THQ Reports Fiscal 2008 Third Quarter Results

AGOURA HILLS, Calif.--THQ Inc. (NASDAQ:THQI) today announced financial results for the third quarter of fiscal 2008, consistent with the company's recently announced revised financial guidance. The company also reaffirmed its financial outlook for the fourth quarter of fiscal 2008.

For the third quarter of fiscal 2008, THQ reported net sales of $509.6 million, driven primarily by WWE® SmackDown® vs. Raw® 2008, Cars: Mater-National and MX vs. ATV Untamed, each across multiple game systems. For the same period a year ago, THQ reported net sales of $475.7 million.

For the third quarter of fiscal 2008, THQ reported GAAP net income of $15.5 million, or $0.23 per diluted share, which includes $0.01 per diluted share of stock-based compensation expense. On a non-GAAP basis, excluding stock-based compensation expense, the company reported net income of $16.4 million, or $0.24 per diluted share. Both GAAP and non-GAAP net income include a $0.02 per diluted share gain from the receipt of additional proceeds related to the sale of Minick AG in fiscal year 2007. For the same period a year ago, THQ reported GAAP net income of $62.1 million, or $0.91 per diluted share, which includes $0.09 per diluted share of stock-based compensation expense. On a non-GAAP basis, excluding stock-based compensation expense, net income for the prior-year period was $68.1 million, or $1.00 per diluted share. Both GAAP and non-GAAP net income include a $0.03 per diluted share gain from the receipt of proceeds related to the sale of Minick AG in fiscal year 2007. A reconciliation of non-GAAP to GAAP results is provided in the accompanying financial tables.

As previously reported by the company, fiscal 2008 third quarter results include approximately $27 million in non-cash charges related to the company's decision to cancel certain projects in development and the write-down of the value of certain intellectual properties as part of its product quality initiatives, as well as approximately $20 million in accelerated amortization expense.

For the nine months ended December 31, 2007, THQ reported net sales of $843.4 million, compared with $854.8 million in the corresponding prior-year period. The company reported a GAAP net loss of $806,000, or $0.01 per share, which includes $0.13 per share of stock-based compensation expense. On a non-GAAP basis, excluding stock-based compensation expense, the company reported nine-month net income of $8.1 million, or $0.12 per diluted share. Both GAAP net loss and non-GAAP net income include a $0.02 per share gain from receipt of additional proceeds related to the sale of Minick AG in fiscal year 2007. For the prior-year period, THQ reported GAAP net income of $61.5 million or $0.92 per diluted share, which included stock-based compensation expense of $0.18 per diluted share. On a non-GAAP basis, excluding stock-based compensation expense, net income for the prior-year period was $74.0 million, or $1.10 per diluted share. Both GAAP and non-GAAP net income include a $0.03 per diluted share gain from the receipt of proceeds related to the sale of Minick AG in fiscal year 2007. A reconciliation of non-GAAP to GAAP results is provided in the accompanying financial tables.

"During the holiday quarter, we were pleased with the record performance of WWE SmackDown vs. Raw 2008 and the successful launch of our internally developed game MX vs. ATV Untamed," said Brian Farrell, THQ president and CEO.

Farrell continued, "We continue to strengthen our product development capabilities to support our long-term strategy of creating new owned intellectual properties. We look forward to launching Frontlines: Fuel of War at the end of this month. In fiscal 2009, we are well positioned for increased sales and profitability with strong owned intellectual properties such as Red Faction and Saints Row and well-known licensed franchises including WWE, UFC, Disney/Pixar and Nickelodeon."

Recent Developments:

During the quarter, THQ shipped more than 5 million units of WWE SmackDown vs. Raw 2008, bringing total lifetime WWE franchise net sales to more than $1 billion.

During the quarter, total lifetime Nickelodeon franchise net sales surpassed $1 billion, driven by Avatar, Nicktoons and SpongeBob SquarePants.

For the nine months ended December 31, 2007, THQ's international net sales increased significantly, to 50% of total global net sales from 40% a year ago, as THQ continued to execute on its international growth strategy.

For the quarter and nine months ended December 31, 2007, THQ grew its Nintendo DS revenue 94% year-over-year, aided by the launch of Drawn to Life, a newly established owned franchise created specifically for the Nintendo DS system.

On January 18, 2008, the company acquired Big Huge Games, a veteran development studio focused on the multi-billion dollar Role-Playing-Games market.

On January 23, 2008, THQ announced the appointment of two executives to newly-created product development positions to help drive new intellectual property creation.

On February 4, 2008, THQ announced the appointment of technology industry veteran Colin Slade as executive vice president and chief financial officer.

Fiscal 2008 Guidance

THQ reaffirmed its recently issued guidance for the fourth quarter and full fiscal year ending March 31, 2008 as follows:

For the fiscal year ending March 31, 2008, THQ expects net sales of approximately $1.04 billion and a GAAP loss per share of approximately $0.16, which includes approximately $0.21 per diluted share of stock-based compensation expense. On a non-GAAP basis, excluding stock-based compensation expense, the company expects to report net income of approximately $0.05 per diluted share.

For the fiscal fourth quarter ending March 31, 2008, THQ expects to report net sales of approximately $200 million and a GAAP net loss of approximately $0.13, which includes approximately $0.07 per diluted share of stock-based compensation expense. On a non-GAAP basis, excluding stock-based compensation expense, the company expects to report a net loss of approximately $0.06 per diluted share.

Non-GAAP Financial Measures

In addition to results determined in accordance with GAAP, THQ discloses certain non-GAAP financial measures that exclude stock-based compensation expense and related income tax effects. The non-GAAP financial measures included in the earnings release have been reconciled to the comparable GAAP results and should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for, or superior to, GAAP results.

When evaluating the performance of its business, THQ does not consider stock-based compensation charges. Likewise, THQ excludes stock-based compensation expense from its short and long-term operating plans. In contrast, THQ's management team is held accountable for cash-based compensation and such amounts are included in the company's operating plans. In addition, the stock-based compensation charges are subject to significant fluctuation outside the control of management due to the variables used to estimate the fair value of a share-based payment, such as, THQ's stock price, interest rates and the volatility of THQ's stock price. Further, when considering the impact of equity award grants, THQ places a greater emphasis on overall shareholder dilution rather than the accounting charges associated with such grants.

In the financial tables below, THQ has provided a reconciliation of the most comparable GAAP financial measure to each of the historical non-GAAP financial measures used in this press release.

Investor Conference Call

THQ will host a conference call to discuss fiscal third quarter results today at 5:00 p.m. Eastern/2:00 p.m. Pacific. Please dial 877.356.8075 or 706.902.0203, conference ID 31143285 to listen to the call or visit the THQ Inc. Investor Relations Home page at http://investor.thq.com. The online archive of the broadcast will be available approximately two hours after the live call ends. In addition, a telephonic replay of the conference call will be provided approximately two hours after the live call ends through February 7, 2008, by dialing 800.642.1687 or 706.645.9291, conference ID 31143285.

About THQ

THQ Inc. (NASDAQ:THQI) is a leading worldwide developer and publisher of interactive entertainment software. Headquartered in Los Angeles County, California, THQ sells product through its global network of offices located throughout North America, Europe and Asia Pacific. More information about THQ and its products may be found at www.thq.com and www.thqwireless.com. THQ, THQ Wireless, Big Huge Games, Drawn to Life, MX vs. ATV Untamed, Red Faction, Saints Row and their respective logos are trademarks and/or registered trademarks of THQ Inc.

All other trademarks are trademarks or registered trademarks of their respective owners.

This press release contains statements that are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include, but are not limited to, the company's expectations for revenue and earnings per share for the quarter and fiscal year ending March 31, 2008, and for the company's product releases and financial performance in future periods. These forward-looking statements are based on current expectations, estimates and projections about the business of THQ Inc. and its subsidiaries (collectively referred to as "THQ") and are based upon management's 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, economic, competitive and technological factors affecting the operations, markets, products, services and pricing of THQ. Unless otherwise required by law, THQ disclaims any obligation to update its view on any such risks or uncertainties or to revise or publicly release the results of any revision to these forward-looking statements. Readers should carefully review the risk factors and the information that could materially affect THQ's financial results, described in other documents that THQ files from time to time with the Securities and Exchange Commission, including its Quarterly Reports on Form 10-Q and its Annual Report on Form 10-K for the fiscal period ended March 31, 2007, and particularly the discussion of risk factors that may affect results of operations set forth therein. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release.

THQ Inc. and Subsidiaries

Unaudited Consolidated Statements of Operations

(In thousands, except per share data)

Three Months Ended Nine Months Ended

December 31, December 31,

2007 2006 2007 2006

Net sales $ 509,609 $ 475,741 $ 843,443 $ 854,767

Costs and expenses:

Cost of sales - product costs 175,568 162,110 306,732 288,117

Cost of sales - software amortization and royalties 126,270 71,417 177,179 140,364

Cost of sales - license amortization and royalties 50,420 49,759 86,250 86,903

Cost of sales - venture partner expense 19,207 13,503 21,241 14,985

Product development 41,311 21,912 94,504 73,834

Selling and marketing 65,499 51,213 135,495 116,849

General and administrative 15,528 24,100 52,269 59,271

Total costs and expenses 493,803 394,014 873,670 780,323

Income (loss) from continuing operations 15,806 81,727 (30,227 ) 74,444

Interest and other income, net 3,412 2,595 13,337 9,071

Income (loss) from continuing operations before income taxes and minority interest 19,218 84,322 (16,890 ) 83,515

Income taxes 5,224 24,367 (14,571 ) 24,215

Income (loss) from continuing operations before minority interest 13,994 59,955 (2,319 ) 59,300

Minority interest " (7 ) " 136

Income (loss) from continuing operations 13,994 59,948 (2,319 ) 59,436

Gain on sale of discontinued operations, net of tax 1,513 2,107 1,513 2,107

Net income (loss) $ 15,507 $ 62,055 $ (806 ) $ 61,543

Earnings (loss) per share - basic:

Continuing operations $ 0.21 $ 0.92 $ (0.03 ) $ 0.92

Discontinued operations 0.02 0.03 0.02 0.03

Earnings (loss) per share - basic $ 0.23 $ 0.95 $ (0.01 ) $ 0.95

Shares used in per share calculation - basic 66,118 65,387 66,502 64,737

Earnings (loss) per share - diluted:

Continuing operations $ 0.21 $ 0.88 $ (0.03 ) $ 0.89

Discontinued operations 0.02 0.03 0.02 0.03

Earnings (loss) per share - diluted $ 0.23 $ 0.91 $ (0.01 ) $ 0.92

Shares used in per share calculation - diluted 67,815 68,101 66,502 67,150

THQ Inc. and Subsidiaries

Reconciliation of GAAP Net Income (Loss) to Non-GAAP Net Income (Loss) (a)

(In thousands, except per share data)

Three Months Ended

December 31, Nine Months Ended

December 31,

2007 2006 2007 2006

Income (loss) from continuing operations $ 13,994 $ 59,948 $ (2,319 ) $ 59,436

Stock-based compensation expense (b) 4,730 6,779 17,721 15,912

Income tax adjustments ® (3,804 ) (724 ) (8,844 ) (3,458 )

Total non-GAAP adjustments 926 6,055 8,877 12,454

Non-GAAP income from continuing operations 14,920 66,003 6,558 71,890

Gain on sale of discontinued operations, net of tax 1,513 2,107 1,513 2,107

Non-GAAP net income $ 16,433 $ 68,110 $ 8,071 $ 73,997

Non-GAAP earnings per share - basic:

Non-GAAP continuing operations $ 0.23 $ 1.01 $ 0.10 $ 1.11

Discontinued operations 0.02 0.03 0.02 0.03

Non-GAAP earnings per share - basic $ 0.25 $ 1.04 $ 0.12 $ 1.14

Shares used in per share calculation - basic 66,118 65,387 66,502 64,737

Non-GAAP earnings per share - diluted:

Non-GAAP continuing operations $ 0.22 $ 0.97 $ 0.10 $ 1.07

Discontinued operations 0.02 0.03 0.02 0.03

Non-GAAP earnings per share - diluted $ 0.24 $ 1.00 $ 0.12 $ 1.10

Shares used in per share calculation - diluted 67,815 68,101 68,560 67,150

Non-GAAP Adjustments (a)

Three Months Ended

December 31, Nine Months Ended

December 31,

2007 2006 2007 2006

Cost of sales - software amortization and royalties (b) $ 2,413 $ 625 $ 5,391 $ 788

Product development (b) 1,262 1,470 3,434 3,587

Selling and marketing (b) 573 1,125 2,083 2,486

General and administrative (b) 482 3,534 6,813 8,990

Interest and other income, net (b) " 25 " 61

Income tax adjustments ® (3,804 ) (724 ) (8,844 ) (3,458 )

Total non-GAAP adjustments $ 926 $ 6,055 $ 8,877 $ 12,454

Notes:

(a) See explanation above regarding the Company's practice on

reporting non-GAAP financial measures.

(b) Stock-based compensation expense recorded under SFAS 123 ® in the

three and nine months ended December 31, 2007 and December 31,

2006, and the payroll tax effects of our historical stock

option grant practices investigation in the three and nine months

ended December 31, 2006.

® Income tax associated with stock-based compensation expense.

THQ Inc. and Subsidiaries

Unaudited Consolidated Balance Sheets

(In thousands)

December 31, March 31,

2007 2007

ASSETS

Cash, cash equivalents and short-term investments $ 325,344 $ 457,958

Accounts receivable, net of allowances 270,740 67,586

Inventory 43,584 27,381

Licenses 27,346 41,406

Software development 148,822 130,512

Income taxes receivable 5,890 18,525

Prepaid expenses and other current assets 14,954 16,238

Total current assets 836,680 759,606

Property and equipment, net 49,359 45,095

Licenses, net of current portion 61,356 49,661

Software development, net of current portion 26,066 33,766

Income taxes receivable, net of current portion 14,104 2,163

Deferred income taxes 15,812 15,812

Goodwill 99,026 88,688

Other long-term assets, net 15,880 18,750

TOTAL ASSETS $ 1,118,283 $ 1,013,541

LIABILITIES AND STOCKHOLDERS' EQUITY

Accounts payable $ 73,753 $ 28,225

Accrued and other current liabilities 205,562 143,418

Deferred income taxes 24,161 25,647

Total current liabilities 303,476 197,290

Other long-term liabilities 39,979 47,294

Total liabilities 343,455 244,584

Total stockholders' equity 774,828 768,957

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,118,283 $ 1,013,541

THQ Inc. and Subsidiaries

Unaudited Supplemental Financial Information

Three Months Ended Nine Months Ended

December 31,

December 31,

2007 2006 2007 2006

Platform Revenue Mix

Consoles

Microsoft Xbox 360 12.3 % 12.5 % 13.9 % 14.5 %

Microsoft Xbox 0.1 2.6 0.3 3.0

Nintendo Wii 10.4 5.1 8.1 2.8

Nintendo Game Cube 0.2 4.5 0.8 5.7

Sony PlayStation 3

11.8 " 8.7 "

Sony PlayStation 2 25.6 38.2 25.9 31.3

60.4 62.9 57.7 57.3

Handheld

Nintendo Dual Screen 20.2 11.2 20.4 10.4

Nintendo Game Boy Advance 2.9 10.1 3.8 11.9

Sony PlayStation Portable 8.5 5.9 8.1 6.5

Wireless 1.0 1.6 1.7 2.6

32.6 28.8 34.0 31.4

PC 7.0 8.3 8.2 11.3

Other " " 0.1 "

100.0 % 100.0 % 100.0 % 100.0 %

Geographic Revenue Mix

Domestic 54.6 % 61.9 % 50.1 % 59.6 %

Foreign 45.4 38.1 49.9 40.4

100.0 % 100.0 % 100.0 % 100.0 %