2K Sports 2009 Annual Report Download - page 53

General and administrative expenses for the year ended October 31, 2009 and 2008 also include occupancy
expense (primarily rent, utilities and office expenses) of $14.1 million and $13.6 million, respectively,
related to our development studios.
Research and development
Research and development expenses decreased slightly for the year ended October 31, 2009 compared to
the same period in 2008. Personnel costs decreased primarily due to lower bonus expense and higher
capitalization rates. The capitalization rates for payroll related costs for 2008 were lower than usual as
certain development studios refocused their efforts to new projects following the release of Grand Theft
Auto IV. This decrease was offset by higher production expenses and increased headcount, primarily from
the prior year acquisitions of Rockstar New England (formerly known as Mad Doc Software LLC) and 2K
Czech (formerly known as Illusion Softworks, a.s.) as well as expansion initiatives in Asia-Pacific markets.
Impairment of goodwill and long-lived assets
During our annual goodwill impairment test we determined that goodwill attributed to our distribution
reporting unit was impaired due to a decline in the retail environment in 2009 and its impact on our
outlook for our distribution reporting unit. For the fiscal year ended October 31, 2009, we recorded a
goodwill and intangible impairment charge of $14.8 million related to our distribution segment. No
impairments were recorded in fiscal 2008.
Depreciation and amortization
For the year ended October 31, 2009, depreciation and amortization expense decreased by $7.1 million
compared to 2008 mainly due to lower depreciation and amortization expense associated with the
September 2008 sale of certain assets to a third party as part of entering into a distribution services
agreement.
Interest and other expense, net
% of net % of net Increase/ % Increase/
(thousands of dollars) 2009 revenue 2008 revenue (decrease) (decrease)
Interest income (expense), net $(7,087) (0.7)% $ 695 0.0% $(7,782) (1119.7)%
Gain (loss) on sale and deconsolidation — 0.0% 277 0.0% (277) (100.0)%
Foreign exchange gain (loss) 3,705 0.4% (5,097) (0.3)% 8,802 (172.7)%
Other 187 0.0% 415 0.0% (228) (54.9)%
Interest and other expense, net $(3,195) (0.3)% $(3,710) (0.2)% $ 515 (13.9)%
For the year ended October 31, 2009, interest and other expense, net decreased $0.5 million due to
favorable exchange gains in our foreign subsidiaries, partially offset by higher interest expense associated
with the issuance of the June 2009 Convertible Notes and the line of credit as well as lower interest income
in 2009 due to lower average cash balances and lower interest rates.
Provision for income taxes. Income tax expense was $4.5 million for the year ended October 31, 2009,
compared to income tax expense of $15.0 million for the year ended October 31, 2008. The change in
income taxes is primarily attributable to pre-tax losses without tax benefit in 2009, a reduction in our
liability for gross unrecognized tax benefits following the conclusion of certain tax audits, and a cumulative
charge to increase our valuation allowance as a result of deferred tax liabilities related to goodwill which
cannot be used to offset deferred tax assets, compared to worldwide pre-tax income in 2008 with a related
tax charge. We did not record an income tax benefit on our pre-tax losses in 2009 due to uncertainty
regarding the realization of our deferred tax assets, and recorded income tax expense on income generated
in several foreign jurisdictions. Our effective tax rate differed from the federal statutory rate due to losses
without tax benefit in 2009 and changes in gross unrecognized tax benefits during 2008 and 2009. The 2009
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