Electronic Arts 2007 Annual Report Download - page 151

therefore, the fair value of the forward contracts generally is not significant at each month-end. We do not use
foreign currency option or foreign exchange forward contracts for speculative or trading purposes.
Cash Flow Hedging Activities
Our foreign currency option contracts are designated and qualify as cash flow hedges under SFAS No. 133.
The effectiveness of the cash flow hedge contracts, including time value, is assessed monthly using regression
as well as other timing and probability criteria required by SFAS No. 133. To receive hedge accounting
treatment, all hedging relationships are formally documented at the inception of the hedge and the hedges
must be highly effective in offsetting changes to future cash flows on hedged transactions. 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 income in stockholders’ equity. The gross amount of the
effective portion of gains or losses resulting from changes in fair value of these hedges was subsequently
reclassified into net revenue or operating expenses, as appropriate, in the period when the forecasted
transaction was recognized in the Consolidated Statements of Operations. The ineffective portion of gains or
losses resulting from changes in fair value, if any, is reported in each period in interest and other income, net
in our Consolidated Statements of Operations. The effective portion of hedges recognized in accumulated other
comprehensive income at the end of each year will be reclassified to earnings within 12 months.
The following table summarizes the activity in accumulated other comprehensive income, net of related taxes,
with regard to the changes in fair value of derivative instruments, for fiscal 2007 and 2006 (in millions):
2007 2006
Year Ended
March 31,
Beginning balance of unrealized gains (losses), net, on derivative instruments .............. $— $—
Change in unrealized gains (losses), net, on derivative instruments ....................... (4) 4
Reclassification adjustment for (gains) losses, realized on derivative instruments to
net income, net:
Net revenue ............................................................. 3 (4)
Operating expenses ........................................................ 1 —
Ending balance of unrealized gains (losses), net, on derivative instruments ................. $— $—
Hedging ineffectiveness for the years ended March 31, 2007 and 2006 was not significant. The amount of
hedging ineffectiveness recognized in interest and other income, net, was a loss of $1 million for the year
ended March 31, 2005.
Balance Sheet Hedging Activities
Our foreign exchange forward contracts are not designated as hedging instruments under SFAS No. 133.
Accordingly, any gains or losses resulting from changes in the fair value of the forward contracts are reported
in interest and other income, net. The gains and losses on these forward contracts generally offset the gains
and losses associated with the underlying foreign-currency-denominated assets and liabilities, which are also
reported in interest and other income, net, in our Consolidated Statements of Operations.
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