Blizzard 2009 Annual Report Download - page 54

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42
Weevaluatethefuturerecoverabilityofcapitalizedsoftwaredevelopmentcostsandintellectual
propertylicensesonaquarterlybasis.Forproductsthathavebeenreleasedinpriorperiods,theprimary
evaluationcriterionisactualtitleperformance.Forproductsthatarescheduledtobereleasedinfuture
periods,recoverabilityisevaluatedbasedontheexpectedperformanceofthespecificproductstowhichthe
costsrelateorinwhichthelicensedtrademarkorcopyrightistobeused.Criteriausedtoevaluateexpected
productperformanceinclude:historicalperformanceofcomparableproductsdevelopedwithcomparable
technology;ordersfortheproductpriortoitsrelease;and,foranysequelproduct,estimatedperformance
basedontheperformanceoftheproductonwhichthesequelisbased.Further,asmanyofourcapitalized
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.
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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.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.
Inventories
Inventoriesconsistofmaterials(includingmanufacturingroyaltiespaidtoconsolemanufacturers),
laborandfreightinandarestatedatthelowerofcost(weightedaveragemethod)ormarketvalue.
LongLivedAssets
PropertyandEquipment.Propertyandequipmentarerecordedatcostanddepreciatedona
straightlinebasisovertheshorteroftheestimatedusefullivesortheleaseterm:buildings,25to33years;
computerequipment,officefurnitureandotherequipment,2to5years;leaseholdimprovements,the
shorterof5yearsorthelifeofthelease.Whenassetsareretiredordisposedof,thecostandaccumulated
depreciationthereonareremovedandanyresultinggainsorlossesareincludedintheaccompanying
consolidatedstatementsofoperations.
GoodwillandOtherIndefiniteLivedAssets.Weaccountforgoodwillusingtheprovisionswithin
ASCTopic350.UnderASCTopic350,goodwillisconsideredtohaveanindefinitelife,andiscarriedat
cost.Acquiredtradenamesareassessedasindefinitelivedassetsastherearenoforeseeablelimitsonthe
periodsoftimeoverwhichtheyareexpectedtocontributecashflows.Goodwillandacquiredtradenames
arenotamortized,butaresubjecttoanimpairmenttestannuallyandinbetweenannualtestswhenevents
orcircumstancesindicatethatthecarryingvaluemaynotberecoverable.Weperformourannual
impairmenttestingatDecember31.
WehavedeterminedourreportingunitsbasedontheguidancewithinASCSubtopic35020.As
ofDecember31,2009and2008,theCompany’sreportingunitsconsistedofActivision,Blizzard,and
Distribution.Wetestgoodwillforpossibleimpairmentbyfirstdeterminingthefairvalueoftherelated
reportingunitandcomparingthisvaluetotherecordednetassetsofthereportingunit,includinggoodwill.
Fairvalueisdeterminedusingacombinationofadiscountedcashflowmodelandmarketcomparable
valuationsofpeercompanies.Theestimatedfairvaluesofeachofourreportingunitsexceededtheir
carryingvaluesbyarangeofapproximately$0.1billionto$5.9billionasofDecember31,2009.The
estimatedfairvaluesexceedtheirrespectivereportingunitscarryingvaluesbyarangeofapproximately
20%to480%asofDecember31,2009.Assuch,wehavedeterminedthatnoimpairmenthasoccurredat
December31,2009baseduponasetofassumptionsregardingdiscountedfuturecashflows,which
representourbestestimateoffutureperformanceatthistime.Indeterminingthefairvalueofourreporting
units,weassumedadiscountratebetween11.5%and13%.