THQ 2008 Annual Report Download - page 89

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For the fiscal years ended March 31, 2008, 2007 and 2006, stock-based compensation expense recognized
in the consolidated statements of operations was as follows (in thousands):
Year Ended March 31,
2008 2007 2006
Cost of sales—software amortization and royalties ..... $ 6,800 $ 2,087 $ —
Product development .......................... 4,773 3,364 926
Selling and marketing ......................... 2,654 2,817 981
General and administrative ..................... 8,444 10,704 1,515
Stock-based compensation expense before income
taxes .................................. 22,671 18,972 3,422
Income tax benefit ........................... (6,132) (5,060) (867)
Total stock-based compensation expense after income
taxes .................................. $16,539 $13,912 $2,555
Additionally, stock-based compensation expense is capitalized in accordance with FAS 86, as discussed in
‘‘Note 1—Description of Business and Summary of Significant Accounting Policies.’’ The following table
summarizes stock-based compensation expense included in our consolidated balance sheets as a
component of software development (in thousands):
Balance at April 1, 2006 ...................................... $ —
Stock-based compensation expense capitalized during the period ........ 5,924
Amortization of capitalized stock-based compensation expense .......... (2,087)
Balance at March 31, 2007 .................................... $3,837
Stock-based compensation expense capitalized during the period ........ 5,765
Amortization of capitalized stock-based compensation expense .......... (6,800)
Balance at March 31, 2008 .................................... $2,802
FAS 123R requires that stock-based compensation expense be based on awards that are ultimately
expected to vest and accordingly, stock-based compensation expense recognized in fiscal years ended
March 31, 2008 and 2007 has been reduced by estimated forfeitures. Our estimate of forfeitures is based
on historical forfeiture behavior as well as any expected trends in future forfeiture behavior.
The fair value of stock options granted during the years ended March 31, 2008 and 2007 were estimated on
the date of grant using the Black-Scholes option pricing model with the weighted-average assumptions
noted in the table below. Anticipated volatility is based on implied volatilities from traded options on our
stock and on our stock’s historical volatility. The expected term of our stock options granted is based on
historical exercise 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 behavior are considered
separately for valuation purposes. The risk-free rate for periods within the expected lives of options and
ESPP are based on the US Treasury yield in effect at the time of grant.
The fair value of our ESPP options for the six month offering periods that began on March 1, 2007,
September 4, 2007, and March 3, 2008 was estimated using the Black-Scholes option pricing model with
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