Cisco 2009 Annual Report Download - page 74

Notes to Consolidated Financial Statements
14. Income Taxes
(a) Provision for Income Taxes
The provision for income taxes consists of the following (in millions):
Years Ended July 25, 2009 July 26, 2008 July 28, 2007
Federal:
Current $ 1,615 $ 2,384 $ 1,979
Deferred (397) (693) (554)
1,218 1,691 1,425
State:
Current 132 173 344
Deferred (30) (62) (68)
102 111 276
Foreign:
Current 386 418 427
Deferred (147) (17) —
239 401 427
Total $ 1,559 $ 2,203 $ 2,128
The Company paid income taxes of $1.4 billion, $2.8 billion, and $1.7 billion in fiscal 2009, 2008, and 2007, respectively. Income before
provision for income taxes consists of the following (in millions):
Years Ended July 25, 2009 July 26, 2008 July 28, 2007
United States $ 1,650 $ 3,044 $ 3,160
International 6,043 7,211 6,301
Total $ 7,693 $ 10,255 $ 9,461
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 25, 2009 July 26, 2008 July 28, 2007
Federal statutory rate 35.0% 35.0% 35.0%
Effect of:
State taxes, net of federal tax benefit 1.3 0.9 2.0
Foreign income at other than U.S. rates (18.9) (16.1) (12.8)
Tax credits (2.4) (0.8) (2.2)
Tax audit settlement —(1.6) —
Transfer pricing adjustment related to share-based compensation 2.3 ——
Nondeductible compensation 2.6 1.8 0.6
International realignment —2.2 —
Other, net 0.4 0.1 (0.1)
Total 20.3% 21.5% 22.5%
In the fourth quarter of fiscal 2009, the U.S. Court of Appeals for the Ninth Circuit overturned a 2005 U.S. Tax Court ruling in Xilinx, Inc. v.
Commissioner. The decision impacts the tax treatment of share-based compensation expenses for the purpose of determining intangible
development costs under a company’s research and development cost sharing arrangement. While Cisco was not a named party to the
case, the decision resulted in a change in the Company’s tax benefits recognized in its financial statements, which included a related tax
charge of approximately $174 million in the provision for income taxes, or an impact of 2.3 percentage points as presented in the preceding
table. In addition, a decrease was recorded to additional paid-in capital for $550 million. This case is subject to further appeal.
The tax provision in fiscal 2009 also included a net tax benefit of $106 million, related to the R&D tax credit for fiscal 2008, as a result of
the Tax Extenders and Alternative Minimum Tax Relief Act of 2008 which reinstated the U.S. federal R&D tax credit retroactive to January 1,
2008. The tax provision in fiscal 2008 included tax expense of $229 million related to the intercompany realignment of certain of the
Company’s foreign operations during the third and fourth quarters of fiscal 2008. The tax provision in fiscal 2008 also included a net tax
benefit of $162 million related to a settlement of certain tax matters with the IRS during the first quarter of fiscal 2008. The tax provision for
fiscal 2007 included a tax benefit of approximately $60 million related to the R&D tax credit attributable to fiscal 2006 R&D as a result of the
reinstatement of the U.S. federal R&D tax credit by the Tax Relief and Health Care Act of 2006.
72 Cisco Systems, Inc.