THQ 2004 Annual Report Download - page 69

Basic and Diluted Earnings (Loss) Per Share. The following table is a reconciliation of the weighted-average shares used in the computation of basic and
diluted earnings (loss) per share for the years presented:
(In thousands, except per share data) Year Ended March 31, Transition Years Ended December 31,
2004 2003 2002 2001
Net income (loss) used to compute basic
and diluted earnings (loss) per share $ 35,839 $ (7,686) $ 12,994 $ 36,013
Weighted average number of shares
outstanding — basic 38,186 38,319 39,203 32,717
Dilutive effect of stock options and warrants 818 — 2,040 2,906
Number of shares used to compute
earnings (loss) per share — diluted 39,004 38,319 41,243 35,623
Stock options to purchase 4,146,000 shares of common stock in the fiscal year ended March 31, 2004 were outstanding but are not included in the com-
putation of diluted earnings per common share because the option exercise prices for these options were greater than the average market price per share
of our common stock during the period. Stock options to purchase 600,000, 2,462,000 and 724,500 shares of common stock in Transition 2003 and each
of the years ended December 31, 2002 and 2001, respectively, were outstanding but not included in the computation of diluted earnings (loss) per
common share because the option exercise prices for these options were greater than the average market price per share of our common stock.
Recently Issued Accounting Pronouncements. In December 2003, the Financial Accounting Standards Board issued Interpretation No. 46, “Consolidation
of Variable Interest Entities” (revised in December 2003) (“FIN 46-R”).This interpretation of Accounting Research Bulletin No. 51, “Consolidated Financial
Statements,” addresses consolidation by business enterprises of variable interest entities (“VIEs”) that either: (i) do not have sufficient equity investment
at risk to permit the entity to finance its activities without additional subordinated financial support, or (ii) are owned by equity investors who lack
an essential characteristic of a controlling financial interest. Generally, application of FIN 46-R is required in financial statements of public entities that
have interests in structures commonly referred to as special-purpose entities for periods ending after December 15, 2003, and, for other types of VIEs,
for periods ending after March 15, 2004. We have reviewed this pronouncement and determined it is not applicable since we do not own or have an
investment in any VIEs.
In March 2004, the Emerging Issues Task Force ratified the consensus reached on paragraphs 6 through 23 of Issue No. 03-01 (“EITF 03-1”),“The Meaning
of Other-Than-Temporary Impairment and Its Application to Certain Investments”. EITF 03-1 requires that certain quantitative and qualitative disclosures
should be required for debt and marketable equity securities classified as available-for-sale or held-to-maturity under SFAS No. 115,“Accounting for Certain
Investments in Debt and Equity Securities” and SFAS No. 124,“Accounting for Certain Investments Held by Not-for-Profit Organizations” that are impaired
at the balance sheet date but for which an other-than-temporary impairment has not been recognized.We adopted EITF 03-1 in the year ended March 31,
2004; however, it did not have a material impact on the disclosures in our Consolidated Financial Statements.
Pervasiveness of Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The most significant estimates relate to licenses, software development, and the allowance for price protection, returns
and doubtful accounts.
Reclassifications. Certain reclassifications have been made to the prior periods consolidated financial statements to conform to current period consoli-
dated financial statements.
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THQ : 2004 : ANNUAL REPORT