THQ 2011 Annual Report Download - page 66

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Fiscal 2011 Fourth Quarter Realignment. In the fourth quarter of fiscal 2011, we performed an assessment of our product
development and publishing staffing models. This resulted in a change to our staffing plans to better address peak service periods,
as well as better utilize shared-services and more cost-effective locations. In connection with this change, we incurred $1.3 million
of cash severance charges related to the elimination of positions (recorded within operating expenses in our consolidated statements
of operations) and $76,000 of lease and other contract termination charges (recorded within "Restructuring" in our consolidated
statements of operations). We expect to incur up to an additional $5.0 million in future severance and contract termination charges
during fiscal 2012 as projects are completed and facilities are vacated.
Fiscal 2011 Third Quarter Realignment. In the third quarter of fiscal 2011, we reevaluated our strategy of adapting certain Western
content for free-to-play online games in Asian markets. As a result, we cancelled two games, eliminated certain positions, and
closed our Korean support office. Restructuring expenses recorded in fiscal 2011 related to the closure of our Korean support
office were $49,000, and consisted of lease and other contract termination charges and write-offs of related long-lived assets. The
cancellation of the games, Company of Heroes Online and WWE Online, resulted in charges of $9.9 million recorded in "Cost of
sales — Software amortization and royalties" and $0.4 million in "Cost of sales — License amortization and royalties" in our
consolidated statements of operations. Additionally, we incurred $0.9 million of cash severance charges related to eliminated
positions, which were classified within operating expenses in our consolidated statements of operations. We do not expect any
future charges under the fiscal 2011 third quarter realignment.
Fiscal 2009 Realignment. During fiscal 2009, we updated our strategic plan in an effort to increase our profitability and cash flow
generation. We significantly realigned our business to focus on fewer, higher quality games, and established an operating structure
that supports our more focused product strategy. The fiscal 2009 realignment included the cancellation of several titles in
development, the closure or spin-off of several of our development studios, and the streamlining of our corporate organization in
order to support the new product strategy, including reductions in worldwide personnel. Restructuring charges and adjustments
are recorded as "Restructuring" expenses in our consolidated statements of operations and have included the costs associated with
lease abandonments less estimates of sublease income, write-off of related long-lived assets due to the studio closures, as well as
costs of other non-cancellable contracts. In fiscal 2011 and fiscal 2010, restructuring charges and adjustments related to the fiscal
2009 realignment were $0.5 million and $5.7 million, respectively. As of March 31, 2011, total restructuring charges under the
fiscal 2009 realignment amounted to $18.5 million. In fiscal 2010, related to the 2009 realignment, we also incurred non-cash
charges of $7.9 million related to the write-off of capitalized software for games that were cancelled in connection with the
realignment plan (recorded in "Cost of sales — Software amortization and royalties") and cash charges of $1.3 million related to
severance and other employee benefits (recorded within operating expenses in our consolidated statements of operations). We do
not expect any future charges under the fiscal 2009 realignment, other than additional facility related charges and adjustments in
the event actual and estimated sublease income changes.
The following tables summarize the restructuring components and activity under the fiscal 2009 realignment for the years ended
March 31, 2011 and 2010, and the related restructuring reserve balances (amounts in thousands):
Beginning balance
Charges to operations
Non-cash write-offs
Cash payments, net of sublease income
Foreign currency and other adjustments
Ending balance
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As of March 31, 2011, $0.7 million of the restructuring accrual is included in "Accrued and other current liabilities" and $0.6
million is included in "Other long-term liabilities" in our consolidated balance sheets. As of March 31, 2010, $1.6 million of the
restructuring accrual is included in "Accrued and other current liabilities" and $0.8 million is included in "Other long-term liabilities"
in our consolidated balance sheets. The accrual balances at March 31, 2011 and March 31, 2010 related to future lease payments
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