Blizzard 2003 Annual Report Download - page 35

page 34
Notes to Consolidated Financial Statements
Goodwill. Effective April 1, 2001, we adopted the provisions of SFAS No. 142, “Goodwill and Other
Intangibles.” SFAS No. 142 addresses financial accounting and reporting requirements for acquired good-
will and other intangible assets. Under SFAS No. 142, goodwill is deemed to have an indefinite useful life
and should not be amortized but rather tested at least annually for impairment. An impairment loss
should be recognized if the carrying amount of goodwill is not recoverable and its carrying amount
exceeds its fair value. In accordance with SFAS No. 142, we have not amortized goodwill during the years
ended March 31, 2003 and 2002.
Revenue Recognition. We recognize revenue from the sale of our products upon the transfer of title and
risk of loss to our customers. We may permit product returns from, or grant price protection to, our cus-
tomers on unsold merchandise under certain conditions. Price protection, when granted and applicable,
allows customers a credit against amounts they owe us with respect to merchandise unsold by them. With
respect to license agreements that provide customers the right to make multiple copies in exchange for
guaranteed amounts, revenue is recognized upon delivery of such copies. Per copy royalties on sales that
exceed the guarantee are recognized as earned. In addition, in order to recognize revenue for both prod-
uct sales and licensing transactions, persuasive evidence of an arrangement must exist and collection of
the related receivable must be probable.
Revenue from product sales is reflected after deducting the estimated allowance for returns and price
protection. Management must make estimates of potential future product returns and price protection
related to current period product revenue. We estimate the amount of future returns and price protection
based upon historical experience, customer inventory levels and changes in the demand and acceptance
of our products by the end consumer.
Sales incentives or other consideration given by us to our customers is accounted for in accordance with
Emerging Issues Task Force (“EITF”) Issue 01-9, “Accounting for Consideration Given by a Vendor to a
Customer (Including a Reseller of the Vendor’s Products).” In accordance with EITF Issue 01-9, sales incen-
tives and other consideration that are considered adjustments of the selling price of our products, such as
rebates and product placement fees, are reflected as reductions of revenue. Sales incentives and other
consideration that represent costs incurred by us for assets or services received, such as the appearance
of our products in a customer’s national circular ad, are reflected as sales and marketing expenses.
Shipping and Handling. Shipping and handling costs, which consist primarily of packaging and transporta-
tion 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 year ended March 31, 2003, 2002 and 2001 were approximately $60.0 million,
$50.3 million and $47.7 million, respectively, and are included in sales and marketing expense in the con-
solidated statements of operations.
Investment Income, Net. Investment income, net is comprised of the following, (amounts in thousands):
Year ended March 31, 2003 2002 2001
Interest expense $ (933) $(1,188) $(9,399)
Interest income 9,259 3,734 2,136
Net realized gain on short-term investments 234 — —
Investment income, net $8,560 $ 2,546 $(7,263)