Blizzard 2009 Annual Report Download - page 36
Download and view the complete annual report
Please find page 36 of the 2009 Blizzard annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.24
attributabletosubscriptionandothervalueaddedservicesareclassifiedassubscription,licensingandother
revenues.
Wecurrentlyestimatetheserviceperiodsoverwhichrevenuesarerecognizedrangefroma
minimumoffivemonthstoamaximumoflessthanayear.
Determiningwhethertheonlineserviceforaparticulargameconstitutesmorethanan
inconsequentialdeliverableissubjectiveandrequiresmanagement’sjudgment.Determiningtheestimated
serviceperiodsandproductlifeoverwhichtorecognizetherevenueandrelatedcostsofsalesisalso
subjectiveandinvolvesmanagement’sjudgment.
AllowancesforReturns,PriceProtection,DoubtfulAccounts,andInventoryObsolescence.We
maypermitproductreturnsfrom,orgrantpriceprotectionto,ourcustomersundercertainconditions.In
general,priceprotectionreferstothecircumstancesinwhichweelecttodecreasethewholesalepriceofa
productbyacertainamountand,whengrantedandapplicable,allowscustomersacreditagainstamounts
owedbysuchcustomerstouswithrespecttoopenand/orfutureinvoices.Theconditionsourcustomers
mustmeettobegrantedtherighttoreturnproductsorpriceprotectioninclude,amongotherthings,
compliancewithapplicabletradingandpaymentterms,andconsistentreturnofinventoryanddeliveryof
sellthroughreportstous.Wemayalsoconsiderotherfactors,includingthefacilitationofslowmoving
inventoryandothermarketfactors.Managementmustmakeestimatesofpotentialfutureproductreturns
andpriceprotectionrelatedtocurrentperiodproductrevenue.Weestimatetheamountoffuturereturns
andpriceprotectionforcurrentperiodproductrevenueutilizinghistoricalexperienceandinformation
regardinginventorylevelsandthedemandandacceptanceofourproductsbytheendconsumer.The
followingfactorsareusedtoestimatetheamountoffuturereturnsandpriceprotectionforaparticulartitle:
historicalperformanceoftitlesinsimilargenres;historicalperformanceofthehardwareplatform;
historicalperformanceofthefranchise;consolehardwarelifecycle;salesforceandretailcustomer
feedback;industrypricing;weeksofonhandretailchannelinventory;absolutequantityofonhandretail
channelinventory;ourwarehouseonhandinventorylevels;thetitle’srecentsellthroughhistory(if
available);marketingtradeprograms;andcompetingtitles.Therelativeimportanceofthesefactorsvaries
amongtitlesdependingupon,amongotheritems,genre,platform,seasonality,andsalesstrategy.
Significantmanagementjudgmentsandestimatesmustbemadeandusedinconnectionwithestablishing
theallowanceforreturnsandpriceprotectioninanyaccountingperiod.Baseduponhistoricalexperience,
webelievethatourestimatesarereasonable.However,actualreturnsandpriceprotectioncouldvary
materiallyfromourallowanceestimatesduetoanumberofreasonsincluding,amongothers,alackof
consumeracceptanceofatitle,thereleaseinthesameperiodofasimilarlythemedtitlebyacompetitor,or
technologicalobsolescenceduetotheemergenceofnewhardwareplatforms.Materialdifferencesmay
resultintheamountandtimingofourrevenueforanyperiodiffactorsormarketconditionschangeorif
managementmakesdifferentjudgmentsorutilizesdifferentestimatesindeterminingtheallowancesfor
returnsandpriceprotection.Forexample,a1%changeinourDecember31,2009allowanceforreturns
andpriceprotectionwouldimpactnetrevenuesbyapproximately$3million.
Similarly,managementmustmakeestimatesoftheuncollectibilityofouraccountsreceivable.In
estimatingtheallowancefordoubtfulaccounts,weanalyzetheageofcurrentoutstandingaccount
balances,historicalbaddebts,customerconcentrations,customercreditworthiness,currenteconomic
trends,andchangesinourcustomers’paymenttermsandtheireconomiccondition,aswellaswhetherwe
canobtainsufficientcreditinsurance.Anysignificantchangesinanyofthesecriteriawouldaffect
management’sestimatesinestablishingourallowancefordoubtfulaccounts.
Weregularlyreviewinventoryquantitiesonhandandintheretailchannel.Wewritedown
inventorybasedonexcessorobsoleteinventoriesdeterminedprimarilybyfutureanticipateddemandfor
ourproducts.Inventorywritedownsaremeasuredasthedifferencebetweenthecostoftheinventoryand
marketvalue,baseduponassumptionsaboutfuturedemand,whichareinherentlydifficulttoassess.Atthe
pointofalossrecognition,anew,lowercostbasisforthatinventoryisestablished,andsubsequentchanges
infactsandcircumstancesdonotresultintherestorationorincreaseinthatnewlyestablishedbasis.