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80 Cisco Systems, Inc.
Notes to Consolidated Financial Statements
As of July 26, 2008, $2.1 billion of the unrecognized tax benefits would affect the effective tax rate if realized. The Company’s policy to
include interest and penalties related to income taxes, including unrecognized tax benefits, within the provision for income taxes did not
change as a result of implementing FIN 48. As of the date of adoption of FIN 48, the Company had accrued $183 million in income taxes
payable for the payment of interest and penalties. As of July 26, 2008, the Company had accrued $166 million in income taxes payable for
the payment of interest and penalties, of which $8 million was recorded to the provision for income taxes during fiscal 2008. The Company
is no longer subject to U.S. federal income tax audit for returns covering tax years through fiscal year 2001. With limited exceptions, the
Company is no longer subject to state and local or foreign income tax audits for returns covering tax years through fiscal year 1997.
Although timing of the resolution of audits is highly uncertain, the Company does not believe it is reasonably possible that the total amount
of unrecognized tax benefits as of July 26, 2008 will materially change in the next 12 months.
(c) Deferred Tax Assets and Liabilities
The following table presents the breakdown between current and noncurrent net deferred tax assets (in millions):
July 26, 2008 July 28, 2007
Deferred tax assets—current $ 2,066 $ 1,953
Deferred tax assets—noncurrent 1,770 1,060
Deferred tax liabilities—noncurrent (80) (71)
Total net deferred tax assets $ 3,756 $ 2,942
The components of the deferred tax assets and liabilities are as follows (in millions):
July 26, 2008 July 28, 2007
ASSETS
Allowance for doubtful accounts and returns $ 256 $ 330
Sales-type and direct-financing leases 93 111
Inventory write-downs and capitalization 239 222
Investment provisions 420 245
In-process R&D, goodwill, and purchased intangible assets 343 344
Deferred revenue 1,304 1,056
Credits and net operating loss carryforwards 602 651
SFAS 123(R) share-based compensation expense 603 520
Accrued compensation 226 234
Other 831 532
Gross deferred tax assets 4,917 4,245
Valuation allowance (118) (118)
Total deferred tax assets 4,799 4,127
LIABILITIES
Purchased intangible assets (709) (881)
Unremitted earnings of foreign subsidiaries — (100)
Unrealized gains on investments (47) (60)
Depreciation (195) (73)
Other (92) (71)
Total deferred tax liabilities (1,043) (1,185)
Total net deferred tax assets $ 3,756 $ 2,942