THQ 2012 Annual Report Download - page 72

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Beginning in March 2007, we offered our non-executive employees the ability to participate in an employee stock purchase
plan, as amended and restated ("ESPP"). Under the ESPP, up to 1,500,000 shares of our common stock may be purchased by
eligible employees during six-month offering periods that commence each March 1 and September 1, or the first business day
thereafter (each, an "Offering Period"). The first business day of each Offering Period is referred to as the "Offering Date."
The last business day of each Offering Period is referred to as the "Purchase Date." Pursuant to our ESPP, eligible employees
may authorize payroll deductions of up to 15 percent of their base salary, subject to certain limitations, to purchase shares of
our common stock at 85 percent of the lower of the fair market value of our common stock on the Offering Date or Purchase
Date. The fair value of the ESPP options granted is amortized over the offering period. On July 28, 2011, our stockholders
approved an amendment to the ESPP to increase by 1,000,000 shares, the number of shares of common stock reserved for
issuance and an Offering Period commenced on September 1, 2011. Due to decreasing participation in our ESPP, we
suspended the Offering Period that would have started on March 1, 2012.
Stock-based compensation includes all awards and purchase opportunities: stock options, PARS, PARSUs, DSUs, PSUs, RSUs
and ESPP options. Nonvested shares and vested shares refer to our PARS, PARSU, DSU, PSU, and RSU awards.
For fiscal 2012, fiscal 2011 and fiscal 2010, stock-based compensation expense recognized in our consolidated statements of
operations was as follows (amounts in thousands):
Fiscal Year Ended March 31,
2012 2011 2010
Cost of sales
—
Software amortization and ro
y
alties $ 1,408 $ 2,761 $ 3,408
Product develo
p
ment 932 1,234 2,606
Sellin
g
and marketin
g
688 1,246 1,181
General and administrative 2,734 3,874 4,688
Stoc
k
-
b
ased com
p
ensation ex
p
ense before income taxes 5,762 9,115 11,883
Income tax benefit
(1)
(
1,951
)
(
2,755
)
(
3,352
)
Total stoc
k
-
b
ased com
p
ensation ex
p
ense after income taxes $ 3,811 $ 6,360 $ 8,531
______________________________
(1) Income tax benefit presented for fiscal 2012, fiscal 2011, and 2010, is presented prior to consideration of our deferred tax asset valuation allowance; see
"Note 16 — Income Taxes" for further information.
As discussed in "Note 2 — Summary of Significant Accounting Policies," we capitalize relevant amounts of stock-based
compensation expense. The following table summarizes stock-based compensation expense included in our consolidated
balance sheets as a component of software development (amounts in thousands):
Balance at March 31, 2010 $ 1,602
Stoc
k
-
b
ased com
p
ensation ex
p
ense ca
p
italized durin
g
the
p
erio
d
2,259
Amortization of ca
p
italized stoc
k
-
b
ased com
p
ensation ex
p
ense
(
2,761
)
Balance at March 31, 2011 1,100
Stoc
k
-
b
ased com
p
ensation ex
p
ense ca
p
italized durin
g
the
p
erio
d
665
Amortization of ca
p
italized stoc
k
-
b
ased com
p
ensation ex
p
ense
(
1,408
)
Balance at March 31, 2012 $ 357
Stock-based compensation expense is based on awards that are ultimately expected to vest and accordingly, stock-based
compensation expense recognized in fiscal 2012, 2011 and 2010 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 and ESPP options granted is estimated on the date of grant using the Black-Scholes option
pricing model. 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 and the expected term for our ESPP options is the six-
month offering period. 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 stock options and ESPP options are based on
the U.S. Treasury yield in effect at the time of grant.