2K Sports 2009 Annual Report Download - page 52

Download and view the complete annual report

Please find page 52 of the 2009 2K Sports 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 121

  • 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
  • 120
  • 121

Operating Expenses
% of net % of net Increase/ % Increase/
(thousands of dollars) 2009 revenue 2008 revenue (decrease) (decrease)
Selling and marketing $148,624 15.3% $167,380 10.9% $(18,756) (11.2)%
General and administrative 135,127 14.0% 171,440 11.2% (36,313) (21.2)%
Research and development 63,748 6.6% 63,929 4.2% (181) (0.3)%
Business reorganization and related — 0.0% 4,478 0.3% (4,478) (100.0)%
Impairment of goodwill and
long-lived assets 14,754 1.5% — 0.0% 14,754 N/M
Depreciation and amortization 18,623 1.9% 25,755 1.7% (7,132) (27.7)%
Total operating expenses(1) $380,876 39.3% $432,982 28.2% $(52,106) (12.0)%
(1) Includes stock-based compensation expense, as follows:
2009 2008
Selling and marketing $ 2,551 $ 2,370
General and administrative 14,119 19,678
Research and development 3,169 4,878
Foreign currency exchange rates favorably impacted total operating expenses by approximately
$14.6 million for the year ended October 31, 2009.
Selling and marketing
Selling and marketing expenses decreased $18.8 million for the year ended October 31, 2009 as compared
to the same period in 2008 primarily due to:
i. a decrease of $6.8 million in advertising and marketing expense primarily related to the release of
Grand Theft Auto IV in April 2008 with no comparable product in the current year;
ii. a decrease of $4.3 million in personnel and severance costs due to lower incentive based
compensation as well as savings from the restructuring and termination of employees in our
European operations in December 2007, partially offset by a $0.9 million increase in personnel
costs in Asia due to expansion initiatives in the Asia-Pacific region; and
iii. a decrease of $7.9 million in personnel and warehouse expenses at our distribution facility offset
by a $2.1 million increase in management fees related to the distribution services agreement that
we entered into in September 2008. The net savings was further offset by an increase of a
$5.6 million distribution fee recorded in cost of goods sold.
General and administrative
General and administrative expenses decreased $36.3 million for the year ended October 31, 2009
compared to the same period in 2008 primarily due to:
i. a decrease of $20.9 million in professional fees primarily due to a $7.0 million decrease in
consulting expense related to stock-based compensation expense for stock-based awards to
ZelnickMedia, reflecting a decrease in the price of our common stock and lower performance-
based compensation; consulting and legal fees related to the Electronic Arts tender offer also
decreased by approximately $10.4 million; and
ii. a decrease of $6.6 million in personnel costs due to lower incentive based compensation and cost
saving initiatives initiated in 2008.
47