THQ 2010 Annual Report Download - page 61

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As of March 31, 2010 all identifiable intangible assets, other than licenses and software development, were
fully amortized.
Stock-based compensation. We estimate the fair value of stock options and our employee stock purchase
plan on date of grant using the Black-Scholes option pricing model which requires the input of subjective
assumptions, including the expected volatility of our common stock and an option’s expected life. The fair
value of our restricted stock and restricted stock units is determined based on the closing trading price of our
common stock on the grant date. The amount of expense recognized represents the expense associated
with the stock-based awards we expect to ultimately vest based upon an estimated rate of forfeitures. Our
estimate of forfeitures is based on historical forfeiture behavior as well as any expected trends in future
forfeiture behavior; this rate of forfeitures is updated as necessary and any adjustments needed to recognize
the fair value of options that actually vest or are forfeited are recorded. The fair value for awards that are
expected to vest is then amortized on a straight-line basis over the requisite service period of the award,
which is generally the option vesting term. As a result, the financial statements include amounts that are
based upon our best estimates and judgments relating to the expenses recognized for stock-based
compensation.
Income Taxes. The provision for income taxes is computed using the asset and liability method, under which
deferred tax assets and liabilities are recognized based on their expected future tax carrying value. Deferred
tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in
effect for the years in which those tax assets are anticipated to be realized or settled. We record a valuation
allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.
The calculation of tax liabilities involves judgment, assumptions and estimates in evaluating the application of
authoritative accounting guidance, enacted tax laws, our interpretation of tax laws and potential outcomes of
audits conducted by tax authorities. Material changes in tax laws, our interpretation of tax laws, or the
resolution of tax audits, if and when conducted by tax authorities, could significantly impact the amount of
income tax expense in our consolidated financial statements.
Basic and Diluted Earnings Per Share. Basic earnings (loss) per share is computed as net income (loss)
attributable to THQ Inc. divided by the weighted-average number of shares outstanding for the period.
Diluted earnings (loss) per share reflects the potential dilution that could occur from common shares issuable
through stock-based compensation plans including stock options, stock-based awards, purchase
opportunities under our ESPP, and the conversion of our convertible senior notes. On August 4, 2009, we
issued $100.0 million 5.00% convertible senior notes (“Notes”); see “Note 11—Convertible Senior Notes”.
Under the provisions of the if-converted method, the Notes are assumed to have been converted at the
beginning of the respective period or at the time of issuance if later, and are included in the denominator of
the diluted calculation and the after-tax interest expense and amortization of debt issuance costs in
connection with the Notes are added back to the numerator of the diluted calculation. However, the if-
converted amounts are only included in the numerator and denominator of the diluted calculation if the result
of the if-converted calculation is dilutive.
Recently Issued Accounting Pronouncements. In December 2007, the Financial Accounting Standards
Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 160 (Accounting
Standards Codification (“ASC”) Topic 810), “Noncontrolling Interests in Consolidated Financial Statements”
(“FAS 160”). This Statement amends Accounting Research Bulletin (“ARB”) No. 51, “Consolidated Financial
Statements” to establish accounting and reporting standards for the noncontrolling interest in a subsidiary
and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an
ownership interest in the consolidated entity that should be reported as equity in the consolidated financial
statements. FAS 160 is effective for fiscal years and interim periods within those fiscal years, beginning on or
after December 15, 2008. We adopted this statement on April 1, 2009. The presentation and disclosure
requirements of FAS 160 were applied retrospectively. Other than the change in presentation of
noncontrolling interests, the adoption of FAS 160 had no impact on our results of operations, financial
position or cash flows.
In June 2009, the FASB issued SFAS No. 166 (ASC Topic 860), “Accounting for Transfers of Financial
Assets—an amendment to FASB Statement No. 140,” (“FAS 166”). The purpose of FAS 166 is to improve
the relevance, representational faithfulness, and comparability of the information that a reporting entity
provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial
position, financial performance, and cash flows; and a transferor’s continuing involvement, if any, in
transferred financial assets. FAS 166 is effective at the start of a company’s first fiscal year beginning after
November 15, 2009, which will be our fiscal year 2011. The adoption did not have a material impact on our
results of operations, financial position or cash flows.