Electronic Arts 2007 Annual Report Download - page 161

$132 million, we will be obligated to reimburse the difference between the actual sale price and $132 million,
up to a maximum of $117 million, subject to certain provisions of the Phase One Lease, as amended.
On May 26, 2006, the lessor extended its loan financing underlying the Phase One Lease with its lenders
through July 2007, and on May 14, 2007, the lenders extended this financing again for an additional year
through July 2008. We may request, on behalf of the lessor and subject to lender approval, an additional one-
year extension of the loan financing between the lessor and the lenders. In the event the lessor’s loan financing
with the lenders is not extended, we may loan to the lessor approximately 90 percent of the financing, and
require the lessor to extend the remainder through July 2009; otherwise the lease will terminate. We account
for the Phase One Lease arrangement as an operating lease in accordance with SFAS No. 13, “Accounting for
Leases”, as amended.
In December 2000, we entered into a second build-to-suit lease (“Phase Two Lease”) with Keybank National
Association for a five 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. Subject to certain terms and conditions, we may purchase the Phase Two Facilities or arrange for
the sale of the Phase Two Facilities to a third party.
Pursuant to the terms of the Phase Two Lease, we have an option to purchase the Phase Two Facilities at any
time for a 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 difference 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.
On May 26, 2006, the lessor extended the Phase Two Lease through July 2009 subject to early termination in
the event the underlying loan financing between the lessor and its lenders is not extended. Concurrently with
the extension of the lease, the lessor extended the loan financing underlying the Phase Two Lease with its
lenders through July 2007. On May 14, 2007 the lenders extended this financing again for an additional year
through July 2008. We may request, on behalf of the lessor and subject to lender approval, an additional one-
year extension of the loan financing between the lessor and the lenders. In the event the lessor’s loan financing
with the lenders is not extended, we may loan to the lessor approximately 90 percent of the financing, and
require the lessor to extend the remainder through July 2009, otherwise the lease will terminate. We account
for the Phase Two Lease arrangement as an operating lease in accordance with SFAS No. 13, as amended.
We believe that, as of March 31, 2007, the estimated fair values of both properties under these operating
leases exceeded their respective guaranteed residual values.
The two lease agreements with Keybank National Association described above require us to maintain certain
financial covenants as shown below, all of which we were in compliance with as of March 31, 2007.
Financial Covenants Requirement
Actual as of
March 31, 2007
Consolidated Net Worth (in millions) ................. equal to or greater than $2,430 $4,032
Fixed Charge Coverage Ratio ....................... equal to or greater than 3.00 4.41
Total Consolidated Debt to Capital ................... equal to or less than 60% 5.8%
Quick Ratio — Q1 & Q2 .......................... equal to or greater than 1.00 N/A
Q3&Q4 .......................... equal to or greater than 1.75 8.92
In February 2006, we entered into an agreement with an independent third party to lease a studio facility in
Guildford, Surrey, United Kingdom, which commenced in June 2006 and will expire in May 2016. The facility
comprises a total of approximately 95,000 square feet, which we 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
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