THQ 2010 Annual Report Download - page 33

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Cost of Sales—License Amortization and Royalties (in thousands)
Year Ended
March 31, 2010
% of net sales
Year Ended
March 31, 2009
% of net sales
% change
$95,972 10.7% $83,066 10.0% 15.5%
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 net sales for such license.
Net sales of games based on licensed properties represented 69% and 66% of our total net sales in fiscal
2010 and fiscal 2009, respectively. In fiscal 2010, license amortization and royalties as a percentage of net
sales increased slightly, primarily due to the higher mix of sales from titles based on licensed properties.
Cost of Sales—Venture Partner Expense (in thousands)
Year Ended
March 31, 2010
% of net sales
Year Ended
March 31, 2009
% of net sales
% change
$14,531 1.6% $19,707 2.4% (26.3)%
Venture partner expense is related to the license agreement that the THQ / JAKKS Pacific LLC (“LLC”) joint
venture, comprised of THQ and JAKKS Pacific, Inc. (“Jakks”), had with WWE. In August 2009, we settled our
preferred return dispute with Jakks at a 40% lower payment rate, which resulted in a benefit of $24.2 million.
In December 2009, as the result of various settlement agreements entered into between THQ, Jakks and
WWE, we recorded expense of $29.5 million. In addition, on December 31, 2009, the LLC was dissolved, the
WWE license held by the LLC was terminated, and a new eight-year license was entered into directly
between THQ and WWE. Accordingly, the final expenses related to the joint venture were recorded as of
December 31, 2009.
Excluding these items, venture partner expense in fiscal 2010 would have been $9.2 million, which reflects
the 40% lower payment rate, as compared to fiscal 2009. For further information related to the settlements,
see “Note 6—Balance Sheet Details” and “Note 17—Settlement Agreements” in the notes to the
consolidated financial statements included in Item 8.
Operating Expenses
Our operating expenses decreased by $196.6 million, or 41%, in fiscal 2010 as compared to fiscal 2009. This
decrease was primarily due to goodwill impairment charges of $118.8 million recognized in fiscal 2009, as well
as lower product development, selling and marketing, and general and administrative costs in fiscal 2010 due
to the actions taken as part of our fiscal 2009 business realignment.
Product Development (in thousands)
Year Ended
March 31, 2010
% of net sales
Year Ended
March 31, 2009
% of net sales
% change
$87,233 9.7% $109,201 13.2% (20.1)%
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 decreased by $22.0 million in fiscal 2010 as compared to fiscal 2009. The decrease
was primarily due to decreases in internal development spending primarily resulting from actions taken as part
of our fiscal 2009 business realignment, including our more focused product strategy and the closure of
several of our studios.
Selling and Marketing (in thousands)
Year Ended
March 31, 2010
% of net sales
Year Ended
March 31, 2009
% of net sales
% change
$131,954 14.7% $162,183 19.5% (18.6)%
Selling and marketing expenses consist of advertising, promotional expenses, and personnel-related costs.
Selling and marketing expenses decreased by $30.2 million and by 4.8 points as a percent of net sales in