Electronic Arts 2002 Annual Report Download - page 57

Long-term and short-term held-to-maturity investments include commercial notes with original maturities
of five to eight years secured by U.S.Treasury Notes which enable the Company to take advantage of cer-
tain tax incentives from its Puerto Rico operation.These investments are treated as held-to-maturity for
financial reporting purposes.
The fair value of held-to-maturity securities at March 31, 2002 was $8,653,000 which included gross
unrealized gains of $253,000. The fair value of held-to-maturity securities at March 31, 2001 was
$8,601,000 which included gross unrealized gains of $201,000.
(b) Marketable Securities
Marketable securities are comprised of equity securities.The Company has accounted for investments in
equity securities as “available-for-sale” and has stated applicable investments at fair value, with net unreal-
ized appreciation (depreciation) reported as a separate component of accumulated other comprehensive
loss in stockholders’ equity. Marketable securities had an aggregate cost of $6,954,000 and $7,066,000
at March 31, 2002 and 2001, respectively. At March 31, 2002, marketable securities included gross unre-
alized losses of $85,000. At March 31, 2001, marketable securities included gross unrealized gains of
$2,956,000.There were no sales of marketable securities in fiscal years 2002 and 2001.
(c) Foreign Currency Forward Exchange Contracts
The Company utilizes foreign exchange contracts to hedge foreign currency exposures of underlying assets
and liabilities, primarily certain intercompany receivables that are denominated in foreign currencies,
thereby limiting its risk.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 transactions.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 des-
ignated 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.
Net Loss Recognized in Other Income Relating to Fair Value Hedging of the Balance Sheet:
(In thousands)
YEAR ENDED MARCH 31, 2002 2001
Gain (loss) on foreign currency assets and liabilities $991 $(26,104)
Gain (loss) on hedges of foreign currency assets and liabilities (1,403) 25,216
Net loss recognized in other income $(412) $(888)
The Company transacts business in various foreign currencies. At March 31, 2002, the Company had for-
eign exchange contracts, all with maturities of less than three months, to purchase and sell approximately
$226,330,000 in foreign currencies, primarily in British Pounds, European Currency Units (“Euros”),
Canadian Dollars, and other 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, 2002, 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. Notwith-
standing the Company’s efforts to manage foreign exchange risk, there can be no assurances that it’s hedging
activities will adequately protect against the risks associated with foreign currency fluctuations.
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