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Microsoft Excel LibreOffice Calc


Analysis of Income Taxes

Difficulty: Advanced


Income Tax Accounting Policy

Applied recognizes a current tax liability for the estimated amount of income tax payable on tax returns for the current fiscal year. Deferred tax assets and liabilities are recognized for the estimated future tax effects of temporary differences between the book and tax bases of assets and liabilities. Deferred tax assets are also recognized for net operating loss and tax credit carryovers. Deferred tax assets are offset by a valuation allowance to the extent it is more likely than not that they are not expected to be realized.

Applied recognizes tax benefits from uncertain tax positions 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 benefits recognized from such positions are estimated based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Any changes in judgment related to uncertain tax positions are recognized in the Consolidated Statement of Operations in the quarter in which such change occurs. Interest and penalties related to uncertain tax positions are recognized in Applied's provision for income taxes.

Source: Applied Materials Inc., Annual Report


Income Tax Expense (Benefit)

Applied Materials Inc., income tax expense (benefit), continuing operations

USD $ in millions

Microsoft Excel LibreOffice Calc
12 months ended Oct 29, 2017 Oct 30, 2016 Oct 25, 2015 Oct 26, 2014 Oct 27, 2013 Oct 28, 2012
U.S. hidden hidden hidden hidden hidden hidden
Foreign hidden hidden hidden hidden hidden hidden
State hidden hidden hidden hidden hidden hidden
Current hidden hidden hidden hidden hidden hidden
U.S. hidden hidden hidden hidden hidden hidden
Foreign hidden hidden hidden hidden hidden hidden
State hidden hidden hidden hidden hidden hidden
Deferred hidden hidden hidden hidden hidden hidden
Provision for income taxes hidden hidden hidden hidden hidden hidden

Source: Based on data from Applied Materials 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. Applied Materials Inc.'s current declined from 2015 to 2016 and from 2016 to 2017.
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. Applied Materials 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. Applied Materials Inc.'s provision for income taxes increased from 2015 to 2016 and from 2016 to 2017.

Effective Income Tax Rate (EITR)

Applied Materials Inc., effective income tax rate (EITR) reconciliation

Microsoft Excel LibreOffice Calc
Oct 29, 2017 Oct 30, 2016 Oct 25, 2015 Oct 26, 2014 Oct 27, 2013 Oct 28, 2012
Tax provision at U.S. statutory rate hidden% hidden% hidden% hidden% hidden% hidden%
Resolutions of prior years’ income tax filings hidden% hidden% hidden% hidden% hidden% hidden%
Effect of foreign operations taxed at various rates hidden% hidden% hidden% hidden% hidden% hidden%
State income taxes, net of federal benefit hidden% hidden% hidden% hidden% hidden% hidden%
Research and other tax credits hidden% hidden% hidden% hidden% hidden% hidden%
U.S. domestic production deduction hidden% hidden% hidden% hidden% hidden% hidden%
Goodwill impairment hidden% hidden% hidden% hidden% hidden% hidden%
Share-based compensation hidden% hidden% hidden% hidden% hidden% hidden%
Other hidden% hidden% hidden% hidden% hidden% hidden%
Effective income tax rate hidden% hidden% hidden% hidden% hidden% hidden%

Source: Based on data from Applied Materials 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. Applied Materials Inc.'s effective income tax rate increased from 2015 to 2016 but then declined significantly from 2016 to 2017.

Components of Deferred Tax Assets and Liabilities

Applied Materials Inc., components of deferred tax assets and liabilities

USD $ in millions

Microsoft Excel LibreOffice Calc
Oct 29, 2017 Oct 30, 2016 Oct 25, 2015 Oct 26, 2014 Oct 27, 2013 Oct 28, 2012
Allowance for doubtful accounts hidden hidden hidden hidden hidden hidden
Inventory reserves and basis difference hidden hidden hidden hidden hidden hidden
Installation and warranty reserves hidden hidden hidden hidden hidden hidden
Accrued liabilities hidden hidden hidden hidden hidden hidden
Deferred revenue hidden hidden hidden hidden hidden hidden
Tax credits hidden hidden hidden hidden hidden hidden
Deferred compensation hidden hidden hidden hidden hidden hidden
Share-based compensation hidden hidden hidden hidden hidden hidden
Fixed assets hidden hidden hidden hidden hidden hidden
Intangible assets hidden hidden hidden hidden hidden hidden
Other hidden hidden hidden hidden hidden hidden
Gross deferred tax assets hidden hidden hidden hidden hidden hidden
Valuation allowance hidden hidden hidden hidden hidden hidden
Deferred tax assets hidden hidden hidden hidden hidden hidden
Fixed assets hidden hidden hidden hidden hidden hidden
Intangible assets hidden hidden hidden hidden hidden hidden
Undistributed foreign earnings hidden hidden hidden hidden hidden hidden
Foreign exchange 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 Applied Materials 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. Applied Materials Inc.'s gross deferred tax assets declined from 2015 to 2016 but then slightly increased 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. Applied Materials Inc.'s deferred tax assets declined 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. Applied Materials Inc.'s net deferred tax assets (liabilities) declined from 2015 to 2016 but then slightly increased from 2016 to 2017.

Deferred Tax Assets and Liabilities, Classification

Applied Materials Inc., deferred tax assets and liabilities, classification

USD $ in millions

Microsoft Excel LibreOffice Calc

Source: Based on data from Applied Materials Inc. Annual Reports

Item Description The company
Current deferred tax asset 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 asset (included in Deferred income taxes and other assets) The noncurrent portion as of the balance sheet date of the aggregate carrying amount 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 the 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. Applied Materials Inc.'s non-current deferred tax asset (included in Deferred income taxes and other assets) increased from 2015 to 2016 and from 2016 to 2017.
Current deferred tax liability (included in Accounts payable, notes payable and accrued expenses) Represents the current 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 current taxable temporary difference is a difference between the tax basis and the carrying amount of a current 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.
Non-current deferred tax liability (included in Other 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. Applied Materials Inc.'s non-current deferred tax liability (included in Other liabilities) declined from 2015 to 2016 but then slightly increased from 2016 to 2017.

Analyst Adjustments: Removal of Deferred Taxes

Applied Materials Inc., adjustments to financial data

USD $ in millions

Microsoft Excel LibreOffice Calc
Oct 29, 2017 Oct 30, 2016 Oct 25, 2015 Oct 26, 2014 Oct 27, 2013 Oct 28, 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
Less: Noncurrent deferred tax assets, net hidden hidden hidden hidden hidden hidden
Total assets (adjusted) hidden hidden hidden hidden hidden hidden
Adjustment to Current Liabilities
Current liabilities (as reported) hidden hidden hidden hidden hidden hidden
Less: Current deferred tax liabilities, net hidden hidden hidden hidden hidden hidden
Current liabilities (adjusted) hidden hidden hidden hidden hidden hidden
Adjustment to Total Liabilities
Total liabilities (as reported) hidden hidden hidden hidden hidden hidden
Less: Current deferred tax liabilities, net 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)

Applied Materials Inc., adjusted ratios

Microsoft Excel LibreOffice Calc
Oct 29, 2017 Oct 30, 2016 Oct 25, 2015 Oct 26, 2014 Oct 27, 2013 Oct 28, 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. Applied Materials Inc.'s adjusted current ratio deteriorated from 2015 to 2016 but then improved from 2016 to 2017 exceeding 2015 level.
Adjusted net profit margin An indicator of profitability, calculated as adjusted net income divided by total revenue. Applied Materials 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. Applied Materials 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.
Applied Materials 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. Applied Materials 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. Applied Materials Inc.'s adjusted ROA improved from 2015 to 2016 and from 2016 to 2017.

Adjusted Current Ratio

Microsoft Excel LibreOffice Calc
Oct 29, 2017 Oct 30, 2016 Oct 25, 2015 Oct 26, 2014 Oct 27, 2013 Oct 28, 2012
As Reported
Current assets (USD $ in millions) hidden hidden hidden hidden hidden hidden
Current liabilities (USD $ in millions) hidden hidden hidden hidden hidden hidden
Current ratio1 hidden hidden hidden hidden hidden hidden
Adjusted for Deferred Taxes
Adjusted current assets (USD $ in millions) hidden hidden hidden hidden hidden hidden
Adjusted current liabilities (USD $ in millions) 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 ÷ Adjusted 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. Applied Materials Inc.'s adjusted current ratio deteriorated from 2015 to 2016 but then improved from 2016 to 2017 exceeding 2015 level.

Adjusted Net Profit Margin

Microsoft Excel LibreOffice Calc
Oct 29, 2017 Oct 30, 2016 Oct 25, 2015 Oct 26, 2014 Oct 27, 2013 Oct 28, 2012
As Reported
Net income (USD $ in millions) hidden hidden hidden hidden hidden hidden
Net sales (USD $ in millions) hidden hidden hidden hidden hidden hidden
Net profit margin1 hidden% hidden% hidden% hidden% hidden% hidden%
Adjusted for Deferred Taxes
Adjusted net income (USD $ in millions) 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 ÷ Net sales
= 100 × hidden ÷ hidden = hidden%

2 Adjusted net profit margin = 100 × Adjusted net income ÷ Net sales
= 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. Applied Materials Inc.'s adjusted net profit margin improved from 2015 to 2016 and from 2016 to 2017.

Adjusted Total Asset Turnover

Microsoft Excel LibreOffice Calc
Oct 29, 2017 Oct 30, 2016 Oct 25, 2015 Oct 26, 2014 Oct 27, 2013 Oct 28, 2012
As Reported
Net sales (USD $ in millions) hidden hidden hidden hidden hidden hidden
Total assets (USD $ in millions) hidden hidden hidden hidden hidden hidden
Total asset turnover1 hidden hidden hidden hidden hidden hidden
Adjusted for Deferred Taxes
Adjusted total assets (USD $ in millions) hidden hidden hidden hidden hidden hidden
Adjusted total asset turnover2 hidden hidden hidden hidden hidden hidden

2017 Calculations

1 Total asset turnover = Net sales ÷ Total assets
= hidden ÷ hidden = hidden

2 Adjusted total asset turnover = Net sales ÷ 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. Applied Materials Inc.'s adjusted total asset turnover improved from 2015 to 2016 and from 2016 to 2017.

Adjusted Financial Leverage

Microsoft Excel LibreOffice Calc
Oct 29, 2017 Oct 30, 2016 Oct 25, 2015 Oct 26, 2014 Oct 27, 2013 Oct 28, 2012
As Reported
Total assets (USD $ in millions) hidden hidden hidden hidden hidden hidden
Stockholders’ equity (USD $ in millions) hidden hidden hidden hidden hidden hidden
Financial leverage1 hidden hidden hidden hidden hidden hidden
Adjusted for Deferred Taxes
Adjusted total assets (USD $ in millions) hidden hidden hidden hidden hidden hidden
Adjusted stockholders’ equity (USD $ in millions) 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.
Applied Materials Inc.'s adjusted financial leverage increased from 2015 to 2016 and from 2016 to 2017.

Adjusted Return on Equity (ROE)

Microsoft Excel LibreOffice Calc
Oct 29, 2017 Oct 30, 2016 Oct 25, 2015 Oct 26, 2014 Oct 27, 2013 Oct 28, 2012
As Reported
Net income (USD $ in millions) hidden hidden hidden hidden hidden hidden
Stockholders’ equity (USD $ in millions) hidden hidden hidden hidden hidden hidden
ROE1 hidden% hidden% hidden% hidden% hidden% hidden%
Adjusted for Deferred Taxes
Adjusted net income (USD $ in millions) hidden hidden hidden hidden hidden hidden
Adjusted stockholders’ equity (USD $ in millions) 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. Applied Materials Inc.'s adjusted ROE improved from 2015 to 2016 and from 2016 to 2017.

Adjusted Return on Assets (ROA)

Microsoft Excel LibreOffice Calc
Oct 29, 2017 Oct 30, 2016 Oct 25, 2015 Oct 26, 2014 Oct 27, 2013 Oct 28, 2012
As Reported
Net income (USD $ in millions) hidden hidden hidden hidden hidden hidden
Total assets (USD $ in millions) hidden hidden hidden hidden hidden hidden
ROA1 hidden% hidden% hidden% hidden% hidden% hidden%
Adjusted for Deferred Taxes
Adjusted net income (USD $ in millions) hidden hidden hidden hidden hidden hidden
Adjusted total assets (USD $ in millions) 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. Applied Materials Inc.'s adjusted ROA improved from 2015 to 2016 and from 2016 to 2017.