Autodesk 2001 Annual Report Download - page 27

24 FY 01 Autodesk, Inc.
quality control, may contain errors or defects. These
defects or errors could result in corrective releases to our
software products, damage to our reputation, loss of rev-
enues, an increase in product returns or lack of market
acceptance of our products, any of which could harm our
business.
With the prevalence of new Internet technologies and the
demand for increased customer connectivity, new plat-
forms and technologies can be expected to be developed
in the design industries. We are devoting significant
resources to the development of such technologies as well
as transitioning to new business models, requiring a con-
siderable investment of technical and financial resources.
Such investments may not result in sufficient revenue gen-
eration to justify their costs, or competitors may introduce
new products and services that will achieve acceptance
among our current customers, adversely affecting our
competitive position.
Independent firms and contractors perform some of our
product development activities, while other technologies
are licensed from third parties.We generally either own or
license the software developed by third parties. Because
talented development personnel are in high demand,
independent developers, including those who currently
develop products for us, may not be able to provide devel-
opment support to us in the future. Similarly, we may not
be able to obtain and renew license agreements on favor-
able terms, if at all, and any failure to do so could harm our
business.
Our business strategy has historically depended in part on
our relationships with third-party developers,who provide
products that expand the functionality of our design soft-
ware. Some developers may elect to support other
products or may experience disruption in product devel-
opment and delivery cycles. In particular markets, this
disruption could negatively impact these third-party
developers and end users,which could harm our business.
Our international operations expose us to sig-
nificant regulatory, intellectual property,
collections, exchange fluctuations and other
risks, which could adversely impact our future
net revenues.
We anticipate that international operations will continue
to account for a significant portion of our consolidated net
revenues. Risks inherent in our international operations
include the following: unexpected changes in regulatory
practices and tariffs, difficulties in staffing and managing
foreign operations, longer collection cycles for accounts
receivable, potential changes in tax laws, greater difficulty
in protecting intellectual property and the impact of
fluctuating exchange rates between the U.S. dollar and
foreign currencies in markets where we do business.
Our risk management strategy uses derivative financial
instruments in the form of foreign currency option con-
tracts and forward contracts for the purpose of hedging
foreign currency market exposures,which exist as a part of
our ongoing business operations. Our international
results may also be impacted by general economic and
political conditions in these foreign markets. These and
other factors may adversely impact our future interna-
tional operations and consequently our business as a
whole.
If we do not maintain our relationship with the
members of our distribution channel, our abil-
ity to generate net revenues will be adversely
affected.
We sell our software products primarily to distributors and
value-added resellers, or VARs.Our ability to effectively dis-
tribute our products depends in part upon the financial
and business condition of our VAR network. Although we
have not recently experienced any material problems with
the financial viability of our VAR network, computer soft-
ware dealers and distributors are typically not highly
capitalized, have previously experienced difficulties dur-
ing times of economic contraction and may do so in the
future. In addition, the changing distribution models
resulting from the Internet, from increased focus on direct
sales to major accounts or from two-tiered distribution
may impact our VAR network in the future. While no single
customer accounted for more than 10 percent of our con-
solidated net revenues in fiscal 2001, the loss of or a
significant reduction in business with any one of our major
international distributors or large U.S.resellers could harm
our business.
Product returns by VARs could exceed our esti-
mates and harm our net revenues.
With the exception of some distributors, agreements with
our VARs do not contain specific product-return privileges.
However, we permit our VARs to return product in certain
instances, generally during periods of product transition
and during update cycles. We anticipate that product
returns in future periods will continue to be impacted by
product update cycles, new product releases and software
quality.
We establish reserves, including reserves for stock balanc-
ing and product rotation. These reserves are based on
estimated future returns of product and, after taking into
account channel inventory levels, the timing of new prod-
uct introductions and other factors. While we maintain