Activision 2012 Annual Report Download - page 57

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Restricted Cash—Compensating Balances
Restricted cash is included within “Short-term investments” on the consolidated balance sheets. The majority of our restricted cash
relates to a standby letter of credit required by one of our inventory manufacturers so that we can qualify for certain payment terms on our
inventory purchases. Under the terms of this arrangement, we are required to maintain with the issuing bank a compensating balance, restricted as
to use, of not less than the sum of the available amount of the letter of credit plus the aggregate amount of any drawings under the letter of credit
that have been honored thereunder, but have not yet been reimbursed.
Financial Instruments
The carrying amount of “Cash and cash equivalents,” “Accounts receivable,” “Accounts payable,” and “Accrued expenses”
substantively approximate fair value due to the short-term nature of these accounts. Our investments in U.S. treasuries, government agency
securities, and corporate bonds are carried at fair value, which is based on quoted market prices for such securities, if available, or is estimated on
the basis of quoted market prices of financial instruments with similar characteristics. ARS are carried at fair value, which is estimated using an
income-approach model (specifically, a discounted cash-flow analysis).
Derivative instruments, primarily foreign exchange contracts, are reported at fair value in “Other assets” or “Other liabilities” in the
consolidated balance sheets. The fair value of foreign currency contracts are estimated based on the prevailing exchange rates of the various
hedged currencies as of the end of the period.
Activision Blizzard transacts business in various foreign currencies and has significant international sales and expenses denominated
in foreign currencies, subjecting us to foreign currency risk. We utilize foreign exchange forward contracts and swaps, with maturities of
generally less than one year, to mitigate foreign currency exchange rate risk associated with foreign currency- denominated assets and liabilities.
Activision Blizzard does not use derivatives for speculative or trading purposes, and the Company does not designate these derivatives as hedging
instruments under Accounting Standards Codification (“ASC”) Topic 815. Accordingly, gains and losses resulting from changes in the fair values
through the period are reported as “General and administrative expenses” or “Investment and other income (expense), net” in the consolidated
statements of operations, depending on the nature of the derivative.
Other-Than-Temporary Impairments
The Company regularly reviews its investments to determine whether a decline in fair value below the cost basis is other than a
temporary impairment. If the decline is determined to be other-than-temporary, the cost basis of the investment is written down to fair value. For
available-for-sale fixed maturity instruments where credit-related impairments exist, other-than-temporary impairments are reported in the
consolidated statement of operations and non-credit impairments are reported as a component of “Other comprehensive income (loss).”
Concentration of Credit Risk
Our concentration of credit risk relates to depositors holding the Company’s cash and cash equivalents and customers with significant
accounts receivable balances. The majority of our cash and cash equivalents are held in financial instruments issued or fully guaranteed by local
and foreign governments and governmental organizations, with the significant majority of these instruments being money market funds.
Our customer base includes retailers and distributors, including mass-market retailers, consumer electronics stores, discount
warehouses, and game specialty stores in the U.S. and other countries worldwide. We perform ongoing credit evaluations of our customers and
maintain allowances for potential credit losses. We generally do not require collateral or other security from our customers.
We had one customer for the Activision and Blizzard segments, GameStop, who accounted for approximately 10% and 12% of net
revenues for the years ended December 31, 2012 and 2010, respectively. We did not have any single customer that accounted for 10% or more of
net revenues for the year ended December 31, 2011. We had one customer, Wal-Mart, which accounted for 20% and 21% of consolidated gross
receivables at December 31, 2012 and 2011, respectively.