2K Sports 2004 Annual Report Download - page 52

determine that collection of a receivable is probable, it defers the sale until such time as it can reliably
estimate any related returns and allowances and determine that collection of the receivable is probable.
The Company accepts returns and grants price concessions in connection with its publishing arrangements.
Following reductions in the price of the Company’s products, it grants price concessions to permit customers
to take credits against amounts they owe the Company with respect to merchandise unsold by them. The
Company’s customers must satisfy certain conditions to entitle them to return products or receive price
concessions, including compliance with applicable payment terms and confirmation of field inventory levels.
The Company’s distribution arrangements with customers do not give them the right to return titles or to
cancel firm orders. However, the Company sometimes accepts returns from its distribution customers for stock
balancing and makes accommodations to customers, which includes credits and returns, when demand for
specific titles falls below expectations.
The Company makes estimates of future product returns and price concessions related to current period
product revenue. The Company estimates the amount of future returns and price concessions for published
titles based upon, among other factors, historical experience, customer inventory levels, analysis of sell-
through rates, market conditions and changes in demand and acceptance of its products by consumers.
Significant management judgments and estimates must be made and used in connection with establishing the
allowance for returns and price concessions in any accounting period. The Company believes it can make
reliable estimates of returns and price concessions. However, actual results may differ from initial estimates
as a result of changes in circumstances, market conditions and assumptions. Adjustments to estimates are
recorded in the period in which they become known.
Consideration Given to Customers and Received from Vendors
The Company has various marketing arrangements with retailers and distributors of its products that provide
for cooperative advertising and market develop funds, among others. Such amounts are accrued as a reduction
to revenue when revenue is recognized, except for cooperative advertising which is included in selling and
marketing expenses if there is a separate identifiable benefit and the benefit’s fair value can be established.
The Company also receives various incentives from its manufacturers. Such amounts are generally accounted
for as a reduction in the price of the manufacturers product and included as a reduction of inventory or cost of
sales, except where the incentive is in exchange for services rendered by the Company. Incentives in exchange
for services are included in revenue providing there is an identifiable benefit to the vendor and the benefit’s
value can be established.
Advertising
The Company expenses advertising costs as incurred. Advertising expense for the years ended October 31,
2004, 2003, and 2002 amounted to $72,165, $55,795 and $39,909, respectively.
Stock-Based Compensation
The Company accounts for its employee stock option plans in accordance with Accounting Principles
Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”). Under APB 25, generally
no compensation expense is recorded when the terms of the award are fixed and the exercise price of the
employee stock option equals or exceeds the fair value of the underlying stock on the date of grant. The
Company adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123,
“Accounting for Stock-Based Compensation”(“SFAS 123”).
TAKE-TWO INTERACTIVE SOFTWARE, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(Dollars in thousands, except per share amounts)
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
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