THQ 2006 Annual Report Download - page 55

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(5) Other. This amount reflects an additional $1.5 million related t o the purchase of Relic in April 2004.
This amount was paid in April 2006.
Other potential future expenditures relate to the following:
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.
Director Indemnity Agreements. We have entered into indemnification agreements with the members of
our Board of Directors to provide a contractual right of indemnification to our Directors to the extent
permitted by law against any and all liabilities, costs, expenses, amounts paid in settlement and damages
incurred by the Directors as a result of any lawsuit, or any judicial, administrative or investigative
proceeding in which the Directors are sued as a result of their service as members of our Board of
Directors. The indemnification agreements provide specific procedures and time frames with respect to
requests for indemnification and clarify the benefits and remedies available to Directors in the event of an
indemnification request.
Credit Facility. We have a credit agreement that lasts through November 29, 2006 that provides us a
maximum monthly facility amount of $40.0 million for each August, September and October, and a
maximum monthly facility amount of $12.0 million for every other month. The credit facility is unsecured
and contains customary financial and non-financial covenants that 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, 2006, we were in compliance with
all the covenants under the credit facility and had outstanding letters of credit of approximately
$7.6 million.
Litigation. For information related to legal proceedings that may result in future expenditures to the
Company, see “Item 3—Legal Proceedings.”
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to certain market risks arising from transactions in the normal course of business,
principally risks associated with interest rate and foreign currency fluctuations.
Interest RateRisk
We have interest rate risk primarily related to our investment portfolio and to a lesser extent our credit
facility. A substantial portion of our portfolio is in short-term investments made up of floating rate
securities and municipal securities. The value of these investments may fluctuate with changes in interest
rates. However, we believe this risk is immaterial due to the short-term nature of the investments. The
credit facility is based on variable interest rates. At March 31, 2006, we had outstanding letters of credit of
$7.6 million.
Foreign Currency Risk
We transact business in many different foreign currencies and are exposed to financial market risk
resulting from fluctuations in foreign currency exchange rates, particularly the Great British Pound
(“GBP”) and the Euro, which may result in a gain or loss of earnings to us. Our international business is