THQ 2006 Annual Report Download - page 24

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16
Rating systems and future legislation may makeit difficult to successfully market and sellour products.
Currently, the interactive software entertainment industry is self-regulated and rated by the Entertainment
Software Rating Board. Our retail customers take the Entertainment Software Rating Board rating into
consideration when deciding which of our products they will purchase. If the Entertainment Software
Rating Board or a manufacturer determines that a product should have a rating directed to an older or
more mature consumer, we may be less successful in our marketing and sales of a particular product.
Recently, legislation has been introduced at the local, state and federal levels for the establishment of a
governmentmandated rating and governing system in the United States and in foreign countries for our
industry. Various foreign countries already allow government censorship of interactive entertainment
products. We believe that if our industry were to become subject to a government rating system, our ability
to successfully market and sell our products could be adversely affected.
Any significant downturnin general economic conditions which results in a reduction in discretionary
spending could reduce demand for our productsand harm our business.
Our product sales are affected by the retail customer’s ability and desire to spend disposable income on the
purchase of our games. Any significant downturnin general economic conditions which results in a
reduction in discretionary spending could result in a reduction in demand for our products and could harm
our business. Such industry downturns have been, and may continue to be, characterized by diminished
product demand and subsequent erosion of average selling prices.
Because of these and other factors affecting our operating results and financial condition, past financial
performance should not be considered a reliable indicator of future performance, and investors should not
use historical trends to anticipate results or trends in future periods.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
The following is a summary of the principal leased offices maintained by us as of May 26, 2006:
Purpose North America Europe Asia Pacific Total
Sales and administrative. ............................. 138,80050,100 10,600 199,500
Product development................................ 249,4006,100 18,400 273,900
Total leased square footage........................ 388,20056,200 29,000 473,400
In addition to the leased facilities listed above, we also lease office space in various countries outside of the
U.S. in order to support the international sales, marketing and administrative efforts of our wireless
platform. The majority of these leased facilities are occupied by Minick Holdings AG and its subsidiaries,
of which we have a 50% ownership interest.
We also own 10,820 square feet of space in Phoenix, Arizona which serves as our data center and motion
capture studio.
Item 3. Legal Proceedings
World Wrestling Entertainment.
On October 19, 2004, World Wrestling Entertainment, Inc. (“WWE”) filed a lawsuit in the United States
District Court for the SouthernDistrict of New York (the “Court”) against JAKKS Pacific, Inc.
(“JAKKS”), THQ, the THQ/JAKKS joint venture,and others, alleging, among other claims, improper