Activision 2008 Annual Report Download - page 33

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19
• The price of oil increased sharply before production of the hardware peripherals for
Guitar Hero. This resulted in higher raw material and logistic costs for the
production of Guitar Hero World Tour band bundle products consisting of a package
of guitar, drum, microphone, and software;
• Write-down of our remaining inventory of Gibson guitars resulting from the
expiration of our licensing agreement on January 31, 2009;
• Amortization of intangible assets and other purchase price accounting related
adjustments of $15 million, $95 million, and $140 million included in cost of sales—
product costs, cost of sales—software royalties and amortization, and cost of sales—
intellectual property licenses, respectively;
• Higher product costs due to an increase in business mix from affiliated LucasArt’s
title Star Wars: The Force Unleashed in Europe and Asia Pacific in the fourth
quarter of 2008 and the catalog title, Lego: Indiana Jones the Original Adventures;
• Higher royalties expenses for released titles during the year ended December 31,
2008, such as The Bourne Conspiracy and James Bond: Quantum of Solace; and
• Pre-release impairments on certain titles of $18 million for the year ended
December 31, 2008.
Product Development (amounts in millions)
Year
ended
December 31,
2008
% of
consolidated
net
revenues
Year
ended
December 31,
2007
% of
consolidated
net
revenues
Year
ended
December 31,
2006
% of
consolidated
net
revenues
Increase/
(decrease)
2008 v
2007
Increase/
(decrease)
2007 v
2006
Product
development.
.
$592 20% $397 29% $246 24% $195 $151
For the year ended December 31, 2008, product development costs increased compared
to the same periods in 2007 and 2006. The increase was primarily attributable to the following:
• The consummation of the Business Combination, which resulted in product
development expenses from Activision, Inc. of approximately $187 million being
included from the date of the Business Combination, but not for prior periods;
• Included in the non-core exit operations, write-off of capitalized software
development costs of canceled titles totaled $71 million for the year ended
December 31, 2008, as a result of the rationalization of our title portfolio; and
• The continuous product development investment for our slate of future titles.