Electronic Arts 1999 Annual Report Download - page 34

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(c) Foreign Currency Forward Exchange Contracts
The Company utilizes foreign currency forward exchange contracts to hedge foreign currency market exposures of under-
lying assets, liabilities and other obligations, primarily certain intercompany receivables that are denominated in foreign
currencies. The Company does not use forward exchange contracts for speculative or trading purposes. The Company’s
accounting policies for these instruments are based on the Company’s designation of such instruments as hedging trans-
actions. The criteria the Company uses for designating an instrument as a hedge include the instrument’s effectiveness
in risk reduction and one-to-one matching of forward exchange contracts to underlying transactions. Gains and losses on
currency forward contracts that are designated and effective as hedges of firm commitments are deferred and recognized
in income in the same period that the underlying transactions are settled. Gains and losses on currency forward contracts
that are designated and effective as hedges of existing transactions are recognized in income in the same period as losses
and gains on the underlying transactions are recognized and generally offset. Gains and losses on any instruments not
meeting the above criteria would be recognized in income in the current period. The Company transacts business in vari-
ous foreign currencies. At March 31, 1999, the Company had foreign exchange contracts, all with maturities of less than
nine months, to purchase and sell approximately $178,178,000 in foreign currencies, primarily in British Pounds, Canadian
Dollars, German Deutschmarks, Japanese Yen and other European currencies.
Fair value represents the difference in value of the contracts at the spot rate and the forward rate, plus the unamortized
premium or discount. At March 31, 1999, fair value of these contracts is not significant. The counterparties to these
contracts are substantial and creditworthy multinational commercial banks. The risks of counterparty nonperformance
associated with these contracts are not considered to be material.