THQ 2011 Annual Report Download - page 55

Cost of Sales — License Amortization and Royalties. Prior to April 1, 2010, we presented "Venture partner expense" related to
the license agreement that the THQ / JAKKS Pacific LLC ("LLC") joint venture, comprised of THQ and JAKKS Pacific, Inc.
("Jakks"), had with World Wrestling Entertainment, Inc. ("WWE") as a separate line item in the "Cost of sales" section of our
consolidated statements of operations. On December 31, 2009, the LLC was dissolved, the WWE license held by the LLC was
terminated, and a new eight-year license was entered into directly between THQ and WWE. The final venture partner expenses
related to the LLC were recorded as of December 31, 2009. In this Annual Report on Form 10-K ("10-K"), we include the historical
venture partner expense for fiscal 2010, within "Cost of sales — License amortization and royalties" in our consolidated statements
of operations for comparability. Venture partner expense in fiscal 2011, 2010 and 2009 was zero, $14.5 million and $19.7 million,
respectively (see “Note 18 — Joint Venture and Settlement Agreements).
Fiscal Year. We report our fiscal year on a 52/53-week period with our fiscal year ending on the Saturday nearest March 31. The
results of operations for the fiscal years ended March 31, 2011, 2010 and 2009 contain the following number of weeks:
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Year ended March 31, 2011 ("fiscal 2011")
Year ended March 31, 2010 ("fiscal 2010")
Year ended March 31, 2009 ("fiscal 2009")
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52 weeks
53 weeks
52 weeks
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April 2, 2011
April 3, 2010
March 28, 2009
For simplicity, all fiscal periods in our consolidated financial statements and accompanying notes are presented as ending on a
calendar month end.
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 net sales and expenses during the reporting period. Actual results could differ from those estimates. The most significant estimates
relate to accounts receivable allowances, licenses, software development, revenue recognition, stock-based compensation expense
and income taxes.
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. 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
(expense), net" in our consolidated statements of operations. For fiscal 2011, foreign currency transaction gains were $0.3 million,
compared to a loss of $1.1 million and a gain of $0.8 million in fiscal 2010 and 2009, 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 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 accumulated other comprehensive income. 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 (expense),
net" in our consolidated statements of operations.
In general, investments with original maturities of greater than three months and remaining maturities of less than one year when
purchased 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.
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 assets or liabilities associated with our derivative instruments and hedging activities are recorded at fair value in "Prepaid
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