NVIDIA 2006 Annual Report Download - page 74

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NVIDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
recorded as deferred costs on uncompleted contracts. If the amount billed exceeds the amount of revenue recognized, the excess
amount is recorded as deferred revenue. Revenue recognized in any period is dependent on our progress toward completion of projects
in progress. Significant management judgment and discretion are used to estimate total direct labor hours. Any changes in or
deviations from these estimates could have a material effect on the amount of revenue we recognize in any period.
Concentration of Credit Risk
Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash equivalents, marketable
securities and trade accounts receivable. Our investment policy requires the purchase of top−tier investment grade securities, the
diversification of asset type and certain limits on our portfolio duration. All marketable securities are held in our name, managed by
several investment managers and held by one major financial institution under a custodial arrangement. One customer accounted for
approximately 11% of our accounts receivable balance at January 29, 2006. We perform ongoing credit evaluations of our customers'
financial condition and maintain an allowance for potential credit losses. This allowance consists of an amount identified for specific
customers and an amount based on overall estimated exposure. Our overall estimated exposure excludes amounts covered by credit
insurance and letters of credit.
Impairment of Long−Lived Assets
In accordance with Statement of Financial Accounting Standards No. 144, or SFAS No. 144, Accounting for the Impairment or
Disposal of Long−Lived Assets, long−lived assets, such as property and equipment and intangible assets subject to amortization, are
reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated
undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future
cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the
asset. Fair value is determined based on the estimated discounted future cash flows expected to be generated by the asset. Assets and
liabilities to be disposed of would be separately presented in the consolidated balance sheet and the assets would be reported at the
lower of the carrying amount or fair value less costs to sell, and would no longer be depreciated.
Rent Expense
We recognize rent expense on a straight−line basis over the lease period and have accrued for rent expense incurred, but not paid.
Accounting for Asset Retirement Obligations
In fiscal 2004, we adopted Statement of Financial Accounting Standards No. 143, or SFAS No. 143, Accounting for Asset
Retirement Obligations, which addresses financial accounting and reporting for obligations associated with the retirement of tangible
long−lived assets and the associated asset retirement costs. SFAS No. 143 applies to legal obligations associated with the retirement of
long−lived assets that result from the acquisition, construction, development and/or normal use of the assets. SFAS No. 143 requires
that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable
estimate of fair value can be made. The fair value of the liability is added to the carrying amount of the associated asset and this
additional carrying amount is depreciated over the life of the asset. During fiscal 2005, we completed leasehold improvements at our
headquarters facility in Santa Clara, California and recorded a liability of $4.5 million to return the property to its original condition
upon lease termination in fiscal year 2013. During fiscal 2006, we continued the expansion of our international facilities, and
completed leasehold improvements at our international sites. As a result, we recorded an additional liability of $2.0 million, of which
$0.2 million relates to accretion expense, to return the properties at these sites to their original condition upon lease termination.
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