THQ 2009 Annual Report Download - page 71

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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, 2009, 2008 and 2007 was
$11.7 million, $7.8 million and $8.6 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
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, 2009, 2008 and 2007 were $77.6 million, $85.7 million and $61.2 million, respectively.
Stock-based compensation. We account for stock-based compensation under SFAS No. 123(R) ‘‘Share-
Based Payment’’ (‘‘FAS 123R’’). Under FAS 123R, we estimate the fair value of stock options on date of
grant 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.
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 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
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