NVIDIA 2007 Annual Report Download - page 41

Restatement
On November 29, 2006, we restated our previously−issued financial statements for fiscal years 2004 through 2006, and for the
first quarter of fiscal 2007, together with selected financial statement items for earlier years, to correct errors related to accounting for
stock−based compensation expense. In June 2006, the Audit Committee of the Board of NVIDIA, or the Audit Committee, began a
review of our stock option practices based on the results of an internal review voluntarily undertaken by management. The Audit
Committee, with the assistance of outside legal counsel, completed its review on November 13, 2006 when the Audit Committee
reported its findings to our Board of Directors, or the Board. The review covered option grants to all employees, directors and
consultants for all grant dates during the period from our initial public offering in January 1999 through June 2006. Based on the
findings of the Audit Committee and our internal review, we identified a number of occasions on which we used an incorrect
measurement date for financial accounting and reporting purposes. These errors resulted primarily from our use during our fiscal years
2000, 2001 and 2002, of certain date selection methods discussed below which resulted in employees receiving options with stated
exercise prices lower than the market prices as measured based upon the actual grant dates. We ceased using such practices beginning
in our fiscal year 2003. The Audit Committee found that, beginning in our fiscal year 2003, we improved our stock option grant
processes and have generally granted and priced our employee stock options in an objective and consistent manner since that time.
However, for one Company−wide annual stock option grant we made in fiscal 2004, we did not finalize the number of options
allocated to each employee as of the stated grant date in May 2003, which resulted in stock−based compensation charges due to the
change in the measurement date to the date the grants were finalized. The Audit Committee's review did not identify any additional
stock−based compensation charges from measurement date issues subsequent to that fiscal 2004 grant.
As a result of the measurement date errors identified from the Audit Committee's review, through January 29, 2006, we recorded
aggregate non−cash stock−based compensation charges of $127.4 million, net of related tax effects. The errors resulted in after−tax
charges of $1.4 million and $11.7 million for our fiscal years 2006 and 2005, respectively. Additionally, the cumulative effect of the
related after−tax charges for periods prior to our fiscal year ended January 30, 2005 was $114.2 million. These additional stock−based
compensation expense charges were non−cash and had no impact on our reported revenue, cash, cash equivalents or marketable
securities for each of the restated periods. These charges were based primarily on Accounting Principles Board Opinion No. 25, or
APB No. 25, Accounting for Stock Issued to Employees (intrinsic value−based) charges and associated payroll taxes of $199.6 million
on a pre−tax basis, which were amortized over the vesting term of the stock options in accordance with Financial Accounting
Standards Board Interpretation No. 28, or FIN 28, Accounting for Stock Appreciation Rights and Other Variable Stock Option or
Award Plans. We amortized a substantial portion of these charges to expense during our fiscal years 2000 to 2006.
The types of errors we identified generally fell into the following categories:
Improper Measurement Dates for Company−Wide Annual or Retention Stock Option Grants. We determined that, in
connection with certain annual or retention stock option grants that we made to employees during our fiscal years 2000, 2001, 2002,
2003 and 2004, the final number of shares that an individual employee was entitled to receive was not determined and/or the proper
approval of the related stock option grant had not been given until after the stated grant date. Therefore, the measurement date for such
options for accounting purposes was actually subsequent to the stated grant date, resulting in new measurement dates for the related
options.
Improper Measurement Dates for Stock Option Grants during Fiscal Years 2001 and 2002. In connection with stock option
grants that we made to newly−hired employees (and, to a much lesser degree, retention grants to existing employees) during fiscal
years 2001 and 2002, our practice was to grant stock options with an exercise price based upon the lowest closing price of our
common stock in the last few days of the month of hire or the last few days of any subsequent month in the quarter of hire. The
selection of the grant date of the related option grants would be made at the end of the fiscal quarter and was based on achieving the
lowest exercise price for the affected employees. As a result of these practices, the measurement date for such options for accounting
purposes was actually subsequent to the stated grant date, resulting in new measurement dates for the related options.
Improper Measurement Dates for Stock Option Grants during Fiscal Year 2000. In connection with certain stock option grants
to newly−hired employees (and, to a much lesser degree, retention grants to existing employees) during a portion of fiscal year 2000,
our practice was to delay the selection of the related grant dates until the end of a two−month period in the fiscal quarter during which
the employees who received the grants began their employment with NVIDIA. As a result of this practice, the exercise price of the
related option grants was not determined until subsequent to the stated grant date. We also determined that, during fiscal year 2000,
we generally set the grant date and exercise price of employee option grants for new hires and promotions at the lowest price of the
last few business days of the month of their hire or promotion (or of the following month in certain two−month periods that were
chosen for an indeterminate reason). As a result of these practices, the measurement date for such options for accounting purposes was
actually subsequent to the stated grant date, resulting in new measurement dates for the related options. In addition, we also
determined that the exercise price or the number of options to be granted had not been determined, or the proper approval had not been
given, for various other miscellaneous option grants during fiscal year 2000 until after the stated grant date − resulting in new
measurement dates for accounting purposes for the related options.
34
Source: NVIDIA CORP, 10−K, March 16, 2007