2K Sports 2003 Annual Report Download - page 23

The following table summarizes our minimum contractual obligations and commercial commitments as of October 31, 2003:
Payments due by periods ended October 31,
2009 and
Contractual Obligations Total 2004 2005 to 2006 2007 to 2008 thereafter
Capital Lease Obligations $ 176 $ 103 $ 73 — —
Operating Lease Obligations 38,086 7,268 10,497 $8,289 $12,032
Letters of Credit 9,290 9,290 — — —
Publishing Arrangements 36,555 27,224 8,822 509 —
Distribution Arrangements 14,330 14,330 — — —
Total $98,437 $58,215 $19,392 $8,798 $12,032
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Fluctuations in Operating Results and Seasonality
We have experienced fluctuations in quarterly operating results as
a result of the timing of the introduction of new titles; variations in
sales of titles developed for particular platforms; market acceptance
of our titles; development and promotional expenses relating to the
introduction of new titles, sequels or enhancements of existing titles;
projected and actual changes in platforms; the timing and success of
title introductions by our competitors; product returns; changes in
pricing policies by us and our competitors; the size and timing of
acquisitions; the timing of orders from major customers; and order
cancellations and delays in product shipment. Sales of our titles are
also seasonal, with peak shipments typically occurring in the fourth
calendar quarter (our fourth and first fiscal quarters) as a result of
increased demand for titles during the holiday season. Quarterly
comparisons of operating results are not necessarily indicative of
future operating results.
International Operations
Sales in international markets, principally in the United Kingdom
and other countries in Europe, have accounted for a significant por-
tion of our net sales. For fiscal 2003 and 2002, sales in international
markets accounted for approximately 27.9% and 20.0%, respectively,
of our net sales. We are subject to risks inherent in foreign trade,
including increased credit risks, tariffs and duties, fluctuations in for-
eign currency exchange rates, shipping delays and international politi-
cal, regulatory and economic developments, all of which can have a
significant impact on our operating results.
Cautionary Statement and Risk Factors
Safe Harbor Statement under the Securities Litigation Reform
Act of 1995: We make statements in this report that are considered
forward-looking statements under federal securities laws. Such
forward-looking statements are based on the beliefs of management
as well as assumptions made by and information currently available
to them. The words “expect,” “anticipate,” “believe,” “may,”
“estimate,” “intend” and similar expressions are intended to identi-
fy such forward-looking statements. Forward-looking statements
involve risks, uncertainties and assumptions including, but not
limited to, the following which could cause our actual results,
performance or achievements to be materially different from results,
performance or achievements, expressed or implied by such
forward-looking statements:
The market for interactive entertainment software titles is
characterized by short product life cycles. The interactive entertain-
ment software market is characterized by short product life cycles and
frequent introductions of new products. New products introduced
by us may not achieve significant market acceptance or achieve suffi-
cient sales to permit us to recover development, manufacturing and
marketing costs. Historically, few interactive entertainment software
products have achieved sustained market acceptance. Even the most
successful titles remain popular for only limited periods of time, often
less than nine months, although sales of certain products may extend
for significant periods of time, including through our election to
participate in Sony’s Greatest Hits and Microsoft’s Platinum Hits
programs.
The life cycle of a game generally involves a relatively high level
of sales during the first few months after introduction followed by a
decline in sales. Because net sales associated with the initial ship-
ments of a new product generally constitute a high percentage of the
total net sales associated with the life of a product, any delay in the
introduction of one or more new products could adversely affect our
operating results. Additionally, because we introduce a relatively limit-
ed number of new products in any period, the failure of one or more
of our products to achieve market acceptance could adversely affect
our operating results.
A significant portion of our net sales is derived from a limited
number of titles. For the year ended October 31, 2003, our ten best-
selling titles accounted for approximately 50.5% of our net sales, with
Grand Theft Auto: Vice City for PlayStation 2 accounting for 33.6% of
our net sales, Midnight Club 2 for PlayStation 2 accounting for 4.1%
of our net sales and Grand Theft Auto: Vice City for PC accounting for
2.6% of our net sales. Our ten best-selling titles accounted for approxi-
mately 59.5% of our net sales for the year ended October 31, 2002.
For this period, Grand Theft Auto 3 for PlayStation 2 accounted for
29.8% of our net sales, Grand Theft Auto: Vice City for the PlayStation
2 accounted for 7.5% of our net sales and Max Payne for PlayStation 2
accounted for 6.6% of our net sales. Our ten best-selling titles
accounted for approximately 30.8% of our net sales for the fiscal year
ended October 31, 2001. Our future titles may not be commercially
viable. If we fail to continue to develop and sell new, commercially
successful titles, our net sales and profits may decrease substantially
and we may incur losses.