Autodesk 2004 Annual Report Download - page 46

Our international operations expose us to significant regulatory, intellectual property, collections, exchange
fluctuationsandotherrisks,whichcould adverselyimpactourfuturenetrevenuesandincreaseour netexpenses.
We anticipate that international operations will continue to account for a significant portion of our
consolidated net revenues and will provide significant support to our overall development efforts. Risks
inherent in our international operations include the following: unexpected changes in regulatory practices
and tariffs, difficulties in staffing and managing foreign sales and development operations, longer collection
cycles for accounts receivable, potential changes in tax laws and laws regarding the management of data,
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 international results will also continue to be impacted by general economic and political
conditions in these foreign markets or in specific large foreign markets. In particular, the potential economic
impact from the failure of expected continued growth in Asia Pacific (particularly China) in the first quarter
of fiscal 2005 could disrupt trade and market relationships in a way that could harm our business. These and
other factors may adversely impact our future international operations and consequently our business as
a whole.
Our risk management strategy uses derivative financial instruments in the form of foreign currency
forward and option contracts for the purpose of hedging foreign currency market exposures in the current
quarter, which exist as a part of our ongoing business operations. Nevertheless, significant fluctuations in
exchange rates between the U.S. dollar and foreign currency markets may adversely impact our future
net revenues.
If we do not maintain our relationship with the members of our distribution channel, or achieve anticipated
levels of sell-through, our ability to generate net revenues will be adversely affected.
We sell our software products both directly to customers and through a network of distributors and
resellers. Our ability to effectively distribute our products depends in part upon the financial and business
condition of our reseller network. Computer software dealers and distributors are typically not highly
capitalized and have previously experienced difficulties during times of economic contraction and may do
so in the future. While we have processes to ensure that we assess the creditworthiness of dealers and
distributors prior to our sales to them, if their financial condition were to deteriorate, they might not be able
to make repeat purchases. In addition, the changing distribution models resulting from increased focus on
direct sales to strategic accounts or from two-tiered distribution may impact our reseller network in the
future. No single customer, distributor or reseller accounted for more than 10% of our consolidated net
revenues in during fiscal 2004, 2003 or 2002. We rely significantly upon major distributors and resellers in
both the U.S. and international regions. The loss of or a significant reduction in business with those
distributors or resellers or the failure to achieve anticipated levels of sell-through with any one of our major
international distributors or large resellers could harm our business. In particular, if one or more of such
resellers should be unable to meet their obligations with respect to accounts payable to us, we could be
forced to write off such accounts, which could have a material adverse effect on our results of operations
in a given period.
Product returns could exceed our estimates and harm our net revenues.
With the exception of contracts with some distributors, our sales contracts do not contain specific
product-return privileges. However, we permit our distributors and resellers to return products in certain
instances. For example, we generally allow our distributors and resellers to return older versions of products
which have been superceded by new product releases. We anticipate that product returns will continue to
be impacted by product update cycles, new product releases such as AutoCAD 2004 and software quality.
We establish reserves for stock balancing and product rotation. These reserves are based on historical
experience, estimated channel inventory levels and the timing of new product introductions and other
factors. While we maintain strict measures to monitor these reserves, actual product returns may differ from
our reserve estimates, and such differences could harm our business.
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