Blizzard 2005 Annual Report Download - page 65

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Foreign Currency Translation
The฀functional฀currencies฀of฀our฀foreign฀subsidiaries฀are฀their฀local฀currencies.฀All฀assets฀and฀liabilities฀of฀our฀foreign฀subsidiaries฀are฀translated฀into฀U.S.฀dollars฀at฀the฀
exchange฀rate฀in฀effect฀at฀the฀end฀of฀the฀period,฀and฀revenue฀and฀expenses฀are฀translated฀at฀weighted฀average฀exchange฀rates฀during฀the฀period.฀The฀resulting฀translation฀
adjustments฀are฀reflected฀as฀a฀component฀of฀accumulated฀other฀comprehensive฀income฀(loss)฀in฀shareholders’฀equity.
Comprehensive Income
Comprehensive฀income฀includes฀net฀income,฀unrealized฀appreciation฀(depreciation)฀on฀short-term฀investments,฀foreign฀currency฀translation฀adjustments,฀and฀the฀effective฀
portion฀of฀gains฀or฀losses฀on฀cash฀flow฀hedges฀that฀are฀presented฀as฀a฀component฀of฀accumulated฀other฀comprehensive฀income฀(loss)฀in฀shareholders’฀equity.
Estimates
The฀ preparation฀ of฀financial฀statements฀in฀ conformity฀ with฀accounting฀principles฀ generally฀accepted฀in฀ the฀ United฀States฀of฀ America฀ requires฀management฀ to฀make฀
estimates฀and฀assumptions฀that฀affect฀the฀reported฀amounts฀of฀assets฀and฀liabilities฀or฀the฀disclosure฀of฀gain฀or฀loss฀contingencies฀at฀the฀date฀of฀the฀financial฀statements฀
and฀the฀reported฀amounts฀of฀revenues฀and฀expenses฀during฀the฀reporting฀period.฀Actual฀results฀could฀differ฀from฀those฀estimates.
Earnings Per Common Share
Basic฀ earnings฀per฀share฀ is฀computed฀ by฀ dividing฀income฀available฀ to฀common฀ shareholders฀by฀ the฀weighted฀ average฀number฀of฀common฀ shares฀outstanding฀for฀ all฀
periods.฀Diluted฀earnings฀per฀share฀is฀computed฀by฀dividing฀income฀available฀to฀common฀shareholders฀by฀the฀weighted฀average฀number฀of฀common฀shares฀outstanding,฀
increased฀by฀common฀stock฀equivalents.฀Common฀stock฀equivalents฀are฀calculated฀using฀the฀treasury฀stock฀method฀and฀represent฀incremental฀shares฀issuable฀upon฀
exercise฀of฀our฀outstanding฀options฀and฀warrants฀and,฀if฀applicable฀in฀the฀period,฀conversion฀of฀our฀convertible฀debt.฀However,฀potential฀common฀shares฀are฀not฀included฀
in฀the฀denominator฀of฀the฀diluted฀earnings฀per฀share฀calculation฀when฀inclusion฀of฀such฀shares฀would฀be฀anti-dilutive,฀such฀as฀in฀a฀period฀in฀which฀a฀net฀loss฀is฀recorded.
Stock-Based Compensation and Pro Forma Information
Under฀SFAS฀No.฀123,฀“Accounting฀for฀Stock-Based฀Compensation,”฀compensation฀expense฀is฀recorded฀for฀the฀issuance฀of฀stock฀options฀and฀other฀stock-based฀compensation฀
based฀on฀the฀fair฀value฀of฀the฀stock฀options฀and฀other฀stock-based฀compensation฀on฀the฀date฀of฀grant฀or฀measurement฀date.฀Alternatively,฀SFAS฀No.฀123฀allows฀companies฀
to฀continue฀to฀account฀for฀the฀issuance฀of฀stock฀options฀and฀other฀stock-based฀compensation฀in฀accordance฀with฀Accounting฀Principles฀Board฀(“APB”)฀Opinion฀No.฀25,฀
“Accounting฀for฀Stock฀Issued฀to฀Employees.”฀Under฀APB฀No.฀25,฀compensation฀expense฀is฀recorded฀for฀the฀issuance฀of฀stock฀options฀and฀other฀stock-based฀compensation฀
based฀on฀ the฀intrinsic฀value฀of฀the฀stock฀options฀and฀other฀stock-based฀compensation฀on฀the฀date฀ of฀ grant฀ or฀measurement฀date.฀Under฀the฀intrinsic฀ value฀method,฀
compensation฀expense฀is฀recorded฀on฀the฀date฀of฀grant฀or฀measurement฀date฀only฀if฀the฀current฀market฀price฀of฀the฀underlying฀stock฀exceeds฀the฀stock฀option฀or฀other฀
stock-based฀compensation฀exercise฀price.฀At฀March฀31,฀2005,฀we฀had฀several฀stock-based฀employee฀compensation฀plans,฀which฀are฀described฀more฀fully฀in฀Note฀14.฀We฀฀
page 64
Activision, Inc. — 2005 Annual Report
Notes to Consolidated Financial Statements