Electronic Arts 2012 Annual Report Download - page 104

Uncertainty and adverse changes in the economy could have a material adverse impact on our business
and operating results.
Declines in consumer spending resulting from adverse changes in the economy have in the past negatively
impacted our business. Further economic distress may result in a decrease in demand for our products,
particularly during key product launch windows, which could have a material adverse impact on our operating
results and financial condition. In particular, we derive a substantial proportion of our revenues in Europe.
Continued weakness and instability in European markets could result in a loss of consumer confidence in the
economy and a decrease in discretionary spending, resulting in a material adverse impact on our operating
results. Uncertainty and adverse changes in the economy could also increase the risk of material losses on our
investments, increase costs associated with developing and publishing our products, increase the cost and
decrease the availability of sources of financing, and increase our exposure to material losses from bad debts, any
of which could have a material adverse impact on our financial condition and operating results. In addition, if we
experience further deterioration in our market capitalization or our financial performance, we could be required
to recognize significant impairment charges in future periods.
Our business is subject to currency fluctuations.
International sales are a fundamental part of our business. For the fiscal year ended March 31, 2012, international
net revenue comprised 52 percent of our total net revenue. We expect international sales to continue to account
for a significant portion of our total net revenue. Such sales may be subject to unexpected regulatory
requirements, tariffs and other barriers. Additionally, foreign sales are primarily made in local currencies, which
may fluctuate against the U.S. dollar. In addition, our foreign investments and our cash and cash equivalents
denominated in foreign currencies are subject to currency fluctuations. We use foreign currency forward
contracts to mitigate some foreign currency risk associated with foreign currency denominated monetary assets
and liabilities (primarily certain intercompany receivables and payables) to a limited extent and foreign currency
option contracts to hedge foreign currency forecasted transactions (primarily related to a portion of the revenue
and expenses denominated in foreign currency generated by our operational subsidiaries). However, these
activities are limited in the protection they provide us from foreign currency fluctuations and can themselves
result in losses. In the past, the disruption in the global financial markets has impacted many of the financial
institutions with which we do business, and we are subject to counterparty risk with respect to such institutions
with whom we enter into hedging transactions. A sustained decline in the financial stability of financial
institutions as a result of the disruption in the financial markets could negatively impact our treasury operations,
including our ability to secure credit-worthy counterparties for our foreign currency hedging programs.
Accordingly, our results of operations, including our reported net revenue, operating expenses and net income,
and financial condition can be adversely affected by unfavorable foreign currency fluctuations, especially the
Euro, British pound sterling and Canadian dollar. In particular, because we derive a substantial proportion of our
revenues from sales in Europe, the uncertainty regarding the ability of certain European countries to continue to
service their sovereign debt obligations and related European financial restructuring efforts may cause
fluctuations in the value of the Euro that could adversely affect our revenue growth and profit margins on sales
outside of the United States, and thus impact our operating results (expressed in US dollars) in future periods.
Further, the continued sovereign debt crisis in Europe could lead to increased counterparty risk with respect to
financial institutions and other business partners, who are particularly vulnerable to the instability in certain
European markets.
Volatility in the capital markets may adversely impact the value of our investments and could cause us to
recognize significant impairment charges in our operating results.
Our portfolio of short-term investments and marketable equity securities is subject to volatility in the capital
markets and to national and international economic conditions. In particular, our international investments can be
subject to fluctuations in foreign currency and our short-term investments are susceptible to changes in short-term
interest rates. These investments are also impacted by declines in value attributable to the credit-worthiness of the
issuer. From time to time, we may liquidate some or all of our short-term investments or marketable equity
securities to fund operational needs or other activities, such as capital expenditures, strategic investments or
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