Avid 2011 Annual Report Download - page 44

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impact of the valuation allowance, our effective tax rate would have been (33%), (9%) and (35%), respectively, for the years
2011, 2010 and 2009. These rates differ from the Federal statutory rate of 35% primarily due to the mix of income and losses in
foreign jurisdictions, which have tax rates that differ from the statutory rate, non-deductible acquisition-related expenses and other
discrete items.
We file in multiple tax jurisdictions and from time to time are subject to audit in certain tax jurisdictions, but we believe that we
are adequately reserved for these exposures. See Note P to our Consolidated Financial Statements in Item 8 of this annual report
for additional income tax disclosures for the years ended December 31, 2011, 2010 and 2009.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity and Sources of Cash
We have generally funded our operations in recent years through the use of existing cash balances, which we have supplemented
since the fourth quarter of 2010 with borrowings under our credit facilities. At December 31, 2011 and 2010, our principal
sources of liquidity included cash and cash equivalents totaling $32.9 million and $42.8 million, respectively, and available
borrowings under our credit facilities as discussed below. At December 31, 2011, the cash available in our foreign subsidiaries
totaled $21.1 million. We do not have any plans to repatriate these earnings because the underlying cash is required to fund the
ongoing foreign operations. The additional taxes that might be payable upon repatriation of foreign earnings are not significant.
On October 1, 2010, we entered into a Credit Agreement with Wells Fargo Capital Finance LLC, or Wells Fargo, which
established two revolving credit facilities with combined maximum availability of up to $60 million for borrowings or letter of
credit guarantees. The actual amount of credit available to us will vary depending upon changes in the level of the respective
accounts receivable and inventory, and is subject to other terms and conditions which are more specifically described in the Credit
Agreement. The credit facilities have a maturity date of October 1, 2014, at which time Wells Fargo's commitments to provide
additional credit will terminate and all outstanding borrowings must be repaid. Prior to the maturity of the credit facilities, any
amounts borrowed may be repaid and, subject to the terms and conditions of the Credit Agreement, reborrowed in whole or in part
without penalty.
The Credit Agreement contains customary representations and warranties, covenants, mandatory prepayments, and events of
default under which our payment obligations may be accelerated, including guarantees and liens on substantially all of our assets
to secure their obligations under the Credit Agreement. The Credit Agreement requires that Avid Technology, Inc., our parent
company, maintain liquidity (comprised of unused availability under its portion of the credit facilities plus certain unrestricted
cash and cash equivalents) of $10 million, at least $5 million of which must be from unused availability under its portion of the
credit facilities, and our subsidiary, Avid Technology International B.V., or Avid Europe, is required to maintain liquidity
(comprised of unused availability under the Avid Europe portion of the credit facilities plus certain unrestricted cash and cash
equivalents) of $5 million, at least $2.5 million of which must be from unused availability under the Avid Europe portion of the
credit facilities. Interest accrues on outstanding borrowings under the credit facilities at a rate of either LIBOR plus 2.75% or a
base rate (as defined in the Credit Agreement) plus 1.75%, at the option of Avid Technology, Inc. or Avid Europe, as applicable.
We must also pay Wells Fargo a monthly unused line fee at a rate of 0.625% per annum.
We incur certain loan fees and costs associated with our credit facilities. Such costs are capitalized as deferred borrowing costs
and amortized as interest expense on a straight-line basis over the term of the Credit Agreement. At December 31, 2011, the
balance of our deferred borrowing costs was $0.8 million, net of accumulated amortization costs of $0.4 million.
During the first quarter of 2011, our U.S. operations borrowed $8.0 million against the credit facilities to meet certain short-term
cash requirements, all of which was repaid during the first quarter of 2011. During the second quarter of 2011, our U.S.
operations borrowed $13.0 million against the credit facilities to meet certain short-term cash requirements, all of which had been
repaid as of December 31, 2011. At December 31, 2011, Avid Technology, Inc. and Avid Europe had letters of credit guaranteed
under the credit facilities of $3.7 million and $1.1 million, respectively. At December 31, 2011, we were in compliance with all
debt agreement covenants, and Avid Technology, Inc. and Avid Europe had available borrowings under the credit facilities of
approximately $31.1 million and $16.0 million, respectively, after taking into consideration the outstanding letters of credit and
related liquidity covenant.
Subsequent to December 31, 2011 but prior to the issuance of the financial statements included in this report, we borrowed and
repaid $1.0 million under the credit line. We had no outstanding borrowings under the credit facilities as of the date of issuance of