THQ 2011 Annual Report Download - page 41

Licenses. Our investment in licenses, including the long-term portion, decreased $22.1 million, from $140.3 million at March
31, 2010 to $118.2 million at March 31, 2011. The decrease was primarily due to amortization expense and impairment charges,
which were partially offset by extensions of existing licenses as well as investments in new licenses in fiscal 2011.
Software Development. Capitalized software development, including the long-term portion, increased $113.5 million, from
$159.0 million at March 31, 2010 to $272.5 million at March 31, 2011. The increase in software development reflects our investment
in titles that have expected release dates in fiscal 2012 and beyond. Approximately 72% of the software development asset balance
at March 31, 2011 is for games that have expected release dates in fiscal 2012 and beyond.
Total current liabilities at March 31, 2011, were $379.5 million, up from $190.9 million at March 31, 2010. Current liabilities
consisted primarily of:
Accounts Payable. Accounts payable increased $60.3 million, from $40.3 million at March 31, 2010 to $100.6 million at March
31, 2011. The increase in accounts payable was primarily due to timing of product purchases and reflected the increased advertising
support for our late fourth quarter and future releases.
Accrued and Other Current Liabilities. Accrued and other current liabilities increased $7.0 million, from $130.9 million at March
31, 2010 to $137.9 million at March 31, 2011. The increase reflected higher international sales tax liabilities at the end of fiscal
2011 related to titles released late in the fiscal year, and changes in accrued royalties. These increases were partially offset by a
decrease in employee related accruals.
Secured Credit Lines. Secured credit lines decreased from $13.2 million at March 31, 2010 to zero at March 31, 2011. The credit
line was related to a settlement agreement we entered into with UBS related to certain ARS. In the three months ended June 30,
2010, we paid the entire outstanding borrowings under the credit line, $13.2 million (see “Note 11 — Secured Credit Line" in the
notes to the consolidated financial statements in Item 8). The credit line was terminated, pursuant to its terms, on July 2, 2010.
Our liabilities at March 31, 2011 also consisted of:
Other long-term liabilities. Other long-term liabilities decreased $10.8 million, from $98.8 million at March 31, 2010 to $88.0
million at March 31, 2011. The decrease was primarily due to movements of accrued royalties and a portion of the settlement
payment due to Jakks, from long-term into current liabilities.
Convertible Senior Notes. We issued the Notes on August 4, 2009 and the full principal amount of $100.0 million is outstanding
as of March 31, 2011 (see “Note 12 — Convertible Senior Notes” in the notes to the consolidated financial statements in Item 8).
Inflation
Our management currently believes that inflation has not had, and does not currently have, a material impact on continuing
operations.
Financial Condition
At March 31, 2011, we held cash and cash equivalents of $85.6 million. We believe that we have sufficient working capital,
including cash expected to be generated from future operations, to meet our operating requirements for at least the next twelve
months. Our business is cyclical and is impacted by both seasonality and the timing of new product releases. We have significant
accounts receivable at March 31, 2011 from sales of our late fiscal 2011 fourth quarter title releases, including Homefront. As a
result of expected cash collections during fiscal 2012 related to the March 2011 release of Homefront and the scheduled fiscal
2012 releases of core games such as Red Faction Armageddon, Warhammer 40,000: Space Marine, and Saints Row: The Third,
we expect to generate significant positive cash flow in the second half of fiscal 2012.
On November 3, 2010, we entered into a Receivables Purchase Agreement ("Purchase Agreement") with Wells Fargo Bank, N.A.
("Wells Fargo"). The Purchase Agreement gives us the option to sell our receivables from Walmart Stores, Inc. ("Walmart") to
Wells Fargo, at our discretion, and significantly expedite our receivables collections from Walmart. Wells Fargo will pay us the
value of any receivables we elect to sell, less LIBOR + 1.25% per annum, and then collect the receivables from Walmart.
In June 2009, we entered into a Loan and Security Agreement (the "Credit Facility") with Bank of America, N.A. ("B of A"), as
agent, and the lenders party thereto from time to time. The Credit Facility provides for a $35.0 million revolving credit facility,
which can be increased to $50.0 million, subject to lender consent, pursuant to a $15.0 million accordion feature, and includes a
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