Dell 2005 Annual Report Download - page 52

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London Interbank Offered Rates plus 0.41% and 0.79% for the Senior Notes and Senior Debentures, respectively. As a result of the interest
rate swap agreements, Dell's effective interest rates for the Senior Notes and Senior Debentures were 4.108% and 4.448%, respectively, for
fiscal 2006.
The interest rate swap agreements are designated as fair value hedges, and the terms of the swap agreements and hedged items are such that
effectiveness can be measured using the short-cut method defined in SFAS No. 133. The differential to be paid or received on the interest rate
swap agreements is accrued and recognized as an adjustment to interest expense as interest rates change. The difference between Dell's
carrying amounts and fair value of its long-term debt and related interest rate swaps was not material at February 3, 2006 and January 28,
2005.
NOTE 3 — Income Taxes
The provision for income taxes consists of the following:
Fiscal Year Ended
February 3, January 28, January 30,
2006 2005 2004
(in millions)
Current:
Domestic $ 1,075 $ 984 $ 969
Foreign 259 209 132
Tax repatriation (benefit) charge (85) 280 —
Deferred (247) (71) (22)
Provision for income taxes $ 1,002 $ 1,402 $ 1,079
Income before income taxes included approximately $3.0 billion, $2.4 billion and $1.6 billion related to foreign operations in fiscal 2006, 2005,
and 2004, respectively. On October 22, 2004, the American Jobs Creation Act of 2004 (the "Act") was signed into law. Among other items, the
Act creates a temporary incentive for U.S. multinationals to repatriate accumulated income earned outside the U.S. at an effective tax rate of
5.25%, versus the U.S. federal statutory rate of 35%. In the fourth quarter of fiscal 2005, Dell recorded an initial estimated income tax charge of
$280 million based on the decision to repatriate $4.1 billion of foreign earnings. This tax charge included an amount relating to a drafting
oversight that Congressional leaders expected to correct in calendar year 2005. On May 10, 2005, the Department of Treasury issued further
guidance that addressed the drafting oversight. In the second quarter of fiscal 2006, Dell reduced its original estimate of the tax charge by
$85 million as a result of the guidance issued by the Treasury Department. As of February 3, 2006, Dell had completed the repatriation of the
expected $4.1 billion in foreign earnings.
Deferred taxes have not been provided on excess book basis in the amount of approximately $5.7 billion in the shares of certain foreign
subsidiaries because these basis differences are not expected to reverse in the foreseeable future and are essentially permanent in duration.
These basis differences arose primarily through the undistributed book earnings of the subsidiaries that Dell intends to reinvest indefinitely. The
basis differences could reverse through a sale of the subsidiaries, the receipt of dividends from the subsidiaries as well as various other events.
Net of available foreign tax credits, residual income tax of approximately $1.6 billion would be due upon a reversal of this excess book basis.
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