Blizzard 2012 Annual Report Download - page 45

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27
We test acquired trade names for possible impairment by using a discounted cash flow model to estimate fair value. We have
determined that no impairment has occurred at December 31, 2012 and 2011 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 of 10.5%, and royalty saving rates of approximately 1.5%. A one percentage point increase in the discount rate would not yield an
impairment charge to 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.
Stock-Based Compensation
Stock-based compensation expense is recognized during the requisite service periods (that is, the period for which the employee is
being compensated) and is based on the value of stock-based payment awards after a reduction for estimated forfeitures. Forfeitures are estimated
at the time of grant and are revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
We estimate the value of stock-based payment awards on the measurement date using a binomial-lattice model. Our determination of
fair value of stock-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.
We generally determine the fair value of restricted stock rights (including restricted stock units, restricted stock awards and
performance shares) based on the closing market price of the Company’s common stock on the date of grant. Certain restricted stock rights
granted to our employees and senior management vest based on the achievement of pre-established performance or market goals. We estimate the
fair value of performance-based restricted stock rights at the closing market price of the Company’s common stock on the date of grant. Each
quarter, we update our assessment of the probability that the specified performance criteria will be achieved. We amortize the fair values of
performance-based restricted stock rights over the requisite service period adjusted for estimated forfeitures for each separately vesting tranche of
the award. We estimate the fair value of market-based restricted stock rights at the date of grant using a Monte Carlo valuation methodology and
amortize those fair values over the requisite service period adjusted for estimated forfeitures for each separately vesting tranche of the award. The
Monte Carlo methodology that we use to estimate the fair value of market-based restricted stock rights at the date of grant incorporates into the
valuation the possibility that the market condition may not be satisfied. Provided that the requisite service is rendered, the total fair value of the
market-based restricted stock rights at the date of grant must be recognized as compensation expense even if the market condition is not achieved.
However, the number of shares that ultimately vest can vary significantly with the performance of the specified market criteria.
For a detailed discussion of the application of these and other accounting policies see Note 2 of the Notes to Consolidated Financial
Statements included in this Annual Report.
Recently Issued Accounting Pronouncements
Indefinite-lived intangible assets impairment
In July 2012, the FASB issued an update to the authoritative guidance related to testing indefinite-lived intangible assets for
impairment. This update gives an entity the option to first consider certain qualitative factors to determine whether the existence of events and
circumstances indicates that it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount as a
basis for determining whether it is necessary to perform the quantitative impairment test. This update is effective for the indefinite-lived
intangible asset impairment test performed for fiscal years beginning after September 15, 2012. Early adoption is permitted. The adoption of this
guidance does not have a material impact on our consolidated financial statements.
Balance sheet offsetting disclosures
In December 2011, the FASB issued authoritative guidance on the disclosure of financial instruments and derivative instruments that
are either offset or subject to an enforceable master netting arrangement or similar agreement and should be applied retrospectively for all
comparative periods presented for annual periods beginning on or after January 1, 2013 and interim periods within those annual periods. The
adoption of this guidance does not have a material impact on our consolidated financial statements.