2K Sports 2008 Annual Report Download - page 54

iii. an increase of approximately $3.4 million in personnel costs mainly related to an increase in
incentive compensation that was based on overall company performance in fiscal 2008; partially
offset by
iv. a decrease of approximately $5.3 million in personnel costs mainly resulting from our business
reorganization initiatives.
General and administrative expenses for 2008 and 2007 also includes occupancy expense (primarily rent,
utilities and office expenses) of $13.6 million and $14.9 million, respectively, related to our development
studios.
Research and development
Research and development expenses increased $15.5 million in 2008 compared to 2007 primarily due to:
i. a $12.3 million increase in personnel expense, mainly for higher stock-based compensation costs
due to the timing of awards and payroll-related expenses in our European studios, coupled with
lower software capitalization rates; and
ii. an increase of $2.1 million in technology related costs, primarily due to studio acquisitions and
the acquisition of 2K Czech, formerly known as Illusion Softworks.
Business reorganization and related costs
In 2007 we announced a business reorganization plan to renew and optimize our management and
organizational structure. Accordingly, we incurred business reorganization and related expenses of
$17.5 million in 2007 consisting of employee termination costs of $10.1 million, $2.9 million of facility
related and relocation costs to move our 2K headquarters to California, and $4.4 million in professional
fees and other costs related to the replacement of prior management and the election of five new directors
to our Board of Directors at our annual stockholders’ meeting. In 2008 we substantially completed our
business reorganization and incurred costs of $4.5 million consisting mainly of further employee
termination, facility related and relocation costs in connection with the closure of two studios. As a result,
we do not expect to incur material reorganization charges related to this plan in 2009.
Interest and other, net
%
Increase/ Increase/
(thousands of dollars) 2008 % 2007 % (decrease) (decrease)
Interest income, net $ 695 0.0% $ 2,274 0.2% $(1,579) (69.4)%
Gain (loss) on sale and deconsolidation 277 0.0% (4,469) (0.5)% 4,746 (106.2)%
Foreign exchange gain (loss) (5,097) (0.3)% 1,644 0.2% (6,741) (410.0)%
Other 415 0.0% 34 0.0% 381 1120.6%
Interest and other, net $(3,710) (0.2)% $ (517) (0.1)% $(3,193) 617.6%
In 2007, we sold substantially all of the assets, primarily inventory and accounts receivable, of our wholly-
owned Joytech video game accessories subsidiary, formerly a component of our publishing segment, to
Mad Catz Interactive, Inc. for approximately $3.6 million in cash and notes receivable, resulting in a
recognized loss on the sale of $3.1 million. The disposition of Joytech did not involve a significant amount
of assets or materially impact our operating results.
Also, in 2007, we recognized a loss of $1.4 million when we deconsolidated the net assets of Blue Castle
Games, Inc. (‘‘Blue Castle’’), which was previously accounted for, in accordance with FIN 46(R), as a
wholly-owned subsidiary and considered to be a variable interest entity. Blue Castle continues to develop
certain of our sports titles; however, we are no longer considered to be the primary beneficiary of Blue
Castle’s profits or losses.
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