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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 December 31, 2019
OR
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
  
EA
 
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 January 31, 2020, there were 289,674,301 shares of the Registrant’s Common Stock, par value $0.01 per share, outstanding.

1



ELECTRONIC ARTS INC.
FORM 10-Q
FOR THE PERIOD ENDED DECEMBER 31, 2019
Table of Contents
 
 
 
Page
 
Item 1.
 
 
 
 
 

 
 
 
Item 2.
Item 3.
Item 4.
 
 
 
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 6.

2



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)
December 31, 2019
 
March 31, 2019 (a)
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
3,603

 
$
4,708

Short-term investments
1,999

 
737

Receivables, net
798

 
623

Other current assets
229

 
313

Total current assets
6,629

 
6,381

Property and equipment, net
439

 
448

Goodwill
1,892

 
1,892

Acquisition-related intangibles, net
62

 
87

Deferred income taxes, net
1,828

 
35

Other assets
311

 
114

TOTAL ASSETS
$
11,161

 
$
8,957

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
61

 
$
113

Accrued and other current liabilities
1,204

 
1,052

Deferred net revenue (online-enabled games)
1,073

 
1,100

Total current liabilities
2,338

 
2,265

Senior notes, net
995

 
994

Income tax obligations
352

 
233

Deferred income taxes, net
2

 
2

Other liabilities
237

 
132

Total liabilities
3,924

 
3,626

Commitments and contingencies (See Note 12)

 

Stockholders’ equity:
 
 
 
Common stock, $0.01 par value. 1,000 shares authorized; 291 and 298 shares issued and outstanding, respectively
3

 
3

Additional paid-in capital

 

Retained earnings
7,267

 
5,358

Accumulated other comprehensive loss
(33
)
 
(30
)
Total stockholders’ equity
7,237

 
5,331

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
11,161

 
$
8,957

See accompanying Notes to Condensed Consolidated Financial Statements (unaudited).
(a) Derived from audited Consolidated Financial Statements.

3



ELECTRONIC ARTS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
(Unaudited)
Three Months Ended
December 31,
 
Nine Months Ended
December 31,
(In millions, except per share data)
2019

2018
 
2019
 
2018
Net revenue:
 
 
 
 
 
 
 
Product
$
701

 
$
552

 
$
1,435

 
$
1,377

Service and other
892

 
737

 
2,715

 
2,335

Total net revenue
1,593

 
1,289

 
4,150

 
3,712

Cost of revenue:
 
 
 
 
 
 
 
Product
216

 
175

 
444

 
465

Service and other
292

 
238

 
656

 
581

Total cost of revenue
508

 
413

 
1,100

 
1,046

Gross profit
1,085

 
876

 
3,050

 
2,666

Operating expenses:
 
 
 
 
 
 
 
Research and development
389

 
334

 
1,157

 
1,035

Marketing and sales
202

 
187

 
464

 
473

General and administrative
126

 
106

 
364

 
337

Acquisition-related contingent consideration
2

 
1

 
5

 
3

Amortization of intangibles
5

 
6

 
16

 
18

Total operating expenses
724

 
634

 
2,006

 
1,866

Operating income
361

 
242

 
1,044

 
800

Interest and other income (expense), net
13

 
23

 
50

 
60

Income before provision for (benefit from) income taxes
374

 
265

 
1,094

 
860

Provision for (benefit from) income taxes
28

 
3

 
(1,527
)
 
50

Net income
$
346

 
$
262

 
$
2,621

 
$
810

Earnings per share:
 
 
 
 
 
 
 
Basic
$
1.18

 
$
0.87

 
$
8.91

 
$
2.66

Diluted
$
1.18

 
$
0.86

 
$
8.85

 
$
2.64

Number of shares used in computation:
 
 
 
 
 
 
 
Basic
292

 
302

 
294

 
304

Diluted
294

 
304

 
296

 
307

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


4



ELECTRONIC ARTS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)
Three Months Ended
December 31,
 
Nine Months Ended
December 31,
(In millions)
2019
 
2018
 
2019
 
2018
Net income
$
346

 
$
262

 
$
2,621

 
$
810

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Net gains (losses) on available-for-sale securities
(1
)
 
2

 
2

 
3

Net gains (losses) on derivative instruments
(29
)
 
11

 
(4
)
 
107

Foreign currency translation adjustments
7

 
(11
)
 
(1
)
 
(23
)
Total other comprehensive income (loss), net of tax
(23
)
 
2

 
(3
)
 
87

Total comprehensive income
$
323

 
$
264

 
$
2,618

 
$
897


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

5



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, 2019
 
298,107

 
$
3

 
$

 
$
5,358

 
$
(30
)
 
$
5,331

Total comprehensive income
 

 

 

 
1,421

 
13

 
1,434

Stock-based compensation
 

 

 
73

 

 

 
73

Issuance of common stock
 
985

 

 
(48
)
 

 

 
(48
)
Repurchase and retirement of common stock
 
(3,205
)
 

 
(25
)
 
(280
)
 

 
(305
)
Balances as of June 30, 2019
 
295,887

 
3

 

 
6,499

 
(17
)
 
6,485

Total comprehensive income
 

 

 

 
854

 
7

 
861

Stock-based compensation
 

 

 
92

 

 

 
92

Issuance of common stock
 
584

 

 
26

 

 

 
26

Repurchase and retirement of common stock
 
(3,253
)
 

 
(118
)
 
(188
)
 

 
(306
)
Balances as of September 30, 2019
 
293.218

 
3

 

 
7,165

 
(10
)
 
7,158

Total comprehensive income
 

 

 

 
346

 
(23
)
 
323

Stock-based compensation
 

 

 
91

 

 

 
91

Issuance of common stock
 
492

 

 
(30
)
 

 

 
(30
)
Repurchase and retirement of common stock
 
(3,101
)
 

 
(61
)
 
(244
)
 

 
(305
)
Balances as of December 31, 2019
 
290,609

 
$
3

 
$

 
$
7,267

 
$
(33
)
 
$
7,237

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(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, 2018
 
306,370

 
$
3

 
$
657

 
$
4,062

 
$
(127
)
 
$
4,595

Cumulative-effect adjustment from the adoption of ASC 606
 

 

 

 
590

 
22

 
612

Cumulative-effect adjustment from the adoption of ASU 2018-02
 

 

 

 
(1
)
 
1

 

Total comprehensive income
 

 

 

 
293

 
78

 
371

Stock-based compensation
 

 

 
70

 

 

 
70

Issuance of common stock
 
1,280

 

 
(88
)
 

 

 
(88
)
Repurchase and retirement of common stock
 
(2,264
)
 

 
(300
)
 

 

 
(300
)
Balances as of June 30, 2018
 
305,386

 
3

 
339

 
4,944

 
(26
)
 
5,260

Total comprehensive income
 

 

 

 
255

 
7

 
262

Stock-based compensation
 

 

 
66

 

 

 
66

Issuance of common stock
 
618

 

 
28

 

 

 
28

Repurchase and retirement of common stock
 
(2,334
)
 

 
(299
)
 

 

 
(299
)
Balances as of September 30, 2018
 
303,670

 
3

 
134

 
5,199

 
(19
)
 
5,317

Total comprehensive income
 

 

 

 
262

 
2

 
264

Stock-based compensation
 

 

 
75

 

 

 
75

Issuance of common stock
 
382

 

 
(20
)
 

 

 
(20
)
Repurchase and retirement of common stock
 
(3,158
)
 

 
(189
)
 
(103
)
 

 
(292
)
Balances as of December 31, 2018
 
300,894

 
$
3

 
$

 
$
5,358

 
$
(17
)
 
$
5,344


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


6



ELECTRONIC ARTS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
December 31,
(In millions)
2019
 
2018
OPERATING ACTIVITIES
 
 
 
Net income
$
2,621

 
$
810

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation, amortization and accretion
111

 
108

Stock-based compensation
256

 
211

Change in assets and liabilities:

 
 
Receivables, net
(176
)
 
(271
)
Other assets
76

 
41

Accounts payable
(33
)
 
35

Accrued and other liabilities
264

 
123

Deferred income taxes, net
(1,793
)
 
(89
)
Deferred net revenue (online-enabled games)
(27
)
 
(20
)
Net cash provided by operating activities
1,299

 
948

INVESTING ACTIVITIES

 
 
Capital expenditures
(100
)
 
(84
)
Proceeds from maturities and sales of short-term investments
1,375

 
955

Purchase of short-term investments
(2,621
)
 
(1,144
)
Acquisition, net of cash acquired

 
(58
)
Net cash used in investing activities
(1,346
)
 
(331
)
FINANCING ACTIVITIES

 
 
Proceeds from issuance of common stock
34

 
36

Cash paid to taxing authorities for shares withheld from employees
(86
)
 
(116
)
Repurchase and retirement of common stock
(916
)
 
(891
)
Acquisition-related contingent consideration payment
(90
)
 

Net cash used in financing activities
(1,058
)
 
(971
)
Effect of foreign exchange on cash and cash equivalents

 
(17
)
Decrease in cash and cash equivalents
(1,105
)
 
(371
)
Beginning cash and cash equivalents
4,708

 
4,258

Ending cash and cash equivalents
$
3,603

 
$
3,887

Supplemental cash flow information:

 
 
Cash paid during the period for income taxes, net
$
116

 
$
85

Cash paid during the period for interest
21

 
21

Non-cash investing activities:

 
 
Change in accrued capital expenditures
$
(20
)
 
$
(11
)

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

7



ELECTRONIC ARTS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

(1) DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
We are a global leader in digital interactive entertainment, with a mission to inspire the world to play. We develop, market, publish and deliver games and services that can be played and watched on a variety of platforms, including game consoles, PCs, mobile phones and tablets. In our games and services, we use brands that we either wholly own (such as Battlefield, The Sims, Apex Legends, Anthem, Need for Speed and Plants v. Zombies) or license from others (such as FIFA, Madden NFL and Star Wars). We develop and publish games and services across diverse genres, such as sports, first-person shooter, action, role-playing and simulation, and offer our games and services through diverse business models and distribution channels, such as retail, download, subscription and free-to-play. We believe that the breadth and depth of our portfolio and our flexibility in business models and distribution channels provide us with strategic advantages.
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, 2020 contains 52 weeks and ends on March 28, 2020. Our results of operations for the fiscal year ended March 31, 2019 contained 52 weeks and ended on March 30, 2019. Our results of operations for the three months ended December 31, 2019 and 2018 contained 13 weeks each and ended on December 28, 2019 and December 29, 2018, respectively. Our results of operations for the nine months ended December 31, 2019 and 2018 contained 39 weeks each and ended on December 28, 2019 and December 29, 2018, respectively. 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, 2019, as filed with the United States Securities and Exchange Commission (“SEC”) on May 24, 2019.
Recently Adopted Accounting Standards
In February 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-02, Leases (“ASC Topic 842” or the “New Lease Standard”). The FASB issued this standard to increase transparency and comparability among organizations by recognizing right-of-use (“ROU”) lease assets and liabilities on the balance sheet and disclosing key information about leasing arrangements.

We adopted the New Lease Standard on April 1, 2019, the beginning of fiscal year 2020, using the optional transition method which allows us to use the effective date of the New Lease Standard as the date of initial application on transition, instead of at the beginning of the earliest comparative period presented. Accordingly, we did not adjust prior periods for the effects of the New Lease Standard. Additionally, we elected to apply the package of practical expedients, which allows us to carryforward our historical lease classification, our assessment on whether a contract is or contains a lease, and our assessment of initial direct costs for any leases that exist prior to adoption of the new lease standard.

The adoption of the New Lease Standard on April 1, 2019 resulted in the recognition of operating lease ROU assets of $215 million, current operating lease liabilities of $50 million, and noncurrent operating lease liabilities of $197 million on our Condensed Consolidated Balance Sheet. In addition, upon transition, we eliminated prepaid rent assets of $6 million and deferred rent liabilities of $38 million. Operating lease ROU assets, operating lease liabilities, and noncurrent operating lease liabilities are included in other assets, accrued and other current liabilities, and other liabilities, respectively. The adoption of the New Lease Standard did not have an impact on our Condensed Consolidated Statements of Operations or Cash Flows.

8



BALANCE SHEETS
(In millions)
Balance at March 31, 2019
 
Adjustments due to New Lease Standard Adoption
 
Balance at
April 1, 2019
Assets
 
 
 
 
 
Other current assets
$
313

 
$
(6
)
 
$
307

Other assets
114

 
215

 
329

 
 
 
 
 
 
Liabilities
 
 
 
 
 
Accrued and other current liabilities
$
1,052

 
$
47

 
$
1,099

Other liabilities
132

 
162

 
294



See Note 11 — Leases for additional information on leases.

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. This update is intended to make more financial and nonfinancial hedging strategies eligible for hedge accounting, simplify the application of hedge accounting by eliminating the requirement to separately measure and report hedge ineffectiveness, and increase transparency around the scope and results of hedging programs. We adopted ASU 2017-12 in the first quarter of fiscal 2020, using a modified-retrospective approach. Upon adoption of ASU 2017-12, we no longer measure and report hedge ineffectiveness separately. We instead present the entire change in the fair value of a hedging instrument in the same Condensed Consolidated Statements of Operations line as the hedged item. Additionally, the amount historically excluded from the assessment of hedge effectiveness for our cash flow hedges is now recognized into the Condensed Consolidated Statements of Operations in the period when the forecasted transaction is recognized. The cumulative-effect adjustment from the adoption had a de minimis impact on our Condensed Consolidated Financial Statements. See Note 4 — Derivative Financial Instruments for more information.
Other Recently Issued Accounting Standards
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326). The update changes the methodology for measuring credit losses on financial instruments and the timing of when such losses are recorded. This update replaces the existing incurred loss impairment model with an expected loss model. It also requires credit losses related to available-for-sale debt securities to be recognized as an allowance for credit losses rather than as a reduction to the carrying value of the securities. In May 2019, the FASB issued ASU 2019-05, Targeted Transition Relief, which provides an option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost basis. This update is effective for us beginning in the first quarter of fiscal year 2021. We are evaluating the impact of this new standard but do not expect the adoption to have a material impact on our Condensed Consolidated Financial Statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. This update eliminates, adds, and modifies certain fair value measurement disclosure requirements. This update is effective for us beginning in the first quarter of fiscal 2021. We do not expect the adoption to have a material impact on our Condensed Consolidated Financial Statements.

In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40). This update requires a customer in a cloud computing service arrangement to follow the internal-use software guidance in order to determine which implementation costs to defer and recognize as an asset. This update is effective for us beginning in the first quarter of fiscal year 2021. We do not expect the adoption to have a material impact on our Condensed Consolidated Financial Statements.

In December 2019, the FASB issued ASC 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. This update is effective for us beginning in the first quarter of fiscal year 2022. Early adoption is permitted. We are currently evaluating the impact of this new standard on our Condensed Consolidated Financial Statements and related disclosures.


9



(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 December 31, 2019 and March 31, 2019, 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
 
  
 
 
 
Quoted Prices in
Active Markets 
for Identical
Financial
Instruments
 
Significant
Other
Observable
Inputs
 
Significant
Unobservable
Inputs
 
 
 
As of
December 31, 2019
 
(Level 1)
 
(Level 2)
 
(Level 3)
 
Balance Sheet 
Classification
Assets
 
 
 
 
 
 
 
 
 
Bank and time deposits
$
85

 
$
85

 
$

 
$

 
Cash equivalents
Money market funds
1,352

 
1,352

 

 

 
Cash equivalents
Available-for-sale securities:
 
 
 
 
 
 
 
 
 
Corporate bonds
837

 

 
837

 

 
Short-term investments and cash equivalents
U.S. Treasury securities
459

 
459

 

 

 
Short-term investments and cash equivalents
U.S. agency securities
8

 

 
8

 

 
Short-term investments
Commercial paper
438

 

 
438

 

 
Short-term investments and cash equivalents
Foreign government securities
48

 

 
48

 


 
Short-term investments
Asset-backed securities
281

 

 
281

 

 
Short-term investments
Certificates of deposit
43

 

 
43

 

 
Short-term investments
Foreign currency derivatives
22

 

 
22

 

 
Other current assets and other assets
Deferred compensation plan assets (a)
14

 
14

 

 

 
Other assets
Total assets at fair value
$
3,587

 
$
1,910

 
$
1,677

 
$

 
 
Liabilities
 
 
 
 
 
 
 
 
 
Contingent consideration (b)
$
35

 
$
35

 
$

 
$

 
Accrued and other current
liabilities
Foreign currency derivatives
9

 

 
9

 

 
Accrued and other current liabilities and other liabilities
Deferred compensation plan liabilities (a)
14

 
14

 

 

 
Other liabilities
Total liabilities at fair value
$
58

 
$
49

 
$
9

 
$

 
 



10



 
 
 
 
Fair Value Measurements at Reporting Date Using
 
  
 
 
 
Quoted Prices in
Active Markets 
for Identical
Financial
Instruments
 
Significant
Other
Observable
Inputs
 
Significant
Unobservable
Inputs
 
 
 
As of March 31, 2019
 
(Level 1)
 
(Level 2)
 
(Level 3)
 
Balance Sheet Classification
Assets
 
 
 
 
 
 
 
 
 
Bank and time deposits
$
23

 
$
23

 
$

 
$

 
Cash equivalents
Money market funds
2,704

 
2,704

 

 

 
Cash equivalents
Available-for-sale securities:
 
 
 
 
 
 
 
 
 
Corporate bonds
327

 

 
327

 

 
Short-term investments and cash equivalents
U.S. Treasury securities
294

 
294

 

 

 
Short-term investments and cash equivalents
U.S. agency securities
57

 

 
57

 

 
Short-term investments and cash equivalents
Commercial paper
233

 

 
233

 

 
Short-term investments and cash equivalents
Foreign government securities
58

 

 
58

 

 
Short-term investments and cash equivalents
Asset-backed securities
55

 

 
55

 

 
Short-term investments and cash equivalents
Certificates of deposit
2

 

 
2

 

 
Short-term investments and cash equivalents
Foreign currency derivatives
33

 

 
33

 

 
Other current assets and other assets
Deferred compensation plan assets (a)
11

 
11

 

 

 
Other assets
Total assets at fair value
$
3,797

 
$
3,032

 
$
765

 
$

 
 
Liabilities
 
 
 
 
 
 
 
 
 
Contingent consideration (b)
$
136

 
$

 
$

 
$
136

 
Accrued and other current liabilities
Foreign currency derivatives
16

 

 
16

 

 
Accrued and other current liabilities and other liabilities
Deferred compensation plan liabilities (a)
12

 
12

 

 

 
Other liabilities
Total liabilities at fair value
$
164

 
$
12

 
$
16

 
$
136

 
 


(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, 2019, for additional information regarding our Deferred Compensation Plan.

(b)
The contingent consideration represents the estimated fair value of the additional variable cash consideration payable in connection with our acquisition of Respawn Entertainment, LLC (“Respawn”) that is contingent upon the achievement of certain performance milestones. As of March 31, 2019, we estimated fair value using a probability-weighted income approach combined with a real options methodology, and applied a discount rate that appropriately captures the risk associated with the obligation, ranging from 2.9 percent to 3.1 percent. During the nine months ended December 31, 2019, there were no material changes to the estimated fair value of the contingent consideration liability other than $105 million in payments for performance milestones achieved. As of December 31, 2019, all remaining performance milestones have been achieved and the $35 million remaining payment amount was fixed and was paid in the fourth quarter of fiscal year 2020. See Note 7 in our Annual Report on Form 10-K for the fiscal year ended March 31, 2019, for additional information regarding the Respawn acquisition.


(3) FINANCIAL INSTRUMENTS
Cash and Cash Equivalents
As of December 31, 2019 and March 31, 2019, our cash and cash equivalents were $3,603 million and $4,708 million, respectively. Cash equivalents were valued using quoted market prices or other readily available market information.

11



Short-Term Investments
Short-term investments consisted of the following as of December 31, 2019 and March 31, 2019 (in millions):
 
As of December 31, 2019
 
As of March 31, 2019
 
Cost or
Amortized
Cost
 
Gross Unrealized
 
Fair
Value
 
Cost or
Amortized
Cost
 
Gross Unrealized
 
Fair
Value
 
Gains
 
Losses
 
Gains
 
Losses
 
Corporate bonds
$
811

 
$
1

 
$