2K Sports 2009 Annual Report Download - page 84

generally recognized when the download is made available (assuming all other recognition criteria are
met).
Certain of our software products include in-game advertising for third party products. Advance payments
received for in-game advertising are reported on our consolidated balance sheet as deferred revenue until
we meet our performance obligations, at which point we recognize the revenue, which is generally at the
time of the initial release of the product.
Revenue is recognized after deducting estimated reserves for returns, price concessions and other
allowances. In circumstances when we do not have a reliable basis to estimate returns and price
concessions or are unable to determine that collection of a receivable is probable, we defer the revenue
until such time as we can reliably estimate any related returns and allowances and determine that
collection of the receivable is probable.
Allowances for Returns, Price Concessions and Other Allowances
We accept returns and grant price concessions in connection with our publishing arrangements. Following
reductions in the price of our products, we grant price concessions to permit customers to take credits
against amounts they owe us with respect to merchandise unsold by them. Our 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.
Our distribution arrangements with customers do not give them the right to return titles or to cancel firm
orders. However, we sometimes accept returns from our distribution customers for stock balancing and
make accommodations to customers, which include credits and returns, when demand for specific titles
falls below expectations.
We make estimates of future product returns and price concessions related to current period product
revenue. We estimate the amount of future returns and price concessions for published titles based upon,
among other factors, historical experience and performance of the titles in similar genres, historical
performance of the hardware platform, customer inventory levels, analysis of sell-through rates, sales force
and retail customer feedback, industry pricing, market conditions and changes in demand and acceptance
of our 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. We believe we 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
We have various marketing arrangements with retailers and distributors of our products that provide for
cooperative advertising and market development funds, among others, which are generally based on single
exchange transactions. Such amounts are accrued as a reduction to revenue at the later of: (1) The date at
which the related revenue is recognized by us, or (2) the date at which the sales incentive is offered, except
for cooperative advertising which is included in selling and marketing expense if there is a separate
identifiable benefit and the benefit’s fair value can be established.
We receive various incentives from our manufacturers, including up-front cash payments as well as rebates
based on a cumulative level of purchases. Such amounts are generally accounted for as a reduction in the
price of the manufacturer’s product and included as a reduction of inventory or cost of goods sold, based
on (1) a ratio of current period revenue to the total revenue expected to be recorded over the remaining
life of the product or (2) an agreed upon per unit rebate, based on actual units manufactured during the
period.
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