NVIDIA 2005 Annual Report Download - page 33

Download and view the complete annual report

Please find page 33 of the 2005 NVIDIA annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 117

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117

On October 24, 2002, the offer period ended and we were obligated to exchange approximately 18,843,000 Eligible Options for total
consideration of $61.8 million, consisting of $39.9 million in fully vested, non−forfeitable shares of our common stock (approximately
3,815,000 shares) and $21.9 million in employer and employee related taxes. The number of fully vested, non−forfeitable shares of
our common stock to be issued was determined by dividing the total consideration due (less the amount of applicable tax
withholdings) by the closing price of our common stock on October 24, 2002, of $10.46 per share.
The shares of our common stock issued in exchange for Eligible Options were fully vested. However, a portion of the shares equal to
25% of the total consideration, based on the closing price of our common stock on the offer termination date, have a six month
holding period, and a portion of the shares equal to 25% of such total consideration have a one year holding period. Withholding taxes
and other charges were deducted from the remaining 50% of the total consideration, and the shares issued after such withholding did
not have a holding restriction.
Income Taxes
We recognized income tax expense of $25.1 million, $12.3 million and $59.8 million in fiscal 2005, 2004 and 2003, respectively.
Income tax expense as a percentage of income before taxes, or our annual effective tax rate, was 20% in fiscal 2005, 14.1% in fiscal
2004 and 39.7% in fiscal 2003.
In the second quarter of fiscal 2004, we revised our annual effective tax rate for the year from 30% to 20%. The change in rate was
primarily due to federal and state tax credits and foreign tax rate differentials. In the third and fourth quarters of fiscal 2004, we had
significant items impacting our annual effective tax rate which included the $3.5 million MediaQ IPR&D write−off for which no tax
benefit was recognized, the $75.0 million income tax benefit of certain tax contingencies as a result of settlement of our federal
income tax return exam by the Internal Revenue Service, or IRS, the $38.2 million income tax expense for the accrual of United States
deferred income taxes on previous permanently reinvested foreign earnings and the $33.6 million income tax expense for the
establishment of a valuation allowance on certain previously recognized state deferred tax assets determined not more likely than not
the be realized due, in part, to projections of future taxable income. As a result of this change in rate and the special items incurred
during 2004, our annual effective tax rate for such year was 14.1%. In fiscal 2003, we did not record an income tax benefit for the
third quarter loss before income tax expense as such loss was primarily attributable to a stock compensation charge for which no
income tax benefit may have been available. As a result, our annual effective tax rate for fiscal 2003 was 39.7%.
As of January 25, 2004, the IRS closed our federal income tax return exam for our fiscal 2001 and fiscal 2002. During fiscal 2005, the
Joint Committee on Taxation, or the Joint Committee, completed its review of our IRS exam for these fiscal years and closed such
exam with no exception to the conclusions reached by the IRS. Accordingly, the results of our exam as recorded in our financial
statements for fiscal 2004 accurately reflected our final settlement reached with the IRS that was subsequently closed, without
exception, by the Joint Committee during fiscal 2005.
Please refer to Note 13 of the Notes to the Consolidated Financial Statements for further information regarding the components of our
income tax expense.
Convertible Debenture Redemption Expense
On October 24, 2003, we fully redeemed the Notes. The aggregate principal amount of the Notes outstanding was $300.0 million,
which included $18.6 million of Notes that we had purchased in the open market during the three months ended October 26, 2003.
The redemption price was equal to approximately 102.7% of the outstanding principal amount of the Notes, plus accrued and unpaid
interest up to, but excluding, the redemption date. In connection with the redemption of the Notes, we recorded a one−time charge in
fiscal 2004 of approximately $13.1 million, which included a $7.6 million redemption premium and $5.5 million of unamortized
issuance costs.
27