Electronic Arts 2012 Annual Report Download - page 105

Annual Report
business acquisitions, or for other purposes. If we were to liquidate these short-term investments at a time when they
were worth less than what we had originally purchased them for, or if the obligor were unable to pay the full amount
at maturity, we could incur a significant loss. Similarly, we hold marketable equity securities, which have been and
may continue to be adversely impacted by price and trading volume volatility in the public stock markets. We could
be required to recognize impairment charges on the securities held by us and/or we may realize losses on the sale of
these securities, all of which could have an adverse effect on our financial condition and results of operations.
Our debt service obligations may adversely affect our cash flow.
While our 0.75% Convertible Senior Notes due 2016 (the “Notes”) are outstanding, we will have debt service
obligations on the Notes of approximately $5 million per year. We intend to fulfill our debt service obligations
from cash generated by our operations and from our existing cash and investments. We may enter into other
financial instruments in the future.
Our indebtedness could have significant negative consequences. For example, it could:
• increase our vulnerability to general adverse economic and industry conditions;
• limit our ability to obtain additional financing;
• require the dedication of a substantial portion of any cash flow from operations to the payment of
principal of, and interest on, our indebtedness, thereby reducing the availability of such cash flow to fund
our growth strategy, working capital, capital expenditures and other general corporate purposes;
• limit our flexibility in planning for, or reacting to, changes in our business and our industry; and
• place us at a competitive disadvantage relative to our competitors with less debt.
Further, the Notes are subject to a net share settlement feature, which means that we will satisfy our conversion
obligation to holders by paying cash in settlement of the lesser of the principal amount and the conversion value
of the Notes and by delivering shares of our common stock in settlement of any and all conversion obligations in
excess of the principal amount. In addition, holders of the Notes will have the right to require us to purchase their
Notes for cash upon the occurrence of a fundamental change at a purchase price equal to 100 percent of their
principal amount, plus accrued and unpaid interest, if any.
We may not have the enough available cash or be able to arrange for financing to pay such principal amount at the
time we are required to make purchases of the Notes or convert the Notes. In addition, we may be required to use
funds that are domiciled in foreign tax jurisdictions in order to make the cash payments upon any purchase or
conversion of the Notes. If we were to choose to use such funds, we would be required to accrue and pay additional
taxes on any portion of the repatriation where no United States income tax had been previously provided.
In addition, our ability to purchase the Notes or to pay cash upon conversion of the Notes may be limited by law,
by regulatory authority or by agreements governing our future indebtedness. Our failure to purchase the Notes at
a time when the purchase is required by the indenture or to pay cash upon conversion of the Notes as required by
the indenture would constitute a default under the indenture. A default under the indenture or a fundamental
change itself could also lead to a default under agreements governing our future indebtedness. If the payment of
the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have
sufficient funds to repay the indebtedness and purchase the Notes or to pay cash upon conversion of the Notes.
The hedge transactions and warrant transactions entered into in connection with the Notes may affect the
value of the Notes and our common stock.
In connection with the offering of the Notes, we entered into privately-negotiated convertible note hedge
transactions (the “Convertible Note Hedge”) with certain counterparties (“Options Counterparties”) to reduce the
potential dilution with respect to our common stock upon conversion of the Notes. The Convertible Note Hedge
covers, subject to anti-dilution adjustments substantially similar to those applicable to the Notes, the number of
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