Avid 2000 Annual Report Download - page 27

20
Other income and expense, net, consists of interest income, interest expense and, in 2000, equity in income of non-
consolidated companies. During 2000, other income and expense, net, increased to $3.7 million from $3.5 million in 1999.
The increase was primarily related to an increase in income related to non-consolidated companies which was partially
offset by an increase in interest expense. Other income and expense, net, of $3.5 million for 1999 decreased approximately
$5.2 million from 1998 due to reduced interest income from reduced cash and investment balances during the period.
Provision for (Benefit from) Income Taxes
Our effective tax rate was 10%, 51%, and (18%), respectively, for 2000, 1999, and 1998. The tax rate for 2000
includes an addition to the valuation allowance against all U.S.-related deferred tax assets and the establishment of a
valuation allowance against a majority of the foreign deferred tax assets. Based on the level of deferred tax assets as of
December 31, 2000 and the level of historical U.S. and foreign taxable income, we have determined that the uncertainty
regarding the realization of these assets is sufficient to warrant the establishment of a valuation allowance. Excluding the
impact of the valuation allowance, our effective tax rate would have been (37%) for 2000. This differs from the Federal
statutory rate of (35%) due primarily to state taxes, the U.S. Federal Research Tax Credit and our foreign subsidiaries,
which are taxed at different rates.
The tax rate for 1999 includes the impact of establishing a full valuation allowance against U.S.-related deferred
tax assets. Excluding the impact of the valuation allowance, our effective tax rate would have been (41%) for 1999. This
differs from the Federal statutory rate of (35%) due primarily to state taxes and the U.S. Federal Research Tax Credit.
The tax rate for 1998 includes a benefit of $8.2 million related to the pre-tax charge of $28.4 for in-process
technology associated with our acquisition of Softimage. At that time, a portion of the charge was not deductible for U.S.
Federal tax purposes. Excluding the charge and related tax benefit, our effective tax rate would have been 31% for 1998.
The 1998 effective tax rate excluding the charge and related tax benefit of 31% is different from the Federal statutory rate of
35% due primarily to our foreign subsidiaries, which were taxed in the aggregate at a lower rate, and the U.S. Federal
Research Tax Credit.
LIQUIDITY AND CAPITAL RESOURCES
We have funded our operations to date through both private and public sales of equity securities as well as through
cash flows from operations. As of December 31, 2000, our principal sources of liquidity included cash, cash equivalents,
and marketable securities totaling approximately $83.2 million.
With respect to cash flow, net cash provided by operating activities was $12.1 million in 2000 compared to $7.6
million in 1999 and $68.2 million in 1998. During 2000, cash generated from operating activities reflects net income after
adjustment for depreciation and amortization and provision for doubtful accounts, offset by cash uses attributable primarily
to an increase in accounts receivable and inventories. During 1999, net cash provided by operating activities primarily
reflects net income after adjustment for depreciation and amortization and changes in deferred taxes, as well as decreases in
accounts receivable. This was offset by reductions in income taxes payable and accrued expenses. During 1998, net cash
provided by operating activities primarily reflects net income after adjustment for depreciation and amortization and the
charge for in-process research and development in connection with the acquisition of Softimage.
We purchased $7.4 million of property and equipment during 2000, compared to $22.6 million and $14.1 million
in 1999 and 1998, respectively. Purchases in 2000 were primarily of equipment to support research and development
activities. Purchases in 1999 were primarily of hardware and software for our information systems and equipment to support
research and development activities. During 2000, we also made a cash investment of $2.1 million in Rocket Network, Inc.
and purchased the assets of two companies, Pluto and TMF, for a total of approximately $2.0 million in cash and $0.3
million of guaranteed bonuses to be paid in 2001. We also utilized cash of $78.4 million in our acquisition of Softimage in
1998. Additionally, we made a payment of $8.0 million in 1999 against a note issued to Microsoft Corporation in
connection with the acquisition of Softimage. The remaining principal balance of the note of approximately $12.9 million is
due and payable in June 2003. (See Note F to the Notes to Consolidated Financial Statements). In connection with the
acquisitions of Pluto and TMF, we may be required to make certain contingent cash payments limited in the aggregate to an
additional $13.5 million, dependent upon future revenues and/or gross margin levels of products acquired from these
companies through December 2004.
During 2000, we generated cash of approximately $10.1 million, net of common stock repurchases, from the
issuance of common stock related to the exercise of stock options and our employee stock purchase plan. During 1999, we