Electronic Arts 2014 Annual Report Download - page 90

• 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.
We may not have 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 any additional
taxes on any portion of the repatriation where no United States income tax had been previously provided.
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
shares of common stock underlying the Notes. We also entered into separate, privately-negotiated warrant
transactions with the certain counterparties whereby we sold to independent third parties warrants (the
“Warrants”) with the Option Counterparties relating to the same number of shares of our common stock, subject
to customary anti-dilution adjustments.
The effect, if any, of these activities, including the direction or magnitude, on the market price of our common
stock will depend on a variety of factors, including market conditions, and cannot be ascertained at this time.
Any of these activities could, however, adversely affect the market price of our common stock and the trading
price of the Notes.
In addition, the Option Counterparties are financial institutions, and we will be subject to the risk that one or
more of the Option Counterparties might default under the Convertible Note Hedge. Our exposure to the credit
risk of the Option Counterparties will not be secured by any collateral. If any of the Option Counterparties
becomes subject to insolvency proceedings, we will become an unsecured creditor in those proceedings with a
claim equal to our exposure at the time under the Convertible Note Hedge with such option counterparty. Our
exposure will depend on many factors but, generally, the increase in our exposure will be correlated to the
increase in the market price and in the volatility of our common stock.
Changes in our tax rates or exposure to additional tax liabilities could adversely affect our earnings and
financial condition.
We are subject to taxes in the United States and in various foreign jurisdictions. Significant judgment is required
in determining our worldwide income tax provision and accruals for other taxes, and there are many transactions
and calculations where the ultimate tax determination is uncertain. Our effective income tax rate could be
adversely affected by our profit levels, by changes in our business, reorganization of our business and operating
structure, changes in the mix of earnings in countries with differing statutory tax rates, changes in the elections
we make, changes in applicable tax laws, or changes in the valuation allowance for deferred tax assets, as well as
other factors. We are also required to pay taxes other than income taxes, such as payroll, sales, use, value-added,
net worth, property and goods and services taxes, in both the United States and foreign jurisdictions.
Furthermore, we are regularly subject to audit by tax authorities with respect to both income and such other non-
income taxes. Adverse changes in our effective income tax rate, unfavorable audit results or tax rulings, or other
changes resulting in significant additional tax liabilities could have material adverse effects upon our earnings,
cash flows, and financial condition.
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