THQ 2005 Annual Report Download - page 57

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34
amortization, allowances for bad debts, foreign exchange transaction gains and losses, and facilities.
General and administrativeexpenses increased by $7.8 million for fiscal 2005 as compared to fiscal 2004.
Fiscal 2004 included a charge of $7 million for doubtful accounts related to KB Toys’ bankruptcy filing.
Excluding this $7 million expense, general and administrative expenses increased by $14.8million for fiscal
2005 as compared to fiscal 2004. The increase is primarily attributable to growth in our international and
wireless operations, as well as Sarbanes-Oxley compliance and professional fees. In addition, the increase
also includes $1.5 million of amortizationexpense for intangible assets obtained through the fiscal 2005
acquisitions of Relic and Blue Tongue, and the acquisition of a controlling interest in Minick during fiscal
2005. We expect general and administrative expenses to remain relatively unchanged in fiscal 2006 as
compared to fiscal 2005.
Other Income
Other income for fiscal 2004 consisted of a $4 million settlement of a dispute we had with our directors’
and officers’ insurance carrier related to a previous securities litigation settlement.
Income Taxes
The effective income tax rate was 19% for fiscal 2005 compared to 35% for fiscal 2004. The fiscal 2005
effective income tax rate benefited from the following two factors:(1) the recognition of $7.8 million of
research and development income tax credits claimed for prior years and (2) our estimate of current fiscal
year research and development income tax credits. Excluding the one-time benefit of $7.8 million, our
effective income tax rate for fiscal 2005 would have been 29%. We expect our effective income tax rate to
be approximately 31% for fiscal 2006.
Minority Interest
Minority interest reflects the income allocable to equity interests in Minick which are not owned by THQ.
In April 2004, we purchased an additional 25% of the outstanding common stock of Minick, bringing us to
a 50% ownership interest and control of the Board of Directors. As a result of this transaction, we began
consolidating the balance sheet, statement of operations and cash flows of Minick. Minority interest
included in our consolidated statement of operationswas $261,000 for fiscal 2005 compared to zero for
fiscal 2004.
Comparison of Fiscal 2004 to the Twelve Months Ended March 31, 2003 (unaudited)
Net income for fiscal 2004 was $35.8 million or $0.92 per diluted share, on net sales of $640.8 million, as
compared to $2.5 million or $0.06 per diluted share for the twelve months ended March 31, 2003, based on
net sales of $467.6 million. The increase in net income for fiscal 2004 is primarily attributable to increased
net sales, improved gross margin and leverage of our operating costs and expenses. Net income for fiscal
2004 was positively affected by a $4.0 million settlement of a dispute with our directors’ and officers’
insurance carrier.
Net Sales
Consolidated net sales in fiscal 2004 increased 37% over the twelve months ended March 31, 2003, from
$467.6 million to $640.8 million. The increase in net sales for fiscal 2004 was primarily attributable to the
following:
•the success of Disney/Pixar’sFinding Nemo , on all platforms worldwide;
•the release of our original brands such as Tak and the Power of Juju on PS2, Game Boy Advance
and GameCube;