Blizzard 2010 Annual Report Download - page 55

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a new, lower cost basis for that inventory is established, and subsequent changes in facts and circumstances do not result in
the restoration or increase in that newly established basis.
Shipping and Handling
Shipping and handling costs, which consist primarily of packaging and transportation charges incurred to move
finished goods to customers, are included in “cost of sales—product costs.”
Advertising Expenses
We expense advertising as incurred, except for production costs associated with media advertising which are
deferred and charged to expense the first time the related ad is run. Advertising expenses for the years ended December 31,
2010, 2009, and 2008 were $332 million, $366 million, and $241 million, respectively, and are included in sales and
marketing expense in the consolidated statements of operations.
Income Taxes
We account for income taxes using ASC Topic 740, Income Taxes. Under ASC Topic 740, income taxes are
accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities
and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
ASC Topic 740 includes accounting guidance which clarifies the accounting for the uncertainty in recognizing
income taxes in an organization by providing detailed guidance for financial statement recognition, measurement and
disclosure involving uncertain tax positions. This guidance requires an uncertain tax position to meet a more-likely-than-not
recognition threshold at the effective date to be recognized both upon the adoption of the related guidance and in subsequent
periods.
Foreign Currency Translation
All assets and liabilities of our foreign subsidiaries are translated into U.S. dollars at the exchange rate in effect at
the balance sheet date, and revenue and expenses are translated at average exchange rates during the period. The resulting
translation adjustments are reflected as a component of accumulated other comprehensive income (loss) in shareholders’
equity.
Earnings (Loss) Per Common Share
Basic earnings (loss) per common share is computed by dividing income (loss) available to common shareholders by
the weighted average number of common shares outstanding for the periods presented. Diluted earnings per share is
computed by dividing income (loss) available to common shareholders by the weighted average number of common shares
outstanding, increased by the weighted average number of common stock equivalents. Common stock equivalents are
calculated using the treasury stock method and represent incremental shares issuable upon exercise of our outstanding
options. However, potential common shares are not included in the denominator of the diluted earnings (loss) per share
calculation when inclusion of such shares would be anti-dilutive, such as in a period in which a net loss is recorded.
On January 1, 2009, we adopted the new accounting guidance for determining whether instruments granted in
stock-based payment transactions are participating securities, and as a result, unvested stock-based awards which include the
right to receive non-forfeitable dividends or dividend equivalents are considered to participate with common stock in
undistributed earnings. Companies that issue stock-based awards considered to be participating securities are required to
calculate basic and diluted earnings per common share amounts under the two-class method. The two-class method excludes
from earnings per common share calculations any dividends paid or owed to participating securities and any undistributed
earnings considered to be attributable to participating securities. The accounting guidance requires retrospective application
to all prior-period earnings per share data presented. The adoption of the accounting guidance did not change our basic or
diluted loss per common share for the year ended December 31, 2008.