified as discontinued operations.

Liquidity and Capital Resources

|(In thousands)             |                                                   | March 31, 2008 |         | March 31, 2007 |   | Change  |        
|-------------------------- | ------------------------------------------------- | -------------- | ------- | -------------- | - | ------- | -------
|Cash and cash equivalents  |                                                   | $              | 247,820 |                | $ | 174,748 |        
|Short-term investments     |                                                   |                | 69,684  |                |   | 283,210 |        
|                           |                                                   |                |         |                |   |         |        
|                           | Cash, cash equivalents and short-term investments |                | $       | 317,504        |   | $       | 457,958
|                           |                                                   |                |         |                |   |         |        
|Percentage of total assets |                                                   |                | 29      | %              |   | 45      | %      

49

---



|
|

|                                                |                                                      | Year Ended March 31, |         |        |  
|----------------------------------------------- | ---------------------------------------------------- | -------------------- | ------- | ------ | -
|
|
|Cash (used in) provided by operating activities |                                                      | $                    | (9,714  | )      | $
|Cash provided by (used in) investing activities |                                                      |                      | 105,820 |        |  
|Cash (used in) provided by financing activities |                                                      |                      | (26,513 | )      |  
|Effect of exchange rate changes on cash         |                                                      |                      | 3,479   |        |  
|                                                |                                                      |                      |         |        |  
|                                                | Net increase (decrease) in cash and cash equivalents |                      | $       | 73,072 |  
|                                                |                                                      |                      |         |        |  

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

Cash
used in operating activities increased by approximately $73.7 million in fiscal 2008 as compared to fiscal 2007. The increase in cash used was primarily a result of our fiscal 2008 net
loss as compared to fiscal 2007 net income and an increase in accounts receivable due to higher net sales and the timing of product releases in the three months ended March 31, 2008 as compared
to the same period last fiscal year, partially offset by higher non-cash amortization of licenses and software development in fiscal 2008 as compared to fiscal 2007. We expect to generate
positive operating cash flow for the full fiscal year 2009.

Cash Flow from Investing Activities.Cash provided by investing activities in fiscal 2008 increased by approximately $134.0 million,
primarily due to lower purchases of available-for-sale investments, partially offset by our acquisitions of Big Huge Games, Universomo and Elephant Entertainment during fiscal
2008.

Cash Flow from Financing Activities.Cash used in financing activities increased by approximately $67.5 million in fiscal 2008 as
compared to fiscal 2007, primarily due to an increase in common stock repurchases in fiscal 2008 as compared to fiscal 2007, as well as lower proceeds from issuance of common stock to employees in
fiscal 2008 as compared to fiscal 2007.

In
fiscal 2009, we expect to generate more cash than we did in fiscal 2008. The increase in the generation of cash is expected to be primarily attributable to higher net income.

Key Balance Sheet Accounts

Accounts Receivable.Accounts receivable increased $45.2 million in fiscal 2008, from $67.6 million at March 31, 2007
to $112.8 million at March 31, 2008. The increase in net accounts receivable is primarily due to higher net sales and the timing of product releases in the three months ended
March 31, 2008 as compared to the three months ended March 31, 2007. The increase in accounts receivable also reflects units shipped ofFrontlines: Fuel of
War, although the recognition of revenue from this title was deferred to future periods (see Critical Accounting Estimates for information regarding our revenue recognition
policies). Accounts receivable allowances were $113.0 million as of March 31, 2008, a $32.5 million increase from March 31, 2007. Allowances for price protection and
returns as a percentage of trailing nine month net sales were 10% and 8% as of March 31, 2008 and 2007, respectively. We believe our current reserves are adequate based on historical
experience, inventory remaining in the retail channel and the rate of inventory sell-through in the retail channel.

Inventory.Inventory increased $10.8 million in fiscal 2008, from $27.4 million at March 31, 2007 to
$38.2 million at March 31, 2008. The increase in inventory coincides with the higher net sales in the
three months ended March 31, 2008 as compared to March 31, 2007. Inventory turns on a rolling twelve month basis were 11 and 10 at March 31, 2008 and 2007, respectively.

50

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Licenses.Licenses decreased $4.3 million in fiscal 2008, from $91.1 million at March 31, 2007 to $86.8 million
at March 31, 2008. The decrease in licenses is due to amortization of our existing licenses, partially offset by advance payments made to key licensors.

Software Development.Software development increased $16.9 million in fiscal 2008, from $164.3 million at March 31,
2007 to $181.2 million at March 31, 2008. The increase in software development is primarily the result of our investment in current generation cross-platform titles scheduled to be
released in fiscal 2009 and beyond, partially offset by software amortization and royalties of titles released in fiscal 2008, as well as cancellations of certain unreleased titles. Approximately 67%
of the software development asset balance at March 31, 2008 is for games that have fiscal 2009 release dates.

Accounts Payable.Accounts payable increased by $33.5 million from $28.2 million at March 31, 2007 to
$61.7 million at March 31, 2008. The increase in accounts payable is primarily due to an increase in product purchases.

Accrued and Other Current Liabilities.Accrued and other current liabilities increased $58.7 million in fiscal 2008, from
$143.4 million at March 31, 2007 to $202.1 million at March 31, 2008. The increase in accrued and other current liabilities is primarily due to the deferral of revenue from
sales ofFrontlines: Fuel of War, as well as the withholding of payments due our venture partner, which will remain unpaid until a new payment rate has
been established as the old payment rate has expired. See "Item 3Legal Proceedings."

Inflation

We currently believe that inflation has not had a material impact on continuing operations.

Financial Condition

We believe the existing cash, cash equivalents, short-term investments, and cash generated from operations will be sufficient to meet our operating requirements for
at least the next twelve months, including working capital requirements, capital expenditures and potential future acquisitions or strategic investments. We may choose at any time to raise additional
capital to strengthen our cash position, facilitate expansion, pursue strategic investments or to take advantage of business opportunities as they arise. While the Company has investments in auction
rate securities which recently experienced an illiquid market, we do not believe that any illiquidity in our long-term investments will impact our future cash needs. See
"Note 2Investment Securities" in the notes to the consolidated financial statements for further information related to our investments.

Our
ability to maintain sufficient liquidity could be affected by various risks and uncertainties described in Item 1A "Risk Factors" in this Annual Report on Form 10-K.

51

---



Guarantees and Commitments

A summary of annual minimum contractual obligations and commercial commitments as of March 31, 2008 is as follows (in thousands):

Contractual Obligations and Commercial Commitments(6)Fiscal
Years Ending
March 31,

License /
Software
Development
Commitments(1)

Advertising(2)

Leases(3)

Letters of
Credit(4)

Other(5)

Total2009

$
110,316

$
13,009

$
17,011

$
30,914

$
5,347

$
176,5972010


46,630


15,543


16,062





1,388


79,6232011


14,038


8,532


14,766








37,3362012


2,850


1,547


12,497








16,8942013


600


1,547


9,170








11,317Thereafter


500


1,160


17,998








19,658$
174,934

$
41,338

$
87,504

$
30,914

$
6,735

$
341,425


---



52

---



Other
potential future expenditures relate to the following:

Manufacturer Indemnification.We must indemnify the platform manufacturers (Microsoft, Nintendo, Sony) of our games with respect to all
loss, liability and expenses resulting from any claim against such manufacturer involving the development, marketing, sale or use of our games, including any claims for copyright or trademark
infringement brought against such manufacturer. As a result, we bear a risk that the properties upon which the titles of our games are based, or that the information and technology licensed from
others and incorporated into the products, may infringe the rights of third parties. Our agreements with our third-party software developers and property licensors typically provide indemnification
rights for us with respect to certain matters. However, if a manufacturer brings a claim against us for indemnification, the developers or licensors may not have sufficient resources to, in turn,
indemnify us.

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 the 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 their
service as members of our Board of Directors, 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.For information related to legal proceedings that may result in future expenditures to the Company, see
"Item 3Legal Proceedings."

Item 7A.    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 exchange
option and forward contracts to hedge anticipated exposures or mitigate some existing exposures subject to foreign currency exchange rate risk as discussed below.

Interest Rate Risk

We have interest rate risk primarily related to our investment portfolio. A substantial portion of our portfolio is in short-term investments made up of primarily
municipal securities and long-term investments made up of auction rate securities ("ARS"). The value of these investments may fluctuate with changes in interest rates. However, we believe
our interest rate risk is immaterial due to the short-term nature of the municipal securities and the fact that the interest rates on our ARS are either reset to short-term
interest rates in the auction process or, in the event of a failed auction, are reset to the failure rates as specified in the underlying agreements which are typically equal to or greater than
short-term interest rates at the time of reset. Although there has been recent uncertainty in the credit markets, all of the securities are investment grade securities, and we have no
reason to believe that any of the underlying issuers of our ARS are presently at risk or that the underlying credit quality of the assets backing our ARS has been

53

---



impacted
by the reduced liquidity of these investments. We have continued to receive interest payments on the ARS according to their terms. See "Note 2Investment Securities" in the
notes to the consolidated financial statements for further information related to our investments.

As
of March 31, 2008, we had outstanding letters of credit of approximately $30.9 million.

Foreign Currency Exchange Rate Risk

We transact business in many different foreign currencies and are exposed to financial market risk resulting 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. 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 GBP and the Euro (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 option 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 revenue and operating expenses. During the year ended March 31, 2008, we purchased foreign currency option contracts to sell approximately
$88.0 million in foreign currencies. These foreign currency options contracts were settled during the year ended March 31, 2008 and resulted in $1.0 million of expense, which is
included in
interest and other income, net in our condensed consolidated statements of operations for the period then ended.

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 exchange forward contracts are not designated as hedging instruments under SFAS
No. 133 and are accounted for as derivatives whereby the fair value of the contracts are reported as other current assets or other current liabilities in our consolidated balance sheets, and
the associated gains and losses from changes in fair value are reported in interest and other income, net in the 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.

Foreign
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 exchange forward contracts would be offset by an opposing gain or loss in the underlying foreign currency denominated assets and liabilities that were hedged
and would not have a material impact on our financial position. As of March 31, 2008, we had foreign exchange forward contracts in the notional amount of $97.0 million, all with
maturities of one month, consisting primarily of the Euro, GBP, and AUD.

The
counterparties to these forward contracts are creditworthy multinational commercial and investment banks. The risks of counterparty non-performance associated with these contracts are
not considered to be material. Notwithstanding our efforts to manage foreign 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 exchange rates would result in a reduction of reported net sales of approximately $50.4 million and a
reduction of reported income before taxes of approximately $2.4 million. This estimate assumes an adverse shift in all foreign currency exchange rates, which do not always move in the same
direction; actual results may differ materially.

Item 8.    Consolidated Financial Statements and Supplementary Data

The report of Independent Registered Public Accounting Firm, consolidated financial statements and notes to consolidated financial statements follow below.

54

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To
the Board of Directors and Stockholders of THQ Inc.,
Agoura Hills, California

We
have audited the accompanying consolidated balance sheets of THQ Inc. and subsidiaries (the "Company") as of March 29, 2008 and March 31, 2007, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the years in the three-year period ended March 29, 2008. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of March 29, 2008 and March 31, 2007, and the
results of its operations and its cash flows for each of the years in the three-year period ended March 29, 2008, in conformity with accounting principles generally accepted in the
United States of America.

We
have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of March 29,
2008, based on the criteria established inInternal ControlIntegrated Frameworkissued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated May 28, 2008 expressed an unqualified opinion on the Company's internal control over financial reporting.

As
discussed in Note 1, "Description of Business and Summary of Significant Accounting Policies" to the consolidated financial statements, the Company adopted Statement of Financial Accounting
Standards No. 123(R), "Share-Based Payment," effective April 1, 2006, and adopted Financial Accounting Standards Board Interpretation No. 48, "Accounting for Uncertainty in Income
Taxesan Interpretation of FASB Statement No. 109" effective April 1, 2007.

DELOITTE & TOUCHE LLP

Los
Angeles, California
May 28, 2008

55

---





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

|                                                |                                                                                                                                                                                        | March 31,
2008                                    |         | March 31,
2007
|----------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------- | ------- | --------------
|ASSETS                                          |                                                                                                                                                                                        |                                                   |         |               
|Current assets:                                 |                                                                                                                                                                                        |                                                   |         |               
|                                                | Cash and cash equivalents                                                                                                                                                              |                                                   | $       | 247,820       
|                                                | Short-term investments                                                                                                                                                                 |                                                   |         | 69,684        
|                                                |                                                                                                                                                                                        |                                                   |         |               
|                                                |                                                                                                                                                                                        | Cash, cash equivalents and short-term investments |         |               
|                                                | Accounts receivable, net of allowances                                                                                                                                                 |                                                   |         | 112,843       
|                                                | Inventory                                                                                                                                                                              |                                                   |         | 38,240        
|                                                | Licenses                                                                                                                                                                               |                                                   |         | 47,182        
|                                                | Software development                                                                                                                                                                   |                                                   |         | 155,821       
|                                                | Income taxes receivable                                                                                                                                                                |                                                   |         |              
|                                                | Prepaid expenses and other current assets                                                                                                                                              |                                                   |         | 24,487        
|                                                |                                                                                                                                                                                        |                                                   |         |               
|                                                |                                                                                                                                                                                        | Total current assets                              |         |               
|Property and equipment, net                     |                                                                                                                                                                                        |                                                   | 50,465  |               
|Licenses, net of current portion                |                                                                                                                                                                                        |                                                   | 39,597  |               
|Software development, net of current portion    |                                                                                                                                                                                        |                                                   | 25,369  |               
|Income taxes receivable, net of current portion |                                                                                                                                                                                        |                                                   | 16,116  |               
|Deferred income taxes                           |                                                                                                                                                                                        |                                                   | 61,710  |               
|Goodwill                                        |                                                                                                                                                                                        |                                                   | 122,385 |               
|Long-term investments                           |                                                                                                                                                                                        |                                                   | 52,599  |               
|Other long-term assets, net                     |                                                                                                                                                                                        |                                                   | 20,002  |               
|                                                |                                                                                                                                                                                        |                                                   |         |               
|                                                |                                                                                                                                                                                        | TOTAL ASSETS                                      |         | $             
|                                                |                                                                                                                                                                                        |                                                   |         |               
|LIABILITIES AND STOCKHOLDERS' EQUITY            |                                                                                                                                                                                        |                                                   |         |               
|Current liabilities:                            |                                                                                                                                                                                        |                                                   |         |               
|                                                | Accounts payable                                                                                                                                                                       |                                                   | $       | 61,700        
|                                                | Accrued and other current liabilities                                                                                                                                                  |                                                   |         | 202,102       
|                                                | Income taxes payable                                                                                                                                                                   |                                                   |         | 6,504         
|                                                | Deferred income taxes                                                                                                                                                                  |                                                   |         | 29,266        
|                                                |                                                                                                                                                                                        |                                                   |         |               
|                                                |                                                                                                                                                                                        | Total current liabilities                         |         |               
|Other long-term liabilities                     |                                                                                                                                                                                        |                                                   | 44,179  |               
|Commitments and contingencies                   |                                                                                                                                                                                        |                                                   |        |               
|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 March 31, 2008; 66,352,994 and 66,677,721 shares issued and outstanding as of March 31, 2008 and 2007, respectively |                                                   |         | 664           
|                                                | Additional paid-in capital                                                                                                                                                             |                                                   |         | 468,693       
|                                                | Accumulated other comprehensive income                                                                                                                                                 |                                                   |         | 27,194        
|                                                | Retained earnings                                                                                                                                                                      |                                                   |         | 244,018       
|                                                |                                                                                                                                                                                        |                                                   |         |               
|                                                |                                                                                                                                                                                        | Total stockholders' equity                        |         |               
|                                                |                                                                                                                                                                                        |                                                   |         |               
|                                                |                                                                                                                                                                                        | TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY        |         | $             
|                                                |                                                                                                                                                                                        |                                                   |         |               

See
notes to consolidated financial statements.

56

---





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

|                                                                                   |                                                   | Fiscal Year Ended March 31, |          
|---------------------------------------------------------------------------------- | ------------------------------------------------- | --------------------------- | ---------
|
|Net sales                                                                          |                                                   | $                           | 1,030,467
|Costs and expenses:                                                                |                                                   |                             |          
|                                                                                   | Cost of salesproduct costs                       |                             |          
|                                                                                   | Cost of salessoftware amortization and royalties |                             |          
|                                                                                   | Cost of saleslicense amortization and royalties  |                             |          
|                                                                                   | Cost of salesventure partner expense             |                             |          
|                                                                                   | Product development                               |                             |          
|                                                                                   | Selling and marketing                             |                             |          
|                                                                                   | General and administrative                        |                             |          
|                                                                                   |                                                   |                             |          
|                                                                                   | Total costs and expenses                          |                             |          
|                                                                                   |                                                   |                             |          
|Income (loss) from continuing operations                                           |                                                   |                             | (88,068  
|                                                                                   | Interest and other income, net                    |                             |          
|                                                                                   |                                                   |                             |          
|Income (loss) from continuing operations before income taxes and minority interest |                                                   |                             | (72,635  
|                                                                                   | Income taxes                                      |                             |          
|                                                                                   |                                                   |                             |          
|Income (loss) from continuing operations before minority interest                  |                                                   |                             | (36,850  
|                                                                                   | Minority interest                                 |                             |          
|                                                                                   |                                                   |                             |          
|Income (loss) from continuing operations                                           |                                                   |                             | (36,850  
|Gain on sale of discontinued operations, net of tax                                |                                                   |                             | 1,513    
|                                                                                   |                                                   |                             |          
|Net income (loss)                                                                  |                                                   | $                           | (35,337  
|                                                                                   |                                                   |                             |          
|Earnings (loss) per sharebasic:                                                   |                                                   |                             |          
|                                                                                   | Continuing operations                             |                             | $        
|                                                                                   | Discontinued operations                           |                             |          
|                                                                                   |                                                   |                             |          
|                                                                                   | Earnings (loss) per sharebasic                   |                             | $        
|                                                                                   |                                                   |                             |          
|Earnings (loss) per sharediluted:                                                 |                                                   |                             |          
|                                                                                   | Continuing operations                             |                             | $        
|                                                                                   | Discontinued operations                           |                             |          
|                                                                                   |                                                   |                             |          
|                                                                                   | Earnings (loss) per sharediluted                 |                             | $        
|                                                                                   |                                                   |                             |          
|Shares used in per share calculationbasic                                         |                                                   |                             | 66,475   
|                                                                                   |                                                   |                             |          
|Shares used in per share calculationdiluted                                       |                                                   |                             | 66,475   
|                                                                                   |                                                   |                             |          

See
notes to consolidated financial statements.

57

---





THQ INC. AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY        (In thousands, except share data)

Fiscal Years Ended March 31, 2006, 2007 and 2008

|                                                              |                                   | Common Stock                                                    |   |   |     | Accumulated
Other
Comprehensive
Income (Loss) |   |         |   |   |       
|------------------------------------------------------------- | --------------------------------- | --------------------------------------------------------------- | - | - | --- | --------------------------------------------- | - | ------- | - | - | ------
|
|
|Balance at March 31, 2005                                     |                                   | 60,689,622                                                      |   | $ | 607 |                                               | $ | 355,089 |   | $ | 12,851
|Exercise of options                                           |                                   | 3,187,569                                                       |   |   | 32  |                                               |   | 37,755  |   |   |      
|Issuance of restricted stock                                  |                                   | 263,786                                                         |   |   | 3   |                                               |   | 855     |   |   |      
|Stock-based compensation                                      |                                   |                                                                |   |   |    |                                               |   | 2,564   |   |   |      
|Tax benefit related to the exercise of employee stock options |                                   |                                                                |   |   |    |                                               |   | 9,162   |   |   |      
|Comprehensive income:                                         |                                   |                                                                 |   |   |     |                                               |   |         |   |   |       
|                                                              | Net income                        |                                                                 |  |   |     |                                              |   |         |  |   |       
|                                                              | Other comprehensive income (loss) |                                                                 |   |   |     |                                               |   |         |   |   |       
|                                                              |                                   | Foreign currency translation loss                               |   |  |     |                                               |  |         |   |  |       
|                                                              |                                   | Unrealized gain on investments, net of $0.4 million tax expense |   |  |     |                                               |  |         |   |  |       
|                                                              |                                   |                                                                 |   |   |     |                                               |   |         |   |   |       
|Comprehensive income                                          |                                   |                                                                 |   |   |     |                                               |   |         |   |   |       
|                                                              |                                   |                                                                 |   |   |     |                                               |   |         |   |   |       
|Balance at March 31, 2006                                     |                                   | 64,140,977                                                      |   | $ | 642 |                                               | $ | 405,425 |   | $ | 10,367
|Exercise of options                                           |                                   | 3,193,844                                                       |   |   | 31  |                                               |   | 50,532  |   |   |      
|Conversion of stock unit awards                               |                                   | 8,100                                                           |   |   |    |                                               |   |        |   |   |      
|Cancellation of restricted stock                              |                                   | (49,700                                                         | ) |   |    |                                               |   |        |   |   |      
|Repurchase of common stock                                    |                                   | (615,500                                                        | ) |   | (6  | )                                             |   | (13,581 | ) |   |      
|Stock-based compensation                                      |                                   |                                                                |   |   |    |                                               |   | 20,090  |   |   |      
|Tax benefit related to the exercise of employee stock options |                                   |                                                                |   |   |    |                                               |   | 8,866   |   |   |      
|Comprehensive income:                                         |                                   |                                                                 |   |   |     |                                               |   |         |   |   |       
|                                                              | Net income                        |                                                                 |  |   |     |                                              |   |         |  |   |       
|                                                              | Other comprehensive income (loss) |                                                                 |   |   |     |                                               |   |         |   |   |       
|                                                              |                                   | Foreign currency translation gain                               |   |  |     |                                               |  |         |   |  |       
|                                                              |                                   | Unrealized loss on investments, net of $1.3 million tax benefit |   |  |     |                                               |  |         |   |  |       
|                                                              |                                   |                                                                 |   |   |     |                                               |   |         |   |   |       
|Comprehensive income                                          |                                   |                                                                 |   |   |     |                                               |   |         |   |   |       
|                                                              |                                   |                                                                 |   |   |     |                                               |   |         |   |   |       
|Balance at March 31, 2007                                     |                                   | 66,677,721                                                      |   | $ | 667 |                                               | $ | 471,332 |   | $ | 17,603
|Exercise of options                                           |                                   | 1,421,907                                                       |   |   | 14  |                                               |   | 21,122  |   |   |      
|Issuance of restricted stock, net                             |                                   | 194,600                                                         |   |   | 2   |                                               |   | (559    | ) |   |      
|Issuance of ESPP shares                                       |                                   | 304,881                                                         |   |   | 3   |                                               |   | 5,945   |   |   |      
|Conversion of stock unit awards                               |                                   | 8,100                                                           |   |   |    |                                               |   |        |   |   |      
|Cancellation of restricted stock                              |                                   | (60,815                                                         | ) |   |    |                                               |   |        |   |   |      
|Repurchase of common stock                                    |                                   | (2,193,400                                                      | ) |   | (22 | )                                             |   | (54,888 | ) |   |      
|Stock-based compensation                                      |                                   |                                                                |   |   |    |                                               |   | 21,820  |   |   |      
|Tax benefit related to the exercise of employee stock options |                                   |                                                                |   |   |    |                                               |   | 3,921   |   |   |      
|Comprehensive income:                                         |                                   |                                                                 |   |   |     |                                               |   |         |   |   |       
|                                                              | Net income (loss)                 |                                                                 |  |   |     |                                              |   |         |  |   |       
|                                                              | Other comprehensive income (loss) |                                                                 |   |   |     |                                               |   |         |   |   |       
|                                                              |                                   | Foreign currency translation gain                               |   |  |     |                                               |  |         |   |  |       
|                                                              |                                   | Unrealized gain on investments, net of $0.1 million tax expense |   |  |     |                                               |  |         |   |  |       
|                                                              |                                   |                                                                 |   |   |     |                                               |   |         |   |   |       
|Comprehensive income                                          |                                   |                                                                 |   |   |     |                                               |   |         |   |   |       
|                                                              |                                   |                                                                 |   |   |     |                                               |   |         |   |   |       
|Balance at March 31, 2008                                     |                                   | 66,352,994                                                      |   | $ | 664 |                                               | $ | 468,693 |   | $ | 27,194
|                                                              |                                   |                                                                 |   |   |     |                                               |   |         |   |   |       

See notes to consolidated financial statements.

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

|                                                                                         |                                                                      | Fiscal Year Ended March 31, |        
|---------------------------------------------------------------------------------------- | -------------------------------------------------------------------- | --------------------------- | -------
|
|OPERATING ACTIVITIES:                                                                    |                                                                      |                             |        
|Net income (loss)                                                                        |                                                                      | $                           | (35,337
|Adjustments to reconcile net income (loss) to net cash provided by operating activities: |                                                                      |                             |        
|                                                                                         | Minority interest and other                                          |                             |        
|                                                                                         | Depreciation and amortization                                        |                             |        
|                                                                                         | Amortization of licenses and software development                    |                             |        
|                                                                                         | Gain on sale of discontinued operations                              |                             |        
|                                                                                         | Loss on disposal of property and equipment                           |                             |        
|                                                                                         | Amortization of interest and gain/(loss) on investments              |                             |        
|                                                                                         | Stock-based compensation                                             |                             |        
|                                                                                         | Tax benefit related to stock-based awards                            |                             |        
|                                                                                         | Excess tax benefit related to stock-based awards                     |                             |        
|                                                                                         | Deferred income taxes                                                |                             |        
|Changes in operating assets and liabilities:                                             |                                                                      |                             |        
|                                                                                         | Accounts receivable, net of allowances                               |                             |        
|                                                                                         | Inventory                                                            |                             |        
|                                                                                         | Licenses                                                             |                             |        
|                                                                                         | Software development                                                 |                             |        
|                                                                                         | Prepaid expenses and other current assets                            |                             |        
|                                                                                         | Accounts payable                                                     |                             |        
|                                                                                         | Accrued and other liabilities                                        |                             |        
|                                                                                         | Income taxes                                                         |                             |        
|                                                                                         |                                                                      |                             |        
|Net cash (used in) provided by operating activities                                      |                                                                      |                             | (9,714 
|                                                                                         |                                                                      |                             |        
|INVESTING ACTIVITIES:                                                                    |                                                                      |                             |        
|                                                                                         | Proceeds from sales and maturities of available-for-sale investments |                             |        
|                                                                                         | Purchase of available-for-sale investments                           |                             |        
|                                                                                         | Other long-term assets                                               |                             |        
|                                                                                         | Acquisitions, net of cash acquired                                   |                             |        
|                                                                                         | Net proceeds from sale of discontinued operations                    |                             |        
|                                                                                         | Purchases of property and equipment                                  |                             |        
|                                                                                         |                                                                      |                             |        
|Net cash provided by (used in) investing activities                                      |                                                                      |                             | 105,820
|                                                                                         |                                                                      |                             |        
|FINANCING ACTIVITIES:                                                                    |                                                                      |                             |        
|                                                                                         | Stock repurchase                                                     |                             |        
|                                                                                         | Proceeds from issuance of common stock to employees                  |                             |        
|                                                                                         | Excess tax benefit related to stock-based awards                     |                             |        
|                                                                                         |                                                                      |                             |        
|Net cash (used in) provided by financing activities                                      |                                                                      |                             | (26,513
|Effect of exchange rate changes on cash                                                  |                                                                      |                             | 3,479  
|                                                                                         |                                                                      |                             |        
|Net increase (decrease) in cash and cash equivalents                                     |                                                                      |                             | 73,072 
|Cash and cash equivalentsbeginning of period                                            |                                                                      |                             | 174,748
|                                                                                         |                                                                      |                             |        
|Cash and cash equivalentsend of period                                                  |                                                                      | $                           | 247,820
|                                                                                         |                                                                      |                             |        
|Supplemental cash flow information:                                                      |                                                                      |                             |        
|                                                                                         | Cash paid during the period for income taxes                         |                             | $      
|                                                                                         | Cash paid during the period for interest                             |                             | $      

See notes to consolidated financial statements.

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THQ INC. AND SUBSIDIARIES        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.     Description of Business and Summary of Significant Accounting Policies

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



Our
titles span a wide range of categories, including action, adventure, fighting, racing, role-playing, simulation, sports and strategy. We have created, licensed and acquired a group of
highly recognizable brands, which we market to a variety of consumer demographics ranging
from products targeted at children and the mass market to products targeted at core gamers. Our portfolio of licensed properties includes the DisneyPixar properties Finding Nemo,The Incredibles,Cars, RatatouilleandWALLE; World Wrestling Entertainment; Nickelodeon properties such asSpongeBob SquarePants, Avatar,
andNicktoons;Bratz; Warhammer 40,000; and the Ultimate Fighting Championship; as well as others. We also
have licenses to create wireless products based on
DisneyPixar'sRatatouilleandWALLEas well asStar
Warsand major sports leagues. In addition to licensed properties, we also develop games based upon our own intellectual properties, includingCompany
of Heroes,DeBlob,Frontlines,MX vs.
ATV,Red FactionandSaints Row.

Principles of Consolidation.The consolidated financial statements include the accounts of THQ Inc. and our wholly owned and
majority owned subsidiaries as well as the venture we have with JAKKS Pacific, Inc. See "Note 16Agreement with JAKKS Pacific, Inc." The results of operations for
acquisitions of companies have been included in the consolidated statements of operations beginning on the closing date of acquisition. See "Note 5Business Combinations." All
material intercompany balances and transactions have been eliminated in consolidation.

Fiscal Year.Effective April 1, 2006, we began reporting our fiscal year on a 52/53-week period. Beginning with the
fiscal year ending March 31, 2007, our fiscal year ended on the Saturday nearest March 31. The results of operations for the fiscal year ended March 31, 2008, 2007 and 2006
contain the following number of weeks:

Fiscal Period

Number of Weeks

Fiscal Period End DateYear ended March 31, 2008

52 weeks

March 29, 2008Year ended March 31, 2007

52 weeks

March 31, 2007Year ended March 31, 2006

52 weeks

March 31, 2006


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

Pervasiveness of Estimates.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 revenues and expenses during the reporting period. Actual results could differ from those estimates. The most significant estimates relate
to licenses, software development, accounts receivable allowances, income taxes, stock-based compensation expense and deferred revenue.

Foreign Currency Translation.Assets and liabilities of foreign operations are translated at current rates of exchange while results of
operations are translated at average rates in effect for the period. Translation gains or losses are shown as a separate component of accumulated other comprehensive income (loss).

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Foreign
currency transaction gains and losses result from exchange rate changes for transactions denominated in currencies other than the functional currency and are included in interest and other
income in our consolidated statements of operations. For the fiscal years ended March 31, 2008 and 2007, foreign currency transaction gains were $0.5 million and $0.1 million,
respectively. For the fiscal year ended March 31, 2006, foreign currency transaction losses were $0.3 million.

Cash, Cash Equivalents and Investment Securities.We consider all money market funds and highly liquid investments with maturities of three
months or less when purchased to be cash equivalents.

Investments
designated as available-for-sale securities under Statements of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Investment in Certain Debt
and Equity Securities," are carried at fair value based on quoted market prices or estimated based on quoted market prices for financial instruments with similar characteristics. Unrealized gains and
losses of the Company's available-for-sale securities are excluded from earnings and reported as a component of other comprehensive income (loss). Additionally, the Company
assesses whether an other-than-temporary impairment loss on its available-for-sale securities has occurred due to declines in fair value or other market
conditions. Declines in fair value that are considered other-than-temporary are recorded as an impairment of investments in the consolidated statements of operations.

In
general, investments with original maturities of greater than 90 days and remaining maturities of less than one year are classified as short-term investments. Investments with
maturities beyond one year may also be classified as short-term based on their highly liquid nature and because such investments represent the investment of cash that is available for
current operations.

The
Company's investments include auction rate securities ("ARS"). These ARS are variable rate bonds tied to short-term interest rates with long-term maturities. ARS have
interest rate resets through a modified Dutch auction at predetermined short-term intervals, typically every 7, 28, or 35 days. Interest on ARS is generally paid at the end of each
auction process or semi-annually and is based upon the interest rate determined during the prior auction. The majority of our ARS are AAA/Aaa rated, and are typically collateralized by
student loans guaranteed by the U.S. government under the Federal Family Education Loan Program or backed by monoline bond insurance companies. See "Note 2Investment Securities"
for further details.

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. Investments classified as available for sale are stated at fair value.

We
account for our derivative and hedging activities under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended. The assets or liabilities associated with
our derivative instruments and hedging activities are recorded at fair value in other current assets or liabilities, respectively, on our consolidated balance sheets. As discussed below, gains and
losses resulting from changes in fair value are accounted for depending on the use of the derivative and whether it is designated and qualifies for hedge accounting.

We
utilize forward contracts in order to reduce financial market risks. These instruments are used to hedge foreign currency exposures of underlying assets, liabilities, or certain forecasted foreign
currency denominated transactions. Our accounting policies for these instruments are based on whether they meet the criteria for designation as hedging transactions. Changes in fair value of
derivatives that are designated as cash flow hedges, are highly effective, and qualify as hedging instruments, are recorded in other comprehensive income until the underlying hedged item is recognized
in earnings within the financial statement line item consistent with the hedged item. Any ineffective portion of a derivative change in fair value is immediately recognized in earnings. During the
periods presented we did not have any derivatives that qualify for hedge accounting. Changes in the fair value of derivatives that do not qualify for hedge accounting treatment are recorded in
earnings. The fair value of foreign currency contracts is estimated based on the forward rate of the various hedged currencies as of the end of the period. As of March 31, 2008, 2007 and 2006,
we had foreign exchange forward contracts in the notional amount of $97.0 million,

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$47.0 million
and $60.3 million, respectively. The net losses recognized from foreign currency contracts in fiscal 2008 and fiscal 2007 were $5.9 million and $0.9 million,
respectively, and the net gain recognized from foreign currency contracts in fiscal 2006 was $0.5 million, and are included in interest and other income in our consolidated statements of
operations.

Accounts Receivable Allowances.We derive revenues from sales of packaged software for video game systems and personal computers and sales
of content and services for wireless devices. Product revenue is recognized net of allowances for price protection and returns and various customer discounts. We
typically only allow returns for our personal computer products; however, we may decide to provide price protection or allow returns for our video games after we analyze: (i) inventory
remaining in the retail channel, (ii) the rate of inventory sell-through in the retail channel, and (iii) our remaining inventory on hand. We maintain a policy of giving
credits for price protection and returns, but do not give cash refunds. We use significant judgment and make estimates in connection with establishing allowances for price protection, returns, and
doubtful accounts in any accounting period. Included in our accounts receivable allowances is our allowance for co-operative advertising that we engage in with our retail channel partners.
Our co-operative advertising allowance is based upon specific contractual commitments and does not involve estimates made by management.

Concentrations of Credit Risk.Financial instruments which potentially subject us to concentration of credit risk consist principally of
cash and cash equivalents, short-term investments, accounts receivable and long-term investments. We place cash and cash equivalents and short-term investments with
high credit-quality financial institutions and limit the amount of credit exposure to any one financial institution. We believe the risk related to cash and cash equivalents and accounts receivable is
not material due to the short-term nature of such assets. Our investments include significant holdings of ARS. Although there has been recent uncertainty in the credit markets, all of the
securities are investment grade securities, and we have no reason to believe that any of the underlying issuers of our ARS are presently at risk or that the underlying credit quality of the assets
backing our ARS has been impacted by the reduced liquidity of these investments. See "Note 2Investment Securities" in the notes to the consolidated financial statements for further
information related to our investments.

Most
of our sales are made directly to mass merchandisers and national retailers. Due to the increased volume of sales to these channels, we have experienced an increased concentration of credit risk,
and as a result, may maintain individually significant receivable balances with such mass merchandisers and national retailers. We perform ongoing credit evaluations of our customers, maintain an
allowance for potential credit losses, and most of our foreign receivables are covered by credit insurance. As of March 31, 2008 and 2007, approximately 15% and 22%, respectively, of our gross
accounts receivable outstanding was with one major customer. Our largest single customer accounted for 14% of our gross sales in fiscal 2008, 18% of our gross sales in fiscal 2007 and 19% of our gross
sales in fiscal 2006. Our second largest customer accounted for 12% of our gross sales in fiscal 2008, 11% of our gross sales in fiscal 2007 and 10% of our gross sales in fiscal 2006.

Inventory.Inventory, which consists principally of finished products, is stated at the lower of cost (moving weighted average) or market.
We estimate the net realizable value of slow-moving inventory on a title by title basis, and charge the excess of cost over net realizable value to cost of salesproduct costs.

Property and Equipment.Property and equipment are recorded at cost. Depreciation is computed using the straight-line method
over the estimated useful lives of the assets. Leasehold improvements are depreciated over the shorter of their useful lives or the remaining lease term.

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

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long-term
assets and long-term liabilities if such royalty payments relate to anticipated product sales after one year.

We
evaluate the future recoverability of our capitalized licenses on a quarterly basis. The recoverability of capitalized license costs is evaluated based on the expected performance of the specific
products in which the licensed trademark or copyright is to be used. As many of our licenses extend for multiple products over multiple years, we also assess the recoverability of capitalized license
costs based on certain qualitative factors such as the success of other products and/or entertainment vehicles utilizing the intellectual property, whether there are any future planned theatrical
releases or television series based on the intellectual property and the rights holder's continued promotion and exploitation of the intellectual property. Prior to the related product's release, we
expense, as part of cost of saleslicense amortization and royalties, capitalized license costs when we estimate such amounts are not recoverable.

Licenses
are expensed to cost of saleslicense amortization and royalties at the higher of (1) the contractual royalty rate based on actual net product sales related to such license
or (2) an effective rate based upon total projected revenue related to such license. When, in management's estimate, future cash flows will not be sufficient to recover previously capitalized
costs, we expense these capitalized costs to cost of saleslicense amortization and royalties. If actual revenues or revised forecasted revenues fall below the initial forecasted revenue
for a particular license, the charge to cost of saleslicense amortization and royalties expense may be larger than anticipated in any given quarter. As of March 31, 2008, the net
carrying value of our licenses was $86.8 million. If we were required to write off licenses, due to changes in market conditions or product acceptance, our results of operations could be
materially adversely affected.

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

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

Commencing
upon product release, capitalized software development costs are amortized to cost of salessoftware amortization and royalties based on the ratio of current gross revenues to
total projected gross revenues. If actual gross revenues, or revised projected gross revenues, fall below the initial projections, the charge to cost of salessoftware amortization and
royalties may be larger than anticipated in any given quarter. In fiscal 2008, we recorded approximately $35.4 million of accelerated amortization due to the underperformance of certain
previously released games and approximately $23.9 million of additional amortization expense related to the cancellation of certain games. As of March 31, 2008, the net carrying value of
our software development was $181.2 million.

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

Goodwill and Other Intangible Assets.We perform our annual review for goodwill impairment on the first day of our fourth fiscal quarter,
or more frequently if indicators of potential impairment exist. We

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performed
an annual review of goodwill impairment in each of the fiscal years ended March 31, 2008, 2007 and 2006 and found no impairment. Our impairment review process is based on a discounted
future cash flow approach that uses our estimates of revenue for our reporting unit, driven by anticipated success of our products and product release schedules, and estimated costs as well as
appropriate discount rates. These estimates are consistent with the plans and estimates that we use to manage the underlying business. All identifiable intangible assets with finite lives will
continue to be amortized over their estimated useful lives and assessed for impairment under SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets."

Revenue Recognition.Our revenue recognition policies are in compliance with American Institute of Certified Public Accountants Statement
of Position ("SOP") 97-2, "Software Revenue Recognition," as amended by SOP 98-9, "Modification of SOP 97-2, Software Revenue Recognition, With
Respect to Certain Transactions," which provide guidance on generally accepted accounting principles ("GAAP") for recognizing revenue on software transactions, and Staff Accounting Bulletin ("SAB")
No. 104, "Revenue Recognition in Financial Statements," which outlines the basic criteria that must be met to recognize revenue and provides guidance for presentation of revenue and for
disclosure related to revenue recognition policies in financial statements filed with the Securities and Exchange Commission ("SEC").

Product
Sales:    We recognize revenue for packaged software when title and risk of loss transfers to the customer, provided that no significant vendor support obligations remain outstanding
and that collection of the resulting receivable is deemed probable by management.

Some
of our packaged software products are developed with the ability to be connected to, and played via, the internet. In order for consumers to participate in online communities and play against one
another via the internet, we (either directly or through outsourced arrangements with third parties) maintain servers which support an online service that we provide to consumers for activities such
as matchmaking, roster updates, tournaments and player rankings. Generally, we consider the online service to be incidental to the overall product offering and an inconsequential deliverable.
Accordingly, we do not defer any revenue related to products containing the limited online service.

In
instances where the online service is considered a substantive deliverable in addition to the software product, we account for the sale as a "bundled" sale, or multiple element arrangement, in
which we sell both the packaged software product and the online service for one combined price. Vendor specific objective evidence for the fair value of the online service does not exist as we do not
separately offer or charge for the online service. Therefore, when the online service is determined to be a substantive deliverable, we recognize the revenue from sales of such software products
ratably over the estimated online service period of six months, beginning the month after shipment of the software product. Costs of sales related to such products are also deferred and recognized
with the related revenues and include product costs, software amortization and royalties, and license amortization and royalties.

Although
we generally sell our products on a no-return basis, in certain circumstances we may allow price protection, returns or other allowances on a negotiated basis. We estimate such
price protection, returns or other allowances based upon management's evaluation of our historical experience, retailer inventories, the nature of the titles and other factors. Such estimates are
deducted from gross sales. See "Note 3Accounts Receivable Allowances." Software is sold under a limited 90-day warranty against defects in material and workmanship. To
date, we have not experienced material warranty claims.

Software
Licenses:    For those agreements that provide the customers the right to multiple copies in exchange for guaranteed minimum royalty amounts, revenue is recognized at delivery of
the product master or the first copy. Per copy royalties on sales that exceed the guarantee are recognized as earned. Revenue from the licensing of software for the fiscal years ended March 31,
2008, 2007 and 2006 was $7.8 million, $8.6 million and $6.3 million, respectively.

Wireless
Revenue:    We recognize wireless revenues principally from the sale or subscription of our applications to wireless subscribers under distribution agreements with wireless carriers
in the period in which the applications are purchased by the subscribers, assuming that: fees are fixed and determinable; we have no significant obligations remaining and collection of the related
receivable is reasonably assured. In

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accordance
with the distribution agreements, the wireless carriers are responsible for billing, collecting and remitting our fees to us. The wireless carriers generally report the final sales data to
us within 10 to 45 days following the end of each month. When final sales data is not available in a timely manner for reporting purposes, we estimate our revenues based on available sales data
and historical trends. We will record differences between estimated revenues and actual revenues in the next reporting period once the actual amounts are determined.

Also,
in accordance with EITF No. 99-19, "Reporting Revenue Gross as a Principal Versus Net as an Agent," we recognize as revenues the net amount the wireless carrier pays to us
upon the sale of our applications, net of any service or other fees earned and deducted by the wireless carrier.

Advertising.Advertising and sales promotion costs are generally expensed as incurred, except for television airtime and print media costs
associated with media campaigns, which are deferred and charged to expense in the period the airtime or advertising space is used for the first time. We engage in co-operative advertising
with some of our retail channel partners. We accrue the associated costs when revenue is recognized and such amounts are included in selling and marketing expense if there is a separate identifiable
benefit for which we can reasonably estimate the fair value of the benefit identified; otherwise, they are recognized as a reduction of net sales. Advertising costs for the fiscal years ended
March 31, 2008, 2007 and 2006 were $85.7 million, $61.2 million and $61.0 million, respectively.

Stock-based compensation.We adopted SFAS No. 123(R) "Share-Based Payment" ("FAS 123R") in our first quarter of fiscal 2007
and accordingly, we now record stock-based compensation expense for all of our stock-based awards. The adoption of this accounting pronouncement had a material impact on our consolidated statement of
operations and our cash flows from operating and financing activities for fiscal 2007. See "Note 14Stock-based Compensation."

Under
FAS 123R, we estimate the fair value of stock options granted using the Black-Scholes option pricing model. The fair value for awards that are expected to vest is then amortized on a
straight-line basis over the requisite service period of the award, which is generally the option vesting term. The amount of expense recognized represents the expense associated with the
stock options we expect to ultimately vest based upon an estimated rate of forfeitures; this rate of forfeitures is updated as necessary and any adjustments needed to recognize the fair value of
options that actually vest or are forfeited are recorded. The Black-Scholes option pricing model, used to estimate the fair value of an award, requires the input of subjective assumptions, including
the expected volatility of our common stock and an option's expected life. As a result, the financial statements include amounts that are based upon our best estimates and judgments relating to the
expenses recognized for stock-based compensation. We adopted FAS 123R under the modified prospective
transition method wherein no prior period financial statement information was affected. All prior period financial statements include stock-based compensation accounted for under Accounting Principles
Board Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and the disclosure only provisions of SFAS No. 123, "Accounting for Stock-Based Compensation,"
as amended ("FAS 123"). The financial statements for fiscal 2007 and 2008, include stock-based compensation accounted for under FAS 123R. There were no material differences in valuation
methodologies or assumptions compared to those that were used in estimating the fair value of stock options under the disclosure only provisions of FAS 123.

Income Taxes.We account for income taxes in accordance with SFAS No. 109 "Accounting for Income Taxes" ("FAS 109"). The
provision for income taxes is computed using the asset and liability method, under which deferred income tax assets and liabilities are recognized for the expected future tax consequences of temporary
differences between the financial reporting and tax bases of assets and liabilities and for operating loss and tax credit carry forwards in each jurisdiction in which we operate. Deferred income tax
assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those tax assets are expected to be realized or settled. We
record a valuation allowance to reduce deferred income tax assets to the amount that is believed "more likely than not" to be realized.

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As of April 1, 2007, we adopted the provisions of FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement No. 109"
("FIN 48"). Previously, we had accounted for income tax contingencies in accordance with SFAS No. 5, "Accounting for Contingencies." As required by FIN 48, we recognize the
financial statement benefit of an income tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions
meeting the "more likely than not" threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement
with the relevant tax authority. At the adoption date, we applied FIN 48 to all income tax positions for which the statute of limitations remained open.

Basic and Diluted Earnings Per Share.Basic earnings per share is computed by dividing net income by the weighted average number of common
shares outstanding for the period. Diluted earnings per share is computed by dividing net income by the weighted average number of common shares outstanding for the period, increased by common stock
equivalents. Common stock equivalents are calculated using the treasury stock method and represent incremental shares issuable upon exercise of our outstanding options, warrants, the employee stock
purchase plan, other stock unit awards and, if applicable in the period, conversion of our convertible debt. However, potential common shares are not included in the denominator of the diluted
earnings per share calculation when inclusion of such shares would be anti-dilutive, such as in a period in which a net loss is recorded.

Recently Issued Accounting Pronouncements.In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurement"
("FAS 157"). FAS 157 provides a single definition of fair value, together with a framework for measuring it, and requires additional disclosure about the use of fair value to measure
assets and liabilities. In February 2008, the FASB issued FSP FAS 157-2, "Effective Date of FASB Statement No. 157" which defers the implementation for certain
non-recurring, nonfinancial assets and liabilities from fiscal years beginning after November 15, 2007 to fiscal years beginning after November 15, 2008, which will be our
fiscal year 2010. The statement provisions effective as of April 1, 2008, do not have a material effect on our results of operations, financial position, or cash flows. We are evaluating the
impact, if any, the adoption of the remaining provisions will have on our results of operations, financial position or cash flows.

In
February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial LiabilitiesIncluding an Amendment of FASB Statement No. 115"
("FAS 159"). FAS 159 permits an entity to choose to measure many financial instruments and certain other items at fair value at specified election dates. Subsequent unrealized gains and
losses on items for which the fair value option has been elected will be reported in earnings. We adopted this statement on April 1, 2008 and did not make this election. As such, the adoption
of this statement did not have any impact on our results of operations, financial position or cash flows.

In
May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted Accounting Principles" ("FAS 162"). FAS 162 is intended to improve financial reporting by
identifying a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements that are presented in conformity with GAAP for nongovernmental
entities. FAS 162 is effective 60 days following the SEC's approval of the Public Company Accounting Oversight Board amendments to AU Section 411, "The Meaning of Present Fairly
in Conformity with Generally Accepted Accounting Principles." We do not expect the adoption of this statement to have a material impact on our results of operations, financial position or cash flows.

In
December 2007, the FASB issued SFAS No. 141R, "Business Combinations" ("FAS 141R"). FAS 141R retains the fundamental requirements in FAS 141 that the acquisition method
of accounting (which FAS 141 called the purchase method) be used for all business combinations and for an acquirer to be identified for each business combination. FAS 141R defines the
acquirer as the entity that obtains control of one or more businesses in the business combination and establishes the acquisition date as the date that

66

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the
acquirer achieves control. FAS 141R is effective for business combination transactions for which the acquisition date is on or after the beginning of the first annual reporting period
beginning on or after December 15, 2008, which will be our fiscal year 2010. We are evaluating the impact, if any, the adoption of this statement will have on our results of operations,
financial position or cash flows.

In
April 2008, the FASB issued FSP FAS 142-3, "Determination of the Useful Life of Intangible Assets" ("FSP 142-3"). FSP 142-3 amends the factors that should
be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, "Goodwill and Other Intangible Assets"
("FAS 142"). This change is intended to improve the consistency between the useful life of a recognized intangible asset under FAS 142 and the period of expected cash flows used to
measure the fair value of the asset under FAS 141R and other GAAP. FSP 142-3 is effective for financial statements issued for fiscal years beginning after December 15, 2008,
and interim periods within those fiscal years, which will be our fiscal year 2010. The requirement for determining useful lives must be applied prospectively to intangible assets acquired after the
effective date and the disclosure requirements must be applied prospectively to all intangible assets recognized as of, and subsequent to, the effective date. We do not expect the adoption of this
statement to have a material impact on our results of operations, financial position or cash flows.

In
December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements" ("FAS 160"). This Statement amends ARB 51 to establish accounting and
reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a non-controlling interest in a subsidiary
is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. FAS 160 is effective for fiscal years and interim periods within
those fiscal years, beginning on or after December 15, 2008, which will be our fiscal year 2010. We are evaluating the impact, if any, the adoption of this statement will have on our results of
operations, financial position or cash flows.

In
March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activitiesan amendment of FASB Statement No. 133" ("FAS 161"). This
Statement changes the disclosure requirements for derivative instruments and hedging activities. Under FAS 161, entities are required to provide enhanced disclosures about (a) how and
why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations, and (c) how
derivative instruments and related hedged items affect an entity's financial position, financial performance, and cash flows. FAS 161 is effective for financial statements issued for fiscal
years and interim periods beginning after November 15, 2008, which will be our fiscal year 2010. We are evaluating the impact, if any, the adoption of this statement will have on our results of
operations, financial position or cash flows.

In
December 2007, the FASB ratified the Emerging Issues Task Force's ("EITF") consensus on EITF Issue No 07-1, "Accounting for Collaborative Arrangements" that discusses how parties to a
collaborative arrangement (which does not establish a legal entity within such arrangement) should account for various activities. The consensus indicates that costs incurred and revenues generated
from transactions with third parties (i.e. parties outside of the collaborative arrangement) should be reported by the collaborators on the respective line items in their income statements
pursuant to EITF Issue No. 99-19, "Reporting Revenue Gross as a Principal Versus Net as an Agent". Additionally, the consensus provides that income statement characterization of
payments between the participation in a collaborative arrangement should be based upon existing authoritative pronouncements; analogy to such pronouncements if not within their scope; or a reasonable,
rational, and consistently applied accounting policy election. EITF Issue No. 07-1 is effective for interim or annual reporting periods in fiscal years beginning after
December 15, 2008, which is our fiscal 2010 and is to be applied retrospectively to all periods presented for collaborative arrangements existing as of the date of adoption. We are currently
evaluating the impact, if any, the adoption of this standard will have on our results of operations, financial position or cash flows.

67

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In
June 2007, the FASB ratified the EITF consensus conclusion on EITF 07-3, "Accounting for Advance Payments for Goods or Services to be Used in Future Research and Development".
EITF 07-3 addresses the diversity which exists with respect to the accounting for the non-refundable portion of a payment made by a research and development entity for
future research and development activities. Under this conclusion, an entity is required to defer and capitalize non-refundable advance payments made for research and development
activities until the related goods are delivered or the related services are performed. EITF 07-3 is effective for interim or annual reporting periods in fiscal years beginning
after December 15, 2007, which is our fiscal 2009, and requires prospective application for new contracts entered into after the effective date. We do not expect the adoption of
EITF 07-3 to have a material impact on our results of operations, financial position or cash flows.

2.     Investment Securities

The following table summarizes our investment securities and their related inception-to-date gross unrealized gains and (losses), as of March 31,
2008 (in thousands). All of our investment securities are classified as available-for-sale.

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
ValueShort-term investments:U.S. agency securities

$
3,501

$


$


$
3,501Municipal securities


58,381


527





58,908Corporate notes


7,493





(218
)

7,275Total short-term investments


69,375


527


(218
)

69,684Long-term investments:U.S. agency securities











Municipal securities(1)


47,185





(1,176
)

46,009Corporate securities(1)


6,800





(210
)

6,590Total long-term investments


53,985





(1,386
)

52,599Total investment securities

$
123,360

$
527

$
(1,604
)
$
122,283




As
of March 31, 2008 we had approximately $52.6 million of ARS classified as long-term available-for-sale securities. These ARS are variable rate
bonds tied to short-term interest rates with long-term maturities. ARS have interest rate resets through a modified Dutch auction at predetermined short-term
intervals, typically every 7, 28, or 35 days. Interest on ARS is generally paid at the end of each auction process or semi-annually and is based upon the interest rate determined
during the prior auction.

As
of March 31, 2008, the majority of the ARS we held were AAA/Aaa rated, with most collateralized by student loans guaranteed by the U.S. government under the Federal Family Education Loan
Program and the majority of the remaining securities backed by monoline bond insurance companies. We historically invested in these securities for short periods of time as part of our cash management
program. However, the recent uncertainty in the credit markets have prevented us and other investors from selling our securities. As such, we have classified these investments as long-term
as of March 31, 2008 to reflect the current lack of liquidity of these securities. We currently have the ability and intent to hold these ARS until the auction process recovers. All of the
securities are investment grade securities, and we have no reason to

68

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believe
that any of the underlying issuers of our ARS are presently at risk or that the underlying credit quality of the assets backing our ARS has been impacted by the reduced liquidity of these
investments. We have continued to receive interest payments on the ARS according to their terms.

As
of March 31, 2008, there was insufficient observable ARS market information available to determine the fair value of our investments. Therefore, we estimated the fair value of these
investments by incorporating assumptions that market participants would use in their estimates of fair value. Some of these assumptions included i) credit quality, ii) estimates on the
probability of the issue being called prior to final maturity, and iii) broker quotes. Based on this analysis, as of March 31, 2008 we recorded a temporary impairment of approximately
$1.4 million related to our ARS in accumulated other comprehensive income in our consolidated statement of stockholders' equity. The contractual terms of these securities do not permit the
issuer to call, prepay or otherwise settle the securities at prices less than the stated par value of the security. Accordingly, we do not consider these investments to be
other-than-temporarily impaired as of March 31, 2008. We believe this temporary impairment is primarily attributable to the limited liquidity of these investments.

The
following table summarizes the gross unrealized losses and fair value of our investment securities, aggregated by investment category and length of time that individual securities have been in a
continuous unrealized loss position as of March 31, 2008 (in thousands):

|                            |                         | Unrealized Losses
Less Than 12 Months |         | Unrealized Losses
12 Months or Greater |        | Total  |       
|--------------------------- | ----------------------- | ------------------------------------- | ------- | -------------------------------------- | ------ | ------ | ------
|
|Short-term investments:     |                         |                                       |         |                                        |        |        |       
|                            | U.S. agency securities  |                                       | $       | 3,501                                  |        | $      |      
|                            | Municipal securities    |                                       |         | 58,908                                 |        |        |      
|                            | Corporate notes         |                                       |         | 7,275                                  |        |        | (218  
|                            |                         |                                       |         |                                        |        |        |       
|                            |                         | Total short-term investments          |         |                                        | 69,684 |        |       
|                            |                         |                                       |         |                                        |        |        |       
|Long-term investments:      |                         |                                       |         |                                        |        |        |       
|                            | U.S. agency securities  |                                       |         |                                       |        |        |      
|                            | Municipal securities(1) |                                       |         | 46,009                                 |        |        | (1,176
|                            | Corporate securities(1) |                                       |         | 6,590                                  |        |        | (210  
|                            |                         |                                       |         |                                        |        |        |       
|                            |                         | Total long-term investments           |         |                                        | 52,599 |        |       
|                            |                         |                                       |         |                                        |        |        |       
|Total investment securities |                         | $                                     | 122,283 |                                        | $      | (1,604 | )     
|                            |                         |                                       |         |                                        |        |        |       

---

The
gross unrealized losses on our short-term investments in the above tables were primarily caused by a decrease in the fair value of the investments as a result of an increase in
interest rates.

During
the year ended March 31, 2008 there were $0.1 million of realized gains and no realized losses from sales of available-for-sale securities. During the year
ended March 31, 2007 there were no realized gains or (losses) from sales of available-for-sale securities. In addition to the net unrealized loss of approximately
$1.0 million during the year ended March 31, 2008 from our investment securities, we had a pre-tax unrealized holding gain on our investment in Yuke's Co., Ltd.
("Yuke's") which is classified as available-for-sale and is included in other long-term assets (see "Note 8Other Long-Term Assets").

69

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The
following table summarizes the amortized cost and fair value of our investment securities, classified by stated maturity as of March 31, 2008 (in thousands):

Amortized
Cost

Fair
ValueShort-term investments:Due in one year or less

$
47,964

$
48,200Due after one year through two years


21,411


21,484Total short-term investments


69,375


69,684Long-term investments:Due after one year through five years


500


500Due after five years through ten years


1,000


1,000Due after ten years


52,485


51,099Total long-term investments


53,985


52,599Total investment securities

$
123,360

$
122,283


The
following table summarizes our investment securities and their related inception-to-date gross unrealized gains and (losses), as of March 31, 2007 (in thousands).
All of our investment securities are classified as available-for-sale.

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
ValueShort-term investments:U.S. agency securities

$
12,495

$
3

$
(2
)
$
12,496Municipal securities


245,761





(45
)

245,716Corporate notes


25,000





(2
)

24,998Total short-term investments

$
283,256

$
3

$
(49
)
$
283,210


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

|                       |                              | Unrealized Losses
Less Than 12 Months |         | Unrealized Losses
12 Months or Greater |   | Total |    
|---------------------- | ---------------------------- | ------------------------------------- | ------- | -------------------------------------- | - | ----- | ---
|
|U.S. agency securities |                              | $                                     | 12,496  |                                        | $ | (2    | )  
|Municipal securities   |                              |                                       | 245,716 |                                        |   | (45   | )  
|Corporate notes        |                              |                                       | 24,998  |                                        |   | (2    | )  
|                       |                              |                                       |         |                                        |   |       |    
|                       | Total short-term investments |                                       | $       | 283,210                                |   | $     | (49
|                       |                              |                                       |         |                                        |   |       |    

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

During
the year ended March 31, 2007 there were no realized gains or (losses) from sales of available-for-sale securities. In addition to the net unrealized loss of
approximately $46,000 from our

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short-term
investments, we had an unrealized loss on our investment in Yuke's Co., Ltd. ("Yuke's") which is classified as available-for-sale and is
included in other long-term assets. See "Note 8Other Long-Term Assets."

3.     Accounts Receivable Allowances

Accounts receivable allowances at March 31, 2008, 2007 and 2006 consist of the following (in thousands):

|                                           |  | Balance at
Beginning of
Period |        | Provisions |   | Deductions |  | Balance at
End of
Period
|------------------------------------------ |  | ------------------------------ | ------ | ---------- | - | ---------- |  | ------------------------
|Year ended March 31, 2008                  |  |                                |        |            |   |            |  |                         
|Allowance for price protection and returns |  | $                              | 66,071 |            | $ | 185,921    |  | $                       
|Allowance for co-op advertising            |  |                                | 13,612 |            |   | 48,008     |  |                         
|Allowance for doubtful accounts and other  |  |                                | 866    |            |   | 67         |  |                         
|                                           |  |                                |        |            |   |            |  |                         
|Total                                      |  | $                              | 80,549 |            | $ | 233,996    |  | $                       
|                                           |  |                                |        |            |   |            |  |                         
|Year ended March 31, 2007                  |  |                                |        |            |   |            |  |                         
|Allowance for price protection and returns |  | $                              | 48,223 |            | $ | 128,454    |  | $                       
|Allowance for co-op advertising            |  |                                | 8,440  |            |   | 40,726     |  |                         
|Allowance for doubtful accounts and other  |  |                                | 1,157  |            |   | 975        |  |                         
|                                           |  |                                |        |            |   |            |  |                         
|Total                                      |  | $                              | 57,820 |            | $ | 170,155    |  | $                       
|                                           |  |                                |        |            |   |            |  |                         
|Year ended March 31, 2006                  |  |                                |        |            |   |            |  |                         
|Allowance for price protection and returns |  | $                              | 46,909 |            | $ | 133,756    |  | $                       
|Allowance for co-op advertising            |  |                                | 10,324 |            |   | 33,272     |  |                         
|Allowance for doubtful accounts and other  |  |                                | 887    |            |   | 2,452      |  |                         
|                                           |  |                                |        |            |   |            |  |                         
|Total                                      |  | $                              | 58,120 |            | $ | 169,480    |  | $                       
|                                           |  |                                |        |            |   |            |  |                         

4.     Balance Sheet Details

Inventory.Inventory at March 31, 2008 and 2007 consists of the following (in thousands):

March 31,
2008

March 31,
2007Components

$
1,849

$
1,693Finished goods


36,391


25,688Inventory

$
38,240

$
27,381


71

---



Property and Equipment, net.Property and equipment, net at March 31, 2008 and 2007 consists of the following (in thousands):

Useful
Lives

March 31,
2008

March 31,
2007Building

30 yrs

$
730

$
719Land




401


401Computer equipment and software

3-10 yrs


63,646


50,777Furniture, fixtures and equipment

5 yrs


9,476


8,262Leasehold improvements

3-6 yrs


15,715


12,694Automobiles

2-5 yrs


105


9290,073


72,945Less: accumulated depreciation




(39,608
)

(27,850
)Property and equipment, net



$
50,465

$
45,095


Depreciation
expense associated with property and equipment amounted to $17.4 million, $13.7 million and $11.7 million for the fiscal years ended March 31,
2008, 2007 and 2006, respectively.

Accrued and Other Current Liabilities.Accrued and other current liabilities at March 31, 2008 and 2007 consist of the following (in
thousands):

March 31,
2008

March 31,
2007Accrued liabilities

$
39,876

$
31,125Accrued compensation


39,939


36,591Accrued venture partner expense


37,809


15,273Deferred revenue, netpackaged software product


30,864


Accrued third-party software developer milestones


10,594


9,387Accrued royalties


43,020


51,042Accrued and other current liabilities

$
202,102

$
143,418


Deferred
revenues, netpackaged software product, consists of net sales from packaged software products bundled with online services considered to be
more-than-inconsequential to the software product. Such amounts are recognized ratably over the estimated service period of six months beginning the month after initial sale.
At March 31, 2008 the deferred costs related to this deferred revenue were $20.7 million and are included within software development and prepaid expenses and other current assets in our
consolidated balance sheet. See "Note 1Description of Business and Summary of Significant Accounting Policies" for further information regarding our revenue recognition policies.

Other Long-Term Liabilities.Other long-term liabilities at March 31, 2008 and 2007 consist of the following
(in thousands):

March 31,
2008

March 31,
2007Accrued royalties

$
35,004

$
43,966Unrecognized tax benefits and related interest


5,461


Accrued liabilities


3,714


3,328Other long-term liabilities

$
44,179

$
47,294


5.     Business Combinations

In fiscal 2008, we acquired certain of the assets and/or all of the outstanding equity interests in the following three entities for a total cost of $35.3 million, of
which $31.1 million was paid in cash, $0.3 million

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in
shares issued, and the remaining $3.9 million may be paid in future years depending on whether certain pre-tax income targets are met pursuant to the purchase agreements:



Pursuant
to the terms of our acquisitions of Big Huge Games and Universomo, there is a potential additional consideration, up to $6.6 million, related to their meeting certain
post-acquisition performance targets that can be earned in future years. Of the $6.6 million, $1.9 million is payable in cash (contractually denominated as 1.2 million
Euros) and will be recognized as additional purchase price if paid, and $4.7 million is payable in stock and will be recognized as post-acquisition expenses, if earned.

Goodwill
and other intangible assets recognized in the above transactions amounted to $30.3 million and $6.1 million, respectively, $34.9 million of which is not expected to be
deductible for income tax purposes. The acquisitions were accounted for using the purchase method in accordance with FAS 141 "Business Combinations." Accordingly, the net assets were recorded
at their estimated fair values, and operating results were included in our financial statements from the date of acquisition. The preliminary purchase price allocation, including the allocation of
goodwill, will be updated as additional information becomes available. We did not present pro forma information as these acquisitions were immaterial to our financial position and results of
operations.

In
each of fiscal 2008 and fiscal 2007, we paid the former shareholders of ValuSoft additional consideration of $1.8 million for reaching certain pre-tax income targets pursuant to
the purchase agreement. In 2002, we acquired the assets of ValuSoft, Inc. for a total cost of $14.2 million, which was paid primarily in cash. Since then, we have paid the former
shareholders of ValuSoft total additional consideration in the amount of $11.0 million because ValuSoft reached certain pre-tax income targets in the five years subsequent to the
acquisition. No amounts of additional consideration are outstanding as of March 31, 2008. Goodwill recognized in the original transaction and in the payments of the additional consideration has
amounted to $23.0 million and is expected to be deductible for income tax purposes.

6.     Goodwill

The changes in the carrying amount of goodwill for the fiscal years ended March 31, 2008 and 2007 were as follows (in thousands):

Balance at March 31, 2006

$
90,872Sale of 50% interest in Minick Holdings AG ("Minick")


(9,598
)Goodwill acquired


3,753Additional consideration paid for ValuSoft


1,800Effect of foreign currency exchange rates and other


1,861Balance at March 31, 2007

$
88,688Goodwill acquired


30,329Additional consideration paid for ValuSoft


1,800Effect of foreign currency exchange rates and other


1,568Balance at March 31, 2008

$
122,385


We
performed an annual review of goodwill impairment in each of the fiscal years ended March 31, 2008, 2007 and 2006 and found no impairment.

73

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7.     Other Intangible Assets

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

|                                   |  |               |  | March 31, 2008 |       | March 31, 2007
|---------------------------------- |  | ------------- |  | -------------- | ----- | --------------
|
|Software technology                |  | 2-4 years     |  | $              | 3,504 |               
|Trade secrets                      |  | 5 years       |  |                |      |               
|Trade names                        |  | 3-10 years    |  |                | 2,844 |               
|Non-compete / Employment contracts |  | 1.5-6.5 years |  |                | 2,383 |               
|                                   |  |               |  |                |       |               
|Total                              |  |               |  | $              | 8,731 |               
|                                   |  |               |  |                |       |               

Amortization
of other intangible assets for the fiscal years ended March 31, 2008, 2007 and 2006 was $1.3 million, $1.9 million and $2.6 million, respectively. Finite-lived
other intangible assets are amortized using the straight-line method over the lesser of their estimated useful lives or the agreement terms, typically from one and one-half to
ten years and are assessed for impairment under SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets."

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

Fiscal Years Ending March 31,2009

$
1,4932010


1,5242011


1,2742012


9212013


430Thereafter


727$
6,369


8.     Other Long-Term Assets

In addition to other intangible assets, other long-term assets include our investment in Yuke's, a Japanese video game developer. We own less than a 20% interest in
Yuke's, which is publicly traded on the Nippon New Market in Japan. Accordingly, we account for this investment under SFAS No. 115 "Accounting for Certain Investments in Debt and Equity
Securities" as available-for-sale. Unrealized holding gains and losses are excluded from earnings and are included as a component of other comprehensive income until realized.
In fiscal 2008 the pre-tax unrealized holding gain related to our investment in Yuke's was approximately $1.4 million, and in fiscal 2007 the pre-tax unrealized holding
loss was approximately $3.5 million. Due to the long-term nature of this relationship, this investment is included in other long-term assets in the consolidated balance
sheets.

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Other long-term assets as of March 31, 2008 and 2007 are as follows (in thousands):

March 31,
2008

March 31,
2007Investment in Yuke's

$
7,080

$
5,726Other intangible assets (see Note 7)


6,369


1,636Other


6,553


11,388Total other long-term assets

$
20,002

$
18,750


9.     Capital Stock Transactions

As of March 31, 2007 we had $8.5 million authorized and available for common stock repurchases. During fiscal 2008, our Board authorized the repurchase of up to
$75.0 million of our common stock from time to time on the open market or in private transactions. During the year ended March 31, 2008, we repurchased 2,193,400 shares of our common
stock for approximately $54.9 million, leaving approximately $28.6 million available for future repurchases. There is no expiration date for the authorized repurchases.

On
January 18, 2008, in connection with our acquisition of Big Huge Games, Inc. ("BHG"), we issued an aggregate of 199,631 shares of our common stock to stockholders of BHG as partial
consideration for the purchase of their shares of BHG. The shares are restricted from transfer and held in escrow by THQ until certain criteria are met, as set forth in the BHG stock purchase
agreement.

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

10.   Accumulated Other Comprehensive Income

The components of accumulated other comprehensive income were as follows (in thousands):

|                                  |  | Foreign
Currency
Translation
Gains (Losses) |        | Net Unrealized
Gains (Losses)
on Securities |   | Net Accumulated
Other Comprehensive
Income (Loss) |  
|--------------------------------- |  | ------------------------------------------- | ------ | ------------------------------------------- | - | ------------------------------------------------- | -
|Balance at March 31, 2005         |  | $                                           | 9,729  |                                             | $ | 3,122                                             |  
|Other comprehensive income (loss) |  |                                             | (3,085 | )                                           |   | 601                                               |  
|                                  |  |                                             |        |                                             |   |                                                   |  
|Balance at March 31, 2006         |  |                                             | 6,644  |                                             |   | 3,723                                             |  
|Other comprehensive income (loss) |  |                                             | 9,463  |                                             |   | (2,227                                            | )
|                                  |  |                                             |        |                                             |   |                                                   |  
|Balance at March 31, 2007         |  |                                             | 16,107 |                                             |   | 1,496                                             |  
|Other comprehensive income (loss) |  |                                             | 9,372  |                                             |   | 219                                               |  
|                                  |  |                                             |        |                                             |   |                                                   |  
|Balance at March 31, 2008         |  | $                                           | 25,479 |                                             | $ | 1,715                                             |  
|                                  |  |                                             |        |                                             |   |                                                   |  

11.   Earnings (Loss) Per Share

Basic earnings (loss) per share is computed as net income (loss) divided by the weighted average number of shares outstanding for the period. Diluted earnings (loss) per share
reflects the potential dilution that could occur from common shares issuable through stock-based compensation plans including stock options, stock-based awards and purchase opportunities under our
ESPP. Effective April 1, 2006, we adopted FAS 123R using the modified prospective transition method (see "Note 14Stock-based Compensation" for further disclosure of
our stock-based compensation plans and our adoption of FAS 123R). In applying the treasury stock method in determining our dilutive potential common shares, assumed proceeds from dilutive
weighted average outstanding options as of March 31, 2008 and 2007 include the windfall tax benefits, net of shortfalls, calculated under the "as-if" method as prescribed by

75

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FAS 123R.
The following table is a reconciliation of the weighted-average shares used in the computation of basic and diluted earnings (loss) per share for the periods presented (in thousands):

|                                                                              |  | Fiscal Year Ended March 31,
|----------------------------------------------------------------------------- |  | ---------------------------
|
|Net income (loss) used to compute basic and diluted earnings (loss) per share |  | $                          
|                                                                              |  |                            
|Weighted average number of shares outstandingbasic                           |  |                            
|Dilutive effect of potential common shares                                    |  |                            
|                                                                              |  |                            
|Number of shares used to compute earnings (loss) per sharediluted            |  |                            
|                                                                              |  |                            

The
following weighted average potential common shares were excluded from the computation of diluted earnings (loss) per share above as such effect would have been antidilutive for the periods
presented (in thousands):

Fiscal Year Ended March 31,2008

2007

2006Potential common shares

9,352

2,086

738


12.   Income Taxes

United States and foreign income before taxes and details of the provision for income tax are as follows (in thousands):

|                                                                             |                                                                        | Fiscal Year Ended March 31, |        
|---------------------------------------------------------------------------- | ---------------------------------------------------------------------- | --------------------------- | -------
|
|Income from continuing operations before income taxes and minority interest: |                                                                        |                             |        
|                                                                             | United States                                                          |                             | $      
|                                                                             | Foreign                                                                |                             |        
|                                                                             |                                                                        |                             |        
|                                                                             |                                                                        | $                           | (72,635
|                                                                             |                                                                        |                             |        
|Provision for income tax (benefit) expense:                                  |                                                                        |                             |        
|                                                                             | Current                                                                |                             |        
|                                                                             |                                                                        | Federal                     |        
|                                                                             |                                                                        | State                       |        
|                                                                             |                                                                        | Foreign                     |        
|                                                                             |                                                                        |                             |        
|                                                                             |                                                                        | Total current               |        
|                                                                             |                                                                        |                             |        
|                                                                             | Deferred                                                               |                             |        
|                                                                             |                                                                        | Federal                     |        
|                                                                             |                                                                        | State                       |        
|                                                                             |                                                                        | Foreign                     |        
|                                                                             |                                                                        |                             |        
|                                                                             |                                                                        | Total deferred              |        
|                                                                             |                                                                        |                             |        
|Add back benefit (expense) recorded to stockholders' equity:                 |                                                                        |                             |        
|                                                                             | Tax benefit related to stock option exercises                          |                             |        
|                                                                             | Tax benefit (expense) related to unrealized (gain) loss on investments |                             |        
|                                                                             |                                                                        |                             |        
|Provision for income tax                                                     |                                                                        | $                           | (35,785
|                                                                             |                                                                        |                             |        

76

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The
differences between the U.S. federal statutory tax rate and our effective tax rate, expressed as a percentage of income before income taxes and minority interest, were as follows:

|                                               |                    | Fiscal Year Ended March 31, |      
|---------------------------------------------- | ------------------ | --------------------------- | -----
|
|U.S. federal statutory tax rate                |                    | (35.0                       | )%   
|Impact of changes in unrecognized tax benefits |                    | (6.4                        | )    
|State taxes, net of federal impact             |                    | (5.7                        | )    
|Tax exempt interest income                     |                    | (3.3                        | )    
|Research and development credits               |                    | (3.2                        | )    
|Non-deductible stock-based compensation        |                    | 2.8                         |      
|Rate differences in foreign taxes and other    |                    | 1.5                         |      
|                                               |                    |                             |      
|                                               | Effective tax rate |                             | (49.3
|                                               |                    |                             |      

Deferred
income taxes reflect the net tax effects of temporary differences between the amounts of assets and liabilities for accounting purposes and the amounts used for income tax purposes. The
components of the net deferred income tax asset and liability are as follows (in thousands):

March 31,2008

2007Deferred income tax assets:Accruals, reserves and other expenses

$
39,527

$
29,080Tax credit carryforwards


21,581


22,371Net operating loss carryforwards


28,777


5,513Other


17,129


2,859Total deferred income tax assets


107,014


59,823Valuation allowance


(8,357
)

(7,126
)Deferred tax asset, net of valuation allowance


98,657


52,697Deferred income tax liabilities:Software development costs


(62,000
)

(60,207
)Depreciation and amortization


(3,163
)

(2,065
)Unrealized gain on investments


(1,050
)

(260
)Total deferred income tax liabilities


(66,213
)

(62,532
)Net deferred tax asset (liability)

$
32,444

$
(9,835
)


As
of March 31, 2008, current net deferred tax liabilities were $29.3 million and long term net deferred tax assets were $61.7 million. As of March 31, 2007, current net
deferred tax liabilities were $25.6 million and long-term net deferred tax assets were $15.8 million.

The
tax credit carryforwards as of March 31, 2008 includes research and development tax credit carryforwards of $11.1 million and $11.6 million for federal and state purposes,
respectively. The federal tax credit carryforward expires in 2028, while the majority of the state credits are from California and can be carried forward indefinitely. In addition, we have foreign tax
credit carryforwards of $3.0 million. These credits expire in 2018.

As
of March 31, 2008, we have federal and various state net operating loss carryforwards totaling $69.6 and $70.9 million, respectively, that expire between 2008 and 2028 and foreign net
operating loss carryforwards totaling $22.3 million that can be carried forward indefinitely. At March 31, 2008, our deferred income tax asset for net operating loss carryforwards was
reduced by a valuation allowance of $8.4 million as

77

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compared
to $7.1 million in the prior fiscal year. Realization of the deferred tax assets is dependent upon the continued generation of sufficient taxable income prior to the expiration of the
net operating loss carryforwards. Although realization is not assured, we believe it is "more likely than not" that the net carrying value of the deferred tax asset will be realized.

The
tax benefits associated with certain net operating loss carryforwards relate to employee stock options. Pursuant to SFAS No. 109, "Accounting for Income Taxes" ("FAS 109"), current
year net operating losses have been reduced by $5.1 million relating to these items which will be credited to additional paid-in capital when we can reduce our income taxes payable.

At
March 31, 2008 we had accumulated foreign earnings of $66.5 million. We do not plan to repatriate these earnings, therefore, no U.S. income tax has been provided on the foreign
earnings. Additionally, we have not tax effected the cumulative translation adjustment as we have no intention of repatriating foreign earnings.

We
adopted the provisions of FASB Interpretation 48, "Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109," ("FIN 48") on April 1,
2007. Previously, we had accounted for tax contingencies in accordance with SFAS No. 5, Accounting for Contingencies. As required by FIN 48, we recognize the financial statement benefit
of a tax position only after determining that the relevant tax authority would "more likely than not" sustain the position following an audit. For tax positions meeting the more likely than not
threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority.
At the adoption date, we applied FIN 48 to all tax positions for which the statute of limitations remained open. Our adoption of FIN 48 on April 1, 2007 had no impact on our
April 1, 2007 beginning retained earnings balance. The amount of unrecognized tax benefits as of April 1, 2007 was $18.6 million.

A
reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

Balance at April 1, 2007

$
18,604Additions based on tax positions related to the current year


2,266Additions for tax positions of prior years


Reductions for tax positions of prior years


(1,755
)Reductions as result of lapse of applicable statute of limitations


(229
)Settlements


(7,250
)Balance at March 31, 2008

$
11,636


The
total unrecognized tax benefit of $11.6 million is reflected in our consolidated balance sheet as $1.5 million in net current deferred tax liabilities, $5.3 million in net
long-term deferred tax assets, and $4.8 million in other long-term liabilities. The amount of unrecognized tax benefits at March 31, 2008 includes
$5.0 million of unrecognized tax benefits which, if ultimately recognized, will reduce our annual effective tax rate.

We
are subject to income taxes in the U.S. federal jurisdiction, and various states and foreign jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related
tax laws and regulations and require significant judgment to apply. With few exceptions, we are no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by
tax authorities for fiscal years before 2004.

Our
uncertain tax positions relate to tax years that remain subject to examination by the relevant tax authorities. On May 24, 2007 we received notification from the IRS that the Joint
Committee on Taxation had completed its review of our file and took no exception to the conclusions reached by the IRS. We have evaluated the impact of the conclusions reached in the IRS examination
in the FIN 48 measurement and recognition process. We are currently under routine examination by the IRS for our income tax returns for fiscal years 2004 through 2007 and by various state
jurisdictions for fiscal years subsequent to 2003. We do

78

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not
expect these examinations to be concluded and settled in the next 12 months, therefore, we are currently unable to estimate the potential impact to the liability for unrecognized tax
benefits or the timing of such changes. We do not anticipate any significant impact to its unrecognized tax benefit balance in fiscal 2009 related to the expiration of the statutes of limitations.

Our
policy is to recognize interest and penalty expense, if any, related to uncertain tax positions as a component of income tax expense. For the fiscal years ended March 31, 2008 and 2007, we
recognized $0.1 million of interest income and $0.4 million in interest expense, respectively, related to uncertain tax positions. As of March 31, 2008 and April 1, 2007,
we had an accrued liability of $0.6 million and $0.7 million, respectively, for interest related to uncertain tax positions. These amounts are included in other long-term
liabilities in the consolidated balance sheets.

13.   Employee Defined Contribution Plan

For our United States employees we sponsor a defined contribution plan under Section 401(k) of the Internal Revenue Code. The plan allows employees the ability to defer
up to 60% of their annual compensation (up to the 2008 IRS annual maximum of $15,500). The plan also provides that we will match the employees' contribution equal to the employee's deferral, up to 4%
of eligible compensation with a maximum of $9,200 based on the 2008 IRS maximum compensation limit. We may also contribute funds to the plan in the form of a discretionary profit-sharing contribution.
Employer contributions under the plan were $6.1 million, $4.9 million and $3.5 million in the fiscal years ended March 31, 2008, 2007 and 2006, respectively.

14.   Stock-based Compensation

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

Under
the 1997 Plan, we granted incentive stock options, non-qualified stock options, performance accelerated restricted stock ("PARS") and performance accelerated restricted stock units
("PARSUs"). The NEEP Plan provided for the grant of only non-qualified stock options to non-executive officers of the Company. The LTIP provides for the grant of stock options
(including incentive stock options), stock appreciation rights (SARs), restricted stock awards, restricted stock units ("RSUs"), and other performance awards (in the form of performance shares or
performance units) to eligible directors and employees of, and consultants or advisors to, the Company. Subject to certain adjustments, the total number of shares of THQ common stock that may be
issued under the LTIP shall not exceed 6,000,000 shares. Shares subject to awards of stock options or SARs
will count as one share for every one share granted against the share limit, and all other awards will count as 1.6 shares for every one granted against the share limit. As of March 31, 2008,
we had 3,102,634 shares under the LTIP available for grant.

The
purchase price per share of common stock purchasable upon exercise of each option granted under the 1997 Plan, the NEEP Plan and the LTIP may not be less than the fair market value of such share
of common stock on the date that such option is granted. Generally, options granted under our plans become

79

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exercisable
over three years and expire on the fifth anniversary of the grant date. Other vesting terms are as follows:



The
fair value of our nonvested restricted stock and restricted stock units is determined based on the closing trading price of our common stock on the grant date. The fair value of PARS, PARSUs, DSUs
and RSUs granted is amortized over the vesting period.

In
March 2008, under the LTIP, we granted 312,375 RSUs to our employees. Total compensation expense recognized on RSUs for fiscal year ended March 31, 2008 was $42,000.

Beginning
in March 2007, we offered our non-executive employees the ability to participate in an employee stock purchase plan ("ESPP"). Under the ESPP, up to 500,000 shares of our common
stock may be purchased by eligible employees during six-month offering periods that commence each March 1 and September 1 (each, an "Offering Period"). The first business day
of each Offering Period is referred to as the "Offering Date." The last business day of each Offering Period is referred to as the "Purchase Date". Pursuant to our ESPP, eligible employees may
authorize payroll deductions of up to 15 percent of their base salary, subject to certain limitations, to purchase shares at 85 percent of the lower of the fair market value of our
common stock on the Offering Date or Purchase Date. The fair value of the ESPP options granted is amortized over the offering period. During the year ended March 31, 2008, employees purchased
124,650 and 180,229 shares at a price of $24.47 and $15.90 per share, respectively, on the Purchase Dates. No purchase of ESPP shares occurred during the year ended March 31, 2007. As of
March 31, 2008, we had 195,121 shares available for issuance under the ESPP.

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

Prior
to April 1, 2006, we accounted for our stock-based compensation using the intrinsic value method in accordance with APB 25 and the disclosure-only provisions of
FAS 123. Effective April 1, 2006, we adopted the fair value recognition provisions of FAS 123R using the modified prospective transition method. Under that transition method,
results for prior periods have not been restated as a result of adopting FAS 123R.

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For
the fiscal years ended March 31, 2008, 2007 and 2006, stock-based compensation expense recognized in the consolidated statements of operations was as follows (in thousands):

Year Ended March 31,2008

2007

2006Cost of salessoftware amortization and royalties

$
6,800

$
2,087

$
Product development


4,773


3,364


926Selling and marketing


2,654


2,817


981General and administrative


8,444


10,704


1,515Stock-based compensation expense before income taxes


22,671


18,972


3,422Income tax benefit


(6,132
)

(5,060
)

(867
)Total stock-based compensation expense after income taxes

$
16,539

$
13,912

$
2,555


Additionally,
stock-based compensation expense is capitalized in accordance with FAS 86, as discussed in "Note 1Description of Business and Summary of Significant Accounting
Policies." The following table summarizes stock-based compensation expense included in our consolidated balance sheets as a component of software development (in thousands):

Balance at April 1, 2006

$
Stock-based compensation expense capitalized during the period


5,924Amortization of capitalized stock-based compensation expense


(2,087
)Balance at March 31, 2007

$
3,837Stock-based compensation expense capitalized during the period


5,765Amortization of capitalized stock-based compensation expense


(6,800
)Balance at March 31, 2008

$
2,802


FAS 123R
requires that stock-based compensation expense be based on awards that are ultimately expected to vest and accordingly, stock-based compensation expense recognized in fiscal years
ended March 31, 2008 and 2007 has been reduced by estimated forfeitures. Our estimate of forfeitures is based on historical forfeiture behavior as well as any expected trends in future
forfeiture behavior.

The
fair value of stock options granted during the years ended March 31, 2008 and 2007 were estimated on the date of grant using the Black-Scholes option pricing model with the weighted-average
assumptions noted in the table below. Anticipated volatility is based on implied volatilities from traded options on our stock and on our stock's historical volatility. The expected term of our stock
options granted is based on historical exercise data and represents the period of time that stock options granted are expected to be outstanding. Separate groups of employees that have similar
historical exercise behavior are considered separately for valuation purposes. The risk-free rate for periods within the expected lives of options and ESPP are based on the US Treasury
yield in effect at the time of grant.

The
fair value of our ESPP options for the six month offering periods that began on March 1, 2007, September 4, 2007, and March 3, 2008 was estimated using the Black-Scholes
option pricing model with

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the
weighted-average assumptions noted in the table below and the per share fair value for those offering periods was $8.39, $7.63, and $5.52, respectively.

Stock Option Grants

Employee Stock
Purchase Plan

Stock Option Grants

Employee Stock
Purchase PlanYear Ended
March 31, 2008

Year Ended
March 31, 2008

Year Ended
March 31, 2007

Year Ended
March 31, 2007Dividend yield


%

%

%

%Anticipated volatility

36
%
38.8
%
37
%
37
%Weighted-average risk-free interest rate

3.9
%
4.4
%
4.9
%
5.1
%Expected lives

3.2 years

0.5 year

3.2 years

0.5 year


A
summary of our stock option activity for each of the three years ended March 31, 2008, 2007 and 2006 is as follows (in thousands, except per share amounts):

Options

Weighted-
Average
Exercise
Price

Weighted-
Average
Remaining
Contractual
Term
(in years)

Aggregate
Intrinsic
ValueOutstanding at March 31, 2005

9,880

$
13.10Granted

3,276

$
20.48Exercised

(3,187
)
$
12.03Forfeited/expired/cancelled

(894
)
$
14.44Outstanding at March 31, 2006

9,075

$
16.00Granted

2,638

$
24.60Exercised

(3,217
)
$
15.66Forfeited/expired/cancelled

(932
)
$
18.61Outstanding at March 31, 2007

7,564

$
19.15Granted

2,982

$
27.44Exercised

(1,422
)
$
14.89Forfeited/expired/cancelled

(1,007
)
$
25.86Outstanding at March 31, 2008

8,117

$
22.10

2.9

$
19,090Vested and expected to vest

7,312

$
21.76

2.9

$
18,685Exercisable at March 31, 2008

3,642

$
17.96

1.8

$
16,541


The
aggregate intrinsic value is calculated as the difference between the exercise price of a stock option and the quoted price of our common stock at March 31, 2008. It excludes stock options
that have exercise prices in excess of the quoted price of our common stock at March 31, 2008. The aggregate intrinsic value of stock options exercised during fiscal years ended
March 31, 2008, 2007 and 2006 was $19.5 million, $42.9 million and $32.9 million, respectively.

The
weighted-average grant-date fair value per share of options granted during fiscal years ended March 31, 2008, 2007 and 2006 was $8.28, $7.81 and $9.15, respectively.

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A summary of the status of our nonvested shares as of March 31, 2008 and 2007 and changes during the years then ended, is as follows (in thousands, except per share amounts):

Shares

Weighted-
Average
Grant-date
Fair Value
Per ShareNonvested shares at April 1, 2006

284

$
19.54Granted

155

$
26.21Vested

(42
)
$
25.66Forfeited/cancelled

(58
)
$
19.63Nonvested shares at March 31, 2007

339

$
21.81Granted

494

$
29.74Vested

(92
)
$
23.60Forfeited/cancelled

(129
)
$
25.34Nonvested shares at March 31, 2008

612

$
22.16


The
weighted-average grant-date fair value of nonvested shares granted in the fiscal year ended March 31, 2006 was $19.34.

The
unrecognized compensation cost, that we expect to recognize, related to our nonvested stock-based awards at March 31, 2008, and the weighted-average period over which we expect to recognize
that compensation, is as follows (in thousands):

Unrecognized
Compensation
Cost at
March 31, 2008

Weighted-
Average Period
(in years)Stock options

$
21,939

1.4Nonvested shares


8,342

3.3ESPP


929

0.4$
31,210


Cash
received from exercises of stock options for the fiscal years ended March 31, 2008, 2007 and 2006 was $21.1 million, $50.6 million and $37.8 million, respectively. The
actual tax benefit realized for the tax deductions from exercises of all stock-based awards totaled $5.5 million, $8.9 million and $9.2 million for the fiscal years ended
March 31, 2008, 2007 and 2006, respectively.

The
fair value of all our stock-based awards that vested during the years ended March 31, 2008, 2007 and 2006 was $23.5 million, $19.9 million and $14.8 million,
respectively.

Non-Employee Stock Warrants.In prior years, we have granted stock warrants to third parties in connection with the acquisition
of licensing rights for certain key intellectual property. The warrants generally vest upon grant and are exercisable over the term of the warrant. The exercise price of third-party stock warrants is
equal to the fair market value of our common stock at the date of grant. No third-party stock warrants were granted or exercised during the fiscal years ended March 31, 2008, 2007 and 2006.

At
March 31, 2008, 2007 and 2006, we had 390,000 stock warrants outstanding with a weighted average exercise price per share of $12.32. In fiscal 2006, 112,500 warrants expired unexercised.

In
accordance with EITF No. 96-18, "Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring or in Connection with Selling Goods or Services," we
measure the fair value of

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these
warrants on the measurement date. The fair value of each stock warrant is capitalized and amortized to expense when the related product is released and the related revenue is recognized.
Additionally, as more fully described in Note 1, the recoverability of intellectual property licenses is evaluated on a quarterly basis with amounts determined as not recoverable being charged
to expense. In connection with the evaluation of capitalized intellectual property licenses, any capitalized amounts for related third-party stock warrants are additionally reviewed for recoverability
with amounts determined as not recoverable being amortized to expense. For the years ended March 31, 2008, 2007 and 2006, $0.5 million, $0.7 million and $1.3 million,
respectively, was amortized and included in cost of saleslicense amortization and royalties expense.

As
a result of the stock option grant practices inquiry, as discussed more fully in our March 31, 2006 Amendment No. 2 on Form 10-K/A, certain of our stock options
were found to have been granted with an exercise price below the fair market value of our common stock on the date determined to be the correct measurement date. Those that vested subsequent to
December 2004 result in nonqualified deferred compensation for purposes of Section 409A of the Internal Revenue Code, and holders are subject to an excise tax on the value of the options in the
year in which the options vest. We have determined that options to purchase approximately 1.1 million shares of our common stock held by current and former employees may be subject to adverse
tax consequences under Section 409A. All of the affected shares pertained to grants made to non-executive employees.

In
order to mitigate the unfavorable personal tax consequences under Section 409A, in December 2006 the Compensation Committee of our Board of Directors, pursuant to the terms and conditions of
our compensatory stock plans under which our stock options had been granted, unilaterally corrected the
exercise price of affected options that remained outstanding to increase the exercise price to the fair market value of our common stock on the revised measurement date. In January 2007, the
Compensation Committee determined to give each affected option holder, subject to certain conditions, a cash payment equal to the aggregate difference between the initial exercise price and the
increased exercise price of each holder's affected options ("Cash Payment"). As of March 31, 2007, $2.3 million was paid out to affected employees, and there were no additional amounts
paid in fiscal 2008. We accounted for the impact of the corrected options as a stock option modification under FAS 123R. As a result of this partial cash settlement of these options and the
application of the modification accounting, we recognized $0.7 million in additional compensation cost due to the increase in the fair value of these options and $0.6 million in
accelerated compensation cost in fiscal year ended March 31, 2007.

We
also compensated individuals who had exercised affected options prior to December 2006 for excise tax liability and certain other adverse consequences under Section 409A. We incurred
additional compensation expense of $0.9 million in the three months ended December 31, 2006 based upon our best estimate of this liability at that point in time. In the three months
ended March 31, 2007 we increased our estimate of this liability by $1.2 million based upon our review of the IRS Compliance Resolution Program (the "Program"), announced in February
2007 (IRS Announcement 2007-18). At March 31, 2007, it was our intent to participate in this Program, and we estimated our total liability under this Program would be approximately
$2.1 million. This amount was included in accrued and other current liabilities in our consolidated balance sheet at March 31, 2007. In fiscal 2008, we completed the program and the
entire $2.1 million of excise tax liability was paid out to the respective individuals.

The
adoption of FAS 123R, using the fair value method, had the following effect on our income from continuing operations before income taxes and minority interest, income from continuing
operations, gain on sale of discontinued operations, net income, and basic and diluted net income per share as compared to

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what
would have been reported under APB 25 using the intrinsic value method, which was the method used prior to our adoption (in thousands, except per share data):

Year Ended March 31, 2007Fair Value
Method

Intrinsic
Value
Method

Impact of
ChangeIncome from continuing operations before income taxes and minority interest

$
91,028

$
105,613

$
14,585Income from continuing operations


64,958


75,963


11,005Gain on sale of discontinued operations, net of tax


3,080


3,080


Net income

$
68,038

$
79,043

$
11,005Earnings per sharebasic:Continuing operations

$
1.00

$
1.17

$
0.17Discontinued operations


0.05


0.05


Earnings per sharebasic

$
1.05

$
1.22

$
0.17Earnings per sharediluted:Continued operations

$
0.96

$
1.12

$
0.16Discontinued operations


0.05


0.05


Earnings per sharediluted

$
1.01

$
1.17

$
0.16


Prior
to the adoption of FAS 123R, we presented all tax benefits of deductions resulting from our stock-based awards as operating cash flows in the statement of cash flows. FAS 123R
requires the cash flows resulting from the tax benefits arising out of tax deductions in excess of the compensation recognized for the stock-based awards ("excess tax benefits") to be classified as
financing cash flows. Prior to our adoption of FAS 123R on April 1, 2006, the $4.0 million excess tax benefit classified as a financing cash inflow in the year ended
March 31, 2007 would have been classified as an operating cash inflow.

Proforma information for periods prior to the adoption of FAS 123R

Prior to the adoption of FAS 123R, we accounted for our stock-based compensation to employees using the intrinsic value method in accordance with APB 25 and the
disclosure-only provisions of FAS 123. Employee stock-based compensation expense recognized under FAS 123R was not reflected in our results of operations for the fiscal years
ended March 31, 2006. Forfeitures of our stock-based awards were reflected in our disclosures as they occurred. Previously reported amounts have not been restated relative to our adoption of
FAS 123R.

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

Fiscal year ended March 31, 2006Dividend yield

0
%Anticipated volatility

51
%Weighted average risk-free interest rate

4.11
%Expected lives

3 years


The
following table shows what our net income and income per share would have been for the fiscal year ended March 31, 2006, had compensation cost for our stock-based compensation been measured
based on

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the
estimated fair value at the grant dates in accordance with the provisions of FAS 123 (in thousands, except per share amounts):

Fiscal year ended
March 31, 2006Net incomeas reported

$
32,106Add: Stock-based employee compensation expense included in reported net income, net of related tax benefit


2,396Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax benefit


(13,131
)Net incomepro forma

$
21,371Earnings per share:Basicas reported

$
0.51Basicpro forma

$
0.34Dilutedas reported

$
0.49Dilutedpro forma

$
0.33


15.   Stockholders Rights Plan

THQ's stockholders hold their stock subject to an Amended and Restated Rights Agreement dated August 22, 2001, as amended by the First Amendment to the Amended and
Restated Rights Agreement, dated as of April 9, 2002 (collectively, the "Rights Agreement"). Pursuant to the Rights Agreement, and as adjusted pursuant to Section 11(p) of the Rights
Agreement as a result of the stock splits which occurred on April 9, 2002 and on September 1, 2005, each share of THQ common stock is accompanied by four-ninths (4/9) of a
preferred stock purchase right ("Right") which entitles the registered holder to purchase four nine-thousandths (4/9000) of a share of Series A Junior Participating Preferred Stock
at an exercise price of $44.44. The Rights become exercisable 10 days after any person or group acquires, or 10 business days after any person or group has announced its intention to commence a
tender offer for, 15% or more of the outstanding common stock of THQ. In the event that any person or group acquires 15% or more of our outstanding common stock, each holder of a Right (other than
such person or group) will be entitled to purchase, at the exercise price, the number of shares of common stock having a current market value equal to
two times the exercise price of the Right. If we are acquired in a merger or other business combination, each registered holder of a Right will be entitled to purchase, at the exercise price, a number
of shares of common stock of the acquirer having a current market value equal to two times the exercise price of the Right.

The
Board may redeem the Rights at a redemption price of $0.001 per Right, subject to adjustment, at any time until 10 days after the acquisition of 15% or more of the common stock of THQ. At
any time after a person or group has acquired 15% or more but less than 50% of the common stock, the Board may exchange all or part of the Rights for shares of common stock at an exchange ratio of 4/9
shares of common stock for each Right or four nine-thousandths (4/9000) of a share of Series A Junior Participating Preferred Stock ("Preferred Stock") per Right. The Rights expire
on June 21, 2010.

Pursuant
to the Certificate of Designation, as amended (the "Certificate of Designation"), establishing the Preferred Stock, effective as September 1, 2005: (i) each share of Preferred
Stock is entitled to quarterly dividends equal to 2,250 times the aggregate per share amount of all dividends declared on the common stock, (ii) each share of Preferred Stock will be entitled
to 2,250 votes on all matters submitted to a vote of THQ's stockholders, (iii) the "adjustment number" (as defined in the Certificate of Designation) used in Section 6 of the Certificate
of Designation for calculating the liquidation amount for Preferred Stock is 2,250 and (iv) in the event of a consolidation, merger, combination or similar transaction, each share of Preferred
Stock will be exchanged or changed into an amount per share equal to 2,250 times the amount of

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capital
stock, securities, cash or other property for which each share of common stock is exchanged or changed. The description of the Rights contained herein does not purport to be complete and is
qualified in its entirety by reference to the Rights Agreement and the Certificate of Designation.

16.   Agreement with JAKKS Pacific, Inc.

In June 1999 we entered into an operating agreement with JAKKS Pacific, Inc. ("JAKKS") that governs our relationship with respect to the World Wrestling
Entertainment, Inc. ("WWE") license. This agreement was amended in January 2002. Our relationship with JAKKS was established to enable THQ to develop, manufacture, distribute, market and sell
video games pursuant to the license from WWE. The principal terms of this operating agreement are as follows:



For
financial reporting purposes, we are deemed to control the venture; therefore, all venture operating results are consolidated with our results.

In
November 2001, through the venture with JAKKS, we entered into an amendment to expand the WWE license to include exclusive rights to other wrestling content produced by the WWE through December
2014. In exchange for these rights we paid a minimum guarantee to WWE that has already been recouped.

We
are currently involved in litigation with WWE and JAKKS with respect to the license and the preferred payment. See "Note 17Commitments and ContingenciesLitigation."

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17.   Commitments and Contingencies

A summary of annual minimum contractual obligations and commercial commitments as of March 31, 2008 is as follows (in thousands):

|           |  | Contractual Obligations and Commercial Commitments(6)
|---------- |  | -----------------------------------------------------
|
|2009       |  | $                                                    
|2010       |  |                                                      
|2011       |  |                                                      
|2012       |  |                                                      
|2013       |  |                                                      
|Thereafter |  |                                                      
|           |  |                                                      
|           |  | $                                                    
|           |  |                                                      

---

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Other
potential future expenditures relate to the following:

Manufacturer Indemnification.We must indemnify the platform manufacturers (Microsoft, Nintendo, Sony) of our games with respect to all
loss, liability and expenses resulting from any claim against such manufacturer involving the development, marketing, sale or use of our games, including any claims for copyright or trademark
infringement brought against such manufacturer. As a result, we bear a risk that the properties upon which the titles of our games are based, or that the information and technology licensed from
others and incorporated into the products, may infringe the rights of third
parties. Our agreements with our third-party software developers and property licensors typically provide indemnification rights for us with respect to certain matters. However, if a manufacturer
brings a claim against us for indemnification, the developers or licensors may not have sufficient resources to, in turn, indemnify us.

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 the 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 their
service as members of our Board of Directors, 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.

WWE related Lawsuits

On October 19, 2004, World Wrestling Entertainment, Inc. ("WWE") filed a lawsuit in the United States District Court for the Southern District of New York (the
"Court") against JAKKS Pacific, Inc. ("JAKKS"), us, THQ/JAKKS Pacific LLC (the "LLC"), and others, alleging, among other claims, improper conduct by JAKKS, certain executives of JAKKS,
an employee of the WWE and an agent of the WWE in granting the WWE videogame license to the LLC. The complaint seeks various forms of relief, including monetary damages and a judicial
determination that, among other things, the WWE videogame license is void. On March 30, 2005, WWE filed an amended complaint, adding both new claims and our president and chief executive
officer, Brian Farrell, as a defendant. In August 2005, the Court directed the parties to file briefs on the three federal law claims alleged by the Plaintiffs (i.e., Robinson-Patman, and
Sherman Act, and a threshold issue concerning the Plaintiff's RICO claim). The motions to dismiss the amended complaint based on these issues were fully briefed and argued and, on March 31,
2006, the Court granted the defendants' motion to dismiss the Robinson-Patman Act and Sherman Act claims and denied the defendants' motion seeking to dismiss the RICO claims on the basis of the
threshold "enterprise" issue that was briefed.

The
Court then set a second round of briefing on the motions to dismiss on all other federal issues, including other defenses under RICO. After extensive briefing concluded in August 2006 and a
hearing held in September 2006, on December 21, 2007, the Court granted our motions to dismiss the federal claims, and denied a motion by WWE to reconsider the Court's prior March 2006 order
dismissing the antitrust claims. Among the Court's grounds for its decision were its findings that WWE had failed to allege a pattern of racketeering activity, RICO injury or antitrust injury, and
that its RICO claims were

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barred
by the statutes of limitations. The Court also dismissed WWE's state law claims, without prejudice to refiling them in state court, for lack of federal jurisdiction. WWE has now asserted its
state law claims in Connecticut, as described below. WWE has appealed the Court's rulings, and the appeal is pending in the Second Circuit Court of Appeals. The appeal is currently in abeyance, and
there is currently no briefing schedule or timetable for resolution of the appeal.

On
October 12, 2006, WWE filed a separate lawsuit against us and the LLC in the Superior Court of the State of Connecticut, alleging that the Company's agreements with
Yuke's Co., Ltd. ("Yuke's"), a developer and distributor in Japan, violated a provision of the WWE videogame license prohibiting sublicenses without WWE's written consent. The lawsuit
seeks, among other things, a declaration that the WWE is entitled to terminate the video game license and seek monetary damages. On February 8, 2007, we and the LLC jointly moved to
strike one of the claims, for violation of the Connecticut Unfair Trading Practices Act; on March 28, 2007, the Court denied that motion, without prejudice to our ability to raise the same
issue at a later date. At a hearing on May 8, 2007, the Court granted WWE's request to amend its pleadings to add allegations and claims substantially similar to those already pending in WWE's
lawsuit in the Southern District of New York and to "cite in" the other defendants from that action, including our CEO, Brian Farrell. Following the dismissal without prejudice of WWE's lawsuit in the
Southern District of New York, WWE sought leave to refile its state law claims in this action, which was granted. The claims now pending in this action are a combination of the earlier claims relating
to the Yuke's agreements and the Connecticut equivalents of the state law claims that had previously been pending in the Southern District of New York. We have moved to dismiss many of the claims in
this action. Moreover, JAKKS has filed a summary judgment motion based on the collateral estoppel effects of the dismissal of WWE's lawsuit in the Southern District of New York, and we intend to join
in that motion. JAKKS's motion was scheduled for hearing on May 19, 2008, and there is not yet a hearing scheduled on the THQ defendants' motion. Discovery in this action is scheduled to be
completed by June 2009, and the case is to be ready for trial by May 1, 2010.

We
intend to vigorously defend ourselves against the claims raised in this action, including those raised in the amended complaint. However, in light of the early status of this litigation, we cannot
estimate a possible loss, if any. Games we develop based upon our WWE videogame license have contributed to approximately 25% of our net sales in fiscal 2008, up from approximately 15% of our net
sales in fiscal 2007 and 2006. The loss of the WWE license would have a negative impact on our future financial results.

Operating agreement with JAKKS Pacific, Inc.

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

The
parties have not reached agreement on the preferred payment for the First Subsequent Distribution Period. Accordingly, as provided in the operating agreement, the parties are in the process of
selecting an arbitrator to resolve this dispute. Although we believe continuation of the previous preferred payment would represent significantly excessive compensation to JAKKS for the First
Subsequent Distribution Period, we are not able to predict the outcome of the arbitration or otherwise estimate the amount of the preferred payment for the First Subsequent Distribution Period.
Accordingly, we are currently accruing for a preferred payment to JAKKS at the previous rate. However, we have advised JAKKS that we do not intend to make any payment until the amount of the preferred
payment payable to JAKKS for the First Subsequent Distribution Period is agreed or otherwise determined as provided in the operating agreement. On April 30, 2007, we filed a petition to compel
arbitration and appoint an arbitrator in the Superior Court of the State of California for the County of Los Angeles, West District. At a hearing on June 19, 2007 (with

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a
subsequent order entered on June 25, 2007), the Court established a process for selecting an arbitrator and denied a request by JAKKS for provisional relief requesting that, pending
conclusion of the arbitration, we either be enjoined from distributing to ourselves any proceeds from the joint venture since June 2006 or be compelled to resume payments to JAKKS at the same rate
that was in effect prior to June 2006. Pursuant to the process, the judge named a "shortlist" of five arbitrator candidates drawn from lists submitted by the parties, and afforded the parties five
days to agree upon an arbitrator candidate, failing which the judge would appoint an arbitrator from the "shortlist." On July 18, 2007, JAKKS filed a notice of disqualification, purporting to
disqualify all of the arbitrator candidates on the "shortlist" other than the one individual who had been among the candidates submitted by JAKKS. THQ objected to this notice. On July 31, 2007,
the Court struck JAKKS's notice and selected an arbitrator from the "shortlist." On or about August 22, 2007 JAKKS filed in the Court of Appeal of the State of California a petition for writ of
mandate/prohibition or other appropriate relief, seeking an order directing the judge to disqualify all of the arbitrator candidates other than the one individual who had been submitted by JAKKS. In
its filing, JAKKS argued that this individual was the only "shortlist" candidate to file certain disclosures within a time period JAKKS maintains is required by statute. The Court of Appeal granted a
temporary stay of the arbitration on August 30, 2007. On the same day that the Court of Appeal issued its temporary stay, JAKKS filed a notice with the Superior Court that it was exercising its
one-time peremptory challenge pursuant to the California Code of Civil Procedure to disqualify "without cause" the arbitrator chosen by the judge. Following a hearing, the Court of Appeal
denied JAKKS's petition in an opinion and order filed February 28, 2008. The case has now been returned to the trial court for further proceedings. At this time, we cannot anticipate when the
arbitration will commence.

We
do not expect the resolution of this dispute to have a material adverse impact on our results of operations, financial position or cash flows.

Lawsuits related to our historical stock option granting practices

Kukor and Ramsey v. Haller, et. Al.On August 25, 2006, following our announcement of the informal inquiry by the SEC, a purported
shareholder derivative action captionedRamsey v. Haller et. Al.was filed against certain of our current and former officers and directors in the
California Superior Court, Los Angeles County. The complaint alleges, among other things, purported improprieties in our issuance of stock options, breach of fiduciary duty and unjust enrichment.
Another lawsuit was subsequently filed by the same law firm on behalf of another purported shareholder, David Kukor, and the parties stipulated to consolidate the two actions. On or about
April 19, 2007, a Consolidated Shareholder Derivative Complaint (the "Consolidated Complaint") was filed, alleging the same types of claims and quoting from various public statements by THQ
since the filing of the original complaint. We are also named as a nominal defendant. On May 29, 2007, we filed a demurrer to the Consolidated Complaint as a whole. The demurrer was overruled
by the Court on October 11, 2007, and a status conference before the Court is currently scheduled for May 28, 2008. No discovery has been conducted, nor can it be conducted absent
further court order.

Although
litigation is subject to inherent uncertainties, we do not believe the results of the remaining shareholder action will have a material adverse impact on our consolidated financial position
or results of operations.

Other

We are also involved in additional routine litigation arising in the ordinary course of our business. In the opinion of our management, none of such pending litigation is
expected to have a material adverse effect on our consolidated financial condition or results of operations.

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Terminated Proccedings

SEC Informal Inquiry.On August 4, 2006, we received an informal inquiry from the Securities and Exchange Commission ("SEC")
requesting certain documents and information relating to our stock option grant practices from January 1, 1996 to the present. We fully cooperated with the SEC's inquiry and on
February 27, 2008 received a notice from the SEC that its investigation of our stock option grant practices has been completed and that the SEC does not intend to recommend any action against
THQ.

Hawaii Laborers Pension Fund v. THQ, et. Al.In October 2006, a purported shareholder derivative action captioned Hawaii Laborers Pension Fund v. THQ, et.
Al., was filed against certain of our current and former officers and directors in federal district court,
alleging claims under Section 14(a) of the Securities Exchange Act of 1934 as well as various state law claims arising out of alleged breaches of fiduciary duty related to stock option
practices. On or about April 20, 2007, the plaintiff filed an Amended and Verified Shareholder Derivative Complaint (the "Amended Complaint") alleging that certain current and former officers
and directors engaged in a conspiracy to manipulate grants dates associated with stock options and then concealed the alleged backdating option scheme and filed false and misleading statements with
the SEC. We were also named as a nominal defendant. On August 20, 2007, following oral argument, the district court granted the defendants' motion to dismiss this action, with leave to amend.
The judge subsequently issued an order on August 23, 2007. The plaintiffs filed an amended complaint on October 12, 2007. On November 28, 2007, the parties filed a stipulation by
which the plaintiffs dismissed the action without prejudice. The Court entered the stipulation on December 13, 2007, and the action was dismissed without prejudice.

18.   Segment and Geographic Information

We operate in one reportable segment in which we are a developer, publisher and distributor of interactive entertainment software for home video game consoles, handheld
platforms and personal computers. The following information sets forth geographic information on our net sales and total assets for the fiscal years ended March 31, 2008, 2007 and 2006 (in
thousands):

|                                    |  | North
America |         | Europe |   | Asia
Pacific |  | Consolidated
|----------------------------------- |  | ------------- | ------- | ------ | - | ------------ |  | ------------
|Year ended March 31, 2008           |  |               |         |        |   |              |  |             
|Net sales to unaffiliated customers |  | $             | 503,134 |        | $ | 454,880      |  | $           
|Total assets                        |  |               | 895,145 |        |   | 156,351      |  |             
|Year ended March 31, 2007           |  |               |         |        |   |              |  |             
|Net sales to unaffiliated customers |  | $             | 600,159 |        | $ | 365,406      |  | $           
|Total assets                        |  |               | 900,579 |        |   | 89,950       |  |             
|Year ended March 31, 2006           |  |               |         |        |   |              |  |             
|Net sales to unaffiliated customers |  | $             | 489,945 |        | $ | 269,928      |  | $           
|Total assets                        |  |               | 774,126 |        |   | 62,664       |  |             

Our
largest single customer accounted for 14% of our gross sales in fiscal 2008, 18% of our gross sales in fiscal 2007 and 19% of our gross sales in fiscal 2006. Our second largest customer accounted
for 12% of our gross sales in fiscal 2008, 11% of our gross sales in fiscal 2007 and 10% of our gross sales in fiscal 2006.

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Information
about THQ's net sales by platform for fiscal 2008, 2007 and 2006 is presented below (in thousands):

|                |                           | Fiscal Year Ended March 31,
|--------------- | ------------------------- | ---------------------------
|
|
|Consoles        |                           |                            
|                | Microsoft Xbox 360        |                            
|                | Microsoft Xbox            |                            
|                | Nintendo Wii              |                            
|                | Nintendo GameCube         |                            
|                | Sony PlayStation 3        |                            
|                | Sony PlayStation 2        |                            
|                |                           |                            
|                |                           |                            
|                |                           |                            
|Handheld        |                           |                            
|                | Nintendo Dual Screen      |                            
|                | Nintendo Game Boy Advance |                            
|                | Sony PlayStation Portable |                            
|                | Wireless                  |                            
|                |                           |                            
|                |                           |                            
|                |                           |                            
|PC              |                           |                            
|Other           |                           |                            
|                |                           |                            
|Total Net Sales |                           | $                          
|                |                           |                            

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19.   Quarterly Financial Data (Unaudited)

Twelve Months Ended March 31, 2008

|                                                                                   |                                   | Quarter Ended |         |       |  
|---------------------------------------------------------------------------------- | --------------------------------- | ------------- | ------- | ----- | -
|
|Net sales                                                                          |                                   | $             | 104,485 |       | $
|Expenses and other                                                                 |                                   |               | 130,063 |       |  
|                                                                                   |                                   |               |         |       |  
|Income (loss) from continuing operations before income taxes and minority interest |                                   |               | (25,578 | )     |  
|Income taxes                                                                       |                                   |               | (16,304 | )     |  
|                                                                                   |                                   |               |         |       |  
|Income (loss) from continuing operations                                           |                                   |               | (9,274  | )     |  
|Gain on sale of discontinued operations, net of tax                                |                                   |               |        |       |  
|                                                                                   |                                   |               |         |       |  
|Net income (loss)                                                                  |                                   | $             | (9,274  | )     | $
|                                                                                   |                                   |               |         |       |  
|Earnings (loss) per sharebasic:                                                   |                                   |               |         |       |  
|                                                                                   | Continuing operations             |               | $       | (0.14 | )
|                                                                                   | Discontinued operations           |               |         |      |  
|                                                                                   |                                   |               |         |       |  
|                                                                                   | Earnings (loss) per sharebasic   |               | $       | (0.14 | )
|                                                                                   |                                   |               |         |       |  
|Earnings (loss) per sharediluted:                                                 |                                   |               |         |       |  
|                                                                                   | Continuing operations             |               | $       | (0.14 | )
|                                                                                   | Discontinued operations           |               |         |      |  
|                                                                                   |                                   |               |         |       |  
|                                                                                   | Earnings (loss) per sharediluted |               | $       | (0.14 | )
|                                                                                   |                                   |               |         |       |  

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Twelve Months Ended March 31, 2007

|                                                                                   |                                   | Quarter Ended |         |      
|---------------------------------------------------------------------------------- | --------------------------------- | ------------- | ------- | -----
|
|Net sales                                                                          |                                   | $             | 138,829 |      
|Expenses and other                                                                 |                                   |               | 157,037 |      
|                                                                                   |                                   |               |         |      
|Income (loss) from continuing operations before income taxes and minority interest |                                   |               | (18,208 | )    
|Income taxes                                                                       |                                   |               | (6,009  | )    
|                                                                                   |                                   |               |         |      
|Income (loss) from continuing operations before minority interest                  |                                   |               | (12,199 | )    
|Minority interest                                                                  |                                   |               | 98      |      
|                                                                                   |                                   |               |         |      
|Income (loss) from continuing operations                                           |                                   |               | (12,101 | )    
|Gain on sale of discontinued operations, net of tax                                |                                   |               |        |      
|                                                                                   |                                   |               |         |      
|Net income (loss)                                                                  |                                   | $             | (12,101 | )    
|                                                                                   |                                   |               |         |      
|Earnings (loss) per sharebasic:                                                   |                                   |               |         |      
|                                                                                   | Continuing operations             |               | $       | (0.19
|                                                                                   | Discontinued operations           |               |         |     
|                                                                                   |                                   |               |         |      
|                                                                                   | Earnings (loss) per sharebasic   |               | $       | (0.19
|                                                                                   |                                   |               |         |      
|Earnings (loss) per sharediluted:                                                 |                                   |               |         |      
|                                                                                   | Continuing operations             |               | $       | (0.19
|                                                                                   | Discontinued operations           |               |         |     
|                                                                                   |                                   |               |         |      
|                                                                                   | Earnings (loss) per sharediluted |               | $       | (0.19
|                                                                                   |                                   |               |         |      

Due
to rounding and reclassifications, some of the figures above may differ slightly from the 10-Q's previously filed.

20.   Discontinued Operations

In December 2006, we sold our 50% interest in Minick. As of March 31, 2008 we received approximately $18.6 million in cash from the sale of Minick and we
recognized gains of $1.5 million and $3.1 million in fiscal 2008 and fiscal 2007, respectively. These gains are presented as "Gain on sale of discontinued operations, net of tax" in our
consolidated statements of operations. Pursuant to the Minick sale agreement, we may receive additional consideration of approximately $1.2 million during the three months ended June 30,
2008. If such amounts are received, the additional gain recognized will be reported in discontinued operations in the period the proceeds are collected. The results of Minick's operations were not
material to any of the periods presented and have therefore not been reclassified as discontinued operations.

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Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A.    Controls and Procedures

(a)Definition and limitations of disclosure controls.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. Our management evaluates these controls and procedures on an ongoing
basis to determine if improvements or modifications are necessary.

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 system of controls based on certain assumptions, which we believe are reasonable, about the
likelihood of future events, our system of controls may not achieve its desired purpose under all possible future conditions. Accordingly, our disclosure controls and procedures provide reasonable
assurance, but not absolute assurance, of achieving their objectives.

(b)Evaluation of disclosure controls and procedures.Our Chief Executive Officer and Chief Financial Officer, after
evaluating the effectiveness of our disclosure controls and procedures, believe that as of the end of the period covered by this report, our disclosure controls and procedures were effective in
providing the requisite reasonable assurance that material 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.

(c)Changes in internal control over financial reporting.There were no material changes in our internal control over
financial reporting in the fourth quarter of fiscal 2008.

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Management Report on Internal Control Over Financial Reporting

We, as management of THQ Inc. and its subsidiaries (the "Company"), are responsible for establishing and maintaining adequate internal controls over financial reporting.
Pursuant to the rules and regulations of the Securities and Exchange Commission, internal control over financial reporting is a process designed by, or under the supervision of, the Company's
principal executive and principal financial officers, or persons performing similar functions, and effected by the Company's board of directors, management and other personnel, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes
those policies and procedures that:



Management
has conducted an assessment of the effectiveness of the Company's internal control over financial reporting as of March 29, 2008 based on the control criteria established in a report
entitled Internal ControlIntegrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on such assessment, we have concluded that the
Company's internal control over financial reporting is effective as of March 29, 2008.

|/s/BRIAN J. FARRELL                                                                        |  |                                                                                                            |  | /s/COLIN L. SLADE |  | 
|------------------------------------------------------------------------------------------ |  | ---------------------------------------------------------------------------------------------------------- |  | ----------------- |  | 
|Brian J. Farrell
Chairman of the Board, President and
Chief Executive Officer
May 28, 2008 |  | Colin L. Slade
Executive Vice President,
Chief Financial Officer and Chief Accounting Officer
May 28, 2008

Item 9B.    Other Information

None.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To
the Board of Directors and Stockholders of THQ Inc.
Agoura Hills, California

We
have audited the internal control over financial reporting of THQ Inc. and subsidiaries (the "Company") as of March 29, 2008, based on criteria established in Internal ControlIntegrated
Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's
management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the
accompanying Management Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.

We
conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing
such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A
company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing
similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect
on the financial statements.

Because
of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to
error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are
subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In
our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of March 29, 2008, based on the criteria established in Internal ControlIntegrated
Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission.

We
have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet as of March 29, 2008 and the related
consolidated statements of operations, stockholders' equity and cash flows for the year then ended of the Company and our report dated May 28, 2008 expressed an unqualified opinion on those
financial statements and included an explanatory paragraph referring to a change in the accounting for income taxes.

DELOITTE & TOUCHE LLPLos Angeles, California

May
28, 2008

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PART III

Item 10.    Directors, Executive Officers and Corporate Governance

The following information required by Item 10 is incorporated herein by reference from our definitive Proxy Statement for the 2008 Annual Meeting of Stockholders, which
will be filed within 120 days after the close of our fiscal year (the "Proxy Statement"):



Information
regarding our code of ethics applicable to our directors, principal executive officer, principal financial officer, principal accounting officer, and other senior financial officers
appears under the caption "Charters, Code of Ethics, and Code of Business Conduct and Ethics."

Item 11.    Executive Compensation

The information required under this Item relating to executive compensation will be included in the Proxy Statement under the heading "Executive Compensation," and is
incorporated herein by reference.

Item 12.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by Item 12 related to securities authorized for issuance under equity compensation plans is included in Item 5 herein. The information
required by Item 12 related to security ownership of certain beneficial owners and management is incorporated herein by reference to the information in the Proxy Statement under the caption
"Security Ownership of Certain Beneficial Owners and Management."

Item 13.    Certain Relationships and Related Transactions, and Director Independence

There were no reportable business relationships, transactions with management, or indebtedness of management during the fiscal year ended March 31, 2008.

Item 14.    Principal Accounting Fees and Services

The information regarding principal accounting fees and services and the Company's pre-approval policies and procedures for audit and non-audit services
provided by the Company's independent accountant is incorporated by reference to the Proxy Statement under the caption "Proposal Number 4Ratification of Independent Registered
Public Accounting Firm."

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PART IV

Item 15.    Exhibits and Consolidated Financial Statement Schedules

(a) Financial Statements and Financial Statement Schedules

The following financial statements of the Company are included in Part II Item 8:



|                                                        |                                                                                                          | Page
|------------------------------------------------------- | -------------------------------------------------------------------------------------------------------- | ----
|REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |                                                                                                          | 55  
|CONSOLIDATED FINANCIAL STATEMENTS                       |                                                                                                          |     
|                                                        | Consolidated balance sheetsMarch 31, 2008 and 2007                                                      |     
|                                                        | Consolidated statements of operations for the fiscal years ended March 31, 2008, 2007 and 2006           |     
|                                                        | Consolidated statements of stockholders' equity for the fiscal years ended March 31, 2008, 2007 and 2006 |     
|                                                        | Consolidated statements of cash flows for the fiscal years ended March 31, 2008, 2007 and 2006           |     
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS              |                                                                                                          | 60  

(b) Exhibits.

The following exhibits are filed herewith or are incorporated by reference to exhibits previously filed with the SEC. We will furnish copies of the exhibits for a reasonable
fee (covering the expense of furnishing copies) upon request:

|Exhibit Number |  | Title                                                                                                                                                                                                                                                                                         
|-------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1            |  | Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to Post-Effective Amendment No. 1 to the Registration Statement on Form S-3 filed on January 9, 1998 (File No. 333-32221)
(the "S-3 Registration Statement")).                                                         
|3.2            |  | Amendment to Certificate of Incorporation (incorporated by reference to Exhibit 3.2 to Post-Effective Amendment No. 1 to the S-3 Registration Statement).                                                                                                                                     
|3.3            |  | Amendment to Certificate of Incorporation (incorporated by reference to Exhibit 3.3 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2001).                                                                                                                   
|3.4            |  | Amendment to Certificate of Incorporation (incorporated by reference to Exhibit 3.4 to the Registrant's Quarterly Report on Form 10-Q for the period ended September 30, 2007).                                                                                                               
|3.5            |  | Amended and Restated Bylaws (incorporated by reference to Exhibit 3 to the Registrant's Current Report on Form 8-K filed on June 22, 2000).                                                                                                                                                   
|3.6            |  | Certificate of Designation of Series A Junior Participating Preferred Stock of THQ Inc. (incorporated by reference to Exhibit A of Exhibit 1 of Amendment No. 2 to the Registrant's Registration Statement on Form 8-A filed
on August 28, 2001 (File No. 001-15959) (the "August 2001 8-A")).
|3.7            |  | Amendment to Certificate of Designation of Series A Junior Participating Preferred Stock of THQ Inc. (incorporated by reference to Exhibit 3.6 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 2001).                                                   

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|4.1    |  | 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 Registrant's August
2001 8-A).                                                                                                                                                        
|------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.2    |  | 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
Registrant's Registration Statement on Form 8-A filed on April 12, 2002 (file No. 000-18813)).                                                                             
|10.1#  |  | Stock Option Agreement dated as of December 23, 1998, between the Company and James Whims (incorporated by reference to Exhibit 10.9 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30,
1999).                                                                                                                                                                             
|10.2#  |  | Amended and Restated Employment Agreement, dated as of July 20, 2006 between the Company and Brian J. Farrell (incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 2006 (the "September 2006 10-Q")).                                                                                                                        
|10.3#* |  | Colin Slade Offer Letter dated January 22, 2008.                                                                                                                                                                                                                                                                                                                                                         
|10.4#  |  | Indemnification Agreements, dated as of November 30, 2004 between the Company and each director of the Company, being the following: Lawrence Burstein, Henry DeNero, Brian P. Dougherty, Brian J. Farrell, and James L. Whims (incorporated by
reference to Exhibit 10.4 to the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2004 (the "December 2004 10-Q")).
|10.5#  |  | Indemnification Agreement, dated as of March 28, 2006 between the Company and Jeffrey W. Griffiths (the form of which is incorporated by reference to Exhibit 10.4 to the Registrant's December 2004 10-Q).                                                                                                                                                                                              
|10.6#  |  | Indemnification Agreement, dated as of January 31, 2008 between the Company and Gary Rieschel (the form of which is incorporated by reference to Exhibit 10.4 to the Registrant's December 2004 10-Q).                                                                                                                                                                                                   
|10.7#  |  | THQ Inc. 2006 Long Term Incentive Plan (incorporated by reference to Exhibit A to Company's Proxy Statement on Schedule 14A filed June 21, 2006).                                                                                                                                                                                                                                                        
|10.8#  |  | THQ Inc. Employee Stock Purchase Plan (incorporated by reference to Exhibit A to Company's Proxy Statement on Schedule 14A filed June 21, 2006).                                                                                                                                                                                                                                                         
|10.9#  |  | THQ Inc. Amended and Restated 1997 Stock Option Plan, as amended on August 18, 2005 (incorporated by reference to Exhibit 10.2 to the Registrant's September 2005 10-Q).                                                                                                                                                                                                                                 
|10.10# |  | Third Amended and Restated Non-executive Employee Stock Option Plan (incorporated by reference to Appendix C to Registrant's Proxy Statement on Schedule 14A filed July 3, 2003).                                                                                                                                                                                                                        
|10.11# |  | THQ Inc. Stock Unit Deferred Compensation Plan, effective as of August 18, 2005 (incorporated by reference to Exhibit 10.11 to the Registrant's Annual Report on Form 10-K for the fiscal year ended March 31, 2007 (the "March
2007 10-K)).                                                                                                                                                             
|10.12# |  | Form of Severance Agreement with Executive Officers entered into June 15, 2006 (incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2006 (the "June 2006
10-Q")).                                                                                                                                                                 
|10.13# |  | Form of Severance Agreement with Senior Officers entered into June 15, 2006 (incorporated by reference to Exhibit 10.2 to the Registrant's June 2006 10-Q).                                                                                                                                                                                                                                              

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|10.14#  |  | Form of Severance Agreement with Officers entered into June 15, 2006 (incorporated by reference to Exhibit 10.3 to the Registrant's June 2006 10-Q).                                                                                                                                             
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.15#  |  | Form of Change-in-Control Agreement with Executive and Senior Officers entered into on June 15, 2006 (incorporated by reference to Exhibit 10.4 to the Registrant's June 2006 10-Q).                                                                                                             
|10.16#  |  | Form of Change-in-Control Agreement with Officers entered into on June 15, 2006 (incorporated by reference to Exhibit 10.5 to the Registrant's June 2006 10-Q).                                                                                                                                  
|10.17#  |  | THQ Inc. Management Deferred Compensation Plan, effective as of January 1, 2005 (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on December 23, 2004).                                                                                           
|10.18+  |  | PlayStation® 2 CD-Rom / DVD-Rom Licensed Publisher Agreement, dated as of April 1, 2000 between Sony Computer Entertainment America Inc. and the Company (incorporated by reference to Exhibit 10.10 to the Registrant's September 2002
10-Q).                                                   
|10.19   |  | PlayStation® 2 Licensed Publisher Agreement, dated as of May 21, 2003 between Sony Computer Entertainment Korea Inc. and THQ Korea Ltd. (incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 2003 (the "June 2003 10-Q")).
|10.20   |  | PlayStation® 2 Licensed Publisher Agreement, dated as of July 28, 2003 between Sony Computer Entertainment Europe Limited and THQ International Limited (incorporated by reference to Exhibit 10.1 to the Registrant's September 2003
10-Q).                                                     
|10.21+  |  | PlayStation® Portable Licensed Publisher Agreement, dated as of November 17, 2004 between Sony Computer Entertainment America Inc. and the Company (incorporated by reference to Exhibit 10.2 to the Registrant's December 2004
10-Q).                                                           
|10.22*+ |  | Global PlayStation 3 Format Licensed Publisher Agreement and North American Territory Rider, effective as of March 5, 2007 by and between Sony Computer Entertainment America Inc. and the Company.                                                                                              
|10.23+  |  | Xbox 360 Publisher License Agreement, dated as of October 31, 2005 by and between Microsoft Licensing, GP and the Company (incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended December 31, 2005).                                 
|10.24   |  | Amendment to the Xbox 360 Publisher License Agreement, effective as of October 1, 2006, by and between Microsoft Licensing, GP and the Company (incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended December 31, 2006).            
|10.25   |  | Amendment to the Xbox 360 Publisher License Agreement, dated as of January 17, 2007, by and between Microsoft Licensing, GP and the Company (incorporated by reference to Exhibit 10.25 to the Registrant's Annual Report on the March
2007 10-K).                                               
|10.26+  |  | Microsoft Corporation Xbox Publisher License Agreement, dated as of March 20, 2001 between Microsoft Corporation and the Company (incorporated by reference to Exhibit 10.8 to the Registrant's September 2002 10-Q).                                                                           
|10.27   |  | Amendment to the Xbox Publisher Licensing Agreement (Tiered Royalty Rate Structure and Xbox Platinum Hits Program), dated as of January 31, 2003 between Microsoft Licensing, Inc. and the Company (incorporated by reference to
Exhibit 10.2 to the Registrant's June 200310-Q).               

102

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|10.28  |  | Term Extension to Xbox Publisher License Agreement, dated October 13, 2004 between the Company and Microsoft Licensing, GP (incorporated by reference to Exhibit 10.1 of the Registrant's Current Report on Form 8-K filed on
October 18, 2004).                                              
|------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.29  |  | Amendment to the Xbox Publisher Licensing Agreement (Platinum Hits Family Programs), dated as of March 15, 2004 (incorporated by reference to Exhibit 10.30 to the Registrant's Annual Report on Form 10-K for the fiscal year ended
March 31, 2004).                                         
|10.30+ |  | Amendment to Xbox Publisher License Agreement, effective as of March 1, 2005 and dated March 9, 2005 by and between Microsoft Licensing, GP and the Company (incorporated by reference to Exhibit 10.27 to the Registrant's
March 2005 10-K).                                                 
|10.31+ |  | Confidential License Agreement for Game Boy Advance (Western Hemisphere), dated as of July 18, 2001 between Nintendo of America, Inc. and the Company (incorporated by reference to Exhibit 10.6 to the Registrant's September 2002
10-Q).                                                     
|10.32  |  | First Amendment to the Confidential License Agreement for Game Boy Advance, dated as of July 18, 2004 between Nintendo of America, Inc. and the Company (incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 2004).
|10.33+ |  | Confidential License Agreement for Nintendo GameCube (Western Hemisphere), dated as of April 5, 2002 between Nintendo of America, Inc. and the Company (incorporated by reference to Exhibit 10.7 to the Registrant's September 2002
10-Q).                                                    
|10.34+ |  | First Amendment to Confidential License Agreement for Nintendo GameCube, dated as of April 5, 2005 between Nintendo of America, Inc. and the Company (incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 2005).                        
|10.35+ |  | Confidential License Agreement for the Nintendo DS handheld platform, dated as of January 25, 2005 between Nintendo of America, Inc. and the Company (incorporated by reference to Exhibit 10.32 to the Registrant's March 2005
10-K).                                                         
|10.36+ |  | Confidential License Agreement for the Wii Console (Western Hemisphere), dated as of October 12, 2007 between Nintendo of America Inc. and the Company (incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report on
Form 10-Q for the period ended December 31, 2007).   
|10.37  |  | Lease agreement dated December 22, 2004 between the Company, as Tenant, and FORCE-AGOURA ROAD, LLC and Dennis D. Jacobsen Family Holdings II, LLC, as Landlord (incorporated by reference to Exhibit 10.6 to the Registrant's December
2004 10-Q).                                             
|14     |  | Code of Ethics for Executive Officers and Other Senior Financial Officers, as adopted May 27, 2004 (incorporated by reference from the Registrant's Form 10-K for the fiscal year ended March 31, 2006).                                                                                       
|21*    |  | Subsidiaries of the Registrant.                                                                                                                                                                                                                                                                

103

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|23.1* |  | Consent of Deloitte & Touche LLP                                                                                                             
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------
|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 Colin Slade, Chief Financial Officer and Chief Accounting Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|32.1* |  | Certification of Brian J. Farrell, Chief Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                        
|32.2* |  | Certification of Colin Slade, Chief Financial Officer and Chief Accounting Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

|Dated: May 28, 2008 |  | THQ INC.
|------------------- |  | --------
|                    |  | By:     
|Dated: May 28, 2008 |  | THQ INC.
|                    |  | By:     

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates
indicated.

|Signature                                   |  | Title                                                                                                                                         |  | Date        
|------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------
|/s/BRIAN J. FARRELLBrian J. Farrell         |  | Director, Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer)                                          |  | May 28, 2008
|/s/COLIN L. SLADEColin L. Slade             |  | Executive Vice President, Chief Financial Officer and Chief Accounting Officer (Principal Financial Officer and Principal Accounting Officer) |  | May 28, 2008
|/s/LAWRENCE BURSTEINLawrence Burstein       |  | Director                                                                                                                                      |  | May 28, 2008
|/s/HENRY DENEROHenry DeNero                 |  | Director                                                                                                                                      |  | May 28, 2008
|/s/BRIAN DOUGHERTYBrian Dougherty           |  | Director                                                                                                                                      |  | May 28, 2008
|/s/JEFFREY W. GRIFFITHSJeffrey W. Griffiths |  | Director                                                                                                                                      |  | May 28, 2008
|/s/GARY RIESCHELGary Rieschel               |  | Director                                                                                                                                      |  | May 28, 2008
|/s/JAMES L. WHIMSJames L. Whims             |  | Director                                                                                                                                      |  | May 28, 2008

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