Electronic Arts 2011 Annual Report Download - page 152

other-than-temporarily impaired, we will recognize an impairment charge at that time in our Consolidated
Statements of Operations. The preferred shares became convertible at our option into approximately 4 percent of
the outstanding voting common shares of Neowiz in April 2008. During the fourth quarter of fiscal year 2011, we
exercised this option and converted all of the preferred shares to common shares as discussed above.
We evaluated these investments for impairment quarterly and during fiscal year 2009, we recognized an
impairment charge of $10 million. Due to various factors, including but not limited to, the extent and duration
during which the fair value had been below cost, we concluded the decline in value was other-than-temporary.
The $10 million impairment is included in gains (losses) on strategic investments, net, in our Consolidated
Statements of Operations. We did not recognize any impairment charges in fiscal years 2011 and 2010 on our
other investments.
(4) DERIVATIVE FINANCIAL INSTRUMENTS
The assets or liabilities associated with our derivative instruments and hedging activities are recorded at fair
value in other current assets or accrued and other current liabilities, respectively, on 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 instrument 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
currency forward contracts to mitigate foreign exchange rate risk associated with foreign-currency-denominated
monetary assets and liabilities, primarily intercompany receivables and payables. The foreign currency 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 foreign currency forward contracts generally is not significant. We
do not use foreign currency option or foreign currency forward contracts for speculative or trading purposes.
Cash Flow Hedging Activities
Our foreign currency option contracts are designated and qualify as cash flow hedges. The effectiveness of the
cash flow hedge contracts, including time value, is assessed monthly using regression analysis, as well as other
timing and probability criteria. To qualify for hedge accounting treatment, all hedging relationships are formally
documented at the inception of the hedges and 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 the 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 the
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. In the event that the gains or losses in accumulated other comprehensive income are deemed to be
ineffective, the ineffective portion of gains or losses resulting from changes in fair value, if any, is reclassified to
interest and other income, net, in our Consolidated Statements of Operations. In the event that the underlying
forecasted transactions do not occur, or it becomes remote that they will occur, within the defined hedge period,
the gains or losses on the related cash flow hedges are reclassified from accumulated other comprehensive
income to interest and other income, net, in our Consolidated Statements of Operations. During the reporting
periods, all forecasted transactions occurred and, therefore, there were no such gains or losses reclassified into
interest and other income, net. As of March 31, 2011, we had foreign currency option contracts to purchase
approximately $40 million in foreign currency and to sell approximately $10 million of foreign currency. All of
the foreign currency option contracts outstanding as of March 31, 2011 will mature in the next 12 months. As of
March 31, 2010, we had foreign currency option contracts to purchase approximately $18 million in foreign
currency and to sell approximately $30 million of foreign currencies. As of March 31, 2011 and 2010, the fair
value of these outstanding foreign currency option contracts was immaterial and are included in other current
assets.
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