Activision 2012 Annual Report Download - page 63

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Shipping and Handling
Shipping and handling costs, which consist primarily of packaging and transportation charges incurred to move finished goods to
customers, are included in “Cost of sales—product costs.”
Advertising Expenses
We expense advertising as incurred, except for production costs associated with media advertising, which are deferred and charged to
expense when the related advertisement is ran for the first time. Advertising expenses for the years ended December 31, 2012, 2011, and 2010
were $396 million, $343 million, and $332 million, respectively, and are included in “Sales and marketing expense” in the consolidated
statements of operations.
Income Taxes
We record a tax provision for the anticipated tax consequences of the reported results of operations. In accordance with FASB income
tax guidance within ASC Topic 740, the provision for income taxes is computed using the asset and liability method, under which deferred tax
assets and liabilities are recognized for the expected future tax consequences attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases and operating losses and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the temporary differences are expected
to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date. We evaluate deferred tax assets each period for recoverability. For those assets that do not meet the threshold of
“more likely than not” that they will be realized in the future, a valuation allowance is recorded.
We report a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return.
We recognize interest and penalties, if any, related to unrecognized tax benefits in “Income tax expense.”
Foreign Currency Translation
All assets and liabilities of our foreign subsidiaries are translated into U.S. dollars at the exchange rate in effect at the balance sheet
date, and revenue and expenses are translated at average exchange rates during the period. The resulting translation adjustments are reflected as a
component of “Accumulated other comprehensive income (loss)” in shareholders’ equity.
Earnings (Loss) Per Common Share
“Basic earnings (loss) per common share” is computed by dividing income (loss) available to common shareholders by the weighted
average number of common shares outstanding for the periods presented. “Diluted earnings per share” is computed by dividing income (loss)
available to common shareholders by the weighted average number of common shares outstanding, increased by the weighted average number of
common stock equivalents. Common stock equivalents are calculated using the treasury stock method and represent incremental shares issuable
upon exercise of our outstanding options. However, potential common shares are not included in the denominator of the diluted earnings (loss)
per share calculation when inclusion of such shares would be anti-dilutive, such as in a period in which a net loss is recorded.
When we determine whether instruments granted in stock-based payment transactions are participating securities, unvested
stock-based awards which include the right to receive non-forfeitable dividends or dividend equivalents are considered to participate with
common stock in undistributed earnings. With participating securities, we are required to calculate basic and diluted earnings per common share
amounts under the two-class method. The two-class method excludes from earnings per common share calculations any dividends paid or owed
to participating securities and any undistributed earnings considered to be attributable to participating securities.
Stock-Based Compensation
We account for stock-based compensation in accordance with ASC Topic 718-10, Compensation-Stock Compensation, and ASC
Subtopic 505-50, Equity-Based Payments to Non-Employees (“ASC stock-based compensation guidance”). Stock-based compensation expense is
recognized during the requisite service period (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. Stock-based compensation expense recognized in the consolidated
statement of operations for the years ended December 31, 2012, 2011, and 2010 included both compensation expense for stock- based payment