THQ 2007 Annual Report Download - page 68

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60
fiscalquarter. Our first fiscal quarter is generally when we are required to adopt recently issued accounting
pronouncements in addition to managing our annualfinancialreporting requirements,which can strain
ourpersonnel resources in thatquarter. We changed the quarter in whichwe performourannual review of
goodwill impairment to better utilize these resources. Additionally, the first day of our fourth fiscal
quarter’sproximity to ourfiscal year endprovidesus with more comprehensive data to be included in our
review. It was notintended to delay, accelerate or avoid any impairmentcharge. Accordingly, we believe
that this change is preferable. Goodwill impairmenttests performed as of January 1, 2007 andJune 30,
2006, 2005 and 2004 concluded that no impairment charges were requiredas of those dates. The change in
accounting principle related to theannual testing does notresult in adjustments to our financial statements
when appliedretrospectively. We will performthis annualreviewonthefirst dayof ourfourth fiscal
quarter in future years or more frequently if indicators of potential impairment exist.
Our impairmentreview process is based on adiscounted future cash flow approachthat uses our estimates
of revenuefor the reporting units, driven by anticipated success of ourproducts and product release
schedules, and estimated costs as well as appropriatediscount rates. These estimatesare consistent with
the plans and estimates that we use to manage the underlying businesses. All identifiable intangible assets
with finite lives will continueto be amortized over their estimated useful livesandassessedforimpairment
under SFAS No. 144, “Accounting for the Impairment or Disposalof Long-Lived Assets.”
RevenueRecognition. Ourrevenuerecognition policies arein compliance withAmericanInstitute of
Certified Public Accountants Statement of Position (“SOP”) 97-2, “Software Revenue Recognition,” as
amended by SOP98-9, “Modification of SOP 97-2, Software Revenue Recognition,With Respect to
Certain Transactions,” which provide guidance on generallyaccepted accounting principles for recognizing
revenue on softwaretransactions, andStaff Accounting Bulletin (“SAB”) No.104,“RevenueRecognition
in Financial Statements,” whichoutlinesthebasic 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 theSecurities and Exchange Commission (“SEC”).
Product Sales: We recognize revenuefor packaged software when title and riskofloss transfers to the
customer,provided that no significant vendor support obligations remainoutstanding and that collection
of the resulting receivable is deemed probable by management. Although we generally sell our products on
a no-return basis, in certaincircumstances we may allowprice 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 thetitles and
other factors. Such estimates are deducted from grosssales. See “Note 3—Accounts Receivable
Allowances.” Software is sold under a limited 90-day warranty against defects in material and
workmanship. To date, we have not experienced material warranty claims.
SoftwareLicenses:For those agreements that provide thecustomers the right to multiple copiesin
exchange forguaranteed minimum royalty amounts, revenue is recognized at delivery of the product
masterorthe first copy. Per copy royalties on sales that exceed theguarantee are recognized as earned.
Revenue from the licensingof softwarefor thefiscalyears ended March 31, 2007, 2006 and2005was
$8.6 million, $6.3 million and$8.1 million, respectively.
Wireless Revenue: We recognize wireless revenuesprincipallyfrom thesale or subscription of our
applications to wireless subscribersunder distribution agreements with wireless carriers in the period in
which the applicationsarepurchasedby the subscribers, assuming that: fees are fixed anddeterminable;we
have no significant obligations remaining and collection of the related receivable is reasonably assured. In
accordance with thedistribution agreements, the wireless carriers areresponsible for billing, collecting and
remitting our fees to us. Thewireless carriers generally report the final sales data to us within 10 to 45 days
following theend of each month. When final sales data is not available in a timely manner for reporting
purposes, we estimate ourrevenues based on availablesales data and historical trends. We will record