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Analysis of Income Taxes
Difficulty: Advanced
- Income Tax Accounting Policy
- Income Tax Expense (Benefit)
- Effective Income Tax Rate (EITR)
- Components of Deferred Tax Assets and Liabilities
- Deferred Tax Assets and Liabilities, Classification
- Analyst Adjustments: Removal of Deferred Taxes
- Adjusted Ratios: Removal of Deferred Taxes (Summary)
- Adjusted Current Ratio
- Adjusted Net Profit Margin
- Adjusted Total Asset Turnover
- Adjusted Financial Leverage
- Adjusted Return on Equity (ROE)
- Adjusted Return on Assets (ROA)
Income Tax Accounting Policy
Intel computes the provision for income taxes using the asset and liability method, under which deferred tax assets and liabilities are recognized for the 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. Intel measures deferred tax assets and liabilities using the currently enacted tax rates that apply to taxable income in effect for the years in which those tax assets are expected to be realized or settled.
Intel assesses the likelihood that Intel will be able to recover the deferred tax assets. If recovery is not likely, Intel must increase the provision for taxes by recording a valuation allowance against the deferred tax assets that Intel estimates will not ultimately be recoverable. Intel believes that Intel will ultimately recover the deferred tax assets recorded on the consolidated balance sheets. Recovery of a portion of Intel’s deferred tax assets is affected by management’s plans with respect to holding or disposing of certain investments; therefore, such changes could also affect the future provision for taxes.
Intel recognizes tax benefits from uncertain tax positions only if (based on the technical merits of the position) it is more likely than not that the tax positions will be sustained on examination by the tax authority. The tax benefits recognized in the financial statements from such positions are measured based on the largest amount that is more than 50% likely to be realized upon ultimate settlement. Intel recognizes interest and penalties related to unrecognized tax benefits within the provision for taxes on the consolidated statements of income.
Intel has recorded provisional estimates associated with the December 22, 2017 enactment of the U.S. Tax Cuts and Jobs Act (Tax Reform). The SEC has provided accounting and reporting guidance that allows Intel to report provisional amounts within a measurement period up to one year due to the complexities inherent in adopting the changes. Intel considers both the recognition of the transition tax and the remeasurement of deferred income taxes incomplete. New guidance from regulators, interpretation of the law, and refinement of Intel’s estimates from ongoing analysis of data and tax positions may change the provisional amounts.
The transition tax is based on Intel’s total post-1986 foreign earnings and profits that were previously deferred from U.S. taxation. Intel has not yet completed the substantiation of the underlying data and therefore the taxable base estimates may change. The estimates of foreign tax credits may also change as Intel substantiates tax credits claimed. Further, the transition tax is based in part on the amount of foreign earnings held in cash and other liquid assets. The transition tax may change as Intel more precisely calculates amounts held in liquid and illiquid assets at the various measurement dates. If the final tax outcome of these matters is different than provisional amounts, its will impact the provision for income taxes and the effective tax rate in the period recorded.
Intel recognizes the tax impact of including certain foreign earnings in U.S. taxable income as a period cost. Intel has not recognized deferred income taxes for local country income and withholding taxes that could be incurred on distributions of certain non-U.S. earnings or for outside basis differences in the subsidiaries, because Intel plans to indefinitely reinvest such earnings and basis differences. Remittances of non-U.S. earnings are based on estimates and judgments of projected cash flow needs, as well as the working capital and investment requirements of Intel’s non-U.S. and U.S. operations. Material changes in Intel’s estimates of cash, working capital, and investment needs in various jurisdictions could require repatriation of indefinitely reinvested non-U.S. earnings, which could be subject to applicable non-U.S. income and withholding taxes.
Source: 10-K (filing date: 2018-02-16).
Income Tax Expense (Benefit)
Intel Corp., income tax expense (benefit), continuing operations
USD $ in millions
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Based on: 10-K (filing date: 2018-02-16), 10-K (filing date: 2017-02-17), 10-K (filing date: 2016-02-12), 10-K (filing date: 2015-02-13), 10-K (filing date: 2014-02-14).
| Item | Description | The company |
|---|---|---|
| Current provision for taxes | Amount of current income tax expense (benefit) pertaining to taxable income (loss) from continuing operations. | Intel Corp.’s current provision for taxes declined from 2015 to 2016 but then increased from 2016 to 2017 exceeding 2015 level. |
| Deferred provision for taxes | Amount of deferred income tax expense (benefit) pertaining to income (loss) from continuing operations. | Intel Corp.’s deferred provision for taxes increased from 2015 to 2016 but then slightly declined from 2016 to 2017 not reaching 2015 level. |
| Provision for taxes | Amount of current income tax expense (benefit) and deferred income tax expense (benefit) pertaining to continuing operations. | Intel Corp.’s provision for taxes declined from 2015 to 2016 but then increased from 2016 to 2017 exceeding 2015 level. |
Effective Income Tax Rate (EITR)
Intel Corp., effective income tax rate (EITR) reconciliation
Based on: 10-K (filing date: 2018-02-16), 10-K (filing date: 2017-02-17), 10-K (filing date: 2016-02-12), 10-K (filing date: 2015-02-13), 10-K (filing date: 2014-02-14).
| Item | Description | The company |
|---|---|---|
| Effective tax rate | Percentage of current income tax expense (benefit) and deferred income tax expense (benefit) pertaining to continuing operations. | Intel Corp.’s effective tax rate increased from 2015 to 2016 and from 2016 to 2017. |
Components of Deferred Tax Assets and Liabilities
Intel Corp., components of deferred tax assets and liabilities
USD $ in millions
Based on: 10-K (filing date: 2018-02-16), 10-K (filing date: 2017-02-17), 10-K (filing date: 2016-02-12), 10-K (filing date: 2015-02-13), 10-K (filing date: 2014-02-14).
| Item | Description | The company |
|---|---|---|
| Gross deferred tax assets | Amount before allocation of valuation allowances of deferred tax asset attributable to deductible temporary differences and carryforwards. | Intel Corp.’s gross deferred tax assets increased from 2015 to 2016 but then declined significantly from 2016 to 2017. |
| Deferred tax assets | Amount after allocation of valuation allowances of deferred tax asset attributable to deductible temporary differences and carryforwards. | Intel Corp.’s deferred tax assets increased from 2015 to 2016 but then declined significantly from 2016 to 2017. |
| Net deferred tax assets (liabilities) | Amount, after allocation of valuation allowances and deferred tax liability, of deferred tax asset attributable to deductible differences and carryforwards, without jurisdictional netting. | Intel Corp.’s net deferred tax assets (liabilities) declined from 2015 to 2016 and from 2016 to 2017. |
Deferred Tax Assets and Liabilities, Classification
Intel Corp., deferred tax assets and liabilities, classification
USD $ in millions
| Dec 30, 2017 | Dec 31, 2016 | Dec 26, 2015 | Dec 27, 2014 | Dec 28, 2013 | ||
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Based on: 10-K (filing date: 2018-02-16), 10-K (filing date: 2017-02-17), 10-K (filing date: 2016-02-12), 10-K (filing date: 2015-02-13), 10-K (filing date: 2014-02-14).
| Item | Description | The company |
|---|---|---|
| Non-current deferred tax assets | Amount, after allocation of valuation allowances and deferred tax liability, of deferred tax asset attributable to deductible differences and carryforwards, with jurisdictional netting and classified as noncurrent. | Intel Corp.’s non-current deferred tax assets increased from 2015 to 2016 but then slightly declined from 2016 to 2017. |
| Non-current deferred tax liabilities | Amount, after deferred tax asset, of deferred tax liability attributable to taxable differences, with jurisdictional netting and classified as noncurrent. | Intel Corp.’s non-current deferred tax liabilities declined from 2015 to 2016 but then increased from 2016 to 2017 exceeding 2015 level. |
Analyst Adjustments: Removal of Deferred Taxes
Intel Corp., adjustments to financial data
USD $ in millions
Based on: 10-K (filing date: 2018-02-16), 10-K (filing date: 2017-02-17), 10-K (filing date: 2016-02-12), 10-K (filing date: 2015-02-13), 10-K (filing date: 2014-02-14).
Intel Corp., Financial Data: Reported vs. Adjusted
Adjusted Ratios: Removal of Deferred Taxes (Summary)
Intel Corp., adjusted ratios
Based on: 10-K (filing date: 2018-02-16), 10-K (filing date: 2017-02-17), 10-K (filing date: 2016-02-12), 10-K (filing date: 2015-02-13), 10-K (filing date: 2014-02-14).
| Ratio | Description | The company |
|---|---|---|
| Adjusted current ratio | A liquidity ratio calculated as adjusted current assets divided by adjusted current liabilities. | Intel Corp.’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. | Intel Corp.’s adjusted net profit margin deteriorated 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. | Intel Corp.’s adjusted total asset turnover deteriorated 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. |
Intel Corp.’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. | Intel Corp.’s adjusted ROE deteriorated from 2015 to 2016 and from 2016 to 2017. |
| Adjusted ROA | A profitability ratio calculated as adjusted net income divided by adjusted total assets. | Intel Corp.’s adjusted ROA deteriorated from 2015 to 2016 and from 2016 to 2017. |
Intel Corp., Ratios: Reported vs. Adjusted
Adjusted Current Ratio
Based on: 10-K (filing date: 2018-02-16), 10-K (filing date: 2017-02-17), 10-K (filing date: 2016-02-12), 10-K (filing date: 2015-02-13), 10-K (filing date: 2014-02-14).
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. | Intel Corp.’s adjusted current ratio deteriorated from 2015 to 2016 and from 2016 to 2017. |
Adjusted Net Profit Margin
Based on: 10-K (filing date: 2018-02-16), 10-K (filing date: 2017-02-17), 10-K (filing date: 2016-02-12), 10-K (filing date: 2015-02-13), 10-K (filing date: 2014-02-14).
2017 Calculations
1 Net profit margin = 100 × Net income ÷ Net revenue
= 100 × ÷ =
2 Adjusted net profit margin = 100 × Adjusted net income ÷ Net revenue
= 100 × ÷ =
| Ratio | Description | The company |
|---|---|---|
| Adjusted net profit margin | An indicator of profitability, calculated as adjusted net income divided by total revenue. | Intel Corp.’s adjusted net profit margin deteriorated from 2015 to 2016 and from 2016 to 2017. |
Adjusted Total Asset Turnover
Based on: 10-K (filing date: 2018-02-16), 10-K (filing date: 2017-02-17), 10-K (filing date: 2016-02-12), 10-K (filing date: 2015-02-13), 10-K (filing date: 2014-02-14).
2017 Calculations
1 Total asset turnover = Net revenue ÷ Total assets
= ÷ =
2 Adjusted total asset turnover = Net revenue ÷ Adjusted total assets
= ÷ =
| Ratio | Description | The company |
|---|---|---|
| Adjusted total asset turnover | An activity ratio calculated as total revenue divided by adjusted total assets. | Intel Corp.’s adjusted total asset turnover deteriorated from 2015 to 2016 and from 2016 to 2017. |
Adjusted Financial Leverage
Based on: 10-K (filing date: 2018-02-16), 10-K (filing date: 2017-02-17), 10-K (filing date: 2016-02-12), 10-K (filing date: 2015-02-13), 10-K (filing date: 2014-02-14).
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. |
Intel Corp.’s adjusted financial leverage increased from 2015 to 2016 and from 2016 to 2017. |
Adjusted Return on Equity (ROE)
Based on: 10-K (filing date: 2018-02-16), 10-K (filing date: 2017-02-17), 10-K (filing date: 2016-02-12), 10-K (filing date: 2015-02-13), 10-K (filing date: 2014-02-14).
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. | Intel Corp.’s adjusted ROE deteriorated from 2015 to 2016 and from 2016 to 2017. |
Adjusted Return on Assets (ROA)
Based on: 10-K (filing date: 2018-02-16), 10-K (filing date: 2017-02-17), 10-K (filing date: 2016-02-12), 10-K (filing date: 2015-02-13), 10-K (filing date: 2014-02-14).
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. | Intel Corp.’s adjusted ROA deteriorated from 2015 to 2016 and from 2016 to 2017. |
