THQ 2008 Annual Report Download - page 56

Download and view the complete annual report

Please find page 56 of the 2008 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 119

  • 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
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119

Cost of Sales—Venture Partner Expense (in thousands)
Year Ended Year Ended
March 31, 2007 % of net sales March 31, 2006 % of net sales % change
$16,730 1.6% $12,572 1.6% 33.1%
Venture partner expense is related to the joint license agreement that THQ and JAKKS Pacific, Inc.
(‘‘JAKKS’’) have with the WWE under which our role is to develop, manufacture, distribute, market and
sell WWE video games. Venture partner expense increased by $4.2 million in fiscal 2007 as compared to
fiscal 2006. This increase is due to an overall increase in net sales of games based upon the WWE license,
which is primarily due to the release of WWESmackDown vs. Raw 2007 in fiscal 2007 and the
introduction of this game to the current generation console Xbox360. See ‘‘Item 3—Legal Proceedings’’
for information regarding our venture partner agreement.
Product Development (in thousands)
Year Ended Year Ended
March 31, 2007 % of net sales March 31, 2006 % of net sales % change
$97,105 9.5% $94,575 11.7% 2.7%
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 $2.5 million in fiscal 2007 as compared to fiscal 2006. This
increase is primarily due to $3.4 million of stock-based compensation expense due to our adoption of
FAS 123R in our first quarter of fiscal 2007, $2.4 million higher than in fiscal 2006, and $1.5 million from
the payroll tax effects of our historical stock option grant practices investigation in fiscal 2007. This
increase was partially offset by more products under development that reached technological feasibility
earlier in the development process in fiscal 2007 as compared to fiscal 2006.
Selling and Marketing (in thousands)
Year Ended Year Ended
March 31, 2007 % of net sales March 31, 2006 % of net sales % change
$139,958 13.6% $124,809 15.5% 12.1%
Selling and marketing expenses consist of advertising, promotional expenses, and personnel-related costs.
In fiscal 2007, selling and marketing expenses increased on a dollar basis by $15.1 million over fiscal 2006.
This increase was primarily due to the promotional efforts supporting Cars and WWE SmackDown vs. Raw
2007 which exceeded the promotional costs for Incredibles: Rise of the Underminer and WWE
SmackDown vs. Raw 2006 in fiscal 2006 as well as the launch of Saints Row in fiscal 2007. The increase is
also due to $2.8 million of stock-based compensation expense due to our adoption of FAS 123R in our first
quarter 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 grant practices investigation in fiscal 2007.
In fiscal 2007, selling and marketing expenses decreased by 1.9 points as a percentage of net sales as
compared to fiscal 2006. This decrease is due to our effective marketing spend that drove a 27% increase
in net sales as compared to fiscal 2006.
48