Electronic Arts 2014 Annual Report Download - page 89

Annual Report
Further, entertainment software piracy is a persistent problem in our industry. The growth in peer-to-peer
networks and other channels to download pirated copies of our products, the increasing availability of broadband
access to the Internet and the proliferation of technology designed to circumvent the protection measures used
with our products all have contributed to an expansion in piracy. Though we take technical steps to make the
unauthorized copying of our products more difficult, as do the providers of the video game systems, personal
computers, mobile phones and tablets on which our games are played, these efforts may not be successful in
controlling the piracy of our products.
While legal protections exist to combat piracy and other forms of unauthorized copying, preventing and curbing
infringement through enforcement of our intellectual property rights may be difficult, costly and time consuming,
particularly in countries where laws are less protective of intellectual property rights. Further, the scope of the
legal protection of copyright and prohibitions against the circumvention of technological protection measures to
protect copyrighted works are often under scrutiny by courts and governing bodies. The repeal or weakening of
laws intended to combat piracy, protect intellectual property and prohibit the circumvention of technological
protection measures could make it more difficult for us to adequately protect against piracy. These factors could
have a negative effect on our growth and profitability in the future.
Our business is subject to currency fluctuations.
International sales are a fundamental part of our business. For the fiscal year ended March 31, 2014, international
net revenue comprised 58 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 hedging
contracts to mitigate some foreign currency risk. 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 a 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, Canadian dollar and
Swedish Krona.
We utilize debt financing and such indebtedness could adversely impact our business and financial
condition.
In July 2011, we issued $632.5 million aggregate principal amount of 0.75% Convertible Senior Notes due 2016
(the “Notes”), resulting in debt service obligations on the Notes of approximately $5 million per year. In
addition, in August 2012, we entered into an unsecured committed $500 million revolving credit facility. While
the facility is currently undrawn, we may use the proceeds of any future borrowings for general corporate
purposes. The credit facility contains affirmative, negative and financial covenants, including a maximum
capitalization ratio and minimum liquidity requirements.
We intend to fulfill our debt service obligations from cash generated by our operations and from our existing
cash and investments. We may enter into other financial instruments in the future.
Our indebtedness could have significant negative consequences. For example, it could:
• increase our vulnerability to general adverse economic and industry conditions;
• limit our ability to obtain additional financing;
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