THQ 2009 Annual Report Download - page 49

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• an increase in sales of our owned intellectual properties, including Juiced 2: Hot Import Nights,
Stuntman: Ignition and MX vs. ATV Untamed in fiscal 2008, and
• sales of Cars 2: Mater National in fiscal 2008, with no comparable title in fiscal 2007.
Changes in foreign currency rates increased reported international net sales by $44.6 million or 10% in
fiscal 2008, as compared to fiscal 2007. Excluding the impacts of foreign exchange rates, international net
sales increased by 13% in fiscal 2008 as compared to fiscal 2007.
Costs and Expenses, Interest and Other Income, Income Taxes and Minority Interest
Costs and expenses increased by $169.9 million, or 17.9%, in fiscal 2008 as compared to fiscal 2007, to
$1,118.5 million, from $948.7 million. This increase, on a dollar basis, was primarily due to:
• higher software amortization and royalties primarily as a result of accelerated amortization taken
on current year releases that underperformed relative to our expectations and our decision to
discontinue development of certain games in connection with our continued product quality
initiatives,
• higher product costs primarily due to i) higher fiscal 2008 sales mix of new-generation products as
compared to a higher mix of PC products in fiscal 2007, and ii) changes in foreign currency
exchange rates,
• higher selling and marketing expenses due to promotional efforts to support our owned intellectual
properties, including Stuntman: Ignition, Juiced 2: Hot Import Nights and Frontlines: Fuel of War as
well as an increase in selling and marketing spend to support WWE SmackDown vs. Raw 2008 in
fiscal 2008 as compared to WWE SmackDown vs. Raw 2007 in fiscal 2007, and
• higher product development expenses primarily due to increased product development efforts to
support future growth.
Cost of Sales—Product Costs (in thousands)
Year Ended Year Ended
March 31, 2008 % of net sales March 31, 2007 % of net sales % change
$389,097 37.8% $351,449 34.2% 10.7%
Product costs primarily consist of direct manufacturing costs (including platform manufacturer license
fees), net of manufacturer volume rebates and discounts. Product costs as a percentage of net sales
increased by 3.6 points in fiscal 2008 as compared to fiscal 2007. This increase was primarily due to:
• higher rate of sales returns and allowances on various titles, including Stuntman: Ignition and
Juiced 2: Hot Import Nights, in fiscal 2008 as compared to fiscal 2007, and
• lower fiscal 2008 sales mix of high-margin PC products as compared to fiscal 2007.
Cost of Sales—Software Amortization and Royalties (in thousands)
Year Ended Year Ended
March 31, 2008 % of net sales March 31, 2007 % of net sales % change
$231,800 22.5% $165,462 16.1% 40.1%
Software amortization and royalties primarily consists of amortization of capitalized payments made to
third-party software developers and amortization of capitalized internal studio development costs.
Commencing upon product release, capitalized software development costs are amortized to software
amortization and royalties based on the ratio of current revenues to total projected revenues. In fiscal 2008
42