Notes to Consolidated Financial Statements 49 Franklin Covey 2000 Annual Report AUGUST 31, YEAR ENDED  AUGUST 31, YEAR ENDED  AUGUST 31, The Company was involved in a business reengineering and information system implementation project that was principally completed during fiscal 1999. During the Project, the Company capitalized certain costs in accor- dance with accounting principles generally accepted in the United States. Certain previously capitalized costs  of the Project were written off in accordance with EITF 97-13 as a cumulative adjustment in the Company’s first quarter of fiscal 1998. During the remainder of fiscal 1998 and during fiscal 1999, the majority of the costs associated with the implementation Project were capitalized in accordance with EITF 97-13 and other related accounting standards. Goodwill amortization consists of non-deductible goodwill generated by the merger with Covey Leadership Center and certain other acquisitions. During the fiscal years ended August 31, 2000 and 1999, the effect of foreign losses is primarily comprised of losses sustained in Japan, Australia, and New Zealand for which no offsetting tax benefit could be recognized due to uncertainties related to future taxable income to offset such losses. Other items are comprised of various non- deductible expenses that occur in the normal course of business, but which had a magnified effect on the tax rate due to decreased taxable income in fiscal years 2000 and 1999 compared to prior years. During fiscal 1998, the Emerging Issues Task Force (the “EITF”) of the FASB issued consensus ruling 97-13, which specified the accounting treatment of certain business reengineering and information technology implementation costs. EITF 97-13 requires that certain costs which were previously capitalized to now be expensed as incurred. In addition, any previously capitalized costs that were incurred, and are addressed by EITF 97-13, were required to be written off. 16. CHANGE IN ACCOUNTING PRINCIPLE 15. INCOME TAXES Significant components of the Company’s deferred tax assets and liabilities are comprised of the following (in thousands): The provision for income taxes consists of the following (in thousands): In connection with a change in accounting principle, the Company also recognized a $1.5 million tax benefit in fiscal 1998. The differences between income taxes at the statutory federal income tax rate and income taxes reported in the consolidated statements of income are as follows: 2000 1999 Deferred income tax assets: Inventory and bad debt reserves $ 4,574 $ 4,897 Sales returns and contingencies 3,648 2,248 Restructuring cost accruals 2,058 6,239 Vacation and other accruals 2,495 2,559 Deferred compensation 1,310 Interest and other capitalization 362 855 Other 141 414 Total deferred income tax assets 14,588 17,212 Deferred income tax liabilities: Intangibles and fixed  asset step-up (29,342) (30,896) Depreciation and amortization (2,370) (1,537) Other (2,899) (3,240) Deferred income tax liabilities (34,611) (35,673) Net deferred income tax liabilities $(20,023) $(18,461) 2000 1999 1998 Current: Federal $ 7,131 $12,545 $24,620 State 1,698 2,046 4,067 Foreign 2,907 2,077 1,920 Deferred: Federal (1,440) (10,422) (614) State (334) (1,700) (100) $9,962 $ 4,546 $29,893 2000 1999 1998 Federal statutory  tax rate 35.0% (35.0)% 35.0% State income  taxes, net of  federal effect 4.9 (3.5) 3.5 Goodwill amortization 56.4 44.6 2.3 Effect of foreign  losses and tax  rate differential 53.3 63.9 Other 29.8 37.6 .7 179.4% 107.6 % 41.5%