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Microsoft Excel LibreOffice Calc


Analysis of Income Taxes

Difficulty: Advanced


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


Income Tax Expense (Benefit)

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

USD $ in thousands

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

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.

Effective Income Tax Rate (EITR)

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

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

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.

Components of Deferred Tax Assets and Liabilities

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

USD $ in thousands

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

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.

Deferred Tax Assets and Liabilities, Classification

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

USD $ in thousands

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

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.

Analyst Adjustments: Removal of Deferred Taxes

Adobe Systems Inc., adjustments to financial data

USD $ in thousands

Microsoft Excel LibreOffice Calc
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) hidden hidden hidden hidden hidden hidden
Less: Current deferred tax assets, net hidden hidden hidden hidden hidden hidden
Current assets (adjusted) hidden hidden hidden hidden hidden hidden
Adjustment to Total Assets
Total assets (as reported) hidden hidden hidden hidden hidden hidden
Less: Current deferred tax assets, net hidden hidden hidden hidden hidden hidden
Total assets (adjusted) hidden hidden hidden hidden hidden hidden
Adjustment to Total Liabilities
Total liabilities (as reported) hidden hidden hidden hidden hidden hidden
Less: Noncurrent deferred tax liabilities, net hidden hidden hidden hidden hidden hidden
Total liabilities (adjusted) hidden hidden hidden hidden hidden hidden
Adjustment to Stockholders' Equity
Stockholders' equity (as reported) hidden hidden hidden hidden hidden hidden
Less: Net deferred tax assets (liabilities) hidden hidden hidden hidden hidden hidden
Stockholders' equity (adjusted) hidden hidden hidden hidden hidden hidden
Adjustment to Net Income
Net income (as reported) hidden hidden hidden hidden hidden hidden
Add: Deferred income tax expense (benefit) hidden hidden hidden hidden hidden hidden
Net income (adjusted) hidden hidden hidden hidden hidden hidden

Adjusted Ratios: Removal of Deferred Taxes (Summary)

Adobe Systems Inc., adjusted ratios

Microsoft Excel LibreOffice Calc
Dec 1, 2017 Dec 2, 2016 Nov 27, 2015 Nov 28, 2014 Nov 29, 2013 Nov 30, 2012
Current Ratio
Reported current ratio hidden hidden hidden hidden hidden hidden
Adjusted current ratio hidden hidden hidden hidden hidden hidden
Net Profit Margin
Reported net profit margin hidden% hidden% hidden% hidden% hidden% hidden%
Adjusted net profit margin hidden% hidden% hidden% hidden% hidden% hidden%
Total Asset Turnover
Reported total asset turnover hidden hidden hidden hidden hidden hidden
Adjusted total asset turnover hidden hidden hidden hidden hidden hidden
Financial Leverage
Reported financial leverage hidden hidden hidden hidden hidden hidden
Adjusted financial leverage hidden hidden hidden hidden hidden hidden
Return on Equity (ROE)
Reported ROE hidden% hidden% hidden% hidden% hidden% hidden%
Adjusted ROE hidden% hidden% hidden% hidden% hidden% hidden%
Return on Assets (ROA)
Reported ROA hidden% hidden% hidden% hidden% hidden% hidden%
Adjusted ROA hidden% hidden% hidden% hidden% hidden% hidden%
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.

Adjusted Current Ratio

Microsoft Excel LibreOffice Calc
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) hidden hidden hidden hidden hidden hidden
Current liabilities (USD $ in thousands) hidden hidden hidden hidden hidden hidden
Current ratio1 hidden hidden hidden hidden hidden hidden
Adjusted for Deferred Taxes
Adjusted current assets (USD $ in thousands) hidden hidden hidden hidden hidden hidden
Adjusted current ratio2 hidden hidden hidden hidden hidden hidden

2017 Calculations

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

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

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

Microsoft Excel LibreOffice Calc
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) hidden hidden hidden hidden hidden hidden
Revenue (USD $ in thousands) hidden hidden hidden hidden hidden hidden
Net profit margin1 hidden% hidden% hidden% hidden% hidden% hidden%
Adjusted for Deferred Taxes
Adjusted net income (USD $ in thousands) hidden hidden hidden hidden hidden hidden
Adjusted net profit margin2 hidden% hidden% hidden% hidden% hidden% hidden%

2017 Calculations

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

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

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.

Adjusted Total Asset Turnover

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

2017 Calculations

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

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

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.

Adjusted Financial Leverage

Microsoft Excel LibreOffice Calc
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) hidden hidden hidden hidden hidden hidden
Stockholders' equity (USD $ in thousands) hidden hidden hidden hidden hidden hidden
Financial leverage1 hidden hidden hidden hidden hidden hidden
Adjusted for Deferred Taxes
Adjusted total assets (USD $ in thousands) hidden hidden hidden hidden hidden hidden
Adjusted stockholders' equity (USD $ in thousands) hidden hidden hidden hidden hidden hidden
Adjusted financial leverage2 hidden hidden hidden hidden hidden hidden

2017 Calculations

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

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

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.

Adjusted Return on Equity (ROE)

Microsoft Excel LibreOffice Calc
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) hidden hidden hidden hidden hidden hidden
Stockholders' equity (USD $ in thousands) hidden hidden hidden hidden hidden hidden
ROE1 hidden% hidden% hidden% hidden% hidden% hidden%
Adjusted for Deferred Taxes
Adjusted net income (USD $ in thousands) hidden hidden hidden hidden hidden hidden
Adjusted stockholders' equity (USD $ in thousands) hidden hidden hidden hidden hidden hidden
Adjusted ROE2 hidden% hidden% hidden% hidden% hidden% hidden%

2017 Calculations

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

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

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.

Adjusted Return on Assets (ROA)

Microsoft Excel LibreOffice Calc
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) hidden hidden hidden hidden hidden hidden
Total assets (USD $ in thousands) hidden hidden hidden hidden hidden hidden
ROA1 hidden% hidden% hidden% hidden% hidden% hidden%
Adjusted for Deferred Taxes
Adjusted net income (USD $ in thousands) hidden hidden hidden hidden hidden hidden
Adjusted total assets (USD $ in thousands) hidden hidden hidden hidden hidden hidden
Adjusted ROA2 hidden% hidden% hidden% hidden% hidden% hidden%

2017 Calculations

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

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

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.