Tax credit carryforward, valuation allowance

  
The following table presents the components of the deferred tax assets and liabilities (in millions):

|  |  |  |  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  |  |  |  |  |  |  |  |  |  |  |
|  | July 30, 2022 |  | July 31, 2021 |
| ASSETS |  |  |  |
| Allowance for accounts receivable and returns | $ | 90  |  |  | $ | 68  |  |
| Sales-type and direct-financing leases | 29  |  |  | 39  |  |
| Inventory write-downs and capitalization | 430  |  |  | 392  |  |
| Deferred foreign income | 210  |  |  | 164  |  |
| IPR&D and purchased intangible assets | 1,184  |  |  | 1,195  |  |
| Depreciation | 10  |  |  | —  |  |
| Deferred revenue | 1,744  |  |  | 1,526  |  |
| Credits and net operating loss carryforwards | 1,336  |  |  | 1,264  |  |
| Share-based compensation expense | 138  |  |  | 123  |  |
| Accrued compensation | 333  |  |  | 333  |  |
| Lease liabilities | 248  |  |  | 277  |  |
| Capitalized research expenditures | 149  |  |  | 303  |  |
| Other | 439  |  |  | 454  |  |
| Gross deferred tax assets | 6,340  |  |  | 6,138  |  |
| Valuation allowance | (834) |  |  | (771) |  |
| Total deferred tax assets | 5,506  |  |  | 5,367  |  |
| LIABILITIES |  |  |  |
| Goodwill and purchased intangible assets | (767) |  |  | (686) |  |
| Depreciation | —  |  |  | (46) |  |
| Unrealized gains on investments | (26) |  |  | (112) |  |
| ROU lease assets | (237) |  |  | (260) |  |
| Other | (82) |  |  | (37) |  |
| Total deferred tax liabilities | (1,112) |  |  | (1,141) |  |
| Total net deferred tax assets | $ | 4,394  |  |  | $ | 4,226  |  |

The changes in the valuation allowance for deferred tax assets are summarized as follows (in millions):

|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  |  | July 30, 2022 |  | July 31, 2021 |  | July 25, 2020 |
| Balance at beginning of fiscal year |  | $ | 771  |  |  | $ | 700  |  |  | $ | 457  |  |
| Additions |  | 84  |  |  | 91  |  |  | 279  |  |
| Deductions |  | (10) |  |  | (5) |  |  | (29) |  |
| Write-offs |  | (12) |  |  | (16) |  |  | (7) |  |
| Foreign exchange and other |  | 1  |  |  | 1  |  |  | —  |  |
| Balance at end of fiscal year |  | $ | 834  |  |  | $ | 771  |  |  | $ | 700  |  |

As of July 30, 2022, our federal, state, and foreign net operating loss carryforwards before valuation allowance for income tax purposes were $302 million, $1.1 billion, and $580 million, respectively. A significant amount of the net operating loss carryforwards relates to acquisitions and, as a result, is limited in the amount that can be recognized in any one year. If not utilized, the federal, state, and foreign net operating loss carryforwards will begin to expire in fiscal 2023. We have provided a valuation allowance of $98 million and $10 million for deferred tax assets related to foreign and state net operating losses respectively that are not expected to be realized.As of July 30, 2022, our federal, state, and foreign tax credit carryforwards for income tax purposes before valuation allowance were approximately $6 million, $1.6 billion, and $4 million, respectively. The federal tax credit carryforwards will begin to expire in fiscal 2024. The majority of state and foreign tax credits can be carried forward indefinitely. We have provided a valuation allowance of $648 million for deferred tax assets related to state and foreign tax credits carryforwards that are not expected to be realized.   
100
