NVIDIA 2009 Annual Report Download - page 120

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 and liabilities are
presented below:
January 25,
2009
January 27,
2008
(In thousands)
Deferred tax assets:
Net operating loss carryforwards $ 27,593 $ 22,814
Accruals and reserves, not currently deductible for tax purposes 26,015 20,769
Property, equipment and intangible assets 23,935 7,513
Research and other tax credit carryforwards 123,620 147,417
Stock-based compensation 55,680 36,413
Gross deferred tax assets 256,843 234,926
Less: valuation allowance (92,541) (82,522)
Total deferred tax assets 164,302 152,404
Deferred tax liabilities:
Unremitted earnings of foreign subsidiaries (223,223) (228,227)
Net deferred tax asset (liability) $ (58,921) $ (75,823)
Income tax expense (benefit) as a percentage of income (loss) before taxes, or our annual effective tax rate, was (30.0%), 11.5% and
9.4% for the years ended January 25, 2009, January 27, 2008 and January 28, 2007, respectively. The difference in the effective tax
rates amongst the three years was primarily a result of changes in our geographic mix of income subject to tax, with the additional
impact of the federal research tax credit recognized in fiscal year 2009 relative to the loss before taxes in such fiscal year.
As of January 25, 2009, we had a valuation allowance of $92.5 million. Of the total valuation allowance, $5.3 million relates to
state tax attributes acquired in certain acquisitions for which realization of the related deferred tax assets was determined not likely to
be realized due, in part, to potential utilization limitations as a result of stock ownership changes, and $87.2 million relates to state and
foreign deferred tax assets that management determined not likely to be realized due, in part, to projections of future taxable income.
To the extent realization of the deferred tax assets related to certain acquisitions becomes more-likely-than-not, recognition of these
acquired tax benefits would be reported as a reduction to income tax expense in accordance with the recent accounting
pronouncement, Statement of Financial Accounting Standards No. 141(R), or SFAS No. 141(R), Business Combinations, issued by
the FASB in December 2007. We would also recognize an income tax benefit during the period that the realization of the deferred tax
assets related to state or foreign tax benefits of $87.2 million becomes more-likely-than-not.
In accordance with Statement of Financial Accounting Standards No. 123(R), or SFAS No. 123(R), Share Based Payment, 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 $588.7 million as of January 25, 2009. 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 do a 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 25, 2009, we had a federal net operating loss carryforward of $1.16 billion, cumulative state net operating loss
carryforwards of $791.6 million, and a foreign net operating loss carryforward of $25.3 million. The federal net operating loss
carryforward will expire beginning in fiscal 2012, the state net operating loss carryforwards will begin to expire in fiscal 2010 in
accordance with the rules of each particular state, and the foreign net operating loss carryforward may be carried forward
indefinitely. As of January 25, 2009, we had federal research tax credit carryforwards of $223.0 million that will begin to expire in
fiscal 2010. We have other federal tax credit carryforwards of $1.9 million that will begin to expire in fiscal 2011. The research tax
credit carryforwards attributable to states is in the amount of $212.3 million, of which $204.8 million is attributable to the State of
California and may be carried over indefinitely, and $7.5 million is attributable to various other states and will expire beginning in
fiscal 2010 according to the rules of each particular state. We have other state tax credit carryforwards of $7.0 million that will begin
to expire in fiscal 2010. Utilization of federal and state 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. Utilization of the
foreign net operating loss may be limited due to a change in business in connection with an ownership change. 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.
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Source: NVIDIA CORP, 10-K, March 13, 2009 Powered by Morningstar® Document Research℠