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72
17. Commitments and Contingencies
A summary of annual minimum contractual obligations and commercial commitments as of March 31,
2006 is as follows (in thousands):
Contractual Obligations and Commercial Commitments
Fiscal
Years Ending
March 31,
License /
Software
Development
Commitments(1) Advertising(2) Leases(3)
Letters of
Credit(4) Other(5) Total
2007 ................... $97,558 $ 21,762 $ 11,332 $ 7,563$ 1 ,463 $139,678
2008 ................... 39,102 14,616 11,595 ——65,313
2009 ................... 39,613 13,184 11,189 ——63,986
2010 ................... 37,000 9,77710,812 ——57,589
2011 ................... 22,000 9,77710,137 ——41,914
Thereafter.............. ——28,779 ——28,779
$235,273 $ 69,116 $ 8 3,844 $ 7,563$ 1 ,463 $397,259
(1) Licenses and Software Development. 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. Assuming all
contractual provisions are met, the total future minimum contract commitments for contracts in place
as of March 31, 2006 are approximately $235.3 million. License/software development commitments in
the table above include $74.2 million of commitments to licensors that are included in our
consolidated balance sheet as of March 31, 2006 because the licensors do not have any significant
performance obligations to us. These commitments were included in both current and long-term
licenses and accrued royalties.
(2) Advertising.We have certain minimum 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 2007 will be
$21.8 million.
(3) Leases. We are committed under operating leases with lease termination dates through 2015. Most of
our leases contain rent escalations.
Rent expense was $10.6 million, $6.0 million and $4.5 million for the fiscal years ended March 31,
2006, 2005 and 2004, respectively.
(4) Letters of Credit. As of March 31, 2006,we were in compliance with all the covenants under our credit
facility, had outstanding letters of credit of approximately $7.6 million and no borrowings.
(5) Other. This amount reflects an additional $1.5 million related to 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