Electronic Arts 2008 Annual Report Download - page 131

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. On April 14, 2008, the lenders extended the financing for another year through July 2009.
At any time prior to the expiration of the financing in July 2009, we may re-negotiate the lease and the related
financing arrangement. 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, 2008, 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, 2008.
Financial Covenants Requirement
Actual as of
March 31, 2008
Consolidated Net Worth (in millions)................ equal to or greater than $2,430 $4,339
Fixed Charge Coverage Ratio ..................... equal to or greater than 3.00 3.88
Total Consolidated Debt to Capital ................. equal to or less than 60% 5.4%
QuickRatio—Q1&Q2......................... equal to or greater than 1.00 N/A
Q3&Q4......................... equal to or greater than 1.75 7.71
In February 2006, we entered into an agreement with an independent third party to lease a 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 administrative, sales 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 five-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 five-and-a-half
year term of the lease is $15 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 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 either party after October 2008.
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.
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