Autodesk 2000 Annual Report Download - page 27

26 FY 00 Autodesk, Inc.
for use in related markets. While Autodesk believes
that the market recognition that Discreet achieved
through sales of flame*, smoke*, flint*, frost*, inferno*,
and fire* systems to creative professionals will facili-
tate Autodesk’s marketing efforts in new markets, the
Discreet Segment may not be able to successfully
develop and market systems and software for other
markets, and, even if it does so, such systems and soft-
ware may not be accepted at a rate, and in levels,
sufficient to maintain growth.Further, the distribution
channels,technical requirements,and levels and bases
of competition in other markets are different than
those in Discreet’s current market,so Discreet may not
be able to compete favorably in those markets.
Some of Autodesk’s historical product development
activities have been performed by independent firms
and contractors,while other technologies are licensed
from third parties. Autodesk generally either owns
or licenses the software developed by third parties.
Because talented development personnel are in high
demand, independent developers, including those
who have developed products for Autodesk in the
past,may not be able to provide development support
to Autodesk in the future. Similarly, Autodesk may not
be able to obtain and renew license agreements on
favorable terms, if at all, and any failure to do so could
harm Autodesk’s business.
Autodesk’s business strategy has historically depended
in large part on its relationships with third-party devel-
opers,who provide products that expand the function-
ality of Autodesk’s design software. Some developers
may elect to support other products or otherwise
experience disruption in product development and
delivery cycles. This disruption in particular markets
could negatively impact these third-party developers
and end users,which could harm Autodesk’s business.
Further, increased merger and acquisition activity cur-
rently experienced in the technology industry could
affect relationships with other third-party developers
and thus harm operating results.
International Operations
Autodesk anticipates that international operations will
continue to account for a significant portion of its con-
solidated revenues. Risks inherent in Autodesk’s inter-
national 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 Autodesk does business.
Autodesk’s risk management strategy uses derivative
financial instruments in the form of forward foreign
exchange contracts for the purpose of hedging for-
eign currency market exposures of underlying assets,
liabilities and other obligations which exist as a part
of its ongoing business operations. Autodesk does
not enter into derivative contracts for the purpose of
trading or speculative transactions. Autodesk’s inter-
national results may also be impacted by general
economic and political conditions in these foreign
markets. These and other factors may adversely
impact Autodesk’s future international operations and
consequently on Autodesk’s business as a whole.
Dependence on Distribution Channels
Autodesk sells its software products primarily to dis-
tributors and value-added resellers, or VARs.Autodesk’s
ability to effectively distribute products depends in
part upon the financial and business condition of its
VAR network. Although Autodesk has not recently
experienced any material problems with the financial
viability of its VAR network,computer software resellers
and distributors are typically not highly capitalized,
have previously experienced difficulties during times
of economic contraction and may do so in the future.
In addition, Autodesk’s VAR network may be impacted
in the future by the changing distribution models
resulting from the Internet. While no single customer
accounted for more than 10 percent of Autodesk’s
consolidated net revenues in fiscal 2000,1999 or 1998,
the loss of or a significant reduction in business with
any one of Autodesk’s major international distributors
or large U.S. resellers could harm Autodesk’s business.
Product Returns
With the exception of various European distributors,
agreements with Autodesk’s VARs do not contain
specific product-return privileges. However, Autodesk
permits its VARs to return product in certain instances,
generally during periods of product transition and
during update cycles. Management anticipates that
product returns in future periods will continue to be
impacted by product update cycles, new product
releases and software quality.
Autodesk establishes reserves, including reserves
for stock balancing and product rotation, based on
estimated future returns of product and after taking
into account channel inventory levels, the timing of
new product introductions and other factors. While
Autodesk maintains strict measures to monitor channel
inventories and to provide appropriate reserves,actual
product returns may differ from its reserve estimates,
and such differences could harm Autodesk’s business.