THQ 2007 Annual Report Download - page 24

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16
Rating systems and future legislation may make it difficult to successfully market and sell our products.
Currently, theinteractive software entertainment industry is self-regulatedand rated by the Entertainment
Software Rating Board (“ESRB”). Our retail customers take the ESRB rating into consideration when
decidingwhich of ourproducts they will purchase. If the ESRBor amanufacturer determinesthata
productshouldhave arating directed to an olderor more mature consumer,we maybe less successfulin
our marketingandsales of a particular product.
From time to time, legislation has been introduced at thelocal, state and federal levels for the
establishment of agovernmentmandated rating and governingsystem in theUnited States and in foreign
countries forourindustry.Various foreign countries already allow government censorship of interactive
entertainment products. We believe that if our industry wereto become subject to a government rating
system, our ability to successfullymarket and sell our products could be adversely affected.
Any significant downturn in general economic conditions which results in a reduction in discretionary
spending could reduce demand for our products and harm ourbusiness.
Our product sales are affected by the retail customer’s ability and desireto spend disposable income on the
purchase of our games. Any significant downturn in general economic conditions which results in a
reduction in discretionary spending could resultin a reduction in demand for our productsand could harm
our business. Such industry downturns have been, and may continue to be, characterized by diminished
product demand andsubsequent erosion of average sellingprices.
Because of these and other factors affecting our operating results and financial condition, past financial
performance should not be considered areliableindicator of future performance, and investorsshould not
use historical trends to anticipate results or trends in future periods.
Item 1B.Unresolved Staff Comments
None.
Item 2. Properties
Thefollowing is a summary of theprincipal leased officeswemaintained as of May 25, 2007:
Purpose North America EuropeAsia Pacific Total
Salesandadministrative.............................116,800 56,700 11,600 185,100
Product development...............................373,900 6,10020,700400,700
Total leased square footage........................490,700 62,800 32,300 585,800
We also own10,820 square feet of spacein Phoenix, Arizonawhich serves as ourdata center andmotion
capture studio.
Item 3. Legal Proceedings
WWE related Lawsuits
On October19, 2004, World Wrestling Entertainment, Inc. (“WWE”) filed alawsuit in the United States
District Court for theSouthern District of New York (the “Court”) against JAKKS Pacific, Inc.
(“JAKKS”), THQ, THQ/JAKKS Pacific LLC (the“LLC”), and others, alleging, among other claims,
improper conduct by JAKKS, certain executivesofJAKKS, an employee of theWWE and an agent of the
WWE in granting theWWE videogamelicense to the LLC. Thecomplaint seeksvarious forms of relief,
including monetary damages and a judicial determination that, among other things, the WWE videogame
license is void. On March 30, 2005, WWE filed an amended complaint, adding both new claims and THQ’s