Electronic Arts 2006 Annual Report Download - page 101

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 five-year options to extend the lease term. Additionally, we have options to purchase the property after five
and ten years based on the fair market value of the property at the date of sale, a right of first offer to
purchase the property upon terms offered by the Landlord, and a right to share in the profits from a sale of the
property. 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 offset by expected sublease income of $6 million for a sublease to an affiliate
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 affiliate after five years and by us after
four and five years. As of March 31, 2006, our remaining rental obligation under this lease was $43 million,
offset by expected sublease income of $5 million.
In October 2002, we entered into a lease agreement, with an independent third party for a studio facility in
Vancouver, British Columbia, Canada, which commenced in May 2003 and expires in April 2013. We
amended the lease in October 2003. The facility comprises a total of approximately 65,000 square feet and
provides space for research and development functions. Our rental obligation under this agreement is
approximately $16 million over the initial ten-year term of the lease. As of March 31, 2006, our remaining
rental obligation under this lease was $12 million.
Our North American distribution is supported by a centralized warehouse facility that we lease in
Louisville, Kentucky occupying 250,000 square feet.
In addition to the properties discussed above, we have other properties under lease which have been included
in our restructuring costs as discussed in Note 6 of the Notes to Consolidated Financial Statements included
in Item 8 of this report. While we continually evaluate our facility requirements, we believe that suitable
additional or substitute space will be available as needed to accommodate our future needs.
Item 3: Legal Proceedings
On February 14, 2005, an employment-related class action lawsuit, Hasty v. Electronic Arts Inc., was Ñled
against the company in Superior Court in San Mateo, California. The complaint alleges that we
improperly classiÑed ""Engineers'' in California as exempt employees and seeks injunctive relief, unspeciÑed
monetary damages, interest and attorneys' fees. On May 16, 2006, the court granted its preliminary
approval of a settlement pursuant to which we agreed to make a lump sum payment of $14.9 million, to
be paid to a third-party administrator, to cover (a) all claims allegedly suÅered by the class members,
(b) plaintiÅs' attorneys' fees, not to exceed 25% of the total settlement amount, (c) plaintiÅs' costs and
Annual Report
expenses, (d) any incentive payments to the named plaintiÅs that may be authorized by the court, and
(e) all costs of administration of the settlement. The hearing for the court to consider its Ñnal approval of
the settlement is set for September 22, 2006.
Each of the shareholder actions we have previously disclosed have been voluntarily dismissed by all plaintiffs.
The federal securities class action complaint has been dismissed with prejudice, by an order dated
January 26, 2006; the federal derivative action has been dismissed, by an order dated March 10, 2006; and
the two state derivative actions have been dismissed, by orders dated May 4, 2006 and May 8, 2006.
In addition, we are subject to other claims and litigation arising in the ordinary course of business. We
believe that any liability from any reasonably foreseeable disposition of such other claims and litigation,
individually or in the aggregate, would not have a material adverse eÅect on our consolidated Ñnancial
position or results of operations.
Item 4: Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of our security holders during the quarter ended March 31,
2006.
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