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24
based on our WWE license, which was primarily due to the release of
WWE Legends of Wrestlemania
in fiscal
2009 with no comparable title in fiscal 2010. The decrease in units shipped was partially offset by an
increase in average selling prices in fiscal 2010 as compared to fiscal 2009, driven by sales of
UFC 2009
Undisputed
. We estimate that changes in foreign currency translation rates during fiscal 2010 decreased
reported net sales in Europe by $3.9 million.
Net sales in Asia Pacific increased by $4.7 million in fiscal 2010 as compared to fiscal 2009. We estimate that
changes in foreign currency translation rates during fiscal 2010 increased reported net sales in this territory
by $6.1 million. Excluding the increase due to changes in foreign currency translation rates, net sales in Asia
Pacific decreased slightly in fiscal 2010 as compared to fiscal 2009.
Cost of Sales , Operating Expenses, Interest and Other Income (E xpense), net , Income Taxes,
Noncontrolling Interest and Discontinued Operations
Cost of Sales
Cost of sales decreased by $112.3 million, or 15%, in fiscal 2010 as compared to fiscal 2009. As a result, our
gross profit increased by 19.4 points in fiscal 2010. The decrease in cost of sales was primarily due to a
decrease in software amortization and royalties expense because of non-cash charges of $63.3 million in
fiscal 2009 related to the write-off of capitalized software for games that were cancelled as part of our fiscal
2009 business realignment and additional amortization expense in fiscal 2009 as a result of lower projected
gross sales on various titles. Additionally, the decrease in cost of sales as a percent of net sales in fiscal
2010 was due to sales of games at higher average selling prices as compared to fiscal 2009, led by the
release of
UFC 2009 Undisputed
.
Cost of Sales—Product Cos ts (in thousands)
Year Ended
March 31, 2010
% of net sales
Year Ended
March 31, 2009
% of net sales
% change
$318,590 35.4% $338,882 40.8% (6.0)%
Product costs primarily consist of direct manufacturing costs, including platform manufacturer license fees, net
of manufacturer volume rebates and discounts. In fiscal 2010, product costs as a percentage of net sales
decreased by 5.4 points as compared to fiscal 2009.
The decrease as a percent of net sales in fiscal 2010 was primarily due to sales of
UFC 2009 Undisputed
on
Xbox 360 and PS3, at a premium price (
e.g.
MSRP of $59.99 in the United States). This title was the primary
driver of our net sales in fiscal 2010 and had a higher average selling price compared to titles released in
fiscal 2009.
Cost of Sales—Software Amortization and Roy alties (in thousands)
Year Ended
March 31, 2010
% of net sales
Year Ended
March 31, 2009
% of net sales
% change
$196,956 21.9% $296,688 35.7% (33.6)%
Software amortization and royalties expense 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 gross sales to total projected gross sales. In fiscal
2010, software amortization and royalties as a percentage of net sales decreased by 13.8 points as
compared to fiscal 2009. The decrease was primarily due to higher amortization in fiscal 2009 due to non-
cash charges of $63.3 million related to the write-off of capitalized software for games that were cancelled as
part of our fiscal 2009 business realignment and additional amortization expense in fiscal 2009 as a result of
lower projected gross sales on various titles. Also contributing to the decrease was lower development costs
on
UFC 2009 Undisputed
in relation to its total projected gross sales as compared to most titles recognized in
fiscal 2009.