2K Sports 2009 Annual Report Download - page 89

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impact that the adoption of this new guidance will have on our consolidated financial position, cash flows
and results of operations.
Measuring Liabilities at Fair Value
In August 2009, new guidance was issued related to the fair value measurement of liabilities. This update
provides clarification that in circumstances in which quoted prices in an active market for the identical
liability are not available, a reporting entity is required to measure fair value using a valuation technique
that uses quoted prices for the identical liability when traded as an asset, quoted prices for similar liabilities
when traded as an asset or another technique that is consistent with the Fair Value principles. The
guidance is effective for the first reporting period (including interim periods) beginning after issuance
which for the Company is November 1, 2009. We do not expect that the adoption of this new guidance will
have a material effect on our consolidated financial position, cash flows and results of operations.
Multiple-Deliverable Revenue Arrangements
In October 2009, new guidance was issued related to the accounting for multiple-deliverable revenue
arrangements. These new rules amend the existing guidance for separating consideration in multiple-
deliverable arrangements and establish a selling price hierarchy for determining the selling price of a
deliverable. These new rules will become effective, on a prospective basis, for the Company on
November 1, 2011. We are still evaluating the impact that the adoption of this new guidance will have on
our consolidated financial position, cash flows and results of operations.
Certain Revenue Arrangements That Include Software Elements
In October 2009, new guidance was issued that changes the accounting model for revenue arrangements by
excluding tangible products containing both software and non-software components that function together
to deliver the product’s essential functionality and instead have these types of transactions be accounted
for under other accounting literature in order to determine whether the software and non-software
components function together to deliver the product’s essential functionality. These new rules will become
effective, on a prospective basis, for the Company on November 1, 2011. We are still evaluating the impact
that the adoption of this new guidance will have on our consolidated financial position, cash flows and
results of operations.
2. MANAGEMENT AGREEMENT
In March 2007, we began operating under a management services agreement with ZelnickMedia (the
‘‘Management Agreement’’), whereby ZelnickMedia provides us with certain management, consulting and
executive level services. Strauss Zelnick, the President of ZelnickMedia, serves as our Executive Chairman.
In addition, we have entered into employment agreements with Ben Feder and Karl Slatoff to serve as our
Chief Executive Officer and Executive Vice President, respectively. Both Mr. Feder and Mr. Slatoff are
partners of ZelnickMedia. The Management Agreement expires in October 2012 and provides for an
annual management fee of $2,500 ($750 prior to the amendment that was effective as of April 1, 2008) and
a maximum bonus of $2,500 per fiscal year ($750 prior to the amendment that was effective as of April 1,
2008) based on the Company achieving certain performance thresholds. In consideration for
ZelnickMedia’s services under the Management Agreement, we recorded consulting expense (a
component of general and administrative expenses) of $2,500, $3,674 and $649 for the years ended
October 31, 2009, 2008 and 2007 respectively.
Pursuant to the Management Agreement, we also issued stock-based awards to ZelnickMedia. See Note 14
for a discussion of such awards.
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