THQ 2010 Annual Report Download - page 68

Download and view the complete annual report

Please find page 68 of the 2010 THQ annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 102

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102

60
In fiscal 2009, transfers out of Level 3 represent three ARS related to the Lehman Brothers bankruptcy, that
once received, were valued using Level 1 and Level 2 inputs.
In fiscal 2010, transfers out of Level 3 represent ARS for which we received a call notice prior to
September 30, 2009. Accordingly, these ARS were valued using Level 1 inputs and were classified as short-
term investments in the condensed consolidated financial statements at September 30, 2009. In fiscal 2010,
these ARS were settled at par.
Financial Instruments
The carrying value of certain financial instruments, including cash and cash equivalents, accounts receivable,
accounts payable, accrued expenses, accrued royalties, and secured credit lines approximate fair value
based on their short-term nature. Investments classified as available for sale and trading are stated at fair
value.
The book value and fair value of our convertible senior notes at March 31, 2010 was $100.0 million and
$109.4 million, respectively; we estimated the fair value based on level 2 inputs, specifically, inputs other
than level 1 that are observable.
We transact business in many different foreign currencies and are exposed to financial market risk resulting
from fluctuations in foreign currency exchange rates, particularly the GBP and the Euro, which may result in a
gain or loss of earnings to us. We utilize foreign exchange forward contracts to mitigate foreign currency risk
associated with foreign currency-denominated assets and liabilities, primarily certain inter-company
receivables and payables. Our foreign exchange forward contracts are not designated as hedging
instruments and are accounted for as derivatives whereby the fair value of the contracts are reported as
other current assets or other current liabilities in our consolidated balance sheets, and the associated gains
and losses from changes in fair value are reported in interest and other income (expense), net in the
consolidated statements of operations.
Cash Flow Hedging Activities.
From time to time, we hedge a portion of our foreign currency risk related to
forecasted foreign currency denominated sales and expense transactions by entering into foreign exchange
forward contracts that generally have maturities less than 90 days. Our hedging programs reduce, but do not
entirely eliminate, the impact of currency exchange rate movements in net sales and operating expenses.
During fiscal 2010, we entered into foreign exchange forward contracts related to cash flow hedging activities
in the notional amount of $29.2 million. These contracts were settled during fiscal 2010 and resulted in a loss
of $0.7 million, which is included in interest and other income (expense), net in our consolidated statements
of operations. There were no such cash flow hedge activities during fiscal 2009.
Balance Sheet Hedging Activities.
We utilize foreign exchange forward contracts to mitigate foreign currency
risk associated with foreign currency-denominated assets and liabilities, primarily certain inter-company
receivables and payables. Our foreign exchange forward contracts are not designated as hedging
instruments and are accounted for as derivatives whereby the fair value of the contracts are reported as
other current assets or other current liabilities in our consolidated balance sheets, and the associated gains
and losses from changes in fair value are reported in interest and other income (expense), net in the
consolidated statements of operations. The forward contracts generally have a contractual term of one
month or less and are transacted near month-end. Therefore, the fair value of the forward contracts generally
is not significant at each month-end.
At March 31, 2010 and March 31, 2009, we had foreign exchange forward contracts related to balance
sheet hedging activities in the notional amount of $90.1 million and $67.2 million, respectively, with a fair
value that approximates zero at both March 31, 2010 and March 31, 2009. We estimated the fair value of
these contracts using Level 1 inputs, specifically, inputs obtained in quoted public markets. The net gain
recognized from these contracts during fiscal 2010 was $4.8 million. The net loss recognized from these
contracts during fiscal 2009 was $2.3 million. These gains and losses are included in interest and other
income (expense), net in our consolidated statements of operations.