Cisco 2007 Annual Report Download - page 73

76 Cisco Systems, Inc.
Notes to Consolidated Financial Statements
The components of the deferred tax assets and liabilities are as follows (in millions):
July 28, 2007 July 29, 2006
ASSETS
Allowance for doubtful accounts and returns $ 330 $ 290
Sales-type and direct-financing leases 111 104
Inventory write downs and capitalization 222 224
Investment provisions 245 273
In-process R&D, goodwill, and purchased intangible assets 344 473
Deferred revenue 1,056 825
Credits and net operating loss carryforwards 651 526
SFAS 123(R) share-based compensation expense 520 326
Other 766 652
Gross deferred tax assets 4,245 3,693
Valuation allowance (118) (45)
Total deferred tax assets 4,127 3,648
LIABILITIES
Purchased intangible assets (881) (695)
Unremitted earnings of foreign subsidiaries (100) (100)
Unrealized gains on investments (60) (104)
Depreciation (73) (185)
Other (71) (45)
Total deferred tax liabilities (1,185) (1,129)
Total net deferred tax assets $ 2,942 $ 2,519
As of July 28, 2007, the Company’s federal, state, and foreign net operating loss carryforwards for income tax purposes were $381 million,
$1.9 billion, and $82 million, respectively. If not utilized, the federal net operating loss carryforwards will begin to expire in fiscal 2019, the
state net operating loss carryforwards will begin to expire in fiscal 2010, and the foreign net operating loss carryforwards will begin to expire
in fiscal 2012. As of July 28, 2007, the Company’s federal and state tax credit carryforwards for income tax purposes were approximately
$13 million and $596 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 option transactions were $995 million,
$454 million, and $35 million for fiscal 2007, 2006, and 2005, respectively, and are reflected as an increase to additional paid-in capital in the
Consolidated Statements of Shareholders’ Equity. The Company includes only the direct tax effects of employee stock incentive plans in
calculating this increase to additional paid-in capital.
The Company’s federal income tax returns for fiscal years ended July 27, 2002 through July 31, 2004 are under examination and the
Internal Revenue Service has proposed certain adjustments. 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
created 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 fiscal 2006, the Company distributed cash from its
foreign subsidiaries and reported 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.