Blizzard 2009 Annual Report Download - page 35
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andexternalcounselandotherappropriatepersonnelinvolvedinthedisclosureprocess,asappropriate.
Additionally,seniorfinanceandoperationalrepresentativesprovideinternalcertificationsregardingthe
accuracyofinformationtheyprovidethatisutilizedinthepreparationofourperiodicpublicreportsfiled
withtheSEC.FinancialresultsandotherfinancialinformationalsoarereviewedwiththeAuditCommittee
oftheBoardofDirectorsonaquarterlybasis.Asrequiredbyapplicableregulatoryrequirements,the
principalexecutiveandfinancialofficersreviewandmakevariouscertificationsregardingtheaccuracyof
ourperiodicpublicreportsfiledwiththeSEC,ourdisclosurecontrolsandprocedures,andourinternal
controloverfinancialreporting.WiththeassistanceoftheDisclosureCommittee,wewillcontinueto
assessandmonitor,andmakerefinementsto,ourdisclosurecontrolsandprocedures,andourinternal
controloverfinancialreporting.
CriticalAccountingPoliciesandEstimates
ThepreparationoffinancialstatementsinconformitywithGAAPrequiresmanagementtomake
estimatesandassumptionsthataffectthereportedamountsofassetsandliabilitiesatthedateofthe
financialstatementsandthereportedamountsofrevenuesandexpensesduringthereportingperiod.Actual
resultscoulddifferfromthoseestimates.Theimpactandanyassociatedrisksrelatedtothesepolicieson
ourbusinessoperationsisdiscussedthroughoutManagement’sDiscussionandAnalysisofFinancial
ConditionandResultsofOperationswheresuchpoliciesaffectourreportedandexpectedfinancialresults.
Theestimatesdiscussedbelowareconsideredbymanagementtobecriticalbecausetheyareboth
importanttotheportrayalofourfinancialconditionandresultsofoperationsandbecausetheirapplication
placesthemostsignificantdemandsonmanagement’sjudgment,withfinancialreportingresultsrelyingon
estimatesabouttheeffectofmattersthatareinherentlyuncertain.Specificrisksforthesecritical
accountingestimatesaredescribedinthefollowingparagraphs.
RevenueRecognition.Werecognizerevenuefromthesaleofourproductsuponthetransferof
titleandriskoflosstoourcustomers,andonceanyperformanceobligationshavebeencompleted.Certain
productsaresoldtocustomerswithastreetdate(theearliestdatetheseproductsmaybesoldbyretailers).
Fortheseproductswerecognizerevenueonthelaterofthestreetdateorthesaledate.Revenuefrom
productsalesisrecognizedafterdeductingtheestimatedallowanceforreturnsandpriceprotection.
Someofoursoftwareproductsprovidelimitedonlinefeaturesatnoadditionalcosttothe
consumer.Generally,weconsidersuchfeaturestobeincidentaltotheoverallproductofferingandan
inconsequentialdeliverable.Accordingly,werecognizerevenuerelatedtoproductscontainingthese
limitedonlinefeaturesuponthetransferoftitleandriskoflosstoourcustomer.Ininstanceswhereonline
featuresoradditionalfunctionalityisconsideredmorethananinconsequentialseparatedeliverablein
additiontothesoftwareproduct,wetakethisintoaccountwhenapplyingourrevenuerecognitionpolicy.
Thisevaluationisperformedforeachsoftwareproductandanyonlinetransactions,suchaselectronic
downloadsoftitleswithproductaddonswhenitisreleased.
Ininstanceswheretheonlineserviceisconsideredmorethananinconsequentialseparate
deliverableinadditiontothesoftwareproduct,wetakethisintoaccountwhenapplyingourrevenue
recognitionpolicy.Thisevaluationisperformedforeachsoftwareproducttogetherwithanyonline
transactions,suchaselectronicdownloadsoftitlesorproductaddonswhenitisreleased.Whenwe
determinethatasoftwaretitlecontainsonlinefunctionalitythatconstitutesamorethaninconsequential
separateservicedeliverableinadditiontotheproduct,principallybecauseofitsimportancetogameplay,
weconsiderthatourperformanceobligationsforthistitleextendbeyondthesaleofthegame.
Vendorspecificobjectiveevidenceoffairvaluedoesnotexistfortheonlinefunctionality,aswedonot
separatelychargeforthiscomponentofthetitle.Asaresult,werecognizealloftherevenuefromthesale
ofthetitleratablyoveranestimatedserviceperiod,whichisestimatedtobeginthemonthafterthesale
dateorthestreetdateofthetitle,whicheverislater.Inaddition,wedeferthecostsofsalesforthetitle
(excludingintangibleassetamortization)tomatchrevenues.Costofsalesincludesmanufacturingcosts,
softwareroyaltiesandamortization,andintellectualpropertylicenses.
WerecognizeWorldofWarcraftboxedproduct,expansionpacksandothervalueaddedservice
revenueseachwiththerelatedsubscriptionservicerevenueratablyovertheestimatedserviceperiods
beginninguponactivationofthesoftwareanddeliveryoftheservices.Revenuesattributedtothesaleof
WorldofWarcraftboxedsoftwareandrelatedexpansionpacksareclassifiedasproductsalesandrevenues