Avid 1998 Annual Report Download - page 24

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The 1996 effective tax rate is different from the Federal statutory rate of 35.0% primarily due to the impact of the
Company’ s foreign subsidiaries, which are taxed in the aggregate at a lower rate.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations to date through both private and public sales of equity securities as well as through
cash flows from operations. As of December 31, 1998, the Company’ s principal sources of liquidity included cash, cash
equivalents, and marketable securities totaling approximately $111.8 million.
With respect to cash flow, net cash provided by operating activities was $68.2 million in 1998 compared to $111.2 million
in 1997 and $40.9 million in 1996. During the twelve months ended December 31, 1998 net cash provided by operating
activities primarily reflects net income after adjustment for the charge for in-process research and development in
connection with the acquisition of Softimage and depreciation and amortization. During the twelve months ended
December 31, 1997 net cash provided by operating activities primarily reflects net income adjusted for depreciation, as well
as increases in accounts payable and income taxes payable and reductions in inventory. In 1997, the increase in accrued
expenses was primarily due to provisions for profit sharing while the reduction in inventory resulted from improved
inventory turns. (See Consolidated Statements of Cash Flow)
The Company purchased $15.9 million of property and equipment and other assets during 1998, compared to $15.7 million
and $28.2 million in 1997 and 1996, respectively. These purchases were primarily of hardware and software for the
Company’ s information systems and equipment to support research and development activities. The Company also utilized
cash of $78.4 million in its acquisition of Softimage in 1998.
In 1995, the Company entered into an unsecured line of credit agreement with a group of banks which provides for up to
$35.0 million in revolving credit. The line of credit agreement was renewed on June 30, 1998 to expire on June 29, 1999,
and certain covenants were amended on September 30, 1998. Under the terms of the agreement, the Company must pay an
annual commitment fee of 1/4% of the average daily unused portion of the facility, payable quarterly in arrears. The
Company has two loan options available under the agreement: the Base Rate Loan and the LIBOR Rate Loan. The interest
rates to be paid on the outstanding borrowings for each loan annually are equal to the Base Rate or LIBOR plus 1.25%,
respectively. Additionally, the Company is required to maintain certain financial ratios and is bound by covenants over the
life of the agreement, including a restriction on the payment of dividends. The Company has in certain periods prior to
1997 been in default of certain financial covenants. On these occasions the defaults have been waived by the banks. There
can be no assurance that the Company will not default in future periods or that, if in default, it will be able to obtain such
waivers. The Company had no borrowings against the line and was not in default of any financial covenants as of December
31, 1998. The Company believes existing cash and marketable securities, internally generated funds and available
borrowings under its bank credit line will be sufficient to meet the Company’ s cash requirements, including capital
expenditures, at least through the end of 1999. In the event the Company requires additional financing, the Company
believes that it would be able to obtain such financing; however, there can be no assurance that it would be successful in
doing so, or that it could do so on terms favorable to the Company.
On October 23, 1997, February 5, 1998 and October 21, 1998, the Company announced that the Board of Directors had
authorized the repurchase of up to 1.0 million, 1.5 million and 2.0 million shares, respectively, of the Company’ s common
stock. Purchases have been and will be made in the open market or in privately negotiated transactions. The Company has
used and plans to continue to use any repurchased shares for its employee stock plans. As of December 31, 1997, the
Company had repurchased a total of 1.0 million shares at a cost of $28.8 million, which completed the program announced
in October 1997. As of December 31, 1998, the Company had repurchased approximately 1.9 million additional shares of
common stock at a cost of $61.8 million, which completed the program announced during February 1998 and initiated the
program announced in October 1998. These purchases include the repurchase of 500,000 shares from Intel Corporation
(“Intel”). Intel originally purchased approximately 1.6 million shares of Avid common stock in March 1997.
Other planned uses of cash include the efforts to develop the purchased in-process research and development related to the
Softimage acquisition into commercially viable products. As of December 31, 1998, the estimated costs to be incurred to
complete the development of in-process research and development projects total approximately $7.6 million through the
second half of 1999. Additionally, the note issued to Microsoft Corporation in connection with the acquisition is due and
payable in June 2003 (See Note O to the Notes to Consolidated Financial Statements).
YEAR 2000 READINESS DISCLOSURE