THQ 2010 Annual Report Download - page 49

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41
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.
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, we had foreign exchange forward contracts related to balance sheet hedging activities in
the notional amount of $90.1 million with a fair value that approximates zero. All of the contracts had
maturities of one month and consisted primarily of Euro, GBP, CAD, and AUD. The net gain recognized from
these contracts during fiscal 2010 was $4.8 million and is included in interest and other income (expense),
net in our consolidated statement of operations.
Foreign exchange forward contracts are designed to offset gains and losses on the underlying foreign
currency denominated assets and liabilities. Any movement in foreign currency exchange rates resulting in a
gain or loss on our foreign exchange forward contracts are offset by an opposing gain or loss in the
underlying foreign currency denominated assets and liabilities that were hedged and would not have a
material impact on our financial position.
The counterparties to these forward contracts are creditworthy multinational commercial or investment banks.
The risks of counterparty non-performance associated with these contracts are not considered to be material.
Notwithstanding our efforts to manage foreign exchange risks, there can be no assurances that our
mitigating or hedging activities will adequately protect us against the risks associated with foreign currency
fluctuations.
We do not hedge foreign currency translation risk. A hypothetical 10% adverse change in foreign currency
translation rates would result in a reduction of reported net sales of approximately $34.0 million and an
increase in reported loss from continuing operations before income taxes of approximately $1.6 million for
fiscal 2010. A hypothetical 10% adverse change in foreign currency translation rates would result in a
reduction of reported total assets of approximately $13.3 million. These estimates assume an adverse shift in
all foreign currency exchange rates, which do not always move in the same direction; actual results may differ
materially.
Item 8. Consolidated Financial Statements and Supplementary Data
The report of Independent Registered Public Accounting Firm, consolidated financial statements and notes
to consolidated financial statements follow below.