THQ 2009 Annual Report Download - page 66

Pervasiveness of Estimates. The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates. The most significant
estimates relate to licenses, software development, accounts receivable allowances, income taxes,
impairment of goodwill, and stock-based compensation expense.
Foreign Currency Translation. Assets and liabilities of foreign operations are translated at current rates of
exchange while results of operations are translated at average rates in effect for the period. Translation
gains or losses are shown as a separate component of accumulated other comprehensive income (loss).
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, 2009, 2008, and
2007 foreign currency transaction gains were $0.8 million, $0.5 million, and $0.1 million respectively.
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 under Statements of Financial Accounting Standards (‘‘SFAS’’) No. 115,
‘‘Accounting for Certain Investments in Debt and Equity Securities,’’ as trading securities are bought and
held principally for the purpose of selling them in the near term and are reported at fair value, with
unrealized gains and losses recognized in earnings. Investments designated as available-for-sale 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 interest
and other income, net, 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, 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.
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
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