THQ 2007 Annual Report Download - page 46

Download and view the complete annual report

Please find page 46 of the 2007 THQ annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 108

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108

38
FAS 123R in our first quarter of fiscal 2007, $2.4 million higher than in fiscal 2006, and $1.5 million from
thepayrolltaxeffects of our historical stock option grant practices investigation in fiscal 2007. This
increasewas partially offset by more products under development thatreachedtechnological feasibility
earlier in the development process in fiscal 2007 as compared to fiscal 2006.
Selling andMarketing (in thousands)
Year Ended
March 31, 2007 % of net sales
Year Ended
March 31, 2006 %of netsales %change
$139,95813.6% $124,809 15.5% 12.1%
Sellingand marketing expenses consist of advertising, promotional expenses, andpersonnel-related costs.
In fiscal 2007,sellingand marketingexpenses increased on a dollar basis by $15.1 million over fiscal 2006.
This increase was primarily due to the promotional efforts supportingCars and WWE SmackDown vs. Raw
2007 which exceeded thepromotional costs for Incredibles:Rise of the Underminer andWWE SmackDown
vs. Raw 2006 in fiscal2006 as well as the launch of Saints Rowin fiscal 2007. The increase is also due to
$2.8 million of stock-based compensation expensedueto our adoption of FAS 123R in our firstquarter of
fiscal 2007, $1.8 million higher than in fiscal 2006, and $0.7 million from the payroll tax effects of our
historical stock option grantpractices investigation in fiscal2007.
In fiscal 2007, sellingand marketing expenses decreased by 1.9 points as a percentage of netsales as
compared to fiscal 2006. This decrease is due to oureffective marketingspend that drove a27% increase
in net sales as compared to fiscal 2006.
General and Administrative (in thousands)
Year Ended
March 31, 2007 % of net sales
Year Ended
March 31, 2006 %of netsales %change
$78,413 7.6%$57,944 7.2% 35.3%
General and administrative expenses consist of personnel and related expenses of executive and
administrative staff, as well as fees for professional servicessuchas legal and accounting. General and
administrativeexpenses increasedby $20.5 million in fiscal 2007 as compared to fiscal 2006. Theincrease
was primarily due to $10.7 million of stock-based compensation expense due to ouradoption of FAS 123R
in our first quarteroffiscal 2007, which was $9.2 millionhigherthan in fiscal 2006. Theincrease is also
attributable to $5.0 million in legal and accounting fees incurredin connection with the investigation of our
historical stock option grantpractices and $0.8 million fortherelated payroll taxeffects.
Interest and Other Income, net
Interest and other income consists of interest earned on our short-term investments as well as gains and
losses resulting from exchange rate changes for transactions denominated in currencies other than the
functional currency. Interest andother income increasedby $4.9million in fiscal 2007 as compared to fiscal
2006. The increase was primarilydue to higher average yields on ourshort-term investment balances.
Income Taxes
Theeffective income tax rate was 29% for fiscal 2007 and 19% for fiscal 2006. The fiscal 2006 effective
income tax rate benefited from the following factors: (1) a higher ratio of research and developmenttax
credits to pre-tax income and (2) a higher ratio of taxexempt interestincome to overallpre-tax income. If
fiscal 2006 pretax incomewasthe same as in fiscal 2005 theeffectivetaxratewould have been