THQ 2004 Annual Report Download - page 67

Software Licenses: For those agreements that provide the customers the right to multiple copies in exchange for guaranteed minimum royalty amounts,
revenue is recognized at delivery of the product master or the first copy. Per copy royalties on sales that exceed the guarantee are recognized as earned.
Revenue from the licensing of software was $8.4 million and $4.1 million for the fiscal year ended March 31, 2004 and Transition 2003, respectively, and
$2.0 million, and $1.4 million for the years ended December 31, 2002 and 2001, respectively.
Advertising. Advertising and sales promotion costs are generally expensed as incurred, except for television airtime and print media costs associated with
media campaigns, which are deferred and charged to expense in the period the airtime or advertising space is used for the first time. Advertising costs
were $34.0 million and $4.6 million for the fiscal year ended March 31, 2004 and Transition 2003, respectively, and $23.4 million, and $14.8 million in the
years ended December 31, 2002 and 2001, respectively.
Employee Stock-Based Compensation. We account for our employee stock based compensation plans under the intrinsic value method in accordance
with Accounting Principles Bulletin (APB) Opinion 25, “Accounting for Stock Issued to Employees,” and related interpretations. No stock option com-
pensation expense, other than acquisition-related compensation, is recognized in our Consolidated Statements of Operations because all stock options
granted had an exercise price equal to the fair value of the underlying common stock on the grant date, except for options issued by Pacific Coast Power
& Light Co. and Genetic Anomolies prior to the acquisitions, which were issued at below market.
On November 13, 2003, we commenced a stock option exchange program (“Exchange Program”) under which eligible employees holding options to
purchase 1,494,614 shares of our common stock, with a weighted average exercise price of $30.77 per share and a range of $27.49 to $39.11 per share,
could elect to exchange their options for a designated fewer number of replacement options with a new exercise price to be granted at least six months
and one day from the cancellation date. Our executive officers and members of our board of directors were not eligible to participate in the Exchange
Program. In accordance with the terms of the Exchange Program, we canceled 1,216,903 outstanding stock options on December 15, 2003 and expect
to issue, in exchange for the canceled options, approximately 769,000 new options in June 2004.The exercise price of the new stock options will be the
closing price of our common stock on the Nasdaq Stock Market on the date the new stock options are granted.
In accordance with SFAS No. 123,“Accounting for Stock-Based Compensation” (SFAS 123), the tables below include a modification of the 1,216,903 stock
options canceled under the Exchange Program and were immediately reissued as approximately 769,000 new options. Accordingly, these disclosures
include estimates about (1) the risk-free interest rate; (2) the expected life of the new stock options; and (3) the expected volatility of our common stock.
The following table shows what our net income (loss) and earnings (loss) per share would have been for the fiscal year ended March 31, 2004 and Transition
2003 and the years ended December 31, 2002 and 2001 had we accounted for our stock-based compensation plans under the fair value method of SFAS
123 using the assumptions in the table above. The estimated value of the options is amortized ratably to expense over the options’ vesting periods.
Because the value is determined as of the date of grant, the actual value ultimately realized by the employee may be significantly different.
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THQ : 2004 : ANNUAL REPORT