Blizzard 2005 Annual Report Download - page 64

Download and view the complete annual report

Please find page 64 of the 2005 Blizzard annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 92

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92

among฀other฀things,฀compliance฀with฀applicable฀payment฀terms,฀delivery฀to฀us฀of฀weekly฀inventory฀and฀sell-through฀reports,฀and฀consistent฀participation฀in฀the฀launches฀
of฀our฀premium฀title฀releases.฀We฀may฀also฀consider฀other฀factors,฀including฀the฀facilitation฀of฀slow-moving฀inventory฀and฀other฀market฀factors.฀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฀
for฀current฀period฀product฀revenue฀utilizing฀historical฀experience฀and฀information฀regarding฀inventory฀levels฀and฀the฀demand฀and฀acceptance฀of฀our฀products฀by฀the฀end฀
consumer.฀The฀ following฀factors฀ are฀used฀ to฀ estimate฀the฀ amount฀ of฀ future฀returns฀ and฀ price฀protection฀ for฀a฀particular฀title:฀ historical฀performance฀of฀titles฀in฀similar฀
genres,฀historical฀performance฀of฀the฀hardware฀platform,฀historical฀performance฀of฀the฀brand,฀console฀hardware฀life฀cycle,฀Activision฀sales฀force฀and฀retail฀customer฀feedback,฀
industry฀ pricing,฀ weeks฀ of฀ on-hand฀ retail฀ channel฀inventory,฀ absolute฀quantity฀of฀on-hand฀retail฀channel฀ inventory,฀Activision฀ warehouse฀ on-hand฀ inventory฀levels,฀the฀
title’s฀recent฀sell-through฀history฀(if฀available),฀marketing฀trade฀programs฀and฀competing฀titles.฀The฀relative฀importance฀of฀these฀factors฀varies฀among฀titles฀depending฀
upon,฀among฀other฀items,฀genre,฀platform,฀seasonality฀and฀sales฀strategy.฀Significant฀management฀judgments฀and฀estimates฀must฀be฀made฀and฀used฀in฀connection฀with฀
establishing฀the฀allowance฀for฀returns฀and฀price฀protection฀in฀any฀accounting฀period.฀Based฀upon฀historical฀experience฀we฀believe฀our฀estimates฀are฀reasonable.฀However,฀
actual฀returns฀and฀price฀protection฀could฀vary฀materially฀from฀our฀allowance฀estimates฀due฀to฀a฀number฀of฀reasons฀including,฀among฀others,฀a฀lack฀of฀consumer฀acceptance฀
of฀a฀title,฀the฀release฀in฀ the฀same฀period฀of฀a฀similarly฀themed฀title฀by฀a฀competitor,฀or฀technological฀obsolescence฀due฀to฀the฀emergence฀of฀new฀hardware฀platforms.฀
Material฀differences฀may฀result฀in฀the฀amount฀and฀timing฀of฀our฀revenue฀for฀any฀period฀if฀management฀makes฀different฀judgments฀or฀utilizes฀different฀estimates฀in฀determining฀
the฀allowances฀for฀returns฀and฀price฀protection.
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฀March฀31,฀2005,฀2004฀and฀2003฀were฀approximately฀$150.7฀million,฀$76.6฀million฀and฀$60.0฀million,฀respectively,฀and฀
are฀included฀in฀sales฀and฀marketing฀expense฀in฀the฀consolidated฀statements฀of฀operations.
Investment Income, Net
Investment฀income,฀net฀is฀comprised฀of฀the฀following,฀(amounts฀in฀thousands):
Year ended March 31, 2005 2004 2003
Interest฀income $ 12,898 $ 6,502 $ 9,259
Interest฀expense (277) (348) (933)
Net฀realized฀gain฀on฀short-term฀investments 471 21 234
Investment฀income,฀net $ 13,092 $ 6,175 $ 8,560
Income Taxes
We฀account฀for฀income฀taxes฀using฀SFAS฀No.฀109,฀“Accounting฀for฀Income฀Taxes.”฀Under฀SFAS฀No.฀109,฀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.
page 63
Activision, Inc. — 2005 Annual Report