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57
to net interest and other income.The reclassified transactionalforeign currencygains and losses forthe
fiscalyears ended March 31, 2006 and 2005 were $0.3 million and $2.3 million, respectively.
Foreign Currency Translation. Assets and liabilities of foreign operations are translated at currentrates of
exchange while resultsof operations are translated at average rates in effect for the period. Translation
gainsor losses are shown as a separatecomponent of accumulated othercomprehensive income (loss).
Foreign currencytransaction gains and losses result from exchange rate changes fortransactions
denominated in currencies other than the functional currencyand areincluded in interest andother
income in our consolidated statements of operations. For the fiscal year ended March31, 2007, foreign
currency transaction gains were $0.1million. For the fiscal year ended March31, 2006, foreign currency
transaction losses were $0.3 millionand for the fiscalyear ended March 31, 2005, foreign currency
transaction gains were $2.3 million.
Cash, Cash Equivalents and Short-TermInvestments.We consider all highly liquid investments with
maturities of three months or less when purchased to be cash equivalents. Investments with maturities
greaterthan three months, butless than oneyear, when purchased are consideredshort-terminvestments.
Our short-term investments are primarily auction rate securities. These auction rate securities are variable
rate bonds tied to short-term interest rateswith maturities on the face of the underlying security in excess
of 90 days. Auction rate securities have interest rateresets througha modified Dutch auction at
predetermined short-term intervals, typicallyevery7,28, or 35 days.Interest paid during agiven period is
baseduponthe interest ratedeterminedduring the prior auction. Althoughthe securities are issued and
ratedas long-term bonds, they arepriced and traded as short-terminstruments because of theliquidity
provided through the interestrate reset. We had $230.2 million and $280.1millionof investments in
auction rate securitiesas of March 31, 2007 and March 31, 2006, respectively. These short-term
investments are classifiedas available-for-sale and changes in the fair value are included in accumulated
other comprehensive income (loss), net of applicable income taxes, in the consolidatedfinancial
statements. At March31, 2007 and 2006, we did not have any short-term investments classified as held to
maturity.
Financial Instruments.Thecarryingvalue of certain financial instruments, including cash and cash
equivalents, short-term investments held to maturity, accounts receivable, accounts payable, accrued
expenses and accrued royalties, approximate fair value based on their short-term nature. Short-term
investments classified as available for saleare stated at fair value.
We account for our derivative and hedging activities under Statements of Financial AccountingStandards
(“SFAS”) No. 133, “Accounting forDerivative Instruments and Hedging Activities,”as amended. The
assets or liabilities associated with our derivative instruments and hedging activities are recorded at fair
value in other current assets or liabilities, respectively, on our consolidated balance sheets. As discussed
below, gains and losses resultingfrom changes in fair value are accounted for depending on the use of the
derivative and whether it is designated and qualifies forhedge accounting.
We utilize forward contracts in order to reduce financial marketrisks. These instruments are used to hedge
foreign currencyexposures of underlyingassets, liabilities, or certain forecasted foreign currency
denominated transactions. Our accounting policies for these instruments are based on whether they meet
the criteria for designation as hedging transactions. Changes in fair value of derivatives that aredesignated
as cash flow hedges, are highlyeffective, and qualify as hedging instruments, are recorded in other
comprehensive income untilthe underlying hedged item is recognized in earnings within thefinancial
statement lineitem consistent with thehedged item.Any ineffective portion of aderivative change in fair
valueis immediately recognized in earnings. During theperiods presented we didnot have any derivatives
thatqualifyfor hedgeaccounting.Changes in the fair value of derivatives thatdonot qualify for hedge
accountingtreatment are recorded in earnings. Thefair value of foreign currency contracts is estimated
based on the forward rate of thevarious hedged currencies as of the end of the period. As of March 31,