Electronic Arts 2016 Annual Report Download - page 162

Subsequent to March 31, 2016, we expect to receive a number of shares under the Convertible Note Hedge
substantially equal to the number of shares of common stock to be issued in connection with any conversions of
the Convertible Notes.
Separately, in July 2011 we also entered into privately negotiated warrant transactions with certain counterparties
whereby we sold to independent third parties warrants (the “Warrants”) to acquire, subject to customary anti-
dilution adjustments that are substantially the same as the anti-dilution provisions contained in the Convertible
Notes, up to 19.9 million shares of our common stock (which is also equal to the number of shares of our
common stock that notionally underlie the Convertible Notes), with a strike price of $41.14. The Warrants have a
dilutive effect with respect to our common stock to the extent that the market price per share of our common
stock exceeds $41.14 on or prior to the expiration date of the Warrants. The Warrants automatically exercise over
a 60 trading day period beginning on October 17, 2016. Based on the closing price of our common stock of
$65.92 at the end of the fiscal year ended March 31, 2016, approximately 7.5 million shares of our common stock
would be issuable to Warrant holders. The actual amount of shares issuable upon exercise will be determined
based upon the market price of our common stock during the 60 day trading period beginning on October 17,
2016. We received proceeds of $65 million from the sale of the Warrants in fiscal year 2012.
Effect of conversion on earning per share (“EPS”)
The Convertible Notes have no impact on diluted EPS for periods where the average quarterly price of our
common stock is below the conversion price of $31.74 per share. Prior to conversion, we include the effect of the
additional shares that may be issued if our common stock price exceeds $31.74 per share using the treasury stock
method. If the average price of our common stock exceeds $41.14 per share for a quarterly period, we also
include the effect of the additional potential shares that may be issued related to the Warrants using the treasury
stock method. Prior to conversion, the Convertible Note Hedge is not considered for purposes of the EPS
calculation, as its effect would be anti-dilutive. Upon conversion, the Convertible Note Hedge is expected to
offset the dilutive effect of the Notes when the stock price is above $31.74 per share. See Note 17 for additional
information related to our EPS.
Senior Notes
In February 2016, we issued $600 million aggregate principal amount of 3.70% Senior Notes due March 1, 2021
(the “2021 Notes”) and $400 million aggregate principal amount of 4.80% Senior Notes due March 1, 2026 (the
“2026 Notes,” and together with the 2021 Notes, the “Senior Notes”). Our proceeds were $989 million, net of
discount of $2 million and issuance costs of $9 million. Both the discount and issuance costs are being amortized
to interest expense over the respective terms of the 2021 Notes and the 2026 Notes using the effective interest
rate method. The effective interest rate was 3.94% for the 2021 Notes and 4.97% for the 2026 Notes. Interest is
payable semiannually in arrears, on March 1 and September 1 of each year, beginning on September 1, 2016.
The carrying and fair values of the Senior Notes are as follows (in millions):
As of
March 31, 2016
Senior Notes:
3.70% Senior Notes due 2021 ...................................................... $ 600
4.80% Senior Notes due 2026 ...................................................... 400
Total principal amount .......................................................... $1,000
Unaccreted discount .............................................................. (2)
Unamortized debt issuance costs .................................................... (9)
Net carrying value of Senior Notes ................................................ $ 989
Fair value of Senior Notes (Level 2) ................................................. $1,039
As of March 31, 2016, the remaining life of the 2021 Notes and 2026 Notes is approximately 4.9 years and 9.9
years, respectively.
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