THQ 2009 Annual Report Download - page 55

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Financial Condition
At March 31, 2009, we held cash, cash equivalents, short-term investments and long-term investments, net
of borrowings on secured lines of credit, of $151.9 million. We believe that this amount, along with the cash
we expect to generate from our operations through the end of fiscal 2010, will be sufficient to meet our
expected cash needs through the end of fiscal 2010 for direct manufacturing costs (including platform
manufacturer license fees), payments to licensors and external developers, internal product development
costs, and selling, marketing and other general operating expenses. In light of current economic conditions,
on May 6, 2009, we signed a commitment letter for a revolving credit facility of up to $35.0 million with
Bank of America, NA (‘‘B of A’’). We expect the new credit facility, which will be secured by our assets, to
provide us with a revolving line of credit for working capital and other corporate purposes. The credit
facility is subject to the execution of final agreements, which we expect to complete by July 5, 2009. Further
deterioration in global macroeconomic conditions could result in us having to pursue additional funding
from public or private sources to meet our cash needs, or to curtail or defer currently-planned
expenditures, or both.
As of March 31, 2009, we had $2.4 million of preferred securities and $5.0 million of auction rate securities
(‘‘ARS’’) classified as short-term and long-term available-for-sale securities, respectively. We classified
certain of these investments as long-term to reflect the lack of liquidity of these securities. In addition, we
have $26.1 million of ARS classified as trading securities.
We have estimated the fair value of the remaining ARS using a discounted cash flow analysis that
considered the following key inputs: i) credit quality, ii) estimates on the probability of the issue being
called or sold prior to final maturity, iii) current market rates, and iv) estimates of the next time the
security is expected to have a successful auction. Based on this analysis, as of March 31, 2009 we recorded a
temporary impairment of $0.4 million related to our ARS in accumulated other comprehensive income in
our consolidated balance sheet. The contractual terms of these securities do not permit the issuer to call,
prepay or otherwise settle the securities at prices less than the stated par value of the security. We believe
this temporary impairment is primarily attributable to the limited liquidity of these investments.
Accordingly, we do not consider these investments to be other-than-temporarily impaired as of March 31,
2009. See ‘‘Note 2—Investment Securities’’ in the notes to the consolidated financial statements for further
information related to our investments.
In October 2008, we entered into a settlement agreement with UBS, the broker of certain of our ARS. This
agreement provides us with a future option to sell such ARS to the broker at the par value of the
underlying securities beginning in July 2010. In addition, under the arrangement, we will have the ability to
borrow up to 75% of the market value (as determined by UBS) of these securities at any time, on a no net
interest basis, to the extent that such securities continue to be illiquid or until the option to sell is exercised.
As of March 31, 2009 we have borrowed $21.4 million under this agreement to ensure liquidity of the
underlying ARS. The credit line is secured by our ARS held with UBS, which have a par value of
$30.8 million and a fair value of $26.1 million at March 31, 2009 See ‘‘Note 10—Secured Credit Lines’’.
In December 2008, we obtained a margin account at Wachovia Securities (now Wells Fargo & Company
(‘‘Wells Fargo’’)). The terms of the margin account enable us to borrow against certain securities, including
some of our ARS. The margin account is collateralized by the securities held with Wells Fargo, which have
a par value of $7.8 million and a fair value of $7.4 million at March 31, 2009. The interest rate on
borrowing is currently set at LIBOR plus a margin. There was $3.0 million outstanding on this margin
account at March 31, 2009.
Our ability to maintain sufficient liquidity could be affected by various risks and uncertainties described in
Part I—Item 1A ‘‘Risk Factors’’ in this Annual Report on Form 10-K.
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