Blizzard 2008 Annual Report Download - page 25

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11
the amount of impairment by applying fair-value-based tests to the individual assets and liabilities
within each reporting unit.
To determine the fair values of the reporting units used in the first step, we use a
discounted cash flow approach. Each step requires us to make judgments and involves the use of
significant estimates and assumptions. These estimates and assumptions include long-term growth
rates and operating margins used to calculate projected future cash flows, risk-adjusted discount
rates based on our weighted average cost of capital, future economic and market conditions. These
estimates and assumptions have to be made for each reporting unit evaluated for impairment. Our
estimates for market growth, our market share and costs are based on historical data, various
internal estimates and certain external sources, and are based on assumptions that are consistent
with the plans and estimates we are using to manage the underlying business. If future forecasts
are revised, they may indicate or require future impairment charges. We base our fair value
estimates on assumptions we believe to be reasonable but that are unpredictable and inherently
uncertain. Actual future results may differ from those estimates.
Stock-Based Compensation. We estimate the value of employee stock options on the date
of grant using a binomial-lattice model. Our determination of fair value of share-based payment
awards on the date of grant using an option-pricing model is affected by our stock price as well as
assumptions regarding a number of highly complex and subjective variables. These variables
include, but are not limited to, our expected stock price volatility over the term of the awards, and
actual and projected employee stock option exercise behaviors.
For more detailed information about Activision Blizzard’s accounting policy for the
measurement of fair value of financial assets and financial liabilities and information about the
financial assets and financial liabilities, see Notes 3 and 17 of the Notes to Consolidated Financial
Statements.