Autodesk 2005 Annual Report Download - page 52

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superceded by new product releases.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 2005 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 exceed our reserve
estimates, and such differences could harm our business.
If we are not able to adequately protect our proprietary rights, our business could be harmed.
We rely on a combination of patents, copyright and trademark laws, trade secrets, confidentiality procedures
and contractual provisions toprotect our proprietaryrights. Despite such efforts to protect our proprietaryrights,
unauthorized parties from time to time have copied aspects of our software products or have obtained and used
information that we regard as proprietary. Policing unauthorized use of our software products is time-consuming
and costly. While we have recovered some revenues resulting from the unauthorized use of our software products,
we are unable to measure the extent to which piracy of our software products exists, and software piracy can
be expected to be a persistent problem. Furthermore, our means of protecting our proprietary rights may not
be adequate, and our competitors may independently develop similar technology.
We may face intellectual property infringement claims that could be costly to defend and result in our loss
of significant rights.
As more and more software patents are granted worldwide, as the number of products and competitors
in our industry segments grows and as the functionality of products in different industry segments overlap, we
expect that software product developers will be increasingly subject to infringement claims. Infringement,
invalidity claims or misappropriation claims may be asserted against us, and any such assertions could harm our
business. Litigation often becomes more likely in times of economic downturn. Additionally, certain patent
holders have become more aggressive in threatening litigation in attempts to obtain fees for licensing the right
to use patents. Any such claims or threats, whether with or without merit, could be time-consuming to defend,
result in costly litigation and diversion of resources, or could cause product shipment delays or require us to
enter into royalty or licensing agreements. In addition, such royalty or license agreements, if required, may not
be available on acceptable terms, if at all, which would likely harm our business.
Changes in existing financial accounting standards or practices or taxation rules or practices may adversely affect
our results of operations.
Changes in existing accounting or taxation rules or practices, new accounting pronouncements or taxation
rules, or varying interpretations of current accounting pronouncements or taxation practice could have a
significant adverse effect on our results of operations or the manner in which we conduct our business. Further,
such changes could potentially affect our reporting of transactions completed before such changes are effective.
For example, we currently are not required to recordstock-based compensation charges to earnings in connection
with stock option grants to our employees. However, the FASB issued SFAS 123R which will require us to record
stock-based compensation charges to earnings for employee stockoption grants commencing in the third quarter
of fiscal 2006. Such charges will negatively impact our earnings.
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