Electronic Arts 2016 Annual Report Download - page 104

We may experience outages and disruptions of our infrastructure that may harm our business.
We may be subject to outrages or disruptions of our infrastructure, including information technology system
failures and network disruptions. These may be caused by natural disasters, cyber-incidents, weather events,
power disruptions, telecommunications failures, acts of terrorism or other events. System redundancy may be
ineffective or inadequate, and the Company’s disaster recovery planning may not be sufficient for all
eventualities. Such failures or disruptions could prevent access to our products, services or online stores selling
our products and services. Our corporate headquarters in Redwood City, CA and our studio in Burnaby, British
Columbia are located in seismically active regions, and certain of our game development activities and other
essential business operations are conducted at these locations. An event that results in the disruption of any of our
critical business or IT systems could harm our ability to conduct normal business operations.
We utilize debt financing and such indebtedness could adversely impact our business and financial
condition.
We have $1 billion in senior unsecured notes (the “Senior Notes”) and $163 million in convertible senior notes
(the “Convertible Notes”) outstanding as of March 31, 2016. We expect to settle $27 million of the Convertible
Notes during the quarter ended June 30, 2016 as a result of conversions prior to maturity by the holders thereof.
Any Convertible Notes that are not converted prior to maturity will mature in July 2016. We also have 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. We may enter into other financial
instruments in the future.
Our indebtedness 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;
• Utilizing funds that are domiciled in foreign tax jurisdictions in order to make the cash payments upon
any redemption of the Senior 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; and
• Limiting our flexibility in planning for, or reacting to, changes in our business and our industry.
The agreements governing our indebtedness impose restrictions on us and require us to maintain compliance with
specified covenants. In particular, the revolving credit facility includes a maximum capitalization ratio and
minimum liquidity requirements. Our ability to comply with these covenants may be affected by events beyond
our control. If we breach any of these covenants and do not obtain a waiver from the lenders or noteholders, then,
subject to applicable cure periods, our outstanding indebtedness may be declared immediately due and payable.
In addition, changes by any rating agency to our credit rating may negatively impact the value and liquidity of
both our debt and equity securities, as well as the potential costs associated with any potential refinancing our
indebtedness. Downgrades in our credit rating could also restrict our ability to obtain additional financing in the
future and could affect the terms of any such financing.
In connection with the offering of the Convertible Notes, we entered into certain privately-negotiated
transactions to reduce the potential dilution with respect to our common stock upon conversion of the
Convertible Notes. We also entered into separate, privately-negotiated warrant transactions whereby we sold
warrants to independent third parties. The effect of these activities could have an effect on 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.
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