THQ 2004 Annual Report Download - page 50

LIQUIDITY AND CAPITAL RESOURCES
Our total assets as of March 31, 2004 were $527.2 million, as compared to $472.9 million as of March 31, 2003. Of the total assets at March 31, 2004,
$397.1 million were current assets, with $253.0 million of this amount in cash, cash equivalents and short-term investments. Our principal source of cash
is from sales of our packaged software for video game consoles, handheld game platforms, personal computers and wireless devices. Our principal uses
of cash are product purchases of discs and cartridges, payments to developers, the costs of internal software development, selling and marketing expens-
es, and payments to licensors. In order to purchase products from the manufacturers, we typically obtain a line of credit from the manufacturers, open let-
ters of credit in their favor or make prepayments for the product. At March 31, 2004, our total current liabilities were $87.4 million, which consisted pri-
marily of $41.3 million in accrued royalties, $22.4 million in accrued expenses and $22.1 million in accounts payable.
Cash and cash equivalents increased in fiscal 2004 by $47.4 million. This included $71.2 million provided by operating activities and $4.1 million increase
of cash due to favorable exchange rates, offset by $24.0 million used in investing activities and $3.9 million used in financing activities. In the twelve-month
period ended March 31, 2003, cash and cash equivalents increased by $12.4 million. This included $19.9 million provided by operating activities and $19.1
million provided by investing activities, offset by $26.9 million used in financing activities. The $51.3 million increase to cash flows provided by operating
activities in fiscal 2004, as compared to the twelve-month period ended March 31, 2003, was primarily due to favorable operating results, favorable amor-
tization on licenses and software development, favorable accrued royalties partially offset by unfavorable increase in accounts receivable which declined
and was a source of cash in the twelve months ended March 31, 2003.
We spent approximately $24.1 million in fiscal 2004 and $19.4 million in the twelve-month period ended March 31, 2003, respectively, in connection with
the execution of 19 and 20 new license agreements, respectively, granting us rights to intellectual property of third parties. We used approximately $80.8
million to fund software development of approximately 176 SKUs during fiscal 2004 and used approximately $76.9 million to fund development of approxi-
mately 224 SKUs during the twelve months ended March 31, 2003. We expect that we will continue to make significant expenditures in fiscal 2005 relating
to our investment in software development and intellectual property licenses.
The cash used in investing activities during fiscal 2004 was primarily attributable to purchases of short-term investments and long-term marketable
securities. In the twelve-month period ended March 31, 2003, investing activities provided $19.1 million in cash primarily due to proceeds from sales and
maturities of short-term investments. We believe that we have significant working capital ($309.6 million at March 31, 2004) to finance our operational
requirements; including our investments made in Relic ($6 million) and Minick ($10.5 million) in April 2004.
Cash used in financing activities consisted of $11.0 million used to repurchase 709,000 shares of our common stock during fiscal 2004 and $32.8 million
to repurchase 2,240,000 shares in the twelve-month period ended March 31, 2003. Between September 10, 2002 and February 5, 2004, our Board of
Directors authorized the repurchases of up to $75 million of our common stock. As of March 31, 2004, we had repurchased 2,949,000 shares of our com-
mon stock for $43.8 million at an average cost of $14.85 per share, leaving $31.2 million available for future repurchases.
Cybiko Claim. We received a demand from Motorola for indemnification related to certain wireless games distributed in France. The demand arises out
of litigation commenced in France against Motorola and their distribution partners for trademark infringement and unfair competition, which seeks $10.0
million in damages plus an unspecified amount and an accounting. Although we expect to prevail, at this early stage we cannot predict the likely outcome
of the demand for indemnification.
Guarantees and Commitments. In the normal course of business, we enter into contractual arrangements with third parties for the rights to intellectual
property and for the development of products. Under these agreements, we commit to provide specified payments to an intellectual property holder
or developer, based upon contractual arrangements. Assuming all contractual provisions are met, the total future minimum contract commitment for
contracts in place as of March 31, 2004 is approximately $113.8 million.
In addition, we have 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. We estimate that our minimum commitment for advertising in fiscal year 2005 will be $24.1 million.
We also have various operating lease commitments of $27.5 million expiring at various times through 2014. As of March 31, 2004, we had approximately
$3.1 million in obligations under our credit facilities with respect to outstanding letters of credit. We also have a commitment for $1.6 million under
a sponsorship agreement contingent upon certain events, the occurrence of which will require us to make payments over the next year.