Electronic Arts 2007 Annual Report Download - page 150

(c) Marketable Equity Securities
Marketable equity securities consisted of the following (in millions):
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
As of March 31, 2007 .................................... $91 $250 $ — $341
As of March 31, 2006 .................................... $91 $ 69 $— $160
Our investments in marketable equity securities consist of investments in common stock of publicly traded
companies. On February 3, 2005, we purchased approximately 19.9 percent of the then outstanding ordinary
shares (representing 18.4 percent of the voting rights at the time) of Ubisoft Entertainment (“Ubisoft”) for
$91 million. At March 31, 2007, we owned approximately 15.4 percent of the outstanding shares of Ubisoft
(representing 14.4 percent of the voting rights). As the fair value of our marketable equity securities exceeds
the cost basis of those investments as of March 31, 2007, we do not consider these investments to be
other-than-temporarily impaired. During fiscal 2006 and 2005, no other-than-temporary impairment charges
were recognized.
We did not have any realized gains or losses from the sale of marketable equity securities for the year ended
March 31, 2007. Realized gains from the sale of marketable equity securities were $1 million and $2 million
for the years ended March 31, 2006 and 2005, respectively.
(d) Investments in Affiliates
As of March 31, 2007 and 2006, the total investment in affiliates reflected on our Consolidated Balance Sheets
was $6 million and $11 million, respectively.
Prior to the acquisition of the remaining minority interest in Digital Illusions, C.E. (“DICE”), our investments
in affiliates included a warrant to acquire 2,327,602 additional shares of DICE common stock. Prior to April
2005, the warrant was accounted for as a derivative under SFAS No. 133. The warrant was amended in April
2005, such that only subscriptions of 500,000 or more shares could be exercised. Due to the limited trading
volume of DICE’s common stock, there was no market mechanism for settlement and the warrant was not
readily convertible to cash and was therefore accounted for under the cost method as prescribed by APB
No. 18. As of March 31, 2006, the cost basis of the warrant was $5 million. In connection with the acquisition
of the remaining minority interest of DICE in October 2006, the warrant was reclassed to goodwill for this
wholly owned subsidiary. See Note 4 of the Notes to Consolidated Financial Statements.
For cost method investments, we estimate that the fair value exceeds the cost basis of those investments.
Accordingly, we do not consider these investments to be other-than-temporarily impaired as of March 31,
2007. During fiscal 2007, 2006 and 2005, no other-than-temporary impairments in investments in affiliates
were recognized.
(3) DERIVATIVE FINANCIAL INSTRUMENTS
We account for our derivative and hedging activities under SFAS No. 133. The assets or liabilities associated
with our derivative instruments and hedging activities are recorded at fair value in other current assets or other
current liabilities, respectively, in our Consolidated Balance Sheets. As discussed below, the accounting for
gains and losses resulting from changes in fair value depends on the use of the derivative and whether it is
designated and qualifies for hedge accounting.
We transact business in various foreign currencies and have significant international sales and expenses
denominated in foreign currencies, subjecting us to foreign currency risk. We purchase foreign currency option
contracts, generally with maturities of 15 months or less, to reduce the volatility of cash flows primarily
related to forecasted revenue and expenses denominated in certain foreign currencies. In addition, we utilize
foreign exchange forward contracts to mitigate foreign currency exchange rate risk associated with foreign-
currency-denominated assets and liabilities, primarily intercompany receivables and payables. The forward
contracts generally have a contractual term of approximately one month and are transacted near month-end;
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