Hasbro 2014 Annual Report Download - page 62

amortization is subject to change based on actual costs incurred and management’s then current estimates of
ultimate revenues. During 2014 and 2013 the Company recorded accelerated amortization on certain television
programming based on revised ultimate expected revenues.
Recoverability of Goodwill and Intangible Assets
Goodwill and other intangible assets deemed to have indefinite lives are tested for impairment at least
annually. If an event occurs or circumstances change that indicate that the carrying value may not be recoverable,
the Company will perform an interim test at that time. The Company may perform a qualitative assessment and
bypass the quantitative two-step impairment process if it is not more likely than not that impairment exists.
Performing a qualitative assessment of goodwill requires a high degree of judgment regarding assumptions
underlying the valuation. Qualitative factors and their impact on critical inputs are assessed to determine whether
it is more likely than not that the fair value of a reporting unit is less than its carrying value. If it is more likely
than not that impairment exists, the quantitative two-step goodwill impairment test is performed. When
performing the quantitative two-step impairment test, goodwill and other intangible assets with indefinite lives
are tested for impairment by comparing their carrying value to their estimated fair value which is calculated
using an income approach. If the carrying value of a reporting unit exceeds the fair value of that reporting unit,
an impairment loss would be recognized for the amount by which the carrying value exceeds the fair value.
During the fourth quarter of 2014, the Company performed a qualitative assessment with respect to certain of its
reporting units with goodwill totaling $474,327. The Company utilized this approach for all reporting units with
the exception of Backflip based on the amount by which historical estimated reporting unit fair values exceeded
carrying values. Based on its qualitative assessment, the Company concluded that there was no impairment of
this goodwill during 2014. The Company has $119,111 of goodwill related to its 2013 acquisition of Backflip,
which represents a separate reporting unit. Because Backflip was a recent acquisition, the Company performed
the quantitative two-step impairment test during the fourth quarter of 2014 for this reporting unit and concluded
that there was no impairment as the estimated fair value exceeded its carrying value. Backflip’s impairment test
utilized cash flows expected to be generated from mobile gaming offerings, including releases based on existing
Backflip and Hasbro game titles, as well as a discount rate commensurate with the emerging digital landscape.
The underlying cash flows are based on long-term financial plans for Backflip, which include projections for
growth in revenues and profitability. Should Backflip not achieve its profitability and growth targets, the carrying
value of this reporting unit may become impaired.
The Company also performed quantitative two-step annual impairment tests related to intangible assets
totaling $75,738 with indefinite lives in the fourth quarter of 2014 and no impairments were indicated as the
estimated fair values were substantially in excess of the carrying values of the related assets.
The estimation of future cash flows utilized in the evaluation of the Company’s goodwill and indefinite
lived intangibles requires significant judgments and estimates with respect to future revenues related to the
respective asset and the future cash outlays related to those revenues. Actual revenues and related cash flows or
changes in anticipated revenues and related cash flows could result in a change in this assessment and result in an
impairment charge. The estimation of discounted cash flows also requires the selection of an appropriate discount
rate. The use of different assumptions would increase or decrease estimated discounted cash flows and could
increase or decrease the related impairment charge.
Intangible assets, other than those with indefinite lives, are amortized over their estimated useful lives and
are reviewed for indications of impairment whenever events or changes in circumstances indicate the carrying
value may not be recoverable. Recoverability of the value of these intangible assets is measured by a comparison
of the assets’ carrying value to the estimated future undiscounted cash flows expected to be generated by the
asset. If such assets were considered to be impaired, the impairment would be measured by the amount by which
the carrying value of the asset exceeds its fair value based on estimated future discounted cash flows. The
estimation of future cash flows requires significant judgments and estimates with respect to future revenues
related to the respective asset and the future cash outlays related to those revenues. Actual revenues and related
cash flows or changes in anticipated revenues and related cash flows could result in a change in this assessment
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