2K Sports 2009 Annual Report Download - page 38

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During our annual goodwill impairment test we determined that goodwill attributed to our distribution
reporting unit was impaired due to a decline in the retail environment in 2009 and its impact on our
outlook for our distribution reporting unit. For the fiscal year ended October 31, 2009, we recorded a
goodwill and intangible impairment charge of $14.8 million related to our distribution segment.
Trends and Factors Impacting our Business
Product Release Schedule. Our financial results are impacted by the timing of our product releases and
the commercial success of those titles. Our Grand Theft Auto products in particular have historically
accounted for a substantial portion of our revenue. The timing of our Grand Theft Auto releases varies
significantly, which in turn impacts our financial performance on a quarterly and annual basis.
Economic Environment and Retailer Performance. We continue to monitor the adverse changes in
economic conditions which have had unfavorable impacts on our businesses, such as deteriorating
consumer demand, pricing pressure on our products, credit quality of our receivables, and foreign currency
exchange rates. Our business is dependent upon a limited number of customers who account for a
significant portion of our revenue. The unfavorable economic environment has impacted several of our
customers, and is expected to continue to do so during fiscal 2010. Bankruptcies or consolidations of our
large retail customers could seriously hurt our business, due to uncollectible accounts receivables and the
concentration of purchasing power among the remaining large retailers. Our business is also negatively
impacted by the actions of certain of our large customers, who sell used copies of our games, which we
believe reduces demand for new copies of our games. We have begun to offer downloadable episodes for
certain of our titles, which require the user to have a copy of the original game. While this may serve to
reduce some used game sales, we expect sales of used games to continue to impact our business.
Hardware Platforms. The majority of our products are made for the hardware platforms developed by
three companies—Sony, Microsoft and Nintendo. The success of our business is dependent upon the
consumer acceptance of these platforms and the continued growth in the installed base of these platforms.
When new hardware platforms are introduced, demand for software based on older platforms declines,
which may negatively impact our business. Additionally, our development costs are generally higher for
titles based on new platforms, and we have limited ability to predict the consumer acceptance of the new
platforms, which may impact our sales and profitability. As a result, we believe it is important to focus our
development efforts on a select number of titles, which is consistent with our strategy.
International Operations. Sales in international markets, primarily in Europe, have accounted for a
significant portion of our revenue. We have also recently expanded our Asian operations in an effort to
increase our geographical scope and diversify our revenue base. We are subject to risks associated with
foreign trade, including credit risks and consumer acceptance of our products and our financial results may
be impacted by fluctuations in foreign currency exchange rates.
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