Avid 2008 Annual Report Download - page 76

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71
Net deferred tax assets (liabilities) consisted of the following (in thousands):
December 31,
2008 2007
Deferred tax assets:
Tax credit and net operating loss carryforwards $ 106,822 $ 80,509
Allowances for bad debts 729 315
Difference in accounting for:
Revenue 6,146 5,513
Costs and expenses 53,256 36,949
Inventories 9,128 5,184
Acquired intangible assets 45,636 44,791
Other 3 3
Gross deferred tax assets 221,720 173,264
Valuation allowance (203,473) (140,486)
Deferred tax assets after valuation allowance 18,247 32,778
Deferred tax liabilities:
Difference in accounting for:
Revenue
—
(6)
Costs and expenses (3,066) (5,974)
Inventories
—
(2,621)
Acquired intangible assets (14,261) (25,278)
Other
—
—
Gross deferred tax liabilities (17,327) (33,879)
N
et deferred tax assets (liabilities) $ 920 $ (1,101)
Deferred tax assets and liabilities reflect the net tax effects of the tax credits and net operating loss carryforwards and
the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. The ultimate realization of the net deferred tax assets is dependent upon
the generation of sufficient future taxable income in the applicable tax jurisdictions.
For U.S. federal and state income tax purposes at December 31, 2008, the Company has tax credit carryforwards of
approximately $62.0 million, which will expire between 2009 and 2028, and net operating loss carryforwards of
approximately $287.4 million, which will expire between 2019 and 2028. The federal net operating loss and tax credit
amounts are subject to annual limitations under Section 382 change of ownership rules of the U.S. Internal Revenue
Code of 1986, as amended (the “Internal Revenue Code”). Based on the level of the deferred tax assets as of
December 31, 2008 and the level of historical U.S. losses, management has determined that the uncertainty regarding
the realization of these assets warranted a full valuation allowance at December 31, 2008.
The Company’s assessment of the valuation allowance on the U.S. deferred tax assets could change in the future
based on its levels of pre-tax income and other tax related adjustments. Removal of the valuation allowance in whole
or in part would result in a non-cash reduction in income tax expense during the period of removal. If the valuation
allowance of $203.5 million as of December 31, 2008 were to be removed in its entirety, a $154.0 million non-cash
reduction in income tax expense would be recorded. However, upon the Company’s adoption of SFAS No. 141
(revised 2007), or SFAS 141(R), Business Combinations, on January 1, 2009, changes in valuation allowances related
to acquisitions will affect income tax expense. For 2008 and 2007, there was no impact to goodwill resulting from the
utilization of the acquired U.S. deferred tax assets.