Blizzard 2005 Annual Report Download - page 26

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factors฀such฀as฀the฀success฀of฀other฀products฀and/or฀entertainment฀vehicles฀utilizing฀the฀intellectual฀property,฀whether฀there฀are฀any฀future฀planned฀theatrical฀releases฀or฀
television฀series฀based฀on฀the฀intellectual฀property฀and฀the฀rights฀holder’s฀continued฀promotion฀and฀exploitation฀of฀the฀intellectual฀property.฀Prior฀to฀the฀related฀product’s฀
release,฀we฀expense,฀as฀part฀of฀cost฀of฀sales—intellectual฀property฀licenses,฀capitalized฀intellectual฀property฀costs฀when฀we฀believe฀such฀amounts฀are฀not฀recoverable.฀
Capitalized฀intellectual฀property฀costs฀for฀those฀products฀that฀are฀cancelled฀or฀abandoned฀are฀charged฀to฀product฀development฀expense฀in฀the฀period฀of฀cancellation.฀
Criteria฀used฀to฀evaluate฀expected฀product฀performance฀include:฀historical฀performance฀of฀comparable฀products฀using฀comparable฀technology;฀orders฀for฀the฀product฀
prior฀to฀its฀release;฀and฀estimated฀performance฀of฀a฀sequel฀product฀based฀on฀the฀performance฀of฀the฀product฀on฀which฀the฀sequel฀is฀based.
Commencing฀upon฀the฀related฀product’s฀release,฀capitalized฀intellectual฀property฀license฀costs฀are฀amortized฀to฀cost฀of฀sales—intellectual฀property฀licenses฀based฀on฀
the฀ratio฀of฀current฀revenues฀for฀the฀specific฀product฀to฀total฀projected฀revenues฀for฀all฀products฀in฀which฀the฀licensed฀property฀will฀be฀utilized.฀As฀intellectual฀property฀
license฀contracts฀may฀extend฀for฀multiple฀years,฀the฀amortization฀of฀capitalized฀intellectual฀property฀license฀costs฀relating฀to฀such฀contracts฀may฀extend฀beyond฀one฀year.฀
For฀intellectual฀property฀included฀in฀products฀that฀have฀been฀released฀and฀unreleased฀products,฀we฀evaluate฀the฀future฀recoverability฀of฀capitalized฀amounts฀on฀a฀quarterly฀
basis.฀The฀primary฀evaluation฀criterion฀is฀actual฀title฀performance.
Significant฀management฀judgments฀and฀estimates฀are฀utilized฀in฀the฀assessment฀of฀the฀recoverability฀of฀capitalized฀costs.฀In฀evaluating฀the฀recoverability฀of฀capitalized฀
costs,฀ the฀assessment฀ of฀expected฀ product฀ performance฀ utilizes฀ forecasted฀ sales฀ amounts฀ and฀ estimates฀ of฀ additional฀ costs฀ to฀ be฀incurred.฀ If฀ revised฀ forecasted฀or฀
actual฀product฀sales฀are฀less฀than,฀and/or฀revised฀forecasted฀or฀actual฀costs฀are฀greater฀than,฀the฀original฀forecasted฀amounts฀utilized฀in฀the฀initial฀recoverability฀analysis,฀
the฀net฀realizable฀value฀may฀be฀lower฀than฀originally฀estimated฀in฀any฀given฀quarter,฀which฀could฀result฀in฀an฀impairment฀charge.฀Additionally,฀as฀noted฀above,฀as฀many฀of฀
our฀intellectual฀ property฀ licenses฀ extend฀ for฀ multiple฀ products฀ over฀ multiple฀years,฀ we฀ also฀ assess฀ the฀recoverability฀ of฀capitalized฀ intellectual฀ property฀ license฀ costs฀
based฀on฀certain฀qualitative฀factors฀such฀as฀the฀success฀of฀other฀products฀and/or฀entertainment฀vehicles฀utilizing฀the฀intellectual฀property,฀whether฀there฀are฀any฀future฀
planned฀theatrical฀releases฀or฀television฀series฀based฀on฀the฀intellectual฀property฀and฀the฀rights฀holder’s฀continued฀promotion฀and฀exploitation฀of฀the฀intellectual฀property.฀
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.
page 24
Activision, Inc. — 2005 Annual Report
Management’s Discussion and Analysis of Financial Condition and Results of Operations