THQ 2008 Annual Report Download - page 69

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Foreign currency transaction gains and losses result from exchange rate changes for transactions
denominated in currencies other than the functional currency and are included in interest and other
income in our consolidated statements of operations. For the fiscal years ended March 31, 2008 and 2007,
foreign currency transaction gains were $0.5 million and $0.1 million, respectively. For the fiscal year ended
March 31, 2006, foreign currency transaction losses were $0.3 million.
Cash, Cash Equivalents and Investment Securities. We consider all money market funds and highly liquid
investments with maturities of three months or less when purchased to be cash equivalents.
Investments designated as available-for-sale securities under Statements of Financial Accounting
Standards (‘‘SFAS’’) No. 115, ‘‘Accounting for Investment in Certain Debt and Equity Securities,’’ are
carried at fair value based on quoted market prices or estimated based on quoted market prices for
financial instruments with similar characteristics. Unrealized gains and losses of the Company’s
available-for-sale securities are excluded from earnings and reported as a component of other
comprehensive income (loss). Additionally, the Company assesses whether an other-than-temporary
impairment loss on its available-for-sale securities has occurred due to declines in fair value or other
market conditions. Declines in fair value that are considered other-than-temporary are recorded as an
impairment of investments in the consolidated statements of operations.
In general, investments with original maturities of greater than 90 days and remaining maturities of less
than one year are classified as short-term investments. Investments with maturities beyond one year may
also be classified as short-term based on their highly liquid nature and because such investments represent
the investment of cash that is available for current operations.
The Company’s investments include auction rate securities (‘‘ARS’’). These ARS are variable rate bonds
tied to short-term interest rates with long-term maturities. ARS have interest rate resets through a
modified Dutch auction at predetermined short-term intervals, typically every 7, 28, or 35 days. Interest on
ARS is generally paid at the end of each auction process or semi-annually and is based upon the interest
rate determined during the prior auction. The majority of our ARS are AAA/Aaa rated, and are typically
collateralized by student loans guaranteed by the U.S. government under the Federal Family Education
Loan Program or backed by monoline bond insurance companies. See ‘‘Note 2—Investment Securities’’
for further details.
Financial Instruments. The carrying value of certain financial instruments, including cash and cash
equivalents, accounts receivable, accounts payable, accrued expenses and accrued royalties, approximate
fair value based on their short-term nature. Investments classified as available for sale are stated at fair
value.
We account for our derivative and hedging activities under SFAS No. 133, ‘‘Accounting for Derivative
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 resulting from
changes in fair value are accounted for depending on the use of the derivative and whether it is designated
and qualifies for hedge accounting.
We utilize forward contracts in order to reduce financial market risks. These instruments are used to hedge
foreign currency exposures of underlying assets, 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 are designated
as cash flow hedges, are highly effective, and qualify as hedging instruments, are recorded in other
comprehensive income until the underlying hedged item is recognized in earnings within the financial
statement line item consistent with the hedged item. Any ineffective portion of a derivative change in fair
value is immediately recognized in earnings. During the periods presented we did not have any derivatives
that qualify for hedge accounting. Changes in the fair value of derivatives that do not qualify for hedge
accounting treatment are recorded in earnings. The fair value of foreign currency contracts is estimated
based on the forward rate of the various hedged currencies as of the end of the period. As of March 31,
2008, 2007 and 2006, we had foreign exchange forward contracts in the notional amount of $97.0 million,
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