2K Sports 2009 Annual Report Download - page 57

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Selling and marketing
Selling and marketing expenses decreased as a percentage of net revenue in 2008, reflecting the revenue
contribution of Grand Theft Auto IV. However costs increased $36.7 million compared to the prior year
primarily due to:
i. an increase in advertising expense of $22.7 million, mainly related to the releases of Grand Theft
Auto IV and Midnight Club: Los Angeles;
ii. a $9.0 million increase in personnel costs, mainly resulting from higher incentive compensation
expense that was based on overall company performance, higher stock-based compensation costs
due to timing of awards and severance costs incurred in our European territories; and
iii. a $2.6 million increase related to expansion initiatives in Asia-Pacific markets, trade shows and
promotional events related to Grand Theft Auto IV and Midnight Club: Los Angeles.
General and administrative
General and administrative expenses increased $21.0 million in 2008 as compared to 2007 primarily due to:
i. an increase of $15.2 million for management fees and stock-based compensation expense in
connection with our service agreement with ZelnickMedia;
ii. $11.1 million of legal and consulting expenses related to the EA offer; and
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.
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