Avid 2004 Annual Report Download - page 45

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business and stock price in ways that cannot be predicted. We are predominantly uninsured for losses and interruptions
caused by terrorism, acts of war, and other conflicts and events.
If we fail to maintain strong relationships with our resellers, distributors, and suppliers, our ability to successfully
deploy our products may be harmed.
We sell many of our video products and services, and substantially all of our audio products and services,
indirectly through resellers and distributors. In our audio segment, a few distributors account for a significant portion of the
revenue from sales of our audio products. The loss of one or more key distributors could reduce our revenues. The
resellers and distributors of our video segment products typically purchase Avid software and Avid–specific hardware from
us, and third-party components from various other vendors, in order to produce complete systems for resale. Any disruption
to our resellers and distributors, or their third-party suppliers, could reduce our revenues. Increasingly, we are distributing
our products directly, which could put us in competition with our resellers and distributors and could adversely affect our
revenues. In addition, our resellers could diversify the manufacturers from whom they purchase products to sell to the final
end-users, which could lead to a weakening of our relationships with our resellers and could adversely affect our revenues.
Most of the resellers and distributors of our video products are not granted rights to return products after purchase,
and actual product returns from such resellers and distributors have been insignificant to date. However, our revenue from
sales of audio products is generally derived from transactions with distributors and authorized resellers that typically allow
limited rights of return, inventory stock rotation and price protection. Accordingly, reserves for estimated returns,
exchanges and credits for price protection are recorded as a reduction of revenues upon shipment of the related products to
such distributors and resellers, based upon our historical experience. To date, actual returns have not differed materially
from management's estimates. However, if returns of our audio segment products were to exceed estimated levels, our
revenues and operating results could be adversely impacted.
Changes in accounting rules could adversely affect our future operating results.
Our financial statements are prepared in accordance with U.S. generally accepted accounting principles. 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. A change
from current accounting regulations, including accounting for stock-based compensation, will have a significant effect on
our reported financial results.
Our future growth could be harmed if we lose the services of certain employees.
Our success depends upon the services of a talented and dedicated workforce, including members of our executive
team and those in more technical positions. The loss of the services of one or more key employees could harm our business.
Our success also depends upon our ability to attract and retain highly skilled new employees. Competition for such
employees is intense in the industries and geographic areas in which we operate. In the past, we have relied on our ability to
grant stock options as one mechanism for recruiting and retaining highly skilled talent. Newly issued accounting regulations
which will require us to expense stock options will impair our ability to provide these incentives without incurring
compensation costs. If we are unable to compete successfully for talented employees, our business could suffer.
If we fail to manage our growth effectively, our business could be harmed.
Our success depends on our ability to effectively manage the growth of our operations. As a result of our
acquisitions and increasing demand for our products and services, the scope of our operations has grown both domestically
and internationally. Our management team will face challenges inherent in efficiently managing an increased number of
employees over larger geographic distances. These challenges include implementing effective operational systems,
procedures and controls, as well as training new personnel. Inability to successfully respond to these challenges could have
a material adverse effect on the growth of our business.
Our websites could subject us to legal claims that could harm our business.
Some of our websites provide interactive information and services to our customers. To the extent that materials
may be posted on and/or downloaded from these websites and distributed to others, we may be subject to claims for
defamation, negligence, copyright or trademark infringement, personal injury, or other theories of liability based on the
nature, content, publication or distribution of such materials. In addition, although we have attempted to limit our exposure
by contract, we may also be subject to claims for indemnification by end users in the event that the security of our websites