Electronic Arts 2007 Annual Report Download - page 132

Neowiz Investment
In April 2007, we expanded our commercial agreements with and made strategic equity investments in Neowiz
Corporation and its online gaming subsidiary, Neowiz Games. We purchased stock representing in aggregate
approximately 19 percent of each of Neowiz and Neowiz Games for approximately $108 million. Based in
Korea, Neowiz is an online media and gaming company with which we partnered in 2006 to launch EA Sports
FIFA Online in Korea.
Legal Proceedings
On September 14, 2006, we received an informal inquiry from the Securities and Exchange Commission
requesting certain documents and information relating to our stock option grant practices from January 1, 1997
through the date of the letter. We have cooperated to date with all matters related to this request. We most
recently provided the SEC with information in December 2006. The SEC has not asked for further information
since that time.
We are also subject to claims and litigation arising in the ordinary course of business. We believe that any
liability from any reasonably foreseeable disposition of such claims and litigation, individually or in the
aggregate, would not have a material adverse effect on our consolidated financial position or results of
operations.
Director Indemnity Agreements
We have entered into indemnification agreements with each of the members of our Board of Directors at the
time they joined the Board to indemnify them to the extent permitted by law against any and all liabilities,
costs, expenses, amounts paid in settlement and damages incurred by the directors as a result of any lawsuit,
or any judicial, administrative or investigative proceeding in which the directors are sued or charged as a result
of their service as members of our Board of Directors.
INFLATION
We believe the impact of inflation on our results of operations has not been significant in any of the past three
fiscal years.
Item 7A: Quantitative and Qualitative Disclosures About Market Risk
Market Risk
We are exposed to various market risks, including changes in foreign currency exchange rates, interest rates
and market prices. Market risk is the potential loss arising from changes in market rates and market prices. We
employ established policies and practices to manage these risks. Foreign exchange option and forward
contracts are used to hedge anticipated exposures or mitigate some existing exposures subject to foreign
exchange risk as discussed below. We have not historically, nor do we currently, hedge our short-term
investment portfolio. We do not consider our cash and cash equivalents to be exposed to significant interest
rate risk because our cash and cash equivalent portfolio consists of highly liquid investments with original
maturities of three months or less (see Note 2 to the Consolidated Financial Statements included in Item 8 of
this report). We also do not currently hedge our market price risk relating to our equity investments. Further,
we do not enter into derivatives or other financial instruments for trading or speculative purposes (see Note 3
to the Consolidated Financial Statements included in Item 8 of this report).
Foreign Currency Exchange Rate Risk
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 purchasing option contracts that
generally have maturities of 15 months or less. These transactions are designated and qualify as cash flow
hedges. The derivative assets associated with our hedging activities are recorded at fair value in other current
assets in our Consolidated Balance Sheets. The effective portion of gains or losses resulting from changes in
fair value of these hedges is initially reported, net of tax, as a component of accumulated other comprehensive
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