THQ 2010 Annual Report Download - page 40

32
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.
In fiscal 2010, our cash, cash equivalents and short-term investments increased by $130.7 million, from
$140.7 million at March 31, 2009 to $271.3 million at March 31, 2010. The primary reasons for the increase
were i) proceeds received from the August 4, 2009 issuance of the Notes (for further discussion of the Notes,
see “Note 11—Convertible Senior Notes” in the notes to the consolidated financial statements included in
Item 8), and ii) cash provided by our fiscal 2010 operating activities. The increase was partially offset by a
payment of $32.8 million to Jakks, which was a settlement payment related to the preferred return rate
arbitration and a payment of $13.2 million to WWE related to the settlement of our litigation with WWE. For
further discussion of the settlement payment related to the preferred return rate arbitration, see “Note 6—
Balance Sheet Details,” and for further discussion of the settlement of our litigation with WWE, see
“Note 17—Settlement Agreements,” both in the notes to the consolidated financial statements included in
Item 8.
In order to position the company for long-term growth, during fiscal 2011 we intend to use $75.0 to $100.0
million of our cash, cash equivalents and short-term investments, principally to fund additional product
development and invest in additional licenses. Consistent with prior years, we expect to use cash in the first
half of fiscal 2011 and to generate cash in the second half of fiscal 2011.
Cash Flow from Operating Activi ties . Cash provided by operating activities increased by $227.6 million
in fiscal 2010, as compared to fiscal 2009. The increase in cash provided was primarily the result of our lower
fiscal 2010 net loss as compared to fiscal 2009, adjusted for non-cash goodwill impairment and higher
amortization of licenses and software development in fiscal 2009. Additionally, in fiscal 2010 we had lower
investments in software development and licenses.
Cash Flow from Investing Acti vities. Cash used in investing activities increased by $129.3 million in
fiscal 2010, as compared to fiscal 2009. The increase in cash used was primarily due to the investment of the
proceeds from the issuance of the Notes in short-term securities and fewer sales and maturities of short-term
securities.
Cash Flow from Financing Activi ties. Cash provided by financing activities increased by $52.5 million in
fiscal 2010, as compared to fiscal 2009. The increase in cash provided was due to proceeds from the
issuance of the Notes on August 4, 2009, partially offset by net repayments under our secured credit lines in
fiscal 2010, as compared to net borrowings in fiscal 2009. Borrowings under our secured credit lines relate to
our auction rate securities (“ARS”); see “Note 3—Investment Securities” for further information related to our
ARS and “Note 10—Secured Credit Lines” for further information on our secured credit lines, both in the
notes to the consolidated financial statements included in Item 8.
Effec t o f exchange rate changes on cash. Changes in foreign currency translation rates increased our
reported cash balance by $6.5 million.
Key Balance Sheet Accounts
Total current assets at March 31, 2010 were $562.5 million, up from $444.2 million at March 31, 2009. In
addition to cash, cash equivalents and short-term investments, our current assets consist primarily of:
Accounts Receivable.
Accounts receivable decreased by $19.1 million, from $60.4 million at March 31, 2009
to $41.3 million at March 31, 2010. Net accounts receivable was lower at the end of fiscal 2010, as
compared to fiscal 2009, primarily due to the timing of our releases;
Darksiders was released in the first week
of our fiscal 2010 fourth quarter and thus a large percentage of accounts receivable for this title had been
paid by March 31, 2010. Accounts receivable allowances were $77.5 million as of March 31, 2010, a
$23.5 million decrease from March 31, 2009. Allowances for price protection and returns as a percentage of
trailing nine month net sales were 10% and 11% as of March 31, 2010 and 2009, 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 decreased by $11.8 million, from $25.8 million at March 31, 2009 to $14.0 million at
March 31, 2010. The decrease in inventory was primarily due to the timing of product purchases and an
effort to manage towards lower levels of inventory on hand. Inventory turns on a rolling twelve month basis
were 12 and 8 at March 31, 2010 and 2009, respectively.