Autodesk 2006 Annual Report Download - page 60

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ITEM 1A. RISK FACTORS
We operate in a rapidly changing environment that involves a number of risks, many of which are beyond
our control. The following discussion highlights some of these risks and the possible impact of these factors on
future results of operations. If any of the following risks actually occur, our business, financial condition or results
of operations may be adversely impacted, causing the trading price of our common stock to decline.
Because we derive a substantial portion of our net revenues from AutoCAD-based software products, if these
products are not successful, our net revenues will be adversely affected.
We derive a substantial portion of our net revenues from sales of AutoCAD software, including products
based on AutoCAD that serve specific vertical markets, upgrades to those products and products that are
interoperable with AutoCAD. As such, any factor adversely affecting sales of these products, including the
product release cycle, market acceptance, product competition, performance and reliability, reputation, price
competition, economic and market conditions and the availability of third-party applications, would likely harm
our operating results.
In the Media and Entertainment Segment, our customers’ buying patterns are heavily influenced by
advertising and entertainment industry cycles, which have resulted in and could have a negative impact on our
operating results. In addition, a significant percentage of the Media and Entertainment Segment’s Advanced
Systems products rely primarily on workstations manufactured by Silicon Graphics, Inc. (“SGI”). On September 15,
2005, SGI received an opinion from their independent registered public accounting firm that the financial
condition of SGI raised substantial doubt about its ability to continue as a going concern. In addition, SGI is
currently reviewing its strategic options and changing the management team and refocusing its business. SGI
has recently announced its intention to cease development of new products for the media and entertainment
industry. Although we have reduced our dependence on SGI workstations for the Advanced Systems products
and will continue to do so in the future, the near term failure of SGI to deliver products or product upgrades
in a timely manner would likely result in an adverse effect upon our financial results for a given period.
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.
In particular, the FASB issued SFAS 123R which will require us to record stock-based compensation charges to
earnings for employee stock option grants commencing in the first quarter of fiscal 2007, using a fair-value-based
method for determining such charges. We believe that the adoption of SFAS 123R will materially adversely impact
our earnings and may impact the manner in which we conduct our business.
Our international operations expose us to significant regulatory, intellectual property, collections, exchange
fluctuations, taxation and other risks, which could adversely impact our future net revenues and increase our
net expenses.
We anticipate that international operations will continue to account for a significant portion of our net
revenues and will provide significant support to our overall development efforts. Risks inherent in our
international operations include the following: the impact of fluctuating exchange rates between the U.S. dollar
and foreign currencies in markets where we do business, 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, tax arrangements with foreign governments and laws
regarding the management of data, possible future limitations upon foreign owned business, and greater
difficulty in protecting intellectual property.
Our international results will also continue to be impacted by economic and political conditions in foreign
markets generally and in specific large foreign markets, especially by changes in foreign exchange rates between
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