Autodesk 2006 Annual Report Download - page 86

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Interest income for fiscal 2004 includes $4.2 million related to a tax benefit realized during the second
quarter of fiscal 2004 resulting from the favorable resolution with the IRS of an industry-wide issue regarding
Foreign Sales Corporations.
Provision for income taxes
Autodesk accounts for income taxes and the related accounts under the liability method in accordance with
Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes.” Deferred tax liabilities and
assets are determined based on the difference between the financial statement and tax bases of assets and
liabilities using enacted rates expected to be in effect during the year in which the basis differences reverse.
Our effective tax rate increased four percentage points from fiscal 2005 to fiscal 2006. The increase was
primarily the result of a decrease in tax benefits, as a percentage of pre-tax earnings, from (1) the lapse of the
statute of limitations, which resulted in the release of tax reserves with respect to prior tax years and (2) the
repatriation of certain foreign dividends at a rate lower than the 35% federal statutory rate under the American
Jobs Creations Act of 2004 (“DRD Legislation”). The current year increase to the effective tax rate was also
partially offset by an increase in tax benefits from international profits taxed at rates less than the U.S. federal
statutory rate.
Our effective tax rate increased eight percentage points from fiscal 2004 to fiscal 2005. This increase was
primarily due to the absence of a $19.7 million income tax benefit resulting from a favorable resolution of an
industry-wide matter surrounding our Foreign Sales Corporation during fiscal 2004. Our effective tax rate also
increased as a result of a decrease in tax benefits, as a percentage of pre-tax earnings, from the lapse of the statute
of limitations, which resulted in the release of tax reserves with respect to prior tax years. The effective tax rate
increase was also partially offset by (1) a benefit of $15.5 million related to the DRD Legislation in fiscal 2005 and
(2) an increase in tax benefits from international profits taxed at rates less than the U.S. federal statutory rate.
Our future effective tax rate may be materially impacted by the amount of benefits associated with our
foreign earnings, which are taxed at rates different from the federal statutory rate, extraterritorial income
exclusion, deduction for Domestic Production Activities, research credits, tax-exempt interest and changes in
the tax law. Our adoption of SFAS 123R in the first quarter of fiscal 2007 may also affect our future effective tax
rate. Further, during the past two fiscal years, our effective tax rate has benefited from the repatriation of certain
foreign dividends under the American Jobs Creations Act of 2004, the provisions of which are not effective for
future years.
For additional information regarding our income tax provision, see Note 5, “Income Taxes,” in the Notes
to Consolidated Financial Statements.
Liquidity and Capital Resources
Our primary source of cash is from the sale of our products. Our primary use of cash is payment of our
operating costs which consist primarily of employee-related expenses, such as compensation and benefits, as
well as general operating expenses for marketing, facilities and overhead costs. In addition to operating expenses,
our primary uses of cash include funding our stock repurchase program and investing in our growth initiatives
through business acquisitions. See further discussion of these items below.
At January 31, 2006, our principal sources of liquidity were cash, cash equivalents and marketable securities
totaling $377.5 million and net accounts receivable of $261.4 million. In addition, we also have available a U.S. line
of credit facility which was established during fiscal 2006. This line of credit permits unsecured short-term
borrowings of up to $100.0 million, which is available for working capital or other business needs. There were
no borrowings outstanding under this agreement at January 31, 2006. See Note 6 “Borrowing Arrangements”
in the Notes to Consolidated Financial Statements for further information on this line of credit.
During fiscal 2006, we generated $415.2 million of cash from operating activities compared to $373.1 million
in fiscal 2005. This increase was primarily driven by higher revenue, higher operating earnings, higher deferred
revenue and accounts payable balances, partially offset by higher working capital uses of cash related to larger
bonus and other incentive compensation amounts paid during the first quarter of fiscal 2006.
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