THQ 2005 Annual Report Download - page 63

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40
million to $92.5 million. The increase in absolute dollars was due to the advertising and other promotional
support needed for such titles as WWE SmackDown! Here Comes The Pain, SpongeBob SquarePants Battle
for Bikini Bottom, Splashdown: Rides Gone Wild, Disney/Pixar’s Finding Nemo and the launch of original
titles Sphinx and the Cursed Mummy and Tak and the Power of Juju.
Payment to venture partner (in thousands)
Year Ended
March 31, 2004% of net sales
Year Ended
March 31, 2003% of net sales % change
(Unaudited)
$9,675 1.5 % $9,218 2.0% 5.0%
Payment to JAKKS decreased slightly as a percentage of total net sales for fiscal 2004 as compared to the
twelve months ended March 31, 2003, from 2.0% to 1.5%. The payment made to JAKKS is related to the
joint license agreement that THQ and JAKKS obtained from WWE, where THQ’s role is to develop,
manufacture, distribute, market and sell video games. The decrease as a percentage of net sales is in direct
relation to the decrease in WWE-related sales as a percentage of our total net sales. The payment to
JAKKS in fiscal 2004 was driven by the release of WWE SmackDown! Here Comes the Pain for PS2.
General and Administrative (in thousands)
Year Ended
March 31,2004% of net sales
Year Ended
March 31,2003% of net sales % change
(Unaudited)
$47,006 7.3 % $ 3 6,794 7.9% 27.8%
General and administrativeexpenses for fiscal 2004 increased $10.2 million from the twelve months ended
March 31, 2003, from $36.8 million to $47.0 million; however, they decreased as a percentage of net sales
from 8% to 7%. Excluding the $7.0 million increase in our allowance for doubtful accounts related to KB
Toys’ filing of bankruptcy protection on January 14, 2004, general and administrative expenses declined to
6% in fiscal 2004. This decrease was the result of our continued focus on building operating efficiencies
and controlling costs.
Other Income (Expense)
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. Other expenses for the
twelve months ended March 31, 2003, included a $7 million charge related to the settlement of a class
action lawsuit and a $3.0 million non-cash charge related to the discontinuation of our onlinejoint venture
in the United Kingdom (Network Interactive Sports, Ltd.). Additionally, the twelve months ended
March 31, 2003, included a $1.8 million write-down of our long-term investment in Yuke’s Co., Ltd due to
an other-than-temporary decline in the market value of the investment. See “Note 8—Other Long-Term
Assets.”
Income Taxes
The income tax provision of $19.4 million for fiscal 2004 reflected our effective income tax rate of 35%.
The decrease in the effective 42%tax rate from the twelve months ended March 31, 2003, was due
primarily to a non-deductible capital loss related to the discontinuation of our online joint venture in the
United Kingdom in September 2002. The decrease in the rate from the prior estimate of 37% for fiscal
2004 was due to an increase in the proportion of our profits earned in our international territories that
have lower statutory income tax rates.