Electronic Arts 2006 Annual Report Download - page 100

could be extended until as late as July 2009. Subject to certain terms and conditions, upon termination of
the lease, we may purchase the Phase One Facilities, request an extension of the lease or arrange for the
sale of the Phase One Facilities to a third party.
Pursuant to the terms of the Phase One Lease, as amended to date, we have an option to purchase the
Phase One Facilities at any time for a maximum purchase price of $132 million. In the event of a sale to
a third party, if the sale price is less than $132 million, we will be obligated to reimburse the diÅerence
between the actual sale price and $132 million, up to maximum of $117 million, subject to certain
provisions of the Phase One Lease, as amended.
In December 2000, we entered into a second build-to-suit lease (""Phase Two Lease'') with Keybank
National Association for a Ñve and one-half year term beginning in December 2000 to expand our
Redwood City, California headquarters facilities and develop adjacent property (""Phase Two Facilities'').
Construction of the Phase Two Facilities was completed in June 2002. The Phase Two Facilities comprise
a total of approximately 310,000 square feet and provide space for sales, marketing, administration and
research and development functions. We account for the Phase Two Lease arrangement as an operating
lease in accordance with SFAS No. 13, as amended.
On May 26, 2006, we extended the financing under the Phase Two Lease through July 2007. Upon the
expiration of the financing in July 2007, we may purchase the Phase Two Facilities, request up to two one-year
extensions of the financing (subject to bank approval), self-fund approximately 90 percent of the financing and
extend the remainder through July 2009, or arrange for the sale of the Phase Two Facilities to a third party.
The Phase Two Lease terminates upon expiration of the Ñnancing in July 2007 unless we have extended
the Ñnancing or elected to self-fund the Ñnancing as described above, in which case the term of the lease
could be extended until as late as July 2009. Subject to certain terms and conditions, upon termination of
the lease, we may purchase the Phase Two Facilities, request an extension of the lease or arrange for the
sale of the Phase Two Facilities to a third party.
Pursuant to the terms of the Phase Two Lease, as amended to date, we have an option to purchase the
Phase Two Facilities at any time for a maximum purchase price of $115 million. In the event of a sale to
a third party, if the sale price is less than $115 million, we will be obligated to reimburse the diÅerence
between the actual sale price and $115 million, up to a maximum of $105 million, subject to certain
provisions of the Phase Two Lease, as amended.
The lease rates of the Phase One and Phase Two Leases Öuctuate and are based upon LIBOR plus a
margin that varies from 0.50% to 1.25% based on our ratio of total consolidated debt to consolidated
tangible net worth. Based on the 3-month LIBOR rate of 5.2% as of May 26, 2006, the annual rent
obligation of the two leases would total approximately $14 million. Our rent obligation under the leases
could increase or decrease signiÑcantly depending on changes in LIBOR.
Guildford, Orlando, Los Angeles and Vancouver Studios; Louisville Distribution Center
In February 2006, we entered into an agreement with an independent third party to lease a studio facility
in Guildford, Surrey, United Kingdom, which will commence in June 2006 and will expire in May 2016.
The facility comprises a total of approximately 95,000 square feet, which we intend to use for research and
development functions. Our rental obligation under this agreement is approximately $33 million over the
initial ten-year term of the lease.
In June 2004, we entered into a lease agreement, amended in December 2005, 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
140,000 square feet and provide space for research and development functions. Our rental obligation over
the initial Ñve-and-a-half year term of the lease is $15 million. As of March 31, 2006, our remaining rental
obligation under this lease was $14 million.
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