NVIDIA 2011 Annual Report Download - page 90

NVIDIA CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The tax effect of temporary differences that gives rise to significant portions of the deferred tax assets and liabilities are presented below:
January 30,
2011 January 31, 2010
(In thousands)
Deferred tax assets:
Net operating loss carryforwards $ 40,128 $ 33,955
Accruals and reserves, not currently deductible for tax purposes 14,997 14,027
Property, equipment and intangible assets 39,765 35,282
Research and other tax credit carryforwards 255,111 193,528
Stock-based compensation 37,701 40,202
Gross deferred tax assets 387,702 316,994
Less: valuation allowance (148,016) (113,442)
Total deferred tax assets 239,686 203,552
Deferred tax liabilities:
Unremitted earnings of foreign subsidiaries (275,509) (211,778)
Net deferred tax asset (liability) $ (35,823) $ (8,226)
We recognized income tax expense (benefit) of $18.0 million, $(14.3) million, and $(12.9) million during fiscal years 2011, 2010 and 2009,
respectively. Income tax expense (benefit) as a percentage of income (loss) before taxes, or our annual effective tax rate, was 6.7% in fiscal year 2011, 17.4%
in fiscal year 2010 and 30.0% in fiscal year 2009.
Our effective tax rate on income or loss before tax for the fiscal years was lower than the United States federal statutory rate of 35% due to income or
loss earned in jurisdictions where the tax rate is lower than the United States federal statutory tax rate of 35%, favorable recognition in these fiscal years of the
U.S. federal research tax credit and the expiration of statues of limitations in certain non-U.S. jurisdictions for which we had not previously recognized related
tax benefits.
As of January 30, 2011, we had a valuation allowance of $148.0 million related to state and certain foreign deferred tax assets that management
determined not likely to be realized due, in part, to projections of future taxable income and potential utilization limitations of tax attributes acquired as a
result of stock ownership changes. To the extent realization of the deferred tax assets becomes more-likely-than-not, we would recognize such deferred tax
asset as an income tax benefit during the period the realization occurred.
Our deferred tax assets do not include the excess tax benefit related to stock-based compensation that are a component of our federal and state net
operating loss and research tax credit carryforwards in the amount of $565.2 million as of January 30, 2011. Consistent with prior years, the excess tax benefit
reflected in our net operating loss and research tax credit carryforwards will be accounted for as a credit to stockholders’ equity, if and when realized. In
determining if and when excess tax benefits have been realized, we have elected to utilize the with-and-without approach with respect to such excess tax
benefits. We have also elected to ignore the indirect tax effects of stock-based compensation deductions for financial and accounting reporting purposes, and
specifically to recognize the full effect of the research tax credit in income from continuing operations.
As of January 30, 2011, we had a federal net operating loss carryforward of $1.24 billion, combined state net operating loss carryforwards of $862.8
million, and combined foreign net operating loss carryforwards of $68 million. The federal net operating loss carryforwards will expire beginning in fiscal
year 2021 and the state net operating loss carryforwards will begin to expire in fiscal year 2012 in accordance with the rules of each particular state. The
foreign net operating loss carryforwards, of which $61.7 million is attributable to Germany, may be carried forward indefinitely, and the remaining amount of
$6.3 million relates to other foreign jurisdictions that begin to expire in fiscal year 2012. As of January 30, 2011, we had federal research tax credit
carryforwards of $284.1 million that will begin to expire in fiscal year 2018. We have other federal tax credit carryforwards of $1.3 million that will begin to
expire in fiscal year 2012. The research tax credit carryforwards attributable to states is in the amount of $269.9 million, of which $260.3 million is
attributable to the State of California and may be carried over indefinitely, and $9.6 million is attributable to various other states and will expire beginning in
fiscal year 2012 according to the rules of each particular state. We have other state tax credit carryforwards of $4.3 million that will begin to expire in fiscal
year 2012 and other foreign tax credit carryforwards of $2.9 million that will begin to expire in fiscal year 2013. Our tax attributes, net operating loss and tax
credit carryforwards, remain subject to audit and may be adjusted for changes or modification in tax laws, other authoritative interpretations thereof, or other
facts and circumstances. Utilization of federal, state, and foreign net operating losses and tax credit carryforwards may also be subject to limitations due to
ownership changes and other limitations provided by the Internal Revenue Code and similar state and foreign tax provisions. If any such limitations apply,
the federal, states, or foreign net operating loss and tax credit carryforwards, as applicable, may expire or be denied before utilization.
As of January 30, 2011, United States federal and state income taxes have not been provided on approximately $904.3 million of undistributed
earnings of non-United States subsidiaries as such earnings are considered to be indefinitely reinvested. We have not provided the amount of unrecognized
deferred tax liabilities for temporary differences related to investments in our foreign subsidiaries as the determination of such amount is not practicable.
The Company has a tax holiday in effect for its business operations in India which will terminate in March 2011. This tax holiday provides for a lower
rate of taxation on certain classes of income based on various thresholds of investment and employment in such jurisdiction.For fiscal years 2009 through
2011, the aggregate tax savings of this holiday was approximately $2.8 million with no material per-share impact in these years or approximately $0.9 million
per year..
As of January 30, 2011, we had $121.0 million of unrecognized tax benefits, all of which would affect our effective tax rate if recognized. However,
included in the unrecognized tax benefits that would affect our effective tax rate if recognized of $121.0 million is $26.6 million and $0.2 million related to
state and foreign income tax, respectively, that, if recognized, would be in the form of a carryforward deferred tax asset that would likely attract a full
valuation allowance. The $121.0 million of unrecognized tax benefits as of January 30, 2011 consists of $46.4 million recorded in non-current income taxes
payable and $74.6 million reflected as a reduction to the related deferred tax assets.
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