Blizzard 2009 Annual Report Download - page 55

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43
Incompletingourgoodwillimpairmentanalysis,wetesttheappropriatenessofourreporting
units’estimatedfairvaluebyreconcilingtheaggregatereportingunits’fairvalueswithourmarket
capitalization.Ourimpairmentanalysisindicatedthattheaggregatefairvaluesofourreportingunits
exceededourDecember31,2009marketcapitalizationbyapproximately$3.9billionor26%.
Thefairvalueofanentitycanbegreaterthanitsmarketcapitalizationforvariousreasons,oneof
whichistheconceptofcontrolpremium.Acontrolpremiumistheamountthatabuyeriswillingtopay
overthecurrentmarketpriceofacompanytoacquireacontrollinginterest.Substantialvaluemayarise
fromtheabilitytotakeadvantagesofsynergies,suchastheexpectedincreaseincashflowresultingfrom
costsavingsandrevenueenhancements,andotherbenefitscouldbeachievedbycontrollinganotherentity.
However,changesinourassumptionsunderlyingourestimatesoffairvalue,whichwillbeafunctionof
ourfuturefinancialperformanceandchangesineconomicconditions,couldresultinfutureimpairment
charges.
Wetestacquiredtradenamesforpossibleimpairmentbyusingadiscountedcashflowmodelto
estimatefairvalue.AsofDecember31,2009,theestimatedfairvaluesofeachofouracquiredtradenames
exceededtheircarryingvaluesbyarangeofapproximately$4millionto$124million,whichexceedstheir
respectivecarryingvaluesbyarangeofapproximately1%to260%.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tradenames,weassumedadiscountratebetween11.5%and12%,androyaltysavingrates
ofapproximately1%.Aonepercentagepointincreaseinthediscountratewouldhavereducedthe
indicatedfairvaluesofeachofouracquiredtradenamesbyarangeofapproximately$22millionto
$52million,andwouldyieldanimpairmentchargeinthecaseofoneofourtradenames.Changesinour
assumptionsunderlyingourestimatesoffairvalue,whichwillbeafunctionofourfuturefinancial
performanceandchangesineconomicconditions,couldresultinfutureimpairmentcharges.
AmortizableIntangibleAssets.Intangibleassetssubjecttoamortizationarecarriedatcostless
accumulatedamortization.Intangibleassetssubjecttoamortizationareamortizedovertheestimateduseful
lifeinproportiontotheeconomicbenefitsreceived.
Managementevaluatestherecoverabilityofouridentifiableintangibleassetsandotherlonglived
assetsinaccordancewithFASBguidancewithinASCSubtopic36010,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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whether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.
During2009,werecordedimpairmentchargesof$24million,$12millionand$373millionto
licenseagreements,gameenginesandinternallydevelopedfranchisesintangibleassets,respectively(see
Note12).
RevenueRecognition
ProductSales
Werecognizerevenuefromthesaleofourproductsuponthetransferoftitleandriskoflossto
ourcustomers,andonceanyperformanceobligationshavebeencompleted.Certainproductsaresoldto
customerswithastreetdate(theearliestdatetheseproductsmaybesoldbyretailers).Fortheseproducts
werecognizerevenueonthelaterofthestreetdateorthesaledate.Revenuefromproductsalesis
recognizedafterdeductingtheestimatedallowanceforreturnsandpriceprotection.