2K Sports 2008 Annual Report Download - page 25

• significant acquisition-related accounting adjustments, particularly relating to an acquired
company’s deferred revenue, that may cause reported revenue and profits of the combined
company to be lower than the sum of their stand-alone revenue and profits;
• significant accounting charges resulting from the completion and integration of a sizeable
acquisition and increased capital expenditures, including potential impairment charges incurred to
write down the carrying amount of intangible assets generated as a result of an acquisition;
• the possibility that we will not discover important facts during due diligence that could have a
material adverse impact on the value of the businesses we acquire, including the possibility that a
change of control of a company we acquire triggers a termination of contractual or intellectual
property rights important to the operation of its business;
• the need to integrate an acquired company’s accounting, management information, human resource
and other administrative systems to permit effective management and timely reporting, and the
need to implement or remediate controls, procedures and policies appropriate for a public company
in an acquired company that, prior to the acquisition, lacked these controls, procedures and
policies;
• litigation or other claims in connection with, or inheritance of claims or litigation risks as a result of,
an acquisition, including claims from terminated employees, customers or other third parties; and
• to the extent that we engage in strategic transactions outside of the United States, we face
additional risks, including risks related to integration of operations across different cultures and
languages, currency risks and the particular economic, political and regulatory risks associated with
specific countries.
Future acquisitions and investments could also involve the issuance of our equity and equity-linked
securities (potentially diluting our existing stockholders), the incurrence of debt, contingent liabilities or
amortization expenses, write-offs of goodwill, intangibles, or acquired in-process technology, or other
increased cash and non-cash expenses such as stock-based compensation. Any of the foregoing factors
could harm our financial condition or prevent us from achieving improvements in our financial condition
and operating performance that could have otherwise been achieved by us on a stand-alone basis. Our
stockholders may not have the opportunity to review, vote on or evaluate future acquisitions or
investments.
Our ability to acquire licenses to intellectual property, especially for sports titles, impacts our revenue and
profitability. Competition for these licenses may make them more expensive and increase our costs.
Many of our products are based on or incorporate intellectual property owned by others. For example, our
2K Sports products include rights licensed from major sports leagues and players’ associations. Similarly,
some of our other titles are based on licenses of popular entertainment products. Competition for these
licenses is intense. If we are unable to maintain these licenses or obtain additional licenses on reasonable
economic terms or with significant commercial value, our revenue and profitability could decline
significantly. Competition for these licenses may also increase the advances, guarantees and royalties that
we must pay to the licensor, which could significantly increase our costs and adversely affect our
profitability. In addition, on certain intellectual property licenses, we are subject to guaranteed minimum
payments, royalties or standards of performance. If such licensed products do not generate revenues in
excess of such minimum guarantees, our profitability will be adversely impacted.
Our business is dependent on our ability to enter into successful software development arrangements with third
parties.
Our success depends on our ability to continually identify and develop new titles on a timely basis. We rely
on third party software developers for the development of some of our titles. Quality third party
developers are continually in high demand. Software developers who have developed titles for us in the
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