Electronic Arts 2009 Annual Report Download - page 173

Annual Report
Upon the expiration of the lease financing arrangement, the terms of the Phase One Lease provide for our
purchase of the Phase One Facilities for a purchase price of $132 million. However, at any time prior to the
expiration of the financing in July 2009, we may re-negotiate the lease and the related financing arrangement or
negotiate an alternative financing arrangement.
We account for the Phase One Lease arrangement as an operating lease in accordance with SFAS No. 13,
Accounting for Leases, as amended. In the event that we were to purchase the Phase One Facilities, we would be
required to classify the property on our Consolidated Balance Sheet. We would also be required to recognize the
depreciation expense for the property, excluding the land.
In December 2000, we entered into a second build-to-suit lease (“Phase Two Lease”) 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. The Phase Two Lease is subject to
early termination in the event the underlying financing between the lessor and its lenders is not extended or if we
chose to exercise our option to purchase the facility.
The lessor has extended the lease term and its loan financing underlying the Phase Two Lease with its lenders on
several occasions. The lease term and loan financing currently extends through July 2009. On February 2, 2009,
the Phase Two Lease was amended to modify the Fixed Charge Coverage Ratio, the Quick Ratio and the
Consolidated EBIDTA definitions used in the covenants. Had we not entered into this amendment, which
covered the quarter ended December 31, 2008, as well as future quarters, we would have been unable to meet the
Fixed Charge Coverage Ratio for such quarter. We were in compliance with each of the other financial
covenants.
Upon the expiration of the lease financing arrangement, the terms of the Phase Two Lease provide for our
purchase of the Phase Two Facilities for a purchase price of $115 million. However, at any time prior to the
expiration of the financing in July 2009, we may re-negotiate the lease and the related financing arrangement or
negotiate an alternative financing arrangement.
We account for the Phase Two Lease arrangement as an operating lease in accordance with SFAS No. 13, as
amended. In the event that we were to purchase the Phase Two Facilities, we would be required to classify the
property on our Consolidated Balance Sheet. We would also be required to recognize the depreciation expense
for the property, excluding the land.
The two lease agreements described above require us to maintain certain financial covenants. The following table
sets forth the financial covenants, all of which we were in compliance with as of March 31, 2009.
Financial Covenants
Requirements for the Year Ended
March 31, 2009
Actual as of
March 31, 2009
Consolidated Net Worth (in millions) ........... equal to or greater than $ 2,430 $ 3,134
Fixed Charge Coverage Ratio .................. equal to or greater than 0.60:1.00 0.82:1.00
Total Consolidated Debt to Capital ............. equal to or less than 60% 7.3%
Quick Ratio ................................ equal to or greater than 3.00:1.00 9.2:1.00
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.
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