Activision 2010 Annual Report Download - page 72

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60
The following table provides a reconciliation of the beginning and ending balances of our financial assets and
financial liabilities classified as Level 3 by major categories (amounts in millions) at December 31, 2009:
Level 3
ARS
(a)
ARS rights
from UBS
(b)
Total
financial
assets at
fair
value
Other financial
liabilities
Balance at January 1, 2009 ............................................................................................ $78 $10 $88 $(31)
Total gains or (losses) (realized/unrealized) included in investment and other
income, net ............................................................................................................ 3 (3) — 8
Purchases or acquired sales, issuances and settlements ............................................. (4) — (4) —
Balance at December 31, 2009 ...................................................................................... $77 $7 $84 $(23)
The amount of total gains or (losses) for the period included in investment and
other income, net attributable to the change in unrealized gains or losses relating
to assets and liabilities still held at December 31, 2009 ............................................ $3 $(3) $— $8
(a) Fair value measurements have been estimated using an income-approach model (specifically, discounted cash-flow
analysis). When estimating the fair value, we consider both observable market data and non-observable factors,
including credit quality, duration, insurance wraps, collateral composition, maximum rate formulas, comparable
trading instruments, and the likelihood of redemption. Significant assumptions used in the analysis include estimates
for interest rates, spreads, cash flow timing and amounts, and holding periods of the securities. Assets measured at
fair value using significant unobservable inputs (Level 3) represent less than 1% of our financial assets measured at
fair value on a recurring basis at December 31, 2010.
In June 2010, we sold the remainder of our ARS held with UBS at par and recognized a gain of $7 million included
within investment and other income, net in the consolidated statement of operations.
(b) ARS rights from UBS represented an offer from UBS providing us with the right to require UBS to purchase our
ARS held through UBS at par value. To value the ARS rights, we considered the intrinsic value, time value of
money, and our assessment of the credit worthiness of UBS. We exercised our ARS rights with UBS on June 30,
2010 and recorded a loss of $7 million included within investment and other income, net in the consolidated
statement of operations.
Foreign Currency Forward Contracts Not Designated as Hedges
We transact business in various currencies other than the U.S. dollar and have significant international sales and
expenses denominated in currencies other than the U.S. dollar, subjecting us to currency exchange rate risks. To mitigate our
risk from foreign currency fluctuations we periodically enter into currency derivative contracts, principally swaps and
forward contracts with maturities of twelve months or less, with Vivendi as our principal counterparty. We do not hold or
purchase any foreign currency contracts for trading or speculative purposes and we do not designate these forward contracts
or swaps as hedging instruments. Accordingly, we report the fair value of these contracts in the consolidated balance sheet
with changes in fair value recorded in the consolidated statement of operations. The fair value of foreign currency contracts is
estimated based on the prevailing exchange rates of the various hedged currencies as of the end of the period.
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.
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 12 of the notes to the
consolidated financial statements for details).