NVIDIA 2007 Annual Report Download - page 42

Other Issues Identified. We also identified instances where stock option grants did not comply with applicable terms and conditions
of the stock plans from which the grants were issued. For example, two grants were made to officers of NVIDIA by the chief
executive officer under delegated authority; however, under the terms of the applicable plan, the option grant should have been made
by our Board or the Compensation Committee. There were also instances where (1) option grants were made to a small group of
employees who joined NVIDIA pursuant to a business combination, and to a few other employees in certain instances, with stated
exercise prices below the fair market value of our common stock on the actual measurement date of the related grants; and (2) option
grants were made to a few individuals who were contractors rather than employees, without recording the appropriate accounting
charges. In addition, the Audit Committee did not find any evidence that these violations were committed for improper purposes.
The following table reconciles share−based compensation previously recorded, the impact of these errors, by type, to the total
restated share−based compensation for all periods impacted:
Three
Months
Ended For the Fiscal Years Ended Total Compensation
April
30,
2006 2006 2005 2004 2003 2002 2001 2000 Expense
(In thousands)
Restatement adjustments:
Improper measurement dates for
company−wide annual or retention
stock option grants $ 1,860 $ 5,719 $17,468 $ 31,387 $ 27,051 $ 21,390 $ 9,230 $ 1,177 $ 115,282
Improper measurement dates for
stock option grants during fiscal
years 2001 and 2002 115 233 2,039 6,239 32,082 23,079 6,454 − 70,241
Improper measurement dates for
stock option grants during fiscal
year 2000 (1,738) (3,163) (1,608) 1,398 2,612 5,781 4,230 726 8,238
Other issues identified (1,061) 644 518 1,345 40 2,750 699 39 4,974
Additional compensation expense (824) 3,433 18,417 40,369 61,785 53,000 20,613 1,942 198,735
Tax related effects 140 (2,023) (6,676) (14,580) (21,887) (18,477) (7,824) (723) (72,050)
Impact of restatement adjustments
on income (loss) before change in
accounting principle (684) 1,410 11,741 25,789 39,898 34,523 12,789 1,219 126,685
Cumulative effect of change in
accounting principle, net of tax (704) − − − − − − − (704)
Impact of restatement adjustments
on net income (loss) $ (1,388) $ 1,410 $11,741 $ 25,789 $ 39,898 $ 34,523 $12,789 $ 1,219 $ 125,981
Reconciliation:
Stock−based compensation, as
originally recorded $ 23,049 $ 1,096 $ 1,337 $ 672 $ (156) $ 6 $ 112 $ 662 $ 26,778
Restatement adjustments:
Additional compensation expense (824) 3,433 18,417 40,369 61,785 53,000 20,613 1,942 198,735
Stock−based compensation, as
restated $ 22,225 $ 4,529 $ 19,754 $ 41,041 $ 61,629 $ 53,006 $ 20,725 $ 2,604 $ 225,513
Critical Accounting Policies and Estimates
Management's discussion and analysis of financial condition and results of operations are based upon our consolidated financial
statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The
preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenue, cost of revenue, expenses and related disclosure of contingencies. On an on−going basis, we evaluate our
estimates, including those related to revenue recognition, accounts receivable, inventories, income taxes, and goodwill. We base our
estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values of assets and liabilities.
We believe the following critical accounting policies affect our significant judgments and estimates used in the preparation of our
consolidated financial statements. Our management has discussed the development and selection of these critical accounting policies
and estimates with the Audit Committee of our Board. The Audit Committee has reviewed our disclosures relating to our critical
accounting policies and estimates in this Annual Report on Form 10−K.
Source: NVIDIA CORP, 10−K, March 16, 2007