Atari 2011 Annual Report Download - page 62

ANNUAL FINANCIAL REPORT – REGISTRATION DOCUMENT
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the actual results of the earn-out payable. See Note 1.4. The March 31, 2011 goodwill balance related to Cryptic,
approximately 19.8 million euro has been reclassified to assets held for sale as part of the discontinued operations
treatment of Cryptic Studios under IFRS 5.
The remaining 5.4 million euro goodwill relates to the minority acquisition of Atari, Inc. in October 2008.
3.3. IMPAIRMENT TESTS
In accordance with IFRS 3, Business Combinations, goodwill acquired in a business combination is not amortized.
Instead it is tested for impairment annually or more frequently if events or changes in circumstances indicated that it
might be impaired. These tests are performed in March of every year as part of the annual accounts-closing process. If
the recoverable amount of a CGU is less than its carrying amount, an impairment loss is recognized in "Impairment of
goodwill" which is included under “Operating income (loss)”.
The method used to test goodwill for impairment consists essentially of comparing the recoverable amount of each CGU
with the carrying amount of the corresponding net assets. At March 31, 2011, US Publishing CGU this recoverable
amount corresponded to the value in use of the assets concerned and were generally calculated on the basis of
expected operating cash flows for the next four years, the present value of projected cash flows for the subsequent year
and a terminal value.
The main assumptions used by management to project future cash flows are a discount rate, growth rates, expected
trends in sale prices and operating costs.
The table below sets out the discount rates and perpetuity growth rates used at March 31, 2011 and March 31, 2010:
Management set the discount rate on the basis of the weighted average cost of capital, reflecting the market's current
assessment of the time value of money and the specific risks to which the various cash-generating units are exposed. In
view of the current division of the Group's activities, the allocation of goodwill per CGU and the Group's general risk
premium included in the discount rate, the use of a single discount rate for all of the Group's CGUs was judged
appropriate for the impairment tests. The discount rates used are post tax rates applied to post tax cash flows. They yield
the same recoverable amounts as would be obtained by applying pre-tax discount rates to pre-tax cash flows, as
required under IAS 36.
The Group prepared its cash flow projections on the basis of the 2010/2011 budgets and its business plan. Growth-rate
assumptions in the business plan reflect management's best estimates and are based notably on (i) the expectation that
business will recover and will be driven by online distribution sales and on (ii) a comparable cost structure to the one
achieved in 2009/2010.
At March 31, 2011, the sensitivity of the recoverable amounts of the Group's CGU to a one-point change in the discount
rate or the perpetuity growth rate was as follows:
For the Online Development CGU, the Company tested the goodwill value related to CGU based on the estimated
proceeds from its expected divesture of Cryptic Studios. The Company expects to recognize a gain at the completion of
transaction of approximately 1 to 3 million euros based on final closing conditions. The Company expects the transaction
to be completed within semester 1 of Fiscal 2011/2012; therefore no adjustment to goodwill is necessary as of March 31,
2011.
Discount rate Perpetuity growth rate Discount rate Perpetuity growth rate
Online Development n/a n/a 18.60% 3.00%
Publishing 17.60% 3.00% 18.60% 3.00%
March 31, 2011 March 31, 2010
Cash-generating unit
(€ mil lion) + 1 pt. - 1 pt. + 1 pt. - 1 pt.
Publ ishing
105.8
-6.8
7.8
4.8
-4.2
Difference between
recoverable amount
and carrying amount
Impact of a one-point change in:
Discount rate Perpetuity growth rate