THQ 2005 Annual Report Download - page 62

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39
were: (1) higher margins on software developed for Game Boy Advance; (2) higher average net selling
price for our PC products due to the success of Disney/Pixar’s Finding Nemo; and (3) the increased
percentage of wireless net sales, which carry minimal cost of sales.
License Amortization and Royalties (in thousands)
Year Ended
March 31, 2004% of net sales
Year Ended
March 31, 2003% of net sales % change
(Unaudited)
$71,132 11.1 % $ 3 8,988 8.3% 82.4%
License amortization and royalties expense increased as a percentage of net sales for fiscal 2004 as
compared to the twelve months ended March 31, 2003. In absolute dollars, license amortization and
royalties for fiscal 2004 also increased as compared to the twelve months ended March 31, 2003, from $39.0
million to $71.1 million. This increase was primarily driven by the release of more licensed titles in fiscal
2004, including Disney/Pixar’s Finding Nemo on all platforms.
Software Development Amortization (in thousands)
Year Ended
March 31,2004% of net sales
Year Ended
March 31,2003% of net sales % change
(Unaudited)
$105,632 16.5% $ 84,916 18.2%24.4%
Software development amortization costs increased from $84.9 million in the twelvemonths ended
March 31, 2003 to $105.6 million in fiscal 2004. Software development amortization for the twelve months
ended March 31, 2003, included a charge of approximately $12.0 million related to an assessment of the
recoverability of capitalized development costs pertaining to 20 SKUs. Excluding this charge, software
development amortization increased as a percentage of net sales by approximately 1%.
Product Development (in thousands)
Year Ended
March 31, 2004% of net sales
Year Ended
March 31, 2003% of net sales % change
(Unaudited)
$36,850 5.8 % $ 3 6,531 7.8% 0.9%
Product development expenses decreased as a percentage of net sales from 8% for the twelve months
ended March 31, 2003, to 6% for fiscal 2004. The decrease in product development expenses as a
percentage of net sales was due to the significant increase in sales as well as changes we implemented to
improve product quality, including the shutdown of our Outrage® Games development studio, the
downsizing of Pacific Coast Power & Light development studio (now known as Locomotive Games, Inc.),
and the restructuring of our corporate product development department.
Selling and Marketing (in thousands)
Year Ended
March 31,2004% of net sales
Year Ended
March 31,2003% of net sales % change
(Unaudited)
$92,475 14.4 % $70,978 15.2% 30.3%
Selling and marketing expenses decreased slightly as a percentage of net sales for fiscal 2004 as compared
to the twelve months ended March 31, 2003, from 15% to 14%. In absolute dollars, selling and marketing
expenses increased for fiscal 2004 as compared to the twelvemonths ended March 31, 2003, from $71.0