8-KMaterial AgreementsFinancial EventsExhibits & Filings

ELECTRONIC ARTS INC. 8-K Report, Material Agreement (May 18, 2007)

Filed May 18, 2007For Securities:EA

Summary

Electronic Arts Inc. (EA) filed an 8-K on May 18, 2007, primarily to report on material definitive agreements related to its Redwood City, California headquarters facilities. The filing details amendments to existing operating leases for both Phase One and Phase Two facilities, ensuring continued financing and operational stability for these key locations through at least July 2008, with potential extensions. These amendments also adjusted financial covenants related to "Consolidated EBITDAR", which could impact the company's compliance metrics. Importantly, EA has options to purchase these facilities or arrange their sale, with specific terms and potential financial obligations outlined for both scenarios.

Key Highlights

  • 1EA amended its operating leases for its Redwood City headquarters (Phase One and Phase Two) to extend underlying loan financing through July 2008.
  • 2The amendments provide potential for further one-year extensions, ensuring continued use of the facilities.
  • 3Financial covenants related to "Consolidated EBITDAR" were modified as part of the lease amendments.
  • 4EA has the option to purchase the Phase One Facilities for $132 million and the Phase Two Facilities for $115 million.
  • 5The company can also arrange for the sale of these facilities to third parties, with potential reimbursement obligations if the sale price is below the option purchase price.
  • 6These lease arrangements are accounted for as operating leases under SFAS No. 13.
  • 7The filing also addresses contingent obligations if the lessor's loan financing is not extended, potentially requiring EA to provide significant financing to the lessor to avoid lease termination.

Frequently Asked Questions

The main purpose of this 8-K filing is to report on material definitive agreements related to amendments of the operating leases for Electronic Arts' headquarters facilities in Redwood City, California. These amendments primarily concern extending the financing for these leases.

The amendments extend the loan financing for the headquarters leases through July 2008, with potential further extensions. They also include options for EA to purchase the facilities for specific prices ($132 million for Phase One, $115 million for Phase Two) or to arrange a sale to a third party, which could trigger reimbursement obligations if the sale price is less than the option price.

EA accounts for both the Phase One and Phase Two lease arrangements as operating leases in accordance with Statement of Financial Accounting Standard (SFAS) No. 13, 'Accounting for Leases'.

If the lessor's loan financing is not extended, EA may be required to loan approximately 90 percent of the financing to the lessor and ensure the remainder is extended through July 2009 to avoid lease termination. This highlights a potential contingent financial commitment for EA.