Electronic Arts 2009 Annual Report Download - page 161

Annual Report
currency forward contracts to mitigate foreign 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 each quarter end,
the fair value of the forward contracts generally is not significant. We do not use foreign currency option or
foreign currency forward contracts for speculative or trading purposes.
The information on the location and amounts of our derivative instruments that were reported at fair value in our
Consolidated Balance Sheet as of March 31, 2009 is as follows (in millions):
Derivative Assets
Reported in Other
Current Assets(a)
Foreign currency option contracts designated as hedging instruments under SFAS No. 133(b) .. $2
(a) As of March 31, 2009, the fair value of our foreign currency forward contracts not designated as hedging
instruments under SFAS No. 133 was immaterial and were reported in accrued and other current liabilities
on our Consolidated Balance Sheet.
(b) See Note 2 for information on our valuation techniques used to estimate the fair value of our derivative
instruments and see Note 14 for the net-of-tax amounts of our unrealized gains (losses) on foreign currency
option contracts.
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 research and development expenses, as appropriate, in the period when the forecasted transaction is recognized
in our 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. As of March 31, 2009, we had foreign currency
option contracts to purchase approximately $19 million in foreign currency and to sell approximately $65 million
of foreign currencies. As of March 31, 2009, these foreign currency option contracts outstanding had a total fair
value of $2 million, included in other current assets.
The effect of derivative instruments on our Consolidated Statements of Operations for the three months ended
March 31, 2009 was as follows (in millions):
Location of Gain Reclassified
from Accumulated OCI into
Income (Effective Portion)
Amount of Gain Reclassified
from Accumulated OCI into
Income (Effective Portion)(a)
Foreign currency option contracts designated as hedging
instruments under SFAS No. 133(b) ................. Netrevenue $4
(a) See our Consolidated Statements of Stockholders’ Equity for additional information on the net-of-tax
amounts of our realized gains and losses on foreign currency option contracts designated as hedging
instruments under SFAS No. 133.
(b) We had less than $1 million of losses recognized (effective portion) in other comprehensive income on
derivatives. See Note 14 for the net-of-tax amounts of our unrealized gains (losses) on foreign currency
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