Electronic Arts 2016 Annual Report Download - page 130

Contractual Obligations and Commercial Commitments
Note 13 — Commitments and Contingencies to the Consolidated Financial Statements in this Form 10-K as it
relates to our contractual obligations and commercial commitments is incorporated by reference into this Item 7.
OFF-BALANCE SHEET ARRANGEMENTS
As of March 31, 2016, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of
Regulation S-K promulgated by the SEC, that have or are reasonably likely to have a current or future effect on
our financial condition, changes in financial condition, revenues and expenses, results of operations, liquidity,
capital expenditures, or capital resources that are material to investors.
INFLATION
We believe the impact of inflation on our results of operations has not been significant in any of the past three
fiscal years.
Item 7A: Quantitative and Qualitative Disclosures About Market Risk
MARKET RISK
We are exposed to various market risks, including changes in foreign currency exchange rates, interest rates and
market prices, which have experienced significant volatility. Market risk is the potential loss arising from
changes in market rates and market prices. We employ established policies and practices to manage these risks.
Foreign currency forward contracts are used to hedge anticipated exposures or mitigate some existing exposures
subject to foreign exchange risk as discussed below. While we do not hedge our short-term investment portfolio,
we protect our short-term investment portfolio against different market risks, including interest rate risk as
discussed below. Our cash and cash equivalents portfolio consists of highly liquid investments with insignificant
interest rate risk and original or remaining maturities of three months or less at the time of purchase. We do not
enter into derivatives or other financial instruments for speculative trading purposes and do not hedge our market
price risk relating to marketable equity securities, if any.
Foreign Currency Exchange Rate Risk
Foreign Currency Exchange Rates. International sales are a fundamental part of our business, and the
strengthening of the U.S dollar (particularly relative to the Euro, British pound sterling, Australian dollar,
Chinese yuan and South Korea won) has a negative impact on our reported international net revenue, but a
positive impact on our reported international operating expenses (particularly the Swedish krona and Canadian
dollar) because these amounts are translated at lower rates as compared to periods in which the U.S. dollar is
weaker. While we use foreign currency hedging contracts to mitigate some foreign currency exchange risk, these
activities are limited in the protection that they provide us and can themselves result in losses. Foreign currency
exchange rates had a negative impact on our reported net revenue during fiscal year 2016 as compared to fiscal
year 2015, but the strengthening of the U.S. dollar had a positive impact on our reported operating expenses as a
significant portion of those expenses are incurred outside the United States.
Cash Flow Hedging Activities. From time to time, we hedge a portion of our foreign currency risk related to
forecasted foreign-currency-denominated sales and expense transactions by purchasing foreign currency forward
contracts that generally have maturities of 18 months or less. These transactions are designated and qualify as
cash flow hedges. Our hedging programs are designed to reduce, but do not entirely eliminate, the impact of
currency exchange rate movements in net revenue and research and development expenses.
Balance Sheet Hedging Activities. We use foreign currency forward contracts to mitigate foreign currency 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 three
months or less and are transacted near month-end.
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