NVIDIA 2003 Annual Report Download - page 67

NVIDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The tax effect of temporary differences that gives rise to significant portions of the deferred tax assets are
presented below:
January 26,
2003
January 27,
2002
(in thousands)
Net operating loss carryforwards ............................................ $ 57,868 $ 141,882
Accruals and reserves, not currently deductible for tax purposes ................... 10,243 202
Property, equipment and intangible assets ..................................... 5,733 226
Research and other tax credit carryforwards ................................... 87,265 46,060
Total gross deferred tax assets .............................................. 161,109 188,370
Less valuation allowance .................................................. (106,663) (104,036)
Net deferred tax assets .................................................... $ 54,446 $ 84,334
For the fiscal year ended January 27, 2002, the Company established a valuation allowance on deferred tax
assets of $104.0 million, which was increased to $106.7 million for the fiscal year ended January 26, 2003. The
valuation allowance for both fiscal years 2002 and 2003 is attributable to certain net operating loss and tax credit
carryforwards resulting from the exercise of employee stock options. The tax benefit of these net operating loss
and tax credit carryforwards, when realized, will be accounted for as a credit to stockholders’ equity.
The Company has not established a deferred tax liability on a cumulative total of approximately
$344.6 million of undistributed earnings as of as of January 26, 2003 for certain non-U.S. subsidiaries as the
Company intends to reinvest these earnings indefinitely in operations outside the United States.
As of January 26, 2003, the Company had a federal net operating loss carryforward of approximately
$157.1 million and cumulative state net operating loss carryforwards of approximately $90.0 million. The
federal net operating loss carryforward will expire beginning in fiscal year 2023 and the state net operating loss
carryforwards will begin to expire in fiscal year 2008 according to the rules of the particular state. As of January
26, 2003, the Company had federal research and experimentation tax credit carryforwards of approximately
$49.0 million that will begin to expire in fiscal year 2019. The research and experimentation tax credit
carryforward attributable to states is approximately $42.1 million of which approximately $40.0 million is
attributable to the State of California and may be carried over indefinitely, and approximately $2.1 million is
attributable to various other states and will expire beginning in fiscal year 2018 according to the rules of the
particular state. The Company has other California state tax credit carryforwards of approximately $3.6 million
that will begin to expire in fiscal year 2010. Utilization of net operating losses and tax credit carryforwards may
be subject to limitations due to ownership changes and other limitations provided by the Internal Revenue Code
and similar state provisions. If such a limitation applies, the net operating loss and tax credit carryforwards may
expire before full utilization.
Note 11—Microsoft Agreement
On March 5, 2000, we entered into an agreement with Microsoft (the “Microsoft Agreement”) in which we
agreed, under certain terms and conditions, to develop and sell processors for use in the Xbox video game
console. The terms of the Microsoft Agreement also state that in the event that an individual or corporation
makes an offer to purchase shares equal to or greater than thirty percent (30%) of the outstanding shares of the
Company’s common stock, Microsoft has first and last rights of refusal to purchase the stock. In April 2000,
Microsoft paid us $200.0 million under the Microsoft Agreement as an advance against processor purchases and
for licensing our technology. This advance was fully utilized by purchases made by Microsoft through the quarter
ended April 28, 2002 and Microsoft is currently paying in advance for processor chipsets sold to it.
65