THQ 2004 Annual Report Download - page 82

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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 will be 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 approximately 250,000 shares of common stock. At this
time, the warrant terms related to this agreement are being negotiated. We have estimated the fair value of this warrant based on current negotiations as
we have shipped product related to this license agreement.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 of our games 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, parties’ indemnification of
us may not cover the matter that gives rise to the manufacturer’s claim.
We received a demand from Motorola for indemnification under our license to it of certain wireless games distributed in France. The demand arises out
of litigation commenced in France in January 2003 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. In April 2003, we joined the action as a necessary party. Although
we expect to prevail, at this early stage we cannot predict the likely outcome of the demand for indemnification.
Legal and Regulatory Proceedings. On July 11, 2003 we were informed by the staff of the Securities and Exchange Commission (the “SEC”) that the SEC
is conducting a non-public formal investigation entitled “In the Matter of Certain Video Game Manufacturers and Distributors.” In connection with
the investigation, the SEC requested information from us. The SEC staff has informed us that other companies in the video game industry have received
similar requests for information. The investigation appears to be focused on certain accounting practices, with specific emphasis on revenue recognition.
The SEC has advised us that its investigation is non-public and should not be construed as an indication from the SEC or its staff that any violations of the
law have occurred, nor should it reflect negatively upon any person, entity or security. We responded to the SEC’s request for information in September
2003 and intend to cooperate fully with any further requests from the SEC in its investigation.
We are involved in routine litigation arising in the ordinary course of our business. In the opinion of our management, none of the pending litigation will
have a material adverse effect on our consolidated financial condition or results of operations.