Electronic Arts 2008 Annual Report Download - page 132

Director Indemnity Agreements
We 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
income in stockholders’ equity and subsequently reclassified into net revenue or operating expenses, as
appropriate in the period when the forecasted transaction is recorded. 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. Our hedging programs are designed to reduce, but do not entirely
eliminate, the impact of currency exchange rate movements in revenue and operating expenses. As of
March 31, 2008, we had foreign currency option contracts to purchase approximately $48 million in foreign
currencies and to sell approximately $254 million of foreign currencies. As of March 31, 2008, these foreign
currency option contracts outstanding had a total fair value of $5 million, included in other current assets. As
of March 31, 2007, we had foreign currency option contracts to purchase approximately $28 million in foreign
currencies and to sell approximately $72 million of foreign currencies. As of March 31, 2007, these foreign
currency option contracts outstanding had a total fair value of less than $1 million, included in other current
assets.
Balance Sheet Hedging Activities. We use foreign exchange forward contracts to mitigate foreign currency
risk associated with foreign-currency-denominated assets and liabilities, primarily intercompany receivables
and payables. The forward contracts generally have a contractual term of three months or less and are
transacted near month-end. Our foreign exchange forward contracts are not designated as hedging instruments
under SFAS No. 133 and are accounted for as derivatives whereby the fair value of the contracts are reported
as other current assets or other current liabilities in our Consolidated Balance Sheets, and gains and losses
56