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## Intangible Assets 

Intangible assets consist of identifiable intangibles and the remain- ing excess purchase price paid over identified intangible and tangible net assets of acquired companies (goodwill). Effective November 1, 2001, the Company adopted the provisions of Statement of Financial Accounting Standards No. 141, “Business Combinations” (“SFAS 141”) in its entirety and Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”). SFAS 141 requires all business combinations be accounted for using the purchase method of accounting and that certain intangible assets acquired in a business combination shall be recognized as assets apart from goodwill. SFAS 142 addresses the recognition and meas- urement of goodwill and other intangible assets subsequent to their acquisition. SFAS 142 provides that intangible assets with finite useful lives be amortized and that intangible assets with indefinite lives and goodwill not be amortized. The Company discontinued the amortiza- tion of goodwill as of November 1, 2001. Identifiable intangibles are amortized under the straight-line method over the period of expected benefit ranging from three to ten years, except for intellectual proper- ty, which is amortized based on the shorter of the useful life or expected revenue stream. Prior to November 1, 2001, intangible assets were amortized under the straight-line method over the period of expected benefit of seven years for the acquisition of development studios and ten years for the acquisition of distribution operations. Upon completion of the transitional impairment test, the fair value for each of our reporting units exceeded the reporting unit’s carrying amount and no impairment was indicated. 

SFAS 142 requires an annual test for impairment of goodwill, and between annual tests if events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. In assessing potential impairment of good- will, the Company determines the implied fair value of each reporting unit using discounted cash flow analysis and compares such values to the respective reporting unit’s carrying amount. The Company per- forms its annual test for indication of goodwill impairment in the fourth quarter of each fiscal year. At October 31, 2003 and 2002, the fair value of the Company’s reporting units exceeded the carrying amounts and no impairment was indicated. 

## Impairment of Long-Lived Assets 

The Company accounts for long-lived assets in accordance with the provisions of Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”), which was adopted in the first quarter of fiscal 2003 with no material effect on the Company’s financial condition and results of operations. SFAS 144 requires that long-lived assets be reviewed for impairment whenever events or changes in circum- stances indicate that the carrying amount of an asset may not be recoverable, including assets to be disposed of by sale, whether pre- viously held and used or newly acquired. The Company compares the carrying amount of the asset to the estimated undiscounted future cash flows expected to result from the use of the asset. If the carrying amount of the asset exceeds estimated expected undiscounted future cash flows, the Company records an impairment charge for the differ- 

ence between the carrying amount of the asset and its fair value. The estimation of fair value is generally measured by discounting expect- ed future cash flows at the Company’s incremental borrowing rate or fair value if available. 

## Stock-Based Compensation 

The Company accounts for its employee stock option plans in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”). Under APB 25, generally no compensation expense is recorded when the terms of the award are fixed and the exercise price of the employee stock option equals or exceeds the fair value of the underlying stock on the date of grant. The Company adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”). 

Had compensation cost for the Company’s stock option plans been determined based on the fair value at the grant date for awards consistent with the provisions of SFAS 123, the Company’s net income and the net income per share would have been reduced to the pro forma amounts indicated below. 

<img src='content_image/109667.jpg'>

The pro forma disclosures shown are not representative of the effects on net income and the net income per share in future periods. 

Pro forma net income (loss) and net income (loss) per share for the years ended October 31, 2002 and 2001 also differ from amounts previously reported as a result of adjustments made to correct com- putational errors. 

The fair value of the Company’s stock options used to compute pro forma net income and the net income per share disclosures is the estimated present value at the grant date using the Black-Scholes option-pricing model. The weighted average fair values of options granted were $15.05, $9.13 and $5.76 for the years ended October 31, 2003, 2002 and 2001, respectively. The following weighted aver- age assumptions for 2003 were used to value grants: expected volatility of 78%; a risk-free interest rate of 2.60%; and an expected 

