THQ 2007 Annual Report Download - page 81

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73
Theadoption of FAS 123R, using the fair valuemethod, had the following effect on our income from
continuing operations before income taxes and minorityinterest, income from continuing operations, gain
on sale of discontinued operations, net income, and basic and diluted net income pershare as compared to
what would have been reported under APB 25 using theintrinsic valuemethod,which was the method
used prior to our adoption (in thousands, except per sharedata):
Year Ended March 31, 2007
Fair Value
Method
IntrinsicValue
Method
Impact of
Change
Income from continuing operations before income
taxes and minority interest................... $91,028$105,613$14,585
Income from continuing operations.............64,95875,96311,005
Gain on sale of discontinued operations, netof tax..3,0803,080 —
Net income.................................. $68,038$79,043 $11,005
1
Earnings pershare—basic:
Continuing operations ......................$1.00 $1.17$0.17
Discontinued operations ....................0.050.05—
Earnings pershare—basic................... $1.05$1.22 $0.17
Earningspershare—diluted:
Continuedoperations....................... $0.96$1.12 $0.16
Discontinued operations ....................0.050.05—
Earnings per share—diluted ................. $1.01 $ 1.17 $ 0.16
Priorto the adoption of FAS 123R,wepresented alltax benefits of deductions resulting from ourstock-
based awardsas operating cash flows in the statement of cash flows. FAS 123R requires the cash flows
resulting from the tax benefits arising out of tax deductions in excess of the compensation recognized for
the stock-based awards (“excess tax benefits”) to be classified as financing cash flows. Prior to ouradoption
of FAS 123R on April 1, 2006, the $4.0 million excesstax benefitclassified as afinancingcash inflowinthe
year ended March 31, 2007 would have been classifiedasan operatingcash inflow.
The fair value of stock options and ESPP shares granted during the year ended March 31, 2007 were
estimated on the date of grant using theBlack-Scholes option pricingmodel with the weighted-average
assumptionsnoted in thetable below. Anticipatedvolatilityis based on implied volatilities from traded
options on our stock and on our stock’s historical volatility. The expectedterm of our stock options granted
is basedonhistoricalexercise data and represents the period of time that stock options granted are
expected to be outstanding. Separate groups of employees that have similar historical exercise behaviorare
considered separately for valuation purposes.Theexpected term of our ESPP is the offeringperiod. The
risk-freerate for periods withinthe expected lives of options and ESPP are basedon theUS Treasury yield
in effect at the time of grant.
Stock Option
Grants
Employee Stock
Purchase Plan
Year Ended
March 31,2007
Year Ended
March 31, 2007
Dividend yield................................... —% —%
Anticipatedvolatility.............................. 37%37%
Weighted-average risk-freeinterestrate............. 4.9% 5.1%
Expected lives. ................................... 3.2years 0.5 year