Electronic Arts 2006 Annual Report Download - page 3

TO OUR STOCKHOLDERS:
Fiscal year 2006 signaled the beginning of profound change in our industry Ì change in the way
consumers purchase and play EA games, the platforms they play on, and the approach we take to develop
and publish our products. It was a year that challenged us to think diÅerently about navigating technology
transitions and to invest in new opportunities with potentially richer margins. It was a year that marked the
introduction of new titles and new services that improve the game experience and generate incremental
revenue. Most of all, it was a year that convinced us that the artistic and economic opportunities in our
business are much greater than we could have imagined just Ñve years ago.
Transition is never easy and the combination of new technology, new platforms and new markets makes
this one particularly complex. Today, EA is investing ahead of revenue in what we believe will be another
Chairman’s Letter
period of strong and sustained growth for the interactive entertainment industry. No other company is
investing in as many strategic areas; no other company has as much opportunity. Our commitment of
Ñnancial and creative resources is signiÑcant, but so is the potential for long-term growth.
Our net revenue for Ñscal 2006 was $2.951 billion, down six percent. Operating income was $325 million
or 11 percent of revenue. Operating cash Öow was $596 million and we ended the year with $2.272 billion
in cash and short term investments. Our return on invested capital was 21 percent and diluted earnings per
share were $0.75.
Better Games on More Powerful Consoles
We are navigating through the console transition that upgrades consumers from current generation
platforms to more powerful and innovative systems like the Xbox 360
TM
console, the PlayStation»3 console
and the Wii
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from Nintendo. Our most important strategic initiative is to maintain and grow our
leadership position on these next generation consoles.
Although it is much too early to celebrate, the initial results are promising:
‚Xbox 360
TM
Ì In Ñscal 2006, EA had three of the top ten games in both North America and
Europe. Although hardware launch quantities were limited, revenue from our 360 titles more than
oÅset the decline in sales of games for the original Xbox. In addition, the ratio of software to
hardware hit an all-time high in North America for a console launch Ì exceeding 4:1. In the year
ahead, EA plans to publish 15 to 20 games for this system.
‚PlayStation 3 Ì EA plans to release 8 to 12 titles in Ñscal 2007 for the next generation console
from Sony that is scheduled to launch in November. At a recent trade show we demonstrated a
new motion capture technology that brings authentic athletic performance to our sports franchises
like Tiger Woods PGA TOUR».
‚Wii
TM
Ì The new system from Nintendo is also scheduled to debut this fall with an extremely
innovative controller and an appealing retail price point. EA has several games in development for
this console including Madden NFL, Need for Speed
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, Harry Potter
TM
and The Sims
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.
New Platforms: Mobile and Handheld
Perhaps the biggest event of the past year was our acquisition of JAMDAT Mobile
TM
. We now have
relationships with over 90 wireless carriers in more than 40 countries with a dedicated team delivering
some of the world's most popular mobile games. With this acquisition, EA Mobile has the leading
segment share in North America and is well-positioned internationally.
It is diÇcult to overstate the potential of games played on wireless phones. Today there are roughly
1.5 billion handsets in the world, less than 40 percent of which are game-enabled. While not everyone may
be able to aÅord a new hardware console, many own a cell phone which can be used to play games. EA
Mobile has an aggressive plan to bring our most popular franchises to the mobile platform, grow the
business in North America and expand our presence in Europe and Asia.