Electronic Arts 2006 Annual Report Download - page 133

causing the facilities to be sold to a third party. In the event of a sale to a third party, we would be
required to reimburse the diÅerence between the actual sale price and $247 million, up to a total
maximum of $222 million. Alternatively, in order to avoid being evicted or having the two facilities sold to
a third party, we could elect to purchase the Phase One and Phase Two Facilities for a combined
maximum purchase price of $247 million.
We believe that, as of March 31, 2006, the estimated fair values of both properties under these operating
leases exceeded their respective guaranteed residual values of $117 million for the Phase One Facility and
$105 million for the Phase Two Facility as of March 31, 2006.
Actual as of
Financial Covenants Requirement March 31, 2006
Consolidated Net Worth (in millions) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ equal to or greater than $2,293 $3,408
Fixed Charge Coverage Ratio ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ equal to or greater than 3.00 8.89
Total Consolidated Debt to Capital ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ equal to or less than 60% 6.8%
Quick Ratio Ì Q1 & Q2 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ equal to or greater than 1.00 N/A
Q3 & Q4 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ equal to or greater than 1.75 5.92
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. The lease 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.
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
Annual Report
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 expected sublease
income of $6 million for a sublease 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. As of March 31, 2006, our
remaining rental obligation under this lease was $43 million, of which $5 million was oÅset by expected
sublease income.
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.
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