Electronic Arts 2009 Annual Report Download - page 140

payables. The forward contracts generally have a contractual term of three months or less and are transacted near
month-end. Our foreign currency 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 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, 2009, we had foreign currency forward contracts to purchase and sell approximately $63 million in
foreign currencies. Of this amount, $53 million represented contracts to sell foreign currencies in exchange for
U.S. dollars, $7 million to purchase foreign currencies in exchange for U.S. dollars and $3 million to sell foreign
currencies in exchange for British pounds sterling. As of March 31, 2008, we had forward foreign currency
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, $48 million to purchase foreign
currencies in exchange for U.S. dollars and $13 million to sell foreign currencies in exchange for British pounds
sterling. The fair value of our forward contracts was immaterial as of March 31, 2009 and 2008.
The counterparties to these forward and option contracts are creditworthy multinational commercial banks. While
we believe the risk of counterparty nonperformance is not material, the disruption in the global financial markets
has impacted some of the financial institutions with which we do business. A sustained decline in the financial
stability of financial institutions as a result of the disruption in the financial markets could affect our ability to
secure credit-worthy counterparties for our foreign currency hedging programs.
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, 2009, a hypothetical adverse foreign currency exchange rate movement of 10 percent or 15
percent would have resulted in potential losses 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 $6
million and $9 million, respectively, as of March 31, 2009. This sensitivity analysis assumes a parallel adverse
shift of all foreign currency exchange rates against the U.S. dollar; however, all foreign currency exchange rates
do not always move in such manner and 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 investments mature relatively
quickly and are required to be reinvested at the then current market rates, interest income on a portfolio
consisting of short-term investments is more subject to market fluctuations than a portfolio of longer term
investments. Additionally, the contractual terms of the investments do not permit the issuer to call, prepay or
otherwise settle the investments at prices less than the stated par value. Our investments are held for purposes
other than trading. Also, we do not use derivative financial instruments in our short-term investment portfolio.
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