Activision 2013 Annual Report Download - page 62

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of other products and/or entertainment vehicles utilizing the intellectual property, whether there are any future planned theatrical
releases or television series based on the intellectual property, and the rights holder’s continued promotion and exploitation of
the intellectual property.
Significant management judgments and estimates are utilized in assessing the recoverability of capitalized costs. In
evaluating the recoverability of capitalized costs, the assessment of expected product performance utilizes forecasted sales
amounts and estimates of additional costs to be incurred. If revised forecasted or actual product sales are less than the originally
forecasted amounts utilized in the initial recoverability analysis, the net realizable value may be lower than originally estimated
in any given quarter, which could result in an impairment charge. Material differences may result in the amount and timing of
expenses for any period if management makes different judgments or utilizes different estimates in evaluating these qualitative
factors.
Inventories
Inventories consist of materials (including manufacturing royalties paid to console manufacturers), labor, and
freight-in and are stated at the lower of cost (weighted-average method) or net realizable value. Inventories are relieved on a
weighted average cost method.
Long-Lived Assets
Property and Equipment. Property and equipment are recorded at cost and depreciated on a straight-line basis over
the estimated useful life (i.e., 25 to 33 years for buildings, and 2 to 5 years for computer equipment, office furniture and other
equipment) of the asset. When assets are retired or disposed of, the cost and accumulated depreciation thereon are removed and
any resulting gains or losses are included in the consolidated statements of operations. Leasehold improvements are amortized
using the straight-line method over the estimated life of the asset, not to exceed the length of the lease. Repair and maintenance
costs are expensed as incurred.
Goodwill and Other Indefinite-Lived Assets. We account for goodwill in accordance with ASC Topic 350. Under
ASC Topic 350, goodwill is considered to have an indefinite life, and is carried at cost. Acquired trade names are assessed as
indefinite lived assets as there are no foreseeable limits on the periods of time over which they are expected to contribute cash
flows. Goodwill and acquired trade names are not amortized, but are subject to an annual impairment test, as well as between
annual tests when events or circumstances indicate that the carrying value may not be recoverable. We perform our annual
impairment testing at December 31st.
Our annual goodwill impairment test is performed at the reporting unit level. We have determined our reporting units
based on the guidance within ASC Subtopic 350-20, which provides that reporting units are generally operating segments or one
reporting level below the operating segments. As of December 31, 2013 and 2012, our reporting units are the same as our
operating segments: Activision, Blizzard, and Distribution. We test goodwill for possible impairment by first determining the
fair value of the related reporting unit and comparing this value to the recorded net assets of the reporting unit, including
goodwill. The fair value of our reporting units is determined using an income approach based on discounted cash flow models.
In the event the recorded net assets of the reporting unit exceed the estimated fair value of such assets, we perform a second step
to measure the amount of the impairment, which is equal to the amount by which the recorded goodwill exceeds the implied fair
value of the goodwill after assessing the fair value of each of the assets and liabilities within the reporting unit. We have
determined that no impairment has occurred at December 31, 2013 and 2012 based upon a set of assumptions regarding
discounted future cash flows, which represent our best estimate of future performance at this time.
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, 2013 and 2012 based upon a set of assumptions regarding
discounted future cash flows, which represent our best estimate of future performance at this time.
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.
Amortizable Intangible Assets. Intangible assets subject to amortization are carried at cost less accumulated
amortization, and amortized over the estimated useful life in proportion to the economic benefits received.
Management evaluates the recoverability of our identifiable intangible assets and other long-lived assets in
accordance with ASC Subtopic 360-10, which generally requires the assessment of these assets for recoverability when events or
circumstances indicate a potential impairment exists. We considered certain events and circumstances in determining whether
the carrying value of identifiable intangible assets and other long-lived assets, other than indefinite-lived intangible assets, may