2K Sports 2009 Annual Report Download - page 27

to their stated expiration. If such licensed products do not generate revenues in excess of such minimum
guarantees, our profitability will be adversely impacted.
We are subject to contractual covenants which place certain limitations on how we manage our business.
Our credit agreement and the indenture governing our convertible senior notes limit our ability to take
various actions, including incurring additional debt, paying dividends, repurchasing shares and acquiring or
disposing of assets or businesses. In addition, we have granted a security interest in connection with certain
compensatory arrangements which limits our ability to incur senior debt in excess of certain amounts.
Accordingly, we may be restricted from taking actions that management believes would be desirable and in
the best interests of us and our stockholders. Our credit agreement and the indenture also require us to
satisfy specified financial and non-financial covenants. A breach of any of the covenants contained in our
credit agreement could result in an event of default under the agreement and under the indenture
governing our convertible senior notes and would allow our lenders and noteholders to pursue various
remedies, including accelerating the repayment of any outstanding indebtedness.
Our involvement, and the involvement of some of our former executive officers, in a wide variety of lawsuits,
investigations and proceedings has had, and may in the future have, a material adverse effect on us.
We and some of our former officers, directors and employees have recently been the subject of three
separate governmental investigations and a substantial amount of litigation and other proceedings relating
to the subject matter of those investigations. While most of these matters have been resolved, several
remain outstanding. See ‘‘Item 3.—Legal Proceedings.’’ These investigations, litigation and other
proceedings have imposed significant costs on us, including professional fees, penalties and settlement
costs, and the diversion of the time and attention of our management team.
Even if resolved favorably, the remaining litigation could continue to be time consuming and result in
additional costs of the kind described above, any of which could adversely affect our business, operating
results and financial condition. We also may be subject to heightened scrutiny in the future as a result of
our historical legal proceedings, including an increased likelihood of a government investigation occurring
and an increased likelihood that any such investigation is more extensive than in the past. Furthermore,
any future fines, restrictions or other penalties imposed as a result of any such investigation may be more
severe than those which may be imposed on a company without our history.
We may be required to record a significant charge to earnings if our goodwill becomes impaired.
We are required under generally accepted accounting principles to review our goodwill for impairment at
least annually or more frequently when events or changes in circumstances indicate the carrying value may
not be recoverable. Factors that may be considered a change in circumstances, indicating a requirement to
reevaluate whether our goodwill continues to be recoverable, include a significant decline in stock price
and market capitalization, slower growth rates in our industry or other materially adverse events. We may
be required to record a significant charge to earnings in our financial statements during the period in
which any impairment of our goodwill is determined. This may adversely impact our operating results.
During our fourth quarter of 2009, we recorded a charge of $14.8 million to our earnings due to the
impairment of our goodwill and intangible assets, and there can be no assurance that we will not have a
further impairment of our goodwill or intangible assets in the future.
Our reported financial results could be adversely affected by the application of existing or future accounting
standards to our business as it evolves.
The frequency of accounting policy changes may continue to accelerate. For example, standards regarding
software revenue recognition have and could further significantly affect the way we account for revenue
related to our products and services. We expect that a significant portion of our games will be online-
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