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35
development amortization and (iii) higher price protection and software development amortization for the
current-generation title Full Spectrum WarriorTM: Ten Hammers.
Cost of Sales (in thousands)
Year Ended
March 31,2006% of net sales
Year Ended
March 31,2005% of net sales % change
$287,946 35.7% $ 2 55,187 33.7% 12.8%
Cost of sales primarily consists of direct manufacturing costs net of manufacturer volume rebates and
discounts. Cost of sales as a percentage of net sales increased for fiscal 2006 as compared to the prior fiscal
year, due to higher catalog sales as a percentage of total net sales in fiscal 2006, including reduced year
over year pricing primarily from our Game Boy Advanced Dual Packs.
License Amortization and Royalties (in thousands)
Year Ended
March 31,2006% of net sales
Year Ended
March 31,2005% of net sales % change
$80,50810.0% $ 8 5,926 11.4%(6.3)%
License amortization and royalties expense consists of royalty payments due to licensors, which are
expensed at the higher of (1) the contractual royalty rate based on actual net product sales for such license
or (2) an effective rate based upon total projected revenue for such license. For fiscal 2006, license
amortization and royalties as a percentage of net sales decreased by 1.4 points compared to the prior fiscal
year. This is partially due to a $4.0 million write-off of a license in fiscal 2005. The decrease is also due to a
higher mix of net sales in fiscal 2006from games with lower contractual royalty rates and games based on
owned intellectual properties with no license rate as compared to the prior fiscal year.
Software Development Amortization (in thousands)
Year Ended
March 31,2006% of net sales
Year Ended
March 31,2005% of net sales % change
$116,371 14.4% $ 93,622 12.4%24.3%
Software development amortization consists of amortization of capitalized payments made to third-party
software developers and amortization of capitalized internal studio development costs. Software
development is expensed at the higher of (1) the contractual rate based on actual net product sales for such
software or (2) an effective rate based upon total projected revenue for such software. For fiscal 2006
software development amortization as a percentage of net sales increased by 2 points over the prior fiscal
year primarily due to a change in our development strategy for our WWE games wherein we ceased
internal product development for wrestling games and as a result we wrote-off the underlying capitalized
software development costs to software development amortization. The increase in software development
amortization as a percent of net sales is also due to high software development amortization related to the
performance of the current-generation title Full Spectrum Warrior: Ten Hammers on Xbox.
Product Development (in thousands)
Year Ended
March 31,2006% of net sales
Year Ended
March 31,2005% of net sales % change
$84,242 10.4 % $72,959 9.6% 15.5%