Summary of ELECTRONIC ARTS INC.

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

CAUTIONARY NOTE ABOUT FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 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 on Form 10-Q are forward looking. We use words such as "anticipate", "believe", "expect", "intend", "estimate" (and the negative of any of these terms), "future" and similar expressions to help identify forward-looking statements. These forward-looking statements are subject to business and economic risk and reflect management's current expectations, and involve subjects that are inherently uncertain and difficult to predict. Our actual results could differ materially. We will not necessarily update information if any forward-looking statement later turns out to be inaccurate. Risks and uncertainties that may affect our future results include, but are not limited to, those discussed in this report under the heading "Risk Factors" in Part II, Item 1A, as well as in our Annual Report on Form 10-K for the fiscal year ended March 31, 2008 as filed with the Securities and Exchange Commission ("SEC") on May 23, 2008 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 three and nine months ended December 31, 2008, 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" and the Condensed Consolidated Financial Statements and related notes. Additional information can be found in the "Business" section of our Annual Report on Form 10-K for the fiscal year ended March 31, 2008 as filed with the SEC on May 23, 2008 and in other documents we have filed with the SEC.

About Electronic Arts

We develop, market, publish and distribute video game software and content that can be played by consumers on a variety of platforms, including video game consoles (such as the Sony PlayStation® 2 and PLAYSTATION ® 3, Microsoft Xbox 360™ and Nintendo Wii™), personal computers, handheld game players (such as the PlayStation® Portable ("PSP™") and the Nintendo DS™) and wireless devices. 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™, Need for Speed™ and POGO™). Our goal is to publish titles with global mass-market appeal, which often means translating and localizing them for sale in non-English speaking countries. In addition, we 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 franchise approach are the annual iterations of our sports-based products (e.g., Madden NFL Football, NCAA® Football and FIFA Soccer), wholly-owned properties that can be successfully sequeled (e.g., The Sims, Need for Speed and Battlefield) and titles based on long-lived literary and/or movie properties (e.g., Lord of the Rings and Harry Potter).

Special Note Regarding Deferred Net Revenue

The ubiquity of high-speed Internet access and the integration of network connectivity into new generation game consoles are expected to continue to increase demand for games with online-enabled features. To address this demand, many of our software products are developed with the ability to be connected to, and played via, the Internet. In order for consumers to participate in online communities and play against one another via the Internet, we (either directly or through outsourced arrangements with third parties) maintain servers, which support an online service we offer to consumers for activities such as matchmaking. In situations where we do not separately sell this online service, we account for the sale of the software product as a "bundle" sale, or multiple element arrangement, in which we sell both the software product and the online service for one combined price.

Through fiscal 2007, for accounting purposes, vendor-specific objective evidence of fair value ("VSOE") existed for the online service. Accordingly, we allocated the revenue collected from the sale of the software product between the online service offered and the software product and recognized the amounts allocated to each element separately. However, starting in fiscal 2008, for accounting purposes, the required VSOE of fair value no longer existed for the online service related to certain of our online-enabled software products. This prevents us from allocating and separately recognizing revenue related to the software

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product and the online service. Accordingly, starting in fiscal 2008, we began to recognize all of the revenue from the sale of our online-enabled software products for the PC, PlayStation 2, PLAYSTATION 3, Wii and PSP on a deferred basis over an estimated online service period, which we estimate to be six months beginning in the month after shipment. On a quarterly basis, the deferral amount will vary significantly depending upon the number of titles we release, the timing of their release, sales volume, returns and price protection provided for these online-enabled software products. In addition, we expense the cost of goods sold related to these transactions during the period in which the product is delivered (rather than on a deferred basis), which inherently creates volatility in our reported gross profit percentages.

As of December 31, 2008 and March 31, 2008, we had an accumulated balance of $512 million and $387 million, respectively, of deferred net revenue related to online-enabled packaged goods and digital content, substantially all of which was driven by sales made during the six months ended December 31, 2008 and March 31, 2008, respectively.

Three Months Ended December 31, 2008

Total net revenue for the three months ended December 31, 2008 was $1,654 million, up $151 million as compared to the three months ended December 31, 2007. The deferral of net revenue related to sales of online-enabled packaged goods and digital content, which will be recognized in future periods, decreased our reported net revenue for the three months ended December 31, 2008 by $88 million as compared to a decrease of $231 million for the three months ended December 31, 2007. Net revenue was driven primarily by Rock Band™ 2.

Net loss for the three months ended December 31, 2008 was $641 million as compared to a net loss of $33 million for the three months ended December 31, 2007. Diluted loss per share for the three months ended December 31, 2008 was $2.00 as compared to diluted loss per share of $0.10 for the three months ended December 31, 2007. Net loss increased during the three months ended December 31, 2008 as compared to the three months ended December 31, 2007 primarily as a result of (1) the recognition of $368 million of goodwill impairment,
(2) recognition of a net discrete tax charge of $244 million related to an increase in the valuation allowance for U.S. deferred tax assets that existed as of our fiscal year ended March 31, 2008 (in addition, we have revised our estimate of the annual effective tax rate to reflect a valuation allowance against our current year losses; this revision has the effect of reversing U.S. deferred tax benefits recorded during the six months ended September 30, 2008),
(3) $143 million increase in cost of goods sold, and (4) a $72 million increase in marketing, advertising, promotional expenses, and external development costs. These were partially offset by (a) an increase of $151 million in net revenue due to increased sales of our games and (b) $78 million decrease in personnel-related costs primarily as a result of a decrease in incentive-based compensation expense partially offset by an increase in additional personnel-related expenses.

During the nine months ended December 31, 2008, we used $203 million of cash in operating activities as compared to generating $53 million in cash for the nine months ended December 31, 2007. The increase in cash used in operating activities for the nine months ended December 31, 2008 as compared to the nine months ended December 31, 2007 was primarily due to an increase in personnel-related expenses, external development costs and advertising and marketing costs.

Management's Overview of Historical and Prospective Business Trends

Economic Environment. As a result of the national and global economic downturn, overall consumer spending has declined. Retailers globally have taken a more conservative stance in ordering game inventory, particularly for older catalog titles (i.e., sales of games that were released in a previous quarter). The decrease in discretionary consumer spending contributed to the decline in anticipated demand for our products during the recent holiday selling season. Historically, our industry has been resilient to economic recessions with sales being significantly influenced by technology drivers such as the introduction and widespread consumer adoption of new video game consoles. While the installed base of the Xbox 360, the PLAYSTATION 3 and the Wii is expected to continue to grow significantly, we are cautious about our future sales in light of the current economic environment and the impact it has had on the retailers that we use.

Goodwill Impairment. Adverse economic conditions, including the decline in our market capitalization and our expected financial performance, indicated that a potential impairment of goodwill existed during the three months ended December 31, 2008. As a result, we performed goodwill impairment tests for our reporting units in accordance with SFAS No. 142, "Goodwill and Other Intangible Assets".

SFAS No. 142 requires a two-step approach to testing goodwill for impairment for each reporting unit. Our reporting units are determined by the components of our operating segments that constitute a business for which both (1) discrete financial information is available and (2) segment management regularly reviews the operating results of that component. The first step measures for

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impairment by applying fair value-based tests at the reporting unit level. The second step (if necessary) measures the amount of impairment by applying fair value-based tests to individual assets and liabilities within each reporting unit. The fair values of the reporting units are estimated using a combination of the market approach, which utilizes comparable companies' data and/or the income approach, or discounted cash flows.

We completed the first step of the goodwill impairment testing in the third quarter of fiscal 2009 and determined that the fair value of our EA Mobile reporting unit fell below the carrying value of that reporting unit. As a result, we conducted the second step in accordance with SFAS No. 142 and determined that the EA Mobile reporting unit's goodwill was impaired. Substantially all of our goodwill associated with our EA Mobile reporting unit was derived from our acquisition of JAMDAT Mobile Inc. in February 2006.

During the three months ended December 31, 2008, we estimated, on a preliminary basis, a goodwill impairment charge of $368 million related to our EA Mobile reporting unit. The second step of the impairment test will be completed during the fourth quarter of fiscal 2009. Once completed, there may be a material adjustment to the goodwill impairment charge recorded on our Condensed Consolidated Statements of Operations.

Deferred Income Tax Valuation Allowance. We account for income taxes under SFAS No. 109, "Accounting for Income Taxes", which requires the recognition of deferred tax assets and liabilities for both the expected impact of differences between the financial statements and tax basis of assets and liabilities and for the expected future tax benefit to be derived from tax loss and tax credit carry forwards. SFAS No. 109 additionally requires that a valuation allowance must be established against deferred tax assets when, for purposes of SFAS No. 109, it is considered more likely than not that all or a portion of deferred tax assets will not be realized. In making this determination, we are required under SFAS No. 109 to give significant weight to evidence that can be objectively verified. SFAS No. 109 provides that it is difficult to conclude that a valuation allowance is not needed when there is negative evidence such as cumulative losses in recent years. Forecasts of future taxable income are considered to be less objective than past results, particularly in light of the recent deterioration of the economic environment. Therefore, cumulative losses weigh heavily in the overall assessment. In making our assessment, we are also required to consider the scheduled reversal of existing deferred tax liabilities, carryback of future deductible amounts allowed under current tax law, and tax planning strategies. Based on these requirements, we have recorded a net discrete tax charge of $244 million related to an increase in the valuation allowance for U.S. deferred tax assets that existed as of our fiscal year ended March 31, 2008. In addition, we have revised our estimate of the annual effective tax rate to reflect a valuation allowance against our current year losses; this revision has the effect of reversing U.S. deferred tax benefits recorded during the six months ended September 30, 2008. In addition, we expect to provide a valuation allowance on future tax benefits until we can sustain a level of profitability or until other significant positive evidence arises that suggests that these benefits are more likely than not to be realized.

Fiscal 2009 Restructuring. In the quarter ended December 31, 2008, we announced details of a cost-reduction plan. In connection with our fiscal 2009 restructuring, we expect to reduce our worldwide workforce by approximately 11 percent, or 1,100 employees, and close 12 studio and publishing locations.

Since the inception of the fiscal 2009 restructuring plan through December 31, 2008, we have incurred charges associated with (1) employee-related expenses,
(2) asset impairments, and (3) costs associated with the closure of a facility.

Including charges incurred through December 31, 2008, we expect to incur cash and non-cash charges between $65 million and $75 million by fiscal 2010. These charges will consist primarily of employee-related costs (approximately $35 million), facility exit costs (approximately $30 million), as well as other costs including asset impairment costs (approximately $5 million). We anticipate recognizing cost savings in our operating expenses as a result of these actions. We estimate that this restructuring plan will reduce our annual operating expense by approximately $125 million during fiscal 2010 as compared to fiscal 2009.

International Operations and Foreign Currency Exchange Impact. International sales are a fundamental part of our business. Net revenue from international sales accounted for approximately 42 percent of our total net revenue during the first nine months of fiscal 2009 and approximately 49 percent of our total net revenue during the first nine months of fiscal 2008. Our international net revenue was primarily driven by sales in Europe and, to a much lesser extent, in Asia. We believe that in order to succeed internationally, it is important to locally develop content that is specifically directed toward local cultures and consumers. We estimate that foreign exchange rates had an unfavorable impact on our net revenue of $31 million, or 2 percent, for the three months ended December 31, 2008, and less than $1 million, or less than 1 percent, for the nine months ended December 31, 2008, respectively. During the three months ended December 31, 2008, the U.S. dollar strengthened against other currencies, including the Euro and the British pound sterling. In addition, our international investments and our cash and cash equivalents denominated in foreign currencies are subject to fluctuations in foreign currency. If the U.S. dollar continues to strengthen against these currencies, then foreign exchange rates may continue to have an unfavorable impact on our results of operations and our financial condition.

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Transition to a New Generation of Consoles. Video game hardware systems have historically had a life cycle of four to six years, which causes the video game software market to be cyclical as well. The current cycle began with Microsoft's launch of the Xbox 360 in 2005, and continued in 2006 when Sony and Nintendo launched their next-generation systems, the PLAYSTATION 3 and the Wii, respectively. During fiscal 2008, the installed base of each of these systems continued to expand and, as a result, sales of our products for these systems have also increased significantly. At the same time, however, demand for video games for prior-generation systems, particularly the original Xbox and the Nintendo GameCube, has declined significantly. In fiscal 2009, we expect to significantly reduce the number of titles we develop and market for the prior-generation PlayStation 2, release only one title for the original Xbox and do not expect to release any titles for the Nintendo GameCube. As a result, we expect our sales of video games for prior-generation systems will continue to decline. The decline in prior-generation product sales, particularly the PlayStation 2, may be greater or faster than we anticipate, and sales of products for the new platforms may be lower or increase more slowly than we anticipate. Moreover, we expect development costs for the new video game systems to continue to be greater on a per-title basis than development costs for prior-generation video game systems. We expect research and development expenses to increase on an absolute basis in fiscal 2009 as compared to fiscal 2008 (although not necessarily as a percentage of net revenue). In addition, in light of the current economic environment and where we stand in the current generation console cycle, our industry may experience slower growth than in recent years.

Online. Today, we generate net revenue from a variety of online products and services, including casual games and downloadable content marketed under our Pogo brand, massively-multiplayer online role-playing games (such as Warhammer® Online: Age of Reckoning™, Ultima Online™, and Dark Age of Camelot®), PC-based downloadable content and online-enabled packaged goods. We intend to make significant investments in online products, infrastructure and services and believe that online gameplay will become an increasingly important part of our business in the long term.

Mobile Platforms. Advances in mobile technology have resulted in a variety of new and evolving platforms for on-the-go interactive entertainment that appeal to a broader demographic of consumers. Our efforts in mobile interactive entertainment are focused in two broad areas - packaged goods games for handheld game systems and downloadable games for wireless devices. We expect sales of games for handhelds and wireless devices to continue to be an important part of our business worldwide.

Acquisitions and Investments. We have engaged in, evaluated, and expect to continue to engage in and evaluate, a wide array of potential strategic transactions, including acquisitions of companies, businesses, intellectual properties, and other assets. Since the beginning of fiscal 2008, we have announced and/or completed several acquisitions and investments, including:

• In May 2008, we acquired ThreeSF, Inc. Based in San Francisco, California, ThreeSF's Rupture service is an online social network for gamers.

• In May 2008, we acquired certain assets of Hands-On Mobile Inc. and its affiliates relating to its Korean Mobile games business based in Seoul, Korea.

• In January 2008, we acquired VG Holding Corp. ("VGH"), owner of both BioWare Corp. and Pandemic Studios, LLC, which create action, adventure, and role-playing games. The development of a majority of the projects for which we incurred an acquired-in-process technology charge in connection with the acquisition continued to be in-progress at December 31, 2008 or had shipped prior to the end of our fiscal quarter ended December 31, 2008.

• In May 2007, we entered into a licensing agreement with and made a strategic equity investment in The9 Limited, a leading online game operator in China. The licensing agreement gives The9 exclusive publishing rights for EA SPORTS™ FIFA Online in mainland China.

• In April 2007, we expanded our commercial agreements with and made strategic equity investments in Neowiz Corporation and a related online gaming company, Neowiz Games (we refer to Neowiz Corporation and Neowiz Games collectively as "Neowiz"). Based in Korea, Neowiz is an online media and gaming company with which we are currently partnering to launch EA SPORTS NBA STREET Online in Asia.

On March 13, 2008, we commenced an unsolicited $26.00 per share cash tender offer for all of the outstanding shares of Take-Two Interactive Software, Inc., a Delaware corporation ("Take-Two"), for a total purchase price of approximately $2.1 billion. On August 18, 2008, we allowed the tender offer to expire without purchasing any shares of Take-Two and, on September 14, 2008, we announced that we had terminated discussions with, and would not be making a proposal to acquire, Take-Two. As a result of the terminated discussions, during the nine months ended December 31, 2008, we recognized $21 million in related costs consisting of legal, banking and other consulting fees.

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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 derive revenue principally from sales of interactive software games designed for play on video game consoles (such as the PlayStation 2, PLAYSTATION 3, Xbox 360 and Wii), PCs and mobile platforms including handheld game players (such as the PSP and Nintendo DS), and wireless devices. 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. 104, "Revenue Recognition". We evaluate 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 that must be present in order to recognize revenue.

• Delivery. Delivery is considered to occur when a product is shipped and the risk of loss and rewards of ownership have been transferred to the customer. For online game services, delivery is considered to occur as the service is provided. For digital downloads that do not have an online service component, delivery is considered to occur generally when the download occurs.

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

• Collection is deemed probable. 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).

Determining whether and when some of these criteria have been satisfied often involves assumptions and judgments that can have a significant impact on the timing and amount of revenue we report in each period. For example, for multiple element arrangements, we must make assumptions and judgments in order to
(1) determine whether and when each element has been delivered, (2) determine whether undelivered products or services are essential to the functionality of the delivered products and services, (3) determine whether VSOE exists for each undelivered element, and (4) allocate the total price among the various elements we must deliver. Changes to any of these assumptions or judgments, or changes to the elements in a software arrangement, could cause a material increase or decrease in the amount of revenue that we report in a particular period. For example, in connection with some of our packaged goods product sales, we offer an online service without an additional fee. Prior to fiscal 2008, we were able to determine VSOE for the online service to be delivered; therefore, we were able to allocate the total price received from the combined product and online service sale between these two elements and recognize the related revenue separately. However, starting in fiscal 2008, VSOE no longer existed for the online service to be delivered for certain platforms and all revenue from these transactions is recognized over the estimated online service period. More specifically, starting in fiscal 2008, we began to recognize the revenue from sales of certain online-enabled packaged goods on a straight-line basis over a six month period beginning in the month after shipment. Accordingly, this relatively small change (from having VSOE for the online service to no longer having VSOE) has had a significant effect on our reported results.

Determining whether a transaction constitutes an online game service transaction or a download of a product requires judgment and can be difficult. The accounting for these transactions is significantly different. Revenue from product downloads is generally recognized when the download occurs (assuming all other recognition criteria are met). Revenue from an online game service is recognized as the service is rendered. If the service period is not defined, we recognize the revenue over the estimated service period. Determining the estimated service period is inherently subjective and is subject to regular revision based on historical online usage.

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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 . . .