Electronic Arts 2016 Annual Report Download - page 161

Annual Report
initial conversion price of approximately $31.74 per share). Upon conversion of the Convertible Notes, holders
will receive cash up to the principal amount of each Convertible Note, and any excess conversion value will be
delivered in shares of our common stock. A holder may convert any of its Convertible Notes at any time prior to
the close of business on July 13, 2016. The conversion rate is subject to customary anti-dilution adjustments (for
example, certain dividend distributions or tender or exchange offer of our common stock), but will not be
adjusted for any accrued and unpaid interest. The Convertible Notes are not redeemable prior to maturity except
for specified corporate transactions and events of default, and no sinking fund is provided for the Convertible
Notes. The Convertible Notes do not contain any financial covenants.
The carrying value of the Convertible Notes continued to be classified as a current liability and the excess of the
principal amount over the carrying value of the Convertible Notes continued to be classified in temporary equity
in the Consolidated Balance Sheets as of March 31, 2016.
Upon conversion of any Convertible Notes, we deliver cash up to the principal amount of the Convertible Notes
and any excess conversion value is delivered in shares of our common stock. During fiscal year 2016,
approximately $497 million principal value of the Convertible Notes were converted by holders thereof. During
fiscal year 2016, we repaid $470 million principal balance of the Convertible Notes and issued approximately
7.8 million shares of common stock to noteholders with a fair value of $518 million, resulting in a loss on
extinguishment of $10 million. We also received and cancelled approximately 7.8 million shares of common
stock from the exercise of the Convertible Note Hedge during fiscal year 2016. Based on the closing price of our
common stock of $65.92 at the end of the fiscal year ended March 31, 2016, the if-converted value of our
Convertible Notes outstanding in aggregate exceeded their principal amount by $175 million.
Subsequent to the fiscal year ended March 31, 2016 and through May 23, 2016, we received conversion requests
for an immaterial principal value of the Convertible Notes. During the quarter ending June 30, 2016, we expect to
settle conversion requests with $27 million in cash and a number of shares of our common stock equal in value to
the excess conversion value.
Based on the closing price of our common stock of $65.92 at the end of the fiscal year ended March 31, 2016,
approximately 0.4 million shares of our common stock would be issuable to converting holders. The actual
amount of shares issuable upon conversion will be determined based upon the market price of our common stock
during an observation period following any conversion.
The carrying and fair values of the Convertible Notes are as follows (in millions):
As of
March 31, 2016
As of
March 31, 2015
Principal amount of Convertible Notes .................................. $163 $ 633
Unamortized debt discount of the liability component ...................... (2) (31)
Net carrying value of Convertible Notes ............................... $161 $ 602
Fair value of Convertible Notes (Level 2) ................................ $338 $1,158
As of March 31, 2016, the remaining life of the Convertible Notes is approximately 3.5 months.
Convertible Note Hedge and Warrants Issuance
In July 2011, we entered into the Convertible Note Hedge to reduce the potential dilution with respect to our
common stock upon conversion of the Convertible Notes. We paid $107 million for the Convertible Note Hedge,
which was recorded as an equity transaction. The Convertible Note Hedge, subject to customary anti-dilution
adjustments, provides us with the option to acquire, on a net settlement basis, approximately 19.9 million shares
of our common stock equal to the number of shares of our common stock that notionally underlie the Convertible
Notes at a strike price of $31.74, which corresponds to the conversion price of the Convertible Notes. As of
March 31, 2016, we received 7.8 million shares of our common stock under the Convertible Note Hedge.
75