Blizzard 2008 Annual Report Download - page 24

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10
fair value resulting from the financial models or the related accounting conclusion reached. For
example, a relatively small change in the estimated fair value of an asset may change a conclusion
as to whether an asset is impaired. While we are required to make certain fair value assessments
associated with the accounting for several types of transactions, the following areas are the most
sensitive to the assessments:
Business Combinations. We must estimate the fair value of assets acquired and liabilities
assumed in a business combination. Our assessment of the estimated fair value of each of these
can have a material effect on our reported results as intangible assets are amortized over various
lives. Furthermore, a change in the estimated fair value of an asset or liability often has a direct
impact on the amount to recognize as goodwill, which is an asset that is not amortized. Often
determining the fair value of these assets and liabilities assumed requires an assessment of
expected use of the asset, the expected cost to extinguish the liability or our expectations related to
the timing and the successful completion of development of an acquired in-process technology.
Such estimates are inherently difficult and subjective and can have a material impact on our
financial statements.
Assessment of Impairment of Assets. Management evaluates the recoverability of our
identifiable intangible assets and other long-lived assets in accordance with SFAS No. 144,
“Accounting for the Impairment or Disposal of Long-lived Assets,” which generally requires the
assessment of these assets for recoverability when events or circumstances indicate a potential
impairment exists. We considered certain events and circumstances in determining whether the
carrying value of identifiable intangible assets and other long-lived assets may not be recoverable
including, but are not limited to: significant changes in performance relative to expected operating
results; significant changes in the use of the assets; significant negative industry or economic
trends; a significant decline in our stock price for a sustained period of time; and changes in our
business strategy. In determining if an impairment exists, we estimate the undiscounted cash flows
to be generated from the use and ultimate disposition of these assets. If an impairment is indicated
based on a comparison of the assets’ carrying values and the undiscounted cash flows, the
impairment loss is measured as the amount by which the carrying amount of the assets exceeds the
fair value of the assets. The decision to dispose of certain assets of the non-core operating segment
as part of our restructuring plan following the Business Combination was considered to be an
indicator of impairment under SFAS No. 144. We performed an impairment test on the long-lived
assets of the non-core operating segment and determined that an acquired trade name was
impaired. As a result, an impairment charge of $5 million was recorded as part of restructuring
costs. Other than this event, during 2008, we did not perform any other impairment tests of our
long-lived assets as there were no significant and adverse underlying changes to our expected
operating results or other indicators of impairment. Other than the $5 million impairment of the
acquired trade name, we determined that there was no other impairment of long-lived assets for
the years ended December 31, 2008, 2007 and 2006.
SFAS No. 142, “Goodwill and other Intangibles” (“SFAS No. 142”) requires a two-step
approach to testing goodwill for impairment for each reporting unit. Our reporting units are
determined by the components of our operating segments that constitute a business for which both
(1) discrete financial information is available and (2) segment management regularly reviews the
operating results of that component. SFAS No. 142 requires that the impairment test be performed
at least annually by applying a fair-value-based test. The first step measures for impairment by
applying fair-value-based tests at the reporting unit level. The second step (if necessary) measures