Cisco 2005 Annual Report Download - page 65
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68
The components of the deferred tax assets (liabilities) are as follows (in millions):
July 30, 2005
ASSETS
$ 264
104
239
313
312
770
571
620
3,193
(85)
3,108
LIABILITIES
—
(161)
(153)
(11)
(325)
$ 2,783
Reclassifications have been made to the fiscal 2004 balances for certain components of deferred tax assets and liabilities in order to
conform to the current year’s presentation. In fiscal 2005, $450 million was reclassified from deferred tax liability to income taxes
payable, representing taxes on foreign subsidiary earnings.
The valuation allowance increased from $0 at July 31, 2004 to $85 million at July 30, 2005. Of the $85 million valuation allowance,
$53 million is attributable to acquired deferred tax assets of acquisitions for which any subsequent reduction of this valuation allowance
would be applied first to reduce goodwill and then noncurrent intangible assets of the acquired entity.
As of July 30, 2005, the Company’s federal and state net operating loss carryforwards for income tax purposes were $271
million and $2.2 billion, respectively. If not utilized, the federal net operating loss carryforwards will begin to expire in fiscal 2019,
and the state net operating loss carryforwards will begin to expire in fiscal 2006. As of July 30, 2005, the Company’s federal and state
tax credit carryforwards for income tax purposes were approximately $11 million and $548 million, respectively. If not utilized, the
federal and state tax credit carryforwards will begin to expire in fiscal 2009.
The Company’s income taxes payable for federal, state, and foreign purposes have been reduced by the tax benefits from 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. The net tax benefits from employee stock options were $35 million, $537
million, and $132 million for fiscal 2005, 2004, and 2003, respectively, and were reflected as an increase to additional paid-in capital
in the Consolidated Statements of Shareholders’ Equity.
The Company’s federal income tax returns for fiscal years ended July 27, 2002 through July 31, 2004 are under examination
by the Internal Revenue Service. The Company believes that adequate amounts have been reserved for any adjustments which may
ultimately result from these examinations.
On October 22, 2004, the American Jobs Creation Act of 2004 (the “Jobs Creation Act”) was signed into law. The Jobs
Creation Act creates a temporary incentive for U.S. corporations to repatriate accumulated income earned abroad by providing an
85 percent dividends received deduction for certain dividends from controlled foreign corporations. In the first quarter of fiscal 2006,
the Company distributed cash from its foreign subsidiaries and will report an extraordinary dividend (as defined in the Jobs Creation
Act) of $1.2 billion and a related tax liability of approximately $63 million in its fiscal 2006 federal income tax return. This amount
was previously provided for in the provision for income taxes and is included in income taxes payable. This distribution does not change the
Company’s intention to indefinitely reinvest undistributed earnings of certain of its foreign subsidiaries in operations outside the United States.
Notes to Consolidated Financial Statements