Electronic Arts 2005 Annual Report Download - page 3

TO OUR STOCKHOLDERS:
EA's Ñscal year 2005 was highlighted by exciting new games from our creative teams and important initiatives
for extending our leadership into the next generation. We invested in people and processes, forged long-term
agreements with strategic partners, introduced new franchise properties and extended our portfolio onto
promising new platforms.
Our net revenue was $3.1 billion Ì up six percent and gross margin was 61.8 percent. Operating income was
down 14 percent to $669 million. Operating margin was 21 percent. Operating cash Öow was $634 million, our
return on invested capital was 60 percent and diluted earnings per share were $1.59. In the third quarter we
announced a $750 million stock repurchase program which is now in process.
Chairman’s Letter
This year, EA published 31 titles that sold more than a million copies worldwide Ì four more than last
year Ì and the average score critics gave our games positioned us among the industry's elite developers.
Despite renewed competitive pressure, EA SPORTS
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titles increased their share of the sports category to a
record 63 percent, and we successfully launched two new sports properties Ì FIFA Street and Fight Night.
Our Club Pogo
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online site continues to grow with more than 840,000 active players, including 780,000
paying members, at the end of our Ñscal year Ì the majority of whom are women. The Club Pogo
subscription site maintains a strong growth curve toward what we expect will be more than one million
subscribers.
Investments in Strategic Partnerships
Long-term partnerships move us beyond the time horizon that has traditionally driven our planning. Exclusive
and multi-year relationships oÅer strategic advantages that allow us to plan, invest in quality and grow for
many years into the future.
Last year we announced an exclusive Ñve-year agreement with the NFL and NFL Players Association.
Professional football is the cornerstone of the EA SPORTS business in North America. Soon after, EA signed
a six-year agreement for exclusive rights on NCAA» football games. With exclusivity comes a responsibility
to consistently grow those segments of our business. We believe that working more closely with our football
partners will result in even better products and a more compelling entertainment experience for our
consumers.
In addition, we renewed our non-exclusive relationship with the NBA and signed a 15-year agreement with
ESPN enabling us to integrate ESPN programming, on-air personalities, and marketing assets in our
EA SPORTS titles.
Investments in Talent and Tools
Strategic acquisitions brought new talent and proven franchises to Electronic Arts. UK-based Criterion
Software Ltd. has added many talented developers to our worldwide studio operation and their game,
Burnout
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3: Takedown
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, was a critical and commercial success in both the US and Europe.
The Criterion acquisition also brought us RenderWare
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Ì a powerful middleware tool for developing games.
Converting our teams to the RenderWare platform increases capacity and catapults our teams forward as they
prepare for the next-generation consoles.
EA also completed a tender oÅer for shares of Stockholm-based developer Digital Illusions and now owns
approximately 68 percent Ì a controlling interest in the company. EA continues its successful long-term
publishing relationship with Digital Illusions, and in June 2005, we released one of the year's most anticipated
PC-games Ì BattleÑeld 2
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.
EA also purchased 19.9 percent of Ubisoft.