2K Sports 2004 Annual Report Download - page 22

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Opinion No. 25, “Accounting for Stock Issued to Employees.” The revised statement addresses the accounting
for share-based payment transactions with employees and other third parties, eliminates the ability to account
for share-based compensation transactions using APB 25 and requires that the compensation costs relating to
such transactions be recognized in the consolidated statement of operations. The revised statement is effective
as of the first interim period beginning after June 15, 2005. The adoption of this standard, effective August 1,
2005, is expected to have a material impact on our consolidated financial statements.
In December 2003, The Financial Accounting Standards Board (“FASB”) revised Interpretation No. 46
“Consolidation of Variable Interest Entities” with certain clarifications and modifications. Revised
Interpretation No. 46(R) provides guidance on the identification of variable interest entities, entities for
which control is achieved through means other than through voting rights, and how to determine whether
a variable interest holder should consolidate the variable interest entities. This Interpretation shall be
applied to all entities subject to this Interpretation no later than the first reporting period that ends after
March 15, 2004. The adoption of the revised Interpretation did not have a material impact on the consolidated
financial statements.
In December 2003, the SEC issued Staff Accounting Bulletin (“SAB”) No. 104, “Revenue Recognition,”
which supercedes SAB No. 101, “Revenue Recognition in Financial Statements.” The primary purpose of
SAB No. 104 is to rescind accounting guidance contained in SAB No. 101 related to multiple element
revenue arrangements, superceded as a result of the issuance of Emerging Issues Task Force (“EITF”) Issue
No. 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables.” Additionally, SAB No. 104
rescinds the SEC’s Revenue Recognition in Financial Statements Frequently Asked Questions and Answers
(“FAQ”) issued with SAB No. 101. The adoption of SAB No. 104 in the first quarter of fiscal 2004 did not
have a material impact on our consolidated financial statements.
Results of Operations
The following table sets forth for the periods indicated the percentage of net sales represented by certain items
reflected in our statement of operations, and sets forth sales by territory, sales mix and platform:
Years Ended October 31,
2004 2003 2002
Operating Data:
Net sales ......................................................... 100.0% 100.0% 100.0%
Cost of sales
Product costs .................................................. 55.0 52.0 51.8
Royalties ...................................................... 10.1 8.6 10.1
Software development costs ................................... 1.4 1.1 1.0
Total cost of sales ............................................... 66.5 61.7 62.9
Selling and marketing ............................................ 10.4 10.0 9.8
General and administrative ....................................... 8.7 8.5 9.0
Research and development ....................................... 3.8 2.4 1.5
Depreciation and amortization ................................... 1.5 1.6 1.4
Interest (income) expense, net ................................... (0.2) (0.2) 0.1
Other non-operating expense ..................................... 0.7 — 0.10
Provision for income taxes ....................................... 2.8 6.5 6.2
Net Income ...................................................... 5.8 9.5 9.0
Sales by Territory:
North America ................................................... 72.5% 72.1% 80.0%
International ..................................................... 27.5 27.9 20.0
Sales Mix:
Publishing ....................................................... 68.1% 65.0% 71.5%
Distribution ...................................................... 31.9 35.0 28.5
Platform (publishing):
Console .......................................................... 93.1% 81.2% 83.9%
PC ............................................................... 2.7 17.2 14.3
Accessories and Handheld ....................................... 4.2 1.6 1.8
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