THQ 2008 Annual Report Download - page 72

Download and view the complete annual report

Please find page 72 of the 2008 THQ annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 119

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119

performed an annual review of goodwill impairment in each of the fiscal years ended March 31, 2008, 2007
and 2006 and found no impairment. Our impairment review process is based on a discounted future cash
flow approach that uses our estimates of revenue for our reporting unit, driven by anticipated success of
our products and product release schedules, and estimated costs as well as appropriate discount rates.
These estimates are consistent with the plans and estimates that we use to manage the underlying business.
All identifiable intangible assets with finite lives will continue to be amortized over their estimated useful
lives and assessed for impairment under SFAS No. 144, ‘‘Accounting for the Impairment or Disposal of
Long-Lived Assets.’’
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 (‘‘GAAP’’) for
recognizing revenue on software 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.
Some of our packaged software products are developed with the ability to be connected to, and played via,
the internet. In order for consumers to participate in online communities and play against one another via
the internet, we (either directly or through outsourced arrangements with third parties) maintain servers
which support an online service that we provide to consumers for activities such as matchmaking, roster
updates, tournaments and player rankings. Generally, we consider the online service to be incidental to the
overall product offering and an inconsequential deliverable. Accordingly, we do not defer any revenue
related to products containing the limited online service.
In instances where the online service is considered a substantive deliverable in addition to the software
product, we account for the sale as a ‘‘bundled’’ sale, or multiple element arrangement, in which we sell
both the packaged software product and the online service for one combined price. Vendor specific
objective evidence for the fair value of the online service does not exist as we do not separately offer or
charge for the online service. Therefore, when the online service is determined to be a substantive
deliverable, we recognize the revenue from sales of such software products ratably over the estimated
online service period of six months, beginning the month after shipment of the software product. Costs of
sales related to such products are also deferred and recognized with the related revenues and include
product costs, software amortization and royalties, and license amortization and royalties.
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 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.
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, 2008, 2007 and 2006 was
$7.8 million, $8.6 million and $6.3 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
64