Debt

Credit Facility

On September 23, 2011, we entered into a Credit Agreement and a Security Agreement (collectively, the “Credit Facility”) with Wells Fargo Capital Finance, LLC (“Wells Fargo”). The Credit Facility provides for a $50.0 million revolving facility during its term, however, the availability under the Credit Facility increased to $75.0 million during the period from October 1, 2011 through December 14, 2011. The Credit Facility allows for up to $10.0 million to be used as a letter of credit subfacility.

The Credit Facility has a four-year term; however, it will terminate on June 16, 2014 if any obligations are still outstanding under the $100.0 million 5% convertible senior notes more fully described below. Borrowings under the Credit Facility bear interest at a rate equal to an applicable margin plus, at our option, either a variable base rate or a LIBOR rate. The applicable margin for base rate loans ranges from 2.25% to 2.5% and for LIBOR rate loans ranges from 3.75% to 4.0%, in each case, depending on the level of our borrowings. Debt issuance costs capitalized in connection with the Credit Facility totaled $1.4 million; these costs are being amortized over the term of the Credit Facility. We are required to pay other customary fees, including an unused line fee based on usage under the Credit Facility as well as fees in respect of letters of credit.

During the three months ended December 31, 2011 we borrowed $52.0 million under the Credit Facility, which was repaid as of December 31, 2011. In the three and nine months ended December 31, 2011 interest expense was $0.2 million and amortization of debt costs related to the Credit Facility was $0.1 million; these amounts were capitalized as part of in-process software development costs (as further discussed below). There were no outstanding borrowings under the Credit Facility as of December 31, 2011.

The Credit Facility provides for certain events of default such as nonpayment of principal and interest when due, breaches of representations and warranties, noncompliance with covenants, acts of insolvency, default on certain agreements related to indebtedness, including the $100.0 million 5% convertible senior notes more fully described below, and entry of certain judgments against us. Upon the occurrence of a continuing event of default and at the option of the required lenders (as defined in the Credit Facility), all of the amounts outstanding under the Credit Facility are currently due and payable and any amount outstanding bears interest at 2.0% above the interest rate otherwise applicable. In the event availability on the Credit Facility is below 12.5% of the maximum revolver amount, the Credit Facility requires that we maintain certain financial covenants. As of December 31, 2011, we had availability in excess of 12.5% and therefore we were not subject to the financial covenants. In the event the financial covenants become applicable, we would be required to have EBITDA, as defined in the Credit Facility, in the most recent period of $73.3 million, $63.3 million or $9.8 million for the two quarters ended December 31, 2011, three quarters ended March 31, 2012 or four quarters ended June 30, 2012, respectively. Additionally, beginning September 30, 2012, the financial covenants would require that we maintain an annual fixed charge coverage ratio of 1.1 to 1.0.

The Credit Facility is guaranteed by most of our domestic subsidiaries and secured by substantially all of our assets. The Credit Facility contains customary affirmative and negative covenants, including, among other terms and conditions, and limitations (subject to certain permitted actions) on our ability to: create, incur, guarantee or be liable for indebtedness; dispose of assets outside the ordinary course; acquire, merge or consolidate with or into another person or entity; create, incur or allow any lien on any of their respective properties; make investments or capital expenditures; or pay dividends or make distributions.

As of December 31, 2011, we were in compliance with all applicable covenants and requirements in the Credit Facility.

Convertible Senior Notes

On August 4, 2009, we issued $100.0 million 5% convertible senior notes ("Notes"). After offering costs, the net proceeds to THQ were $96.8 million. The Notes are due August 15, 2014, unless earlier converted, redeemed or repurchased. 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. The Notes are our unsecured and unsubordinated obligations.

The Notes are initially convertible into shares of our common stock at a conversion rate of 117.4743 shares of common stock per $1,000 principal amount of Notes, equivalent to an initial conversion price of approximately $8.51 per share. At this conversion rate and upon conversion of 100% of our Notes outstanding at December 31, 2011, our Notes would convert into 11.7 million shares of common stock. The conversion rate is subject to adjustment in certain events such as a stock split, the declaration of a dividend or the issuance of additional shares. Also, the conversion rate will be subject to an increase in certain events constituting a make-whole fundamental change; provided, however, that the maximum number of shares to be issued thereunder cannot exceed 14.7 million, subject to adjustment. We considered all our other commitments that may require the issuance of stock (e.g., stock options, restricted stock units, warrants, and other potential common stock issuances) and have determined that as of December 31, 2011, we have sufficient authorized and unissued shares available for the conversion of the Notes during the maximum period the Notes could remain outstanding. The Notes will be redeemable, in whole or in part, at our option, at any time after August 20, 2012 for cash, at a redemption price of 100% of the principal amount of the Notes, plus accrued but unpaid interest, if the price of a share of our common stock has been at least 150% of the conversion price then in effect for specified periods.

In the case of certain events such as the acquisition or liquidation of THQ, or delisting of our common stock from a U.S. national securities exchange, holders may require us to repurchase all or a portion of the Notes for cash at a purchase price of 100% of the principal amount of the Notes, plus accrued and unpaid interest. On January 25, 2012, we received a written notification from Nasdaq regarding our listing on The Nasdaq Global Select Market (refer to "Note 15 — Subsequent Events" for further details).

Costs incurred related to the Notes offering amounted to $3.2 million and are classified as "Other long-term assets, net" in our condensed consolidated balance sheets at December 31, 2011; these costs are being amortized over the term of the Notes.

In the three and nine months ended December 31, 2011 all interest expense and amortization of debt costs related to the Notes were capitalized to software development. Interest expense and amortization of debt costs related to the Notes that is not capitalized to software development is classified as "Interest and other income (expense), net" in our condensed consolidated statements of operations and was $1.4 million and $4.2 million in the three and nine months ended December 31, 2010, respectively. We began capitalizing interest expense in the fourth quarter of fiscal 2011; see "Note 25 — Quarterly Financial Data (Unaudited)" in the notes to the consolidated financial statements in our 2011 10-K for a discussion of the impact of this change. The effective interest rate, before capitalization of any interest expense and amortization of debt issuance costs, was 5.65% for the three and nine months ended December 31, 2011 and 2010.

Capitalization of Interest Expense

We capitalize interest expense and related amortization of debt costs as part of in-process software development costs. Capitalization commences with the first capitalized expenditure for the software development project and continues until the project is completed. We amortize these balances to "Cost of sales — Software development amortization" as part of the software development costs. The following table summarizes the interest expense and amortization of debt costs that are included in our condensed consolidated balance sheets as a component of software development (amounts in thousands):



Balance at March 31, 2011	$	4,318
Capitalized during the period	4,720
Amortized during the period	(4,729		)
Balance at December 31, 2011	$	4,309