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NVIDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
Stock−Based Compensation
Statement of Financial Accounting Standards No. 148, or SFAS No. 148, Accounting for Stock−Based Compensation − Transition
and Disclosure, amends the disclosure requirements of Statement of Financial Accounting Standards No. 123, or SFAS No. 123,
Accounting for Stock−Based Compensation, to require more prominent disclosures in both annual and interim financial statements
regarding the method of accounting for stock−based compensation and the effect of the method used on reported results.
We use the intrinsic value method, as prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, to account for our stock−based employee compensation plans. As such, compensation expense is recorded if on the date of
grant the current fair value per share of the underlying stock exceeds the exercise price per share. Compensation cost for our
stock−based compensation plans as determined consistent with SFAS No. 123, would have decreased net income to the pro forma
amounts indicated below:
Year Ended Year Ended Year Ended
January 30, January 25, January 26,
2005 2004 2003
(In thousands, except per share data)
Net income, as reported $ 100,356 $ 74,419 $ 90,799
Add: Stock−based employee compensation expense included in reported net
income, net of related tax effects 1,070 537 −−
Add: Stock option exchange expense included in reported net income, net of
related tax effects −− −− 37,285
Deduct: Compensation expense determined under fair value based method
for stock options exchanged on October 25, 2002, net of related tax effects −− −− (167,714)
Deduct: Stock−based employee compensation expense determined under
fair value based method for all awards, net of related tax effects (87,071) (74,513) (37,698)
Pro forma net income (loss) $ 14,355 $ 443 $ (77,328)
Basic net income per share − as reported $ 0.60 $ 0.46 $ 0.59
Basic net income (loss) per share − pro forma $ 0.09 $ 0.00 $ (0.50)
Diluted net income per share − as reported $ 0.57 $ 0.43 $ 0.54
Diluted net income (loss) per share − pro forma $ 0.08 $ 0.00 $ (0.50)
For the purpose of the pro forma calculation, the fair value of options granted under the our stock option plans has been estimated at
the date of grant using the Black−Scholes option pricing model with the following assumptions:
Year Ended Year Ended Year Ended
January 30, January 25, January 26,
2005 2004 2003
Weighted average expected life of stock options (in
years) 444
Risk free interest rate 3.0% 2.4% 3.8%
Volatility 75% − 80% 80% 88%
Dividend yield −− −− −−
For the first three quarters of fiscal 2005, we used a volatility factor of 80%. During the fourth quarter of fiscal 2005, we used a
volatility factor of 75%. For the purpose of the pro forma calculation, the weighted−average per share fair value of options granted
during the years ended January 30, 2005, January 25, 2004 and January 26, 2003 was approximately $14.10, $9.43 and $18.29,
respectively.
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