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TO OUR STOCKHOLDERS: Chairman’s Letter Chairman’s 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 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 360TM console, the PlayStation»3 console and the WiiTM 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 360TM 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». ‚ WiiTM 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 SpeedTM, Harry PotterTM and The SimsTM. New Platforms: Mobile and Handheld Perhaps the biggest event of the past year was our acquisition of JAMDAT MobileTM. 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. Our success in mobile gaming extends beyond phones. We achieved our goal of making EA number one on the PSP» (PlayStation»Portable) handheld system in both North America and Europe, and have brought some of our most popular franchises to the Nintendo DSTM system. In the years ahead we plan to extend our leadership in this rapidly growing segment. Everything Online The biggest change in our business today is the way mainstream consumers are using the Internet to purchase and play videogames. Whether the games are played on consoles, PCs or handhelds, a rapidly growing percentage are connected. Consumers are showing an aÇnity for downloading content to both PCs and consoles, paying for premium content and accepting dynamic in-game advertising. In addition to bringing added value to the consumer, these elements deliver more revenue and proÑt to our business. Digital Downloads Ì Retail stores where consumers buy packaged games will always be fundamental to our industry; however, the wide-spread acceptance of digital downloads foreshadows an exciting future for buying games online. With the launch of our Xbox 360 titles, EA oÅered seven free demos Ì EA SPORTSTM Fight Night Round 3 was downloaded more than 400,000 times and became the most popular demo on Xbox LiveTM. For the PC we oÅered additional content for BattleÑeld 2 and The Sims 2 retailing at price points between $9.99-$29.99 and quickly sold more than 200,000 downloads. This year, most of our PC games will be oÅered for sale digitally in addition to being available at retail. While the initial numbers are small, these early experiments are encouraging. Exploiting this opportunity should help us generate incremental revenue and improve operating margins. Micro-transactions Ì EA is also investing in the means to deliver premium items that consumers can use to enhance their games. We started with some of our PC oÅerings Ì Ultima OnlineTM and Club PogoTM Ì and plan to expand this to our multi-million-selling console franchises. Players will be able to download new uniforms for their athletes, customized parts for their cars and strategy guides to improve their skills. Providing downloadable content at an easily aÅordable price will improve the game experience and create new revenue streams for many of our most popular games. Dynamic In-Game Advertising Ì In recent years, EA games have included a small number of static ads Ì quick product messages that would not intrude on the player's entertainment experience. We intend to continue that discipline as the industry experiments with new technology that will allow advertisers to stream ads into online games. A roadside billboard in Need For Speed could display soft drinks on one day and a fast food restaurant the next. While this technology is at an early stage, dynamic in-game advertising is an exciting proposition. Subscriptions Ì Quick and easy to play, EA's casual game site Club Pogo is building an impressive audience. More than 1.2 million players pay a fee to play games and participate in the PogoTM community. Interestingly, more than half of those subscribers are women over the age of 35. In the year ahead we plan to launch Pogo in China and Europe. New Markets Ì While EA is known primarily for its portfolio of great games, we are unrivaled in our ability to market, sell and distribute our titles to consumers all over the world. Creating new online games and cultivating new customers is an important part of our growth strategy. By the end of Ñscal 2007, EA will have more than 300 people dedicated to production, marketing and sales in emerging markets like China, India and Eastern Europe. In late May, an online version of FIFA Soccer was launched in Korea in partnership with a local publisher, Neowiz. EA SPORTSTM FIFA Online reached 100,000 peak concurrent users (PCUs) in the Ñrst month of open beta Ì setting a new record for PCUs during an introductory period in the world's largest online game market. While still early, we are extremely happy with the initial results of our online games business in Korea. We plan to commercialize this service in July 2006 with the introduction of micro-transactions. PC Resurgence Ì Tied closely to the boom in online gaming is a recent creative and commercial renaissance for PC games. By an order of magnitude, we are the world's number one publisher of games Letter Chairman’s for the PC. In Ñscal 2006, we had four of the top ten titles in North America and we estimate Ñve of the top ten in Europe. Flagship franchises like The Sims, BattleÑeld and Command & ConquerTM have millions of loyal players and new versions are being prepared to extend that success. We're also developing new PC titles like SPORETM from The Sims mastermind Will Wright and CrysisTM from the Crytek Studio in Germany. Just recently, we announced plans to acquire Mythic Entertainment, a critically-acclaimed developer of massively multiplayer online (MMO) games Ì this acquisition will enhance our position in the rapidly growing MMO category. A Focus on Craftsmanship and ProÑtability EA has four overarching priorities that are central to the way we make and sell games. We're training new and existing talent; we're adopting more eÇcient processes for making games; we're focused on quality; and we're seeking to improve proÑtability by reducing our reliance on licensed properties. People Ì We have established robust programs for keeping our existing talent trained and for preparing new talent. EA is now working directly with more than 75 colleges and universities Ì providing funding and expertise Ì to develop curriculum that will train the next generation of video game developers.