THQ 2007 Annual Report Download - page 80

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72
PARSUs has been accelerated. PARSUs granted to ournon-employee directors vest oneyearafter their
grant date. DeferredStock Units (“DSUs”) granted to our non-employeedirectors vest immediately,
however, may not be paid to a director until thirteen(13) months after the date of grant. The fair value of
our nonvested restricted stock is determinedbased on the closing trading price of our commonstock on
the grantdate. Thefair value of PARS, PARSUs andDSUsgrantedis amortizedoverthe vesting period.
In March 2007, we offered ouremployees the ability to participate in an employee stockpurchaseplan
(“ESPP”). Pursuant to ourESPP, eligible employeesmay authorizepayrolldeductions of up to 15 percent
of their base salary, subject to certain limitations, to purchase shares at 85 percent of thelower of the fair
market value of our common stock on the first day of the offeringperiod or the last. Our first offering
period beganon March 1, 2007 and will end on August 31, 2007. Thefair value of the stock purchased
under the ESPP is amortized over the offering period. As of March 31,2007, we had 500,000 shares
available for issuance under the ESPP.
Any references we make to unspecified “stock-based compensation” and “stock-based awards” are
intended to represent thecollectivegroup of all our awards andpurchase opportunities: stock options,
PARS, PARSUs, DSUs and ESPP. Any referenceswe maketo “nonvested shares” and “vested shares” are
intended to represent our PARS, PARSU and DSU awards.
Prior to April 1, 2006, we accounted for our stock-based compensation usingthe intrinsic value method in
accordance with APB 25 and the disclosure-only provisions of FAS 123. Effective April 1, 2006, we
adopted the fair valuerecognition provisions of FAS 123R using the modifiedprospective transition
method. Under that transition method, results forprior periods have not been restated as a result of
adoptingFAS 123R.
Thecompensation expense related to stock-basedcompensation was $19.0million, $3.4 million and $0.8
million, respectively, for the fiscal yearsended ended March31,2007,2006 and 2005. The total income tax
benefitrecognized in thestatementof operations forstock-based compensation expense was $5.1 million,
$0.9 million and $0.2 million, respectively, for thefiscal years ended March 31,2007,2006 and 2005. Stock-
basedcompensation cost capitalized during the fiscal year ended March 31, 2007 was $5.9 million, and is
included in software development, netof associated amortizationof $2.1 million, in the consolidated
balance sheet. No amounts were capitalized in years prior to fiscal 2007.
For the fiscal years ended March 31, 2007, 2006 and 2005, stock-basedcompensation expense recognized
in thestatement of operations was as follows (in thousands):
Year Ended March 31,
2007 2006 2005
Cost of sales—software amortization and royalties. ...... $2,087 $—$—
Productdevelopment................................3,364 926475
Sellingandmarketing ................................2,817 981132
General andadministrative ...........................10,7041,515 199
Totalstock-based compensation.....................$18,972 $3,422 $806
FAS123R requires that stock-based compensation expense be based on awards that are ultimately
expected to vest and accordingly, stock-based compensation expense recognized in the fiscalyear ended
March 31,2007 has been reduced by estimated forfeitures. Our estimate of forfeitures is based on
historical forfeiture behavior as wellas any expected trends in futureforfeiture behavior.