2K Sports 2009 Annual Report Download - page 24

regulatory and economic developments, all of which can have a significant impact on our operating results.
All of our international sales are made in local currencies, which could fluctuate against the dollar. While
we may use forward exchange contracts to a limited extent to seek to mitigate foreign currency risk, our
operating results could be adversely affected by unfavorable foreign currency fluctuations.
We face risks from our international operations.
We are subject to certain risks because of our international operations, particularly as we seek to grow our
business and presence outside of the United States. Changes to and compliance with a variety of foreign
laws and regulations may increase our cost of doing business and our inability or failure to obtain required
approvals could harm our international and domestic sales. Trade legislation in either the United States or
other countries, such as a change in the current tariff structures, import/export compliance laws or other
trade laws or policies, could adversely affect our ability to sell or to distribute in international markets. We
incur additional legal compliance costs associated with our international operations and could become
subject to legal penalties in foreign countries if we do not comply with local laws and regulations which
may be substantially different from those in the United States. In many foreign countries, particularly in
those with developing economies, it may be common to engage in business practices that are prohibited by
United States laws and regulations, such as the Foreign Corrupt Practices Act, and by local laws, such as
laws prohibiting corrupt payments to government officials. Although we implement policies and
procedures designed to ensure compliance with these laws, there can be no assurance that all of our
employees, contractors and agents, as well as those companies to which we outsource certain of our
business operations, including those based in or from countries where practices which violate such laws
may be customary, will not take actions in violation of our policies. Any such violation, even if prohibited
by our policies, could have a material adverse effect on our business.
Our distribution business is dependent on suppliers to maintain an adequate supply of products to fulfill customer
orders on a timely basis.
Our ability to obtain particular products in required quantities and to fulfill customer orders on a timely
basis is important to the success of our distribution business. In most cases, we have no guaranteed price or
delivery agreements with suppliers. Our distribution business has experienced, and may in the future
experience, significant supply shortages from time to time due to the inability of certain manufacturers to
supply products, such as the newest generation of platforms, on a timely basis. Further, manufacturers or
publishers that currently distribute their products through us may decide to distribute, or to substantially
increase their existing distribution, through other distributors, or directly to retailers. If we cannot obtain
sufficient supplies of the products that we distribute, our net revenue could decline and we could incur
losses.
Gross margins relating to our distribution business have historically been narrow, which increases the impact of
variations in costs on our operating results.
As a result of intense price competition, the gross margins in our distribution business have historically
been narrow and may continue to be narrow in the future. Accordingly, slight variations in operating costs
and expenses could result in losses in our distribution business from period to period.
If we are unable to protect the intellectual property relating to our software, the commercial value of our products
will be adversely affected and our competitive position could be harmed.
We develop proprietary software and have obtained the rights to publish and distribute software developed
by third parties. We attempt to protect our software and production techniques under copyright, trademark
and trade secret laws as well as through contractual restrictions on disclosure, copying and distribution.
Our software is susceptible to piracy and unauthorized copying. Unauthorized third parties may be able to
19