2K Sports 2004 Annual Report Download - page 31

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Based on our currently proposed operating plans and assumptions, we believe that projected cash flow from
operations and available cash resources will be sufficient to satisfy our cash requirements for the reasonably
foreseeable future.
Contractual Obligations and Contingent Liabilities and Commitments
Our offices and warehouse facilities are occupied under non-cancelable operating leases expiring at various
times from December 2004 to September 2014. We also lease certain furniture, equipment and automobiles
under non- cancelable leases expiring through March 2008. Our future minimum rental payments for the fiscal
2005 are $9,875 and aggregate minimum rental payments through applicable lease expirations are $61,848.
We have entered into distribution agreements under which we purchase various software games. These
agreements, which expire between March 2005 and December 2005, require remaining aggregate minimum
guaranteed payments of $7,487 at October 31, 2004. Additionally, assuming performance by third-party
developers, we have outstanding commitments under various software development agreements to pay
developers an aggregate of $82,342 during fiscal 2005.
In connection with the acquisition of Mobius in fiscal 2004, we agreed to make additional contingent
payments of approximately $2,000 based on delivery of products. In fiscal 2003 we agreed to make payments
of up to $2,500 to the former owners of Cat Daddy based on a percentage of Cat Daddy’s profits for the
first three years after acquisition. The payables will be recorded when the conditions requiring their payment
are met.
In connection with our acquisition of the publishing rights to the Duke Nukem franchise for PC and video
games we are obligated to pay $6,000 contingent upon delivery of the final version of Duke Nukem Forever
for the PC. In May 2003, we agreed to make payments of up to $6,000 in cash upon the achievement of
certain sales targets for Max Payne 2. We do not expect that these sales targets will be achieved.
The following table summarizes our minimum contractual obligations (excluding obligations under
employment agreements) and commercial commitments as of October 31, 2004:
Payments due by periods ended October 31,
Contractual Obligations Total 2005
2006 to
2007
2008 to
2009
2010 and
Thereafter
Operating Lease Obligations ............... $ 61,848 $ 9,875 $15,952 $20,719 $15,302
Letters of Credit ........................... 1,560 1,560 — — —
Publishing Arrangements .................. 123,706 82,342 41,364 — —
Distribution Arrangements ................. 7,487 6,149 1,338 — —
Total ....................................... $194,601 $99,926 $58,654 $20,719 $15,302
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; 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 portion of our net sales. For fiscal 2004 and 2003, sales in international markets
accounted for approximately 27.5% and 27.9%, respectively, of our net sales. We are subject to risks inherent
in foreign trade, including increased credit risks, tariffs and duties, fluctuations in foreign currency exchange
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