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59
currency contracts is estimated based on the prevailing exchange rates of the various hedged currencies as of the end of the period and was not
material as of December 31, 2012 and 2011.
Fair Value Measurements on a Non-Recurring Basis
We measure the fair value of certain assets on a non-recurring basis, generally annually or when events or changes in circumstances
indicate that the carrying amount of the assets may not be recoverable.
During our annual impairment review of goodwill performed as of December 31, 2011, we identified and recorded an impairment of
$12 million in our Distribution segment. The decrease in fair value of the reporting unit was primarily due to the decrease of forecasted revenue
from our Distribution segment in view of the industry trend towards digital distribution. No impairments of goodwill were recorded for the years
ended December 31, 2012 and 2010.
In accordance with the provisions of the impairment of long-lived assets subsections of ASC Subtopic 360-10, intangible assets were
written down to their fair value during in the quarter ended December 31, 2010 within our Activision operating segment. The write down resulted
in impairment charges of $67 million, $9 million and $250 million to license agreements, game engines and internally developed franchises
intangible assets, respectively (see Note 11 of the notes to the Consolidated Financial Statements for details).
The tables below present intangible assets that were measured at fair value on a non-recurring basis at December 31, 2011 (amounts in
millions):
Fair Value Measurements at
December 31, 2011 Using
As of
December 31,
Quoted
Prices in
Active
Markets for
Identical
Financial
Instruments
Significant
Other
Observable
Inputs
Significant
Unobservable
Inputs
2011
(Level 1)
(Level 2)
(Level 3)
Total Losses
Non-financial assets:
Goodwill .........................................................................................
$7,111
$—
$—
$7,111
$12
Total non-financial assets at fair value ..........................................
$7,111
$—
$—
$7,111
$12
17. Commitments and Contingencies
Credit Facilities
At December 31, 2012 and 2011, we maintained a $15 million irrevocable standby letter of credit. The standby letter of credit is
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 on deposit with the 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 not reimbursed. The letter of credit was undrawn at December 31, 2012 and 2011.
At December 31, 2012 and 2011, our subsidiary located in Europe maintained an irrevocable standby letter of credit of EUR 5 million
($7 million) and EUR 5 million ($7 million), respectively. This standby letter of credit is required by one of our inventory manufacturers so that
we can qualify for certain payment terms on our inventory purchases. There were no amounts outstanding at December 31, 2012 and 2011.
Commitments
In the normal course of business, we enter into contractual arrangements with third parties for non-cancelable operating lease
agreements for our offices, for the development of products and for the rights to intellectual property. Under these agreements, we commit to
provide specified payments to a lessor, developer or intellectual property holder, as the case may be, based upon contractual arrangements. The
payments to third-party developers are generally conditioned upon the achievement by the developers of contractually specified development
milestones. Further, these payments to third-party developers and intellectual property holders typically are deemed to be advances and, as such,
are recoupable against future royalties earned by the developer or intellectual property holder based on the sale of the related game. Additionally,
in connection with certain intellectual property rights acquisitions and development agreements, we will commit to spend specified amounts for