Electronic Arts 2002 Annual Report Download - page 41

and research and development functions.We have an option to purchase the property (land and facilities)
for $145,000,000 or, at the end of the lease, to arrange for (1) an additional extension of the lease or (2)
sale of the property to a third party with us retaining an obligation to the owner for the difference between
the sale price and the guaranteed residual value of up to $128,900,000 if the sales price is less than this
amount, subject to certain provisions of the lease.
In December 2000, we entered into a second build-to-suit lease with a financial institution for a five
year term from December 2000 to expand our headquarter’s facilities and develop adjacent property adding
approximately 310,000 square feet to our campus.We expect to complete construction in June of 2002. We
accounted for this arrangement as an operating lease in accordance with SFAS 13, as amended.The facili-
ties will provide space for marketing, sales and research and development.We have an option to purchase
the property for $127,000,000 or, at the end of the lease, to arrange for (1) an extension of the lease or (2)
sale of the property to a third party with us retaining an obligation to the owner for the difference between
the sale price and the guaranteed residual value of up to $118,800,000 if the sales price is less than this
amount, subject to certain provisions of the lease.
Lease rates are based upon the Commercial Paper Rate.The two lease agreements described above require
us to maintain certain financial covenants, all of which we were in compliance with as of March 31, 2002.
Letters of Credit
In connection with our purchases of N64 cartridges and Nintendo GameCube optical disks for distribution
in North America, Nintendo requires us to provide irrevocable letters of credit prior to Nintendo’s accep-
tance of purchase orders from us for purchases of these cartridges and optical disks. For purchases of N64
cartridges and Nintendo GameCube optical disks for distribution in Japan and Europe, Nintendo requires us
to make cash deposits.
Development, Celebrity, League and Content Licenses: Payments and Commitments
The products published by EA Studios are designed and created by our in-house designers and artists and
by independent software developers (“independent artists”).We typically pay the independent artists royal-
ties based on the sales of the specific products, as defined in the related independent artist agreements.
Advance payments on these royalties are paid to independent artists upon meeting deliverables as detailed
in the contractual agreement. In addition, certain celebrity, league and content license contracts contain
minimum guarantee payments and marketing commitments that are not dependent on any deliverables.
Celebrities and organizations with whom we have contracts include: FIFA, NASCAR, John Madden,
National Basketball Association, PGA TOUR,Tiger Woods, National Hockey League, Formula One,Warner
Bros. (Harry Potter), MGM/Danjaq (James Bond) and National Football League.These minimum guaran-
tee payments and marketing commitments are included in the table below.
Summary of minimum contractual obligations and commercial commitments as of March 31, 2002
(in thousands):
CONTRACTUAL OBLIGATIONS COMMERCIAL COMMITMENTS
BANK AND
FISCAL YEAR MINIMUM OTHER LETTERS OF
ENDED MARCH 31, LEASES ADVERTISING GUARANTEES AOL MARKETING GUARANTEES CREDIT TOTAL
2003 $ 18,288 $ 14,000 $ 35,663 $11,250 $ 19,541 $ 1,050 $ 1,122 $ 100,914
2004 15,011 3,500 22,812 11,250 16,554 171 — 69,298
2005 11,354 4,500 15,137 — 11,159 171 — 42,321
2006 10,810 — 16,483 — 4,572 171 — 32,036
2007 9,122 — 3,145 — 3,571 170 — 16,008
Thereafter 11,609 — 2,260 — 3,571 170 — 17,610
$76,194 $ 22,000 $ 95,500 $22,500 $ 58,968 $ 1,903 $ 1,122 $ 278,187
EA 2002 AR 37