THQ 2004 Annual Report Download - page 51

A summary of minimum contractual obligations and commercial commitments as of March 31, 2004 (in thousands), are as follows:
Contractual Obligations and Commercial Commitments
Software
Development
License Milestone Letters of
Fiscal Years Ended March 31, Guarantees Payments Advertising Leases Credit Other Total
2005 $ 26,333 $ 59,408 $ 24,143 $ 4,951 $ 3,125 $ 1,583 $ 119,543
2006 22,843 701 10,203 4,751 — — 38,498
2007 4,520 — 2,856 3,363 — — 10,739
2008 — — 2,105 3,260 — — 5,365
2009 — — 500 2,881 — — 3,381
Thereafter — — 1,500 8,307 — — 9,807
$ 53,696 $ 60,109 $ 41,307 $ 27,513 $ 3,125 $ 1,583 $ 187,333
On February 27, 2003, we entered into a lease agreement with an entity partially owned by the head of one of our development studios. The lease is for
approximately 29,000 square feet of office space which is occupied by the development studio in Champaign, Illinois.
Warrants. We are committed under a license agreement to issue a warrant to purchase a total of 160,000 shares of common stock at $20.23 per share.
We have estimated the fair value based on current negotiations as we have shipped product related to this license agreement and thus the estimated fair
value is being amortized to license amortization and royalties over estimated sales for games that have been released. We will adjust our estimated fair
value and the related amortization when the warrant terms are finalized.
Manufacturer Indemnification. We must 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. As a result, we bear a risk that the properties upon which the titles are based, or that the information and technology licensed
from others and incorporated in the products, may infringe the rights of third parties. Our agreements with our independent software developers and
property licensors typically provide for us to be indemnified with respect to certain matters. If any claim is brought by a manufacturer against us for
indemnification, however, our developers or licensors may not have sufficient resources to in turn, indemnify us. Furthermore, these parties’ indemnifica-
tion of us may not cover the matter that gives rise to the manufacturer’s claim.
Credit Facility. We have a credit facility that allows us to maintain outstanding letters of credit up to $20.0 million. The credit facility is secured by a lien
on substantially all of our assets and contains customary financial and non-financial covenants which require us to maintain specified operating profits and
liquidity and limits our ability to incur additional indebtedness, sell assets, pay cash dividends and enter into certain mergers or acquisitions. As of March
31, 2004, we were in compliance with all the covenants under the credit facility. Amounts outstanding under the credit facility bear interest, at our choice,
at either (a) the bank’s prime rate (4.0% at March 31, 2004) or (b) the London Interbank Offered Rate (1.4% at March 31, 2004) plus 1.60%. As of March
31, 2004, we had outstanding letters of credit of approximately $3.1 million.
Inflation
Our management currently believes that inflation has not had a material impact on continuing operations.
Accordingly, we believe that our cash, cash equivalents, short-term investments and long-term marketable securities, funds provided by operations and our
borrowing capacity will be adequate to meet our anticipated requirements, on both a short-term and long-term basis, for operating expenses, product
purchases and payments for licenses and software development.
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THQ : 2004 : ANNUAL REPORT