Electronic Arts 2008 Annual Report Download - page 150

We did not have any realized gains or losses from the sale of marketable equity securities for the years ended
March 31, 2008 and 2007. Realized gains from the sale of marketable equity securities were $1 million for the
year ended March 31, 2006.
(d) Other Investments Included in Other Assets
In April 2007, we also purchased all of the then-outstanding non-voting preferred shares of Neowiz for
approximately $27 million and have included it in other assets in our Consolidated Balance Sheets. The
preferred shares became convertible at our option into approximately 4 percent of the outstanding voting
common shares of Neowiz in April 2008. We account for our investment in Neowiz under the cost method as
prescribed by APB No. 18, as amended, “The Equity Method of Accounting for Investments in Common
Stock”.
During fiscal 2008, we recognized an impairment charge of $9 million with respect to our Neowiz preferred
stock. Due to various factors, including the extent and duration during which the fair value had been below
cost, we concluded the decline in value was other-than-temporary as defined by APB No. 18, as amended. The
$9 million impairment is included in losses on strategic investments on our Consolidated Statements of
Operations.
During fiscal 2007 and 2006, no other-than-temporary impairment in other investments 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 three months or less and are transacted near
month-end. At quarter end, the fair value of the forward contracts generally is not significant. We do not use
foreign currency option or foreign exchange forward contracts for speculative or trading purposes.
(a) 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 is subsequently
reclassified into net revenue or operating expenses, as appropriate, in the period when the forecasted
transaction is 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.
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