Avid 2011 Annual Report Download - page 86

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$0.5 million of valuation allowance on previously existing deferred tax assets. In addition during 2010, the Company removed
$0.3 million of valuation allowance on previously existing alternative minimum tax deferred tax credits. As a result of the 2009
acquisition of MaxT, the Company was able to remove $0.6 million of valuation allowance on previously existing deferred tax
assets during 2009.
Excluded from the above deferred tax schedule at December 31, 2011 are tax assets totaling $71.4 million resulting from the
exercise of employee stock options. In accordance with ASC Topic 740, Income Taxes, and ASC Topic 718, Compensation -
Stock Compensation, recognition of these assets would occur upon utilization of these deferred tax assets to reduce taxes payable
and would result in a credit to additional paid-in capital within stockholders' equity rather than the provision for income taxes. In
2009, 2010 and 2011, no adjustment to additional paid-in-capital related to exercises of employee stock options was required.
The following table sets forth a reconciliation of the Company's income tax provision (benefit) to the statutory U.S. federal tax
rate for the years ended December 31, 2011, 2010 and 2009:
Statutory rate
Tax credits
Foreign operations
Non-deductible expenses and other
Increase in valuation allowance
Effective tax rate
2011
(35)%
(9)%
1 %
10 %
37 %
4 %
2010
(35)%
(9)%
32 %
3 %
10 %
1 %
2009
(35)%
(7)%
5 %
2 %
33 %
(2)%
ASC Topic 740 requires that a tax position must be more likely than not to be sustained before being recognized in the financial
statements. It also requires the accrual of interest and penalties as applicable on unrecognized tax positions. At January 1, 2009,
the Company's unrecognized tax benefits and related accrued interest and penalties totaled $3.7 million, of which $1.4 million
would affect the Company's effective tax rate if recognized. In 2009, there was a decrease in the previously unrecognized tax
benefits, primarily related to the settlement of tax audits in Germany. At December 31, 2009, the Company's unrecognized tax
benefits and related accrued interest and penalties totaled $2.3 million, all of which would affect the Company's effective tax rate
if recognized. In 2010, there was a decrease in the previously unrecognized tax benefits, primarily related to the expiration of the
statutes of limitations in various jurisdictions. At December 31, 2010, the Company's unrecognized tax benefits and related
accrued interest and penalties totaled $1.7 million, all of which would affect the Company's effective tax rate if recognized. In
2011, the Company's unrecognized tax benefits increased, primarily as a result of tax positions taken in prior periods and included
in the Company's tax loss carryforwards. The increase did not have an impact on the effective rate because the Company
previously maintained a full valuation allowance on the related loss carryforwards. A portion of the unrecognized tax benefits
also decreased in 2011, primarily as a result of the settlement of a tax position with a foreign tax authority in December 2011 and
the expiration of the statutes of limitations in various jurisdictions. At December 31, 2011, the Company's unrecognized tax
benefits and related accrued interest and penalties totaled $12.9 million, of which $0.9 million would affect the Company's
effective tax rate if recognized. The Company anticipates that in the next twelve months the liability for unrecognized tax
benefits for uncertain tax positions could decrease by as much as $0.1 million due to the expiration of statutes of limitations and
other factors.
The following table sets forth a reconciliation of the beginning and ending amounts of unrecognized tax benefits, excluding the
impact of interest and penalties, for the years ended December 31, 2011, 2010 and 2009 (in thousands):