Blizzard 2005 Annual Report Download - page 51

SFAS฀No.฀123R฀permits฀public฀companies฀to฀adopt฀its฀requirements฀using฀one฀of฀two฀methods:
•฀ ฀A฀“modified฀prospective”฀method฀in฀which฀compensation฀cost฀is฀recognized฀beginning฀with฀the฀effective฀date฀(a)฀based฀on฀the฀requirements฀of฀SFAS฀No.฀123R฀for฀
all฀share-based฀payments฀granted฀after฀the฀effective฀date฀and฀(b)฀based฀on฀the฀requirements฀of฀SFAS฀123฀for฀all฀awards฀granted฀to฀employees฀prior฀to฀the฀effective฀
date฀of฀SFAS฀No.฀123R฀that฀remain฀unvested฀on฀the฀effective฀date.
•฀ ฀A฀“modified฀retrospective”฀method฀which฀includes฀the฀requirements฀of฀the฀modified฀prospective฀method฀described฀above,฀but฀also฀permits฀entities฀to฀restate฀based฀
on฀the฀amounts฀previously฀recognized฀under฀SFAS฀123฀for฀purposes฀of฀pro฀forma฀disclosures฀either฀(a)฀all฀prior฀periods฀presented฀or฀(b)฀prior฀interim฀periods฀of฀the฀
year฀of฀adoption.
The฀Company฀has฀not฀yet฀determined฀which฀method฀it฀will฀use.
As฀permitted฀by฀SFAS฀123,฀the฀Company฀currently฀accounts฀for฀share-based฀payments฀to฀employees฀using฀Opinion฀25’s฀intrinsic฀value฀method฀and,฀as฀such,฀generally฀
recognizes฀ no฀ compensation฀ cost฀ for฀ employee฀ stock฀ options.฀ Accordingly,฀ the฀ adoption฀ of฀ SFAS฀ No.฀ 123R’s฀ fair฀ value฀ method฀ will฀ have฀ a฀ significant฀ impact฀ on฀ the฀
Company’s฀results฀of฀operations,฀although฀it฀will฀have฀no฀impact฀on฀its฀overall฀financial฀position.฀The฀impact฀of฀adoption฀of฀SFAS฀No.฀123R฀cannot฀be฀predicted฀at฀this฀
time฀because฀it฀will฀depend฀on฀levels฀of฀share-based฀payments฀granted฀in฀the฀future.
On฀November฀24,฀2004,฀the฀FASB฀issued฀Statement฀No.฀151,฀“Inventory฀Costs,฀an฀Amendment฀of฀ARB฀No.฀43,฀Chapter฀4”฀(“SFAS฀No.฀151”).฀The฀standard฀requires฀that฀
abnormal฀amounts฀of฀idle฀capacity฀and฀spoilage฀costs฀within฀inventory฀should฀be฀excluded฀from฀the฀cost฀of฀inventory฀and฀expensed฀when฀incurred.฀The฀provisions฀of฀
SFAS฀No.฀151฀are฀applicable฀to฀inventory฀costs฀incurred฀during฀fiscal฀years฀beginning฀after฀June฀15,฀2005.฀The฀Company฀expects฀the฀adoption฀of฀SFAS฀No.฀151฀will฀not฀
have฀a฀material฀impact฀on฀our฀financial฀position฀or฀results฀of฀operations.
On฀December฀ 15,฀2004,฀the฀FASB฀ issued฀Statement฀No.฀153฀(“SFAS฀No.฀153”),฀“Exchanges฀of฀Nonmonetary฀Assets—an฀Amendment฀ of฀Accounting฀Principles฀Board฀
Opinion฀ No.฀29.”฀This฀ standard฀ requires฀exchanges฀ of฀ productive฀assets฀ to฀ be฀accounted฀for฀ at฀ fair฀ value,฀rather฀than฀ at฀ carryover฀basis,฀ unless฀(1)฀neither฀ the฀ asset฀
received฀nor฀the฀asset฀surrendered฀has฀a฀fair฀value฀that฀is฀determinable฀within฀reasonable฀limits฀or฀(2)฀the฀transactions฀lack฀commercial฀substance.฀The฀new฀standard฀is฀
effective฀for฀nonmonetary฀asset฀exchanges฀occurring฀in฀fiscal฀periods฀beginning฀after฀June฀15,฀2005.฀The฀Company฀expects฀the฀adoption฀of฀SFAS฀No.฀153฀will฀not฀have฀
a฀material฀impact฀on฀our฀financial฀position฀or฀results฀of฀operations.
On฀October฀22,฀2004,฀the฀President฀of฀the฀United฀States฀signed฀the฀American฀Jobs฀Creation฀Act฀of฀2004฀(the฀“Act”).฀The฀Act฀raises฀a฀number฀of฀issues฀with฀respect฀to฀
accounting฀for฀income฀taxes.฀For฀companies฀that฀pay฀U.S.฀income฀taxes฀on฀manufacturing฀activities฀in฀the฀U.S.,฀the฀Act฀provides฀a฀deduction฀from฀taxable฀income฀equal฀
to฀a฀stipulated฀percentage฀of฀qualified฀income฀from฀domestic฀production฀activities.฀The฀manufacturing฀deduction฀provided฀by฀the฀Act฀replaces฀the฀extraterritorial฀income฀
(“ETI”)฀deduction฀currently฀in฀place.฀We฀currently฀derive฀benefits฀from฀the฀ETI฀exclusion฀which฀was฀repealed฀by฀the฀Act.฀Our฀exclusion฀for฀fiscal฀2005,฀2006,฀and฀2007฀will฀be฀
limited฀to฀95%,฀75%,฀and฀45%,฀respectively,฀of฀the฀otherwise฀allowable฀exclusion฀and฀no฀exclusion฀will฀be฀available฀in฀fiscal฀2008฀and฀thereafter.฀The฀Act฀also฀creates฀a฀
temporary฀incentive฀for฀U.S.฀multinationals฀to฀repatriate฀accumulated฀income฀earned฀abroad฀by฀providing฀an฀85฀percent฀dividends฀received฀deduction฀for฀certain฀dividends฀
from฀controlled฀foreign฀corporations.฀The฀deduction฀is฀subject฀to฀a฀number฀of฀limitations.฀The฀Act฀also฀provides฀for฀other฀changes฀in฀tax฀law฀that฀will฀affect฀a฀variety฀of฀
taxpayers.฀On฀December฀21,฀2004,฀the฀Financial฀Accounting฀Standards฀Board฀(“FASB”)฀issued฀two฀FASB฀Staff฀Positions฀(“FSP”)฀regarding฀the฀accounting฀implications฀
of฀the฀Act฀related฀to฀(1)฀the฀deduction฀for฀ qualified฀domestic฀production฀activities฀and฀(2)฀ the฀one-time฀tax฀benefit฀for฀the฀repatriation฀of฀foreign฀earnings.฀The฀FASB฀
determined฀that฀the฀deduction฀for฀qualified฀domestic฀production฀activities฀should฀be฀accounted฀for฀as฀a฀special฀deduction฀under฀FASB฀Statement฀No.฀109,฀“Accounting฀
for฀Income฀Taxes.”฀The฀FASB฀also฀confirmed,฀that฀upon฀deciding฀that฀some฀amount฀of฀earnings฀will฀be฀repatriated,฀a฀company฀must฀record฀in฀that฀period฀the฀associated฀
tax฀liability.฀The฀guidance฀in฀the฀FSPs฀applies฀to฀financial฀statements฀for฀periods฀ending฀after฀the฀date฀the฀Act฀was฀enacted.฀We฀are฀evaluating฀the฀Act฀at฀this฀time฀and฀
have฀not฀yet฀determined฀whether฀we฀will฀avail฀ourselves฀of฀the฀opportunity฀of฀the฀one-time฀tax฀benefit฀for฀the฀repatriation฀of฀foreign฀earnings.฀We฀plan฀to฀complete฀our฀
assessment฀before฀the฀end฀of฀fiscal฀2006฀and฀are฀not฀currently฀in฀a฀position฀to฀estimate฀a฀range฀of฀possible฀repatriation฀amounts.
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Activision, Inc. — 2005 Annual Report