Cisco 2006 Annual Report Download - page 71

74 Cisco Systems, Inc.
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 29, 2006 July 30, 2005 July 31, 2004
Federal statutory rate 35.0% 35.0% 35.0%
Effect of:
State taxes, net of federal tax benefit 1.8 1.8 1.8
Foreign income at other than U.S. rates (8.7) (6.7) (8.3)
Tax audit settlement (1.6) (1.4) —
Other, net 0.4 (0.1) 0.4
Total 26.9% 28.6% 28.9%
The tax provision rate for scal 2006 included a benet of approximately $124 million from the favorable settlement of a tax audit in a foreign
jurisdiction. During the fourth quarter of scal 2005, the Internal Revenue Service completed its examination of the Company’s federal
income tax returns for the scal years ended July 25, 1998 through July 28, 2001. Based on the results of the examination, the Company
has 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 scal 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 scal 2005 that require intercompany reimbursement of certain stock-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 $11.1 billion of undistributed earnings for certain foreign subsidiaries. The Company intends to reinvest these
earnings indenitely 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 scal 2025.
The following table presents the breakdown between current and noncurrent net deferred tax assets (in millions):
July 29, 2006 July 30, 2005
Current $ 1,604 $ 1,475
Noncurrent 915 1,308
Total $ 2,519 $ 2,783
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.
Notes to Consolidated Financial Statements