Avid 2008 Annual Report Download - page 47

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provisions due to the tax impact of net operating loss carryforwards related to stock option deductions and acquisition-
related net operating loss carryforwards.
The tax rate in each year is affected by net changes in the valuation allowance against our deferred tax assets. We
regularly review our deferred tax assets for recoverability taking into consideration such factors as historical losses,
projected future taxable income and the expected timing of the reversals of existing temporary differences. SFAS No.
109, Accounting for Income Taxes, requires us to record a valuation allowance when it is more likely than not that some
portion or all of the deferred tax assets will not be realized. Based on the level of deferred tax assets as of December 31,
2008 and the level of historical U.S. losses, we have determined that the uncertainty regarding the realization of these
assets is sufficient to warrant the continued establishment of a full valuation allowance against the U.S. net deferred tax
assets.
Our assessment of the valuation allowance on the U.S. deferred tax assets could change in the future based on our levels
of pre-tax income and other tax-related adjustments. Reversal of the valuation allowance in whole or in part would
result in a non-cash reduction in income tax expense during the period of reversal. To the extent there is a reversal of
some or all of the valuation allowance, future financial statements would reflect an increase in non-cash income tax
expense until such time as our deferred tax assets are all used to reduce current taxes payable.
Excluding the impact of the valuation allowance, our effective tax rate would have been (14%), (187%) and 50%,
respectively, for the years 2008, 2007 and 2006. 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 impairment of goodwill expenses, and non-deductible acquisition-related expenses.
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.
LIQUIDITY AND CAPITAL RESOURCES
Current Cash Flows and Commitments
We have funded our operations in recent years through cash flows from operations as well as through stock option
exercises from our employee stock plans. As of December 31, 2008, our principal sources of liquidity included cash,
cash equivalents and marketable securities totaling $147.7 million.
Net cash provided by operating activities was $10.2 million in 2008, compared to $94.1 million in 2007 and $33.7
million in 2006. In 2008, net cash provided by operating activities primarily reflected our net loss adjusted for
depreciation and amortization, goodwill and intangible asset impairment losses, stock-based compensation expense, and
the gain on the sale of our Softimage and PCTV product lines, as well as changes in working capital items, in particular
decreases in accounts receivable and inventories and an increase in accrued expenses. In 2007, cash provided by
operating activities primarily reflected non-cash adjustments to our net loss for depreciation and amortization and stock-
based compensation expense, as well as a decrease in inventories and an increase in deferred revenues. In 2006, cash
provided by operating activities primarily reflected non-cash adjustments to our net loss for depreciation and
amortization, impairment of goodwill, and stock-based compensation expense, partially offset by increased inventories
and decreases in accounts payable and accrued expenses, all net of the impact of acquisitions.
Accounts receivable decreased by $35.2 million to $103.5 million at December 31, 2008, from $138.7 million at
December 31, 2007, driven by the decrease in net revenues of 20% in the fourth quarter of 2008, when compared to the
same period of 2007, as well as improved collections reflected by a decrease in days sales outstanding. These balances
are net of allowances for sales returns, bad debts and customer rebates, all of which we estimate and record based
primarily on historical experience. Days sales outstanding in accounts receivable was 45 days at December 31, 2008,
compared to 48 days at December 31, 2007.
At December 31, 2008 and 2007, we held inventory in the amounts of $95.8 million and $117.3 million, respectively.
These balances include stockroom, spare parts and demonstration equipment inventories at various locations and
inventory at customer sites related to shipments for which we have not yet recognized revenues. The decrease in