THQ 2012 Annual Report Download - page 49

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41
rates; however, the contractual terms of the investments do not permit the issuer to call, prepay or otherwise settle the
investments at prices less than the stated par value. Interest income recognized in fiscal 2012 was $0.5 million and is included
in "Interest and other income (expense), net" in our consolidated statements of operations.
At March 31, 2012, we had no outstanding balances under the Credit Facility.
Foreign Currency Exchange Rate Risk
We transact business in many different foreign currencies and are exposed to financial market risk resulting from fluctuations
in foreign currency exchange rates, particularly Australian Dollars ("AUD"), Euros ("EUR"), and Great British Pounds
("GBP"), which may result in a gain or loss of earnings to us. Our international business is subject to risks typical of an
international business, including, but not limited to, foreign currency exchange rate volatility. Accordingly, our future results
could be materially and adversely affected by changes in foreign currency exchange rates. Throughout the year, we frequently
monitor the volatility of the AUD, EUR, and GBP (and all other applicable currencies).
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 2012 and 2011, we did not enter into any foreign exchange
forward contracts related to cash flow hedging activities.
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 currency 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 "Prepaid expenses and other current assets" or "Accrued and 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 our 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, 2012, we had foreign currency exchange forward contracts related to balance sheet hedging activities in the
notional amount of $92.2 million with a fair value that approximates zero. The contracts consisted primarily of AUD, CAD,
EUR, and GBP. The net gain recognized from these contracts during fiscal 2012 was $0.8 million and is included in "Interest
and other income (expense), net" in our consolidated statements of operations.
Foreign currency 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
currency 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 credit-worthy 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 currency 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 $32.6 million and an increase in reported loss from
continuing operations before income taxes of approximately $0.2 million for fiscal 2012. A hypothetical 10% adverse change
in foreign currency translation rates would result in a reduction of reported total assets of approximately $21.8 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.