Blizzard 2013 Annual Report Download - page 43

24
the accuracy and timeliness of our disclosures, as well as in implementing and evaluating our overall disclosure process. As part
of our disclosure process, senior finance and operational representatives from all of our corporate divisions and business units
prepare quarterly reports regarding their current-quarter operational performance, future trends, subsequent events, internal
controls, changes in internal controls and other accounting and disclosure relevant information. These quarterly reports are
reviewed by certain key corporate finance executives. These corporate finance representatives also conduct quarterly interviews
on a rotating basis with the preparers of selected quarterly reports. The results of the quarterly reports and related interviews are
reviewed by the Disclosure Committee. Finance representatives also conduct interviews with our senior management team, our
legal counsel and other appropriate personnel involved in the disclosure process, as appropriate. Additionally, senior finance and
operational representatives provide internal certifications regarding the accuracy of information they provide that is utilized in
the preparation of our periodic public reports filed with the SEC. Financial results and other financial information also are
reviewed with the Audit Committee of the Board of Directors on a quarterly basis. As required by applicable regulatory
requirements, the principal executive and financial officers review and make various certifications regarding the accuracy of our
periodic public reports filed with the SEC, our disclosure controls and procedures, and our internal control over financial
reporting. With the assistance of the Disclosure Committee, we will continue to assess and monitor, and make refinements to,
our disclosure controls and procedures, and our internal control over financial reporting.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and assumptions.
The impact and any associated risks related to these policies on our business operations are discussed throughout Management’s
Discussion and Analysis of Financial Condition and Results of Operations where such policies affect our reported and expected
financial results. The estimates and assumptions discussed below are considered by management to be critical because they are
both important to the portrayal of our financial condition and results of operations and because their application places the most
significant demands on management’s judgment, with financial reporting results relying on estimates and assumptions about the
effect of matters that are inherently uncertain. Specific risks for these critical accounting estimates and assumptions are
described in the following paragraphs.
Revenue Recognition including Revenue Arrangements with Multiple Deliverables
Certain of our revenue arrangements have multiple deliverables, which we account for in accordance with
Accounting Standards Topic (“ASC”) Topic 605 and Accounting Standards Update (“ASU”) 2009-13. These revenue
arrangements include product sales consisting of both software and hardware deliverables (such as peripherals or other ancillary
collectors’ items sold together with physical “boxed” software) and our sales of World of Warcraft boxed products, expansion
packs and value-added services, each of which is considered with the related subscription services for these purposes.
Under ASC Topic 605 and ASU 2009-13, when a revenue arrangement contains multiple elements, such as hardware
and software products, licenses and/or services, we allocate revenue to each element based on a selling price hierarchy. The
selling price for a deliverable is based on its vendor-specific- objective-evidence (“VSOE”) if it is available, third-party evidence
(“TPE”) if VSOE is not available, or best estimated selling price (“BESP”) if neither VSOE nor TPE is available. In multiple
element arrangements where more- than-incidental software deliverables are included, revenue is allocated to each separate unit
of accounting for each of the non-software deliverables and to the software deliverables as a group using the relative selling
prices of each of the deliverables in the arrangement based on the aforementioned selling price hierarchy. If the arrangement
contains more than one software deliverable, the arrangement consideration allocated to the software deliverables as a group is
then allocated to each software deliverable using the guidance for recognizing software revenue.
As noted above, when neither VSOE nor TPE is available for a deliverable, we use BESP. We do not have significant
revenue arrangements that require BESP for the years ended December 31, 2013, 2012 and 2011. The inputs we use to determine
the selling price of our significant deliverables include the actual price charged by the Company for a deliverable that the
Company sells separately, which represents the VSOE, and the wholesale prices of the same or similar products, which
represents TPE. The adoption of ASU 2009-13 on January 1, 2011 has not had a material impact on our financial statements.
The pattern and timing of revenue recognition for deliverables and allocation of the arrangement consideration did not change
upon the adoption of ASU 2009- 13.
Overall, we recognize revenues 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” (which is the earliest date these products may be sold by retailers). For these products, we recognize revenues on the later
of the street date or the date the product is sold to the customer. Revenues from product sales are recognized after deducting the
estimated allowance for returns and price protection.