THQ 2007 Annual Report Download - page 57

49
contractualprovisions are met, the total future minimum contract commitments for contracts in place
as of March 31,2007 are approximately $203.9 million. License/software development commitments in
thetable above include $67.0 millionof commitments to licensors that are included in our
consolidated balance sheetas of March 31, 2007 because thelicensors do not have any significant
performanceobligations to us. These commitments areincluded in both current and long-term
licenses and accrued royalties.
(2) Advertising.We have certain minimum advertisingcommitments under most of our major license
agreements. These minimum commitments generally range from 2% to 12% of net sales relatedtothe
respective license. We estimate that our minimum commitment for advertising in fiscal 2008 will be
$14.1 million.
(3) Leases.We arecommitted under operating leases with lease termination dates through 2015.Most
of our leases contain rent escalations. Rent expense was $14.0 million, $10.6 million and $6.0 million
for the fiscal years ended March 31, 2007, 2006 and 2005, respectively.
(4) Letters of Credit.As of March31, 2007, we had outstanding lettersof credit of approximately $22.7
million. Our previous credit facility expired on November 29, 2006 and we didnot renew it. On
October3,2006, we entered into an agreement with abank primarilyto provide stand-by lettersof
credit to aplatform manufacturer from whom we purchase products.We arerequired to pledge cash
equivalents and investments to the bank as collateral in an amount equal to 110% of the amount of
theoutstanding stand-by letters of credit.
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 thedevelopment, marketing, sale or useof our games, including any claims for
copyrightor trademark infringement brought against such manufacturer. As a result, we bear arisk that
the properties upon which the titles of our games are based, or that the information and technology
licensed from othersandincorporated into theproducts, may infringetherights 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 IndemnityAgreements. 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 theDirectors as a result of any lawsuit, or any judicial, administrative or investigative
proceeding in which theDirectors aresued as aresult of their service as members of our Board of
Directors. Theindemnification agreements provide specific procedures and time frames with respect to
requests for indemnification and clarify thebenefits and remedies available to Directors in theevent of an
indemnification request.
Litigation. For information related to legal proceedings that may result in futureexpenditures to the
Company, see “Item 3—Legal Proceedings.”
Item 7A. Quantitative and Qualitative DisclosuresAbout Market Risk
We areexposed to certain market risks arising from transactions in the normal course of business,
principally risks associated with interest rate andforeign currency fluctuations.