Blizzard 2005 Annual Report Download - page 49

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Accrued Expenses
(Amounts in thousands) March 31, 2005 March 31, 2004
Increase/
(Decrease)
Accrued฀expenses $98,067 $63,205 $34,862
The฀increase฀in฀accrued฀expenses฀was฀primarily฀driven฀by:
•฀ ฀Continued฀focus฀on฀marketing฀and฀co-op฀support฀for฀our฀key฀titles.฀It฀has฀been฀our฀experience฀that฀this฀increased฀spending฀will฀lengthen฀the฀product฀sales฀life฀cycle฀
and฀add฀to฀the฀long-term฀prospects฀of฀the฀respective฀product฀lines.
•฀ ฀Increased฀foreign฀income฀taxes฀payable.
•฀ ฀Expenses฀related฀to฀the฀fourth฀quarter฀releases฀of฀three฀affiliate฀label฀products฀in฀our฀European฀territories.
Credit Facilities
We฀have฀revolving฀credit฀facilities฀with฀our฀Centresoft฀subsidiary฀located฀in฀the฀UK฀(the฀“UK฀Facility”)฀and฀our฀NBG฀subsidiary฀located฀in฀Germany฀(the฀“German฀Facility”).฀
The฀UK฀Facility฀provided฀Centresoft฀with฀the฀ability฀to฀borrow฀up฀to฀GBP฀8.0฀million฀($15.0฀million),฀including฀issuing฀letters฀of฀credit,฀on฀a฀revolving฀basis฀as฀of฀March฀31,฀
2005.฀Furthermore,฀under฀the฀UK฀Facility,฀Centresoft฀provided฀a฀GBP฀0.6฀million฀($1.1฀million)฀guarantee฀for฀the฀benefit฀of฀our฀CD฀Contact฀subsidiary฀as฀of฀March฀31,฀2005.฀
The฀UK฀Facility฀bore฀interest฀at฀LIBOR฀plus฀2.0%฀as฀of฀March฀31,฀2005,฀is฀collateralized฀by฀substantially฀all฀of฀the฀assets฀of฀the฀subsidiary฀and฀expires฀in฀January฀2006.฀
The฀UK฀Facility฀also฀contains฀various฀covenants฀that฀require฀the฀subsidiary฀to฀maintain฀specified฀financial฀ratios฀related฀to,฀among฀others,฀fixed฀charges.฀As฀of฀March฀31,฀
2005,฀ we฀were฀in฀compliance฀ with฀ these฀covenants.฀ No฀borrowings฀were฀outstanding฀against฀ the฀UK฀Facility฀ as฀ of฀ March฀31,฀2005.฀ The฀ German฀Facility฀provided฀ for฀
revolving฀loans฀up฀to฀EUR฀0.5฀million฀($0.6฀million)฀as฀of฀March฀31,฀2005,฀bore฀interest฀at฀a฀Eurocurrency฀rate฀plus฀2.5%,฀is฀collateralized฀by฀certain฀of฀the฀subsidiary’s฀
property฀and฀equipment฀and฀has฀no฀expiration฀date.฀No฀borrowings฀were฀outstanding฀against฀the฀German฀Facility฀as฀of฀March฀31,฀2005.
Commitments
In฀the฀normal฀course฀of฀business,฀we฀enter฀into฀contractual฀arrangements฀with฀third-parties฀for฀non-cancelable฀operating฀lease฀agreements฀for฀our฀offices,฀for฀the฀development฀
of฀products,฀as฀well฀as฀for฀the฀rights฀to฀intellectual฀property.฀Under฀these฀agreements,฀we฀commit฀to฀provide฀ specified฀payments฀to฀a฀lessor,฀developer฀or฀intellectual฀
property฀holder,฀based฀upon฀contractual฀arrangements.฀Typically,฀the฀payments฀to฀third-party฀developers฀are฀conditioned฀upon฀the฀achievement฀by฀the฀developers฀of฀
contractually฀specified฀development฀milestones.฀These฀payments฀to฀third-party฀developers฀and฀intellectual฀property฀holders฀typically฀are฀deemed฀to฀be฀advances฀and฀are฀
recoupable฀against฀future฀royalties฀earned฀by฀the฀developer฀or฀intellectual฀property฀holder฀based฀on฀the฀sale฀of฀the฀related฀game.฀Additionally,฀in฀connection฀with฀certain฀
intellectual฀property฀right฀acquisitions฀and฀development฀agreements,฀we฀will฀commit฀to฀spend฀specified฀amounts฀for฀marketing฀support฀for฀the฀related฀game(s)฀which฀is฀
to฀be฀developed฀or฀in฀which฀the฀intellectual฀property฀will฀be฀utilized.฀Assuming฀all฀contractual฀provisions฀are฀met,฀the฀total฀future฀minimum฀commitments฀for฀these฀and฀
other฀contractual฀arrangements฀in฀place฀as฀of฀March฀31,฀2005,฀are฀scheduled฀to฀be฀paid฀as฀follows฀(amounts฀in฀thousands):
Contractual Obligations
Fiscal year ending March 31, Facility Leases Developer and IP Marketing Total
฀ 2006 $11,990 $45,557 $18,759 $ 76,306
฀ 2007 11,440 7,975 2,500 21,915
฀ 2008 7,906 5,775 7,500 21,181
฀ 2009 6,620 2,900 — 9,520
฀ 2010 5,783 — — 5,783
฀ Thereafter 19,626 — — 19,626
฀ ฀ Total $63,365 $62,207 $28,759 $154,331
As of March 31, 2005 and 2004, we did not have any relationships with unconsolidated entities or financial parties, such as entities often referred to as structured finance or special purpose entities, which
would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As such, we are not exposed to any financing, liquidity, market,
or credit risk that could arise if we had engaged in such relationships. page 47
Activision, Inc. — 2005 Annual Report