Electronic Arts 2008 Annual Report Download - page 133

from changes in fair value are reported in interest and other income, net. The gains and losses on these
forward contracts generally offset the gains and losses on the underlying foreign-currency-denominated assets
and liabilities, which are also reported in interest and other income, net, in our Consolidated Statements of
Operations. In certain cases, the amount of such gains and losses will significantly differ from the amount of
gains and losses recognized on the underlying foreign currency denominated asset or liability, in which case
our results will be impacted. As of March 31, 2008, we had forward foreign exchange contracts to purchase
and sell approximately $540 million in foreign currencies. Of this amount, $479 million represented contracts
to sell foreign currencies in exchange for U.S. dollars, $13 million to sell foreign currencies in exchange for
British pounds sterling and $48 million to purchase foreign currencies in exchange for U.S. dollars. As of
March 31, 2007, we had forward foreign exchange contracts to purchase and sell approximately $104 million
in foreign currencies. Of this amount, $73 million represented contracts to sell foreign currencies in exchange
for U.S. dollars, $8 million to sell foreign currencies in exchange for British pounds sterling and $23 million
to purchase foreign currencies in exchange for U.S. dollars. The fair value of our forward contracts was
immaterial as of March 31, 2008 and March 31, 2007.
The counterparties to these forward and option contracts are creditworthy multinational commercial banks;
therefore, the risk of counterparty nonperformance is not considered to be material.
Notwithstanding our efforts to mitigate some foreign currency exchange rate risks, there can be no assurance
that our hedging activities will adequately protect us against the risks associated with foreign currency
fluctuations. As of March 31, 2008, a hypothetical adverse foreign currency exchange rate movement of
10 percent or 15 percent would have resulted in a potential loss in fair value of our option contracts used in
cash flow hedging of $4 million in both scenarios. As of March 31, 2007, a hypothetical adverse foreign
currency exchange rate movement would have resulted in a potential loss in fair value of our option contracts
used in cash flow hedging of $1 million in both scenarios. A hypothetical adverse foreign currency exchange
rate movement of 10 percent or 15 percent would have resulted in potential losses on our forward contracts
used in balance sheet hedging of $56 million and $82 million, respectively, as of March 31, 2008, and
$9 million and $14 million, respectively, as of March 31, 2007. This sensitivity analysis assumes a parallel
adverse shift in foreign currency exchange rates against the U.S. dollar. Exchange rates do not always move in
the same direction. Actual results may differ materially.
Interest Rate Risk
Our exposure to market risk for changes in interest rates relates primarily to our short-term investment
portfolio. We manage our interest rate risk by maintaining an investment portfolio generally consisting of debt
instruments of high credit quality and relatively short maturities. However, because short-term securities
mature relatively quickly and are required to be reinvested at the then current market rates, interest income on
a portfolio consisting of short-term securities is more subject to market fluctuations than a portfolio of longer
term securities. Additionally, the contractual terms of the securities do not permit the issuer to call, prepay or
otherwise settle the securities at prices less than the stated par value of the securities. Our investments are held
for purposes other than trading. Also, we do not use derivative financial instruments in our short-term
investment portfolio.
As of March 31, 2008 and 2007, our short-term investments were classified as available-for-sale and,
consequently, recorded at fair market value with unrealized gains or losses resulting from changes in fair value
reported as a separate component of accumulated other comprehensive income, net of any tax effects, in
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