Avid 1998 Annual Report Download - page 43

38
1998 1997 1996
Statutory rate 35% 35% (35)%
Nondeductible acquisition costs 12
Tax credits (8) (4) (1)
Foreign operations (8) (3) 4
State taxes, net of federal benefit (2) 2 (2)
Foreign sales corporation (2) (1)
Other 4 2 2
Effective tax rate before special charge 31 31 (32)
Rate difference due to charge for in-process
research and development (49)
Effective tax rate (18)% 31% (32)%
For the year ended December 31, 1998, the effective tax rate before special charge is based on a profit before tax amount
that excludes the $28.4 million charge for in-process research and development, of which $6.7 million was not deductible
for tax purposes. The Company’ s actual effective tax rate of 18% for the year reflects a tax benefit equal to 29% of this
one-time charge.
Consolidated results of operations include results of manufacturing operations in Ireland. Income from the sale of products
manufactured or developed in Ireland is subject to a 10% Irish tax rate through the year 2010. The favorable Irish tax rate
resulted in tax benefits of approximately $1.5 million in 1998 and $900,000 in 1997. The 1996 Irish tax benefit was
immaterial to the results of operations. The 1998 basic and diluted per share tax benefit was $0.06 and $0.06, respectively.
The Internal Revenue Service is examining the Company’ s U.S. tax returns for 1993 through 1996. Management believes
that any related adjustments that might be required will not be material to the financial statements.
I. CAPITAL STOCK
Preferred Stock
The Company is authorized to issue up to one million shares of preferred stock, $.01 par value per share. Each series of
preferred stock shall have such rights, preferences, privileges and restrictions, including voting rights, dividend rights,
conversion rights, redemption privileges, and liquidation preferences, as shall be determined by the Board of Directors.
In February 1996, the Board of Directors approved a Shareholder Rights Plan. The rights were distributed in March 1996
as a dividend at the rate of one right for each share of Common Stock outstanding. No value was assigned to these rights.
The rights may be exercised to purchase shares of a new series of $.01 par value, junior participating preferred stock or to
purchase a number of shares of the Company’ s common stock which equals the exercise price of the right, $115 divided by
one-half of the then-current market price, upon occurrence of certain events, including the purchase of 20% or more of the
Company’ s common stock by a person or group of affiliated or associated persons. The rights expire on February 28, 2006
and may be redeemed by the Company for $.01 each at any time prior to the tenth day following a change in control and in
certain other circumstances.
Common Stock
During June and July 1997, the Company granted 347,200 shares of $.01 par value restricted common stock to certain
employees under the 1997 Stock Incentive Plan approved by the shareholders on June 4, 1997. These shares vest annually
in 20% increments beginning May 1, 1998. Accelerated vesting may occur if certain stock price performance goals
established by the Board of Directors are met. On May 1, 1998, an additional 20% of the restricted stock became vested
due to the attainment of specific stock performance goals. Unvested restricted shares are subject to forfeiture in the event
that an employee ceases to be employed by the Company. The Company initially recorded, as a separate component of
stockholders’ equity, deferred compensation of approximately $9.1 million with respect to this restricted stock. This
deferred compensation represents the excess of fair value of the restricted shares at the date of the award over the purchase