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Both Amgen and Gilead are fully disclosed the income tax information according to GAAP requirements. Both companies recorded income tax in financial statement such as income statement and specified the detailed components of income taxes. Amgen recorded income tax based on pretax income, applicable tax rate and tax planning opportunities available in various jurisdictions. Gilead’s income provision was computed under liability method. Both companies is using single-step format and specified the operating income, but Amgen was recorded in millions while Gilead was recorded in thousands.
In the footnote, both Amgen and Gilead distinguished the income tax by time (current and deferred) and grade (federal, state and foreign). They also distinguished tax assets from tax liability. Not only they both stated the effective tax rate for year 2011, but also they disclosed the effective rate in 2010 and 2009. I think Amgen was more informative in this part. Gilead used a chart to disclose the difference between the provision for income taxes and the amount computed by applying U.
S federal statuary income tax rate to income before provision of income taxes.
Amgen used footnote 18 to talk about how the effective tax rate come from. From this footnote, I can see how significant the Puerto Rico exercise tax rate to the total effective tax rate. Moreover, Amgen disclosed the AOCI in a chart to specify the income tax expense or benefit for unrealized gains and losses and the related reclassification adjustment to income for cash flow hedge. If I need to analysis income tax, first I need to know what method the company use to record the income tax.
For example, Gilead’s income provision was computed under liability method.
Second, I need to know what is the effective tax rate, including the previous tax rate. For example, in Amgen’s report, it stated that because the Puerto Rico excise tax, it resulted to a timing difference between the expense and applicable tax and benefited the provision for income taxes. In addition, the chart of Amgen stated how the effective tax rate came out is also very helpful for us to analysis the importance of this factor. Third, the previous fiscal year accounting policy and the expected future policy are also important.
If the accounting policy is consistent, then it is easy to estimate and analysis the company’s performance this fiscal year. Both Amgen and Gilead disclosed the effective tax rate for year 2010 and 2009. Amgen stated that the Puerto Rico excise tax is scheduled to be expired in 2016. Last not the least I need to look the deferred tax, which can influence the future performance. The chart distinguish the deferred tax asset from deferred tax liability is helpful. If possible, I also need to know the difference between the income tax expense and income payable is permanent or temporary, and the detailed category, which lead to timing difference.
I think both Gilead and Amgen gave a lot of useful information for investors to analysis. For example, in Gilead’s report, it disclosed three-year income tax provision and the effective tax rate. I found that in 2010, the income tax was 20% more than that in 2011 and 2009, but the income tax rate was not differing a lot. It brought me a question why it differed and thus influence my analysis about the company. For Amgen, it listed four-year accumulated other comprehensive income components.
In the report, the four components were foreign currency translation, cash flow hedge, available for sale securities and other. Not only could I see the change of income tax in three year, but also I could see the components of the AOCI and their changes. I think the effective income rate for Amgen need to be adjusted since Amgen’s income tax rate was 11. 3%, comparing to Gilead’s 23. 5%. The higher the income rate, the higher the income tax provision and the lower the net income. In order to make two companies comparable, the income statement of Amgen needs to increase the income tax and lower the net income.
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