THQ 2007 Annual Report Download - page 44

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36
released as we re-align our wireless product portfolioto emphasizemore casualgame contentto position
ourselves for wireless platform share gains in the future.
We expect aslightdecrease in wireless net sales in fiscal 2008, as comparedto fiscal 2007, due to thesale
of our interest in Minick, which comprised approximately 34% of total wireless net sales in fiscal2007.
Excluding net sales from Minick, we expect our wireless net sales to increase by approximately 50% in
fiscal 2008 as we execute against our product strategy, leveraging our strongportfolio of owned and
licensed properties.
PC Net Sales (inthousands)
Year Ended
March 31, 2007 %of net sales
Year Ended
March31, 2006 %of net sales %change
$149,54614.6% $77,615 9.6%92.7%
In fiscal 2007, net sales of video games for PC products wereprimarily driven by the release of our new
owned and internallydeveloped property, Company of Heroes,as well as S.T.A.L.K.E.R.: Shadow of
Chernobyl,Supreme Commander and Titan Quest.We released nine and 11 new SKUs in fiscal 2007 and
2006, respectively. Net sales increased by $71.9 million in fiscal 2007, as compared to fiscal 2006primarily
due to these core-gamer titles with premium PC pricing. We expect PC netsales to decrease in fiscal 2008
dueto our productline-up.
Costs and Expenses,Interest Income, Other Income, Income Taxes andMinority Interest
Our costsand expenses increased by $174.0 million, or 22%, in fiscal 2007 compared to fiscal 2006, to
$948.7 million, from $774.7 million. This increase wasprimarily dueto:
•higher product costs related to our increasein net sales,
•an increase in softwareamortization and royalties due to greater sales and thehighercost of
developing games for new generation consoles, and
•$19.0 million of stock-based compensation expense primarily duetoour adoption of FAS123R in
our first quarter of fiscal2007, $15.6million higherthan in fiscal 2006; $5.0 million of legaland
accounting fees incurred in connection with the investigation of our historicalstock option grant
practices in fiscal2007and $2.9million from the payroll tax effects of our historical stock option
grantpractices investigation in fiscal 2007.
Costs and expenses as apercentageof net salesdecreased by 4points to 92% in fiscal 2007 from 96% in
fiscal 2006. This decrease was primarily due to product mix of higher priced titles and leverage of our
selling andmarketing and general and administrative expenses.
Cost of Sales—Product Costs (in thousands)
Year Ended
March 31, 2007 % of net sales
Year Ended
March 31, 2006 %of netsales %change
$351,44934.2% $287,946 35.7% 22.1%
Product costs primarily consist of direct manufacturing costs (including platform manufacturer license
fees), netof manufacturer volume rebates and discounts. Product costs as apercentageof netsales
decreased by 1.5 points in fiscal 2007 as compared to fiscal 2006. This decrease was primarily due to an
increase in sales from our premium priced PC games including Company of Heroes,S.T.A.L.K.E.R.:
Shadow of Chernobyl,Supreme Commander and Titan Quest. These PC games have lower product costs as
compared to most of our other platforms due to thelack of aplatform manufacturer licensefee.