THQ 2008 Annual Report Download - page 58

Year Ended March 31,
(In thousands) 2008 2007 Change
Cash (used in) provided by operating activities ................. $ (9,714) $ 63,997 $(73,711)
Cash provided by (used in) investing activities .................. 105,820 (28,135) 133,955
Cash (used in) provided by financing activities .................. (26,513) 40,939 (67,452)
Effect of exchange rate changes on cash ...................... 3,479 6,430 (2,951)
Net increase (decrease) in cash and cash equivalents ........... $ 73,072 $ 83,231 $ (10,159)
Cash Flow from Operating Activities. Our principal source of cash is from sales of interactive software
games designed for play on video game consoles, handheld devices and personal computers. Our principal
uses of cash are for product purchases of discs and cartridges along with associated manufacturer’s
royalties, payments to external developers and licensors, the costs of internal software development and
selling and marketing expenses.
Cash used in operating activities increased by approximately $73.7 million in fiscal 2008 as compared to
fiscal 2007. The increase in cash used was primarily a result of our fiscal 2008 net loss as compared to fiscal
2007 net income and an increase in accounts receivable due to higher net sales and the timing of product
releases in the three months ended March 31, 2008 as compared to the same period last fiscal year,
partially offset by higher non-cash amortization of licenses and software development in fiscal 2008 as
compared to fiscal 2007. We expect to generate positive operating cash flow for the full fiscal year 2009.
Cash Flow from Investing Activities. Cash provided by investing activities in fiscal 2008 increased by
approximately $134.0 million, primarily due to lower purchases of available-for-sale investments, partially
offset by our acquisitions of Big Huge Games, Universomo and Elephant Entertainment during fiscal 2008.
Cash Flow from Financing Activities. Cash used in financing activities increased by approximately
$67.5 million in fiscal 2008 as compared to fiscal 2007, primarily due to an increase in common stock
repurchases in fiscal 2008 as compared to fiscal 2007, as well as lower proceeds from issuance of common
stock to employees in fiscal 2008 as compared to fiscal 2007.
In fiscal 2009, we expect to generate more cash than we did in fiscal 2008. The increase in the generation of
cash is expected to be primarily attributable to higher net income.
Key Balance Sheet Accounts
Accounts Receivable. Accounts receivable increased $45.2 million in fiscal 2008, from $67.6 million at
March 31, 2007 to $112.8 million at March 31, 2008. The increase in net accounts receivable is primarily
due to higher net sales and the timing of product releases in the three months ended March 31, 2008 as
compared to the three months ended March 31, 2007. The increase in accounts receivable also reflects
units shipped of Frontlines: Fuel of War, although the recognition of revenue from this title was deferred to
future periods (see Critical Accounting Estimates for information regarding our revenue recognition
policies). Accounts receivable allowances were $113.0 million as of March 31, 2008, a $32.5 million
increase from March 31, 2007. Allowances for price protection and returns as a percentage of trailing nine
month net sales were 10% and 8% as of March 31, 2008 and 2007, respectively. We believe our current
reserves are adequate based on historical experience, inventory remaining in the retail channel and the
rate of inventory sell-through in the retail channel.
Inventory. Inventory increased $10.8 million in fiscal 2008, from $27.4 million at March 31, 2007 to
$38.2 million at March 31, 2008. The increase in inventory coincides with the higher net sales in the three
months ended March 31, 2008 as compared to March 31, 2007. Inventory turns on a rolling twelve month
basis were 11 and 10 at March 31, 2008 and 2007, respectively.
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