Cisco 2004 Annual Report Download - page 60

U.S. income taxes and foreign withholding taxes were not provided for on a cumulative total of $4.3 billion of undistributed
earnings for certain foreign subsidiaries. The Company intends to reinvest these earnings indefinitely in its foreign subsidiaries. If these
earnings were distributed to the U.S. in the form of dividends or otherwise, or if the shares of the relevant foreign subsidiaries were
sold or otherwise transferred, the Company would be subject to additional U.S. income taxes (subject to an adjustment for foreign tax
credits) and foreign withholding taxes. Determination of the amount of unrecognized deferred income tax liability related to these
earnings is not practicable.
The components of the deferred tax assets (liabilities) are as follows (in millions):
July 31, 2004 July 26, 2003
ASSETS
Allowance for doubtful accounts and returns $ 231 $ 228
Sales-type and direct-financing leases 270 297
Loan reserves 86 123
Inventory allowances and capitalization 228 247
Investment provisions 385 654
In-process R&D, goodwill, and purchased intangible assets 469 375
Deferred revenue 1,170 899
Credits and net operating loss carryforwards 339 261
Other 541 562
Total deferred tax assets 3,719 3,646
LIABILITIES
Unremitted earnings of foreign subsidiaries (450) —
Unrealized gains on investments (100) (142)
Other (212) (53)
Total deferred tax liabilities (762) (195)
Total $ 2,957 $ 3,451
Reclassifications have been made to the fiscal 2003 balances for certain components of deferred tax assets and liabilities in order to
conform to the current year’s presentation.
The following table presents the breakdown between current and noncurrent net deferred tax assets (in millions):
July 31, 2004 July 26, 2003
Current $ 1,827 $ 1,975
Noncurrent 1,130 1,476
Total $ 2,957 $ 3,451
The noncurrent portion of the deferred tax assets is included in other assets.
As of July 31, 2004, the Company’s federal and state net operating loss carryforwards for income tax purposes were $234 million
and $17 million, respectively. If not utilized, the federal net operating loss carryforwards will begin to expire in fiscal 2010, and the
state net operating loss carryforwards will begin to expire in fiscal 2005. As of July 31, 2004, the Company’s federal and state tax
credit carryforwards for income tax purposes were $21 million and $362 million, respectively. If not utilized, the federal tax credit
carryforwards will begin to expire in fiscal 2008, and state tax credit carryforwards will begin to expire in fiscal 2005.
The Company’s income taxes payable for federal, state, and foreign purposes have been reduced by the tax benefits associated
with dispositions of employee stock options. The Company receives an income tax benefit calculated as the difference between the
fair market value of the stock issued at the time of exercise and the option price, tax effected. These benefits were credited directly
to shareholders’ equity and amounted to $537 million, $132 million, and $61 million for fiscal 2004, 2003, and 2002, respectively.
The Company’s federal income tax returns for fiscal years ended July 25, 1998 through July 28, 2001 are under examination,
and the Internal Revenue Service has proposed certain adjustments. The Company believes that adequate amounts have been reserved
for any adjustments that may ultimately result from these examinations.
2004 ANNUAL REPORT 63