THQ 2008 Annual Report Download - page 48

PS3, a sequel in the Stuntman franchise which we no longer intend to pursue, and a previously
unannounced title for Xbox 360 that had been scheduled for release in fiscal 2010.
Cost of Sales—License Amortization and Royalties (in thousands)
Year Ended Year Ended
March 31, 2008 % of net sales March 31, 2007 % of net sales % change
$99,524 9.7% $99,533 9.7% 0.0%
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. License amortization and
royalties as a percentage of net sales remained flat at 9.7% in both fiscal 2008 and fiscal 2007. In fiscal
2008, we recognized approximately $4.6 million of additional license amortization and royalties expense
arising from our decision to no longer pursue our Juiced and Stuntman intellectual properties in the
future. Excluding these charges, license amortization and royalties, as a percentage of net sales, would have
been lower by half a point in fiscal 2008 due to the increased mix of net sales from games based on our
owned intellectual properties, including MX vs. ATV Untamed, Juiced 2: Hot Import Nights, Stuntman:
Ignition and Drawn to Life.
Cost of Sales—Venture Partner Expense (in thousands)
Year Ended Year Ended
March 31, 2008 % of net sales March 31, 2007 % of net sales % change
$24,056 2.3% $16,730 1.6% 43.8%
Venture partner expense is related to the license agreement that the THQ/JAKKS Pacific joint venture,
comprised of THQ and JAKKS Pacific, Inc. (‘‘JAKKS’’), has with the WWE, under which our role is to
develop, manufacture, distribute, market and sell WWE video games. Venture partner expense increased
by $7.3 million in fiscal 2008 as compared to fiscal 2007. This increase is due to an overall increase in net
sales of games based upon the WWE license, primarily due to the release of WWE SmackDown vs. Raw
2008 in fiscal 2008 on three additional platforms as compared to WWE SmackDown vs. Raw 2007 in fiscal
2007. We have not paid these amounts to JAKKS; see ‘‘Item 3—Legal Proceedings’’ for information
regarding our venture partner agreement.
Product Development (in thousands)
Year Ended Year Ended
March 31, 2008 % of net sales March 31, 2007 % of net sales % change
$128,869 12.5% $97,105 9.5% 32.7%
Product development expense primarily consists of expenses incurred by internal development studios and
payments made to external development studios prior to products reaching technological feasibility.
Product development expense increased by $31.8 million in fiscal 2008 as compared to fiscal 2007. This
increase is primarily due to overall increased product development efforts to support future growth,
including increased quality assurance efforts and increased wireless game development due in part to our
acquisition of Universomo, a mobile game developer based in Finland that we acquired in May 2007. Also
contributing to the increases in product development expense is approximately $4.7 million recognized in
the three months ended December 31, 2007 due to a change in our estimate of an unannounced title
having reached technological feasibility.
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