ELECTRONIC ARTS INC. [EA] Filings

10-Q 1 ea-20210930.htm 10-Q ea-20210930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2021


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File No. 000-17948

ELECTRONIC ARTS INC.

(Exact name of registrant as specified in its charter)

Delaware

94-2838567

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)

209 Redwood Shores Parkway

94065

Redwood City

California

(Address of principal executive offices)

(Zip Code)

(650) 628-1500

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol

Name of Each Exchange on Which Registered

Common Stock, $0.01 par value

NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☑	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐		☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange

Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

As of November 5, 2021, there were 282,808,143 shares of the Registrant’s Common Stock, par value $0.01 per share, outstanding.

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ELECTRONIC ARTS INC.

FORM 10-Q

FOR THE PERIOD ENDED SEPTEMBER 30, 2021

Table of Contents


		Page
Part I - FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets as of September 30, 2021 and March 31, 2021	3
	Condensed Consolidated Statements of Operations for the Three and Six Months Ended September 30, 2021 and 2020	4
	Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended September 30, 2021 and 2020	5
	Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended September 30, 2021 and 2020	6
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended September 30, 2021 and 2020	7
	Notes to Condensed Consolidated Financial Statements	8
	Report of Independent Registered Public Accounting Firm	31
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	48
Item 4.	Controls and Procedures	50

Part II - OTHER INFORMATION
Item 1.	Legal Proceedings	51
Item 1A.	Risk Factors	51
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	64
Item 3.	Defaults Upon Senior Securities	64
Item 4.	Mine Safety Disclosures	64
Item 6.	Exhibits	64
Exhibit Index		65
Signature		66

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PART I – FINANCIAL INFORMATION

Item 1.Condensed Consolidated Financial Statements (Unaudited)

ELECTRONIC ARTS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS


(Unaudited) (In millions, except par value data)	September 30, 2021		March 31, 2021 (a)
ASSETS
Current assets:
Cash and cash equivalents	$	1,630	$	5,260
Short-term investments	342		1,106
Receivables, net	1,031		521
Other current assets	387		326
Total current assets	3,390		7,213
Property and equipment, net	516		491
Goodwill	5,459		2,868
Acquisition-related intangibles, net	1,080		309
Deferred income taxes, net	2,139		2,045
Other assets	435		362
TOTAL ASSETS	$	13,019	$	13,288

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	136	$	96
Accrued and other current liabilities	1,119		1,341
Deferred net revenue (online-enabled games)	1,322		1,527
Total current liabilities	2,577		2,964
Senior notes, net	1,877		1,876
Income tax obligations	318		315
Deferred income taxes, net	68		43
Other liabilities	323		250
Total liabilities	5,163		5,448
Commitments and contingencies (See Note 12)
Stockholders’ equity:

Common stock, $0.01 par value. 1,000 shares authorized; 284 and 286 shares issued and outstanding, respectively	3		3
Additional paid-in capital	—		—
Retained earnings	7,855		7,887
Accumulated other comprehensive loss	(2)		(50)
Total stockholders’ equity	7,856		7,840
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	13,019	$	13,288

See accompanying Notes to Condensed Consolidated Financial Statements (unaudited).

(a) Derived from audited Consolidated Financial Statements.

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ELECTRONIC ARTS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


(Unaudited)	Three Months Ended September 30,				Six Months Ended September 30,
(In millions, except per share data)	2021		2020		2021		2020
Net revenue	$	1,826	$	1,151	$	3,377	$	2,610
Cost of revenue	494		286		809		574
Gross profit	1,332		865		2,568		2,036
Operating expenses:
Research and development	553		421		1,068		859
Marketing and sales	233		156		423		277
General and administrative	176		133		345		269

Amortization of intangibles	30		6		70		11
Total operating expenses	992		716		1,906		1,416
Operating income	340		149		662		620
Interest and other income (expense), net	(14)		(10)		(28)		(13)
Income before provision for (benefit from) income taxes	326		139		634		607
Provision for (benefit from) income taxes	32		(46)		136		57
Net income	$	294	$	185	$	498	$	550
Earnings per share:
Basic	$	1.03	$	0.64	$	1.75	$	1.90
Diluted	$	1.02	$	0.63	$	1.73	$	1.88
Number of shares used in computation:
Basic	285		289		285		289
Diluted	287		293		288		292

See accompanying Notes to Condensed Consolidated Financial Statements (unaudited).

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ELECTRONIC ARTS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


(Unaudited)	Three Months Ended September 30,				Six Months Ended September 30,
(In millions)	2021		2020		2021		2020
Net income	$	294	$	185	$	498	$	550
Other comprehensive income (loss), net of tax:
Net gains (losses) on available-for-sale securities	—		(3)		—		8
Net gains (losses) on derivative instruments	50		(43)		56		(80)
Foreign currency translation adjustments	(17)		9		(8)		33
Total other comprehensive income (loss), net of tax	33		(37)		48		(39)
Total comprehensive income	$	327	$	148	$	546	$	511

See accompanying Notes to Condensed Consolidated Financial Statements (unaudited).

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ELECTRONIC ARTS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY


(Unaudited)	Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (loss)		Total Stockholders’ Equity
(In millions, except per share data)	Shares	Amount
Balances as of March 31, 2021	286,465	$	3	$	—	$	7,887	$	(50)	$	7,840
Total comprehensive income	—	—		—		204		15		219
Stock-based compensation	—	—		125		—		—		125
Awards assumed upon acquisition	—	—		23		—		—		23
Issuance of common stock	1,209	—		(105)		—		—		(105)
Repurchase and retirement of common stock	(2,292)	—		(43)		(282)		—		(325)
Cash dividends declared ($0.17 per common share)	—	—		—		(49)		—		(49)
Balances as of June 30, 2021	285,382	$	3	$	—	$	7,760	$	(35)	$	7,728
Total comprehensive income	—	—		—		294		33		327
Stock-based compensation	—	—		149		—		—		149
Issuance of common stock	602	—		25		—		—		25
Repurchase and retirement of common stock	(2,318)	—		(174)		(151)		—		(325)
Cash dividends declared ($0.17 per common share)	—	—		—		(48)		—		(48)
Balances as of September 30, 2021	283,666	$	3	$	—	$	7,855	$	(2)	$	7,856








(Unaudited)	Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (loss)		Total Stockholders’ Equity
(In millions, except per share data)	Shares	Amount
Balances as of March 31, 2020	288,413	$	3	$	—	$	7,508	$	(50)	$	7,461
Total comprehensive income	—	—		—		365		(2)		363
Stock-based compensation	—	—		102		—		—		102
Issuance of common stock	1,088	—		(66)		—		—		(66)
Repurchase and retirement of common stock	(747)	—		(36)		(42)		—		(78)
Balances as of June 30, 2020	288,754	$	3	$	—	$	7,831	$	(52)	$	7,782
Total comprehensive income	—	—		—		185		(37)		148
Stock-based compensation	—	—		113		—		—		113
Issuance of common stock	868	—		32		—		—		32
Repurchase and retirement of common stock	—	—		—		—		—		—
Balances as of September 30, 2020	289,622	$	3	$	145	$	8,016	$	(89)	$	8,075

See accompanying Notes to Condensed Consolidated Financial Statements (unaudited).

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ELECTRONIC ARTS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


(Unaudited)	Six Months Ended September 30,
(In millions)	2021		2020
OPERATING ACTIVITIES
Net income	$	498	$	550
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation, amortization and accretion	199		77
Stock-based compensation	274		215
Change in assets and liabilities:
Receivables, net	(446)		39
Other assets	(51)		(113)
Accounts payable	42		106
Accrued and other liabilities	(250)		(96)
Deferred income taxes, net	(140)		(32)
Deferred net revenue (online-enabled games)	(205)		(307)
Net cash provided by (used in) operating activities	(79)		439
INVESTING ACTIVITIES
Capital expenditures	(87)		(63)
Proceeds from maturities and sales of short-term investments	1,128		1,418
Purchase of short-term investments	(369)		(1,416)
Acquisitions, net of cash acquired	(3,394)		—
Net cash used in investing activities	(2,722)		(61)
FINANCING ACTIVITIES
Proceeds from issuance of common stock	41		43
Cash dividends paid	(97)		—
Cash paid to taxing authorities for shares withheld from employees	(121)		(77)
Repurchase and retirement of common stock	(650)		(78)
Net cash used in financing activities	(827)		(112)
Effect of foreign exchange on cash and cash equivalents	(2)		25
Increase (decrease) in cash and cash equivalents	(3,630)		291
Beginning cash and cash equivalents	5,260		3,768
Ending cash and cash equivalents	$	1,630	$	4,059
Supplemental cash flow information:
Cash paid during the period for income taxes, net	$	303	$	173
Cash paid during the period for interest	28		21

See accompanying Notes to Condensed Consolidated Financial Statements (unaudited).

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ELECTRONIC ARTS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(1) DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Electronic Arts is a global leader in digital interactive entertainment. We develop, market, publish and deliver games, content and services that can be played and watched on game consoles, PCs, mobile phones and tablets. We believe that the breadth and depth of our portfolio, live services offerings, and our use of multiple business models and distribution channels provide us with strategic advantages. Our foundation is a collection of intellectual property from which we create innovative games and content that enables us to build on-going and meaningful relationships with a community of players, creators and viewers. Our portfolio includes brands that we either wholly own (such as Battlefield, The Sims, Apex Legends, Need for Speed and Plants vs. Zombies) or license from others (such as FIFA, Madden NFL, UFC, NHL, Formula 1 and Star Wars). Through our live services offerings, we offer our players high-quality experiences designed to provide value to players and extend and enhance gameplay. These live services include extra content, subscription offerings and other revenue generated in addition to the sale of our base games and free-to-play games. In addition, we are focused on reaching more players whenever and wherever they want to play. We believe that we can add value to our network by making it easier for players to connect to a world of play by offering choice of business model, distribution channel and device.

Our fiscal year is reported on a 52- or 53-week period that ends on the Saturday nearest March 31. Our results of operations for the fiscal year ending March 31, 2022 contains 52 weeks and ends on April 2, 2022. Our results of operations for the fiscal year ended March 31, 2021 contained 53 weeks and ended on April 3, 2021. Our results of operations for the three and six months ended September 30, 2021 contained 13 weeks and 26 weeks, respectively, and ended on October 2, 2021. Our results of operations for the three and six months ended September 30, 2020 contained 13 weeks and 27 weeks, respectively, and ended on October 3, 2020. For simplicity of disclosure, all fiscal periods are referred to as ending on a calendar month end.

The Condensed Consolidated Financial Statements are unaudited and reflect all adjustments (consisting only of normal recurring accruals unless otherwise indicated) that, in the opinion of management, are necessary for a fair presentation of the results for the interim periods presented. The preparation of these Condensed Consolidated Financial Statements requires management to make estimates and assumptions that affect the amounts reported in these Condensed Consolidated Financial Statements and accompanying notes. Actual results could differ materially from those estimates. The results of operations for the current interim periods are not necessarily indicative of results to be expected for the current year or any other period.

These Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2021, as filed with the United States Securities and Exchange Commission (“SEC”) on May 26, 2021.

Change in Estimated Offering Period

The offering period is the period in which we offer to provide the future update rights and/or online hosting for the game and extra content sold. Because the offering period is not an explicitly defined period, we must make an estimate of the offering

period for the service related performance obligations (i.e., future update rights and online hosting). For sales prior to July 1, 2020, revenues for service related performance obligations were generally recognized over an estimated nine-month period beginning in the month after shipment for games and extra content sold through retail, and an estimated six-month period for digitally-distributed games and extra content beginning in the month of sale. During the three months ended September 30, 2020, we completed our annual evaluation of the Estimated Offering Period and as a result, for sales after July 1, 2020, revenue for service related performance obligations for games and extra content sold through retail is recognized over an estimated ten-month period beginning in the month of sale, and revenue for service related performance obligations for digitally-distributed games and extra content is recognized over an estimated eight-month period beginning in the month of sale. During the three months ended September 30, 2021, this change to our Estimated Offering Period resulted in an increase in net revenue of $125 million and net income of $95 million, and an increase of $0.33 diluted earnings per share. During the six months ended September 30, 2021, this change to our Estimated Offering Period resulted in an increase in net revenue of $102 million and net income of $77 million, and an increase of $0.27 diluted earnings per share.

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During the three months ended September 30, 2021, we completed our annual evaluation of the Estimated Offering Period. We have noted consumers are playing certain of our Online Hosted Service Games, such as PC and Console Free-to-Play games, for longer periods of time than in prior years as players engage with services we provide that are designed to enhance and extend gameplay, and as such, have concluded that the Estimated Offering Period for such games should be lengthened. As a result, for all new sales after July 1, 2021, the revenue that we recognize for service-related performance obligation related to our PC and Console Free-to-Play games is recognized generally over a twelve-month period. During the three months ended September 30, 2021, this change to our Estimated Offering Period resulted in an estimated decrease in net revenue of $17 million and net income of $13 million, and a decrease of $0.05 diluted earnings per share.

Recently Adopted Accounting Standards

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes (Topic 740). The amendments in this update simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. We adopted ASU 2019-12 in the first quarter of fiscal year 2022. The amendments did not have a material impact on our Condensed Consolidated Financial Statements upon adoption.

The standard clarified and amended existing guidance with respect to transactions in which a taxpayer realizes a step-up in tax basis of goodwill. As we integrate acquired intellectual property into our global operating structure, we may realize a tax basis step-up in goodwill. In such situations, we are required to assess whether the integration relates to the acquisition or is a separate transaction. When the integration is a separate transaction, we may be required to recognize deferred tax assets to the extent the stepped-up tax basis exceeds the associated U.S. GAAP basis. This assessment requires judgment around key indicators such as whether the tax basis step-up was contemplated as part of the original acquisition to which the intellectual property relates, whether the integration results in cash taxes, and whether the integration is achieved through a simple tax election. See Note 10 — Income Taxes for a discussion of the prospective application of this standard to our intra-entity transfer of Codemasters intellectual property (the “Codemasters intra-entity sale”) during the three months ended September 30, 2021.

Other Recently Issued Accounting Standards

In October 2021, the FASB issued ASU 2021-08, Business Combinations: Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (Topic 805). The amendments in this update require that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. This update is effective for us beginning in the first quarter of fiscal year 2024. Early adoption is permitted. We are currently evaluating the timing of adoption and impact of this new standard on our Condensed Consolidated Financial Statements and related disclosures.

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(2) FAIR VALUE MEASUREMENTS

There are various valuation techniques used to estimate fair value, the primary one being the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining fair value, we consider the principal or most advantageous market in which we would transact and consider assumptions that market participants would use when pricing the asset or liability. We measure certain financial and nonfinancial assets and liabilities at fair value on a recurring and nonrecurring basis.

Fair Value Hierarchy

The three levels of inputs that may be used to measure fair value are as follows:

•Level 1. Quoted prices in active markets for identical assets or liabilities.

•Level 2. Observable inputs other than quoted prices included within Level 1, such as quoted prices for similar assets or liabilities, quoted prices in markets with insufficient volume or infrequent transactions (less active markets), or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated with observable market data for substantially the full term of the assets or liabilities.

•Level 3. Unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of assets or liabilities.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

As of September 30, 2021 and March 31, 2021, our assets and liabilities that were measured and recorded at fair value on a recurring basis were as follows (in millions):


			Fair Value Measurements at Reporting Date Using
	As of September 30, 2021		Quoted Prices in Active Markets for Identical Financial Instruments		Significant Other Observable Inputs		Significant Unobservable Inputs		Balance Sheet Classification
			(Level 1)		(Level 2)		(Level 3)
Assets
Bank and time deposits	$	25	$	25	$	—	$	—	Cash equivalents
Money market funds	112		112		—		—		Cash equivalents
Available-for-sale securities:
Corporate bonds	152		—		152		—		Short-term investments
U.S. Treasury securities	65		65		—		—		Short-term investments

Commercial paper	35		—		35		—		Short-term investments
Foreign government securities	32		—		32		—		Short-term investments
Asset-backed securities	40		—		40		—		Short-term investments
Certificates of deposit	18		—		18		—		Short-term investments
Foreign currency derivatives	49		—		49		—		Other current assets and other assets
Deferred compensation plan assets (a)	23		23		—		—		Other assets
Total assets at fair value	$	551	$	225	$	326	$	—
Liabilities
Foreign currency derivatives	$	12	$	—	$	12	$	—	Accrued and other current liabilities and other liabilities
Deferred compensation plan liabilities (a)	23		23		—		—		Other liabilities
Total liabilities at fair value	$	35	$	23	$	12	$	—

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			Fair Value Measurements at Reporting Date Using
	As of March 31, 2021		Quoted Prices in Active Markets for Identical Financial Instruments		Significant Other Observable Inputs		Significant Unobservable Inputs		Balance Sheet Classification
			(Level 1)		(Level 2)		(Level 3)
Assets
Bank and time deposits	$	157	$	157	$	—	$	—	Cash equivalents
Money market funds	2,100		2,100		—		—		Cash equivalents
Available-for-sale securities:
Corporate bonds	380		—		380		—		Short-term investments and cash equivalents
U.S. Treasury securities	437		437		—		—		Short-term investments and cash equivalents
U.S. agency securities	3		—		3		—		Short-term investments
Commercial paper	142		—		142		—		Short-term investments and cash equivalents
Foreign government securities	67		—		67		—		Short-term investments
Asset-backed securities	112		—		112		—		Short-term investments
Certificates of deposit	41		—		41		—		Short-term investments
Foreign currency derivatives	33		—		33		—		Other current assets and other assets
Deferred compensation plan assets (a)	18		18		—		—		Other assets
Total assets at fair value	$	3,490	$	2,712	$	778	$	—
Liabilities
Foreign currency derivatives	$	40	$	—	$	40	$	—	Accrued and other current liabilities and other liabilities
Deferred compensation plan liabilities (a)	19		19		—		—		Other liabilities
Total liabilities at fair value	$	59	$	19	$	40	$	—

(a)The Deferred Compensation Plan assets consist of various mutual funds. See Note 15 in our Annual Report on Form 10-K for the fiscal year ended March 31, 2021, for additional information regarding our Deferred Compensation Plan.

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(3) FINANCIAL INSTRUMENTS

Cash and Cash Equivalents

As of September 30, 2021 and March 31, 2021, our cash and cash equivalents were $1,630 million and $5,260 million, respectively. Cash equivalents were valued using quoted market prices or other readily available market information.

Short-Term Investments

Short-term investments consisted of the following as of September 30, 2021 and March 31, 2021 (in millions):


	As of September 30, 2021								As of March 31, 2021
	Cost or Amortized Cost		Gross Unrealized				Fair Value		Cost or Amortized Cost		Gross Unrealized				Fair Value
			Gains		Losses						Gains		Losses
Corporate bonds	$	152	$	—	$	—	$	152	$	372	$	—	$	—	$	372
U.S. Treasury securities	65		—		—		65		374		1		—		375
U.S. agency securities	—		—		—		—		3		—		—		3
Commercial paper	35		—		—		35		136		—		—		136
Foreign government securities	32		—		—		32		67		—		—		67
Asset-backed securities	40		—		—		40		112		—		—		112
Certificates of deposit	18		—		—		18		41		—		—		41
Short-term investments	$	342	$	—	$	—	$	342	$	1,105	$	1	$	—	$	1,106

The following table summarizes the amortized cost and fair value of our short-term investments, classified by stated maturity as of September 30, 2021 and March 31, 2021 (in millions):


	As of September 30, 2021				As of March 31, 2021
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Short-term investments
Due within 1 year	$	242	$	242	$	895	$	896
Due 1 year through 5 years	94		94		203		203
Due after 5 years	6		6		7		7
Short-term investments	$	342	$	342	$	1,105	$	1,106

(4) DERIVATIVE FINANCIAL INSTRUMENTS

Assets or liabilities associated with our derivative instruments and hedging activities are recorded at fair value in other current assets/other assets, or accrued and other current liabilities/other liabilities, respectively, on our Condensed 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 forward contracts, generally with maturities of 18 months or less, to reduce the volatility of cash flows primarily related to forecasted revenue and expenses denominated in certain foreign currencies. Our cash flow risks are primarily related to fluctuations in the Euro, British pound sterling, Canadian dollar, Swedish krona, Australian dollar, Japanese yen, Chinese yuan, South Korean won and Polish zloty. In addition, we utilize foreign currency forward contracts to mitigate foreign currency exchange risk associated with foreign-currency-denominated monetary assets and liabilities, primarily intercompany receivables and payables. The foreign currency forward contracts not designated as hedging instruments generally have a contractual term of approximately three months or less and are transacted near month-end. We do not use foreign currency forward contracts for speculative trading purposes.

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Cash Flow Hedging Activities

Certain of our forward contracts are designated and qualify as cash flow hedges. 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 derivative assets or liabilities associated with our hedging activities are recorded at fair value in other current assets/other assets, or accrued and other current liabilities/other liabilities, respectively, on our Condensed Consolidated Balance Sheets. The 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 (loss) in stockholders’ equity. The 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 Condensed 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 (loss) to net revenue or research and development expenses, in our Condensed Consolidated Statements of Operations.

Total gross notional amounts and fair values for currency derivatives with cash flow hedge accounting designation are as follows (in millions):


	As of September 30, 2021						As of March 31, 2021
	Notional Amount		Fair Value				Notional Amount		Fair Value
			Asset		Liability				Asset		Liability

Forward contracts to purchase	$	264	$	2	$	3	$	370	$	14	$	1



Forward contracts to sell	$	1,649	$	38	$	4	$	1,840	$	15	$	35

The effects of cash flow hedge accounting in our Condensed Consolidated Statements of Operations for the three and six months ended September 30, 2021 and 2020 are as follows (in millions):


	Three Months Ended September 30,								Six Months Ended September 30,
	2021				2020				2021				2020
	Net revenue		Research and development		Net revenue		Research and development		Net revenue		Research and development		Net revenue		Research and development
Total amounts presented in our Condensed Consolidated Statements of Operations in which the effects of cash flow hedges are recorded	$	1,826	$	553	$	1,151	$	421	$	3,377	$	1,068	$	2,610	$	859
Gains (losses) on foreign currency forward contracts designated as cash flow hedges	$	(18)	$	4	$	1	$	—	$	(37)	$	12	$	12	$	(6)

Balance Sheet Hedging Activities

Our foreign currency forward contracts that are not designated as hedging instruments are accounted for as derivatives whereby the fair value of the contracts are reported as other current assets or accrued and other current liabilities on our Condensed Consolidated Balance Sheets, and gains and losses resulting from changes in the fair value are reported in interest and other income (expense), net, in our Condensed Consolidated Statements of Operations. The gains and losses on these foreign currency forward contracts generally offset the gains and losses in the underlying foreign-currency-denominated monetary assets and liabilities, which are also reported in interest and other income (expense), net, in our Condensed Consolidated Statements of Operations.

Total gross notional amounts and fair values for currency derivatives that are not designated as hedging instruments are accounted for as follows (in millions):


	As of September 30, 2021						As of March 31, 2021
	Notional Amount		Fair Value				Notional Amount		Fair Value
			Asset		Liability				Asset		Liability
Forward contracts to purchase	$	364	$	—	$	5	$	599	$	—	$	4


Forward contracts to sell	$	686	$	9	$	—	$	450	$	4	$	—

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The effect of foreign currency forward contracts not designated as hedging instruments in our Condensed Consolidated Statements of Operations for the three and six months ended September 30, 2021 and 2020 was as follows (in millions):


	Three Months Ended September 30,				Six Months Ended September 30,
	2021		2020		2021		2020
	Interest and other income (expense), net
Total amounts presented in our Condensed Consolidated Statements of Operations in which the effects of balance sheet hedges are recorded	$	(14)	$	(10)	$	(28)	$	(13)
Gain (losses) on foreign currency forward contracts not designated as hedging instruments	$	4	$	(3)	$	(3)	$	(