Electronic Arts 2005 Annual Report Download - page 138

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
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
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 million over the initial ten-year term
of the lease. This commitment is oÅset by sublease income of $6 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 us after four and Ñve
years.
In June 2004, we entered into a lease agreement with an independent third party for a studio facility in
Orlando, Florida, which commenced in January 2005 and expires in June 2010, with one Ñve-year option to
extend the lease term. The campus facilities comprise a total of 117,000 square feet, which we intend to use
for research and development functions. We have accounted for this arrangement as an operating lease in
accordance with SFAS No. 13, as amended. Our rental obligation over the initial Ñve-and-a-half year term of
the lease is $13 million.
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 418 million. The standby letter of credit expires in July 2005. As of March 31, 2005, we had 40.5 million
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 approximately $1 million. The standby letter of credit expires in
December 2006. As of March 31, 2005, 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.
Contractually, these payments are considered advances against subsequent royalties 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
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