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56
THQ INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Business and Summary of Significant Accounting Policies
We are a leading worldwidedeveloper andpublisherof interactive entertainment software for all popular
game systems, including:
•Home video game consoles such as Microsoft Xbox 360, Microsoft Xbox, Nintendo Wii, Nintendo
GameCube, Sony PlayStation3and Sony PlayStation 2;
•Handheldplatforms such as Nintendo Dual Screen, Nintendo GameBoy Advance, PSP portable
entertainment system (“PSP system”), wireless devices; and
•Personal computers.
Our titlesspanawiderange of categories, including action, adventure, fighting, racing, role-playing,
simulation, sports and strategy. We have created, licensed and acquired agroup of highly recognizable
brands, which we market to a variety of consumer demographics ranging from products targeted at
childrenand the mass market to products targeted at core gamers. Our portfolioof licensedproperties
includes the Disney"Pixar properties Finding Nemo,TheIncredibles,Cars and Ratatouille; World Wrestling
Entertainment; Nickelodeon properties suchasSpongeBob SquarePants,Avatar,Barnyardand Nicktoons;
Bratz ™; MotoGP;Warhammer 40,000; and theUltimate FightingChampionship; as well as others. We also
have licenses to create wireless products basedon Disney"Pixar’sRatatouille as well as Star Wars and
major sports leagues. In addition to licensed properties, we also developgames based upon owned
intellectual properties, includingCompany of Heroes, Destroy All Humans!, Juiced, MX vs. ATV, Red
Faction, Saints Row and Stuntman.
Principles of Consolidation. The consolidated financial statements includetheaccounts of THQ Inc. and
our wholly owned and majority owned subsidiariesas well as the venture we have with JAKKS Pacific,Inc.
See “Note 16—Agreementwith JAKKS Pacific, Inc.” The results of operations for acquisitions of
companies have been included in the consolidated statements of operations beginning on the closing date
of acquisition. All material intercompany balances and transactions have been eliminated in consolidation.
Pervasiveness of Estimates.The preparation of financial statements in conformity with accounting
principles generally accepted in theUnited States of America requires management to make estimates and
assumptions that affect thereported 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 reportingperiod. Actual results could differ from those estimates. The most significant
estimates relateto licenses, software development, accounts receivable allowances, income taxes and stock-
based compensation expense.
Reclassifications. Certain reclassificationshave been made to theprior periods consolidated financial
statements to conform to currentperiod consolidated financial statements. In thefirst quarter of fiscal
2007,we reclassifiedcertain depreciation and amortization expenses from general andadministrative
expenses to sellingand marketing expenses and to product development expenses. Depreciation and
amortization expenses are now classified in our consolidated statement of operations according to the
department utilizing the related assets.Thereclassified depreciation andamortization expensesfor the
fiscal yearsended March 31, 2006 and 2005 were $0.9 million and $0.7 million, respectively, to sellingand
marketing expenses and$9.3millionand$6.5 million, respectively,to productdevelopment expenses.We
also reclassified transactional foreign currency gains and lossesfromgeneral and administrative expenses