THQ 2009 Annual Report Download - page 37

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We performed the first step of the two-step impairment test required by FAS 142, which includes
comparing the fair value of our single reporting unit to its carrying value. Due to market conditions at the
time of the impairment test, our analysis was weighted towards the market value approach, which is based
on recent share prices, and includes a control premium based on recent transactions that have occurred
within our industry, to determine the fair value of our single reporting unit. We concluded that the fair
value of our single reporting unit was less than the carrying value of our net assets and thus performed the
second step of the impairment test. Our step two analysis involved preparing an allocation of the estimated
fair value of our reporting unit to the tangible and intangible assets (other than goodwill) as if the
reporting unit had been acquired in a business combination. Based on our analysis, we recorded goodwill
impairment charges of $118.8 million for the year ended March 31, 2009, representing the entire amount
of our previously recorded goodwill.
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
that support an online service we provide to consumers for activities such as matchmaking, roster updates,
tournaments and player rankings. Generally, we do not consider the online service to be a deliverable as it
is incidental to the overall product offering. Accordingly, we do not defer any revenue related to products
containing the limited online service.
In instances where the online service is considered a deliverable and where we have significant continuing
involvement 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 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.
Determining whether the online service for a particular game constitutes a deliverable is subjective and
requires management’s judgment. Determining the estimated service period over which to recognize the
related revenue and costs of sales is also subjective and involves management’s judgment.
When we determine the online service from packaged software products bundled with other online
services is considered to be more-than-inconsequential to the software product, such amounts are
recognized ratably over the estimated service period of six months beginning the month after initial sale.
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