THQ 2011 Annual Report Download - page 22

limited number of employees to formulate and implement our business plan. To a significant extent, our success depends upon
our ability to attract and retain key personnel. Competition for employees can be intense and the process of locating key personnel
with the right combination of skills is often lengthy. The loss of key personnel could have a material adverse impact on our
business.
A significant portion of our net sales is derived from our international operations, which may subject us to economic, currency,
political, regulatory and other risks.
In fiscal 2011, excluding the impact of changes in deferred net revenue, we derived 34.6% of our consolidated net sales,
from outside of North America. Our international operations subject us to many risks, including: different consumer preferences;
challenges in doing business with foreign entities caused by distance, language and cultural differences; unexpected changes in
regulatory requirements, tariffs and other barriers; difficulties in staffing and managing foreign operations; and possible difficulties
collecting foreign accounts receivable. These factors or others could have an adverse impact on our future foreign sales or the
profits generated from those sales.
There are additional risks inherent in doing business in certain international markets, such as China. For example, foreign
exchange controls may prevent us from expatriating cash earned in China, and standard business practices in China may increase
our risk of violating U.S. laws such as the Foreign Corrupt Practices Act.
Additionally, sales generated by our international offices will generally be denominated in the currency of the country
in which the sales are made, and may not correlate to the currency in which inventory is purchased, or software is developed. To
the extent our foreign sales are not denominated in U.S. dollars, our sales and profits could be materially and adversely impacted
by foreign currency fluctuations. Year-over-year changes in foreign currency translation rates had the mathematical effect of
increasing our reported net loss by approximately $1.0 million in fiscal 2011.
Adverse macroeconomic conditions could result in a prolonged reduction in discretionary spending by consumers that could
reduce demand for our products.
Our products involve discretionary spending on the part of consumers. Consumers are generally more willing to make
discretionary purchases, including purchases of products like ours, during periods in which favorable economic conditions prevail.
As a result, our products may be sensitive to general economic conditions and economic cycles. Declining consumer confidence,
inflation, recession and rising unemployment may lead consumers to delay or reduce purchases of our products. Reduced consumer
spending may also require us to incur increased selling and promotional expenses. Additionally, a reduction or shift in domestic
or international consumer due to regional macroeconomic spending could negatively impact our business, results of operations
and financial condition.
Fluctuations in our quarterly operating results due to seasonality in the interactive entertainment software industry and other
factors related to our business operations 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 entertainment software industry is highly seasonal, with sales typically significantly higher during the year-end
holiday buying season. Other factors that cause fluctuations in our sales and operating results include:
• the timing of our release of new titles as well as the release of our competitors' products;
• the popularity of both new titles and titles released in prior periods;
• the deferral or subsequent recognition of net sales and costs related to certain of our products which contain online
functionality;
• 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 as a result of the factors described above
and others described throughout this "Risk Factors" section, which may in turn cause the price of our common stock to fall or
significantly fluctuate.
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