THQ 2008 Annual Report Download - page 73

Download and view the complete annual report

Please find page 73 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

accordance with the distribution agreements, the wireless carriers are responsible for billing, collecting and
remitting our fees to us. The wireless carriers generally report the final sales data to us within 10 to 45 days
following the end of each month. When final sales data is not available in a timely manner for reporting
purposes, we estimate our revenues based on available sales data and historical trends. We will record
differences between estimated revenues and actual revenues in the next reporting period once the actual
amounts are determined.
Also, in accordance with EITF No. 99-19, ‘‘Reporting Revenue Gross as a Principal Versus Net as an
Agent,’’ we recognize as revenues the net amount the wireless carrier pays to us upon the sale of our
applications, net of any service or other fees earned and deducted by the wireless carrier.
Advertising. Advertising and sales promotion costs are generally expensed as incurred, except for
television airtime and print media costs associated with media campaigns, which are deferred and charged
to expense in the period the airtime or advertising space is used for the first time. We engage in
co-operative advertising with some of our retail channel partners. We accrue the associated costs when
revenue is recognized and such amounts are included in selling and marketing expense if there is a
separate identifiable benefit for which we can reasonably estimate the fair value of the benefit identified;
otherwise, they are recognized as a reduction of net sales. Advertising costs for the fiscal years ended
March 31, 2008, 2007 and 2006 were $85.7 million, $61.2 million and $61.0 million, respectively.
Stock-based compensation. We adopted SFAS No. 123(R) ‘‘Share-Based Payment’’ (‘‘FAS 123R’’) in our
first quarter of fiscal 2007 and accordingly, we now record stock-based compensation expense for all of our
stock-based awards. The adoption of this accounting pronouncement had a material impact on our
consolidated statement of operations and our cash flows from operating and financing activities for fiscal
2007. See ‘‘Note 14—Stock-based Compensation.’’
Under FAS 123R, we estimate the fair value of stock options granted using the Black-Scholes option
pricing model. The fair value for awards that are expected to vest is then amortized on a straight-line basis
over the requisite service period of the award, which is generally the option vesting term. The amount of
expense recognized represents the expense associated with the stock options we expect to ultimately vest
based upon an estimated rate of forfeitures; this rate of forfeitures is updated as necessary and any
adjustments needed to recognize the fair value of options that actually vest or are forfeited are recorded.
The Black-Scholes option pricing model, used to estimate the fair value of an award, requires the input of
subjective assumptions, including the expected volatility of our common stock and an option’s expected
life. As a result, the financial statements include amounts that are based upon our best estimates and
judgments relating to the expenses recognized for stock-based compensation. We adopted FAS 123R under
the modified prospective transition method wherein no prior period financial statement information was
affected. All prior period financial statements include stock-based compensation accounted for under
Accounting Principles Board Opinion (‘‘APB’’) No. 25, ‘‘Accounting for Stock Issued to Employees’’
(‘‘APB 25’’) and the disclosure only provisions of SFAS No. 123, ‘‘Accounting for Stock-Based
Compensation,’’ as amended (‘‘FAS 123’’). The financial statements for fiscal 2007 and 2008, include stock-
based compensation accounted for under FAS 123R. There were no material differences in valuation
methodologies or assumptions compared to those that were used in estimating the fair value of stock
options under the disclosure only provisions of FAS 123.
Income Taxes. We account for income taxes in accordance with SFAS No. 109 ‘‘Accounting for Income
Taxes’’ (‘‘FAS 109’’). The provision for income taxes is computed using the asset and liability method,
under which deferred income tax assets and liabilities are recognized for the expected future tax
consequences of temporary differences between the financial reporting and tax bases of assets and
liabilities and for operating loss and tax credit carry forwards in each jurisdiction in which we operate.
Deferred income tax assets and liabilities are measured using the currently enacted tax rates that apply to
taxable income in effect for the years in which those tax assets are expected to be realized or settled. We
record a valuation allowance to reduce deferred income tax assets to the amount that is believed ‘‘more
likely than not’’ to be realized.
65