UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended ~~June~~September 30, 2005

OR

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

For the Transition Period from to

Commission File No. 0-17948

ELECTRONIC ARTS ~~INC.~~INC

.
(Exact name of registrant as specified in its charter)


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

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

(650) 628-1500
(Registrant’s telephone number, including area code)

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. YESS NOo

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YESS NOo

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YESo NOS

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Outstanding as of
Par Value August 1, 2005
Common Stock $ 0.01 303,519,559


		Outstanding as of
	Par Value	November 8, 2005
Common Stock	$0.01	300,578,539

ELECTRONIC ARTS INC.
FORM 10-Q
FOR THE PERIOD ENDED ~~JUNE~~SEPTEMBER 30, 2005

Table of Contents


	Page
Part I –— FINANCIAL INFORMATION
Item 1. Unaudited Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of ~~June~~September 30, 2005 and March 31, 2005		3
Condensed Consolidated Statements of Operations for the Three and Six Months Ended ~~June~~September 30, 2005 and 2004		4
Condensed Consolidated Statements of Cash Flows for the ~~Three~~Six Months Ended ~~June~~September 30, 2005 and 2004		5
Notes to Condensed Consolidated Financial Statements		6
Report of Independent Registered Public Accounting Firm		1819
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		1920
Item 3. Quantitative and Qualitative Disclosures About Market Risk		4349
Item 4. Controls and Procedures		4651
Part II –— OTHER INFORMATION
Item 1. Legal Proceedings		4752
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		4752
Item 4. Submission of Matters to a Vote of Security Holders		53
Item 5. Other Information		53
Item 6. Exhibits		4854
Signature		4955
Exhibit Index		5056
EXHIBIT 10.1
~~EXHIBIT 10.2~~
~~EXHIBIT 10.3~~
~~EXHIBIT 10.4~~
~~EXHIBIT 10.5~~
~~EXHIBIT 10.6~~
~~EXHIBIT 10.7~~
EXHIBIT 15.1
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2

2

PART I – FINANCIAL INFORMATION

Item 1. Unaudited Condensed Consolidated Financial Statements

ELECTRONIC ARTS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS


(Unaudited)	June 30,		March 31,		September 30,		March 31,
(In millions, except par value data)	2005		2005 (a)		2005		2005 (a)

ASSETS
Current assets:
Cash and cash equivalents	$	874	$	1,270	$	575	$	1,270
Short-term investments		1,699		1,688		1,655		1,688
Marketable equity securities		176		140		182		140
Receivables, net of allowances of $111 and $162, respectively		167		296
Receivables, net of allowances of $137 and $162, respectively						328		296
Inventories		66		62		74		62
Deferred income taxes		87		86		85		86
Other current assets		194		164		208		164

Total current assets		3,263		3,706		3,107		3,706
Property and equipment, net		359		353		364		353
Investments in affiliates		9		10		10		10
Goodwill		155		153		155		153
Other intangibles, net		33		36		30		36
Deferred income taxes		17		19		16		19
Other assets		82		93		72		93

TOTAL ASSETS	$	3,918	$	4,370	$	3,754	$	4,370

LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	113	$	134	$	171	$	134
Accrued and other liabilities		597		694		558		694

Total current liabilities		710		828		729		828
Other liabilities		31		33		29		33

TOTAL LIABILITIES		741		861
Total liabilities						758		861
Commitments and contingencies		–		–		–		–
Minority interest		10		11		12		11
Stockholders’ equity:
Preferred stock, $0.01 par value. 10 shares authorized		–		–		–		–
Common stock, $0.01 par value. 1,000 shares authorized; 305 and 310 shares issued and outstanding, respectively		3		3
Common stock, $0.01 par value. 1,000 shares authorized; 300 and 310 shares issued and outstanding, respectively						3		3
Paid-in capital		1,121		1,434		877		1,434
Retained earnings		1,947		2,005		1,998		2,005
Accumulated other comprehensive income		96		56		106		56

Total stockholders’ equity		3,167		3,498		2,984		3,498

TOTAL LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS’ EQUITY	$	3,918	$	4,370	$	3,754	$	4,370

See accompanying Notes to Condensed Consolidated Financial Statements.


(a)		Derived from audited financial statements.

3

ELECTRONIC ARTS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


	Three Months Ended					Three Months Ended					Six Months Ended
(Unaudited)	June 30,					September 30,					September 30,
(In millions, except per share data)	2005			2004		2005			2004		2005			2004

Net revenue	$	365		$	432	$	675		$	716	$	1,040		$	1,147
Cost of goods sold		151			177		284			284		434			460

Gross profit		214			255		391			432		606			687
Operating expenses:
Marketing and sales		75			63		107			107		182			171
General and administrative		51			35		52			42		103			77
Research and development		183			131		182			157		365			288
Amortization of intangibles		1			1		1			1		2			1

Total operating expenses		310			230		342			307		652			537

Operating income (loss)		(96	)		25		49			125		(46	)		150
Interest and other income, net		17			9		13			12		30			21

Income (loss) before provision for (benefit from) income taxes and minority interest		(79	)		34		62			137		(16	)		171
Provision for (benefit from) income taxes		(23	)		10		9			40		(13	)		50

Income (loss) before minority interest		(56	)		24		53			97		(3	)		121
Minority Interest		(2	)		—
Minority interest							(2	)		–		(4	)		–

Net income (loss)	$	(58	)	$	24	$	51		$	97	$	(7	)	$	121

Net income (loss) per share:
Basic	$	(0.19	)	$	0.08	$	0.17		$	0.32	$	(0.02	)	$	0.40
Diluted	$	(0.19	)	$	0.08	$	0.16		$	0.31	$	(0.02	)	$	0.38
Number of shares used in computation:
Basic		308			302		302			304		305			303
Diluted		308			316		314			316		305			316

ELECTRONIC ARTS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


	Three Months Ended						Six Months Ended
(Unaudited)	June 30,						September 30,
(In millions)	2005			2004			2005			2004

OPERATING ACTIVITIES
Net income (loss)	$	(58	)	$	24		$	(7	)	$	121
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		23			16			46			33
Minority interest		2			–			4			—
Realized (gains) losses on investments and on sale of property and equipment		1			(2	)		2			(4	)
Tax benefit from exercise of stock options		5			13			92			25
Other operating activities		–			(1	)
Change in assets and liabilities:
Receivables, net		142			37			(20	)		(168	)
Inventories		1			1			(9	)		(24	)
Other assets		(12	)		–			(16	)		27
Accounts payable		(25	)		(48	)		34			58
Accrued and other liabilities		(110	)		(106	)		(145	)		(45	)

Net cash used in operating activities		(31	)		(66	)
Net cash provided by (used in) operating activities								(19	)		23

INVESTING ACTIVITIES
Capital expenditures		(33	)		(26	)		(56	)		(45	)
Proceeds from sale of property and equipment		–			15			—			15
Proceeds from sale of marketable equity securities		4			–			4			3
Purchase of short-term investments		(138	)		(1,557	)		(281	)		(1,658	)
Proceeds from maturities and sales of short-term investments		134			572			321			812
Acquisition of subsidiary, net of cash acquired		(3	)		–			(3	)		—
Other investing activities		(1	)		–			(1	)		—

Net cash used in investing activities		(37	)		(996	)		(16	)		(873	)

FINANCING ACTIVITIES
Proceeds from sales of common stock through employee stock plans and other plans		19			44			60			86
Repurchase and retirement of common stock		(337	)		–			(709	)		—

Net cash provided by (used in) financing activities		(318	)		44			(649	)		86

Effect of foreign exchange on cash and cash equivalents		(10	)		1			(11	)		—

Decrease in cash and cash equivalents		(396	)		(1,017	)		(695	)		(764	)
Beginning cash and cash equivalents		1,270			2,150			1,270			2,150

Ending cash and cash equivalents		874			1,133			575			1,386
Short-term investments		1,699			1,236			1,655			1,104

Ending cash, cash equivalents and short-term investments	$	2,573		$	2,369		$	2,230		$	2,490

Supplemental cash flow information:
Cash paid during the period for income taxes	$	5		$	3		$	10		$	43

Non-cash investing activities:
Change in unrealized gain (loss) on investments, net	$	47		$	(13	)
Change in unrealized gains (losses) on investments, net							$	54		$	(7	)

ELECTRONIC ARTS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

(1) DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Electronic Arts Inc. develops, markets, publishes and distributes interactive software games that are playable by consumers on home video game consoles (such as the Sony PlayStation^®2, Microsoft Xbox^® and Nintendo GameCube^TM), personal computers, mobile platforms — including hand-held game players (such as the Game Boy^® Advance, Nintendo DS^TM and PlayStation^® Portable “PSP^TM”) and cellular handsets — and online, over the Internet and other proprietary online networks. Some of our games are based on content that we license from others (e.g., Madden NFL Football, Harry Potter and FIFA Soccer), and some of our games are based on intellectual property that is wholly-owned by us (e.g., The Sims^TM and Need for Speed^TM). Our goal is to develop titles ~~which~~that appeal to the mass markets, which often means translating and localizing them for sale in non-English speaking countries. In addition, we also attempt to create software game “franchises” that allow us to publish new titles on a recurring basis that are based on the same property. Examples of this include our annual iterations of our sports-based franchises (e.g., NCAA^® Football and FIFA Soccer), titles based on long-lived movie properties (e.g., James Bond^TM)and Harry Potter) and wholly-owned properties that can be successfully sequeled (e.g., The Sims and Need for Speed).

The Condensed Consolidated Financial Statements are unaudited and reflect all adjustments (consisting only of normal recurring accruals) that, in the opinion of management, are necessary for a fair presentation of the results for the interim periods presented. The preparation of these condensed consolidated financial statements requires management to make estimates and assumptions that affect the amounts reported in these condensed consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates. The results of operations for the current interim periods are not necessarily indicative of results to be expected for the current year or any other period.

These Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2005, as filed with the Securities and Exchange Commission on June 7, 2005.

On October 18, 2004, our Board of Directors authorized a program to repurchase up to an aggregate of $750 million of ~~shares of~~ our common stock. Pursuant to the authorization, we ~~may~~were able to repurchase shares of our common stock from time to time in the open market or through privately negotiated transactions over the course of a twelve-month period. ~~During the three months ended June 30, 2005, we~~Our common stock repurchase program was completed in September 2005. We repurchased and retired ~~6.3 million shares of our common stock for approximately $337 million. From~~ the ~~inception of the program through June 30, 2005, we have repurchased and retired 7.1 million shares of our common stock for approximately $378 million.~~following (in millions):


	Number of Shares Repurchased and Retired		Approximate Amount
Three months ended September 30, 2005		6.3	$	372
Six months ended September 30, 2005		12.6	$	709
From the inception of the program through September 30, 2005		13.4	$	750

(2) FISCAL YEAR AND FISCAL QUARTER

Our fiscal year is reported on a 52/53-week period that, historically, has ended on the final Saturday of March in each year. Beginning with the current fiscal year ending March 31, 2006, we will end our fiscal year on the Saturday nearest March 31. The results of operations for the fiscal years ended March 31, 2006 and 2005 contain the following number of weeks:


Fiscal Years Ended	Number of Weeks	Fiscal Period End Date
March 31, 2006	53 weeks	April 1, 2006
March 31, 2005	52 weeks	March 26, 2005

6

The results of operations for the ~~fiscal quarters~~three and six months ended ~~June~~September 30, 2005 and 2004 contain the following number of weeks:


Fiscal ~~Quarters Ended~~Period	Number of Weeks	Fiscal Period End Date
~~June~~Three months ended September 30, 2005	1413 weeks	~~July 2,~~October 1, 2005
~~June~~Six months ended September 30, 2005	27 weeks	October 1, 2005

Three months ended September 30, 2004	13 weeks	~~June 26,~~September 25, 2004
Six months ended September 30, 2004	26 weeks	September 25, 2004

Accordingly, for the three months ended June 30, 2005, there was one additional week included in our results of operations as compared to the three months ended June 30, 2004.

For simplicity of presentation, all fiscal periods are treated as ending on a calendar month end.

6

In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123 (revised 2004) (“SFAS No. 123R”),“Share-Based Payment”. SFAS No. 123R requires that the cost resulting from all share-based payment transactions be recognized in the financial statements using a fair-value-based method. The statement replaces SFAS No. 123, supersedes APB No. 25, and amends SFAS No. 95, “Statement of Cash Flows”. While the fair value method under SFAS No. 123R is ~~very~~ similar to the fair value method under SFAS No. 123 with regards to measurement and recognition of stock-based compensation, management is currently evaluating the impact of several of the key differences between the two standards on our consolidated financial statements. For example, SFAS No. 123 permits us to recognize forfeitures as they occur while SFAS No. 123R will require us to estimate future forfeitures and adjust our estimate on a quarterly basis. SFAS No. 123R will also require a classification change in the statement of cash flows, whereby a portion of the tax benefit from stock options will move from operating cash flow activities to financing cash flow activities (total cash flows will remain unchanged).

In March 2005, the Securities and Exchange Commission (“SEC”) released Staff Accounting Bulletin No. 107,“Share-Based Payment”, which provides the views of the staff regarding the interaction between SFAS No. 123R and certain SEC rules and regulations for public companies. In April 2005, the SEC adopted a rule that amends the compliance dates of SFAS No. 123R. Under the revised compliance dates, we will be required to adopt the provisions of SFAS No. 123R no later than ~~the~~our first ~~interim period~~quarter of fiscal 2007. While management continues to evaluate the impact of SFAS No. 123R on our consolidated financial statements, we currently believe that the expensing of stock-based compensation will have an impact on our Condensed Consolidated Statements of Operations similar to our pro forma disclosure under SFAS No. 123, as amended.

7

As of ~~June~~September 30, 2005, future amortization of finite-lived intangibles that will be recorded in cost of goods sold and operating expenses is estimated as follows (in millions):


Fiscal Year Ending March 31,
2006 (remaining 9 months)	$	8
2006 (remaining six months)			$	5
2007		10		10
2008		6		6
2009		3		3
2010		2		2
Thereafter		4		4

Total	$	33	$	30

Minimum guaranteed royalty obligations are initially recorded as an asset and as a liability at the contractual amount when payment is not contingent upon performance by the licensor. When payment is contingent upon performance by the licensor, we record royalty payments as an asset when actually paid and as a liability when incurred rather than upon execution of the contract. Minimum royalty payment obligations are classified as current liabilities to the extent such royalty payments are contractually due within the next twelve months. As of ~~June~~September 30, 2005 and March 31, 2005, approximately ~~$44~~$38 million and $51 million, respectively, of minimum guaranteed royalty obligations had been recognized and are included in the tables below.

Each quarter, we also evaluate the future realization of our royalty-based assets as well as any unrecognized minimum commitments not yet paid to determine amounts we deem unlikely to be realized through product sales. Any impairments determined before the launch of a product are charged to research and development expense. Impairments determined post-launch are charged to cost of goods sold. In either case, we rely on estimated revenue to evaluate the future realization of prepaid royalties. If actual sales or revised revenue estimates fall below the initial revenue estimates, then the actual charge taken may be greater in any given quarter than anticipated. We had no impairments during the three and six months ended ~~June~~September 30, ~~2005~~2005. Impairments for the three and ~~2004.~~six months ended September 30, 2004 were $2 million.

9

Property and Equipment, Net
Property and equipment, net, as of ~~June~~September 30, 2005 and March 31, 2005 consisted of (in millions):


	As of			As of			As of			As of
	June 30,			March 31,			September 30,			March 31,
	2005			2005			2005			2005
Computer equipment and software	$	397		$	381		$	404		$	381
Buildings		114			106			125			106
Leasehold improvements		77			73			77			73
Land		59			60			58			60
Office equipment, furniture and fixtures		55			53			56			53
Warehouse equipment and other		12			12			12			12
Construction in progress		36			43			42			43

		750			728			774			728
Less: Accumulated depreciation and amortization		(391	)		(375	)		(410	)		(375	)

Property and equipment, net	$	359		$	353		$	364		$	353

In February 1995, we entered into a build-to-suit lease with a third party for our headquarters facility in Redwood City, California, which was refinanced with Keybank National Association in July 2001 and expires in July 2006. We accounted for this arrangement as an operating lease in accordance with SFAS No. 13,“Accounting for Leases”, as amended. Existing campus facilities developed in phase one comprise a total of 350,000 square feet and provide space for sales, marketing, administration and research and development functions. We have an option to purchase the property (land and facilities) for a maximum of $145 million or, at the end of the lease, to arrange for (i) an extension of the lease or (ii) sale of the property to a third party while we retain an obligation to the owner for approximately 90 percent of the difference between the sale price and the guaranteed residual value of up to $129 million if the sales price is less than this amount, subject to certain provisions of the lease.

11

Development, Celebrity, League and Content Licenses: ~~Payments and~~ Commitments

The products produced by our studios are designed and created by our employee designers, artists, software programmers and by non-employee software developers (“independent artists” or “third-party developers”). We typically advance development funds to the independent artists and third-party developers during development of our games, usually in installment payments made upon the completion of specified development milestones.

Contractually, these payments are considered advances against subsequent royalties on the sales of the products. These terms are set forth in written agreements entered into with the independent artists and third-party developers. In addition, we have certain celebrity, league and content license contracts that contain minimum guarantee payments and marketing commitments that are not dependent on any deliverables. Celebrities and organizations with whom we have contracts include: ~~ESPN (content in EA SPORTS~~^TM ~~games);~~ FIFA, FIFPRO Foundation and UEFA (professional soccer); NASCAR (stock car racing)~~; John Madden (professional football)~~; National Basketball Association (professional basketball); PGA TOUR (professional golf); Tiger Woods (professional golf); National Hockey League and NHLPA (professional hockey); Warner Bros. (Harry Potter, Batman and Superman); ~~MGM/Danjaq~~MGM (James Bond); New Line Productions (The Lord of the Rings); Saul Zaentz Company (The Lord of the Rings); Marvel Enterprises (fighting); John Madden (professional football); National Football League Properties, Arena Football League and PLAYERS Inc. (professional football); Collegiate Licensing Company (collegiate football, basketball and ~~basketball)~~baseball); ISC (stock car racing); ~~Island Def Jam (fighting)~~Simcoh (Def Jam); ~~and~~ Viacom Consumer Products (The Godfather); Valve Corporation (Half-Life and Counter-Strike); and ESPN (content in EA SPORTS^TM games). These developer and content license commitments represent the sum of (i) the cash payments due under non-royalty-bearing licenses and services agreements and (ii) the minimum payments and advances against royalties due under royalty-bearing licenses and services agreements, the majority of which are conditional upon performance by the counterparty. These minimum guarantee payments and any related marketing commitments are included in the table below.

12

On February 14, 2005, a second employment-related class action lawsuit,Hasty v. Electronic Arts Inc.,was filed against us in Superior Court in San Mateo, California. The complaint alleges that we improperly classified “Engineers” in California as exempt employees and seeks injunctive relief, unspecified monetary damages, interest and attorneys’ fees. On or about March 16, 2005, we received a first amended complaint, which contains the same material allegations as the original complaint. We answered the first amended complaint on April 20, 2005.

On March 24, 2005, a class action lawsuit was filed against us and certain of our officers and directors. The complaint, which asserts claims under Section 10(b) and 20(a) of the Securities Exchange Act of 1934 based on allegedly false and misleading statements, was filed in the United States District Court, Northern District of California, by an individual purporting to represent a class of purchasers of EA common stock. Additional class action lawsuits ~~have been~~were filed in the same court by other individuals asserting the same claims against us. On May 9, 2005, the court consolidated the complaints, and on June 13, 2005, the court appointed lead plaintiff and lead counsel pursuant to the requirements of the Private Securities Litigation Reform Act of 1995. An amended consolidated complaint ~~has not yet been filed. Separately,~~was filed on ~~April~~behalf of the lead plaintiff on August 12, 2005, and on September 27, 2005, we moved to dismiss the consolidated amended complaint for failure to state a claim under the federal securities laws. Separately, there are two shareholder derivative actions pending in the Superior Court, San Mateo County, and one shareholder derivative action was filed in San Mateo Superior Court against certain of our officers and directors. This suit asserts claims based on substantially the same factual allegations set forth in the federal class action lawsuits. Two other shareholder derivative actions have been filed in San Mateo Superior Court based on the same claims. Two of the three derivative actions have been consolidated; a request to consolidate the third is currently pending. In addition, two other shareholder derivative actions based on substantially the same allegations have been filedpending in the United States District Court, Northern District of ~~California.~~California, all of which assert claims based on substantially the same factual allegations as set forth in the federal securities class action. We have not yet responded to any of the derivative action complaints.

13

In addition, we are subject to other claims and litigation arising in the ordinary course of business. Our management considers that any liability from any reasonably foreseeable disposition of such other claims and litigation, individually or in the aggregate, would not have a material adverse effect on our consolidated financial position or results of operations.

Director Indemnity Agreements
We have entered into indemnification agreements with the members of our Board of Directors at the time they join the Board to indemnify them to the extent permitted by law against any and all liabilities, costs, expenses, amounts paid in settlement and damages incurred by the directors as a result of any lawsuit, or any judicial, administrative or investigative proceeding in which the directors are sued as a result of their service as members of our Board of Directors.

(9) COMPREHENSIVE INCOME ~~(LOSS)~~

SFAS No. 130,“Reporting Comprehensive Income”, requires ~~classification~~classifying items of other comprehensive income (loss) by their nature in a financial statement and ~~display~~displaying the accumulated balance of ~~accumulated~~ other comprehensive income (loss) separately from retained earnings and additional paid-in ~~capital.~~capital in the equity section of a balance sheet. Accumulated other comprehensive income primarily includes foreign currency translation adjustments, and the ~~net of tax~~net-of-tax amounts for unrealized gains (losses) on investments and unrealized gains (losses) on derivatives designated as cash flow hedges.

14

The ~~change in the~~ components of ~~accumulated other~~ comprehensive income ~~net of tax,~~ for the three and six months ended ~~June~~September 30, 2005 and 2004 are summarized as follows (in millions):


	Three Months Ended						Three Months Ended					Six Months Ended
	June 30,						September 30,					September 30,
	2005			2004			2005		2004			2005			2004

Net income (loss)	$	(58	)	$	24		$	51	$	97		$	(7	)	$	121
Other comprehensive income (loss):
Change in unrealized gain (loss) on investments, net of tax expense (benefit) of $0 and $(5), respectively		47			(8	)
Change in unrealized gain on derivative instruments, net of tax expense of $1 and $0, respectively		4			–
Change in unrealized gains (losses) on investments, net of tax expense (benefit) of $0, $3 and $0, $(2), respectively								7		5			54			(3	)
Adjustment for gains realized in net income, net of tax expense of $0, $1 and $0, $1, respectively								–		(1	)		–			(1	)
Change in unrealized gains on derivative instruments, net of tax expense of $0, $0 and $1, $0, respectively								–		–			4			–
Foreign currency translation adjustments		(11	)		(5	)		3		5			(8	)		–

Total other comprehensive income (loss)	$	40		$	(13	)	$	10	$	9		$	50		$	(4	)

Total comprehensive income (loss)	$	(18	)	$	11

Total comprehensive income							$	61	$	106		$	43		$	117

The foreign currency translation adjustments are not adjusted for income taxes as they relate to indefinite investments in non-U.S. subsidiaries.

14

Excluded from the above computation of weighted-average common stock for Diluted EPS for the three and six months ended September 30, 2004 were options to purchase 1 million shares of common stock in each period, as the options’ exercise price was greater than the average market price of the common shares for each period. The weighted-average exercise price of these options was $51.77 and $52.17 per share, respectively.

(11) SEGMENT INFORMATION

SFAS No. 131,“Disclosures About Segments of an Enterprise and Related Information”, establishes standards for the reporting by public business enterprises of information about product lines, geographic areas and major customers. The method for determining what information to report is based on the way that management organizes our operating segments for making operational decisions and assessments of financial performance.

Our chief operating decision maker is considered to be our Chief Executive Officer (“CEO”). The CEO reviews financial information presented on a consolidated basis accompanied by disaggregated information about revenue by geographic region and by product line for purposes of making operating decisions and assessing financial performance. Our view and reporting of business segments may change due to changes in the underlying business facts and circumstances and the evolution of our reporting to our CEO.

15

Information about our operations in North America, Europe and Asia ~~Pacific~~as of and for the three and six months ended ~~June~~September 30, 2005 and 2004 is presented below (in millions):


	North				Asia				North
	America		Europe		Pacific		Total		America		Europe		Asia		Total

Three months ended June 30, 2005
Three months ended September 30, 2005
Net revenue from unaffiliated customers	$	184	$	144	$	37	$	365	$	443	$	191	$	41	$	675
Interest income, net		13		7		–		20		12		3		–		15
Depreciation and amortization		14		8		1		23		15		7		1		23
Total assets		2,603		1,246		69		3,918		2,435		1,246		73		3,754
Capital expenditures		26		5		2		33		17		5		1		23
Long-lived assets		326		211		10		547		334		205		10		549
Three months ended June 30, 2004
Three months ended September 30, 2004
Net revenue from unaffiliated customers	$	211	$	190	$	31	$	432	$	473	$	210	$	33	$	716
Interest income, net		7		1		–		8		7		2		–		9
Depreciation and amortization		9		6		1		16		12		5		–		17
Total assets		2,538		768		64		3,370		2,765		867		71		3,703
Capital expenditures		21		4		1		26		14		5		–		19
Long-lived assets		257		140		6		403		263		138		6		407
Six months ended September 30, 2005
Net revenue from unaffiliated customers									$	627	$	335	$	78	$	1,040
Interest income, net										25		10		–		35
Depreciation and amortization										29		15		2		46
Capital expenditures										43		10		3		56
Six months ended September 30, 2004
Net revenue from unaffiliated customers									$	684	$	399	$	64	$	1,147
Interest income, net										14		3		–		17
Depreciation and amortization										21		11		1		33
Capital expenditures										35		9		1		45

In November 2004, the FASB issued SFAS No. 151,“Inventory Costs — an amendment of ARB No. 43, Chapter 4”. SFAS No. 151 amends the guidance in Accounting Research Bulletin (“ARB”) No. 43, Chapter 4,“Inventory Pricing”, to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage) and requires that those items be recognized as current-period charges. SFAS No. 151 also requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. SFAS No. 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. Management believes the adoption of SFAS No. 151 will not have a material impact on our consolidated financial statements.

In May 2005, the FASB issued SFAS No. 154,“Accounting Changes and Error ~~Corrections –~~ Corrections—A Replacement of APB Opinion No. 20 and FASB Statement No. 3”. SFAS No. 154 changes the requirements for the accounting and reporting of a change in accounting principle. Under previous guidance, changes in accounting principle were recognized as a cumulative affect in the net income of the period of the change. The new statement requires retrospective application of changes in accounting principle, limited to the direct effects of the change, to prior periods’ financial statements, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. Additionally, this Statement requires that a change in depreciation, amortization or depletion method for long-lived, nonfinancial assets be accounted for as a change in accounting estimate effected by a change in accounting principle and that correction of errors in previously issued financial statements should be termed a ~~“restatement.”~~“restatement”. SFAS No. 154 is effective for accounting changes and correction of errors made in fiscal years beginning after December 15, 2005. Management does not believe the adoption of SFAS No. 154 will have a material impact on our consolidated financial statements.

(13) SUBSEQUENT EVENT

On November 9, 2005, our Board of Directors approved a plan of reorganization in connection with our intention to establish an international publishing headquarters in Geneva, Switzerland. During the next twelve months, we expect to open a new facility in Geneva, relocate certain current employees to Geneva, hire new employees in Geneva, close certain facilities in the UK, and make other related changes in our international publishing business. We intend to treat certain costs that are directly associated with our international publishing reorganization as “restructuring costs” (as defined by SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”). Other costs that are not properly categorized as restructuring costs will generally be treated as normal operating expenses in our consolidated statement of operations. In accordance with SFAS No. 146, we will generally expense the restructuring costs as they are incurred and accrue costs associated with certain facility closures at the time we exit the facility.

In connection with our international publishing reorganization, we anticipate incurring between $55 million and $65 million in total restructuring costs, substantially all of which will result in cash expenditures. We anticipate incurring approximately $15 million of these charges during the remainder of fiscal 2006. We anticipate these restructuring costs will consist primarily of employee-related relocation assistance (approximately $35 million), moving expenses (approximately $15 million), and facility exit costs (approximately $10 million). While we may incur severance costs paid to terminating employees in connection with the reorganization, we do not expect these costs to be significant.

In addition to the restructuring costs discussed above, we also expect to incur increased operating expenses associated with our international publishing reorganization, consisting primarily of costs associated with a new facility and related costs in Geneva, as well as incremental increases in compensation expenses. We expect these costs to result in incremental operating expenses of approximately $10 million during the remainder of fiscal 2006, and between $10 million and $15 million annually thereafter.

1718

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders
Electronic Arts Inc.:

We have reviewed the accompanying condensed consolidated balance sheet of Electronic Arts Inc. and subsidiaries (the Company) as of ~~July 2,~~October 1, 2005, the related condensed consolidated statements of operations for the three-month and six-month periods ended October 1, 2005 and September 25, 2004, and the related condensed consolidated statements of ~~operations and~~ cash flows for the ~~three-month~~six-month periods ended ~~July 2,~~October 1, 2005 and ~~June 26,~~September 25, 2004.These condensed consolidated financial statements are the responsibility of the Company’s management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity U.S. generally accepted accounting principles.

We have previously audited in accordance with standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Electronic Arts Inc. and subsidiaries as of March 26, 2005, and the related consolidated statements of operations, stockholders’ equity and comprehensive income, and cash flows for the year then ended (not presented herein); and in our report dated June 3, 2005, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of March 26, 2005, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

KPMG LLP

Mountain View, California
~~August 3,~~November 9, 2005

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report onForm 10-Q 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 Quarterly Report onForm 10-Q are forward looking. We use words such as “anticipate”, “believe”, “expect”, “intend” (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 in this report below under the heading “Risk Factors”, as well as in our Annual Report onForm 10-K for the fiscal year ended March 31, 2005 as filed with the Securities and Exchange Commission (“SEC”) on June 7, 2005 and in other documents we have filed with the SEC.

OVERVIEW

The following overview is a top-level discussion of our operating results as well as some of the trends and drivers that affect our business. Management believes that an understanding of these trends and drivers is important in order to understand our results for the ~~quarter~~three and six months ended ~~June~~September 30, 2005, as well as our future prospects. This summary is not intended to be exhaustive, nor is it intended to be a substitute for the detailed discussion and analysis provided elsewhere in this Form 10-Q, including in the remainder of “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, “Risk Factors” or the condensed consolidated financial statements and related notes. Additional information can be found within the “Business” section of our Annual Report on Form 10-K for the fiscal year ended March 31, 2005 as filed with the SEC on June 7, 2005 and in other documents we have filed with the SEC.

About Electronic Arts

We develop, market, publish and distribute interactive software games that are playable by consumers on home video game consoles (such as the Sony PlayStation^® 2, Microsoft Xbox^® and Nintendo GameCube^TM consoles), personal computers, mobile platforms — including hand-held game players (such as the Game Boy^® Advance, Nintendo DS^TM and PlayStation^® Portable “PSP^TM”) and cellular handsets — and online, over the Internet and other proprietary online networks. Some of our games are based on content that we license from others (e.g., Madden NFL Football, Harry Potter and FIFA Soccer), and some of our games are based on our own wholly-owned intellectual property (e.g., The Sims^TM and Need for Speed^TM). Our goal is to develop titles which appeal to the mass markets, which often means translating and localizing them for sale in non-English speaking countries. In addition, we also attempt to create software game “franchises” that allow us to publish new titles on a recurring basis that are based on the same property. Examples of this are the annual iterations of our sports-based franchises (e.g., NCAA^® Football and FIFA Soccer), titles based on long-lived movie properties (e.g., James Bond^TM and Harry Potter) and wholly-owned properties that can be successfully sequeled (e.g., The Sims and Need for Speed).

Overview of Financial Results

Total net revenue for the three months ended ~~June~~September 30, 2005 was ~~$365~~$675 million, down ~~15.5~~6 percent as compared to the three months ended ~~June~~September 30, 2004. Net revenue for the three months ended ~~June~~September 30, 2005 was driven by ~~our Medal~~sales of ~~Honor~~ Madden NFL 06, NCAA® Football 06,Burnout™ Revenge,FIFA 06,NBA Live 06and ~~Battlefield franchises and the release of~~~~Batman Begins~~^TM. The ~~strength~~Sims™ 2 Nightlife, all of ~~these titles did not offset last year’s strong performance of our Harry Potter and Fight Night franchises as well as~~~~UEFA Euro 2004~~~~released in the three months ended June 30, 2004 in conjunction with the UEFA Euro 2004 football tournament held in Europe.~~~~Medal of Honor European Assault~~^TM ~~and~~~~Battlefield 2~~^TM ~~both~~which reached platinum status (over one million copies sold) in the quarter.

Net ~~loss for the three months ended June 30, 2005 was $58 million as compared to net~~ income for the three months ended ~~June~~September 30, ~~2004 of $24 million.~~2005 was $51 million as compared to $97 million for the three months ended September 30, 2004. Diluted ~~loss~~income per share for the three months ended ~~June~~September 30, 2005 was ~~$0.19~~$0.16 as compared to ~~diluted income per share of $0.08~~$0.31 for the three months ended ~~June~~September 30, 2004.

We used ~~$31~~$19 million in cash from ~~operations~~operating activities during the ~~three~~six months ended ~~June~~September 30, 2005 as compared to ~~$66~~generating $23 million ~~during~~for the ~~three~~six months ended ~~June~~September 30, 2004. The ~~decrease~~increase in cash used in operating activities ~~resulted~~was primarily ~~from~~due to the ~~collection of receivables, partially offset by the overall~~ decline in net income during the ~~three~~six months ended ~~June 30,~~September 20, 2005 as compared to the ~~three~~six months ended ~~June~~September 30, 2004, and an increase in prepaid royalties as we continue to invest in our licensed content partially offset by a lower accounts receivable balance due to a decrease in net revenue in the six months ended September 20, 2005 as compared to the six months ended September 30, 2004.

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Management’s Overview of Historical and Prospective Business Trends

Transition to Next-Generation Consoles.Our industry is cyclical and ~~we believe it~~ has entered into a transition stage ~~heading into~~in anticipation of the ~~next cycle. Beginning in the third quarter~~introduction of ~~fiscal 2006 and continuing~~a new generation of hardware consoles over the course of the next twelve to eighteen ~~months thereafter, we expect Microsoft, Sony and Nintendo to introduce new video game consoles into the market.~~months. During this transition, we intend to continue developing new titles for the current-generation of video game consoles while we also continue to make significant investments ~~as we prepare to introduce~~in the development of products that operate on the next-generation consoles. We have incurred, and expect to continue to incur, higher costs during this transition to next-generation consoles. We also expect development costs for next-generation video games to be greater on a per-title basis than development costs for current-generation video games. In addition, sales of video games for ~~current generation~~current-generation consoles may begin to decline and consumers may defer game software purchases until the next-generation consoles become available. While we expect our ~~sales~~net revenue and gross profit to increase for the fiscal year ~~ended~~ending March 31, 2006 as compared to prior fiscal years, such increases ~~may~~will not offset the increased costs we have incurred, and expect to continue to incur, during the transition. As we move through the transition, we expect our operating results to continue to be ~~more~~ volatile and difficult to predict, which could cause our stock price to fluctuate significantly.

Expansion of Mobile Platforms. The introduction of the PSP and ~~NDS,~~Nintendo DS, and to a lesser extent, increased demand for gameplay on cellular handsets, has resulted in increased sales of titles for mobile platforms. During the three months ended ~~June~~September 30, 2005, our net revenue from sales of our titles for mobile platforms increased to ~~$52~~$62 million from ~~$18~~$10 million for the three months ended ~~June~~September 30, 2004. Similarly, during the six months ended September 30, 2005, our net revenue from sales of our titles for mobile platforms increased to $113 million from $28 million for the six months ended September 30, 2004. As the mobile platform installed base continues to grow, we expect that sales of our titles for these platforms may become an increasingly important part of our business, particularly during the transition from current-generation to next-generation consoles.

Increasing Cost of Titles.Titles have become increasingly expensive to produce and market as the platforms on which they are played continue to advance technologically and consumers demand continual improvements in the overall gameplay experience. We expect this trend to continue throughout the transition from current-generation to next-generation platforms as (1) we become more familiar with, and gain expertise in, developing titles for next-generation platforms, (2) we require larger production teams to create our titles, (3) the technology needed to develop titles becomes more complex, (4) the number and nature of the platforms for which we develop titles increases and becomes more diverse, (5) the cost of licensing the third-party intellectual property we use in many of our titles increases and (6) we develop new methods to distribute our content via the Internet and on hand-held and wireless devices.

Software Prices.We expect the average prices of our titles for current-generation consoles to decline as (1) more value-oriented consumers purchase current-generation consoles, ~~and~~ (2) a greater number of competitive titles are ~~published.~~published and (3) consumers defer purchases in anticipation of next-generation consoles. As a result, we expect our gross margins to be negatively impacted.

Sales of “Hit” Titles.Sales of “hit” titles, several of which were top sellers across a number of international markets, ~~continued to contribute~~contributed significantly to our ~~revenue growth.~~net revenue. Our top-selling titles across all platforms worldwide during the three months ended ~~June~~September 30, 2005 were~~Medal of Honor European Assault~~,~~Battlefield 2~~Madden NFL 06, NCAA Football 06and~~Batman Begins.~~Burnout Revenge.Hit titles are important to our financial performance because they benefit from overall economies of scale. We have developed, and it is our objective to continue to develop, many of our hit titles to become franchise titles that can be regularly iterated.

International Operations and Sales ~~Growth.~~and Foreign Exchange Impact.~~During the first three months of fiscal 2006, net~~Net revenue from international sales accounted for approximately 5040 percent of our total net revenue ~~down from 51 percent~~ during the first ~~three~~six months of both fiscal 2006 and fiscal 2005. Our international net revenue was primarily driven by sales in Europe and, to a ~~more limited~~lesser extent, sales in ~~Asia Pacific. Although foreign~~Asia. Foreign exchange rates favorably impacted our net revenue by $9 million, or 1 percent, for the six months ended September 30, 2005. However, we estimate that the net effect of changes in foreign currency rates had an immaterial impact on net revenue for the three months ended ~~June~~September 30, 2005 ~~we do not necessarily~~as compared to the three months ended September 30, 2004. We expect ~~this trend~~foreign currency movements to ~~continue during~~negatively impact our revenue for the ~~remainder~~remaining six months of fiscal 2006. We anticipate that international net revenue will increase during the remainder of fiscal 2006 as the console installed base continues to expand outside of North America. In particular, we believe that in order to succeed in ~~China and Japan,~~Asia, it is important to develop content locally. As such, we expect to continue to devote resources to hiring local development talent and expanding our infrastructure ~~in each country,~~outside of North America, most notably, through the expansion and creation of local studio ~~facilities.~~facilities in Asia. In addition, we anticipate establishing 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. Our international business has also grown through acquisitions and investments such as our acquisition of Criterion Software Group Ltd. and our tender offer for Digital Illusions C.E. ~~(DICE).~~(“DICE”) in fiscal 2005.

2021

~~Foreign Exchange Impact.~~Given that a significant portion of our business is conducted internationally in foreign currency, fluctuations in currency prices can have a material impact on our results of operations. For example, the average exchange rate for the Euro, as compared to the U.S. dollar, increased from $1.20 per Euro during the three months ended June 30, 2004 to $1.29 per Euro during the three months ended June 30, 2005. Changes in foreign currency rates improved our net revenue by approximately $10 million, or 2 percent, for the three months ended June 30, 2005 as compared to the three months ended June 30, 2004. We currently expect this will be the last quarter in fiscal 2006 in which foreign exchange rates will favorably impact our net revenue. Although we intend to continue to utilize foreign exchange forward and option contracts to either mitigate or hedge against some foreign currency exposures, we cannot predict with certainty the effect foreign currency fluctuations will have on us during fiscal 2006.

Expansion of Studio Resources and Technology.In fiscal 2005, we devoted significant resources to the overall expansion of our studio facilities in North America and Europe. We expect to continue to make significant investments in our studio facilities in North America and Europe in fiscal 2006. As we move through the life cycle of current-generation consoles, we will continue to devote significant resources to the development of current-generation titles while at the same time ~~we continue~~continuing to invest heavily in tools, technologies and titles for the next-generation of platforms and technology.

Increasing Licensing Costs.We generate a significant portion of our net revenue and operating income from games based on licensed content such as Madden NFL Football, FIFA, James Bond and Harry Potter. We have recently entered into new licenses and renewed older licenses, some of which contain higher royalty rates than similar license agreements we have entered into in the past. As a result, we expect our gross margins to continue to be negatively impacted.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, contingent assets and liabilities, and revenue and expenses during the reporting periods. The policies discussed below are considered by management to be critical because they are not only important to the portrayal of our financial condition and results of operations but also because application and interpretation of these policies requires both judgment and estimates of matters that are inherently uncertain and unknown. As a result, actual results may differ materially from our estimates.

Revenue Recognition, Sales Returns, Allowances and Bad Debt Reserves

We principally derive revenue from sales of packaged interactive software games designed for play on video game consoles (such as the PlayStation 2, Xbox and Nintendo GameCube), PCs and mobile platforms including hand-held game players (such as the Nintendo Game Boy Advance, Nintendo DS and Sony PSP) and cellular handsets. We evaluate the recognition of revenue based on the criteria set forth in Statement of Position (“SOP”) 97-2,“Software Revenue Recognition”, as amended by SOP 98-9,“Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions”and Staff Accounting Bulletin (“SAB”) No. 101,“Revenue Recognition in Financial Statements”, as revised by SAB No. 104,“Revenue Recognition”. We evaluate revenue recognition using the following basic criteria and recognize revenue when all four of the following criteria are met:

~~Evidence of an arrangement: Evidence of an agreement with the customer that reflects the terms and conditions to deliver products must be present in order to recognize revenue.~~

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Product revenue, including sales to resellers and distributors (“channel partners”), is recognized when the above criteria are met. We reduce product revenue for estimated future returns, price protection, and other offerings, which may occur with our customers and channel partners. In certain countries, we have stock-balancing programs for our PC products, which allow for the exchange of PC products by resellers under certain circumstances. It is our general practice to exchange products or give credits, rather than give cash refunds.

In certain countries, from time to time, we decide to provide price protection for both our PC and video game system products. In our decision, we analyze historical returns, current sell-through of distributor and retailer inventory of our products, current trends in the video game market and the overall economy, changes in consumer demand and acceptance of our products and other related factors when evaluating the adequacy of the sales returns and price protection allowances. In addition, we monitor the volume of our sales to our channel partners and their inventories, as substantial overstocking in the distribution channel could result in high returns or higher price protection costs in subsequent periods.

In the future, actual returns and price protections may materially exceed our estimates as unsold products in the distribution channels are exposed to rapid changes in consumer preferences, market conditions or technological obsolescence due to new platforms, product updates or competing products. For example, the risk of product returns and/or price protection for our products may continue to increase as the PlayStation 2, Xbox and Nintendo GameCube consoles move through their lifecycles and an increasing number and aggregate amount of competitive products heighten pricing and competitive pressures. While management believes it can make reliable estimates regarding these matters, these estimates are inherently subjective. Accordingly, if our estimates changed, our returns and price protection reserves would change, which would impact the total net revenue we report. For example, if actual returns and/or price protection were significantly greater than the reserves we have established, our actual results would decrease our reported total net revenue. Conversely, if actual returns and/or price protection were significantly less than our reserves, this would increase our reported total net revenue.

Significant judgment is required to estimate our allowance for doubtful accounts in any accounting period. We determine our allowance for doubtful accounts by evaluating customer creditworthiness in the context of current economic ~~trends.~~trends and historical experience. Depending upon the overall economic climate and the financial condition of our customers, the amount and timing of our bad debt expense and cash collection could change significantly.

Royalties and Licenses

Our royalty expenses consist of payments to (1) content licensors, (2) independent software developers and (3) co-publishing and/or distribution affiliates. License royalties consist of payments made to celebrities, professional sports organizations, movie studios and other organizations for our use of their trademark, copyright, personal publicity rights, content and/or other intellectual property. Royalty payments to independent software developers are payments for the development of intellectual property related to our games. Co-publishing and distribution royalties are payments made to third parties for delivery of product.

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Each quarter, we also evaluate the future realization of our royalty-based assets as well as any unrecognized minimum commitments not yet paid to determine amounts we deem unlikely to be realized through product sales. Any impairments determined before the launch of a product are charged to research and development expense. Impairments determined post-launch are charged to cost of goods sold. In either case, we rely on estimated revenue to evaluate the future realization of prepaid royalties. If actual sales or revised revenue estimates fall below the initial revenue estimate, then the actual charge taken may be greater in any given quarter than anticipated. ~~As of June 30, 2005, we had $181 million of royalty-related assets and $1,379 million of unrecognized minimum commitments not yet paid that could be impaired if our revenue estimates decrease.~~ We had no impairments during the three and six months ended ~~June~~September 30, ~~2005~~2005. Impairments for both the three and ~~2004.~~six months ended September 30, 2004 were $2 million.

Valuation of Long-Lived Assets

We evaluate both purchased intangible assets and other long-lived assets in order to determine if events or changes in circumstances indicate a potential impairment in value exists. This evaluation requires us to estimate, among other things, the remaining useful lives of the assets and future cash flows of the business. These evaluations and estimates require the use of judgment. Our actual results could differ materially from our current estimates.

Under current accounting standards, we make judgments about the recoverability of purchased intangible assets and other long-lived assets whenever events or changes in circumstances indicate a potential impairment in the remaining value of the assets recorded on our condensed consolidated balance ~~sheet.~~sheets. In order to determine if a potential impairment has occurred, management makes various assumptions about the future value of the asset by evaluating future business prospects and estimated cash flows. Our future net cash flows are primarily dependent on the sale of products for play on proprietary video game consoles, hand-held game players and PCs (collectively referred to as “platforms”). The success of our products is affected by our ability to accurately predict which platforms and which products we develop will be successful. Also, our revenue and earnings are dependent on our ability to meet our product release schedules. Due to product sales shortfalls, we may not realize the future net cash flows necessary to recover our long-lived assets, which may result in an impairment charge being recorded in the future. There were no impairment charges recorded in the three months ended ~~June~~September 30, 2005 ~~or June 30,~~and 2004.

Income Taxes

In the ordinary course of our business, there are many transactions and calculations where the tax law and ultimate tax determination is uncertain. As part of the process of preparing our condensed consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate prior to the completion and filing of tax returns for such periods. This process requires estimating both our geographic mix of income and our current tax exposures in each jurisdiction where we operate. These estimates involve complex issues, require extended periods of time to resolve, and require us to make judgments, such as anticipating the positions that we will take on tax returns prior to our actually preparing the returns and the outcomes of disputes with tax authorities. We are also required to make determinations of the need to record deferred tax liabilities and the recoverability of deferred tax assets. A valuation allowance is established to the extent recovery of deferred tax assets is not likely based on our estimation of future taxable income in each jurisdiction.

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RESULTS OF OPERATIONS

Our fiscal year is reported on a 52/53-week period that, historically, has ended on the final Saturday of March in each year. Beginning with the current fiscal year ending March 31, 2006, we will end our fiscal year on the Saturday nearest March 31. The results of operations for the fiscal years ended March 31, 2006 and 2005 contain the following number of ~~weeks and end on the dates indicated below:~~weeks:


Fiscal Years Ended	Number of Weeks	Fiscal Period End Date
March 31, 2006	53 weeks	April 1, 2006
March 31, 2005	52 weeks	March 26, 2005

The results of operations for the ~~fiscal quarters~~three and six months ended ~~June~~September 30, 2005 and 2004 contain the following number of ~~weeks and end on the dates indicated below:~~weeks:


Fiscal ~~Quarters Ended~~Period	Number of Weeks	Fiscal Period End Date
~~June~~Three months ended September 30, 2005	1413 weeks	~~July 2,~~October 1, 2005
~~June~~Six months ended September 30, 2005	27 weeks	October 1, 2005

Three months ended September 30, 2004	13 weeks	~~June 26,~~September 25, 2004
Six months ended September 30, 2004	26 weeks	September 25, 2004

Accordingly, for the three months ended June 30, 2005, there was one additional week included in our results of operations as compared to the three months ended June 30, 2004.

For simplicity of presentation, all fiscal periods are treated as ending on a calendar month end.

~~Although certain amounts presented have been rounded to the nearest million, corresponding percentage changes have been calculated on the basis of amounts rounded to the nearest thousand.~~

Net Revenue

We principally derive net revenue from sales of packaged interactive software games designed for play on video game consoles (such as the PlayStation 2, Xbox and Nintendo GameCube), PCs and mobile platforms which include hand-held game players (such as the Nintendo Game Boy Advance, Nintendo DS and Sony PSP) and cellular handsets. Additionally, in Europe and Asia, ~~Pacific,~~ we generate a significant portion of net revenue by marketing and selling third-party interactive software games through our established distribution network. We also derive net revenue from selling subscriptions to some of our online games, programming third-party web sites with our game content, allowing other companies to manufacture and sell our products in conjunction with other products, and selling advertisements on our online web pages.

2425

From a geographical perspective, our total net revenue for the three and six months ended ~~June~~September 30, 2005 and 2004 ~~were~~was as follows (in millions):


	Three Months Ended June 30,								Increase /			%			Three Months Ended September 30,								Increase /			%
	2005				2004				(Decrease)			Change			2005				2004				(Decrease)			Change
North America	$	184	50.4	%	$	211	48.9	%	$	(27	)		(13.1	%)	$	443	66	%	$	473	66	%	$	(30	)		(6	%)


Europe		144	39.5	%		190	44.0	%		(46	)		(24.0	%)		191	28	%		210	29	%		(19	)		(9	%)
Asia Pacific		37	10.1	%		31	7.1	%		6			20.8	%
Asia																41	6	%		33	5	%		8			24	%

International		181	49.6	%		221	51.1	%		(40	)		(17.8	%)		232	34	%		243	34	%		(11	)		(5	%)

Total Net Revenue	$	365	100.0	%	$	432	100.0	%	$	(67	)		(15.5	%)	$	675	100	%	$	716	100	%	$	(41	)		(6	%)

For the six months ended ~~June 30, 2004.~~

~~Europe~~

~~For the three months ended June~~September 30, 2005, net revenue in Europe ~~decreased~~was $335 million, driven primarily by ~~24.0~~sales of (1)FIFA 06andBurnout Revenge, both of which were released during the second quarter of fiscal 2006, (2)Medal of Honor European AssaultandBattlefield 2^TM, which were released in the first quarter of fiscal 2006, and (3)FIFA Street, which was released in the fourth quarter of fiscal 2005. Overall, net revenue declined $64 million, or 16 percent, as compared to the ~~three~~six months ended ~~June~~September 30, 2004. We estimate that foreign exchange rates (primarily the Euro and the British pound sterling) increased reported European net revenue by approximately $8$6 million, or 42 percent, for the ~~three~~six months ended ~~June~~September 30, ~~2005.~~2005 as compared to the six months ended September 30, 2004. Excluding the effect of foreign exchange rates, we estimate that European net revenue decreased by approximately ~~$54~~$70 million, or 2818 percent, for the ~~three~~six months ended ~~June~~September 30, 2005. The overall decrease in net revenue ~~decrease~~ was primarily due to (1) lower sales ~~of products~~ from our Harry Potter and ~~Fight Night~~Sims franchises, ~~as these franchises did not have a corresponding title release during the three months ended June 30, 2005,~~and (2) higher prior year sales ofUEFA Euro 2004released in the three months ended June 30, 2004 in conjunction with the UEFA Euro 2004 football tournament held in Europe and (3) lower sales of products from The Sims and FIFA franchises. Together, these items resulted in a net revenue decrease of $96 million during the three months ended June 30, 2005 as compared to the three months ended June 30, 2004. This decrease was partially offset by higher sales of products from our Medal of Honor and Battlefield franchises, the release of~~Batman Beginsand catalog sales of~~~~FIFA Street~~, which ~~increased net revenue by $63 million in the three months ended June 30, 2005 as compared to the three months ended June 30, 2004.~~

~~Asia Pacific~~

For the three months ended June 30, 2005, net revenue in Asia Pacific increased by 20.8 percent as compared to the three months ended June 30, 2004. We estimate that foreign exchange rates increased reported Asia Pacific net revenue by approximately $2 million, or 6 percent, for the three months ended June 30, 2005. Excluding the effect of foreign exchange rates, we estimate that Asia Pacific net revenue increased by approximately $4 million, or 15 percent, for the three months ended June 30, 2005. The increase in net revenue was driven primarily by higher sales of our co-publishing and distribution titles, as well as our Battlefield, NBA STREET and Medal of Honor franchises. This increase was partially offset by lower sales from our Harry Potter franchise as this franchise did not have a corresponding title release during the three months ended June 30, 2005.

25

Our total net revenue by product line for the three and six months ended September 30, 2005 and 2004 ~~to $44 million in~~was as follows (in millions):

Three Months Ended September 30, Increase/ %
2005 2004 (Decrease) Change

Consoles

PlayStation 2 $ 304 45 % $ 312 44 % $ (8 ) (3 %)
Xbox 136 20 % 142 20 % (6 ) (4 %)
Nintendo GameCube 27 4 % 38 5 % (11 ) (29 %)
Other Consoles – 0 % 1 0 % (1 ) (100 %)

Total Consoles 467 69 % 493 69 % (26 ) (5 %)
PC 91 14 % 141 20 % (50 ) (35 %)
Mobility
PSP 45 7 % – 0 % 45 N/A
Nintendo DS 8 1 % – 0 % 8 N/A
Game Boy Advance 7 1 % 10 1 % (3 ) (30 %)
Cellular Handsets 2 0 % – 0 % 2 N/A

Total Mobility 62 9 % 10 1 % 52 520 %
Co-publishing and Distribution 32 5 % 49 7 % (17 ) (35 %)

Internet Services, Licensing and Other
Subscription Services 14 2 % 13 2 % 1 8 %
Licensing, Advertising and Other 9 1 % 10 1 % (1 ) (10 %)

Total Internet Services, Licensing and Other 23 3 % 23 3 % – 0 %

Total Net Revenue $ 675 100 % $ 716 100 % $ (41 ) (6 %)

Six Months Ended September 30, Increase/ %
2005 2004 (Decrease) Change

Consoles

PlayStation 2 $ 421 40 % $ 474 41 % $ (53 ) (11 %)
Xbox 180 17 % 199 17 % (19 ) (10 %)
Nintendo GameCube 49 5 % 65 6 % (16 ) (25 %)
Other Consoles – 0 % 3 0 % (3 ) (100 %)

Total Consoles 650 62 % 741 64 % (91 ) (12 %)
PC 165 16 % 207 18 % (42 ) (20 %)
Mobility
PSP 77 8 % – 0 % 77 N/A
Nintendo DS 20 2 % – 0 % 20 N/A
Game Boy Advance 13 1 % 28 3 % (15 ) (54 %)
Cellular Handsets 3 0 % – 0 % 3 N/A

Total Mobility 113 11 % 28 3 % 85 304 %
Co-publishing and Distribution 62 6 % 116 10 % (54 ) (47 %)
Internet Services, Licensing and Other
Subscription Services 29 3 % 25 2 % 4 16 %
Licensing, Advertising and Other 21 2 % 30 3 % (9 ) (30 %)

Total Internet Services, Licensing and Other 50 5 % 55 5 % (5 ) (9 %)

Total Net Revenue $ 1,040 100 % $ 1,147 100 % $ (107 ) (9 %)

28

PlayStation 2

For the three months ended ~~June~~September 30, ~~2005. As a percentage of total~~2005, net revenue from sales of ~~Xbox products decreased~~titles for the PlayStation 2 was $304 million, driven primarily by ~~1.3 percent in~~sales ofMadden NFL 06, NCAA Football 06, Burnout Revenge, FIFA 06andNBA Live 06.We released nine titles for the PlayStation 2 during each of the three months ended ~~June~~September 30, ~~2005.~~2005 and September 30, 2004. Overall, PlayStation 2 net revenue decreased $8 million, or 3 percent, as compared to the three months ended September 30, 2004. The decrease in ~~net revenue~~current-year sales was primarily due to lower sales from (1) our Def Jam, Need for Speed and Burnout franchises, (2) the release ofMadden NFL 2005 Special Collector’s Editionat a higher price point in the three months ended September 30, 2004, and (3) higher prior-year sales ofCatwoman. The overall decrease in net revenue was mitigated by current-year sales of products from our FIFA and NBA Live franchises.

For the six months ended September 30, 2005, net revenue from sales of titles for the PlayStation 2 was $421 million, driven primarily by sales ofMadden NFL 06, Medal of Honor European Assault, NCAA Football 06, Burnout RevengeandFIFA 06. We released 12 titles for the PlayStation 2 during each of the six months ended September 30, 2005 and September 30, 2004. Overall, PlayStation 2 net revenue decreased $53 million, or 11 percent, as compared to the six months ended September 30, 2004. The decrease was primarily due to (1) lower sales from our Harry Potter, Fight Night, Def Jam and ~~Harry Potter~~Need for Speed franchises, ~~as well as higher prior year~~and (2) strong prior-year sales ofUEFA Euro 2004. ~~These decreases were partially offset by higher net revenue from our Medal of Honor franchise and the release of~~~~Batman Begins~~~~during the three months ended June 30, 2005 as compared to three months ended June 30, 2004.~~

~~Nintendo GameCube~~

~~Net revenue from Nintendo GameCube products decreased from $26 million in the three months ended June 30, 2004 to $22 million in the three months ended June 30, 2005.~~ The overall decrease in net revenue was ~~primarily due to lower sales of products from our Harry Potter franchise and partially offset~~mitigated by current-year sales of products from our Medal of Honor, ~~franchise~~FIFA and ~~the release of~~~~Batman Begins~~~~for~~NBA Live franchises.

Xbox

For the three months ended ~~June~~September 30, 2005, net revenue from sales of titles for the Xbox was $136 million, driven primarily by sales ofMadden NFL 06, NCAA Football 06, Burnout Revenge, NBA Live 06andTiger Woods PGA TOUR 06.We released nine titles for the Xbox during the three months ended September 30, 2005, as compared to eight titles in the three months ended September 30, 2004. Overall, Xbox net revenue decreased $6 million, or 4 percent, as compared to the three months ended September 30, 2004. The decrease was primarily due to lower sales from our Def Jam franchise. The overall decrease in net revenue was mitigated by current-year sales products from our NBA Live franchise.

For the six months ended September 30, 2005, net revenue from sales of titles for the Xbox was $180 million, driven primarily by sales ofMadden NFL 06, NCAA Football 06, Burnout Revenge, Medal of Honor European AssaultandNBA Live 06.We released 12 titles for the Xbox during the six months ended September 30, 2005, as compared to 11 titles in the six months ended September 30, 2004. Overall, Xbox net revenue decreased $19 million, or 10 percent, as compared to the six months ended September 30, 2004. The decrease was primarily due to lower sales from our Fight Night, Def Jam and Harry Potter franchises. The overall decrease in net revenue was mitigated by current-year sales of products from our Medal of Honor and NBA Live franchises.

Nintendo GameCube

For the three months ended September 30, 2005, net revenue from sales of titles for the Nintendo GameCube was $27 million, driven primarily by sales ofMadden NFL 06,FIFA 06, Marvel Nemesis: Rise of the Imperfects, NBA Live 06andTiger Woods PGA TOUR 06. We released six titles for the Nintendo GameCube during the three months ended September 30, 2005, as compared to seven titles in the three months ended September 30, 2004. Overall, Nintendo GameCube net revenue decreased $11 million, or 29 percent, as compared to three months ended ~~June~~September 30, 2004. The decrease was primarily due to lower sales from our NCAA Football and Def Jam franchises during the three months ended September 30, 2005.

For the six months ended September 30, 2005, net revenue from sales of titles for the Nintendo GameCube was $49 million, driven primarily by sales ofMadden NFL 06, Medal of Honor European Assault, Batman Begins, FIFA 06andMarvel Nemesis: Rise of the Imperfects. We released eight titles for the Nintendo GameCube during each of the six months ended September 30, 2005 and September 30, 2004. Overall, Nintendo GameCube net revenue decreased $16 million, or 25 percent, as compared to six months ended September 30, 2004. The decrease was primarily due to lower sales from our Harry Potter and NCAA Football franchises. The overall decrease in net revenue was mitigated by current-year sales of products from (1) our Medal of Honor franchise, as well as (2) the current-year release ofBatman Begins.

2629

PC

~~Net~~For the three months ended September 30, 2005, net revenue from ~~PC-based products increased from $67~~sales of titles for the PC was $91 million, driven primarily by sales ofThe Sims 2 NightlifeandBattlefield 2.We released six titles for the PC during each of the three months ended September 30, 2005 and September 30, 2004. Overall, PC net revenue decreased $50 million, or 35 percent, as compared to three months ended September 30, 2004. The decrease was primarily due to lower sales in the three months ended ~~June~~September 30, ~~2004 to $74 million~~2005 from our Sims franchise. The overall decrease in ~~the three months ended June 30, 2005. As a percentage of total net revenue, sales of PC products increased by 4.8 percent in the three months ended June 30, 2005. The increase in PC~~ net revenue was ~~primarily due to higher~~mitigated by current-year sales of products from our Battlefield franchise. We consolidated ~~Digital Illusions C.E.’s (DICE)~~DICE’s financial results into our financial statements as of January 27, 2005, and, therefore, have characterizedBattlefield 2as PC-based revenue. Prior to ~~the consolidation of DICE,~~consolidating DICE’s financial results, we classified revenue from the Battlefield franchise ~~was classified~~ as co-publishing and distribution revenue.

For the six months ended September 30, 2005, net revenue from sales of titles for the PC was $165 million, driven primarily by sales ofBattlefield 2andThe ~~increase~~Sims 2 Nightlife. We released eight titles for the PC during the six months ended September 30, 2005, as compared to nine titles in the six months ended September 30, 2004. Overall, PC net revenue decreased $42 million, or 20 percent, as compared to the six months ended September 30, 2004. The decrease was ~~partially offset by a~~primarily due to lower sales from our Sims and Harry Potter franchises. The overall decrease in net revenue was mitigated by current-year sales of products from our ~~Harry Potter and The Sims franchises, as well as higher prior-year sales of~~~~UEFA Euro 2004~~.Battlefield franchise.

Mobility

Net revenue from mobile products increased from ~~$18~~$10 million in the three months ended ~~June~~September 30, 2004 to ~~$52~~$62 million in the three months ended ~~June~~September 30, 2005. Mobile products include games for all mobile devices such as hand-helds and cellular handsets. ~~As a percentage of total net revenue, sales of mobile products increased by 9.9 percentage points in the three months ended June 30, 2005 as compared to June 30, 2004.~~ The increase in mobility net revenue for the three months ended September 30, 2005 was primarily due to the sales of titles for the PSP and Nintendo DS ~~and PSP. The Nintendo DS and PSP~~that were launched in certain regions during the six months ended March 31, 2005.

Net revenue from mobile products increased from $28 million in the six months ended September 30, 2004 to $113 million in the six months ended September 30, 2005. The increase in mobility net revenue was primarily due to sales of titles for the PSP and Nintendo DS. The increase was partially offset by a decrease in net revenue from sales of ~~products~~our Harry Potter franchise for the Game Boy ~~Advance.~~Advance, which had no corresponding title released in the six months ended September 30, 2005.

Co-Publishing and Distribution

Net revenue from co-publishing and distribution products decreased from ~~$67~~$49 million in the three months ended ~~June~~September 30, 2004 to ~~$30~~$32 million in the three months ended ~~June~~September 30, 2005. The decrease was primarily due to ~~lower~~(1) the change in our classification of sales of products from our Battlefield franchise, which ~~is now included~~we no longer classify as co-publishing and distribution revenue, and (2) higher prior-year sales of co-publishing and distribution titles.

Net revenue from co-publishing and distribution products decreased from $116 million in ~~PC revenue~~the six months ended September 30, 2004 to $62 million in the six months ended September 30, 2005. The decrease was primarily due to (1) the change in our ~~consolidation~~classification of ~~DICE and higher prior year~~ sales of ~~various~~products from our Battlefield franchise, which we no longer classify as co-publishing and distribution revenue, and (2) higher prior-year sales of co-publishing and distribution titles.

Subscription Services

InNet revenue from subscription services increased from $13 million in the three months ended ~~June~~September 30, ~~2005, net revenue from subscription services products increased by $2~~2004 to $14 million ~~to $15 million as compared to~~in the three months ended ~~June~~September 30, ~~2004.~~2005. The increase in net revenue was primarily due to an increase in the number of paying subscribers to Club Pogo, partially offset by a decrease in net revenue fromUltima Online^TM andThe Sims Online^TM ~~and~~~~Earth & Beyond~~^TM.

~~Licensing, Advertising and Other~~

InNet revenue from subscription services increased from $25 million in the ~~three~~six months ended ~~June~~September 30, ~~2005, net revenue from licensing, advertising and other products decreased by $9~~2004 to $29 million ~~to $11 million as compared to~~in the ~~three~~six months ended ~~June~~September 30, ~~2004.~~2005. The ~~decrease~~increase in net revenue was primarily due to ~~lower licensing~~an increase in the number of paying subscribers to Club Pogo, partially offset by a decrease in net revenue ~~related to the Nokia N-Gage platform.~~fromUltima OnlineandThe Sims Online.

Cost of Goods Sold

Cost of goods sold for our disk-based and cartridge-based products consists of (1) product costs, (2) certain royalty expenses for celebrities, professional sports and other organizations and independent software developers, (3) manufacturing royalties, net of volume discounts, (4) expenses for defective products, (5) write-offs of post-launch prepaid royalty costs, (6) amortization of certain intangible assets, and (7) operations expenses. Cost of goods sold for our online product subscription business consists primarily of data center and bandwidth costs associated with hosting our web sites, credit card fees and royalties for use of third-party intellectual properties. Cost of goods sold for our web site advertising business primarily consists of ad-serving costs.

30

~~Costs~~
Cost of goods sold for the three and six months ended ~~June~~September 30, 2005 and 2004 were as follows (in millions):

June 30,
2005 % of Net
Revenue June 30,
2004 % of Net
Revenue % Change

$
151 41.2% $ 177 40.9% (15.0%)

September 30, % of Net September 30, % of Net
2005 Revenue 2004 Revenue % Change

Three months ended $ 284 42.1 % $ 284 39.7 % 0.0 %

Six months ended $ 434 41.7 % $ 460 40.1 % (5.7 %)

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General and Administrative

General and administrative expenses consist of personnel and related expenses of executive and administrative staff, fees for professional services such as legal and accounting, and allowances for bad debts.

28

We historically have considered undistributed earnings of our foreign subsidiaries to be indefinitely reinvested and, accordingly, no U.S. taxes have been provided thereon. As a result of the Jobs Act, we are in the process of evaluating whether we will change our intentions regarding a portion of our foreign earnings and take advantage of the repatriation provisions of the Jobs Act, and if so, the amount that we would repatriate. We may not take advantage of the new law at all. In addition to not having made a decision to repatriate any foreign earnings, we are not yet in a position to accurately determine the impact of a qualifying repatriation, should we choose to make one, on our income tax expense for fiscal 2006. If we decide to repatriate a portion of our foreign earnings, we would be required to recognize income tax expense related to the federal, state, local and foreign taxes that we would incur on the repatriated earnings when the decision is made. We estimate that the reasonably possible amount of the income tax expense could be up to $35 million. We expect to be in a position to finalize our analysis no later than February 2006.

In July 2005, the Financial Accounting Standards Board (“FASB”) issued an exposure draft of a proposed interpretation of Statement of Financial Accounting Standards (“SFAS”) No. 109, “Accounting for Income Taxes” which addresses the accounting for uncertain tax positions. The proposed interpretation provides that the best estimate of the impact of a tax position would be recognized in an entity’s financial statements only if it is probable that the position will be sustained on audit based solely on its technical merits. This proposed interpretation also would provide guidance on disclosure, accrual of interest and penalties, accounting in interim periods and transition. ~~This~~The effective date of this proposed interpretation ~~would be effective as of our quarter ending March 31, 2006.~~has not been determined. We cannot predict what actions the FASB will take or how any such actions might ultimately affect our financial position or results of operations.

Impact of Recently Issued Accounting Standards

In March 2004, the FASB ratified the measurement and recognition guidance and certain disclosure requirements for impaired securities as described in Emerging Issues Task Force (“EITF”) Issue No. 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments”. In June 2005, the FASB directed its staff to issue proposed FASB Staff Position (“FSP”) EITF 03-1-a, “Implementation Guidance for the Application of Paragraph 16 of EITF Issue No. 03-1,” as final. The FASB ~~plans to retitle~~retitled this FSP as FSP FAS 115-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments”. The final FSP ~~will supersede~~supersedes EITF Issue No. 03-1 and EITF Topic D-44, “Recognition of Other-Than-Temporary Impairment upon the Planned Sale of a Security Whose Cost Exceeds Fair Value”.” The final FSP ~~will replace~~replaces the guidance set forth in paragraphs 10 through 18 of EITF Issue No. 03-1 with references to existing other-than-temporary impairment guidance. In September 2005, the FASB decided to retain the paragraph in the proposed FSP ~~FAS 115-1~~on how to account for debt securities subsequent to an other-than-temporary impairment. The FASB also decided to add a footnote to clarify that the proposed FSP does not address when a holder of a debt security would place a debt security on nonaccrual status or how to subsequently report income on a nonaccrual debt security. The FASB decided that transition would be applied prospectively and the effective ~~for other-than-temporary impairment analysis conducted in~~date would be reporting periods beginning after ~~September~~December 15, 2005. In November 2005, the FASB issued FSP FAS 115-1. Management is currently evaluating what impact the adoption of the measurement and recognition guidance in FSP FAS 115-1 will have on our consolidated financial statements.

30

In March 2005, the ~~Securities and Exchange Commission (“SEC”)~~SEC released SAB No. 107,“Share-based Payment”, which provides the views of the staff regarding the interaction between SFAS No. 123R and certain SEC rules and regulations for public companies. In April 2005, the SEC adopted a rule that amends the compliance dates of SFAS No. 123R. Under the revised compliance dates, we will be required to adopt the provisions of SFAS No. 123R no later than ~~the~~our first ~~interim period~~quarter of fiscal 2007. While management continues to evaluate the impact of SFAS No. 123R on our consolidated financial statements, we currently believe that the expensing of stock-based compensation will have an impact on our Condensed Consolidated Statements of Operations similar to our pro forma disclosure under SFAS No. 123, as amended.

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections—A Replacement of APB Opinion No. 20 and FASB Statement No. 3”. SFAS No. 154 changes the requirements for the accounting and reporting of a change in accounting principle. Under previous guidance, changes in accounting principle were recognized as a cumulative affect in the net income of the period of the change. The new Statement requires retrospective application of changes in accounting principle, limited to the direct effects of the change, to prior periods’ financial statements, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. Additionally, this Statement requires that a change in depreciation, amortization or depletion method for long-lived, nonfinancial assets be accounted for as a change in accounting estimate effected by a change in accounting principle and that correction of errors in previously issued financial statements should be termed a ~~“restatement.”~~“restatement”. SFAS No. 154 is effective for accounting changes and correction of errors made in fiscal years beginning after December 15, 2005. Management does not believe the adoption of SFAS No. 154 will have a material impact on our consolidated financial statements.

3135

LIQUIDITY AND CAPITAL RESOURCES


	As of June 30,								As of September 30,						Increase /
(In millions)	2005			2004			Increase		2005			2004			(Decrease)

Cash, cash equivalents and short-term investments	$	2,573		$	2,369		$	204	$	2,230		$	2,490		$	(260	)
Marketable equity securities		176			2			174		182			—			182

Total	$	2,749		$	2,371		$	378	$	2,412		$	2,490		$	(78	)


Percentage of total assets		70.2	%		70.4	%				64	%		67	%

Inventories
Inventories increased to ~~$66~~$74 million as of ~~June~~September 30, 2005, from $62 million as of March 31, 2005, primarily due to the buildup of inventory in connection with the release of~~NCAA~~^® ~~Football~~FIFA 06in North America at the beginning of the ~~second~~third quarter of fiscal 2006. Other than~~NCAA Football~~FIFA 06, no single title represented more than $4 million of inventory as of ~~June~~September 30, 2005.

Other current assets
Other current assets increased to ~~$194~~$208 million as of ~~June~~September 30, 2005, from $164 million as of March 31, 2005, primarily due to an increase in prepaid royalties as we continue to invest in our product development and content. ~~The increase was partially offset by a decrease in our VAT receivable.~~

Accounts payable
Accounts payable ~~decreased~~increased to ~~$113~~$171 million as of ~~June~~September 30, 2005, from $134 million as of March 31, 2005, primarily due to the ~~lower~~higher sales volume ~~we experienced~~as well as higher expenditures to support the growth of our business worldwide in the ~~first~~second quarter of fiscal 2006 as compared to the fourth quarter of fiscal 2005.

Accrued and other liabilities
Our accrued and other liabilities decreased to ~~$597~~$558 million as of ~~June~~September 30, 2005 from $694 million as of March 31, 2005. The decrease was primarily due to ~~decreases~~a $77 million reduction in ~~accrued compensation~~income tax payable we recorded in the three months ended September 30, 2005 following a recent U.S. Tax Court ruling regarding the proper allocation of the tax deduction for stock options between U.S. and ~~benefits, accrued~~foreign entities. Although the case remains subject to appeal, it has precedent value for our situation. Accordingly, we released a reserve of $77 million during the quarter ended September 30, 2005, whereby, we recorded a reduction to our income ~~taxes~~tax liability and ~~accrued royalties.~~an increase to additional paid in capital. This had no impact on our income statement or on our net operating cash flow in the quarter. We anticipate our accrued and other liabilities balance will increase during the three months ending ~~September 30,~~December 31, 2005 primarily due to an increase in ~~royalties payable.~~our operations during this period.

Financial Condition
We believe that existing cash, cash equivalents, short-term investments, marketable equity securities and cash generated from operations will be sufficient to meet our operating requirements for at least the next twelve months, including working capital requirements, capital expenditures and potential future acquisitions or strategic ~~investments, and funding of our stock repurchase program.~~investments. We may choose at any time to raise additional capital to strengthen our financial position, facilitate expansion, pursue strategic acquisitions and investments or to take advantage of business opportunities as they arise. There can be no guarantee that such additional capital will be available to us on favorable terms, if at all, or that it will not result in substantial dilution to our existing stockholders.

Our two lease agreements with Keybank National Association, described in the “Off-Balance Sheet Commitments” section below, are scheduled to expire in June 2006 and July 2006. We currently are evaluating whether to extend the leases, purchase the properties under lease, or identify a ~~third party~~third-party buyer for the properties when the leases expire. Should we choose to renew the leases, ~~we would not expect a material change in~~ our lease payments may change from the amounts under the current lease agreements. Should we choose to purchase the properties, we could incur a cash outflow of ~~at least~~approximately $200 million. We have not yet determined the course of action that we will take.

A portion of our cash, cash equivalents and short-term investments that was generated from operations domiciled in foreign tax jurisdictions (approximately ~~$905~~$834 million as of ~~June~~September 30, 2005) is designated as indefinitely reinvested in the respective tax jurisdiction. While we have no plans to repatriate these funds to the United States in the short term, if we were required to do so in order to fund our operations in the United States, we would accrue and pay additional taxes in connection with their repatriation. We are in the process of evaluating whether we will repatriate foreign earnings under the repatriation provisions of the American Jobs Creation Act of 2004.

37

On October 18, 2004, our Board of Directors authorized a program to repurchase up to an aggregate of $750 million of ~~shares of~~ our common stock. Pursuant to the authorization, we ~~may~~were able to repurchase shares of our common stock from time to time in the open market or through privately negotiated transactions over the course of a twelve-month period. ~~During the three months ended June 30, 2005, we~~Our common stock repurchase program was completed in September 2005. We repurchased and retired ~~6.3 million shares of our common stock for approximately $337 million. From~~ the ~~inception of the program through June 30, 2005, we have repurchased and retired 7.1 million shares of our common stock for approximately $378 million.~~following (in millions):

Number of Shares
Repurchased and Approximate
Retired Amount
Three months ended September 30, 2005 6.3 $ 372
Six months ended September 30, 2005 12.6 $ 709
From the inception of the program through September 30, 2005 13.4 $ 750

33

The following table summarizes our minimum contractual obligations and commercial commitments as of ~~June~~September 30, 2005, and the effect we expect them to have on our liquidity and cash flow in future periods (in millions):


	Contractual Obligations						Commercial Commitment				Contractual Obligations						Commercial Commitments
			Developer/										Developer/						Letters
Fiscal Year			Licensor				Bank and						Licensor				Bank and		of
Ending March 31,	Leases⁽¹⁾		Commitments⁽²⁾		Marketing		Other Guarantees		Total		Leases⁽¹⁾		Commitments⁽²⁾		Marketing		Other Guarantees		Credit		Total
2006 (remaining nine months)	$	34	$	76	$	34	$	3	$	147
2006 (remaining six months)											$	30	$	72	$	19	$	2	$	10	$	133
2007		30		137		34		–		201		31		146		34		—		—		211
2008		23		125		30		–		178		24		135		30		—		—		189
2009		17		134		30		–		181		17		145		30		—		—		192
2010		13		121		31		–		165		13		128		30		—		—		171
Thereafter		35		830		197		–		1,062		34		837		198		—		—		1,069

Total	$	152	$	1,423	$	356	$	3	$	1,934	$	149	$	1,463	$	341	$	2	$	10	$	1,965

In December 2000, we entered into a second build-to-suit lease with Keybank National Association for a five and one-half year term beginning December 2000 to expand our Redwood City, California headquarters facilities and develop adjacent property adding approximately 310,000 square feet to our campus. Construction was completed in June 2002. We accounted for this arrangement as an operating lease in accordance with SFAS No. 13, as amended. The facilities provide space for sales, marketing, administration and research and development functions. We have an option to purchase the property for a maximum of $130 million or, at the end of the lease, to arrange for (i)��an extension of the lease or (ii) sale of the property to a third party while we retain an obligation to the owner for approximately 90 percent of the difference between the sale price and the guaranteed residual value of up to $119 million if the sales price is less than this amount, subject to certain provisions of the lease.

35

In addition, we are subject to other claims and litigation arising in the ordinary course of business. Our management considers that any liability from any reasonably foreseeable disposition of such other claims and litigation, individually or in the aggregate, would not have a material adverse effect on our consolidated financial position or results of operations.

Director Indemnity Agreements

We have entered into indemnification agreements with the members of our Board of Directors at the time they join the Board to indemnify them to the extent permitted by law against any and all liabilities, costs, expenses, amounts paid in settlement and damages incurred by the directors as a result of any lawsuit, or any judicial, administrative or investigative proceeding in which the directors are sued as a result of their service as members of our Board of Directors.

3641

RISK FACTORS

Our business is subject to many risks and uncertainties, which may affect our future financial performance. If any of the events or circumstances described below occurs, our business and financial performance could be harmed, our actual results could differ materially from our expectations and the market value of our ~~securities~~stock could decline. The risks and uncertainties discussed below are not the only ones we face. There may be additional risks and uncertainties not currently known to us or that we currently do not believe are material that may harm our business and financial performance.

Our business is highly dependent on the success and timely release of new video game platforms, on the continued availability of existing video game platforms, as well as our ability to develop commercially successful products for these platforms.

We derive most of our revenue from the sale of products for play on video game platforms manufactured by third parties, such as Sony’s PlayStation 2 and Microsoft’s Xbox. The success of our business is driven in large part by the availability of an adequate supply of current-generation video game platforms, the timely release, adequate supply, and success of new video game hardware systems, our ability to accurately predict which platforms will be most successful in the marketplace, and our ability to develop commercially successful products for these platforms. We must make product development decisions and commit significant resources well in advance of the anticipated introduction of a new platform. A new platform for which we are developing products may be delayed, may not succeed or may have a shorter life cycle than anticipated. If the platforms for which we are developing products are not released when anticipated, are not available in adequate amounts to meet consumer demand, or do not attain wide market acceptance, our revenue will suffer, we may be unable to fully recover the resources we have committed, and our financial performance will be harmed.

Our industry is cyclical and has entered a transition period heading into the next cycle. During the transition, we expect our costs to increase, we may experience a decline in sales as consumers anticipate and adopt next-generation products and our operating results may suffer and become more difficult to predict.

Video game platforms have historically had a life cycle of four to six years, which causes the video game software market to be cyclical as well. Sony’s PlayStation 2 was introduced in 2000 and Microsoft’s Xbox and the Nintendo GameCube were introduced in 2001. ~~Beginning in the third quarter of fiscal 2006 and continuing over~~Over the course of the next twelve to eighteen months, ~~thereafter,~~ we expect Microsoft, Sony and Nintendo to introduce new video game platforms into the market (so-called “next-generation platforms”). As a result, we believe that the interactive entertainment industry has entered into a transition stage leading into the next cycle. During this transition, we intend to continue developing new titles for the ~~current-generation~~current generation of video game platforms while we also make significant investments preparing to introduce products upon the launch of the next-generation platforms. We have incurred and expect to continue to incur increased costs during the transition to next-generation platforms, which are not likely to be offset in the near future. We also expect development costs for next-generation video games to be greater on a per-title basis than development costs for current-generation video games. Further, we expect that, as the current-generation of platforms reaches the end of its cycle and next-generation platforms are introduced into the market, sales of video games for current-generation consoles may begin to decline as consumers defer game software purchases until the next-generation platforms become available. This decline may not be offset by increased sales of products for the new platforms. For example, following the launch of Sony’s PlayStation 2 platform, we experienced a significant decline in revenue from sales of products for Sony’s older PlayStation game console, which was not immediately offset by revenue generated from sales of products for the PlayStation 2. If the increased costs we have incurred and expect to continue to incur are not offset during the transition, our operating results will suffer and our financial position will be harmed. In addition, during the transition, we expect our operating results to be more volatile and difficult to predict, which could cause our stock price to fluctuate significantly.

Our platform licensors set the royalty rates and other fees that we must pay to publish games for their platforms, and therefore have significant influence on our costs. If one or more of the platform licensors adopt a different fee structure for future game consoles or we are unable to obtain such licenses, our profitability will be materially impacted.

~~Beginning in the third quarter of fiscal 2006 and continuing over~~Over the course of the next twelve to eighteen months, ~~thereafter,~~ we expect our platform licensors to introduce new video game platforms into the market in various parts of the world. For example, Microsoft has announced plans to release the Xbox 360 (the next-generation successor to the Xbox) during the 2005 holiday season and Sony has announced plans to release the PlayStation 3 (the next-generation successor to the PlayStation 2) in ~~the spring of~~ 2006. In order to publish products for a new game machine, we must take a license from the platform licensor which gives the platform licensor the opportunity to set the fee structure that we must pay in order to publish games for that platform.

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Similarly, certain platform licensors have retained the flexibility to change their fee structures for online gameplay and features for their consoles. The control that platform licensors have over the fee structures for their future platforms and online access makes it difficult for us to predict our costs and profitability in the medium to long term. It is also possible that platform licensors may choose not to renew our licenses. Because publishing products for video game consoles is the largest portion of our business, any increase in fee structures or failure to secure a license relationship would significantly harm our ability to generate revenues and/or profits.

If we do not consistently meet our product development schedules, our operating results will be adversely affected.

Our business is highly seasonal, with the highest levels of consumer demand, and a significant percentage of our revenue, occurring in the December quarter. In addition, we seek to release many of our products in conjunction with specific events, such as the release of a related movie or the beginning of a sports season or major sporting event. If we miss these key selling periods ~~due to~~for any reason, including product delays or delayed introduction of a new platform for which we have developed products, our sales will suffer disproportionately. Our ability to meet product development schedules is affected by a number of factors, including the creative processes involved, the coordination of large and sometimes geographically dispersed development teams required by the increasing complexity of our products, and the need to refine and tune our products prior to their release. We have in the past experienced development delays for several of our products. Failure to meet anticipated production or “go live” schedules may cause a shortfall in our revenue and profitability and cause our operating results to be materially different from expectations.

Our business is subject to risks generally associated with the entertainment industry, any of which could significantly harm our operating results.

Our business is subject to risks that are generally associated with the entertainment industry, many of which are beyond our control. These risks could negatively impact our operating results and include: the popularity, price and timing of our games and the platforms on which they are played; economic conditions that adversely affect discretionary consumer spending; changes in consumer demographics; the availability and popularity of other forms of entertainment; and critical reviews and public tastes and preferences, which may change rapidly and cannot necessarily be predicted.

If the average price of current-generation titles continues to decline, our operating results will suffer.

As a result of a more value-oriented consumer base, ~~caused by price reductions in current-generation platforms by Microsoft, Sony and Nintendo,~~ a greater number of current-generation titles being published, and significant pricing pressure from our competitors, we have experienced a decrease in the average price of our titles for current-generation platforms. Although we believe that a few of the most popular current-generation titles will continue to be launched at premium price points, as the interactive entertainment industry transitions to next-generation platforms, we expect there to be fewer current-generation titles able to command premium price points, and we expect that even these titles will be subject to price reductions at an earlier point in their sales cycle than we have seen in prior years. We expect the average price of current-generation titles to continue to decline, which will have a negative effect on our margins and operating results.

Technology changes rapidly in our business and if we fail to anticipate or successfully implement new technologies, the quality, timeliness and competitiveness of our products and services will suffer.

Rapid technology changes in our industry require us to anticipate, sometimes years in advance, which technologies we must implement and take advantage of in order to make our products and services competitive in the market. Therefore, we usually start our product development with a range of technical development goals that we hope to be able to achieve. We may not be able to achieve these goals, or our competition may be able to achieve them more quickly than we can. In either case, our products and services may be technologically inferior to our competitors’, less appealing to consumers, or both. If we cannot achieve our technology goals within the original development schedule of our products and services, then we may delay their release until these technology goals can be achieved, which may delay or reduce revenue and increase our development expenses. Alternatively, we may increase the resources employed in research and development in an attempt to accelerate our development of new technologies, either to preserve our product or service launch schedule or to keep up with our competition, which would increase our development expenses.

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Our business is intensely competitive and “hit” driven. If we do not continue to deliver “hit” products or if consumers prefer our competitors’ products over our own, our operating results could suffer.

Competition in our industry is intense and we expect new competitors to continue to emerge. While many new products are regularly introduced, only a relatively small number of “hit” titles accounts for a significant portion of total net revenue in our industry. Hit products published by our competitors may take a larger share of consumer spending than we anticipate, which could cause our product sales to fall below our expectations. If our competitors develop more successful products, offer competitive products at lower price points, or if we do not continue to develop consistently high-quality and well-received products, our revenue, margins, and profitability will decline.

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If one or more of our titles were found to contain hidden, objectionable content, our business could suffer.

Throughout the history of our industry, many ~~videogames~~video games have been designed to include certain hidden content and gameplay features that are accessible through the use of in-game cheat codes or other technological means that are intended to enhance the gameplay experience. However, in several cases, the hidden content or feature was included in the game by an employee who was not authorized to do so or by an outside developer without the knowledge of the publisher. From time to time, some hidden content and features have contained profanity, graphic violence and sexually explicit or other objectionable material. In a few cases, the Entertainment Software Ratings Board (“ESRB”) has reacted to discoveries of hidden content and features by reviewing the rating that was originally assigned to the product, requiring the publisher to change the game packaging and/or fining the publisher. Retailers have on occasion reacted to the discovery of such hidden content by pulling these games from their shelves, refusing to sell them, and demanding that their publishers accept them as product returns. Likewise, consumers have reacted to the revelation of hidden content by refusing to purchase such games, demanding refunds for games they’ve already purchased, and refraining from buying other games published by the company whose game contained the objectionable material.

We have implemented preventative measures designed to reduce the possibility of hidden, objectionable content from appearing in the video games we publish. Nonetheless, these preventative measures are subject to human error, circumvention, overriding, and reasonable resource constraints. If a ~~videogame~~video game we published were found to contain hidden, objectionable content, the ESRB could demand that we recall a game and change its packaging to reflect a revised rating, retailers could refuse to sell it and demand we accept the return of any unsold copies or returns from customers, and consumers could refuse to buy it or demand that we refund their money. This could have a material negative impact on our ~~sales return allowances~~operating results and ~~associated reserves in a~~ financial ~~period.~~condition. In addition, our reputation could be harmed, which could impact sales of other ~~videogames~~video games we sell. If any of these consequences were to occur, our business and financial performance could be significantly harmed.

If we do not continue to attract and retain key personnel, we will be unable to effectively conduct our business. In addition, compensation-related changes in accounting requirements, as well as evolving legal and operational factors, could have a significant impact on our expenses and operating results.

The market for technical, creative, marketing and other personnel essential to the development and marketing of our products and management of our businesses is extremely competitive. Our leading position within the interactive entertainment industry makes us a prime target for recruiting of executives and key creative talent. If we cannot successfully recruit and retain the employees we need, or replace key employees following their departure, our ability to develop and manage our businesses will be impaired.

We annually review and evaluate with the Compensation Committee of our Board of Directors the compensation and benefits that we offer our employees to ensure that we are able to attract and retain our talent. Within our regular review, we have considered recent changes in the accounting treatment of stock options, the competitive market for technical, creative, marketing and other personnel, and the evolving nature of job functions within our studios, marketing organizations and other areas of the business. Any changes we make to our compensation programs could result in increased expenses and have a significant impact on our operating results.

Our platform licensors are our chief competitors and frequently control the manufacturing of and/or access to our video game products. If they do not approve our products, we will be unable to ship to our customers.

Our agreements with hardware licensors (such as Sony for the PlayStation 2, Microsoft for the Xbox and Nintendo for the Nintendo GameCube) typically give significant control to the licensor over the approval and manufacturing of our products, which could, in certain circumstances, leave us unable to get our products approved, manufactured and shipped to customers. These hardware licensors are also our chief competitors. In most events, control of the approval and manufacturing process by the platform licensors increases both our manufacturing lead times and costs as compared to those we can achieve independently. While we believe that our relationships with our hardware licensors are currently good, the potential for these licensors to delay or refuse to approve or manufacture our products exists. Such occurrences would harm our business and our financial performance.

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We also require compatibility code and the consent of Microsoft and Sony in order to include online capabilities in our products for their respective platforms. As online capabilities for video game platforms become more significant, Microsoft and Sony could restrict our ability to provide online capabilities for our console platform products. If Microsoft or Sony refused to approve our products with online capabilities or significantly impacted the financial terms on which these services are offered to our customers, our business could be harmed.

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Our reported financial results could be adversely affected by changes in financial accounting standards or by the application of existing or future accounting standards to our business as it evolves.

As a result of the enactment of the Sarbanes-Oxley Act and the review of accounting policies by the SEC and national and international accounting standards bodies, the frequency of accounting policy changes may accelerate. For example, the FASB has issued a new standard that will require us to adopt a different method of determining and accounting for the compensation expense of our employee stock options. This and other possible changes to accounting standards, could adversely affect our reported results of operations although not necessarily our cash flows. Further, accounting policies affecting software revenue recognition have been the subject of frequent interpretations, which could significantly affect the way we account for revenue related to our products. As we enhance, expand and diversify our business and product offerings, the application of existing or future financial accounting standards, particularly those relating to the way we account for revenue, could have a significant adverse effect on our reported results although not necessarily on our cash flows.

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To the extent that we engage in strategic transactions outside of the United States, we face additional risks, including risks related to integration of operations across different cultures and languages, currency risks and the particular economic, political and regulatory risks associated with specific countries.

Future acquisitions and investments could involve the issuance of our equity securities, potentially diluting our existing stockholders, the incurrence of debt, contingent liabilities or amortization expenses, or write-offs of goodwill, any of which could harm our financial condition. Our stockholders may not have the opportunity to review, vote on or evaluate future acquisitions or investments.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

MARKET RISK

We are exposed to various market risks, including changes in foreign currency exchange rates, interest rates, and market prices. Market risk is the potential loss arising from changes in market rates and market prices. Foreign currency option and foreign exchange forward contracts are used to either hedge anticipated exposures or mitigate some existing exposures subject to market risk. We do not enter into derivatives or other financial instruments for trading or speculative purposes. Interest rate risk is the potential loss arising from changes in interest rates and credit ratings. We do not consider our cash and cash equivalents to be exposed to significant interest rate risk because our portfolio consists of highly liquid investments with original maturities of three months or less.

Foreign Currency Exchange Rate Risk
From time to time, we hedge some of our foreign currency risk related to anticipated foreign-currency-denominated sales transactions by purchasing option contracts that generally have maturities of 15 months or less. These transactions are designated and qualify as cash flow hedges. The derivative assets associated with our hedging activities are recorded at fair value in other current assets in the Condensed Consolidated Balance Sheets. The effective portion of gains or losses resulting from changes in fair value is initially reported as a component of accumulated other comprehensive income, net of any tax effects, in stockholders’ equity and subsequently reclassified into net revenue in the period when the forecasted transaction actually occurs. The ineffective portion of gains or losses resulting from changes in fair value is reported in interest and other income, net in the Condensed Consolidated Statements of Operations. Our hedging programs reduce, but do not entirely eliminate, the impact of currency exchange rate movements. The fair value of our foreign currency option contracts purchased and included in other current assets was $9$8 million as of ~~June~~September 30, 2005.

We utilize foreign exchange forward contracts to mitigate foreign currency risk associated with foreign-currency-denominated assets and liabilities, primarily intercompany receivables and payables. The forward contracts generally have a contractual term of less than one month and are transacted near month-end. Therefore, the fair value of the forward contracts generally is not significant at each month-end. Our foreign exchange forward contracts are not designated as hedging instruments under SFAS No. 133 and are accounted for as derivatives whereby the fair value of the contracts are reported as other current assets or other current liabilities in the Condensed Consolidated Balance Sheets, and gains and losses from changes in fair value are reported in interest and other income, net, in the Condensed Consolidated Statements of Operations. The gains and losses on these forward contracts generally offset the gains and losses on the underlying foreign-currency-denominated assets and liabilities.

As of ~~June~~September 30, 2005, we had foreign exchange contracts to purchase and sell approximately ~~$248~~$370 million in foreign currencies. Of this amount, ~~$222~~$359 million represents contracts to sell foreign currencies in exchange for U.S. dollars, ~~$21~~$10 million to sell foreign currencies in exchange for British Pounds, and $5$1 million to purchase foreign currency in exchange for U.S. dollars. The fair value of our forward contracts was immaterial as of ~~June~~September 30, 2005.

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As of ~~June~~September 30, 2005 and March 31, 2005, our short-term investments were classified as available-for-sale and, consequently, recorded at fair market value with unrealized gains or losses resulting from changes in fair value reported as a separate component of accumulated other comprehensive income, net of any tax effects, in stockholders’ equity. Our portfolio of short-term investments consisted of the following investment categories, summarized by fair value as of ~~June~~September 30, 2005 and March 31, 2005 (in millions):


					As of		As of
	As of June 30		As of March 31		September 30,		March 31,
	2005		2005		2005		2005
U.S. government agencies	$	1,158	$	1,168	$	1,129	$	1,168
U.S. government bonds		339		298		333		298
Corporate bonds		181		180		182		180
Asset-backed securities		21		42		11		42

Total short-term investments	$	1,699	$	1,688	$	1,655	$	1,688

Item 4. Controls and Procedures

Definition and limitations of disclosure controls.Our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act, such as this report, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures are also designed to ensure that such information is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial and Administrative Officer, as appropriate to allow timely decisions regarding required disclosure. Our management evaluates these controls and procedures on an ongoing basis.

There are inherent limitations to the effectiveness of any system of disclosure controls and procedures. These limitations include the possibility of human error, the circumvention or overriding of the controls and procedures and reasonable resource constraints. In addition, because we have designed our system of controls based on certain assumptions, which we believe are reasonable, about the likelihood of future events, our system of controls may not achieve its desired purpose under all possible future conditions. Accordingly, our disclosure controls and procedures provide reasonable assurance, but not absolute assurance, of achieving their objectives.

Evaluation of disclosure controls and procedures.Our Chief Executive Officer and Chief Financial and Administrative Officer, after evaluating the effectiveness of our disclosure controls and procedures, believe that as of the end of the period covered by this report, our disclosure controls and procedures were effective in providing the requisite reasonable assurance that material information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial and Administrative Officer, as appropriate to allow timely decisions regarding the required disclosure.

Changes in internal controls.During our last fiscal quarter, no changes occurred in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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	Three Months Ended						Three Months Ended						Six Months Ended
	June 30,						September 30,						September 30,
	2005			2004			2005			2004			2005			2004

Risk-free interest rate		3.7	%		3.0	%		3.9	%		3.0	%		3.8	%		3.0	%
Expected volatility		35	%		40	%		33.9	%		37.5	%		34.4	%		38.4	%
Expected life of stock options (in years)		3.2			3.2			3.49			2.96			3.38			3.04
Expected life of employee stock purchase plans (in months)		6			6			6			6			6			6
Assumed dividends	None			None			None			None			None			None


				Actual as of					Actual as of
Financial Covenants	Requirement			June 30, 2005		Requirement			September 30, 2005
Consolidated Net Worth (in millions)	equal to or greater than	$	2,061	$	3,167	equal to or greater than	$	2,099	$	2,984
Fixed Charge Coverage Ratio	equal to or greater than		3.00		15.77	equal to or greater than		3.00		13.42
Total Consolidated Debt to Capital	equal to or less than		60%		7.2%	equal to or less than		60%		7.6%
Quick Ratio – Q1 & Q2	equal to or greater than		1.00		11.10	equal to or greater than		1.00		10.36
Q3 & Q4	equal to or greater than		1.75		N/A	equal to or greater than		1.75		N/A

	•		Evidence of an arrangement: Evidence of an agreement with the customer that reflects the terms and conditions to deliver products must be present in order to recognize revenue.

	•		Delivery: Delivery is considered to occur when the products are shipped and risk of loss has been transferred to the customer. For online games and services, revenue is recognized as the service is provided.

	•		Fixed or determinable fee: If a portion of the arrangement fee is not fixed or determinable, we recognize that amount as revenue when the amount becomes fixed or determinable.

	•		Collection is deemed probable: At the time of the transaction, we conduct a credit review of each customer involved in a significant transaction to determine the creditworthiness of the customer. Collection is deemed probable if we expect the customer to be able to pay amounts under the arrangement as those amounts become due. If we determine that collection is not probable, we recognize revenue when collection becomes probable (generally upon cash collection).

	•		Lower license royalties as a percentage of total net revenue primarily due to a higher mix of products sold based on wholly-owned intellectual property during the three months ended June 30, 2005 as compared to the three months ended June 30, 2004. We estimate that lower license royalties as a percentage of total net revenue increased gross margin by 2.9 percent.
	•		Lower co-publishing and distribution royalties as a percentage of total net revenue due to the lower volume of co-publishing and distribution net revenue during the three months ended June 30, 2005 as compared to the three months ended June 30, 2004. We estimate that lower co-publishing and distribution royalties as a percentage of total net revenue increased gross margin by 0.4 percent.
	•		Partially offset by higher third-party development royalties as a percentage of total net revenue primarily due to a higher mix of externally developed titles versus internally developed titles in the three months ended June 30, 2005 as compared to the three months ended June 30, 2004. We estimate that higher development royalties as a percentage of total net revenue decreased gross margin by 0.9 percent.

	•		~~An increase of $8 million in personnel-related costs resulting from an increase in headcount and facilities-related~~to an increase in personnel-related costs from an increase in headcount and facility-related expenses in support ~~of the growth~~ of our marketing and sales functions worldwide.
	•		An increase of $4 million in our marketing and advertising, promotional and related contracted services expenses primarily due to increased advertising in North America to support our current year releases.


					Effects of
	As of				Foreign			As of
	March 31,		Goodwill		Currency			June 30,
	2005		Acquired		Translation			2005

Goodwill	$	153	$	3	$	(1	)	$	155


	As of June 30, 2005													As of September 30, 2005
	Gross											Other		Gross											Other
	Carrying		Accumulated									Intangibles,		Carrying		Accumulated									Intangibles,
	Amount		Amortization			Impairment			Other			Net		Amount		Amortization			Impairment			Other			Net

Developed/Core Technology	$	47	$	(24	)	$	(9	)	$	1		$	15	$	47	$	(26	)	$	(9	)	$	–		$	12
Tradename		37		(19	)		(1	)		–			17		37		(20	)		(1	)		–			16
Subscribers and Other Intangibles		11		(7	)		(2	)		(1	)		1		12		(7	)		(2	)		(1	)		2

Total	$	95	$	(50	)	$	(12	)	$	–		$	33	$	96	$	(53	)	$	(12	)	$	(1	)	$	30


	As of March 31, 2005
	Gross											Other
	Carrying		Accumulated									Intangibles,
	Amount		Amortization			Impairment			Other			Net

Developed/Core Technology	$	47	$	(22	)	$	(9	)	$	1		$	17
Tradename		37		(18	)		(1	)		–			18
Subscribers and Other Intangibles		11		(7	)		(2	)		(1	)		1

Total	$	95	$	(47	)	$	(12	)	$	–		$	36


	Accrual		Charges					Accrual		Accrual							Accrual
	Beginning		Utilized			Adjustments		Ending		Beginning		Charges Utilized			Adjustments		Ending
	Balance		in Cash			to Operations		Balance		Balance		in Cash			to Operations		Balance

Three Months Ended June 30, 2005
Six Months Ended September 30, 2005
Facilities-related	$	10	$	(1	)	$	–	$	9	$	10	$	(2	)	$	–	$	8


Year Ended March 31, 2005
Workforce	$	2	$	(2	)	$	–	$	–	$	2	$	(2	)	$	–	$	–
Facilities-related		12		(4	)		2		10		12		(4	)		2		10

Total	$	14	$	(6	)	$	2	$	10	$	14	$	(6	)	$	2	$	10


	Six Months Ended September 30,								Increase /			%
	2005				2004				(Decrease)			Change
North America	$	627	60	%	$	684	60	%	$	(57	)		(8	%)


Europe		335	32	%		399	35	%		(64	)		(16	%)
Asia		78	8	%		64	5	%		14			22	%

International		413	40	%		463	40	%		(50	)		(11	%)

Total Net Revenue	$	1,040	100	%	$	1,147	100	%	$	(107	)		(9	%)


	Three Months Ended June 30,								Increase/			%
	2005				2004				(Decrease)			Change
Consoles
PlayStation 2	$	117	32.2	%	$	162	37.4	%	$	(45	)		(27.6	%)
Xbox		44	12.0	%		57	13.3	%		(13	)		(23.4	%)
Nintendo GameCube		22	6.1	%		26	6.1	%		(4	)		(16.1	%)
Other consoles		–	0.0	%		2	0.5	%		(2	)		(92.1	%)

Total Consoles		183	50.3	%		247	57.3	%		(64	)		(25.9	%)
PC		74	20.3	%		67	15.5	%		7			11.1	%
Mobility
PSP		33	8.8	%		–	0.0	%		33		N/A
Nintendo DS		12	3.3	%		–	0.0	%		12		N/A
Game Boy Advance		6	1.7	%		18	4.2	%		(12	)		(65.5	%)
Cellular Handsets		1	0.3	%		–	0.0	%		1		N/A

Total Mobility		52	14.1	%		18	4.2	%		34			180.1	%
Co-publishing and Distribution		30	8.1	%		67	15.6	%		(37	)		(55.8	%)
Internet Services, Licensing and Other
Subscription Services		15	4.2	%		13	2.9	%		2			21.3	%
Licensing, Advertising and Other		11	3.0	%		20	4.5	%		(9	)		(43.6	%)

Total Internet Services, Licensing and Other		26	7.2	%		33	7.4	%		(7	)		(18.4	%)

Total Net Revenue	$	365	100.0	%	$	432	100.0	%	$	(67	)		(15.5	%)


June 30, 2005		% of Net Revenue	June 30, 2004		% of Net Revenue	% Change

$	151	41.2%	$	177	40.9%	(15.0%)


	September 30,		% of Net			September 30,		% of Net
	2005		Revenue			2004		Revenue			% Change


Three months ended	$	284		42.1	%	$	284		39.7	%		0.0	%


Six months ended	$	434		41.7	%	$	460		40.1	%		(5.7	%)

	•		~~An increase of $7 million in personnel and facility-related costs primarily due to an increase in headcount to help support the growth of our administrative functions worldwide.~~
	•		~~An increase of $5~~For the six months ended September 30, 2005, general and administrative expenses increased by $26 million, or 34 percent, as compared to the six months ended September 30, 2004 primarily due to (1) an increase of $11 million in personnel-related costs due to an increase in headcount to help support the growth of our administrative functions worldwide and (2) an increase of $10 million in professional and contracted services to support our business.


June 30, 2005		Effective Tax Rate	June 30, 2004		Effective Tax Rate	% Change

$	(23)	29.0%	$	10	29.0%	(330.1%)


	September 30,			Effective			September 30,		Effective
	2005			Tax Rate			2004		Tax Rate			% Change


Three months ended	$	9			15	%	$	40		29	%		(78	%)


Six months ended	$	(13	)		(80	%)	$	50		29	%		(126	%)


	Number of Shares
	Repurchased and		Approximate
	Retired		Amount
Three months ended September 30, 2005		6.3	$	372
Six months ended September 30, 2005		12.6	$	709
From the inception of the program through September 30, 2005		13.4	$	750


⁽¹⁾		See discussion on operating leases in the “Off-Balance Sheet Commitments” section below for additional information.

⁽²⁾		Developer/licensor commitments include $38 million of commitments to developers or licensors that have been recorded in current and long-term liabilities and a corresponding amount in current and long-term assets in our Condensed Consolidated Balance Sheets as of September 30, 2005 because the developer or licensor does not have any performance obligations to us.

	•		The need to implement or remediate controls, procedures and policies appropriate for a public company in an acquired company that, prior to the acquisition, lacked these controls, procedures and policies,

	•		Cultural challenges associated with integrating employees from an acquired company or business into our organization,

	•		Retaining key employees from the businesses we acquire,

	•		The need to integrate an acquired company’s accounting, management information, human resource and other administrative systems to permit effective management, and

	•		To the extent that we engage in strategic transactions outside of the United States, we face additional risks, including risks related to integration of operations across different cultures and languages, currency risks and the particular economic, political and regulatory risks associated with specific countries.


							Fair Value								Valuation of Securities Given						Fair Value		Valuation of Securities Given
	Valuation of Securities Given an Interest						as of		Valuation of Securities Given an Interest						an Interest Rate Decrease of X						as of		an Interest Rate Increase of X
(In millions)	Rate Decrease of X Basis Points						June 30,		Rate Increase of X Basis Points						Basis Points						September 30,		Basis Points
															(150 BPS)		(100 BPS)		(50 BPS)		2005		50 BPS		100 BPS		150 BPS
	(150 BPS)		(100 BPS)		(50 BPS)		2005		50 BPS		100 BPS		150 BPS
U.S. government agencies	$	1,164	$	1,163	$	1,161	$	1,158	$	1,151	$	1,146	$	1,140	$	1,137	$	1,134	$	1,132	$	1,129	$	1,126	$	1,123	$	1,121
U.S. government bonds		347		345		342		339		336		333		330		341		338		336		333		330		327		324
Corporate bonds		186		184		183		181		180		178		177		186		184		183		182		180		179		178
Asset-backed securities		21		21		21		21		21		21		21		11		11		11		11		11		11		11

Total short-term investments	$	1,718	$	1,713	$	1,707	$	1,699	$	1,688	$	1,678	$	1,668	$	1,675	$	1,667	$	1,662	$	1,655	$	1,647	$	1,640	$	1,634


	Valuation of Securities Given an X						Fair Value		Valuation of Securities Given an X						Valuation of Securities Given an						Fair Value		Valuation of Securities Given an
	Percentage Decrease in Each Stock’s						as of		Percentage Increase in Each Stock’s						X Percentage Decrease in Each						as of		X Percentage Increase in Each
(In millions)	Market Price						June 30,		Market Price						Stock's Market Price						September 30,		Stock's Market Price
	(75%)		(50%)		(25%)		2005		25%		50%		75%		(75%)		(50%)		(25%)		2005		25%		50%		75%

Marketable Equity Securities	$	44	$	88	$	132	$	176	$	220	$	263	$	307	$	46	$	91	$	137	$	182	$	228	$	274	$	319


Item 1.		Legal Proceedings

		On July 29, 2004, a class action lawsuit,Kirschenbaum v. Electronic Arts Inc., was filed against us in Superior Court in San Mateo, ~~California. The complaint alleges~~California, alleging that we improperly classified “Image Production Employees” in California as exempt ~~employees and seeks injunctive relief, unspecified monetary damages, interest and attorneys’ fees. The complaint was first amended on or about November 30, 2004~~employees. In early October 2005, we reached a settlement to ~~add two former employees as named-plaintiffs, and amended again on or about January 5, 2005~~resolve these claims. Under the terms of the settlement, we will make a lump sum payment of $15.6 million to ~~add another former employee as a named-plaintiff. The allegations in the complaint were not materially changed~~cover (a) all claims allegedly suffered by the ~~amendments.~~class members, (b) plaintiffs’ attorneys’ fees, not to exceed 25% of the total settlement amount, (c) plaintiffs’ costs and expenses, (d) any incentive payments to the named plaintiffs that may be authorized by the court, and (e) all costs of administration of the settlement. On October 17, 2005, the court granted its preliminary approval of the settlement. The court has scheduled a hearing to consider its final approval of the settlement for January 27, 2006.

		On February 14, 2005, a second employment-related class action lawsuit,Hasty v. Electronic Arts Inc.,was filed against us in Superior Court in San Mateo, California. The complaint alleges that we improperly classified “Engineers” in California as exempt employees and seeks injunctive relief, unspecified monetary damages, interest and attorneys’ fees. On or about March 16, 2005, we received a first amended complaint, which contains the same material allegations as the original complaint. We answered the first amended complaint on April 20, 2005.

		On March 24, 2005, a class action lawsuit was filed against us and certain of our officers and directors. The complaint, which asserts claims under Section 10(b) and 20(a) of the Securities Exchange Act of 1934 based on allegedly false and misleading statements, was filed in the United States District Court, Northern District of California, by an individual purporting to represent a class of purchasers of EA common stock. Additional class action lawsuits ~~have been~~were filed in the same court by other individuals asserting the same claims against us. On May 9, 2005, the court consolidated the complaints, and on June 13, 2005, the court appointed lead plaintiff and lead counsel pursuant to the requirements of the Private Securities Litigation Reform Act of 1995. An amended consolidated complaint ~~has not yet been filed. Separately,~~was filed on ~~April~~behalf of the lead plaintiff on August 12, 2005, and on September 27, 2005, we moved to dismiss the consolidated amended complaint for failure to state a claim under the federal securities laws. Separately, there are two shareholder derivative actions pending in the Superior Court, San Mateo County, and one shareholder derivative action was filed in San Mateo Superior Court against certain of our officers and directors. This suit asserts claims based on substantially the same factual allegations set forth in the federal class action lawsuits. Two other shareholder derivative actions have been filed in San Mateo Superior Court based on the same claims. Two of the three derivative actions have been consolidated; a request to consolidate the third is currently pending. In addition, two other shareholder derivative actions based on substantially the same allegations have been filedpending in the United States District Court, Northern District of ~~California.~~California, all of which assert claims based on substantially the same factual allegations as set forth in the federal securities class action. We have not yet responded to any of the derivative action complaints.

		In addition, we are subject to other claims and litigation arising in the ordinary course of business. Our management considers that any liability from any reasonably foreseeable disposition of such other claims and litigation, individually or in the aggregate, would not have a material adverse effect on our consolidated financial position or results of operations.


Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds

		On October 18, 2004, our Board of Directors authorized a program to repurchase up to an aggregate of $750 million of ~~shares of~~ our common stock. Pursuant to the authorization, we ~~may~~were able to repurchase shares of our common stock from time to time in the open market or through privately negotiated transactions over the course of a twelve-month period. Our common stock repurchase program was completed in September 2005. The following table summarizes the number of shares repurchased for the three months ended ~~June~~September 30, 2005:


					Total Number of		Maximum Dollar Value
					Shares Purchased		of Shares that May Yet
	Total Number				as Part of Publicly		Be Purchased Under the
	of Shares		Average Price		Announced		Program
Period	Purchased		Paid per Share		Program		(in millions)
July 1 - 31, 2005		2,277,768	$	59.04		2,277,768	$	238

August 1 - 31, 2005		2,343,600	$	59.25		2,343,600	$	99

September 1 - 30, 2005		1,705,389	$	58.14		1,705,389	$	0


Item 4.		Submission of Matters to a Vote of Security Holders

		At our Annual Meeting of Stockholders, held on July 28, 2005, our stockholders elected the following individuals to the Board of Directors for one-year terms:


	For	Withheld
M. Richard Asher	256,709,482	12,997,662
Leonard S. Coleman	262,851,087	6,856,057
Gary M. Kusin	267,616,645	2,090,499
Gregory B. Maffei	266,905,659	2,801,485
Timothy Mott	163,903,486	105,803,658
Vivek Paul	267,648,602	2,058,542
Robert W. Pittman	259,259,155	10,447,989
Lawrence F. Probst III	264,874,125	4,833,019
Linda J. Srere	258,463,287	11,243,857


		In addition, the following matters were voted on and approved by the stockholders:

		To amend our 2000 Equity Incentive Plan to (a) increase the number of shares authorized by 10 million, (b) authorize the issuance of awards of stock appreciation rights, (c) increase by 1 million shares the limit on the total number of shares underlying awards of restricted stock and restricted stock units that may be granted under the Equity Plan — from 3 million to 4 million shares, (d) modify the payment alternatives under the Equity Plan, (e) add flexibility to grant performance-based stock options and stock appreciation rights and modify the permissible performance factors currently contained in the Equity Plan, and (f) revise the share-counting methodology used in the Equity Plan.


For	Against		Abstain		Broker Non-vote

182,744,255		61,131,403		1,730,413		24,101,073


		To amend the 2000 Employee Stock Purchase Plan to increase by 1,500,000 the number of shares of common stock reserved for issuance thereunder.


		To ratify the appointment of KPMG LLP as our independent registered public accounting firm for fiscal 2006.


Item 5.		Other Information

		The following discussion of the reorganization of our international publishing organization 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 about our expectations regarding future restructuring charges, operating expenses and other costs are forward looking. We use words such as “anticipate”, “believe”, “expect”, “intend” (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. Actual results could differ materially from the expectations set forth in these forward-looking statements. 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 above in this report under the heading “Risk Factors”, as well as in our Annual Report on Form 10-K for the fiscal year ended March 31, 2005 and in other documents we have filed with the Securities and Exchange Commission.

		On November 9, 2005, our Board of Directors approved a plan of reorganization in connection with our intention to establish an international publishing headquarters in Geneva, Switzerland. During the next twelve months, we expect to open a new facility in Geneva, relocate certain current employees to Geneva, hire new employees in Geneva, close certain facilities in the UK, and make other related changes in our international publishing business. We intend to treat certain costs that are directly associated with our international publishing reorganization as “restructuring costs” (as defined by Statement of Financial Accounting Standards (“SFAS”) No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”). Other costs that are not properly categorized as restructuring costs will generally be treated as normal operating expenses in our consolidated statement of operations. In accordance with SFAS No. 146, we will generally expense the restructuring costs as they are incurred and accrue costs associated with certain facility closures at the time we exit the facility.

		In connection with our international publishing reorganization, we anticipate incurring between $55 million and $65 million in total restructuring costs, substantially all of which will result in cash expenditures. We anticipate incurring approximately $15 million of these charges during the remainder of fiscal 2006. We anticipate these restructuring costs will consist primarily of employee-related relocation assistance (approximately $35 million), moving expenses (approximately $15 million), and facility exit costs (approximately $10 million). While we may incur severance costs paid to terminating employees in connection with the reorganization, we do not expect these costs to be significant.

		In addition to the restructuring costs discussed above, we also expect to incur increased operating expenses associated with our international publishing reorganization, consisting primarily of costs associated with a new facility and related costs in Geneva, as well as incremental increases in compensation expenses. We expect these costs to result in incremental operating expenses of approximately $10 million during the remainder of fiscal 2006, and between $10 million and $15 million annually thereafter.


Item 6.	Exhibits

	The following exhibits (other than exhibits 32.1 and 32.2, which are furnished with this report) are filed as part of this report:

	Exhibit
	Number		Title

	10.1	~~Guaranty, dated as of December 6, 2000, by~~	Electronic Arts ~~Inc. in favor of Selco Service Corporation, Victory Receivables Corporation, The Bank Of Tokyo-Mitsubushi, Ltd., various Liquidity Banks, and Keybank National Association.~~Discretionary Bonus Program Plan Document

	~~10.2~~	Guaranty, dated as of July 16, 2001, by Electronic Arts Inc. in favor of Flatirons Funding, Limited Partnership, Victory Receivables Corporation, The Bank of Tokyo-Mitsubushi, Ltd., various Liquidity Banks and Tranche B Banks, and KeyBank National Association.
	15.1
	~~10.3~~	First Amendment to Participation Agreement, dated as of May 13, 2002, by and among Electronic Arts Redwood, Inc., Electronic Arts Inc., Flatirons Funding, Limited Partnership, Victory Receivables Corporation, The Bank of Tokyo-Mitsubushi, Ltd., various Liquidity Banks, KeyBank National Association, and The Bank of Nova Scotia.

	~~10.4~~	Omnibus Amendment Agreement (2001 transaction), dated as of September 15, 2004, Electronic Arts Redwood, LLC, Electronic Arts, Inc., Selco Service Corporation, Victory Receivables Corporation, The Bank Of Tokyo-Mitsubishi, Ltd., various Liquidity Banks, and KeyBank National Association.

	~~10.5~~	Omnibus Amendment Agreement (2000 transaction), dated as of September 15, 2004, by and among Electronic Arts Redwood, LLC, Electronic Arts, Inc., Selco Service Corporation, Victory Receivables Corporation, The Bank Of Tokyo-Mitsubishi, Ltd., various Liquidity Banks, and KeyBank National Association.

	~~10.6~~	Omnibus Amendment (2000 transaction), dated as of July 11, 2005, among Electronic Arts Redwood LLC, Electronic Arts Inc., Selco Service Corporation, Victory Receivables Corporation, The Bank of Tokyo-Mitsubishi, Ltd., New York Branch, various Liquidity Banks, Deutsche Bank Trust Company Americas, and KeyBank National Association.

	~~10.7~~	Omnibus Amendment (2001 transaction), dated as of July 11, 2005, among Electronic Arts Redwood LLC, Electronic Arts Inc., Selco Service Corporation, Victory Receivables Corporation, The Bank of Tokyo-Mitsubishi, Ltd., New York Branch, various Liquidity Banks, Deutsche Bank Trust Company Americas, The Bank of Nova Scotia, and KeyBank National Association.

	~~15.1~~	Awareness Letter of KPMG LLP, Independent Registered Public Accounting Firm.

	31.1		Certification of Chairman and Chief Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	31.2		Certification of Executive Vice President, Chief Financial and Administrative Officer pursuant to Rule 13a-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	Additional exhibits furnished with this report:

	32.1		Certification of Chairman and Chief Executive Officer pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


	32.2		Certification of Executive Vice President, Chief Financial and Administrative Officer pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


		ELECTRONIC ARTS INC. (Registrant)

		/s/ Warren C. Jenson

DATED:		WARREN C. JENSON
November 10, 2005		Executive Vice President,
		Chief Financial and Administrative Officer


EXHIBIT
NUMBER		EXHIBIT TITLE

10.1		Electronic Arts Discretionary Bonus Program Plan Document

15.1		Awareness Letter of KPMG LLP, Independent Registered Public Accounting Firm.

31.1		Certification of Chairman and Chief Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Executive Vice President, Chief Financial and Administrative Officer pursuant to Rule 13a-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Additional exhibits furnished with this report:

32.1		Certification of Chairman and Chief Executive Officer pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Executive Vice President, Chief Financial and Administrative Officer pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Outstanding as of

August 1, 2005

Common Stock