THQ 2005 Annual Report Download - page 86

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63
amortized over their estimated useful lives and assessed for impairment under SFAS No. 144, “Accounting
for the Impairment or Disposal of Long-Lived Assets.”
Long-Lived Assets. We evaluate long-lived assets, including, but not limited to, licenses, software
development, property and equipment and identifiable intangible assets with finite lives, for impairment
whenever events or changes in circumstances indicate that the carrying amount of an asset may not be
recoverable. Potential impairment of assets is measured by a comparison of the carrying amount of an
asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are
considered impaired, the impairment to be recognized is measured by the amountby which the carrying
amount of the asset exceeds its fair value.
Revenue Recognition. Our revenue recognition policies are in compliance with American Institute of
Certified Public Accountants Statement of Position (“SOP”) 97-2, “Software Revenue Recognition”, as
amended by SOP 98-9, “Modification of SOP 97-2, Software Revenue Recognition, With Respect to
Certain Transactions”, which provide guidance on generally accepted accounting principles for recognizing
revenue onsoftware transactions, and Staff Accounting Bulletin (“SAB”) No. 104,“Revenue Recognition in
Financial Statements” , which outlines the basic criteria that must be met to recognize revenue and provides
guidance for presentation of revenue and for disclosure related to revenue recognition policies in financial
statements filed with the Securities and Exchange Commission (“SEC”).
Product Sales: We recognize revenue for packaged software when title and risk of loss transfers to the
customer, provided that no significant vendor support obligations remain outstanding and that collection
of the resulting receivable is deemed probable by management. Although we generally sell our products on
a no-return basis, in certain circumstances we may allow price protection, returns or other allowances on a
negotiated basis. We estimate such price protection, returns or other allowances based upon
management’s evaluation of our historical experience, retailer inventories, the nature of the titles and
other factors. Such estimates are deducted from gross sales. See “Note 5—Allowance for Price Protection,
Returns and Doubtful Accounts.” Software is sold under a limited 90-day warranty against defects in
material and workmanship. To date, we have not experienced material warranty claims.
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 for the fiscal years ended March 31, 2005 and 2004, Transition
2003 and the year ended December 31, 2002 was $13.2 million, $8.4million, $4.1 million and $2.0 million,
respectively.
Wireless Revenue: We recognize wireless revenues principally from the sale or subscription of our
applications to wireless subscribers under distribution agreements with wireless carriers in the period in
which the applications are purchased by the subscribers, assuming that: fees are fixed and determinable; we
have no significant obligations remaining and collection of the related receivable is reasonably assured. In
accordance with the distribution agreements, the wireless carriers are responsible for billing, collecting and
remitting our fees to us. The wireless carriers generally report the final sales data to us within10 to 45 days
following the end of each month. When final sales data is not available in a timely manner for reporting
purposes, we estimate our revenuesbased on available sales data and historical trends. We will record
differences between estimated revenues and actual revenues in the next reporting period once the actual
amounts are determined.
Also, in accordance with EITF No. 99-19, “Reporting Revenue Gross as a Principal Versus Net as an Agent,”
we recognize as revenues the net amountthe wireless carrier pays to us upon the sale of our applications,
net of any service or other fees earned and deducted by the wireless carrier.