THQ 2006 Annual Report Download - page 23

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customers including contractual provisions under various license arrangements. Ifwe are required to enter
into such agreements or take such actions, our operating margins may decline as a result.
Our reported financial results could be affected by changes in current accounting principles.
Recent actions and public comments from the Securities and Exchange Commission have focused on the
integrity of financial reporting generally. Similarly, Congress has considered a variety of bills that could
affect certain accounting principles. The Financial Accounting Standards Board and other regulatory
accounting agencies have recently introduced several new or proposed accounting standards, such as
accounting for stock options, some of which represent a significant change from current practices. Changes
in our accountingfor stock options will materially increase our reported expenses when we adopt
Statement of Financial Accounting Standard No. 123R in the first quarter of fiscal 2007.
We cannot be certain of the future effectiveness of our internal controls over financial reporting or the
impact of the same on our operations or the market price for our common stock.
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we are required to include in our Annual
Report on Form 10-K our assessment of the effectiveness of our internal controls over financial reporting.
Furthermore, our independent registered public accounting firm is required to audit our assessment of the
effectiveness of our internal controls over financial reporting and separately report on whether it believes
we maintain, in all material respects, effective internal controls over financial reporting. Although we
believe that we currently have adequate internal controls procedures in place, we cannot be certain that
future material changes to our internal controls over financial reporting willbe effective. If we cannot
adequately maintain the effectiveness of our internal controls over financial reporting, we might be subject
to sanctions or investigation by regulatory authorities, such as the Securities and Exchange Commission.
Any such action could adversely affect our financial results and the market price of our common stock.
Fluctuations in our quarterly operating results due toseasonality in the interactive software
entertainment industry could result in substantial losses to investors.
We have experienced, and may continue to experience, significant quarterly fluctuations in sales and
operating results. The interactive software entertainment market is highly seasonal, with sales typically
significantly higher during the year-end holiday buying season. Other factors that cause fluctuations
include:
•the timing of our release of new titles as well as the release of our competitor’s products;
•the popularity of both new titles and titles released in prior periods;
•the profit margins for titles we sell;
•the competition in the industry for retail shelf space;
•fluctuations in the size and rate of growth of consumer demand for titles for different platforms;
and
•the timing of the introduction of new platforms and the accuracy of retailers’ forecasts of consumer
demand.
We believe that quarter-to-quarter comparisons of our operating results are not a good indication of our
future performance. We may not be able to maintain consistent profitability on a quarterly or annual basis.
It is likely that in some future quarter,our operating results may be below the expectations of public
market analysts and investors and as a result of the factors described above and others described
throughout this “Risk Factors” section, the price of our common stock may fall or significantly fluctuate.