2K Sports 2009 Annual Report Download - page 88

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Debt
In May 2008, new guidance was issued specifying that issuers of convertible debt instruments that may be
settled in cash upon conversion should separately account for the liability and equity components in a
manner that will reflect the Company’s non-convertible debt borrowing rate when interest cost is
recognized in subsequent periods. This guidance is effective for financial statements issued for fiscal years
beginning after December 15, 2008 (November 1, 2009 for the Company) and prohibits early adoption and
requires retrospective application to all periods presented. In June 2009, we issued $138,000 of 4.375%
convertible senior notes due 2014 (‘‘Convertible Notes’’) which is classified as long-term debt at
October 31, 2009. Upon adoption of this guidance on November 1, 2009 we will reclassify $43,600 of our
Convertible Notes balance to additional paid-in-capital, representing a bifurcation based on the fair value
of the Convertible Notes embedded conversion option. The difference between the principal amount of
the Convertible Notes and the remaining liability component after the bifurcation will be reported as a
debt discount. As of November 1, 2009 we have begun amortizing the debt discount as non-cash interest
expense on our consolidated statement of operations in addition to the Convertible Notes’ coupon interest
payments. For additional details on our Convertible Notes see Note 9 to our consolidated financial
statements.
Earnings Per Share
In June 2008, new guidance was issued which clarified that stock-based payment awards that entitle
holders to receive non-forfeitable dividends before they vest should be considered participating securities
and included in the basic EPS calculation. This new rule is effective for financial statements issued for
fiscal years beginning after December 15, 2008 (November 1, 2009 for the Company). We do not believe
adoption of this guidance will have a material impact on our consolidated results of operations.
Subsequent Events
In May 2009, new guidance was issued which establishes general standards of accounting for and disclosure
of events that occur after the balance sheet date but before financial statements are issued or are available
to be issued. In particular, this standard sets forth the period after the balance sheet date during which
management of a reporting entity should evaluate events or transactions that may occur for potential
recognition or disclosure in the financial statements; the circumstances under which an entity should
recognize events or transactions occurring after the balance sheet date in its financial statements; and the
disclosures that an entity should make about events or transactions that occurred after the balance sheet
date. The new rule was adopted as of the Company’s third quarter ended July 31, 2009. The adoption of
this new rule did not have a material impact on the Company’s financial statements. Subsequent events
were evaluated through the date of issuance of these consolidated financial statements on December 18,
2009 at the time this Annual Report on Form 10-K was filed with the Securities and Exchange
Commission.
Amendments to Variable Interest Entity Guidance
In June 2009, new guidance was issued which requires an enterprise to determine whether its variable
interest or interests give it a controlling financial interest in a variable interest entity. The primary
beneficiary of a variable interest entity is the enterprise that has both (1) the power to direct the activities
of a variable interest entity that most significantly impacts the entity’s economic performance and (2) the
obligation to absorb losses of the entity that could potentially be significant to the variable interest entity or
the right to receive benefits from the entity that could potentially be significant to the variable interest
entity. The guidance also now requires ongoing reassessments of whether an enterprise is the primary
beneficiary of a variable interest entity. The guidance is effective at the start of a Company’s first fiscal year
beginning after November 15, 2009 (November 1, 2010 for the Company). We are still evaluating the
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