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ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
(Continued)
NOTE 8. INCOME TAXES (CONTINUED)
Total income tax expense differs from the expected tax expense (computed by multiplying the United
States federal statutory rate of approximately 35% for fiscal years 1998, 1997, and 1996 by income before
income taxes) as a result of the following:
Years Ended
November 27 November 28 November 29
1998 1997 1996
Computed ‘‘expected’’ tax expense ............... $58,693 $103,632 $85,689
State tax expense, net of federal benefit ........... 6,068 10,301 9,819
Nondeductible write-off of acquired in-process
research and development ................... — 1,791 5,310
Nondeductible goodwill ....................... 2,011 825 772
Tax-exempt income .......................... (4,190) (5,559) (3,304)
Tax credits ................................ (4,708) (4,604) (4,912)
Foreign tax rate differential .................... 1,406 1,864 (4,003)
Other, net ................................. 3,270 1,003 2,176
$62,550 $109,253 $91,547
The tax effects of the temporary differences that give rise to significant portions of the deferred tax
assets and liabilities as of fiscal 1998 and fiscal 1997 are presented below:
November 27 November 28
1998 1997
Deferred tax assets:
Acquired technology ................................. $14,099 $12,720
Reserves and deferred revenue .......................... 30,655 25,511
Depreciation and amortization .......................... — 3,558
Net operating loss carryforwards ......................... 2,171 3,260
Investments ........................................ 2,988 —
Other ............................................ 2,562 3,532
Total gross deferred tax assets ......................... 52,475 48,581
Deferred tax asset valuation allowance .................. (2,696) (3,643)
Total deferred tax assets ............................. 49,779 44,938
Deferred tax liabilities:
Depreciation and amortization .......................... (1,076) —
Investments ........................................ — (303)
Other ............................................ (28) (1,812)
Total deferred tax liabilities ........................... (1,104) (2,115)
Net deferred tax assets ................................. $48,675 $42,823
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