Electronic Arts 2004 Annual Report Download - page 94

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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 & Q4ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 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.
Letters of Credit
In July 2002, we provided an irrevocable standby letter of credit to Nintendo of Europe. The standby letter of
credit guarantees performance of our obligations to pay Nintendo of Europe for trade payables of up to
8.0 million Euros. The standby letter of credit expires in July 2005. As of March 31, 2004, we had 0.2 million
Euros payable to Nintendo of Europe covered by this standby letter of credit.
In August 2003, we provided an irrevocable standby letter of credit to 300 California Associates II, LLC in
replacement of our security deposit for oÇce space. The standby letter of credit guarantees performance of
our obligations to pay our lease commitment up to $1.1 million. The standby letter of credit expires in
December 2006. As of March 31, 2004, we did not have a payable balance on this standby letter of credit.
Development, Celebrity, League and Content Licenses: Payments and Commitments
The products produced by our studios are designed and created by our employee designers, artists, software
programmers and by non-employee software developers (""independent artists'' or ""third-party developers'').
We typically advance development funds to the independent artists and third-party developers during
development of our games, usually in installment payments made upon the completion of speciÑed
development milestones. These payments are considered advances against subsequent royalties based on the
sales of the products. These terms are set forth in written agreements entered into with the independent artists
and third-party developers. In addition, we have certain celebrity, league and content license contracts that
contain minimum guarantee payments and marketing commitments that are not dependent on any
deliverables. Celebrities and organizations with whom we have contracts include: FIFA and UEFA
(professional soccer); NASCAR (stock car racing); John Madden (professional football); National
Basketball Association (professional basketball); PGA TOUR (professional golf); Tiger Woods (professional
golf); National Hockey League and NHLPA (professional hockey); Warner Bros. (Harry Potter, Catwoman
and Superman); MGM/Danjaq (James Bond); New Line Productions (The Lord of the Rings); National
Football League and Players Inc. (professional football); Collegiate Licensing Company (collegiate football
and basketball); ISC (stock car racing); Major League Baseball Properties; MLB Players Association
79