Electronic Arts 2004 Annual Report Download - page 60

""Accounting for Leases'', as amended. Existing campus facilities developed in phase one comprise a total of
350,000 square feet and provide space for sales, marketing, administration and research and development
functions. We have an option to purchase the property (land and facilities) for a maximum of $145.0 million
or, at the end of the lease, to arrange for (i) an extension of the lease or (ii) sale of the property to a third
party while we retain an obligation to the owner for approximately 90 percent of the diÅerence between the
sale price and the guaranteed residual value of up to $128.9 million 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 Keybank National Association for a Ñve-
year term beginning December 2000 to expand our Redwood City, California headquarters facilities and
develop adjacent property adding approximately 310,000 square feet to our campus. Construction was
completed in June 2002. We accounted for this arrangement as an operating lease in accordance with
SFAS No. 13, as amended. The facilities provide space for marketing, sales and research and development.
We have an option to purchase the property for a maximum of $130.0 million or, at the end of the lease, to
arrange for (i) an extension of the lease, or (ii) sale of the property to a third party while we retain an
obligation to the owner for approximately 90 percent of the diÅerence between the sale price and the
guaranteed residual value of up to $118.8 million if the sales price is less than this amount, subject to certain
provisions of the lease.
We believe the estimated fair values of both properties under these operating leases are in excess of their
respective guaranteed residual values as of March 31, 2004.
For the two lease agreements with Keybank National Association, as described above, the lease rates are
based upon the Commercial Paper Rate and require us to maintain certain Ñnancial covenants as shown
below, all of which we were in compliance with as of March 31, 2004.
Actual as of
Financial Covenants Requirement March 31, 2004
Consolidated Net WorthÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $1,684 million $2,678 million
Fixed Charge Coverage Ratio ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3.00 31.15
Total Consolidated Debt to CapitalÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 60% 8.5%
Quick Ratio Ì Q1 & Q2 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1.00 N/A
Q3 & Q4 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1.75 10.55
In July 2003, we entered into a lease agreement with an independent third party (""the Landlord'') for a studio
facility in Los Angeles, California, which commenced in October 2003 and expires in September 2013 with
two Ñve-year options to extend the lease term. Additionally, we have options to purchase the property after
Ñve and ten years based on the fair market value of the property at the date of sale, a right of Ñrst oÅer to
purchase the property upon terms oÅered by the landlord, and a right to share in the proÑts from a sale of the
property. We have accounted for this arrangement as an operating lease in accordance with SFAS No. 13, as
amended. Existing campus facilities comprise a total of 243,000 square feet and provide space for research
and development functions. Our rental obligation under this agreement is $50.2 million over the initial ten-
year term of the lease. We are taking possession of the property over a period of 18 months as the facilities
become available for use. This commitment is oÅset by sublease income of $5.8 million for the sublet to an
aÇliate of the Landlord of 18,000 square feet of the Los Angeles facility, which commenced in October 2003
and expires in September 2013 with options of early termination by the aÇliate after Ñve years and by EA
after four and Ñve years.
INFLATION
We believe the impact of inÖation on our results of operations has not been signiÑcant for each of the past
three Ñscal years.
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