THQ 2011 Annual Report Download - page 80

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(1) Licenses and Software Development. We enter into contractual arrangements with third parties for the rights to exploit
intellectual property and for the development of products. Under these agreements, we commit to provide specified payments
to an intellectual property holder or developer. Assuming all contractual provisions are met, the total future minimum contract
commitments for such agreements in place as of March 31, 2011 are $195.7 million. License/software development
commitments in the table above include $119.5 million of commitments to licensors/developers that are included in both
current and long-term accrued royalties and accrued liabilities in our consolidated balance sheets as of March 31, 2011 because
the licensors/developers do not have any significant performance obligations to us.
(2) Advertising. We have certain minimum advertising commitments under most of our major license agreements. These
minimum commitments generally range from 3% to 10% of net sales related to the respective license.
(3) Leases. We are committed under operating leases with lease termination dates through 2020. Most of our leases contain
rent escalations. Of these obligations, $0.7 million and $0.6 million are accrued and classified as classified as "Accrued and
other current liabilities" and "Other long-term liabilities," respectively, in the March 31, 2011 consolidated balance sheet due
to abandonment of certain lease obligations in connection with our fiscal 2009 realignment. We expect future sublease rental
income under non-cancellable agreements of approximately $1.1 million; this income is not contemplated in the lease
commitments shown in the table above. Rent expense was $13.5 million, $13.9 million, and $15.9 million for fiscal years
2011, 2010, and 2009, respectively.
(4) Convertible Senior N otes. On August 4, 2009 we issued the Notes. The Notes pay interest semiannually, in arrears on
February 15 and August 15 of each year, beginning February 15, 2010, through maturity and are convertible at each holder's
option at any time prior to the close of business on the trading day immediately preceding the maturity date. In fiscal 2011
we paid $5.0 million in interest on the Notes and absent any conversions, we expect to pay $5.0 million in each of the fiscal
years 2012 through 2014 and $2.5 million in fiscal 2015, for an aggregate of $17.5 million in interest payments over the
remaining term of the Notes (see "Note 12 — Convertible Senior Notes").
(5) Other. As discussed more fully in "Note 18 — Joint Venture and Settlement Agreements", amounts payable to Jakks totaling
$14.0 million are reflected in the table above. The present value of these amounts is included in "Accrued and other current
liabilities" and "Other long-term liabilities" in our consolidated balance sheets at March 31, 2011. The remaining other
commitments included in the table above are also included as current or long-term liabilities in our March 31, 2011 consolidated
balance sheets.
(6) We have omitted unrecognized tax benefits from this table due to the inherent uncertainty regarding the timing and amount
of certain payments related to these unrecognized tax benefits. The underlying positions have not been fully developed under
audit to quantify at this time. At March 31, 2011, we had $3.4 million of unrecognized tax benefits. See "Note 20 — Income
Taxes" in the notes to the consolidated financial statements included in Item 8 for further information regarding the
unrecognized tax benefits.
Manufacturer Indemnification. We must indemnify the platform manufacturers (Microsoft, Nintendo, Sony) of our games with
respect to all loss, liability and expenses resulting from any claim against such manufacturer involving the development, marketing,
sale or use of our games, including any claims for copyright or trademark infringement brought against such manufacturer. As a
result, we bear a risk that the properties upon which the titles of our games are based, or that the information and technology
licensed from others and incorporated into the products, may infringe the rights of third parties. Our agreements with our third-
party software developers and property licensors typically provide indemnification rights for us with respect to certain matters.
However, if a manufacturer brings a claim against us for indemnification, the developers or licensors may not have sufficient
resources to, in turn, indemnify us.
Indemnity Agreements. We have entered into indemnification agreements with the members of our Board of Directors, our Chief
Executive Officer and our Chief Financial Officer, to provide a contractual right of indemnification to such persons to the extent
permitted by law against any and all liabilities, costs, expenses, amounts paid in settlement and damages incurred by any such
person as a result of any lawsuit, or any judicial, administrative or investigative proceeding in which such person is sued as a result
of service as a member of our Board of Directors, as Chief Executive Officer or as Chief Financial Officer. The indemnification
agreements provide specific procedures and time frames with respect to requests for indemnification and clarify the benefits and
remedies available to the indemnitees in the event of an indemnification request.
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