.Analysis of Income Taxes
Difficulty: Advanced
Income Tax Accounting Policy
Amgen provides for income taxes based on pretax income and applicable tax rates available in the various jurisdictions in which Amgen operates. Significant judgment is required in determining Amgen's provision for income taxes and income tax assets and liabilities, including evaluating uncertainties in the application of accounting principles and complex tax laws. Deferred income taxes are recorded for the expected tax consequences of temporary differences between the bases of assets and liabilities, as well as for loss and tax credit carryforwards for financial reporting purposes and amounts recognized for income tax purposes. Amgen records a valuation allowance to reduce the deferred tax assets to the amount of future tax benefit that is more likely than not to be realized.
Amgen recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained upon examination by the taxing authorities based on the technical merits of the position. The tax benefit recognized in the consolidated financial statements for a particular tax position is based on the largest benefit that is more likely than not to be realized. The amount of unrecognized tax benefits (UTBs) is adjusted as appropriate for changes in facts and circumstances, such as significant amendments to existing tax law, new regulations or interpretations by the taxing authorities, new information obtained during a tax examination, or resolution of an examination. Amgen recognizes both accrued interest and penalties, where appropriate, related to UTBs in income tax expense.
On December 22, 2017, the Securities and Exchange Commission (SEC) staff issued Staff Accounting Bulletin No. 118 (SAB 118) to address the accounting implications of the U.S. federal tax reform enacted on December 22, 2017. SAB 118 allows a company to record provisional amounts during a measurement period not to extend beyond one year of the enactment date.
Source: Amgen Inc., Annual Report
Income Tax Expense (Benefit)
Amgen Inc., income tax expense (benefit), continuing operations
USD $ in millions
| 12 months ended | Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | |
|---|---|---|---|---|---|---|
| | Federal | |||||
| | State | |||||
| | Foreign | |||||
| | Current provision | |||||
| | Federal | |||||
| | State | |||||
| | Foreign | |||||
| | Deferred provision (benefit) | |||||
| | Provision for income taxes |
Source: Based on data from Amgen Inc. Annual Reports
| Item | Description | The company |
|---|---|---|
| Current provision | 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. | Amgen Inc.'s current provision declined from 2015 to 2016 but then increased from 2016 to 2017 exceeding 2015 level. |
| Deferred provision (benefit) | 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. | Amgen Inc.'s deferred provision (benefit) increased from 2015 to 2016 but then declined significantly 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. | Amgen Inc.'s provision for income taxes increased from 2015 to 2016 and from 2016 to 2017. |
Effective Income Tax Rate (EITR)
Amgen Inc., effective income tax rate (EITR) reconciliation
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| | Federal statutory tax rate | % | % | % | % | % |
| | 2017 Tax Act, net repatriation tax | % | % | % | % | % |
| | Foreign earnings | % | % | % | % | % |
| | 2017 Tax Act, net deferred tax remeasurement | % | % | % | % | % |
| | Credits, Puerto Rico Excise Tax | % | % | % | % | % |
| | Share-based payments | % | % | % | % | % |
| | Credits, primarily federal R&D | % | % | % | % | % |
| | State taxes | % | % | % | % | % |
| | Audit settlements (federal, state, foreign) | % | % | % | % | % |
| | Other, net | % | % | % | % | % |
| | Effective tax rate | % | % | % | % | % |
Source: Based on data from Amgen Inc. Annual Reports
| Item | Description | The company |
|---|---|---|
| Effective 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. | Amgen Inc.'s effective tax rate increased from 2015 to 2016 and from 2016 to 2017. |
Components of Deferred Tax Assets and Liabilities
Amgen Inc., components of deferred tax assets and liabilities
USD $ in millions
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| | NOL and credit carryforwards | |||||
| | Accrued expenses | |||||
| | Expenses capitalized for tax | |||||
| | Stock-based compensation | |||||
| | Undistributed earnings of foreign subsidiaries | |||||
| | Other | |||||
| | Deferred income tax assets | |||||
| | Valuation allowance | |||||
| | Net deferred income tax assets | |||||
| | Acquired intangible assets | |||||
| | Debt | |||||
| | Other | |||||
| | Deferred income tax liabilities | |||||
| | Deferred income taxes, net |
Source: Based on data from Amgen Inc. Annual Reports
| Item | Description | The company |
|---|---|---|
| Deferred income 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. | Amgen Inc.'s deferred income tax assets declined from 2015 to 2016 and from 2016 to 2017. |
| Net deferred income 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. | Amgen Inc.'s net deferred income tax assets declined from 2015 to 2016 and from 2016 to 2017. |
| Deferred income taxes, net | 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. | Amgen Inc.'s deferred income taxes, net declined from 2015 to 2016 but then increased from 2016 to 2017 exceeding 2015 level. |
Analyst Adjustments: Removal of Deferred Taxes
Amgen Inc., adjustments to financial data
USD $ in millions
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| 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) | |||||
Adjusted Ratios: Removal of Deferred Taxes (Summary)
Amgen Inc., adjusted ratios
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| Net Profit Margin | ||||||
| | Reported net profit margin | % | % | % | % | % |
| | Adjusted net profit margin | % | % | % | % | % |
| 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 net profit margin | An indicator of profitability, calculated as adjusted net income divided by total revenue. | Amgen Inc.'s adjusted net profit margin improved from 2015 to 2016 but then deteriorated significantly 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. |
Amgen 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. | Amgen Inc.'s adjusted ROE improved from 2015 to 2016 but then deteriorated significantly from 2016 to 2017. |
| Adjusted ROA | A profitability ratio calculated as adjusted net income divided by adjusted total assets. | Amgen Inc.'s adjusted ROA improved from 2015 to 2016 but then deteriorated significantly from 2016 to 2017. |
Adjusted Net Profit Margin
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| As Reported | ||||||
| | Net income (USD $ in millions) | |||||
| | Product sales (USD $ in millions) | |||||
| | Net profit margin1 | % | % | % | % | % |
| Adjusted for Deferred Taxes | ||||||
| | Adjusted net income (USD $ in millions) | |||||
| | Adjusted net profit margin2 | % | % | % | % | % |
2017 Calculations
1 Net profit margin = 100 × Net income ÷ Product sales
= 100 × ÷ = %
2 Adjusted net profit margin = 100 × Adjusted net income ÷ Product sales
= 100 × ÷ = %
| Ratio | Description | The company |
|---|---|---|
| Adjusted net profit margin | An indicator of profitability, calculated as adjusted net income divided by total revenue. | Amgen Inc.'s adjusted net profit margin improved from 2015 to 2016 but then deteriorated significantly from 2016 to 2017. |
Adjusted Financial Leverage
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| As Reported | ||||||
| | Total assets (USD $ in millions) | |||||
| | Stockholders' equity (USD $ in millions) | |||||
| | Financial leverage1 | |||||
| Adjusted for Deferred Taxes | ||||||
| | Adjusted stockholders' equity (USD $ in millions) | |||||
| | Adjusted financial leverage2 | |||||
2017 Calculations
1 Financial leverage = Total assets ÷ Stockholders' equity
= ÷ =
2 Adjusted financial leverage = 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. |
Amgen Inc.'s adjusted financial leverage increased from 2015 to 2016 and from 2016 to 2017. |
Adjusted Return on Equity (ROE)
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| As Reported | ||||||
| | Net income (USD $ in millions) | |||||
| | Stockholders' equity (USD $ in millions) | |||||
| | ROE1 | % | % | % | % | % |
| Adjusted for Deferred Taxes | ||||||
| | Adjusted net income (USD $ in millions) | |||||
| | Adjusted stockholders' equity (USD $ in millions) | |||||
| | 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. | Amgen Inc.'s adjusted ROE improved from 2015 to 2016 but then deteriorated significantly from 2016 to 2017. |
Adjusted Return on Assets (ROA)
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| As Reported | ||||||
| | Net income (USD $ in millions) | |||||
| | Total assets (USD $ in millions) | |||||
| | ROA1 | % | % | % | % | % |
| Adjusted for Deferred Taxes | ||||||
| | Adjusted net income (USD $ in millions) | |||||
| | Adjusted ROA2 | % | % | % | % | % |
2017 Calculations
1 ROA = 100 × Net income ÷ Total assets
= 100 × ÷ = %
2 Adjusted ROA = 100 × Adjusted net income ÷ Total assets
= 100 × ÷ = %
| Ratio | Description | The company |
|---|---|---|
| Adjusted ROA | A profitability ratio calculated as adjusted net income divided by adjusted total assets. | Amgen Inc.'s adjusted ROA improved from 2015 to 2016 but then deteriorated significantly from 2016 to 2017. |
