Electronic Arts 2010 Annual Report Download - page 140

currencies. Of this amount, $293 million represented contracts to sell foreign currencies in exchange for U.S.
dollars, $127 million to purchase foreign currency in exchange for U.S. dollars and $11 million to sell foreign
currency in exchange for British pounds sterling. 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. The fair value of our foreign currency forward contracts was immaterial as of March 31, 2010 and
March 31, 2009.
We believe the counterparties to these foreign currency forward and foreign currency 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, 2010, a hypothetical adverse foreign currency exchange rate movement of 10 percent or 15
percent would have resulted in potential declines in the fair value of the premiums on our foreign currency 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 foreign
currency forward contracts used in balance sheet hedging of $42 million and $63 million, respectively, as of
March 31, 2010. 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.
As of March 31, 2010 and 2009, our short-term investments were classified as available-for-sale securities and,
consequently, were 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
stockholders’ equity. Our portfolio of short-term investments consisted of the following investment categories,
summarized by fair value as of March 31, 2010 and 2009 (in millions):
As of March 31,
2010 2009
Corporate bonds ................................................................ $233 $131
U.S. agency securities ............................................................ 115 109
U.S. Treasury securities .......................................................... 83 200
Commercial paper ............................................................... 1 79
Asset-backed securities ........................................................... — 15
Total short-term investments ..................................................... $432 $534
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