Avid 2009 Annual Report Download - page 42

37
The net tax benefit of $1.7 million for 2009 reflected a current tax benefit of $0.1 million and a deferred tax benefit of
$1.6 million mostly related to the foreign amortization of non-deductible acquisition-related intangible assets and the
release of a valuation allowance on a portion of the deferred tax assets in our Canadian entity. The net tax provision of
$2.7 million for 2008 reflected a current tax provision of $6.9 million and a deferred tax benefit of $4.2 million mostly
related to the foreign amortization of non-deductible acquisition-related intangible assets, as well as the write-down of
deferred tax liabilities due to goodwill and intangible asset impairments. The net tax provision of $3.0 million for 2007
reflected a current tax provision of $6.3 million and a deferred tax benefit of $3.3 million mostly related to the foreign
amortization of non-deductible acquisition-related intangible assets and to a release of a deferred tax liability in our
German entity.
Our effective tax rate, which represents our tax (benefit) provision as a percentage of profit or loss before tax, was (2%),
1% and 60%, respectively, for 2009, 2008 and 2007. Our (benefit from) provision for income taxes and effective tax
rate both changed from net provisions in 2008 to net benefits in 2009. The changes were the result of discrete tax
benefits of $2.9 million primarily related to the completion of a foreign tax audit, $2.0 million for cumulative
adjustments of prior year provisions to actual tax return filings and $1.0 million from the utilization of unused R&D tax
credits, all occurring in 2009. The slight decrease in our provision for income taxes in 2008, compared to 2007, resulted
primarily from a discrete tax benefit of $2.3 million resulting from the write-down of deferred tax liabilities due to
goodwill and intangible asset impairments and an expected $0.6 million benefit from a provision of the Housing and
Economic Recovery Act of 2008, which allows for the utilization of unused R&D tax credits. We generally recognize
no significant U.S. tax benefit from acquisition-related amortization. Our federal tax benefit was primarily related to the
discrete tax items mentioned above. Our state tax provision was the result of minimal state tax payments.
The tax rate in each year is affected by net changes in the valuation allowance against our deferred tax assets. Excluding
the impact of the valuation allowance, our effective tax rate would have been (35%), (14%) and (187%), respectively,
for the years 2009, 2008 and 2007. 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. See Note H to our Consolidated Financial Statements in Item 8 for
further information on our unrecognized tax benefits at December 31, 2009 and 2008.
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 from the proceeds of the
issuance of common stock under our employee stock plans. At December 31, 2009, our principal sources of liquidity
included cash, cash equivalents and marketable securities totaling $108.9 million.
Net cash of ($13.5) million was used in our operating activities in 2009, compared to $10.2 million and $94.1 million
provided by our operating activities in 2008 and 2007, respectively. In 2009, net cash used in operating activities
primarily reflected our net loss adjusted for depreciation, amortization and stock-based compensation expense, as well
as changes in working capital items, in particular decreases in accounts receivable and inventories, offset by decreases
in deferred revenues and accrued expenses including restructuring accruals. 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 3D animation 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.