ELECTRONIC ARTS INC - 10-K Annual Report

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

This Report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical fact, including statements regarding industry prospects and future results of operations or financial position, made in this Report are forward looking. We use words such as “anticipate”, “believe”, “expect”, “intend”, “estimate” (and the negative of any of these terms), “future” and similar expressions to help identify forward-looking statements. These forward-looking statements are subject to business and economic risk and reflect management’s current expectations, and involve subjects that are inherently uncertain and difficult to predict. Our actual results could differ materially. We will not necessarily update information if any forward-looking statement later turns out to be inaccurate. Risks and uncertainties that may affect our future results include, but are not limited to, those discussed under the heading “Risk Factors”, beginning on page 49.

We were initially incorporated in California in 1982. In September 1991, we reincorporated under the laws of Delaware. Our principal executive offices are located near San Francisco, California at 209 Redwood Shores Parkway, Redwood City, California 94065 and our telephone number is (650) 628-1500.

One of our strengths is our ability to publish interactive software games for multiple platforms. Our products that are designed to play on consoles and mobile platforms are published under license from the manufacturers of these platforms (for example, Sony for the PlayStation 2 and PSP, Microsoft for the Xbox and Nintendo for the Nintendo GameCube, Game Boy Advance and Nintendo DS) and we pay a fee to these platform manufacturers for technology and intellectual property, which enables us to publish products on their platforms. We invest in the creation of software tools to more efficiently develop games for multiple platforms. We also make investments in facilities and equipment that allow us to create and edit video and audio recordings that are used in our games. Since our inception, we have published games for over 45 different platforms.

Our product development methods and organization are modeled on those used in other sectors of the entertainment industry. Employees whom we call “producers” are responsible for overseeing the development of one or more products. The interactive software games that we develop and publish are broken down into three major categories: (1) EA studio products, (2) co-publishing products and (3) distribution products.

We develop games internally at our development and production studios located near San Francisco, Los Angeles, Orlando (Florida), Chicago, Vancouver, Montreal, London and Tokyo. We also engage third parties to develop games on our behalf at their own development and production studios. We publish our EA Studio products under three major brands:


		(professional soccer), NBA Live 2005, NCAA® March Madness^tm 2005 (collegiate basketball), Tiger Woods PGA TOUR® 2005 (professional golf), NHL® 2005 (professional hockey) and NASCAR 2005: Chase for the Cup (stock car racing),

	•	EA GAMES^tm — We publish a variety of games under our EA GAMES brand. Some of our recent products published under the EA GAMES brand include Burnout® 3: Takedown^tm, The Lord of the Rings^tm, The Third Age^tm, GoldenEye: Rogue Agent^tm, The Sims^tm 2, Need for Speed^tm Underground 2 and Medal of Honor^tm Pacific Assault, and

	•	EA SPORTS BIG^tm — We publish arcade-style extreme sports and modified traditional sports games under our EA SPORTS BIG brand. Some of our recent products published under the EA SPORTS BIG brand include NFL STREET 2: Unleashed (football), Def Jam® Fight for NY^tm (wrestling), NBA STREET Vol. 3 (basketball) and FIFA STREET (soccer).

Through our EA Partners global business unit, we team with other game development companies that develop their own interactive software games with our assistance, which we then publish, market and distribute. An example of one of our recent co-publishing products is TimeSplitters Future Perfect^tm, which was developed by Free Radical Design, a game development company located near London. We also distribute interactive software games that are developed by other companies. An example of one of our recent distribution products is Star Wars Knights of the Old Republic II: The Sith Lords, published by LucasArts, which we distributed in Japan.

Another strength of our business is that we develop product families (we call them “franchises”) around many of our products. For example, every year we release new versions of most of our EA SPORTS titles. Likewise, we have been successful in developing, marketing, publishing and distributing sequels to several of our EA GAMES and EA SPORTS BIG products. We also release products called “expansion packs” for PC titles that provide additional content (characters, storylines, settings, missions) for games that we have previously published. For example, we have published an expansion pack The Sims 2: University, which expands the characters, settings and gameplay of the original The Sims 2 game. We consider titles that iterate, sequel or spawn expansion packs to be franchise titles.

The console, PC and some mobile games that we publish are made available to consumers on a disk (usually CD, DVD or Universal Media Disc (“UMD”) format) or a cartridge that is packaged and typically sold in retail stores and through online stores (including our own online store). We refer to these as “packaged goods” products. In North America and Europe, our largest markets, these packaged goods products are sold primarily to retailers that may be mass market retailers (such as Wal-Mart), electronics specialty stores (such as Best Buy) or game software specialty stores (such as GameStop). We also maintain a smaller business where we license to manufacturers of products in related industries (for example, makers of personal computers or computer accessories) rights to include certain of our products with the manufacturer’s product or offer our products to consumers who have purchased the manufacturer’s product. We call these combined products “OEM bundles”.

There are three ways in which we publish games that are playable online by consumers: (1) we publish games that are playable only online. One type of these online-only games is called “persistent state worlds” or “massively multiplayer online games”. Players experience these games as interactive virtual worlds where thousands of other players can interact with one another. An example of our persistent state world products is Ultima Online. These persistent state world games are often sold to consumers in the form of a CD or DVD that contains much of the software necessary to play the game online. After loading the game disk on their PCs, players are able to log-on to servers that we make available in order to interact with other players; (2) other types of online-only games that we publish are available on the World Wide Web and include card games, puzzle games and word games (marketed under our “pogo^tm” brand), all of which are made available to consumers on our web site, www.pogo.com, and on certain online services provided by America Online, Inc.; and (3) we include online capability features in certain of our PC, PlayStation 2 and Xbox products, which enable consumers to participate in online communities and play against one another via the Internet.

Like other entertainment companies, our business is based on the creation, acquisition, exploitation and protection of intellectual property. Some of this intellectual property is in the form of software code, patented technology, and other technology and trade secrets that we use to develop our games and to make them run properly on the platforms. Other intellectual property is in the form of audio-visual elements that consumers can see, hear and interact with when they are playing our games — we call this form of intellectual property “content”.

Each of our products embodies a number of separate forms of intellectual property protection: the software and the content of our products are copyrighted; our product brands and names may be trademarks of ours or others; our products may contain voices and likenesses of actors, athletes and/or commentators (protected by personal publicity rights) and often contain musical compositions and performances that are also copyrighted. Our products also may contain other content licensed from others, such as trademarks, fictional characters, storylines and software code.

We acquire the rights to include these kinds of intellectual property in our products through license agreements such as those with sports leagues and player associations, movie studios and performing talent, music labels, music publishers and musicians. These licenses are typically limited to use of the licensed rights in products for specific time periods. In addition, our products that play on consoles, such as the Sony PlayStation 2, include technology that is owned by the console manufacturer and licensed non-exclusively to us for use. While we may have renewal rights for some licenses, our business and the justification for the development of many of our products is dependent on our ability to continue to obtain the intellectual property rights from the owners of these rights at reasonable rates.

Our products are susceptible to unauthorized copying. We typically distribute our PC products using copy protection technology that we license from other companies. In addition, console manufacturers, such as Sony, typically incorporate security devices in their consoles in an effort to prevent unlicensed use of products. Our primary protection against unauthorized use, duplication and distribution of our products is enforcement of our copyright and trademark interests. We typically own the copyright to the software code as well as the brand or title name trademark under which our products are marketed. We register our copyrights in the United States, and register our significant trademarks in multiple countries including the United States.

Historically, there have been multiple consoles available that play interactive software games like ours, and there has been vigorous competition between console manufacturers. While Sony has for the past several years been the clear business segment leader (with its PlayStation® and PlayStation 2 consoles), Microsoft and Nintendo are large and viable competitors, and PCs continue to be a strong interactive game platform. We develop and publish products for multiple platforms, and this diversification continues to be a cornerstone of our product strategy.

We currently develop or publish products for eleven different hardware platforms. In fiscal 2005, we released games designed to play on the PlayStation 2, Xbox, Nintendo GameCube, PlayStation, PC, Game Boy Advance, Nokia N-Gage^tm, Sony PSP, Nintendo DS and the Internet. In fiscal 2006, we plan to release games designed for play on the PlayStation 2, Xbox, Xbox 360, Nintendo GameCube, PC, Game Boy Advance, Nokia N-Gage, Sony PSP, Nintendo DS, the Internet and cellular phones (among others).

The current-generation of systems was initiated by the launch of Sony’s PlayStation 2 in fiscal 2001, and continued with the launches of the Nintendo GameCube and Microsoft’s Xbox in fiscal 2002. The following table details select information on a sample of the console platforms for which we have published titles:

PlayStation 2. Sony released the PlayStation 2 console in Japan in March 2000, in North America in October 2000 and in Europe in November 2000. The PlayStation 2 console is a 128-bit, DVD-based system that, with a network adaptor, is Internet ready, as well as backward compatible with games published for its predecessor, the PlayStation. We have published and are currently developing numerous products for the Sony PlayStation 2.

Nintendo GameCube. Nintendo launched the Nintendo GameCube console in Japan in September 2001, in North America in November 2001 and in Europe in May 2002. The Nintendo GameCube plays games that are manufactured on a proprietary optical disk. We have published and are currently developing numerous products for the Nintendo GameCube.

Xbox. Microsoft launched the Xbox console in North America in November 2001, in Japan in February 2002 and in Europe in March 2002. The Microsoft Xbox is a 128-bit, DVD-based system that is Internet ready. In May 2004, we began to support the Xbox Live service with features including Quickmatch, Optimatch, gamertags, Xbox Live friends list, voice communication and EA messenger service. We have published and are currently developing numerous products for the Microsoft Xbox.

To date, we have had limited success in finding ways of generating revenue and profits from online games, including subscription fees, “pay-to-play fees”, micro transactions and advertising. In addition, we have had limited experience with developing optimal pricing strategies or predicting usage patterns for our online games. In our history, we have launched five persistent state world products with mixed results. While we have achieved success with Ultima Online, our other persistent state world products, most notably The Sims Online, have not met our expectations.

During the next 18 months, we expect the next-generation of consoles to be released by Microsoft, Sony and Nintendo. Our early investment in products designed for play on 32 and 128-bit consoles, such as the PlayStation and PlayStation 2, respectively, has been strategically important in positioning us for the next-generation of consoles. We believe that such investment continues to be important as the next-generation of consoles is expected to introduce new complexities such as Blu-ray Disk-Read Only Memory (“BD-ROM”) and/or High-Definition video technologies. As we move through the life cycle of current-generation consoles, we will continue to devote resources to developing games for these consoles, while at the same time increasing our investment in tools and technologies for the next-generation of consoles.

We compete in the entertainment industry. At the most fundamental level, our products compete with other forms of entertainment, such as motion pictures, television and music, for the leisure time and discretionary spending of consumers. We believe that the software games segment is best viewed as a segment of the overall entertainment market. We believe that large software companies and media companies are increasing their focus on the software games segment of the entertainment market and as a result, may become more direct competitors. Several large software companies and media companies (e.g., Microsoft and Sony) have been publishing products that compete with ours for a long time, and other diversified media/entertainment companies (e.g., Time Warner and Disney) have announced their intent to significantly expand their software game publishing efforts in the future.

The software games business is highly competitive. It is characterized by the continuous introduction of new titles and the development of new technologies. Our competitors vary in size from very small companies with limited resources to very large, diversified corporations with greater financial and marketing resources than ours. Our business is driven by hit titles, which require ever-increasing budgets for development and marketing. As a result, the availability of significant financial resources has become a major competitive factor in developing and marketing software games. Competition is also based on product quality and features, timing of product releases, brand-name recognition, quality of in-game content, access to distribution channels, effectiveness of marketing and price.

We currently compete with Sony, Microsoft and Nintendo, each of which develop and publish software for their respective console platforms. We also compete with numerous companies which are, like us, licensed by the console manufacturers to develop and publish software games that operate on their consoles. These competitors include Activision, Atari, Capcom, Eidos, Koei, Konami, LucasArts, Midway, Namco, Sega, Take-Two Interactive, THQ, Ubisoft and Vivendi Universal Games, among others. As discussed above, diversified media companies such as Time Warner and Disney have also indicated their intent to significantly expand their software game publishing efforts in the future.

In addition to competing for product sales, we face heavy competition from other software game companies to obtain license agreements granting us the right to use intellectual property included in our products; and some of these content licenses are controlled by the diversified media companies, which intend to expand their software game publishing divisions.

Finally, the market for our products is characterized by significant price competition and we regularly face pricing pressures from our competitors. These pressures have, from time to time, required us to reduce our prices on certain products. Our experience has been that software game prices tend to decline once a generation of consoles has been in the market for a significant period of time due to the increasing number of software titles competing for acceptance by consumers and the anticipation of the next-generation of consoles.

Sony. Under the terms of license agreements we entered into with Sony Computer Entertainment of America, Sony Computer Entertainment of Europe and Sony Computer Entertainment Inc. (Japan), we are authorized to develop and distribute DVD-based software products compatible with the PlayStation 2. Pursuant to these agreements, we engage Sony to supply PlayStation 2 DVDs for our products. Many of our PlayStation 2 products are capable of being played online by customers who have an online adaptor, which is manufactured and sold by Sony.

In fiscal 2005, approximately 43 percent of our net revenue was derived from sales of EA Studio games designed for play on the PlayStation 2, compared to 44 percent in fiscal 2004. We released 27 titles worldwide in fiscal 2005 for the PlayStation 2, compared to 24 titles in fiscal 2004. Our top five PlayStation 2 releases for fiscal 2005 were Need for Speed Underground 2, Madden NFL 2005, FIFA Soccer 2005, Burnout 3: Takedown and NBA LIVE 2005.

Microsoft. Under the terms of a license agreement we entered into with Microsoft, we are authorized to develop and distribute DVD-based software products compatible with the Xbox. We make many of our games capable of being played online via Microsoft’s Xbox Live service. Customers are able to play these products online once they have paid an Xbox Live subscription fee to Microsoft.

In fiscal 2005, approximately 16 percent of our net revenue was derived from sales of EA Studio games designed for play on the Xbox, compared to 13 percent in fiscal 2004. We released 26 titles worldwide in fiscal 2005 for the Xbox, compared to 21 titles in fiscal 2004. Our top five Xbox releases for the year were Need for Speed Underground 2, Madden NFL 2005, Burnout 3: Takedown, FIFA Soccer 2005 and NCAA Football 2005.

Nintendo. Under the terms of license agreements we entered into with Nintendo of America and Nintendo Company Ltd. (Japan), we are authorized to develop and distribute proprietary optical format disk products compatible with the Nintendo GameCube. Pursuant to these agreements, we engage Nintendo to supply Nintendo GameCube proprietary optical format disk products for our products.

In fiscal 2005 and 2004, approximately seven percent of our net revenue was derived from sales of EA Studio games designed for play on the Nintendo GameCube. We released 20 titles worldwide in fiscal 2005 for the Nintendo GameCube, compared to 19 titles in fiscal 2004. Our top five Nintendo GameCube releases for the year were Need for Speed Underground 2, Madden NFL 2005, Harry Potter and the Prisoner of Azkaban^tm, GoldenEye: Rogue Agent and The Lord of the Rings, The Third Age.

Many of our products are based on or incorporate intellectual property owned by others. For example, our EA SPORTS products include rights licensed from the major sports leagues and players associations. Similarly, many of our hit EA GAMES franchises, such as James Bond, Harry Potter and Lord of the Rings, are based on key film and literary licenses. In fiscal 2005, we entered into exclusive license agreements with ESPN, the NFL, PLAYERS, Inc. (the NFL players’ association), Collegiate Licensing Company (the licensing authority for NCAA football) and the Arena Football League. In addition, we have long-standing, exclusive relationships with various sports organizations and celebrities, including FIFA, UEFA (professional soccer), NASCAR, Tiger Woods and the PGA TOUR, and, in the future, we may enter into other exclusive relationships with other partners.

In fiscal 2005, we generated approximately 71 percent of our net revenue from EA Studio-produced products released during the year as compared to approximately 69 percent in fiscal 2004. During fiscal 2005, we introduced 35 EA Studios titles, representing 109 stock keeping units, or SKUs, compared to 32 EA Studios titles, comprising 97 SKUs, in fiscal 2004. In fiscal 2005, we had 31 titles that sold over one million units (aggregated across all platforms). In fiscal 2004, we had 27 titles and in fiscal 2003 we had 22 titles that sold over one million units (aggregated across all platforms). A SKU is a version of a title designed for play on a particular platform and intended for distribution in a particular territory. In fiscal 2005, we had one title, Need for Speed Underground 2, published on five different platforms which represented approximately 11 percent of our total net revenue. No title represented more than 10 percent of our total net revenue in fiscal 2004 while in fiscal 2003, we had one title, Harry Potter and the Chamber of Secrets^tm, published on seven different platforms, which represented approximately 10 percent of our total net revenue.

The products produced by EA Studios are designed and created by our employee designers and artists and by non-employee software developers (we call them “independent artists” or “third-party developers”). We typically advance development funds to the independent artists and third-party developers during development of our games, which payments are considered advances against subsequent royalties based on the sales of the products. These terms are typically set forth in written agreements entered into with the independent artists and third-party developers.

The retail selling prices of our newly released products in North America typically range from $29.99 to $49.99. Other titles, including re-releases of older titles marketed as “Classics”, have retail selling prices that range from $9.99 to $29.99. The retail selling prices of our titles outside of North America vary widely depending on factors such as local market conditions.

Our goal is to maintain our position as a leading publisher of games sold for play on the current-generation of 128-bit video game consoles and to extend our success into the next-generation of consoles and mobile platforms. We will continue to invest in tools and technologies designed to facilitate development of our products for current-generation platforms while also investing in tools and technologies for the next-generation of consoles and mobile platforms. These investments are recorded in research and development in our Consolidated Statement of Operations. We had research and development expenditures of $633 million in fiscal 2005, $511 million in fiscal 2004 and $401 million in fiscal 2003.

Free Content. We offer free games on our web site under the following four brands: Pogo, EA GAMES, EA SPORTS and EA SPORTS BIG. The majority of these free games are original games designed solely for play on our web site (and on the games-oriented areas of America Online, our online games partner) while some of the product offerings capitalize on our existing franchises adapted for online play. As of March 31, 2005, the online product offerings within each brand included the following:


		tournaments, community and Pogo’s strength and popularity in free, familiar games to significantly increase the appeal of our online games service to the broad consumer market.

	•	EA GAMES. In fiscal 2005, four PC, three PlayStation 2 and three Xbox titles of our EA GAMES brand had online gameplay capability. In addition, we provided 10 free online games on our Pogo web site under the EA GAMES brand. The EA GAMES offering consists of original arcade-style games and other original games designed solely for online play, such as Highstakes Pool, Command & Conquer^tm: Attack Copter, Command & Conquer^tm: Armored Attack and Need for Speed.

	•	EA SPORTS and EA SPORTS BIG. In fiscal 2005, six PC, 12 PlayStation 2 and 12 Xbox titles of our EA SPORTS and EA SPORTS BIG brands had online gameplay capability. In addition, we provided 18 free online games on our Pogo web site under the EA SPORTS and EA SPORTS BIG brands. In the EA SPORTS BIG category, SSX Snowdreams leverages our SSX snowboarding franchise to form a community of sports gamers. The EA SPORTS category consists of original games designed solely for online play such as Pebble Beach Golf, Top Down Baseball, All-Star Football, All-Star Football Challenge, 3-Point Showdown and It’s Outta Here 2!.

We also offer premium pay-to-play persistent state world games, such as Ultima Online. In order to access these premium games, the player must purchase a CD through retail stores or through our online store. After an initial free-trial period, the player must pay a subscription fee in order to continue playing. These persistent state world games are designed to appeal to avid gamers: teens and adults looking to participate in massively multiplayer online games made up of fantastic worlds, characters, adventures or activities — big or small, real or imagined.

We market the products produced by our EA Studios under the EA GAMES, EA SPORTS and EA SPORTS BIG brands. Products marketed under the EA GAMES brand typically feature challenging games and include franchises such as Need for Speed, The Lord of the Rings and Medal of Honor. Products marketed under the EA SPORTS brand typically simulate professional and collegiate sports and include

franchises such as Madden NFL, FIFA Soccer and NBA Live. Products marketed under the EA SPORTS BIG brand typically feature extreme sports or modified traditional sports in an arcade-style game and include such titles as Def Jam Fight for NY, FIFA STREET and NFL STREET 2: Unleashed.

Formerly known as Electronic Arts Distribution, our EA Partners global business unit operates under a variety of deal types and structures with the intent of generating, leveraging and/or owning intellectual properties conceived by other developers, publishers or licensors worldwide. Through EA Partners we provide direct development expertise to our partners via an internal production staff, while also making available our publishing resources to provide sales, marketing and distribution services on a global basis. EA Partners currently has relationships with Lionhead, Crytek, Free Radical Design and Eurocom Entertainment Software, among others.

EA Partners also distributes finished goods on behalf of other publishers. These titles are developed and manufactured by other publishers and delivered to us as completed products, for which we provide distribution services. In fiscal 2005, our distribution partners included Capcom and Namco.

The interactive software game business is “hit” driven, requiring significantly greater expenditures for marketing and advertising of our products. There can be no assurance that we will continue to produce “hit” titles, or that advertising for any product will increase sales sufficiently to recoup those advertising expenses.

We generated approximately 95 percent of our North American net revenue from direct sales to retailers. The remaining 5 percent of our North American sales were made through a limited number of specialized and regional distributors and rack jobbers in markets where we believe direct sales would not be economical. We had direct sales to one customer, Wal-Mart Stores, Inc., which represented 14 percent of total net revenue in fiscal 2005, 13 percent in fiscal 2004 and 12 percent in fiscal 2003.

Outside of North America, we derive revenues primarily from direct sales to retailers. Our largest indirect sales relationship is with Pinnacle in Europe. Sales of our products through Pinnacle make up approximately 10 percent of our total net revenue. We use Pinnacle to provide logistical and collection services to our retail customers. Under the terms of our distribution agreement with Pinnacle, product is held by Pinnacle on consignment until shipment to the retailer. In addition, we authorize returns from, or price protection to, retailers and are obliged to give Pinnacle the corresponding credit. In a few of our smaller markets, we sell our products through distributors with whom we have written agreements or informal arrangements, depending on the business customs of the territories.

In North America, we have stock-balancing programs for our PC products, which allow for the exchange of PC products by resellers under certain circumstances. In all of our major geographical markets, we accept product returns on our PC products and we may decide to accept product returns or provide price protection under certain circumstances for our console products after we analyze inventory remaining in the channel, the rate of inventory sell-through in the channel, and our remaining inventory on hand. It is our policy to exchange products or give credits, rather than give cash refunds. We actively monitor and manage the volume of our sales to retailers and distributors and their inventories as substantial overstocking in the distribution channel can result in high returns or the requirement for substantial price protection in subsequent periods.

The distribution channels through which our games are sold have been characterized by change, including consolidations and financial difficulties of certain distributors and retailers. The bankruptcy or other business difficulties of a distributor or retailer could render our accounts receivable from such entity uncollectible, which could have an adverse effect on our operating results and financial condition. In addition, an increasing number of companies are competing for access to our distribution channels. Our arrangements with our distributors and retailers may be terminated by either party at any time without cause. Distributors and retailers often carry products that compete with ours. Retailers of our products typically have a limited amount of shelf space and promotional resources that they are willing to devote to the software games category, and there is intense competition for these resources. There can be no assurance that distributors and retailers will continue to purchase our products or provide our products with adequate levels of shelf space and promotional support.

We manage inventories by communicating with our customers prior to the release of our products, and then using our industry experience to forecast demand on a product-by-product and territory-by-territory basis. We then place manufacturing orders for our products that match this forecasted demand. Historically, we have experienced high turnover of our products, and the lead times on re-orders of our products are generally short, approximately two to three weeks. Further, as discussed in “Marketing and Distribution” and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, we have practices in place with our customers (such as stock balancing and price protection) that reduce product returns.

We conduct business and have wholly-owned subsidiaries throughout the world, including offices in Australia, Austria, Belgium, Brazil, Canada, China, the Czech Republic, Denmark, England, Finland, France, Germany, Greece, Hungary, Italy, Japan, the Netherlands, New Zealand, Norway, Poland, Portugal, Singapore, South Africa, South Korea, Spain, Sweden, Switzerland, Taiwan, and Thailand. International net revenue increased by nine percent to $1.464 billion, or 47 percent of total net revenue in fiscal 2005, compared to $1.347 billion, or 46 percent of total net revenue in fiscal 2004. Our increase in international net revenue was primarily driven by sales in Europe and Asia Pacific, including the benefit of foreign exchange.

We believe that in order to increase our sales in Asia, we will need to devote significant resources to hire local development talent and expand our infrastructure, most notably, the expansion and creation of studio facilities to develop content locally for each market. In addition, we may establish online game marketing, publishing and distribution functions in China. As part of this strategy, we may seek to partner with established local companies through acquisitions, joint ventures or other similar arrangements.

In many instances, we are able to acquire materials on a volume-discount basis. We have multiple potential sources of supply for most materials, except for the disk component of our PlayStation 2, PSP and Nintendo GameCube disk products, as discussed in “Significant Relationships”. We also have alternate sources for the manufacture and assembly of most of our products. To date, we have not experienced any material difficulties or delays in production of our software and related documentation and packaging. However, a shortage of components, manufacturing delays by Sony or Nintendo, or other factors beyond our control could impair our ability to manufacture, or have manufactured, our products.

As of March 31, 2005, we employed approximately 6,100 people, of whom over 3,400 were outside the United States. We believe that our ability to attract and retain qualified employees is a critical factor in the successful development of our products and that our future success will depend, in large measure, on our ability to continue to attract and retain qualified employees. To date, we have been successful in recruiting and retaining sufficient numbers of qualified personnel to conduct our business successfully. We believe that our relationships with our employees are strong. Less than four percent of our employees, each of whom is employed by one of our Swedish subsidiaries, are represented by a union, guild or other collective bargaining organization.

Mr. Probst has been a director of Electronic Arts since January 1991 and currently serves as Chairman and Chief Executive Officer. He was elected as Chairman in July 1994. Mr. Probst has previously served as President of Electronic Arts; as Senior Vice President of EA Distribution, Electronic Arts’ distribution division, from January 1987 to January 1991; and from September 1984, when he joined Electronic Arts, until December 1986, served as Vice President of Sales. Mr. Probst holds a B.S. degree from the University of Delaware.

Mr. Mattrick has served as President of Worldwide Studios since September 1997. From October 1996 until September 1997, he served as Executive Vice President, North American Studios. From July 1991 to October 1996, he served as Senior Vice President, North American Studios, Vice President of Electronic Arts and Executive Vice President/ General Manager for EA Canada. Mr. Mattrick was founder and former chairman of Distinctive Software Inc. from 1982 until it was acquired by Electronic Arts in 1991.

Mr. Jenson joined Electronic Arts in June 2002 as Executive Vice President and Chief Financial and Administrative Officer. Before joining Electronic Arts, he was the Senior Vice President and Chief Financial Officer for Amazon.com from 1999 to 2002. From 1998 to 1999, he was the Chief Financial Officer and Executive Vice President for Delta Air Lines. Prior to that, he worked in several positions as part of the

General Electric Company. Most notably, he served as Chief Financial Officer and Senior Vice President for the National Broadcasting Company, a subsidiary of General Electric. Mr. Jenson earned his Masters of Accountancy-Business Taxation, and B.S. in Accounting from Brigham Young University.

Mr. Lee has served as Executive Vice President and Chief Operating Officer, Worldwide Studios since August 2002. From 1998 to August 2002, he was Senior Vice President and Chief Operating Officer, Worldwide Studios. Prior to this, he served as General Manager of EA Canada, Chief Operating Officer of EA Canada, Chief Financial Officer of EA Sports and Vice President, Finance and Administration of EA Canada. Mr. Lee was a principal of Distinctive Software Inc. until it was acquired by Electronic Arts in 1991. Mr. Lee holds a Bachelor of Commerce degree from the University of British Columbia and is a Chartered Financial Analyst.

Mr. Linzner has served as Executive Vice President of Legal and Business Affairs since March 2005. From April 2004 to March 2005, he served as Senior Vice President of Legal and Business Affairs. From October 2002 to April 2004, Mr. Linzner held the position of Senior Vice President of Worldwide Business Affairs and from July 1999 to October 2002, he held the position of Vice President of Worldwide Business Affairs. Prior to joining Electronic Arts in July 1999, Mr. Linzner served as outside litigation counsel to Electronic Arts and several others in the video game industry. Mr. Linzner earned his J.D. from Boalt Hall at the University of California, Berkeley, after graduating from Brandeis University. He is a member of the Bar of the State of California and is admitted to practice in the United States Supreme Court, the Ninth Circuit Court of Appeals and several United States District Courts.

Mr. McMillan was named Executive Vice President of Electronic Arts’ Worldwide Studios in June 2002. From September 1999, he served as Senior Vice President, Worldwide Studios. From 1991 to 1999, he held various senior positions within Electronic Arts studios. Mr. McMillan was an employee of Distinctive Software Inc. until it was acquired by Electronic Arts in 1991. Mr. McMillan holds degrees in Economics and Computer Science from Simon Fraser University.

Mr. Rueff has served as Executive Vice President of Human Resources and Facilities since August 2002. From October 1998 to August 2002, he served as Senior Vice President of Human Resources. Prior to joining Electronic Arts, Mr. Rueff held various positions with the PepsiCo companies for over 10 years, including: Vice President, International Human Resources; Vice President, Staffing and Resourcing at Pepsi-Cola International; Vice President, Restaurant Human Resources for Pizza Hut; and also various other management positions within the Frito-Lay Company. Mr. Rueff holds a M.S. degree in Counseling and a B.A. degree in Radio and Television from Purdue University in Indiana.

Ms. Smith has served as Executive Vice President and General Manager, North American Publishing since March 1998. From October 1996 to March 1998, Ms. Smith served as Executive Vice President, North American Sales. She previously held the position of Senior Vice President of North American Sales and Distribution from July 1993 to October 1996 and as Vice President of Sales from 1988 to 1993. Ms. Smith has also served as Western Regional Sales Manager and National Sales Manager since she joined Electronic Arts in 1984. Ms. Smith holds a B.S. degree in management and organizational behavior from the University of San Francisco.

Mr. Bené has served as Senior Vice President, General Counsel and Corporate Secretary since October 2004. From April 2004 to October 2004, Mr. Bené held the position of Vice President, Acting General Counsel and Corporate Secretary, and from June 2003 to April 2004, he held the position of Vice President and Associate General Counsel. Prior to June 2003, Mr. Bené had served as internal legal counsel since joining the Company in March 1995. Mr. Bené earned his J.D. from Stanford Law School, and received his B.S. in Mechanical Engineering from Rice University. Mr. Bené is a member of the Bar of the State of California.

Dr. Florin has served as Senior Vice President and Managing Director, European Publishing since April 2003. Prior to this, he served as Vice President, Managing Director for European countries since 2001. From the time he joined Electronic Arts in 1996 to 2001, he was the Managing Director for German speaking countries. Prior to joining Electronic Arts, Dr. Florin held various positions at BMG, the global music division of Bertelsmann AG, and worked as a consultant with McKinsey. Dr. Florin holds Masters and Ph.D. degrees in Economics from the University of Augsburg, Germany.

and Managing Director, European Publishing from May 1999 to April 2003. Prior to this, he held several positions in EA Europe, which he helped establish in 1987, including Director of European Sales and Marketing and Managing Director of EA Europe. Mr. Gardner has also held various positions at Electronic Arts in the sales, marketing and customer support departments since joining the company in 1983.

Mr. Barker has served as Vice President and Chief Accounting Officer since June 2003. Prior to joining Electronic Arts, Mr. Barker was employed at Sun Microsystems Inc., as Vice President and Corporate Controller from October 2002 to June 2003 and Assistant Corporate Controller from April 2000 to September 2002. Prior to that, he was an audit partner at Deloitte. Mr. Barker graduated from the University of Notre Dame with a B.A. degree in Accounting.

We file various reports with, or furnish them to, the Securities and Exchange Commission (the “SEC”), including our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to such reports. These reports are available free of charge on the Investor Relations section of our web site, http://investor.ea.com, as soon as reasonably practicable after we electronically file the reports with, or furnish them to, the SEC.

The charters of our Audit, Compensation, and Nominating and Governance committees of our Board of Directors, as well as our Global Code of Conduct (which includes code of ethics provisions applicable to our directors, principal executive officer, principal financial officer, principal accounting officer, and other senior financial officers), are available in the Investor Relations section of our web site at http://investor.ea.com. We will post amendments to our Global Code of Conduct in the Investor Relations section of our web site. Copies of our charters and Global Code of Conduct are available without charge by contacting our Investor Relations department at (650) 628-1500.

Shareholders of record may hold their shares of our common stock in book-entry form. This eliminates costs related to safekeeping or replacing paper stock certificates. In addition, shareholders of record may request electronic movement of book-entry shares between their account with our stock transfer agent and their broker. Stock certificates may be converted to book-entry shares at any time. Questions regarding this service may be directed to our stock transfer agent, Wells Fargo Bank, N.A., at 1-800-468-9716.

We currently own a 207,000 square feet product development studio facility in Burnaby, British Columbia, Canada and a 122,000 square feet administrative, sales and development facility in Chertsey, England. In addition to the properties we own, we lease approximately 2.3 million square feet of facilities, including our


þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended March 31, 2005

OR

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to


Delaware		94-2838567
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

209 Redwood Shores Parkway Redwood City, California (Address of principal executive offices)		94065 (Zip Code)


		Page

PART I
Item 1.	Business		3
Item 2.	Properties		15
Item 3.	Legal Proceedings		17
Item 4.	Submission of Matters to a Vote of Security Holders		17

PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		18
Item 6.	Selected Financial Data		19
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operation		21
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		55
Item 8.	Financial Statements and Supplementary Data		59
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		100
Item 9A.	Controls and Procedures		100
Item 9B.	Other Information		101

PART III
Item 10.	Directors and Executive Officers of the Registrant		102
Item 11.	Executive Compensation		102
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		102
Item 13.	Certain Relationships and Related Transactions		102
Item 14.	Principal Accounting Fees and Services		102

PART IV
Item 15.	Exhibits, Financial Statement Schedule		102
Signatures			106
Exhibit Index			108
EXHIBIT 10.05
EXHIBIT 10.08
EXHIBIT 10.35
EXHIBIT 21.01
EXHIBIT 23.01
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2


Name	Age		Position

Lawrence F. Probst III		55	Chairman and Chief Executive Officer
Don A. Mattrick		41	President, Worldwide Studios
Warren C. Jenson		48	Executive Vice President and Chief Financial and Administrative Officer
V. Paul Lee		40	Executive Vice President and Chief Operating Officer, Worldwide Studios
Joel Linzner		53	Executive Vice President, Business and Legal Affairs
Bruce McMillan		42	Executive Vice President, Group Studio Head, Worldwide Studios
J. Russell (Rusty) Rueff, Jr.		43	Executive Vice President, Human Resources & Facilities
Nancy L. Smith		52	Executive Vice President and General Manager, North American Publishing
Stephen G. Bené		41	Senior Vice President, General Counsel and Corporate Secretary
Gerhard Florin		46	Senior Vice President and General Manager, European Publishing
David P. Gardner		39	Senior Vice President, International Publishing
Kenneth A. Barker		38	Vice President and Chief Accounting Officer


		North				Asia
Purpose		America		Europe		Pacific		Total

Distribution			250,000		76,854		—		326,854
Sales & Administrative			736,470		154,561		50,175		941,206
Studio Development			982,404		27,695		23,430		1,033,529

	Total Leased Square Footage		1,968,874		259,110		73,605		2,301,589

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	•	In-home video game players (such as the Sony PlayStation® 2, Microsoft Xbox® and Nintendo GameCube^tm) — we call these players “consoles”,

	•	Personal computers (PCs),

	•	Mobile video game players (such as the PlayStation® Portable “PSP^tm”, Game Boy® Advance and Nintendo DS^tm ) and cellular handsets — we call these “mobility” and

	•	Online, over the Internet and other proprietary online networks.


	•	EA SPORTS^tm — We publish realistic sports simulation games under our EA SPORTS brand. Some of our recent products published under the EA SPORTS brand include Madden NFL 2005 (professional football), NCAA® Football 2005 (collegiate football), Rugby 2005, FIFA Soccer 2005


	Mobile Game Machine/	Year Introduced
Manufacturer	Platform Name	in North America

Nintendo	Game Boy		1989
Nintendo	Game Boy Color		1998
Nintendo	Game Boy Advance		2001
Nokia	N-Gage		2003
Nintendo	DS		2004
Sony	PSP		2005


	•	Growing interest in multiplayer games,

	•	Willingness by consumers to pay for online game content,

	•	Rapid innovation of new online entertainment experiences,

	•	Mass market adoption of broadband technologies,

	•	Convergence of online capabilities in next-generation consoles, and

	•	Ability to create online products that are applicable in diverse global markets.


	•	Pogo. We offered approximately 73 free online games under the Pogo brand. Pogo provides players a variety of free online games geared towards family entertainment. The offerings include card games, board games, casino games, word games, trivia games and puzzles. This category leverages prizes,


	•	Club Pogo — our online game subscription service. To join Club Pogo, players must register and subscribe online. Players have the option of selecting a monthly or annual subscription fee plan. When a player joins Club Pogo, they have access to all of the games and content they had on the free service, plus premium features and benefits, such as additional member-exclusive games, ad-free gameplay, an enhanced prize system and more. Club Pogo also provides a deeper community experience through upgraded player profiles, weekly game challenges and member badges.

	•	Pogo-To-Go — our downloadable games offering. A one-time fee allows users to download and own a version of their favorite Pogo game to play offline. The Pogo-To-Go games include extra features like exclusive game modes, bonus levels, high scores and enhanced graphics & sounds. We currently offer 45 downloadable games under the Pogo-To-Go service including several original games, versions of popular free Pogo games and several licensed titles. In addition, we offer these downloadable game offerings at retail.


	•	Offering engaging and accessible online games,

	•	Building a community in which consumers can interact with one another via chat, bulletin boards, events and match-making services for multiplayer games and other contests,

	•	Delivering innovative content that continually entertains, and

	•	Establishing a direct relationship with each audience member through personalization and customization of user experiences.


	•	Manufacturing entities that press our game disks,

	•	Entities that print our game instruction booklets, and

	•	Entities that package the disks and printed game instruction booklets into the jewel cases and boxes for shipping to customers.


	*Video Game Consoles*


	*Mobile Video Game Platforms*


	*Online Games*


	*Next-Generation Consoles*