Adobe 1998 Annual Report Download - page 57

ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
(Continued)
NOTE 8. INCOME TAXES (CONTINUED)
The Company provides United States income taxes on the earnings of foreign subsidiaries unless the
subsidiaries’ earnings are considered permanently reinvested outside the United States.
As of November 27, 1998, the Company has foreign operating loss carryovers in various jurisdictions
of approximately $2.2 million with various expiration dates. For financial reporting purposes, a valuation
allowance has been established to fully offset the deferred tax assets related to foreign operating losses due
to uncertainties in utilizing these losses. A valuation allowance has also been established for certain
deductions related to investments. Management believes that it is more likely than not that the results of
future operations will generate sufficient taxable income to realize the net deferred tax assets.
The Company’s federal tax returns have been examined by the Internal Revenue Service for all years
through 1993. The Internal Revenue Service has proposed assessments that the Company is contesting in
Tax Court. Management believes that any related adjustments that might be required will not have a
material effect on the Company’s financial position or results of operations.
NOTE 9. BENEFIT PLANS
Pretax savings plan
In 1987, the Company adopted an Employee Investment Plan, qualified under Section 401(k) of the
Internal Revenue Code, which is a pretax savings plan covering substantially all of the Company’s United
States employees. Under the plan, eligible employees may contribute up to 18% of their pretax salary,
subject to certain limitations. The Company matches approximately 25% of the first 6% of employee
contributions and contributed approximately $2.4 million, $1.8 million, and $1.6 million in fiscal 1998,
1997, and 1996, respectively. Matching contributions can be terminated at the Company’s discretion.
Profit Sharing plan
The Company has a profit sharing plan that provides for profit sharing payments to all eligible
employees following each quarter in which the Company achieves at least 70% of its budgeted earnings for
the quarter. The plan, as well as the annual operating budget on which the plan is based, is approved by the
Company’s Board of Directors. The Company contributed approximately $6.8 million, $11.8 million, and
$9.9 million to the plan in fiscal 1998, 1997, and 1996, respectively.
Adobe Incentive Partners
In March 1997, as part of its venture investing program, the Company established an internal limited
partnership, Adobe Incentive Partners, L.P. (‘‘AIP’’), which allows certain of the Company’s executive
officers to participate in cash or stock distributions from Adobe’s venture investments. Adobe is both the
general partner and a limited partner of AIP. Other limited partners are executive officers of the Company
who are involved in Adobe’s venture investing activities and whose participation is deemed critical to the
success of the program.
Adobe’s Class A senior limited partnership interest includes both a liquidation preference and a
preference in recovery of the cost basis of each specific investment. The executives’ Class B junior limited
partnership interest qualifies for partnership distributions only after: (a) Adobe has fully recovered the cost
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