Electronic Arts 2015 Annual Report Download - page 90

to the effects of fluctuations in foreign currency exchange rates. The significant strengthening of the U.S. dollar
during the second half of fiscal year 2015, particularly relative to the Euro, British pound sterling, Swedish krona
and Canadian dollar, had a negative impact on our reported international net revenue but a positive impact on our
reported international operating expenses because these amounts were translated at lower rates in fiscal 2015
than fiscal 2014. Our fiscal year 2015 results of operations, including our net revenue and net income were
adversely affected by these foreign currency fluctuations and these trends may continue in fiscal 2016. We use
foreign currency hedging contracts to mitigate some foreign currency risk. However, these activities are limited
in the protection they provide us from foreign currency fluctuations and can themselves result in losses.
We utilize debt financing and such indebtedness could adversely impact our business and financial
condition.
We have outstanding $632.5 million of convertible senior notes due July 2016 (the “Notes”), which result in debt
service obligations of approximately $5 million per year. In addition, in March 2015, we entered into an
unsecured committed $500 million revolving credit facility. While the facility is currently undrawn, we may use
the proceeds of any future borrowings for general corporate purposes. The credit facility contains affirmative,
negative and financial covenants, including a maximum capitalization ratio and minimum liquidity requirements.
We may enter into other financial instruments in the future.
Our indebtedness, particularly the July 2016 maturity of the Notes, could affect our financial condition and future
financial results by, among other things:
• requiring 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;
and
• limiting our flexibility in planning for, or reacting to, changes in our business and our industry.
In connection with the offering of the Notes, we entered into certain privately-negotiated transactions to reduce
the potential dilution with respect to our common stock upon conversion of the Notes. We also entered into
separate, privately-negotiated warrant transactions whereby we sold warrants to independent third parties. 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 counterparties to these agreements are financial institutions and we are subject to the
risk that one or more of these counterparties might default on the transactions. Our exposure to the credit risk of
these counterparties is not secured by any collateral and the amount of that 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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