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Income Tax Accounting Policy

Adobe uses the asset and liability method of accounting for income taxes. Under this method, income tax expense is recognized for the amount of taxes payable or refundable for the current year. In addition, deferred tax assets and liabilities are recognized for expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating losses and tax credit carryforwards. Adobe records a valuation allowance to reduce deferred tax assets to an amount for which realization is more likely than not.

Source: Adobe Systems Inc., Annual Report

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Income Tax Expense (Benefit)

Adobe Systems Inc., income tax expense (benefit), continuing operations

USD $ in thousands

 
12 months ended Dec 1, 2017 Dec 2, 2016 Nov 27, 2015 Nov 28, 2014 Nov 29, 2013 Nov 30, 2012
United States federal
Foreign
State and local
Current
United States federal
Foreign
State and local
Deferred
Tax expense attributable to employee stock plans
Provision for income taxes

Source: Based on data from Adobe Systems Inc. Annual Reports

Item Description The company
Current The component of income tax expense for the period representing amounts of income taxes paid or payable (or refundable) for the period for all income tax obligations as determined by applying the provisions of relevant enacted tax laws to relevant amounts of taxable income (loss) from continuing operations. Adobe Systems Inc.'s current declined from 2015 to 2016 but then increased from 2016 to 2017 exceeding 2015 level.
Deferred The component of income tax expense for the period representing the net change in the entity's deferred tax assets and liabilities pertaining to continuing operations. Adobe Systems Inc.'s deferred increased from 2015 to 2016 and from 2016 to 2017.
Provision for income taxes The sum of the current income tax expense (benefit) and the deferred income tax expense (benefit) pertaining to pretax income (loss) from continuing operations; income tax expense (benefit) may include interest and penalties on tax uncertainties based on the entity's accounting policy. Adobe Systems Inc.'s provision for income taxes increased from 2015 to 2016 and from 2016 to 2017.

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Effective Income Tax Rate (EITR)

Adobe Systems Inc., effective income tax rate (EITR) reconciliation

 
Dec 1, 2017 Dec 2, 2016 Nov 27, 2015 Nov 28, 2014 Nov 29, 2013 Nov 30, 2012
U.S. federal statutory tax rate % % % % % %
Effective income tax rate % % % % % %

Source: Based on data from Adobe Systems Inc. Annual Reports

Item Description The company
Effective income tax rate A ratio calculated by dividing the reported amount of income tax expense attributable to continuing operations for the period by GAAP-basis pretax income from continuing operations. Adobe Systems Inc.'s effective income tax rate declined from 2015 to 2016 but then slightly increased from 2016 to 2017.

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Components of Deferred Tax Assets and Liabilities

Adobe Systems Inc., components of deferred tax assets and liabilities

USD $ in thousands

 
Dec 1, 2017 Dec 2, 2016 Nov 27, 2015 Nov 28, 2014 Nov 29, 2013 Nov 30, 2012
Acquired technology
Reserves and accruals
Deferred revenue
Unrealized losses on investments
Stock-based compensation
Net operating loss carryforwards of acquired companies
Credit carryforwards
Capitalized expenses
Benefits relating to tax positions
Other
Gross deferred tax assets
Deferred tax asset valuation allowance
Deferred tax assets
Depreciation and amortization
Undistributed earnings of foreign subsidiaries
Acquired intangible assets
Deferred tax liabilities
Net deferred tax assets (liabilities)

Source: Based on data from Adobe Systems Inc. Annual Reports

Item Description The company
Gross deferred tax assets The sum of the tax effects as of the balance sheet date of the amounts of all future tax deductions arising from temporary differences between tax basis and generally accepted accounting principles basis recognition of assets, liabilities, revenues and expenses, which can only be deducted for tax purposes when permitted under enacted tax laws (before the valuation allowance, if any, to reduce such sum amount to net realizable value). Includes any tax benefit realized in deferred tax assets for significant impacts of tax planning strategies. Adobe Systems Inc.'s gross deferred tax assets increased from 2015 to 2016 and from 2016 to 2017.
Deferred tax assets The aggregate tax effects as of the balance sheet date of all future tax deductions arising from temporary differences between tax basis and generally accepted accounting principles basis recognition of assets, liabilities, revenues and expenses, which can only be deducted for tax purposes when permitted under enacted tax laws; net of deducting the allocated valuation allowance, if any, to reduce such amount to net realizable value. Adobe Systems Inc.'s deferred tax assets increased from 2015 to 2016 and from 2016 to 2017.
Net deferred tax assets (liabilities) For entities that net deferred tax assets and tax liabilities, represents the unclassified net amount of deferred tax assets and liabilities as of the balance sheet date, which result from applying the applicable enacted tax rate to net temporary differences and carryforwards pertaining to assets or liabilities. A temporary difference is a difference between the tax basis of an asset or liability and its carrying amount in the financial statements prepared in accordance with generally accepted accounting principles that will reverse in ensuing periods. Adobe Systems Inc.'s net deferred tax assets (liabilities) declined from 2015 to 2016 and from 2016 to 2017.

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Deferred Tax Assets and Liabilities, Classification

Adobe Systems Inc., deferred tax assets and liabilities, classification

USD $ in thousands

 
Dec 1, 2017 Dec 2, 2016 Nov 27, 2015 Nov 28, 2014 Nov 29, 2013 Nov 30, 2012
Current deferred tax assets
Non-current deferred tax liabilities

Source: Based on data from Adobe Systems Inc. Annual Reports

Item Description The company
Current deferred tax assets The current portion of the aggregate tax effects as of the balance sheet date of all future tax deductions arising from temporary differences between tax basis and generally accepted accounting principles basis recognition of assets, liabilities, revenues and expenses, which can only be deducted for tax purposes when permitted under enacted tax laws; after deducting the allocated valuation allowance, if any, to reduce such amount to net realizable value. Deferred tax liabilities and assets shall be classified as current or noncurrent based on the classification of the related asset or liability for financial reporting. A deferred tax liability or asset that is not related to an asset or liability for financial reporting, including deferred tax assets related to carryforwards, shall be classified according to the expected reversal date of the temporary difference. An unrecognized tax benefit that is directly related to a position taken in a tax year that results in a net operating loss carryforward should be presented as a reduction of the related deferred tax asset.
Non-current deferred tax liabilities Represents the noncurrent portion of deferred tax liabilities, which result from applying the applicable tax rate to net taxable temporary differences pertaining to each jurisdiction to which the entity is obligated to pay income tax. A noncurrent taxable temporary difference is a difference between the tax basis and the carrying amount of a noncurrent asset or liability in the financial statements prepared in accordance with generally accepted accounting principles. In a classified statement of financial position, an enterprise shall separate deferred tax liabilities and assets into a current amount and a noncurrent amount. Deferred tax liabilities and assets shall be classified as current or noncurrent based on the classification of the related asset or liability for financial reporting. A deferred tax liability or asset that is not related to an asset or liability for financial reporting, including deferred tax assets related to carryforwards, shall be classified according to the expected reversal date of the temporary difference. Adobe Systems Inc.'s non-current deferred tax liabilities increased from 2015 to 2016 and from 2016 to 2017.

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Analyst Adjustments: Removal of Deferred Taxes

Adobe Systems Inc., adjustments to financial data

USD $ in thousands

 
Dec 1, 2017 Dec 2, 2016 Nov 27, 2015 Nov 28, 2014 Nov 29, 2013 Nov 30, 2012
Adjustment to Current Assets
Current assets (as reported)
Less: Current deferred tax assets, net
Current assets (adjusted)
Adjustment to Total Assets
Total assets (as reported)
Less: Current deferred tax assets, net
Total assets (adjusted)
Adjustment to Total Liabilities
Total liabilities (as reported)
Less: Noncurrent deferred tax liabilities, net
Total liabilities (adjusted)
Adjustment to Stockholders' Equity
Stockholders' equity (as reported)
Less: Net deferred tax assets (liabilities)
Stockholders' equity (adjusted)
Adjustment to Net Income
Net income (as reported)
Add: Deferred income tax expense (benefit)
Net income (adjusted)

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Adjusted Ratios: Removal of Deferred Taxes (Summary)

Adobe Systems Inc., adjusted ratios

 
Dec 1, 2017 Dec 2, 2016 Nov 27, 2015 Nov 28, 2014 Nov 29, 2013 Nov 30, 2012
Current Ratio
Reported current ratio
Adjusted current ratio
Net Profit Margin
Reported net profit margin % % % % % %
Adjusted net profit margin % % % % % %
Total Asset Turnover
Reported total asset turnover
Adjusted total asset turnover
Financial Leverage
Reported financial leverage
Adjusted financial leverage
Return on Equity (ROE)
Reported ROE % % % % % %
Adjusted ROE % % % % % %
Return on Assets (ROA)
Reported ROA % % % % % %
Adjusted ROA % % % % % %
Ratio Description The company
Adjusted current ratio A liquidity ratio calculated as adjusted current assets divided by adjusted current liabilities. Adobe Systems Inc.'s adjusted current ratio deteriorated from 2015 to 2016 and from 2016 to 2017.
Adjusted net profit margin An indicator of profitability, calculated as adjusted net income divided by total revenue. Adobe Systems Inc.'s adjusted net profit margin improved from 2015 to 2016 and from 2016 to 2017.
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. Adobe Systems Inc.'s adjusted total asset turnover improved from 2015 to 2016 and from 2016 to 2017.
Adjusted financial leverage A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity.
Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income.
Adobe Systems Inc.'s adjusted financial leverage increased from 2015 to 2016 and from 2016 to 2017.
Adjusted ROE A profitability ratio calculated as adjusted net income divided by adjusted shareholders' equity. Adobe Systems Inc.'s adjusted ROE improved from 2015 to 2016 and from 2016 to 2017.
Adjusted ROA A profitability ratio calculated as adjusted net income divided by adjusted total assets. Adobe Systems Inc.'s adjusted ROA improved from 2015 to 2016 and from 2016 to 2017.

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Adjusted Current Ratio

 
Dec 1, 2017 Dec 2, 2016 Nov 27, 2015 Nov 28, 2014 Nov 29, 2013 Nov 30, 2012
As Reported
Current assets (USD $ in thousands)
Current liabilities (USD $ in thousands)
Current ratio1
Adjusted for Deferred Taxes
Adjusted current assets (USD $ in thousands)
Adjusted current ratio2

2017 Calculations

1 Current ratio = Current assets ÷ Current liabilities
= ÷ =

2 Adjusted current ratio = Adjusted current assets ÷ Current liabilities
= ÷ =

Ratio Description The company
Adjusted current ratio A liquidity ratio calculated as adjusted current assets divided by adjusted current liabilities. Adobe Systems Inc.'s adjusted current ratio deteriorated from 2015 to 2016 and from 2016 to 2017.

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Adjusted Net Profit Margin

 
Dec 1, 2017 Dec 2, 2016 Nov 27, 2015 Nov 28, 2014 Nov 29, 2013 Nov 30, 2012
As Reported
Net income (USD $ in thousands)
Revenue (USD $ in thousands)
Net profit margin1 % % % % % %
Adjusted for Deferred Taxes
Adjusted net income (USD $ in thousands)
Adjusted net profit margin2 % % % % % %

2017 Calculations

1 Net profit margin = 100 × Net income ÷ Revenue
= 100 × ÷ = %

2 Adjusted net profit margin = 100 × Adjusted net income ÷ Revenue
= 100 × ÷ = %

Ratio Description The company
Adjusted net profit margin An indicator of profitability, calculated as adjusted net income divided by total revenue. Adobe Systems Inc.'s adjusted net profit margin improved from 2015 to 2016 and from 2016 to 2017.

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Adjusted Total Asset Turnover

 
Dec 1, 2017 Dec 2, 2016 Nov 27, 2015 Nov 28, 2014 Nov 29, 2013 Nov 30, 2012
As Reported
Revenue (USD $ in thousands)
Total assets (USD $ in thousands)
Total asset turnover1
Adjusted for Deferred Taxes
Adjusted total assets (USD $ in thousands)
Adjusted total asset turnover2

2017 Calculations

1 Total asset turnover = Revenue ÷ Total assets
= ÷ =

2 Adjusted total asset turnover = Revenue ÷ Adjusted total assets
= ÷ =

Ratio Description The company
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. Adobe Systems Inc.'s adjusted total asset turnover improved from 2015 to 2016 and from 2016 to 2017.

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Adjusted Financial Leverage

 
Dec 1, 2017 Dec 2, 2016 Nov 27, 2015 Nov 28, 2014 Nov 29, 2013 Nov 30, 2012
As Reported
Total assets (USD $ in thousands)
Stockholders' equity (USD $ in thousands)
Financial leverage1
Adjusted for Deferred Taxes
Adjusted total assets (USD $ in thousands)
Adjusted stockholders' equity (USD $ in thousands)
Adjusted financial leverage2

2017 Calculations

1 Financial leverage = Total assets ÷ Stockholders' equity
= ÷ =

2 Adjusted financial leverage = Adjusted total assets ÷ Adjusted stockholders' equity
= ÷ =

Ratio Description The company
Adjusted financial leverage A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity.
Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income.
Adobe Systems Inc.'s adjusted financial leverage increased from 2015 to 2016 and from 2016 to 2017.

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Adjusted Return on Equity (ROE)

 
Dec 1, 2017 Dec 2, 2016 Nov 27, 2015 Nov 28, 2014 Nov 29, 2013 Nov 30, 2012
As Reported
Net income (USD $ in thousands)
Stockholders' equity (USD $ in thousands)
ROE1 % % % % % %
Adjusted for Deferred Taxes
Adjusted net income (USD $ in thousands)
Adjusted stockholders' equity (USD $ in thousands)
Adjusted ROE2 % % % % % %

2017 Calculations

1 ROE = 100 × Net income ÷ Stockholders' equity
= 100 × ÷ = %

2 Adjusted ROE = 100 × Adjusted net income ÷ Adjusted stockholders' equity
= 100 × ÷ = %

Ratio Description The company
Adjusted ROE A profitability ratio calculated as adjusted net income divided by adjusted shareholders' equity. Adobe Systems Inc.'s adjusted ROE improved from 2015 to 2016 and from 2016 to 2017.

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Adjusted Return on Assets (ROA)

 
Dec 1, 2017 Dec 2, 2016 Nov 27, 2015 Nov 28, 2014 Nov 29, 2013 Nov 30, 2012
As Reported
Net income (USD $ in thousands)
Total assets (USD $ in thousands)
ROA1 % % % % % %
Adjusted for Deferred Taxes
Adjusted net income (USD $ in thousands)
Adjusted total assets (USD $ in thousands)
Adjusted ROA2 % % % % % %

2017 Calculations

1 ROA = 100 × Net income ÷ Total assets
= 100 × ÷ = %

2 Adjusted ROA = 100 × Adjusted net income ÷ Adjusted total assets
= 100 × ÷ = %

Ratio Description The company
Adjusted ROA A profitability ratio calculated as adjusted net income divided by adjusted total assets. Adobe Systems Inc.'s adjusted ROA improved from 2015 to 2016 and from 2016 to 2017.

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