THQ 2011 Annual Report Download - page 59

As of March 31, 2010 all identifiable intangible assets, other than licenses and software development, were fully amortized.
Stock-based compensation. We estimate the fair value of stock options and our employee stock purchase plan on date of grant
using the Black-Scholes option pricing model which requires the input of subjective assumptions, including the expected volatility
of our common stock and an option's expected life. The fair value of our restricted stock and restricted stock units is determined
based on the closing trading price of our common stock on the grant date. The amount of expense recognized represents the expense
associated with the stock-based awards we expect to ultimately vest based upon an estimated rate of forfeitures. Our estimate of
forfeitures is based on historical forfeiture behavior as well as any expected trends in future forfeiture behavior; 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 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. 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.
Capitalization of interest expense. We capitalize interest expense related to in-process software development costs. Capitalization
commences with the first capitalized expenditure for the software development project and continues until the project is completed.
We amortize capitalized interest to software development amortization as part of the software development costs; see "Note 12
— Convertible Senior Notes." We began capitalizing interest expense in the fourth quarter of fiscal 2011, see "Note 25 — Quarterly
Financial Data (Unaudited)" for a discussion of the impact of this change.
Income Taxes. The provision for income taxes is computed using the asset and liability method, under which deferred tax assets
and liabilities are recognized based on their expected future tax carrying value. Deferred tax assets and liabilities are measured
using the enacted tax rates expected to apply to taxable income in effect for the years in which those tax assets are anticipated to
be realized or settled. We record a valuation allowance to reduce deferred tax assets to the amount that is believed more likely
than not to be realized.
The calculation of tax liabilities involves judgment, assumptions and estimates in evaluating the application of authoritative
accounting guidance, enacted tax laws, our interpretation of tax laws and potential outcomes of audits conducted by tax authorities.
Material changes in tax laws, our interpretation of tax laws, or the resolution of tax audits, if and when conducted by tax authorities,
could significantly impact the amount of income tax expense in our consolidated financial statements.
Basic and Diluted Earnings Per Share. Basic loss per share is computed as net loss attributable to THQ Inc. divided by the
weighted-average number of shares outstanding for the period. Diluted loss per share reflects the potential dilution that could
occur from common shares issuable through stock-based compensation plans including stock options, stock-based awards, purchase
opportunities under our ESPP, and the conversion of our convertible senior notes. On August 4, 2009, we issued $100.0 million
5% convertible senior notes ("Notes"); see "Note 12 — Convertible Senior Notes." Under the provisions of the if-converted
method, the Notes are assumed to have been converted at the beginning of the respective period or at the time of issuance if later,
and are included in the denominator of the diluted calculation. The after-tax interest expense, amortization of previously capitalized
interest expense, and amortization of debt issuance costs in connection with the Notes are added back to the numerator of the
diluted calculation. However, the if-converted amounts are only included in the numerator and denominator of the diluted
calculation if the result of the if-converted calculation is dilutive.
Recently Issued Accounting Pronouncements. In October 2009, the FASB issued ASU 2009-13, "Revenue Recognition (Topic
605): Multiple-Deliverable Revenue Arrangements—a consensus of the FASB Emerging Issues Task Force" ("ASU 2009-13").
ASU 2009-13 provides criteria for separating consideration in non-software multiple-deliverable arrangements. It establishes a
selling price hierarchy for determining the price of a deliverable and expands the disclosures related to a vendor's multiple-
deliverable revenue arrangements. ASU 2009-13 is effective prospectively for arrangements entered into or materially modified
in years beginning after June 15, 2010, which is our fiscal 2012. Our adoption of ASU 2009-13 on April 3, 2011 did not materially
impact our results of operations, financial position or cash flows.
In October 2009, the FASB issued ASU 2009-14, “Software (Topic 985): Certain Revenue Arrangements That Include Software
Elements-a consensus of the FASB Emerging Issues Task Force” (“ASU 2009-14”). ASU 2009-14 amends the Accounting
Standards Codification ("ASC") to change the accounting model for revenue arrangements that include both tangible products
and software elements, such that tangible products containing both software and non-software components that function together
to deliver the tangible product's essential functionality are no longer within the scope of software revenue guidance. ASU 2009-14
is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June
15, 2010, which is our fiscal 2012. Our adoption of ASU 2009-14 on April 3, 2011 did not materially impact our results of
operations, financial position or cash flows.
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