Blizzard 2005 Annual Report Download - page 63

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Material฀differences฀may฀result฀in฀the฀amount฀and฀timing฀of฀charges฀for฀any฀period฀if฀management฀makes฀different฀judgments฀or฀utilizes฀different฀estimates฀in฀evaluating฀
these฀qualitative฀factors.
Inventories
Inventories฀are฀valued฀at฀the฀lower฀of฀cost฀(first-in,฀first-out)฀or฀market.
Property and Equipment
Property฀and฀equipment฀are฀recorded฀at฀cost.฀Depreciation฀and฀amortization฀are฀provided฀using฀the฀straight-line฀method฀over฀the฀shorter฀of฀the฀estimated฀useful฀lives฀or฀the฀
lease฀term:฀buildings,฀25฀to฀33฀years;฀computer฀equipment,฀office฀furniture฀and฀other฀equipment,฀2฀to฀5฀years;฀leasehold฀improvements,฀through฀the฀life฀of฀the฀lease.฀When฀
assets฀are฀retired฀or฀disposed฀of,฀the฀cost฀and฀accumulated฀depreciation฀thereon฀are฀removed฀and฀any฀resultant฀gains฀or฀losses฀are฀recognized฀in฀current฀operations.
Goodwill
We฀account฀for฀goodwill฀using฀the฀provisions฀of฀SFAS฀No.฀142,฀“Goodwill฀and฀Other฀Intangibles.”฀SFAS฀No.฀142฀addresses฀financial฀accounting฀and฀reporting฀requirements฀
for฀acquired฀goodwill฀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,฀2005,฀2004฀and฀2003.
Revenue Recognition
We฀recognize฀revenue฀from฀the฀sale฀of฀our฀products฀upon฀the฀transfer฀of฀title฀and฀risk฀of฀loss฀to฀our฀customers.฀Certain฀products฀are฀sold฀to฀customers฀with฀a฀street฀date฀
(the฀date฀that฀products฀are฀made฀widely฀available฀for฀sale฀by฀retailers).฀For฀these฀products฀we฀recognize฀revenue฀no฀earlier฀than฀the฀street฀date.฀Revenue฀from฀product฀
sales฀is฀recognized฀after฀deducting฀the฀estimated฀allowance฀for฀returns฀and฀price฀protection.฀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฀product฀sales฀and฀licensing฀transactions,฀persuasive฀evidence฀of฀an฀arrangement฀must฀exist฀and฀
collection฀of฀the฀related฀receivable฀must฀be฀probable.฀Revenue฀recognition฀also฀determines฀the฀timing฀of฀certain฀expenses,฀including฀cost฀of฀sales—intellectual฀property฀
licenses฀and฀cost฀of฀sales—software฀royalties฀and฀amortization.
Sales฀incentives฀or฀other฀consideration฀given฀by฀us฀to฀our฀customers฀is฀accounted฀for฀in฀accordance฀with฀the฀Financial฀Accounting฀Standards฀Board’s฀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฀incentives฀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.
Allowance for Returns and Price Protection
In฀determining฀the฀appropriate฀unit฀shipments฀to฀our฀customers,฀we฀benchmark฀our฀titles฀using฀historical฀and฀industry฀data.฀We฀closely฀monitor฀and฀analyze฀the฀historical฀
performance฀ of฀ our฀ various฀ titles,฀ the฀ performance฀ of฀ products฀ released฀ by฀ other฀ publishers฀ and฀ the฀ anticipated฀ timing฀ of฀ other฀ releases฀ in฀ order฀ to฀ assess฀ future฀
demands฀of฀current฀and฀upcoming฀titles.฀Initial฀volumes฀shipped฀upon฀title฀launch฀and฀subsequent฀reorders฀are฀evaluated฀to฀ensure฀that฀quantities฀are฀sufficient฀to฀meet฀
the฀demands฀from฀the฀retail฀markets฀but฀at฀the฀same฀time,฀are฀controlled฀to฀prevent฀excess฀inventory฀in฀the฀channel.
We฀may฀permit฀product฀returns฀from,฀or฀grant฀price฀protection฀to,฀our฀customers฀under฀certain฀conditions.฀In฀general,฀price฀protection฀refers฀to฀the฀circumstances฀when฀we฀
elect฀to฀decrease฀the฀wholesale฀price฀of฀a฀product฀by฀a฀certain฀amount฀and,฀when฀granted฀and฀applicable,฀allows฀customers฀a฀credit฀against฀amounts฀owed฀by฀such฀customers฀
to฀Activision฀with฀ respect฀ to฀open฀and/or฀future฀invoices.฀The฀conditions฀our฀ customers฀must฀meet฀to฀be฀granted฀the฀right฀ to฀return฀products฀or฀price฀ protection฀ are,฀
page 62
Activision, Inc. — 2005 Annual Report
Notes to Consolidated Financial Statements