Electronic Arts 2005 Annual Report Download - page 103

OFF-BALANCE SHEET COMMITMENTS
Lease Commitments
We lease certain of our current facilities and certain equipment under non-cancelable operating lease
agreements. We are required to pay property taxes, insurance and normal maintenance costs for certain of our
facilities and will be required to pay any increases over the base year of these expenses on the remainder of our
facilities.
In February 1995, we entered into a build-to-suit lease with a third party for our headquarters facility in
Redwood City, California, which was reÑnanced with Keybank National Association in July 2001 and expires
in July 2006. We accounted for this arrangement as an operating lease in accordance with SFAS No. 13,
""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 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 $129 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
and one-half 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 sales, marketing, administration and research and
development functions. We have an option to purchase the property for a maximum of $130 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 $119 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, 2005.
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, 2005.
Actual as of
Annual Report
Financial Covenants Requirement March 31, 2005
Consolidated Net Worth (in millions)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $2,061 $3,498
Fixed Charge Coverage Ratio ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3.00 19.93
Total Consolidated Debt to Capital ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 60% 6.6%
Quick Ratio Ì Q1 & Q2ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1.00 N/A
Q3 & Q4ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1.75 13.07
As our two lease agreements with Keybank National Association are scheduled to expire in June 2006 and
July 2006, we currently are evaluating whether to extend the leases, purchase the properties under lease, or
identify a third party buyer for the properties when the leases expire. We have not yet determined the course of
action that we will take. See the ""Liquidity and Capital Resources'' section above for additional information.
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.
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