2K Sports 2009 Annual Report Download - page 19

facilities, reduce personnel or make other changes to our cost structure without disruption to our
operations or without significant termination and exit costs. Management may not be able to implement
such actions in a timely manner, if at all, to offset an immediate shortfall in revenue and profit. Moreover,
reducing costs may impair our ability to produce and develop software titles at sufficient levels in the
future.
Returns of our published titles by our customers and price concessions granted to our customers may adversely affect
our operating results.
We are exposed to the risk of product returns and price concessions with respect to our customers. Our
distribution arrangements with customers generally do not give them the right to return titles to us or to
cancel firm orders. However, we sometimes accept product returns from our distribution customers for
stock balancing and negotiate accommodations for customers, which include credits and returns, when
demand for specific products falls below expectations. We accept returns and grant price concessions in
connection with our publishing arrangements and revenue is recognized after deducting estimated reserves
for returns and price concessions. While we believe that we can reliably estimate future returns and price
concessions, if return rates and price concessions for our products exceed our reserves, our revenue could
decline.
Increased sales of used video game products could lower our sales.
Certain of our larger customers sell used video games, which are generally priced lower than new video
games. If our customers continue to increase their sales of used video games, it could negatively affect our
sales of new video games and have an adverse impact on our operating results.
A limited number of customers account for a significant portion of our sales. The loss of a principal customer could
seriously hurt our business.
A substantial portion of our product sales are made to a limited number of customers. Sales to our five
largest customers accounted for approximately 48.0%, 40.2% and 51.1% of our net revenue for the years
ended October 31, 2009, 2008 and 2007, respectively, with Wal-Mart, GameStop and Best Buy accounting
for 14.2% and 14.0% and 10.0%, respectively, of net revenue for the year ended October 31, 2009. Our
sales are made primarily pursuant to purchase orders without long-term agreements or other
commitments, and our customers may terminate their relationship with us at any time. Certain of our
customers may decline to carry products containing mature content. The loss of our relationships with
principal customers or a decline in sales to principal customers, including as a result of a product being
rated ‘‘AO’’ (age 18 and over), could materially adversely affect our business and operating results.
Furthermore, our customers may also be placed into bankruptcy, become insolvent or be liquidated due to
the current economic downturn, the global contraction of credit or for other factors. Bankruptcies or
consolidations of certain large retail customers could seriously hurt our business, including as a result of
uncollectible accounts receivable from such customers and the concentration of purchasing power among
remaining large retailers.
If our marketing and advertising efforts fail to resonate with our customers, our business and operating results
could be adversely affected.
Our products are marketed worldwide through a diverse spectrum of advertising and promotional
programs such as television and online advertising, print advertising, retail merchandising, website
development and event sponsorship. Our ability to sell our products and services is dependent in part on
the success of these programs. If the marketing for our products and services fails to resonate with our
customers, particularly during the holiday season or other key selling periods, or if advertising rates or
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