Avid 2006 Annual Report Download - page 27

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Lengthy procurement lead times and unpredictable life cycles and customer demand for some of our
products may result in significant inventory risks.
With respect to many of our products, we must procure component parts and build finished inventory far in advance
of product shipments. Certain of these products, particularly within our consumer markets, may have unpredictable
life cycles and encounter rapid technological obsolescence as a result of dynamic market conditions. We procure
product components and build inventory based upon our forecasts of product life cycle and customer demand.
If we are unable to provide accurate forecasts or manage our inventory levels in response to shifts in customer
demand, we may have insufficient, excess or obsolete product inventory. Insufficient product inventory may impair
our ability to fulfill product orders and negatively impact our revenues. For excess or obsolete inventory, we may
need to record a write-down on products and components to their realizable value, which would negatively impact
our results of operations.
We purchase certain hardware components for our products from sole source suppliers.
We depend on sole source suppliers for certain key hardware components of our products. We do not generally
carry significant inventories of, and may not in all cases have guaranteed supply arrangements for, these hardware
components. If any of our sole source suppliers cease, suspend or otherwise limit production or shipment of their
hardware components, or adversely modify our terms or pricing structures, our ability to sell and service our own
products may be impaired. We cannot be certain that we will be able to obtain these hardware components, or
acceptable substitutes, from alternative sources or that we will be able to do so on commercially reasonable terms.
We may also be required to expend significant development resources to redesign our products to work around
the exclusion of any hardware component or accommodate the inclusion of any substitute hardware component, in
which case our operating results may suffer.
Our international operations expose us to significant exchange rate fluctuations and regulatory, intellectual
property and other risks that may adversely affect our operating results.
We derive a significant portion of our revenues from customers outside of the United States. Our international
sales are, for the most part, transacted through foreign subsidiaries and generally in the currency of the end-
user customers. Therefore, we are exposed to the risks that changes in foreign currency could adversely impact
our revenues, operating results and cash flow. To hedge against the international exchange exposure of certain
forecasted receivables, payables and cash balances of our foreign subsidiaries, we enter into foreign currency,
forward-exchange contracts. The success of our hedging program depends on forecasts of transaction activity
in the various currencies. To the extent that these forecasts are over- or understated during periods of currency
volatility, we may experience currency gains or losses. Other risks inherent in our international operations relate
to, among other things, environmental laws, regulatory practices, tax laws, trade restrictions and tariffs, as well as
longer collection cycles for accounts receivable and greater difficulties in protecting our intellectual property.
We are subject to risks associated with environmental regulatory compliance.
Many of our products are subject to international, federal and state laws and regulations governing the presence
of chemical substances in, and the proper recycling of, such products. Our product design and procurement
operations are becoming increasingly complex as we adjust to new and future requirements relating to the
composition of our products, including restrictions under the Directive on the Restriction of Hazardous Substances,
or the RoHS Directive, which applies, as of July 1, 2006, to products put on the market in the European Union,
and similar legislation recently adopted or currently proposed in other jurisdictions, including China, Japan, Korea
and various states within the United States. Our potential liability resulting from environmental legislation may be
substantial and may have an adverse effect on our operating results.
Changes in accounting rules could adversely affect our future operating results.
Our financial statements are prepared in accordance with accounting principles generally accepted in the
United States. These principles are subject to interpretation by various governing bodies, including the Financial
Accounting Standards Board and the Securities and Exchange Commission, which promulgate and interpret
appropriate accounting regulations. Changes to current accounting regulations, as well as the judgments and
methods we use to implement them, may have a significant effect on our reported financial results. For example,
changes in the rules regarding accounting for stock-based compensation, which took effect on January 1, 2006,
have had a negative effect on our reported operating expenses and earnings per share.