THQ 2010 Annual Report Download - page 43

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agreements, we commit to provide specified payments to an intellectual property holder or
developer. Assuming all contractual provisions are met, the total future minimum contract
commitments for such agreements in place as of March 31, 2010 are $233.5 million.
License/software development commitments in the table above include $111.2 million of
commitments to licensors/developers that are included in our consolidated balance sheet as of
March 31, 2010 because the licensors do not have any significant performance obligations to us.
These commitments were included in both current and long-term licenses and accrued
royalties/current and long-term software development and accrued liabilities.
(2)
Advertising. We have certain minimum advertising commitments under most of our major license
agreements. These minimum commitments generally range from 2% to 12% of net sales related
to the respective license.
(3) Leases. We are committed under operating leases with lease termination dates through 2020.
Most of our leases contain rent escalations. Of these obligations, $1.6 million and $0.8 million are
accrued and classified as accrued and other current liabilities and other long-term liabilities,
respectively, in the March 31, 2010 consolidated balance sheet due to abandonment of certain
lease obligations in connection with our fiscal 2009 business realignment. We expect to receive
$0.8 million, $0.4 million, $0.2 million in sublease rental income in fiscal 2011, fiscal 2012, and
fiscal 2013, respectively, under non-cancelable sublease agreements. Rent expense was
$13.9 million, $15.9 million, and $16.1 million for fiscal years 2010, 2009, and 2008, respectively.
(4)
Secured Credit Lines. In fiscal 2009, we obtained a credit line with UBS related to our portfolio of
ARS held by UBS. We had $13.2 million in borrowings outstanding on the UBS credit line at
March 31, 2010 (see “Note 10—Secured Credit Lines”).
Convertible Senior Notes. On August 4, 2009 we issued the Notes. The Notes pay interest
semiannually, in arrears on February 15 and August 15 of each year, beginning February 15,
2010, through maturity and are convertible at each holder’s option at any time prior to the close
of business on the trading day immediately preceding the maturity date. In fiscal 2010 we paid
$2.7 million in interest on the Notes and absent any conversions, we expect to pay $5.0 million in
each of the fiscal years 2011 through 2014 and $2.5 million in fiscal 2015, for an aggregate of
$25.2 million in interest payments over the term of the Notes (see “Note 11—Convertible Senior
Notes” in the notes to the consolidated financial statements in Item 8).
(5)
Other. As discussed more fully in “Note 17—Settlement Agreements” in the notes to the
consolidated financial statements included in Item 8, the amounts payable to Jakks totaling
$20.0 million are reflected in the table above. The present value of these amounts is included in
other current liabilities and other long-term liabilities in our consolidated balance sheet at
March 31, 2010. The remaining other commitments included in the table above are also included
as current or long-term liabilities in our March 31, 2010 consolidated balance sheet.
(6) We have omitted unrecognized tax benefits from this table due to the inherent uncertainty
regarding the timing and amount of certain payments related to these unrecognized tax benefits.
The underlying positions have not been fully developed under audit to quantify at this time. At
March 31, 2010, we had $6.0 million of unrecognized tax benefits. See “Note 19—Income Taxes”
in the notes to the consolidated financial statements included in Item 8 for further information
regarding the unrecognized tax benefits.
Manufacturer Indemnification. We must indemnify the platform manufacturers (Microsoft, Nintendo, Sony) of
our games with respect to all loss, liability and expenses resulting from any claim against such manufacturer
involving the development, marketing, sale or use of our games, including any claims for copyright or
trademark infringement brought against such manufacturer. As a result, we bear a risk that the properties
upon which the titles of our games are based, or that the information and technology licensed from others
and incorporated into the products, may infringe the rights of third parties. Our agreements with our
third-party software developers and property licensors typically provide indemnification rights for us with
respect to certain matters. However, if a manufacturer brings a claim against us for indemnification, the
developers or licensors may not have sufficient resources to, in turn, indemnify us.