Cisco 2007 Annual Report Download - page 72

2007 Annual Report 75
Notes to Consolidated Financial Statements
The Company paid income taxes of $1.655 billion, $1.642 billion, and $1.266 billion in fiscal 2007, 2006, and 2005, respectively. Income
before provision for income taxes consists of the following (in millions):
Years Ended July 28, 2007 July 29, 2006 July 30, 2005
United States $ 3,160 $ 2,685 $ 7,028
International 6,301 4,948 1,008
Total $ 9,461 $ 7,633 $ 8,036
The items accounting for the difference between income taxes computed at the federal statutory rate and the provision for income taxes
consists of the following:
Years Ended July 28, 2007 July 29, 2006 July 30, 2005
Federal statutory rate 35.0% 35.0% 35.0%
Effect of:
State taxes, net of federal tax benefit 2.0 1.8 1.8
Foreign income at other than U.S. rates (12.8) (8.7) (6.7)
Tax credits (2.2) (0.6) (0.3)
Tax audit settlement — (1.6) (1.4)
Other, net 0.5 1.0 0.2
Total 22.5% 26.9% 28.6%
In December 2006, the Tax Relief and Health Care Act of 2006 reinstated the U.S. federal R&D tax credit, retroactive to January 1, 2006.
As a result, the tax provision rate for the year ended July 28, 2007 included a tax benefit of approximately $60 million related to the
U.S. federal R&D tax credit attributable to fiscal 2006 R&D expenses.
The tax provision rate for fiscal 2006 included a benefit of approximately $124 million from the favorable settlement of a tax audit in a
foreign jurisdiction. During the fourth quarter of fiscal 2005, the Internal Revenue Service completed its examination of the Company’s federal
income tax returns for the fiscal years ended July 25, 1998 through July 28, 2001. Based on the results of the examination, the Company
decreased previously recorded tax reserves by approximately $110 million and decreased income tax expense by a corresponding
amount. This decrease to the provision for income taxes was offset by increases to the provision for income taxes of $57 million related to
a fourth quarter fiscal 2005 intercompany restructuring of certain of the Company’s foreign operations and $70 million related to the effect
of U.S. tax regulations effective in fiscal 2005 that require intercompany reimbursement of certain share-based compensation expenses.
U.S. income taxes and foreign withholding taxes associated with the repatriation of earnings of foreign subsidiaries were not provided
for on a cumulative total of $16.3 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 United States 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.
As a result of certain employment and capital investment actions and commitments, the Company’s income in certain countries is
subject to reduced tax rates, and in some cases is wholly exempt from tax. These tax incentives expire in whole or in part at various times
through fiscal 2025.
The following table presents the breakdown between current and noncurrent net deferred tax assets (in millions):
July 28, 2007 July 29, 2006
Current $ 1,953 $ 1,604
Noncurrent 989 915
Total $ 2,942 $ 2,519
As of July 28, 2007, the noncurrent net deferred tax assets in the table above consist of $1.060 billion of noncurrent net deferred tax assets
included in other assets and $71 million of foreign noncurrent deferred tax liabilities included in other long-term liabilities. As of July 29, 2006,
the noncurrent net deferred tax assets in the table above consist of $983 million of noncurrent net deferred tax assets included in other
assets and $68 million of foreign noncurrent deferred tax liabilities included in other long-term liabilities.